Q3 2020 DHT Holdings Inc Earnings Call
Ladies and gentlemen, thank you bye bye.
Today's Q3, Twentytwenty T.H.T. Holdings earnings Conference call.
So I went in listen only mode. After the speakers presentation, a question and answer session to ask a question. During the session you wouldn't need to press star one on your.
Best advice you the conference is being recorded today and Thats Tuesday, the 10th of November 2029 tons of comfort. So to speak is today Layla House. If it was then C. F. O trick is I'm you tend to see F. So see Oh, that's fine box and Hatfield seat co CEO. Please go ahead.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining.
Third quarter Twentytwenty <unk> cool.
I'm joined by BHP co CEO.
Hi, I'm signaling that.
I don't seem to investors.
Investor Relations.
As usual, we will go through financial.
Before we open up for your questions.
The linked to that.
On our website <unk>.
<unk> Dot com.
Before I get.
Todays call I would like to make the following remarks.
A replay of this conference call will be available on our website.
Yes, [laughter] until November 17.
In addition earnings.
He will be available.
Uh-huh.
[laughter] E.
Our system.
Sure.
Okay.
I have a reminder, this conference call we will discuss matters that are keeping your nature.
These forward looking statements are based on our <unk>.
Patients about future events.
Excluding <unk> dividends.
Dividends share repurchases and debt repayment.
So for the time to market in general.
I want to highlight some of the fleet utilization.
Well the economic activity.
[laughter] trading.
Anticipated levels of Newbuilding thing.
[laughter] right on schedule.
Actual results may differ materially from the expectations reflected in these forward looking statements.
Actually to read our periodic reports available on our website.
[laughter] their system, including the risk factors in these reports for more.
Nation regarding respectively.
[noise] looking at the piano.
EBITDA for the quarter came in at 92.9 million on an acting chief.
55, 7 million or 32 cents per share.
Adjusted for non cash gain in fair value related to interest rates or into a cheap right now.
Non cash impairment charge of 4.9 million net income would be 53 million or 34 cents per share for the quarter.
Opex for the quarter was $22.5 million or 8200 per day average for the suite on <unk> for the quarter was four point.
Yeah.
EBITDA for the first three quarters of Twentytwenty came in at 399.3 million.
Income.
58.7 million or one dollar.
Get you some for sure.
Adjusted for noncash loss in fair value related to interest rate derivatives, So 10.5 million on a non cash impairment charge of 4.9 million.
Net income would be 274.1 million.
Dollar and 82 cents per share for the first three quarters 2020.
Moving on to the balance sheet.
The quarter ended with 75.5 cash.
During the quarter, we prepaid 79.2 million under the ATM I'm rolling out their credit facilities.
So sorry for payments made under the revolving credit facility Transship Amazing you report.
In addition, we prepaid the outstanding alone yes.
She kinda need yeah 12.7 million.
Total prepayments during the quarter amounted to 91.9 million.
Further hunger that 25 million of convertible notes were converted into shares during the quarter.
Interest bearing debt.
Introduced with 227 million during the quarter from 719 million I've heard June $30 million to $492 million for September 30.
Current availability under our revolving credit facilities 217 million. So think total liquidity of 245 million hardcore trend.
Yes. She has continued to strengthen the balance sheet with a pre payments downs or end of the quarter on the conversion of the convertible bonds.
Financial leverage at 30% based on market values for the ship.
Looking at the cash rich the corner store with comfort I'm 30 million of cash generated 93 million in EBITDA.
Ordinary that's true payments cash interest amounted to 26 million.
[laughter] cumulative paid any dividends.
3 million gallons used for maintenance Capex on 92 million, what's used for debt prepayments.
Changes in working capital amounted to 45 million.
Well after I'm done with 75 million of cash.
[noise] that took some time to.
Two cats location.
For the third consecutive quarter, we will pay a cash dividend of 20 cents per share will be paid on November 22 to shareholders of record EPS of November 18.
I've already mentioned, we have during the quarter creep at $91.9 million and vice versa.
So September Thirtyth net debt is 417.3 million, which equals an Irish no that's.
Oh 15.5 million per vessel.
With that I will turn the call over to spine.
