DHT Holdings Inc (DHT) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the DHT Maritime first quarter earnings conference call. My name is Mary and I will be your coordinator today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session toward the end of the call. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host of today's call, Mr. Eirik Uboe, Chief Financial Officer. Please proceed.

Thank you and good morning to all. Before I get started, I would like to make the following remarks. This conference call is also being broadcast on our website, 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 the issues of prospects, the outlook for tanker markets in general, expectations regarding daily charter hire rates and vessel utilization, forecasts 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 drydock schedules involve risks and uncertainties that are more fully described with our filing made with the SEC. Actual results may differ materially from expectations reflected in the forward-looking statements. And with that out of the way, I would like to turn the call to Ole Jacob Diesen, the CEO of DHT Maritime.

Good morning, everybody. I shall go through the business situation of DHT Maritime for the first quarter of 2009, while Eirik Uboe will cover the financial aspect of the period. First of all, I am pleased to announce the Board's decision to pay a quarterly dividend of $0.25 per share for the first quarter. The Board has considered the earnings, the financial strength, the financial and operating obligations as well as the risk of employments in making such decision. The important factors in this is the fact that we have a steady cash flow from the period charters with OSG. That position, we believe, should enable the Company to withstand the current downturn in the tank market and position the Company to select the growth opportunities.

The policy of employing the Company [inaudible] medium to long term charters, as we have, provides stable earnings in a volatile market and with strong downward pressure in rates from previous quarters, this is serving the Company well. Average remaining years in the current charters are four years, in excess of four years, in fact. And despite the market volatility and the downward rate pressure during the first quarter, the VLCCs that we have has an average earning of $45,400 a day on a time charter equivalent basis. The Suezmax has made $39,600 per day and Aframax is $30,200 per day. Now these rates all allow for the Company to benefit from the profit sharing arrangement under the charter parties and this profit sharing is included in the rates. The charter arrangements provide the Company with an attractive steady growth regardless of the negative fluctuation in the market rates and which push the currently the rates below the base higher than we have in our time charters. And additionally, we have the benefit from an upside where the charters allow for profit sharing or additional hire, if you will, should earnings go above the base hire or threshold.

During the first quarter 2009, DHT had generated additional hire under profit sharing arrangement to the extent of $7.3 million and that is over and above the base higher earnings which were $22.5 million for the period. Concerning the second quarter 2009, the crews in which the vessels are operating reported in mid-April that a substantial part of their capacity, they're booked at rates above the base higher even if you see today that the spot market are below our base price. Despite the current imbalance of supply and demand, from OPEC's cut in production to increase the price of the oil and the delivery of new buildings, the number of cargoes in the market are not sufficient to support the new building deliveries.

Overall, though, the long-term fundamentals, I dare say that it is for the oil and oil transportation, are still positive. Although they are, of course, suffering a setback with the world economic crisis. But when the economy again turns, China and India and the Far East, the emergent market, will continue to remain drivers of the growth of oil demand and the tanker demand. Even today with a negative growth in the OECD countries, China's growth in GDP is expected at 6% to 8% according to analysts. China is also providing stimulus packages to encourage the domestic economy and they are also pricing the oil to encourage production of the refineries which are dependent on oil import substantially coming by sea. China's oil import substantially also goes for transportation purposes which is cars and the car sales in China is still growing despite the current economic problems. Technically, the Company vessels have operated well over the period with only 13 days off hire and that is substantially related to planned off hire for the ship Overseas Rebecca.

The current financial market is encouraging cancellation on new buildings and the low freight market is enhancing the commercial obsolations of phaseout of single hull and older vessels which are due for phase out by 2010. In April, we issued 9.4 million shares and raised $38.6 million in additional equity in the [inaudible] public offering. The new capital from the offering increased the Company's liquidity to over $100 million. With the strength of the Company's balance sheet, the steady cash flow from attractive long term charges to OSG and credit facility in place with amortization in 2011, we believe the DHT is well positioned to withstand the slowdown and the downward pressure of vessel values and well positioned to attend the selective growth opportunities to create value for share holders without taking undue risk. And with this, I would like to pass it over to Eirik Uboe.

