DHT Holdings, Inc.

Q2 2021 Earnings Conference Call

8/10/2021

spk01: Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' second quarter 2021 earnings call. I'm joined by DHT's co-CEOs, Svein Moxnes Harfjell and Trygve Munte. 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 August 17th. In addition, our earnings press release will be available on our website and on the SSB Edgar system as an exhibit to our Form 6K. 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, dividends, share rate purchases and debt repayments, the outlook for the tanker markets in general, daily shorter hire rates and investor utilization, forecast of world economic activity, oil prices and oil trading patterns, anticipated level of new buildings and scrapping, and projected dry dock 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 Editor System, including the risk factors in these reports, for more information regarding risks that we face. Looking at the P&L highlights, EBITDA for the second quarter of 2021 was 21 million, and net income came in at $0.8 million. The result includes the profit of $13.6 million related to the sale of DHT Lake and DHT Raven, a non-cash gain of $3 million related to refinancing, and a non-cash gain in fair value related to interest rate derivatives of $2.2 million. Offex for the quarter was $19.6 million equal to $7,800 per day, and G&A for the quarter was 4.7 million. In the second quarter of 2021, the company achieved an average TCE of $19,500 per day, while the average TCE for the first half of 2021 amounted to $25,500 per day. In a historically very difficult and challenging tanker market, we are pleased to have recorded positive numbers for both the second quarter and the first half of 2021. Moving over to the balance sheet, the quarter ended with 52 million of cash. At quarter end, the company's availability under both the revolving credit facilities was 182 million. putting total liquidity at 235 million as of June 30th. We have continued to strengthen the balance sheet with the refinancing of the Nordea credit facility and the prepayments done during the quarter. Financial average is about 30% based on market values for the ships, and net debt per vessel was 17.6 million at quarter end. Looking at the cash bridge, the quarter started with $54 million of cash, and we generated $21 million in EBITDA. Ordinary debt repayment and cash interest amounted to $6 million. $29 million was used related to share buyback and dividend payment. $17 million was used for maintenance and scrubber capex. And positive changes in working capital amounted to $18 million. Proceeds from sale of vessels, net of debt repayment was 51 million. 55 million net was issued in connection with the refinancing. 93 million was used to prepay long-term debt, and the quarter ended with 52 million of cash. With that, I will turn the call over to Trigla.
spk02: Thank you, Laila. Switching now to capital allocation. For the second quarter, a total of 25.8 million will be returned to shareholders. As previously announced, the company bought back 2.2% of outstanding shares during the quarter for a total consideration of 22.5 million. In addition, the company will pay a dividend of two cents per share for the quarter. It will be payable on the 26th of August to shareholders of record of the 19th of August. And with that, the company has now paid dividends every quarter for 11 and a half years. And then we wanted to provide you a little update on the fleet side. And again, as previously announced, we bought and took delivery of two modern scrubber fitted eco ships during the first half, the DHT Harrier and DHT Osprey. We paid 68 million per ship and note that broker value assessments now are some 10% higher. We also sold our three older ships, all 2004 built during the spring. The Lake and Raven were delivered during the second quarter, and we recorded a 13.6 million gain on these sales. The DHT Condor was delivered to its new owners in July, and we expect to book a profit of about 1.5 million on that sale. On the next slide, let us then provide you an update on what has been going on on the liability side of the balance sheet during the quarter. As previously announced, we have refinanced the old Nordea facility with a new and expanded Nordea facility. The new facility has a firm commitment of $316 million with the addition of a $250 million accordion. The new loan carries a margin of 1.9%. It has a DHT-style 20-year repayment profile a five and a half years tenor, and carries the normal VHD covenants. Additionally, and importantly, we were able to continue the benefit of having prepaid all regular installments for 2021 and 2022 under the old facility. So the only installments we pay from now through 2022 on this facility are two and a half million per year for each of the two new acquisitions, the Harrier and the Osprey. During the second quarter, we extended our runway of low cash break-even rates by prepaying all the 2022 installments under our other large credit facility, the ABN AMRO loan. In a minute, Svein will provide more color on our very low cash break-even levels for the rest of this year and next. From the table on this slide, you can see that we have $536 million in bank debt, comprised of two relatively large syndicates and two smaller bilateral loans. Further, we currently have 182 million of available revolver capacity. We have a mere 5 million of regular installments for the second half of this year, and no more than 10 million for all of next year. And finally, you will note that we have no refinancing needs until the fourth quarter of 2023. So as you can see, we continue to enjoy strong support from our banking universe, something that was clearly demonstrated by the terms of this refinancing, which in fact were the best we've achieved in our 11 years at the helm of DHT. And with that, I'll pass it over to Signe.