Thank you Doug.
No last earnings call, we talked about how do you see us manage to cycles and stay disciplined in allocating capital.
We illustrate how we have successfully invested in during the Trups.
Unfolded by investing in the balance sheet and returning cash to shareholders during strong markets.
Another important book on a dollar a counter cyclical stress it in its how we position I didn't quite quickly.
North tankers are large snow spoke business. That's one should not expect to be able to cover that entire beep on long term contracts up meaningful numbers.
Considering this the size of the company and its fleet its important.
There's always be little talk about building lots of coconuts.
He argument has been that the capital markets with local news.
Maybe the discussion should ought to be about what is the right sites.
We like this I sobieski.
Oh, the sites give or take a few ships allows us to service our customers have a meaningful presence in the markets.
Oh precise enables us to dynamically positioned the company for what is that.
That's clearly demonstrated this year.
We currently have 16 of our 27 ships on time charter representing 60% of our feet.
That's an average rate of just below 43000 per day, it's oprah's premium income in office in <unk>. Louis This book market.
We have for the fourth quarter covered 79% or a token based sept $38 reported 400 per day.
This equates to 17 million in TC revenues a lot what the P. you know cost for the quarter is expected to be.
So more time charters, social worker or Fourq in nature and will come up during the first of all from next year.
Assuming a rebalancing of the world markets by the second half of next year for Fleetcor built spot market exposure Oh structure perspective.
In the meantime, we will simply enjoy the revenue stream you broke up.
You will note the combination or a competitive cost structure, reflecting well, our hardworking seafarers and shore based even delivering day in day out.
We have an old since company culture, with a dislike pretty inefficiencies and everyone is looking to come to a culture here.
This area involves additional opex related to spares and consumables in relation to I moved to a different thing.
Further I'm impressed by core with 19 Opex over the last two quarters Olson gold extra costs in order to make crude changes happen.
Prime unbelievable spent in our view.
So in so over.
Well to the topline a 118 million in PC revenues, we made a net profit of 61 million.
So with profit margin or 43%.
I mean that that turnover to trigger.
Thanks Ryan.
The last 12 months have seen extreme.
An extreme in the tanker market.
Right. So reached the highest of highs and now those who looks.
Through these volatile times, we have stuck to our strategy.
We are returning significant capital to shareholders include.
Including the 34 million that will be paid in two weeks time, the total dividends over the last 12 months to close to 215 million.
That equals one dollar and 35 cents per share.
Since the beginning of last year, we have reduced debt by half a billion dollars.
And we have been able to secure significant time charter coverage at attractive rates.
Okay, Let's now look at the cash breakeven and time charter coverage.
Debt prepayments and fixed income worked wonders for spot break even levels naturally.
We have been unsure about the short term market outlook and are therefore continued short term time charter contracts during the third quarter.
On this slide you see that sort of first half for 2021.
35% of the tanker days are committed on time charters.
The spot ships need to generate all the $3400 a day in order for the company to cover its cash cost.
For the second half of the year TC coverage is 18% and spoke cash breakeven is 16400 a day.
We like the fact that the first half for all practical purposes is taken care of.
We do not expect much of a winter market this season, and even with the great news yesterday about vaccines not being far away within we think it's going to take some time to get oil consumption by oak and oil inventories back down.
We also like the fact that we will have more spot exposure in the second half of next year.
If things develop as we all hope it is not likely that the time tanker market will approach some form of normality next fall and winter.
So to sum it all up at this point in the cycle. The interest he is an ex us in an excellent position.
Total liquidity.
About a quarter billion.
Net debt just over to scrap values and leverage or 30%.
16 ships on time charter at an average base rate of just under 43000 a day.
Spot cash breakeven for next year, the full year 10600 per day.
Finally, we have five unencumbered vlccs.
The low cash breakeven breakeven gives us excellent downside protection, while to liquidity and low leverage allows us to get the orphans whenever we want to.
This favorable positioning is a consequence of executing our strategy pure.
Pure and simple.
The next step in our counter cyclical strategy would typically lead to expand and renew the fleet.
However at this point, we are in no rush right.
