DHT Holdings, Inc.

Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' first quarter 2021 earnings call. I am joined by DHT Co-CEO Svein Moxnes Harfjell and Trygve Munte and Vilhelm Findir, Head of Investor Relations. 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, theedgetankers.com, until May 12th. In addition, our earnings press release will be available on our website and on the SSC 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, including DHT's prospects, dividend, share repurchase, and debt repayment, the outlook for the tanker market in general, daily charter high rates and vessel utilization, forecast of world economic activity, oil prices and oil trading patterns, anticipated level of new buildings and scrapping, and projected dried-up schedules. 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 SSC-Edgar system, including the risk factors in these reports, for more information regarding risks that we face. Looking at the P&L highlights, DHT showed profitable results for the first quarter despite a very tough tanker market. EBITDA for the quarter came in at 46.7 million and a net income of 11.6 million or 7 cents per share. Adjusted for a non-cash gain in fair value related to interest rate derivatives of 3.4 million, Net income would be $8.2 million or $0.05 per share for the quarter. OPEX for the quarter was $19.1 million and G&A for the quarter was $5.6 million. Moving over to the balance sheet, the quarter ended with $54 million of cash. We have built a very strong balance sheet and financial leverage is about 35% based on market values for the ships. Net debt per vessel is 18 million at quarter end, which is below current scrap values. Looking at the cash bridge, the quarter started with 69 million of cash and we generated 47 million in EBITDA. Ordinary debt repayment and cash interest amounted to $6 million. $9 million was paid in dividends. $125 million was drawn on RCS, while $136 million was used for vessel acquisitions and $5 million was used for maintenance capex. Changes in working capital amounted to $31 million and the quarter ended with $54 million of cash. And now over to capital allocation. For the first quarter of 2021, DHT will pay a dividend of $0.04 per share on May 26 to shareholders of record as of May 19. This will be the 45th consecutive quarterly dividend payment. With that, I will turn the call over to Svein.

Thank you, Laina. We will now discuss our latest investments and divestments as well as our thoughts going forward. During the first quarter, we acquired two scrubber-fitted 2016 built VLCCs, both which now have delivered into the DHT fleet. We consider these to be attractive investments with robust required rates to generate good returns for our shareholders. The DHT approach is amongst others to compare the required rate to generate an unlevered return of 10% and compare that with average historical VHC earnings. The ships we bought require some $33,700 per day for the remaining economic life to generate this return, comparing favorably to the historical average of some $42,500 per day. During this quarter, we entered into three individual agreements to sell our oldest ships, all built in 2004. The DST Raven has been delivered to our new owners, whilst the DST Lake and DST Condor are expected to deliver during the balance of this quarter. The three ships were sold for an aggregate sum of 89 million. Net proceeds from the sales after repayment of mortgage debt is estimated to be about 78 million, and we expect to book a profit of about 15 million during the second quarter. The industry newspaper, Tradewinds, quoted an industry observer questioning why we did not sell these three ships a year ago. Little must this observer know about our business. Back in the first quarter of last year, we thought we would create more value for our shareholders by trading the ships for a while longer, taking advantage of the strong market and related time-sharter opportunities. The leading ship broker, Clarksons, valued a 15-year-old tanker at 35 million end of the first quarter last year, suggesting that the 16-year-old, as these ships were at the time, would have been in the low 30s. Now, these three ships have over the past five quarters generated a cumulative EBTA of 57 million. The numbers speak for themselves. The transactions represent a fleet renewal with an average age being reduced from 9.4 to 8.2 years. It will further improve the operational efficiency of our fleet, including metrics such as AER and EEOI. Moving on, we are interested in making additional acquisitions and have capacity to invest without relying on additional equity or stressing our healthy balance sheets. Our focus is still on modern second-hand ships of eco-design, i.e. built from 2015 and onwards. However, values, or at least tellers' asking prices, have moved up a bit quicker than we had hoped, leaving us in a wait-and-see mode for now. You should not expect us to contract new buildings, and for three key reasons. There is great uncertainty related to what will be the fuel of the future for large tankers. We don't think there's any advantage in being an early mover. Two, new building prices are not compelling. New building prices for a VCC are up from roughly 83 million some six months ago to about 92 million today. They might well continue to increase from here and offer a feel-good factor in a year's time. but the cheap is for now behind us. At DHT, we do not invest in ships to try to make a buck by selling the asset in the short term, but we invest with the view to make good returns by operating the ships. In all its simplicity, if you buy well, you never have to sell, whereas an expensive ship will always be an expensive ship. And the third reason, our sector does not need any more ships. Once the fleet demographics looks favorable for the next few years, adding to the order book could easily mute what otherwise looks to be a rewarding recovery. Now onto fleet employments. We are still enjoying the decisions we made last year in securing some fixed income for our fleet. The second and third quarter has an even distribution between spot and fixed, whereas the fixed portion is reducing to a quarter of our capacity in the fourth quarter. As such, the coverage ratio is gradually coming off as we move closer to a recovery in freight rates. For the second quarter, we have booked 75% of our total capacity at $21,300 per day, being well above our cash break-even numbers, which Trygve will discuss in more detail later on. Like during the fourth quarter last year, we continue to take advantage of the lead freight market to advance dry docks. We had seven ships in dry dock during the first quarter with a total of 232 days of fire. For the second quarter, we will have another three ships in dry dock with between 1910 days of fire expected. Keep in mind that the COVID situation impacts these dry docks with quarantine issues causing delays and being included in these numbers. We plan to dry dock another three ships during the second half of the year. Then some comments on the COVID situation. This situation has been and still is a major challenge for the industry, with crew changes being the dominant problem. We have under the circumstances fared well, thanks to fantastic support and understanding from our crews, and hard work from all the support staff onshore. There has been a positive trend over the past few months, but this has now got a setback with the developments, in particular in India, causing renewed challenges. Seafarers are yet to be identified as essential workers by the authorities, And with the lack of global and coordinated support from authorities and politicians, we sadly expect difficulties to remain. We will continue to act responsibly and do what we can to make do during these challenging times. And with that, over to Trine.

