DHT Holdings Inc (DHT) 2022 Q3 法說會逐字稿

(Operator Instructions) Good day, and thank you for standing by. Welcome to the Q3 2022 DHT Holdings, Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Laila Halvorsen, CFO. Please go ahead.

Thank you. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings Third Quarter 2022 Earnings Call. I'm joined by DHT's President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available at our website, dhtankers.com until November 15. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial reports. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic report available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face.

The company continues to show a very strong and healthy balance sheet and the quarter ended with $65.7 million of cash. In addition, at quarter end, the company's availability and report revolving credit facility was $235 million, putting total liquidity at $301 million as of September 30 Financial leverage is about 22.6% based on market values for the ships. And net debt per vessel was $15.4 million at quarter end, which is significantly below current scrap values. Looking at the P&L highlights. EBITDA for the third quarter was $35.6 million, and net income came in at $7.5 million, equal to $0.04 per share. The result includes a gain related to sale of vessels of $6.8 million and a noncash gain in fair value related to interest rate derivatives of $2.8 million. The company continues with good cost control with OpEx for the quarter at $17.6 million and G&A for the quarter at $3.9 million. In the third quarter, the company achieved an average TCE of $24,400 per day with the vessels on time charter earning $35,300 per day and the vessels in the spot market making 22,000 per day. On the next slide, we present the cash bridge for the quarter. We started the quarter with $105.8 million of cash, and we generated $35.6 million in EBITDA. Ordinary debt repayment and cash interest amounted to $7 million, while $15.3 million was allocated to shareholders through dividend payments and share buybacks. $2.3 million was used for maintenance CapEx, while change in working capital amounted to $24.1 million, mainly related to the change in accounts receivable and accrued revenues due to increased freight rate.

Net proceeds from sale of vessels were $24.8 million, while $50 million was used to prepay long-term debt, and the quarter ended with $65.7 million of cash. In August, we sold the 2008-built DHTA device for $37 million and the sales generated a gain of $6.8 million. In connection with the sale, we repaid outstanding debt of $12.2 million. The vessel was delivered during the third quarter with net proceeds of $24.8 million. The vessel was not fitted with an auto gas cleaning system and it's due for its third special survey and the installation of ballast water treatment system in the first quarter of 2023. Following the sale, the average age of our fleet has been reduced and our AER and EOI metrics improved. In September, we prepaid $50 million under the Nordea credit facility. The voluntary prepayment was made under the revolving credit facility tranche and may be reborrowed. Also, in September, we entered into a 5-year time charter contract for HD Puma or substitute at $38,000 per day. Charters have the option to extend 2 additional years at 41,000 and 45,000 per day, respectively. The vessel is expected to deliver into the contract after the Exhaust gas cleaning system installation in Q1 '23.

Switching now to capital allocation. In September, the company announced a new dividend policy with 100% of net income being returned to shareholders in the form of quarterly dividends. The policy was implemented from the third quarter of '22, and the company will pay a dividend of $0.04 per share for the quarter. It will be payable on November 29 to shareholders of record as of November 22. This marks the first consecutive quarterly cash dividend. During the quarter, the company purchased $1.5 million of its own shares for an aggregate consideration of $8.8 million at an average price of $5.87. All shares were retired upon our seats and the company currently has 162.7 million outstanding shares. So for the quarter, the company is, therefore, returning $15.3 million to shareholders, $6.5 million in dividends and $8.8 million in share buybacks. With that, I will turn the call over to Stan.

Thank you, Lala. On this page, we're showing a new table with the purpose to provide better guidance with respect to the quarter exceeding the one we are reporting on. So for the fourth quarter of this year, we have a time charter book at an average rate of $34,800 per day, covering some 510 days, roughly 1/4 of the period as a whole. As of today, we have booked 69% of our 1,540 available spot base at $61,800 per day. Further, we are providing the estimated spot P&L breakeven for the period, allowing you to model the TC income based on your own assumptions for the unfixed spot base. We can tell you this much. As of today, the rates we are seeing for the balance of the quarter are substantially higher than what has been secured on average so far. We think this piece of information that we will continue to include in our releases going forward to make good sense in relation to our new dividend policy with 100% of net income to be paid at quarterly cash dividends. As announced earlier this year, we have embarked on a project to retrofit 8 ECO ships with exhaust gas cleaning systems, taking our fleet with these installations to 100%. The current spreads between the LSFO and HFO are attractive offering payback on the retrofit investments inside the year. The first vessel will be retrofitted towards the end of the year being a vessel that will enter into a long-term time charter upon completion of the installation. Following this, we will retrofit the DSG Cote and the DST selling during the first quarter of 2023. Both vessels have natural drydocks, hence no commercial offer will be taken. For the balance of the project, we are adopting a pragmatic and dynamic schedule based on investments whereabouts and their commercial opportunities. A further update will be provided on the next earnings call.

