Q3 2019 Earnings Call
Ladies and gentlemen, thank you just on didn't Bali and welcome to the Q3 2019 P. H T Holdings Inc. earnings Conference call.
If time, all participant Sovernet isn't the only baton Rouge. After the speak presentation. There will be a question that not sufficient to ask a question Jordan. This session. You want me to press Star one on your telephone.
This advice you that this conference is being recorded today Thursday, the trend <unk> cope with 2019.
No I tend to come from central Speaker today, rather hold for sand. Please go ahead met him.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining Phd Holdings third quarter 2019 any school.
I'm joined by me its east Coast deal I know that's cost him.
I'm putting them in.
[laughter], usually we will go through an absolute sense. Some highlights before we open up for your question.
Billings to decide that can be found on our but at the upside for stuff.
Before we get started with todays go Oh, that's to me.
Mark.
A replay of this conference call will be available at our website <unk> dot com until October 31st.
The Nike.
In addition, our earnings press release will be available on our website.
[laughter] and of course, it sounds like say mid tour 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, including DST [laughter] dividends share repurchases. So that's true I love the outlook for the things remark.
Just in general they search are already.
Let's say some.
For cost of old economic activity oil prices and oil trading.
Anticipated some neighboring scrapping and processing Drydock schedule.
Actual results may differ materially from the expectations reflected in these forward looking statement.
Well you know Jay to read our paramedic report available that's [laughter], Yeah of course system, including the risk factor somebody's trip or for more information regarding risk that's great.
Looking out the income statement, our habits that came in.
Now I am on a net loss of 9.4 million or.
For sure.
Adjusted for a no change in fair value related to interest rate derivatives of 1.5 million.
Well I would be 7.9 million or six cents per show.
Oh, so adjusted for non test change in fair value related to interest rates or is there so 12.9 million here today.
Income was 10.7 million or seven cents per share for the nine along.
2019.
The average earnings for our meals to seize came in at 25500 per day, you know third quarter well there she sometimes.
Oh, sorry, 3007 under today.
But the fleet.
24300 today.
Oh, Thanks for the quarter was 94.4 million or 7800 per day average for the fleet.
<unk> for the quarter was 3.5 million equal to 1400 per shift per day.
For the first nine months of 29 team [laughter] generated 20000 tons per day in revenue down 50 basis.
Opex per day for the first my mom sub 2019.
Seven [laughter] 600 per day average clinically I'm DNA for the first my mom 2019 months equal to 5100 reshape per day.
Today, we have booked 49% of our fourth quarter, but they 61700 per day.
The company has elected to pay a cash dividend for the 39 consecutive quarter.
Hi, David I'm, a five cents per share for the quarters payable on November 14, two shareholders of record I spoke November seven.
Moving over to the Bond Street corridor, and that's where I'm from 15.4 million on cash.
To prepare for the convertible senior notes coming to matures in October 1st we drew down 35 million under the revolving credit facility Troms show No day I present, so okay.
That's 80% of the notes were converted let's say they find my most repaid in early October .
Current availability under our revolving credit facilities.
It's 83.9 million.
Financial leverage is moderate limited interest bearing debt to total assets just below 50% based on market probably finish it.
After the conversion of the bomb to leverage now stands at 48%.
Looking out for cats cash rich, we generated 36 million and have it now I have constitute cash from operations.
Ordinary debt repayment that cash interest.
<unk> to 27.8 million.
For 2 million age related to maintenance subscriber capex.
2.8 million are related to Davidson.
As shown some long term debt amounted to 55 million I'm at quarter end and 115.4 million of cash.
But I will turn call over to fine.
Thank you write off.
Hello, good enough data to learn scrubber projects.
Today, we have completed eight vessels.
They can remember don't at the end of last year more just talk how Kim Condor I missed so some of their bone some losses have been completed this year.
We currently have to this concept the arc, namely T. only I'm talking about Oh expects to complete next week.
We have on average for all these retrofit projects spent 37 days at the arc.
The arts in general are very be seen some Celtic.
Under these circumstances, we are pleased with our team's performance, reflecting their good planning and execution execution.
Well the total 16 retrofit projects, we have them six to go.
These are very good well here.
Yes, Europe , Scandinavia, Oh, Paul.
It is sold every important to address that the remaining projects are likely to be postponed at the current spot market levels.
We will make decisions on a case by case basis, assuming Florida.
Total capex for the retrofit project is Brexit that that's 70 million or which we have paid 34 and a half million today.
We have us earlier in almost 50 million script merchandising facility in place from which we have grown 25 million.
