Q3 2022 DHT Holdings Inc Earnings Call
Good day and thank you for standing by welcome to the Q3, 'twenty 'twenty T. 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 to ask a question. During the session you will need to press star one and one on your telephone you will then have an automated message advising Johan is Reyes. Please.
Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Laila Halvorsen CFO . Please go ahead.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining DHT Holdings third quarter 2022 earnings call.
I'm joined by DHT, President and CEO , Simon I'll get my thoughts yet.
As usual, we will go through financial highlights before we open up for your questions.
The link to the slide deck can be found on our website <unk> com.
Before we get started with todays call I would like to make the following remarks and <unk>.
This conference call will be available on our web.
Yes tankers dot com until November 15.
In addition, our earnings press release will be available on our website.
Our system.
Our form 6K.
As a reminder, 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 of details 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 report available on our website and on the Edgar system, including the risk factors. Some of these reports for more information regarding risks that we face.
The company continues to show very strong and healthy balance sheet in the quarter ended with $65 7 million of cash.
In addition at quarter end, the company's availability under our revolving credit facility.
$235 million.
Total liquidity at 301 million as of September 30th.
Financial leverage is about 22, 6% based on market values for the ships.
That perpetual was $15 4 million at quarter end.
Significantly below current scrap values.
Looking at the P&L highlights Abbott's task for the third quarter was $35 6 million and net income came in at seven and a half million equal to four cents per share.
The result includes a gain related to San Juan vessel of $6 8 million and a noncash gain in fair value related to interest rate derivatives of $2 8 million.
The company continues with good cost control with Opex for the quarter at 17.
6 million in G&A for the quarter.
At $3 9 million.
In the third quarter the company achieved an average TCE of $24400 per day.
With the vessels on time charter, earning $35300 per day.
Vessels in the spot market, making 22 <unk> per day.
On the next slide we present, the cash bridge for the quarter, we started the quarter with hungry out on $5 8 million of cash and we generated $35 6 million and a bit there.
Ordinary debt repayment and cash interest amounted to 7 million $15 3 million was allocated to shareholders through dividend payments and share buyback.
$2 3 million analysts used for maintenance Capex, while change in working capital amounted to $24 1 million mainly related to the change in accounts receivable and accrued revenues due to increased freight rates.
Net proceeds from sale of vessels were $24 8 million, while 50 million analysts used to prepaid long term debt in the quarter ended with $65 7 million of cash.
Okay.
In August we sold 2008 built DHT adviser for 37 million on the sale generated a gain of $6 8 million.
In connection with the sale, we repaid outstanding debt of $12 2 million.
The vessel was delivered during the third quarter with net proceeds of 24 8 million.
The vessel was not consistent with optical gas cleanup system.
<unk> for its third special survey and the installation of ballast water treatment system in the first quarter of 2023.
Following the sale the average age of our fleet has been reduced or E. R. M O.
He metrics improved.
In September we prepaid 50 million under the Nokia credit facility.
The voluntary prepayment was made under the revolving credit facility tranche and may be your borrowings.
Also in September we entered into a five year time charter contract Contra.
Contract for DHT Puma or substitute.
$38000 per day.
Charters have the option to extend two additional years at 41040 5000 per day, respectively.
The vessel is expected to deliver into the contract after theatrical duct cleaning system installation in Q1 'twenty three.
Switching now to capital allocation.
In September the company announced a new dividend policy with 100% of net income being returned to shareholders in the form of quarterly dividend.
So policy was implemented from the third quarter of <unk> from the company will pay a dividend of <unk> <unk> per share for the quarter.
It will be payable on November 29 to shareholders of record as of November 22nd.
This marks the 50 <unk> consecutive quarterly cash dividend.
During the quarter. The company purchased one 5 million of its own shirts for an aggregate consideration of $8 8 million at an average price of $5 87.
All shirts were tired of color Steve on the company currently has hung around $62 7 million outstanding shares.
So for the corner of the company. Therefore, returning a $15 3 million to shareholders $6 5 million in dividends $8.8 million in share buybacks.
With that I will turn the call over to Brian .
Thank you Rocco.
On this page we are showing in your table with the purpose to provide better guidance with respect to the corpus exceeding the one we are reporting on.
