DHT Holdings Inc (DHT) 2008 Q4 法說會逐字稿

Good afternoon, and welcome to the DHT fourth-time Maritime quarter 2008 earnings conference call hosted by Eirik Uboe. My name is Liz, and I'll be your coordinator for today's call. Throughout the conference, you will be on listen-only; however, at the end of the call, you will have the opportunity to ask questions. (Operator Instructions).

I will now hand over to Eirik to begin today's call.

Thank you and welcome. Good morning, everybody, to the Q4 conference call. Before we get started, I'd just like to make the following remarks. This conference call is also being broadcast on our website at dhtmaritime.com and a replay of this conference call will be available on the website. In addition, a Form 6-K evidencing this news release will be filed with the SEC.

As a reminder, this conference call contains forward-looking statements that are governed by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which include statements regarding DHT's prospects; the outlook for tanker markets in general; expectations regarding daily charter hire rates and vessel utilization; forecast of world economic activity; oil prices and oil trading patterns; expectations regarding seasonal fluctuations in tanker demand; anticipated levels of new building and scrapping; and projected drydocking schedules involve risks and uncertainties that are more fully described in our filings made with the SEC.

Actual results may differ materially from the expectations reflected in these forward-looking statements.

And with that, I would like to turn the call over to Ole Jacob Diesen, the CEO of DHT Maritime.

Thank you, Eirik. Good morning, everybody. I shall go through the business situation of DHT Maritime for the fourth quarter of 2008, while Eirik Uboe will cover the financial aspect of the period.

First of all, I am pleased to announce the Board decision to maintain the quarterly dividend of $0.30 per share. That is the same as the Company paid for the third quarter, and it includes an extraordinary dividend of $0.05 per share for the fourth quarter 2008. This is based on the strong result for the year 2008, and also including the fourth quarter, and the Company's current financial position, which we consider to be quite healthy in these uncertain world economic times.

With the balance sheet, and the steady earnings and the long-term charters to a strong counterparty like OSG, we believe the Company is well-positioned to meet the current downturn being experienced.

In general, the fourth quarter of 2008 experienced volatile shipping markets, but it benefited from a better than expected balance of supply and demand factors from the vessels in storage, following the strong contango in the market in the oil price, as well as weather delays and certain strikes in French ports. These, to some extent, offset the delivery of new buildings and the reduction in the oil production by the OPEC cuts, which reduced the oil demand, due to the uncertain economic environment and had its negative effect on the demand for transportation.

Anyhow, for DHT, 2008 has been the best year since we were established when we went public in 2005. And technically, the Company's vessels have operated well, despite a total of off-hire days of 48 days. The off-hire days reflect substantially scheduled off-hire related to mandatory special survey undertaken during the period or two of the Company's 2004 built Aframax tankers.

Unfortunately, the number of days were negatively affected by poor weather and tight yard schedules, which resulted in a little extra idle time in connection with the docking.

Market-wise, the long term fundamentals we still consider to be positive. And China, India, and the Far East emerging market will continue to remain the primary drivers in the growth of our demand, and thus the tanker demand, although at the lower growth rate than previously.

Now to offset any potential slowdown in economic activity, I think it's worthwhile to mention that China has provided strong stimulus packages for its economy and cut the interest rate several times, all to stimulate, first of all, the domestic economy.

Any growth in import of crude oil to this region is substantially transported by sea and over ever longer distances, increasing the ton mile transportation demand. So, despite the OPEC's reduction in oil production and the world economic uncertainties that reduced the demand for oil, some of the demand reduction for oil transportation and volume is offset by the longer transportation distances. And as I also said, the storage from the current oil price contango.

OPEC countries, even with the announced reduction in the oil production, are expected to continue to be the largest contributors of oil and continue to produce oil, even at the lower oil price. There is a limit, I believe, to how much OPEC will cut their production, as they are still required to meet their own national budget revenues. And this will overall support the longhaul transportation and the ton mile demand.

With the freight market now down from its peak and with a substantial number of new buildings being delivered, combined with the counterparty risk being an issue, the larger organization of tanker pools in which our vessels are participating show their benefit, not only as counterparty risk but also through better control over the tonnage supply, and positively affect the supply and demand balance.

