DHT Holdings, Inc. (NYSE:DHT) Q1 2023 Earnings Call Transcript May 4, 2023

DHT Holdings, Inc. misses on earnings expectations. Reported EPS is $0.23 EPS, expectations were $0.24.

Operator: Good day and thank you for standing by. Welcome to the Q1 2023 DHT Holdings 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 session. [Operator Instructions] Please be advised today’s conference is being recorded. I would now like to hand the conference over to your first speaker today Laila Halvorsen CFO. Please go ahead.

Laila Halvorsen: Thank you. Good morning, and good afternoon, everyone. Welcome and thank you for joining DHT Holdings first quarter 2023 earnings call. I’m joined by DHT’s President and CEO, Svein Moxnes Harfjeld. As usual we will go through financials and some highlights before we open up for your questions. So 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 at our website dhtankers.com until May 11th. 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-K. 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. 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 SEC EDGAR system including the risk factors in these reports for more information regarding risks that we face. We have a solid — work solid balance sheet represented by low leverage and significant liquidity. Financial leverage is about 18% based on market values for the ships and net debt per vessel was $12 million. The quarter ended with total liquidity of $346 million, consisting of $117 million in cash and $229 million available under revolving credit facilities.

You should also note that we have no newbuilding CapEx commitments. We achieved revenues on TCE basis of $93.9 million during the quarter and EBITDA of $71.9 million. Net income was $38 million equal to $0.23 per share. We continue our good cost control with OpEx for the quarter at $18.4 million and G&A at $4.6 million. The vessels in the spot market earned $54,600 per day and the vessels on time charters made $35,000 per day. The weighted average TCE achieved for the quarter was $49,100 per day. Earnings were impacted by 112 scheduled off-hire days in connection with installation of exhaust gas cleaning systems and unscheduled off-hire mainly related to one of our vessels which encountered bad weather damage. IFRS adjustment for the quarter amounted to $5.4 million equal to $3,900 per day.

Hence, adjusted TCE for the vessels in the spot market was $58,500 per day. The IFRS 15 adjustment is simply due to the timing of when revenue is recognized and it’s impacted by low days. These earnings will be transferred into the second quarter. We started the quarter with $125.9 million in cash and we generated $71.9 million in EBITDA. Ordinary debt repayment and cash interest amounted to $5.4 million and $61.9 million was allocated to shareholders through the cash dividend pertaining to the fourth quarter of 2022. We invested $14.8 million in our fleet, with $2 million in maintenance CapEx and $12.8 million for installation of exhaust gas cleaning system. In January, we terminated seven interest rate swaps and received $3.3 million in connection with the termination.

In addition, we refinanced one of our large credit facilities with a net zero effect and the quarter ended with $117.5 million of cash. In January, we entered into $405 million secured credit facility, including $100 million accordion. This refinanced the outstanding amount on the ABN AMRO facility and is secured by 10 of the company’s vessels. That is payable in quarterly instalments of $6.25 million, equal to 625,000 per vessel, with maturity in January 2029. The new loan bear interest at a rate equal to SOFR+ 1.9%, which is equivalent to LIBOR+ 1.64%. The mentioned refinancing is in line with DHT-style financing, which includes of 20-year repayment profile and a fixed year tenure. In connection with the refinancing, and as mentioned on the previous slide, we terminated seven interest rate swaps that would have matured in the second and third quarter of 2023.

We received 3.3 million in cash in connection with the termination. Switching now to capital allocation. Our cap — our dividend policy was updated last year. Our key thought behind this was the combination of our strong balance sheet and no newbuilding CapEx amidst distributing 100% of net income of good business. According to the new dividend policy, we will pay $0.23 per share for the quarter, returning $37.5 million as a quarterly cash dividend. The dividend will be payable on May 25th to shareholders of record as of May 18th and this marks the 53rd consecutive quarterly cash dividend. The shares will trade ex-dividend from May 17th. In March, our Board of Directors approved a renewed share repurchase program of $200 million of the company’s security.

The repurchase program has a 12-month duration and replaces the prior $50 million program. We have no immediate plan to deploy this program, but like to have our toolbox equipped should the capital market present the right opportunity. With that, I will turn the call over to Svein.

Svein Moxnes Harfjeld: Thanks, Laila. Our time charter book currently consists of seven contracts. Three of them are coming off during the third quarter and it is our intention and ambition to rebuild the time charter portfolio through the right opportunities with the right customers. We have recently secured a three-year time charter for the DHT Puma. The contract has a profit sharing structure that includes the fixed base rates of $33,500 per day. The profit sharing structure is based on certain indexes with the ship’s actual economics. As such, including the benefits of being an eco-vessel fitted with a scrubber. The first year of earnings from the base rate to $40,000 per day will be allocated 100% to us. Earnings above this level will be equally shared between the customers — the customer and us.

We have good experience with these structures from past time charters, and as an example, I reference, this time charter earned about $62,800 per day during March. We are here updating you on our bookings to-date for the second quarter of 2023. We expect 620 days to be covered by our term contracts at an average rate of $34,800 per day. We further expect to have 1,390 spot days for the quarter, of which about 65% has been booked at an average rate of $70,300 per day. Combined, and as of today, this indicates bookings of 75% of the total days at weighted average earnings of $55,800 per day. In the last line, we are estimating the spot P&L breakeven rate of $24,900 per day for the second quarter, allowing you to model a net income contribution based on your own assumptions for the unfixed spot days.

