DHT Holdings Inc (DHT) 2014 Q4 法說會逐字稿

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 at DHTankers.com and a replay of this conference call will be available on the website. In addition, our Form-6K 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 includes statements regarding DHT's prospects, the outlook for tanker markets 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 level of newbuilding and scrapping and projected drydock schedules involve risks and uncertainties that are more fully described in our filings made with SEC. Actual results may differ materially from the expectations reflected in these forward-looking statements.

With that out of the way, I'd like to introduce my two colleagues Svein Moxnes Harfjeld and Trygve Munthe, co-CEOs of DHT Holdings. And with that, I'll turn the call to Svein Moxnes Harfjeld.

Thank you, Eirik. Good day to everyone and thank you for joining the DHT earnings call.

EBITDA for the quarter was $25.6 million. Our revenue represents average time charter equivalent to earnings on our VLCCs of $32,500 per day for the quarter. At this point, we have booked about 50% of our spot VLCCs for the first quarter of 2015 at time charter equivalent earnings of $63,000 per day. Operationally, it was a good quarter with minimal off hire and average OpEx on our VLCCs of $9,200 per day including the French flag component on three of our VLCCs.

G&A was $7 million for the quarter including a nonrecurring additional accrual of $3.4 million. We would expect quarterly cash G&A run rate of about $3.5 million going forward.

Net financial expenses were $9.8 million. This includes $1.9 million in nonrecurring financial expenses related to the refinancing of the Samco fleet. We would expect quarterly financial expenses of $8.5 million going forward.

Net income for the quarter was $28.5 million, equal to $0.31 per share. That includes the reversal of prior impairment charges of $31.9 million.

We will pay a dividend of $0.05 per common share for the quarter payable on February 19, 2015, for shareholders as of February 10, 2015. The dividend represents an increase of 150% compared to the quarterly dividends paid over the past nine quarters. Our dividend will still be evaluated on a quarterly basis, taking into consideration the Company's financial results and the business outlook. At this point in time, we believe the declared dividend level to be sustainable through 2015.

And with that, I will hand over to Trygve Munthe.

Thank you, Svein. I just like to add a few comments. During the quarter we completed the refinancing of three of Samco's four credit facilities, as well as a 50% financing of the DHT Condor.

We are currently pursuing debt financing for the last two VLCC newbuildings and are confident that we should be able to conclude this within the next few months at competitive terms. As you will recall, we have already raised all the equity for the newbuilding program. DHT now has a fleet of 20 VLCCs including the six newbuilds under construction at Hyundai for delivery in 2015 and 2016 in addition to two Suezmaxes and two Aframaxes.

Our shipyard site team is now on the ground at Hyundai in Ulsan, South Korea to supervise the construction of new buildings. Steel cutting for the first VLCCs took place on the 17th of January, and our newbuilding program is on schedule.

Following the acquisition of Samco in the third quarter, we have a 50% ownership of Goodwood Ship Management, providing technical management services for the majority of our fleet.

Earlier this month, Mr. Stephen Eglin joined our team as Director of Chartering & Operations. Stephen joins us with some 25 years of industry experience, the last 13 years with Frontline where he was Commercial Director. And with this hire, we are now fully staffed and fully integrated. The total onshore organization now consists of 18 people of which 11 are located in Oslo and 7 in Singapore.

And with that, we would like to open up your questions.

(Operator Instructions) Spiro Dounis, UBS.

Just a two-part question around the dividend hike. You talked about being in growth mode before. Should we consider this, you know, healthy dividend, the winding down of that mode? And two, on strong charter rates and the larger dividend to maintain, could we see locking in more time charters or is there a spot exposure still the preferred strategy? I believe you've got four vessels coming off charter soon, and I know you mentioned you'll evaluate each quarter but trying to get some guidance around that.

I think we have said that we feel we are coming towards the end of the investment phase. We don't think we are totally out of it yet, so we are still evaluating opportunities. But it is very clear that any additions to the fleets at this point needs to be good investments for the DHT shareholders.

As far as time charter coverage, we have long said that in the trough and in an early recovery, our preference would really be to keep the ships in the spot market. That's the way to ensure the immediate participation in market recovery. But quite interestingly the time charter market has moved up quite measurably over the past couple of months.

So, yes, we are coming to levels where we think it's meaningful to perhaps seek more period employment than what we have had up until this point.

