DHT Holdings Inc (DHT) 2010 Q4 法說會逐字稿

Good day and welcome to the DHT Holdings fourth-quarter earnings call. For your information, this call is being recorded. At this time, I would like to turn the conference over to Eirik Uboe, Chief Financial Officer of DHT. Please go ahead sir.

Thank you and welcome to everybody.

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 at DHtankers.com, and a replay of this conference call will be available on the website. In addition, our 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 markets in general, expectations regarding daily charter hire rate, (inaudible), forecast of world economic activity, oil price and oil trading patterns, expectations regarding seasonal fluctuation in tanker demand, anticipated levels of new building 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 expectations reflected in these forward-looking statements.

With that out of the way, I would like to turn the call over to Svein Harfjeld, the CEO of DHT.

Thank you. I will now run through the highlights of the financial results for the fourth quarter 2010. Following this, we will open up for questions and answers.

We declared a cash dividend of $0.10 per share for the quarter. This is payable on February 3 for shareholders of record as of January 26, 2011.

On December 14, the Company announced the acquisition of a 1999 VLCC for $55 million. This is in line with the earlier announced strategy for the Company. The vessel will be delivered during the first quarter of 2011 and will be named DHT Phoenix. We will finance this acquisition with cash at hand and bank debt, and the vessel will be employed in a tankers international pool.

Revenue came in at $22.9 million and is comprised of the base hire for the nine vessels that were in operations through the fourth quarter. These nine vessels are all charters until the period between 2012 and 2018.

Net income for the fourth quarter came in at $7 million or $0.14 per share. Adjusted for loan cash interest rate swap related items, net income came in at $4.9 million or $0.10 per share.

Vessel expenses for the quarter were at $7.4 million.

G&A for the quarter was $1.6 million. This includes non-cash costs related to restricted share agreements for management and board.

The net interest expense for the fourth quarter was $1.9 million. At the end of the quarter, cash at hand was $58.6 million. This provides the Company with the flexibility to enter into acquisitions and grow the Company. This cash position does not include the $5.5 million in deposit paid towards the acquisition of the DHT Phoenix.

Now I may make one correction to my statement with respect to the dividend. I apologize for this inconvenience. The Company declared a cash dividend of $0.10 per share for the quarter payable on February 11 for shareholders on record as of February 4. Again, I apologize for that misstatement.

We are available for questions and answers.

(Operator Instructions). John Chappell, JPMorgan.

Thank you. Good afternoon guys. Svein, just a question on the Phoenix. How much of the cash from the year-end balance will be used towards the remaining purchase price of the Phoenix? How much liquidity would that leave you with to make further acquisitions?

Yes, we have already paid $5.5 million in deposits towards the acquisition of the vessel. It will then be $22 million plus the cost related to the transaction, so around $22.5 million -- between $22.5 million and $23 million (inaudible) be consumed for the balance. But as earlier communicated, we will target to finance the ship with up to 50% debt. We are currently in the final negotiations with banks to put this into (inaudible) and I'm quite comfortable with the position where we are.

Okay. You had mentioned before $25 million to $35 million of cash, pre the Phoenix, available for acquisitions. If you use close to $28 million here, does that mean you're relatively tapped out with your cash balance and you need to do something else to raise the liquidity to make another acquisition?

We will now then add in excess of $30 million in cash. As we have communicated, we have a desire to continue to grow the Company. We are considering a variety of means on how to finance the growth going forward, and equity is one of them. But there are also other sources of funds for the Company that will be available. So again, we are looking to have a good feel of all types of available funds to us in order to support the growth strategy of the Company.

In addition, of course we are generating cash every quarter. (multiple speakers)

I was going to ask about that as well. You're generating, with your contracts, cash far in excess of the distribution you are making. How are you balancing the thought of future dividend increases versus retaining cash for growth?

We are currently -- at the current earning level, we are paying out about 40% of the free operating cash flow in dividends. As also we have communicated, we think this company should have a combination of dividend and growth. We are comfortable with how this level is set now. Obviously, in the longer term, in growing the Company, we hope to be able to increase the capacity, also in terms of dividends for the Company in the future.

Then one final one for Eirik. There was a tax that showed up in your income statement this quarter. What was that tax associated with, and is it a one-time event or should we expect a small tax going forward?

This is related to the service company in Norway where we are all employed. We have a service agreement between the Norwegian subsidiary and DHT Holdings where we have a mark-up of some of the costs. So there will be a profit in the Norwegian subsidiary, and that profit is taxable. The tax number will never be a big number, but it will probably increase a little bit because (inaudible) more employees in the Norwegian company. So it is related to the Norwegian subsidiary.

Thanks.

Natasha Boyden, Cantor Fitzgerald.

Good afternoon gentlemen. I wanted to just follow on from John's question about acquisitions here. Given where rates are and potentially where you expect rates to be, do you see any kind of downturn, a continued downturn, after values over the next couple of months? If so, does that make that even more attractive for you to want to go in and start making acquisitions?

We think we are in an environment that has the potential to soften further in values. But they also have current levels. We believe there are more opportunities to be had.

