DHT Holdings Inc (DHT) 2014 Q1 法說會逐字稿

Thank you. Thank you and good morning. And before we get started, 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 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 rates and vessel visitations; forecasts of world economic activity, oil prices and oil trading patterns; expectations regarding seasonal fluctuation in tanker demand; anticipated levels of newbuilding and scrapping; and projected dry docking 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'm also joined this morning by Sven Moxnes Harfjeld, our CEO; and Trygve Munthe, our President. And with that, I'll turn the call over to Sven Moxnes Harfjeld.

Thank you, Eirik. Good morning, everyone, and thank you for attending DHT's first-quarter 2014 earnings call.

Our EBITDA for the quarter came in at $7.6 million, with a net loss for the quarter of $0.5 million equal to $0.01 per share. We took delivery of two VLCCs in February, both that started operations without accruals. The ships were subsequently fixed and are now in operation. The unfavorable weather conditions in the Eastern Mediterranean resulted in a longer-than-planned drydock stay for one of our Aframaxes. And furthermore, one of our Suezmaxes suffered harsh weather damage in the midst of the North American winter.

We will pay a dividend of $0.02 per common share for the quarter, payable on May 22, for shareholders of record as of May 14. During the quarter, we entered into agreements with Hyundai Heavy Industries for the construction of four VLCCs, including the declaration of an option entered into in 2013. As a result, our order book now consists of six VLCCs at an average contract price of $95.5 million each, a price that includes $2.3 million per vessel for certain additions and upgrades to the standard specification.

We brought the two large newbuildings some 10 months forward from the original delivery schedule. The delivery schedule is now November 2015, followed by January, April, July, September, and October 2016. We currently have a fleet of 10 ships in the water, being six VLCCs, two Suezmaxes, and two Aframaxes, totaling about 2.38 million deadweight tons in operation. With the six VLCCs on order, the fleet will increase to about 4.18 million deadweight.

On February 5, we completed a registered direct offering of about 30.3 million shares, generating net proceeds of about $215.9 million. Today, we have about 69 million common shares outstanding. There are no preferred shares outstanding. We have an effective shelf filing in place. And with about 80 million shares -- authorized shares available, we are in position to respond to growth opportunities.

And with that, I pass on to Trygve for an update on our other activities.

Thank you, Sven. As Sven said, we have -- we continue to be focused on growth and expansion of DHT. And since we took the delivery of the DHT Hawk and the Falcon, we have spent our clear majority on trying to develop new and meaningful projects for the Company.

Since then, our focus has been first and foremost on secondhand opportunities. We have inspected a number of ships. And we have tried to develop individual vessels to be added to the fleet, as well as groups of ships or small fleets, if you may, as well as some more M&A type opportunities. However, and unfortunately, we have so far failed to find common ground on values. We certainly recognize that the market and the secondary values have recovered since the third quarter of last year.

If you take the Clarkson in shipping intelligence as a proxy, we recognize that the value of a five-year-old VLCC is up 35% since August last year. But in many of the projects we worked on, we have found sellers to have price expectations far north of those levels. And simply, we have not been willing to meet those expectations. However, we think that this is about to change. We certainly see that there are more sales candidates coming onto the market. And we have a sense that prices are narrowing in other broker estimates. So we are cautiously optimistic that we, during the not-too-distant future, can find common ground with potential sellers and we can continue to grow DHT.

And finally just a few words on newbuildings in general. We have certainly looked at certain opportunities to take over existing orders. But again, we have failed to find common ground in prices. And as far as potentially placing new or further orders directly from the yards, we are a bit apprehensive, first of all, because we think that 2017 delivery at this point seems to be a bit far out. And importantly, we do certainly feel our share of the industry responsibility for not overbuilding the tanker market.

So, with that, operator, we would like to open up for questions.

(Operator Instructions) Jon Chappell, Evercore.

So I wanted to walk through the financing assumptions for the six newbuilds. You have a lot -- you have enough cash on the balance sheet to meet your capital expenditure program through 2015. But just wondering if there's been conversations with banks yet? And what you're looking at for potential leverage on the newbuilds, and then the timing of taking that leverage will be completely at delivery?