Great, and just a quick follow-up. How should we be thinking about your older vessels at this point in the market given the improving tanker values? Have you seen a lot of appetite in the secondhand market to divest now, or could some of these make good candidates for floating storage?

I think with increased asset prices there is, of course, now also increase in prices for the older ships. As of now, we are seeking to maximize the earnings on these ships in the markets. You're right that so far a number of older ships have, in particular, secured storage contracts in relation to the contango in oil price. And we are following this market closely, and we'll be fairly optimistic should those rates be deemed attractive by the Company. So, we are not strangers to this but as for now we have no ships in the storage markets.

Great, that's it for me. Thanks, guys.

When it comes to divestments, we feel still that this is a bit early. So as the cash generation potential for older ships is still substantial. Hence, we would like these earnings to come into the Company.

Very helpful, thank you.

Thank you.

Marc Suarez, Euro Pacific Capital.

Just to follow up on that question in terms of steepening of the brand forward curve, and we have actually seen some acceleration as we get into January. Are you still seeing that acceleration in terms of the demand for crude tankers for the purposes of oil storage? And how do you see that trend playing out in the next month or so and its impact on pricing?

It's not really for us to opine on the oil price. But we have seen the increased interest and activity from traders in particular to charter VLCCs for storage purposes. We count currently about 40 ships that have been fixed on-time charters, and we would expect the majority of these ships to enter into storage business.

We further count some close to 10 ships on subjects for similar businesses, and it remains to be seen whether those contracts get fully fixed or not. But the interest from traders and the end users has not tailed off as of yet.

Got you. So seeing -- and so with that and seeing that opportunity, do you think now you have significant more leverage to -- I think we talked about this in the prior quarter -- of entering into some of those TC contracts with a profit share component in them as you are thinking about maybe placing some of those VLCCs for period employment?

As we just said, we think that the levels here now can do 12 to 24 month charters. That is quite attractive. So don't be too surprised if we during this quarter act on some of this. But we are also quite optimistic on the spot earning potential in short term.

Got you. And then just turning in to the cost. I know we've seen significant decrease in bunker fuel over the past two to three months. How should we start thinking about daily operating expense inflation as we head in 2015?

Importantly on the operating expenses as we report them do not contain the bunker bill. So this is really just for the recruiting, repair and maintenance, and spare parts and so on. The bunker cost is deducted on a different line on voyage-related expenses. We don't see any significant inflationary pressures on our OpEx levels going forward.

If you look at our P&L year-over-year, the voyage expenses are significantly higher than in 2013 in nominal levels simply because the fleet has grown substantially and that we have more ships in the spot markets. So it's not related to any inflation in cost. In fact, oil price has halved and so has the bunker costs.

Got you. I was thinking more in terms of the lubricant component out of the daily vessel operating expenses. You don't see a material impact there?

The lubricant cost of our operating cost is very marginal. And we do not split up oil -- we do not divide up the OpEx per day. Our OpEx levels in general in the Company we feel to be very competitive, and, as we addressed, the average OpEx in our VLCCs for the quarter were $9,200 a day and that includes the three French flag vessels, which run at higher costs.

Okay, got it. Great. No, that's helpful. Well, thanks for your time again.

Herman Hildan, RS Platou Markets.

I have two questions. The first one is, obviously, we've seen some very strong rates recently. Is it possible to give some kind of guidance on spot rates achieved so far in the first quarter of 2015?

I think as we highlighted in our comments on our P&L, we have booked about 50% of our spot VLCCs so far for the first quarter of 2015 at time charter equivalent earnings. So $63,000 per day.

Okay, and also there's been a lot of debate recently about the weakness in the dry bulk market and the potential for conversion of [RE] Capesize orders into VLCCs. What your thoughts with respect to how this could potentially impact the supply side?

I think there's several components to that. Firstly, a good chunk of the dry bulk order book is already under construction. So it's too late to change anything on those. Then you've got the remaining that haven't commenced yet. The majority of these vessels are constructed at yards that have limited ability to build the large tankers. And finally, they're sort of the backend of the order book for dry cargo. We think it's a bigger chance of those contracts being outright canceled than converted into types of ships that the yards are not too familiar in building.

So, all in all, yes, there will be some conversion from dry to wet in the order book but we don't think it's going to be very significant.

It's also fair to add that if dry cargo orders are converted, it's more likely to be in the Aframax segment or potentially even smaller tankers.

