DHT Holdings Inc (DHT) 2011 Q2 法說會逐字稿

Good day and welcome to the DHT second-quarter 2011 earnings conference call. For your information, this call is being recorded. At this time, I would like to turn the conference over to your host today, Mr. Svein Harfjeld. Please go ahead sir.

Thank you. 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 www.DHTankers.com and a replay of this conference call will be available. 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, (inaudible) for tanking market in general, expectations regarding daily charter hire rates, investor utilization, core costs of world economic activity, oil prices and oil trading patterns, expectations regarding [seasonal] preparations and tanker demand, anticipated levels of new building construction and projected driver 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.

And with that, we will present the highlights of our Q2 financial results.

The Company declared a cash dividend of $0.10 per share for the quarter. This dividend will be payable on August 4 for shareholders of record as of July 28. In a general note, this has been a very active quarter and we are continuing to expand the Company in accordance to the communicated plan for the market.

On May 31, we announced that we will offer to acquire all the shares of Saga Tankers. Saga is a Norwegian based tanker company and listed on the Oslo Stock Exchange which owns a fleet of four VLCC's, three of which are built in the year of 2000 and one of which was built in 1995. These vessels are operating in the spot market whilst one vessel is on time charter until the third quarter of 2012. Provided the offer is successful, the transaction is expected to close in August.

On May 16, we announced that we have time chartered in VLCC, the Venture Spirit built in 2003 for a period of 16 to 18 months at the rate of $27,000 per day. We have a continuous option during this charter to purchase the vessel at $65 million for the first six months, $66 million for the second six-month period and $67 million for the last period of the charter. The vessel was delivered on May 16 and is employed in the Tankers International Pool.

Revenue for the quarter was $25.9 million. Ten vessels are on charter until 2012 to 2018 and the DHT Phoenix and Venture Spirit are employed in the Tankers International Pool.

Net income for the second quarter was $4.3 million or $0.07 per share. Adjusted for non-cash interest rate swap related items, net income from the (inaudible) quarter was $4.3 million or $0.07 per share.

Vessel operating expenses for the quarter were $8.6 million including start-up and delivery costs related to the DHT Eagle, which was delivered on May 27. These both include expensed costs related to the special survey and dry docking of the DHT Ann and also costs related to the transfer of two vessels to a new technical manager.

G&A for the quarter was $2.2 million including non-cash related cost to restricted share agreements for management and board. G&A for the quarter includes a high level of activity related to the offer to acquire Saga Tankers, vessel inspections and vessel acquisitions.

Net financial expenses of $1.8 million include a net non-cash loss on interest-rate swaps of $0.1 million. Cash on hand at the quarter end was $73.3 million.

In addition to these highlights, we would also like to draw the attention to the financial calendar that is outlined in the press release, also be posted on our website and this is done to create better visibility and planning for everybody interested in our Company.

So the third quarter results for 2011 is planned released on October 28; the fourth-quarter results planned on January 19; then first quarter 2012 on April 19, and second quarter 2012 on July 19. Again, this will be outlined on our website.

And with that, we will hand over to the host and open for a Q&A session.

(Operator Instructions). [Noel Tarkette], Cantor Fitzgerald.

Thank you. You have been really active obviously in the VLCC sector. Can you talk a little bit about -- and currently (inaudible) are in a slump. What do you see as the trajectory of that sector in terms of when you see a rebound occurring on a sustainable rebound on demand?

We think the market in general will be challenging for the next one to two years and the reason we say that is although the demand side is very healthy with significant volumes of cargo being shipped in particular towards the East, the market is struggling with oversupply of ships over this period. There are a number of new buildings being delivered this year and next as we a result of the over ordering that was done up to 2008 I would say. So this will be we think still a suppressed market for the next couple of years.

We -- it's difficult to say when the market will return but the nature of our business is it is cyclical, it will not stop being cyclical. Hence we are confident the market will return and which is why we have a plan to try to expand the Company in a prudent fashion during the downturn.

Okay. And then next [question], given that you've been so active in VLCCs, do you expect to switch to the Aframaxes or Suezmaxes in the next six months or 12 months or whatever?

I think for the time being we are being more compelled by the prospects in the VLCC sector than the others but we are committed to do all three classes and we will pursue opportunities in either one of them in the future.

Thank you.

[Leo Lauren], [Sanders]. Sorry, it is Mr. Ken Hoexter from Merrill Lynch.

Hi, good morning, thanks. It's Scott Weber in for Ken. Can you give us a sense approximately of what the Tanker International Pool earned during the quarter? And where one-year time charter rates are today?

I think from what we understand from the Tanker Pool is that the earnings for their 100 pool point vessels, standard vessels average earnings for the quarter is approximately 21.5.

Okay, terrific. And is that -- that certainly is higher than I think the general averages are. Are you see seeing the pools employ slow steaming or what else is there to substantiate why some of the pool rates earned are much higher?

I think there are two benefits in the pool in particular in the current market is that the pool has increasingly been successful in a coordinated slow steaming especially on the [dollar basis]. Secondly, the pool have a number of contracts and have been able to utilize the fleet efficiently, triangulation and also reduce the waiting time between [projects]. So these are things that they positively (inaudible) for the participating members in the pool.

Terrific. And then, Svein, could you just talk a little about your charter (inaudible) strategy pro forma for the Saga Tankers acquisition if we are to assume that rates stay at current levels after the deal closes?