Yes, Jon, this is Trygve. We have binding commitments from a syndicate of banks to provide mortgage financing for the first three orders that we place. We are working on the documentation on that, but it's definitely a firm commitment.

And then as far as the next three ships, we have received three different offers, at least, that we are evaluating. So we are highly confident that we can wrap that up at the time when we think it's opportune. I think you should recognize that at least for DHT, the credit availability and the terms are sort of improving for us. So, at this point, we are not rushing to tie up the debt finance on ships four, five, and six, partly because we then are going to incur commitment fees, as you can imagine.

Our assumption is that the construction period is equity financed, and the bank financing comes in at delivery. And the 50% final installment is due to the yard.

So it will be 50% leverage on the ships?

That is the intention, yes.

Okay. And the terms, just broadly speaking, I mean, are we still in the 300 to 350 basis points? Or does that come down to a two-handle recently?

I think it's come down to less than 300.

Okay. Good. Also, Trygve, you mentioned kind of the disconnect between secondhand prices and maybe your expectations based on the current market. That kind of leads to a question about your current fleet. I mean, obviously, it's good to have vessels on the water and generating cash in a decent environment while you're waiting for the newbuilds. But if there is kind of a strong kind of base demand for tonnage, have you thought about further modernizing the fleet by disposing of some of your current vessels?

No. We feel that although this is how we manage the Company through the cycles, and at least think that we are in investment mode at this point in the cycle. And hence, the capital focus is on expanding the Company. We will then, at some juncture, move into a point where one would focus more on then operating the assets that then are [at-hand]. And gradually, through the recovery, we will look at also disposing of other assets. But that is not something we foresee to take place at the current point in time, so.

Okay. And then, finally, you mentioned some of the unexpected off-hire time, especially you mentioned a Suezmax had suffered some damage because of the weather. How is that vessel as it entered the second quarter? Should we expect more off-hire time in the second quarter due to some of the damage related to that ship or any other issue?

No.

Completely done in the first quarter?

Correct.

Okay. Thanks, Sven and Trygve.

Thank you.

Joshua Kaufthal, UBS.

Just wanted to start off with kind of your market expectations, especially for the VLCC market, now that you have your VLCCs pretty much running spot. Over the past couple of years, we've seen, I guess, some Chinese stock-building in the spring. I just wanted to get your thoughts on the possibility that this year -- or do you think that the Chinese kind of did all their stock-building in Q1 when we saw rates really high? So just wanted to get kind of your three to six months� outlook.

I think on the stock-building side in China, there is limited specific data available. But we do know that the capacity to build stocks is there, and there's been added capacity to build stocks. But exactly how much is going into storage or long-term storage, either commercial or strategic, it's really hard to pin down.

We do have a sense that some of the refinery projects that have -- were scheduled to start up in 2012 and 2013 have exposed some postponements. And that those are gradually coming into operation in this year and next. So, as such, we do sense that there is demand growth during the year, and also in the next coming years. And, as such, we do expect the market this year on average to be better than last year.

So I think as we have stated all along, we expect it to be choppy and still somewhat volatile. And we are seeing that right now, where the stock market certainly has come up -- come off quite significantly from the heights in the winter. But we think this is more of a seasonal phenomenon and it's related to maintenance seasons on -- and turnaround seasons on a variety of refineries.

Got it. So you are expecting kind of more of the same near-term until maybe the -- until normal seasonal trends come into play later this -- later after the spring?

Yes. That's a fair conclusion, yes.

Just wanted to maybe touch on your kind of expansion plans. I know it's been mostly VLCC-focused, especially the secondhand market. But recently, we've seen, I guess, a bit more activity in the Suezmax market, especially with some newbuildings and secondhand sales from some other owners. I guess, have you started to consider maybe some of the smaller asset sizes? Or are you still very much VLCC-focused right now?

It's true what you said that we have been spending most of our time on VLCCs so far. But over the past few months, we have certainly started to inspect Suezmaxes as well. And I think that the industry in general has started to get comfortable with a new life for the Suezmaxes. It was looking a bit cloudy once the West Africa to Philadelphia backbone trade was evaporating. But the ships have found their new traction elsewhere. And it's a quite flexible asset class. So it's not only us that is starting to get more interested in Suezes.

