DHT Holdings, Inc.

Good day and thank you for standing by. Welcome to the Q1 2023 DHT Holdings 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'll need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, you can press star 1 and 1 again. Please be advised, today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Leila Halvorsen, CFO. Please go ahead.

Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' first quarter 2023 earnings call. I'm joined by DHT's President and CEO, Svein Moxnes-Halfjell. 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 11th. In addition, our earnings press release will be available on our website and on the SSE 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 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. We have a rock-solid balance sheet represented by love leverage and significant liquidity. Financial leverage is about 18% based on market values for the shapes, and net debt per vessel was 12 million. The quarter ended with total liquidity of 346 million, consisting of 117 in cash and 229 available under our revolving credit facilities. You should also note that we have no new building CapEx commitments. We achieved revenues on TCE basis of 93.9 million during the quarter and EBITDA of 71.9 million. Net income was 38 million equal to 23 cents per share. We continue our good cost control with APEX for the quarter at 18.4 million and G&A at 4.6 million. The vessels in the spot market earned $54,600 per day, and the vessels on time charters made $35,000 per day. The weighted average TCE achieved for the quarter was $49,100 per day. Earnings were impacted by 112 scheduled offer days in connection with the installation of exhaust gas cleaning systems. and unscheduled off-hire mainly related to one of our vessels which encountered bad weather damage. IFRS adjustment for the quarter amounted to $5.4 million, equal to $3,900 per day. Hence, adjusted TCE for the vessels in the spot market was $58,500 per day. The IFRS 15 adjustment is simply due to the timing of when revenue is recognized and is impacted by low dates. These earnings will be transferred into the second quarter. We started the quarter with 125.9 million of cash, and we generated 71.9 million in EBITDA. Ordinary debt repayment and cash interest amounted to 5.4 million, and 61.9 million was allocated to shareholders through the cash dividend pertaining to the fourth quarter of 2022. We invested $14.8 million in our fleet with $2 million in maintenance capex and $12.8 million for installation of exhaust gas cleaning systems. In January, we terminated seven interest rate swaps and received $3.3 million in connection with the termination. In addition, we refinanced one of our large credit facilities with a net zero effect. and the quarter ended with $117.5 million of cash. In January, we entered into a $405 million secured credit facility, including $100 million accordion. This refinanced the outstanding amount on the ABN AMRO facility, and is secured by 10 of the company's vessels. It is repayable in quarterly installments of $6.25 million, equal to $625,000 per vessel, with maturity in January 2029. The new loan bear interest at a rate equal to sulfur plus 1.9%, which is equivalent to LIBOR plus 1.64%. The mentioned refinancing is in line with DHT-style financing, which includes a 20-year repayment profile and a six-year tenor. In connection with the refinancing, and as mentioned on the previous slide, we terminated seven interest rate swaps that would have matured in the second and third quarter of 2023. We received $3.3 million in cash in connection with the termination. Switching now to capital allocation. Our dividend policy was updated last year. Our key thought behind this was the combination of our strong balance sheet and no new building capex makes distributing 100% of net income good business. According to the new dividend policy, we will pay 23 cents per share for the quarter, returning $37.5 million as a quarterly cash dividend. The dividend will be payable on May 25th to shareholders of record as of May 18th, and this marks the 53rd consecutive quarterly cash dividend. The shares will trade X dividend from May 17th. In March, our board of directors approved a renewed share repurchase program of 200 million of the company's securities. The repurchase program has a 12-month duration and replaced the prior 50 million program. We have no immediate plan to deploy this program, but like to have our toolbox equipped should the capital market present the right opportunity. With that, I will turn the call over to Svein.

