Q2 2019 Earnings Call
Good afternoon.
Gentlemen, thank you for standing by welcome to todays second quarter 2019, the H.T. Holdings Inc. earnings Conference call. At this time all participants are in listen only mode that will be a presentation followed by the question and answer session at which time equally struck a question you will need to press and one on your telephone keypad and Mike for name to be announced I must advise you that this conference is being recorded today on the seven portfolios 2019, I would now like to hand, the conference over to your first speaker today like the Halvorsen. Please go ahead Madam.
Thank you.
Good morning, and good afternoon, everyone welcome and thank you for joining DST Holdings second quarter 2019 earnings call.
I am joined by PSP co CEO Ms. Smith something them.
As usual, we will go through financial sense. Some highlights before we open up for your questions.
The link to the Vivek Khemka Com website ph time first telecom.
Before we get started with todays call.
The following remarks.
A replay of this conference call will be available at our website the Frankfurt stock comp through August eight 2019.
In addition to our earnings press release will be available on our website and on massive sea Edgar system Methanex Symitar form 6K.
As a reminder, on this conference call will discuss matters are forward looking in nature.
These forward looking statements are based on our current expectations about future events, including DSP prospects.
Dividends share repurchases and investor payments.
Outlook for the tanker market in general.
Daily charter out rate.
Vessel utilization.
Forecasters role become economic activity.
Oil prices and oil trading patterns.
Anticipated levels of Newbuilding, and scrapping and project dry dock schedule.
Actual results may differ materially from expectations reflected in these forward looking statements.
We urge you to read our periodic reports available on our website and on efficacy Edgar system, including the risk factors in these reports for more information regarding risks that we face.
Looking at the income statement, our EBITDA salmon 38 million and a net.
Tim.
Our assumptions some pressure.
Adjusted for non cash change in fair value related to interest rate derivatives of 7 million.
Would be 3.5 million or two cents per share.
The average average earnings for Sixtyv came in at 26500.
Per day in the second quarter with a ship, sometimes shafter, earning.
27500 today.
On the spot fleet, earning 26200 today.
Opex for the quarter was 19.1 million or 7800 per day of rich for the fleet and DNA for the quarter was 4 million equal to 1600 per ship per day.
For the first half of 29 team the fleet generated 31100 per day in revenue.
50 basis.
Opex per day for the first half of 2019 on 7600 per day rates for the fleet DNA for the first half of 2019 will be equal to 1600 per ship per day.
As of today, we have 65% of our third quarter at 21100 per day.
The company has elected to pay a cash dividend for the thirtyth consecutive quarter.
A dividend of two cents per share for the quarter is payable on August 29 to shareholders of record as of August 20 per second.
Moving over to the balance sheet the quarter ended with 71 million of cash.
This does not include 83.9 million currently available under our revolving credit facilities.
As previously disclosed we have also.
Rubber financing of 15 million were only 5 million, it's drawn as of quarter end.
Financial leverage is moderate with interest bearing debt to total assets just below 50% based on market values for the ship.
Looking at the cash bridge, we generated 38 million in EBITDA and positive cash flow from operations.
Following dividend and Capex for the quarter was essentially a cash neutral and being with 71 million of cash.
With that I will turn the call over to sitting back.
Thank you Dilo.
Allow us now to just say a few words about our convertible bonds coming to maturity on the Onest of October .
Total outstanding is $33 million.
The conversion price is currently six so for.
We currently have no plan to extend our exchange this bond.
So depending on the share price development, this will either convert or be redeemed in cash on maturities.
We will now give you a status report on our scrubber Retrofitting project.
As you will recall, we will have scrubbers on our ships equivalent to two thirds of our fleet.
Two ships were delivered from your hardwood scrubbers on the retrofitting program includes 16 ships.
To date, we have completed six ships.
We currently have two ships in New York, We will have two more coming in later this quarter.
That leaves six ships that will commence the retrofits in the final quarter of the year.
We are generally pleased with the work done on the first six retrofits.