spk03: Thank you, Trygve. On the next three slides, we'll discuss the employment of our fleet, our firing connection with dry docks, and cash break-even levels. On the first page, you will see the expected ratios of spot and time charter employment during the last two quarters of 2021. For the third quarter, we have covered about 42% of our fleet on time charters at an average rate of $27,500 per day. Some of these time charters are of shorter nature as we consider these an opportunity offering premium earnings to the spot market. Thus far for the third quarter, we have booked income for 64% of the fleet at an average rate of 22,100 per day. For the fourth quarter, we have some 23% of the fleet on time charters at an average rate of about 32,100 per day. We don't expect to enter into additional time charters in the near term, as we don't consider the combination of currently available rates and durations to be compelling. As many of you noted a few quarters back, we started to take advantage of the weak stock market to bring forward dry docks. During the second quarter, we recorded about 100 days of fire in connection with dry docks. We expect another 80 to 100 days during the third quarter, with an additional 40 to 50 days in the fourth quarter. The work to be done during this period in the second half includes installation of ballast water treatment systems and scrubbers. This will also mark the end to our scrubber retrofit program for now, taking our scrubber fleet to 17 out of 26 ships. A key benefit to all these efforts is that we have only 70 to 90 planned off our days for all of 2022. As such, we are positioning our fleet to be ready on the dance floor at a time one should expect a much healthier freight market. Then to an update of our keen focus on cash breakeven. The time charges we have in place in combination with the debt prepayments that we have made ensure we enjoy very robust cash breakeven levels for our fleets. It applies both for the fleet as a whole and the spot fleet specifically. As you will see from the graph on the left on the slide, the full fleet needs to generate 16,600 per day and our spot fleet 10,200 per day for the company to be cash neutral for the second half of this year. On a similar illustration in the graph on the right, you will see that the full fleet needs to generate 14,100 per day and our spot ships 10,600 during the first half of 2022 for the company to be cash neutral. The key drivers behind these numbers are the prepayments of debt that has been made with only 10 million in scheduled AMORC for the year, and very limited maintenance capex reflecting only three ships planned for dry dock. We think these numbers stand out as very robust, protecting the downside without giving away the upside. We are constructive on the markets, but we think the recovery could come a bit later than what most people suggest. Oil inventory levels have been coming down, and OPEC Plus is gradually increasing supply. But COVID is still impacting the demand picture, and this happens at a time when the fleet is growing because of new ships being delivered without the retirement of older ships. It's tough out there, and in all its simplicity, there's too little cargo and too many ships. This being said, the longer this drags out, the faster and more brutal the recovery could be. So let's sum up how we are positioned. One, we have renewed our fleet this year by buying two modern quality ships and selling our three older ships, all at good prices in our view. Two, we secured a new financing package at attractive terms with our supportive universe of lending banks. Three, we have a strong balance sheet with leverage at 30%, paired with a healthy liquidity position. And four, we enjoy very low cash breaking levels for our fleet for both this and next year. So in sum, we are in excellent shape and are all working hard to control what we can control and are executing on the opportunities the markets present. And with that, we open up the Q&A. Operator?
spk00: Thank you. As a reminder, if you wish to ask a question, please press star and 1 on your telephone. To cancel your request, please press the hash key. We will now take a first question from the line of Randy Givens at Jefferies. Please go ahead. Your line is now open.
spk07: Howdy, Sam, Trigby and Leela. How's it going?
spk03: Doing good, thanks. How is Texas? Excellent.
spk07: All well. A little warm, but everything is good down here. A couple questions for me, I guess starting with your fleet here. You recently sold the three oldest VLCCs. You bought those two modern VLCCs all this year. I guess how do you feel about your fleet currently? And then you mentioned you're not looking to do any time charter outs, but any appetite for time charter ins to grow a little bit more exposures?
spk03: I think as we've said many times before, in general, we're not really entertaining time-shartering in. There's a few reasons for that. One, it is essentially 100% financing. It will negatively impact our cash break-even levels as such. Also, we like to have full control of the technical operations of all the ships under our control that we use to service our customers. Time tracker in doesn't really gel well with all that.
spk07: In terms of additional asset sales or modern purchases?
spk02: On the sell side, we have no intention of selling any further ships on this side of the recovery. As we have discussed in the past, the appreciation of second-hand values happened a little quicker and faster than we had expected. So we think that we've gotten to a level where we're actually quite pleased with the fleet that we have. And we really do not currently have any intentions to buy or sell. So it's sort of a whole territory for us and run the 26 VLCCs as well as we can.
