DHT Holdings Inc (DHT) 2012 Q2 法說會逐字稿

Thank you. Good morning and welcome to our second quarter earnings call. I'm joined today by my business partner Trygve Munthe and our CFO Eirik Uboe. Firstly, Eirik will present the Safe Harbor provisions. Eirik?

Thank you, Svein. 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 tanker markets in general, expectations regarding daily charter hire rates, (inaudible) utilization, forecasts of overall economic activity, oil prices and oil trading patterns, expectations regarding seasonal fluctuations in tanker demand and [tested] levels on newbuilding and scrapping, and projected dry dock 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.

Svein?

Thank you, Eirik. We will now address the financial highlights of the quarter. Following this we will highlight how we are positioned for these continued tough times.

Our EBITDA came in at $11 million with net income of $2.7 million and earnings per share of $0.02. The earnings per share is calculated based on an average share count during the quarter of about $140 million, and before the reverse stock split on a fully converted basis. Adjusted for the reverse stock split, the earnings per share would have been $0.23.

We will pay a dividend of $0.24 per common share and $3.40 per preferred share for the quarter. The dividend will be payable on August 16 for shareholders of record as of August 9.

During the quarter we had three VLCCs in the TI pool, two for the full quarter and one from May. Our vessels generated average Time Charter Equivalent earnings of $25,000 per day. The remainder of the fleet was either on time charters or long-term available charters during the quarter.

We commenced an equity offering in the first quarter that was backstopped by Anchorage Capital. The offering and the concurrent private placement closed on May 2, generating net proceeds of approximately $76.2 million.

At our Annual General Meeting, the shareholders voted to authorize a 12-for-1 reverse stock split of our common stock. The reverse stock split became effective after the close of business on July 16.

We prepaid $13.6 million under the credit facilities with DDD and DNV combined. This pre-payment was equal to all scheduled installments through 2014.

Following the fleet appraisal for the second quarter, we repaid $18 million under the RBS facility. Further, and following the fleet appraisal for the third quarter conducted in early July, we repaid $3.1 million in July. The next scheduled installment under the RBS facility is in the third quarter of 2015.

DHT Regal completed its third special survey and dry dock on time and on budget, and entered the TI Pool during the quarter.

The Aframaxes Overseas Rebecca and Overseas Ania were both redelivered under their time charters and subsequently sold during the quarter. We incurred a book loss in the quarter of $1.4 million on the sale of the two vessels in the second quarter. A loss of $900,000 related to the Overseas Rebecca was recorded in the first quarter of 2012.

The proceeds from the sales were used to further reduce our outstanding debt under the RBS credit facility.

The Aframax, the USS Sophie, was redelivered under Time Charter Equivalent 2012. The vessel is currently trading in the spot market with the intention to enter into a pool during the second half of 2012.

With that, I hand over to Trygve, who will highlight how we are positioned for these continued tough times. Trygve.

Thank you, Svein. These are certainly difficult times in the taker markets. As we all know, we're suffering from oversupply with way too many new buildings coming into the market. When you combine this with a generally soft economy we believe the tanker market recovery is some time away.

We believe DHT is well-positioned for this market environment. As you have heard us say numerous times, we have no scheduled installments till the first quarter of 2015, and no debt maturities until 2016 and 2017.

Further, we enjoy extraordinarily low interest rates on a large portion of our loans. As a matter of fact, our current weighted average interest cost is only 3.16% and that is all-in. This comes out to about $6.9 million per year, or about $2100 per day per ship.

Importantly, once our last interest-rate swaps comes to an end in January next year, the interest rate drops to 1.6% all-in, and the annual interest cost to $3.5 million which equates to a meager $1100 per day per ship, of course all else being equal.

Value to loan covenants in our loan facilities have been cash-consuming over the past 12 months, to say the least. And it appears there will be a big uncertainty plaguing our stock performance.

