DHT Q3 2023 Earnings Call Transcript

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November 7, 2023

There are 5 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Q3 2023 DHT Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Leila Halvorsen, CFO. Please go ahead.

Speaker 1

Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings Third I'm joined by DHT's President and CEO, Svein Monchnas Patriz. 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 Web site, dhhikers.com.

Speaker 1

Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available at our website, dhtankers.com, until November 14. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6 ks. 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 1

Actual results may differ materially from the expectations reflected in these forward looking statements. We urge you to read our periodic reports available on our website and on the SECDIF Care system, including the risk factors in these reports for more information regarding risks that we face. We retain a very strong balance sheet represented by low leverage and significant liquidity. At quarter end, Financial leverage was above 21% based on market values for the ship, and net debt was some €15,000,000 per vessel. Leverage has had a marginal increase compared to the Q2 due to an adjustment in market values for the vessels of €292,000,000 consisting of €74,000,000 in cash and €218,000,000 available under our revolving credit Now over to the P and L highlights.

Speaker 1

The quarter commenced with robust rates for the VLCC. However, with a volatile trend into the quarter driven by oil production cuts. In total, it was a good And we achieved revenues on TCE basis of €89,000,000 and EBITDA of €67,000,000 Net income came in at €31,000,000 equal to €0.19 per share. Reported vessel operating expenses for the quarter were $18,600,000 and G and A was 4,300,000 Included in the OpEx number for the quarter were some advanced costs for spares and consumables associated with ships that have been in dry dock in addition to some nonrecurring item. The vessels in the spot market earned $44,700 per day, and the vessels on Time Charter made $35,500 per day.

Speaker 1

The average TCE achieved for the quarter was 42,500 per day. For the 1st 9 months of 2023, we achieved revenues on TCE basis of DKK296,000,000 and EBITDA of DKK 229,000,000. Net income for the 1st 9 months was I'm sorry, euros 126,000,000 equal to €0.77 per share. Average TCE for the 1st 9 months was $49,200 per day, whereof the vessels in the spot market earned $54,300 per day and the vessels on time charters made $35,600 per day. On this slide, we present the cash flow highlights.

Speaker 1

We started the 3rd quarter with $130,600,000 in cash, and we generated DKK67 1,000,000 in EBITDA. Ordinary debt repayment and cash interest amounted to DKK14 1,000,000 and DKK 57,000,000 was allocated to shareholders through the cash dividend pertaining to the Q2 of 2023. In addition to the cash dividend, we also allocated CHF 10,000,000 to shareholders through share buybacks during the quarter. $93,000,000 was invested in our fleet with $5,500,000 in maintenance CapEx, €2,100,000 for installation of exhaust gas cleaning systems and €85,300,000 for the acquired vessels. Insurance of long term debt amounted to €54,500,000 and €4,900,000 was related to changes in working capital.

Speaker 1

The quarter ended with €73,900,000 in cash. Switching to capital allocation. In line with our dividend policy, we will pay $0.19 per share as a quarterly cash dividend, which is equal to 100 percent of net income. The dividend will be payable on November 28 to shareholders of record as of November 21. This marks the 55th consecutive quarterly cash dividend, and the shares will trade ex dividend from November 20.

Speaker 1

In addition to the cash dividend, we We purchased 1,100,000 of the company's shares during the quarter for a total consideration of 9,900,000 The average price for the shares was $8.72 and the shares were tied upon receipt. So to summarize, with the share repurchase and the quarterly cash dividend, DHT will return 132

Speaker 2

Thank you, Leila. As addressed during the last quarter, we acquired a 2018 built VLCC for 94,500,000 We took delivery of the vessel in late July, and she immediately entered the shipyard to undertake her first special survey and drydock. The purchase was funded with a combination of cash at hand and a new competitively priced loan facility in line with the DHT style financing. She is named DHT of Parlusa and is now trading in the spot market. We are pleased with this acquisition, both from a value and quality Perspective and acquisition is expected to be accretive to our earnings and to further improve our fleet's efficiency.

Speaker 2

As per normal, we maintain our focus on robust breakeven levels and here I'll give you an update on the levels for 2024. The estimated P and L breakeven for the year for the fleet as a whole is $27,500 per day. When adjusted for the fixed income that we have, the P and L breakeven for the spot fleet is $25,000 per day. Further, we estimate the cash breakeven for the fleet as a whole to be $21,400 per day, with the spot ships requiring to make 17,300 per day for the company to be cash neutral. Repeating our earlier messaging And if you set out to compare these numbers with our peers, you should keep in mind that our cash breakeven numbers include all true cash costs, I.