Our primary focus is on the absolute value on an acquisition of combining this with our (inaudible) which will be to have very low cash breakeven levels, so sustainable levels that we can live with in the longer term. So that is the two components that are quite important for us in evaluating acquisition opportunities. The current (inaudible) market we expect will generate more opportunities, and we are actively inspecting vessels and looking at a large variety of opportunities to grow the Company.

So what you're saying is you're seeing a fair amount of liquidity in the S&P market, would that be fair to say?

I think, on the larger end, there are more opportunities available compared to what we have done so far. We see an increasing number in, say, Aframaxes than what we have done in the past. [It's] been rather quiet for the last six months. But we expect more access to become available to us there.

As you just pointed out, you bought the VLCC, the Phoenix. Do you intend to continue just looking at VLCCs, or would Aframaxes (inaudible) also be very attractive to you given your outlook?

We are a company that will be in the crude oil tanker space, so as such, Aframax (inaudible) VLCC will be of interest to us. We have liked the pricing now on the second (inaudible) VLCCs. We expect Aframaxes to come in at quite interesting levels as well. We are by no means excluding Suezmaxes, but do not think that is our primary vessel, can be our primary focus at this point in time.

Great. Then lastly, is there any chance that you could give us the spot rates that each vessel class earned during the quarter?

That's (inaudible) to be combining in various broker reports, but I think we've seen earnings swinging between $15 million and $25 million, maybe high $20s million, in the last month. If you look at the quarter, you are -- maybe have the moments or a week, a couple of weeks where earnings were actually up in around $40 million for a very short time on the VLCC sector. What average will come out to be, I guess it's maybe around $20 million if you look at the broker reports. Suezmax (inaudible) is probably not far from it. They have a few weeks where they are relatively faster than the VLCCs, [maybe] -- I'll shy away from that. Whereas Aframaxes have two spikes that actually added significant earnings, so that will kind of adjust average earnings, so they will probably be in around the $15 million mark, I think $15 million, $16 million mark for the quarter, ballpark figure, so --.

Okay, thank you very much.

Ken Hoexter, Merrill Lynch.

Thanks. It's Scott Weber in for Ken. Can you just review some of the changes that you might have made since you've come on board and joined the Company to any of the technical or commercial management of the vessels that might have been previously outsourced?

There is no change to the [non] fleet that we have (inaudible), we have. So what we have done is that we have taken in-house the technical competence to look after the technical manager that was previously outsourced to a consultant. So, we hired a technical director and his company who comes from -- came from Frontline. He joined us just before Christmas. We are very pleased with that hire, so he will then oversee the outsourcing of technical services, make assessments or acquisition candidates that we want to look at, etc.

We also now are bringing in accounting, so that will be implemented through the first quarter of this year. So that has previously been outsourced as well. So we will (inaudible) in this quarter, we will be six employees in the management company and there's not going to be any growth in that company beyond that unless business drives growth. So we think, reflecting on the strategies that we've communicated over the last few months, shifting the Company from being a leasing company with specific one client and one lending bank and most of the competence is outsourced, we have now become an operating company with the competences in-house. We will start now to work towards having a larger more diversified customer base, and also have several lending banks to the Company. We've also been more active in the capital markets, at least that's our understanding. We have been in New York in particular several times over the last six months, so four or five months, and we have attended conferences etc. We hope this has increased the transparency of the business, and also for people to understand the strategy of the Company.

Sure enough, terrific. Just following on what you said about six employees in the management company right now, G&A during the quarter was about $1.6 million. Is that a good run rate to assume right now going forward?

This includes non-cash costs. What we had communicated the end of last year when we reported Q2 numbers, we guided on G&A costs of $1.5 million, at kind of on a cash basis. So if you look at the fourth-quarter numbers now, we have done better than that.

Sure. Then just lastly, did you give a date for when during the first quarter you expect to take delivery of the Phoenix? Can you give us any guidance there?

We expect it to be late February, maybe the first of March. So we don't have specific dates yet, so --. We will be earning revenues from the second quarter essentially at some point.

Andrew Kleinberg, Glickenhaus.

My question is this, and I'll answer it myself. Should I be more astounded that you guys were able to close the books and hold a conference call in under two weeks, or the fact that the previous management took five to six weeks to do likewise? My answer is this. I don't know, but I think it's terrific and I think it's indicative of the new management, and I want to congratulate you on that. I think it stands in marked contrast to the February 16, 2010 conference call which was announced on Presidents Day here in the US when the markets were closed. So congratulations and keep up the good work.

Thank you very much. That's highly appreciated.

Take care.

Leo Larkin, Standard & Poor's.

Good afternoon. Could you give us guidance for depreciation in 2011 and also CapEx?

Depreciation -- I don't have the number offhand. Of course, the Phoenix will be added, and we haven't set the exact number for depreciation. I have to actually revert on that; I don't have the number offhand.

Okay, and for CapEx --

(inaudible) -- I didn't catch your name.

I'm sorry, it's Leo Larkin with Standard & Poor's Equity Research. Do you have any guidance for CapEx?

