d'Amico International Shipping S.A. (DIS) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the d'Amico International Shipping First Quarter 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Carlos Balestra di Mottola, CEO. Please go ahead, sir.

Thank you, and good afternoon to everyone. Thank you for attending our presentation today. As usual, we will skip the executive summary, and we will start with the fleet overview. This is a snapshot of our fleet. As of 31st of March '24 we controlled 35 vessels, mostly MRs, 23 and then an equal presence of 6 vessels in each of the LR1 and Handy size segments. Modern fleet with an average age of 8.8 years relative to an industry average of 13.4 for MRs and 14.8 for LR1s and 80% of the controlled fleet is Eco-design. The fleet was built mostly through an important newbuilding program with vessels delivered to us between '14 and '19, 22 vessels. Recently, we ordered another 4 vessels, which are going to be delivered to us starting in the second half of 2027. Going on to the following slide, we show here the important investments that we made since 2012 with a pause during a few years, and then we have started reinvesting through the exercise of some time charges [Technical Difficulty] in option and an opportunity that was presented to us where we acquired a 50% stake of a JV partner in a vehicle [ in ] international shipping and most recently, through the purchase of young secondhand vessel for $43.5 million. And the 4 LR1s that we ordered which would entail a total investment of over $220 million, of which $43 million this year and the rest mostly '27 with a small part at the end of '26. I pass it now over to Federico.

Thank you, Carlos. So this is the situation of our debt repayments. So very stable situation. We have no refinancing needs for '24 and '25. We are repaying approximately $27 million a year from 2024--2026. As you can see, in 2024, and this is going to happen in [ 3 ] Q2, we're going to repay also $6.5 million which is the debt related to Glenda Melanie, which is the oldest vessel of our fleet that we recently announced the sale of and we're actually going to deliver the vessel by -- between this week and next week. On the right side of the slide, you see our daily bank loan repayment on our owned vessels. This has been falling down quite substantially. It was $6,147 in 2019, went down to $3,600 a day in 2023, and we're expecting it to be even lower than $3,000 a day in 2024. This is obviously the result of our large deleveraging plan that we implemented in the last years. And also, right now, we have some of the vessels that -- on which we exercise our purchase options that we had previously sold and leased back, that are currently free of that. So obviously, this helps this ratio [ performs ] even lower [ because of the ] purchase options.

On the purchase options, we have been very active exercising these options in the last few years. We have 3 remaining. These are contracts where we have purchase obligations at the end. And so we are basically [ overt at ] financing arrangements for us. And we have exercised the [ small street ] to lower our cost of financing the Cielo di Houston we could have exercised this year, we decided not to because the implicit cost of financing of doing so later September next year is actually very low, but we will be exercising the Fidelity and Discovery, 1 in September '24 and the other one in September '25. And the Cielo di Houston, we will also be exercising September '25, which is basically the purchase obligation date for that vessel. On the TC in vessels, we exercised already the options for the Adventure and the Explorer, but we still have 4 vessels on which we have purchase options that are well in the money and that we plan to exercise in the coming quarters, 2 possibly this year and 2 next year. And they are all high-quality vessels, built at good [ we believe ] shipyards, and they are relatively young Eco-design vessels. So we are looking forward to add these to our fleet for a long period of time. If we were not to exercise these options, we would eventually lose control of these vessels. These are the last purchase option exercise dates here. So going on to the following slide. Frederico?