We are now in a favorable business environment with rewarding economics for most participants. We have a robust oil price. We have healthy refining margins, and we have a strong freight market. Companies are in general profitable and in all simplicity, people want to do business. Certainly, fun and rewarding times matched by a promising outlook. Because of the conflict between Russia and Ukraine, oil trading is encountering disruptions for many routes. These trade disruptions result in increased transportation distances, which reduces the productivity of the tanker fleet, pushing rates beyond what already supporting dynamics Would have done. As you will see from this slide, transportation distances for European imports could be upwards to 7 to 11x that of imports from the bolting region. And for Russian exports to Asia, one can see distances upwards to the same multiple of 7 to 11 x when compared to Northwest Europe. Some trades will attract additional vessels into the shadow fleets on top of those trading sanctioned barrels from Venezuela and Iran.

This activity has held all the ships away from scrapping despite healthy scrap prices. As ships that entered these mercury trades are unlikely to return to the compliant markets. One could look at this development as in due course being the new scrapping. As we have suggested before, there is an increasing probability of the tanker fleet to decrease at the time when order books are low and shipyards is essentially full for the coming couple of 3 years. So in sum, you should expect us to continue with the disciplined execution of our business model and strategy. We are well structured for cyclical markets, amongst others, supported by a strong balance sheet and healthy liquidity.

The freight market has most certainly recovered with strong freight rates and a promising outlook. We are tuned for this recovery with increasing spot exposure into an environment in which we are set to make significant profits. We have a solid track record in allocating capital. Based on our new dividend policy with 100% of net income to be distributed as quarterly dividends, we have every intention on showing you the money. And with that, we open up for questions. Operator?

(Operator Instructions) Our first question comes from the line of Frode Morkedal from Clarksons.

Good afternoon. First question I had is on the dividend policy. In respect of the tanker cycle, I remember you had a cycle chart in the past. You talked about how you invest and when you harvest depending on where you are in the cycle. So maybe you could elaborate on that in terms of the business. Would you that change the policy whenever the up cycle ends?

Then this policy that we had with 60% minimum 60% of ordinary net income was put in place in 2015. At that time, our leverage level was sort of in the 50%, 55% income. And it has been brought significantly down since then. So as a reflection of the balance sheet and the cost structure and also that we have no CapEx program for new ships going forward. We felt it right and timely to introduce this new dividend policy. So I think all these things will have to be looked at depending on the capital structure and where you are, but our intention is certainly that this policy should be sustainable and not just be something that we will change with short intervals. So we would like to think it's well thought through and that we will have the capacity to continue with this for a long time. And keep in mind that there is also a meaningful difference in net income and cash flows. So there is ample cash flows to ample room then to service debt and also potentially do prepayment should we so desire.

Perfect. That's great. Second question on the market. I guess it's just a few weeks' time and you have the ban on the Russian and coming into play. Do you notice any change already now in terms of chartering behavior, trade flows or anything else? And how do you see this developing?

I guess we see some activity that we are not part of and not sort of in moving so we only have a sort of high level is, but we do see some intentions to bring oil out of the Baltic in particular out to areas where it can be transshipped onto larger ships and then to be sent to the Far East. And not only are there longer distances, but this sort of mode of transportation is a bit inefficient and time consuming. So again, you are sort of reducing the productivity of the fleet. But it's a bit early days. And I think people are probably planning a lot in their offices without resolving the cards to us yet. So I think towards the end of this month, we will see some real activity, I think, already get going.

Our next question comes from the line of Jonathan Chappell from Evercore ISI.

So it looks like the coal and the Mustang were extended by a year into the third quarter of next year. Just wondering if you can give a sense for the type of increase in the rate from the prior one-year contracts, just given the strength of the market since that time? And the second part to that time charter question is the Puma looks like a phenomenal rate. what's your appetite for long-term contracts like that, especially contemplating in your dividend policy?

So the 2 first contracts, one was extended basically at the same rate that it had was an optional year that was declared earlier this year. And similar to the other one is also a business continuation, if you like. So these rates are, of course, below the current market, but these are time charters that we, of course, enjoyed greatly last year and the first half of this year. So it is the sort of tail end of that. We wanted to get something in the book, and we have done these couple of 3 ships for longer periods, as you've already seen. Right now, we're taking a big step back and want to see rates appreciate.

