Q4 2020 DHT Holdings Inc Earnings Call
Yes.
[music].
Okay.
Ladies and gentlemen.
Thank you for standing by and welcome to the DHT Holdings fourth quarter results presentation, with Laila Halvorsen, CFO tweaks to Svein half yet co CEO.
At this time or participants are in a listen only mode.
For the speaker presentations that will be a question and answer session to ask a question. During the session you will need to press star and one on your telephone.
I would like to advise you that this conference is being recorded today on Tuesday, the 19th of February 2021, I would now like to hand, the conference over to you for speech a day Laila harvests and please go ahead.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining DHT holdings fourth quarter 2020 earnings call.
I am joined by DHT co CEO, Brian Smith, <unk> from a debt.
And we really haven't seen the head of Investor.
Our relations.
As usual I will go through financials from some highlights before we open up for your questions.
Moving to the slide deck can be found on our website th tankers dot com.
Before we get started with todays call I would like to make the following remarks.
This conference call will be available at our website <unk> com until February 16.
In addition, our earnings press release will be available online for both sides.
With the 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, including dht's prospects dividends share repurchases and debt repayment.
The outlook for the tanker market in general David.
Daily charter hire rates unless other utilization for across the world economic activity oil price the time oil trading patterns anticipated levels for new building and scrapping and projected drydock schedule.
Actual results may differ materially from the expectations reflected in mid forward looking statements.
Urge you to read our periodic report available on our website.
And of course system, including the risk factors in these reports for more information regarding risks that we face.
Yeah.
Good morning, and good afternoon, everyone. This is strength.
Before we take you through the highlights for the quarter.
Just wanted if you up into helicopter so to say in order for you to get the right perspective.
The fact of the matter is that 2020, not only set a new record for adjusted net income it crushed the old one.
The adjusted net income for $287 million last year was two eight times the old record from 2015.
So with that as a backdrop Leila will now focus in on the fourth quarter financials Leila.
Thank you for that.
Looking at the P&L highlights DHT comfortable results for the fourth quarter, Despite a very tough time to market.
And with that for the quarter came in at $61 1 million and that.
Income.
<unk> 6 million or four cents per share.
Adjusted for non cash gain in fair value related to interest rate derivatives of $2 4 million on a non cash impairment charge.
One 6 million net income would be $12 9 million or eight cents per share for the quarter.
Opex for the quarter was $22 1 million.
Which is above the quarterly average for the year of $25 million.
The increase is mainly due to higher costs for crude changes due to COVID-19, and storing our spares and consumables.
We expect opex to be more in line with historical levels from things normalized.
G&A for the quarter was for $5 million.
EBITDA for 'twenty Tri net came in at $450 4 million and a net income from $266 3 million or $1 71 per share.
Adjusted for a non cash loss in fair value related to interest rate derivatives of $8 1 million and a noncash impairment charge of $12 6 million net income would be $286 9 million or $1 84 per share for 2020.
Moving over to the balance sheet.
For the quarter ended with $68 6 million of cash during.
During the corner, we prepaid 25.8 million under than a day our credit facility.
The long term prepayment was made for all the regular installments for 'twenty to 'twenty two.
At quarter end the company availability under both the revolving credit facilities for 170 million, putting total liquidity at 239 million as of December 31.
DHT has continued to strengthen the balance sheet with the prepayments down during the quarter for.
Financial leverage is 29% based on market price for the ships.
An estimated 235% when including the two new assets announced in January.
Net debt per vessel at $14 1 million for yearend.
Which is well below current scrap price.
Looking at the cash bridge for the quarter started with $75 million of cash and we generated $51 million and habitat.
Ordinary debt repayments and cash interest amounted to <unk> 3 million $34 million was paid in dividend.
$11 million was used for maintenance Capex and 26 million was used for debt prepayments.
Changes in working capital amounted to a total cognizant and the quarter ended with 69 million net cash.
With that I'll turn the call over to Trygve.
Thank you.
Blood is then talk about capital allocation.
For the quarter, we will pay a dividend of <unk> <unk> per share on February the 20 <unk> to shareholders of record on February 18th.
This will be our 44th consecutive quarterly dividend payment.
And for the full year, 2020 dividends will amount to $176 million or $1.08 per share.
In line with our strategy, we have in the quarter continued to strengthen the balance sheet through debt prepayments.
As <unk> said, we prepaid the 2022 installments under the Nordea credit facility in the amount of $25 8 million.
This represents roughly 40% of the total 20 to 22 installments under our for existing credit facilities.
This will of course have a significant positive impact on our cash breakeven for next year.