With that I postponed the treatment.
Thank you signed before we open up for your questions, we'd like to briefly highlight the excuse positioning.
As you all know we already only pure reveal to see company in the public space.
And as the current bull market shows upside potential is far more exciting for the biggest ships.
We dare to say that your best in class on cost.
Overtime, nobody beat soak opex and overhead.
And these things matter.
Combined these costs with competitive Tcs achieved into spot markets and we believe you will be hard pressed to find anyone beating us on EBITDA per ship per day.
DST is simply performing very well.
As soon as scrubber investments, we note that the spreads between HFO and compliant fuel are widening again.
We just want to remind everyone that are spread of $250 a tone translate into roughly 12500 today in superior Tc earnings for the scrubber fitter chips.
That they seemed like a small premium on a relative basis under current market, but it equates to four and a half million dollars per ship per year, which means we will have recouped investments in 12 months.
We believe we are in the early innings, so an exciting gold market for tankers.
The recent trends see it was perhaps short lived.
Now seem to settle at rate level start far exceeded even the most optimistic rate forecast we've seen for this winter.
And again.
In this kind of markets vlccs become very large cash creators.
Back of the envelope calculations suggest that into 100000 dollar a day market.
To your stance to generate over a dollar share in earnings per share per quarter.
Pretty strong did you ask us.
You May also want to note at plus minus 10000, a day translate into about 15 cents in quarterly EPS.
Lastly, we want to highlight that our dividend policy insurers immediate participation in this bull markets for our shareholders.
We've been paying dividend every quarter for almost 10 years now.
Our policy of returning at least 60% of ordinary net income to shareholders has to be an unchanged since the second quarter 2015.
We believe this provides predictability for investors.
Perhaps more importantly.
So handsome returns of capital over the next several quarters.
I would that we'd like to open up for your questions.
Operator.
Thank you, ladies and gentlemen, we win I begin the question answer session.
Reminder, if you wish you ask your question. Please press star one on your telephone and what's your name to be and I'm. Just if you wish to kind of see request. Please press the cascade.
Your first question comes from the line of John Chappell from Evercore. Please ask your question.
Thank you good morning, and good afternoon, maybe even good evening to some of you first question.
Sign you mentioned that you man, a case by case basis or postponed some of the scrubber installations on the last six ships.
Based on current market conditions, which makes all the economic sense in the world, but I'm just wondering what's your ability for the contractual obligations can you pushed that back for.
In a infinitely does it have to be a window 60, 90 days or something like that so what's your flexibility to address that on a case by case basis.
We believe we have a great flexibility in this regard without any financial penalties.
They are they say yard where we are a major customer, but the orders also exceptionally busy at this time.
Auto ship sort of pressing on to get these projects don't as quick as possible and I'm sure. We could this sort of vacates, our our space for older ship types, such as Containerships for instance, and they ordered welcome that so so they can always could certainly be sort of a win win situation in terms of scheduling for both parties <unk>.
Is there a point, where maybe you abandon them I mean, if the winter is a strong is the reason market indicates and maybe the shoulder periods, the second and third quarter for whatever reasons, IMO et cetera, Ah stay incredibly robust and going into next winter and you still have been fit them, yet and is there a point of you just say listen these six Ms.
The window of opportunity and we're going to keep trading them, because they're making so much money or do you feel that longer term you want to make sure that you had the scrubbers installed on the sex.
I think thats something we need to address in due course, but you know we've made these commitments for now so far the economics on these corpus looks to be very handsome.
And.
Some leasing you know these assumptions changed in the future of course.
It's hard to opened units to revisit this.
I think our game plan is certainly it to go ahead, but maybe not at this point in the spot markets.
The other question did a clarity in its difficult I know and the new accounting rules, but you've said you've done 51%.
Spot days in the fourth quarter already.
Now if we take the scrubbers and set those aside.
On the six ships.
And your decisions there what's your true availability for those other 49 days.
Those are revenue recognition issues that may make the back half of the quarter less robust than maybe the benchmark rates indicate.
Lead exposed in operation over every single ship is available and whatever we see from the ship brokers would really translate into a an actual to see how should we think about that.
I think the there the key point. This so I mentioned that we have two ships in the yard at the moment or they will be coming out next week.
And from then on.
All our ships are in the water and there are ready willing and able to take what to spot market gifts.
So.
It's it's a time lag effect here that you start out any quarter, where a lot of fixtures on in the preceding quarter and a in a rising market. The initial readings are gonna be lowered under final ratings on the opposite than a declining market.
Right.
