Q1 2022 DHT Holdings Inc Earnings Call
Good day, and thank you for standing by walking through the D. H T Holdings Q1, 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question join this session you will need to press.
One on your telephone please be advised that today's conference is being recorded Tuesday. The 10th of May 2022, If you require any further assistance. Please press star Zero I would now like to turn the conference over to your speakers today Laila health a N C F O and spend.
Mark Smith half, Yeah with C E O I'm President of the company. Please go ahead.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining DHT holdings first quarter 2022 earnings call.
I'm joined by Dht's, President and CEO Natasha.
Gotcha.
As usual, we will go through financials and some highlights before we open up for your questions.
And that can be found on our website D edge tankers dot com.
Before we get started with todays call I would like to make the following remarks.
A replay of this conference call will be available at our website DHT, Chris Dot Com until May 17.
In addition, our earnings press release will be available on our website and on 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.
Forward looking statements are based on our current expectations about future events are detailed in our financial reports.
Actual results may differ materially from the expectations reflected in these forward looking statements.
We urge you to read our periodic reports available on our website.
Our system, including the risk factors in these reports for more information regarding risks that we face.
The company continues to show a very strong and healthy balance sheets on the quarter ended with $58 6 million of cash.
At quarter end, the company availability under both revolving credit facilities.
Seven to $6 8 million.
Putting total liquidity of 235 million as of March 31st.
Financial leverage is about 30% based on market values for the ships.
<unk> was $17 8 million at quarter end.
Which is well below current scrap values.
Looking at the P&L highlights EBITDA for the quarter was $14 4 million net loss came in at $17 3 million.
The result includes the non cash gain in fair value related to interest rate derivatives of $7 9 million.
The company continues to show a very good cost control with Opex for the quarter at $18 3 million.
Well two seven $800 per day per ship.
G&A for the quarter was $6 8 million and includes nonrecurring accruals related to the retirement talked about previous calls.
In the first quarter of 2022 the company achieved an average TCE.
I don't think talk from the $100 per day.
For the second quarter of 2022, 69% of the available days have been booked at an average rate of $24800 per day.
9% of available spot days have been booked at an average rate of $19900 per day.
On the next slide we present, the cash bridge for the quarter, we started the year with $67 million of cash generation generated $14 4 million in every town.
Ordinary debt repayments and cash interest amounted to $7 2 million or three.
$3 3 million was allocated to shareholders through dividend payment.
And $2 3 million was used for maintenance Capex.
Changes in working capital amounted to $4 5 million and we ended the quarter with $58 6 million of cash.
As you will know despite the very challenging freight market, we did not burn any cash.
Switching now to catch a location.
Company will pay a dividend of two cents per share for the quarter, which will be payable on the 26th of may to shareholders of record 2019 for me.
This marks the 49th consecutive quarterly cash dividend.
For the three remaining quarters of 2022 we estimate cash G&A of $3 3 million and noncash G&A zero point $8 million and average per quarter.
Following the sale of DHT Hawk, and DHT Falcon depreciation for the three remaining quarters of 'twenty to 'twenty. Two is estimated at about 31 and a half million in average per quarter.
After the scrubbers will be fully depreciated at the end of 2020 two we expect annual depreciation for 2023 to be about $100 million.
With that I will turn the call over to fine.
Thanks, a lot.
We have entered into agreement to sell the DHT Hawk and <unk> with deliveries set to take place during the second quarter.
Price of 78 million for the pair and compare favorably to the combined price of 98 million that we've paid for them from a year or so.
The states are expected to generate some throw them even in combined profits. They will repay the remaining outstanding debt on the vessels amounting to about $13 million.
Following these sales the average age of our fleet will be reduced.
E R E O metrics improved.
Okay.
On this slide you will find an update of our cash breakeven levels for the remainder of the year.
As per usual all true cash costs are included in our presentation.
E Opex, that's amortization interest G&A and maintenance Capex.
The numbers are best in class within our required rates of $15100 per day for the fleet as a whole.
And importantly, asos with $500 per day for the spot ships, specifically in order for the comprehensive be cash neutral for the remaining three quarters.
Yeah.
On this next slide we wanted to share an observation of the peer group within large tankers.
As you will see there's a distinct change in the development of financial leverage within this group.
These T is represented by the Green line is the lowest financial leverage.
As you will recall during the last upturn not already returned a significant moments to shareholders through quarterly cash dividends, but we also invested in their balance sheets and reduce the interest bearing debt by about 60%.
