Q3 2024 DHT Holdings Inc Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Q3 2024 DHC 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 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, CFO Laila Halvorsen. Please go ahead.
Thank you.
Laila Halvorsen: Good morning and good afternoon everyone. Welcome and thank you for joining DHT Holdings third quarter 2024 earnings call.
I'm joined by DHT's President and CEO, Svein Muxnes Harfjeld.
Laila Halvorsen: As usual, we will go through financials and some highlights before we open up for your questions.
Laila Halvorsen: The link to the slide deck can be found on our website, DHTankers.com
Laila Halvorsen: Before we get started with today's call, I would like to make the following remarks.
Speaker Change: A replay of this conference call will be available on our website, dhbankers.com, until November 20th.
Speaker Change: In addition, our earnings press release will be available on our website and on the SSE Edgar system as an exhibit to our Form 6K.
Speaker Change: 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, as detailed in our financial report.
Speaker Change: Actual results may differ materially from the expectations reflected in these forward-looking statements.
Speaker Change: We urge you to read our periodic report available on our website and on the SSE Edgburgh system, including the risk factors in these reports, for more information regarding risks that we face.
Speaker Change: As usual, we will start the presentation with some financial highlights.
Speaker Change: Our balance sheet remains in excellent health with low leverage and significant liquidity.
Speaker Change: At quarter end, financial leverage was 17.6% based on market values for the ships, and net debt was $13.9 million per vessel, well below estimated residual ship values.
Speaker Change: The third quarter ended with total liquidity of 264 million, consisting of 74 million in cash and 190 million available under our evolving credit facilities.
Speaker Change: Now over to the P&L. We are pleased with the result for the quarter. We achieved revenues on TC basis of 92.6 million and EBITDA of 70.4 million.
Speaker Change: Net income came in at $35.2 million equal to $0.22 per share.
Speaker Change: Vessel operating expenses for the quarter were 19 million and G&A for the quarter was 4.2 million.
Speaker Change: For the third quarter, the average TCE for all vessels in the spot market was $43,700 per day, while the spot vessels under 15 years of age achieved earnings of $47,600 per day.
Speaker Change: The vessels on TimeStruckers made $38,800 per day, while the average combined TC achieved for the quarter was $42,400 per day.
Speaker Change: Net income for the first nine months of 2024 was 126.7 million, equal to 78 cents per share.
Speaker Change: For the first nine months, our spot vessels achieved $50,100 per day, while the average combined TC came in at $47,400 per day.
Speaker Change: The spot vessels under 15 years of age achieved earnings of $52,800 per day for the first nine months.
Speaker Change: And then over to the cash flow. The cash flow for the third quarter of 2024 was stable and we started the quarter with 73 million in cash.
Speaker Change: We generated $70 million in EBITDA, ordinary debt repayment and cash interest amounted to $15 million and $43.6 million was allocated to shareholders through a cash dividend, while $2 million was used for maintenance cutbacks.
Speaker Change: We paid second installments for two of the new buildings amounting to $25.8 million while $15.3 million was related to positive changes in working capital and the quarter ended with $74 million in cash.
Switching to Capital Allocation.
Speaker Change: DHT has a well-defined capital allocation policy and in line with our policy we will pay 22 cents per share as a quarterly cash dividend equal to 100% of ordinary net income.
Speaker Change: The dividend will be payable on November 29th to shareholders of record as of November 22nd.
Speaker Change: This marks the 59th consecutive quarterly cash dividend, and the shares will trade ex-dividend from November 22nd.
Speaker Change: On the left side of this slide, we present an update on estimated P&L and cash break-even rates for 2025.
Speaker Change: P&L break-even for the full year is estimated to $26,500 per day for the fleet, while the cash break-even is estimated to $20,000 per day, where the project is
Speaker Change: $6500 per day per ship in discretionary cash flow after dividends
Speaker Change: Assuming the vessels earn P&L breakeven, this means about $56.5 million in discretionary cash flow for the year.
Speaker Change: On the right side of the slide we illustrate the quarterly cash dividend we have returned to shareholders since we updated the dividend policy in the second half of 2022.
This amounts to a total of $2.19 per share.
Fein: And with that, I will turn the call over to Fein.
