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Edited Transcript of DHT earnings conference call or presentation 7-Feb-19 1:00pm GMT

Q4 2018 DHT Holdings Inc Earnings Call

HAMILTON Feb 11, 2019 (Thomson StreetEvents) -- Edited Transcript of DHT Holdings Inc earnings conference call or presentation Thursday, February 7, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Laila C. Halvorsen

DHT Holdings, Inc. - CFO

* Svein Moxnes Harfjeld

DHT Holdings, Inc. - Co-CEO

* Trygve Preben Munthe

DHT Holdings, Inc. - Co-CEO

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Conference Call Participants

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* Fotis Giannakoulis

Morgan Stanley, Research Division - VP, Research

* Jonathan B. Chappell

Evercore ISI Institutional Equities, Research Division - Senior MD

* Magnus Sven Fyhr

Seaport Global Securities LLC, Research Division - MD & Senior Shipping Analyst

* Noah Robert Parquette

JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst

* Randall Giveans

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to today's DHT Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) I must advise everyone that the call is recorded today, Thursday, the 7th of February, 2019.

I would like now to hand over the conference to your speaker, Ms. Laila Halvorsen, CFO. Thank you. Go ahead, please.

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Laila C. Halvorsen, DHT Holdings, Inc. - CFO [2]

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Thank you. Good morning, and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings Fourth Quarter 2018 Earnings Call. I'm joined by DHT's Co-CEO Svein Moxnes Harfjeld and Trygve Munthe. As usual, we will go through the 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, through February 13, 2019. 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, including DHT's prospects, dividends, share repurchases and debt repayment; the outlook for the tanker market in general; daily charter hire rates and vessel utilization; forecasts on 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 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.

The agenda for today's call is Q4 financials, business update and market update.

Looking at the income statement, our EBITDA came in at $61 million and a net income of $12 million or $0.08 per share. Adjusted for noncash change in fair value related to interest rate derivatives of $6.2 million, the result would be $18.2 million or $0.13 per share. OpEx for the quarter was $8,100 per day for the VLCC and $10,700 per day for the whole year.

Our board has elected to pay a dividend of $0.05 per share. This marks the 36th consecutive quarterly dividend and will be paid on the 26th of February to shareholders of record as of February 19. In December 2018, the company also purchased 1.2 million of its own shares for an aggregate consideration of $5 million. Combined with the cash dividend, the company will return $12.1 million to shareholders equal to 67% of net income adjusted for the noncash change in fair value related to interest rate derivatives.

The average earnings for our VLCC came in at $34,900 per day in the fourth quarter with the ships-on-time charter earnings $35,000 per day and the spot fleet earnings $34,800 per day. As of today, we have booked 67% of our first quarter at $37,200 per day.

Moving over to the balance sheet. The quarter ended with $95 million net of cash. This does not include our undrawn revolving credit facility with $52 million currently available. As previously disclosed, we have also secured scrubber financing of $50 million where only $5 million is drawn. Financial leverage is moderate with interest-bearing debt to total assets just above 52% based on mark-to-market.

Finally, looking at the cash bridge, we would like to highlight that we generated $61 million in EBITDA. And after debt service and maintenance CapEx, we are left with $29 million in cash from operation. Investments in newbuildings less long-term debt consumed $7 million, and net proceeds from the sale of the 2 Aframaxes generated $17 million. Finally, net working capital increased by $20 million as the reflection of a stronger freight market.

With that, I will turn the call over to Svein.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [3]

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Thank you, Laila. Our current program for repurchases of our own securities was installed in March 2018 with a limit of $50 million. The program is authorized through March 2019 and may be suspended or discontinued at any time. As announced early this year, the board closed 1.25 million of our own shares in December for a total amount of about $5 million. The price on average was $4.07 per share, and the transactions were accretive on both metrics of earnings per share and net asset value. Old shares have since been canceled. You should look at the share repurchase in connection with the announced cash dividend of $0.05. As such, we are returning 67% of adjusted net income to our shareholders.

