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spk04: Good day and thank you for standing by. Welcome to the Q2 2022 DHT Holdings Inc. Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Laila Halvorsen. Please go ahead.
spk03: Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHD Holding's second quarter 2022 running school. I'm joined by DHD'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 August 18th. In addition, our earnings press release will be available on our website and on the SSE 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 report 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 continued to show a very strong and healthy balance sheet and the quarter ended with 106 million of cash. At quarter end, the company's availability under both revolving credit facilities was 188 million. putting total liquidity at 294 million as of June 30th. Financial leverage is about 28% based on market values for the ships, and net debt per vessel was 15.7 million at quarter end, which is well below current scrap values. Looking at the P&L highlights, EBITDA for the second quarter was 32.5 million, and net income came in at 10 million equal to six cents per share. The results include the gain related to sale of vessels and a non-cash gain in fair value related to interest rate derivatives. The company continues with a good cost control with offbacks for the quarter at 18 million equal to $7,800 per day and G&A for the quarter at $4.2 million. In the second quarter, the company achieved an average TCE of $24,300 per day, with the vessels on time charter earning $33,800 per day, and the vessels in the spot market earning $21,200 per day. For the third quarter, 68% of the available days have been booked at an average rate of $23,600 per day, and 58% of available spot days have been booked at an average rate of $18,400 per day. We sold two vessels during the quarter, DHT Hawk and DHT Falcon for 40 and 38 million respectively. The sales generated a combined gain of $12.7 million. In connection with the sales, we repaid outstanding debt on the two vessels of $13.3 million. Both vessels were delivered during the second quarter, and net proceeds amounted to $62.9 million. Following these sales, the average age of our fleet has been reduced and our AER and EEOI metrics improved. Part of the net proceeds were used to reduce debt. In June, we prepaid 23.1 million under the Nordea credit facility. The voluntary prepayment was made under the revolving credit facility tranche and may be reborrowed. On the next slide, we present the cash bridge for the quarter. We started the quarter with $58.6 million of cash and we generated $32.5 million in EBITDA. Ordinary debt repayment and cash interest amounted to $9.1 million, while $19.2 million was allocated to shareholders through share buybacks and dividend payment. $4.5 million was used for maintenance capex, while net proceeds from sale of vessels amounted to $62.9 million. 23.1 million was, as mentioned on the previous slide, used to prepay long-term debt. 8.3 million was the initial cash recognition from Goodwood. And we ended the quarter with 105.8 million of cash. Switching now to capital allocation. During the second quarter, the company purchased 2.8 million of its own shares equal to 1.7% of the outstanding number of shares as of March 31st, for an aggregate consideration of 15.9 million. In addition, the company will pay a dividend of 4 cents per share for the quarter. It will be payable on August 30th to shareholders of record as of August 23rd. This marks the 50th consecutive quarterly cash dividend. With that, I will turn the call over to Svein.
spk00: Thank you, Laila. Following the share repurchases conducted during the second quarter as discussed by Laila, we continue to buy back stock after quarter end under the 10b51 rule. We have third quarter to date acquired some 1.5 million shares at an aggregate cost of 8.8 million at an average price of $5.87 per share. Considering buybacks conducted in 2021 and buybacks made year to date, we have in total bought back close to 10 million shares, equaling some 6% of the company's capital. With a total consideration of 57 million, the average price of these repurchases is $5.77 per share. We consider this to be a great and an accretive investment, and all shares have been retired upon receipt. During the quarter, we agreed to refinance the bilateral credit facility for the DHT Tiger with the existing lender, Credit Agricole. The structure is in line with the DHT-style financing. 37.5 million made up of 2.5 million per year of the remaining life of the ship. It has six years tenor and a 20-year repayment profile. The pricing represents a new low for DHT's borrowing costs at the secured overnight financing rate, also referred to as SOFR, plus a margin of 2.05%. It includes a historical credit adjustment spread of 26 bps between SOFR and LIBOR. As this is a new structure that will replace LIBOR, you should note for reference that this pricing is equal to a LIBOR plus a margin of 179 bps. We typically have a mix of spot and fixed employment for our fleet. However, it is not formulaic with a percentage of the fleet employed one way or another, but the focus on the nominal rates and tenors that in our view will contribute meaningfully to the business. We have entered into a five-year time charter for the DST Osprey at 37,000 per day. Delivery is planned for August, and the customer has options to extend for an additional two years at 40,000 and 45,000 per day, respectively. The key attraction to this time charter is the tenor, as we would not find this rate attractive for a two- or three-year charter. We see an increased level of inquiries for time charters, and will selectively engage with our customers if and when meaningful business can be conducted. We have committed 25 million to retrofit and additional aid ships with scrubbers. The combination of decreased scrubber costs, early delivery of equipment, and continued elevated spreads between heavy fuel oil and very low sulfur fuel oil makes this a compelling investment in our view. Considering the current average spreads into Jira and Singapore, the payback on these investments should be inside a year. The work will commence in the fourth quarter and we expect completion during the first quarter of next year. We plan to take each ship out of service for 30 days, give or take. This is a highly efficient schedule that will be executed by our experienced team at one of our go-to shipyards. Upon completion, we will have a total of 23 VCCs fitted with scrubbers, with these additions expected to boost earnings for the company. So, to sum it all up, we continue to stay disciplined, focusing on execution of our business model and strategy. This includes key building blocks in delivering value for our shareholders. We are well structured for cyclical markets, with probably the strongest balance sheet amongst the peer group. Ample liquidity enabling us to invest in the business and act on opportunities should they arise. All with robust downside protection without having given away the upside. The tanking market recovery has started and we are tuned for this recovery through our actions and structure to create value. This includes a reduced number of outstanding shares through buybacks, and an expanded and fast-tracked scrubber program that will boost earnings. We have substantial operating leverage in the business, combined with a significant capital distribution potential. And with that, we open up for questions. Operator?