We think there is more uncertainty out there to normal with Kobin peak oil and propulsion technology being the biggest uncertainty factor.
So until the picture clears or changes you should expect us to continue to return capital to shareholders and invest in our balance sheet.
And with that we'd like to open up for your questions operator.
Thank you ladies and gentlemen, we will now begin the question and answer session to ask a question. Please press star one telephone keypad and wait for your name to be announced once again, ladies and gentlemen star one on your telephone keypad.
And your first question comes from the line of Chris sign from weapons Research. Your line is open.
Hi, good afternoon, everyone how are you.
Good thanks.
Great.
Thank you for the prepared remarks, a lot of good color elected context.
I wanted to touch and the one thing that trigger.
<unk> spoke about just recently regarding.
Fleet renewal.
I mean definitely the obsolescence this regarding propulsion technology seems to be the gating issue, adding tonnage.
Yes.
Just trying to think about this what would that mean that.
D H T would lean a little bit more towards second add to net a second had to meet.
Five to 10 year old ships.
And instead of going after like Newbuilds I, just know that the rates have come down quite a bit there's been reports of a Chinese green JV that sign an ally for Penn Newbuilds that Korean shipyard for about 85 million and it's kind of wanted to see.
Thoughts around that.
I think the main point there is that we're not there to do anything at the moment in terms of renewing or expanding the fleet as we just said were on the fence for now.
Propulsion. This certainly one issue prices is another one but it's it's really a unusual circumstances that were in there.
The drop off we have seen in global oil consumption. Following the pandemic is unprecedented. So so we think it's okay to where things to shake out a little bit before we actually go out and commit ourselves to.
Either second hand, or or new builds for that matter.
Let's not forget yet.
So forget the you know the way the company is put together today it doesn't have to do anything.
It's an excellent position right.
To deliver fantastic returns, even without additional investments. So 27 ships just off the small sheep.
Lots of small fleets a widebody laminates.
Right Yeah, no there's they're both great points you could stay on the sidelines and just do nothing you guys are in really good position.
Just kind of a second question second last I guess for me is the the roughly 80% that's been fixed cidade for Q4 at.
30000, it's a it's a bit higher than some of your other competitors and I'm just trying to get us trying to get a sense of.
This is more or less reflect maybe spot fixtures ever done in like Q3 that are rolling off into Q4 that could possibly expose your fleet two.
Spot rates in like the mid to late.
Member time framework.
Is that not the right way to think about this.
This corporate corporate trade show, it's a mix so time shortly ankle and spokes in call. So a a sort of trading guys to go with normal Jobin also securing some of these the shorter term time charters that Oh also meaningfully higher levels than than the spot market. So it's real.
It is a mix so those things together.
I think it's important to recognize that would 16 ships on time charter obviously your coverage is going to be much higher than some of the peers that have a zero or close to zero some charter coverage.
Yep, Okay, no that makes sense. Thanks, Scott. Thanks, a lot guys have a good one.
Thank you.
Thank you and your next question comes from the line of Randy Cheapens from Jefferies. Your line is open.
Howdy gentleman has it gone.
Good Thanks, Greg.
Great well I guess first question, you mentioned capital allocation and see that continuing to return capital to shareholders here.
I guess before you get to that you know can you talk about the decision to convert the 4.5% notes and also pre pay so much in debt during the quarter I guess, how low are you trying to get your net debt to cap.
And to maybe avoid or reverse some of the dilution from the converts where you repurchase more shares here in the fourth quarter.
As you know we call the convert at the earliest opportunity we had under the indenture.
Yes.
We were eager to get that out of the way simply because.
We of course, all the significant dividends those are going forward and forever dividends paid the conversion price is adjusted.
So or if we had waited for another few quarters it could be a much lower conversion price and hence the dilution bigger.
And its first to the second part of your question on the on the debt prepayments. We think that this is just building internal financial muscle. So that when we think it's the right moment to go out and commit to additional furniture overdue renewals or what have you then we can do that put out.
Raising additional equity, which we think is in everybody's benefit that we have the firepower.
Firepower built into the balance sheet.
So we don't have a particular target.
And net debt to total assets or anything like that but as we finished up with in our prepared remarks for.