We will now provide you with an update of our scrubber projects. We will, by 2020, have 18 out of our 27 VLCCs fitted with scrubbers, i.e. 2/3 of our fleet. This comprised of 2 newbuildings and 16 retrofits. They will all be fitted with open-loop systems. The systems can be converted into hybrid systems, however, we do not expect this to be a likely scenario. 15 of the scrubbers will be able to clean the sulfur down to 0.1%. This capability enables the ships to operate with scrubbers within emission control areas and ports where permitted. Importantly, we commenced the project several years ago in anticipation of IMO 2020, whereby we configured our ships fuel tank layouts, allowing all our ships to carry various grades of fuels in segregation.

Our operating mode then facilitates flexibility consume -- to consume compliant fuels with 0.5% or less sulfur content when in emission control areas or ports that do not permit operations of scrubbers.

Our assumptions and our configuration worsened in anticipation of countries implementing stricter rules related to the use of scrubbers when ships operate in their respective near seas and ports. As such, recent announcements by various states do not permit the use of scrubbers in their ports or coastal areas, do not change our expected economics for these investments.

Our 2 newbuildings delivered from Hyundai during the second half of last year were both retrofitted with scrubbers. We are forwarding these commenced our retrofit projects with the first 2 retrofits completed during the fourth quarter of last year. The ships were DHT Lake and DHT Raven, both built in 2004. The project was conducted in connection with a respective third special survey and dry dock. Both projects completed below budget and on time.

We have concluded all the depreciation profile that we will use for our scrubbers. Each individual system will commence depreciation upon actual installation and carry through 2022. We believe this to reflect a realistic yet conservative expectation of economic benefits.

And with that, I hand over to Trygve to discuss the markets.

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [4]

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Thank you, Svein. Before we open up for Q&A, allow me to give you the highlights of our market outlook.

After 2 quarters with healthy rates, we're now heading into the typical seasonal weakness in the large tanker market. In addition to the usual seasonal factors, we are, at this point, also suffering from the OPEC+ cuts and the heavy delivery schedule on newbuildings. Fewer cargoes in the market, coupled with 10 new VLCCs delivered in January alone is not a very constructive combination. And as we have addressed before, newbuildings are weighing on the freight market not only because they increase supply but also because not all customers are willing to take ships on their maiden voyage, which means that these new shiny ships need to discount their rates in order to get going. You can certainly say it's a tough business we're in. Most customers don't want older ships, but they don't want new ones either.

So if we try to look beyond the next few months, we are much more bullish. We expect the preparations for IMO 2020 to start in earnest in the second half of this year. This should be constructive to the freight market as, one, fleet efficiency will go down as ships are taken out to service to clean tanks or install scrubbers; and two, as we find rerents, we'll probably have to increase in order to deliver sufficient compliant fuel. But even without [disperse] or IMO 2020, we believe we would be heading into better markets. Our reasons for saying so is fourfold.

First, the world continues to consume more oil every day, every year. Secondly, the majority of the increase in consumption happen in the Far East, while the incremental oil production now is in the Atlantic Basin. That spells long haul transportation, and that's the business we are in. Thirdly, all inventories have come down over the past couple of years, so we don't expect much consumption to be sourced from inventory in the next several quarters. Lastly, while scheduled newbuilding deliveries are heavy this year, it will drop off dramatically over the next year. At the same time, we expect scrapping to continue at reasonable levels simply because there are now big classes of VLCCs that have reached the end of their economic lives and because of the required CapEx associated with the ballast water treatment requirements kicking in, in the third quarter this year.

So in summary, oil demand is growing. Fleet growth is slowing. Inventories are down. And IMO 2020 is coming to town.

With that, ladies and gentlemen, we are ready to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll now take our first question.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [2]

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It's Jon Chappell from Evercore ISI. First question is just big-picture strategy. I think you've done a great job over the last 12 months or so, even '18 kind of creating a company with pure-play focus on VLCCs, early mover on addressing the IMO 2020. But as you think about the next 2 to 3 years, do you think you have the fleet in place to take advantage of the cycle that you see? Or do you think that there's still opportunity for expansion vis-à-vis still keeping a relatively strong balance sheet and executing the 60% capital return to shareholders?

