DHT - Earnings Call - Q2 2025

Transcript

Speaker 4

Okay, and thank you for standing by. Welcome to the Q2 2025 DHT Holdings Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today, DHT President and CEO Svein Moxnes Harfjeld and Laila Cecilie Halvorsen, CFO. Please go ahead. Your line is open.

Speaker 3

Thank you. Good morning and good afternoon, everyone. Welcome and thank you for joining DHT Holdings Inc.'s second quarter 2025 earnings call. I am joined by DHT's President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available on our website, dhtankers.com, until August 14. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature.

These forward-looking statements are based on our current expectations about future events, as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. In the second quarter of 2025, we achieved revenues on a TCE basis of $92.8 million and adjusted EBITDA of $69 million. Net income came in at $56 million, equal to $0.35 per share. After adjusting for the $17.5 million gain on sale of vessels related to the sale of DHT Lotus, the company had a net profit for the quarter of $38.6 million, equal to $0.24 per share.

Vessel operating expenses for the quarter were $19.6 million, and G&A for the quarter was $4.6 million. For the second quarter, the average TCE for the vessels in the spot market was $48,700 per day. The vessels on time charters made $42,800 per day, while the average combined TCE achieved for the quarter was $46,300 per day. DHT continues to show a robust balance sheet with low leverage and significant liquidity. We have continued to strengthen our balance sheet, and the second quarter ended with total liquidity of $299 million, consisting of $82.6 million in cash and $216.5 million available under our two revolving credit facilities. At quarter end, financial leverage was 14.1% based on market values for the ships, and net debt was $10 million per vessel, well below estimated residual ship values. On this slide, we present the cash flow highlights for the second quarter.

We started the quarter with $18.5 million in cash, and we generated $69 million in adjusted EBITDA. Ordinary debt repayment and cash interest amounted to $19 million, and $24 million was allocated to shareholders through a cash dividend. $6.1 million was used to acquire the additional shares in Goodwood Ship Management, $1 million was used for maintenance CapEx, and $39 million was used for a newbuilding program. Proceeds from the sale of DHT Lotus were $51 million. $52.6 million was used for prepayment of long-term debt, while net issues related to the refinancing of DHT Jaguar were $4.5 million. Positive changes in working capital and other amounted to $16.5 million, and the quarter ended with $82.7 million in cash. With that, I will turn the call over to Svein.

Speaker 1

Thank you, Laila. It has been an active quarter for DHT, both closing projects that had been in the works for some time, as well as new ones. We will here take you through our quarterly highlights, although several of these events have been communicated previously as subsequent events to the first quarter report or as separate events post the first quarter report or in the most recent business update. Firstly, the DHT Appaloosa entered a seven to nine-year time charter contract with the global energy major. The contract has a fixed base rate of $41,000 per day, plus a profit sharing structure in which earnings in excess of the base rate will be shared 50-50 between the customer and us. She delivered into the contract in May. We entered into agreement to acquire a modern second-hand vessel built at Hyundai, South Korea in 2018.

She has large deadweight, is fitted with exhaust gas cleaning system, and is a sister of vessels already in our fleet. We have very good experience with these ships, both commercially and operationally. The price is $107 million and is in line with current broker values. This fleet addition will replace some of the divested earnings following the sale of older ships. The acquisition will be financed with available liquidity and projected new mortgage debt. We expect to take delivery towards the end of this quarter. We sold the DHT Lotus and DHT Peony, built in 2011 at Bohai Shipbuilding in China. The two vessels were sold for a combined price of $103 million. These two vessels were acquired in 2017 as part of the acquisition of BW Group's Vista Sea Fleet for an aggregate price of $116.8 million and have served us well.

The DHT Lotus was delivered in April, and we recorded a capital gain of $17.5 million during the quarter, and net proceeds were $50.9 million. The DHT Peony was delivered in July, and we expect to record a gain of $15.5 million in the third quarter with net cash proceeds of $50.1 million. DHT Bohemia, built in 2007, was fixed on a one-year time charter contract with a global energy company at $41,500 per day. She commenced the contract in May. We acquired minority legacy shareholder positions in Goodwood Ship Management for $6.1 million, and the company is now 100% owned by DHT. The company undertakes technical management and crewing for all our vessels, including recruitment, employment, and training of our seafarers through our offices in Singapore and Mumbai, India.