While we may have experienced the peak of the conversion of tankers to other type of vessels, scrapping of older single hull tankers become more an alternative, ahead of the 2010 mandatory phase-out of the single hull vessels. And the commercial obsolescence is getting worse and worse, and reducing the market influence of the single hull tankers.

Combined with the exit of single hull vessels, delay in deliveries and longer voyages, including slow-steaming, port delays and storage requirements, are all factors positively influencing the freight markets under the current situation of reduction in OPEC oil production.

As to the secondhand values, the fleet values, the secondhand values are under pressure as the current credit squeeze is taking its grip and new building orders are drying up in the uncertain economic environment we are currently experiencing. DHT on its own [is very well] within its financial covenants and have a solid platform to meet the current market changes.

The charter arrangement of the Company provides the Company with a steady cash flow regardless of any negative fluctuation in the market rates below the base hire. And at all the time, the Company benefit from upside where the charters are allowed for profit-sharing or so-called additional hire over and above the base hire or threshold.

During the fourth quarter of 2008, DHT has generated additional hire under the profit-sharing arrangement to the extent of almost $9 million, which is almost 30% of the total revenue. And the base hire at the time was $22 million.

The market indications are that for the first quarter of 2009, just like Q4 of 2008, produced good earnings to the Company, including potential to earn additional hire by profit-sharing arrangements, not the least because the profit-sharing arrangement is based on a four-quarter rolling average.

I would like to mention in this case also that in the fourth quarter of 2008, the Company extended its committed charter periods with OSG by one year, then by 18 months for two ships, and one year for five ships, and overall, increasing the total time charter coverage.

With a strong balance sheet and a reasonable leverage, steady cash flow from long-term charters to a strong counterparty, a credit facility in place with amortization first commencing in 2011, and the Company's current liquidity position, we believe DHT is well-positioned to meet the slowdown and be prepared to react to selective growth opportunities, in order to create value to the shareholders in terms of return on investment and accretion to distributable cash flow, without taking undue risk as we now enter the 2009.

With this, I'd like to hand over to Eirik Uboe, the Chief Financial Officer. Eirik?

Thank you, Jacob. Q4 2008 was another very strong quarter for DHT, which provided for a record high profit-sharing on our charters. Total revenues were $30.9 million for the quarter, consisting of $22.1 million base charter hire and $8.8 million in additional hire under our profit-sharing arrangement with OSG. And we have earned additional hire each quarter since being listed on the New York Stock Exchange in October 2005.

Net income for the period was $11.9 million or $0.30 per share. The Board of Directors has declared a dividend of $0.30 per share, which will be paid on March 5 to shareholders of record on February 26.

For the quarter, DHT's VLCCs and Aframaxes achieved average time charter equivalent revenues in the commercial pools of 62,300 and 35,200 per day, respectively. This is according to data from the commercial pools. The Suezmax Overseas Newcastle achieved earnings of $55,100 per day during the quarter.

Of the additional hire, $6.2 million relates to the VLCCs; $2.3 million relates to the Aframax tankers; and $0.3 million relates to the Suezmax tankers Overseas Newcastle.

For the quarter, revenue days were 276 for the VLCCs and 320 for the Aframaxes. The Suezmax tankers had a total of 182 earning days in the quarter, and total off-hire for the quarter was 48 days, of which 46 days was related to scheduled dockings.

While the base charter hire rates for our vessels provide for stability in revenues in weak markets, the profit-sharing element gives us the benefit of sharing in the strong markets that the cyclicality of the tanker market can lead to from time to time.

For the fourth quarter of 2008, DHT's vessel expenses, including insurance costs, were $6.2 million; depreciation and amortization expenses were $6.6 million; G&A were $1.4 million; and net finance expenses were $4.8 million. The vessel expenses were negatively impacted by bunker consumption claims by the charters for two other companies' VLCCS, bunker costs related to vessels on scheduled off-hire, and a one-time cost related to a change of technical management.

And with that, I'll open up for questions.

