DHT Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 13, 2024

There are 6 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Q2 2024 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' 2nd quarter 2024 earnings call. I am joined by DHT's President and CEO, Svein Mokhnes Freifjerf. As usual, we will go through financials and some highlights before we open up for your questions.

Speaker 1

The link to the slide deck can be found on our website, dhtankers.com. 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 on our website, dhtankers.com, until August 20. 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.

Speaker 1

These forward looking statements are based on our current expectations about future events as detailed in our financial report. 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 SSC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. We maintain a very strong balance sheet represented by low leverage and significant liquidity.

Speaker 1

At quarter end, financial leverage was 18.6% based on market values for the ships and net debt was SEK 14,200,000 per vessel. The 2nd quarter ended €263,000,000 consisting of €73,000,000 in cash and €191,000,000 available under our revolving credit facilities. Now over to the P and L. We are pleased with the results for the quarter. We achieved revenues on TCE basis of NOK 103,700,000 and EBITDA of NOK 80,000,000.

Speaker 1

Net income came in at $44,500,000 equal to $0.27 per share. Vessel operating expenses for the quarter were $20,400,000 which included some one offs in addition to timing of purchases of spares and consumables. G and A for the quarter was 4,500,000 dollars The vessels in the spot market achieved robust earnings with $52,700 per day and the vessels on time charters made $36,400 per day. The average TCE achieved for the quarter was $49,100 per day. For the first half of twenty twenty four, our spot vessels achieved $53,400 per day, while the average combined time charter equivalent earnings came in at $50,000 per day.

Speaker 1

Net income for the first half of twenty twenty four came in at 91.6 €1,000,000 equal to $0.57 per share. And then over to the cash flow highlights. The cash flow for the Q2 of 2024 was stable, and we started the quarter with $73,000,000 in cash. We generated €80,000,000 in EBITDA. Ordinary debt repayment and cash interest amounted to €16,000,000 and NOK 46,800,000 was allocated to shareholders through a cash dividend, while NOK 800,000 was used for maintenance CapEx.

Speaker 1

We paid 1st installments for all 4 new buildings amounting to NOK 51,500,000 and we drew €25,000,000 on the ING revolving credit facility to partly fund the installments together with our discretionary cash flow. Further, dollars 8,800,000 was dollars 8,800,000 was related to changes in working capital and the quarter ended with $73,000,000 in cash. Switching to capital allocation. BHT has a defined and predictable capital allocation policy. And in line with our policy, we will pay $0.27 per share as a quarterly cash dividend, which is equal to 100 percent of ordinary net income.

Speaker 1

The dividend will be payable on August 30 to shareholders of record as of August 23. This marks the 58 consecutive quarterly cash dividend, and the shares will trade ex dividend from August 23. On the left side of this slide, we present an update on estimated P and L and cash breakeven rates for 2024. P and L breakeven for the full year is estimated to $27,700 per day for the fleet, while cash breakeven is estimated to $18,500 per day, resulting in $9,200 per day per ship in discretionary cash flow after dividends. So assuming the vessels earn P and L breakeven, this means about €79,000,000 in discretionary cash flow for the year.

Speaker 1

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 twenty twenty two. This amounts to a total of $1.97 per share. And with that, I will turn the call over to Svein.

Speaker 2

Thank you, Lena. Here with the updated outlook for the Q3 for the company. We have 552 time charter days covered for the 3rd quarter at 37,700. This rate assumes only the base rate for the 2 time charter contracts that have profit sharing features. The forecast includes the time charter for DHT Europe built 2,007 at $49,500 per day that commenced at the end of June.

Speaker 2

We expect to have 1630 spot days in this quarter, of which 75% have been booked an average rate of 42,100. The current spot market is below this level. Hence, there is a risk that the average for the quarter will come down from this number. The spot P and L breakeven for the quarter is estimated to be 23,600, a number that should assist you in estimating the net income contribution from our spot fleet. Here we presented with an update for our newbuilding program.