Yes. This is our [ evolution ] show here our coverage. We had 41% of our days in Q1 '24 covered at an average daily rate of $28,123. Q2 2024, it's going to be more or less at the same level with 40% coverage at an average daily rate of slightly less than $28,000 a day. Then our coverage is expected to be, to go slightly down in Q3 '24, 33% at an average daily rate of $27,951. And in Q4 '24, with 22% coverage at an average daily rate of 27,240. So overall in fiscal year '24, we're expecting to have coverage of 34% at an average daily rate of $27.9 thousand/day, so extremely profitable rate for us. It's interesting to see also the graph below. It goes back a little bit to what Carlos mentioned before, [ in in var ] a large investment plan of the last years. And also the fact that we delivered 2 kind of all time [ sharing ] vessels between Q1 and Q2. And we're also going to sell the Glenda Melanie in the course of this month. So this ratio was 38% in Q1 2018, and we are expecting to go up to 85% of our total fleet by the end of the current year. Here, as always, we give a little bit of an overview on how we are performing so far in the second quarter of the year. As I mentioned before, we already fixed 40% of our days at $27,932 a day in terms of time charter coverage, plus we already faced 31% of our spot days at 39,441. So this is an extremely profitable rate and even higher than what we have achieved in Q1. So overall, we fixed more than 70% of our Q2 days, 71% of our Q2 days at an average blended TCE, so the sum of the fixed -- of the spot side on the TCE side of almost $33,000 a day. And we show on the right side what our blended TCE would be should we make $27,500 per day on our remaining 3 days for the quarter. Or $30,000 a day on the remaining 3 days for the quarter, $32,500 a day on the remaining 3 days for the quarter. So this year could be between, as you can see, $31,400 a day up to probably $33,000 a day of blended average TCE. Here, we show, at the top, the estimated fleet evolution from 2024 to 2026. So we're expecting to manage an average of 34.2 vessels in 2024. This figure should be slightly lower in '25 to 33 vessels and then 32 vessels in 2026. Then the other graph at the top shows, as usual, our sensitivity for each $1,000 a day of higher spot rates. So for each $1,000 a day of higher or lower spot rates, we have $5.3 million for 2024 based on what we've already fixed right now. This obviously goes higher in '25, '26 because we have a variable coverage for those years right now, and it is in the tunes of $10.3 million, $10.7 million for 2026. At the bottom, we show as usual what our estimated net results for 2024 would be, should we run the rest of the year at a breakeven level, a level of around $15,000 a day. So this would entail a net result already locked in, if you want, of almost $119 million for 2024. And as usual, we show also sensitivity on this figure here. So in case the free days, the spot rate for the remaining free days of the year, we have $20,000 a day, we would make $143 million of net profit this year. In case this figure were $25,000 a day, we would make $169 million for the year; in case it were $30,000 a day, we would make $195 million for the year. In terms of costs, we discussed this several times in 2023. As for many other sectors, we had an impact, obviously, of inflation going on, with inflationary pressures particularly on crude costs and also on insurance costs. On insurance in particular, this is also the reflection of high [ invested bodies ] on which obviously we pay a higher premium. However, this pressure is kind of [ tame ] this year; we see these costs stabilizing. The increase in 2024 relative to Q1 2023 is not very significant. We went from $7,700 to $7,800 a day. So we believe this is under control. In terms of G&A costs, our G&A for the first quarter of the year were $5.2 million, $1 million higher than the same quarter of last year. This is mainly due to the variable component of our personnel costs, which is really the result of a very profitable year that we achieved in 2023 and that we're expecting to achieve also in 2024 [ to what it was before ]. In terms of net financial position, very strong financial structure for this. We have the ratio between our net financial position and our fleet market value is of only 11.5% at the end of the quarter versus 18% at the end of 2023. Net financial position was $152.5 million at the end of the first quarter of the year, compared to $224 million at the end of the previous year. Cash and cash equivalents went from $111 million at the end of 2023, up to $170.1 million at the end of March of this year. But it is noted to show -- to mention that this ratio is very significant for us of 11.5%. Our financial leverage was 73% at the end of 2018. So this is obviously the result of our deleveraging plan that we also mentioned before. Key highlights on our income statement. Very profitable quarter, $56.3 million for the first 3 months of the year, even better than last year, we made $54 million in the first quarter 2023. Excluding some nonrecurring items, our net EBITDA would have been $56.7 million in the first quarter of this year versus $56.5 million in the same quarter of last year. Strong EBITDA also, $76 million, strong operating cash flow, which was almost $77 million in Q1 2024, which is actually lower than what we generated in Q1 2023 when we made an operating cash flow of $99.2 million. This is just the result of a timing effect in our working capital, which was fairly positive in Q1 2023 because it was very negative in Q4 2022, so it's really a timing effect. Moving to the next slide. Our KPIs for the quarter. We managed an average of 35.5 vessels in Q1 '24, slightly lower than the 36 ships that we managed in Q1 '23. Our fleet contract coverage, we saw this before, was 41.3% in Q1 '24, higher than the 25.2% of the same quarter of last year. Our daily covered rate was $28,123 per day, way higher of the $26,400 a day of Q1 2023. And in particular, spot daily rate was $38,200 per day in Q1 2024 compared to $36,652 in Q1 2023. Overall, our blended TCE was above $34,000 since the last year that you see there in the table, was above $34,000 a day, very much in line with the same quarter of last year despite the higher spot rate. And this is only due to the mix between -- the different mix between spot and time charter coverage. And I leave it to Carlos for the market overview.

