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Edited Transcript of DHT earnings conference call or presentation 6-Feb-20 1:00pm GMT

·38 min read

Q4 2019 DHT Holdings Inc Earnings Call HAMILTON Jun 8, 2020 (Thomson StreetEvents) -- Edited Transcript of DHT Holdings Inc earnings conference call or presentation Thursday, February 6, 2020 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Laila C. Halvorsen DHT Holdings, Inc. - CFO * Svein Moxnes Harfjeld DHT Holdings, Inc. - Co-CEO * Trygve Preben Munthe DHT Holdings, Inc. - Co-CEO ================================================================================ Conference Call Participants ================================================================================ * Benjamin Joel Nolan Stifel, Nicolaus & Company, Incorporated, Research Division - MD * Dennis Anghelopoulos ABG Sundal Collier Holding ASA, Research Division - Research Analyst * Jonathan B. Chappell Evercore ISI Institutional Equities, Research Division - Senior MD * Nicolay Dyvik DNB Markets, Research Division - Head of Shipping Equity Research * Omar Mostafa Nokta Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst * Randall Giveans Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping * Ronald Silvera;R.E. Silvera & Associates;President ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 DHT Holdings, Inc. Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today. I would now like to hand the conference over to your speaker today, Laila Halvorsen. Please go ahead, madam. -------------------------------------------------------------------------------- Laila C. Halvorsen, DHT Holdings, Inc. - CFO [2] -------------------------------------------------------------------------------- Thank you. Good morning, and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings Fourth Quarter 2020 Earnings Call. I'm joined by DHT's Co-CEOs, Svein Moxnes Harfjeld and Trygve Munthe. As usual, we will go through financials and some highlights before we open up for your questions. Links 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 February 13. 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 the 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, including DHT's prospects, dividends, share repurchases and debt repayment; the outlook for the tanker market in general; daily charter high rates and vessel utilization; forecast of world economic activity; oil prices and oil trading patterns; anticipated levels of newbuilding and scrapping; and projected dry dock schedules. Actual results may differ materially from expectations reflected in these forward-looking statements. We urge you to read our periodic report 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. DHT has reported the highest quarterly results in the company's 15-year history with net income of $76 million or $0.52 per share and EBITDA which came in at $116 million. EBITDA for the full year of 2019, came in at $254 million and a net income of $74 million or $0.51 per share. Adjusted for noncash change and fair value related to interest rate derivatives of $9.9 million, net income was $84 million or $0.58 per share for the full year of 2019. The average earnings for the company's VLCCs operating in the spot market came in at $59,200 per day in the fourth quarter and the VLCCs on time charter earned $54,600 per day. The results was impacted by an IFRS 15 adjustment totaling $4,700 per day, and the results for the VLCCs operating in the spot market adjusted for the IFRS 15 impact of $63,900 per day for the fourth quarter of 2019. OpEx for the quarter was $22 million or $8,800 per day average for the fleet, reflecting upstoring of spares and other consumables in anticipation of IMO 2020. OpEx per day for the full year of 2019 was $7,900 per day average for the fleet. G&A for the quarter was $3.5 million, equal to $1,400 per ship per day, and the full year of 2019 was equal to $1,500 per ship per day. For the full year of 2019, the VLCCs operating in the spot market generated $36,400 per day in revenues on a TCE basis. As of today, we have booked 58% of our first quarter spot days at $81,600 per day on a discharge to discharge basis. The company has elected to pay a cash dividend for the 40th consecutive quarter, a dividend of $0.32 per share for the quarter is payable on the February 25 to shareholders of record as of February 18. According to our capital allocation policy, we will return at least 60% of ordinary net income. Our net income for the fourth quarter of 2019 includes a noncash fair value gain related to our interest rate derivatives of $3 million. Moving over to the balance sheet. The quarter ended with $67 million of cash. During the quarter, we repaid $35 million under our revolving credit facility and in addition, we prepaid the outstanding amount on DHT Lake and DHT Raven totaling $22 million. In October 2019, 80% of the convertible notes due 2019 were converted. The company issued 4.4 million shares, and the remaining 6.4 million was repaid in cash. Current availability under our revolving credit facilities is $80 million. Financial leverage is moderate with interest-bearing debt to total assets of 42% based on market values for the ships. Looking at the cash bridge, we generated $116 million in EBITDA. Ordinary net -- debt repayment cash interest amounted to $28 million, $3 million was paid related to maintenance CapEx and a net of $7.5 million was paid for the retrofit. $6.4 million was used related to redemption of convertible bonds, and $7.3 million were paid in dividends. We also prepaid long-term debt totaling $57 million during the quarter. Changes in the working capital was $56 million, and it's mainly related to increased accounts receivable and accrued revenue due to the strong market and higher freight rates, in addition to increased bunker inventories for the quarter. And the quarter ended with $67 million of cash. With that, I will turn the call over to Trygve. -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [3] -------------------------------------------------------------------------------- Thank you, Laila. At DHT, we do not make excuses, but we do think our spot earnings for the fourth quarter and the first