We now expect us to continue to give the 60% to shareholders and investors.
Invest the rest and the balance sheet, and that's probably going to be additional prepayments.
Got it and then in terms of share repurchases would that only be out of the 16% of net income has that isn't an option here you fully committed to the dividend or what are your thoughts on share repurchases.
We do have a program in place so we can do it.
We have done it in the past when we've seen.
Significant dislocations between the fundamentals in the business, we're in and what's going on in the equity markets. So a last time in the fourth quarter 2018, but as you have seen over the years, Randy our preference is really to to paid out in cash dividends and only in extra.
Extraordinary circumstances that we really had on.
Common equity buybacks were done on their own to convert side, but that's all history now as you know.
Got it okay.
Okay, and then I guess last question for me you know with the weak spot rates. Obviously, the time charter rates have also fallen substantially but good to hear that you're able to sign some short term ones at good levels, but on the other side of that equation. You know is there an appetite for maybe additional tonnage be a time charter ends.
For one to two years to maybe take advantage of the poor sentiment now compared to what should be a relatively decent market next year.
We will go up to the time charter and it's on there too. So it won't all older ships under present ourselves somebody in full control Oh breaking side of it at.
And also chartering ships in its essentially a you know a levered need if you like and it will negatively impact the cash breakeven levels Oh. The fleet. So this is not something you should expect these cases.
Got it alright clear answer. Thank you so much that's it for me.
Thank you.
Thank you and your next question comes from the line of Omar Nokta from Clarkson Platou. Your line is open.
Thank you hi, guys.
Yes, maybe just on the.
Growth topic, you know early are early on in the call you mentioned you'd like to side with me today are 27 ships give or take a few vessels.
Obviously, a lot of questions still need to be answered before really shifting gears away from returning capital to shareholders and you guys are obviously in a very strong position to take your time I guess, one thing I did want to ask is should we view your comments.
As meaning basically at least if there's one thing you do know they have confidence in that any acquisition you do do on the horizon will becoming hands.
Basically hand in hand with selling older ships.
No. This is not sort of a mathematical formula right. So this over some flexibility on that if we were to divest a say a handful of older ships, maybe reinvest in 10 years. So I saw it this oversold and flexibility on this but.
We don't see a need to become sort of 100 chip company.
That will take away a little that ability to maneuver and repositioned.
Corporate in the fleet pretty quickly so there will be some flexibility on that so don't take it sort of own woeful.
Okay. Okay I appreciate that then.
Last quarter, you mentioned that you know you are thinking about becoming a bit more acquisitive potentially something like 21 still a lot of questions. Obviously on the outlook, but you did mention that newbuilding prices were a bit too high relative to what you consider attractive.
Since then we've seen pricing come in down towards the bottom half of the $80 million has.
Has that changed or intrigued you to an extent.
We are so I haven't been in.
Specific negotiations at any yards, but.
For her for her before the markets, we noticed that the price is ours or heading so overall, it's a bit slowly and it.
It seems to be very little activity across the board all new buildings. So we would expect a more attractive prices to maybe become available if when we look at it over to if you like so this is quite a lot of capacity available at the shipyards and.
They don't seem to be able to fill it up so I think it's sort of normal circumstances, so that should mean, a crisis might come up.
A bit further.
Okay and then this is a bit more probably like a bigger.
Bigger picture and probably tough tough on the answer and Thats whats prevailing in the industry, but then when you do think about placing a newbuilding order.
How does the propulsion fit into that equation do you think you need if you heard about that down that path do you think you need dual fuel or because newbuildings in essence, basically we're going to be the most efficient vessels out there.
That it's really not that big of a concern it's really the older ships that needs to be really thinking about how to comply with the upcoming IMO and you and potentially the U.S.
Carbon rules, how do you think about that.
Well proposal is certainly a very important a couple one thing that when you make these considerations, but we think that the conventional technology.
He is able to sort all meet the targets that we set up a 10 to 30.
But there could still be improvements to be made on not just the main engines, but also serious and others at all aspects of being more energy efficient on most of the ships.
We do not think that the deal tool is the way to go we think it might be sort of a short term fix a you know it's.
Sort of bridging to go there but.
