DHT Holdings Inc (DHT) 2014 Q3 法說會逐字稿

Thank you and good morning.

Before we get started with this 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, 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 and vessel utilizations, 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.

With that, I will turn the call over to Svein Moxnes Harfjeld, our Co-CEO, and also on today's call we have Trygve Munthe, our other Co-CEO. Svein?

Thank you very much, Eirik. Good morning to all. Thank you for attending our earnings call.

On September 16, we completed the acquisition of Samco Shipholding. As we acquired shares of this company, as opposed to buying just the ships, Samco has been included in our consolidated accounts from September 17.

EBITDA for the quarter of $5.8 million, with a net loss for the quarter of $7.1 million or equal to $0.10 per share.

Subsequent to the acquisition of Samco, we now have a fleet of 20 VLCCs, which includes the six VLCC newbuildings under construction at Hyundai Heavy Industries. We have two Suezmaxes and two Aframaxes, as well as 50% ownership in Goodwood Ship Management. For more details on the fleet, please refer to our website, DHTankers.com.

In connection with the acquisition of Samco, we issued 23.1 million common shares at a price of $6.50 per share. We further issued $150 million principal amount of convertible senior notes due in 2019 with a fixed rate of 4.5% per annum and convertible into common stock in DHT at the conversion price of $8.125 per share. The Company will pay a dividend of $0.02 per common share for the quarter, payable on November 26 to shareholders of record as of November 20.

We've entered into a firm commitment totaling $302 million for the refinancing of about $274.8 million related to three of Samco's four credit facilities and the 50% debt financing of the DHT convert. In connection with this financing, which is expected to be completed in the fourth quarter of 2014, we will incur certain financial costs.

And with that, we open up for Q&A.

(Operator Instructions). Jon Chappell, Evercore ISI.

Thank you. Good afternoon. Svein, the first question is regarding the remaining roughly $100 million of debt financing for the newbuilds. I assume that's kind of back-end loaded. That's for the newbuilds that will deliver the latest. How close to delivery time would you try to lock that up?

And also, any cash flow from operations that you may use now, given the larger fleet, that may lessen the debt exposure you take on for the newbuilds?

Sorry. So it's the second and the sixth ship that remains to be debt financed. I think it's fair to say that we have received unsolicited proposals in financing these ships at the terms in line with what we in general do in the Company. We have been a bit reluctant to do this as, of course, we would incur commitment fees early on. This financing is something we intend to pursue during the first half of 2015.

Okay. And as far as fleet changes are concerned, obviously a lot has happened in the last 12 months or so. There are some older vessels in the fleet. Do you think about disposing of some of those assets now that you have a much more modern fleet post the Samco acquisition?

I think we have said all along that when the market has recovered, and we sense that you have meaningful levels, it's part of our tactics to dispose of some of the older units. But we think it's too early at this stage to do that.

And are you still looking at any expansion initiatives? Or right now, are you just focusing on digesting the Samco acquisition?

I think it's fair to say that priority or main focus now is on digesting the acquisition and streamlining everything. But we do still keep an eye on what's available in the secondhand market and follow that pretty closely, both on ships in the water, but there's also some movements around certain contracts for newbuildings that are available in the market, it appears.

I think it's fair to add that in line with our (technical difficulty), we feel that the typical investment phase on nominal asset values is coming to a tail end. So any additions to what we have done so far will have to present some obvious value creation to the DHT shareholders. We've been very pleased with what we have been able to execute until now over the past 12 months in building up a significant fleet, and hence potential next steps has to add some very good value to the shareholders of DHT.

Understood. One last question. Now that the acquisition and the fleet expansion phase is done and we are entering what appears so far to be the beginning of a cyclical upturn, at least the way that we see it, cash flow from operations should start to accelerate pretty meaningfully. Has there been any thought to a shift in the dividend policy, whether it's raising it from the current $0.02 number or shifting more to a variable dividend?

I think, as we have expressed quite a few times before, we think of this as certainly a very cyclical business. We are on our way out of the trough, and in the trough, our focus has really been on expanding the fleet. And we still think we are in that phase.

So I think another quarter or two, our focus will really be to see if there's other meaningful growth we could pursue. But once we feel that investment phase is over, then we are definitely prepared to start paying out a bigger share of the cash generated from the operations. So yes, I think increased dividends is not unlikely, but perhaps not in the very short term.

Got it. Thanks for the help, Svein and Trygve.

Noah Parquette, Canaccord.

I was wondering with rates moving higher and charter rates coming up, have you given some thought to what levels you would like to fix the vessels at? Or do you plan on keeping at spot?