Despite the recent tough markets, we have retained our balance sheet strength.
Also note that we have no new building capex commitments.
Your takeaway here should simply be the DHT has the strongest balance sheets in the group.
Okay.
Hello offered some commentary on the markets.
We believe the market recovery to be underway, but delays in troubled by corporate in China, and geopolitics generally impacting macro economics.
Admittedly I mean, given all the noise. It is very difficult to predict the near term freight markets.
Both trying to look through all of this noise, we see from them and developing towards what we expect to become a rewarding market for large tankers.
Inventories are low and then there are likely more pronounced energy security is increasingly becoming an issue.
OPEC is so far is sticking to its plan, but other performance by their respective members quote us.
The much talked about Iran deal takes longer than market of service have suggested.
Russia, Ukraine conflict is reducing supply.
The U S have a liver allows released from the Spr's released therefore, Furthermore, get a double benefit.
Firstly through additional barrels to the market over the coming six months.
And then like the refill in due course.
Further we don't think it's unreasonable to expect Saudi and the UAE.
Peak response to higher oil prices at some point.
Maybe in the second half of this year.
As you all know shipowners make a living by transporting supply is a danger of talking our own book and staffing dobis more supplier would be most with most welcomed.
The sanctions.
Ensuing trades trade throughout the disruptions coming out of the Russia, Ukraine conflict seems to be increasing transportation businesses.
So far most visible to ships smaller than vlccs.
If freight differentials become too wide freight tends to flow up and down between the different ship sizes.
We saw some of this at the outset of the conflict.
The derivative trades see these differentials come back the theory that the tide lifts all boats could hold true.
The pulp and freight rates for Vlccs that you saw a few we expect it's a <unk>.
Good indicator that the underlying balance is not as bad as the current rates are indicating.
Keep in mind that Vlccs typically transport almost 45% of all seaborne crude oil volumes with closer to 60% on a per mile basis.
This is truly the workhorse very of course, all the oil industry.
The trade disruptions are changing sourcing of refined oil products elevating freight rates for product tankers.
As this happens at the time of low inventories of both crude oil and refined products.
Begs the question whether product tankers are front running crude tankers, suggesting demand for feedstock and crude oil transportation to come next.
There are currently two minute shifts in the markets.
The Royal fleet. This whoever getting older by the day in combination with low ordering of new ships.
The VLCC order book consists of 54 ships to be delivered through the remainder of this year Alex.
This equals a meager six 3% of existing fleets very low by any reference.
We had very limited scrapping the current zimbra ships older than 20 years has now become significant.
This part of the fleet could grow closer 100 ships by the end of the year, assuming those scrapping.
They find it discouraging those older ships are not retiring from the fleet in particular with very healthy demolition prices being offered.
Until not long ago, there were hardly any commercial prospects for ships older than 20 years.
But sadly it is always sanctions trades to keep all of these older ships currently on business.
These sanctions have simply develop new trades for ships that do not comply with rules and regulations.
I do think however that something's got to give us drydocks another capital expenditure eventually forced all the ships out of the markets.
So in sum all of this would lead us to envisage the fleets to potentially shrink at a time when demand for transportation is expected to recover creating a very rewarding freight environments.
It would be a variable move.
Against large tankers.
Maybe that's the open up for Q&A.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Joe Your question press the Husky, please standby, while we compile the Q&A roster.
Your first question comes from the line of Jon Chapelle from Evercore ISI. Please ask your question. Thank.
Thank you good.
Good afternoon, or good morning sign.
Can I ask all my questions and kind of one multi part or.
The vessel sales make 100% sense given the asset values also given where equities are trading right now and you didn't have much debt on them. So the first part is what's the use of proceeds from that and that 65 million and then secondly, you know you've kind of indicated in the past that you're not interested in buying assets at this point.
And again, if youre selling then prices would probably indicate you're not into buying if we are in the beginning of this upturn as you've laid out you're probably not going to have other opportunities to buy either so do you kind of envision the next several quarters. The next beginning of the upturn in the cycle to be a kind of cash cash harvesting period.
And with more aggressive capital returns to shareholders and then look to purchase when we're kind of peaked or past the cycle.
Thank you Joe.
Just to be clear, we didn't say that we're not interested in buying at this time, but we have an open interest in buying out some of the prices that people have been asking so this is sort of a reasonable distinction and in those two.
Observations so.
I always sort of looking at opportunities.
<unk>.