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [3]

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Interesting question, Jon. As you've seen from past performance, we're focused on trying to get the timing right when we expand the fleet. If you look at our tenure with DHT, it's really been 2 phases that when we have been aggressive in growth. And in hindsight, it seems to be good timing. We think that the 50% fleet expansion that we did in 2017 will be good as well. We feel that we have an excellent fleet going into this up-cycle. And we do also do believe that the best acquisitions are now really behind us. So further growth in and of itself at this point is not really a top priority for us.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [4]

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Thank you, Trygve. If I may add to that, I think there's sort of 2 key aspects that you should expect from us during the next up-cycle, this upcoming up-cycle: one is to return money to shareholders; and two, to further strengthen the balance sheet coming into the next down-cycle whenever that will show up.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [5]

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That makes sense. Just a quick update, thanks for the kind of qualitative update on the scrubber program. Just quantitatively, can you just remind us of the CapEx schedule for this year as those retrofits are completed? And is the debt, the financing lined up completely with the CapEx, so we shouldn't expect any kind of huge equity dings from quarter-to-quarter?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [6]

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The sort of program is a bit taxed in the second half if you like, but we've already done 2, as we mentioned. We have some starting in end of second quarter. The total CapEx is roughly sort of in the $70 million -- around the $70 million mark. And as you know, we have a $50 million financing on this. So for now, it's -- the intent is to use the resources we have at hand to finance the remainder. So we will not issue any equity of any sort. We are not planning to raise any additional financing.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [7]

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Okay. Back-end loaded, though, so maybe 60%, 70% of the -- off our time should be -- will be in the second half?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [8]

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Yes, I think that's a reasonable assumption.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [9]

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Okay. Final question, pretty noteworthy that the G&A dropped significantly in the fourth quarter, both sequentially and year-over-year, if you strip out onetime items. Is that an appropriate run rate to use going forward? Or was there any kind of onetime events there that made that lower and maybe think about full year '18 as a more appropriate run rate?

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [10]

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We think it's the latter, Jon, that you should really look at the full year '18 as more of a run rate. Towards the end of the year, there's always some extraordinary items. And this year, it was some reversals of accruals. So that's why we ended up with that. But if you take the full year and divide that in 4, that's a reasonable estimate on future run rate.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [11]

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I think if you just look at our G&A expense over the year, I think you will find that DHT is -- has a very, very competitive cost structure. And looking at this as a per ship per day basis, I think you'll be hard-pressed to find anybody sort of matching this number in our space.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [12]

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Is the move to Singapore going to help that? Or is it going to maybe increase it a little bit?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [13]

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This move is seen to an existing infrastructure, and we're not providing any more people. So for now, there's no sort of change. But if the structure will remain over time, we have to see. So of course, we cannot rule out sort of minor changes in DNA if the infrastructure and offices will change.

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [14]

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But it shouldn't really be anything material.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [15]

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No, certainly not.

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Operator [16]

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We will now take our next question.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [17]

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It's Randy Giveans from Jefferies. All right, 2 quick questions from me for the return of capital to shareholders. Let me first say it's good to see you paid it on the adjusted amount, netting back the interest rate derivatives. Also good to see kind of a combination of dividend and share repurchases. That said, how did you determine that split and kind of the 67% of net income higher than your kind of policy floor of 60%?

