DHT Holdings, Inc. (NYSE:DHT) Q3 2023 Earnings Call Transcript
DHT Holdings, Inc. (NYSE:DHT) Q3 2023 Earnings Call Transcript November 7, 2023
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 session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your 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 third 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. 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 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-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 retained a very strong balance sheet represented by low leverage and significant liquidity. At quarter end, financial leverage was about 21% based on market values for the ships and net debt was some $15 million per vessel. Leverage has had a marginal increase compared to the second quarter due to an adjustment in market values for the vessels in addition to a new loan related to the acquisition of the DHT Appaloosa.
The quarter ended with total liquidity of $292 million, consisting of $74 million in cash and $218 million available under our revolving credit facility. Now over to the P&L highlights. 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 quarter, and we achieved revenues on TCE basis of $89 million and EBITDA of $67 million. Net income came in at $31 million, equal to $0.19 per share. Reported vessel operating expenses for the quarter were $18.6 million and G&A was $4.3 million. 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 non-recurring item.
The vessels in the spot market earned $44,700 per day and the vessels on time charter made $35,500 per day. The average TCE achieved for the quarter was $42,500 per day. For the first nine months of 2023, we achieved revenues on TCE basis of $296 million and EBITDA of $229 million. Net income for the first nine months was -- I'm sorry, $126 million, equal to $0.77 per share. Average TCE for the first nine months was $49,200 per day, where 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. We started the third quarter with $130.6 million in cash, and we generated $67 million in EBITDA. Ordinary debt repayment and cash interest amounted to $14 million and $57 million was allocated to shareholders through the cash dividend pertaining to the second quarter of 2023.
In addition to the cash dividend, we also allocated $10 million to shareholders through share buybacks during the quarter. $93 million was invested in our fleet with $5.5 million in maintenance CapEx, $2.1 million for installation of exhaust gas cleaning systems, and $85.3 million for the acquired vessel. Issuance of long-term debt amounted to $54.5 million and $4.9 million was related to changes in working capital. The quarter ended with $73.9 million 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% of net income. The dividend will be payable on November 28 through 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.
In addition to the cash dividend, we repurchased $1.1 million of the company's shares during the quarter for a total consideration of $9.9 million. The average price for the shares was $8.72, and the shares were tied upon received. So to summarize, with the share repurchase and quarterly cash dividend, DHT will return 132% of net income to our shareholders for the third quarter of 2023. With that, I will turn the call over to Svein.
Svein Moxnes Harfjeld: Thank you, Laila. As addressed during the last quarter, we acquired a 2018 built VLCC for $94.5 million. We took delivery of the vessel in late July, and she immediately entered the shipyard to undertake her first special survey and dry dock. 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 Appaloosa and is now trading in the spot markets. We are pleased with this acquisition, both from a value and quality perspective and acquisition that is expected to be accretive to our earnings and to further improve our fleets efficiency. As per normal, we maintain our focus on robust breakeven levels and here a few update on the levels for 2024.
The estimated P&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&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 two cash costs, i.e., OpEx, G&A, cash interest, debt amortization and maintenance CapEx. We will now go through the fourth quarter outlook. We expect 420 days to be covered by our term contracts at an average rate of $36,000 per day.
We expect to have a total of 1,790 spot days for the quarter, of which 1,280 days, equal to 71% 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 weighted average earnings of $40,200 per day. You can compare these spot booking numbers with your own estimated spots with our estimated spot P&L breakeven rate of $24,700 per day for the fourth quarter, allowing you to model a net income contribution based on your own assumptions for the unfixed spot base. During the third quarter, we put four vessels through dry dock -- so and this was one was brought earlier than the schedule, two were on schedule and one was related to the DHT Appaloosa that we acquired during the quarter.
But here is also a brief update on our dry dock 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 and 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. This slide illustrates the VLCC market over the past four quarters. The blue line is the earnings of the reference ship used by most analysts. The earnings are on average of the three key transportation routes, TD3c being the Middle East to China, TD15 being West Africa to China and TD22 being U.S. routes to China. The orange line shows 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 per day of $67,000 over the same period. DHT clearly outperforms this most commonly used reference in the markets. 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 receipts with excellent investing statistics operated by highly skilled seafarers and a very competent shoreside organization. The uptime, we are at the early innings of is supported by historically low order books with visibility for the next three years at least. Adding to this picture, fleet efficiency regulations will start to [indiscernible] reducing productivity of the mature end of the fleet. The order book for the VLCCs is now at 2.6% of the ships in the water.
A marginal increase from a quarter ago, but still insignificant. Six 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. If one assumes no ships will be scrapped over the next two years, about 20% of the fleet will be older than 20 years of age by the end of 2025. In the second hand markets, the appetite to acquire over 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 it's small production basically only going to the U.S. This trade used to employ a number of older VLCCs in very inefficient trade involving at least one, if not two transshipments to cover up the origin of the crude. And this crude 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, we are staying focused on what is within our reach and control. We repeat the gospel and again outlined the DHT DNA. 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. All the ball 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.
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