Prepared remarks
Welcome to Hafnia's First Quarter 2026 Financial Results Presentation. We will begin shortly. You will be guided through today's presentation by Hafnia's CEO Mikael Opstun Skov, CFO Perry Van Echtelt, Soren Winter, Vice President, Commercial, and Thomas Anderson, Executive Vice President and Head of Investor Relations. They will be pleased to address any questions after 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'm pleased to turn the call over to Hafnia's CEO, Mikael Opstun Skov.
Thank you, and hello, everyone and thanks for joining Hafnia's First Quarter 2026 Earnings Call. I'm Mikael Opstun Skov, CEO of Hafnia. With me today are our CFO, Perry Van Echtelt, our VP of Commercial, Soren Winter, and our Head of Investor Relations, Thomas Anderson. We released our first quarter 2026 results earlier today, and you can find them on our website. On today's call, we will cover our Q1 highlights, the latest market developments, including the significant geopolitical disruptions that have shaped the quarter, and then give an update on our financial position. We will also talk on our sustainability initiatives before concluding the presentation. Let's 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. We now move to Slide #4, and let's begin with a review of our results for the quarter. The first quarter was a transformative quarter for the tanker industry largely defined by geopolitical disruption without modern precedent. The closure of the Strait of Hormuz has fundamentally reshaped global oil trade flows during the quarter. Against this backdrop, we delivered a net profit of $179.7 million, nearly 3x our first quarter 2025 result, supported by higher freight rates, which tightened tanker supply and disruptions of trading routes around the world. On our forward coverage, 73% of Q2 earnings days has been covered at $46,600 per day, supporting our expectation of a stronger second quarter. On the fleet activity side, we continue to divest older vessels during the quarter as per our fleet renewal strategy in maintaining a low average age modern fleet. Importantly, we have also announced the signing of a contract for 8 new MR newbuilds with Hyundai Heavy Industries, with delivery expected between Q3 2028 and Q2 2029. Further to that, we recently exercised 2 additional options with the same yard for delivery in 2029. This is a meaningful step in our fleet renewal strategy, locking in modern, efficient tonnage at an attractive point in the cycle, continuing our focus on modernizing the fleet and reducing average fleet age as well as strengthening our long-term earnings capacity. Let's move to the next slide. Hafnia remains the global leader in product and chemical tankers. At the end of the quarter, we owned and chartered in 118 vessels with an average fleet age of 9.6 years. Our net asset value at the end of this quarter has increased to approximately $4 billion, equivalent to $8.09 per share or about NOK 78.81. That's up from $3.5 billion at the end of the fourth quarter, driven by higher valuations across all segments and strong earnings. We continue to operate around 60 third-party vessels across 8 pools. Our c-scale energy bunkering joint venture with Cargill continues to progress steadily and even more so with recent geopolitical events. Looking ahead in 2026, we intend to wind down our Handy and LR2 pool operations. As our Handy vessels are sold, we expect to exit the Handy segment entirely, while the majority of our fleet will transition to employment under time charter arrangements. Let's move to the next slide. Turning to shareholder returns. We have now paid dividends for 17 consecutive quarters. Our net loan-to-value improved to 20.2% at the end of the first quarter, down from 24.9% at the end of 2025 and primarily driven by strong cash flow generation from both operations and vessel sales. In line with our transparent dividend policy, we are declaring an 80% payout ratio. That translates to a total cash dividend of $143.8 million or $0.2877 per share. This represents an annualized yield of 14%. For shareholders receiving dividends in Norwegian kroner, the exchange rate will be based on the value date which is 2 business days before payment. Over the last 4 quarters, our cumulative dividends totaled $365.3 million or $0.79 per share. Our total shareholder return over the last 12 months now exceeds 100%, which is a result of strong earnings, consistent dividends and meaningful share price appreciation. Soren Winter, our VP of Commercial, will now take you through the industry review and market outlook.