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [18]

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We -- given the share price where it was towards the end of last quarter, we certainly saw some opportunities of returning capital to shareholders in a very good way that we got accretion both on EPS and on NAV. But we also think that cash dividend has a role to play. So wanted to strike a reasonable balance, and we think we did so by doing $0.05 and 1.25 million shares.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [19]

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Importantly also, the buyback is at the time where we are generating positive cash flows. So it would not be that we will use total reserves to buy back stock. It will be at the time when the business is sort of thriving, so.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [20]

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Sure. Makes sense, for sure. And then, for the scrubber retrofits, how many days did that take per vessel in 4Q '18? I know you said it was kind of on time and on budget, but can you give some clarity on days? And was it any additional time, in addition to the normal special survey kind of dry-docking?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [21]

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So we have planned for 30 days so far for our projects, and this project was delivered on time or maybe even marginally below. And cost-wise, it was below budget. So these were the 2 first retrofits. Of course, we built some contingency into our entire project. And you don't really know in advance how this -- how all these projects will sort of be run. So it was a good experience to go through these 2 first, and we'll continue to do our best to stay sharp and doing this at the lowest cost possible. But I think when we're done with all of this, we will provide an update on sort of what we ended up with. So there's still moving parts on this. So I don't think we should -- we will share any further details in that regard at this point.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [22]

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Yes. No, that's fair. And I guess one quick industry question. Looking at everything going on in Venezuela, have you seen any either additional congestion down there or any new routes emerging from that chaos?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [23]

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Not really. We haven't traded in Venezuela for a very long time. So we don't really have direct insight by having ships sort of in the water or in their waters. But typically, all these sort of disruptions tend to be good for shipping in one way or another. But we are, of course, now in a market with some other speed bumps. So they might be hard to see right now as we speak, but then, it may be a bit too early.

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Operator [24]

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We will now take our next question.

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Noah Robert Parquette, JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst [25]

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It's Noah Parquette at JPMorgan. I just wanted to ask, I'm sure you guys saw that -- the report from the European Commission's IMO talking about, I don't know, clarifying rules on scrubbers. Some are talking about the environmental risks. Can you give your thoughts on -- does this change the landscape at all? Do you see risks that there's scrubber bands, open-loop scrubber bands or more ports state banning within the waters? What are your thoughts on kind of how that plays out?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [26]

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I think as we explained earlier on this call is that our base case has always been to consume compliant fuel when in ports and when in coastal areas. So for the DHT business case, this does not change anything. And in a way, we think this was sort of expected, and I think, for many of these states, it's the consequences sort of politically correct, these sort of policies, without necessarily having a scientific base to back up that decision. So it doesn't really change anything for us. But I guess, it's -- it will more have an impact for operators or smaller ships that operate more in their seas and coastal transportation and other types of ships. The VLCCs are sort of the low-hanging fruit from an economic perspective in installing scrubbers. The big ships, they are mostly out in open sea, and they consume a lot of fuel.

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Noah Robert Parquette, JP Morgan Chase & Co, Research Division - Senior US Equity Research Analyst [27]

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I mean, do you see this being a scientific debate, ultimately? I mean, obviously, a lot of this [effect] is coming out of scrubbers, but from the crowd that is putting scrubbers on -- in place, are they preparing a defense? Is this going to be like a scientific debate? Or will it be just sort of a fear mongering, where the -- how the policy gets done? I mean, it's just -- it's accelerating pretty quickly. I just -- you're a major scrubber operator, so I just wanted to see what the strategy is from your side.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [28]

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These people have different reasons for doing what they're doing or meaning or thinking what they're thinking. But I think from a ship owner's perspective, there's sort of 2 kinds that are against scrubbers: either the ones who haven't got the money to do it; or the other kind that sort of came way too late to the party to do this in a credible and realistic fashion well ahead of the 2020 timeline.

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Operator [29]

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We'll now take our next question.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [30]

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This is Fotis Giannakoulis from Morgan Stanley. I would like to ask you about your decision to depreciate the scrubbers in -- within 3 years. Does this imply your view about the period that the scrubber will be economical? Or you are just trying to be conservative here? In your view, can I have the spread you expect to develop over the next 5 years?

