DHT Holdings Inc (DHT) 2022 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the DHT Holdings Q1 2022 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded, Tuesday, the 10th of May, 2022. (Operator Instructions)

I would now like to hand the conference over to our speakers today. Laila Halvorsen, CFO; and Svein Moxnes Harfjeld, CEO and President of the company. Please go ahead.

Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings first 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 May 17. 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 details in our financial report.

Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports 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 healthy and strong balance sheet, and the quarter ended with $58.6 million of cash. At quarter end, the company's availability under both revolving credit facilities was $176.8 million, putting total liquidity at $235 million as of March 31.

Financial leverage is about 30% based on market values for the ships. And net debt per vessel was $17.8 million at quarter end, which is well below current scrap values.

Looking at the P&L highlights. EBITDA for the quarter was $14.4 million, and net loss came in at $17.3 million. The result includes a noncash gain in fair value related to interest rate derivatives of $7.9 million.

The company continues to show a very good cost control with OpEx for the quarter at $18.3 million, equal to $7,800 per day per ship. G&A for the quarter was $6.8 million (sic) [$6.1 million] , and includes non-recurring accruals related the retirement of the previous co-CEO.

In the first quarter of 2022, the company achieved an average TCE of $17,100 per day. For the second quarter of 2022, 69% of the available days have been booked at an average rate of $24,800 per day and 59% of available spot days have been booked at an average rate of $19,900 per day.

On the next slide, we present the cash bridge for the quarter. We started the year with $60.7 million of cash, and we generated $14.4 million in EBITDA. Ordinary debt repayment and cash interest amounted to $7.2 million, a $3.3 million was allocated to shareholders through dividend payment and $2.3 million was used for maintenance CapEx.

Changes in working capital amounted to $4.5 million, and we ended the quarter with $58.6 million of cash. As you will note, and despite the very challenging freight market, we did not burn any cash.

Switching now to capital allocation. The company will pay a dividend of $0.02 per share for the quarter. It will be payable on the 26th of May to shareholders of record as of 19th of May. This marks the 49th consecutive quarterly cash dividend. For the 3 remaining quarters of 2022, we estimate cash G&A of $3.3 million and noncash G&A of $0.8 million in average per quarter.

Following the sale of DHT Hawk and DHT Falcon, depreciation for the 3 remaining quarters of 2022 is estimated at about $31.5 million on average per quarter. The scrubbers will be fully depreciated at the end of 2022. We expect annual depreciation for 2023 to be about $100 million.

With that, I'll turn the call over to Svein.

Thanks, Laila. We have entered into agreement to sell the DHT Hawk and the DHT Falcon with the deliveries set to take place during the second quarter.

Price to $78 million for the payer and compares favorably to the combined price of $98 million that we paid for them some 8 years ago. The sales are expected to generate some $12 million in combined profit, and we will repay the remaining outstanding debt on the vessels amounting to about $13 million in total. Following these sales, the average age of our fleet will be reduced and our AER and EEOI metrics improved.

On this slide, you will find an update of our cash breakeven levels for the remainder of the year. As per usual, all crew cash costs are included in our presentation, i.e., OpEx, debt amortization, interest, G&A and maintenance CapEx. The numbers are best-in-class with a required rate of $15,100 per day for the fleet as a whole, and importantly, $8,500 per day for the spot ships specifically in order for the company to be cash neutral for the remaining 3 quarters of 2022.

On this next slide, we wanted to share an observation of the peer group within large tankers. As you will see, there is a distinct change in the development of financial leverage within this group. DHT is represented by the green line and with the lowest financial leverage.

As you will recall during the last upturn, not only did we return significant moneys to shareholders through quarterly cash dividends, but we also invested in the balance sheet and reduced interest-bearing debt by about 50%. Despite the recent tough markets, we have retained our balance sheet strength. And you could also note that we have no newbuilding CapEx commitments. Your takeaway here should simply be that DHT has the strongest balance sheet in the group.