spk04: Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. We will now take the first question. Please stand by. And the first question comes from the line of Omar Nocta from Jefferies. Please go ahead. Your line is open.
spk06: Thank you. Hi, Vine. Hi, Leila. Good afternoon. Yeah, I just wanted to ask, you know, Devine, you sort of touched on the, you know, the five-year contract and, you know, the duration is what made it so compelling. You know, clearly we haven't seen this much sort of time charter activity or at least that type of duration for the past, I don't know, several years, but at least I would think a decade plus. How would you characterize the liquidity in the charter markets today today? As you mentioned, the recovery has begun. We haven't necessarily seen a resurgence in VLCC spot rate, but how would you say the time charter market is at this point?
spk00: The liquidity for this sort of tenor is very, very thin. But there is quite a few clients asking for one, maybe two years, and they also want a lot of options for sort of shorter durations. We don't find that very attractive. We are very constructive on on what to expect for next year and 2024. Obviously, beyond that, it's always hard to have a specific number. Hence, we found this five-year charter to be attractive. There are some additional discussions or incoming discussions to us. It could be that we, over time, will build more fixed income. But hopefully that will be at increased rates going forward, and it will also maybe be with forward delivery. So let's see. But to your point, liquidity is thin for now. Okay.
spk06: All right. Thank you. And then just to follow up sort of maybe a bit more broadly on the market itself, you know, we've seen clearly the midsize crude tankers and the product tankers lifted, as you highlighted in the release. On the VLCCs, can you give maybe a sense of just how the market here recently, maybe within the past, call it four to six weeks, how that's been developing in terms of what you're seeing from your lens in terms of activity levels out of maybe the Middle East and then maybe the Atlantic Basin?
spk00: So the market is clearly on the rise and the rates are moving up. So the sort of latter part of what we have looks at higher rates than the earlier part. We are in discussions as we speak, negotiating spot voyages at rates meaningfully higher than what we have on average looked quarter to date. This looks to be robust. It's not like a fast-moving, super volatile change in rates, as you can see on smaller ships, but it's certainly going in the right direction. There is a mix of inquiry, both in the Atlantic and in Asia. I think a key point here is that oil has been steeply backwardated for quite a while. The backwardation between the fourth quarter this year and the fourth quarter next year is about half in the last few weeks. And this will enable more Atlantic virals to go long haul into Asia. And we see some of that already, some requests to load in the U.S. and then to discharge in Asia. And, of course, this will certainly be good for our markets.
spk06: Okay. Thank you for that color sign. I'll turn it over. Thank you.
spk04: Thank you. We will now take the next question. Please stand by. And the next question comes from the market dollar from Clarksons. Please go ahead. Your line is open.
