DHT Holdings Inc (DHT) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2010 DHT Holdings Incorporated earnings conference call. My name is Katina and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this presentation.

(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 for today's call, Mr. Eirik Uboe, Chief Financial Officer of DHT Holdings. Please proceed.

Thank you and good morning. Before we get started, I'd just like to make a few remarks. First of all, this conference call is also being broadcast on the website at DHTHoldings.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 the tanker market in general, expectations regarding daily chart rates and vessel utilization, forecast of world economic activity, oil price and oil trading patterns, expectations regarding seasonal fluctuations in tanker demand, anticipated levels of new building and scrapping, and projected dry dock schedules involve risks and uncertainties that are more fully described in our filings with the SEC. Actual results may differ materially from the expectations reflected in these forward-looking statements.

Also, I would like to mention that we have a new feature this quarter where we have a presentation, which we will be referring to throughout the call, and this presentation you can find on our website, DHTholdings.com under the Investor Relations link and underneath there you'll find a Webcast link. If you go to Webcast you'll see the presentation which we'll be following throughout the presentation. Also on this call in addition to myself are Randee Day, acting CEO is available or will present and also Tom Kjeldsberg, SVP of Business Development will be available for the Q&A session. With that I'll turn the call over to Randee Day, our CEO.

Thank you, Eirik and good morning everyone. We want to thank you for joining us this morning to discuss DHT's first quarter results. I'd like to start with a brief agenda for today's call. First, I will provide an overview of our announcement. Then I will turn the call over to Eirik Uboe, our CFO, who is going to give you additional details on first quarter numbers. Eirik will then turn the call back to me for a discussion of market outlook and closing comments, after which we will open the session up for questions and answers.

As you saw in our press release this morning, along with our quarterly results, we announced that the DHT Board of Directors has decided to pay a dividend for the quarter. We have declared a cash dividend of $0.10 a share, payable on June 8th, 2010, to shareholders of record as of May 31st, 2010. We know that the dividend is a subject of great interest to our shareholders, and I would like to go into the drivers that led to this recent decision.

Before we do that, however, we would like to review our top to bottom line results. We reported first quarter revenues of $22.4 million, which were derived solely from our base charters. The decrease in year-over-year revenues reflects the lack of profit share under our arrangements with OSG, the charter of our vessels. In the comparable 2009 period we realized $22.5 million from base charters, and $7.3 million in additional revenue from the profit sharing arrangement.

The Company reported a net loss of $2.2 million or $0.05 per share, which was driven largely by lower revenues, costs associated with terminating interest rate swaps related to debt prepayment, which Eirik will detail shortly, and legal expenses that were related to our corporate restructuring. Adjusted for these swap expenses, net income was $2.5 million or a positive $0.05 per share. Following our prepayment of debt, we had cash on hand at the end of the quarter of $49.4 million.

During the first quarter of 2010, we undertook significant corporate actions to better position DHT to deliver on its long-term growth strategy. First, we established a new holding Company structure, which provides us with increased financial flexibility regarding growth and capital opportunities, while also preserving for DHT Maritime the advantageous financing terms in place for its current fleet. It essentially allows us to grow the DHT business outside of the current financing structure applicable to the DHT fleet. As part of this restructuring we prepaid $28 million of debt bringing our total debt repayment since 2008 to $153 million. We now have no scheduled principal payments until the second half of 2012.

Additionally, during the first quarter, we expanded and strengthened our Board of Directors, with the addition of Mike Steimler. The appointment of Mike to our Board was the result of a thorough process which we started in 2009, designed to identify prospective directors who would add valuable experience and insight to our Board. As the Founder and former CEO of Tankers International, he brings to DHT significant commercial, operational, and industry-specific expertise. It is important to understand that all of these actions, along with the management change which resulted in me becoming acting CEO, were the result of a broader evaluation of our business that we commenced in the middle of last year, when our industry was in the midst of an unprecedented downturn. The Management and Board undertook a thorough review of our platform and operations, assessed market opportunities and growth prospects. We believe we emerged from this review with a clearer path forward. Additionally, last Friday, we announced a settlement with MMI investments, DHT's largest shareholder, which we believe is mutually beneficial. As part of that settlement, MMI has terminated its proxy contest, and DHT has expanded its Board from four to five directors, adding MMI's nominee, Robert Cowen, to the Board. Mr. Cowen, currently a shipping industry consultant, has extensive relevant experience, and we look forward to his contribution as a member of the Board.