quarter-to-date deserve some explanations and color. As you know, IFRS 15 has limited our ability to recognize revenue when the ships are in ballasts. And it so happens that we in the fourth quarter had an unusually large IFRS adjustment to the tune of $9.4 million. Without going into the details, we think you should note the main point, which is that on a discharge to discharge basis, which we believe, by the way, is how most of our peers report, our spot ships earned $63,900 per day in the fourth quarter. When it comes to our first quarter-to-date spot bookings, we have, frankly, been a bit unfortunate with our scheduling. Over the past 2 months, we have had a number of ships tied up in congestion in Chinese ports. This affected our numbers negatively in 2 ways: firstly, because these ships were only earning yesterday's demurrage rates when the prevailing market was much higher; and secondly, because the ships missed the opportunity to get fixed when the market was at its strongest. By the time the ships finally came free of the Chinese delays, the spot market had already started receding. Frustrating indeed, but this is how the cookie crumbled for us this time around. On the cost side of the income statement, we'd like to highlight that the company continues to demonstrate good cost control and deliver competitive numbers. For the full year, operating expenses for the ships came in at $7,900 per day and G&A for the year totaled $14.8 million, both of which we believe compares favorably with the peer group. As far as capital allocation goes, we'd like you to note the following 4 factors: one, we reduced debt by $97 million in the quarter, $17 million as ordinary repayments, $47 million of net prepayments and $33 million conversion and cash redemption of convertible notes; two, following a significant buildup in working capital in the fourth quarter, cash flow is currently strong as the ships perform the voyages fixed in the high market; three, the company will pay $47 million in dividends on the 25th of February; four, you should expect further debt prepayments in the current quarter. We now want to update you on our scrubber program and scrubber economics in general, so let's start with the different TCEs obtainable in today's market depending on what type of ship you have and whether or not it is equipped with a scrubber. From the matrix on Slide 8, you see greatly different TCE returns based on the same Worldscale rates. Whilst the non-ECO, or nonscrubber ship will make about $16,500 a day in the current market, the scrubber-fitted ECO ship will make more than twice that namely about $35,400 per day. You can also see that the scrubber premium, based on current bunker prices, is about $13,700 a day for non-ECO ships, and $9,400 per day for ECO ships. It is lower for the ECO ships because of lower consumption, of course. The ECO premium is about $9,500 a day for nonscrubber ships, while it drops to $5,200 a day for scrubber-fitted ships. The value of the fuel efficiency is lower for the scrubber-fitted ships because HFO is cheaper than compliant fuel. And in this context, you may want to note that the composition of our 23 spot ships is such that we would average about $25,600 per day under these Worldscale and bunker price assumptions. That is about $9,100 a day above a nonscrubber non-ECO ship which typically the type of ship used in the many daily broker reports. Let us now give you an update on DHT's scrubber situation. From the table on Slide 9, you will see that we currently have 12 ships with scrubbers. As you will recall from our last earnings call, we elected to postpone 6 retrofits in lieu of the dramatic increase in freight rates that we witnessed in the fourth quarter. The plan is to do these retrofits this year. From a market perspective, one would think that now would be a good time to go in for retrofits. We agree, but the problem is that this work is to be done in China, and we all know how the Wuhan virus has thrown that country into disarray. Right now, the shipyards are not in a position to even do the scheduled work, let alone any additional tanker retrofits. They simply do not know when the full labor force is going to be able to return to work. We are in continuous dialogue with our yard, and we'll certainly do as well as we can within the limits of what is possible. But at this stage, we simply cannot provide you more accurate information on when these 6 retrofits will happen. Finally, on this topic, we would like to highlight that the company has to date made 15 bunkerings of heavy fuel oil for its scrubber-fitted vessels with a total saving of $15 million compared to if it had bunkered compliant LSFO. That means that we have already recouped 31% of the incurred retrofit CapEx of $48 million. And with that, I will turn the call over to Svein for further commentary. -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [4] -------------------------------------------------------------------------------- Thank you, Trygve. Time charter equivalent earnings, commonly known as TCE, is the key term when analyzing revenue in shipping companies. It does, however, increasingly consist of a varying -- or varying inputs and assumptions, hence, presenting challenges in comparing numbers reported by companies and linking such numbers to broker estimates and freight indexes. The following components and variables needs to be fully appreciated in order to make good sense of a TCE number. Firstly, as Trygve mentioned, our industry now has 4 categories of ships with very different fuel economics depending on scrubbers and designs. Secondly, fuel costs and spreads between heavy fuel oil and compliant fuel, both vary and fluctuate geographically. Thirdly, voyage durations ranging between 20 and 120 days will, to a varying extent, fall within or cross between accounting periods. Lastly, the introduction of IFRS 15 is adding volatility to earnings in an already volatile business. In our humble view, this has not improved visibility for stakeholders in their endeavor to understand earnings in our industry. In addition to these points, company could report TCE differently. The differences may represent the following alone or in combination: one, accounting