DHT Holdings, Inc.: Letter to Shareholders from the Co-CEOs
February 10 2017 - 9:17AM
February 10, 2017
Dear Shareholder,
We are writing to update you on DHT's business
and our current thinking.
As you know well from our communications to you,
the tanker market is cyclical, seasonal and volatile, and we manage
these cycles proactively through our approach to operations, costs
and capital allocation. By following this strategy, we produced
very strong operational results in 2016:
- The average earnings of our VLCC fleet came in at $43,300 per
day for the year - a strong number in our opinion;
- We delivered stable and competitive operating cost for our
ships reflecting our modern quality fleet of ships run by a very
experienced team with a long-term view on safe and reliable
operations;
- We have further driven down our administrative cost by
right-sizing our organization following the Samco acquisition in
2014, benefits that will be evident in our financial results this
year.
- The above translated into a solid EBITDA of $209 million for
2016 equivalent to ~ $ 2.24 per outstanding share.
With asset values down some 25-30% last year and
close to the trough levels we saw in 2013, we think we have reached
a period of attractive asset prices whereby we will gradually focus
on investment and fleet renewal. In keeping with that
outlook, we have just placed an order for two VLCC newbuildings at
Hyundai in South Korea. The shipyard has offered us early
delivery in July and September 2018 in combination with attractive
payment terms whereby we will pay 70% at delivery. The
contract price is very attractive and includes large deadweight
design of 318,000 metric tons as well as our typical upgrades to
the shipyard specification. The ships will be financed by
about 50% equity and 50% bank debt. Importantly, the equity
component will be funded with cash at hand and future cash flow,
hence no additional shares will be issued to finance this project.
The combination of the attractive contract price and prudent
financing results in very competitive cash break-even levels of
about $17,600 per day to cover operating expenses, dry docking,
debt amortization and interest payments.
We are allocating our capital to position DHT
for growth in the long term and to return the most capital to you,
the shareholder. We have paid cash dividends in 28
consecutive quarters. Our well defined capital allocation
policy includes a formula based distribution related to
earnings. During periods with strong tanker earnings, the
cash dividends have been generous yet prudent. We have in
fact paid a total of $1.27 per share as cash dividends over the
past two years. When earnings have run through softer
periods, we have still paid quarterly cash dividends albeit in
nominal numbers. It is however important to see the dividends
in relation to how our capital is allocated in general.
During the periods with strong cash flows, we also had the
opportunity to prepay debt extraordinarily, and more recently,
repurchase our convertible bond at a discount to par. As
mentioned earlier, we are now in a period where some of our cash
flow will be applied towards what we think will be attractive
investments for DHT while adhering to our stated capital allocation
policy.
Other companies have recognized the value in our
high quality asset base and our employees. Frontline, a
Norwegian-based tanker company, made an unsolicited, non-binding
and highly conditional offer to acquire DHT. We understand
why they want to buy DHT with our modern high quality fleet - we
are also buyers of modern quality ships in this environment.
However, our board unanimously concluded that the offer of
exchanging 1 share in DHT for 0.725 shares in Frontline (equivalent
in value at the present time of about $5 per DHT share) was wholly
inadequate and substantially undervalued our company and
undervalued what DHT's contribution across key metrics would have
been to a combined company. Additionally and importantly,
Frontline proposed to pay for us in highly inflated Frontline
shares that trade significantly above their underlying ship
values. The result would have been a dilution of more than
20% of net asset value per share for DHT shareholders. This
is clearly unacceptable. It should be recognized that our
VLCC fleet has an average age of about 6 years whereas Frontline's
VLCC fleet has an average age of almost 11 years. Frontline's
VLCCs represent about 40% of their total fleet based on broker
values. Their Suezmaxes and LR2 product tankers are
relatively young but are predominantly built at what we consider to
be second tier shipyards in China.
We like DHT's current position with a robust
balance sheet, quality fleet, first class people, solid customer
base and supportive banks. We have a mix of fixed income
contracts and spot exposure thereby protecting the downside yet
retaining significant upside. Our customers are some of the
most demanding oil majors and refiners out there, which we think
reflects well on our services and operations. The fact that
we extend contracts and get repeat business should be a testament
to DHT as a trusted business partner.
We are, as you know, meaningful shareholders
ourselves and have a continuous focus on building and running a
highly respected tanker company providing attractive returns to
investors. We believe the execution of our strategic plan
will drive significant and sustainable value for our
shareholders.
With best regards,
Trygve P.
Munthe
Svein Moxnes Harfjeld
Co-
CEO
CO-CEO
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