DHT Holdings Inc (DHT) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2013 DHT Holdings earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Eirik Uboe, Chief Financial Officer. 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, DHTankers.com and a replay of this conference call will be available on the website. In addition, a Form 6-K evident 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 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 rates and [thus utilization]; forecasts of our world economic activity; oil price and oil trading patterns; expectations regarding seasonal fluctuation in tanker 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.

I am today also joined by Svein Moxnes Harfjeld, our CEO, and Trygve Munthe, our President. And with that I will turn the call over to Svein Moxnes Harfjeld.

Thank you, Eirik. We made several significant achievements during the quarter. Despite challenging markets we generated $7.4 million from operations. Additionally, we monetized our claim against the OSG estate and thereby further increased our cash position. But even more significant, we have created a clear runway for the Company through the renegotiated RBS loan facility.

With no minimum value covenants and low installments through 2015 we will enjoy one of the most competitive cash breakeven levels in the industry. This combined with our cash balance positions us well for the challenges and opportunities ahead.

The highlights of the quarter are -- EBITDA came in at $4.2 million with a net loss for the quarter of $3.1 million equal to $0.20 per share after adjusting for loss on sale of a vessel of $0.6 million. As of March 31 our cash balance was $75.5 million, equal to $4.90 per share. We will pay a dividend of $0.02 per common share and $0.25 per preferred share for the quarter payable on May 23 for shareholders of record as of May 14.

When determining the dividend our Board has taken into account general business conditions and the continued weak tanker markets. In April we amended our credit agreement with the Royal Bank of Scotland whereby the minimum value covenant has been removed in its entirety.

Furthermore, the installments scheduled to commence in 2016 have been changed from a fixed $9.1 million per quarter to a variable amount equal to free cash flow in the prior quarter, capped at $7.5 million per quarter. The next scheduled installment would at the earliest take place in the second quarter of 2016.

In April we made a prepayment of $25 million and have agreed to increase the margin to 1.75%. The $25 million has been recorded as current portion of long-term debt as of March 31 and DHT Maritime's financial obligations under the credit agreement will be guaranteed by DHT Holdings.

During the quarter we filed a claim amounting to $51.8 million against the OSG estate in the US Bankruptcy Court. On February 28 we sold the claim to Citigroup for a purchase price equal to 33.25% of the amount of the claim ultimately allowed by the bankruptcy court.

We received an initial payment of approximately $6.9 million and will receive a final payment plus interest from Citigroup when the claim is allowed by the Bankruptcy Court. Pending the claim being allowed by the US Bankruptcy Court we have not yet reflected the sale of the claim in our income statements.

The 1997 built VLCC DHT Regal was sold for $23 million and the vessel was delivered to the buyers on April 29. A loss of $0.6 million in connection with the sale has been recorded in the first quarter. The net proceeds from the sale will be used to reduce the outstanding debt under the RBS credit facility and $22.3 million has been recorded as current portion of long-term debt as of March 31.

With that I'll hand over to Trygve who will provide some more color as to what our achievements during the quarter mean for the Company.

Thank you, Svein. We now find DHT to be in a pretty good shape for the market we are in. Firstly, as Svein said, we have removed the uncertainty around the minimum value situation for the RBS ships. Over the past six quarters we have paid in a total of $88.1 million to remain in compliance with this covenant; that equates to an average of almost $15 million per quarter.

Under the restructured loan agreement such payments will no longer be required. So this loan now has more or less the flavor of a 4.25% year bullet loan at LIBOR plus 175. We consider this a very attractive financing for our Company.

Secondly, we now have one of the lowest cash breakeven levels in the industry. We estimate these to be around $13,000 a day for the VLCCs, $11,500 for the Suezmaxes and $10,500 for the Affras. This covers OpEx, interest and G&A. We think you will recognize these as quite competitive numbers.

Thirdly, as far as CapEx we have a light schedule. We have one dry docking this year, two next year and one in 2015.