Cost and time spent has been in accordance with budget and expectations.
With that said, we do recognize that the Rx and manufacturers are getting increasingly busy which may have an impact on the efficiency of future retrofits.
Total capex for the retrofitting project is budgeted to be 70 million.
To date Capex paid capex paid is $21.4 million.
And as previously announced we have a scrubber finance facility of $50 million in place.
Today, only 5 million has been drawn.
With that I'll pass it over to Brian .
Thank you trigger.
We will then from where we are sitting give you some color on recent events and markets.
Well.
Refinery Morgan good margins stayed weak for longer potentially extending already deep refinery maintenance periods.
Hi retained their view that the current quarter should offer a significant increase in through fits and hence the demand for transportation.
Refining margins are on the rise.
And this last week has already seen an increase in cargo increase might be the early innings of their predictions.
Two.
Great excellent thanks to the marker picture out of them all.
This is of course, an aspect hard to predict.
Ill offer any credible guidance on.
Good do note, however that interest up despite the noise. The two leading economists states ambitions to engage in negotiations and possibly getting a deal done.
Of particular note is trying to unlock ticketing and the tariffs on oil imports from the U.S.
Three.
Incidents in the Middle East spurred short term increases in the oil price, but this owners for apprehensive and entering the area. During these periods and the overhang of ships buildup in the around negatively impacting the freight markets.
For.
Following NBC first quarter with Twentys to seize delivered the second quarter, followed in similar fashion with 19 delivers.
A search to search for the planned order book for 2019 was delivered during the first half.
We believe that only a handful of ships are lifted the fleet so far this year.
Five.
There are very few ships undertaking scrubber retrofitting during the first half.
We are however, seeing a meaningful increase in this activity and the expected a large number of ships going out to service to undergoes these projects over the coming six to nine months.
From what you're picking up through the great Brian The our survey did very very busy and some potentially Celtic and delays in manufacturing and project execution should be expected.
We retain our reviews from a shipping micro perspective things looks very promising with several factors set to play into the hands of the ship owners.
Key factors worth mentioning our fleet quickly getting older as retirements have slowdown.
New regulations imposing capex related to ballast water treatment.
A declining order book now at 11%.
And expanding transportation distance.
Stating the obvious we are however, as with most industries reliant on the positive macro environment offering growing economists on them on fraud.
And with that ill open up accumulate operator please.
Thank you ladies and gentlemen, we will now begin the question and answer session.
As a reminder, if you wish to ask a question. Please press star one on your telephone keypad and wait for a name to be announced.
The first question is come from the line of Randy given from Jefferies. Please ask your question.
Hi, gentlemen, how's it going.
Good thanks.
So first looking at the time charter market, we're seeing one year time charter rate of 35, maybe 37000, a day for eco vlccs with out scrubbers. So have you seen that kind of market similar to those numbers and also what are you hearing for one two maybe three year time charter for a scrubber fitted VLCC.
Yes, there for eco ships, which covers.
There has been almost there has been the time charter system in excess of 40 in the low fortys.
And there is demand for those ships that probably similar numbers.
And I think for the loan equal we'd scrubber. There's also among them the numbers will be marginally below that.
So there is interest in times are going down a little bit.
I think over the over this past few weeks no summer holidays, maybe an impact to this there's been a little bit more quite a little bit. So ahead of the summer.
But.
Through sort of general engagement with customers will be a sensor is interesting there is interest still to cover but.
I guess it from these protective you really like to see the expected the freight market sort of.
Rice through the fall before we engage in further discussions.
Perfect that answers my follow up there so I'll go with a different follow up.
Say recently worked till the president has been out there, saying questioning maybe the development of bunker fuel costs, and maybe availability some different either HFO BLS AFFO. What have you. So you kind of seeing that HFO give us both spread developing now that we're getting for four and a half months from January and then also where you look to purchase some of your fuel either your HFO for your script refilled vessels or your view our CFO for your non scrubber fitted vessels.