It's been really hard we think to find something that make good sense, but.
You Shouldnt look really rule that out then I think with our balance sheets, we are more than able to fund any acquisitions that sort of would like to look at it without relying on additional capital. So so if we do something it will certainly improve.
Improve the earnings earnings in the company, but then you also noted that we do like to have.
Sort of a low leverage balance sheet, we think of our business.
Suited for that so the balance sheet is suited for the business depends on which way you look at it.
Yeah.
As you also point to when it comes to capital allocation policy is a minimum 60% of ordinary net income.
Demonstrated in the past that's been sort of earnings or cash flows have permitted certainly rewarded shareholders with more than 60%.
So so.
That's also possible of course with sort of a low cash breakeven is low leverage overtime it could.
Put the company in position to be more generous than what the specific numbers.
So just.
Sort of.
We'll look at all of them getting giving a specific outcome of that.
That's how we sort of think about it.
Okay, that's very helpful.
Highlight before I do have one more additional question. It seems like other segments have been more immediate direct beneficiaries of some of the new trading routes developing from.
What's happening in Europe right now are the Vlccs just a laggard in that regard or do you see maybe China comes back online reverse littering from the Baltic or the black sea that could be a big VLCC beneficiary, how do you kind of see the map redrawing to the benefit or not of the VLCC market over time.
Yep.
So the conflict you have some four to five VLCC cargoes going out of the Baltic deliver all Lauder to trans shipment in the day and these strengths.
So that business of course will become very difficult both for most people.
From what we understand also then these pilots are not so interested in assisting that type of social class shipment to take place.
So people alluded sort of further away to try to do this.
Currently it's really some of the trade this buying this oil and there is not a business that view.
The touch, but I think it's.
This whole conflict situation changes, what we should expect that try to come back at some point.
This has not really been the case out of the Black Sea, where you had more sort of suezmax is trading directly out to.
Asia.
What we did see immediately after the conflict we had some need to see loading south of the U S Gulf going to Europe .
With multiple port discharges, so two to three year discharge ports in the.
Bear in peninsula et cetera. So those were done at very good freight rates up in the $40000 a day sort of territory.
So that's my goal to sort of increase at some point once TCU as barrels are coming to market with it seem to be appetite for in particular, the light crude in Europe , So which is driving a lot of west African barrels now going to Europe . So.
There's so many moving parts here and it's very hard to have a precise view on exactly how it plays out.
Saying that disruptions and increased distances will serve our business well and I do think right now we are probably the last ship type.
Benefits from this but eventually it will also come to come to the agencies and then it should be quite forcefully we think so.
Okay. That's very helpful. Thank you so much.
Thank you. Your next question comes from the line of Christopher <unk> from Jefferies. Please ask your question.
Oh, that's fine. Thank you for taking my questions.
Of course.
Good morning, you guys have done a good job in the past with countercyclical investing and divesting. So you have a handful of ships with the same age profile as the two that were just sold.
Could we see some additional vessel sales this year, where do you think that's over with at this point.
If we see a sort of all of these that we think are attractive to divest.
Ill say, one or two more ships.
Can it happen so the challenging part also.
And sort of selling ships in this age bracket.
They are not all buyers that a company like DST can entertain to do business with so.
This location. This was a known entity to us somebody we've done business with in the past and that performed very well and this was appropriate confidence. So so for US. That's all worked out and in connection also with it with a good price. So I would not rule it out but it is not like a heavy marketing or effort in sort of getting rid of ships we have.
Our high quality fleet them, they're also ready to that.
Once the music can really start.
Sure.
Yes.
Thinking about the pre pre eco built ships, especially the pre 2000 tens kind of what's the incremental capex needed to bring them up to speed for <unk> 2023, and beyond and does that does it very heavily by age bracket or is it about the same price.
Well I think for all those ships they have a large engines and we've gone through the exercise of Oh, calculating sort of ESI and.
We then would need to do with the ships that will be something in mind.
Power reductions, but the production ends up in sort of.
Cap speeds, which are still way higher than what is the service speed in the market. So our.
Basically all these ships are designed to run that 17 and 18.
<unk>.
We might have to captain fee, that's call, it 50% or half lots or maybe closer to <unk>.
Whereas the service fees in the market as Turkey in Turkey, and the have nots. So I think commercially it would have hardly any if it may be only limited impact on dht's earnings capability and theres not any capex to speak of there.
It's really a pocket moment so.
Okay.
Great Thanks for that color.
Thats all for me.
