DHT Holdings, Inc.

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 Harfjell. 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 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 as detailed 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 SSE 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 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 31st. Financial leverage is about 30% based on market values for the shift, and net debt per vessel was 17.8 million at quarter end, which is still 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 non-cash 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 and includes non-recurring accruals related to 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, while $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 two cents 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 three remaining quarters of 2022, we estimate cash G&A of 3.3 million and non-cash G&A of 0.8 million in average per quarter. Following the sale of DHT Hawk and DHT Falcon, Depreciation for the three remaining quarters of 2022 is estimated at about $31.5 million on average per quarter. As the Scribbrs 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 Swain.

Thanks, Lina. We have entered into agreement to sell the DHT Hawk and the DHT Falcon with the delivery set to take place during the second quarter. The price is 78 million for the pair and compares favorably to the combined price of 98 million that we paid for them some eight years ago. The sales are expected to generate some 12 million in combined profits 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 break-even levels for the remainder of the year. As per usual, all true cash costs are included in our presentation, i.e. OPEX, debt amortization, interest, G&A, and maintenance capex. The numbers are best enclosed 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 three 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 monies 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 new building 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. has, 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 six months, and a likely refill in due course. Further, we don't think it's unreasonable to expect Saudi and the UAE-led OPEC response to high oil prices at some point, maybe in the second half of this year. As we 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 welcomed. 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 the LCCs. 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 regular 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 we 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 VCCs typically transport almost 45% of all seaborne crude oil volumes, but 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 anchors. As this happens at a time of low inventories of both crude oil and refined products, It begs the question whether product tankers are front-running crew 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 older 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 the older 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 bet against large tankers. And with that, we open up for Q&A.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, Press the hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Chappell from Evercore ISI. Please ask your question.

Thank you. Good afternoon or good morning is fine. Going to ask all of my questions in kind of one multi-parter. 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 probably indicate you're not into buying. If we are in the beginning of this upturn, as you've laid 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?

Thank you, Joel. 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's a sort of reasonable distinction in those two observations. So we're 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. I think with our balance sheet, we are more than able to fund any acquisitions that we would like to look at without relying on additional capital. So if we do something, it will certainly improve the earnings in the company. But as you also noted, we do like to have a low leverage balance sheet. We think our business is suited for that, or the balance sheet is suited for the business. It depends on which way you look at it. 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 earnings or cash flows are permitted, we have certainly rewarded shareholders with more than 60%. So that's also possible. And of course, with low cash break evens, low leverage over time, it could put the company in position to be more generous than what the specific numbers suggest. But we will not be drawn on giving a specific outcome on that. But that's how we sort of think about it in general.

That's very helpful. 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 of the VLCC market over time?

Prior to the conflict, you had some four to five VLCC cargoes going out of the Baltic, and they were all loaded through transshipment in the Danish Straits. So that business, of course, has become very difficult now for most people. And from what we understand, also Danish pilots are not so interested in assisting that type of 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 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 Zeus-Maxus trading directly out to Asia. What we did see immediately after the conflict, we had some V2C loadings out of the US Gulf going to Europe, and with multiple port discharges, so two to three discharge ports in the Iberian Peninsula, et cetera. 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, which is driving a lot of West African barrels now going to Europe. So, you know, there's 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 the agencies, and then it should be quite forceful, we think.

Okay, that's very helpful. Thank you, Svein.

Thank you. Your next question comes from the line of Chris Robertson from Jefferies. Please ask your question.

Oh, it's fine. Thank you for taking my questions. Of course. Morning. Morning. Yeah, 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 two that were just sold. Could we see some additional vessel sales this year? Where do you think that's over with at this point?

If we see these that we think are attractive to divest one or two more ships, that could certainly happen. The challenging part also in selling ships in this age bracket is that they're not all buyers that a company like DST can entertain to do business with. On this occasion, this was a known entity to us, somebody we've done business with in the past, and they performed very well, and it's a proper company. So for us, that sort of worked out 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 all sort of ready to dance once the music can really start.

Sure. I guess just thinking about the pre-ECO-built ships, especially the pre-2010s, 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 the EXI and what we then would need to do with the chips. There will be some minor power reductions, but the power reductions ends up in capped speeds, which are still way higher than what is the service speed in the markets. So, you know, basically all these chips are designed to run at 17 and a half, 18 knots. And we might have to really, you know, cap a speed that's, call it 15 and a half knots or maybe closer to 16 knots. Whereas the service speed in the market is 13, 13 and a half knots. So I think commercially it would have hardly any, maybe only limited impact on DHT's earnings capability. And there's not any capex to speak of to do this. This is really a pocket money, so.

Great. Yeah, thanks for that color. That's all for me. Thank you.

Thank you. Your next question comes from the line of Frode Morkedau from Clarkson Securities. Please ask your question.

