Q2 2022 DHT Holdings Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the Q2 2022 DHT Holdings, Inc. 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.
Ask a question during the session you will need to press star one one on your telephone you would've done here on ultra merchant message fashion Johan dish raced please be advised that today's conference is being recorded.
Now I'd like to hand, the conference or whats your speaker today Laila Halvorsen. Please go ahead.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining DHT Holdings second quarter 2022 earnings call.
I'm joined by Dht's, President and CEO and Mark Smith Hotshot.
As usual, we will go through financials and some highlights before we open up for your questions.
The link to the slide deck can be found on our website th 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 th tankers dotcom until August 18.
In addition, our earnings press release will be available on our website and on the SEC's 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 future events as detailed in our financial report.
Actual results may differ materially.
Materially from expectations reflected in these forward looking statements we.
We urge you to read our Nordic report available on our website and on last 50 Edgar system, including the risk factors in these reports for more information regarding risks that we face.
Okay.
The company continued to show a very strong and healthy balance sheet on the quarter and then two $806 million in cash.
At quarter end, the company had availability under both revolving credit facility $188 million, putting total liquidity of 294 million as of June 30th.
Financial leverage is about 28% based on market values for the ships.
Net debt per vessel was $15 7 million at quarter end, which is well below current scrap values.
Looking at the P&L highlights for the second quarter was 32, and a half million and net income came in at 10 million equal to <unk> six cents per share.
The result includes the gain related to sale of vessels and a noncash gain in fair value related to interest rate derivatives.
The company continues to come.
Continues with a good cost controls with opex for the quarter at $18 million.
It goes to $7800 per day.
G&A for the quarter at $4 2 million.
In the second quarter the company achieved an average TCE.
$24300 per day.
With the vessels on time charter, earning $33800 per day.
The vessels in the spot market, earning $21200 per day.
For the third quarter, 68% of their available days have been booked at an average rate of $23600 per day.
And 58% of available spot days have been booked.
Right $18400 per day.
We sold two vessels during the quarter, DHT Hawk, and DHT Falcon for 20 and $38 million respectively.
The sales generated a combined gain of $12 7 million.
In connection with the sale, we repaid all outstanding debt on the two vessels $13 3 million.
Both vessels were delivered during the second quarter and net proceeds amounted to $62 9 million.
Following these sales the average age of our fleet has been reduced.
R E N E R M E O I metrics improved.
Part of the net proceeds were used to reduce debt in June we prepaid $23 1 million under the Nordea credit facility.
The voluntary prepayment was made under the revolving credit facility tranche and may be re borrowed.
On the next slide the 8% cash spreads for the quarter we.
We started the quarter with $58 6 million of cash generated.
Generated 32, and a half million inhabitants.
Ordinary debt repayments and cash interest amounted to $9 1 million or $19 2 million was allocated to shareholders through share buybacks and dividend payment.
Four and a half million most used for maintenance capex well net proceeds from sale of a vessel amounted to $62 9 million.
$23 1 million was just mentioned on the previous slide used to prepay a long term debt.
$8 3 million, what's the initial cash recognition from goodwill and we ended the quarter with 108 hundred $5 8 million of cash.
Switching now to capital allocation.
During the second quarter. The company purchased two 8 million of its own shares equal to one 7% of outstanding number of shares as of March 31st for an aggregate consideration of $15 9 million.
In addition, the company will pay a dividend of four cents per share for the quarter.
It will be payable on August 30 to shareholders of record August trying to do it.
This marks the 15th consecutive quarterly cash dividend.
With that I'll turn the call over to spine.
Yeah.
Thank you Donna.
Putting the share repurchases conducted during the second quarter as discussed by Layla, We continued to buy back stock after quarter end of it it can be final rule.
We have a third quarter to date acquired for one and a half million shares at an aggregate cost of $8 8 million at an average price of $5 87 per share.
Considering buybacks conducted in 2021 and buybacks made year to date, we haven't totally bought back close to 10 million shares equaling some 6% of the company's capital.
With a total consideration of 57 million the average price for these repurchases is $5 77 per share.
We consider this to be a great accretive investments.
All shares have been retired upon receipt.
During the quarter, we agreed to refinance.
Electoral credit facility for the DHT Tiger with it with the existing lender credit are really cool.
The structure is in line with the DHT started financing.
37, and a half million made up of two <unk> million per year over the remaining life of the ship.
Six years, Taylor, and a 20 year repayment profile.
The pricing represents a new low for dft's borrowing cost at the secured overnight financing rate also referred to as the sulfur Preston marching up two points here of 5%.
It includes historical credit adjustment spread of 26 bps between sulfur and LIBOR.
As this is a new structure and therefore replace labor you should note for reference that this pricing is equal to a library plus a margin of 179 bps.
We typically have a mix of spot and fixed employment for our fleet.