Now I would like the to take you through our thought process regarding the dividend. Giving a little background as to why we suspended it in 2009 and why we decided to. It's important to understand that the decision to suspend the dividend was not made lightly. It was the result of a comprehensive evaluation taking into consideration an unprecedented downturn, worsening shipping market conditions, rapidly falling vessel values, and struggling capital markets and illiquidity in the financial sector.

As illustrated on slide seven, you can see the significant decline in our vessel values that occurred between 2008 and 2010, and this will serve as a background for understanding the kind of challenges we were facing at the time when we decided to suspend our dividend. The Board has made a decision this quarter to declare a dividend based upon several factors. We believe that asset values have bottomed and have recently modestly improved. We have a solid cash position of $49.4 million at the end of the quarter. And finally, our debt prepayments to RBS have pushed back the timing of any principal amortization on our loan facility until the second half of 2012. The Board will continue to evaluate the dividend on a quarterly basis, taking into account factors such as our current and projected cash flow, the strength of the shipping markets as a whole, new business opportunities, and the Company's financial commitments. As I mentioned before, the details on our asset values and our present valuation are on slide seven, and with that, I would like to turn the presentation back to Eirik Uboe.

Thank you, Randee. Revenues of $22.4 million for the quarter were derived solely from base charter hire. We earned no profit sharing in the quarter. We reported a net loss of $2.2 million, or $0.05 per share for the quarter. However, after adjusting for swap related expenses, we had net income for the quarter of $2.5 million or $0.05 per share. The swap related adjustments have two components. First, an adjustment for non-cash financial expenses, where related interest swaps of $1 million. And secondly, a cash expense of $3.7 million, relating to the early termination of part of a swap.

Free cash flow from operations after contractual debt service or net income adjusted for non-cash items was $5.8 million, or $0.12 per share. On slide nine, you can see what our ships earned under our charter agreements this first quarter. Of the $22.4 million in first quarter 2010 revenue, $17.7 million relates to the seven vessels on time charter, and $4.7 million relates to the two vessels on variable charter. In the quarter, the VLDCs earned an average TC or time charter equivalent revenue of $37,800 per day. This equals to the base hire under the time charter agreements, while the average earnings in the commercial pool for the quarter was $50,100 per day.

The two Aframax tankers, which operate in the Aframax international pool, earned an average TC of $25,100 per day, also equal to the base hire under the time charter agreements. While the average earnings in the commercial pool for the quarter was $19,500. The Aframax tankers, Overseas Ania and Overseas Rebecca, both subs chartered by OC to OC Lightwing Service earned $19,100 per day. Also equal to the base hire. These vessel earnings, under the charters to OC Lightwing Service, which is the basis for profit sharing is $29,000 and $17,500 per day respectively.

The Suezmax tankers, Overseas Newcastle, earned $26,300 per day, under its bare boat charter and achieved average TC earnings in the market for the first quarter of $20,900 per day. Pulled off hire for running repairs and mandatory inspections amounted to 19 days during the first quarter. Of which 12 days related to the Overseas Chris, and the vessel's completion of its mandatory interim survey. The overseas Regal and Overseas Cathy are scheduled to undergo their scheduled class interim surveys in the second and fourth quarters this year respectively. It is estimated that each vessel will be off hire for approximately ten days. Following the completion of this service, no vessel is scheduled to undergo any mandatory class survey until the second half of 2011.

Now turning to slide 10, vessel expenses for the quarter were $7.2 million. Depreciation and amortization expenses, including depreciation of capitalized dry docking costs were $7 million, net finance expense of $8.6 million include a gain on interest rate swaps of $1.9 million. Amortization of unrealized loss of swaps of $2.9 million and a $3.7 million cost related to the early termination of swaps in the amount of $35 million. Adjusting for this, finance expense was $3.9 million for the quarter.

General and administrative expenses were $1.8 million, reflecting costs related to the corporate restructuring completed in the first quarter, as well as legal and other costs related to actions leading to the settlement with MMI. We expect G&A during the second and third quarters of 2010 to be higher than the prior year as we incurred one-time costs associated with the recent management change as well as additional costs related to the settlement with MMI and the additional directors.

And with that I'll turn the call back over to Randee Day. Randee?

Thank you, Eirik.