I think on a general note, as stated earlier on this call, we do think that the market will stay challenging for the next couple years. We want to be prudent in the way we manage our Company and to take care of balance sheet. I think everybody should expect us to actively manage the Company and our assets and looking for opportunities to best manage all the efforts that we have. And that is as detailed as we can be at this point in relation to that.

Okay, great. And then just one follow-up regarding your capital structure. Do you anticipate using any of your cash that is building now to pay down debt early or are you happy to keep that on hand at the moment?

I think in line with the communicated strategy we have of growing the Company, the cash available will play a part in that in supporting that strategy.

Okay, great. Well thanks a lot.

(Operator Instructions). Leo Larkin, Standard & Poor's.

Yes, good morning. Could you give us guidance for capital spending and depreciation for this year and also if there is a preliminary number for 2012?

The Company has not given any specific guidance on depreciation as such. What we have on capital expenditures, that's only related to maintenance CapEx. We have in the second quarter one VLCC completing in the second special survey and dry dock. We will have one VLCC in the third quarter this year, one in the fourth quarter and one in the first quarter next year, all going through special service and dry docks.

Thank you.

Then we have two Aframaxes going to intermediate service during the fourth quarter this year. There is no new buildings or new building commitments and other CapEx related to growth of the Company in VLCC.

Okay thank you.

Michael Chapman, Private Capital Management.

Thanks. A quick question, G&A, given that you have said that you plan to grow the Company, is this level of G&A the more normalized level given that you will be active in the deal market going forward?

The G&A is for both actually first quarter this year and second quarter this year are reflective of a very high activity level so it will depend somewhat. If you are not pursuing growth expecting vessel and looking at acquiring a (inaudible), the run rate G&A will be lower than what we have seen for the last few quarters.

But as we have stated, we intend to expand the Company. We hope that we can keep an activity level but at the same time be prudent and build the Company. So I think as a run rate, it is on the high side but assuming we stay active and look at transactions, this number is probably not far from what we can keep it at.

Okay. Then just on the transaction side, the cash level you guys have and what will be projected given the charter coverage that you have, is there a level in mind that you don't want to drop below on cash given that Company debt became relatively low on the cash side during the last downturn or heavily punished by the market. Is there a desire by management to keep it above $25 million, $40 million, $50 million such that there is confidence in the dividend and confidence in the sustainability of the Company?

The covenants we have are $20 million but we think it is prudent for a Company our size and increasing in size to maintain a higher level of cash available. So we want to be careful about navigating the Company to the stock market and avoid a situation or you get forced or start to run out of cash. That is certainly not what we want to attain. So we are not giving out a specific number but we want to be comfortable and that is certainly a significant gamble what is covenant in the (inaudible) facility.

Okay. And then just could you maybe comment on billing forward? Historically the company had some charters with profit shares on top and you'd be bringing on a couple tankers down the road. Would you expect that that's the type of deals you would look to engage in where you have a base level of earnings which would cover your costs? And then participating in the upside so you would have charter plus profit share or would you see that the Company would have some on long-term time charter with no profit share and some on the spot to give you an equivalent type of payout with essentially a different structure?

I think at this point, we would only enter into long-term employment if there was a profit-sharing element because as you know, the environment today is probably depressed and we don't see it is meaningful to lock in [marks in] the business. So at this point, yes, we will definitely look for profit sharing arrangements. At the higher and more normalized level, we should not exclude the opportunities to lock in long-term fixed rate business but generally speaking, we prefer the profit-sharing element.

What is the market looking like right now for a longer-term [plus] profit share? I think I saw in some of the trade rag that there's mid-20s plus profit share. Is that the level that you are seeing presently for two or three year?

It is very few deals being done but we have seen the same thing, especially the ones that have been concluded have typically been maybe five years and sometimes there have been no profit sharing in the first few years but then profit share from the year two onwards. But yes, it's (inaudible).

Okay, great, thank you very much.

(Operator Instructions). Jerome Lande, MMI.

Hi, do you have a fleet valuation as of the end of the quarter?

We do this quarterly and this is something we have to do with our bank. But the fleet valuation is not issued publicly. But what I could say in general is that we are comfortable with the covenant levels in our loans. In general, we think that the values for the last quarter has dropped another few percentage points possibly close to 10, 5% to 10% so that is the general guide we have on that.

Okay. Have you seen more activity in some of the younger VLCCs in the (inaudible) market (inaudible) goals long-term to be acquired to vessels maybe be younger than the current fleet is (inaudible) a lot of volume. Are you seeing anything of a trend here?

There is very, very little liquidity in this market. I think it's fair to say that we are probably if not the most active certainly one of the most more active companies. And if one wants to invest in ships that are say four, five, six, seven years old, there is very little to have a look at. Hence our decision to do (inaudible) was a way for us to at least to some extent control and get back to very well-built 2003 built ships.

But there has been some '90s built ships offered in the market. This is not something we would like to pursue but there is very, very few transactions. So kind of the [broker] assessments and values are to some extent theoretical.

Thank you.

(Operator Instructions). Gentlemen, we currently do not have any questions in the queue.

Okay. Then thank you everybody for your interest in DHT and attending our second-quarter 2011 earnings call. Thank you very much. Have a nice day.

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