DHT Holdings' CEO Discusses Q4 2012 Results - Earnings Call Transcript

Jan.30.13 | About: DHT Holdings, (DHT)

DHT Holdings, Inc. (NYSE:DHT)

Q4 2012 Earnings Conference Call

January 30, 2013, 08:00 AM ET

Executives

Svein Moxnes Harfjeld - CEO

Eirik Uboe - CFO

Trygve P. Munthe - President

Analysts

Jonathan Chappell - Evercore Partners Inc., Research Division

Herman Hildan - RS Platou Markets AS, Research Division

Operator

Good day, and welcome to the DHT Holdings Q4 Results 2012 Conference Call. Today’s conference is being recorded. At this time, I’d now like to turn the conference over to Mr. Eirik Uboe. Please go ahead, sir.

Eirik Uboe

Thank you, operator. Thank you and good morning. Again joined by my colleagues, Svein Moxnes Harfjeld, our CEO and Trygve Munthe, our President. Before we get started with today’s call, I’d like to make the following remarks. This conference call is also being broadcast on our website at dhtankers.com, and a replay of this conference call will be available on the website. In addition, our Form 6-K, evidenced in this news release, will be filed with the SEC.

As a reminder, this conference call contains forward-looking statements that are governed by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which include statements regarding DHT’s prospects; the outlook for tanker market in general; expectations regarding daily charter hire rate and vessel utilization; forecasts of world economic activity; oil prices and oil trading patterns; expectations regarding seasonal fluctuations in tanker demand; anticipated levels of new building and scrapping; and projected dry dock schedules, involve risks and uncertainties that are more fully described in our filings made with the SEC. Actual results may differ materially from expectations reflected in these forward-looking statements.

And with that all the way, I’d like to turn the call over to Svein Harfjeld.

Svein Moxnes Harfjeld

Thank you, Eirik. Welcome all. I will now walk you through the highlights of the quarter. EBITDA for the quarter came in at $9.8 million with a net income for the quarter of $1.7 million equal to $0.11 per share after adjusting for non-cash impairment charge of $8 million. Net cash provided by operating activities for the quarter was $3.4 million.

We will pay a dividend of $0.02 per common share and $0.28 per preferred share for the quarter payable on February 19th for shareholders of record as of February 11th. When determining the dividend, our Board has taken into account the general business conditions, the continued weak tanker market as well as the Chapter 11 filing by Overseas Shipholding Group, and certain of its affiliates collectively referred to OSG and a subsequent rejection of the two long-term bareboat charters for our two Suezmax vessels.

The vessels were delivered – redelivered to us in December and in January and they’re currently trading in the spot markets. We will have a claim against the OSG bankruptcy estate related to the rejection of these contracts, contracts which are guaranteed by Overseas Shipholding Group, Inc. We have not reflected such claim and the potential recovery in our financial statements as of December 31, 2012. We have entered into time charter contracts for three of our vessels, the VLCCs DHT Ann and DHT Chris and the Aframax DHT Cathy. The time charters are entered into with end-users, have durations up to one-year and have a mix of fixed rates and market related earnings. The DHT Eagle is on time charter until May 2013. The remaining vessels in our fleet are operating in the spot markets.

Following the fleet appraisal for the fourth quarter, we repaid $4 million under the RBS credit facility in October. Following the fleet appraisal conducted in early January 2013, we repaid $9 million in January. The next scheduled principal installment under the RBS facility is in the first quarter of 2016. We are in compliance with its loan facilities and had an unencumbered cash balance of $71.3 million equal to $4.63 per share as of December 31, 2012.

We have no scheduled principal installments under our three credit facilities in 2013 and 2014. For 2015, scheduled principal installments under the DVB and DNB credit facilities total $4.9 million. However, further decline in vessel values may result in additional prepayments in order to remain in compliance with minimum value covenants. Due to the likelihood of a potential sale of one of our vessels, we adjusted the carrying value of our fleet through a non-cash impairment charge of $8 million in the quarter.

And with that, we open up for Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question today comes from Jon Chappell of Evercore Partners. Please go ahead, sir.

Jonathan Chappell - Evercore Partners Inc., Research Division

Thank you. Good afternoon guys.

Svein Moxnes Harfjeld

Good morning.

Jonathan Chappell - Evercore Partners Inc., Research Division

Just looking for a couple of details from some of the new announcements that are relatively new, I guess, in the key points just talked about its fine. First of all, can you give any more detail regarding the exact duration and the rates on the three contracts; the Ann, the Chris and the Cathy?

Svein Moxnes Harfjeld

These contracts have confidentiality clauses, so we’re not able to provide any more specific information on that, but I think when discussing your analysis mode in detail with our financial director, he’ll be able to provide some more guidance as to how you should build your model. But the duration of this shortlist are between six and twelve months. And as we say there is a mix of market related earnings and fixed earnings. So, we’re quite pleased with this and this of course also provide some working capital also for the Company.

