DHT Holdings Inc (DHT) 2013 Q4 法說會逐字稿

Thank you and good morning. I'm joined on today's call by Svein Moxnes Harfjeld, CEO; and Trygve Munthe, President of DHT Holdings. And before we get started with this call I'd like to make the following remarks.

This conference call is also being broadcast on our website, dhtankers.com, and a replay on this conference call will be available on the website. In addition, a 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 market in general; expectations regarding daily charter hire rates and vessel utilization; forecasts of world economic activity; oil prices and oil trading patterns; expectations regarding seasonal fluctuations 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.

And with that, I'll turn the call over to Svein Moxnes Harfjeld.

Thank you, Eirik, and good morning to all, and thank you for attending our conference call. Our EBITDA for the quarter came in at $18.9 million, with a net income for the quarter of $11.5 million. This equals to $0.48 per share. This also includes $15.4 million in revenue related to the final settlement of the sale of the OSG claim to Citi. Cash at the quarter end was $126.1 million. We will pay a dividend of $0.02 per common share for the quarter, and this is payable on February 13 for shareholders of record as of February 6.

In line with our communicated strategy, we have agreed to acquire two VLCCs built in 2006 and 2007 for a combined price of $99 million. Both vessels will be delivered during February. We will [turn] that decision through a combination of conventional mortgage financing and an acquisition facility. And this has enabled us to act quickly on what we perceive to be a great opportunity, and two ships at a very attractive price. We consider this, then, an attractive addition to the fleet, and we will continue to pursue investment opportunities and grow the Company as clearly communicated to the markets.

In the end of November last year, we completed a private placement of shares generating net proceeds of $106.7 million. During the fourth quarter, we also entered into agreements with Hyundai to construct two VLCCs with a contract price of $92.7 million each, and this includes certain additions and upgrades to the standard specification.

In January, we agreed to enter into an agreement for a third VLCC at Hyundai at identical contractual terms. Subsequently our order book consists of three VLCCs scheduled for delivery in April, July, and September 2016. In December, we paid the 20% pre-delivery installments of the two first vessels, totaling $37.1 million. And in January, we paid the installment for the third vessel, equal to $18.6 million.

In November, we agreed a final claim amount of $46 million with OSG, related to the claim of $51.8 million filed with the Bankruptcy Court in March 2013. The amount was approved by the court in December. In February 2013, we sold the claim to Citigroup for a purchase price equal to 33.25% of the amount of the claim ultimately allowed, and DHT received an initial payment of approximately $6.9 million in the first quarter of 2013. The final payment of $8.5 million was received in January 2014. The full amount of $15.4 million received related to the sale of a claim has been recorded as shipping revenue in the fourth quarter of 2013.

Further, in November, we agreed a final claim of about $1.5 million with OSG related to six smaller claims in the amount of $3.4 million, filed with the court in May 2013. These claims have not been assigned to a third party. And as the amount, timing, and form of any recovery is unknown at this point, we have not reflected this amount in our financial statements.

With that, I hand over to the Q&A.

(Operator Instructions). Herman Hildan, RS Platou Markets.

My first question, I'm interested in the sentiment that the industry has changed quite dramatically, as we saw with Maersk it was a [fair slight] trying to get control on this. My question relates to further fleet expansions. Obviously the OSG -- this kind of focused on these days. But do you see other alternatives in the market? And, also, how do you see competition in terms of being able to buy larger fleet in the [tanker] market at the moment?

I think the first response is that the acquisition of these two VLCCs, built 2006 and 2007, is proof that demonstrates our ability to act on good opportunities. We think that the average of broker assessments will put these ships somewhere between $110 million and $115 million of worth combined. And the price that we bought them for, we think is certainly attractive, and demonstrates our ability to conduct [these].

We are looking at a broad set of opportunities, and being single-ship opportunities and potential fleet acquisitions. We stay in very close dialogue with the yards, to follow them on opportunities that it provides there. And we are also considering potential M&A opportunities for the Company. So there is a gambit -- a wide gambit of business opportunities for us ahead of us.

And you've seen, also, that we have strong support from the capital markets. Shareholders that came in at the private placement in November have all been very, very vocal to us, that they would like to see the Company grow and get bigger. And so, with that -- and also get support from the Latin banks. We certainly think that the Company is in good position to continue to expand.

Okay, thank you. In terms of newbuilding capacity, how much more do you think is available in terms of fixed in? Or are you able to get any additional deliveries to the three you already have in 2016?

We, of course -- as Svein said -- we are staying in touch with the various yards and we think there are potential for maybe a handful more 2016 deliveries. There were some rumors out last week that there were some private entities that had secured two ships for 2016 at the price tag of 99. So prices are clearly up, and we really think there's a limit to how many more 2016 deliveries we can see from the quality recognized yards.

With the invoice [quite well] for the whole outlook, we think that this is one of the attractive aspects attributed to the sector at this point, that the supply side on the large tankers is pretty much capped for the next three years. And when you couple that with expectations for continued demand, we think that really is the foundation for the recovery we've seen coming.

