Hafnia Limited 2026 Q2 Earnings Call

Hello everyone. Welcome to Hafnia's second quarter 2026 financial results presentation. We will begin shortly. You will be brought through today's presentation by Hafnia CEO Mikael Skov, CFO Perry van Echtelt, Søren Winther, VP Commercial, and Thomas Andersen, EVP, Head of Investor Relations. They will be pleased to address any questions after the presentation, which will be moderated by myself, Sheena Williamson-Holt, Head of Communications at Hafnia. Should you have any questions, you can submit them via the chat function or use the raise hand function to be unmuted to ask the question verbally. Questions will be answered at the end of the presentation. During this conference call, some statements may be considered forward-looking, reflecting management's current expectations. These statements involve risks, uncertainties, and other factors, many of which are beyond Hafnia's control, that could cause actual results, performance, or plans to differ significantly from those expressed or implied.

Additionally, this conference call does not constitute an offer or solicitation to buy or sell any securities. With that, I am pleased to turn the call over to Hafnia CEO Mikael Skov.

Thank you, and hello everyone. We appreciate you joining us for Hafnia's second quarter 2026 earnings call. I am Mikael Skov, CEO of Hafnia. With me today are our CFO, Perry van Echtelt, our VP of Commercial, Søren Winther, and our EVP, Head of Investor Relations, Thomas Andersen. Our second quarter 2026 results were published earlier today and are available on Hafnia's website. On today's earnings call, I will first cover the main developments in the quarter before Søren walks through the market and Perry reviews the financials. I will then touch on our strategic initiatives before concluding the call for questions. Let us move to the next slide. Before we proceed, I would like to go through our safe harbor statement. The information discussed on this call is based on information we have today, which may include forward-looking statements that involve risks and uncertainties.

Actual results may differ materially from these statements. Nothing presented in this call should be construed as an offer to buy or sell securities. Next slide. I will start with the key highlights from the quarter. Now we go to slide number 5. The second quarter was another very strong quarter for Hafnia. The market has not yet normalized six months after the start of the conflict in the Persian Gulf. We are still experiencing disruptions to Gulf flows, and rising tensions have reestablished the Red Sea choke points, dislocating oil flows across the world. Against this backdrop, we delivered a net profit of $277.8 million, the strongest quarterly results since the third quarter of 2022. We also continued to optimize the fleet by divesting older vessels. During the second quarter, we sold one LR1, two MRs, and three Handy vessels, recording a gain on sale of $39.3 million.

In the third quarter, we completed the sale of our 50% interest in two MRs, through the joint venture with Andromeda, resulting in a $13.3 million gain for Hafnia. Let's go to the next slide. Hafnia's platform remains highly integrated with shipowning, commercial pool management, technical management, bunkering, and adjacent businesses all aligned. At quarter end, we owned 103 vessels and had nine vessels time chartered in, with an average owned fleet age of 9.7 years. Our net asset value at quarter end was approximately $4.4 billion, or around $8.89 per share, corresponding to approximately 88.47 Norwegian kroner per share. Alongside our own fleet, we commercially manage around 60 third-party vessels. Seascale Energy, our bunkering joint venture with Cargill, also continues to develop as an increasingly relevant platform in a volatile fuel and freight environment. Let's move to the next slide. Now moving to shareholder returns.

Our net loan-to-value at end of Q2 stood at 13%, decreasing from 20.2% in the previous quarter, primarily due to strong cash flow generation from both operations and vessel sales. With leverage now below the lowest threshold in our dividend framework, we will declare dividend based on the maximum payout ratio of 90% of net profit. That translates into a dividend of $250 million or $0.5003 per share. Together with the first quarter dividend, total dividends for the first half of 2026 amount to $0.788 per share, which represents an annualized yield of around 21%, based on a share price of $7.50. This is the 18th quarter in a row in which Hafnia has paid dividends, underscoring both the cash-generating quality of our platform and our commitment to returning capital. I will now hand over to Søren to take us through the industry review and outlook.

Thank you, Mikael. Let's move on to the first slide, which is slide 9. It has been six months since the conflict in the Persian Gulf began, and the market remains fragmented, with volumes East of Suezmax constrained. While the memorandum signed between the U.S. and Iran in mid-June briefly facilitated a partial reopening of the Hormuz Strait, the agreement quickly broke down, reestablishing the Middle East choke point. Alternative routes have also come under pressure, as renewed tensions involving the Yemeni Houthis have prompted vessels to avoid the Bab el-Mandeb Strait, redirecting Red Sea exports northward through the Suez Canal and Sumed pipeline. Despite these disruptions, market fundamentals remain sound.