Yes. Thank you, Federico. So here, we show the evolution of time charter rates, freight rates and vessel prices over quite a long time horizon. And we see that on the TCE rates and the spot rates, we are quite close today to the all-time highs. TCE rates, in particular, 1 year TCE rates for an Eco MR vessel, is currently up around $33,000 per day. The highest we have seen in this last cycle was around December '22 at $35,000 per day, so we are very close to that level. And also from the Eco LR1 vessels, the rate, the 1-year TCE rate is currently very high, around $42,500. And vessel values have continued moving up throughout the course of the first quarter. They are now -- they're still below the last super cycle peak. Although, especially in terms of newbuilding prices, we are starting to get close where we stood then. We are now 7% below. Five and 10 year old vessels instead are still lagging a bit behind 16% below the last super cycle peak, which was a long time ago, around 2007, 2008. If we look at where freight rates are today relative to where they were in 2007, 2008 we see rates [ to be up ]. We are, however, at the higher level today. So that seems to indicate that it's more room for vessel values to potentially continue moving up. And why do we have such a strong market? Well, there are a number of structural factors which have been playing out over a number of years, and that should continue positively affecting the market going forward. But there are also some more exogenous factors, which we have benefited from and which we did not anticipate [ to carry ], such as the effects of the war in Ukraine, which has been supporting the margin since the beginning of 2022 and which since February '23 cause a major change in trade flows for Russian refined product exports, which have hovered at around the same level as before the war started, around $2.5 million per day, but whose destination has changed dramatically. Whilst around 50% of their products used to be exported to Europe and the U.K. -- to the EU and the U.K. and now only a small amount are exported to EU countries are mostly landlocked countries, which [ buy these ] through pipelines and don't have alternatives. And with the remainder exported to much more distant locations, Latin America and Middle East and Asia, in particular. Some sales locally [ in that ] goes to North Africa or Turkey. From Turkey, it is then re-exported, they have their own refining industry. So they're basically swapping Russian products for their products. But it does increase the overall amount of refined products traded. And also the products which are going to North Africa are mostly that we reexported from that to other locations. So very inefficient. And of course, Europe, which used to source a lot of its products from Russia, now is buying more from the U.S., from the Middle East and Asia. So big increase in -- this has led to big increase in ton mile demand for refined product [ tankers ]. More recently, since the end of last year, we have also witnessed a new trade disruption link to the Houthis' attacks on vessels transiting through the Bab-el-Mandeb Strait. This has always been an important passageway for product tankers, but it supported increase after the onset of the war in Ukraine, and we see here in January '22, 37.5 million barrels across Suez. But this figure then rapidly rose after the war started to between 70 million, 80 million barrels per day. And since the onset of these attacks, it collapsed to 19 million barrels per day. So whilst it's flowing today through Suez it's mostly linked to Russian and Chinese interests, which are not being targeted by the Houthis. [ We have won ] most other shipowners avoiding crossing, including ourselves, of course, through Suez. The alternative of crossing Suez is sailing through Cape of Good Hope. And this of course is a much longer route. How much longer depends on which is the loading port and the discharge port, so here we have shown the most important routes sailing through Suez and how they were affected in terms of sailing dates and percentagewise by having to sail through this longer route. So for example, Sikka to Amsterdam-Rotterdam sailing days increased from 23 to 38 days. So it's a 15 days' increase, which is equivalent to 65% increase. So it's a very, very significant increase. And how has this impacted the market? Well, of course, it did close some of the arbitrages which were open when vessels could sail through Suez, because there are higher costs entailed in going the longer route. So overall volumes sailing on these routes have fallen to some extent. But nonetheless, it did have a positive impact on the market. The maximum potential impacted volumes had not been impacted would have been between 5% to 7% actual impact. This is our own estimate here, it's probably closer to 2%, which is still very significant, given we were already in a very tight market before this additional disruption started. Panama Canal is a less important passageway for product tankers than Suez, as it's also quite an important disruption for our vessels, mainly because they trade trap and they cannot book crossings in advance. So they do tend to end up at the end of the queue, which means that some of the product tankers decided to sail the longer way through Magellan, so adding miles, but also that some trades which would have happened typically from the U.S. Gulf to the West Coast of the Americas, both South and North America, through Panama instead were replaced by volumes imported into the West Coast of Americas from Asia over much longer distances. So once again, an increase in miles. This problem was linked -- this reduction in permitted