Okay. Well, thank you very much.

Jon Chappell, Evercore.

Svein, I was hoping for a little bit more detail about the financing for the two secondhand ships. Has the conventional mortgage or the bank financing already been secured? And if so, what percentage? And then also, can you just give a little bit more explanation about the terms of the acquisition facility?

I think, in line with what we have communicated in general, we are considering leverage over time of around 50% of acquisitions. So, we commenced our mortgage financing on those two ships; we'll be in line with that. And certainly we expect the general pricing of this type of financing to be in the range of 300 to 350 basis points overall.

We secured an acquisition facility which has a tender of less than 1 year. And I think just to speed up things there, as this opportunity came about, this enabled us to act react very quickly and secure these ships at what we perceive to be a very attractive price. So, the cost of such a facility is higher than the general or conventional mortgage financing; but still, from our perspective, viewed to be very attractive.

I think, in general, we have clearly stated to the market that we intend to continue to grow the Company, and this involves identifying additional investment opportunities and also coming to the market to raise additional capital. And then we'll look closely at opportunities to do so as we move forward. You can view this acquisition facility more of a bridge financing, if you like.

Yes, that's what I figured. So if we assume that you're going to use either cash on hand or equity at some point to repay the acquisition facility, and we compare that to the cash on hand at the end of the year, and your capital commitments for the newbuilds, what would you estimate your current liquidity situation is as we try to think about how many other assets you could potentially buy without an equity raise?

I think, based on the cash you see at the end of the year, of course we have the first payment on the third newbuild has already taken place subsequently. And then the next installments on the newbuilds are coming in the second quarter, with 10% of their contract price for each of the three ships. And then there's really nothing on CapEx commitments until the third quarter of next year.

So I think you'll see, we feel like we have a quite comfortable cash position, but we still think that this market -- you ought to have a creative capital structure; as we have said numerous times, not too much leverage, and also to keep a solid cash balance at all times.

And if we think about the two moves that you've made in the last two months or so -- let's call it new builds versus the secondhand -- and I know you're probably looking at all opportunities. But over the last year, it seems like you've kind of come around a little bit to the eco-arguments.

But with what Trygve said earlier about very few slots available for 2016, how do you kind of balance the desire to have ships on the water today versus the fuel efficiencies that you're starting to see, or hope to see, but potentially not getting a vessel in the water now for three years?

I think the two moves you referred to demonstrate that we are committed to both, both newbuilds and secondhand, and we think that they are both attractive. And as you say, with a secondhand, of course, you get ships in the water immediately and you get to participate in the spikes. But in the long run, we think that the fuel efficiency is going to be an important factor. (multiple speakers) And we are happy doing both.

Last one for me. The spot exposure in the fourth quarter, about 42%. As we are kind of coming out of the depths of the downturn, and I'm not sure how sustainable current rates are, but how you kind of feel about your chartering strategy? Would you want to be far more spot-exposed, relative to your historical bent towards being more charter-covered in the near future?

We always had to be, coming to 2013, that we felt it prudent to -- as the most relevant certainty about earning potential for last year, we thought it prudent to secure some shorter-term employment on some of our fleets. But we've been very conscious of keeping those charters in a kind of 6 to 12 months lengths in order to retain the flexibility to increase spot exposure when we see that the fundamentals are changing.

So, I think the current spike that we are in demonstrates to us that the underlying balance in the market is better than what people feared coming into -- in 2013. We certainly expect 2014 to be better than 2013. But we also expect 2014 to still be a bit choppy and bumpy. So, but we will increase spot exposure to 2014 and increase market exposure in general. And these two ships that we just have agreed to buy, they will trade in the spot market; and, through that, increase our spot exposure immediately.

Okay, got it. All right. Thanks, Svein. Thanks, Trygve.

Omar Nokta, Global Hunter Securities.

I just wanted to follow up on the last commentary about the spot exposure. Could you just give a sense as to, say, starting at the beginning of this year, where you are with the four VLCCs -- two Suez and two Afra that are on the water currently. What number are on the spot, and what are on charter?

Currently the two Suezmaxes and two Afras are all on short-term fixed-rate charters. On the VLCCs, we have one, the DHT Chris. She is on a fixed-rate charter that expires in the second quarter this year. The other three are exposed to the spot market. The DHT Eagle, we are fixing ourselves. She was just recently fixed on a long voyage from Venezuela to the Far East, at sort of the current healthy rate levels.

And then, the DHT Phoenix is participating in the TI pool. That's, as you know, there would be a little bit of a time delay from what you see in the broker reports on going rates. So, it shows up on the P&L statement simply because we are fixing somewhere else and they need to complete the current voyages before they commence.

And lastly, the DHT Ann. She is on a time charter to [coke], but that's a previous floating rate tied to the TD3 index. So that gets more of an immediate participation in the upswings than the other two.

