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

Jon Chappell - Evercore Spiro Dounis - UBS Securities Fotis Giannakoulis - Morgan Stanley Robert Silvera - Silvera & Associates Marine Surveyors

Good day, and welcome to the Q3 2017 DHT Holdings, Inc. Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to 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 November 20, 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. With that, I will turn the call over to Svein Moxnes Harfjeld.

Thank you, Eirik. Good morning and good afternoon everyone and thank you for joining the DHT third quarter 2017 earnings call. As usual, we’ll go through our slide deck, highlighting the key issues in the quarter. For those of you that have been following us, you will recognize a couple of new slides, with one in particular illustrating what we deem to be key performance metrics for a tanker company. We will then invite you to a Q&A session at the end. The quarter experienced anticipated seasonal slowdown in activity and rates. But all things considered, we are pleased with the quarter, a quarter that included consolidation of the nine ships in the water that we acquired in the spring. So, then, to the quarterly highlights. We generated an EBITDA of $31.4 million in the quarter, resulting in a net loss of $5.1 million, equal to $0.04 per share. Our VLCC earnings came in at $22,500 per day, of which the spot ships earned $17,500 per day. The spot number reflects some drag from the prior quarter related to reestablishing oil major approvals for the nine ships we recently acquired. Our technical team keeps delivering competitive numbers combined with first rate vetting of our fleet. Operating cost per ship per day or OpEx came in at $7,500 per day. Following the meaningful growth during the second quarter that only required a couple of additions to our headcount, our total G&A cost was $1,500 per day per ship. During the quarter, we extended time charters to existing oil major clients for three of our VLCCs. The contracts have base rates in excess of our cash breakeven levels. Above this, there are two tranches of potential additional earnings based on the market index. The first tranche is fully paid to DHT and the second tranche starting in the mid-30,000s will be split 50-50 between the customer and DHT. Here, we show you our VLCC earnings in more detail. As discussed, our VLCC fleet generated on average $22,500 per day during the quarter with the spot ships earnings $17,500 per day. Year-to-date, our VLCC fleet has on average earned $29,100 per day, thanks partly to having some level of fixed income in place. For the fourth quarter to-date, we have booked 63% of our spot ships at $21,400 per day. The graph illustrates seasonal movements in earnings over the past five years. As you can see, the third quarter is typically weak and this quarter was no exception. On our last call, we mentioned the rapid fleet expansion last year and this. Despite this, the market has responded positively at what is typically a stronger period of the year. This is a new slide and we are here trying to illustrate what in our minds are important operational metrics running a tanker a company. The slide illustrates the third quarter. The green bar to the left starts with our average VLCC earnings $22,500 per day. Next, we deduct our OpEx number of $7,500 per day. This number is pretty much the same as we have had year-to-date and we think it is competitive. We then deduct cash G&A of $1,150 per day. The result is an EBITDA per VLCC per day of $13,800. We take the liberty to suggest that this is an important number when considering operational efficiency. We then follow on deducting our interest expense of $3,900 per day, the quarter’s debt repayment of $7,000 per day and maintenance CapEx of $2,400 per day, resulting in positive cash flow during the quarter, a good effort by everyone at DHT during a seasonally weak period. We then move on to the income statement. We had revenues on TCE basis of $55 million, OpEx of $19.5 million, and EBITDA of $31.4 million with the bottom-line of minus $5.1 million, equating to $0.04 -- minus $0.04. For the first three quarters of the year, EBITDA was $118.6 million with the net income of $14.1 million, equaling $0.16 per share. And then, over to Trygve