I'll now offer some commentary on the market. We believe a market recovery to be underway, but delayed and troubled by COVID in China and geopolitics generally impacting macroeconomics. Admittedly, and given all the noise, it is very difficult to predict the near-term freight markets. But trying to look through all this noise, we see fundamentals developing towards what we expect to become a rewarding market for large tankers.

Oil inventories are low and are now likely more pronounced as energy security is increasingly becoming an issue. OPEC is so far sticking to its plan, but with underperformance by the respective members' quotas. The much talked about Iran deal takes longer than market observers have suggested. And the Russia-Ukraine conflict is reducing supply.

The U.S. have, however, announced release from the SPRs, a release that will offer the market a double benefit. Firstly, through additional barrels to the market over the coming 6 months and then likely refill in due course. Further, we don't think it's unreasonable to expect Saudi and the UAE led OPEC response to higher oil prices at some point, maybe in the second half of this year.

As you all know, ship owners make a living by transporting supply, hence the danger of talking our own book and stating the obvious, more supply would be most welcome. The sanctions and ensuing trade disruptions coming out of the Russia-Ukraine conflict seems to be increasing transportation distances. So far most visible to ships smaller than VLCCs.

If freight differentials become too wide, freight tend to flow up and down between the different ship sizes. We saw some of this at the outset of the conflict and should regulator trades see these differentials come back, the theory that the tide lifts all boats could hold true.

The pop in freight rates for VLCCs that you saw a few weeks back is a good indicator that the underlying balance is not as bad as the current rates are indicating. Keep in mind that VLCCs typically transport almost 45% of all seaborne crude oil volumes with closer to 60% on a ton-mile basis. This is truly the workhorse of the oil industry.

The trade disruptions are changing sourcing of refined oil products, elevating freight rates for product tankers. As this happens at the time of low inventories of both crude oil and refined products, it begs the question whether product tankers are front-running crude tankers, suggesting demand for feedstock and thus crude oil transportation to come next.

There are currently too many ships in the market. The world fleet is, however, getting older by the day in combination with no ordering of new ships. The VLCC order book consists now of 54 ships to be delivered through the remainder of this year and next. This equals a meager 6.3% of the existing fleet, very low by any reference.

With very limited scrapping, the current number of ships over than 20 years has now become significant. This part of the fleet could grow close to 100 ships by the end of the year, assuming no scrapping. We find it discouraging those older ships are not retiring from the fleet, in particular, with very healthy demolition prices being offered.

Until not long ago, there were hardly any commercial prospects for ships older than 20 years. But sadly, it is only sanctioned trades that keep all these older ships currently in business. These sanctions have simply developed new trades for ships that do not comply with rules and regulations. We do think, however, that something's got to give as dry docks and other capital expenditure eventually will force all the ships out of the market.

So in sum, all this would lead us to envisage the fleet to potentially shrink at the time when demand for transportation is expected to recover, creating a very rewarding freight environment. It would be a very bold move to bid against large tankers.

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

(Operator Instructions) Your first question comes from the line of Jon Chappell from Evercore ISI.

I'm going to ask all my questions in kind of one multiparter. The vessel sales make 100% sense given the asset values, also given where equities are trading right now and you didn't have much debt on them. So the first part is, what's the use of proceeds from that net $65 million?

And then secondly, you've kind of indicated in the past that you're not interested in buying assets at this point. And again, if you're selling then the prices would probably indicate you're not into buying. If we are in the beginning of this upturn, as you've lay out, you're probably not going to have other opportunities to buy either. So do you kind of envision the next several quarters, the next beginning of the upturn in the cycle to be a kind of cash harvesting period and with more aggressive capital returns to shareholders and then look to purchase when we're kind of peaked or past the cycle?

Just to be clear, we didn't say that we were not interested in buying at this time, but we have not been interested in buying at some of the prices that people have been asking. So there is a sort of reasonable distinction in those 2 observations.

So we are always sort of looking at opportunities. And it's been really hard we think to find something that has made good sense, but we should not really rule that out. And I think with our balance sheet, we are more than able to fund any acquisitions that we sort of would like to look at without relying on additional capital. So if we do something, it will certainly sort of improve the earnings in the company.