I would like to now discuss DHT's business strategy. Which is to pursue growth opportunities to increase cash flow, both for dividend distributions and growth. We are looking to acquire assets that are complementary to our fleet. We will maintain a selective chartering approach, employing our assets on medium to long-term charter contracts, targeting a diversified and high quality customer base, and capitalizing on spot market exposure through pools. We will also be exploring strategic alliances and joint venture opportunities that make sense for us, especially those that might increase our commercial and operational innovations. Another part of our strategy will be to expand our banking relationships to help us capitalize on select acquisition opportunities. We would also like to broaden our geographic focus, looking at markets in the Far East or South America.

Next I'd like to provide you with a brief market outlook. Looking on slide 12, which discusses the market, the first quarter of 2010 has shown some improvement in tanker fundamentals, global oil demand is beginning to show some signs of recovery with estimates for 2010 rising to 1.8 million barrels per day, or an increase of 2.1%. The Chinese economy continues to lead the global economic rebound with first quarter oil imports up 30% year on year. Additional factors are that 15% of the tanker order book has been delayed as of April 2010. Single haul tankers are being phased out of the market due to enhanced environmental and safety regulations, and it is estimated that approximately four single hauls will be trading at the end of 2010.

Additionally, use of tankers for floating storage continues and we would expect that would be a factor throughout 2010. DHT, we believe, is well positioned to to ride out volatile market conditions, because of our stability and the long-term nature of our charter agreement. All of our vessels are chartered through 2012, with several of our charter agreements extending out to 2018. We expect the base hire component of each of our charters will provide for stable cash flow during these current volatile and uncertain markets. We earn contracted gross charter revenue of more than $300 million. DHT has no capital expenditure requirements, outside of maintenance for dry docking, and with that, we are open for questions.

Thank you. (Operator Instructions). Your first question comes from the line of Natasha Boyden, representing Cantor Fitzgerald. Please proceed.

Thank you very much, operator. Good morning everybody.

Good morning.

To further clarify on the dividend that you paid this quarter, is that a one-time event that you decided to pay this quarter or are you planning at some point to reinstitute the dividend from here on out.

As we said in our earlier presentation, Natasha, many of the concerns that we, the Company had in 2009, we feel have abated and particularly what's important to us is the stabilization in the price of vessels and that will continue to be reviewed on a quarterly basis when we look at uses of cash flow. From where we're sitting today, we do feel that the level of dividend of the $0.10 is a reasonable level, given the base charter rates and the operating cash flow that we will see for those base charter rates, combined with the fact that we have no principal prepayments now because of our prepayment to RBS until the second quarter of 2012. But as always, the primary decision will be related to stabilization and improvement in vessel values from the levels that we had seen in 2009.

Okay. So would it be fair to say that it would be reasonable to expect a dividend next quarter?

It will be reviewed quarterly.

It will be reviewed quarterly.

Fair enough. And then just moving on to actually you just mentioned the prepayment of the debt. Was that a step to stay in compliance with your covenants or was this just something that you undertook in order to stay well ahead of your banking covenants? Can you just talk about that?

Natasha, when we did the restructuring we established a holding Company. In order to pay a dividend from Maritime to our Company we had to prepay to meet the covenant.

Okay. So are you in compliance with the covenant now.

Oh, yes, we're in compliance, yes, definitely.

Natasha, to clarify that was the dividend covenant.

To meet that dividend covenant we had to prepay that $20 million in March, dividend to holdings.

All right. Randee, you briefly mentioned that you might be looking at acquiring modern tonnage. With vessel values being where they are, do you find them to be attractive at the moment, particularly given your outlook and just in general would you be looking more towards new builds or would you be looking at secondhand vessels.

We'll be looking at both. We've been a little surprised like other people that the values have come up as quickly as they have and whether some of that's been driven by IPO activity. We're not too sure. But we would look at both new build resale and also more modern tonnage that would obviously be acceptable to any financing institutions that we might be having discussions with to support further acquisitions.

Okay. All right. Thank you very much for your time.

You're welcome.

Your next question comes from the line of Matthew Troy, representing Citi Investment Research. Please proceed.

Hey, guys, this is Bascome Majors in for Matt Troy.

Good morning.

Just looking at the dividend again, you say that this could easily be supported by the base cash flow from the charters, which certainly makes sense on the numbers. Just thinking about strategically with new management and expanded Board in place, should we think about $0.40 as the core base rate with potential to grow there or more as a nice compromise between, say, income oriented shareholder base and your growth opportunities that you're looking to pursue?