And also, hopefully, with much commencements much further out. So we would expect the 3-year rates today to be closing in at around the $50,000 mark. And I think with the current freight market that's basically $90,000 to $100,000 a day, I think you will see more of these opportunities in the longer run. So we would like to wait and want to enjoy the spot market now for a good while longer before we really build on this. But on the right opportunity with the right clients and the right ship and all that, it sort of significant money is can be had, we will entertain that. But there will be a meaningful spot exposure for a while longer or so.

Okay. And then the other topic is the scrubber installations. I just want to make sure I understood. You said the cold Australian natural drydock dates, so there's no operational off-hire time. Does that mean they still earn a full quarters worth of TCE earnings, even though they're undergoing the retrofits?

No. So these 2 ships is scheduled for the first special survey. Now they were built in '18, and those survey dates are in the first half of 2023. So they would be off-hire in any case. So this is going to exactly. So this is when we're going to do the scrubber installation.

Okay. And then when we think to the other pragmatic schedule, it almost seems like that means we have to look through the first quarter. So should we think like 2Q, 3Q of next year? And then the final part of this topic, is there these like 25 to 30 days or a little bit lower since you're trying to manage them around their schedule and their voyages.

This would very much depend on where you are. And of course, as you know, these voices that you fix in the stock market, they are easily 45 to 50 days, if not longer. And you want to have also sort of a favorable geographical were about on the ship and you go to dry dock. So we will take this step by step, frankly, and we have limited guidance beyond that at this point. But I think you need to rely on us to be commercially apt and try to do this as good as we can. So if the opportunities are reflective of the current spot rates, of course, it's important for us to try to put that in the books and then wait for a little while longer.

Our next question comes from the line of Benjamin Nolan from Stifel.

This is Mikala Rogers on for Ben. We just kind of wanted to take it back real quick to the new dividend policy. I know you mentioned the intention is the policy should be sustainable for some time. We just was wondering if you could provide a little insight on maybe why the change at all versus potentially allocating the excess capital for fleet renewal or growth. So... Thank you.

So as we stated, our balance sheet has been brought down with a very robust structure, very low leverage. And at the same time, we have no investment program. And the latter point is a reflection of where asset values are. We think they are too high to buy ships today to the required rate for those investments to be attractive over sort of a 20-year horizon, we think may be good. We are not sort of the momentum investors that will buy a ship with expectations of having a feel-good factor in next 12 months because the asset price might be slightly higher. We want to invest and operate the ships over a longer period of time. So this is the reason for that. We bought 2 secondhand ships last year.

We were set to buy some more, but the prices moved up too quickly. So what we did in spend, of course, as you know, we bought back about 6% of the company's stock. And the cash spent on that was equal to 2 ships, but we bought our own ships essentially then at the discount. So sort of happy with that investment as well. But again, our balance sheet is robust. It doesn't -- this new dividend policy does not prevent us from making investments when the right opportunity arises. And we have also access to debt if we are interested. So I would like to think that we have thought this through and are not sort of precluding ourselves from also investing in due course in the business.

Our next question comes from the line of Omar Nokta from Jefferies.

Just a couple of quick ones for you. Just first back to the dividend, the 100% earnings payout policy. Just wanted to be clear, it looks like you paid out the full earnings for the third quarter of $0.04, which includes gains and other items. Should we think going forward that the full payout here is going to be reflective of gains. So you'll pay out the gains but then also hold back any losses? And how do you think about the cash and noncash portion of that going forward?

So in the past, we let the shareholders have the benefit of cash gains -- extraordinary cash gains in the P&L and also in a way, the benefit of not including noncash losses, right? So we think about net income as we clearly stated without any caveats.

Okay. All right. Got that. And then just you've gotten this question in the past. And just maybe could you explain again maybe just a difference in terms of the accounting treatment in terms of discharge to discharge versus, say, low to discharge because of the wide difference in what you've reported? You got 22,000, but then you also got 27 on load to discharge. Just want to get a sense of if you wouldn't mind just reminding us what the differences are and how that affects your earnings over time.

Yes, of course, I can answer that. So the previous revenue accounting, we discharge, meaning that we included the revenue from the previous voyage now what we need to do according to IFRS 15 and the new revenue or it's not new anymore, but the revenue policy is that from discharge from the last voyage and until the vessel is loaded, there is no revenue that is included in our books. So it is, of course, the same revenue for the total voyage, but it's reflected on a much less period of time.