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [31]

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Fotis, we made this investment decision based on certain assumptions on spreads, obviously. And we found this to be a very robust and a compelling investment opportunity. Whether the payback is going to be inside of 1 year or inside of 2 years, who knows? This is -- it's certainly quite a fluid situation. But we do expect that it will be a temporary phenomenon. And with 2 years, we think we are on the conservative side, and that's where we want to be on establishing depreciation rules result.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [32]

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Regarding the trade flows, both for crude and fuel oil after IMO 2020, I understand that there are some vessels that they are trading long haul for fuel oil. How many vessels these are every year? And do you have any view of how many vessels they will have to be used next year to move the fuel oil to the cokers? And also, where this excess fuel oil is going to go? Middle East seems to be one example. Any idea of how much of this excess fuel oil can be absorbed by Middle East, and if it's going to be the release of any crude that is right now burned for power generation to the suburb market?

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [33]

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These are tough questions and very hard to give a sort of meaningful answer to. We've heard oil experts with all kinds of different opinions, but we did take note of 1 guy suggesting that it's going to be flooded with heavy fuel oil that cannot be used by the shipping industry. And it -- he was arguing that there would be a fair amount of floating storage. And so perhaps, that's the Suezmax business with heating coil and so forth. But I think it's too early to have a firm opinion on how many ships are going to be absorbed into this trade and storage.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [34]

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And one last question regarding the quality of the fuel. I assume you have run several tests right now or -- for the vessels that they do not have or they are not going to use scrubbers. How confident you feel that the refining industry will be -- will have available compliant fuel and the industry will avoid the problems that we experienced last year with contaminated cargoes? Is this a concern for the sector? And I'm not talking about the 18 ships that you are going to put scrubbers. I'm talking about the remaining ships.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [35]

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We certainly take fuel management very seriously, and 2020 is going to present some new challenges to the industry. So we believe that what people would label as compliant fuel to be available, but there will be -- certainly be different types of qualities. Are they straight fuel, are they blended, are you buying from a proper counterparty who also can control the logistics and the quality assurance, what terms are you buying on, et cetera, et cetera. So this is a big project that I think many people are taking very seriously and certainly, us included. So this in itself would likely also create disruption, we think, to the industry, thereby, taking out some productivity or capacity. And in some, that is certainly positive for the tanker market, we think.

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Operator [36]

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We'll now take our next question.

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Unidentified Shareholder, [37]

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My name is Robert Silvera, R.E. Silvera & Associates, Marine Surveyors. My first question has to do with as you sit and look forward for 2019 and 2020, do you have a feeling or an estimate -- as you work through, you know what the order book is for new ones. Do you have an estimate of how many ships might be scrapped?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [38]

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There's some different forces at play to estimate that. Last year, we were sort of lucky with our estimate, but we take note that there are some 20 ships that are exposed to the fourth special survey, i.e. after age 20, and there are 6 intermediate survey at age 22.5 this year. So some of these ships are in the storage business, and they might stay in that business and not really be exposed to sort of leading the transportation scene. But I think it's not a bad bet to expect at least the 20 ships to retire from the fleet this year. Of course, it depends on the price of scrapping and the freight market and all that, so.

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Unidentified Shareholder, [39]

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How about 2020? Have you looked at 2020?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [40]

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Yes. And there is a bigger class of ships sort of hitting these sort of CapEx anniversaries in 2020. So again, you will have ships that not only will be older, but they will have to install ballast water treatment systems. So we would expect certainly the fleet to have a steady flow of retirement over the next few years.

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Unidentified Shareholder, [41]

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So you come up with a balance between the new book and the scrap? Or do you come up with overall net less ships because of the increased scraps during 2020?

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [42]

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I think in 2019, you certainly have a large order book, and you're not going to see 60 ships being scrapped this year. Next year, I think the order book is in the 30s somewhere. So whether it's going to be a marginal plus or flat, who knows? But we don't think that this market is really threatened by the supply side for 2020.

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Unidentified Shareholder, [43]

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Okay. My next question has to do with your buyback of stock. I love what you're doing, I'm very pleased with the way you're blending between dividend cash flow to us as well as removing stock. In the removing stock methodology, might I suggest that you examine selling put options, for instance, on July 19. Currently, the last trade was -- for a $4 option was $0.45. So if you were optioning for 1 million shares, that would put $450,000 into our treasury. And if the stock, of course, does not go below $4 by July 19, then we will pocket that $450,000. If, in fact, the stock goes below the $4, then, of course, we will have bought back another 1 million shares, and they will have cost us $4 less the $450,000 that we got for the options. So do you -- would you entertain doing stock buybacks through that methodology?