spk05: Thank you. Hi, Svein. Regarding the final comment you made on the backwardation, I actually read the IEA report this morning, and they now actually predict a global inventory build of close to a million barrels per day in the second half of this year. and a half a million barrel in the first half of the next year and to me this seems to be very positive for tankers but i just wanted to hear from you how you would expect this to be impacting the tank market dynamics going forward we certainly agree with you so we think that the inventory cycle is the sort of key metric in understanding the factor cycle
spk00: And as we all know, the oil inventories have been brought down over many, many years now. And at some point, there has to be more feedstock. We spoke about this on our prior call and also during marine money and conference. So we certainly think this is a positive. There will likely be more movements or more supply, if you like, into the refineries. And this would certainly be good for large tankers. VCCs are really the real workhorse of the crude market. VCCs have on average handled about 46-47% of all crude being transported. With Atlantic still being long oil and the big demand picture being in Asia, this is truly a VCC business from a fundamental perspective. Although, of course, some of the smaller ships will still enjoy benefits from the disruptions we are seeing following the hostilities. between Russia and Ukraine. But overall, we are very constructive on this period going forward.
spk05: I agree. Yeah, you've been buying back shares and now announced investment in your own ship with Scrubbers, which makes total sense to me. That's great. On the Scrubbers, I'm curious to know if there's been any development in the technology since you last did these retrofits. It seems to me to be a quite good price versus the obvious benefits.
spk00: No, there's not really any development. These scrubbers are fairly simple. These are essentially washing machines or the model of washing machines with the capacity to handle 30,000 cubic meters of water per day. A handy size tanker, right? But the cost of building them has come down. I don't think the cost was for the producer very much higher a few years back, but it was a new thing. It was very sort of hyped up and they probably had higher profit margins on them. So they are available to us now at one of our two key suppliers at a much lower cost than what we did last time. So with the 25-year, you will see that we budget just over 3 million per shift to do this, right? So which is a significant improvement in the CAPEX. So the technology is basically the same. So there's no change.
spk05: Perfect. Thank you. That's it.
spk04: Thank you. We will now take the next question. And it comes from the line of Jim Masaga from FactTech. Please go ahead. Your line is open. Jen Masaga from Fagset, please. We will go to the next question. Please stand by. And it comes from the line of John Chapelle from Evercore. Please go ahead. Your line is open.
spk07: Thank you. Layla, can I start with just a couple of modeling questions for you? First of all, my apologies. I missed a spot today. I thought I caught 18,400 for the third quarter. Is that correct? And what percentage was that for?
spk03: Just the spot?
spk07: Yeah, just the spot part.
spk03: Yeah. So the... Yeah, this was 58% at 18,004.
spk07: Okay, thank you. And then, Spine, you said 30 days roughly for the scrubber retrofittings. Should we assume four in the fourth quarter, four in the first? And then my other question regarding to the scrubbers and the model is, how should we think about the depreciation of those? How much will it reset the depreciation higher once completed?
spk00: So it's exactly which day we will enter. This will depend a bit on how we schedule the ships in the small market, and we want to discharge as close to the yard as possible. So if we can do six ships in the fourth quarter, we will do it in the fourth quarter. So it's a bit hard to say this, John. Sorry not being able to be more precise, but we are very confident in the fourth and the first quarter schedule. So, you know, You will sort of be at liberty to do this the way you want, but we can't give you a more precise guidance, I'm afraid. But the equipment is ready and the yard is ready. So if we can do it sooner, we will do it sooner. But if we want to optimize the fleet to get as little off-fire and positioning cost as possible, it might be a bit dragged out, but it will not be beyond first quarter. On the... On the depreciation profile, we will communicate this on the third quarter with the third quarter results. But I think it's a reasonable lead to look at what we did last time, which was a three-year depreciation profile. But it's not finalized yet. Okay.
spk07: And then final bigger picture question. We talked about this last quarter sign on the deployment of cash as it comes in. You know, it seems asset values have moved, and at least in the situation with the LCCs, far before the rates had themselves. So, you know, if chips weren't an attractive investment maybe six to nine months ago, just mathematically, they're probably even less so today. You've made significant headway with the buyback, and there's a ways to go there, clearly. Would you say that at this point you're – remain firmly in that your stock is less than NAB and capital return is the top priority of cash? Or do you think that at a certain point you have to start pivoting to thinking longer term and start making investments in assets even if the rates don't necessarily catch up to the asset values in the short term?
spk00: I think when it comes to investments, we are not excited about the current values from a buying perspective. So, you know, it has to be a very special opportunity if we are going to buy something. When it comes to buying back our own stock, of course, NAV is also a moving element here. So we are very happy with what we have done, all sort of below the $6 mark, which compares well to where the stock is trading today. But as I think everybody knows, our capital allocation policy states minimum 60% of ordinary net income to be distributed. It could be that we will reduce the debt level even further. So I think that those are sort of the key metrics, but I don't think you should expect us to one, buy ships in the current valuations, and two, we will probably not buy stock at the current levels either. We will leave that to our investors and then focus on returning money to shareholders in the sort of future.
