TORM PLC (NASDAQ: TRMD)

TORM's Q1 2025 revenue decreased 26% year-over-year to $329.1 million (Q1 2024: $444.1 million). This decrease was primarily due to lower freight rates in the product tanker market compared to the exceptionally strong first quarter of 2024, which benefited from geopolitical tensions and Houthi attacks against commercial vessels at the Bab al Mandeb Strait. While TCE earnings decreased to $214.0 million from $330.7 million in Q1 2024, they remained in line with levels observed in the fourth quarter of 2024.

Operating profit (EBIT) decreased 63% to $82.3 million compared to $222.7 million in Q1 2024. This decline was primarily due to reduced revenue, as the company's cost base remained relatively stable. Net profit for the quarter reached $62.9 million, representing a 70% decrease from the $209.2 million recorded in Q1 2024.

The company's adjusted EBITDA margin contracted to 41.8% in Q1 2025 from 60.2% in Q1 2024, reflecting the challenging market conditions. Despite the decrease, TORM maintained a healthy profitability level, with a Return on Invested Capital (ROIC) of 10.3% for the quarter.

Port expenses, bunkers, commissions, and other cost of goods sold for Q1 2025 were $110.4 million, a slight decrease of $1.9 million compared to $112.3 million in the same period last year. The change was attributed to decreased port and bunker expenses, offset by increased activity in the Marine Engineering segment.

By early 2025, trade volumes on routes most affected by the Red Sea disruption had declined by around one-third, which effectively negated the distance-driven ton-miles gains. Encouragingly, product tanker ton-miles began to rebound in March 2025, providing some support for freight rates toward the end of the quarter.

TORM's fleet performance in Q1 2025 reflected the broader market dynamics, with TCE rates across all vessel classes significantly lower compared to the same period in 2024. The overall TCE rate averaged $26,807 per day, a 38% decrease from $43,152 per day in Q1 2024. Despite the decrease, rates remained relatively stable compared to Q4 2024.

LR2 vessels outperformed other vessel classes with an average TCE rate of $33,806 per day, although this represented a 38% decrease from Q1 2024 levels. Available earning days for LR2 vessels increased 26% to 1,856 days, reflecting the company's fleet expansion in this segment.

LR1 vessels experienced the largest year-over-year decrease in TCE rates, with a 49% decline to $24,947 per day from $48,583 in Q1 2024. Available earning days for LR1 vessels remained relatively stable at 879 days compared to 891 days in Q1 2024.

MR vessels, which constitute the largest portion of TORM's fleet, achieved an average TCE rate of $24,675 per day, a 37% decrease from $39,121 in Q1 2024. Available earning days for MR vessels remained stable at 5,326 days.

Operating expenses across the fleet increased 9% to $7,891 per operating day, primarily due to higher costs for LR2 and MR vessels. The increase in operating expenses was partially offset by a slight decrease in costs for LR1 vessels.

In early 2025, TORM sold the 2005-built MR vessels TORM Ragnhild, TORM Resilience, and TORM Thames. Following these transactions, TORM's fleet size is currently 91 vessels. Based on broker valuations, TORM's fleet had a market value of $3,112.4 million as of March 31, 2025, 12% above carrying value.

As of March 31, 2025, TORM's total assets were $3,486.7 million, a slight increase of $17.1 million from December 31, 2024. This increase was primarily driven by a rise in cash position of $71.1 million, partially offset by a reduction in the carrying amount of vessels and capitalized dry docking of $57.4 million.

The company's equity position improved to $2,142.2 million as of March 31, 2025, compared to $2,074.8 million at the end of 2024. This increase of $67.4 million was mainly due to the retained profit from the net profit for the period of $62.9 million.

TORM's liquidity position as of March 31, 2025, stood at $679.3 million, including restricted cash of $11.2 million and undrawn credit facilities of $317.0 million. This represents an increase from $614.8 million at the end of 2024, primarily due to strong cash generation during the quarter.

The company's net interest-bearing debt was $831.7 million, with a net debt loan-to-value ratio of 27.0%. Total liabilities decreased by $50.3 million to $1,344.5 million, primarily due to reduced borrowings of $44.0 million, which mainly related to ordinary debt repayments and repayment of debt for divested vessels.