Thanks, Michael. The next slide, please. Let me set the scene for the market environment we are navigating. This quarter has been unlike anything we have seen in modern shipping history. So I want to walk through the key dynamics shaping the market. The headline numbers tell the story. Global observed inventories have drawn down roughly 200 million barrels between February and April 2026, with OECD on-land stocks punching 146 million barrels in April alone. The IEA cumulative deficit is projected to reach approximately 900 million barrels by September, requiring roughly 1 million barrels per day of incremental supply over a 3-year period to fully be rebuilt. On the fleet side, year-to-date, around 72 LR2 vessels have migrated into Aframax dirty trading, reducing the clean LR2 fleet by about 28%. This has effectively absorbed the bulk of 2026 newbuild deliveries. Meanwhile, since the closure of the Hormuz trade, U.S. clean product exports have surged approximately 40% from February to May, partly filling the supply gap left by the Middle East disruption. The market remains backed by fundamentals supporting continued market resilience. Most important drivers are elevated ton-miles, structural fleet tightness and a multi-quarter inventory rebuild ahead. Let me take you through the deeper detail. Next slide, please. Starting with global oil demand. In the face of global oil shortages, governments and companies are working to constrain the crisis by implementing demand-saving measures. As a result, the IEA is now projecting the first annual decline in global oil demand since 2020, with the sharpest dip coming in Q2 2026. However, projections for demand are to recover towards the year-end to approximately 106 million barrels per day, averaging around 104 million barrels per day for the full year. On the inventory levels, as mentioned, the IEA's cumulative drawdown could reach 900 million barrels by September 2026, which includes the 400 million barrels of coordinated SPR stock releases, of which only 164 million barrels have been released as of May 8. Next slide, please. Importantly, the inventory drawdown is uneven across regions with draws heavily focused in the East. The U.S. and China inventories remain balanced as the U.S. is supported by strong refinery runs for exports, while China adds to commercial stocks. The draws are concentrated in the Middle East, Asia and Europe. The Middle East is drawing heavily under direct Iranian impact, such as refinery damage and product diversion. The rest of Asia is drawing as eastbound arbitrage flows pull from regional stockpiles and Europe is drawing as Atlantic supplies mobilize exports, tightening regional balances. Next slide, please. This slide puts the current situation into historical context and further shows the unique situation we are facing. Historically, oil supply deficits have coincided with weaker freight rates due to lower cargo volumes. However, current conditions break that pattern. We have recorded supply deficits occurring alongside VLCC earnings near cycle highs. We see two possible outcomes, either freight rates correct sharply or supply rebound strongly to validate current freight levels. We expect the latter to happen: supply recovery and continued freight resilience into 2027, supported by Middle East refinery normalization, demand recovery and structural tanker market tightness from LR2 migration and sanctioned fleet attrition. The next slide, please. Apart from the closure of the Hormuz trade, another key factor behind the market disruption is the extensive damage to regional refinery capacity. Around 2 million barrels per day of Middle East refining capacity is currently offline due to war-related infrastructure damage. This includes major facilities like Jubail, BAPCO in Sitra and some ADNOC assets. While eastern refiners have indicated that even without further hostilities, full capacity won't return before Q1 2027. While consensus expects shipping to weaken post-conflict, we see continued strength if demand rebounds as forecasted, with ongoing refinery disruptions supporting elevated product flows and ton-mile demand into late 2026. The next slide, please. Looking at daily loadings. Global clean petroleum product departures are down approximately 15%, heavily concentrated in the East of Suez, driven by the Hormuz disruption and export restrictions in Far Eastern hubs. This has partly been offset by US export flows, mainly from the U.S., but not enough to fully replace the lost Eastern volumes. On the dirty side, we see a similar pattern. Global dirty petroleum product departures are down about 17%, mainly due to the collapse in Arabian Gulf crude exports. Next slide, please. We typically observe ton-mile data as a proxy for product tanker demand. However, reliable data is delayed due to prolonged voyage legs. Instead, products on water serve as the most reliable proxy for transportation demand. It's important to note that while clean petroleum product loadings are down by roughly 15%, floating cargo volumes are only down about 6%. This tells us that the actual impact on global transportation demand is milder than the headline figures suggest, meaning that vessels are spending more time on the water, effectively absorbing tonnage supply. Next slide, please. On ton-miles, the reported data shows a decline of about 10% from February to April. But as mentioned, this may not paint the most accurate picture as it's distorted by data lag and ongoing voyages not yet fully captured. Once in transit, latent voyages are reflected, and we expect the gap to narrow. What is much more telling is the ballast voyage legs hitting record highs of approximately 1,900 nautical miles in April. This means vessels are sailing further to secure their next cargo — a clear sign of repositioning inefficiency that supports a tighter supply-demand balance. Next slide, please. Turning to key exporting regions. China's anticipated 2026 export quota of 332 million barrels has a remaining balance of about 1 million barrels per day through a year representing sustained refinery export capacity. U.S. export volumes increased roughly 40% from February to May, stepping in to fill the left gap by disrupted Eastern supply. Although