But as you also noted, we do like to have a sort of low leveraged balance sheet. We think our business is sort of suited for that or the balance sheet is on for the business, depends on which way you look at it.

And as you also point to when it comes to capital allocation, our policy is a minimum 60% of ordinary net income. And we have demonstrated in the past that when sort of earnings or cash flows are committed, we have certainly rewarded shareholders with more than 60%. So that's also possible. And of course, with sort of low cash breakeven, low leverage over time, it could put the company in position to be more generous than not the specific numbers suggest. But sort of we will not be drawn on giving a specific outcome on that. But that's how we sort of think about it in general.

And I lied before, I do have one more additional question. It seems like other segments have been more immediate direct beneficiaries of some of the new trading routes developing from what's happening in Europe right now. Are the VLCCs just a laggard in that regard? Or do you see maybe China comes back online, reverse lightering from the Baltic or the Black Sea that could be a big VLCC beneficiary? How do you kind of see the map redrawing to the benefit or not in terms of VLCC market over time?

Yes. Prior to the conflict, you had some 4 to 5 VLCC cargoes going out of the Baltic and they were all loaded to transshipment in the Danish straits. So that business, of course, have become very difficult task for most people. And from what we understand also Danish pilots are not so interested in assisting that type of social transshipment to take place.

So people are moved sort of further away to try to do this. But currently, it's really some of the traders buying this oil, and it's not a business that we touch. But I think it is -- if this whole conflict situation changes, one should expect that trade to come back at some point. This has not really been the case out of the Black Sea, where you had more sort of suezmaxes trading directly out to Asia.

What we did see immediately after the conflict, we had some B2C loading out of the U.S. Gulf going to Europe. And with multiple port discharges, so 2 to 3 discharge ports in the Iberian Peninsula, et cetera. So that -- and those were done at very good freight rates, up in the $40,000 a day sort of territory. So that might well sort of increase at some point once these U.S. barrels are coming to market.

There seems to be appetite for, in particular, the light crude in Europe, so -- which is driving a lot of West African barrels now going to Europe. So there are so many moving parts here, and it's very hard to have a precise view on exactly how it will play out. Other than just saying that disruptions and increased distances will serve our business well. And I do think right now we are probably the last ship type to benefit from this. But eventually, it will also come to VLCCs and then it should be quite forceful we think so.

Your next question comes from the line of Chris Robertson from Jefferies.

Yes, you guys have done a good job in the past with countercyclical investing and divesting. So you have a handful of ships with the same age profile as the 2 that were just sold. Could we see some additional vessel sales this year? Or do you think that's over with at this point?

If we see sort of deals that we think are attractive to divest, say, one or 2 more ships that could certainly happen. So the challenging part also in sort of selling ships in this age bracket is that they are not all buyers that a company like DHT can entertain to the business with. So on this occasion this was a known entity to us. Somebody who has done business with in the past, and they've performed very well and so it's a proper company. So for us, that sort of worked out and that in connection also with a good price.

So I will not rule it out, but it's not like a heavy marketing or effort in sort of getting rid of ships. We have a high-quality fleet and they're also ready to dance once the music can really start.

I guess just thinking about the pre-eco built ships, especially the pre-2010s. Kind of what's the incremental CapEx needed to bring them up to speed for IMO 2023 and beyond? And does it vary heavily by age bracket or is it about the same price?

I think for all those ships they have large engines, and we've gone through the exercise of calculating sort of the EXI and what we then would need to do with the ships. There will be some minor sort of power reductions. But the power reductions ends up in sort of cap speeds, which are still way higher than what is the service speed in the market.

So basically, all these ships are designed to run at 17.5-18 knots and we might have to cap speed at, call it, 15.5 knots or maybe closer to 16 knots. Whereas, the service speed in the market is 13-13.5 knots. So I think commercially, we'll have hardly any -- maybe on the limited impact on DHT's earnings capability. And there's not any CapEx to speak of to. This is really a pocket money, so.