The bookings for the second quarter-to-date is a healthy start to the quarter with good prospects for the quarterly cash dividend. We have, however, seen a drop in freight rates since the beginning of the quarter. Current rates from eco scrubber fitted vessel starts with a four-handle [ph] though the current sentiments suggest softening in rates. We discussed this on our prior call, and in order to avoid any misunderstanding, we take the liberty to show this slide again. The estimated P&L breakeven for the fleet as a whole is about 27,500 per day for the remaining three quarters of the year. When adjusted for the fixed income that we have, the P&L breakeven for the spot fleet is about $24,600 per day. For the remaining three quarters of the year, we estimate the cash breakeven for the fleet as a whole to be $18,500 per day, with the spot ships requiring to make $12,800 per day for the company to be cash neutral.

Keep in mind that our cash breakeven numbers include all true cash costs, OpEx, G&A, maintenance CapEx, cash interest and debt amortization. This illustrates a headroom of about $9,000 per day between cash breakeven and net income breakeven for the fleet, with the potential annualized cash flow of some $70 million that will be allocated to general corporate purposes. This cash flow, combined with the capacity in our balance sheet will enable us to invest when the time is right and the opportunities offer rewarding prospects. Here we provide you with an update on our project to retrofit the remainder of our fleet with exhaust gas cleaning systems. We have to-date completed six of eight of the retrofits and thus have two remaining. We have not fixed the time for these two, but intend to use air pockets in the freight market to execute them.

The project execution thus far has been according to plan, both from a cost perspective and in terms of planned off-hire days for the ships. The fuel spreads have alongside weakening refining margins come off, but are still offering premium earnings for the ships with systems installed. We now have 21 of 23 ships operational with systems and plan to be 100% fitted within this year. As we have mentioned earlier, these ships are the focal point of clients wanting to pursue term charters. On this slide, we illustrate developments in seaborne crude transportation over the past three years or so and ton-mile development over the same time period. As you’re all aware, the conflict between Russia and Ukraine disrupted trade patterns, which drove premium earnings for our smaller siblings.

With the slightly longer retrospect following the COVID setback, it has been a fairly steady and positive development. Importantly for DHT, in particular, the graph on the left shows VLCCs handling close to 50% of seaborne crude oil on a nominal basis, and surprisingly and due to its size and competitive cost of transportation, it represents about 70% when measured on a ton-mile basis. The VLCC it’s a true workhorse of the crude oil transportation markets and you think it’s reasonable to expect this to prevent going forward. These are extraordinary times from a geopolitical perspective and our businesses as one would expect impacted. We shall not offer you any geopolitical analysis or act as an oil market expert that would be beyond our capacity.

However, lifting the beams a bit, the three basic pillars for our business are positive. We have a growing demand for oil, because increasing transportation distances and basically no new supply coming on. We think we are in the early innings of experiencing the benefits of these pillars and it should likely continue to be volatile and seasonal. OPEC+ surprised the market with its announcement a month ago. War, sticky inflation and increased interest rates, falling refining margins raising concerns about demand and certain financial turmoil are all tempering near-term expectations. Maybe OPEC+ was ahead of the curve, but trying to reduce the impact on oil price now and targeting a higher price for the forecasted recovery later this year, our $0.02 only.

China is, however, opening up an increasing consumption and we do have a sense that non-OPEC supply will step up to compensate at least for part of these impacts and that will mean longer transportation distances. The tanking market has historically been prone for disruptions. As we speak, there are tankers involved in seizures in the Middle East growth. A certain significant flag state is due to security alert to its members and they understand some owners failing under this flag have concerns about entering the area. If this plays out, it can abruptly decrease supply of ships in this highly important loading area. This certainly has risk to the upside in the freight markets. Unrelated, there was recently an explosion followed by significant fire and fatalities in an older tanker anchored in Southeast Asia.

We are seeing incidents and now accidents related to ships in the shadow fleets. If this trend evolves, it could make users of these ships, authorities controlling territorial waters and niche the transit and terminals accepting these ships, think twice about accepting and using them. If this plays out, it could remove capacity, and again, it certainly has risked the upside. There are some near-term headwinds in the market, but we think one should not let this blur the long-term tailwinds supported by the key market pillars. Going forward, our plan is consistent and we will stick to our knitting. You should expect continued strong discipline in executing our business model and strategy. We have a great team of people in a no-nonsense company culture, all focused on delivering safe and reliable services to our customers and strong results for our shareholders.

We are tuned to operate in the tanker market with the quality of fleeterships, all in the water able to generate premium revenues, a rock solid balance sheet, a low cost structure with robust breakeven levels. We think returning 100% of net income to shareholders to be fair and square. And with that, we open up for questions. Operator?

Q&A Session

Operator: Thank you. [Operator Instructions] I will now take our first question. Please standby. This from the line of Chris Tsung from Webber Research. Please go ahead.

Operator: Thank you. We will now take our next question. Please standby. And this is from Jonathan Chappell from Evercore. Please go ahead.

Operator: Thank you. We’ll now take our next question. Please standby. This is from Omar Nokta from Jefferies. Please go ahead.

Operator: Thank you. We’ll now take our next question. And this is from the line of Frode Morkedal from Clarksons Securities. Please go ahead.

Operator: Thank you.

Operator: We’ll now take our next question. Please standby. This is from Robert Silvera from R.E. Silvera and Associates. Please go ahead.

Operator: Thank you. There are no further questions at this time. So I hand the conference back to the speakers.

Svein Moxnes Harfjeld: Well, thank you very much to all for listening in on DHT and following our company. It’s most appreciated and we’re wishing you all a continued good day. Bye-bye.

Operator: Thank you. This does conclude the conference for today. Thank you for participating and you may now disconnect. Speakers, please standby.