Speaker 2

We have achieved meaningful improvements in the delivery schedules for all 4 ships. The delivery schedule is now February, April, May July in 20 6. This results in a significant increase in revenue days for the year When compared to the schedules at the time of entry entering into the contract, we now expect increase in revenue days to be in the range of 5 50 to 600 days for the year. As you will note, the ships under construction have been all allocated mains. As indicated during our previous earnings call, the options for additional ships were not declared and have as such expired.

Speaker 2

The advance schedule was made possible as certain projects for other ship types have been revised at the shipyards. We are very pleased with this outcome and that our relationship with the yard resulted in us being afforded this priority. The spot market is currently in a seasonal weak period. As many analysts and research reports are suggesting, we are now in a waiting game for refinery maintenance to complete and for runs to increase. On the graph to the left, you will see that seaborne transportation of crude oil hit about 41,700,000 barrels per day in February March this year.

Speaker 2

In the past 2 months, this has come down to about 40,300,000 barrels per day, I. E. Down some 1,500,000 barrel per day. As you will see in the graph to the right, this development resulted in inventory builds largely in April and we understand in China in particular. This reversed in June July as refiners started to draw on inventories, being the key culprit behind the reduced demand for transportation.

Speaker 2

We believe the prior slide to jive well with this illustration. On the left, you can note that refining margins softened during the Q2. In the graph on the right, you can see that refiners have built inventories of diesel and gasoline during the same period. The forward curve suggests that refining margins could improve and would offer an opportunity to reduce decent inventories. We think it's logical to assume that this will play out and that it will generate increased demand for crude oil feedstock and our services to rebuild crude oil inventories.

Speaker 2

In general, our markets offer attractive fundamentals and prospects with continued oil demand growth, longer transportation distances and a limited supply of new ships in combination with rapidly aging fleets. Our strategic pillars remain the disciplined execution. We believe we are well structured for the markets we operate in, focusing on solid customer relations, offering safe and reliable services, supported by a solid balance sheet, strong liquidity and robust breakeven levels, all matched up with a defined and shareholder friendly dividend policy. With that, operator, over to you.

Operator

Thank you. Our first question comes from the line of Jon Chappell from Evercore ISI. Please go ahead. Your line is open.

Speaker 3

Thank you. Good afternoon. Bit of a housekeeping one first with the new accelerated schedule on the new buildings. What's the payment schedule look like between now and delivery? Any more payments this year and the cadence for next year?

Speaker 3

And then also, is this all going to be cash funded? Or do you plan on drawing down debt at delivery for the floor?

Speaker 1

Yes. So in our press release, I think under Note 5, we've included a table with future expected payments. So you see there that within the next 12 months, we expect payments of SEK 89,900,000 and then the rest after that. We've looked into different financing projects, and we are very pleased with suggestions that we have, but nothing is decided yet. So we will get back to you with that once we've finalized.

Speaker 2

Okay. And then If I just may add to that, John, is that there is, of course, some timing differences is when we generate the cash flow that we'll use for the equity component of these ships. And so the hence, we sort of on time from time to time draw on RCFs and then generate cash flow and then back and forth on that. So that's why this happened during this past quarter.

Speaker 3

Have you had any interest at this point with delivery now within the next 24 months on time charters? Or do you just assume that those would be implemented in the spot market upon delivery?

Speaker 2

There is some initial interest, but I would say it's not at the level that sort of intention and interest in seeing if we can develop this. I think it will take a bit of time, and it's probably a next year event if we decide to pursue that. So we have a it is our ambition to build more long term and fixed income for the company in general. And these ships will offer some very interesting opportunities for a couple of 3 clients in particular that have showed interest.

Speaker 3

Okay. And then finally, fine. The seasonality makes sense. I've seen it several years. 3rd quarter is weakest.