Continuing on the theme of debt reduction we wanted to highlight debt interest bearing debt was reduced by nearly 50% through the year.
We started the year with 866 million no debt and <unk>.
Ended with just $455 million.
This has of course made an already sound balance sheet even stronger.
And it has contributed to very robust cash breakeven levels, some things Ryan will dig into the details in a minute.
What does the switch to the recently announced fleet expansion.
In January we bought two Vlccs built 2016 at the SME for 136 million combined.
When this opportunity surface, we were immediately intrigued.
It is actually not that often net quality ships become available for purchase in the trough for this cycle.
These are quality ships built at quality shipyard and having been owned by quality owners.
Just the way we like it.
We're excited about this transaction for the following reasons.
One these are modern scrubber fitted eco ships with great fuel economics.
To.
With the DHT style debt financing with 37 5 million per ship.
We only need 30 twos during 2000 and $400 a day to earn a 15% return on equity.
And this is significantly below the 25 year historic average of 42460 per day.
Three.
To cover Opex and full debt service the shifts will only need to earn about $17000 per day.
And finally for from an ESG perspective, these ships will improve our annual efficiency ratio in our energy efficiency operational index.
So in a nutshell this move exemplifies our counter cyclical strategy.
Growth in fleet renewal at the bottom of the cycle, while maintaining the strong balance sheet.
As you surely have noted from our press release, we elected to advance our dry dockings in view of the soft spot freight market.
During the fourth quarter, we dry docked flagships and recorded a total of 180 days of scheduled off hire which.
Which includes 16 days related to Covid compliant crew changes.
Is there a still limited ports for crew changes are possible with.
Sometimes face deviations to get the ships reports, where the crew changes can take place.
For the current quarter, we will have seven ships going through special surveys and we estimate zone 200 to 230 days of planned off hire for the quarter.
And for the full year, we have 14 drydocking schedule.
And we will revert in due course with guidance for or fire in subsequent quarters.
And with that I'll pass it over to sales.
Thank you for treatment.
We will now spend some time on how we are positioned the fleet.
Last year, we managed to secure time charters for a meaningful part of our fleet is very rewarding rates.
This strategy ensures that the state profitable during the fourth quarter.
Further this strategy is well reflected in our first quarter to date as we have booked 75% of our available days at an average of $34800 per day.
This should allow DHT a good showing again.
Several of our charters will gradually come off during this year.
Whereby it will increasingly build more market picks for sure as the year advances.
For the first quarter you will note that we have a balanced time charter book with 58% of the available fleet on time charters.
Well I was fixing ships on time charters and seven will come off during the remainder of the quarter.
Our spot exposure. It will then gradually increase from the second quarter, ending the year with more than 80% market exposure.
We like this development assets could dwell coincides with the market recovery.
Those of you that have followed us for a while will know that cash breakeven is a core building block in our strategy.
Here, we illustrate our cash breakeven levels for the first and second half for 2021.
As you will see we have very limited debt repayments this year.
This is by design.
As this was pre paid with a generous cash flow last year.
Our time charter cover for the first half takes care of some 87% of our cash costs, resulting in the company only needing to earn $4000 per day on its spot ships to grow cash breakeven for the period.
We believe this to be a very robust position that few can match.
For the second half, we will just mentioned gradually increase our market exposure.
However, we still retain our focus on staying power with an estimated cash breakeven level for our spot ships during the period at $14100 per day.
For the full year, our cash breakeven for the spot ships is 9900 per day.
Keeping in line that our cash breakeven levels, including maintenance capex of close to $50 million as well.
All true cash cost is included.
Okay.
Staying on the same subject.
From this slide we put our cash breakeven levels in the logo perspective.
The bars display the annual spot market over the past 20 years.
As you will see average earnings during the year have only for below 20000 per day for titles.
You have then theft in two straight lines, showing our cash breakeven levels for the first and second half for the year in comparison.
Again, we think this illustrates that DHT has been put in a very comfortable position.
Moving on.
Shared this slide with you on our last earnings call.
In broad terms this illustrates DHT strategy and how we allocate capital through the cycles.
We firmly believe that this model works for the benefit for our shareholders that belief that is supported by our performance relative to the peer group.
We have deliberately positioned the company for investments at this time as <unk> talked about earlier, we have recently made our first investments since for years, having stayed on the sidelines during the up cycle.
You should expect us to stay focused and maintained our disciplined approach in how we allocate the capital that we have been entrusted.
Yeah.
So to sum it up.
We were profitable during a difficult to tanker markets.
We have built a very strong balance sheet with mark to market leverage as of year end below 30 presents.
We have put in place significant staying power with very robust cash breakeven levels for our for fleet, which will behoove us given our near term market outlook.