Jonathan Chappell - Evercore Partners Inc., Research Division

By the mix of fixed in market, does that mean that out of the three of them some are completely fixed, some are completely market, does it mean that all of them have a fixed component with a profit sharing component that would give you the market exposure?

Svein Moxnes Harfjeld

We can tell you that, one is on the fixed rate, one is on a completely floating rate and one is a mix of the two. Is that helpful?

Jonathan Chappell - Evercore Partners Inc., Research Division

Yeah. And then also any commentary on the counter parties, are these with oil majors, other owners, traders?

Svein Moxnes Harfjeld

It's a combination of oil majors and oil traders. There’s no other ship owner’s. As we have stated in the highlights, it's with end-users, and this is in line with our Company’s ambition and the strategy is to conduct business with the end-users as opposed to leasing out vessels to other operators.

Jonathan Chappell - Evercore Partners Inc., Research Division

Okay. And then you also mentioned the likelihood of a potential sale, can you tell us which vessel that maybe and the timing surrounding that?

Svein Moxnes Harfjeld

We are testing the market, so to speak on the VLCC DHT Regal which was built in 1997, and we are currently at the midst of doing that, so it remains to be seen whether we could find a buyer with an acceptable price level to us. Our thinking is that in line with our stated ambition of both expanding the Company and also then over time renewing the fleet, this is one piece to that puzzle. So, it remains to be seen whether we will execute on this or not.

Jonathan Chappell - Evercore Partners Inc., Research Division

Okay; and then just one last strategic question with two parts. First of all, how do you see DHT developing from here as part of what you just mentioned your fleet modernization or expansion initiatives, and then as part of that every (indiscernible) teams there’s a repayment to the facility because of the mark down in asset value. So, out of the cash that you have is $71 million in cash, how much would you feel is really to be used as growth capital versus how much would you want to keep on the balance sheet just to kind of protect against further write downs of asset values?

Svein Moxnes Harfjeld

We have stated overlong that we have an ambition to expand to the downturn, and I guess, we are quite far into the downturn and as such one is potentially a (indiscernible) also to a turnaround. So, we're certainly monitoring the market in general. We feel that with the balance sheet and the cash at hand in the Company that at some point the Company will be in position to execute on the expansion, but that is certainly and also this enlisted with additional capital in the Company in some shape or form. So, although we are not specifically stating how that will be, we also feel in this respect that we have great support from our lending banks in having access to debt capital in order to execute on future fleet expansions. And when it comes to the cash in the Company, we are operating – running the Company currently with a larger amount of cash than one would naturally do with a fleet of nine vessels, and this is the reflection of the risk that you addressed that we have – that we are making prepayments in line with a minimum value covenants in the RBS facility in particular.

Jonathan Chappell - Evercore Partners Inc., Research Division

Okay. Thanks for your help, Svein.

Operator

Our next question comes from Herman Hildan of RS Platou. Please go ahead.

Herman Hildan - RS Platou Markets AS, Research Division

Good afternoon gentlemen. A quick question on that; could you just let us know what the book value of the vessel is after the write down?

Svein Moxnes Harfjeld

We are not communicating in our quarterly consolidated numbers specific book values on vessels, so there is typically in our [20-F] some more deliberations on carrying values in general.

Herman Hildan - RS Platou Markets AS, Research Division

Okay, thank you. Also on the OSG claim; could you say something about the size of the claim?

Svein Moxnes Harfjeld

We are yet to find the claim, and the size of the claim is work in progress so to speak, but that is just something we expect to be able to identify during this quarter. And once the claim has been filed then of course it would be communicated the size of that claim.

Herman Hildan - RS Platou Markets AS, Research Division

Okay. So it's not possible to give in any sort of range?

Svein Moxnes Harfjeld

As we said we have not filed the claim yet, and this is a formal process and it's important that we get through that gate so to speak before communicating the claim to the market.

Herman Hildan - RS Platou Markets AS, Research Division

Okay, thank you. And kind of in terms of priority are you ranked equal to the unsecured bonds in that claim or is that to -- or let’s just say in terms of priority for your claim?

Svein Moxnes Harfjeld

I think the key point here is that these two (indiscernible) were guaranteed by Overseas Ship Holding Group Inc. which is the same entity that has the bond obligations attached.

Herman Hildan - RS Platou Markets AS, Research Division

Okay. So, I guess, like there is a good indication to use the bonds to price I’d call it the mark-to-market value of that claim?

Svein Moxnes Harfjeld

That’s correct, yeah.

Herman Hildan - RS Platou Markets AS, Research Division

Yeah. Okay, that’s all from me. Thank you.

Operator

(Operator Instructions) We have no further questions.

Svein Moxnes Harfjeld

Okay. Thank you all for attending the call and following DHT. We appreciate your continuous support. Have a good day.

Operator

That will conclude today's conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.

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