DHT Holdings, Inc.

Q3 2024 Earnings Conference Call

11/13/2024

spk04: Good day and thank you for standing by. Welcome to the Q3 2024 DHC Holdings Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, CFO Leila Halforsen. Please go ahead.
spk05: Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings' third quarter 2024 earnings call. I'm joined by DHT's president and CEO, Svein Moxnes-Halfe. 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 on our website, dhtankers.com, until November 20th. 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 report available on our website and on the SSE EdCore system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. Our balance sheet remains in excellent health with low leverage and significant liquidity. At quarter end, financial leverage was 17.6% based on market values for the ships and net debt was 13.9 million per vessel well below estimated residual SHIP values. The third quarter ended with total liquidity of 264 million, consisting of 74 million in cash and 190 million available under our revolving credit facilities. Now over to the P&L. We are pleased with the result for the quarter. We achieved revenues on TCE basis of 92.6 million and EBITDA of 70.4 million. Net income came in at 35.2 million equal to 22 cents per share. Vessel operating expenses for the quarter were 19 million and G&A for the quarter was 4.2 million. For the third quarter, the average TCE for all vessels in the spot market was $43,700 per day, while the spot vessels under 15 years of age achieved earnings of $47,600 per day. The vessels on time charters made $38,800 per day, while the average combined TCE achieved for the quarter was $42,400 per day. Net income for the first nine months of 2024 was 126.7 million, equal to 78 cents per share. For the first nine months, our spot vessels achieved $50,100 per day, while the average combined TCE came in at $47,400 per day. The spot vessels under 15 years of age achieved earnings of $52,800 per day for the first nine months. And then over to the cash flow. The cash flow for the third quarter of 2024 was stable, and we started the quarter with $73 million in cash. We generated $70 million in EBITDA. Ordinary debt repayment and cash interest amounted to $15 million, and $43.6 million was allocated to shareholders through cash dividend, while $2 million was used for maintenance capex. We paid second installments for two of the new buildings amounting to 25.8 million, while 15.3 million was related to positive changes in working capital and the quarter ended with 74 million in cash. Switching to capital allocation, DHT has a well-defined capital allocation policy and in line with our policy we will pay 22 cents per share as a quarterly cash dividend equal to 100% of ordinary net income. The dividend will be payable on November 29th to shareholders of record as of November 22nd. This marks the 59th consecutive quarterly cash dividend and the shares will trade ex-dividend from November 22nd. On the left side of this slide, we present an update on estimated P&L and cash break-even rates for 2025. P&L break-even for the full year is estimated to $26,500 per day for the fleet, while the cash break-even is estimated to $20,000 per day, with a projected $6,500 per day per ship in discretionary cash flow after dividends. So assuming the vessels earn P&L break even, this means about 56.5 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 $2.19 per share. And with that, I will turn the call over to Fine.
