Eirik Uboe - CFO Svein Moxnes Harfjeld - co-CEO Trygve Munthe - co-CEO

Fotis Giannakoulis - Morgan Stanley. Magnus Fyhr - Seaport Global James Jang - Maxim Group Jon Chappell - Evercore Rob Silvera - R.E. Silvera & Associates Marine Surveyors Noah Parquette - JPMorgan

Good day, and welcome to the Q2 2017 DHT Holdings Incorporated Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Eirik Uboe. Please go ahead, sir.

Thank you. 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 August 16, 2017. In addition, our earnings press release will be available on our website and on the SEC's 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 tanker market in general, daily charter hire rates and vessel utilization, forecast of world economic activity, oil prices and oil trading patterns, anticipated levels of new building 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’s EDGAR system including the risk factors in these reports for more information regarding risks that we face. I’m joined by DHT's Co-CEOs Svein Moxnes Harfjeld and Trygve Munthe. And with that, I will turn the call over to Trygve.

Thank you, Eirik. Good morning and good afternoon everyone and thank you for joining the DHT second quarter 2017 earnings call. As usual we’ll go through a slide deck highlighting the key issues in the quarter before we open up for Q&A at the end. From our perspective the second quarter was highlighted by two overwriting issues. Firstly, the closing and takeover of nine ships and the two newbuilding contracts from BW Group. And secondly, they anticipated partly seasonal slowdown in the tank freight market. So let’s then dig into the details starting with a highlights of the quarter. In the quarter we generated an EBITDA of $37 million and net income of $4.8 million equal to $0.04 per share. Spot VLCC earnings came in at 23,500 per day. We think it's a satisfactory number given the market and very importantly the fact that we took over nine BW ships and had to reestablish all major approval for these given the change in ownership and technical management. Our technical department did an outstanding job with the takeover of the ships and with the running of the fleet in general. The VLCC OpEx in the quarter came in just over $7,600 per ship per day. Also in the quarter we tied up two new bank facilities. From a syndicate of seven leading shipping banks we secured $300 million of mortgage financing for the BW fleet at what we consider attractive terms. The margin of 250 -- 240 basis points over LIBOR, the repayment profile assuming 20-year economic life and a tender over the [Indiscernible] of six years. We also firmed up an $82.5 million facility for the two Hyundai’s newbuildings we ordered in the first quarter. This was done on similar terms with a margin of 250 basis points and again that 20-year repayment profile. We think these two facilities provided to DHT by the biggest and best shipping banks in the world speak volumes about the support and respect DHT enjoys in the shipping bank universe. On this slide we’ll show you our VLCC earnings in more detail. As I mentioned we generated an average of 23,500 a day for the spot fleet, while the seven VLCCs on time charter during the quarter averaged $37,000 a day giving us an overall VLCC earnings of $27,740 for the quarter. The corresponding number for the first six months of the year is 33,003 a day. And for the third quarter we have so far booked 59% of our spot days at an average rate of 20,100 per day. As mentioned in the beginning this softening of freight rates is not coming as a surprise. We have alluded to it in priority earnings calls and many analysts have been waiting for it for quite some time. The big question of course is how much of this is cause by seasonality and how much is other factors. We have undoubtedly been through a period with rapid fleet expansion and that has certainly taken its toll, even though we continue to see very robust demand both for oil and for transportation of oil. On top of that we’re now in the midst of the summer doldrums, so a low freight market at this point in time is not unexpected. However, if you look at the graph on this right side of this slide you’ll see spot VLCC rates over the past five and a half years, and you will recognize that even in week years the market has trended upward into the winter. Whilst past performance is no guarantee for the future we do expect rates to be higher in the fourth quarter than what we currently see. Let us then look at the income statement. We had revenues on time charter basis of just under $60 million [ph], sharp OpEx at $17.5 million, EBITDA of $36.7 million and net income just under $5 million equating to $0.04 per share. For the first six months of the year EBITDA is $87.3 million and net income $19.2 million. Let’s then turn to capital allocation. As you will recall our policy is to return minimum 60% of ordinary net income to shareholders in the form of dividends and/or buyback. For the second quarter we will greatly exceed the 60% as we have bought back $12.2 million of our convertible notes and in addition we’ll pay $0.02 per share in cash dividends. This marks the 30th consecutive quarter of cash dividends. Let us then go through balance sheet highlight. Our balance sheet is strong with moderate leverage and robust liquidity, interest bearing debt to total assets of 46.5% on book values and 51.9% on mark-to-market basis. Liquidity is good with $104 million of cash and an additional $47 million available under our revolving credit facility. During the quarter we repaid ordinary bank debt with $25 million consisting of $12 million related to ordinary schedule repayments and $13 million related to sale of vessels. In addition, we repurchased $12.2 million of the convertible bringing the outstanding under this facility down to $105.8 million at quarter end. And with that, I’ll turn it over to Svein.