Your next question comes from the line of Frode Morkedal from Clarksons Securities.

A few questions on this vessel sale you did. Looks like a very good price you achieved. I guess, did -- and they, of course, include the scrubbers, right? So one question I had is, did the value of the scrubbers come up in the discussions? And if so, how much would you ascribe this scrubber value to be in today's market?

And there was no specific discussions about the scrubber value. This buyer wanted ships with scrubbers. So it was not sort of an alternative discussion. So do you have ships without scrubber and what is the price differential. So it was sort of very straightforward. And we had a sort of rough idea what we wanted for the ships, and they were able to and willing to meet our price expectations.

So there's been some volatility in the spreads. It's been sort of at $100 and been up to $250. So it depends what you put in. The thing for sort of ease of reference at the $100 spread, then the nominal value in the year on a ship of this vintage is in the sort of $1.5 million to $1.7 million incremental earnings. So then you need to have a view on how long you think these spreads will stay. So -- but as I said again, there was no specific discussions on any value per se, so.

Now the reason I ask is that if you look at the, let's say, broker quotes, they usually do not -- well, it's a scrubber free value typically.

Yes, that's correct.

Yes. In general terms, how do you see the sale and purchase market for VLCCs today? And in combination with that, can you also talk about the timing of this vessel sale? I guess, given the outlook you have, which seems to be quite optimistic, would vessel prices move even higher in the future? Or do you think like there's the new carbon regulation that's coming into play next year has an impact for these older vessels?

There seem to be a reasonable liquidity in the older end. But as I mentioned to the -- on the prior question, it's not all these counterparties that we could do business with. So they might work out for a private buyer, so to say. So but there are sort of regular transactions happening in that space. And for older ships, they are trading anywhere depending on the age and the condition from sort of the high 20s up to sort of the high 30s, as we now or maybe even 40s as we now demonstrated. So depends on their value position, ballast water treatment, scrubbers, prior history, et cetera. But there are sort of regular transactions taking place.

In the sort of very modern end, there are a few things being talked around and one can do something if one wants to. But it seems to sort of be a bit, I would say, sideways as there are not many transactions taking place and not that many players. So there's not some real big movement and it's a bit disconnect from new building prices.

And I think the reason for this is that the asking price from the shipyards at 120 plus/minus is just a derivative of what they can get for a gas carrier, LNG carrier or a large container ship. So it's not really driven by strong demand to both tankers. So -- and that's really great news for our space, because you don't really see a lot of people wedging in on building large tankers now, so that leads us to a great benefit.

In sort of the middle bracket call it ships around 10-year mark, they are very -- not that many transactions taking place, not much for sale or purchase. So you have to sort of move over to sort of starting at 13-14 years old ships before you see much movement. So that's also been a bit sideways, I would say.

And again, here, it depends very much on the specific shipyard its build at, how it's equipped, et cetera. But some of the private owners are sort of keen to venture in that area. And I understand why they do that. It doesn't sort of offer any fuel economic benefits compared to an eco-ship, but it is nevertheless some quality ships in those vintages in the market, and they will also have a reasonable time, I think, in a market recovery.

Your next question comes from the line of [Robert Silvera from Associate Marine].

It's a very good job as usual. You guys are conservative and have reduced your interest cost, which is always positive. You did have extra shares outstanding of about 672,000 plus. And I was curious where those shares went? Were they in fulfillment of option buying? Or where did they come into existence for?

So the company on a regular basis has a long-term sort of incentive program for directors and officers. And there are sort of allocated shares that could be rewarded on a -- typically rewarded annually with vesting criterias. So that is a reflection of that.

Okay. So it's all management then -- directors and management?

Correct.

You also note a number call, and you call it the share of profits from associated companies. Can you give us some color on what that is?

Yes. So we own -- in the first quarter, we own 50% of our ship management company, Goodwood in Singapore, that runs all our ships, so that's an associated company. We have now subsequent in the second quarter increased our ownership position to have now economic control of the company and also have 2 or 3 directors of that company, so increasing our position. So we will change the accounting treatment of that company going forward. But that will be visible from the second quarter results onwards.

