DHT Holdings, Inc.

Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' first quarter 2024 earnings call. I am joined by DHT's president and CEO, Svein Moxnes Harfjer. 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 22nd. In addition, our earnings press release will be available on our website and on the SEC 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 SSC-Edgar system, including the risk factors in these reports, for more information regarding risks that we face. We will start the presentation with some financial highlights. We maintain a very strong balance sheet represented by low leverage and significant liquidity. At quarter end, financial leverage was 17.8% based on market values for the ship, and net debt was 13.5 million per vessel. The first quarter ended with total liquidity of 289 million, consisting of 73 million in cash and 260 million available under our evolving credit facilities. Now over to the P&L. We achieved revenues on TCE basis of 106.3 million and EBITDA of 83.7 million. Net income came in at 47.1 million, equal to 29 cents per share. We continue to show good cost control, and operating expenses for the quarter were 19.2 million, and G&A was 4.7 million. We are pleased with the result for the quarter, and the vessels in the spot market achieved robust earnings with $54,000 per day, and the vessels on time structures made 39,500 per day. The average DC achieved for the quarter was $50,900 per day. And then over to the cash flow highlights. We started the first quarter with $74.7 million in cash, and we generated $83.7 million in EBITDA. Ordinary repayment and cash interest amounted to $15 million, and $35.5 million was allocated to shareholders through a cash dividend while 3.9 million was used for maintenance capex. We prepaid 24 million on the ING revolving credit facility, while 7.2 million was related to changes in working capital, and the quarter ended with 73 million in cash. Switching to capital allocation. DHT has a defined and predictable capital allocation policy And in line with our policy, we will pay 29 cents per share as a quarterly cash dividend, which is equal to 100% of ordinary net income. The dividend will be payable on May 31st to shareholders of record as of May 24th. This marks the 57th consecutive quarterly cash dividend, and the shares will trade ex-dividend from May 23rd. On the left side of this slide, we present an update on estimated P&L and cash break-even rates for 2024. P&L break-even for the full year is estimated to $27,500 per day for the fleet, while cash break-even is estimated to $18,300 per day, resulting in $9,200 per day per shift in discretionary cash flow after dividends. So assuming the vessels earn P&L break even, this means about 79 million in discretionary cash flow for the year. On the right side of the slide, we illustrate the quarterly cash dividend we have returned to shareholders since we updated the dividend policy in the second half of 22. This amounts to a total of $1.70 per share. And with that, I will turn the call over to Svein.