Well, as we said earlier, from where we're sitting today, we think the $0.10 is a reasonable level of dividend, based upon our base charter rates. The Company did make a business assessment at the end of 2009 that we will be looking for opportunities that will continue to generate cash flow for dividend payment as well as growth opportunities. And as we mentioned, we have approximately $50 million in cash and we'll be generating about $10 million per quarter in free operating cash flow. So it will really continue to be a two-pronged approach going forward. Modest growth, and hopefully projects that will continue to generate positive cash flow, so that we can pay dividends. But once again, the Board's policy will remain as it has been since the inception of the Company, that we will be reviewing the situation quarterly.

Understood. And with the debt paydown and the reduction of the principal payments or the pushing out the principal payments, do they stay the same rate and just start later? Is that how we should think about it?

The interest rate will stay the same. We just start repaying in it's actually the third quarter of 2012 will be the first repayment.

What level is that at, from a run rate and when and if does it ramp up under the new -- ?

We had two swaps, one swap actually expires now in October this year. And then one swap runs for another few years. I can get you the exact rates offline, Bascome, but will be floating rate on a big chunk of this starting October, so that's LIBOR plus 70 basis points and then the swap that runs is at 5.95.

I was actually getting at the level of principal repayment, how much per quarter are you required to at that point distribute?

The repayments will start really in -- the small payment, Q3, 2012. But in Q4 it's $4 million per quarter for three quarters, and then in middle of 2013, we go up to the historical level that we're the $9 million per quarter, so $36 million per year starting in -- late 2013. I can give the exact numbers.

Okay. Thank you.

Your next question comes from the line of Ken Hoexter representing Banc of America-Merrill Lynch. Please proceed.

Hi, guys. It's Scott Weber in for Ken.

Good morning.

Hi. You mentioned a little earlier that 2Q and 3Q G&A might be a little higher due to some one-time costs related to legal fees, settlement with MMI. Could you give us a little guidance in terms of what you might be expecting there?

I'm not going to give you exact numbers because I don't have the exact number. If you take a starting point with Q1, and it's going to be plus, minus Q1 G&A level.

Okay. Plus or minus Q1. Okay.

It could be -- it also depends on some of the other costs related to some of the MMI and so forth.

Great. And then I noticed last week you filed a mixed security shelf for about $200 million. I was just wondering if you guys could talk at all about the thoughts there or what as you look to growth, just the thoughts behind the shelf filing?

Scott, the shelf is the same shelf we had in place since October 2007. All we did in that was when we did the restructuring, we established a holding Company and we just moved the shelf from DHT Maritime to DHT Holdings which now is the listed Company. So there's nothing new around the shelf.

Okay.

Same shelf we had the whole time.

In terms of the restructuring, that offered you the ability to raise new debt if you wanted to. Are you able to refinance the existing debt that's in place? The restructuring if you wanted to, could you take out that old debt and completely replace it?

We could. One of the reasons we're restructuring is to actually make sure we could maintain that very attractively priced debt. That's high LIBOR plus 70 and 85 basis points.

Terrific. That's all I had.

Thank you.

(Operator Instructions). Your next question comes from the line of Blaine Marder, representing Loeb Capital Management. Please proceed.

Hi, guys. Sorry if I missed it but did you mention what you thought the current NAV of your unchartered vessels are at present?

It's on slide seven.

Okay.

It's roughly -- the value is call it is ballpark $400 million for the fleet and if we have net debt of about $220 million, that debt brings you to sort of a charter free NAV of about $3.50, about.

Thank you. And then with oil prices doing what they're doing, what sort of level of oil prices -- this is sort of maybe theoretical -- do you think when you start to come off charter in 2012 that we would reset the bar in terms of base rates? I mean, what is your thinking about the volatility in these commodity markets here and your longer term contract potential?

Well, obviously OSG will be assessing all of these factors in 2012 and deciding whether or not they want to extend. So it will be very much a function of where the three-year TC rates are at that time. And their option to reset is at a market rate, plus 5%. So I don't think we have any way of forecasting where oil prices will be, but it will obviously be very market related as to what level they would feel would be of interest because their objective would be to continue to turn around and trade the vessels in the pools as they've done which would obviously be a -- we would need a stronger spot market as well for them to renew.

Okay. All right. Guys, thanks for your proactive stance here. Appreciate it.

You're welcome.

With no further questions in queue, I would now like to turn call back to Randee Day for closing remarks.

We would like to thank all of you for joining us today for the DHT Holdings first quarter 2010 earnings call.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.