Thank you for that. And the final question is based on -- regarding bunker prices and the potential impact on higher speed of the VLCC fleet, sort of the tanker fleet in general, what kind of your take on that, call it, threats?

I think the impact is limited. Keep in mind that the laden sea passage with cargo on board, the speed is part of the contracted terms with the customer. And it's set typically today at the 12.5 knots. So that cannot really be changed. It's then the ballasts passage where the ship owners have the liberty to elect the speed. But when you typically depart your discharge port in the Far East on the way back to the Arabian Gulf, you are not yet fixed on cargo. You don't know exactly what date you will fix your ship at.

So the fixed-in timing is typically happening when you are pass Singapore. So halfway through on your ballasts passage and that's when you will start to consider at what speed you should run at. And on some locations, that is still at 9, 10 knots and there might be some others that elect to speed up in order to catch a particular cargo.

But when we set out from the discharge port, we start slow standing still in the range of 9 to 10 knots. And we believe several of the large operators are following the same type of discipline, that it simply just makes good economic sense.

So even though the bunker price have been cut into, you don't go full speed out of discharge Far East, it's because you risk having waiting days because it's such a short tug before you arrive when you actually do the fixture.

Yes, we would think you're absolutely right that before the high bunker prices the typical way of doing it was to go full throttle on the way back to the Middle East. And even if you didn't have any cargoes lined up, you just discontinued at full-service speed and then dropped anchor and started waiting.

I think the phase with the high bunker prices taught the industry that is really wasteful time or way to do it. So we continue to try to optimize that we are arriving right in the loading windows rather than way ahead and sit and idle. That's the most economical way to do it.

There's actually I think some suggestions out there that the theoretical capacity is overstated. It's a bit academic approach.

Okay, thank you very much.

Charles Rupinski, Global Hunter Securities.

My question has mostly been answered but I did want to just ask on fixture longer-term. Clearly, the storage has a -- there's a premium certainly for maybe the one year charter or maybe a little bit less than one year versus, say, a three-year charter. Can you give me an idea of what you're thinking about in terms of how the curve looks and what kind of links you might be looking at or how fluid the market is to go longer than one year versus less than one year? Any kind of thinking on that?

I think the going rates today for one year is approximately $45,000 a day and a two-year charter is approximately $42,000, $42,500. You would then argue that the longer-term charter would be at the marginal discount to that. The liquidity in the longer-term charter is very thin as of now, but we do see that there are some incoming inquiries now for three years and potentially than in due course also for longer-term charters.

So this is a natural development as you see a stronger market and also allow for the end-users the lower bunker prices. It makes more economic sense for them also to look at period tonnage as voyage expenses have been significantly reduced.

Sure, okay. That's helpful, thank you.

Samuel Sekine, ALJ Capital.

Can you maybe just help me understand what's the remaining shipyard payments or the CapEx?

Sure, as you recall our payment structure was 20% of contract price upon signing of the contracts, then 10% after six months, and then 10% of steel cutting, and then 10% on keel laying, and the final 50% on delivery.

As of year-end we have paid 30% on all six newbuilds and then the additional pre-delivery installments are mostly coming due in 2015. At year-end, the remaining pre-delivery installments amount to $114 million and then the rest is on delivery.

And as we've said before, we have raised all the equity for the pre-delivery installments and then the intention is to draw down the mortgage debts on delivery.

Got it. And then also maybe if you guys could just comment on what's your views on maybe a technical consolidation just entering pools perhaps.

Entering pools is more of a commercial consideration. So, it's essentially a joint marketing office for a number of ships and ship owners. In our case, our fleet is viewed to be sufficiently large that we can operate this ourselves, and with the benefits for us being close to the markets, close to the customers, and also we think over time it's more cost efficient for our shareholders.

And then just one last one, just a follow-up on the previous question. So when you're looking at the long-term charters potentials, I guess what's more important factor for you guys, is it the length or is it the length of the charter or perhaps just the rates even for a shorter like one or two-year charter?

I think what we are waiting for to happen is that there is some liquidity in the longer time charter market i.e. five-year contracts or even more. And that really is there's very few and very far between those opportunities currently. But if history is anything to go by, we would expect that at some point in the cycle there will be a stronger demand for our long-term commitments, and I think the numbers needs to be in the range where the two-year market is today or better. But again (multiple speakers) --

Sorry was that $42,000?

Yes, low $40,000s.