Thank you, Laila. This slide compares DSC spot market performance over the last 12 months with the quoted TD3C index. The TD3C index is the most prominent index representing the largest VLCC trade, namely loading in Saudi Arabia and discharging in China. The green lines and the numeric ledgers illustrate our spot earnings for each quarter in the period, and the orange lines show the index earnings. Several reports refer to the index when assessing the DHC market. As one could clearly see from these numbers, the index is not an appropriate reference for DHC's spot earnings. The earnings powers of the SHIB used in the index calculation is inferior to our average vessel. but this does not represent the whole delta. The other part reflects our customer base and related trading patterns and what we actually get out of the market. The average delta during this period is about $15,000 a day. On this slide, we have an additional reference to DHT producing competitive spot earnings, and that is when compared to peers. The peer group consists of the usual suspects listed in the US, all with similar trading policies with respect to geographical areas and origin of oil. One of the four in the peer group is yet to report for the first quarter of this year. We illustrate quarterly spot earnings for each peer over the same period as the previous slide, and the numbers speak for themselves, with DST coming out on top. And now to the outlook for the second quarter. As per usual, we provided our business updates on 10 days into the current quarter. The spot market softened a bit following our update, but is now on a strengthening path again. Of the total estimated spot days for the second quarter, we have booked 72% at $51,000 per day. You should see this number in relation to the spot P&L breakeven for the second quarter being estimated at about $25,300 per day. As stated in the report, the freight market continues to show steady and reassuring conduct. The slumps in the market are grinding higher, with recent lows leveling out above $40,000 a day for an ecovessel fitted with exhaust gas cleaning systems. We assess the current stock market for the three main routes on average to be in the mid to high 50s for DHT's average type weighted fleet. US Gulf to the Far East is currently a tad behind Arabian Gulf, South America and West Africa, but is likely on the rise. The North Sea to Asia has been absent for close to two years, but is now back in the market with a couple of cargoes per month. We understand that VLCs are gaining market share, now about 50% of seaborne crude oil transportation, underscoring end-users' increasing focus on cost per unit transported. This is in particular for the long-haul trades, but is also now a result of the Red Sea challenges, with parts of the AGE to Mediterranean trade having moved from Suez Maxis to VLCs, sailing around Cape of Good Hope. There is limited time charter activity for periods in excess of one year. However, we currently estimate the three-year time charter market for a good ship to be in the mid $50,000 per day. And there is one client in the market now asking for bids on this, and there is a field of owners offering on this, although higher than our estimated number of markets. And in sum, we are increasingly confident about what is ahead of us. The discussion of fleet development and demographics might be repetitive. We have here a presentation of the development with a somewhat different illustration. We have applied some key market observations and assumptions. Over 90% of the ships now older than 20 years of age are engaged in the shadow markets. This fleet's productivity is estimated to be some 50% of its nominal capacity. This is largely due to these ships rarely calling ports, but often doing transshipments of cargoes involving numerous ships and hence delaying the delivery of cargo. And three, we assume ships will disappear from the shadow trade when they reach 25 years of age. As we have stated on numerous occasions, we expect the fleet to shrink over the coming years. The blue bars represent the fleet that has been or is below 20 years of age. This part of the fleet is employed in the compliant markets and its sites probably peaked in 2021 with some 768 ships. When applying our observations and assumptions, We estimate the sub-20 year old fleet to shrink to less than 730 ships by the end of 2027. As most of you well know, this happens at the time of growing oil demand and expanding transportation distances. The ships in the shadow freight are serving a purpose in a market, but with a significant haircut in its productivity. We also take note that following the recent contracting of EELS disease, the activity has receded with apparently limited interest from ship owners in contracting large tankers now. We are being told that interest is being directed to other ship types and classes. The VCC order book now stands at some 5% of the sailing fleet, supporting our constructive market view. On that note, we will discuss our new building project. As announced, we have contracted four VCCs, all for delivery in 2026. They are contracted at what we deem to be the top quality shipyards for large tankers. The ships will be of super eco designs, implying premium earnings power and related reduced emissions. These ships will have a new engine model that is different from what is being adapted to most of the other new building orders that have been reported over the past few months. Further, our new building orders are of larger carrying capacity, both in deadweight and cubic terms, again when compared to most of the other orders that have been placed. This is expected to offer better economics for both customers and DHT. For sake of clarity, we have no plan to declare the options for the additional vessels. Our next priority would be second-hand acquisitions, we'd be able to identify opportunities attractive to DHT. As stated, we do not intend to issue any new capital in relation to this new building project, and our financing plan consists of cash flow from operations, available liquidity, and new mortgage debt. With respect to new mortgage debt, our base case assumes about $60 million per vessel with a DHT-style financing structure. And importantly, the project and our strategy assume that the dividend policy with 100% of ordinary net income shall remain in place. This last slide is familiar, so we will round off by saying that our markets are robust, providing good support, and are steadily, albeit gradually, improving. Our team is doing a great job in getting the most out of what the markets have to offer, delivering premium earnings for our ships. Contracting on new ships seems to have receded and supporting the highly constructive supply outlook. And we'll stick to our knitting with a focus on first rate operations and related financial results in anticipation of increasingly rewarding times ahead. And with that, operator, over to you.

Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Frodo Morkadal from Clarkson Securities. Please go ahead. Your line is open.

Thank you. High five.

Hi, Frodo.

I had a question on the VLCC and the trading patterns. I feel like the smaller tankers we all know have been benefiting from diversion around Africa and longer ton miles, but what do you see on the VLCC trade pattern? I think you mentioned briefly that VLCCs are taking Suezmax cargoes. Maybe you can elaborate on that, and are you seeing any other changes?

It's related to the Red Sea, as I stated, that some of that Suez Max trade typically went through the Suez Canal into the Mediterranean, and now being put together on large ships on these seas, and thereby sailing around South Africa. This is a smallish part of the market, but it's nevertheless adding distances, if you like. I would say this is the primary change in the current environment. We have one trade that is on the doorstep of evolving, and that is the TMX project out of Vancouver, west coast of Canada, where we expect a meaningful portion of that crude oil to head further south for transshipments over to the LCCs and then to head to Asia, to China in particular. And we base this partly on the fact that one of the two Chinese state-owned oil companies, they own a quarter of the equity in this project. And they have been discussing this with us and I'm sure with others and expect that trade to evolve. So that is an interesting addition to the VCC market. But beyond that, it's just a general trend. of really you know there's more barrels coming from from the atlantic petrobras is increasing production and guyana will also at some point get more involved in in in these disease so and as i mentioned the north seas seem to be back although sort of only with a couple of cargos a month but There are some new incentives in Korea in particular, we understand, that will maybe stimulate that trade to potentially grow.

Okay, that's interesting. That's a good caller. On the new build, you mentioned that there are super-echo. Can you quantify the fuel consumption versus existing fleet you have?