So for the fourth quarter of this year, we have a time charter book with an average rate of 34800 per day cooperating some 510 days roughly a quarter of the period as a whole.
As of today, we have booked 69% or 540 available spot base at $61800 per day.
Further we are providing the estimates it's booked P&L breakeven for the period, allowing you to model. The TC income based on your own assumptions on the fixed cost base.
We can tell you this much as of today the rates we are seeing for the balance of the quarter are substantially higher than what has been secured with average so far.
Do you think this piece of information that people will continue to include in our releases going forward to make good sense in relation to our new dividend policy of 100% from net income to be paid.
Please cast your votes.
As announced earlier this year, we have embarked on a project to retrofit eight eco ships with exhaust gas cleaning systems, taking our fleet with these installations to 100%.
The current spreads between <unk> and H F O our attractive offering payback on the retrofit the investments inside of the ear.
The first vessel there'll be retrofitted towards the end of the year being a vessel.
It's a long term time charter upon completion of the installation.
Following this we will retrofit the DSP cope in the DSP Italian during the first quarter of 2023.
Both vessels have natural drydocks and slow commercial law fire will be taken.
For the balance of the project, we are adopting a freedom I think umbrella mixed schedule based on the vessels whereabouts and their commercial opportunities.
A further update will be provided on the next earnings call.
We are now in a favorable business environment with rewarding economics for most participants.
We have a robust oil price, we have healthy refining margins.
A strong freight market.
Companies are in general profitable and simplicity, if people want to do business.
Certainly from a rewarding pilots matched by a promising outlook.
Okay.
Because of the conflict between Russia, and Ukraine or trading is encountering disruptions for many routes.
These trade disruptions resulted in increased transportation distances, which reduces the productivity of the tanker fleet Cushing rates beyond what already is supporting dynamics with adults.
As you will see from this slide transportation distances for European imports could be upwards to seven to 11 times step of imports from the bolting region.
I look for Russell exports to Asia would concede. This purpose of course to this halo triple of 7% to 11 times when compared to northwest Europe .
Some trades will attract additional vessels into the shuttle fleets on top of those trading sanction barrels from Venezuela and Iran.
This activity has held oldest ships away from scrapping despite healthy scrap prices.
It fits that entered these American trades are unlikely to return to the compliant buckets. One could look at this development can do of course being the new scrapping.
As we have suggested before there is an increasing our probability of the tanker fleet to decrease at the time, an order books are low and shipyards is essentially a tool for the coming couple of three years.
Yeah.
So in sum you should expect us to continue with the disciplined execution of our business model and our strategy, we are well structured for cyclical markets amongst others supported by a strong balance sheet and healthy liquidity.
The freight market. That's most certainly recovered strong freight rates on a promising outlook.
We are tuned for this recovery with increasing spot exposure into an environment in which we are set to make significant profits.
We have a solid track record in allocating capital.
Based on our new dividend policy with 100% from net income to be distributed as quarterly dividends. We have every intention of showing you the moment.
And with that we open up for questions operator.
As a reminder to ask a question you will need to press star one and one on your telephone and wait for your name to be announced please standby, while we compile the Q&A queue.
Okay.
Our first question comes from the line of further more Codell from Clarksons. Please go ahead. Your line is open.
Yes.
Thank you.
Hi, Thanks.
Good afternoon.
Perfect.
First question I had is.
The different policies.
In respect of the tanker cycle I remember you had this by Michael talked in the past.
Hmm.
You talked about how you invest in when the harvest.
Depending on the cycle.
So maybe you could elaborate on that in terms of the.
Would you change the policy.
Whatever that upcycle.
Then this policy that we have at the 60% on minimum 60% of ordinary net income rose to put in place in 2015.
At that time, our leverage level was sort of in the 50% to 55% Zip code.
And it has been growth significantly down since then so as you reflect slow the balance sheets.
And the cost structure and also that we have no.
Capex program for new ships going forward.
We felt it.
Right at a time led to introduce this new <unk>.
Dividend policy.
So.
All of these things will have to be at.
It looks that depending on the capital structure, and where you are but our intention is to trade at these policies should be sustainable.
And not just be as floating cut they will change.
We have short intervals so.