Okay, thank you. And I'm not sure if you'd be able to disclose the (technical difficulty) for the Eagle and the Phoenix. Do you have a sense of what percentage of days for Q1 have been fixed, and at what rate?

TI is -- and also that is reflective of what you have now reported. Approximately 40% of TI's first-quarter capacity is fixed at approximately $36,000 a day. So, that's certainly healthy levels.

And the Eagle is fixed for close to two-thirds of the first quarter, at rates north of that; north of 50.

Did you say north of 50?

Yes.

Yes.

Okay. All right. Thank you. And then just also, I wanted to just change the topic and not get too deep into it, but I wanted to get a sense of the dividend. You declared another $0.02 dividend. Obviously, the annualized $0.08 payout seems to be very well protected and has substantial upside, whether the market continues to improve or just stay maybe at lower levels from here.

How do you guys see the dividend? Is that something that the Board or you guys would look to actively grow from here? Is this something that we can expect a boost this year? Is it more of a 2015 or beyond story?

We think that the current market environment, certainly through 2014, is a time and we would focus on investing and growing the Company; and such as the potential cash that we will generate through the year will be applied accordingly. We think 1 year, 18 months ahead of us, you should expect us to slow down investments and start kind of harvesting period, and you build up in what we expect to be the upturn in the market for more sustainable rates. And in that sales, there will be opportunities for us also to increase the dividends and return more monies to shareholders.

But in this market, we are certainly focusing on investing and then growing the Company. And as we've said, we are looking to acquire both new and -- newbuildings and secondhand tonnage. We have a strong focus on robust cash breakeven levels that, again, will enable us down the road to increase dividends significantly.

The current cash breakeven on our VLCCs is $13,000 a day, and that is OpEx interest for debt service and G&A. These two new ships we have acquired, we have marginally higher cash breakeven levels. But again I think this will be all very good investment that will return a lot of capital to shareholders over time. And this is really how we focus on our investments.

All right. Very well. Thank you for the update.

(Operator Instructions). Anders Wennberg, Brummer.

Just another question on the spot versus time charter. I understand that -- I think you said that Suezmax and Aframax time charters are coming off in the June to spring; in February to April timeframe. But I also understand they have some kind of extension options. Have the customers declared that? Or are you actually getting them available for the spot market? I didn't get that.

Both of the ships in particular, the DHT Trader -- the client, BP, had an option to extend, which they did. So that new period of six months will commence in February. They have no further options to extend them beyond that six-month period. So, to that charter, we expect them to expire in August.

On the DHT Target, she and -- that charter is due to expire in March. But then the client has an option to extend also to another six months, and that option is -- we will have to see whether that is declared or not.

On the DHT Sophie, that charter has broader flexibilities. It trades on the West Coast of the US. So that charter has minimax range, if you like, from between the second quarter to the fourth quarter. The DHT Cathy is extended, with her current contracts Phillips 66 through the year.

From the VLCC side, the DHT Chris, that charter is expiring in the second quarter. And we have three VLCCs in the spot market as we speak, and the two ships that we just have acquired, which with the media delivery will also be in the spot market. So as such we'll have, in immediate effect, we'll have five VLCCs in the spot market with soon-to-be six.

Okay, good. And then on -- back to the overall question of growth. I know we all appreciate you growing in this market that has much better supply-demand balance then with what a -- only a couple of months ago. However, how much has pricing gone up for your own investments? How much hoist does it actually get that hold all those kind of fleets? And also, given that prices have actually gone up, have you any idea about how far you want to go, and how much further capacity you want to add? Do you have any kind of target for that?

I think, certainly, if you look at the broker evaluations over a 5-year-old, say -- it has some VLCC move from, say, maybe the mid 50s to now the high 60s. So percentage-wise, that is a meaningful move.

But you need to be aware that there are a few transactions in general, so these are very much broker assessments. So the actual data points of the transaction may be different. So, maybe the low wasn't quite as low as the brokers estimated. And the momentum, there is now more buying interest, so there's more support for those validations that we see.

But with that said, if you look at the two secondhand we just acquired, if you run the math on them and you see the 20-year lifespan, you need about $30,000 a day to get 10% on levered returned thereabout. And this compares to historic average earnings over the past 20 years for VLCCs in the mid-40s.

We think there is definitely still attractive investment opportunities out there, both on almost brand-new ships to somewhat more seasoned ships. So we think we are still in the investment window of the cycle.

Keep in mind that the acquisition price of these two ships is somewhere kind of 10% -- maybe 15% below what the brokers' assessments have been. So, again, it demonstrates that we've had ability to capture a very attractive opportunity on very short notice. Not to say that we can always do this like this, but demonstrates at least our ability to respond when these opportunities arise.

Got it.

(Operator Instructions). As we have no further questions at this time, I would like to hand back to our speakers for any additional or closing remarks. Thank you.

All remains to say, thank you very much for attending our conference call and being interested in DHT. And we will continue to work hard and deliver on our strategy. Thank you very much, and have a good day.