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [44]

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We haven't considered that. And we'll put some thought to it, and maybe we can continue that conversation offline.

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Unidentified Shareholder, [45]

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Yes. Well, you have my phone number and I'd love to talk to you about it. Don't hesitate to call me. And it would be a very predictable way, predictable cost way for you, et cetera. And I'd love to see you incorporate that because it could give us a nice steady cash flow over 3- to 4-month periods of time and retire stock if the price of the stock goes down because the general market has been knocked down. In my opinion, you've done a wonderful job. I love the conservative approach. You guys seem to really understand your market. And you approach it in a very wise way, and we're very pleased. That's all my questions.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [46]

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Thank you.

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Trygve Preben Munthe, DHT Holdings, Inc. - Co-CEO [47]

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Thank you for the kind words.

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Operator [48]

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We'll now take our next question.

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Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD & Senior Shipping Analyst [49]

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Magnus Fyhr, Seaport Global. Just had 1 question on Iranian floating storage and see if you have any thoughts there. I guess the U.S. has indicated that it will grant any new waivers and just interested to see if you have any thoughts there, what the current storage is and also what your thoughts are going forward.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [50]

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There is some storage, but it's a bit hard to pinpoint the ships. They are switching off their [IF] gear, and I think you sort of almost need to be on the ground or in the water to have a look for yourself. But there are certainly some ships taken out given the reduced production level. So whether it's 10, 15 or 20, I would expect it to be closer to 20 than 10. There are some talks of people wanting to buy directly from Iran, but there seems to be concerned about what potential ramifications to other businesses. So it doesn't seem that the Iranians are getting much traction on selling directly by using their own ships either. So that oil is sort of -- seems to be out of the market as well as the ships for now.

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Magnus Sven Fyhr, Seaport Global Securities LLC, Research Division - MD & Senior Shipping Analyst [51]

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Do you have -- I mean, is floating storage the main option? Or I'm not sure what on-shore storage capacity is in Iran. Do you have any ideas there?

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [52]

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We have limited knowledge of that. But of course, they can also simply just reduce production, right?

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Operator [53]

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(Operator Instructions) We will now take our next question.

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Unidentified Analyst, [54]

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This is [Nick] (inaudible) here from (inaudible). I have 2 questions. First one, for the ships where you don't have scrubbers you plan to burn compliant fuel. When would you expect to start loading that fuel? And in particular, would you basically keep loading high-sulfur fuel oil right until the end of this year and so sale in Q1 of next year still burning high-sulfur fuel oil? Or would you start loading the compliant fuel in Q4, so that you would then be burning that fuel from January 1? That was my first question. And second question. On scrubbers, your scrubbers, do you have any equipment that seeks to remove pollutants other than sulfur, so kind of heavy metals, polycyclic aromatic hydrocarbons people talk about or any other form of sludge? Or do you just take the sulfur out and just directly discharge the water? Those are my questions.

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [55]

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To your first question, the rules are such that you cannot consume heavy fuel oil unless you have a scrubber after 1st of January, 2020. So this, of course, means that given also the long oasis of these big ships, we will start to clean out systems and supply the ships with compliant fuel during the second half of this year. And you also need to ensure that you have no contamination between the different fuel types. This will be a progress that will also happen depending on the positions of the ships when and how we'll do it, but it's -- supposing that will probably take sort of during the second half of the year. To answer your second question, there are no sludge from the scrubbers that we will install, so there's no sludge handling required. And the scrubbers are meeting the IMO requirements, and that is what we are focusing on.

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Operator [56]

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(Operator Instructions)

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Svein Moxnes Harfjeld, DHT Holdings, Inc. - Co-CEO [57]

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So thank you for following DHT and staying interested. Have a good day.

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Operator [58]

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Thank you. That does conclude our conference for today. You may all disconnect. Thank you all for participating.