DHT Holdings Inc (DHT) 2010 Q3 法說會逐字稿

Thank you, and before we get started with today's call, I would like to make the following remarks. This conference call is also being broadcast on our website, www.DHtankers.com, and a replay of this conference call will be available on the website. In addition, our Form 6K evidenced in 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 for the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which include statements regarding DHT's prospects, the assets for tanker markets in general, expectations regarding daily charter hire rates and vessel utilization, forecast of world economic activities, oil price and oil trading patterns, expectations regarding seasonal fluctuations in tank demand, anticipated levels on new building and scrapping, projected drydock schedules, lower 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 out of the way, I will turn the call over to Svein Harfjeld, the CEO of DHT.

Thank you very much. I will now run through the highlights of our financial performance in the third quarter, and then I will hand you over to Trygve Munthe to talk about briefly the market and some of the growth prospects that we are looking at, and we will then later close this presentation with a Q&A session.

The Company has declared a cash dividend of $0.10 per share for the quarter. This dividend is available to shareholders of record on November 11 and is then payable on November 22. Our revenues stands at $23.3 million and these reflect the base hires under our charters and this is 100% of our fleet. There is no profit sharing in this chart -- or in this quarter.

These revenues also reflect minimal of hire as our fleet has an on hire [time] of 99.75% through the quarter.

The net income for the quarter was $3.6 million or equal to $0.07 per share. If one adjusts for non-cash interest rate swap related items, the net income comes in at $3.5 million, also $0.07 per share.

On the OpEx level, the vessel expenses for the quarter came in at $6.8 million and the D&A side is at $2.1 million. The D&A figure includes one-time costs related to change of senior management.

This is the last quarter in this year that we will have one of items related to this.

As earlier announced, we are guiding on the forward D&A for the Company. And this should be expected to be at $1.5 million per quarter.

The net interest expense for the quarter was $3.8 million. At the end of the quarter, we have a cash position of $58 million and this provides the Company with flexibility to pursue the earlier announced growth strategy.

There is also an important subsequent event on the 18th of October. An interest-rate swap equal $194 million terminated, and this is reducing the Company's annual interest rate expenses in the magnitude of about $8 million, a very positive contribution to our free operating cash flow.

I will then pass you over to Trygve Munthe.

Thank you, Svein. Just wanted to mention that, as previously announced, we are serving the market for opportunities to expand the fleet and grow the business. Since we last spoke, we have inspected a handful of vessels. We are pursuing chartering opportunities for the crude carriers, but with the certain projects we have really looked at all the three classes of ships that the Company is currently involved in [at press release] in VLCCs.

Of course it is a very interesting time in the tanker market, as you all know, with a very depressed spot freight market and we are really now in a situation where something has got to give. Either the freight market has to come up or we do believe that period rates as well as the vessel values will have to come down.

And with that, I will turn it back to Svein.

Thank you very much. We will leave then the detail on numbers for your [edification] and invite participants to come up with their questions.

Operator, will you take questions?

(Operator Instructions). Natasha Boyden from Cantor Fitzgerald.

First question I have is your vessel OpEx seems to be quite low this quarter, particularly compared to the previous two quarters. Can you tell us what was behind that and if there are any timing effects that caused that?

I think we would expect this quarter's OpEx cost to be closer to what we would consider a normalized OpEx level. If you break this down on a fleet, these fees came in at about $12,000 a day. This includes insurance and management fees.

The two Aframaxes that are in the [light reach] service which is somewhat more expensive service to run. It comes in at the $10,000 a day, also including insurance and management fees. And the two modern Aframaxes are coming in at about $8,000 a day, including insurance and management fees.

What is important also to mention is that in the second quarter, there were some [volume] costs related to upstoring and spare parts on the ships as well as interim service being expensed in the quarter.

Okay. Great. I think when you were talking about the market in general, you talked about five or six [behind your] fleet and that you are looking at the three different areas. Is there any one asset class that you find more attractive than others, given what your outlook for rates and asset values are?

I think there are opportunities in all of the three classes, really. With that said, our inspection activity has focused mainly on the larger end of it. So more VLCCs than other types of vessels at this point.

Okay. And given that you said that something has to give, either vessel rates come up or it comes down. Which one are you leaning more towards at this point, particularly, if you're already looking at vessels?

It could certainly be a combination of both, and I think that the next done in the S&P market would be lower than last done. I think values will be confirmed to come off somewhat, but we also see that there has been a significant pickup in spot fixture activity in the past couple of days.

So we are also certainly aware that you could easily see a spike in the spot market. It may not be huge and it may not be long-lasting, but it would certainly counterweight the otherwise downward pressures on values.

Okay. Great. And then lastly, can you tell us what rates you achieve for your [VLCCs and Aframaxes] for the quarter?

Yes. In the -- our VLCCs are under $33,000 approximately in the TI pool. The two Suezmax -- sorry, the two Aframaxes starting in the AI pool earned about $18,000. And then there or two Aframaxes there in the licensing service, so they are on the charter and [on their own] earn $29,000 a day and Rebecca earns $17,500.

So the Rebecca earned how much?

Rebecca is also on charter to [OC Lightring] at $17,500.

$17,500. Okay. Great. Thank you very much.

Jon Chappell from JP Morgan.

Thank you. Good afternoon. Just two questions on the acquisition front as well. I wanted to ask the vessel price question a little bit differently.