Keep in mind also that the Suezmax sector in general has been less transactional activity than its smaller and larger siblings. So it's coming off another small base, if you like, so.

Is it a similar market, I guess, right now, and Suezmaxes as VLCCs with kind of those bid -- big bid/ask spread? Or is it just there is just a lack of ships even being offered for sale?

I think it's the same or very similar dynamic, so.

Just kind of quickly touching base on your balance sheet. You've raised this cash; you have a lot of cash now. Understanding some of that's going to be going to your newbuilding program, but, I guess, how do you think about your current dry powder right now? I guess how comfortable -- how much cash are you comfortable spending right now, before you necessarily have to tap the capital markets again?

We think that we are certainly in a position to go out and execute on individual opportunities. But once you start talking about fleets or let alone M&A opportunities, we would envision that it would be similar to what we did in the first quarter, where you tie these things up, and then you come to market and raise the finance.

So if I were to think maybe two or three VLCCs without having to raise capital markets, without having to raise equity, but then maybe a larger transaction, you would have to --?

This would certainly depend on the age of the ship, right, and the price tag on the amount of capital that should be spent on this. But we are not here to consume a significant portion of the cash at-hand that is primarily focused towards newbuildings. But if there is one ship, maybe two, that comes in the 5 to 10-year age bracket, so that's something we feel comfortable living on, on them.

Got it. Well, I appreciate the time. Thank you very much.

Thank you.

Omar Nokta, Global Hunter Securities.

I just had -- actually, just one follow-up regarding the logjam in the sale and purchase market. In the past, you had chartered in vessels. And just wanted to get your thinking on that in this type of environment, where you are unable to really find ships to purchase. Maybe that will change; but what do you think about chartering in vessels? Obviously, no major capital outlay, but it does come with higher risks.

I think over the past four years, or I guess in the Company's entire history, we only chartered in on one occasion. And that was simply because we got a purchase option included in the charter. So, to do a straight-in chartering just to lever up is not in the cards.

Okay. All right. That was all I had. Thank you.

Thank you.

Herman Hildan, RS Platou Markets.

Just a quick question on the financing again. Since you are targeting 50% leverage, could you -- does that mean that you'll get, call it, longer than 15-year in profile? Or what's kind of the discussions there with lenders?

Well, we certainly get profiles that are longer than 15 years.

Is that kind of closer to 18? Or is it possible to say anything about that for the first Street?

I think we are in the midst of those discussions, so -- but there are longer than 17.

You know, I don't know if you've seen that we are focusing keenly on keeping our cash breakeven as low as possible. Hence, the moderate leverage of 50%. And then after that, our top priority in negotiation has really been the repayment of our (technical difficulty).

Okay, thanks. And just a quick one on, I'll call it, one last on the fleet, as well. The Phoenix is reaching 15 years. Could you kind of give some color on how she's trading in the stock market and how she is performing?

The Phoenix is performing well. She has a number of [won] major approvals. And we are scheduled to take her through her special survey in the third quarter this year.

The ship from a structural point of view represents a high level of integrity. So we expect the cost of that vessel to really be in the low end of the range on what would be industry pricing. So, I think one should assume that the CapEx is going to be a maximum $3 million on that. We are contemplating adding some more fuel efficiency equipment from the ship and that could result in an additional $0.5 million of CapEx. But that for us is an investment -- an additional investment with a payback of less than two years, so.

Thanks. And I -- she's starting to trading in the pool. Could you kind of shed some light on some of her, call it, relative performance in that pool? Is it possible to say anything about that?

I think the pool left over is [prospect] and left to the participating owners, based on the standard ship, earned approximately $33,500 a day in the quarter. And our spot VLCCs, which were five in the quarter, had earnings suggested for their relative performance pretty much spot on, very close to that.

Okay, I see. And then final question on the acquisition opportunities. Where do you think you have the best, call it, valid proposition on the asset right now? Is it zero to five, 5 to 10? You know, what kind of tonnage are you looking for?

We are in general looking for assets in the three classes we are in, inside of 10 years of age. And to phrase it this way, we think our opinion on price differs the most from potential sellers at the young end of the curve. And I think some people make the mistake of thinking that a brand-new ship on the water today is an equal VLCC. Most often it is not. And we think it's unreasonable that that should be priced off of what you build eco-ships for.