I think for the time being, we will keep the ships in the spot market. There's always somewhat of a time delay between spot rates and period rates. Period rates today, I think, by brokers is assess for one- to three-year shockers in the [long] purpose, 30, 31, 32 thereabout for VLCCs, which we do not deem to be attractive. Spot market is well above that and -- but at that point, and we have not announced what that number will be, but we will look to secure longer-term [cat flows]. But we do think it's too early.

Okay. And keeping on the spot market, have you -- I obviously saw the Euro [now tankers] international news. How do you plan on employing the ships? Do you plan on participating in more pool arrangements or going on your own, or maybe give some more color there?

We made the decision earlier in the year to go out on our own, so we left the TI at the early part of the third quarter this year and have [outcomer] operations operating out of our office in Oslo. And we are participating in the marketplace and competing with other people. I think our earnings are not inferior to any of the other leading operators and we are currently enjoying the rates as you see in general being reported in the market.

Okay (multiple speakers)

So we feel there are a couple of benefits in doing this. One, we start -- we are obviously much closer to the markets by having in-house commercial operations. We are also closer to the customers. And given our fleet size in our country, we thought that this was an appropriate time to do it.

Moving onto kind of the industry, as oil prices have fallen, bunker fuel has also come down. How is that affecting what you are seeing in the market? Are the ships speeding up at all or are you just enjoying kind of lower fuel costs? Maybe just talk a little bit about that.

Let me [assure] across sectors. We are certainly enjoying lower fuel costs, and what's interesting in the tanker market is that even with a fleet list of some [mid days] VLCCs expected to go the next four weeks into the Arabian Gulf, Worldscale rates are holding pretty steady. And with a declining oil price, of course, in [FTP], it's moving in the right direction.

We haven't really seen anyone starting to speed up, perhaps a little bit and it could be sort of a case by case. It could be a matter of making it in time to be back for a certain [late] or whatnot. But on the average, we don't really see it changing dramatically.

I think it's important also to recognize that it's really on the ballast leg that you're seeing super slow steaming now during the troughs. And the latent legs, declines are very much [involved] and it's part of the negotiations as to what speed you'll operate that. That remains pretty much unchanged.

But as you alluded to, yes, the bulker prices have dropped and the level at which it makes sense to increase from, say, 9 to 10 or 10 to 11 ballast, it's not lower than $600, $650 per ton for bulkers.

Okay. That's very helpful. Thank you.

Eirik Haavaldsen, Pareto Securities.

Sorry, my question was actually just asked. Thanks.

[Oivine Toverle], DNB Markets.

Hi, it's Nicolay from DNB speaking. You focus a lot about growth, and you say that the asset acquisition is coming to its end, but if you find opportunities, you're in there to buy. What about -- at least based on my maybe assessment, your stock is trading at a 15% discount to NAV. Does it make more sense to buy your own stock than buy any more ships in the market?

Apologies. Please stand by. The speaker has just lost connection. (Operator Instructions).

Was it my question or the management that left the line?

Hello? This is Trygve and Svein. Sorry, we were cut off here. I apologize for any inconvenience caused. If we lost out any questions, pleased to --

At the moment, we have Oivine Toverle from DNB Markets for a question.

It's Nicolay from DNB asking a question. You focus a lot about growing the fleet, and despite you said that the asset cycle is coming a bit to the end and focus more on cash flow, you say that if you find opportunities are in there to buy, would -- at least based on my NAV assessment, your stock is trading at about 15% discount to NAV. Doesn't it make more sense to rather focus on share buybacks over -- than the asset acquisitions?

I think you're trying to assess that we are trading below NAV, and as such, you could argue that buying our shares is cheaper than buying assets.

That being said, we don't -- in line with how we have allocated capital, we do not think that we have liquidity to start buyback programs. If we are to expand the Company further, that would have to be in connection with raising additional risk capital. What is very important to recognize or consider in this regard is that we will only do that if there is some obvious value creation and accretion through the DHT shareholders. At current share price, the [growth in] shares and buy assets, we will not consider that.

There are other avenues of potential growth. There are some private fleets out there that could consider creating liquidity in our investments through coming into DHT, but again we want to focus on how we will create value for DHT shareholders in that regard.

What's your view on the lower oil price and the impact on the crude tanker market ahead of the upcoming OPEC meeting?

I think we agree with what has been voiced by other people that you have a couple of effects there. One is, of course, that you immediately get a lower fuel cost. We don't change to Worldscale rates; that is an improvement.

And then, basic economics 101, lower price tends to spur increased demand. So in the short term, we have seen certainly quite a few barrels moving up to the far east where certain countries has a tendency to stock up a little bit once things are cheaper than they were previously. So we think there's short-term good use in it, and also as a general observation, the lower prices will [spur] almost anything.