Speaker 2

E, OpEx, We will now go through the 4th quarter outlook. We expect 4 20 days to be covered by our term contracts At an average rate of 36,000 per day. We expect to have a total of 1790 spot days for the quarter, of which 80 days equal to 71 percent have been booked at an average rate of 41,500 per day. As of today, this suggests combined bookings of 77% of the total days at the weighted average earnings of $40,200 per day. You can compare these spot booking numbers with your own estimated spot with our estimated spot P and L breakeven rate of 20 During the Q3, we put 4 vessels through drydock.

Speaker 2

So this was one was brought earlier than the schedule, 2 were on schedule and one was related to the DHT of Alusa that we acquired during the quarter. But here is also a brief update on our drydock schedule for the next couple of years. The demographics of our fleet is such that we are very light on maintenance CapEx In both 2024 2025. Importantly, this also means we will have a high number of operating days during this period, a period for which we have a very constructive market outlook. In short, we are tuned for rewarding times.

Speaker 2

This slide illustrates the VLCC market over the past 4 quarters. The blue line is the earnings of the reference ship used by most analysts. The earnings are an average The 3 key transportation routes: TD3C being the Middle East to China, TD15 being West Africa to China And TD22 being U. S. Gulf to China.

Speaker 2

The orange line shows you the average of these routes with a number of $45,600 per day over the period. We then compare this with our own average earnings But this is, however, not comparing apples and apples. Our fleet is, in general, more efficient than this commonly used reference. This reflects our quality fleet relationships with excellent vetting statistics operated by highly skilled seafarers and a very competent shoreside organization. The upturn we are at the early innings of is supported by historically low order books With visibility for the next 3 years at least.

Speaker 2

Adding to this picture, fleet efficiency regulations will start to bite, Reducing productivity of the mature end of the fleet. The order book for VLCCs is now at 2.6% of the ships in the water, A marginal increase from a quarter ago but still insignificant. 6 vessels have been contracted since we last reported, Taking the order book to 17 ships. Think of this number in comparison to a sailing fleet of some 900 ships. We have again not seen any scrapping, resulting in 30% of the current fleet being older than 15 years of age and 14% being older than 20 years of age.

Speaker 2

If one assumes no ships will be scrapped over the next 2 years, about 20% of the fleet will be older than 20 years of age By the end of 2025. In the secondhand markets, the appetite to acquire older ships seems to be fading a bit. We think the key reason for this is that the shadow markets and sanction markets to possibly be satisfied. If this is correct, the older part of the fleet not engaged in these markets will increasingly find it hard to identify commercial opportunities. A small event, but another point in the shadow fleet discussion is that Venezuelan crude exports to China has come to a halt, With now its small production basically only going to the U.

Speaker 2

S. This trade used to employ a number of older VLCCs In very inefficient trade involving at least 1, if not 2 transshipments to cover up the origin of the crude. And this crew then typically went to China and actually sucked up a lot of older ships. This story is to be continued, we think. In an increasingly complex geopolitical environment That, on balance, should bode well for our business.

Speaker 2

We are staying focused on what is within our reach and control. We repeat the gospel and again outline the DHT D and A. This includes concentrating on disciplined execution of our strategy and Maintaining what we have been told is a highly regarded level of corporate governance. We believe our company is structured for cyclical and volatile markets With our solid balance sheet and strong liquidity at its foundation. As always, we keep our eyes on maintaining robust breakeven levels While still having meaningful market exposure and operating leverage, being as profitable as we can.

Speaker 2

All the above, with a defined And shareholder friendly capital allocation policy of paying out 100% of net income as quarterly cash dividends. And with that, operator, over to you to receive questions.

Operator

Thank you. Please standby while we compile the Q and A queue. Our first question comes from the line of Omar Nochtar from Jefferies. Please go ahead.

Speaker 3

Thank you. Hi, guys. Good morning, good afternoon. Just wanted to first off, thanks for the update. And I wanted to ask about the DHT footprint today.

Speaker 3

You just discussed kind of your outlook and at least for the next 3 years, things are looking pretty solid. And DHT overall, you've got a pretty solid track record, I would say, over the 10 years of effectively buying at the right time of the cycle and also selling at the right time. Where do you think we are at the moment In terms of the DHT platform itself, are you encouraged to put capital to work? You obviously bought the Apollousa recently. How do you think about where DHT is now given your liquidity, the flexibility you have, the outlook you have?

Speaker 3

And Yes. And just any color you can sort of give big picture on that, please.

Speaker 2

Thank you, Omar. We do think we are at the early innings What can be a very exciting cycle and longer than what we have seen for quite some time. And part of this, of course, is given The nonexisting order book basically and then aging fleet. When it comes to investments, the Apalusa was, we think, a very Effective opportunity. And as you saw then, our balance sheet and liquidity allows us to capture these opportunities on Very short notice when they appear.