spk00: Thank you, Laila. Following up on Laila's capital allocation slide, we here present an overview on how our balance sheet has developed over the past 10 years in combination with accumulated quarterly cash dividends we have paid for the same period. Importantly, the company has also invested in its fleet in this period, including new buildings, second-hand acquisitions, and an exhaust gas cleaning system program for the entire fleet. Save for the Ships for Shares transaction in 2017, when we acquired BW's VLCC fleet, which proved to be an excellent investment, we have not issued equity in the market since the fall of 2014. The leverage level is illustrated by the yellow line and measured in percentage of book values. It was 48% at the start of this period and went up to the mid-50s in 2018, following the mentioned fleet expansion in 2017. The generous freight market in 2020 enabled us to reduce the debt level by about half to some 28%. The green bars present the accumulated quarterly cash dividends for each year in which the quarterly cash dividend was paid. Again, you will note that 2020 was a generous year with substantial profits resulting in significant dividends. Stating the obvious, we paid out significant dividends and invested in the balance sheet at the same time. Over the 10-year period, we have paid out a total of $750 million in quarterly cash dividends. The last two periods, 2023 and 2024 year-to-date, illustrates how the present capital allocation policy implemented during the fall of 2022, with 100% of ordinary net income being paid in quarterly cash dividends, has played out. Here with the updated bookings to date for the fourth quarter for the company. We expect to have 596 time-charted days covered for the fourth quarter at $40,000 per day. This rate assumes the base rate and profit sharing for October and November for the two time starter contracts that have this feature, and the base rates only for December. We assume 1,610 spot days in this quarter, of which 64% have been booked at an average rate of $41,000 per day. Our ships that are younger than 15 years of age have been booked at $44,800 per day. You will note that we have improved the rates on the bookings when compared to our business update on October 9, an excellent effort from the DST team given the general market softened during this period. The spot P&L breakeven for the quarter is estimated at 21,500 per day, a number that should assist in estimating the net income contribution from our spot fleet. Then some market commentary. Everyone is, of course, waiting for the seasonal upturn. We note that during the last two years, the first quarter offered the highest rates. Chinese economic growth and oil demand have year-to-date not met projections. Whilst China is deploying various inducements to its economy, we are yet to see whatever it takes levels of economic policy changes and stimulus. The stimulus announced last week focused on resolving debt levels. It did not address a needed boost to consumption. Chinese officials indicated that the next step would be significant and endeavored to, amongst others, address lackluster consumption. It has been suggested that China will, to some extent, seek to tailor the next step in response to anticipated policies to be implemented by the incoming Trump administration. As the world's second largest economy, we do think it's reasonable to expect efforts from China which should revitalize the economy and lead to increased consumption, including an uptick in oil demand. The result of the U.S. election leads us to expect certain policy changes that we think will be constructive for our business. Tightening of Iranian sanctions that should reimpose pressure on Iranian oil exports, barrels that could be replaced by other Middle Eastern producers. Should this play out, the transportation work would shift from the shadow fleet to the compliant fleet. Reversal of current decarbonization regulations implying higher medium-term demand for fossil fuels in general towards 2030. And, pro-drilling policies should further stimulate US production growth and exports. By restraining production, OPEC Plus aims to balance the market and support prices. especially in the face of increasing competition from Atlantic Basin producers. This strategy also includes targeting Asian customers' inventory levels of crude oil below the five-year average, creating a tighter market for when economic conditions improve. However, limited transparency in China's crude oil inventory data complicates assessment of actual levels. If Chinese inventories are indeed low as indicated and as Western inventories are relatively higher than in Asia, one should expect Atlantic based barrels to increasingly go East. Additionally, recovering refinery margins in Asia in combination with increasing Chinese crude oil import quotas heading into next year should shift the dynamics in favor of a stronger freight market. Based on positive feedback and encouragement from our key stakeholders, namely shareholders, customers, and lending banks, we believe we have an appropriate strategy tailored to the structure of our markets, focusing on solid customer relations, offering safe and reliable services, maintaining a competitive cost structure with robust cash break-even levels, a solid balance sheet, and a clear capital allocation policy. The whole DHC team appreciates the encouragement and continues to work hard and operate with leading governance standards and a high level of integrity. And with that, operator, I turn it over to you.
spk04: Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to your first question. One moment, please. And your first question comes from the line of Frodo Markdal from Clarkson Securities. Please go ahead.
spk03: Thank you. Hi, Swain.
spk00: Hi, Frodo.
spk03: I wanted to ask you about what you see in the physical sale and purchase market, you know, Second-hand values specifically. And the reason for asking is when I look at the stock price developments, given huge discounts to NAVs, the stock market seems to be factoring in quite a large decline to ship values. So basically, what are you seeing actually happening in the market today?