spk07: Okay. And then looking at that capital allocation slide, I know you've been pretty committed to that two-cent dividend regardless of earnings. Just also looking at the share buyback, right? Very good use of cash there. You return the 22.5 to shareholders buying the 3.7 million shares. I guess what was the thinking behind that? How did you get to that calculation? And how much... more in share repurchases are you looking at here the remainder of the year?
spk02: Again, as we've said before, we are not regularly doing buybacks. It's a couple of things that need to be in alignment that we find that the NAV is on its way up and that we see a disconnect between share prices and NAVs. And that's typically when we have bought back shares over the years. We felt that after we acquired two ships in the beginning of the year, then prices really took off. And as we just said, we weren't too intrigued by the second-hand opportunities. But the share price had really accelerated to the same extent, so we thought that to buy ships in the form of buying our own shares made sense. As far as forward appetite, that's going to be decided on those same factors, but you know, it could very well be that we will continue to buy some, but there is no sort of target that we want to spend X million dollars or anything like that, so it's a purely optimistic approach from our side.
spk07: Got it. Sounds prudent. And quickly, quarter-to-date guidance on just the spot vessels. Do you have that number or the rates that you've booked so far for spot on 3Q?
spk03: It's about one-third of the spot fleet, and that's at the 10,006. All right.
spk07: Well, hey, thank you so much. Thank you.
spk00: We will now take the next question from the line of Omer Naktar from Jackson Securities. Please go ahead, Omer. It's now open.
spk06: Thank you very much. Hey, guys. Good afternoon. Maybe following up a little bit on Randy's question regarding the discussion around time charters. Given we've had such extremes here over the past two years, it's clearly paid off, at least for you, to have several of your ships on time charter that you booked last year. And so this past quarter, you earned $10,000 on the spot market, but your overall fleet-wide TCE was closer to $20,000, basically. I guess going forward, How do you think, just in general, I know that very near term there aren't that many opportunities, but in the grand scheme, when you think about DHT on an ongoing basis, what percentage do you want to have your vessels on time charter?
spk03: We don't have a fixed percentage that we target, but we look at the nominal numbers, and obviously last year the numbers were very attractive, so we did really as much as we could. Some of these shorted charters this year has been more of an alternative to trading in spot markets. But in the next recovery, you should certainly expect us to do a lot of time charters. And when numbers are very healthy, we'll do as much as we can. But it's not a fixed percentage. That's the guidance. It's just what makes good economic sense for DHT and its shareholders.
spk06: Thanks, Vein. OK, that's clear. And I guess maybe another follow-up to the prior discussion points, you know, clearly, especially with the Delta variant recently, there has been a bit of a, you know, call it a delay in this tanker recovery or at least an expected delay, at least on the part of what we're seeing with respect to the stock performance. You know, given the order book has become very tight here with no real slots available, especially for tankers come maybe late 24 and really in 25, It does paint a positive picture, as you mentioned in your opening remarks, for basically a duration of the upswing once rates do turn. I know you're a fine-standing Pat at the moment, but how do you feel about investing capital when it's time to invest, knowing that perhaps maybe 22, we're looking at a healthier market, and then a healthy market for 22, 23, 24, potentially beyond that, just based on the supply side. How do you feel then about deploying capital You bought the 2016 earlier this year. What's the sweet spot when you do think about investing?
spk03: As we also said earlier, for us to invest, the chips have to be of equal design. That means build sort of late 15 and younger. We felt from a sort of cash return point of view that five-year-olds were really the sweet spots. So the fuel economics of a five-year-old and a one-year-old is basically the same. So we're very happy with those investments. Keep in mind that in the sort of recovery when it happens, this company will turn out a lot of money with the 26 ships it already has. But it's important for us to invest to also look at the required rates over the remaining life of the ships that you buy, not just what you can earn in 12 or 24 or 36 months. So this is the reason why we took a step back once asset prices sort of ratcheted up much quicker than we had expected in the spring. So if for some reason there will be opportunities to, you know, to look at levels not too dissimilar to what we invested at earlier this year, we are certainly open to consider it. So we're not against buying more ships, but it has to be at levels that you think will represent good investments over the remaining life of the ship.
spk06: Got it. Oh, thanks for that color sign. I'll turn it over.
spk00: We will now take our next question from the line of Chris Sung from Weber Research. Please go ahead, Alanis.
spk08: Good afternoon, everyone. How are you? Hello? Hello, Ed.
spk03: Hello, Ed.
spk08: Hi. Sorry, thanks. I guess it's a two-part question regarding scrubbers. What sort of spreads are you guys seeing between a scrubber and non-scrubber fitted vessel? And secondly, with the sales that you guys announced, on the 2004 vessel, we all had scrubbers on it. So is that a requirement to sell vessels?