The sort of proposition and the way the market works is that the ship owner will take or a single guy they own that technology, maybe already being I'll say that after 5678 years, so to make such a big capex commitments are promptly without having anybody to sort of support that a that income. We don't think that's a good thing.
That's the physician practice, so from that regard away.
I think for older types over fuel be biofuel I'm old so forth, there's still a little bit so.
If you like and not really something.
Well for these type of big ships, just yet so that's.
That means something to call maybe wait on underlying EPS.
Okay cool thanks, fine I appreciate that color I'll leave it there.
Thank you and your next question comes from the line of George Berman.
From Cowen Securities. Your line is open.
Good afternoon, gentlemen, thanks for taking my call.
Good afternoon.
I'm not quite a few questions congratulations on another great quarter setting well apart from all the other shipping companies and are.
Are you planning tools.
They will remain a predominantly the LTC company or would you consider also branching into the two S. An aframax area.
And as you may be aware the company certainly has a history in our frozen suezmaxes as well, but over the years.
It has developed so that we have become a to be able to see company and frankly, we have no regrets. We think that this is the most exciting part of the crude tanker market.
And water market is strong as we've seen over the past 12 months, the profits and cash flow generated from the largest tankers is.
Simply simply the best in our opinion. So no there are no immediate plans to get into the smaller sizes.
Okay. Great next question in general on the valuation of your company I was very pleased with your announced a.
Time charter revenues for the quarter.
So that's the spot rates they seem to be achieving are well above the average show at least a proposed great.
But I'm a little bit disappointed that you did not go in and take advantage of the currently depressed stock price in your company.
Looking in light house currently a wildcard an unprecedented low interest rates I'm I'm wondering if it would make sense to buy back your stock at half.
Value half net asset value and I on the other side locking in some of the very low interest rates that we are currently experiencing for a longer period of time, that's making it very much and minimal and given all the existing shareholders.
Some positive action in terms of stock appreciation.
I think to the interest rate part of it.
We actually have entered into interest rate swaps a couple of years back. So unfortunately there.
Out of the money at the moment, but the in terms of exposure. It means that we are well covered for any oh.
Uptick in interest rates, so that's where we stand on that side and then again on buybacks are a lot of people are just to do it we.
As we said earlier, we have elected to do it when we see significant dislocations between the what we see in the market we are in and what we see in the in the equity market.
What we're seeing now is that over the past several months.
Shipping equities have been in tanker equities have been drifting down. So it was really the shipping market of the tanker market. So we see in freight rates coming off we've seen values coming down so.
Sometimes the equity market is ahead of the shipping markets and other times, it's the other way around but we don't really see a massive dislocation and we are a bit.
Apprehensive were hesitant to think of any of the EPS appoint a entities.
In constant movement and over the recent past its been in the downward spiral and you.
You see some of our peers that have been active buying back your own equity is if you look at what they're paid and what that is worth today, it's not really being a massive success.
Okay, well di di and my my question on the interest away, it's not so much a your current position, but a few refinance your debt already locked in the current low interest rates for longer.
Had a very very low a price that would definitely help us in the future, especially when rates start coming back up.
On the buyback side.
You called your converts early that put an additional 23 million shares into the marketplace.
By people that are not necessarily looking for capital gains and apparently a lot of nice decided to sell shares. So you know I feel that that your company is tremendously undervalued on that note do you have any anti takeover provisions in your records.
No.
Okay.
And maybe last question, how do you feel about the.
Continuous demand for crude oil you see it as many so called experts predict that we're going to be a slowly but steadily going away from crude oil overall worldwide or do you expect the demand.
Mine site to move back up and that 100 million dollar a day 100 million barrel a day range.
This is all the biggest questions.
If you look at right. Now is also took 19 was that sort of takes them longer hauls and.
I guess this Kobe situation has.
We raised a lot of new issues and maybe some more speeds into though you see trends. If you like so we would anticipate that sort of the coming year to give us maybe a bit the clarity and to what extent. The mall is coming back to put tonineteen level. So what maybe the future could build in that regard so to be started to sort of to save.
There's something there are certainly working very closely.
Okay. Thank you very much and good luck for the future.
Thank you.