However, it is not formulaic with a percentage of the fleet employed one way or another but the focus on the nominal rates and tell us that in our view will contribute meaningfully to the business.
We have entered into a five year time charter for the DHT Osprey, a 37000 per day.
Deliveries planned for August and the customer has options to extend for this for two years at 40040 5000 <unk> per day, respectively.
The key attraction for this time charter is to tender.
We would love to find this rate attractive for two or three year charter.
We see an increased level of inquiries for time charters and we will selectively engaged with our customers if and when meaningful business can be conducted.
We are committed 35 may lead to retrofits or additional eight ships with scrubbers.
The combination of decreased scrubber costs.
The delivery of equipment and continued elevated spreads between heavy fuel oil and very low sulfur fuel oil makes this a compelling investment and argue.
Considering the current average spreads in Fujairah, Singapore, the payback on these investments should be inside of there.
The work will commence in the fourth quarter and we expect completion during the first quarter of next year.
We plan to take each ship Alpha service for 30 days give or take.
This is a highly efficient schedule that will be executed by our experienced team at one of our goal to shipyards.
Upon completion, we will have a total of 23 vlccs fitted with scrubbers with these additions expected to boost or boost earnings for the company.
Okay.
So to sum it all up.
We continue to stay disciplined focusing on execution of our business model and our strategy in.
This includes key building blocks in delivering value for our shareholders.
We are well structured for cyclical markets with probably the strongest balance sheets amongst our peer group.
Ample liquidity, enabling us to invest in our business and actual opportunities should they arise.
With robust downside protection without having given away the upside.
The tanker market recovery has started.
And we are tuned for this recovery through our actions that structure to create value.
This includes a reduced number of outstanding shares through buybacks.
Expanded our fast track Scrubber program that produced earnings.
We have substantial operating leverage in the business combined with our significant capital distributions potentially.
The open up for questions operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone I'm going for your name to be announced.
Please standby, while we compile the Q&A roster.
Okay.
We will now take the first question.
Please standby.
On the first question comes from the line of Martin Auster from Jefferies. Please go ahead. Your line is open.
Thank you.
Hi, good afternoon.
Yeah, just wanted to ask you find you sort of touched on the.
The five year contract and you know the.
So it made it so compelling.
No.
Clearly we haven't seen this much sort of time charter activity or at least that type of duration for the past couple of years, but at least I would think a decade plus how would you characterize the liquidity in the charter markets. Today as you mentioned the recovery has begun we haven't necessarily seen a resurgence in VLCC spot rate, but how would you say the time charter market is at.
At this point.
The liquidity for this sort of Taylor is very very thin so that there is.
Quite a few clients asking for one maybe two years.
Well, it's a little walk throughs for sort of a shorter durations.
I'll find that pretty effectively.
We're very constructive on.
What to expect for next year and a 24, obviously beyond that it's always hard to sort of have a specific number hence we found its five year charter to be attractive.
There are some additional discussions or incoming discussions.
So.
It could be that we over time, we will build more and more fixed income, but hopefully that will be at.
<unk> rates going forward. It also maybe with the over delivery so let's see.
Yes.
To your point liquidity is.
Tim for now so.
Okay Alright. Thank you and then just a follow up sort of maybe a bit more broadly on the market itself.
We've seen clearly the mid sized crude tankers in the product tankers lifted as you highlighted.
On the Vlccs can you give maybe a sense of just how the market here recently, maybe within the past call. It four to six weeks, how that's been developing in terms of what Youre, what youre seeing from your lens in terms of activity levels out of maybe the out of the Middle East and then maybe the Atlantic Basin.
So the market is clearly on the rise and the rates are moving up so they're sort of latter part of what we have booked at higher rates than that.
Earlier Park.
We are in discussions as we speak negotiating.
Spot voyages.
Rates are meaningfully higher than what we have on average booked quarter to date.
So this looks to be a robust it looked like a fast moving super volatile.
A change in rates as you can see on the smaller ships, but it's certainly going in the right direction and there is a mix of inquiry there both in the Atlantic.
And in Asia.
I think a key point there is that oil has been steeply backward dated for quite a while.
And the backwardation between the fourth quarter this year the fourth quarter next year.
Half.
In the last few weeks and this will enable more Atlantic barrels to to go long haul into Asia.
See some of that already had some in some requests to load in the U S. And then discharged in Asia and of course, this will certainly be good for our markets.
Okay.
Okay. Thank you for that color side I'll turn it over.
Thank you.
Thank you.
We will now take the next question.
Please standby.
The next question comes from the line of product market data from Clarksons. Please go ahead. Your line is open.
Thank you.
Regarding the final comment you made on the backwardation actually Brad.
The IAA report.
Now actually predict.
Global inventory builds.
Close to a million barrels per day in the second half of this year.