spk03: To answer the latter part first, maybe, there has been ships sold, not from us, but without scrubbers in the market. So there is appetite for that as well. But that has mainly been ships coming out of Japan with maybe more basic specifications, and they've typically been picked up by private owners as such. So for us, there was a particular interest in our ships maybe because they had scrubbers, but they were also very well maintained, and it was an industrial player that bought these ships, so they would use them for own transportation needs. So they saw some good numbers in that. Currently, the annual benefit of a non-equal ship with a scrubber is about $2 million, Over over the air.
spk08: So that's sort of the additional earnings you can you will get so you can do the rest of the math yourself, I guess Okay, thanks and I guess one of the second part of my question is Could we expect I know you guys are not planning to sell any more vessels You guys have stopped your scrubber program at 17 But just kind of thinking about this if you guys were to entertain selling a vessel Could it be from the part of your fleet that has a scrubber or does not?
spk02: When you run a tank rolling company, essentially everything is for sale. It all depends on the price. So it's not carved in stone that we only sell the oldest ships with scrubber or without scrubbers. It really is where we think it behooves the shareholders and where it makes sense to us. But with all that said, traditionally, we have been selling out from the older end of the fleet. And you will note that basically all of our older ships are scrubber fitted or will soon be scrubber fitted. So hopefully that adds some color to your question.
spk08: Yeah, that's perfect. Thank you all. I'll turn it over. Thank you.
spk00: We will now take our next question from the line of John Chappell from Everco. Please go ahead and let yourself open.
spk05: Hey, everyone. This is actually Sean Morgan on for John Chappell this morning. So it appears that you've signed some extended four to five TCs since the Q1 results. I'm just wondering if we could get the types of rates those are being signed on and Should we just use the shipover figures for the one year, or is there a higher extension rate than those well-timed charters of last year?
spk03: It's a mixed bag, and we have not disclosed the rates of the particular charters, so I think you should relate to the numbers we have disclosed now as the average for the coverage ratio for each quarter.
spk05: Okay. Thanks. And then, you know, on the break-even slide, I think that's interesting. You're able to reduce the maintenance capex for the coming quarter, but is there any ability to offset some of the OPEX costs, or are those pretty efficient at this point in terms of just reducing the break-even even further?
spk02: You know, we have a long-term view in the way we operate our ships, so How much we spend on OPEX is totally independent on what type of market we're in. But you also see that we run this quite competitively and cost-efficiently. So as Lila said, for the quarry, it was $7,800 per day per chip, and we find that to be quite sharp and competitive. But to your question specifically, no, we don't think there's any room to cut in OPEX just to obtain a lower cash break even
spk04: yeah okay thank you welcome we will now take our next question from the line of ben nolan from stifo please go ahead your line is now open yeah thanks um i wanted to get back to scrubbers but maybe from a different perspective it sounds like you're you're done here at 17th Is that simply a capital allocation decision that, you know, you're preserving capital, it's a challenging market, maybe don't have as many dry docks coming beyond this quarter, or is it sort of the ships that don't have scrubbers are sufficiently efficient enough so that you don't really feel like they would benefit enough?
spk03: The latter part of your question is correct, right? So these are really eco-ships. So they consume much less fuel than the sort of more mature end of the fleet. So that means the payback will be longer. The investment is not as compelling, simply. So we're sort of pleased with how we set it up now, that it's really all the older ships that got scrubbers, and then there are some eco-ships then without scrubbers.
spk04: Okay. At least from where we sit now, those more modern ships probably never will have scrubbers, or at least not anytime in the near future. Is that fair? That's correct. Okay. And then sort of getting back to the cash break even, first of all, it's nice that you've been able to retool the debt and very little amortization associated with that, but Just thinking through as we hopefully get into a better market, perhaps at some point next year, obviously the low cash break-even is a pretty easy bar. And then looking beyond, assuming that you are generating substantially more cash than sort of is needed to cover that debt, is there sort of a need to – pick that amortization back up to a little bit of a higher level and maybe a little bit more linear with respect to debt repayment? Or would you imagine that should cash flow be available, it would be available to distribution to shareholders in one form or the other?
spk02: There's definitely no need to ramp up the debt amortization, Ben. So We're totally free to do whatever we want with the available cash flow once the market recovers. But I think it's premature today to sit and sort of indicate what we're going to do once the market returns to healthy numbers. But what we enjoy is to have the freedom to choose what we think is the right thing to do when that time comes.