Thank you.
Thank you. Your next question comes from the line of <unk> <unk> from Clarksons Securities. Please ask your question.
Yes. Thank you.
Brian .
Okay.
A few questions on this let's say.
They needed.
It looks like a very good price achieved.
I guess did and they of course include the scrubbers right. So one.
One question I had is the value of the scrubbers come up in the discussion.
And if so how much would you.
Ascribe.
Scrubber binder to be in today's market.
And there was no specific discussions about the scrubber value. This buyer Walter ships with scrubbers, So it was not sort or another.
I'll turn to a discussion so do you have a ships without scrubbers unwelcome surprise professionals. So it was sort of very straightforward and we have that sort of a rough idea of what we wanted for the ships and are never able to or willing to meet our price expectations. So.
There's been some volatility in the in the spreads it's been sort of a total of them with up to $2 15. So it depends what you put in but I think for sort of the ease of a reference at the $100.
Spreads than the nominal validated in the year on the ship for this vintage is in this sort of a one five to $1 $7 million.
That's an earnings.
So then you need to have a view on how long do you think these spreads.
We'll state so but.
As I said again, there was no specific discussions on a value per se. So.
Yes.
Okay.
The reason I'm asking is that if you look at the let's say a broker quotes.
They usually do not.
Well, it's what's called the free than it typically is.
Great.
And about yes in general terms, how do you see the sale and purchase.
Purchase market for Vlccs today.
And income.
In combination with that.
Can you also talk about the timing of this.
Great.
Alright, I guess.
Given the outlook, you have which seems to be quite the mystic.
I would definitely prices will even higher in the future are.
Or do you think.
The new carbon regulation, that's coming into play next year has an impact for these older.
Yeah.
They seem to be a reasonable liquidity in the older end, but as I mentioned.
The on the prior question.
There is not all these counterparties that we could do business with so they might work out for a private buyer so to say or.
So, but there are sort of a regular transactions happening in that space.
For older ships that are trading anywhere depending on the age and the condition from sort of the high high <unk> up to sort of the high therapy, assessing all or maybe even forecasting all demonstrated so it depends on the value position ballast water treatment scrubbers prior.
Prior history et cetera, but there was sort of a regular transaction taking place.
And then sort of a very modern and there are a few things.
Being talked around.
One can do something it will most of it.
But it seems to sort of be a bit I would say sideways.
Look many transactions taking place and looked at many players.
So.
There's lots of big movement, and it's a bit this collect from from new building prices, but I think the reason for this is that the asking price from the shipyards at 220 plus minus.
He is just a derivative of what they can get for a gas carrier LNG carrier or a large container ship.
Not really driven by a strong demand to build tankers.
So that's really great news for our space because you don't really see it other people waging in on.
And on building a large factor style. So thats just a great benefit.
So other than the Midland brackets corporate ships around 10 year Mark.
It varies.
Not that many transactions taking place local electrical sale or purchase.
Just to sort of move over to sort all starting at 13 14 years old ships before youll see much much movement. So that's also been a bit sideways I would say.
Again here it depends very much on the specific ship yard it's bill that's how it's equipped.
At cetera.
Some of the private owners are.
So key intervention.
And that there.
I understand why the why they do that it doesn't sort of offer any future economic benefits compared to our eco ship.
It is nevertheless, some quality ships.
In those vintages in the market.
They will also have a reasonable time I think.
The market recovery.
Yes sure. Thank.
Thank you for that color.
That's it for me.
Your next question comes from the line of Robert <unk> from Associate Levine. Please ask your question.
Yes.
Very good job as usual you guys are conservative.
Reduced your interest cost, which is always positive.
Did have.
Extra shares outstanding of about.
672000 plots and I was curious where those shares went where they in fulfillment of option buying or.
Where did they come.
Come into existence for.
So the company.
Irregular basis.
Long term sort of incentive program for directors and officers.
And there are sort of allocate that shares that could be rewarded on them.
Clearly rewarded annually with vesting criteria, so that is a reflection of that.
Okay. So it's all management, then directors and management correct.
You also know that a number of calls and you call. It the share of profit from associated companies can you give us some color on what that is.
Yes.
We own.
In the first quarter, we own 50% of our ship management company.
In Singapore that the rest of our ships so thats an associated company.
We have now a subsequent in.
In the second quarter increased our ownership position to have an economic.
Economic control of the company. We also have two or three directors of the company so increasing our position.
So we will the change to accounting treatment of that.