So it's a good sign final one thank you for the clarification on the capital return policy clearly a five cents dividend for the third quarter, a loss making corridor.
It did have an indication that the fourth quarter is as strong as we'd hoped.
That's a little bit of maybe borrowing from the fourth quarter to pay the third quarter. If you will just just because you did have a loss in the third quarter. When you say up to 60% I mean should we think in this type of incredibly strong environment at 60% is probably very conservative or do you think you want to kind of keep it at that base and maybe deliver more aggressively.
As we go through the next six months.
Just to clarify John its minimum 60% is not up to 60%. Thank you, yes. So.
No I think you should you are reading on the five cents for the third quarter is correct.
We felt at the corporate it performed well.
We're onto a quarter thats going to be clearly emerged stronger than the sir.
We we felt it was in everybody's interest and we wanted to reward the shareholders for being patient dosing with DSD that we opted from two cents to five sir.
Okay.
Thanks.
It's not it's not about borrowing from the fourth quarter.
Right, we should minimum 60% to the fourth as well.
Perfect. Thanks, Jason Thanks side.
Thank you. Your next question comes from the line and from the given from Jefferies. Please ask your question.
Hi, gentlemen has gone.
Good thanks.
Great said you mentioned the current spreads of maybe $250 a ton of so you're in recent weeks you've heard of robust kind of trading activity on the paper markets for next year. So with that how do you kind of see the HSS Opiela serco spread developing as we approach January assistance or in spring 250.
Three 364.
Also we purchased fuel and dance or just kind of wait and see how prices reacts in the coming along.
It's respond to the latter part of your question first.
I do not do any hedging on sort of by forward. So we buy a fuel then we need it.
Hey that freight market based pricing sort of reflecting current or the bunker prices at the mercy at the time that they fix.
In terms of the spreads.
Our thesis was never that the compliance fuel would be sort of heart.
To obtain or to buy or that's compliance who should be very expensive.
Tcs was based on a domestic fall in the mall.
AFFO and thereby making a ship already achieved so that you sort of what we think is going to be the spread on the sort of see the CV indication so thats already because.
He's really through this quarter that the drop in the month rich AFFO was going to happen.
We well this to sit tight to rethink our investment position.
To be very sound and the.
Returns from hefty profits to the to the company.
Okay.
And then we're hearing of one year time charter rates of maybe 60000, a day for eco vlccs.
And thats without scrubbers. So have you gotten any bids for your vessels at those rates and Additionally, what is kind of the one year time charter premium for a scrubber it'd be 5000 7000 $10000 today.
Looking away looking to lock away some of those vessels.
I think to sort of quantify to us.
Specific number on the premium on the scrubbers a bit difficult because.
What typically happens is that somebody is coming into market than they have a very clear opinion on what they want they want and for instance, and eco ship with a scrubber and.
And it's not like they are there to take an eco ship without scrubbers. So therefore, it's bit of heart to two to nail the exact difference.
And it's not like they are there to take an eco ship without scrubbers. So therefore, it's bit of heart to two to nail the exact difference.
And it's not like they are there to take an eco ship without scrubbers. So therefore, it's bit of heart to two to nail the exact difference.
Surely.
Time charter rates have been coming up for the with the spot market.
I will.
We expected to continue to go up, but frankly 12 months to us in the current spot environment doesn't make a whole lot a sense simply because you're giving away a.
It doesn't really.
So just.
So just.
So just.
We were.
Just wanted to ask maybe on that last point you made about you booked 190000 frenzy, maybe if you could just.
The fixtures are the indexes, suggesting to 300001 that turned out that doesn't really doable.
The fixtures are the indexes, suggesting to 300001 that turned out that doesn't really doable.
The fixtures are the indexes, suggesting to 300001 that turned out that doesn't really doable.
Pull back the Throughputs and.
Start trading our time charter ships rather.
Start trading our time charter ships rather.
Yes.
That makes sense.
In the.
Randy's question asking about the the one year Vlccs and you mentioned that doesn't look that interesting to you given what you'd be giving up here in the near term.
With that with all the volatility that we are seeing in the market.
Have you been approached for 345 year deals I know in the past Ddgs definitely been.
Always kept spot exposure, but also looked for long term contracts.
As that develops.
To any any meaningful degree here.
Over the past couple of weeks.
So we are in the market and our customer base are also customers that typically tend to chartering ships for a variety of over periods. So there are certainly discussions.
I think you know some charters that sort of sniffing around.
Exit to take a little time out.