Early or you just kind of kind of wait and see how prices react in the next four to six months.
It's really the latter that we we have no plans to take position into fuel market be it for compliance tool or four high sulfur.
Before we really need a product.
But this we have talked about before in these calls that.
Of course for the.
The nine ships that it will not be a scrubber fitted to transition from the high sell through to the new compliance.
And that will probably start in earnest towards the end of the current quarter.
Okay, and then as far as the kind of spread development have you seen that in terms of kind of forward curve pricing for the HFO verse deal us AFFO come color January .
We frankly don't see anything else now would you consider yourself. So we don't really have any comments on that.
Hi.
Well that's it for me I'll turn it over thanks.
Thank you.
Thank you.
Our next question comes from the line of John Chappell from Evercore. Please ask your question.
Thank you good afternoon guys.
I wanted to follow up on.
Generalities first line of questioning you have some of the first vlccs that are out of the yard with the service units and when you announced the strategy I guess right 13 months ago, you had mentioned the phrase Super profit.
A lot of changed in the meantime, I think theres a lot more uncertainty in the market.
We're still as optimistic as you are and you only have four time charters right now across your entire fleet, which is kind of like from a historical perspective. So how do you think of balancing the coverage of your fleet and using that within the scrubbers strategy, maybe even if you do think there is a super profit for the scrubbers using some of the non remembered.
Fitted vessels to lock in more coverage.
On the operating days.
We will of course look to Maximise earnings on whatever we have on our hands and that has to go to.
As you can read from the previous upturn in 15 16.
We did it didn't take advantage of the market and secure the numerous time charters.
What we deem that the time can be very attractive rates.
And Thats certainly something we will look to do again, if we if that presents itself. So, but you really need to see sort of a market with a healthy spot market earnings.
For these relate to develop we think.
At levels that are effective so we remain sort of.
Waiting for now.
But I think you should certainly expect those to be active in the term market and then build more fixed income in due course.
Okay.
And then thanks for the update on the remaining Capex for this sort of any program.
Your comments about the yards, becoming a bit more busy what are you modeling out four off hire time associated with the retrofits on the final 12 ships. Both those are in the art today and those that will be in through the rest of this year.
I think our reserve.
Plan has been for about 30 days on every one of them and for the first six hour average is right in the in that neighborhood.
So what we wanted to convey in our general commentary was that there is of course, an increasing danger that youre going to run into some snafus and incur more time.
But we haven't really changed our planning on it we are just being aware that that could be unforeseen factors that are going to play and play into that but we're not aware of anything at this point.
Okay. I think also just to add to that that our commentary is also general is not specific from the order we are doing the work at.
So we are left are sort of goals. We are there with all our ships with our own people. We think we are well prepared for this.
Of course, barring any unforeseen circumstances.
I think we're well prepared but we are picking up.
You know things happening at the other areas that.
Our sort of challenging for for for people on the arch in general and this is only going to get there this year through the fall.
So kind of the read between the lines deemed there is that other ships, maybe off hire for significantly longer which could tighten the market even further going into the end of the year.
Yeah chances are that the average is going to go up for sure there is.
A few times more ships they are going to be retrofitted in the second half than what was done in the first half.
Mhm congestion.
We expect maybe a total of 100 fortys to be retrofitted.
And.
It's hard to pick out the exact number how many have done their work so far but.
Probably not more than 20, plus so you have a good chunk of ships now that's going to be.
Heading to the arch over the next six to nine months.
Right.
Okay. That's all I had thanks fine thanks for that.
Thank you.
Thank you. The next question comes from the line of broad market data from Clarksons Securities. Please ask your question.
Yes, hi, guys.
Follow up on the IMS on Thats on.
In there.
What do you see in terms of the tank cleaning and off hire days associated with that.
We we foresee that it's going to be.
Maybe four days or something like that that if you elect to do this import.
With that sort of specialist cleaning out your tax than something in that neighborhood or four days.