Thanks, Laila. Our Time Charter book currently consists of seven contracts. Three of them are coming off during the third quarter, and it is our intention and ambition to rebuild the Time Charter portfolio through the right opportunities with the right customers. We have recently secured a three-year Time Charter for the DHT Puma. The contract has a profit-sharing structure that includes a fixed base rate of $33,500 per day. The profit-sharing structure is based on certain indexes with the ship's actual economics, as such including the benefits of being an eco-vessel fitted with a scrubber. The first tier of earnings from the base rate to $40,000 per day will be allocated 100% to us. Earnings above this level will be equally shared between the customer and us. We have good experience with these structures from past time charters. As an example I reference, this time charter earned about $62,800 per day during March. We are here updating you on our bookings to date for the second quarter of 2023. We expect 620 days to be covered by our term contracts at an average rate of $34,800 per day. We further expect to have 1,390 spot days for the quarter, of which about 65% has been booked at an average rate of $70,300 per day. Combined, and as of today, this indicates bookings of 75% of the total days at weighted average earnings of 55,800 per day. In the last line, we are estimating the spot P&L breakeven rate of 24,900 per day for the second quarter, allowing you to model a net income contribution based on your own assumptions for the unfixed spot days. The bookings for the second quarter to date is a healthy start to the quarter with good prospects for the quarterly cash dividend. We have, however, seen a drop in freight rates since the beginning of the quarter. Current rates for an eco-scrubber fitted vessel starts with a four-handle, though the current sentiment suggests softening in rates. We discussed this on our prior call, and in order to avoid any misunderstanding, we take the liberty to show this slide again. The estimated P&L breakeven for the fleet as a whole is about 27,500 per day for the remaining three quarters of the year. When adjusted for the fixed income that we have, the P&L breakeven for the spot fleet is about 24,600 per day. For the remaining three quarters of the year, we estimate the cash breakeven for the fleet as a whole to be 18,500 per day, with the spot ships requiring to make 12,800 per day for the company to be cash neutral. Keep in mind that our cash breakeven numbers include all true cash costs. OPEX, G&A, maintenance capex, cash interest and debt amortization. This illustrates a headroom of about $9,000 per day between cash breakeven and net income breakeven for the fleet, with a potential annualized cash flow of some $70 million that will be allocated to general corporate purposes. This cash flow, combined with the capacity in our balance sheet, will enable us to invest when the time is right and the opportunities offer rewarding prospects. Here we provide you with an update on our project to retrofit the remainder of our fleet with exhaust gas cleaning systems. We have to date completed six of eight of the retrofits and thus have two remaining. We have not fixed the time for these two, but intend to use air pockets in the freight market to execute them. The project execution thus far has been according to plan, both from a cost perspective and in terms of planned off-fire days for the ships. The fuel spreads have alongside weakening refining margins come off, but are still offering premium earnings for the ships with systems installed. We now have 21 or 23 ships operational with systems and plan to be 100% fitted within this year. As we have mentioned earlier, these ships are the focal point of clients wanting to pursue term charters. On this slide, we illustrate developments in seaborne crew transportation over the past two years or so, and ton-mile development over the same time period. As you are all aware, the conflict between Russia and Ukraine disrupted trade patterns, which drove premium earnings for our smaller siblings. With a slightly longer retrospect, following the COVID setback, it has been a fairly steady and positive development. Importantly for DHT in particular, the graph on the left shows VLCCs handling close to 50% of seaborne crude oil on a nominal basis. Unsurprisingly, and due to its size and competitive cost of transportation, it represents about 70% when measured on a ton-mile basis. The VLCC is a true workhorse of the crude oil transportation market, and we think it's reasonable to expect this to prevail going forward. These are extraordinary times from a geopolitical perspective and our business is, as one would expect, impacted. We shall not offer you any geopolitical analysis or act as an oil market expert. That would be beyond our capacity. However, lifting the beams a bit, the three basic pillars for our business are positive. We have a growing demand for oil. We've got increasing transportation distances. and basically no new supply coming on. We think we are in the early innings of experiencing the benefits of these pillars, and it would likely continue to be volatile and seasonal. OPEC Plus surprised the market with its announcement a month ago. War, sticky inflation and increased interest rates, falling refining margins, raising concerns about demand and certain financial turmoil, are all tempering near-term expectations. Maybe OPEC Plus was ahead of the curve by trying to reduce the impact on oil price now and targeting a higher price for the forecasted recovery later this year. Our two cents only. China is, however, opening up and increasing consumption. And we do have a sense that non-OPEC supply will step up to compensate at least for part of this impact. and that will mean longer transportation distances. The tanking market has historically been prone for disruptions. As we speak, there are tankers involved in seizures in the Middle East Gulf. A certain significant flag state issued a security alert to its members, and we understand some owners failing under this flag have concerns about entering the area. If this plays out, it can abruptly decrease supply of ships in this highly important loading area. This certainly has risked the upside in the freight markets. Unrelated, there was recently an explosion followed by significant fire and fatalities in an older tanker anchored in Southeast Asia. We are seeing incidents and now accidents related to ships in the Shadow Fleet. If this trend evolves, it could make users of these ships, authorities controlling territorial waters in which they transit, and terminals accepting these ships, think twice about accepting and using them. If this price plays out, it could remove capacity, and again, it certainly has risked the upside. There are some near-term headwinds in the market. But we think one should not let this blur the long-term tailwinds supported by the key market pillars. Going forward, our plan is consistent and we will stick to our knitting. You should expect continued strong discipline in executing our business model and strategy. We have a great team of people in a no-nonsense company culture, all focused on delivering safe, reliable services to our customers and strong results for our shareholders. We are tuned to operate in the tanker market with a quality fleet of ships, all in the water, able to generate premium revenues. A rock-solid balance sheet, a low-cost structure with robust break-even levels. We think returning 100% of net income to shareholders to be fair and square, and with that, we open up for questions. Operator.