Thank you and your next question comes from the line of Lukas well from a BG. Your line is open.
Thank you.
And then.
Hi, I had a question are you talking about the on certain let's say a regarding oh, the new building.
No propulsion.
The amount thats upfront.
And.
Yeah, I agree with all of that but I was wondering what.
Are you talking about no improvement in the current engine system being able to carry out stalwarts of 2030.
For building block that.
Are you, saying that.
The industry and on a grand scale, it's nothing.
Yes, it's still going to mean for public equity money.
Mmm.
Well, that's an interesting question I'm not sure we have a have a good answer to that and.
The way I understood. Your Lucas is that if the industry does nothing and we come just funny 30, and we haven't really reached a good targets and I'm always set out.
If we then can sort of continue to be a public company is that the essence.
Yes, I mean, it doesn't it doesn't only up to you or I mean.
One thing at a plus the industry as a whole so I totally see your point well why it's very rich I missing at this point in time so.
I I just wonder what they are and what your thoughts are on that whether this is sort of a.
Jim Carrey Elsa on for the next decade.
I think quite frankly, some of the bigger stakeholders in this market the need to show the way and it needs to be in terms of more than three year time charters for a dual fuel VLCC that some of the oil majors are trying to do.
These are the ones that have the ability to go out and say we believe in this type of propulsion is going to be helping in terms of reaching the I'm old targets and were there to do a 10 year 15 year deal based on that but for a sort of an independent tanker on a company to go out and bet on a technology over another and crazy.
But mark and I, just don't think we assess independents are going to be the sort of the leaders in this.
I'm not sure there's going to be a sort of a first mover advantage on it either.
I think also in relation to this I mean, we should not forget that there's some 85% the world trade is carried on chips and the industry at large is primarily own go privatized so that it needs to come to some sort of capital into play to need where they send it might even be return driven so.
I think the question of whether its private to public.
He also question what the returns are going to be so it's sort of current returns are attractive equal I.
I think attract capital either way.
Oh, great. Thank you for your answers.
Thank you.
Next question comes from the line of Robert Sofia from Sofia and Associates. Your line is open.
[laughter] yeah.
Yes, good morning, Jeff.
And.
So then I would like to compliment you first of all.
On the format in which you presented your financial highlights right at the beginning of the report.
Very well done and.
And of course, it's pointing out your strategy of reducing debt significantly.
And as you said this has a tremendous impact on the [noise].
Profit.
Margin for running the ships.
I'd like to compliment you on that strategy and hope that you will continue it.
Reducing the debt.
Let me ask you a question about rates, where do you think rates have to go before your profit sharing kicks in on the four ships.
Okay.
As the base rates. So those support time charter with profit sharing or two of them are already surround our sort of TNL breakeven level. So that in the very high 20000 miles.
So there you know in the last the upturn area. The overall shoppers so made a meaningful impact or is the contribution of all those right. So.
So so yeah. That's it really the fourth the ship is higher it's a almost 40000 boes a day, but that charter expires and then.
In in towards the summer. So so we don't expect really profit sharing from from.
The next few months a little not chartered.
Okay.
[laughter].
With the rates being as low as they are now.
Are you seeing or bargains in used ships.
At this point.
At all either.
Even though they may not be at the levels you wish to purchase.
Purchase shipset.
Are you seeing Bob.
Bargains beginning to appear.
Yeah, Weve seen some distressed sales oh to Singapore, where.
We're a large fuel oil trader, who also has a significant a tanker fleet as a as a hit the ropes.
And these ships are being auctioned out under prices achieves are of course reflective of the distressed situations. So so those are bargains in a way, but it hasn't really tickled our interest to merge simply because these are ships about 10 years old and.
And on top of that they're consuming.
More fuel than ships of the same vintage. So so two to the prior question here about and becoming more fuel efficient. These are certainly not to ships for that so what you're seeing there and that's private ship owners have been really picking up these ships rather than the public companies looking at them.
Oh I see.
When with the age of our fleet and the nature of it when.
When do you see the need for new ships.
I think the average age of our fleet so.
These are just south of what I think is the average age of the world.
So we've certainly service older prime customers that our fleets.