Thank you, Svein. Following the acquisition of the two 2016 built VLCCs, we have developed a new credit facility together with Nordea as agent and six other core DHT banks. The loan is built off by three blocks. Firstly, it is a $75 million new mortgage financing of our two recent acquisitions. This will be DHT style with a 20-year repayment profile and $2.5 million in annual repayment per ship. Secondly, it is an extension of the $181 million loan that we currently refer to at the Nordea facility from April 2023 to January 2027. And thirdly, it has a new undrawn revolving credit facility of $60 million. The total amount available to us is $316 million. The loan will have a five and three quarter year tenor and will come to final maturity in early 2027. And it will carry an interest rate of LIBOR plus 1.9%. This is a 50 basis point reduction from the current margin. The covenants will be unchanged from the current facility. Further, as previously reported, we have prepaid all regular installments for this year and next year under the existing Nordea facility. And you should note that this will remain so also after the extension. And finally, the new facility includes an uncommitted accordion of $250 million. The main point here is to facilitate the smooth mortgage financing of any additional acquisitions that may be made between now and the end of next year. On this slide, we will walk you through the main financial effects of the new financing and the SHIP sales that I discussed. The new financing will boost liquidity by about $132 million. That is the new mortgage on the Osprey and Harrier plus the new Revolver minus a front end fee. Liquidity will be further boosted by the net proceeds from the ship sales of about 78 million. So as you can see, liquidity will grow from 99 million at quarter end to 309 million once the ships have been delivered and the new loan executed, all else being equal, of course. Interest bearing debt will be reduced by nine million following the repayment of a loan on one of the ships sold. The other two ships were debt free. And finally, book equity will increase by 15 million from the profit on the ship sales. So the main benefits of the sale and purchase and financing activities can be summarized as follows. We bought two five-year-old eco ships and sold three 17-year-old ships. This is fleet renewal and future efficiency improvements. Two, the reduced margin on the new loan equates to some 1.6 million in annual savings, assuming the loan is fully drawn. Three, we have pushed out the final maturity on one of our large credit facilities to 2027, with the effect that we have no refinancing requirements before 2024. And four, our financial position has improved. Net debt per ship is reduced to $16.6 million per ship, and total liquidity, and that is cash and revolver availability, is increased to $309 million. Let me then take you through where we currently are in terms of cash break-even levels. On the left side of this slide, you see expected cash costs for the current quarter, broken down into OPEX, cash interest, debt repayments, cash G&A, and maintenance capex. In sum, about $38 million. In order to generate the same amount in revenues, the ships need to earn an average of about $15,900 a day, as shown on the orange bar in the middle. This is in and of itself very competitive compared to peers. However, we do also have significant fixed income from our time charter book for the quarter, so the spot ships only need to earn some $6,700 per day in order for DHT to cover all its expected cash costs for the quarter. On the right side of the slide, you see a similar graph for the second half of the year. Not a dramatically different picture, but you will note that the somewhat lower time shorter cover means that the spot chips need to earn roughly 10,200 per day in the second half of this year in order for DHT to be cash neutral for the period. So before we open up for your questions, let us provide you a brief summary of where we are. We're very pleased with our performance in the first quarter. All our colleagues on border ships as well as ashore have delivered good results in a difficult environment, both because of COVID and the historically low freight market. Despite the challenging market, we have built NAV for our shareholders, both through earnings from operations and through gains on sale of all the vessels, although the latter will only be recorded in the second quarter. Our buying of modern eco-ships and selling of older ships have not only reduced the average age of our fleet, but will importantly also improve our efficiency ratios. Our new bank financing shows that we enjoy great support from the world's leading shipping banks. And we're pleased to see that our past performance has enabled reduced financing costs, which in turn will lead to increased equity returns going forward, all else being equal. Our financial position remains very healthy with low leverage and ample liquidity. And our spot cash break even remains very robust. And finally, we're bullish on the medium-term market outlook. According to energy aspects, global oil demand is estimated to increase by 10 million barrels from the second quarter last year to the second quarter this year. However, this growth has not yet been felt in the tanker market, as a lot of supply has come from inventories. At the peak, global oil inventories were some 800 million barrels above normal, but have since come down to 120 or so, and is still declining. We have now reached a point when OPEC Plus will start releasing more supply into the market. But we do not expect that the first baby steps will send spot rates sky high right off the bat. We believe it will take a little more than the initial 700,000 barrels per day to make an impact. But we do believe the worst is behind us and that we are about to start on the gradual recovery that should lead us to a better tanking market in the not too distant future. And with that, we would like to open up for your questions.