Speaker 3

Maybe this time though, there's some concerns about China as being the biggest end market for crude long haul deliveries and some potential weakness there. Have you seen any signs that maybe China is weakening and it's a bit more beyond seasonality? There's some cyclical component to it? Or do you truly just think it's a function of refinery shutdowns at this time of year?

Speaker 2

I think there's a bit of both. We've seen some development in that heavy trucking is starting to implement LNG as fuel. And LNG or heavy transportation in general in Asia has been a meaningful contributor to demand growth in general. So this is something to watch. On the positive side, there is meaningful growth in the petchem industry, which is, I guess, a reflection of policy in China that they want to focus more on a consuming industry.

Speaker 2

And the new refining capacity coming on in China has around upwards to 80% of petchem output, of which the predominant part is crude oil based. But this is not happening right now. This is something we will see developing now over the next, I would say, 12 to 24 months. So there is some change in where the oil is going or what's good the oil is being used for, if you like. And I guess the negative components has come earlier than the when the positive components will come into the market.

Speaker 2

So that's probably amplified a bit the seasonality this summer.

Speaker 4

Okay.

Speaker 2

Thanks for the time.

Operator

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

Speaker 4

Thank you. Hi, Fahad.

Speaker 2

You're all good.

Speaker 4

Regarding the new bid options, is the decision to not exercise them due to the fact that it could impact the ability to pay 1 100% of earnings in dividends? Or is it the view on the newbuild prices themselves?

Speaker 2

Well, if we had the clear those options, it would be a meaningful increase in CapEx, of course, and that would also change the structure of our balance sheet considerably. And we had no desire to do that. So the core plan was all along to do the 4 ships with a caveat that if we had had some early interest to develop 2 long term charters, say, 7, 8 years or longer, if that had happened earlier and we could develop some particular financing for that, That's something we might have considered for 1, 2 or all 4 ships, but that did not materialize. So we felt it prudent to do the 4 ships, and we're very happy with that. So yes, that's the short story, I guess.

Speaker 4

Yes. Makes sense. My next question is about the market. I guess there's been some talk about the VLCC cleaning up to do CPP cargoes. What's the magnitude of that activity?

Speaker 4

And is that something you've also considered?

Speaker 2

It's mostly Suezmaxes. We think maybe around 20 that have done that. There's been some VLCC cargoes. We think about a handful. Ideally, it should coincide with that you have a relatively modern ship that is then going to dry dock.

Speaker 2

And in sort of when that happens, that you also clean up the ship in sort of beyond the conventional write off work. It will take quite a few extra days, probably $20,000,000 I would say, and it will have some cost, a few $100,000 depending on the ship and that ship's prior cargo history and things like that. So and there was no opportunity now with sort of arbitrage pricing on products as well as the lower cost of ships. So we have done this in the past. We did not have any ships that were sort of suited at this point for this business opportunity, but it's not an unknown territory for DSG.

Speaker 2

So I will guess probably 5 ships, maybe 6, and that's about it.

Speaker 4

Okay. That's interesting. Thank you.

Operator

Thank you. We'll now move on to our next question. Our next question comes from the line of Omar Nochter from Jefferies. Please go ahead. Your line is open.

Speaker 5

Thank you. It's Vain. Just want to follow-up really quickly on the last question from Frode about the VLCCs and the potential carrying the clean cargoes. You mentioned that it's typically done before the vessel is going into dry dock. Is that basically would this be just one cargo that they're able to do and then go to dry dock?

Speaker 5

Or can it do a series of cargoes?

Speaker 2

It's done in connection with the dry dock so that you clean up. And then when you load the refined products, these cargoes are typically going to the Atlantic basin, and quite a lot of them had gone to Africa. You tend to be lying or storing the cargo for a while before you are able to unload. So that's sort of, you could say, not a positive because you are a freshly painted vessel, and you tend to get some hull growth after this. But of course, the charter rates are at a premium to the general market, so that I guess, compensates for some of that.