Thank you, Trygve. We have as you know a keen focus on cash breakeven and these in markets like what we’re currently experiencing that it truly matters. When we talk about cash breakeven, we include all true cash costs, i.e. debt repayment, interest expense OpEx, G&A as well as maintenance CapEx for dry docks. For DHT to be cash neutral during the second half of 2017, we now estimate that our spot VLCCs must earn $17,300 per day. You will note that this is an improved number from earlier communications and improvement primarily due to having brought some maintenance CapEx relating to dry docks forward to the first half of this year. For 2018, the matching number is currently $19,400 per day. 2018 is very light on maintenance CapEx with only one Aframax due for dry dock. Further, we have several time charters due for potential extensions over the coming months, hence the 2018 spot cash breakeven number has room for improvements. We believe that these numbers took the DHT in a comfortable position and that they are very competitive than compared to our peers. With cash breakeven is important in the context of downside protection and staying power, net income breakeven illustrates the upside potential in DHT. DHT requires about $22,500 per day for the spot VLCCs for the second half of 2017 in order to be profitable. And the corresponding number for 2018 is currently about $24,500 per day. Again the 2018 number could be improved through potentially extending time charter contracts during the next few months. We think these numbers are robust and you should consider these numbers in relation to our capital allocation policy of returning minimum 60% of ordinary net income to our shareholders through buy backs and cash dividends. As we recall, and as Trygve spoke about earlier, we entered into an agreement to the BW Group to acquire the VLCC feet and thereby expanding our feet by about 50%. We took delivery of all the nine ships in the water during the second quarter. We further took title of two newbuilding contracts at Daewoo for delivery during the second quarter of next year. As we have stated earlier, we expect acquisition of these feet to be accretive to our earnings, as well as creating synergies through lowering our G&A expenses per ship per day. We should take this opportunity to praise the entire DHT team both onshore and onboard our ship for their hard work and excellent team spirit in consolidating the acquired ships into our fleet in a very compact timeframe. Our VLCC fleet now count 36 [ph] -- 36 in the water and four schedule for delivery during 2018. Our VLCC fleet has an attractive age profile with an average age of 6.8 years. We continue to execute on our clearly stated strategy of investing in our fleet, keeping leverage down and returning significant capital to our shareholders. They are in a financially sound position with a strong balance sheet and good liquidity and we are delivering competitive numbers on all the important operational metrics. Further, we have the lowest in class cash breakeven levels for our spot ships and thereby protecting the downside whilst maintaining substantial upside through our net income breakeven levels. All told [ph], we believe DHT is well placed to harvest from what we expect the future to behold. And with that, we open up for Q&A. Operator?

Thank you. [Operator Instructions].We will take our first question from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

Yes. Hi, gentlemen and congratulation for the profitable results in a difficult quarter. I want to ask you about the oil flows and if you see that this oil flows have decline, if you see any changes in the trading patterns the last few months, and I’m trying to also get a view from you on the compliance of the OPEC announced – previously announced production cuts?

Thank you, Fotis. There has been changes in oil flows and maybe in particular as response to OPEC cuts. The refinery still needs their feedstock. And as the Middle East in particular, we’re trying to hold exports and productions. You’ve seen more barrels being sourced from Atlantic into the Pacific and to that they are probably being mitigating some of their impact of the OPEC cuts, as we typically transport production and not just consumption of oil. There are I think a mix bag of compliance to the OPEC cut and there are some countries not complying and some are complying, and there’s talk of Libya and Nigeria exemption being put on hold and so forth. So – but all-in-all you will see that this is a very fluid market, it’s a very liquid market and people are focusing on getting their feedstock irrespective of whether production states want to focus on hiking their price through production cuts. We’ve also seen increased export from the U.S. I think as most of you have seen and there is increase in these shipments. So far mainly through reverse light ring, but there are talks of now maybe modifying or partly modifying the loop terminal to accept the exports. So, we would expect the trend in the U.S. exports to continue.

Thank you, Svein. I read somewhere in one of the brokers report that a number of vessels right now they are out of the market for maintenance or even ship-to-ship transfers, in other words they are not participating, they are not competing at this moment. Can you tell us many of vessels they are out of the market and what is the risk that these vessels will return at some point? Is this something that unusual, some increase in this numbers of vessels, are they are offhire versus the previous times?