Thank you, Laila.
Fein: The following up on Laila's capital allocation slide, we here present an overview on how our balance sheet has developed over the past 10 years in combination with accumulated quarterly cash dividends we have paid for the same period.
Fein: Importantly, the company has also invested in its fleet in this period, including new buildings, second-hand acquisitions and an exhaust gas cleaning system program for the entire fleet.
Fein: Save for the Ships for Shares transaction in 2017, when we acquired BW's VCC fleet.
Fein: which proved to be an excellent investment. We have not issued equity in the market since the fall of 2014.
Fein: The leverage level is illustrated by the yellow line and measured in percentage of book values.
Fein: It was 48% at the start of this period and went up to the mid-50s in 2018 following the mentioned fleet expansion in 2017.
Fein: The generous freight market in 2020 enabled us to reduce the debt level by about half to some 28%.
Fein: The green bars present the accumulated quarterly cash dividends for each year in which the quarterly cash dividend was paid.
Fein: Again, you will note that 2020 was a generous year with substantial profits resulting in significant dividends.
Fein: Stating the obvious, we paid out significant dividends and invested in the balance sheet at the same time.
Fein: Over the 10-year period, we have paid out a total of $750 million in quarterly cash dividends.
Fein: The last two periods, 2023 and 2024 year-to-date, illustrate how the present capital allocation policy implemented during the fall of 2022, with 100% of ordinary net income being paid in quarterly cash dividends, has played out.
Thank you.
Fein: here with the updated bookings to date for the fourth quarter for the company
Fein: We expect to have 596 time charted days covered for the fourth quarter at $40,000 per day.
Fein: This rate assumes the base rate and profit sharing for October and November for the two time-starter contracts that have this feature, and the base rate only for December.
Fein: We assume 1,610 spot days in this quarter, of which 64% have been booked at an average rate of $41,000 per day.
Fein: You will note that we have improved the rates on the bookings when compared to our business update on October 9. An excellent effort from the DHT team given the general market softened during this period.
Fein: The SPOT P&L break-even for the quarter is estimated at 21,500 per day, a number that should assist in estimating the net income contribution from our SPOT fleet.
And some market commentary.
Everyone is of course waiting for the seasonal upturn.
Fein: We note that during the last two years, the first quarter offered the highest rates.
Fein: Chinese economic growth and oil demand have year-to-date not met projections.
Fein: While China is deploying various inducements to its economy, we are yet to see, whatever it takes, levels of economic policy changes and stimuli.
The stimuli announced last week focused on resolving debt levels.
It did not address a needed boost to consumption.
Speaker Change: Chinese officials indicated that the next step would be significant and endeavor to, amongst others, address lackluster consumption.
Speaker Change: It has been suggested that China will, to some extent, seek to tailor the next step in response to anticipated policies to be implemented by the incoming Trump administration.
Speaker Change: As the world's second-largest economy, we do think it is reasonable to expect efforts from China, which should revitalize the economy and lead to increased consumption, including an uptick in oil demand.
Speaker Change: The result of the US election leads us to expect certain policy changes that we think will be constructive for our business.
Speaker Change: tightening on Iranian sanctions that should reimpose pressure on Iranian oil exports, barrels that could be replaced by other Middle Eastern producers.
Speaker Change: Should this play out, the transportation work would shift from the shadow fleet to the compliant fleet.
Speaker Change: Reversal of current decarbonization regulations implying higher medium-term demand for fossil fuels in general towards 2030.
Speaker Change: And, pro-drilling policies should further stimulate U.S. production growth and exports.
Speaker Change: By restraining production, OPEC Plus aims to balance the market and support prices, especially in the face of increasing competition from Atlantic Basin producers.
Speaker Change: This strategy also includes targeting Asian customers' inventory levels of crude oil below the five-year average, creating a tighter market for when economic conditions improve.
Speaker Change: However, limited transparency in China's crude oil inventory data complicates assessment of actual levels.
Speaker Change: If Chinese inventories are indeed low as indicated, and as Western inventories are relatively higher than in Asia, one should expect Atlantic-based barrels to increasingly go east.
Speaker Change: Additionally, recovering refinery margins in Asia in combination with increasing Chinese crude oil import quotas heading into next year should shift the dynamics in favor of a stronger freight market.
