DHT Holdings Inc (DHT) 2010 Q2 法說會逐字稿

Good day and welcome to the DHT Holdings second-quarter 2010 earnings call. Today's conference is being recorded. For your information, the question-and-answer session will follow shortly after today's presentation.

On today's call we have Randee Day, acting as CEO, and Eirik Uboe, the Chief Financial Officer of DHT Holdings. I would now like to turn the call over to Mr. Uboe. Please go ahead, sir.

Thank you. Thank you and good morning. Before we get started with today's call I would like to make the following remarks. This conference call is also being broadcast on the our website at dhtankers.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; forecasts of world economic activity; oil price and oil trading patterns; expectations regarding seasonal fluctuations; impact of demand; anticipated levels of newbuilding and scrapping; and projected drydock 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.

With that, I will turn the call over to Randee Day, Acting CEO of DHT Holdings. Randee?

Thank you, Eirik, and good morning, everyone. We would like to thank you for joining us this morning to discuss DHT's second-quarter results.

Let me start with a brief agenda for today's call. First, I would like to provide an overview of our financial performance and other developments in this quarter. Then I will turn the call back to Eirik Uboe, our CFO, who will provide additional details on the second-quarter numbers. Eirik and I will then turn the call back to me for a discussion of market outlook and closing comments, and after that we will open the call up for questions and answers.

We reported second-quarter revenues earlier this morning of $21.1 million, which were derived solely from our base charters. The decrease in year-over-year revenues primarily reflects a lack of profit sharing under our arrangements with Overseas Shipholding Group, the charterer of our vessels. In the comparable 2009 period, we realized $26.2 million in total revenues, of which $4.2 million was the result of our profit-sharing arrangement.

Additionally, second-quarter 2010 revenues were impacted by a $1.2 million bunker claim due to an unexpected delay in the scrubbing of the hulls of three of our VLCCs. The Company's net loss of $2 million or $0.04 per share was largely driven by lower revenues; higher than anticipated vessel expenses; swap expense; and G&A expenses related to costs associated with the recent CEO changes; as well as additional costs associated with the settlement that was made earlier in the year with MMI, one of our lead investors. Adjusted for swap expenses, our net loss was $1 million or $0.02 per share.

We also announced today that the Board of Directors has declared a cash dividend of $0.10 per share for the quarter, payable September 17, 2010, to shareholders of record as of September 9, 2010.

Like last quarter, the Board's decision to declare a dividend this quarter is based upon several factors. First, the value of our assets continue to be at levels that allow us to pay a dividend without jeopardizing our covenants. In spite of a relatively weaker tanker market this summer, vessel values have remained stable; and we have a very solid cash position of $54 million at the end of this quarter. Additionally, we do not have any debt repayments under our facility with the Royal Bank of Scotland until the second half of 2012.

The Board will continue to evaluate the dividend on a quarterly basis, taking into account factors including the Company's current and projected cash flow, the strength of the shipping markets, new business opportunities, and any of our financial commitments.

During the second quarter, the Board concluded a comprehensive search for a new CEO. The Board is pleased to announce that Svein Harfjeld was named President and CEO of DHT as of September 1. We also announced that we have expanded our management team with Trygve Munthe, who will serve as COO.

These two gentlemen bring over 40 years of industry experience to the firm. With these additions all of our management team will now be based in Oslo, and the Board believes this will strengthen DHT's organizational structure.

Additionally Erik Lind, Chairman of DHT, and myself were reelected at our Annual Shareholders Meeting to serve an additional three years as Class II Directors. And with the addition of Robert Cowen to our Board we will now have five Independent Directors.

We believe that with our strengthened management team, expanded Board, and the new Holding Company platform which was put in place earlier in the year, all of this provides for increased financial flexibility and that DHT is well positioned to capitalize on growth and capital opportunities for the benefit of our shareholders.

With that I would now like to turn the call back to Eirik Uboe, our CFO. Eirik?

Thank you, Randee. As Randee mentioned, the revenues of $21.1 million were derived from base charter hire. We earned no profit sharing in the quarter. We reported a net loss of $2 million or $0.04 per share for the quarter.