elevated prices have since narrowed arbitrage spreads, export flows remain resilient and continue to sustain ton-mile demand. Russian clean product exports remain constrained by ongoing refinery disruptions from Ukrainian drone strikes. Next slide, please. In the Arabian Gulf, exports have been partially offset by increased loadings via the Red Sea, particularly supported by greater utilization of the Saudi Gulf-to-Red Sea pipeline. However, this remains only a partial offset overall; regional export capacity is still materially below historical levels. Clean petroleum product exports from the Red Sea remain resilient. Next slide. Turning to tanker supply. Over the past years, the tanker markets have faced five major shocks: COVID-19, the Russia-Ukraine war, the Panama Canal disruption, the Houthi/Red Sea disruption and now the Hormuz blockade. Each shock has rerouted trade flows and added ton-miles, while replacement capacity has consistently lagged. The fleet aged 20 years and above has grown from 48 million deadweight tons in 2020 to 187 million deadweight today with 251 million projected by 2028. The scrap potential, sanctions and operational restrictions on this expanding age cohort form a durable supply anchor through the end of the decade. Next slide, please. The LR2 to Aframax migration continues to be one of the most important structural shifts in our markets. Global clean LR2 availability is now down approximately 28% year-to-date, with 72 vessels having migrated to dirty trading. This has effectively absorbed both 2026 newbuild deliveries and part of the existing clean trading tonnage. A reversal is unlikely while Aframax economics remain this strong. This migration is materially tightening clean tanker supply and reinforcing the overall tonnage constraint. Next slide, please. On the order book and scrapping landscape, the known newbuild program through 2029 for Handy to LR2 consists of approximately 54 million deadweight tons with LR2s accounting for a large proportion. Against that, potential scrapping of older vessels and sanctioned tonnage totaled 79 million deadweight tonnes over 2026 to 2029. Here, we assume that the sanctioned fleet above 20 years is unlikely to reenter mainstream trading. Despite available yard slots for 2029 and 2030, any new order would arrive late in the cycle, structurally capping net fleet growth. Next slide. When preparing this material, the Hormuz trade remained closed and leaving 124 laden and 33 ballast tankers carrying approximately 96 million barrels worth of dirty petroleum products and 18 million barrels worth of clean petroleum products trapped within the region. Stranded tonnage materially tightens global supply conditions and underscores the constrained state of the market. Moving on to the last slide. In summary, while the timing and trajectory of geopolitical developments in the Middle East remain difficult to predict, we remain constructive on the strength of the underlying market fundamentals. As countries continue to draw down on inventories, the eventual reopening of the Hormuz trade and recovery in Eastern refinery operations could trigger a meaningful multi-quarter inventory rebuilding cycle, providing strong underlying support for tanker demand and resilient freight rates. I'm now handing over to Perry, our CFO, who will bring you through our financial developments.
Thanks, Soren. Next slide, please. Q1 2026 was our strongest quarter since the end. TCE income reached $282.5 million, up from $218.8 million in the first quarter of '25. Adjusted EBITDA came in at $198.6 million compared to $125.1 million for Q1 2025. Fee-based business contributed $7.1 million and we've also earned $9.9 million in dividend income from our investment in Tor. Therefore, net profit was $179.7 million, nearly triple Q1 2025, and this quarter also included $32.5 million in gains on the vessels that we sold in the quarter. Return on equity for Q1 reached 29.5% on an annualized basis. And return on invested capital was 22.7%, both the highest levels we've recorded in the trailing five quarters. If we move to the balance sheet on the next page. Our net debt decreased from $932 million to $797 million driven by strong operational cash flow and the proceeds from vessel sales. Our net LTV ratio improved meaningfully from 24.9% at the end of Q4 to 20.2% as vessel valuations continue to rise. Cash flow was steady, and we received proceeds from these vessel sales. We continue to maintain a strong liquidity profile with total liquidity standing at approximately $660 million, comprising $146 million in cash and $550 million in undrawn credit facilities. With our newbuild program consisting of 10 MRs, the chart on the bottom right reflects our expected CapEx commitments for these newbuilds. We expect to incur approximately $80 million in Q2 2026 on progress payments and most of the remaining CapEx is concentrated in 2028. We then move to the operating summary on the next page. The first quarter TCE rates showed significant improvement across most segments. Our fleet-wide average TCE reached $30,327 per day, while our average spot rates were $31,543 per day. On the dry-docking side, Q1 had 214 off-hire days, significantly less than those that we had experienced in 2025 overall. And we still expect some dry-docking in 2026, but the number of off-hire days will decrease meaningfully in the second half of this year. The strength of the current market is clearly visible in our forward coverage — as you can see from the graph, our covered rates for Q2 are significant improvements from the previous quarters, supporting our expectation that Q2 will be significantly stronger than Q1. Then with that, let's move to the next slide. As of May 13, we have secured 73% of Q2 earning days at an average rate of $46,600 per day. For Q2 through Q4 2026, we have 39% of earning days covered at $38,281 per day. These rates are well above our operational cash flow breakeven and reflect the extraordinary rate environment that we're in. Based on these coverage levels, looking at the current earnings scenarios, for full year 2026, the range is from $700 million to $1 billion in net income, depending on the scenario. Michael, over to you for the next slides.