numbers that include IFRS 15; two, [true] earnings without IFRS 15; three, exclude ships affected by IFRS 16; and four, classification of our ships in age groups. As confusing as all this might seem to stakeholders wanting to decipher performance, we believe the conventional and well-driven path of earnings per share to work well when analyzing performance and return potential. When evaluated in relation to share price, it tells a lot about the return one will make on the investments. In this regard, you should not be surprised to learn that DHT puts up a very good showing. Our clear and well-defined capital allocation policy, anchored in earnings per share, a policy that tends to err on the generous side, ensures that investors are timely rewarded through quarterly cash dividends. We will now provide some market commentary. We are for sure meeting some headwinds in the spot markets. The outburst of the coronavirus is playing its part to a variety of factors. It is reducing near-term oil consumption in China by a meaningful number, hence, imports and transportation is hit. The oil price has softened, and refining margins have shrunk, reducing the economic incentive for refiners to run at high utilization. OPEC is contemplating an additional production cap in response to this in order to manage price. Since September last year, some 26 VLCCs owned by COSCO has been tied up in sanctions preventing them from trading. These ships are now on their way back into the market, albeit but a bit staggered, as various operational issues needs to be resolved such as SIRE approvals and bunkering operations made challenging by quarantine imports like Singapore. It is also a time of year that typically see some reduction of seaborne trade as refiners prepare for maintenance towards the end of the quarter and beginning of the next. It is, however, important to note that the recent strong rates and volatility could unlikely have happened without strong underlying fundamentals. Oil demand is, short-term volatility and seasonality excluded, still growing at a steady pace. The incremental supply of oil comes from the Atlantic; and the demand growth in Asia -- is in Asia, a combination that drives longer transportation distances, thereby increasing utilization of the fleets. The fleet is quickly aging with almost 1/4 of the fleet being older than 15 years. Importantly, there is a meaningful number of ships turning 20 this year and next, and one could easily expect these ships to retire at that milestone. The order book is in decline with scheduled supplier of ships over the next couple of years now below 8%. There's hardly any ordering of new ships, reflecting uncertainty over future design and technology related to propulsion and fuel. So in sum, we are realistic about the near-term weakness in the spot markets and remain positive on the outlook beyond this. And with that, we open up for questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And the first one is coming from the line of Jon Chappell from Evercore. -------------------------------------------------------------------------------- Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [2] -------------------------------------------------------------------------------- Trygve, first one for you on the scrubber impact, thanks for the detail that you provided this morning. Trying to back into the TCE impact quarter-to-date, and it may be far too simplistic. But if we use the $14.6 million, and then a number of days estimate on your 12 ships, it seems like it's about $10,000 a day so far. So first of all, could you confirm that? And then second of all -- to the extent that you can. And second of all, the $81,000 that you booked quarter-to-date, I just want to be sure, does that include that potential $10,000 impact on the scrubber-fitted ships? So if we looked at the non-scrubber fleet, it would be somewhere in the 70s? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [3] -------------------------------------------------------------------------------- To the last part first, Jon. Yes, the number we reported, that is for our entire spot fleet. So it's both ECOs with scrubbers and there are non-ECOs without scrubbers. So it's a mixed result. As to the first question on the savings and how you can back that into rates, I think you've got to be cautious because this is really at the time when we bunkered up on these ships with compliant and how much we bunkered can vary, and how long it's going to take to consume that bunkers will also vary. So therefore, it's a little difficult to sort of calculate the exact number based on that, and I don't really have any further color on that at this point. -------------------------------------------------------------------------------- Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [4] -------------------------------------------------------------------------------- Okay. The other thing I want to address was the time charter rates. Can you give us a reminder? There's 5 vessels on time charter. It seemed like your time charter rates were substantially higher this year. So do -- or this quarter. Do all of them include a profit-sharing element? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [5] -------------------------------------------------------------------------------- Yes. And first of all, there's 4 ships on the time charter, and all of them have a profit-sharing element. And 3 of them have a base rate that is guaranteed. And then the tranche that goes 100% to us, and then the split above that. And the fourth one does not have that middle tranche. It's just a higher base and then immediate sharing after that. -------------------------------------------------------------------------------- Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [6] -------------------------------------------------------------------------------- Okay. It’s at 5 as of December 31. So I assume 1 has expired in the last 36 days or so? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [7] -------------------------------------------------------------------------------- That's correct, yes. -------------------------------------------------------------------------------- Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [8] -------------------------------------------------------------------------------- Okay. Finally, one kind of technical modeling one for Laila. Now that the diluted shares come into account, given the profitability and the convert, what's the adjustment to the interest expense when we do the diluted EPS calculation? -------------------------------------------------------------------------------- Laila C. Halvorsen, DHT Holdings, Inc. - CFO [9] -------------------------------------------------------------------------------- Yes, the shares are further explained in the notes in the financial report. So it's correct, as you say, due to the income in the quarter, this has an impact. While if you look at the full year, it has not any impact on the diluted earnings per share. -------------------------------------------------------------------------------- Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [10] -------------------------------------------------------------------------------- Right. But -- so we'll assume that you'll be profitable going forward. We add 20 million shares or so to the diluted count. But I think as part of the calculation for diluted EPS, there is an add-back to the stated interest expense. I don't know, maybe you could take it offline. I know in prior -- with your prior convert, it was at like 5 million a quarter. I was just wondering if you had an updated calculation for that. -------------------------------------------------------------------------------- Laila C. Halvorsen, DHT Holdings, Inc. - CFO [11] -------------------------------------------------------------------------------- No. The interest on our convertible bond is 4.5 million, and we also have the shares, the amortized shares throughout the period of the convertible bond. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Next question is coming from the line of Randy Giveans from Jefferies. -------------------------------------------------------------------------------- Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [13] -------------------------------------------------------------------------------- So I guess the first question just on the 60% payout. Obviously, your share price is falling below the current levels of October 1 before the fourth quarter surge. So why not include some kind of share repurchases as part of that $47 million return of capital? And then I guess going forward, do you expect continued full dividend payouts for the 60% of net income? Or will there be some share repurchases included? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [14] -------------------------------------------------------------------------------- Our practice on the 60%, is that if we didn't do any repurchases in the quarter that we're reporting so, i.e., the fourth quarter now, which we didn't, then we will pay out the 60% of dividends. But if we had repurchased anything in the fourth quarter, then dividends might have been lower. But suffice it to say that the share price was doing very well up until New Year and past that, actually. -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [15] -------------------------------------------------------------------------------- I think also maybe add to that that share buybacks is not just a question of whether you're trading above or NAV at any given time. It's also where you are in the cycle. So I think we are in a sort of a recovery -- or at a strong part of the cycle albeit the spot price just had a dip. So -- which reflects also an appreciation of asset prices compared to, say, '17 and '18. So in that period, it was more attractive to acquiring shares for end of '16 even I suppose at this point in time, Randy. -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [16] -------------------------------------------------------------------------------- And of course, the exact dividend is at the Board's discretion, but we have had the policy of minimum 60% of ordinary net income for 5 years now, and we think it serves shareholders well and it serves the company well. So you shouldn't really expect a deviation from that in the short term. -------------------------------------------------------------------------------- Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [17] -------------------------------------------------------------------------------- Sure. All right. And then I know you touched on it briefly during the prepared remarks. But like you said, your first quarter bookings, decent, at 58% at $81,600. But relative to some of your peers who reported maybe 60% at closer to $90,000, that's without scrubbers, can you help reconcile that a little more other than just kind of the vessels being stuck in Chinese yards? Is that issue now behind us? And then obviously, with rates falling recently, what are your kind of expectations first quarter relative to fourth quarter, kind of on an overall basis? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [18] -------------------------------------------------------------------------------- I think to the first part, the scrubbers versus nonscrubbers and the peer you're talking about, of course, made it very clear to everyone that they went out early and acquired compliant fuel on the cheap. And of course, they have had effect on that, assumingly fleet-wide from January 1. And hat's off to the numbers they presented, that was very strong indeed. And to our number, I think the key point is that we were truly stuck with ships fixed before the spike in the market that lasted longer than they should have because of these congestions. So... -------------------------------------------------------------------------------- Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [19] -------------------------------------------------------------------------------- And then kind of full quarter, first quarter relative to the fourth quarter? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [20] -------------------------------------------------------------------------------- That's very difficult to judge. We're in an environment that is very unusual. There's certainly a very weak freight market out there. And I guess all you can do is just play with numbers. And I think one of the reports from one of you guys this morning was that at rates in the mid-20s for the unfixed portion of the spot fleet, you should see a quarter not too different from Q4. We haven't run those numbers ourselves, but I think that's a meaningful way to approach it. -------------------------------------------------------------------------------- Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [21] -------------------------------------------------------------------------------- All right. I just want to give you a chance there. And then I guess real quickly, obviously, fourth quarter was pretty hairy with the converts and debt repayments, scrubber, off hire days, all those things. But what's your full average -- or your average for the full year 2020 EPS breakeven rate for the fleet? Is it low $20,000s currently? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [22] -------------------------------------------------------------------------------- Our EPS is higher than that. So net income-wise is sort of in the high 20s. And the cash breakeven on the spot ships is below $20,000. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- The next question is coming from the line of Ben Nolan from Stifel. -------------------------------------------------------------------------------- Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [24] -------------------------------------------------------------------------------- So just a couple of quick ones. The first is on the spreads that you guys are able to get on the scrubbers. I was just curious -- just making sure. Those are actual real numbers, real time based on the ports that you were at, not just an average of the market or something like that, correct? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [25] -------------------------------------------------------------------------------- That is correct. That's the -- each individual of those 15 bunkerings at what port and what we paid for the HFO and what compliant fuel was quoted at, at the same time, and it's weighted by how much we've bunkered on each 1 of them. -------------------------------------------------------------------------------- Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [26] -------------------------------------------------------------------------------- Interesting. Very impressive results on that front. The -- my next question relates to just sort of where we are in the market. Obviously, the spot market is weak, and it sounds like you guys think that is just temporary and that things will pick up. In your experience, at what point do you think asset values might be a little bit at risk where people begin to get a little bit nervous in terms of buying or looking to lock in gains? How long or how low does it have to go before we might see a little bit of a retrenchment there? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [27] -------------------------------------------------------------------------------- I think it's fair to say that the liquidity in general on VLCC sale and purchase is rather thin. The transactions you had over these past few months have been a handful of sort of brand-new ships with scrubbers have changed hands at the premium pricing. And then there's been a number of ships, sort of in the 18, 19, 20-year brackets that have got fairly good prices in response to the spot market. And for the latter sort of category, you would expect maybe some of those type of transactions to quiet down a bit given where we are in the spot market. So there's been very few transactions, if any, ships -- or there have been some, but, say, between 5 and 12, 13 years of age. It's been very, very quiet. So... -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- Next question is coming from the line of Omar Nokta from Clarksons Platou. -------------------------------------------------------------------------------- Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [29] -------------------------------------------------------------------------------- I'd say just maybe a comment to start. I think it's an interesting time that we're in. I feel like the tone of this call is a bit somber. And you wouldn't think that you reported your best quarterly results ever, if I recall, and your guidance is for it to potentially be even better in the first quarter. Having said that, I wanted to ask about the dividend policy. I know you've been addressing it. And as we think about it here, the 60% for the fourth quarter, clearly, you paid that out. As we think about here we are in 2020, we started off very strongly. There's a lot of uncertainty and rates have come off. When -- how should we think about the payout for -- say, that 1Q results when all is said and done, should we look at it as its own specific period? Or do you think about more of a smoothing-out process throughout the year where maybe you hold some back in the first quarter, and then by the end of the year, you're paying a bit more out? Could you give some color on that? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [30] -------------------------------------------------------------------------------- Sure. No, we're not going to smooth any things out. And we think the formula-based dividend is what it is. And if we earn x numbers for the first quarter, we'll pay out 60% of that -- or return 60% of that, it could also be in buybacks, of course. And if then the subsequent quarter is breakeven with no net income, we will do 60% of that. And of course, based on past records, you've seen that we've been paying a nominal dividend even when we have been on the breakeven. But no, there is no desire to smooth it out. We'll pay as we earn. -------------------------------------------------------------------------------- Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [31] -------------------------------------------------------------------------------- Okay. And then maybe obviously you guys have been obviously focused on paying down debt as well as repaying shareholders. You prepaid the $57 million in the fourth quarter. It's obviously quite impressive. I'd say, in just 1 quarter, being able to pay off that much. And it looks like you're going to have another significant cash build in the first quarter. When you think about the cash and the debt, looking ahead here in the near term, what do you prefer to do? Do you think you'd want to prepay further? Or just maybe build up a bit more of a war chest and prepare yourselves for certain opportunities down the line? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [32] -------------------------------------------------------------------------------- I think you should expect us to prepay further debt. So keep in mind that our 2 large facilities have got revolving tranches. So that is sort of a natural first port of call, if you like, of doing deleveraging. -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [33] -------------------------------------------------------------------------------- So in a way, you can do both. You can reduce debt, but you have availability if you see tempting opportunities. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Next question is coming from the line of Robert (sic) [Ronald] Silvera from R.E. Silvera & Associates. -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [35] -------------------------------------------------------------------------------- I want to complement you in this world of -- where we're operating now of the confusion from so many different conflicting kinds of things, from geopolitical to disease to everything else. In the face of that, I think you have done a wonderful job. I listened to the J Mintzmyer podcast that you had, and you had spoken in there about heading toward 0 debt, which I like the idea of because we're in a cyclical business, as we all know, and that's planning for far in advance. For when the time comes, when rates are very low, that we can still be a strong company. And I love that kind of philosophy on your part, and I compliment you guys on the job you've done and your long-term attitude toward what you've done. I do have a question in the voluntary prepayment of long-term debt. You prepaid $57.3 million. However, you drew $30 million on the scrubber financing under Nordea. That sounds kind of interesting to me because you're borrowing on one hand but you're paying off early on the other hand. Why borrow if you have sufficient funds to prepay debt? Is it an issue of different interest rates? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [36] -------------------------------------------------------------------------------- That's a good question, Robert. And it is partly that the repay or prepayments we did were, for the most part, into a revolving facility. So just like on the prior question, those funds remain available to us should we ever want to use them for something. So that has really -- that is part of it, that you take money that's available to you, and you prepay elsewhere where you can actually redraw it if you should be interested or wanting to do it. And then the last part of the prepayments was on the 2 new ships, Lake and Raven. We think it behooves any tanker company to have a certain number of unencumbered assets at any given time. It eases -- or it gives you a lot of flexibility. And if you were to sell those ships, you -- of course it's an easy closure and all the cash goes to the seller and not to the bank and so forth. So we think that has a merit as well. So that's why you saw a mix of prepaying on revolvers, clearing out the debt on 2 ships and then actually drawing up for the scrubber program. -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [37] -------------------------------------------------------------------------------- Let me ask this then. If you've completely cleared out the debt in 2 ships, how many in the fleet do we have in that shape where we're completely clear? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [38] -------------------------------------------------------------------------------- We have 4 ships currently that are without any debt on them. And I would also add that by clearing out all debt on a ship, it has a significant impact on the overall breakeven levels. So when we do prepayments, you look at the future availability, and that's when you do revolver prepayments. And then when you want to drive down your cash breakeven for the entire fleet, well, then it may behoove us to clear out individual ships. -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [39] -------------------------------------------------------------------------------- Yes. That is why I say your long-term philosophy, the way you run the business, I am so pleased with, our company is pleased with very much. I guess that's my only question. The rates have softened, but do you see this coronavirus having a long-term effect rather than a short-term effect now that they have talked about the possibility of curing it? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [40] -------------------------------------------------------------------------------- I think it's impossible to really have educated response to this, frankly. So it is very tough for the people involved, in particular, and it has impacts on our business and many other businesses, too. But for how long, and how deep, and how wide this will influence the businesses, frankly, it's impossible to say. So but I think our company, in general, is strong, we have a very healthy balance sheet, very low cash breakeven levels. And so it enables our company to sail through tough waters like this without really sort of denting the company. So but it's, yes impossible to say really the outcome and how long it will last. So... -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [41] -------------------------------------------------------------------------------- Okay. Well, we have no intention right now of increasing the size of the fleet, either, right? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [42] -------------------------------------------------------------------------------- That's correct. -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [43] -------------------------------------------------------------------------------- Good. I think you're doing a wonderful job. And I sure appreciate the dividend idea of 60%, stay with that. One other question. One other question. Do you have any more of these convertible bonds? Or are they all gone now? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [44] -------------------------------------------------------------------------------- Well, we have one convertible bond which is falling due in August 2021, and the nominal amount of that is $125 million. -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [45] -------------------------------------------------------------------------------- $125 million or $25 million? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [46] -------------------------------------------------------------------------------- $125 million. -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [47] -------------------------------------------------------------------------------- $125 million still in convertible bonds. What's the conversion price now? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [48] -------------------------------------------------------------------------------- It is dividend adjusted. So it's now just below $6. And so following declared dividend for the fourth quarter, there will be a further reduction in the strike. And we will send out a press release on that particular calculation once it's done. So yes, just... -------------------------------------------------------------------------------- Ronald Silvera;R.E. Silvera & Associates;President, [49] -------------------------------------------------------------------------------- Yes, the $125 million. Okay. -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [50] -------------------------------------------------------------------------------- But just long term, just to comment on that. Long term, this is the type of instrument that ideally, we would not like to have in our capital stack. So we prefer conventional mortgage debt and equity simply. So we have sort of an ambition of getting rid of that instrument one way or another and preferably by just paying it down. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Next question is coming from the line of Nicolay Dyvik from DNB. (Operator Instructions) -------------------------------------------------------------------------------- Nicolay Dyvik, DNB Markets, Research Division - Head of Shipping Equity Research [52] -------------------------------------------------------------------------------- Just to clarify, you touched upon this, but should we expect additional 8 scrubbers to be retrofitted once Chinese yards are up and running post virus? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [53] -------------------------------------------------------------------------------- We have 6 projects that have been postponed. So we are closely monitoring this, and we have bought the equipment. We have done the engineering. We have prepared a lot of equipment related to this. So it's certainly a plan to install this at an opportune time. -------------------------------------------------------------------------------- Nicolay Dyvik, DNB Markets, Research Division - Head of Shipping Equity Research [54] -------------------------------------------------------------------------------- I guess it's a bit early but at least a lot of investor focus on this. Could you give some guidance on the speed of the scrubber-fitted ships in January compared to the nonscrubber fitted? And how we think about maximizing the time charter performance versus the increased focus on CO2 emission? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [55] -------------------------------------------------------------------------------- So typically, when you are laden with cargo, the speed is a contractual obligation with the clients. And the most used speed in average charter party with the oil companies is 13 knots laden, so you cannot really change that. The ballast speed is typically a function of the market and timing in reaching ladens for the cargoes and trades that you want to do. -------------------------------------------------------------------------------- Nicolay Dyvik, DNB Markets, Research Division - Head of Shipping Equity Research [56] -------------------------------------------------------------------------------- So you say that fuel cost doesn't interfere your speed on ballast? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [57] -------------------------------------------------------------------------------- Of course, it does. It's a commercial evaluation. So depending on where the market is and where it makes sense to speed up or slow down or it's a particular loading area we want to reach, in a particular day and so forth. So there's a commercial evaluation in the ballast speed. -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [58] -------------------------------------------------------------------------------- So on the margin, the nonscrubber ships are incentivized to slow down quicker than the scrubber-fitted ships, if that makes sense. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- The next question is coming from the line of Dennis Anghelopoulos from ABG. -------------------------------------------------------------------------------- Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [60] -------------------------------------------------------------------------------- Quick question. You guys have $50 million available on the scrubber facility, but you've only drawn $30 million on it, correct? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [61] -------------------------------------------------------------------------------- Yes, it's around that number. That's correct. Yes. -------------------------------------------------------------------------------- Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [62] -------------------------------------------------------------------------------- Yes. So are you planning on drawing the remaining $20 million? -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [63] -------------------------------------------------------------------------------- Yes. So the total budget for all of the retrofits was $72 million or so and we have a facility of $50 million. So what we've been doing is keeping that ratio, debt and equity, in this -- basically at those levels. That's why we haven't drawn everything yet. -------------------------------------------------------------------------------- Laila C. Halvorsen, DHT Holdings, Inc. - CFO [64] -------------------------------------------------------------------------------- Just to comment on that. The facility has been reduced to $45 million after the prepayments of DHT Lake and DHT Raven. $31.5 million was drawn for year-end and $13.5 million is now available. -------------------------------------------------------------------------------- Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [65] -------------------------------------------------------------------------------- So -- okay. And just some questions around surrounding China. You guys said that there were some port delays in China that sort of negatively affected your TCE equivalents in Q4. Now looking forward with the coronavirus and some negative implications there, at least currently, do you think you could be stuck in Chinese ports and that could positively affect your TCE because you're on demurrage from higher levels in Q1? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [66] -------------------------------------------------------------------------------- In Trygve's commentary on demurrage impacting our results, it was mostly focused towards the bookings to date for the first quarter. So -- but we have, I think, a fairly okay mix now of geographical destination. So we have a lot of ships not going to China also at this point in time. So -- but congestion has sort of eased up. There was a period where it was very busy in China, and just was simply a lot of delays. And that's not -- it's not as bad as it was. -------------------------------------------------------------------------------- Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [67] -------------------------------------------------------------------------------- And then just last question surrounding China, the U.S. with the Phase 1 deal, there was a $50 billion commitment for buying energy-related commodities. Have you guys seen increased inquiry by Chinese charters to get U.S. crude cargoes over to Asia? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [68] -------------------------------------------------------------------------------- Not yet. But I think it wasn't so easy given the whole package because oil has a significant value. So we understand that there are discussions about getting traction in these trades. So we have certain expectations that you will see that commence in the not-too-distant future. -------------------------------------------------------------------------------- Dennis Anghelopoulos, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [69] -------------------------------------------------------------------------------- And there was sort of a lot of market participants have been saying that the COSCO vessels will be doing the majority of this trade. That's not something we personally agree with. But what are your thoughts on that? Do you think it's going to be a Chinese-dominated trade by COSCO vessels and the like? Or do you think it's going to be a mixed bag? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [70] -------------------------------------------------------------------------------- I don't think it matters whose ships are doing this because you need to look at the market in totality. And simply, this trade is extending transportation distances and will increase the fleet utilization, and it's a positive. So exactly whose ship is doing what doesn't really matter so much. -------------------------------------------------------------------------------- Operator [71] -------------------------------------------------------------------------------- Next question is coming from the line of [John Reader] from Independent. -------------------------------------------------------------------------------- Unidentified Analyst, [72] -------------------------------------------------------------------------------- The Libyan civil war has shut down their oil export capabilities. I was wondering, are you seeing some of the Suezmax operators looking for work in what would be a more traditional VLCC market? And my second question is, do you expect the Asian reclining turnaround the holiday to begin, as it usually does in late spring? -------------------------------------------------------------------------------- Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [73] -------------------------------------------------------------------------------- I think to your first question, there is always some level of substitution between ship sizes. And it's sort of partly driven by how freight is priced on these different ship vessels -- ship types from time to time. So for instance, if sort of Suezmax and Aframax delta widens, then people will -- might sort of consider smaller ships and vice versa. And -- but the Libyan trade is not really directly impacting the VLCC business as such. This is a trade typically -- or mostly for Aframaxes. But to some extent, also it could be bigger ships. But -- so we haven't really seen any of that. As to -- if I understood your second question correctly, you talked about how deep the potential maintenance where the refineries could be in the spring. I think we have read reports that the expectations are that the turnaround will be not as deep as it was last year. And hence, that would be a positive once it's done with. -------------------------------------------------------------------------------- Operator [74] -------------------------------------------------------------------------------- There are no more questions. Please continue. -------------------------------------------------------------------------------- Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [75] -------------------------------------------------------------------------------- Well, then it remains for us to just say thank you to everyone for your continued interest in DHT. Thanks, and have a good day. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- That does conclude our conference for today. Thank you for participating. You may all disconnect.