Thank you, Svein. As you will recall, our capital allocation policy suggests that we return minimum 60% through ordinary net income in the form of dividends and/or buybacks of shares or convertible bonds. During the third quarter, we have not bought back any securities. Despite negative net income for the quarter, our Board of Directors has elected to pay a dividend $0.02 per share for the quarter. Let’s then look at the balance sheet. DHT continues to enjoy a healthy balance sheet. You should note that, we, in addition to the cash at hand, have an undrawn credit facility of $46 million. Leverage, measured as interest bearing debt to total assets stands 52.5%, based on market values at quarter-end, a level we think is comfortable, given where we are in the cycle. And during the quarter, we repaid $17 million of mortgage debt as ordinary repayment. Next, we look at the cash flow statement, and we here graphically illustrated the highlights. In our opinion, there are three key takeaways here. First, DHT was cash flow positive from operations during the weakest freight markets since 2013. And that is after $17 million of debt amortization and some $6 million in dry-docking expenses. Secondly, during the quarter, we invested $9.4 million in ships under construction. And thirdly, the changes in working capital which predominantly are increase of bunker inventories and reduction of accounts payables consumed $6 million of cash during the third quarter. As this most recent quarter has showed us all, cash breakeven is important in our industry. With this slide, we wanted to give you an update on where we stand for 2018. Following the three time charter extension Svein talked about, we estimate that our spot VLCCs need to earn about $17,700 per day next year in order to cover OpEx, interest, debt amortization, G&A and maintenance CapEx. And you should take note that DHT’s cash breakeven includes debt amortization of some $6,500 per day, totaling $69 million for the full year. We believe that this breakeven level continues to be very competitive. Before we open up for your questions, we would like to summarize as follows. We’ve just been through the weakest quarter in the VLCC freight markets since 2013, but DHT generated cash from operations, thanks to a very competitive cost structure. The freight market has seasonally recovered and we expect our fourth quarter financials to be better than those in the third. Tanker values have stabilized this year and have recently started to inch upwards and we have experienced an increase in incoming calls wanting to buy quality ships across the DHT spectrum. We believe the tanker market in the near-term will continue to be influenced by oil inventory draw downs and relatively heavy new building delivery programs for the next few quarters. Nevertheless, we feel DHT is very well-positioned. We have one of the most competitive cost structures in the industry, both on vessel OpEx and G&A. We have a very light dry docking program going forward. This year, we have had eight ships going through drydock -- eight VLCCs. In 2018, we will only have one Aframax due for drydocking. So, maintenance CapEx drops about 90% from about $15 million this year to less than $2 million next year. So, the effect is once again that we have a cash breakeven rate for next year of $17,700 per day. With that, we are ready to take your questions. Operator?

[Operator Instructions] We can now take our first question from Jon Chappell from Evercore. Please go ahead.

Svein, thanks for providing a little bit more insight on these new charter extensions of mid-30,000 a day, 50-50 threshold. But just for our modeling purposes, can you give us what the base rate is? I know that you’re essentially getting 100% then up to that mid-30,000, so essentially like spot up to 30,000. But as we think about downside protection, the base rate on that, on those charters?

We’re not specific on the number, but as we said, it is above our cash breakeven levels. So, that is really how much we are sharing at this point in time, and this relates to also confidentiality towards our customers, so.

Now, those three ships aren’t sister ships. So, the fact that you were able to get three -- basically similar contracts for three ships that are a little bit different, does that mean that there is more opportunities out there for similar type charter agreements or have you gotten to the point of the cycle where charter is willing to start to lock in but still kind of have it as profit share type element of contract?

I guess, we have a -- I alluded to earlier, the liquidity in crude term [ph] business for large tankers is rather limited. But these ships -- these contracts are extension of existing contracts and whereby we are providing stable transportation service to our customers. And I think in this market, the structure of these deals provide a meaningful setup for both parties. It provides us with fixing our income above our cash breakeven levels without giving away all the upside, and it provides continuity in service with quality ships from a quality operator to the customers. So, we don’t want to create expectations that we can stack away over 10, 15 ships on similar deals. But, if there are other opportunities, we are certainly ready to basically commence.

I don’t want to read too much into them, since they are all extensions. But, given the fact that you’ve now kind of ratchet up three more time charters and given Trygve’s closing comments about maybe some of the challenges over the next couple of quarters or so, would it be fair to assume that you are still kind of in defense mode, kind of worrying about costs -- not worrying, but focusing on costs, time charter coverage et cetera as opposed to maybe thinking that now is the inflexion point and it’s time to get more aggressive on fleet expansion or whatever the case may be?

I think, Jon, that you will have recognized that we try to run DHT with a careful eye on the downside protection, but we will never ever give away the full upside. So, I think what we have done with these three extensions is pretty straight down the middle compared to what we want to do. So, with this fixed income, we do have a very comfortable cash breakeven, but, yes, we have a lot of ships in the spot market, and we are quite optimistic on the market in the medium-term. But we think we need to get through a period where there still are going to be a little bit of headwinds.

Makes sense. One last quick one, then I’ll turn it over. You probably have better inflation than us, just on the timeliness basis. Is there any way you can kind of give us an update on where the Hemen Holding/Frontline ownership stands today?