But there is also a possibility that some of this can be done on the way and of course, then lessening fire.
Yeah, I think there was much last week, there was minimal logical arguing about it.
One minute.
Mid March.
Ship owners are prepared for it.
Yeah, I agree with that or would you.
Oh.
And what's your view on that.
Preparedness.
We can always go lives being for ourselves and the VSP certainly well prepared for this so.
So of course, the scrubber program is only one aspect of this that operation and also we have a planned out well over that everybody will both onshore and onboard ships.
Now to help to get cracking on this so we will certainly try to minimize downtime and the and be as efficient as we possibly can.
Final question is on the rate.
I'm guessing you seem to be leasing.
The benchmark rate both for Q2 and also.
As far as we can be long three can do today.
And that was also display last quarter on a US you. Then why are you doing so much better on relatively better than the market and the sort of calling.
Oh well enough.
I think well answer the same tone as last time that we have an excellent fleet than we have excellent people and combined it gets good result.
Okay. So it's not like you're having a different trade routes or are you more exposed to lets say you are.
Oh launch.
That is sort of the you know the detail those triggers are saying is that you know we have equipment people and procedures and the way we operate thing that certain customers certainly like in a lot of repeat business.
And she also in that it's only just sort of connect that right.
And it's not like we have a sort of a secret client that is paying from toll for backhaul or anything like that we're in competitive markets wherever we go.
Great well thank you.
Thank you.
Thank you. The next question comes comes from the line of relates to the backup from he said about please ask the question.
Yes in I'm, sorry, I missed a little bit of the early presentation.
But as you view the third quarter right now would you say that the third quarter.
Well be kind of a carbon copy of what your second quarter has been and there is no real improvement overall till we get to the fourth quarter.
Sort of.
Potentially reverse because going into the second quarter. We were so some are benefiting from the rates that were booked in the end of the first quarter and then the quarter got weaker and then the third quarters starts of course with the bookings made in the second quarter.
Those numbers are now we see a rise in freight someday to be too early to say, whether it's going to sort of.
Similar levels or potentially you know deep or not so.
But I think what is important for US now is to continue to have very good control of our cost structure delivering superior opex and.
I've been cost numbers.
And our trading guys. This is very much a sort of CIP compared to other states and doing whatever they can to maximize things from them.
So.
It's hard to predict.
Particular result.
Okay.
But you don't see it falling off sharply due.
I think as we alluded to the market has been lackluster at the get go this quarter and we've seen over the last week or so an increase in inquiries for business and rates are certainly helped.
So, but whether this is the beginning of a.
Higher to this.
The refining industry as predicted by our IOL not that it's hard to it's because we started to say, but things look server looks promising we said, we we think so.
All right.
Are you, having any problems with particular routes.
Even though you have scrubbers and those routes will not allow chips with scrubbers that you'll just have to have reduced self from fuels to be acceptable on those particular routes.
Both.
And I think the news flow on on the areas for scrubbers on Optum. It is related to coastal areas some ports.
And in the U.S tier plans for scrubbers, we never anticipated to use scrubbers in ports already in these coastal areas. So our game plan has always been to scrubbers and open c. and that remains very much.
The case, the scrubbers Hamilton operation yet this is something that will take place the but the switch of the EHR incentive income.
All right.
Okay. That's all from me. Thank you very much and congratulations on doing as well as you've done in a market that's a stressful market.
Taking all these tariffs talks.
Thank you appreciate the kind words.
Thank you David.
Once again, if you wish to ask a question. Please.
And one on your telephone.
The next questions come from the line of G. Mid may I admire from value investors. Please ask your question.
Hi, good morning, everyone.
Good morning.
Yeah. Good good results as the previous questioner was mentioning after such a difficult market I notice you mentioned, 65% to the VLCC spot days were fixed at a little bit over 21000.
Just to clarify Thats just the spot days right is there any sort of guidance, including the fixtures for your time charters.
You're correct. That's just for this holiday season.