And the Hoffman the barrels in the first half over the next year.
To me this seems to be very positive for tankers.
But I just wanted to hear from you.
How you would expect this to be impacting the tanker market dynamics going forward.
We certainly agree with you. So we think that to the inventory cycle is a key metric and understand the tanker cycle.
And as you all know the oil inventories had been brought down over many many years now so.
Sure.
At some point there has to be more feedstock we spoke about this on our prior call that also are doing marine Molly.
The conference. So we certainly think this is a positive.
We will likely be more more movements or more supply if you like.
The refineries and this would certainly be good for large tankers vlccs are related.
The real workhorse of the crude market.
Vlccs have on average handle about 46, 47% of all crude being transported.
With Atlantic still being low oil.
The big demand picture being in Asia. This is truly a VLCC business from a fundamental perspective, so although of course some of the smaller ships will still enjoy the benefits from the disruptions. We are seeing following those data.
Between Russia and Ukraine.
Well, we are we are very constructive on this period going forward.
Great.
Yes, <unk> been buying back shares.
Now announced investment in your own ships with scrubbers switch.
Coupled with Susquehanna.
That's great.
The scrubbers.
I'm curious to know if there has been a development in that technology.
Lasted these retrofits.
Since there maybe to be a quite good price.
Doug This is benefits.
No there's not really any development. These scrubbers are fairly simple.
Essentially washing machines, the Motorola washing machines with the capacity to handle sort of 30000 cubic meter of water per day and this I think correct.
But the the cost of building them has come down I.
I don't think.
The cost to us.
As for the producer very much higher a few respect that he was a new thing it was very sort of hyped up and they probably had the higher profit margins on them. So they are available to us now at one of our two key suppliers.
At a much lower cost than what it did last time, so with the 35 area you will see that we purchased just over 3 million per ship to do this right, so which is a significant improvement in the capex.
So the technology is basically the same so there's no change.
Okay. Thank you that's it.
Thank you.
We will now take the next question.
And it comes from the line of Jim Masa Gulf from Scott Chan. Please go ahead. Your line is open.
Jim Matsunaga from Fox Chase.
We will go to the next question.
Please standby.
And it comes from the line of Jon Chappell from Evercore. Please go ahead. Your line is open.
Thank you.
Leila can I start with just a couple of modeling questions for you.
First of all my apologies I missed a spot today.
Thought I'd call. It 18400 for the third quarter is that correct and what percentage of that floor.
Just a thought.
Yes, just the spot part.
Yes.
<unk>.
So.
This fact was 58%.
At 18004.
Okay. Thank you.
And then Scott you said 30 days roughly for the scrubber retrofitting should we assume for in the fourth quarter or in the first and then my other question regarding to the scrubbers and the model is how should we think about the depreciation of those how much will it reset the depreciation higher once completed.
So it is.
Exactly which today, we will enter this will depends a bit I'll reschedule the ships in the spot market and we want to discharge was close to the yard as possible. So if we can do six ships in the fourth quarter, we will do it in the fourth quarter, but so it's a bit hard to tier two.
To say this so so sorry, not being able to be more precise, but we're very confident in the fourth and the first quarter schedule. So.
You will sort of be at Liberty to do this the way you want but we can't give you a more precise guidance I'm afraid, but the equipment is ready and the art is ready. So if we can do it sooner we will do it sooner but.
If we want to optimize the fleet.
Get us little off hire and positioning cost as possible it might be.
Detroit Alfred will look beyond the first quarter.
On the.
Yeah on the depreciation profile.
We will communicate this.
The third quarter.
Third quarter results.
I think it's a reasonable lead.
To look at what we did last time, which was a three year depreciation profile, it's not finalized yet so.
Okay.
And then final bigger picture question, you talked about this last quarter sign.
On the deployment of cash as it comes on.
It seems asset values have moved in at least in the situation with Vlccs far before.
The rates have themselves so chips.
Chip towards an attractive investment maybe six to nine months ago, just mathematically that would probably even less so today.
You've made.
Inefficient headway with the buyback and there's a ways to go there clearly would you say that at this point.
Remained firmly in that your stock is less than NAV and capital return is the top priority of our cash.
Or do you think that at certain point, you have to start pivoting to thinking longer term.
And start making investments and assets, even if the rates don't necessarily catch up to the asset values in the short term.
Yes.
I think when it comes to investments we are not locked.
Excited about the current trial.
Buying perspective, so so.
It has to be very special opportunities, if we are going to buy something.
When it comes to buying back our own stock of course is also moving elements. There. So we're very happy with what we have done all sort of below $6 Mark.
Which compares well to where the stock is trading today.
But that's as I think everybody knows our capital allocation policy states minimum 60% of ordinary net income to be distributed.
It could be that.
We will you know.
Reduce.