After adjusting for swap-related expenses, we had a net loss for the quarter of $1 million or $0.02 per share. Let me break down for you in more detail the drivers of our net loss for the quarter.

First, revenues were impacted by a $1.2 million bunkers claim from the charterer related to reduced performance for the VLCCs in the first half of 2010 due to unexpected delay in scrubbing all the VLCCs hulls. Second, vessel expenses were impacted by additional work and spare parts acquired in connection with the Interim Surveys for the Overseas Regal and Overseas Chris during the first half of 2010, totaling about $1 million.

Third, and as previously announced, we incurred higher year-over-year G&A expenses of $2.4 million which included a one-time charge associated with the CEO change and costs associated with the MMI settlement. These two totaled about $1 million for the quarter.

Of the $21.1 million in second-quarter 2010 revenues, $16.4 million relates to the seven vessels on time charter and $4.7 million relates to the two vessels on bareboat charter. After adjusting for the bunkers claim, the VLCCs earned an average TCE or time charter equivalent of $33,500 per day.

The two Aframaxes, which operate in the Aframax International pool, earned an average of $24,800 per day. And the Aframax tankers, Overseas Ania and Overseas Rebecca, earned $19,200 per day. The Suezmax tankers, Overseas Newcastle and Overseas London, earned about $26,300 per day under their bareboat charters.

The Aframax tankers, Overseas Ania and Overseas Rebecca, are both subchartered by OSG to OSG Lightering Service. The vessels' earning under the charters to OSG Lightering Service, which is the basis for the profit sharing, is $29,000 per day and $17,500 per day, respectively.

Total off-hire for running repairs and mandatory inspections amounted to 27 days during the second quarter, of which 19 days related to the Overseas Regal and the vessel's completion of its mandatory Interim Survey.

DHT's vessel expenses for the quarter were $8.9 million, including the additional cost related to the two Interim Surveys performed in the first half of the year. Depreciation and amortization expenses, including depreciation of capitalized drydock costs, were $7.1 million.

Net finance expenses of $4.8 million include a gain on interest rate swaps of $2 million and amortization of unrealized loss on interest rate swaps of $3 million. G&A expenses were $2.4 million, reflecting the factors discussed previously. G&A expenses will continue to be high in the second half, as the remainder of the costs associated with the management changes are expensed.

With that, I will turn the call back to Randee Day.

Thank you, Eirik. I would like to provide you with a brief market and Company outlook. The second quarter of 2010 has shown some improvement in tanker fundamentals as global oil demand continues to show some sign of recovery, which is in line with global GDP growth. Estimates for 2010 are rising to about 1.8 million barrels per day, which would be an increase of 2.1%.

This would be the highest growth since 2004, and it is largely being driven by non-OECD economies. The Chinese economy continues to lead the global economic rebound; and in the first half of 2010 Chinese oil exports were up approximately 30% year on year.

The overall health of OECD economies remains a concern because of -- we are experiencing high levels of unemployment and increased sovereign debt obligations. Additionally, reduced contango and oil and product prices are leading to the unwinding of storage contracts in the short term.

Looking at the supply side, approximately 25% of the first half of 2010 tanker orders booked did not deliver due to either slippage or cancellations. Continued delays in the 2010 delivery schedule are expected.

Single-hull tankers, which comprise 11% of the VLCC fleet, are being phased out of the market. The market continues to avoid single-hull tankers due to enhanced environmental and safety regulations.

It is estimated that only four single-hulls will be trading by the end of 2010. That being said, scrap values remain at attractive levels, currently at $400 per LDT.

As we mentioned last quarter, DHT is well positioned to ride out the volatile market conditions because of the stability and long-term nature of its charterer agreements. All of our vessels are chartered through 2012, with several of our charterer agreements extending out to 2018.

We expect the base component of each of our charters will provide for stable cash flow during these times and an uncertain market. We earn contracted gross charter revenue of more than $300 million, and we have no capital expenditure requirements out of maintenance for drydocking.

We believe that all these factors combined with our strengthened platform and new leadership, that the Company is well positioned for future growth. With that, we would like to take your questions. Thank you.

(Operator Instructions) Jon Chappell, JPMorgan.