Net cash flow from operating activities for Q1 2025 was $83.1 million, a significant decrease from $186.6 million in Q1 2024, primarily due to lower net profit. Net cash flow from investing activities improved to $43.4 million, compared to -$160.9 million in the same period last year, largely due to no vessel acquisitions in Q1 2025 and proceeds from vessel sales.

Based on broker valuations, TORM's Net Asset Value (NAV) was $2,511.1 million as of March 31, 2025, equivalent to $25.7 per share. This represents a decrease from $34.5 per share at the end of Q1 2024, reflecting lower vessel valuations in the current market environment.

Clean petroleum product trade volumes in Q1 2025 fell 4% year-on-year, partly reflecting high base volumes in Q1 2024 but primarily due to weakness on trade flows most affected by the Red Sea disruption. These factors neutralized the positive ton-mile effect from the Red Sea disruption that had benefited the market in previous quarters.

Product flows on the main trade routes affected by the Red Sea disruption - Middle East/India to Europe - climbed throughout the quarter from record low levels in Q4 2024 but remained 11% below year-on-year levels. A temporary ceasefire between Israel and Hamas resulted in an increasing number of vessels transiting the Red Sea, which lowered sailing distances. However, this trend reversed as the ceasefire fell apart in March, and vessels started to avoid the Red Sea again.

Benchmark LR2 and MR rates improved quarter-on-quarter but remained significantly lower than a year ago. LR2 vessels performed better than other segments, with average TCE rates of $33,806 per day reflecting their strategic advantage in the current market environment.

Crude cannibalization increased throughout the quarter as a number of newbuilt crude tankers entered the market. Nevertheless, the levels remained significantly below the Q3 2024 peak levels. This cannibalization has been a challenge for the product tanker market, with crude tankers increasingly carrying clean petroleum products around the Cape of Good Hope.

U.S. product exports were affected by refinery maintenance and closure of the Lyondell refinery. Nevertheless, increasing utilization at the remaining refineries towards the end of the quarter resulted in strong gains in exports, mostly destined for the Americas.

Geopolitical factors are expected to continue to drive the product tanker market, with the new U.S. administration's more aggressive approach to geopolitics and trade policies adding uncertainty. While the tariffs implemented so far are not expected to have a direct effect on the product tanker market, there can be indirect effects through developments in the global economy or tighter sanctioning of Iranian and Venezuelan crude exports.

As of May 5, 2025, TORM had covered 57% of Q2 2025 earning days at an average rate of $28,026 per day. By vessel class, coverage stood at 64% for LR2s at $36,831 per day, 46% for LR1s at $29,714 per day, and 57% for MRs at $24,150 per day.

For the full year 2025, 43% of earning days have been fixed at an average rate of $27,829 per day. The remaining 57% of earning days in 2025 - equivalent to 18,454 days - remain open and subject to market fluctuations. A change in freight rates of $1,000 per day will, all else equal, impact EBITDA by approximately $18 million.

Looking ahead, TORM has narrowed its full-year 2025 guidance based on earnings realized in the first quarter and coverage for the remainder of the year. TCE earnings are now expected to be in the range of $700-900 million (2024: $1,135 million), and EBITDA is expected to be in the range of $400-600 million (2024: $851 million) based on the current fleet size.

While the weakness in European product imports resulted in lower ton-miles in Q1 2025, the closure of three refineries in Northwest Europe this year and the introduction of the Mediterranean SECA are expected to lead to higher diesel deficit. This should contribute to higher imports and ton-miles in the coming quarters.

The Board of Directors has approved an interim dividend for the first quarter of 2025 of $0.40 per share, equivalent to 62% of net profit, reflecting the company's Distribution Policy. The payment date is June 4, 2025, to all shareholders on record as of May 22, 2025.

TORM remains well-positioned to navigate the current market challenges with its modern fleet, strong balance sheet, and disciplined financial management. The company continues to focus on operational efficiency and strategic fleet management to maximize returns in the evolving product tanker market.