Which is in line with our 20-year average earnings of VLCCs.

Got it. Great, thank you.

Nicolay Dyvik, DNB.

You say that you still look at the growth opportunities. At the same time you say that you considered to lock in revenues by fixing for a period. Isn't that a bit contradictory as assets obviously tend to fluctuate with the time charter market?

I think it's important to realize that the running a ship-owner company is very much an operational business and that you enter into various types of activities over time. I think on the growth side what we mean is that investment opportunities today are much harder to come by than they were say 12 months ago where prices were lower. So the appreciation of asset prices makes it less attractive, so to speak.

But it's also then a question of staggering the development of the Company and, as Trygve alluded to, we are rather bullish on the near-term spot market, but at some point we would also like to build a book on some more fixed income. So this is a gradual exercise.

It is not when you sit on the screen and decide that push the button, and I'll get all my ships on time charter. So it has to be with the right clients, the right terms, and the right money.

Thank you. I know you mentioned that speed on laden is more or less fixed but to what extent does the oil majors or the charters slow down the speed on the laden legs to benefit from a contango in the oil market? Is that widespread or just a few exercising it? Like a light alternative to floating storage?

We have not really seen this. So part of the charter part today is the laden speed of 12.5 knots as a typical speed. Most of the clients are also polling your ships performance at sea with satellites. And they know what speed you're operating at. And the purpose of this is that the cargo in passage is part of the inventory for the refinery in order to plan regular delivery of feedstock.

So, it's not really just a case of speeding up to maybe have some time, value, money or finance costs and such, at least our understanding. So we are not really seeing that there is inquiries from the clients who speed up on the laden leg.

Now I was actually talking about the opposite where oil majors also having ships to benefit from the contango in the market they could slow down on the laden leg as an alternative to a short-term floating storage benefit from the contango in the market.

You would think that that would be tempting to some of them, but I think you need to keep in mind that the majority of the shipments on the VLCCs is really integrated pieces of the logistics chain in the whole downstream operation of the oil companies. So it's about feeding refineries on time and not so much about trading around the cargo.

(Operator Instructions) [Andreas Attalides, KPU].

I think most of my questions were covered. But maybe just a quick comment on how do you see the spot market in the next three months? We've seen it staying at relatively high levels between 70s and 80s. Not sure if you agree, but it hasn't been particularly volatile all the way through January. Do you believe the market can stay at those levels in the next two or three months, or do you expect it to come down seasonally or for any other reason?

We think the whole storage play has been a factor in the spot market over the past several weeks. Not that it has physically happened yet, but it has given the owners an alternative. So if they don't get the spot rates that there are asking for there has been an alternative to try to market their ship on the medium-term time charters for storage.

But up until this point it has been mostly the sentiment driver. And in the near future we would expect that the fact that these ships now need to start loading cargoes and then drop anchor and thereby leave the actively trading fleet, that is going to give some support in the spot market in the next quarter as well.

Eric Stavseth, Arctic Securities.

Just one quick question for me really related to asset values. We did see a pretty decent depreciation asset values of over the past 12 months and then that's of course been now helped the guests with charter rates following the asset values. But what do you see asset wise moving going forward, both on secondhand and also on the newbuild side?

I think traditionally asset values move up in response to higher earnings. So I think today at least we see a rather limited activity on the buying side on tankers. So although broker reports from broker valuations are inching values upwards and some potential sellers are asking for higher prices, we see very little interest or very little -- very few transactions. So it's going to be interesting to see how this truly plays out.

Right, I mean we just -- do you have any sort of comment on how to spread this? We heard a VLCC a little bit more of an aging vessel there was a spread of say 15% to 20% between seller and buyer. Would that be too wide in terms of what you are seeing or does it give an accurate reflection of the market?

I think we pick up rumors that say a typical 15-year-old VLCC is maybe asking in the mid-$30,000s and buyers might be there in the low-$30,000s. So the spread could be 5%, 10%, 15% on each separate occasion. It's hard to say if you're not part of that negotiation. But there's been some increased buying interest in the older range, in particular, as the floating storage has come into the market. It could make good economic sense you are, say, a private ship owner in particular and invest in older assets with limited debt and fixed year storage.

Thanks so much, guys.

(Operator Instructions) We don't currently have any questions in the queue. I'll pass it back to the speakers.

Thank you very much to everyone for attending this call and staying interested in DHT. Have a good day.