Thank you. (Operator Instructions). Jon Chappell.

First question has to do with some comments you made both in the press release and in the call about being -- your fine with your debt covenants and then this ability to pay this $0.05 special dividend. Have you been in discussions with your banks regarding your certain covenants and, as asset values have seemed to come down over the last couple of months, what's kind of your cushion, you think, to continue to be able to pay a dividend based on current asset prices and your covenants?

Well, as the situation stand now, our ships' estimated value by the year-end was about $570 million. And we estimate that we will have no need to discuss with the bank, unless the ship values fall over 30% more.

Okay. So you would say, in your opinion, that at least the $0.25 dividend, that appears to be safe for the time being?

Well, as we have said every time, we evaluate the dividend on a quarterly basis. And we always consider the market opportunities, the Company obligation, and the market overall at that time, as you know, when we consider that the current dividend is substantially covered through the base charter hire with OSG.

Right. Okay. That's a good lead into my second question, Ole Jacob. What kind of opportunities are you seeing?

Asset prices have come down, not just in the tanker space but across the shipping spectrum. Based on your views on assets prices and time charters that are available right now, do the returns look good in any of the segments? Or does one look particularly better than the other right now?

Well, I think what we are experiencing now is -- I think that being a public company is more attractive in the marketplace today than it has been previously. What we are -- and we have, the [deal] flow is quite good, I must say, but what we do experience is a certain misalignment between -- still between the vessel values, asset values, if you will, and the share prices. So, in order to really get going, we think we have to see a better alignment between these two factors.

Because equity would have to be a big portion of the purchase price?

Well, there is -- it's not so easy to get new additional bank debt, as you know.

Right. Okay. Two more quick ones. Eirik, the operating expense run rate -- you've had a -- I guess you're starting a new run rate as far as the agreements are going on the OpEx side. What should we be looking for on a quarterly basis starting in 1Q?

As you know, the new agreement based on the market cost commenced on January 16, 2009. And just roughly speaking, we're looking at maybe the VLCCs around $11,000 a day and the Aframaxes likely north of $9,000.

Okay. And then finally, Ole Jacob, you said that the first quarter was looking like it could be a very strong quarter, or a good quarter, just like the fourth quarter was. Do you have any sense yet, have you got any information from the pools as to what the 1Q to date bookings look like?

I was expecting that question. No, you know the input from the pools, which we usually say in the press release and in the conference call, is coming really from OSG. And we have not received OSG information about the coverage of the pools this time. [USK] usually come up with their figures ahead of us. And that's why -- and we are ahead of them now.

I don't know the date, Jon, but when they release, you can see the numbers there.

But if you look at the market, the market is still good and above our base hires.

All right. Thank you very much.

Thank you for your question. Natasha Boyden.

I think Jon covered most of everything. But I had just one quick question on OpEx. Can you just give us an idea of how much the one-time charge was related in technical management in the fourth quarter?

The one-time charge for change of management?

Yes, that you had this quarter. I think you mentioned in the press release that you had a one-time cost related to change of technical management.

Yes, the charge was about $500,000, Natasha.

Okay, great. Thank you. That's helpful. You also mentioned in the release that you would have some drydockings in 2009. Can you just give us an overall idea of how much that's going to come to?

That is a little too early to actually give an [overview] on.

I think if you look at the last paragraph in the press release, Natasha, you will see some estimates on days.

You've given us days; I'm just wondering if you can give us an estimate on costs.

They said that the technical specifications for these dockings are still not completed --

Okay, so --

-- but we don't have actually a good figure to give you at this stage.

Okay. All right. So, well, do you think we'll be able to get that further into the year as we get further down?

We will get that as we get closer to the various dockings, yes.

Okay, great. And then can you just remind us what your value maintenance covenant is under your bank facility?

Yes, 120%.

That is -- it's 120% on the steel value versus the outstanding debt at the time.

Okay, that's helpful.

It's the default covenants.

Okay, great. Lastly then, just more of a sort of macro question, in terms of what influence do you think perhaps tanker contango and VLCC storage will have on the VLCC market this year? I mean, do you see it having a lasting effect for most of the year or do you think it's going to be more short-term here?