The simple answer is no. So we know what it is obviously and we will be in detailed discussion with some of our key customers that are interested in these ships on those particular sort of features. But it is a marked improvement from the five ships that we have that were all built in 2018, which is sort of the the last class of these large vessel ships. So it's a marked improvement. So we're very excited about getting these assets into the water and get to see what they can deliver. Yeah.

It will be interesting to know those facts when they arrive. My last question is on, let's say, sentiment. I feel like in the stock market, at least, the investor sentiment has improved a lot. recently basically switching from let's say cautious approach to basically reflecting the fair fundamentals as we see at least but how do you see the sentiment among ship owner in the physical world so to speak what's the mood right now

I think some of the traditional tanker owners, at least a couple or three of them, have made their bets on the new building site, and they seem to be content with what they have done. They seem to be still interested in the medium age to maybe older spectrum on the product side, but I'm not the authority on that market, so it's not our market, so you should challenge other people on that. And the asking prices for modern ships on the large hankers are quite elevated. And there are some interests around, in particular from a couple of state-owned actors. So one being Bari, which is Saudi Aramco's ship-holding arm. And I think that's an encouraging sign because they are, of course, very close to a significant state-owned oil company who plays a very important role in the oil market in general. So if they are in need of more ships, I think that might be an indication of what their expectations are. They're focusing on modern second-hand ships.

Perfect. Great. Thanks. That's all from me.

Thank you. We'll now move on to our next question. Our next question comes from the line of Omar Nocta from Jefferies. Please go ahead. Your line is open.

Thank you. Hey, guys. Good morning. Good afternoon. Devine, just wanted to just ask about the VLCCs. You know, you mentioned and we've seen that the market for new orders has kind of cooled from other ship owners. You decided not to exercise the four options. And just wanted to ask just in terms of, I guess, perhaps maybe on sentiment, but maybe just in general big picture, Why do you think there's been a cooling in terms of new orders? And then also, is that cooling as a transition towards DHT or was the plan all along not to really exercise those options?

Well, that cooling has nothing to do with DHT. I think we stand independently in making our decisions. So this is sort of a coinciding event. I think there's a couple of other markets that maybe now are looking attractive for some reason or another. And this is maybe a market that I'm not following so much, so I can't give you all the details on that, but that seems to be the case. But I think also at the get-go now, there were not sort of a big horde of owners ready to order chips for a variety of reasons. I think they had other maybe projects and ambitions or priorities when it came to allocation of capital. LNG seems still to suck up a lot of capital from the ship-owning industry. And as you all know, those ships cost at least twice as much as the VCC. So, yeah, it's probably a mix of reasons. I think lastly, deliveries now are really four years, no, no, three years out at least. So you're looking into 27. I think that could also be... a bit of a turn-off for most people. They would like to have ships, you know, earlier delivery, which is why we were a bit sort of keen to get our deal done quickly because we had deliveries, which is now the first ships is less than two years to delivery. So we found that attractive. So it's probably a mix of things.

Okay. Thanks, Ryan. That was very helpful.

But just to add, so, you know, our decision is more that – When you go to a yard, you typically are offered options, and of course you would like to have them. If we had a long-term project for several of these ships, then we would probably have gone ahead with one or several of them, but that is maybe not realistic in the short time. This new building project is not of half a billion dollars, so it's already a big commitment financially for the company. So, to sort of double up on that, we think it would be too big a commitment on this point. Hence, priority would be second hand if we can find it. And there's a big if on that because it's not a given.

Yeah. No, that clearly makes sense. And maybe, you know what, just one quick follow-up. Just you mentioned, which I thought was interesting, the discussion of, you know, the vessels that are over 20 years of age having 50% productivity Is that an assumption you're making of perhaps the future, or is that something you're actually seeing now? And is there anything similar for maybe vessels over 15 also in line with that?

For the ships over 20, as we mentioned, over 90% of those ships are in the shallow trade, and this is what we see now. This is happening. Many of these ships are not fit to go into many of the load and discharge ports that is being used, so there's a lot of transshipment from smaller and into smaller ships. And this all takes a lot of time. It's very inefficient. So that fleets very quickly. It's not as productive as its normal capacity would suggest. When it comes to ships between 15 and 20, the utilization is the same as for younger ships. We have four ships in this category, and there's no difference in utilization and productivity. The only thing is from time to time, the freight rate that you're offered for a ship that is between 15 and 20 is then mostly at the marginal discount to what a more modern ship would achieve. But there's no change in productivity or efficiency.

Okay, very good. Thank you, Svein.

Thank you. We'll now move on to our next question. Our next question comes from the line of Ben Nolan from Stifel. Please go ahead. Your line is open.