That company going forward.
But that will be visible from the second quarter results onwards.
Okay, but that will increase profits.
The company. The company is the company is profitable, but the change in ownership from 50% to 53% is not significant.
And sort of nominal.
It's a small it's a small part of our part of the P&L in DHT.
Right.
And one of the earlier questions. There was a cash from the sale of the ships.
What was your allocation for it and I missed it.
It didn't pick up what your answer was on that.
What did you what are you using that.
Millions for.
So any further.
Cash flow going to the company's cash reserves.
We are.
We have not communicated a specific use of that cash.
We are sniffing around if we can find a good investment opportunity, although we must admit they're very hard to find right now.
So that is one alternative.
We could also do as we have done in the past is to prepay.
More depth. So that's also an opportunity that we have and I think in the next quarter or two that will become more visible to investors.
Move ahead and to see what we have decided to do because also of course the mix of both.
Yeah, I liked alternatives on reducing the debt that's always a good one in my mind.
One last question here.
The.
The large number of ships that are over 20 years and stuff.
How is that playing right now with the scrap steel market as the scrap steel market is still high and attractive to take the ships out or has it been dropping.
Well the prices.
The sale of the script for the ship for demolition is still very high which all makes it a bit puzzling that you don't see more ships heading for the scrap yards.
But as I mentioned, it's really driven by the fact that they have some commercial opportunities.
Are almost exclusively available to people willing to take these risks right now.
The compliance. So these functions have over time creates a sort of a separate market.
You could be.
Maybe it can be concern that for the smaller ships like air France et cetera.
Russell Cargos also Los Angeles, you could create an additional pocket for similar types of businesses in the future. So it's.
Also an ideal outcome the flip side of all the sanctions, which we understand why they are being made but.
Unfortunately, I am on.
Relevant flex space are not able to really enforce these regulations I get rid of the ships.
Okay with your experience though.
With the ship ages that are out there.
When do you see it kind of being economically for us.
Be scrapped a year out two years out.
With the new regulations coming over from 2023, I think the mixture of hard line will be 2026.
I think by that time is going to be very very difficult if not impossible to operate older ships.
Yeah.
If you look at sort of the demographics of Dft's fleet you will note that our ships are all sort of new out of the commercial.
Picture well within that time, so we have sort of a natural retirement.
Either by selling or also potentially scrapping in due course, so so we will sort of pass through that.
So what we will own beyond that will be a very efficient fleet.
Assuming nothing else happens.
Alright, well, thank you and thank you very much for doing such a good job. Thank.
Thank you for your support it for me.
Yes.
Your next question comes from the line of Kevin Moran from Fondue Investor Research. Please ask your question.
Hello.
Clemens Rollins your line is open please ask your question.
As there is no answer I'll move on to the next question.
Question comes from the line of Chris <unk> from Webber Research. Please ask your question.
Hi, good afternoon spine, how are you doing.
Thank you.
Thanks for the question I wanted to ask about just all the good ones are taken already so just moving on to the dry docking schedule I think there's one left for the second half of this year I know in 2021 in light of a.
Soft freight market you guys pushed up the central Drydocking is there do you guys have that slogan.
Available.
Just for the rest of the year or is just one of the most.
There's only one ship left for this year.
We might start with walnuts due in January of <unk> later this year, but if you want details please make contact with our CFO nylon. She will assist you with more details soon.
Okay great.
Just on your the vessel sales it looks like.
The outstanding debt on it.
$13 million, given the DHT Sophie financing at $2 5 million over the remaining economic life that can be comes out to be about two two and a half years remaining on these vessels.
Is it right.
Just thinking about it correctly that the economic like did you guys building is about 18 years should ease vlccs.
No what we do even with Nancy is that we'd like to cap.
The borrowing.
On the ship to be maximum tuna off millions of dollars per year in amortization for the remaining commercial life of that vessel. So for a new building for 20 years life. It will be $50 million sort of a maximum debt. If you buy a 10 year old ship it will be $25 million.
It is also a reflection that we have done some prepayments on that also there is the mix of sort of regular.
Amortization and some prepayments.
It's also a bit lower.
Okay.
Alright Thats it from me thank you.
Once again, if you wish to ask a question. Please press star one on your telephone.
That seems to be no further questions. Please continue.
Well. Thank you very much to everyone for listening in on <unk> and your support and interest in our company is most appreciated wishing you a good day.
That does conclude our conference for today. Thank you for participating you may all disconnect.
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