On the RBS facility we have prepaid $75 million over the past 12 months. On the other two facilities, we have voluntarily prepaid $14 million to create headroom under the minimum value clauses. On the RBS facility we are in compliance, but have little or no headroom and are hence exposed to potential further value declines.

In full year guidance, the balance of this loan is now $174 million. And just as a reminder, this loan sits in the subsidiary DHT Maritime but without any guarantees from DHT Holdings. With $70 million in cash on the balance sheet, which, by the way, sits in DHT Holdings, we believe we have reasonable flexibility to remain in compliance with our loan facilities going forward.

Shifting gears a little bit, looking at the top line. I think it is important to note we have 59% charter coverage for the second half of this year, and at attractive rates. In fact, contracted revenue exceeds all costs for the second half.

That is, if we earn absolutely nothing -- zero dollars per day on the spot ships -- we still expect to generate cash after vessel operating expenses, G&A and interest for the second half of 2012.

For 2013, the charter coverage is 29% of total tanker days. This means that we expect to only need some $6000 a day or thereabout on the spot ships to generate cash after OpEx, CapEx, G&A and interest for 2013.

In conclusion, we are not particularly optimistic for the near future in the tanker market, but we believe DHT is well-positioned to ride out the storm. Number one, we have one of the lowest cash breakeven levels in the industry. Number two, we have found valuable contract coverage. And if you take those two factors combined, it is reasonable to expect that we will generate [possible] cash from operations in 2013 under absolutely [most] scenarios.

Number three, we have a healthy balance sheet with net debt to current fleet value of about of about 50%. And number four, with significant cash which fits in DHT Holdings to handle potential further value-to-loan covenant issues. And importantly, about 80% of our bank debt sits as non-recourse in our subsidiary DHT Maritime.

We have always said we continue to believe that this downturn, like all other downturns, will present some attractive investment opportunities. With a new cornerstone investor on the team, we believe we're now in position to turn these challenging markets into opportunities for DHT. And with that, operator, we would now like to open up for questions.

(Operator Instructions) [Petras Kallagus, Dellos Investment].

Hello, just two questions. First of all, what is your current share count, please? And the second question, do you see any opportunities -- I mean, you disposed of two vessels. Will you be looking to replace these in the short term or in the medium term, and how would you proceed with doing that? Thank you very much.

On your first question, subsequent to the reverse split which took effect on July 16, the share count on a fully changed basis -- meaning that all the preferred shares are changed to common shares -- the share count is about 11.7 million.

Without the preferred, without the exchange of the -- without exchanging these?

Excuse me, excuse me, it's about 15 million. So this was the average count for Q2 that I referred to. But on that fully diluted -- and after we were split it's about 15 million shares (multiple speakers).

This includes also a conversion of Anchorage Capital's preferred stock.

So the current share count, without sort of converting the shares is --?

Just the common shares?

Yes, just the common shares.

7.9 million, just the common, after reverse split.

Okay, excellent, thank you.

To your second question, following the sale of the two Aframaxes, these two ships were built '94 and were older. And as a consequence of their age but also their design and size, if you like, they have very limited if any opportunities in the current weak markets. And with upcoming CapEx we felt it was the best thing to do for the Company to dispose of these ships.

As we've stated, we have ambitions to expand the Company, not necessarily replacing these ship types as such, but to grow the Company through the downturn.

Okay. So have you actively looked at replacements? Or do you believe you would do that at a later stage if tanker values go further south?

We are continuing to inspect the potential acquisition candidates but, we think the time to invest is probably little bit ahead of us. So we are closely monitoring the markets. But what is key for us is to find the right asset at the right quality and build at the right yard, not necessarily trying to have the optimal timing. So -- good assets at a fair price, if you like.

So would further down the road to mean 2013 or sort of -- (multiple speakers)?

It could mean this year as well as next year. So if we go and buy one more ship later this year, we do not perceive that to be an end game. And so we want to continue to grow the Company over time. (multiple speakers)

We feel that time is in our favor.