spk00: There is very limited activity, to be frank. So the last transaction we had for modern ships was when Marinakis, a Greek shipowner, sold his fleet to Bari, the ship-owning arm of Saudi Aramco. And that transaction was, for what we know or expect, was around a billion dollars. which would price the five-year-old ship at around $114-$116 million, depending on how you differentiate the different age groups. Since then, no modern ships have changed hands and no real sellers out there either. I'm not so sure that there are that many buyers at those levels also, but there could be a couple or three. But I think in general, the people that sit on these assets, they own them with very low acquisition costs, and they're also very constructive on the market. So I don't think there's a reason for those prices to change meaningfully. What could change that, of course, if people really lost faith in a freight market, but I don't think there's any reason to do that. In the older end, say, ships that are between 15 and 20, it's a bit sideways, I would say. You had a 2007-built ship sold some 10 days ago at about 45. This was a Japanese seller, a ship without a scrubber. So a ship of similar vintage with a scrubber, 2007-built, should probably then be worth 48, just pick a number. In between that, it's a long time since we've seen any transactions. And again, there are limited proper ships on offer. Again, I think it's supporting the statement that people are constructive or at least holding out for what's expected. Time charter rates are also quite attractive. The alternative, I think, for at least some owners is then, of course, to secure time-tractor contracts for a year, say, to buy time if they want to sell at a later point in time.
spk03: Okay, that's good color. Good to hear. The second question is, you mentioned a lot of good supporting factors on the, let's say, supply-demand fixture here, but what do you think about You know, inventory buildups. We've been through like a fairly steep backwardated market. Now it seems more flattish and people expect we'll come back to contango situation quite soon, right? So what is the impact on the tanker market from that development in your view?
spk00: I think when you look at inventory levels, the levels in OECD is a bit different to some of the key economies in Asia. But there's more data available in OECD, and then of course people tend to look at that, what's available. From what we gather from people that watch this very closely is that inventories in China are indeed not very high. And as we talked about on a prior call, Inventory levels on gasoline and diesel did increase and that was really kept a lid on crude oil inventories as runs sort of reduced in response to very tight or low refining margins. So I think it doesn't take much change in demand side to really make quite a dramatic change on how the market will respond. And I guess this is all fixed game in a way also when we say they I think they really have inventory levels in Asia, you know, a strong focus on that and how they manage to apply now and why this postponed it. So let's see what the next meeting on December 1st will bring. But I think, you know, the longer this lasts, you know, the stronger recovery you will likely have. That's my sort of two cents on it.
spk03: Good. Perfect. Thank you.
spk04: Thank you. Your next question comes from the line of John Chappell from Evercore. Please go ahead.
spk01: Thank you. Good afternoon. First time I recall you specifically calling out your sub-15-year-old vessels in the chartering activity. I think you did it twice. Clearly a couple older ships left in the fleet. You just talked about asset values. Maybe it's a bit more squishy for vessels of that age. But given maybe that the cycle is a bit longer in the tooth, you're seeing a differentiation in the rates you can earn based on the ages of those vessels. Is there a plan to modernize the fleet and maybe use proceeds from some of those older ships to help finance those new builds you have on order?
spk00: I think the number one observation is that when you are in sort of soft patches in the freight market, then the older ships, they suffer more than a more modern ship. So you do get the sort of deltas and, you know, parts of the third quarter was certainly softish. But, you know, keep in mind also that this summer we fixed out one of these older ships for a one year time shark at $49,500 per day. And, you know, at that point, the freight market was a bit more balanced. So I would certainly not rule out good freight opportunities for these ships, but you need the sort of sentiment to be there at the right time. These older ships, they are in technically very, very good conditions. They have hardly any depth, very low book values. In a way, they would sort of contribute meaningfully if they were to be sold at some point. As you mentioned, we do have new buildings coming in the first half of 2026, so we think that delivery schedule jives well with when these older ships close in on 20. It might be that we will elect to divest a couple of them in the next few months or one year. that capital can, of course, be used to the new buildings and can also be used to other things. So it's part of our plan, but it has to be the right opportunity, and there could also be other good opportunities to charter out these ships. So let's see what makes more sense when the decision time is up.
spk01: Okay. And then also, I mean, you mentioned the time charters. Not only did you get the – the $49,500, but for the Lion, you got $55,000. I understand it was different market sentiment again, but given the little softness right now, have you seen a vast change in the rates that are available for time charter? And again, would you look for other opportunities like what you have for the Lion to lock in more given maybe some of the greater volatility in the spot market today?