spk03: Keep in mind that our loan facilities are, you know, straight line AMORs. We have just elected to prepay the scheduled AMOR for a particular period to, you know, improve the position of the company. So it's not because we have non-amortizing debt, but there's sort of a wall of debt coming at some point. Sure.
spk04: Okay. No, I understood. I appreciate it. Thank you, guys.
spk03: And also, you know, our capital allocation is minimum 60% of ordinary net income to be distributed to shelters. So obviously, you know, if cash flows are phenomenal, the company can consider to sort of use that capital allocation policy, right? As you saw for the second quarter.
spk04: Great, thanks.
spk00: As a reminder, if you wish to ask a question, please press star and one on your telephone. To cancel your request, please press the hash key. And we will now take our next question from the line of Robert Cidera from Marine Surveyors. Please go ahead. Your line is now open.
spk10: Thank you for taking my call. I appreciate very much what you guys have accomplished in this very, very difficult quarter that we've just been through. I find it quite fascinating that you have reduced in the last two years from debt levels of over 900 to the nominal notional debt now of 536. This, to me, is a wonderful job done. in an incredibly difficult market now. I would like to suggest that what would you have been as far as earnings this quarter if you still had $900 or so million in debt? I doubt if it would be anywhere near where you are now. In any case, for the future, I know you've been buying shares I would like to suggest that you sell some $5 put options, period. I realize that this will not bring you a ton of money, but it will bring you something. Okay. Especially if you do them for next January and you have the cash set aside to cover whatever options you're able to sell. And that will simply reduce the cost of any shares that you are repurchasing, as well as straight repurchases if you continue to do that as well. In any case, I think that the way you guys have run this company is a Harvard business class classic of how to do it. So that's my input.
spk02: Well, thank you. Thank you for your kind words. And we certainly recognize sort of the option market as something we can also get into. And we have discussed this in the past. But overall, we find that the liquidity may not be what it needs to be in order for us to do something there. But we appreciate your input.
spk10: Well, you don't have to do a lot, but it just shows that you can do some. And I would much rather see you build your cash for the opportunities that may come because we, as you said, will probably go through a longer tough period before we get into a really great market like we had in early 2020. And I'd sure like to, as a shareholder of many years now, see that happen. Yep.
spk00: We will now take our next question. Sorry.
spk10: Do you have any intention at the current levels of still prepaying any of your debt?
spk02: I think now we have prepaid all regular installments on the two large facilities through 2022. So do not expect us to make additional payment in the near future. We feel that we have a significant runway of 18 months here with unusually low cash break even levels. And we're certainly expecting the market to come back to more normal and healthier levels within that timeframe. Currently, we do not have any intentions for additional prepayment.
spk10: Okay. Thank you. Well done, guys. Thank you. Thank you.
spk00: We will now take our next question from the line of Magnus here from Wainwright. Please go ahead. Your line is now open.
spk09: Yeah, hi, good afternoon. Just two questions. You know, you've been extremely disciplined in your capital allocation strategy. And you also mentioned that, you know, asset values have depreciated a little faster than you have thought. Is it fair to assume that you would rather be buying back stock in your own company than buying secondhand vessels as long as the arbitrage is as wide as it is today?
spk03: You know, what we did in the second quarter was sort of buying ships, and we bought our own ships, right? And they were certainly cheaper than what was available in the market. But the levels, of course, nominally are less compared to buying one or two or three ships. So I think we're fairly sort of... agnostic in general, but ideally we would like to have the opportunity to buy one or two or three more ships, but that opportunity was not there.
spk02: We just think it's in the business we are in, and over time you could argue that it's not a phenomenally high-end margin business. We think it's paramount that you buy right, and by saying buying right, it's being disciplined, as you phrased it, Magnus.
spk09: Yeah, that kind of leads me into the second question. Some of your competitors have been, you know, been buying the new ships, dual fuel capability. How do you feel about your fleet, your very modern fleet, and how you feel like your position for the new regulations and your appetite for pursuing any of these type of new builds?
spk03: As you said in the sort of summary, we feel that we are in excellent shape. We have a good fleet and we are well positioned for the sort of changes in the regulatory framework that's coming up over the next few years. So we will be able to meet that. We're quite confident in that. So we're not here to contract new buildings at this juncture. And there's two reasons for that. One is that prices right now are just too high, we think. But secondly, there's a lack of clarity on the technology going forward. So we are, of course, staying well tuned of the developments and down the road, we might think differently.
spk08: Very good. Thank you. Thanks.
spk00: If there are no further questions, I would now like to hand the call back to the company. Please go ahead.
spk03: Well, thank you very much to all who showed interest in DHT and we are wishing you all a good day ahead.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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