Thank you. Before getting into the first quarter numbers, I would like to discuss briefly two accounting changes that were implemented with effect from January 1, 2009 First of all, effective January 1, 2009, we will change the basis on which we prepare our financial statements from US GAAP to IFRS. The previously reported financial statements have been converted to IFRS but this did not result in any changes to our income statement for 2008. And the changes of the balance sheet both as of January 1, 2008 and December 31, 2008 are minor and immaterial. Conversion document which includes a further description of the changes, the change to IFRS will be filed as an attachment to this press release to be filed with the SEC 6-K. In addition effective January 1, 2009, we changed the way we account for interest rate swaps. No longer account for our interest rate swaps as hedges for accounting purposes. Therefore, effective January 1, 2009, changes in the fair value of the swaps and the amortization of the unrealized loss on the swaps of $26.4 million as of December 31, 2008, will be reflected in the Company's income statement and in the quarter ended March 31, 2009, non-cash expenses related to the interest rate swaps total $3.5 million, of which $2.7 million is included in interest expenses.

And with that out of the way, I will turn to the financials for the quarter. The first quarter of 2009 was another strong quarter for DHT which provided significant profit sharing under our charters. Total revenue was $29.8 million for a quarter consisting of $22.5 million in base charter hire and $7.3 million in additional hire under the profit sharing arrangements with OSG. We have earned additional hire each quarter since being listed on the New York Stock Exchange in 2005. Net income for the quarter was $6.9 million or $0.17 per share, including the non-cash financial expenses related to the interest totaling $3.5 million. Adjusted for these non-cash financial expenses, net income was $10.4 million and earnings per share was $0.26 per share. Distributable cash flow per share for the quarter was $0.43. As Ole Jacob mentioned, the Board of Director has declared a dividend of $0.25 per share which will be paid on June 16 to shareholders on record as of June 3.

For the quarter, DHT's VLCCs and Aframaxes achieved average time charter equivalent revenues in commercial pools of $45,400 and $30,200 per day, respectively. The Suezmax Overseas Newcastle achieved earnings of $39,600 pre day during the quarter. Of the additional hire, $4.6 million relates to the VLCCs, $2.3 million relates to the Aframax tankers and $0.4 million relates to the Suezmax tanker Overseas Newcastle. For the quarter, revenue days were 269 for the VLCCs and 348 for the Aframaxes. The Suezmax tankers had a total of 180 earnings days in the quarter and total off hire for the quarter was 13 days, of which 11 days relates to scheduled dockings. For the first quarter, DHT vessel expenses, including insurance costs, were $7.1 million, reflecting the new technical management contracts effective January 16, 2009. Depreciation and amortization expenses were $6.5million, G&A expenses were $1.1 million and net finance expenses were $8.3 million, including the $3.5 million in non-cash expenses related to the interest rate swaps and this is split $2.7 million in amortization of the unrealized loss included in interest expense and $0.8 million in fair value loss during the quarter. And with that, I will open up for questions.

(Operator Instructions). Your first question comes from the line of Jon Chappell from JPMorgan.

Thanks. Good afternoon, guys. Eirik, I know you have the profit share on a rolling average basis for 12 months. Without taking into account anything that's been booked so far for the second quarter is it possible to tell us what's been booked for profit share for the second quarter?

There is no profit share which is booked for the second quarter. The only thing I can make reference to is what the pools have told us of their booking for the second quarter. And beyond that, that is your porting, which is done in April. So we are not booking anything for the second quarter at this stage.

But there is a rolling average component on it so there is something from quarter's past--

Jon, we need to know the numbers for the second quarter to calculate that. But is your question really that even if it was no profit sharing potential for the second quarter would still be profit sharing in the second quarter, is that what you are asking?

Yes.

I can put that into models. I think the answer is yes but I would have to do the numbers on that. I would like to point out you may see that in OSG's reporting they reported that bookings are April 17. And the rates booked to that point which were the VLCCs was $37,000 per day for 44% of the day in the second quarter. And the Aframaxes booked 33% at $22,500. And 44% of the Suezmax space at $23,000.

We believe they there will be a portion of profit sharing for the second quarter but the exact figure at this stage, we don't know.

The reason I ask is I'm trying to determine based on the new share count the sustainability of the $0.25 dividend with or without profit share. By your estimates or calculations do you think that the dividend could be covered by cash flow even without profit share? Let's call it in the second half of 2009?

Let me come back to what we actually will be earning in the second quarter and we don't know exactly what we are earn in the second quarter yet. We think good portion of any dividend will be covered by the base charter hire.

Okay. Let me ask one more question regarding the liquidity that you have post the following offering. Are you finding tanker asset values to be offering attractive returns at this point? Or more downside and you will use those proceeds, let's call it in a few months, to potentially add to your fleet?

I think that one thing is that it's clear that the values of ships are under pressure. I think that the business opportunities going forward is not, first of all, related to exactly the values of the ships of merchants that I think will be related to special situations. You know, stress situations and workout situations and I think that's where we have a benefit with the financial flexibility.