Thank you.

(Operator Instructions). Mark Suarez, Euro Pacific Capital.

Yes, good morning, guys. Just to go back to the Samco acquisition, specifically the employment profile, I know there's a bunch -- I know there's a few vessels coming up for renewal over the next six months or so, and I know that you were talking about the market seems to have significant demand right now, especially in the near term. I'm wondering if there's an opportunity here to maybe recharter them with a profit share component or are you just thinking straight spot here. What's your view on the Samco vessels?

You're right in that four out of the five that is going to be on charter are starting to come off in the first quarter next year, and then for another four or five quarters.

We think it's a bit early to say exactly what we would intend to do. We think that it makes sense to have some fixed-rate income in the mix when we have reached as many ships as we have. We do like some profit-sharing element, but it is really a bit too early to say now what we are going to do.

And of course, as Svein alluded to earlier, the numbers when the time is right really needs to make sense. And quite frankly, at the current four months' charters for large tankers, we would rather stay in the spot market.

Okay. So when you go out and you talk to your charters and parties, do you get the sense that you have enough leverage out there to maybe go into a fixed contract with a profit share variable on it, or what is your view on that? What's your sense from your counterparties when -- given demand levels as we see it now?

It's pretty much a continuous dialogue with the main charterers out there, or clients. And different schemes are discussed more or less continuously. But, again, we will anticipate that we'll be more active on the [term] business front some quarters from now than what we have today.

Okay. And then, the final question from me, I know you mentioned that if you're going to grow, it's got to be at the benefit, significant benefit, to the shareholder. I'm wondering when you look at opportunities out there in the market, you talked about newbuilding contracts maybe taking over. Are you still focusing on the VLCC segment or are you seeing opportunities out there from other segments, like the Suezmaxes, for example? What's your sense as to what opportunities are out there conform more to your strategy? What sort of segments are you looking at?

We are in all three sectors and we have an interest in all these asset classes. It's fair to say that we have not really found that attractive secondhand opportunities in the Suezmax market. There's been more opportunities in the VLCC space. We are not keen really to place new orders as we think there is sufficient supply coming onstream now in the next few years, so if we are to do anything newbuilds on Suezmax, it will have to be to consume existing orders being replaced.

We certainly have an interest, given that the price is right and we can execute in a meaningful way for the shareholders.

Okay, great. Thanks for your time again, guys.

Eirik Haavaldsen, Pareto Securities.

Thanks. Sorry for returning to this, but just a very direct question. Do you feel you have the organization in place to operate 14 and eventually 20 VLCCs in the spot market?

The answer is yes. We have expanded operational team through the middle of this year. We hired one chartering person who joined us also in the summer. Senior management isn't [old] in chartering, but the plan is to add one more person into this team. So that is something that the Company is working on.

But we are certainly capable of handling what we have in place right now, keeping in mind that some of the ships are [bare] charter and six are yet to be delivered, starting November next year.

Okay. And then, again returning to the front line of collaboration, is that something you would be interested in taking part of? They have [terrific reign] there and clearly a lot of market power, I would say.

I think as a general note, we'd certainly welcome collaboration between these two fairly large chartering outfits [per probis]. We think it's good for the market, but we don't think that our behavior in the market has been to the detriment of anyone.

So I think in terms of the pooling concept, the important guys to round up is really the one and two ship owners that are out there. And maybe not having the [tool] information and pulling the trigger would be too early in [one direction] positions. So we are quite excited about growing this by ourselves, and we spend a fair amount of time in developing -- further developing the relationships with the end users and we think this is the right strategy for DHT.

I think also it's important to add that the [fixture] levels being as of late is not at any discount to what that outfit is doing.

It's also fair to add that some clients view it as interesting to see a new provider such as DHT coming in and they are certainly providing us with good opportunities to do business. And that is not at any discount to what this large outfit is doing.

So we think, all in all, it's just good that we get some part of consolidation, but again, for us to be closer to the market and the client is going to be important in delivering solid earnings going forward.

I certainly agree. I think you had the higher TC earnings than I expected. But in the future, will you consider sort of disclosing the spot TC rate in a more kind of thorough way than you do today as you have more vessels exposed, or will you -- yes, just that.

I think our general market communication policy is under constant review, and as the Company is developing, that's something we will consider, how to [move] like that in general. There's nothing specific beside that as of now.

Thank you.

(Operator Instructions). Gentlemen, if there are no further questions at this time, I would like to hand the call back over to you for any additional or closing remarks.

I think we would just like to say thank you to everyone for participating in the earnings call and their continued interest in DHT. Thank you very much.

Good night.