Okay. Do believe you would be doing a follow-on offering in order to purchase further ships? Or do you believe you can buy ships as the Company stands now?

I think that would largely depend on what type of project we will do, whether it is a single ship transaction or whether there will be a fleet of ships. But I think it is fair to say that with our ambitions to grow the Company over time, the Company would need additional capital. But we, as Management, are meaningful shareholders in the Company and we very much think like shareholders and want to ensure that those investments are in the best interest of the shareholders of the Company.

Okay, thank you.

(Operator Instructions) Jeff Rudner, UBS.

Good morning gentlemen and congratulations on continuing to navigate a very difficult environment in a profitable fashion. First, just as a follow-up to the previous gentleman's question, can you go over again the share count? I have the 11.7 million common shares assuming full exercise of the preferred shares. And you said up on conversion of Anchorage stock it would bring it up to 15.2 million.

About 15.3 million, assuming all preferred shares they change for common and after reverse stock split, the share count is about 15.3 million.

Okay, so (multiple speakers)

As you might be aware now, following the stock split there is now an optional conversion available to holders of the preferred stock. And then we have a mandatory conversion on the preferred stock on June 30, 2013.

Okay, next question; can you comment somewhat on the dividend policy going forward?

In connection with the equity offering that we conducted in the first half of this year, the Company communicated its intent to pay a dividend of $0.02 per quarter based on the previous share counts. And that dividend intention was communicated for 2012. The Company has stated that it will revert with its intent for 2013 and onwards.

Our, that last comment, the Company will what, going forward into 2013?

The Company will revert at the latest stage with its intent for 2013 and onwards.

And last question. Can you comment a bit on the reverse stock split, why the number 12-for-1 or 1-for-12 was picked as opposed to some other number? My question or concern is that -- my understanding is the reverse split was done primarily to remain in compliance with the New York Stock Exchange notice of noncompliance, with the stock selling under $1.00 a share.

Now, theoretically having a 1-for-2 reverse split would've accomplished that. But a 1-for-12 reverse split, I'm just wondering how you came to that number of 1-for-12 as opposed to any other number.

I think it's fair to say there is no exact science as to how to do this. I think there were several things that the Company wanted to achieve by this, and the Company obtained advice from financial advisors in what to look for. I think we wanted to have a smaller and number share count in general, not above going above the $1 listing requirement by the New York Stock Exchange.

We've also have been advised us to and what kind of share price territory would the stock then be potentially more attractive to various institutions, et cetera. So, again, there is no specific science and detailed analysis that the Company will lay out to the market, but the following deliberations and advice taken, this was viewed as an appropriate ratio to apply.

Okay. My concern and I guess next question, generally speaking when a Company has a large reverse stock split, generally speaking 1-for-10 or more, the price of the stock going forward tends to be worst worth less than the previous pre-split stock. And unfortunately in this case with yesterday's close of [6.08], the stock is selling at an all-time low at least as best as I can tell, which makes it $0.50 a share on the old stock.

Are you gentlemen concerned about the weakness in the stock following the split? And do you have any plans or suggestions as to how the Company might improve the price of the stock?

I think when this was discussed in the past with advisers also, there are various statistics to consider. And some companies fare well and some companies do not fare so well immediately after this.

I think the general development of our stock price right now is more reflective of the current tanker markets, and also what some of our peers -- how they are performing. So I think it is very hard for us to kind of isolate DHT. So, capital market performance in the short term [promotes] happening around us despite the Company having a very healthy balance sheet and significant cash at hand.

Okay, well, thank you very much and congratulations on navigating some very difficult waters in a pretty good fashion. Thank you.

Thank you.

(Operator Instructions). Thank you. As we have no further questions, I would like to turn the call back over to you, gentlemen, for any additional or closing remarks.

Thank you very much. It remains for us to say thank you to everybody who attended this call, and thank you for your continued interest in DHT. Have a good day.