But that will increase profits. So can you…

The company is profitable, but the change in ownership from 50% to 53% is not significant in sort of nominal sense. So it's a small part of the P&L in DHT.

In one of the earliest questions, there was a cash from the sale of the ships. What was your allocation for it. And I missed -- I didn't pick up what your answer was on that. What did you -- what are you using that -- those millions for?

So initially, the cash flow go into the company's sort of cash reserves. We have not communicated a specific use of that cash. We are sniffing around if we can find a good investment opportunity, although we must admit they're very hard to find right now. So that is one alternative.

And we could also do, as we have done in the past, is to prepay more debt. So that's also an opportunity that we have. And I think in the next quarter or 2, that will become more visible to investors as we move ahead and to see what we have decided to do. Could also, of course, be a mix of both, so.

Yes, I like that alternative of reducing the debt. That's always a good one in my mind. One last question. The large number of ships that are over 20 years and stuff, how is that playing right now with the scrap steel market? Is the scrap steel market still high and attractive to take these ships out? Or has it been dropping?

Well, the prices to sell the scrap for the -- ship for demolition is still very high, which all makes it a bit puzzling that you don't see more ships heading for the scrap yards. So -- but as I mentioned, it's really driven by the fact that they have some commercial opportunities that are almost sort of exclusively available to people willing to take these risks and not be compliant. So these sanctions have, over time, created sort of a separate market. And you could be -- maybe you can be concerned that for the smaller ships like Afras, et cetera, that if Russian cargoes are also now sanctioned, you could create an additional pocket for similar types of businesses in the future.

So it's not an ideal outcome. It's the flipside of sanctions, which we understand why they are being made. But unfortunately, IMO and the relevant flag states are not able to reinforce these regulations and get rid of the ships, so.

With your experience though, with the ship ages that are out there, when do you see it kind of being economically forced so that they be scrapped? Are a year out, 2 years out?

With the new regulations coming on from 2023, I think the next sort of hard line will be 2026. And I think by that time, it's going to be very, very difficult, if not impossible to operate older ships. And if you look at sort of the demographics of these fleet, you will note that our ships will sort of move out of the commercial picture well within that time. So we have sort of a natural retirement either by selling or also potentially scrapping in due course.

So we will sort of pass through that. And what we will own beyond that will be a very efficient fleet, assuming nothing else happens.

Your next question comes from the line of Climent Molins from Value Investor Research.

As there is no answer, I'll move on to the next question. This question comes from the line of Chris Tsung from Webber Research.

I wanted to ask about just -- all the good ones were taken already. So just moving on to the dry docking schedule. I think there's one left for the second half of this year. I know in 2021, in light of a soft freight market you guys pushed up several trade dockings. Is there -- do you guys have that [slot] available if just for the rest of the year or it's just one that most you could be?

There's only one ship left for this year. We might start with one that's due in January later this year. But if you want details, please make contact with our CFO, Lila, and she will assist you with more details, so.

And just on the vessel sales, it looks like the outstanding debt on the 2 were about $13 million, given the DHT self-financing $2.5 million over the remaining economic life, that to me comes out to be about 2-2.5 years remaining on these vessels. So is it right -- am I thinking about it correctly that the economic life that you guys built in is about 18 years for these VLCCs?

No. What we do when we finance is that we like to cap the borrowing ownership to be maximum $2.5 million per year in amortization for the remaining commercial life of that vessel. So for new building for 20 years life, it will be $50 million sort of maximum debt. If you buy a 10-year old shape, it will be $25 million. But it's also a reflection here that we have done some prepayments on that earlier on. So there's a mix of sort of regular amortization and some prepayments as the debt was a bit lower, so.

(Operator Instructions) There seems to be no further questions. Please continue.

Well, thank you very much to everyone for listening in on DHT and your support and interest in our company. It's most appreciated. Wishing you a good day ahead.

That does conclude our conference for today. Thank you for participating. You may all disconnect.