Well, I can't tell you exactly how long people wish to keep this storage going on and how much storage there will be. Frankly speaking, I think that that is a question better asked for an oil trader.

On the other hand, there is no doubt that it has a positive effect to the market at the moment. And it is expected that over 30 ships are being used as storage. So in that respect, undoubtedly a positive for the market. I can't give you the exact figures on those.

Okay, great. Well, thank you very much.

Ken Hoexter.

Just to follow on that issue of contango -- if we see a lot -- these 30 vessels start to come off, let's say, if they've been already started as storage for a year, and you've got a heavy new build in 2009, do you have increasing concern for the second-half rates? Or do you see the pace of single hulls coming out? I just want to understand how you see with the order book picking up steam in the back half of the year.

Well, historically, there has always been a market pressure whenever the ships leave their storage as a result of the contango. But yes, there will be new buildings coming. But I think also that we have to, in this context, take in a few more factors.

And one is that the single hull, although it's very hard -- I don't think anybody really can give you the exact figure as to what extent they will be phased out, but the commercial obsolescence is probably the most important factor in that regard.

And you have the situation where -- I don't think it's going to be an awful lot of delays for the 2009 deliveries, so they will come onboard. There will probably be a pressure on the market rate. And I can only, in that context, remind you that we have our ships on time charter with a base hire. And we will only be affected to the extent that our profit-sharing could conceivably go down.

But in that regard, I think we have to look to the profit-sharing and the fact that it is on a four-quarter rolling basis. So there is a good lag time there, as to what extent it will affect our profit-sharing, even if the market will have a negative pressure.

A very fair point, Ole. And that actually leads me to my next question -- is on the charters, has there -- obviously, you came up and extended the vessels, what, about a year ago now, or a couple months ago. As we get closer and closer to that 2010, 2011, are there ongoing discussions about forming any kind of new charters or are you looking to extend the options? What kind of discussions do you have at this point? Or do you wait until we get much closer to the (multiple speakers) --?

We had no discussions with OSG at this point to extend the initial charter period. The initial charter period were extended in November, as I said, for one year -- no, for 18 months for two ships, to two Aframaxes, the smaller Aframaxes, and for one year for the other five ships.

And that brings us the peak charter period -- overall, it brings us to have a time charter coverage of 4.7 years, I think? (multiple speakers) 4.5 years, I'm being corrected here. And it leaves us -- our peak charter periods at the moment are expiring in 2012 and 2013. So I think that is very positive, but we have not had any further discussion about extending the initial charter period with OSG.

All right. Great. And then the last one is just a technical one. You mentioned the number of delay days in the quarter. Has that -- the terminal strikes and the weather issues you've kind of highlighted, is that all resolved for those particular vessel sailings? Or are there still issues that you're dealing with that could cause additional delay days in this quarter?

I think there I missed -- didn't quite understand your question, frankly.

I think, Ken, I think the delay [with Lufta] was delay in connection with the dockings.

I talked about the delays specifically; they're related to the dockings. We had two ships in the dock in the third, fourth quarter. There was the two Aframaxes, 2004 built. And because the shipyard have a very tight schedule, we actually ended up laying there waiting to get into the dock by an extra week. And when we finally got into the dock, then we ended up with a situation that had bad weather and they couldn't apply the coating on the bottom. That is what I was referring to, as far as our ships are concerned.

Now, in the market overall, had a benefit, in fact, by the fact that a lot of the ships and the tankers were tied up in connection with the strikes in France, as well as tie-up in the Bosporus. And just like we have a lot of tankers that's being tied up in storage. That has all affected the market positively. And that was the general [terms].

Great. Thank you. Appreciate the time.

Thank you for your question. We currently have no further questions coming through. (Operator Instructions).

Okay, well, if we have no further questions, I will just take the opportunity to say thank you very much for getting up early. And we are pleased to talk to you and hope to talk to you again in another quarter. And I trust that we all can be very happy for our shareholders, the fact that we are providing such a nice dividend as we do now. Thank you.

Thank you.

Thank you for joining today's conference. You may now replace your handset.