spk07: Okay. My last one is kind of a follow-up to that last point. You know, a four-cent dividend is certainly off your minimum, so to speak, of two cents in a quarter where if we take out gains, it was still a loss. So should we think about now as we're in the early stages of a recovery, assuming, you know, all else stays the same, is four cents kind of a new base dividend? And then we'll transition to that minimum 60% payout once You're more sustainably in the profitability?
spk00: No, the 60% in this quarter is actually based on the net income reported because, contrary to some of our peers, we don't exclude elements in the P&L that is cash input, such as the sale of a ship profit. We tend to include that when we consider the dividend. For us, this is just the way we've always done it. So it's not a new low. It's just a pure reflection of what was the income for the quarter. Okay.
spk07: That makes sense. Thank you, Svein. Thanks, Leila.
spk04: Thank you. Now we'll take the next question. And the next question comes from the line of Anders Karlsson from Kepler Chevrolet. Please go ahead. Your line is open.
spk02: Thank you. Quick question on your fleet. You sold the 2006 and 2007 built ship. You have more left of the same ones. With the firming market are you considering more sales or is that off the table now?
spk00: I think for now we will be very selective. It could of course be that we elect to sell one or two ships but I think we like to see in particular for the SCOBA 50 units, appreciation in both asset values, but also have these ships give them the opportunity to earn money, which we expect them to do. So I don't think you should plan for our fleet to be much smaller than what it is today.
spk02: Okay. Just a quick one on the market. You were mentioning vaccination as one factor that is holding back What other important drivers do you see in the short term here?
spk00: Of course, the supply. So OPEC is a bit tight on handing more oil into the market. Their key argument is that they feel that they're sort of meeting current demand and they are questioning the macroeconomic picture. I think these last couple of days we've seen some tidbits are in there suggesting that inflation might sort of be leveling off and maybe giving some ease to some of the prior macroeconomic concerns. If that is the case, you know, maybe we'll have more oil to the market. But I think that's been the key reason holding things back is that OPEC has been tight, which we assume is they wanted to enjoy the ride of the strong prices for as long as they can.
spk02: Okay, thank you. And just a final question. Have you seen a pull from the EU in terms of building inventory? I mean, from an energy security perspective, I guess EU is short energy and would require to build substantial inventories of everything they can get their hands on. Have you seen any signs of that?
spk00: No, I can't say I've seen that. So, of course, the gas has been more of a hot topic for Europe. So, because oil is not really used so much for heating or for energy production, right? It's more for transportation and for petrochemicals. So, I think there are other areas where you've seen this focus.
spk02: Okay, thank you. That's all for me.
spk04: Thank you. We will now take the next question. Please stand by. Next question comes from the line of Clement Mullins from Value Investors Edge. Please go ahead, your line is open.
spk01: Good morning and thank you for taking my questions. I wanted to ask about the disruptions you're seeing from the sanctions on Russia. The effect mostly revolves around smaller vessels, considering the LCCs cannot dock on Russia's western ports. But could you provide some commentary on the ship-to-ship transfers and their effect on the overall market?
spk00: We are not involved in those type of operations, but we are aware that they've been taking place in the Atlantic Basin, so there's been, say, Afromaxis coming out of the Baltic, and Black Sea could also potentially be Seuss Maxis, but this is mainly, we think, is a Baltic business. And then they'll be loaded onto the ECCs and then transported to the Far East, with China in particular being the destination. To our knowledge, it's not a huge business tying up many, many ships. There's been a few of these transactions being done. So it's a bit on the sideline of the conventional markets.
spk01: All right, that's helpful. And considering the high energy price in Europe, do you expect to see any additional crude imports, a substitution for natural gas volumes during this coming winter?
spk00: It could, of course, happen. There are some suggestions that fuel oil will be used for heating this winter, but we haven't seen any clear evidence of it, or at least not to our knowledge. But I think this will be defined also by the cost differential between heating oil and gas.
spk01: All right, that's all for me. Thank you very much for taking my questions.
spk00: Thank you.
spk04: Thank you. Once again, as a reminder, if you wish to ask a question, please press star 1 on your telephone. We will now take the next question. It comes from the line of Michael Moskop from MRN Capital. Please go ahead. Your line is open.
spk06: Question answered. Thank you.
spk04: No problem. Thank you. There are no more questions at this time. I would like to hand the conference back to the speakers for final remarks.
spk00: Well, thank you to everyone who's been on the call and are forwarding these data. I greatly appreciate it. I'm wishing you all a good day ahead.
spk04: That does conclude our conference for today. Thank you for participating. You may all disconnect. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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