Business Context and Reporting Period
DHT Holdings, Inc. is a Marshall Islands corporation operating a fleet of crude oil tankers. This Form 20-F covers the fiscal year ended December 31, 2011. The company operates 12 vessels (11 owned, 1 chartered-in), comprising six VLCCs, two Suezmaxes, and four Aframaxes. The fleet is primarily employed under time charters and bareboat charters, with significant exposure to Overseas Shipholding Group, Inc. (OSG), which charters nine of the 12 vessels. Financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric (in thousands, except per share) | 2011 | 2010 |
|---|---|---|
| Shipping Revenues | $100,123 | $89,681 |
| Total Operating Expenses | $133,677 | $66,482 |
| Income from Vessel Operations | $(33,554) | $23,199 |
| Net Loss | $(40,272) | $6,377 |
| Net Loss per Share (Basic/Diluted) | $(0.64) | $0.13 |
| Operating Cash Flow | $44,331 | $34,266 |
| Investing Cash Flow | $(123,204) | $(5,620) |
| Financing Cash Flow | $62,926 | $(42,741) |
| Total Debt Outstanding | $281,922 | $266,000 |
| Stockholders' Equity | $206,448 | $196,341 |
Note: 2011 operating expenses include a non-cash impairment charge of $56.0 million.
Material Changes vs. Prior Period
- Net Loss vs. Profit: The company reported a net loss of $40.3 million in 2011 compared to a net income of $6.4 million in 2010. This reversal was primarily driven by a $56.0 million non-cash impairment charge on vessel assets due to declining charter rates and vessel values.
- Revenue Growth: Shipping revenues increased 11.6% to $100.1 million, attributable to the addition of three vessels (DHT Phoenix, DHT Eagle, and Venture Spirit) in 2011.
- Expense Surge: Total operating expenses more than doubled to $133.7 million. Excluding the impairment charge, operating expenses increased modestly due to higher vessel operating costs and charter hire expenses for the chartered-in vessel.
- Capital Expenditures: Net cash used in investing activities spiked to $123.2 million (from $5.6 million) due to the acquisition of two VLCCs.
- Dividend Reduction: Dividends declared per share dropped to $0.33 in 2011 from $0.30 in 2010, with the final two quarters of 2011 seeing a reduced rate of $0.03 per share.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management expects cash flow from charters in 2012 to be sufficient to fund interest payments. However, the company faces significant charter expirations in 2012. OSG has notified DHT that it will not extend the charters for three vessels (DHT Regal, Overseas Ania, and Overseas Rebecca) expiring in April 2012. The company must re-charter these vessels, likely exposing them to volatile spot market rates.
Debt Covenants and Liquidity
The company is subject to strict "value-to-loan" covenants under its secured credit facilities (RBS, DVB, DNB). To maintain compliance with the 120% covenant ratio under the RBS facility, the company made prepayments of $42 million in 2011 and agreed to an additional $12 million prepayment in Q1 2012. Further declines in vessel values could trigger additional mandatory prepayments.
Material Weaknesses in Internal Controls
The company identified material weaknesses in internal control over financial reporting related to vessel expenses reported by a third-party service provider. This resulted in an adverse opinion from the independent auditor regarding internal controls, though the financial statements themselves received an unqualified opinion. Remediation is ongoing.
NYSE Listing Compliance
The company received notice in December 2011 of non-compliance with NYSE listing standards due to a share price below $1.00. It regained compliance in March 2012 after the share price recovered.
Key Facts for Investor Verification
- Impairment Sensitivity: Verify the assumptions used in the $56.0 million impairment test, specifically the Weighted Average Cost of Capital (WACC) of 8.47% and projected future charter rates.
- Charter Renewals: Monitor the re-chartering status of the three vessels (DHT Regal, Overseas Ania, Overseas Rebecca) expiring in April 2012, as failure to secure profitable charters will impact future revenue.
- Debt Covenant Compliance: Confirm the execution of the agreed $12 million prepayment in Q1 2012 and monitor vessel valuations to ensure continued compliance with the 120% value-to-loan ratio.
- Internal Control Remediation: Track the progress of remediation efforts regarding vessel expense reporting to ensure future financial reporting reliability.
- Customer Concentration: Note that 88.7% of 2011 revenue came from a single customer (OSG), creating significant concentration risk.