Speaker Change: Based on positive feedback and encouragement from our key stakeholders, namely shareholders, customers and lending banks, we believe we have an appropriate strategy tailored to the structure of our markets.
Speaker Change: focusing on solid customer relations, offering safe and reliable services, maintaining a competitive cost structure with robust cash break-even levels, a solid balance sheet and a clear capital allocation policy.
Speaker Change: The whole DHT team appreciates the encouragement and continues to work hard and operate with leading governance standards and a high level of integrity.
And with that operator, I turn it over to you.
Speaker Change: Thank you. To ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again. We will now go to your first question.
Speaker Change: One moment please. And your first question comes from the line of Frodo Markdahl from Clerks and Securities. Please go ahead.
Thank you. Bye, Svein.
I feel that.
Thank you. Bye.
Speaker Change: I wanted to ask you about what you see in the physical sale and purchase market, you know.
Speaker Change: The stock market seems to be factoring in quite a large decline to ship values.
Speaker Change: Basically, what are you seeing actually happening in the market today?
Speaker Change: There is very limited activity, to be frank. So the last transaction we had for modern ships was when Marinakis, the Greek ship owner, sold his fleet to Bari, the ship-owning arm of Saudi Aramco.
Speaker Change: And that transaction was, for what we know, or expect, was around a billion dollars.
Speaker Change: which would sort of price the 5-year-old ship at around $114, $115, $116 million depending on how you sort of differentiate the different age groups.
Speaker Change: and they are also very constructive on the market, so I don't think there's a reason for those prices to change meaningfully. What could change that, of course, if people really lost faith in the freight market, but I don't think there's any reason to do that.
Speaker Change: In the older end, the phase chips that are between 15 and 20, it's a bit sideways, I would say. You had a 2007 build chip sold some 10 days ago.
Speaker Change: at about 45. This was a Japanese seller, a ship without scrubber, so a ship of similar vintage with a scrubber 2007 build should probably be worth 48, just pick a number.
Speaker Change: In between that, it's a long time since we've seen any transactions and again, there are
Speaker Change: You know, limited, you know, proper shifts on offer. Again, I think supporting the statement that people are constructive or at least holding out for what's expected.
Speaker Change: Time Tractor rates are also quite attractive, so the alternative, I think, for at least some owners is then, of course, to secure time tractor contracts for a year, say, to buy time if they want to sell at a later point in time.
Speaker Change: Okay, that's good color, good to hear. The second question is, you mentioned a lot of good supporting factors on the, let's say, supply-demand fixture here, but what do you think about
Speaker Change: What is the impact on the tanker market from that development in your view?
Speaker Change: I think when you look at inventory levels, the levels in OECD is a bit different to some of the key economies in Asia.
Svein Harfjeld, Laila Halvorsen
in response to very tight or low refining margins.
Speaker Change: I think the longer this lasts, the stronger recovery you will likely have. That's my two cents on it.
Good. Perfect. Thank you.
Thank you.
Speaker Change: Your next question comes from the line of John Chappell from Evercore. Please go ahead.
Speaker Change: Thank you. Good afternoon. Svein, first time I recall you specifically calling out your sub 15 year old vessels in the chartering activity. I think you did it twice.
Speaker Change: Clearly a couple older ships left in the fleet. You just talked about asset values. Maybe it's a bit more squishy for vessels of that age.
Speaker Change: But given maybe that the cycle is a bit longer than the tooth, you're seeing a differentiation in the rates you can earn based on the ages of those vessels. Is there a plan to modernize the fleet and maybe use proceeds from some of those older ships to help finance those new builds you have on order?
Speaker Change: So, I think the number one observation is that when you are in sort of soft patches in the freight market, then the older ships, they suffer more than a more modern ship. So you do get the sort of deltas and, you know, parts of the third quarter was certainly softish.
Speaker Change: and but you know keep in mind also that this summer we fixed out one of these older ships for a one year time chart at $49,500 per day.
Speaker Change: So, you know, I would certainly not rule out good freight opportunities for these ships, but you need the sort of sentiment to be there at the right time.
Speaker Change: These older ships, they are in technically very, very good conditions.