The entire DHT fleet has been reflagged to the Marshall Islands Registry, and there were some expenses recorded in OpEx related to this during the second quarter. We have entered into a new credit facility to refinance the DHT Jaguar, built in 2015. The facility is $30 million with a six-year tenor and a 20-year repayment profile. It is priced at SOFR, plus a margin of 175 bps and is otherwise in line with the DHT style financing. On this slide, we will provide you with a newbuilding financing update. We have entered into a $308.4 million secured credit facility to finance our four newbuildings. The facility is co-arranged by ING and Nordea with backing from KEXIM. It is competitively priced at SOFR, plus an average weighted margin of 132 bps. The facility has a 12-year tenor and a 20-year repayment profile.

We should highlight that the facility does not include a prepayment option in favor of the lenders halfway through the tenor. Hence, it has a true 12-year tenor with respect to both maturity and pricing. The financing underscores the confidence the existing lenders have in DHT, our robust financial position, and our strategy. The newbuilding project has a total CapEx just shy of $520 million. We have paid basically $180 million in installments to date. Combined with the announced credit facility of $308 million, we have an estimated $31.6 million in remaining CapEx, which we plan to fund through cash flows from operations and/or existing liquidity. We view this as a very comfortable position for the company. Now we will discuss capital allocation and dividends.

As per our capital allocation policy of paying out 100% of ordinary net income as quarterly cash dividends, the dividend for the second quarter of 2025 is declared at $0.24 per share and marks our 62nd consecutive quarterly cash dividend. The shares will trade ex-dividend on August 18, and the dividend will be paid on August 25 to shareholders of record as of August 18. In the graph to the left, we estimate our estimated P&L and cash breakeven levels for the second half of 2025. As you will see, the difference between the two is estimated at $7,800 per day for this period. This discretionary cash flow will remain in the company and be allocated to general corporate purposes with the intention being to fund the remaining installments under our newbuilding program.

The graph on the right illustrates the accumulated dividends since updating our capital allocation policy from the third quarter of 2022. The accumulated amount is now $2.75 per share and reflects well during a period in which our share price has appreciated and we made share buybacks equal to 2.3% of the company in addition to the quarterly cash dividends. Now, with an update on the bookings to date for the third quarter of 2025. We expect to have 805 time charter days covered for the second quarter at $40,500 per day. This rate assumes profit sharing for the month of July and only the base rate for the month of August and September for the time charter contracts that have profit sharing features. We assume 1,150 spot days in this quarter, of which 73% have been booked at an average rate of $38,500 per day.

The third quarter started in a disappointing fashion, but we sense a potential turnaround as we speak. The spot P&L breakeven for the third quarter is estimated at $20,000 per day, a number you may use to estimate the net income contribution from our spot fleet for the third quarter. As we have repeatedly stated, it is our view that the dynamics of our market are increasingly being a favorable supply story, with a rapidly aging global fleet exceeding a benign order book of new ships and a string of sanctions making it increasingly challenging to trade older ships in the shadow fleet. There are a number of other factors as well that we expect to come into play. The U.S. is proposing tariffs on India's continued import of Russian oil.

There are already signals of a shift in India sourcing its seaborne crude stock, supporting the Suezmax and the VLCC trades. OPEC has announced several increases in production. So far, these have had limited impact on our market. With peak season for domestic power generation demand in the Middle East nearing its end, we expect a rise in seaborne exports towards the end of the third quarter. We noticed that refining margins are reassuring, supporting demand for crude stock. Brazil has recently entered into a supply contract for crude oil to China, which is supportive of the VLCC trade. In addition, we see several potential triggers that could act as tipping points in favor for a very strong VLCC market. One, improved arbitrage economics for Atlantic Basin barrels to be sold to Asia. Two, escalating levels of sanctions and importantly, enforcement of these.

Three, re-entry of Venezuelan crude oil into the compliant markets. Four, renewed attention to transshipment of sanctioned oil in Malaysian waters. Five, de-escalating in trade and tariff tensions. Six, macro tailwinds with a resilient global economy, reasonable oil prices, and a positive Chinese economic read-through. We continue, as always, to focus on what we can control and delivering on what we believe is a resilient business approach and strategy. We receive encouragement from our key stakeholders, here under shareholders, customers, and lending banks. Irrespective of which constituency you belong to, you should expect us to focus on solid customer relations with safe and reliable services, a company in a competitive cost structure with robust breakeven levels, a solid balance sheet, and a clear capital allocation policy to create long-term shareholder value.