Fotis, ships being offhire for special and intermediate service is nothing unusual. It might very well be that some people have taken advantage of the weak freight environment and they actually accelerate, when they do the dry dockings similar to what we did last year, but I’m not sure that’s significant factor in the freight market. And ship-to-ship transfers, that’s part for the course, that’s when you’re discharging and even when you’re loading in the U.S. this is what large tankers need to do.

Thank you, Trygve. I want to ask about how your fellowship owners think this market. We saw at the beginning of the year certain efforts of expansion from major ship owners including yourself. The last couple of months to three months there has been a slowdown in the news flow about expansion either secondhand or a newbuilding expansion. Since you are much closer to the market how do you view the appetite for adding tonnage or even for secondhand transactions has change versus the previous quarter. And we are all pleasantly surprised with the terms of the – the financing terms of your last two facilities, 20-year profile with extremely low margins looks very unique in this environment. Is debt financing back? Is there a risk that people will start ordering more ships?

I think we’ll get to your first part of – your first question first. Early in the year as we also stated in our prior earnings call was there rather aggressive marketing campaign done by the major yards [ph] in securing the orders. And if that marketing activities and anything to go by that has certainly slowdown, and we also see that with lots of first class shipyards it’s very hard to get refunding guarantees issued. And you see some Letter of Intent hanging out there for quite some time and then the orders are not becoming firm. So, we still I guess stand by our prior expectations that ordering activities in the first half will not be at the same level in the second half. I think you already see signals that it is significantly slowing down, so with any luck the order book will not grow significantly beyond where it is today.

And I think just add to that, some of these options that some owners were able to get, we know for a fact that some of them been passed off. So, we certainly think that this is cooling down.

And regarding the financing; is there so attractive financing in the market right now, 20-year profile I haven’t seen for a very long time and especially with margins sub 3%?

I think the market has been very binary. Either you have access to bank financing or you don’t. For us its been important to get to 20-year because as you’ve heard so many times we focus keenly on cash breakeven and of course 20-year repayment profile is far more attractive than say 16. But we've been able to obtain it because there’s a buy end from the banking side that they like our financing strategy. And also quite frankly we’re not asking for the moon in terms of the amount to financial leverage. We typically borrow 50% or thereabout on an acquisition costs. So no, I don’t think it’s a flood of cheap money available for the industry. It’s available for the biggest and strongest.

Thank you, Trygve. One last question, if you can comment about this spike in scrapping activity for crude tankers the last month. That was a little bit usual, I think is the highest number in number of years, monthly number of years. Can you comment on that? And also I don’t remember if you gave any guidance of your charters or your fixtures during the third quarter? And how do you view the fourth quarter developing based on the fixtures?

I think the scrapping activity you saw accelerating in the second quarter was primarily in the Aframax sector. And broadly speaking the smaller the ships the older their fleet tends to get. So, there is some work to be done on the Aframax fleet in the older spectrum. You’ve seen also some activity on the Suezmax front and we would not be surprise to see also some of these going. And so -- and in this market people will have to question whether they are going to a drydock especially considering integrity of the particular ship. It’s still renew [ph] or ballast tank refurbishment and so forth are required, which are very expensive. And then people today will look closely at retiring ships. We did guide on third quarter books, so we stated that 59% had been secured just over 20,000 a day for the third quarter. And we do expect seasonality to prevail and such we expect the fourth and the first quarter next year to be better than the current environment certainly.

Thank you, gentlemen, until the rest of the summer.

Thank you.

Thank you. We will take our next question today from Magnus Fyhr from Seaport Global. Please go ahead. Your line is open.

Yes. Good morning. Just one follow-up question on the third quarter bookings, you guys have done good job in fixing forward and I think your rate was pretty much in line with the rest of the peer group. But it looks like that the spot rates were slightly below, I know it's hard to compare quarter-to-quarter given that they don't turnover that often, but anything in particular that is going on during the quarter that was unusual besides taking delivery of and hire ships?

In the second quarter you mean?

Yes.

I think as Trygve said, you know, when…

Sir, I’m sorry, both second and third quarter, first the average rate, spot rate…

So, for the second as Trygve alluded to, when you take own or change ownership and technical management of the ship, you lose the approvals by the oil makers. And then it’s a very narrow feel of customers who can take you ships for the first cargo, and also typical then fix at discount to the general market [Indiscernible] market. So you start off with a handicapped if you like and as such in particular we were pleased with the performance that we had in the second quarter. The third quarter as we said, 59% is about 20, we think it’s a good starts, but the current market is certainly lower than that. I think you can assume that the current spot market is $10,000 a day give or take, depending on the trade and position of a ship.