We expect to make additional investments this year as we will pursue opportunities for renew our fleet with accretive acquisitions.
And that's the open up for Q&A operator.
Thank you, ladies and gentlemen, we will now start the question answer session.
As a reminder, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.
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If you wish to cancel your request. Please press the husky once again, please press star one if you wish to ask a question.
From the first question comes from the line of Randy Gubins from Jefferies. Please ask your question. Your line is now open.
Yes.
Howdy team DHT, how are you all.
Great. Thank you.
Alright.
I guess first question.
No you included it in the past, but I didn't see in this presentation. So excluding the time charters what rates and percentage of spot days fixed have you booked for the first quarter of 'twenty, one and then maybe what rates are you currently booking this week.
So.
We have booked 44%.
<unk> fleet for the first quarter at $717000 a day.
Okay.
And are those rates kind of in line with what you're seeing this week Kurt for current fixtures.
It really is.
It depends a lot on what ship it is and what load area. It is.
If it's sort of a conventional design without scrubbers and you're loading in the AG.
We're missing is higher than all the TCE and that youre going to generate as.
Miniscule.
But on the other hand, if you have fully approved.
Ship with <unk>.
<unk> design and you're loading out of the Atlantic chances are youre going to be in the low teens for mid teens something like that on the OTC.
Got it.
Alright, and then looking at slide 10, right near your spot exposure is set to increase throughout the year.
Good thing as you mentioned with your views on a market recovery in the back half of 'twenty. One and then also looking at slide 12, showing the long term average VLCC rate around let's call. It 40000, a day what are your thoughts on maybe securing some time charter ins right for Vlccs is the one year rate is only <unk>.
25000, a day right now the three and five year rate is only maybe 30000 per day.
I think we have addressed this question a couple of times in the past, but our strategy or our view on this remains the same that we do not see any need to do to add leverage to the position that we have.
So we're not really there too to charter in ships just to get more exposure to the spot VLCC market.
That's not going to happen.
Keep in mind chartering in is 100% Levered transaction. So the cash breakeven level will go significantly up once you add debt.
So unless there is from a purchase options or something of that nature associated with it I don't expect us to do it.
Got it that's fair and then quickly any other scrubber installations planned for.
2022, after the ones you've kind of.
Earmarked for this year.
<unk>.
So we look for to do this year and that marks an end to that program.
Perfect. That's it for me. Thanks, so much for the time and congrats on a great year.
Thank you.
Thank you and the next question comes from the line of Chris Chung from Warburg Research. Please ask your question. Your line is now open.
Hey, guys. Good afternoon, how are you.
Doing well thanks.
Good good.
I wanted to ask about the decision to repay 26 million on the day Nordea credit facility, which lifts items probably made in late 2020 in light of the upcoming Capex.
The accelerated drydocking schedule and the purchase of <unk>.
<unk> would there be additional prepayments and how should we think about your capital allocation strategy.
I think.
Our strategy has been to when times are good to investing our balance sheet.
Right now times arent. So good so we're not generating the type of cash flows that we saw.
Through the past five quarters.
This may be a time when there is going to be a force and debt prepayments and as you also heard.
We actually invested in additional ships so the combination.
Really suggest that you.
You will see a force in the.
Net reductions or extraordinary debt reductions for little while at least.
Alright, sorry, just to make sure that day rate, what we will see a pause in further debt pay down right.
Extraordinary.
Hey, Delta of course, we will do whatever is there on a regular basis, but the voluntary prepayments, we are probably going to take a pause.
Great.
Makes sense and I guess, just as a follow up just sticking with capital allocation as for as regards to the new tonnage is there particular age range that youre looking at are leaning towards any I guess.
Future propulsion technology.
Per eco design Vlccs were from 2016.
Bring out their useful life through to 2020 net 2030.
<unk>.
Well these vessels meet.
Ex standards and are there any capital improvements you guys are.
Looking at her might look to do to kind of get your fleet ready trading in those time zone.
2023.
No we have a focus on.
To buy ships in the water.
This point in time, that's our priority and they will have to be of equal designs.
Delivered from the second half of 2015 onwards.
And these type of designs.
Significant fuel efficiency improvement from priority lines.
They will certainly have a good life post.
<unk> 2033.
So we're not in the mood to order ships at this point.
When it comes to future technology.
I think we don't rule anything out there right now.
So far we don't see any convincing technologies that will really carve out for future for Vlccs.
It might be that we will have different types of fuels for different types of ships.
<unk> from <unk>, but I think this this landscape has yet to really be macro strength here. So so when it comes to <unk> from.