The underlying support comes from several sources: depleted inventories that will eventually have to be replenished, longer and less efficient trade flows, increased ballast passages, continued migration of LR2s into dirty trades, and a clean tanker fleet that is effectively smaller than it was at the end of last year. Let me walk you through these dynamics in more detail. Next slide, please. Let us first look at world oil demand and crude flat price and inventories. The demand recovery is following a familiar pattern to COVID-19 in 2020, which took roughly four quarters to normalize. The IEA believes that demand bottomed out in Q2 2026 at 99.3 million barrels per day, but is expected to move back to 106 million barrels per day by Q4 this year, as crude flat price eases from the highs. The inventory picture is equally important.

Inventory levels have depleted over the past months, and we expect the eventual restocking to support ton-mile when looking ahead. The expected restocking is front-loaded. Around 260 million barrels worth of OECD stocks are expected to be rebuilt by mid-2027, with more than 100 million barrels in Q1 2027 alone. This signals stronger tanker demand. Let's move on to slide 11. The same conclusion appears when we look at the implied global inventory draws based on lost transport volumes. In the past 180 days since the start of the conflict, seaborne volumes fell by about 7.1 million barrels per day, whereas demand only fell by 3.4 million barrels per day. The remaining 3.7 million barrels per day gap was effectively supplied from inventories. In essence, the supply crunch was partially met by reduced demand and partially by stock draws.

In return of Middle East volume and the recovery of world oil demand, reversing seaboard trade volumes and drive transportation demand. This is why the inventory rebuild is central to our outlook. Let's move on to slide 12. The correlation between the supply-demand balance and earnings does not follow a historical pattern. Normally, an oil supply deficit means fewer barrels moving, causing tanker earnings to soften. This time, we saw the deepest deficit of about 5 million barrels per day in Q2, while Aframax earnings remained strong. That deficit is narrowing, and the supply deficit in Q3 stands at 2.2 million barrels per day, with a forward curve moving into surplus by Q4 and through 2027. Against that backdrop, tanker earnings are better described as easing, supported by Middle East refining activity, which is expected to return in 2027, pending on the geopolitical landscape. We move to slide 13.

Looking at daily loadings, the global clean departures have recovered meaningfully from the low point in May to 18.4 million barrels per day by the end of July, still about 10% lower than pre-crisis levels. The main pressure point has been East of Suezmax, where clean loadings bottomed out 40% below normal averages. Since then, the region has improved. How quickly further Eastern recovery continues will be one of the key variables for the clean tanker market. Meanwhile, dirty loadings followed the same trend, but with a much steeper decline. East of Suezmax dirty volumes fell from around 24 million barrels per day in February to 12.6 million barrels per day in May, and by July, volumes were still roughly 30% below pre-crisis levels. Further recovery depends on Arabian Gulf exports returning, including Iranian crude.

An additional 2 million to 3 million barrels worth of exports would create significant demand for Suezmax and Aframax vessels. Let's move on to slide 14. Oil and water follows a similar trend. Clean products on water have recovered slightly from the May lows, but remains 12% below pre-conflict levels. Risk-averse tonnages enabled increased cargo evacuation from inside the Arabian Gulf to ship-to-ship locations off the Omani and Indian coastlines, servicing increases in total transport volumes. The decrease in clean products and water is equivalent to 180 MRs, highlighting the scale of demand and volumes displaced during the disruption. Dirty products have recovered strongly, underlining the fundamental strength within this segment. We move on to slide 15. Refinery margins are also at record levels, with margins across all three major regions increasing multifold since the beginning of the conflict. U.S. Gulf has benefited the most.

It has captured and replaced a significant share of the displaced refining demand with margins up ninefold. China's lower margins are likely related to reduced government and controlled export quotas, forcing product prices to rely largely on upstream markets only. We believe the Chinese margins are set to rise due to the intermediate legalization of cheaper sanction barrels in Q2 and the gradual increase in export quotas to the international market in Q3. We expect global margins to moderate but remain healthy as forward curves support continued refinery utilization and product trade flows. We move on to slide 16. Turning into the key exporting regions. China's anticipated 2026 export quota of about 330 million barrels has a remaining balance of about 225 million barrels.

Following the removal of export restrictions on transportation fuels, actual exports have reached around 0.9 million barrels per day in August, up from 0.6 million barrels per day at the start of 2026. In essence, the foundation for increased Chinese exports is supported. However, the question mark remains if the total 2026 export volumes will meet the 2025 averages. Binding constraints remain domestic demand and inventory requirements. Russian clean products exports remain constrained by ongoing refinery disruptions caused by Ukrainian drone strikes, removing exports of about 0.8 million barrels per day. Western freight markets increasingly rely on U.S. Gulf and Nigerian export volumes, supporting Atlantic ton-miles in general. Slide 17, please. Turning to tanker supply. Over the past year, the tanker market has faced five major shocks: COVID-19, the Russia-Ukraine war, the Panama drought, the Houthi Red Sea disruption, and now the Hormuz blockade.