If I search the kind of 5 to 10-year-old age group, it seems, at least on paper, to be more properly priced. If, say, a four or a three-year-old ship can also be priced in the continuity of that curve, then we think you are in the range, so.

And is that predominantly Korean or Chinese tonnage that you're looking for? Is that price dependent?

Korean and Japanese, but there is (inaudible).

Yes. Okay. Thank you very much.

Thank you.

Nicolay Dyvik, DNB Markets.

Could you -- we've talked VLs and Suez. Could you shed some thoughts on what you think of the -- or more of the Aframax segment, and call it the relative valuation between the Aframax and the VLs? And also if you see, in spite of the weak polar tanker market, if there is some, call it, product owners wanting to shift more, call it, LRs into the crude trade?

I think if -- the way we look at the Aframaxes is that, currently, we are essentially a contractor-owner if you like. We service a couple of clients [through] time truckers. And we think that if we're going to make an Aframax effort, we would rather them go in a much bigger way and build up a significant fleet, with trading operations and contract replacements, triangulations and so forth.

So, just to pick up one or two assets is not as compelling to us. Also, if you look at just relative valuations, and considering historic numbers, and Aframax newbuilding, historically, has been trading at approximately 50% of a VLCC newbuilding. Currently, it's more in the 55% to 58% territory. And we think that's a bit on the high side.

That might be a reflection of the activity in the polar tanker space, whereby a lot of people wanted LR2s. So that has kind of pushed those prices up somewhat. You see similar trends on the secondhand [five] LR2s. Aframax today is somewhere in the high 30s. You know, which is relative on a VLCC where a five-year-old is in the mid -- mid/low 70s. We think then that the deal is a more compelling value proposition.

You talked about still in calling the investment mode. How much more does asset prices have to move before you call start harvest mode, and don't find, call it, further investing most beneficial for current shareholders?

Yes. That's a difficult one to answer specifically. But the things we typically look at is what required rates you get by acquiring further assets, and comparing those rate requirements to historic averages. And we certainly want to be on the sell side of the long-term historic averages to make further investments.

I think as to Trygve's earlier update here that we've been reluctant to entertain some of the [optimum] levels during the quarter. That's an indication of the kind of discipline we apply to this and that we want to invest well, so.

Well, okay. Thank you.

Thank you.

Mark Suarez, Euro Pacific Capital.

Thanks for taking my call. I just want to touch on the newbuilding prices we are seeing right now. I know we've seen a trend of newbuilding order and activities I would say over the past 12 to 18 months. And that obviously has intensified.

I'm wondering, as you talk to shipyards -- and I think you talked about this in your initial comments -- have you seen increased competition? Would that competition continue to go up, if you will? And how do you see newbuilding prices for VLCCs trending over the next year or so?

There's been some capacity that has been freed up by some other type of ships or projects not coming to fruition. We've seen the leading yards in Korea have been marketing VLCCs at [103]. We don't think they have gotten much traction as of late on that. So -- and it seems to also be some more reluctance from Wall Street to support new projects or companies on newbuilding orders as of late.

So, and also, as Trygve commented earlier, some of these deliveries are out in 2017. And for us, that's a bit too far out. And we get a sense that other people think similar to us on that. And we think this, in fact, is a good thing, so.

Got you. And now just turning onto the balance sheet for a second. I know a lot of this cash has been raised for potential newbuilds and so on, so forth. But at what point would the Board consider maybe increasing the dividends? Do you have like a cash level in mind, if you will, before even considering returning some of that cash to your investors?

We have repeated time and time again that we don't have a specific dividend policy. It's up to our Board of Directors to decide on that quarter by quarter. But as a general comment, I think we think the market has phases and we are now in the investment phase; and hence, our dividend is quite limited. Once we are done with the expansion and we are more just operating and letting the wave take us all up, then you shouldn't be surprised if we pay out a larger portion of the cash generated from the operations.

Got you. Okay. That's all I have for now. Thanks, guys. Thanks for the time.

Thank you.

Thanks.

(Operator Instructions) Okay. We have no further questions at this time.

Okay. And with that, on behalf of DHT, thank you all for attending our earnings call and appreciate your continued interest in our Company. Have a good day.