Thank you for that. Move on to the next slide. Let me now turn to Hafnia's sustainability strategy and targets. As a global leader in the product tanker segment, we take our role in shaping the maritime ecosystem seriously. We maintain the highest operational and environmental standards and are committed to making a positive impact. Our targets remain unchanged: a 40% reduction in fleet carbon intensity by 2028, net zero emissions by 2050 and Zero Harm across our operations. We continue to invest in our people with a target of 40% women in our offices by 2030. Next slide, please. Here, we showcased some of our strategic initiatives. On digital, we have recently commenced the deployment of an enterprise AI platform that integrates conversational AI, workflow analytics, and automation to transform operational data into faster and more informed decision-making. Initial applications are very encouraging, having already improved response time across commercial and finance workflows. We believe the platform has significant potential to scale across Hafnia as adoption accelerates into 2026 and 2027. Next slide. Looking ahead, we remain encouraged by the fundamentals of the product tanker market. While periods of disruption and volatility often translate into stronger earnings for tanker companies, it is important that we do not lose sight of the human impact of these events. At the end of the quarter, nearly 200 tankers and thousands of seafarers remain unable to transit the Strait. The safety and well-being of our own crews as well as those across the industry remain our foremost priority. The outlook nevertheless remains highly uncertain and depends largely on the duration of the Hormuz disruption and the time required for oil production and global refinery operations to recover. Despite this backdrop, I remain highly confident in Hafnia's commercial expertise and operational agility to respond to evolving market dynamics and capture opportunities as they arise. With that, our presentation concludes. I'd now like to open the call for questions.
Questions and answers
I see, Pat, you have your hand up. Can I ask you to unmute yourself, please?
My first question is to Michael, I guess, on the 10 MR newbuilds. I think this is the first time we've made a major newbuild investment — I can't recall at least one in a few years. So I guess in prior discussions we discussed newbuild investments, and in the past, of course, it was more about uncertainty about future fuels, long lead times at the yards. So the question is really about what's changed now? And what makes you feel this is the right time to take an order for newbuilds?
Thank you for that, Pat. And yes, it is true that we have previously said that we wanted to wait for more opportune timing when it came to newbuilds. But I think our conclusion on this has been that we've sold quite a lot of secondhand ships, older vessels. We sold them at very strong prices, which basically reflect the depreciated value of a newbuild today. So in other words, we have been selling older tonnage, and now we are taking on these 10 MR newbuilds. So we see this as kind of a normal modernization of the fleet. And the other issue that we've noticed is that the shipyards' order books seem to be full very, very far ahead — 2029 is almost full. So we're looking at 2030. We also wanted to make sure we didn't get caught up in a situation where your fleet gets older and older every year, and you still have 3 or 4 years until you can get a new ship. So it's really a combination of those factors. I mean, we would have loved to see prices being lower. But I think what justifies it, as I said, is that we sold a lot more of older vessels before we ordered the new ones at similar price levels.
Yes, makes total sense, and this shouldn't affect the dividends, right? No changes to dividends. The second question I had is on the — you mentioned that you're winding down the Handy and moving some of the LR2s into time charter. Maybe you could elaborate about that. Is that about scale or risk reduction? Or what's the reason behind that?
Thank you for that. Well, the reason really when it comes to the Handy segment is that we've seen a market that over the years actually has been shrinking rather than growing. That goes both from the demand side for Handies but also on the supply side of vessels. We had a tremendous proposition for selling the Handy ships that we had and the pricing was extremely interesting. I mean, we basically got the same price for the vessels as we bought them for as newbuilds back in 2015, and they were making a lot of money in between. So that was a consistent decision that made sense because of the price of the assets. And then by selling that, we basically were down to a small amount that we decided to dissolve the pool because the whole idea of the pool is to have scale and to utilize scale to optimize your earnings; that wasn't the case anymore. So it's a segment that's been shrinking, hence, again, why we also sold out of it. On the LR2 side, it's really a function of the fact that Hafnia doesn't have that many LR2 ships. We decided to charter out a few of those because, again, when we chartered them out it suddenly became a different scenario. It didn't make any sense to have a pool when you don't have any vessels yourself in the spot market. So the fleet we have became more of a hedging sector for us, and that's why we put them out on time charter. That could change in the future, but that's kind of the reason for the alterations and the fact that we were winding down the pool as well.