When it comes to our balance sheet we'd like to highlight net debt equals about 51% of bulker values as per the most recent Clarkson's weekly report. Net debt is at or just below the current scrap value of the fleet. And finally, we have about $50 million of unencumbered cash in the Company. The combination of the low cash breakeven rate and the state of the balance sheet gives DHT significant staying power.

If we then switch focus to the upside, we would like to point out the significant operational leverage we have. An increase in average rates of $10,000 per day per ship translates into an annual EBITDA of $28 million per year which equals about $1.80 per share. On the finance side we would like to mention that DHT does have access to traditional bank debt, this gives us the opportunity to pursue growth opportunities in a capital efficient manner.

So in summary, low cash breakeven combined with a decent balance sheet gives us staying power which in turn provides us downside protection. We have significant upside through our current fleet and its employment profile. With our house now in order and access to credit we'd now like to position ourselves for growth and expansion. And with that, operator, we would like to open up for questions.

(Operator Instructions). Jon Chappell, Evercore Partners.

Trygve, I appreciated the comments regarding potential growth and everything that you have done regarding the bank facilities, trimming the 1990s tonnage. So when you think about your financial firepower for growth kind of two questions.

One, what do you think that you are comfortable with from a liquidity perspective in the ability to attain financing for a kind of total purchase price of X?

And then also, when do you think that DHT makes a move to start to add modern tonnage and what is the type of age range you would be focusing on? Is it kind of the zero to five years, five to 10 years, 10 to 15 or even newbuilds?

Thank you, Jonathan, It's Svein, I will respond to your question. So I think for the past year or so we have been operating with maybe a larger cash cushion than one otherwise would do and this has been a reflection of the minimum value covenant risk that we had in RBS facility. As you now know, this is going away; hence we feel that we have more flexibility surrounding our cash position.

That being said, we are ambitious and we certainly want to pursue in expanding and growing the Company. This will in some shape or form also entail raising more risk capital for the Company. But I think one should assume that that will be done in connection with a clearly defined use of proceeds or a project or several projects as we go forward.

We continue to inspect the second half covenants but we are also paying close attention to the developments on the new designs for ships. It is fair to comment that the shipyards have been somewhat slower or in developing the so-called ECO Designs for the larger tanker designs as opposed to what has been done in the smaller sectors such as product tankers or container ships.

So we will certainly look for what we will then perceive to be the best investment for the Company. We are not fixed on this being a second [own or] a new ship, but we are certainly now slowly opening up to also the benefits of the new designs. As of last year we were rather skeptical to what had been achieved so far on the larger ships.

Understood. Regarding the sale of the claim to Citigroup; first of all I want to be clear. I mean you mentioned that you've already received an initial payment of $6.9 million, but then you say later that it has not been posted on the income statement. You haven't posted or reflected anything including the $6.9 million so far? And then what do you think the timing would be for the receipt of the remainder of the payment?

That is correct. We have not recorded anything in the income statement on the sale of the claim. So the $6.9 million obviously is cash. The borrowed base announced by the Bankruptcy Court is now May 31 for any creditor really to file their claims against the estate.

We do not know when the estate will so engage with ourselves to approve the claim, whether that is three months or nine months or 12 months we certainly do not know. But I think some of the more experts in this market they would expect things to happen towards the end of the year or early part of next year.

Okay. And then final question -- you mentioned the drydock schedule, one this year, two in 2014, one in 2015. Can you tell us which assets, the timing of them, the amount of off-hire time and then the cost?

Well, the one this year is the DHT Sophie, that has already been conducted; she completed her drydock a week ago. For next year it is the DHT Phoenix which is due in the third quarter. And we also have the DHT Cathy, one of Afframaxes, which I think is in the second quarter. In 2015 it is the DHT Target, one of the Suezmaxes that is due.

Okay, and what is the cost of those roughly?