They filed in the summer that they have gone below 5%. So, we don’t really know anything more until the next New York Stock Exchange general filing, which is -- we expect calling that out tomorrow, so, we don’t have any specific data, so.

Next question comes from Spiro Dounis from UBS Securities.

Hey, good afternoon, gentlemen. Thanks for taking the question. I just wanted to ask about sources and usage of cash, may be going through the end of 2018. You’ve got about $84 million coming due, I guess by the end of 2018 and then $235 million of vessel payments, just curious of the $84 million, how much of that would you expect to refinance, if any at all and in terms of the vessel payments. Could you just remind us again how much of that’s going to come out of debt?

On the $84 million, that’s just ordinary scheduled amortization of debt and it’s in our cash breakeven numbers of $17,700 a day. So none of that we expect to refinance.

We have no debt due in next year.

Nothing coming to finance…

Yes. I appreciate that clarification. And then on the $235 million in vessel payments, how much of that is actually going to come out of debt facility?

At quarter-end, we have about $55 million of new building CapEx, it’s not going to be financed the way it stands today.

Got it, okay. That’s good color, I appreciate that. And then, just in terms of the incoming calls that you mentioned to buy vessels, I guess, the question is, are you guys sellers at these prices? You guys were fairly active last year on the selling front, as you sort of got rid of some of your older tonnage. Is that something you’d still look to do or do you feel like the fleet profile is pretty good right here?

We are okay with where we sit today, but given the right opportunity, we will certainly look closely at also divesting some of the older assets. But, we’re not really sellers in this market in general. So, they are calls coming in for all types of impetus and I think you should take for granted that in modern spectrum we are not sellers at all at this time. So, yes, we are bullish in the medium term and I think we build up very effective fleet that will really be rewarded in times to come.

Got it. Just last one for me. I noticed that your G&A was actually pretty low this quarter, lowest, I think I’ve seen in the last eight quarters maybe, just wondering if there is any specific that maybe pushed it down this quarter and as we look to the fourth quarter, should we expect a normalized to something in the $4 million arena, just trying to get some color on that?

I think this is also as we presented, our per ship per day is also the consequence of the fleet having become bigger and you could argue that our organization is really set up to handle this. So, we think that the number we had now for the third quarter is a comfortable number. We don’t expect to hire any more people. And I think this gives an indication of where it could run going forward. There will of course be some minor, bumps up and down here and there, so.

All-in-all, $4 million is not a bad number.

Next question comes from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

We have seen pretty remarkable compliance of the OPEC and non-OPEC producers in the cuts, and it seems that the supply of crude is constrained and most likely this cut will be extended until -- for the entire 2018. How does this change your outlook for the crude tanker market and what kind of implications the higher oil prices have in this outlook and the timing of the recovery?

That was quite a few questions. We think that the fact that this market has held up as well as it has despite quite a few new buildings being delivered in now, not only this year but the year prior and also 2015, so, I think that speaks volumes of the demand side in the oil market. And now to the OPEC cut, we’ve finally gotten into a phase where there have been inventory draw downs. So, actually did sort of two-punch combo with a lot of newbuilds delivering in and inventory drawdown phase that the market has held up as well as it has, I think suggests that there is quite a bit of changes in the trade flows. And as we have talked about and many people have talked about, the sourcing of crude in the Atlantic and transporting it to the party, that has certainly been a pretty significant positive, especially for VLCC market. As far as oil prices and how it’s going to influence the demand side, I think whether it’s around $50 mark or $60 mark, it’s not really going to change consumption behaviors dramatically on a global basis, we don’t think so.

And it seems to be a pretty wide consensus about 2018 for the tanker market given the number of deliveries. But, there are high expectations for 2019 turnaround. Is this something that you still share and what is the sentiment out there from your other ship owners? And also, if you can expand about the appetite for ordering new tonnage that you see in the market?

I think that two-punch combination I just described is kind of going go in reverse at some point. You will start drawing down inventories at some point, which means that you need to transport more for consumption. And at some point, the fleet growth is going to be reduced because there is less new buildings coming in but importantly because there is going to be a lot of replacement needs in the next couple or two years. So, we’ve talked about it before. But, if you look at the number of VLCCs turning 20, we estimate that to be three ships this year that are still trading, but, if you look forward to 2019 or 2020, that number gets to 13 ships and then to 36 ships. So, we think there is a lot of retirement that’s going to happen there in the medium term. So, the combination of these two is going to be a pretty positive for the tanker market, we think.