That's that's the way we've been communicating in the past and we don't really have any update on.
The variable elements on the time charter.
Understandable understandable of course, those time charters are a little bit higher than the spot rate. So that'll be a decent health going forward hopefully there has been some notes in the market about some time charters being done in the.
Mid thirtys to our lower Fortys, especially those with scrubbers have there been any specific interest towards your company or anything that you've you've seen available.
Yes, Ryan said earlier I think it's fair to say that it's a bit of summer doldrums at the moment that there is not that much activity in the period market. We did see so more activity and interest in second quarter.
Several that Didnt come to fruition, then we wouldn't be surprised if the activity picks up again after labor day.
Okay excellent and the rates have been pulling back a little bit seasonally right Q3 is always the weakest quarter. So it's not a huge surprise or anything there, but when the rates do start picking up I noticed your repurchasing stock earlier this year at a healthy discount NPV as those rates do pick back up hopefully this winter.
How do you think about your your primary uses of cash going forward with the stock where it's at is our repurchase is still on the table are we looking at those converts at all I I know the converse of recently pulled up above par I think are sitting around like 107 right. Now obviously is there a certain way you think about that trade off.
I think yes.
Our.
Capital allocation policy is robust and stays in place a minimum 60% of net income to be return.
Over the years, we have been certainly have been paying back more in the form of dividends that in buybacks.
However, in the fourth quarter last year, and particularly with its the Abyss big dislocation between the.
The fundamentals of our business when rates were going up to ship values were being marked up.
Yes, the stock was trading down drastically and we saw some some.
Good value creation opportunities in buying back.
So I think it's too early to say, but we definitely will stick with our 60% minimum.
Whether it comes in the forms of buybacks or the dividends is really too early to say.
First first thing now is to get back with the Black bottom line and then we can start to paying out a little bit more of returning a little bit more than two cents.
Definitely understandable and I know investors aren't jumping for joy for two cents, but it is nice to have at least a little bit of stability. When the markets do you have there seasonal weaknesses.
So yes definitely good job this quarter about it's good I think as you could do a considering the market rates and we're looking forward to an increased winter season. Thank you.
Thank you.
Thank you Andy but these things once again, if you wish to ask a question. Please.
And while I'm on the topic.
The next question comes from the line of Nick Lennane from Sefton. Please ask your question.
Hi, Thanks for taking my question.
Can you can you talk a bit about how testing of 0.5% sulfur fuel is is going and how much of that testing youve done and and also to the extent that you.
Noted is how the refineries are making the compliant product whether it's mostly through.
Kind of running.
Very very low sulfur crude through the refinery system or whether it's through particular blending techniques and whether you see a kind of consistent pattern of in the product. That's that's being offered for testing or whether there's kind of a lot of different products.
I don't think of that to the first part of the question. Our technical Department has tested the conclusion tools and if you have not experienced any instability or problem with those.
So it's been limited testing so far but we don't really have any worry is a very so to speak if you have oh poor quality I started a program in place to that that we have so I think the latter part. This is more a question for or you find the unlisted refining industry in Frankfurt, but from talking to our customers. So I think you know that sometimes you'll come in different shapes and forms.
What is to you know cracking or vacuum or blending or whatnot. So so and they will be different than they might not be compatible. So that's the sort of fuel management challenge that might come up that a tool for one supplier produced in a certain way might not be compatible with another from another supplier producing it in a different way. So that's something that's an area, where we will have you know a strong focus than to ensure a good operation. So we'll all our ships.
Okay, and if I can ask one follow up.
For anyone pricing looking to place new orders from the odds of feels he sees when do you think now that they can get those ships.
Very earliest 2020 well so.
Okay.
Thank you.
Thank you.
If you wish to ask a question please.
And one on the telephone.
The speakers there are no further questions at this time please continue.
And it remains for us to just say thank you to everyone for your continued interest and support of the issue. Thank you.
That does conclude teleconference for today, thank you for participating.
Please have a nice day the speaker please standby.