All right. Great. Thanks for clarifying.

Thank you. We will take our next question today from Ben Nolan from Stifel. Please go ahead. Your line is open.

Thanks. So I have a handful of questions for you guys. The first has to do obviously again this quarter you were buying back those convertible bonds. With the market having weaken a bit, are you – I’m just trying to get a sense of sort of what your mindset is with respect to the deployment of your capital. Is it now sort of a point where you maybe think about just pulling back on that a little bit and doing what you can to sort of hedge your bets with respect to the cash flows are or is that still something that you would look to be aggressively looking to repurchase?

I think its – when we talk about capital allocation its really the capital that we generate in the quarter, and in the current rate environment we are generating as much cash as we have been doing in the past several quarters. So just without sort of a backdrop don’t expect this to be as aggressive on buy backs as we’ve been in prior quarters.

Okay. And along the same lines, obviously you guys have four newbuildings that are set to come out next year, at least today the market looks a little softer. Do you have any flexibility on being able to perhaps toggle back the delivery dates of those vessels and is that something that you would consider doing to the extent you have some capacity to do so?

We have not discussed with the yards [ph] and frankly its not much benefit we think in that. We have our team in place at the shipyards. Construction is going according to good progress. The ships are -- the four ships are the staggered over a period of six months. So, from a workload perspective, although the people for the yards just kind of works out well, so, we plan to stick to this schedule.

Okay. And then last one from me. I know you mentioned that there is some expectation of seasonality in the fourth quarter and the first quarters as we typically see. I am curious to maybe get a sense of how robust you would expect that seasonality to be going forward, I mean, do you think – and I know you can’t predict the market per se, but just get a sense of whether you think this will be normal seasonality or perhaps a little bit light of that give sort of current state of the market?

I think year to-date we have taken pretty much two-thirds of the deliveries of newbuilding. So it’s been an accelerated if we grow here in the first six, seven months. That’s a long to guess that things maybe a little bit better going into the second half as we’re expecting far less newbuildings delivered in. One think is the sheer number of ships, but again back to they’re being handicapped that the first quarters for newbuilding these ships as well need to take a discount in order to get going. So just the amount of ships that are showing up in the Arabian Gulf and willing to do ‘below market’ in order to get going has been damper on the market as well, but we’re not going to give you any sort of guidance on what is going to be a usually strong or weak seasonality this year that’s would be in this industry for too long to start giving opinion for that.

Okay.

Just some color also what we pickup in various reports and from China is that some of the refiners have been over buying a bit of crude during the first half and cooling down some of the purchases and then burning some inventories. But the expectation is that that will come back on again the next few months. And that combined also with a couple of new refineries opening up and of course then we’ll be looking to get feedstock. So I think chances are you’ll have some more activity again in China compared to the recent month-to-month number which are not been so convincing.

And I think if you take the IEA numbers and look at second half this year compared to first half, it’s a very meaningful step up in expected oil consumption and oil is being equal, that would suggest a better tanker market as well.

Yes. Okay. I know that always is very helpful color. Thanks a lot. That’s it from me. Thanks guys.

Thanks, Ben.

Thank you. We will take our next question today from James Jang from Maxim Group. Please go ahead.

Good afternoon, guys.

Hi, James.

So, just couple of quick ones. One is on in terms of the ballast water treatment system or the management system on the U.S. Coast Guard, they said the IMO regulation push it out to 2019 doesn’t really affect vessel trading in U.S. territorial waters. So I just want to see what your plans were in terms of I guess putting a management system or treatment system on the remaining vessels?

We already have systems in place on ten of the ships in the water and therefore newbuildings for next year will also have these systems. And keep in mind that in the U.S. it’s only related to ships that will load cargo which is when you discharge ballast water. So you can look at this in the context of increased use exports and then potentially bringing VLCCs into closer to the U.S. coast, but this will be relevant. And then, from next year we’ll have 14 modern ships with this ability. So, on the older ships we have got extensions and so forth and then of course in our more extended this in their own right. So in the older spectrum we will follow this closely and don’t think we have to make any decisions as we have promised.

Okay, great. Thanks. And what are your employment plans for the BW vessels. I know on the [Indiscernible] is the only one on charter. Are you guys looking to do a mix employment profile for these vessels or you guys haven’t decided yet?

Well these ships are not any different from – they are old DHT ships, so they follow the general strategy of DHT. We currently have big handful of ships on time charters that some of them are for extensions, but in general terms you don't think this is the market really to pursue time charters as their rates are not really that attractive. And you’re being attested to provide the knowledge to the clients is something that typically are not so in favor. So unless we have our regular clients and we see in meaningful rates then we will stay in spot market now.