We have specifically not guided specific numbers, but they more refer to what has been the industry guidance. And I think it is fair to say that on the Afframax side we have been referring to approximately $1.5 million, $1.7 million type of dollars for a second special survey.

On the VLCC front what we will have due next year is the third special survey and the industry numbers are in the kind of $3 million to $4 million range. And then for the Suezmax in 2015, which is also a third special survey, I think industry is referring to that to approximately be kind of $2.5 million to $3 million.

Okay. Well, given the market outlook and the potential $3 million to $4 million outlay on a vessel turning 15 years old -- I mean do you plan on undergoing that survey and continuing to operate the ship? Do you have comfort that there is a payback period for that or is it potential -- or would you think about potentially scrapping or disposing of a ship before it turns 15?

I think it is a bit too early to dig into that. As Svein said, that dry docking isn't due until the third quarter next year. So we would like to see how the market develops in the meantime before we make that decision.

Okay. I appreciate all the help. Thanks, Svein and Trygve.

Herman Hildan, RS Platou Markets.

My first question is on the OpEx side. You had quite little OpEx this quarter, is that -- could you potentially give comment on why it was low?

I think as a general comment the operations in the first quarter were very, very good, so we were pleased with the numbers. The numbers for the quarter however also include a one-off positive of about $1 million. So the nominal number for the quarter is not reflecting our run rate so to speak.

But I think it's fair to add on the other side of that the OpEx for the two Suezmaxes were a bit higher than what you normally would see because they took them over from the OSG management.

Okay, thank you. And also you mentioned briefly that you seen some development on the (inaudible) for VLCCs or larger vessels. Could you add some flavor to that in terms of how much fuel savings and potentially what (inaudible) prices are [interesting]?

I think as we have stated earlier, last year we were a bit skeptical, the yards had done very little to develop a new designs for VLCCs and engine manufacturers also had not really come forward with any significant developments. During the first quarter this year these have changed somewhat and we are in continual dialogue with certain yards in order to stay on top of it.

It is too early to be an explicit on what the savings are, but we are increasingly confident that there is something real here. And come the next -- within the next one to three months that we will see new designs with clear benefits.

And also on the financing side you said that there is availability on the debt side. What kind of leverage that will -- are available and what are you comfortable with or what kind of level would you target whether you buy a secondhand or a newbuild?

I think you have seen on the couple of acquisitions that we have made over the past couple of years we have applied 50% leverage. And of course depending on the employment strategy for a potential addition we think that somewhere around 50% is the healthy number or healthy leverage.

So in combination with that I guess you will have the more (inaudible) rather than chartering out the vessels, right?

We think at this point in the cycle you don't want to commit long-term at these low rates. So it is better to do either short-term time charters or stay to the spot and wait for the market to recover. And if you do that you cannot take on too much financial leverage, in our opinion.

I think also to add on to that, if we down the road decide to pursue on new buildings and with one what could be new ECO Designs, in order to retain that benefit you would also like to keep the ships in the spot market and as a consequence of that you do not want to take on too much leverage. So the same concept really applies for that as well.

And one final question in terms of growth. I mean you have a point where you say that $10,000 higher on the day rates is about just short of $2 per share. How do you think about weighting the potential upside from your current state versus issuing equity, how do you see that or how do you think about that in terms of growth?

I think, as we said, raising additional risk capital for DHT will be done in connection with a clearly defined use of proceeds, i.e. an investment project. And I think those projects could be of a different nature and we would be quite clear in communicating that when we come to the market to do that.

It is hard to give you just one general set of rules in how we want to go about that. But keep in mind that we are shareholders in this Company and we are very mindful of creating value and ensuring that it is done in a fair way for everybody in the Company.

That is a very good point. That is all for me, thank you.

(Operator Instructions). We have no further questions.

Okay, thank you, everybody, for attending our earnings call and thank you for your continued interest in DHT. Have a good day.

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