So of course, the calc a you know Keith is just running out the.
If we still want to run the business. So we certainly have a clear focus so if and when we decide to invest stuff. It will also be a fleet renewal in terms of age and also even better efficiency on the fleet. So over several improved warfare.
It's a bit too early to think so we already know rush so.
I know you are in no rush I mean from a practical standpoint are we looking at being able to run the business with the current fleet for two years three years before you would have to do something.
I think a timeframe on that.
You could run the current fleet for much longer than that without committing to new ships and and you know, stating the obvious but if we sold out.
Some of our older ships, then you're certainly bringing down the average age as well so it's not only about filling up and the young and of the fleet is also retiring older units. So as you know we currently have three ships over 15 years of age and.
Traditionally we've been selling those ships before they reach retirement age but.
As we have said before this is very much a tradeoff between the current trade market opportunities and what the the second hand values are.
But we are in no way stress to you and to we have to get to shift or renewing the fleet right now because the age is search and search.
We're very far from that we can very well run this leads for quite a few years.
Without doing anything that's.
It's very good news thank you anyway.
Anyhow I thought you said this but I wanted to confirm that I heard it right that in the future you will avoid convertible shares.
For raising capital.
That's correct. We are happy to have that also our capital structure.
Good well that's it for me. Thank you very much and congratulations on a very well engineered quarter and a very well engineered philosophy for the business going forward really approved you approve of that.
Thank you for getting rid of all the debt [laughter]. Thank you.
Thank you.
Gentlemen, as a reminder.
If you wish to ask a question. Please press star one on your telephone keypad its star one to ask a question.
We do have another question, Sir one is from the line of David.
Private Investor Your line is open.
Thank you Sir.
First time I've heard your presentations very serious.
Approach very serious company.
And of course as an investor.
Oh.
I want to ask whether I heard your thoughts correctly that perhaps the reason for that drift downward in your shares and perhaps other similar companies shares is some.
Oh.
Lack of clarity.
As to.
What 2021 were bringing and also some lack of clarity as to the.
Physician of petroleum.
And.
The energy.
Oh, yes, and that's in the future.
Is that a correct.
Correct understanding.
Oh.
Your description of why.
Why the stock might be drifting down.
I think we alluded to that the stock market tends to flow through the <unk>.
So.
Their reality through like this.
This year COVID-19 in particular, if it's a big dent in the in the oil consumption in the world. So I am all for oil.
So refiners.
Have to cut their runs to significantly.
Yes of course reduced the demand for transportation higher to bring feedstock from their production areas I mean to the refiners.
This is sort of driven freight freight rates down quite meaningfully and of course in the at least in the in the near term. It's also just a question on the mall for for next year.
And so in that sense, you could argue that the stock market that was correct.
But our industry has a history of being very cyclical and the bullets I don't know that we don't think it's a little less of it stops being cyclical. So it's a question really on understanding when they're already market will rebalance being a combination of.
The cuts that will affect gross is currently doing and of course, the two Olympic sense, but to what level.
The mall will race up again compared to very very interested I'm team. So keep in mind also in this picture that.
The fleet those factors without anything new investments happening now in the next couple of years, it's likely to shrink the across the order book for New ships is a this is Robert all around 7% of capacity.
But so 25% for the fleet is older than 15, so I will retire in due course. So you know you have some self adjusting for society. If you like so.
In our minds is more a question, though when things will return rather than if.
Well I said to you that it's certainly a presentation by serious people and the company that's a.
Seriously.
Attempting to protect itself for the future and that's an investor that's good news. Thank you so much.
Thank you.
Thank you.
Next question comes from the line of.
Jefferies from Scott asset management your line is open.
Good afternoon gentlemen.
Good afternoon, I'd like to ask Mike to ask a question about the recycling we've had virtually no recycling for a 2020, there's a a large number of ships which might be eligible for recycling. We also have what you talked about a peak.
Oil and perhaps say a reduction in the overall seaborne trade for crude oil going forward.
Question, specifically is is there enough recycling capacity on the subcontinent, Pakistan, India in Bangladesh, our to take care of the number of old ladies that may need to right to be recycled or with the regulations on recycling, becoming more difficult or are we going to be cut.