We have two [special] service coming up for two of the VLCCs. That will happen, say, around the third quarter. Maybe one of them is very late, end of second quarter, so we have not yet communicated the actual CapEx related to that. That will be done later in the spring. So, we are currently building up the actual technical budgets for that. Then we will have two interim service on two of Aframaxes in the fourth quarter. So we will also communicate later to what that CapEx will be. So it's too early to say there. Interim service are less significant than the special service.

Thank you.

(Operator Instructions). Ben Mackovjak, Rivanna Capital.

Did we lose you, Ben?

Hello?

Hello?

Can you hear me?

Yes we can.

Can you take us through revenue days for the VLCC and the Aframaxes?

The quarter has 8.5 days of hire in total, and that is predominantly two [of] VLCCs that have some auxiliary engine overhaul. We had one minor breakdown on some water pipes that had to be repaired. So that is on the Regal and the Ann, Overseas Ann.

So what were revenue days?

It's total of 92 gross days in the quarter times the fleet, and it's less 8.5 days of hire.

For the whole thing? Oh, okay, got it. Can you take us through any changes in ship values?

Ship values is kind of sideways softening, so -- but we are well within the covenants in our loan facility. So we have values with respect to our financing done by the year-end. There were no surprises there for us. So(inaudible) guidance (inaudible), we would say that kind of a ten-year VLCC is probably around the $60 million -- low $60 million mark, between $60 million and $65 million somewhere. Five-year-old Aframax is probably around $40 million. So that is kind of the two most common benchmarks, if you like, on that [and] we look at (inaudible) reflecting of some of where we are active in the sailor purchase markets.

So the last number I have is about 402. Is that still reasonable, or maybe a little below that?

I think the valuation we received at the end of the year sums up to 388 for this week.

That's correct.

Okay. Then the average spot rates for the fourth quarter for the different pools, is that what you gave earlier or was that for January, the $20,000?

That was general market reports. We are not a direct member in these various pools, so we are not direct preview to those numbers until we see such reports then to us. This will change somewhat when our DHT Phoenix will enter the tanker pool, then we will have as a direct member at least firsthand knowledge of the pool's earnings in the VLCC trend. So --

You used to have those right? But was that because you reported earnings later?

We are not profit-sharing at this point in time, right? So -- and at this early juncture, we will not have those numbers available to us, that's correct.

Great quarter. Thank you guys for doing a great job.

(Operator Instructions). Anders Rosenlund, ABG Sundal Collier.

I have a question on the dividends. Will you consider to further hike dividends with raising earnings capacity? I.e., will you maintain 40% distribution of (inaudible) cash, or will you maintain $0.10 a quarter per share distribution?

We do not have stated a dividend policy in the Company. And what we've communicated to everyone is that we'd like the Company to have a mix of dividends and growth. This is also a cyclical business, so it will probably have to be managed somewhat through the cycles with different earning levels, etc. But not only as management, but also as shareholders, we like a company that is able to do both. We're comfortable with what we're doing there right now, but then again we want to make this Company truly successful and we think it's important to share part of the earnings in the Company with regular dividends as kind of a conceptual idea for management. There's no communicated, stated policy as such.

If I may follow up as well, the one (inaudible) markets -- [where] do you think you could do there fixtures today?

Say a two year factor for an Aframax today is probably in the high teens, $19 million maybe. Two years (inaudible) Suezmax is $22 million and a two year (inaudible) is maybe $29 million, $30 million, thereabouts. (multiple speakers) is really limited liquidity in the [period] market at the moment. So you need to take that into consideration.

Excellent, thank you very much.

Ben Mackovjak, Rivanna Capital.

One last follow-up -- just to confirm, we can expect TCEs to step up about $300 per day in 2011, is that right?

In our base charter, I think we (inaudible) per year for both our [VLCC] and Aframax. That's correct.

Thank you.

-- over the base. Just to remind you we had some [extension] of the charters where the base can actually be $5000 below the original base. You may recall that Ben. (multiple speakers) 12 months, but the rates, the original base rate increase by about $300 a day for the lease on an annual basis.

Thank you.

Jeff Rudner, UBS.

Good morning gentlemen, in your case good afternoon. First, congratulations on an excellent quarter and maybe more importantly clearly stating the objectives of the Company going forward. The question I have is the price of oil has risen above $90 a barrel and seems to be headed back over $100 and possibly to the record highs of $150 a barrel. Should the price of oil rise to, say, $125 or $150 a barrel, how do think that will impact the business?

I think that would be -- chances are it would be good news for the tanker industry. As a consequence of a price hike like that, chances are that the big producers in the Middle East would increase their production and thereby demand for transportation would increase. So I think that would be good news.

(multiple speakers)

Also you get a price hike like that, it (inaudible) the potential to open up some more volatility and opening up the contango on future oil price. If that happens, you could see floating storage activity also coming back into the market.

Thank you. Again, congratulations.

(Operator Instructions). There are no further questions.

Okay, thank you to everyone for attending this conference call. We highly appreciate to have your interest in the Company and support. Thank you very much.

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