Thank you. Good morning or good afternoon, wherever you guys are right now. I guess it doesn't make a lot of sense to ask too many strategic questions. We will let the new gentlemen start on September 1 and see what they think at that point.

So I just wanted to ask a couple of clarifying questions on the financials to Eirik. You mentioned that the second half was going to have some of the management costs expensing that we saw in the second quarter. But the second quarter also had some of those MMI expenses as well.

What type of run rate should we be looking at for the second half of the year for G&A? Somewhere between the first and the second quarter, or closer to the second-quarter levels?

I think for Q3 somewhere closer to the second quarter, and 4Q we ought to be get back down to a more normalized level and down in the vicinity of Q1.

Okay. Then when we think about 2011 -- I am sure you haven't budgeted that yet. Do we go back to 2009 type quarterly levels? Or is Q1 2010 probably a better run rate?

Q1 and hopefully lower. But as you point out, we haven't budgeted for that yet, and there is a new management team starting in a few days.

So I don't want to commit to any numbers for 2011. But we certainly would like to come below the levels we had in Q2 and we expect to see in Q3.

Jon, I'd just like to add, we did have significant legal and professional fees associated with the corporate restructuring of DHT, which actually did hit in the first quarter. But those would not be repetitive expenses.

Okay. Thanks, Randee. Just two more.

One on the vessel OpEx. You mentioned some things that may or may not be considered one-time in nature. Does the vessel OpEx run rate -- same question. Do you expect it to be that high going forward as well? Is there any carryover into the third quarter on some of that extra maintenance, or [we're looking] first quarter there?

No, there is no carryover. These were what we believe to be special costs related to the Interim Surveys and also that should lead to actually more efficiency going forward also. So, no; we expect to get back to normalized OpEx.

Okay, very good. Then the final question is you mentioned in the press release that your next drydocking would be in the second quarter of 2011. At this point we don't have any drydockings in our model for next year.

Could you just give a little insight as to how many off-hire days you are expecting next year? And you don't have to do it on a quarterly basis, just full year. And which asset class will be impacted?

Let me see here. For -- we have a special service schedule for VLCC in Q4 2011. We will see; the number of days actually varies. But -- and I don't have the exact date for these here now. I will have to get back to you, Jon, to give you a more specific number on that.

I think in the next conference call, we will give a better breakdown on off-hire or scheduled off-hire for next year. But we have one Special Survey in Q4 and we have a Special Survey also in Q3. And we have an Interim Survey in Q4 and Special -- that's a bareboat, yes. I will get back to you, Jon, with more specifics on that.

Okay. Thank you, Eirik. Thanks, Eirik and Randee.

Ken Hoexter, Merrill Lynch.

Hi, guys. It's [Scott Weber] in for Ken. Hi, there. I don't have too many questions; you just covered one or two of them now.

But I was just wondering from a macro standpoint. I know it is typically a seasonally slow quarter, but given that we are halfway through it I was wondering if you could give us a sense of what you are seeing in the VLCC market right now. And if the slowdown is really attributable to the seasonality or if you are seeing anything else that is affecting that market today basically.

I think what we're seeing mostly is seasonality. Because as I mentioned earlier, some of the market fundamentals and in terms of global demand are actually stronger.

But I think what's interesting, we are seeing what is considerably strong vessel prices seem to be maintained, which I think is reflecting the fact that many interested buyers consider this dip to be a seasonal dip.

Okay, great. That was all I had. Thanks for the color. That's helpful.

You're welcome.

Ben Mackovak, Rivanna Capital.

Hi, I hopped on the call a few minutes late. Can you take us through the underperformance bunker claim in a little more detail?

This was -- the VLCCs, they were in a different trading pattern so they didn't have a natural place to go for being scrubbed. That led to -- so the alternative was actually to take them off-hire to get them scrubbed. It was just a one-time event; and they have since been scrubbed, of course.

How did that become unexpected?

Because they were -- it wasn't planned for.

Trading pattern.

It was different trading pattern that had not been planned for. It made sense from a trading perspective, but then they were not able to go into the natural port for scrubbing.