Speaker Change: They have hardly any depth, very low book values, so in a way they would contribute meaningfully if they were to be sold at some point.
Speaker Change: As you know, as you mentioned, we do have new buildings coming in the first half of 2026.
Speaker Change: and that capital can of course be used to the new buildings and can also be used to other things.
Speaker Change: So, it's part of our plan, but it has to be the right opportunity, and there could also be other good opportunities to charter out these ships, so let's see what makes more sense when the decision time is up.
Speaker Change: OK. And then, excuse me, also, I mean, you mentioned the time charters. Not only did you get the 49.5, but for the lion you got 55,000. I understand it was different.
Speaker Change: Markets sentiment again, but you know given the little softness right now. Have you seen a vast change?
Svein Harfjeld, Laila Halvorsen
Speaker Change: I would say that the bid-ask spread has widened a bit, so the ask is probably unchanged, but the bids are a tad lower, reflecting the stock market.
Speaker Change: We expect that the next year or two will offer interesting opportunities to build more fixed income for the company.
Speaker Change: Again, we think we'll be well-suited given our capital allocation policy and offer more predictability on earnings in the longer term. So that's our sort of lifting the beams a bit, how we think about continuing to build the business.
Thank you, Svein.
Thank you, Bill.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. That is star 1 and 1 to ask a question.
We will now go to your next question.
Speaker Change: And your next question comes from the line of Omar Nocturne from Jeffreys. Please go ahead.
Speaker Change: Thank you. Hi Svein. Just a couple questions for me, more on the geomacro and geopolitics side of things.
Speaker Change: How do you think, potentially, if those volumes from Iran, the export volumes, diminish and get replaced by OPEC, clearly that sets up a positive.
Speaker Change: I think it's an academic risk, but I don't think it's a real risk. Almost all the ships in that business are older than 20 years of age.
Speaker Change: And, you know, when they transport oil today, they either load in Iran, or Venezuela for that matter, or they do transshipment.
Speaker Change: They're not approved to enter into terminals, they lack vetting, proper insurance, there's a lot of things that has to fit the bill to get approved to operate in a compliant market, so I think that is really unrealistic.
Speaker Change: So, I think this will almost 100% certain be a positive for the market if this plays out. And I see now, you know, people that are expected to come into Trump's administration, they're already on X, you know, making statements on how they want to approach Iran.
Speaker Change: Let's see how it plays out, but I think it's a reasonable probability of some of this taking place actually.
Speaker Change: Okay, thanks. It makes sense. And then maybe, you know, I guess, obviously, Russia, Ukraine, it's had an impact on the broader tanker market, perhaps not so, clearly not so on the LCCs. But, you know, it's been a question basically is, you know, how does this tanker market look, you know, pretty much since the war broke out?
Speaker Change: And you've had the surge in overall dynamics, but since the war broke out, the question has been how does this market look like without Russia-Ukraine? So I guess in your eyes, how do you think the VLCCs would act if there were a peace deal reached between Russia and Ukraine?
Speaker Change: I'm also sure that if it is a piece, it depends how it all plays out. How does it become a piece?
Speaker Change: I'm not so sure Europe will venture out buying Russian oil immediately after a peace deal has been agreed. I think that the sentiment in Europe, as this war goes on in the backyard of Europeans,
Speaker Change: are a bit different to maybe, you know, what people might feel in the US, right? So I think it will be a long and winding road to get those barrels back into the market. That's how I would think it would play out. So it's not an immediate change.
Speaker Change: Thanks, and maybe just a quick follow-up on that. You did mention that it was perhaps a negative development for BLTCs, so is it conceivable then that it could be a positive if the war ends?
Speaker Change: Yes, I think so, because refiners in general, what they care about is the most cost-efficient way of transport, and there's nothing that can beat the VHCC in that regards.
Yeah. Okay. Thank you. I'll turn it over.
Speaker Change: Thank you. There are currently no further questions. I will now hand the call back to CEO Svein Moxness Harfjeld for closure remarks.
Speaker Change: Thank you to all for listening in on DHT and following our company. Have a good day.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Laila Halvorsen Laila Halvorsen Laila Halvorsen Laila Halvorsen
Laila Halvorsen, Laila Halvorsen