If I may add that we are working down the order book rather quickly and VLCC order book now stands at 11%. And the ordering activity has certainly slowed down from the activity we saw in the first-half. And I think this is a combination of the fact that people that were in the market for traditional fleet renewal, they are probably done also the work they wanted to do, and then they also see that it seems to be challenging for several of the shipyards to issue refund and guarantees at the contract prices that people are willing to pay. So, this has kind of set the floor also for asset values, and the ability to actually get more orders. And further, you see more activity in older ship classes. There is order for big series of large containerships for large iron ore carriers; there is a lot of activity in LNG. So, the yards are not that aggressive on tankers as they were in the first half. So, we think all these things combined, as also Trygve mentioned now, set this up for potentially very bullish period from kind of the 2019 onwards, potentially…

Thank you, both. And I want to transfer to the new regulations on both at ballast water and particularly the low sulfur. And I want to ask how do you prepare for this kind of regulations? And if you are considering putting scrubbers in a meaningful way, I understand that you are already looking at it for a couple of ships, but at what point these decisions have to be made?

To take ballast water first, we have already 10 ships in the water with systems installed, and the four new buildings coming next year; we’ll, of course, also have this installed; so, then, 14 or the 30 of these have this kind of taken care of. For the remaining part of the fleet, we’ve got waivers drivers in place. So, we don’t really have any CapEx to seek on, until some meaningful, say call it, around five years -- in about five years’ time. When it comes to scrubbers, we think that the long-term solution for our industry is really to consume compliant fuel [indiscernible] low-sulfur fuel. So, it’s not really a long-term solution to have scrubbers implemented across the entire fleet. And then there are still some price discoveries to be had on this. Maybe in the short-term, there will be limited supply of this. But, one would expect with the price delta that people will be willing to invest and provide these fuels to the market. As for ourselves, we have elected to install scrubbers on two of the newbuildings next year. And we think that in the short-term will be a very handsome investment. We’re not currently planning to retrofit existing ships but that could of course change, if prices for equipment change, the cost of retrofitting and so forth, but again, we think the base case for us is to burn compliant fuel in the long-term. And we think at the end users will have to pay for this in their freights.

[Operator Instructions] We can now take our next question from [Robert Silvera from Silvera & Associates Marine Surveyors] Please go ahead.

First of all, thank you gentlemen for doing a very good job in a very tough quarter and for continuing the dividend, even though at this point, it’s a difficult thing to do. In any case, do you see VLCC rates on a general basis, do you believe that they have bottomed and that we are now going into a period where we will -- beyond a quarter, I am talking about, we will see rates begin to slowly increase?

I think built in some of our answers on this call and prior calls that we are optimistic in the medium term, and we are bit apprehensive on the really near term. But, if I can answer you this way, we wouldn’t be surprised if we one year from now look back and we see that the third quarter of 2017 was the tough quarter. But this is as you know as very well as our listeners and it’s sometimes little scary how little predictability we can really give you. So with all the caveats, we were hopeful that the third quarter was the bottom.

The owners, in other words, look like they are solidifying at these levels and they won’t go lower, that’s your feeling?

Yes. That’s what…

How do you perceive scrap values in the marketplace right now for ships? Do you see that having risen to a point where it probably won’t go higher or is it looking to you like the rates of scrap value may go down in the near future because of the additional scrapping that may be occurring in the next year or two?

The scrap prices have certainly increased over the past year or so. So, we are now at, call it, 16 -- $16.5 million for VLCCs to go for demolition. We’re not so sure it will necessarily move meaningfully higher, it could of course go up, but there seems to be some interest across to retire ships at those levels. So, you have, I think it’s nine ships year-to-date that -- sorry, 11 ships year-to-date that’s been retiring. In addition to that, we have five ships being sold for commercial projects. So, we have seen 16 ships probably committed to leave the fleet this year. So, there are some industrial or end users with some older ships in their fleets and they are taking delivery of new ships as we speak. So, one could expect that that’s part of their fleet renewal, as such they will elect to also retire those ships in the coming period.

Well, good. Thank you very much for your insights. I appreciate them. And good luck on continuing the good job that you’ve done. You’ve worked very hard at it and I’m very pleased as the shareholder.

Thank you very much. Have a good day.

That concludes today’s questions. I would now like to turn the call back to the host for any additional or closing remarks.

We would just say thank you to everyone for your continued interest in DHT. Good day.

Thank you. That concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.