Bent, there was a lot more waiting time than we expected because of the trading pattern, which -- the waiting time actually leads to more bottom fouling. Some of the traditional facilities because of our trading pattern were not available for us to do that. And several of the facilities have tightened up a lot of their requirements, such as Singapore, as to what you are allowed to do when in port.

Okay. Can you update us on where you think the fleet's value is? (multiple speakers)

$413 million (multiple speakers) approximately. Yes, it was our last --

It's a little north of $400 million. It is our estimate for a charter-free value of the fleet.

Okay. So you think that is about the same as prior estimates?

Yes, we think so. There hasn't been anything -- certainly not a decline, maybe even a slight increase over the last few months.

Okay. One last question if you could. Can you take us through where you're seeing rates so far in Q3?

In Q3, what I can refer to is the bookings in the pools. Let me just dig that out. This was as of a couple of weeks ago. In the TI pool, where our VLCCs operate, they had booked 59% of the third-quarter days at $40,000. These are bookings done a while ago, and of course rates have been lower since then. So that number has probably come down since then.

On the Aframaxes, 25% have been booked at $20,500. So I think, and Randee mentioned this earlier, that we are in a normal seasonal low.

Right, okay. All right, thank you.

(Operator Instructions) Jeff Rudner, UBS.

Good morning, Randee. Good morning, gentlemen. This is more in the nature of a comment regarding the dividend as opposed to a question. I know obviously you are not in a position, especially with new management coming in on September 1, to predict the outlook for the dividend going forward.

However, the point I wanted to make is I think that most people very much appreciate the fact -- both investors and shareholders -- that the dividend is being continued. And personal belief is that if at all possible the dividend should be continued going forward.

It was just about a year ago when the dividend was discontinued with the stock over $5 a share. When the dividend was discontinued the stock immediately went to under $4 a share. And aside from the fact that the individual shareholders were somewhat affected, if not greatly affected, it equally importantly I believe hurts the capital structure of the Company, in its inability to raise additional capital if so will be needed.

Obviously, if the Board sees fit to raise additional capital going forward, the higher the share price the fewer shares issued to achieve a certain amount of money. And I think continuing paying this dividend is something the Board should give serious consideration to if at all possible and obviously new management coming in. That's basically it. Thank you.

Thank you. We appreciate your comment. In last quarter's earnings call, we did go to considerable length to explain why -- the issues that took place in the latter part of 2009, we had a significant deterioration in vessel values, and the Board was focused on ensuring that we had a very strong balance sheet at that time.

From where we are sitting today, we feel very comfortable that vessel values have been maintained at strong levels. With our contracts and stability of our charters, we feel comfortable with our cash flow levels. We have a good amount of cash.

And we are looking at a number of projects -- I won't speak on anything because obviously new management has ideas of their own and will be picking up the baton in terms of any projects that we have underway. But everything we look at, we really want to make sure that not only -- or any of our acquisitions that would have sufficient economic life to benefit in the next market upturn -- when that comes, which we all are hoping will be sooner than later.

But also, everything we look at we want to make sure it has a positive contribution to free cash flow and keeping in mind the importance of our dividend capacity. So we do appreciate your comment, and it is something that is of utmost importance and focus for the Board.

Well, Randee, thank you very much for your comments and congratulations on a job well done.

Thank you.

Jerome Lande, MMI.

Hi, I don't know how well you can hear me; I am on a cellular. But I was going to ask, if you haven't said it already, have you seen any leakage from the spot market weakness into vessel pricing in the acquisition market?

Very little, surprisingly. We had a round of some IPOs a few months ago. We understand there is a big queue of companies particularly in Greece, hoping that the capital markets in the US may strengthen in the latter part of Fall, and are looking for (technical difficulty).

And there are a lot of owners, particularly Greek, that (technical difficulty) sitting on tremendous amounts of liquidity. Additionally you have a few of the private equity firms that have formed their own shipping operations and have been acquiring tonnage.

So unfortunately we haven't seen a lot of reduction in terms of prices and which has made looking for interesting acquisitions a bit more challenging than we had hoped when we last spoke.

Okay. My other questions were answered. Thank you very much.

You're welcome.

(Operator Instructions) There appears to be no further questions in the queue at this time.

Thank you all for joining us. Have a good day. Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.