Investing in future technology, we are on the sidelines for now.
No that all makes sense, great. That's all for me and I'll turn it over thanks guys.
Thank you.
And the next question comes from the line of Jon Chappell from Evercore. Please ask your question. Your line is now open.
Thank you good morning, and good afternoon.
That's pretty noteworthy that when you spoke about the vessel acquisitions, you've said, it's very rare that you see ships for this quality available at the trough for the market.
Maybe a two part question one do you see any other opportunities like this emerging and it feels like most owners and industry participants have a pretty consensus view that the first half is going to be really difficult, but the second half showed signs of optimism there for people make hold on a little bit longer and wait to get to that point, which isn't too far away.
And then the second part is if other opportunities like that don't present themselves and you've done a great job managing your balance sheet. How do you think about the use of this capital if you can't find the right ships at the right price.
I think to answer the latter part John if we cannot find anything that makes sense to us we are not going to invest simple left that it needs to be through a meeting our criteria is going to be at sort of right price levels and he has got to be quality ships.
And so forth.
We hope and expect that there will be additional opportunities before this market takes off.
But.
Of course this is really a time, we will reveal whether we're right or not and that the expectation.
But we don't really have anything specific at this point to inform you about.
Keep on looking for.
You can assume debt.
We have excellent deal flow so when things develop they certainly come across our desk.
So.
And I think also passed on a number of things right.
Okay. So if we look at slide 13, then and how you manage the cycle quite well and we get to that point, where the right side of this starts to turn up significantly.
And those opportunities have presented themselves at what point do you maybe change your capital return policy.
Because you can because you've missed the opportunity of investing the business and don't want to do it.
And any other manner, but in a prudent way.
This is an important point because of course, if the market turns on.
If we haven't been able to buy more ships, we have 29, vlccs ready to roar and generate a lot of Mali.
And our capital allocation policy assess minimum 60%.
So it doesn't prevent us from then thinking differently about.
This as we go forward so.
Have you talked with ethical I think.
Sure.
I think we should be able to invest a bit more this year than people might for sellers for different reasons.
But I think to keep in mind is minimum 60%.
Yes, that's a good point. Thank you Simon thanks for taking that.
Thank you.
Thank you.
The next question comes from the line of Oman Doctor from cause Plateau. Please ask your question. Your line is now open.
Yeah. Thank you Hey, guys Yeah just.
Maybe one or two.
Asking for that for general question, you've done obviously, a fantastic job, putting DHT in a strong position both commercially and financially.
The in terms of a market recovery, you're becoming more acquisitive at the moment.
The rates are very weak, but can you give us a sense of what youre looking for.
What signs you're looking at to gauge market recovery for the tanker space.
We think that those are the main thing to watch for is really COVID-19.
That.
We are suffering now with reduced oil consumption on a global basis, because people are in lockdown Linton and so forth.
But we're optimistic that once the vaccines enrolled rolled out on a.
<unk> scale that we will see people returning to cash consumption patterns, and we expect to see a market increase in there.
Global oil consumption.
As far as the inventory overhang that has been worked down quite significantly already so so.
We think.
The number one.
Factor two to monitor.
The vaccine rollout.
Yes, it does seem just as.
As simple as that.
They do have.
A follow up.
Obviously, you've only got $14 million of net debt per ship, which is clearly below scrap value, giving you a lot of flexibility there.
With regards to the financing of the two Vlccs you mentioned DHT style financing can you give maybe just some further color on what that is maybe in terms of.
Whether it's term duration.
Types of thing.
Sure.
What we typically want to do is to borrow up to around $2 $5 million per year remaining economic life. So.
For.
Five year old ship, we figured it was 15 years left in them and 15 times two five years $37 5 million and with that said then the annual.
<unk> to repay the loan based on our mortgage financing would be $2 5 million.
So a 20 year profile on the loans and as far as the tenure of the loans themselves.
Five years as the industry standard we the last two big ones that we did for six years. So we certainly try to stretch it as much as we can.
But the point is that we're not really looking at percentage of value when we borrow money we look at.
How much we are comfortable to commit to in terms of debt service on an annual basis in order to keep our cash breakeven as sharp as they are.
So that's what we mean with DHT style financing.
Okay very good that's really helpful.
Thank you for that I'll turn it over.
Thank you and the next question comes from the line of Robot Suva from Isabela Association. Please ask your question. Your line is now open.
Thank you gentlemen for a great job.
I'd like to say that I really love the presentation format that you did very clear very easy to understand.
We.
Gotten the two new ships can you give me some feeling as to our ships right now do you see selling any of the older ones or turning them just scrap during this coming year.
2021 or 2022.