We would like to think it's volatile through and then that we will have the capacity to continue this for a long time.
And then keep in mind that there is also a meaningful difference in the net income and cash flows. So there is ample cash flows too.
Ample room them too.
Service desk and also potentially could do prepayments.
Prepayments should we so desire.
Perfect that's great.
Second question on the market.
I guess, it's just a few weeks pie and then you have on the rest of the lines coming into play.
Do you know if there's any change already now in Tampa.
Operating behavior trades at all.
Or anything else.
How do you see it.
Developing.
I guess.
He has some activity that we are not part of sort of way.
So we'll be able to have a sort of a high level view on this but you do see some intentions to bring oil out of the Baltic in particular, Oh, two areas, where it can be transcripts told through larger ships and then to be sent to the far east.
So.
Not only are there longer distances, but this sort of a mobile transportation is a bit inefficient and time consuming so again in the U S or reducing the productivity of the fleet. So.
That is a bit early days and I think people are probably planning a lot.
And in their offices with all we're just holding.
The cards, just yet so I think.
Towards the end of the end of this volume we will see some real activity I think already gets going.
Yeah.
Okay.
Yes interesting.
Very much.
Thank you.
Thank you.
We'll now move onto our next question. Please standby.
Our next question comes from the line of Jonathan Chappell from Evercore ISI. Please go ahead. Your line is open.
Thank you good afternoon.
Trying to two partners for you so it looks like the colt and the Mustang were extended by a year into the third quarter of next year. I was wondering if you can give a sense for the type of increase in the rate from the prior.
When your contracts just given the strength of the market since that time and the second part to that time charter question as Puma looks like a phenomenal rate, what's your appetite for long term contracts like that especially contemplating a new dividend policy.
So the two first.
<unk> also extended basically at the same rate that the title was an optional the error that was declared earlier this year.
Similar to the other one is also.
Obviously as cultivation, if you'd like so so these rates are of course are below the current market. But these are time charters that we of course are in.
Enjoy the greatly last year, how did the first half of this year. So it is the sort of tail end of that.
We wanted to get something in the book and we have done these coppola III ships for longer periods as you've already seen.
Right now we are taking.
Big step back in the world to see rates appreciate the and also hopefully with much.
Or with Commencements are much of a further out.
So we would expect the three year rates today to be closing in the third.
Around the 50000 Mark.
And.
I think with the current freight market, both basically 90 to $100000. A day I think you will see more of these opportunities in the longer and so we would like to wait and want to enjoy this bulk market now for a good while longer before we really build on this but.
On the right opportunity were.
The right clients in the right shape it.
Sure.
Significant Melissa can be added.
We'll entertain that but there will be a meaningful spot exposure for awhile.
Okay.
And then the other.
The topic is the scrubber installations I just want to make sure I understood you said that Couldnt stallion natural dry dock date, so theres no operational off hire time does that mean, they still are in a full quarters worth or TCE earnings, even though they're undergoing retrofits.
No.
The <unk> is scheduled for the first special survey of the ruble.
In 2018, and those are the sort of abates or in the first half of 2023, so they would be off hire in any case. So this is Randy.
Exactly so this is going to have the scrubber installations.
Okay, and then when we think to the other.
Matic schedule it.
It almost seems like that means we have to look through the first quarter. So we should we think like <unk> of next year and then the final part of this topic is there are these like 25 to 30 days or a little bit lower since youre trying to manage them around their schedule and their villages.
This was very much depends on where you are and of course as you know these voyage just up to fixed in the spot market. They are easily 45 to 50 days if not longer. So you want to have all sort of.
<unk>.
A favorable geographical whereabouts ownership then you go to dry dock. So we will take this step by step frankly, I don't know.
The limited guidance beyond that but that is.
But I think you need to rely on us to be commercially.
And <unk> tried to do this.
As good as we can so if the opportunities are reflective of the current spot rates of course, it's important for us to try to put that in the books and then wait for a little while longer.
Okay.
Thank you Sir.
Thank you.
Thank you we will now move on to our next question.
Please standby.
Our next question comes from the line of Benjamin Nolan from Stifel. Please go ahead. Your line is open.
Hi, Good morning. Good afternoon. This is michela Rogers on for Ben Thank you for taking our question.