Does that mean basically that you'll have maybe wide variances between both figures, do they smooth out over time effectively?

They definitely smooth out over time. So you'll, of course, have exactly the same revenue, but it's reported on a different period, so from load to discharge. And it clearly then it's more volatile. And in a market with increasing freight rates, you will then have to postpone in a way the revenue, and you will gain that again in the next quarter.

But Omar, as confusing as it is, right, as a chip company, when we trade our ships, we focus on this chart to discharge, which is sort of the commercial valuation, right? So within this regard in a way when making calls on what to do with the ships, what the accounting treatment is, the money is made is just in different periods.

Our next question comes from the line of Chris Tsung from Webe Research.

Just curious on your thoughts on this shadow fleet, do you expect it to mostly involve VLCCs? Or do you see some demand for suezmax as well?

I think it will be across the board. So of course, some of these trades will not be sanctioned. So then it's not really a problem, but there are some sanction trades. And I think whether it's IFRS and there will be a mix here. So it's hard to actually have a view on how many or which side.

Great. No, I appreciate that. Now for the 5-year charter with Puma, I know it's your second one, I believe, or you get the Osprey from last quarter. How many more are you guys planning to fix or put another way, like will DHC be a company that mostly has time charters? Or do you still plan to keep some spot exposure?

We like to have both, but it depends on where we are in the cycle and importantly, it depends on the nominal money. So for now, we will take a step back. And we will, in due course, try to develop additional fixed income, but we want the rates to be higher than where they were earlier this year. So as I mentioned earlier on the call, we believe that the 3-year rates are sort of in the plus/minus $50,000 territory depending on the type of ship and the position and so forth. So thinking a bit academically about it, it is possible in due course to sort of fix a meaningful portion of the fleet at very rewarding rates. And I mean, I underscore very rewarding rates. Of course, if you can create visibility on earnings and also in relation to our dividend policy, that might have some merit. But it's a bit hard to say that, yes, that will be the case or it will not be the case. But I think you have to trust our commercial liabilities and trying to make the most out of it.

Right. No, of course, it's definitely within the context of the dividend policy, just trying to give some sort of stability towards it. And just one final one, and just about the upcoming CI regulation. Just curious with you having 2 ships out there for 5 years. Just wondering what the responsibility fall on the owner or the charter of the vessel going until like starting January '23?

So the EXI is a calculation based on the vessel's abilities and design. So these ships are ECO-ships, and they have no issues whatsoever with the EXI and the CII for many years to come. So we have, of course, done the calculations for the entire DHT fleet, and I have a sort of a very clear view on how it will develop. And a little bit by chance, if you like, the demographics of the ESG's fleet, it's so that when 2026 comes about, which is sort of the next leg up in restrictions or in regulations. That is sort of the time and our older ships are closing in on retirement. So we don't really see any commercial impairment for DSG as such. But of course, the customer that is considering taking a ship on time charter, they would need to view for their own sort of book, if you like, on what sort of emission levels they want to have in securing transportation services. But it's our responsibility to make all this calculation and us as shipowners that we'll have to report and manage this.

Our next question comes from the line of Anders Karlsen from Kepler Cheuvreux.

The market is looking very promising. But to put it away, what do you consider to be the main risk factors linked to market developments going forward?

There are, of course, some macroeconomic clouds out there and inflation and also the efforts that central banks are doing to store that and how that will impact the general economic growth. So of course, if we do certainly get the rolled economy into recession and a hard one, that will, of course, impact oil consumption and again, the demand for oil and the month of transportation. I think that's sort of the big issue. But if you look sort of down to the industry more insulated, I think there's a long time ago since we've seen so many positive elements in structuring the market that we are entering into now. So all in all, I think that looks very good, barring sort of any macroeconomic events that would pose a big negative correction.

Our next question comes from the line of Rick Sherman please go ahead announcing your company name.

Rick Sherman private investor. I just got a quick question about the sale of the ship for $37 million. On the mathematics, where you paid off $12.2 million in debt for a net of $24.8 million and a $6.8 million profit. Is that basically because you're carrying equity cost on the thing was $18 million? How did you derive the $6.8 million profit on that ship?

So the profit in the P&L is the balance between the net proceeds and the book value of the ship. So the acquired -- the ship was acquired in 2017, and that's been depreciated since then.

There are no further questions at this time. So I'll hand the conference back to you.

Well, thank you very much to all for following DHT. I appreciate it, and have a good day. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.