I think our counter cyclical strategies typically would.
All of this hard to try to sell the older ships when the market is very strong.
But during these last up cycle that didn't I appreciate it for as much as the earnings opportunities. So we manage for secured time charters on several of the older ships that we have that far outstripped sort of the opportunity for so so we elected to keep the shifts and earn non moments.
And.
As an example or two.
<unk> 2000 for build ships were enrolled near time charters, earning enrollment is in the high teens for millions each.
Which of course was a much greater benefit to the company as opposed to selling them.
So of course, we are mindful that some of these ships are getting older. They are all quality ships.
And certainly <unk>.
Additional opportunities to guidance.
In a recovering market.
They will also be candidates for preparing for potential divestiture.
Are those opportunities coming but it looked like they have a fixed policy that's a certain age tactical unless we reached to 20, then they will definitely go.
Okay. Good.
How many do we have the debt that closed for only two of them right.
<unk> shifted our bill 2000 for.
Three okay.
If you look at the trough we're in.
Yes.
You made the comment earlier.
Debt, if we can't find any good deals on ships and the rates begin to rise.
I would like to encourage you again to maintain the attitude that you have out of strengthening the balance sheet.
It is obvious to me that the.
The wonderful way that you have done that and reduce the debt. So significantly is definitely reflected in the share price, which just recently went above $6 again a share.
And I find it kind of ironic.
Frontline.
That hasnt totally different.
Attitude toward debt thing you guys do.
It is not that far away price wise any longer from the price of our shares.
And the spread that.
Was there in the days when they tried to.
Obtain us is.
Quite narrower now, which I think is a reflection on the wonderful job you guys have done of managing debt and managing the business.
So I just want to compliment you and I want to encourage you to whenever possible go after the debt again and maintain the same philosophy that you've maintained because it's a very good one.
And that's basically all I have.
Thank you Oliver.
I appreciate that.
Thank you I appreciate you guys.
Okay sorry.
Thank you.
If you wish to ask a question. Please press star one on your telephone keypad.
And our next question comes from George Berman from ex CF Securities. Please ask your question. Your line is now open.
Good morning, gentlemen, thanks for taking my call.
Good morning.
I've got a quick question.
A couple of quarters ago, you mentioned that one of your.
Ships had been hit in airports and accident and not your fault and you were expecting a insurance settlement wondering if debt has been settled and a sulfur how much.
It's not yet settled so there is a there are no.
<unk> if you like between the two insurance companies, but Theres no question about for this one other question about the outcome from that Stockholm. So.
We feel it is not prudent.
To try to suggest that a number at this point that the shippers fully operational back in business.
Again, theres no disputes about fault.
Okay, great. So we're expecting possibly a multimillion dollar settlement there sometime in the future.
I think that will be overstating the result of a claim so.
Okay, Alright, and then in.
In General I would welcome your comments about the marketing channel. We've seen reports of press reports about our company.
Companies ordering as many as 10 ships that canceling those orders than we've seen a reported that.
Prominent I think Chinese shipper with scrapping to up to 10.
<unk> in their fleet, how do you see at the moment looking at buying opportunities et cetera.
Got you here to the market do you see any.
Scrapping of older tonnage.
In the current market.
Increased recently or is it still everybody is still.
Fixed under time charters that expire here in the first quarter.
I think for your first part other question.
Order levels reported potentials.
In Korea.
This order was really a project broker we've tried to put the deal together with financing and long term charters and I think most of the market participants us included Hudson adults.
Whenever you go through and it has little faith. So those 10 ships are sort of out of the way if you like.
When it comes to scrapping or demolition in a weak market like though and also with a strong scrap.
Scrapping prices, one would expect scrapping to sort of start to get traction.
But there are a number of.
The old ships that are involved in trades that would not sort of thesis for a company like DHT.
Until sort of this.
Maybe normalizes for changes I think there will be.
Some opportunities for these ships to continue to try that and longer.
Of course, they will have the sort of capex decisions to make the drydocks.
Water treatment systems.
Typically those.
Total investment.
Turning to develop or be a fork in the road for these guys are they going to spend millions of dollars of lots in the.
So I think we're hopeful that it will start to see retirement during during the year, but so far has been very limited.
Okay. Thank you very much and I look forward to hopefully stronger quarters to come maybe we have seen the bottom here in the fourth quarter.
Okay.
We shall see.
You.
Thank you.
Okay.
Thank you Dan will further question. Please continue.
Okay. Thank you very much to all for following DHT and wishing you a continued good day.
Thank you, ladies and gentlemen that does conclude our conference for today. Thank you for participating you may all disconnect.
Okay.
Okay.
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