Yeah, thanks, and good afternoon. Actually, I wanted to follow up on the question about the options that Omar was talking about. I was just curious how long you... you have those options or assuming that they're still outstanding and just, just trying to think about sort of the, the possibilities as if, you know, would it be possible to maybe flip those? Should they get into, you know, becoming the money and you can, you know, place the order and then resell it at higher prices. Is there any way to potentially monetize that or are the, is the option duration just not probably long enough?

We did not communicate the timeline of those options, so they had various declaration times and a staggered schedule, so we will leave it at that. I think the options would be in the money today, if you can say that. I think realistically, to resell those contracts or births, you would have to declare them and make them a firm contract. for that to really be realistically possible. So it's hard to sort of sell that paper and think you can sort of get a few million in between. So I think that's not an unrealistic case. And if we were to sort of pursue that avenue, it meant we had to commit to the contract first, right? And as I mentioned, we have other priorities if we are going to invest additional money now going forward than to add new buildings at this point.

Okay, that's helpful. I appreciate it. And then just secondly, on the time charter contracts, you mentioned that the charter market was especially thin, which it seems it's a little bit surprising given the, to me at least, the discount between where the spot market has been trading for a while and the kind of rate that you put out there. Is that something you expect the margin to narrow, especially as we move into the back half of the year and things normally get tighter? And just sort of how are you thinking about where you would like the fleet to be positioned from a spot versus contract standpoint?

I think one aspect here is that ship owners with sort of in-house operations, quality ships that are, so to say, eligible for these term businesses, They have quite solid expectations for the future, so the bid-ask spread is quite wide. There is currently one project in the market where an oil company is looking for a three-year charter for one or more ships. All the bids came in at average, let's call it around 60, we believe, although we don't have the details, but we believe so, asking prices. And I think a project like that might clear in the sort of mid 50s. That's where the market probably is. So let's see if this project will happen. So I think it's a result of the task, but I think eventually, you know, there will be more end users coming to the market to try to secure tonnage because as this market evolves, it will be attractive for them to secure ships for three years. Also five years, I would think so. But it's a bit early in the up cycle for that to truly evolve.

And what do you, how are you thinking about sort of where you would like to be positioned from a percentage of your fleet?

So as you stated before, we have a clear ambition of building more fixed income for the company. But we prefer that fixed income to be of longer-term nature, so we are not entertaining, say, inquiries for one-year charters or two-year charters. And we're also, of course, looking for the right money for the right ship, so there's sort of finer details there for us to do things. But, you know, our customer base involves customers that typically will look for term charters. Assuming that we are right in this market evolving, then you should expect us to work hard to try to put some of that to bed.

All right, great. I appreciate it. Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Peter Horgan from ABG Sandal Collier. Please go ahead. Your line is open.

Thank you. A quick question from me on prices here. In the new building markets, we've been told that there are discrepancies between geographies, obviously. Could you please help us quantify what it would actually mean now if you were to, not with options, but coming fresh to the yard, ask for a VLCC? and also then what timing of deliberation one expects.

If you go to Korea, the yards are asking north of 130 million, and that is essentially for 27 delivery. Those ships will be of 300,000 ton designs, so smaller than the ships we have ordered. And the headline price also excludes the scrubber. So this, of course, will be a basis for negotiation, right? But I think it would have to start with a one-three handle to make it happen. If you go to China, to the top yards in China, I call that three of those yards, they will be asking 123-ish, I think, today, also for 27 delivery. That is also the smaller ship, and also typically the asking price excludes the scrubber, but it will be, again, down to negotiations. So that is the price delta and the delivery. Some of the top yards in China are running out of space for 27, so they actually have a tighter backlog than at least one of the Korean yards, whereby two other big Korean yards seem to be more content with their backlog and not really entertaining inquiries with any excitement.

Okay, that's very helpful. Thank you. And just as a quick follow-up, in the grey fleet or black fleet, if you will, what sort of TCE equivalents would you retrieve if you were to do illicit trading these days?

We're not venturing into that. We're not even trying to smell it. Of course, we are being told a little bit here and there what it is. Some of the lump sum trades that are being paid are called twice what is being done in the compliant markets. Then it's down to how long time does it take to deliver cargo and so forth. The capital, of course, invested in those ships are very different to what a So the big public companies and the leading Greeks are running. So I guess the returns are quite attractive, which is why they're doing it.

Okay. Okay. No, that's all from me. Thank you. Thank you so much.

Thank you. There are no further questions at this time, so I'll hand the call back to Swain for closing remarks.

Thank you very much to everyone who's been on the call and listening to us, and thank you for staying tuned to DST. We wish you all a good day ahead. Bye-bye.