Most brokerage reports have updated vessel prices over the last three months and, obviously, the rate environment has come down quite significantly. By your best estimation, how many -- how much have asset prices come down over the last three months? And if it's just been an illiquid what do you think kind of the June levels to when you start purchasing GAAP may be? Are we talking 10%, 15%, 20%?

This is very tough to say because there are very few transactions and as you rightly pointed out, the last transactions really in the segments you are looking at were back in June. I think the way we look at this is that we have a sense that brokers or sellers are the ones maybe calling us more than we are calling them.

So it gives us a sense that there a few interested or willing sellers, if you like. We are getting some indications from brokers and we would be hopeful that, you know, it could be as much as 10%. But we don't want to be held on this number and it is very hard to say. And it also depends really on whether you look at a five-year-old ship, a 10-year-old ship or a 12-year-old ship.

That is somewhat softer towards the older age group than it is on the newer age group. So -- yes.

And then the other questions just had to do around your financial wherewithal to make acquisitions. You have about $58 million of cash. Your debt to cap is somewhere between 55%, 60%.

First of all, how much do you think you can make in the form of acquisitions, given your current capital structure? And then number two, how active or how willing are the banks to lend? And are we talking 60% type potential lending?

We are looking to employ in the range between $25 million and $35 million of the cash that we have at hand. And depending on the age of the ship and as for leverage, we are looking at [50]% to 60% leverage. And this will also to some extent depend on the employment structure that we put in place.

But there are several banks that's already indicated or confirmed to us that they are willing to support us on these lending. So debt capital is available to us.

All right. Very good. Thanks.

Ken Hoexter from Banc of America.

Good morning, gentlemen. It is [Wilson] sitting in for Ken. I had a quick question about the interest rate swap that just expired. You are going to save $8 million per annually.

I just wanted to get a sense. Could you remind me what the, I guess, original interest rate on the debt was? Is it LIBOR when -- when the spread was?

Debt swap grossed north of $194 million and it was all in, including the margin at 5.6%. (multiple speakers) go over to LIBOR +70 basis points.

LIBOR +70. Is that three-month LIBOR or six-month or what?

(multiple speakers) [306] but you use three months. I mean -- and the spread now we're talking about maybe -- our current level is only about 1%. So we go from 5.6 to 1%.

Sure. Great. And (multiple speakers). Okay. Thanks. And I guess my second question just has to do with how likely do you see a -- maybe a seasonal pop in rates towards the end of 4Q given maybe potential winter demand for heating oil?

I think the consensus market view, and we subscribe to that as well, that this year may be a bit different from last year. You saw a depressed start in the fall last year because of lack of demand. This year is more of a surplus of supply.

Even if demand comes back somewhat stronger, we are somewhat skeptical of seeing a repeat of last year's freight rate development.

Sure. I guess I read the same thing, but I just wanted to confirm. Well, thanks for your time.

Jerome Lande from Millbrook Capital.

Hello. I wanted to ask you about activity at the yards. I understand what you are saying [some of you may] have to give about vessel values and I'm wondering if you're seeing any of the weakness creeping into new build activity or pushouts or any change in the dynamics there?

We haven't seen any significant changes in the new building prices yet. It is our experience that the yards are fairly content with their order books. If they run out, they are quite well in time and they do not feel pressured to reduce [enabling] prices significantly.

There is also differences between China and Korea. So some of the Chinese, they also have been some of the more forward leaning as it relates to offer prices. But we don't see a big change with a drop -- a significant drop in values, at least for now.

So I think really we would expect asset prices to change it from secondhand and more on a 10-year-old than a five-year-old.

Thanks. And on the banks, I understand what you just said about they have spoken with you about being supportive 50% to 60% leverage and so on. I'm wondering have you spoken with them very recently in context of a new rate environment?

So they are supportive, I get that. But on a general basis are they expressing more reserves based upon what is happening in the spot market or are they looking through it?

I think you would expect the leverage to be closer to 60% if you have shorter arrangements. However, banks also seem to be comfortable with current asset prices. So a 60% leverage on a vessel that potentially could (technical difficulty) in the spot market. It is also maybe doable, but then it is more questionable if the Company would like to do that at all.

And in the current rate environment, that would obviously result in negative cash growth. We are not so keen on that. So we would like to see if we can structure some formal employment in order to generate positive cash flow on an investment.

Thanks very much.

Ben Mackovjak from Rivanna Capital.

Hello. I popped on a little late. Did you discuss vessel values? Has there been a more recent appraisal? The last number I have is about $415 million for the fleet.

We have an up rate for vessel at the end of the quarter and it is marginally lower than what you have there. There haven't been many transactions in the tanker markets since the end of second quarter. So there is very little benchmarking available for brokers.

So, but there is say 2%, 3% correction or say 3% correction in [values] in what brokers are estimating.

Would you be able to break it out on a per vessel basis for us?

If we can return to you on that specifically after this conference. Is that okay?

Perfect. Okay. Thanks a lot. Good quarter.

(Operator Instructions). Mr. Uboe, we have no more questions at this time. I'd like to turn the call back over to you.

All that remains for us here with management is to say thank you very much for your participation. We will also be traveling to New York and London in the next couple of weeks, and we will be available for one-on-one meetings. So please do contact us if you would like to see us in [person]. Thank you very much. Thank you again.

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