That will even further so I think that those are sort of the key metrics that I don't think you should expect us to buy ships at the current in the current.
Evaluations and two we are probably not buy stock.
Levels, either we will leave that to our investors and then focus on.
Returning money to shareholders.
And sort of future.
Okay.
My last one is kind of a follow up to that last point.
<unk> dividend certainly off your.
Minimum so to speak of Tucson.
In a quarter, where if we take out the gains.
It was still a loss so should we think about now as we're in the early stages of a recovery assuming all else stays the same as <unk> kind of a new base dividend and then we'll transition to that minimum 60% payout once you.
More sustainably in the in the profitability.
No the 60% in this quarter is actually based on the on the net income reported because.
Contrary to some of our peers, we don't exclude.
Yes.
Elements in the P&L that this cash inputs such as a sale of a ship profit we tend to include absolutely consider.
The dividend.
So for US this is just the <unk>.
Way they've always done it.
So it's not a new is not the new will always just a pure reflection of what was the income for the quarter.
Okay.
That makes sense. Thank you thanks a lot.
<unk>.
Thank you.
The next question.
Yes.
And the next question comes from the line of Anders Karlsen from Kepler Brian . Please go ahead. Your line is open.
Thank you.
Quick question on our fleet.
So.
The 2006 and 2007 built yet.
More or less towards the same ones with affirming markets are you considering more sales are.
Is that.
Table model.
I think for now we will be very selective.
That could of course be that we elect to sell a one or two ships.
We'd like to see in particular for the scrubber 50 units.
Appreciation in both asset values, but also have these ships given gives them the opportunity to earn more or less which we expect them to do so I don't think you should plan for our fleet to be much smaller than what it is today.
Okay.
Just a quick one on the market.
You were mentioning backwardation.
One factor that is holding back or what other important drivers to see in the short term here.
Of course, the supply so opex is a bit tighter.
And any more oil into the market and their key argument is that they feel that.
There are sort of meeting current demand.
They are questioning.
Macroeconomic picture.
These last couple of days, we've seen some tidbits here and theyre, suggesting that inflation might sort of be leveling off and maybe getting some <unk> to some of the prior macroeconomic concerns. If that is the case you know maybe well have more ore to the market, but I think thats. The key reason holding things back is that.
OPEC has been tight.
Which we assume is they wanted to enjoy their either their strong prices for as long as the caps.
Okay. Thank you.
And just a final question on.
How have your C&I.
Tool from the EU in terms of building inventory I mean from an energy security perspective, I guess EU has shortened the Jim would be required to build <unk>.
Substantial inventories have everything that they can get their hands. So.
Have you seen any signs of that.
No I can't say I've seen that so of course, the gas has been more of a hot topic for Europe .
Because oil is not really used so much for 18 or for energy production that is more for transportation and for petrochemicals. So I think they are all the areas where you've seen this this focus.
Okay.
Okay. Thank you that's all for me.
Thank you.
We will now take the next question.
Please standby.
Next question.
<unk> comes from the line of Cleveland <unk> from value Investor's edge. Please go ahead. Your line is open.
Yes.
Good morning, and thank you for taking my questions I wanted to ask about the disruptions you're seeing from the sanctions in Russia.
In fact, most of your broker on small smaller vessels, considering vlccs cannot double Russias western ports.
Could you provide some commentary on the ship to ship transfers and their effect on the overall market.
We are not involved in those types of operations, but we are aware that they have been taking place in the Atlantic basin. So there has been say aframax is coming out of the boutique.
Vaccine could also potentially be a suezmax. This but this is mainly we think is the Baltic business and then be loaded onto Vlccs and then transported to the far east.
China in particular being the destination.
To our knowledge is not a it's not a huge business tying up with many many ships there has been.
A few of these transactions being done so.
It's a bit on the on the sideline or conventional markets.
Alright, that's helpful.
Considering the high energy prices in Europe , do you expect to see any additional crude imports substitution for natural gas volumes during this coming winter.
It could of course happen. So there are some suggestions.
That.
If you know it will be used for heating this winter.
We haven't seen any sort of clear evidence of it.
At least not to our knowledge.
This will be.
We have defined also by the cost differential between.
Heating oil and gas.
Alright Thats all for me. Thank you very much for taking my questions. Thank you.
Thank you.
Once again as a reminder, if you wish to ask a question. Please press star one on your telephone.
We will now take the next question.
It comes from the line of Michael Moe Scopes from <unk> capital. Please go ahead. Your line is open.
Okay.
Question and answer thank you.
Okay.
No problem. Thank you.
There are no more questions at this time I would like to hand, the conference back to the speakers.
With final remarks.
Well. Thank you to everyone who has been on the call and following these data it's greatly appreciated and wishing you all a good that they had.
That does conclude our conference for today. Thank you for participating you may all disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Yes.
Okay.
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