We just kind of wanted to take it back real quick to the new dividend policy.
And Jim the intention is the policy.
Should be sustainable for some time, we just had just was wondering if you could provide a little insight on me.
Why the change at all versus potentially allocating the excess capital for for fleet renewal our crouse. So thank you.
So as we said our balance sheet has been brought down the.
Robust structure, a very low leverage and at the same time, we have no investment program.
The latter point is a reflection of where asset values are at we think they are.
Too high to buy ships today to the required rates for those investments to be attractive over sort of a 'twenty horizon.
Think maybe good we are not sort of the momentum investors that will buy a ship.
Okay.
Expectations of having a feel good factor in next 12 months, because the asset price might be slightly higher we want to invest and operate the ships over a longer period of time.
So this is the reason for that.
We bought two secondhand ships last year, we reset to buy some more but the prices moved up too quickly.
So what we did instead of course as you know we bought back about 6% of the company's stock.
And the cash spent on that was equal to two ships that we both our own ships essentially done at a discount so sort of happy with that investment as well.
Again, our balance sheet is robust it doesn't.
This new dividend policy does not prevent us from making investments when the right opportunity arises so and also access to depth.
If we are interested so so.
We'd like to think that we haven't thought through and not sort of recruiting ourselves from also investing in due course in the business.
Great. Thank you so much.
Thank you, we'll now move onto our next question. Please.
Please standby.
Our next question comes from the line of from Jefferies. Please go ahead. Your line is open.
Thank you Hey, just a couple of quick ones for you just first off back to the dividend.
The 100% earnings payout policy, just wanted to be clear it looks like you've paid out the full earnings for the third quarter of <unk>.
Which includes gains and other items should we think going forward that the full payout here is going to be reflective of gains. So youll pay out the gains have been also hold back any losses.
And how do you think about the cash and non cash portion of that going forward.
So in the past we have.
We have that the shareholders have the benefit of.
Of our cash guidance.
Ordinary cash gain in the P&L.
So in a way the benefit though.
Not including noncash losses right. So so are.
We think about net income is clearly state visit without any caveats.
Okay.
Okay, Alright got that and then just.
You've gotten this question in the past and just maybe could you explain again, maybe just the difference in terms of the accounting treatment.
In terms of discharge to discharge versus say load to discharge because of the wide.
Difference in what you've reported you got 22000, but then you're also about 27% on both a discharge I just wanted to get Oh, sorry on discharge to discharge just wanted to get a sense. If you wouldn't mind just.
Reminding us what the differences are and how that affects your earnings overtime.
Yes of course, I, let Kevin answer that so.
The previous revenue accounting, we discharge to discharge, meaning that we included the revenue from the previous voyage.
Now what we need to do.
Adding time for 15, and the new revenue Alright, nothing to you anymore, but revenue policy.
From discharge from.
The last voyage and until the vessel is loaded there is no revenue.
It's included in our books.
And as of course, the same revenue for the total launch pad reflected on much less period of time.
Thanks, a lot. So does that mean basically that youll have maybe wide variances between both.
But as.
Do they smooth out over time.
Secondly, he definitely smoothed out.
Over time, yes.
Of course have exactly the same revenue that it's reported on a different period so from load.
Discharged.
And.
Ken.
<unk> is more volatile and.
Market with increasing freight rates.
We'll then have to.
Postpone in a way that revenue and you will game that again in the next quarter.
Okay. Thank you.
I'll turn it over.
Omar as confusing as it is right.
It's a good company, whether the trade our ships, we focus on discharge to discharge basis or the commercial level evaluation right. So within this regard in a way when making calls on what to do with the ships what the accounting treatment. The ammonia has made these just in different periods.
Oh, yes, yes.
Yes makes sense.
Yes.
Thank you we will now take our next question.
Please standby.
Our next question comes from the line of Chris sang from Webber Research. Please go ahead. Your line is open.
Okay.
Hey, good morning, it's Glenn how are you.
Good morning, Thank you.
Thanks.
I'm just curious on your thoughts on this shadow suite do you expect it to mostly involved vlccs or <unk>.
Do you see some demand for sewage or afterwards as well.
I think it will be across the board of.
Of course, some of these trades will not be essentially so that it's not really a problem, but there are some signs from trace.