Yes. Thank you. Hi, Swain. Hi, Philip. A few questions on this vessel sale you did. Looks like a very good price you achieved. I guess, and they of course include the scrubbers, right? So one question I had is, did the value of the scrubbers come up in the discussion? 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 chips 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 of what we wanted for the ships and they were able to and willing to meet our price expectations. So, you know, 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. But I think for sort of ease of reference, at the $100, you know, spread, then the nominal value in a year on the ship for this vintage is in the sort of 1.5 to 1.7 million dollar incremental earnings so then you need to have a view on how long do you think these spreads will will stay so but uh as i said again there was no specific discussions on a value per se so no okay 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. Yeah, that's correct. Anyway, yeah. In general terms, how do you see the sale and purchase market for VLCCs today? You know, 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 investment prices go even higher in the future? Or do you think the new carbon regulations coming in to play next year have an impact for these older investors?

There seems to be reasonable liquidity in the older end, but as I mentioned on the prior question, There's not all these counterparties that we could do business with, so they might work out for a private buyer, so to say. But there are sort of regular transactions happening in that space. 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, or maybe even 40s, as we now demonstrated. So it depends on their value position, balance of treatments, scrubbers, prior history, etc. 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 a real big movement and it's a bit disconnected from new building prices. 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 a strong demand to build tankers. uh so and that's really great news for our space because you don't really see a lot of people waging in on on on building large factors now so that's with just a great benefit in sort of the middle brackets call it ships around 10 year mark they're very you know 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. That's also been a bit sideways, I would say. Again, here, it depends very much on the specific ship, yard it's built at, how it's equipped, etc. Some of the private owners are keen to venture in that area. I understand why they do that. It doesn't offer any fuel economic benefits compared to a equal 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. Yeah, sure.

Thank you for that, Kalle. That's it for me.

Your next question comes from the line of Robert Silvera from Associate Marine. Please ask your question.

Yeah, it's been a very good job as usual. You guys are conservative and have reduced your interest costs, 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 incentive program for directors and officers. And there are allocated shares that could be rewarded, typically rewarded annually with vesting criterias. So that is a reflection of that.

Okay. So it's all management then, directors and management. Correct. Good. You also... note a number called, and you call it the share of profits from associated companies. Can you give us some color on what that is?

Yeah, so we own, or in the first quarter, we own 50% of our ship management company, Goodwood, in Singapore, that runs all our ships. It's not 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 two or three 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.

Okay, but that will increase profits.

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.

Right. 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 are you using those millions for?

Initially, the cash will go into the company's cash reserves. We have not communicated a specific use of that cash. 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. 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 two, that will become more visible to investors as we move ahead and to see what we have decided to do. It could also, of course, be a mix of both.

I like the 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 a script 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 crap yards. But as I mentioned, it's really driven by the fact that they have some commercial opportunities that are almost exclusively available to people willing to take these risks and not be compliant. So these functions have over time created sort of a separate market And maybe you can be concerned that for the smaller ships like AFRAS, etc., 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 flip side of sanctions, which we understand why they're being made. Unfortunately, IMO and the relevant flag states are not able to really enforce these regulations and get rid of the ships.

Okay. With your experience, though, with the ship ages that are out there, when do you see it kind of being economically forced that they be scrapped? A year out, two years out?

You know, with the new regulations coming on from 2023, I think the next hard line will be 2026. And I think by that time it's going to be very, very difficult, if not impossible, to operate all the ships. And if you look at sort of the demographics of DHT's 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 period. 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.

Right. Well, thank you. Thank you very much for doing such a good job. Thank you for your support. That's it for me. Thank you. Yes.

Your next question comes from the line of Clement Mullins from Value Investor Research. Please ask your question.

Hello?

Clement Mullins, your line is open. Please ask your question. As there is no answer, I'll move on to the next question. And this question comes from the line of Chris Zang from Weber Research. Please ask your question.

Hi, good afternoon, Spine. How are you? Good, thank you. Thanks for the question. 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 you know, soft freight market. You guys pushed up several try dockings. Is there, do you guys have that slogan available if, you know, just for the rest of the year or is just one that most you can do?

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, Laila, and she will assist you with more details. So,

Okay, great. And just on the vessel sales, it looks like the outstanding debt on the tube were about $13 million. Given the DHT style financing, it's $2.5 million over the remaining economic life. That, to me, comes out to be about two, two and a half years remaining on these vessels. So is it right? Am I thinking about it correctly that the economic life that you guys build in is about 18 years for these VLCCs?

No, what we do when we finance is that we like to cap the borrowing on the ship to be maximum $2.5 million per year in amortization for the remaining commercial life of that vessel. So for a new building for 20 years life, it will be $50 million sort of maximum debt. If you buy a 10-year-old ship, 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. And the debt was a bit lower.

OK. All right. That's it for me. Thank you.

Once again, if you wish to ask a question, please press star 1 on your telephone. There seems to be no further questions. Please continue.

Well, thank you very much to everyone for listening in on VHT. Your support and interest in our company is most appreciated. Wishing you a good day ahead.