spk00: I would say that the bid-ask spread has widened a bit. So the ask is probably unchanged, but the bids are a tad lower, reflecting the stock market. But I think increasing customers, big oil, they recognize the demography of the fleet. whereby it's aging quite quickly, and that significant portions of the fleet are controlled by state-owned entities that service their own needs. So if you want to go to a shipowner who has a sizable fleet that can service them with many types of services, not just a spot voyage or long time-sharker, I think they recognize they need to engage more with customers. That's something we are working closely. Our stated ambition is to build more fixed income for the company, and we will spend some time in doing that. We expect that the next year or two will offer interesting opportunities to build more fixed income for the company. That, again, we think will be well-suited given our capital allocation policy. offer more predictability on earnings in the longer term. So that's our sort of lifting the beams a bit, how we think about continuing to build the business.
spk01: All right, great. Thank you, Sian. Thank you, John.
spk04: Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. That is star 1 and 1 to ask a question. We will now go to your next question. And your next question comes from the line of Omar Nocta from Jefferies. Please go ahead.
spk02: Thank you. Hi, Zbein. A couple of questions on my – hi. Just a couple of questions for me on – more on the geomacro and geopolitics side of things. And you mentioned, you know, outcome of the U.S. elections and the potential for, you know, tougher sanctions on Iran. How do you think, you know, potentially if those volumes from Iran, the export volumes diminish and get replaced by OPEC, clearly that sets up a positive backdrop for, you know, tankers or at least say the free market tankers. Is there a risk, you think, on your side, kind of how you see things in terms of the shadow fleet following those barrels into the, you know, free market barrels? Is that a risk?
spk00: I think it's an academic risk, but I don't think it's a real risk. Almost all the ships in that business is older than 20 years of age. And when they transport oil today, they either load in Iran or Venezuela, for that matter, or they do transshipment. They're not approved to enter into terminals. They lack vetting, proper insurance. There's a lot of things that has to... fit the bill to get approved to operate in the compliant markets. I think that is really unrealistic. So I think this will almost 100% certainly be a positive for the market if this plays out. And I see now people that are expected to come into Trump's administration, they're already on X, making statements on how they want to approach Iran. So let's see how it plays out. I think it's a reasonable probability of some of this taking place, actually.
spk02: Okay. Thanks. It makes sense. And then maybe, you know, I guess, obviously, Russia, Ukraine, it's had an impact on the broader tanker market, perhaps not so, or clearly not so on the LCCs, but, you know, it's been a question basically is, you know, how does this tanker market look, you know, pretty much since the war broke out and you've had the surge in overall dynamics, but since the war broke out, the question has been how does this market look like without Russia and Ukraine. So I guess in your eyes, how do you think the VLCCs would act if there were a peace deal reached between Russia and Ukraine?
spk00: I think, you know, the market actually did impact VLCCs, but on a relative basis, it impacted them negatively. So the smaller, our smaller siblings sort of enjoyed the higher earnings for a good period of time. But that, you know, has sort of come down to earth after a while. If it is a peace deal, it depends how it all plays out. How does it become a peace? I'm not so sure Europe will venture out buying Russian oil immediately after a peace deal has been agreed. I think that the sentiment in Europe as this war goes on in the backyard of Europeans are a bit different to maybe what people might feel in the US. So I think it will be a long and winding road to get those barrels back into the market. That's how I would think it would play out. So it's not an immediate change.
spk02: Okay, thanks. And maybe just a quick follow-up on that. You did mention that it was perhaps a negative development for BLCC. So is it conceivable then that it could be a positive if the war ends?
spk00: Yes, I think so, because, you know, in refiners in general, what they care about is the most cost-efficient way of transport, and there's nothing that can beat the VLCC in that regard.
spk02: Yeah. Okay. Thank you. I'll turn it over.
spk04: Thank you. There are currently no further questions. I will now hand the call back to CEO Sven Moxnes-Harsfeldt for closing remarks.
spk00: Thank you to all for listening in on DST and following our company. Have a good day.
spk04: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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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