Okay. And one final one is for the two Afras that were extended, but they extend at a same rate?

No. they are not extended, so those charters expired – the average shell has expired. We’ll now enter into some shorter term charters and they are in low mid-teens.

Okay. I think I just want to clarify, that I think on the latest filings it shows that they were extended? The Cathy 2018 and Sophie to Q4, is that still correct?

They had some short term charters that...

Okay. I see.

Initially expired and then we have entered into new short term charters that at different rates again.

All right, great. All right thanks guys.

Thank you. We will take our next question today from Jon Chappell from Evercore. Please go ahead.

Thank you. Good afternoon. Just two for you guys. First one on strategy going forward obviously you’ve integrated a pretty big fleet somewhat seamlessly thus far and obviously hasn’t put a lot of stress on your balance sheet either. So, you are sit in a pretty good position as far as your capital structure is concerned financing in place with the four new bills in 2018, how do you kind of foresee the next ups for the company. Do you feel you are in the right place right now, or do you still aggressively look to be counter seasonal? Sorry counter cyclical.

We certainly think we are in a good position. As you said we were able to do a big deal at the old prices in the second quarter and we’re here now to sort of consolidate that and we are now at on the double edge of the chair to give more deals as we speak, but as always we are paying attention to what’s available and if we can strike a meaningful deal, that’s accretive and enhancing to our shareholders we would certainly pursue it. But it’s not – you know given that we increased by 50% just a couple of months ago, we are not as eager as we were half a year ago.

Right. But and given the weakness in the market today, you know I imagine that’s kind of filtered through to maybe the more of liquid charter market. Have you explored chartering in and all I know that has to be in your strategy in the past, but maybe a cheaper way to get some more exposure ahead of the season or cyclical upturn?

We – quite frankly we think there is plenty of upside participation in the HT, the fleet we have today and for our shareholders. So, no we are not going to add leverage by chartering interest.

Okay. Last one I noticed that all the shares have been issued to BW and including the conversion of the common shares of some of the preferred stock. Is there a lock up associated with that for BW

There’s a standstill, you can read that in the investor rights agreement that was filed in connection with acquisition. So there is a standstill of [Indiscernible] making months. And then potentially upto five years so there is fair amount of details related to that, so we suggest you pick up that filing if we may.

Sounds good. Thanks

Thank you.

Thank you. We will take our next question today from Rob Silvera from R.E. Silvera & Associates Marine Surveyors. Please go ahead.

Hi, thank you very much for doing the hard work you’ve done in a very difficult quarter. One thing I’d like to suggest in your press release you have columns but the columns are not identified just for simplicity sake and easy the next time, if you’ll identify each column which quarter it represents etcetera, etcetera, that would be handy. The question I have particularly is have you guys considered at all using some of the ships in the clean tanker market?

No, our ships are so-called [Indiscernible] in the cargo tanks and that’s what you need when you carry crude oil. In order to carry refined products you need to have cultured [ph] the cargo tanks and that none of our ships have got that and such that from a technical perspective and what we receivable unless you do it on the main voyage off [ph] the shipyard you can do one cargo. Further, you know in the refined products markets lots are being shipped in a much smaller lots, so it’s not really for the agencies that are able to carry 2 million barrels. So that’s not really a market so that we could fix into.

That’s what I was afraid of. Okay, thank you that’s all the questions I have. Keep doing the good job that you are doing, and reducing the debt. I think that’s very very critical for the next two years atleast.

Thank you very much for your support. Have a good day.

[Operator Instructions] We will take our next question today from Noah Parquette from JPMorgan. Please go ahead, your line is open.

Hey just real quick. Are you guys on the G&A side, is this quarter got something to do with the additional hiring that will reflect in cost...

You really broke up there, Noah but the question about increasing G&A as we have increased the fleet.

Yes, sorry about that.

We have added three people to the DHT team, one on chartering one on operations and one on accounting. So that’s the extent of the increase in G&A and that’s going to be a very miniscule percentage increase. So if you look at G&A for a ship per day, it’s going to go down by about a third compared to the old prior BW run rate. As you will note in both the first and second quarter there was a bit of noise related to all these advisory team, so we expect now the third quarter to be a good clean running quarter in terms of overhead cost and we will guide further on that on the next earning call and hope to expect going forward. But it will certainly be competitive.

Okay, thanks.

[Operator Instructions] There are no further questions at this time over the telephone.

Okay, then we would just like to say thanks to everyone for your continued interest in DHT. Thanks and have a good day.

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