We appreciate the encouragement, and the entire DHT team continues to work hard and operate to leading governance standard and a high level of integrity. With that, we open up for questions. Operator?

Speaker 4

Thank you. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by as we compile a Q&A roster. Our first question comes from the line of Frode Morkedal of Clarksons Platou Securities AS. Please go ahead. Your line is open.

Speaker 0

Thank you. Hi, guys.

Speaker 1

Hi Frode.

Speaker 0

Yeah, the first question I had is on the, you mentioned it briefly, you know, this tariff on India. Maybe you could elaborate what kind of effect you've seen so far in terms of chartering activity, and do you expect that to continue, basically, have a meaningful impact on the, let's say, conventional tanker market going forward?

Speaker 1

It's a bit early days, but some sort of numbers so far. At the end of the second quarter, so end of June, India imported basically 2 million barrels per day of Russian oil. This oil was transported predominantly in smaller ships. For July, this has come down some 20% in volumes. We see also similar sort of trend lines for August. This will, in general, just favor larger ships. We have to, of course, continue to see this development. There could, of course, also be some sort of deal with India and the U.S. that will maybe not take out all of this, so it's a bit early to say. I think 20% start for July, maybe similar levels for August, if not more. Let's see what happens.

There are already inquiries in the market, you know, for them to purchase seed stock from further afar to be loaded on big ships.

Speaker 0

Okay. That's good news. Second question I have is on this fixture you fixed on 18-year-old ships for one year at $41,500 per day, which, given the age of that ship, is relatively strong, right? At least when I look at the best values, you know, probably $44 million or so for a similar type of ship. If you assume, let's say, 10% to 12% unlevered return, you only require like $30,000 per day over time to justify that type of valuation, right? That rate you achieved looked quite strong. The question is, do you think this kind of fixture can be repeated? What does it tell you about the case of higher second-hand values?

Speaker 1

I think, you know, for the last year or so, we have been quite successful in securing time charters for our older vessels. All these charters have basically started with a four-handle. I think the lowest was $40,000 and the highest was $49,500. There are several things. This one, of course, is the return on the capital employed in this asset based on the cost. It's a very good return for our shareholders. Also, the older ships are a bit more exposed when you get the volatility in the spot market. When you have sort of weaker periods, then you are sort of exposed to waiting time and maybe less customers being willing to fix an older ship and less discount. To create sort of stability in earnings for those ships, for us, we think it has made a lot of sense.

We appreciate that the customers are fine with also using ships that are older. They are in technically excellent condition and run very well, we believe. This is something we will try to continue to do, I think, as long as the money makes sense.

Speaker 0

Sounds good. Thanks, Svein.

Speaker 1

You're welcome. Thank you, Frode.

Speaker 4

We will now take our next question. Please stand by. Our next question comes from the line of Sharif Ehab Elmaghrabi of BTIG LLC. Please go ahead. Your line is open.

Hey, thanks for taking my question. You talked about it in the presentation earlier this week. OPEC and OPEC are going to finish unwinding those cuts earlier than expected. Most of that crude is probably going to find its way onto these. I'm wondering how that's changed your conversations with charterers given all of this unexpected crude entering the market.

Speaker 1

Yeah, we, you know, as a company, we have a very sort of key focus on customer relationships. We have a lot of repeat business with our customer base. We are regularly talking with them. We do sort of sense that there is increased interest and focus on having, you know, good access to VLCC capacity in some shape or form. That should bode well for us. Of course, the customers are very close to the action. If they are increasingly interested in having those conversations, I think this is a bullish signal for the VLCC market and also for DHT then.

Thanks. For the vessels you sold, DHT Lotus and DHT Peony, you've got two other ones in the fleet of a similar age and a handful that are just a little bit younger. When you think about fleet renewal, is there a focus on maintaining fleet size the way you have with the acquisition of the newer tanker on the water, or is it more of a case-by-case approach?

Of course, we have a fleet renewal concept in a way, but we are looking at what creates most value for the company. The DHT Lotus and DHT Peony had a particular feature that they were built at Bohai Shipyard in China. Given some of the dynamics, you know, with the U.S., there were some benefits in sort of fine-tuning our, you know, proposition to customers. Hence, we decided to sell them. They've also been a very profitable investment, and we think we got a good price for them. The business that they have mostly been involved in would sort of come to an end because of age. This is a particular trade where they've been active. It was natural for us to sell them. We had a buyer who would take both these sister ships in one go.