Speaker 2

Then there's some detailed nuances on risk with contamination and decolorization and things like that, to what extent you can transfer some of that risk to the counterparty and whatnot. But it is really for 1 cargo unless you after discharge, say, in Atlantic Basin, you decide to balance back to try to do a second cargo. But that is normally not done, and ships view the assessors for repositioning of the dry dock into the Atlantic Basin and to then trade the cargoes loaded in U. S. Gulf or Brazil or West Africa.

Speaker 5

Okay. Got it. Thanks for that. And then just wanted to ask maybe you we were discussing earlier the seasonality aspect and and it comes every year and you have the chart that shows that the pickup. I guess I wanted to ask maybe bigger picture, it feels like we're in this pattern of OPEC constantly needing to revisit its production levels.

Speaker 5

And maybe we're looking at a situation where flat production from OPEC is best case and they're constantly perhaps having to cut. And that's not necessarily because of demand, but it's the fact that you have so much non OPEC production growth. I guess, how do you think that VLCCs will continue to fare in this type of market? If we were to think about the dynamic here over the next 6 to 18 months where OPEC is flat to down, but then you've got the Atlantic that's growing. How do you think VLCC is fair in this type of market?

Speaker 2

I think that would be a positive. So the Atlantic barrels out to Asia is truly a VLCC business. And it's impossible really for Seussmax to compete in trade terms on that. So I would say that's a positive. I think if OPEC at some point now decides to release barrels to the market, it's because there is true evidence of demand growth also.

Speaker 2

So that those barrels can come to the market without necessarily rocking the oil price to the sort of zip code. So I think I always thought that OPEC or Saudi, in particular, have a clear objective of managing price more than anything, and that is the pressures to them.

Speaker 5

Okay. Yes. And then just the final ones, Vaheen. The TMX has been ramping up and it looks like we're almost at a not necessarily run rate, but it looks like a good number of Aframaxes are loading perhaps somewhat consistently out of the Vancouver region. Has there been any settling of how these cargoes are being directed?

Speaker 5

Obviously, it's the Afra that are loading at the port, But is reverse lightering onto VLCCs becoming a standard thing? And is that also something that maybe will move the needle on VLCCs, just perhaps not visible now because of this summer?

Speaker 2

Yes. There's already a number of cargoes where the Aframaxes have been heading south, California or even further south, to Pal. And there's been then reverse latching onto these for those ships then go predominantly to China. There's also been, I think, 1 cargo to India. And the sort of freight cost of that is meaningfully cheaper than sending an Aframax directly from the Vancouver area over to China because also those efforts will not be fully loaded due to drought restrictions.

Speaker 2

So we think that this is a new trade that will evolve for these on top of what else is going on.

Operator

There are no further audio questions at this time. So I will hand the call back to Svein Moxis Hartfield for any closing remarks.

Speaker 2

Thank you to all for staying interested and tuned in to DHT, and we wish you all a good day ahead. Have a good one.

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Key Takeaways

  • Maintained a very strong balance sheet with 18.6% financial leverage and net debt of SEK 14.2 million per vessel, backed by €73 million in cash and €191 million in revolving credit facilities at quarter end.
  • Delivered solid Q2 results with TCE revenues of NOK 103.7 million, EBITDA of NOK 80 million and net income of $44.5 million ($0.27 per share), achieving an average TCE of $49,100 per day.
  • For Q3, 552 time charter days are secured at $37,700 per day and 75% of the 1,630 estimated spot days are booked at $42,100 per day, while the spot P&L breakeven is estimated at $23,600 per day.
  • Accelerated delivery of four newbuild VLCCs now scheduled between February and July 2026, boosting 2026 revenue days by an estimated 550–600 days compared to original plans.
  • Upheld a shareholder-friendly capital allocation policy, declaring a 58th consecutive quarterly dividend of $0.27 per share (100% of ordinary net income) and projecting full-year P&L breakeven at $27,700 per day with $9,200 per day in discretionary cash flow per ship after dividends.
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Earnings Conference Call
DHT Q2 2024
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