Thank you. Please unmute yourself if you have a question.
Maybe sticking with the charter coverage. As you say, Handies and LR2s are a bit smaller part of your fleet. But when I look at your charter coverage on Slide 23, it has been a very significant increase compared to your Q4 report. So I'm just wondering what you're hearing from charters. Obviously, spot rates are very compelling at the moment. But just curious for your thoughts there.
Well, you can say we have actually increased our coverage to some extent. You are sitting somewhere between 25% and 30% coverage for the half year now. And, yes, spot charter rates are compelling. But this is for us a hedge against geopolitical unrest really and a future that is very hard to predict, or at least to set a timing on the timing.
Got it. And then zooming out a bit — you mentioned migration of LR2s into the dirty trade. Do you see this state of Hormuz putting pressure on LR2s to clean up or perhaps trade dirty? On the one hand I'm thinking you have increased competition from larger tankers for some Atlantic routes, and on the other, there's less export-oriented refining capacity, which you called out in the presentation.
I think primarily the driver for the switch over has been the super strong Aframax market in the Western Hemisphere. You could say that combined with the almost closure for now meant that you have to balance very long on your voyages to pick up the next cargo where the natural home for Aframax is pretty much tested. So that has probably driven a large part of it. But I think, first and foremost, the aging part of the Aframax/ LR2 fleet combination is the key. Looking at sanctioned tonnage and the aging Aframax fleet, it looks like we will be able to build somewhere around 140 to 150 additional LR2s before you sort of catch up to the aging of the same segment. In combination, it seems natural that you will have the LR2 segment go from 250 early '25 to 230 late '25 and now down to — the last time we have it is 179 clean trading LR2s, which is a significant dent in deadweight available on the clean product segments. That is probably market disruption and the scenario that we are in now. In a reopening of Hormuz, will that change things? Well, to the extent that clean flows supersede Aframax trade, then you are likely to see ships, at least opportunistically, return into the clean trade. The only caveat to that is that it will take one or two quarters for that to happen meaningfully.
I don't actually see any more raised hands. So I am going to move into a question in the chat that we have from Fausto regarding S&P. The company has been doing a great job on the fleet renewal front. Should we expect divestitures to continue in the coming months? What is management's view of the current S&P markets? Recently, the company has expanded the fleet with newbuilds. Could management comment on the reasons for favoring new builds over secondhand tonnage? Does management currently see new builds as more attractive? Or are there opportunities in the secondhand market?
Question in the chat: The company has been doing a great job on the fleet renewal front. Should we expect divestitures to continue in the coming months? What is management's view of the current S&P markets? Recently, the company has expanded the fleet with new builds. Could management comment on the reasons for favoring new builds over secondhand tonnage? Does management currently see new builds as more attractive? Or are there a few opportunities in the secondhand market?
Yes. Thank you for that question. Well, I think the fleet renewal strategy that we have is kind of an ongoing thing. So we still have a couple of vessels in our fleet that at the right price we'd consider divesting but we have done most of the cleanup of the older tonnage — it has been done already. So we're kind of getting close to a point where what we have left is what we would like to have left. The newbuild versus secondhand — yes, I mean, I think there's two things in it. One is that we do believe that secondhand vessels here and now are very highly priced for obvious reasons because you have a very strong spot market. We're not convinced maybe that that is the right time to pay up for modern ships on the water with all the uncertainty. So the fleet renewal and the newbuild is first also about a new generation of vessels. The vessels that we get in '29 are a new design, which will have a lot more fuel savings than the older designs. So it's also a way of making sure that we continue to be on the trajectory of having modern ships with less fuel consumption and less emissions. On top of that, they deliver in 2029. And if you look at the slides in the presentation, you can see how the aging fleet is coming under severe pressure already now. The current order book is nowhere near to cover the vessels that have to be scrapped within the next four to five years. So we're also feeling that the timing of getting something in '29 could actually be at a time where there is a massive shortfall again of tonnage. So that's another thing that we have kind of factored in when we made that decision.
Okay. Thank you, Michael, and thank you, Fausto, for the question. I don't actually see any more questions in the chat, nor do I see any more raised hands. So which then means that we have come to the end of today's presentation. Thank you so much for attending Hafnia's First Quarter 2026 financial results conference call. You can find more information available online at www.hafnia.com. See you next time.