You know, we did replace, of course, one of them, you could argue, with the more modern ship we acquired in the second quarter. We are always on the lookout for new things. I dare suggest that we get to see everything. We also get to see things that we pass on. It is not like we will buy everything that's being presented to us. The focus is on creating shareholder value and on earnings per share. If we can, you know, do that confidently for the business, we are still able and willing to invest.

Understood. That's a great color. Thank you.

Speaker 4

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Jonathan B. Chappell of Evercore ISI. Please go ahead. Your line is open.

Thank you. Good afternoon. I'm fine on the market commentary. You laid out all the possible positive catalysts that could happen to the VLCC market. You also said the third quarter started out somewhat disappointing. It feels like we've been waiting for this VLCC reversion to be in the best-performing crude carrier class for some time. It just kind of stubbornly hasn't gotten there yet. Maybe what's been, in your mind, the reason for the disappointment recently? I guess just to be balanced, what are some of the negative potential catalysts that can keep the VLCCs from performing as you expect for the rest of the year?

Speaker 1

Yeah, that's a good question, of course. It's always difficult to be very precise on this. We do believe that, you know, the second quarter had a significant markup in earnings compared to the first quarter. I think some of that has been inventory building in China. When you build the inventory, then suddenly that comes to a halt, or a temporary halt. That, combined with these additional barrels from OPEC suddenly being then used for power generation, has not been a good combination, also with the loss of the sort of West-East arbitrage of the U.S. crude. Also, production, frankly, has tapered off a bit. I read reports now that the U.S. refinery utilization is now up to 96%. That is not only because of demand growth or robust demand in the U.S., but it's also of some, you know, domestic production tapering off.

I think the combination of these factors is what sort of now gave us a little bit one on the nose coming into the third quarter. I do sense it's temporary. I view Saudi Aramco in particular, I don't think there's anybody else that knows more about the oil market than those guys. I have some confidence in them knowing what they're doing. If you look at the oil price, the market seems to be willing to absorb, you know, these reversals of cuts and that oil coming to the market. There's still sanctioned barrels at risk here. Exactly how this will play out is hard. I think the bigger question in terms of risks is, so far, the world economy has shown resilience to a lot of the, call it, noise or uncertainty created by trade and tariff discussions.

If the world economy is not able to hold up that resilience, then, of course, that will have a negative impact on where we are. I think that's really the key risk is the latter to see how that really plays out. So far, so good.

Thank you. A little bit of housekeeping. If I can get a follow-up really quick. It seemed like there were some scheduled off-hire days in 2Q. It's been a while since that happened. Can you just give us an update on what the dry dock schedule looks like for the rest of this year and maybe even into 2026?

Yeah, we have one ship now in the second half for dry dock. That's it.

That's it. Great. Thank you.

Speaker 4

Thank you. We will now take our next question. Please stand by. Our next question comes from the line of Omar Mostafa Nokta of Jefferies LLC. Please go ahead. Your line is open.

Thank you. Hey guys, good afternoon. A couple of quick ones for me and maybe just a follow-up to start on the India discussion. Svein, you mentioned volumes from Russia into India are down 20%, which is, say, 400,000 barrels. From your sense or from if you're able to see, has that 400,000 just disappeared from the market or is it being shipped somewhere else?

Speaker 1

From the report that I read on these details, it is suggesting that the seed stock is acquired from other sources and predominantly the Middle East. India has sort of widened their sourcing of seed stock. If you look at statistics over time or pre maybe the Russia-Ukraine conflict, the Middle East represented about 60% of seed stock and the rest being sort of Atlantic barrels. I'm not sure exactly how this has played out now. I guess we'll have to look at this after the fact once these trade statistics come out.

Okay, yeah, I appreciate that. Thank you. Just a financing question in terms of the 2018 vessel that you're acquiring. Looking at the DHT Jaguar, you've refinanced that with $30 million, which looks maybe to be about one-third or so the value of that ship. What kind of debt are you looking to put on to this latest acquisition?

You know, we like to run with a strong and maybe for some people a bit of a conservative balance sheet. We have several offers to finance this vessel. There are different considerations because we have a sense that we can set a new level of cost in financing second-hand vessels for the company. It will be probably very competitive, maybe a bit longer tenor. We, you know, on this particular facility, will borrow on a relative basis a bit more, but use maybe that excess funding to prepay some other debt and just improve the general cost for debt for the company. This is sort of stuff in the works. We will advise the market in due course on that. It's a super comfortable position to be in. It's going to be competitive, we think.