Have you seen distressed or workout situations arise yet?

We are in fact we have a pretty good dean flow, let's put it that way at the moment.

Thank you.

Your next question comes from Noah Parquette from Cantor Fitzgerald.

Good afternoon. My question was mostly on the vessel operating expense. You had a new management contract start this year. Can you give break downs for vessel class and what the new numbers are?

I think you have to put it this way. We have two short periods at the moment from what we can draw any conclusion what the operating costs are going to be. The operating cost, in general, is quite competitive so there aren't really big differences in the operating cost. What you often see, however, is differences in what is being announced because it has an impact with or without drydocking and this kind of issues. Overall, OSG which is operating our ships are just as competitive as the ships or anybody else. It's pretty close to the same operating costs. We experiencing as you can see from the figures we do experience an increase, a substantial increase and that's a result of what has been going on in the operating cost over the last three or four years with that increasing proving in particular.

Yes, okay. Take it from the V-Ships now run the ships not OSG?

No, OSG is running the ships. What I'm trying to say is if you look at the general operators, whether they are we ships or anybody else in the third party management, these are quite competitive and all the operators are basically operating on the same level is what I'm trying to say. So it's what you see around the market is also what OSG will operate the ships for. We don't know exactly yet because we only have two and a half months of experience.

Okay. And then can you talk a little bit about the contango phenomenon? How many VLCCs do you estimate are being used for storage right now and how long do you think they'll--

We haven't made any specific assessment ourselves so we are relying on what we see in the information that's floating around and I must say that the information I see there is from 40 to 70 ships. We don't make any assessments ourselves in that particular area.

Okay. Thanks.

Thank you.

Your next question comes from the line of Seth Lowry of Merrill Lynch.

Hi, this is Seth Lowry in for Ken. If I could start off from the demand side, it seems like rates, particularly on the VLCC side, have been sliding pretty hard or consistently since the end of January. Do you see any increase in the here and now at least for an increase activity in the spot or period market that would suggest a rebound in the trends near term?

The latest information I see is that you are correct that there is a sliding in particular in the last month, I would say. There has been a slide in the stock market. On the other hand the latest information I have is certain improvement in the last couple of days in the market. Having said this, I think it's important not only to focus on the stock market and focus a little bit more on what people believe in the future and there you have to go back to the time charter market. If you look at the time charter market as it is now and reported estimation of the time charter, if you take 12 months for the VLCC and see it's at the $35,000 a day level and Suezmax is at $28,000 and Aframax is around $18,000 to $20,000 for 12 months period. And that reflects a bit more on what is anticipated in the future than to look at the stock market on a day to day basis.

Okay. Thank you. And then just two more housekeeping items. Do you have an estimated run rate on what the impact from those swaps will be running through the income statement going forward?

Yes and no. There is one element that's the amount on the balance sheet to be amortized over the remaining life of the swaps. That will be about $2.6 million per quarter. The element we don't know is the changing fair value which really depends on interest rate development. So the answer is, no, I can't give you a specific number. That would depend on interest rate development going forward.

Okay. Then lastly.

The interest rate cannot go much lower, can it really?

It's non-cash and has no real economic impact.

Fair enough. Then lastly, I see you have four vessels scheduled for off hire coming up into 2010. Are these the only vessels you have visibility on? Have you contracted any vessels to come under to go into drydocking post 2010? Or what's your visibility as far as when your vessels are coming or are those only ones you have planned?

The issue there is determined by the class and these are the ships now we are just going through that Special Class and the CAP issue for Rebecca. The other three ships coming up in 2010 are all for intermediate surveys, according to class. So in 2011 it will be a special survey for Ania and also for the Regal. That takes away into 2010.

Okay. Thank you very much.

(Operator Instructions). Your next question comes from Ben Mackovak from Rivanna Capital.

Hi, guys.

Hi.

Can you update us--do you have an estimated value for the vessels?

We don't ask for estimated values on a regular basis, particularly the values as you see them today. The ship brokers have a very difficult assess values in general because they don't have sufficient reference in sales or new building costs. But we do believe that there has been a pressure around 20% since the beginning of the year.

Okay. Thank you.

Thank you. There are no other questions at this time. I would like to hand the call back to Eirik for closing remarks.

We don't need closing remarks.

Thank you for listening.

If you passing it over to me I will just say to the people thank you very much for listening and we will talk to you again in a quarter.

Thank you.

Good-bye.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a wonderful day.