Speaker 2

This does not mean that, in general, we are sort of trying to do with the market for any ship that's for sale, Far from it. But we are very constructive on the next few years. If the right opportunities So, it comes along. We will try to capture them, but I don't think you should expect it to sort of follow any market development in terms of asset prices. So, We think investors should focus on stocks, and we will focus on making as much money as we possibly can.

Speaker 2

But of course, you should not exclude us picking up assets if the right sort of deal comes along, right? But It's harder to find now than what it was just a couple of years ago.

Speaker 3

Yes. Thanks, Fyne. And then maybe just a follow-up. Obviously, leverage has been very low for quite some time, roughly, I would say, maybe 20% or below On a net LTV basis, is that basically kind of where you want to have it long term? Do you see bumping that up to the 30 range, 40?

Speaker 3

What do you think about sort of the leverage ratio going forward?

Speaker 2

Well, the current leverage ratio is also, by Sign enabling us to pick up assets if we want to without really distorting what we think is sort of Sustainable leverage over time. So if that means we increase leverage a bit, we don't really have a fixed number on that. But if it goes to 25% or 30% in combination with some very meaningful and attractive opportunities. We think that's okay. But beyond that, I don't think you should have any expectation.

Speaker 3

Got it. Okay. Thank you. I'll turn it over.

Operator

Thank you. We'll now move on to our next question. Our next question comes from the line of Frode Morquedahl from Clarksons. Please go ahead.

Speaker 4

My first question, I had noticed the brokers recently had marked up time charter rate ideas. I just wanted to know what do you think are realistic time charter rates now for, let's say, 2, 3 year contracts. At this point, what's your preference for spot versus contracts?

Speaker 2

I think there is a bit of a spread between the bid ask on charters, but I think today, you will have customers Potentially willing to pay, say, €50,000,000 for 3 years and €45,000,000 maybe €46,000,000 for 5 years. And I think for 1 year, it's a bit of a challenge given the spot market, but it will at least start with the 6 handle, I think. But again, it also depends on the ship. So at some point, we will start to build more visibility on earnings, but we think it's a bit early in the cycle to do this. We might pick up the right deal at the right time for the right ship, for lack of sort of better explanation.

Speaker 2

But it will not be like we did in 2020 when we pushed out twothree of the fleet in a very short time frame and capturing Fantastic earnings over a period of 12 to 18 months when the market sort of fell apart. So we think now there is It's going to be a very rewarding time also in the spot market, but it also means that there will be opportunities to build true long term cash flow at some point. So You will see that gradually taking place over the next 2 to 3 years.

Speaker 4

Yes, Makes sense. Just a follow-up on Omar's question on the cyclicality, which I agree you have Navigated quite well. And I also know that you have this, let's say, action plan on what to do at the different phases of the cycle. And Yes. I guess the dividend policy you have seeks a lot of where you think we are in the cycle, but maybe you could just talk about a bit More about how you positioned DHT to capitalize on this strong market ahead of us?

Speaker 2

Well, we do have the vast majority of our fleet on the dance floor, as we said last quarter, right? So available to capture these rates that We expect that will be available going forward, and that, of course, is going to be a massive value creator. And the majority of these monies will be paid out to shareholders. So this is, I think, is a clear message to where we think we are to the owners of the company. So but we do generate some additional cash flow after net income.

Speaker 2

So that will be allocated to General corporate purposes, as one would say, but as you've seen in the past, now we've picked up a shift. We've been buying back some stock. All of these things are just to try to further tune the business and make it even more rewarding for owners, Primarily to increase earnings per share for the owners.

Speaker 4

Sounds good. Thank you very much.

Operator

Thank you. There are no further questions at this time. So I'll hand the call back to Sven for his closing remarks.

Speaker 2

Okay.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Q3 revenues on a TCE basis were €89 million, with EBITDA of €67 million and net income of €31 million (€0.19 per share) driven by an average TCE of $42,500 per day.
  • Ended the quarter with €73.9 million in cash after allocating €57 million to the quarterly dividend, €9.9 million to share buybacks and investing €85.3 million in vessel acquisitions and upgrades.
  • Declared the 55th consecutive quarterly dividend of $0.19 per share (100% of net income) and purchased 1.1 million shares for $9.9 million during Q3.
  • Acquired a 2018-built VLCC “DHT of Parlusa” for $94.5 million, funded by cash and a new loan facility, now trading in the spot market and expected to be earnings-accretive.
  • Maintained a strong balance sheet with net debt at about €15 million per vessel (≈21% leverage) and €218 million available under the revolving credit facility.
  • 4Q23 bookings cover ~77% of available days at a blended rate of $40,200/day, against a fleet P&L breakeven of $27,500/day and cash breakeven of $21,400/day.
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Earnings Conference Call
DHT Q3 2023
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