I think whether it is <unk>, who is at least there will be a mix shift so it's hard to actually have a new owner.
How many of.
Oh each sites.
Great No I appreciate that.
No.
For the.
For the five year charter with the Puma I noticed your second one I believe.
Osprey from last quarter.
How many more are you guys planning mistakes or put another way as well <unk> company that most of his time charters or do you still plan to keep some spot exposure.
We like to have both but it depends on where we are in the cycle and importantly in patent and depends on the nominal money. So.
For now we will take a step back and we will in due course tried to develop additional fixed income, but the royalty rates to be higher than where they were earlier this year.
As I mentioned earlier on the call.
We believe that the three year rates are sort of in the.
Plus or minus $50000.
Territory.
Depending on the type of shape and the position and so forth.
So.
<unk>.
He is thinking that'd be academically about it it is possible in due course to sort of fix a meaningful portion of the fleet is very rewarding rates and I mean, you know.
I underscore very rewarding rates of course, if you can create visibility on earnings and also in relation to our dividend policy that might have some merit.
It's a bit hard to say that yes that will be the case it will not be the case, but I think you have to <unk>.
First our commercial liability settlement.
Came in and trying to make the most of it.
Yeah.
Right now of course is definitely within the context of your <unk>.
Dividend policy, just kind of give some sort of stability toward the end.
Just one final one.
About Dci the upcoming Ci regulation just curious.
Do you have in Q sits out there for five years.
Wondering what the responsibility falls on the owner or the charter the vessel going until it started in January 2021, and 'twenty three.
So the ESI is.
It's a calculation based on the vessels ability has done this in the assignment so.
These ships are eco ships.
No issues whatsoever.
With <unk> for many years to come.
So we are of course is on the calculations for the entire DHT fleet.
Are there sort of a very clear view on.
On the on how it will develop.
And a little bit by Charles if you like the demographics. So the ESP is fleet is sold out.
100000 to fix cost about which is sort of the next leg up in the restrictions or in their regulations.
That is sort of the time and our oldest ships are closing in on retirement. So so we don't really see any commercial impairment.
Our portfolio toward the ESC as such but of course the customer.
That is considering taking a ship on time charter and.
They would need to view for their for their own sort of book, if you like on what sort of an emission levels.
Want to have.
Security and transportation services.
But it's our responsibility.
To make all these calculations.
Staplers that we'll have to report and manage this.
Okay perfect. Thank you Tom for the color that's it for me.
Thank you we will now move onto our next question. Please standby.
Yeah.
Our next question comes from the line of Anders Karlsen from Kepler Cheuvreux. Please go ahead. Your line is open.
Okay.
The market is looking very promising.
To put to tell away of what's to come.
To be the main risk factors going to March to our plans going forward.
There are of course, some macroeconomic clouds.
Out there.
And inflation.
Also the efforts that the central banks are doing to solve that and how that will impact the general economic growth.
Of course, if we do certainly get rolled the economy into recession in the heart of all that.
Therefore of course impact the oil consumption and again the demand for oil and demand for transportation I think that's sort of the big issue, but.
If you look sort of down to the industry more than insulated I think this long time since we've seen so many positive elements in structuring the market that we are entering into now so all in all I think that looks very good.
Barring sort of in.
And the macro economic events.
With the post the big negative collection.
Okay. That's all for me thank you.
Good.
Thank you we will now move on to our next question. Please standby.
Our next question comes from the line of Rick Sherman. Please go ahead announcing your company name.
Yes, Hi, Rick Sherman private investor.
Thanks for taking my question I, just got a quick question about the sale.
The ship for $37 million.
On the mathematics.
You paid off $12 2 million in debt for a net of $24 8 million and $6 8 million dollar profit.
Is that basically because you're carrying equity cost on the thing was $18 million.
How did you derive the $6 8 million profit on that ship.
So the profit in the P&L is.
It's the balance between the net proceeds and the book value of the ship.
So the shape is required.
So the ship was acquired in 2017, unless submit depreciated this into them. So.
Perfect. Thank you very much.
There are no further questions at this time, so I'll hand, the conference back to you.
Well. Thank you very much to all for following DHT. That's appreciate it have a good day.
Bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby.
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