Okay, good. Maybe just one final one, then I'll pass it back. You know, the first of your four new buildings delivers in, say, perhaps maybe six months or so. What's the charter appetite look like to take that on charter? I guess, what's your appetite to do so?

The first ship is coming in January. There's been, you know, I would say, high-level interest from some of our core customers in these ships for different types of discussions, but it's a bit early yet. These ships are going to be very, very good. I think there's going to be always nothing like it in the water today. They do attract interest from some big customers. Let's see. We order those ships without employment and are comfortable keeping them also in the market. They're going to be phenomenal earners. If there's some true long-term business available to those at acceptable returns to DHT, then of course we will entertain that. It could be a mix, you know, and we have to see. I do think that the next six months or maybe less, four or five months, will give us a better feel for how this will develop.

Maybe on our next earnings call, we have a better views, maybe the wrong word, but we have more clarity on whether initial interest will actually develop into real business interests.

Great. Okay. Thank you for that, Svein. I'll pass it back.

Speaker 4

Thank you.

Speaker 1

Thank you.

Speaker 4

We will now take our next question. Please stand by. Our next question comes from the line of Jeffrey Scott of Scott Asset Management. Please go ahead. Your line is open.

Speaker 2

Thank you. Good afternoon. Two questions. The first one has to do with demolition activity or actually the lack of same. The sanctioned fleet, the shadow fleet, is primarily the over 20s. To the extent that that shadow fleet is highly utilized, there's little incentive to send them to the breakers. Are you able to track the utilization rate of those sanctioned vessels, the shadow fleet vessels?

Speaker 1

It's limited because they are not always keeping their AI systems on board. You need pretty advanced satellite systems to keep track on this. There are some companies doing this. We have access to some of that information. We assume that in the best case, the productivity of this fleet is maybe 50% compared to the compliant fleet, possibly less. They get some phenomenal freight for doing these jobs, so they maybe can afford it and the ships are older. I think lack of scrapping is the dynamic, so that people that buy these older ships to operate them in the shadow fleet or sanctioned fleets are paying quite robust prices. This is then influencing the price a ship owner wants to sell his ship for demolition.

If you run a scrapyard, you buy a ship and it takes you quite a good while to take it apart and to recycle and sell all the pieces. It's not just the steel. It's also equipment, spare parts, copper from cables and stuff like that. The working capital load for a breakyard is quite significant compared to what it was when an old VLCC would cost $10 million. This is a challenging dynamic. I've been on record saying I think you need some global efforts to get this business going. These guys, if they want to finance such an acquisition, cannot do that with bank financing from a buyer that's sanctioned or been in sanctioned business. This whole business sort of stalls.

We would need a global effort, somebody like the World Bank stepping up to sanction the demolition of these ships and provide financing for all these breakers for that to happen. Otherwise, the new scrapping will be that these ships will just be abandoned and left as sort of, you know, with no people on board and the anchor drops somewhere and become environmental disasters.

Speaker 2

Okay. Thank you for the color. Another real quick question. Back in April, you announced the financing at SOFR plus 175, and then in July, the $308 million facility at SOFR plus 132. Was there something unusual in this facility, or are banks just more interested in financing the shipping business, or is DHT just qualitatively better than any of your competitors?

Speaker 1

You know, we have a very strong balance sheet, and we've been in this game for quite a while now. I think our track record in running the company in a sort of credible fashion is there. We have a very stable group of banks, seven banks that are supporting us. Our leverage is very, very low, and the only thing they complain about is that they cannot lend us enough money. When we need that, it's competitive. The DHT Jaguar is a bit of, I think, you know, not typical financing. It has a combination with part of the newbuilding package, you can say. It's a bit of an older ship that was refinanced. We expect the acquisition we made now in the second quarter, the 2018 build ship, to be priced meaningfully less than that DHT Jaguar financing.

Speaker 2

The spread is substantially lower than what's been disclosed by your competitors. Do you see that as well?

Speaker 1

I think we are viewed as an attractive counterpart for our banks, and of course, that is then reflected in the pricing.

Speaker 2

Okay, thank you very much.

Speaker 4

Thank you. There are no further questions. Speakers, please continue.

Speaker 1

Thank you very much for all listening in on DHT's conference call. We appreciate the interest and support, and wishing you all a good day ahead.

Speaker 4

This concludes today's conference call. Thank you for participating. You may now disconnect.