Passively constrained in the recycling side, which would leave those older ships around a little bit longer. Thanks.
No we think sort of from a facility perspective, there is enough capacity to to retire a significant portion of the total.
Oh, the commercial a feat.
Uh huh.
Well you know, it's funny the impact that it sort of made it almost impossible to beat vessels on the receive the crews on board a short and Ah. So it's sort of a haven for a lot of activities across the subcontinent.
As I understand it must have had some restricted a mixture of some of the people working a short to actually do the job. So for wind there was sort of a piling up a few ships and then of course people that buy ships for recycling store boy. So so that's what all is one aspect, but I think from a commercial perspective in.
Thank you Frank did the market the Sip it just into good for people to go to retard ships, so you're going to need to see really a lousy market for us. So you can say right now it is slow so you would need to be painful for a little longer and people need to sort of meet the decision to try and move in that space.
Spend the capex on the chip side, they dry docks ballast water treatment systems, and so forth that and that tends to be the deficient diet.
Right.
There's been quite a lot of sustain some older ships over this past six to nine months for some storage activity and also for some trades that there maybe.
I wouldn't say obscure, but maybe close to it.
So maybe some of these ships are actually all of the leading leaving the commercial fleet. If you like to go although in that so a slightly different question, but that if these freight market continues like it is now I think it's reasonable to expect 2020 roll or two to have a quite a little scrapping.
We do think it's going to be a solemn herd mentality out there that once it gets going it's the.
Sort of the catch up effect that.
When things get normalized in terms of Cobiz and people are up against these special survey requirements. We expect the numbers or do a search that there are going to be a fair amount the scrapping once things normalize.
And assign said were not too concerned about the capacity to do it.
I certainly agree let me ask.
That's one more question.
Per ship is down to a $15 million or so wouldn't it's approaching scrap value.
Is there a is there any real reason to reduce debt much below that or would you reconsider the 60% dividend payout and perhaps increase that's in there.
Less emphasis on on debt reduction thanks.
So the 60% is minimum 60%. So the board can certainly decide on paying out more even with the dividend policy that we do have in place today.
But.
Another seven.
The lower debt you have the stronger is your ability to to pay regular dividends to pay every quarter, even if the freight market is below everybody else's cash breakeven. So that has some merit than some attraction as well, especially in these environments with interest rates being so low and it's difficult to find investments with cash yield so.
We have touched upon earlier in the call. We don't have a particular target for debt.
Levels and exposure.
Expect us to continue to add to pre pay more than the regular installments in the near term.
Okay. Thanks very much.
Thank you and you do have a follow up question from the line of Robert sit there for your line is open.
Hi, Stan one thing you just said, which I think you answered my question and that is given the current rate environment.
Can you continue to prepay debt.
At sort of the rates youve been going at during this past quarter.
Or do you see it having a lesser ability in this current quarter.
Hi. This is she is seeing into material or the current quarter is not going to be as strong as the third quarter, but.
Also pointed out that the income secured for the quarter is bigger than the than the expected cost for the quarter show. So we're gonna be profitable in the fourth quarter as well barring any unforeseen.
So the answer is yes, we expect to generate.
Cash this quarter as well so that we can continue to accelerate that prepayments.
And as we also pointed out first half next year the spot ships only need 3400, a day I mean, that's lower even under market. We're in right now and that's due to corporate cash flow. So we think we're in excellent position to continue to pay dividends that are meaningful to shareholders.
And to continue to invest in the balance sheet.
Wonderful and I.
I think that your strategy for continuing to pay extra debt down is a very sound. One is ultimately rates will change.
And.
When we're in a position to borrow money to.
To do whatever we want to do we will be able to do it at a lower interest cost because we are so secure on the balance sheet. So continue on paying that extra debt down and getting that rate per day down. So we can compete in the market in a much more efficient way.
Very well done spend thank you.
Thank you. Thank you.
Thank you there are currently no further questions on the phone lines SAP.
Okay. Thank you to all four.
Being a interested in DCM that putting our business and have a good day.
Thank you.
Ladies and gentlemen that does conclude our conference for today. Thank you for participating you may now disconnect.
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