But if you sort of expect these things to come back again these discussion to potentially from up. So so there are some some level of liquidity, but we're mindful of firstly, who do business with which ships this optimism as et cetera and them.
So I'll leave it certainly like to see longer term than just 12 months. So.
But.
Rest assure that.
The deal flow is certainly at the Vfds desk so.
Okay.
Thats helpful color and from deal flow is the discussion.
Primarily more focus from charters on just seeking is it a VLCC or is it a scrubber fitted DLC you today.
I think it's a mix but.
Most of activity that you've seen that today has been eco ships with scrubbers, that's really where the people of wanted to.
That's a type of told us that people want to secure.
We've seen very few people out there won't think to take ships on time charter without scrubbers, that's more creative in sort of much interest at that.
Got it. Thank you helpful. Thanks, guys.
Okay.
Your next question comes from the line of Robert Davis from.
Good morning General and.
I'd like to comp I'd like to compliment you on your fore sight.
Looking ahead and anticipating the market that has now begun to develop.
And positioning yourselves so well.
My question deals with one subject you told us about but you really gave us know for thought on how you might deal with debt in the future.
And if you go back all the way to.
2018, we're kind of staying a level as far as debt levels are concerned in the 900 million.
Level.
If we anticipate the market that we've been talking about here. This morning, which is a very profitable one for us and will give us substantial cash.
Myself personally hope because were shareholders large shareholders that you will significantly de lever as one of the previous callers spoke of.
Can you quoted can you comment on whether or not you would approach.
Reduction of debt, primarily rather than share buyback.
We personally would like to see you do not do anymore share by buyback, but rather reduce significantly the interest bearing debt. So that when eventually in the years to come on this market cycles as it does always done we will be in an extremely strong.
<unk> position because of very low debt to take on new ships or acquire ships from others.
Because as we saw in the past front line.
So I don't want to see us ever make that kind of Mems stake and then rather anticipate.
And do well with reduction of debt. During these real good times can you comment on that please.
The first part first that the increase in that you saw into in the third quarter was partly caused by 35 million redo down on a revolver in order to be prepared to take out the convertible debt that matured on first of October but.
However, as the refit program, but then more importantly, what do you do into in the strong market and we wholeheartedly agree you got to strengthen your balance sheet. When you can in this business.
And it's deserve the split on the capital allocation, how much do you return to shareholders and how much do you.
Strengthen reinvest and strengthen the balance sheet.
No. We think we have found the reasonable policy with our 60%.
And we can only put into what we did in the last upcycle in 2015, and 16, where we prepaid.
Mortgage debt and we also bought back if there are two our convertible bonds. So.
You do different things so the difference basis of the cycle and into in the good markets. You also need to prepare for the for the downturns and you do that by strengthening our balance sheet done repaying debt.
All our mortgage debt.
The bank debt will amortize the debt repayment. This is about 70 million the ordinaries this schedule so.
Thats good new don't anticipate anything during this coming year that would increase debt then right.
No.
So we are not investing at this point than the cycle yellow, although capex projects. So our focus is really to use excess cash flow student debt to de lever the balance sheets.
Instead of.
Part of this cycle I don't want to see us have to go way down to two cents and one cents type of dividends. So.
Formidable.
What the markets would be like and being positioned to do so well as we're doing now.
As you commented in the beginning in the beginning of the call where in the best position in the marketplace relative to our competitors and complementary for that.
Okay, that's all I have that.
Yes.
Hey, good morning, guys how are you.
Thank you.
Hey, so it's been a long call so keep it short.
One of the.
Loop back to the the decision to.
Slip saw the discover installations and forgive me if you answered this within John's question I missed it but have you seen any other slippage.
Within the.
I'll call level backlog, our other owners, making the same decision that you can see and does that would that imply for for tonnage in the market in Q4.
No we know sort of polling every competitor ship to ship submit the we are being told that are a few that are looking at the same so.
Thanks.
Or were you already kind of carrying those expectations I'm just trying to give you already give us.
I think you've seen the biggest sort of move in percentage terms in the older spectrum right. So you have some.
It's sort of all in the movie if you like Kim.
So far you havent seen too much movements on five year old antenna sales, but the there hasn't been married transactions either so I think if you if you get sort of a call. It to ship five it all coming to market, we was expected to be meaningful interest in that.
Excellent yeah, it'll be interesting to see what transpires, we had average very transaction is very interesting.
As.
As.
As.
As for the Lotus she is coming off this quarter correct.
That seems to be nice further questions. Please continue.
Well, we just like to say, thanks, again for a while being interested in DST and have a great. Thanks.
Okay.