DHT

Business Context and Reporting Period

DHT Holdings, Inc. (DHT) is a Marshall Islands-incorporated company operating a fleet of crude oil tankers, primarily Very Large Crude Carriers (VLCCs) and Aframax tankers. This Form 20-F covers the fiscal year ended December 31, 2016. As of year-end, the fleet consisted of 21 vessels (19 VLCCs and 2 Aframaxes) with a combined carrying capacity of approximately 6.07 million deadweight tons (dwt). The company operates under International Financial Reporting Standards (IFRS).

Key Financial Metrics (Year Ended Dec 31, 2016)

Material Changes vs. Prior Period

• Revenue Decline: Shipping revenues decreased by 2.5% ($9.1 million) compared to 2015. This was driven by lower charter rates and increased scheduled drydockings, partially offset by fleet expansion from newbuilding deliveries.
• Significant Impairment Charge: The company recorded a non-cash impairment charge of $84.7 million in 2016 due to a decline in second-hand tanker values. This contrasts with 2015, which had no impairment charges, and 2014, which saw a $31.9 million reversal of prior impairments.
• Profitability Drop: Net profit fell sharply from $105.3 million in 2015 to $9.3 million in 2016, primarily due to the impairment charge and lower operating income.
• Debt Increase: Total debt increased to $701.5 million from $662.5 million, reflecting financing for newbuilding deliveries and refinancing activities.
• Dividends: Total dividends paid per share were $0.71 in 2016, compared to $0.53 in 2015.

Guidance, Outlook, and Risks

Outlook: Management expects the 2017 freight market to be "choppy" due to new ship deliveries and OPEC supply cuts. Approximately 30% of 2017 revenue days were covered by time charters as of March 1, 2017. The company plans to focus on prudent capital management and fleet renewal, noting that asset values have reached attractive levels.

Capital Allocation: In November 2016, DHT revised its policy to return at least 60% of ordinary net income to shareholders via dividends and/or security repurchases (including convertible notes).

Key Risks and Contingencies:

• Asset Valuation: The aggregate carrying value of vessels exceeded their charter-free fair market value by approximately $143.7 million as of December 31, 2016, creating potential for future impairments if market conditions worsen.
• Debt Covenants: The company is subject to "value-to-loan" covenants requiring vessel values to remain between 130% and 135% of outstanding debt. Declining vessel values could trigger prepayment requirements.
• Sanctions Compliance: Three vessels made port calls to Iran in 2016 (0.48% of total calls) at the direction of charterers. While management believes these were compliant with the JCPOA, violations of sanctions laws remain a significant risk.
• Convertible Notes: $123 million of 4.50% Convertible Senior Notes due 2019 remain outstanding. Repurchases of $27 million were made in 2016.

Investor Verification Checklist

• Impairment Sensitivity: Verify the assumptions used in the impairment test (WACC of 8.26% and future charter rates), as a 1% increase in WACC would have increased the impairment charge to $136.3 million.
• Debt Covenant Compliance: Monitor quarterly broker valuations to ensure the company remains compliant with value-to-loan ratios (130-135%) across its six secured credit facilities.
• Iran Sanctions Exposure: Review ongoing compliance with U.S. and international sanctions regarding the three 2016 port calls to Iran and any future charterer instructions.
• Dividend Sustainability: Assess whether the 60% payout policy is sustainable given the volatility in spot market rates and the company's high debt service obligations.
• Newbuilding Deliveries: Track the delivery and financing of the two VLCCs ordered in January 2017 (scheduled for 2018) and the DHT Tiger delivered in January 2017.