crossings was linked to low water levels in the Gatun Lake, which was linked to the El Nino effect last year. We are now moving into La Nina and also into the rainy season, which starts in around April, May in Panama and goes until October, November. So water levels in the Gatun Lake are expected to rise and this problem is expected to alleviate short term. Longer term, however, we are likely to be confronted with other restrictions and crossings through Panama, because there is a structural problem which needs to be solved and would require a new lake to be built, and that would -- that requires a number of years to be done. And so it is likely that this problem is not going to be as important short term, but it is likely to be a recurring problem we will encounter in the future. Moving on to the more structural factors supporting the market. Oil demand has been growing very fast. Last year, still recovering from COVID and in particular, benefiting from the reopening of the Chinese economy with a global impact of 2.3 million barrels per day. In '24, the expected growth is lower, but still robust, 1.2 million barrels per day in oil demand growth, with increase in refined volumes of around 1 million barrels per day in already a very tight market, where as we will see later when we look at the supply picture, vessel supply is growing at historical lows. As we saw from the slides presented by Federico, our results in Q1 and in Q2 so far have been very strong in the spot market. That's despite the fact that March enabled them to be seasonally very low periods for us because they tend to coincide with big refinery maintenances worldwide, and therefore with very low refined volumes as we see here in the graph on the right-hand side. And refined volumes are expected to pick up during the course -- during the rest of Q2 and into Q3 reaching a peak probably around August, as happened last year where the highest volume, yearly volume happened in August. So -- and we are already in a strong market. So potentially, the market will get even stronger as we move into Q3. On the supply side, not a spectacular growth in supply expected this year because of the continuing OPEC cuts and also slightly lower output from Russia, but more than compensated by higher output coming out, especially from the U.S., Brazil, Guyana and Canada. And the good thing is that these additional volumes are most likely going to be imported by Asian countries and in particular China, contributing to ton mile demand for crude tankers. So we expect, especially because of very low -- very limited supply growth for crude tankers, a very strong and improving market in '24 and '25, which should also support the product tanker market because of the linkages between the 2 sectors as we will see later, which occurs mostly through the LR2 [ paths ]. Refined product stocks are again well below the 5-year averages, and this is also could be a supporting factor for the market. In some locations, its stocks could reach critically low levels and then will have to be replenished, leading to an additional demand for seaborne transportation which exceeds that of which we would normally have if it were only linked to the consumption growth. Going on to the following slide, refinery margins are very strong. There has been quite a lot of volatility. If we look at individual products, most recently, we have seen a weakening in refining margins for diesel and jet fuel, but an important strengthening in margins for gasoline since November last year, with fuel oil margins which stay at quite historically attractive levels. Looking at the contributors to demand growth next year, whilst in 2023 most of the growth was linked to an increasing consumption of jet fuel as the Chinese economy reopened. And we see on the left-hand side that the number of commercial flights are well above where they were in 2019 already. This year, most products are contributing more or less evenly to the growth in demand. And we have maybe the star product being naphtha, leading to the opening of these new petrochemical plants in China, but also important contributions coming from gasoline, fuel oil and jet fuel. And here, we look at the crude tanker space because of these linkages we were referring to before. Yes, the order book has increased since the low reached at the end of '23, but it's still at very low level, 5.9%. And freight rates are already at very attractive levels, but we expect them to strengthen further in the coming years. And it's also quite important to note that 62% of the LR2s are trading clean right now, which is quite a high percentage. Going back to January 2020 it was only higher in January '23 at 64%, but it was as low as 54%, for example in July 2020. So there's a lot of scope for LR2s to move into dirty trades going forward if crude tanker markets, as we expect, are strong, providing further support for the clean product trade. We can skip this slide. On this slide here, we look at the refining landscape. This is on other structural factors which have been playing out over a number of years. We have seen a lot of refinery closures in Oceania, in Europe and in the East Coast of the U.S. over the last few years. This was accelerated during the COVID pandemic but is expected to continue going forward as these refineries, all the refineries, lose market share to the new refineries which are being built in Asia and the Middle East. We saw last year quite a big increase in refinery capacity in the Middle East. It was, of course, a ramp-up throughout the year, and we are going to be benefiting from this additional capacity mostly this year and we've seen also an important increase in refinery capacity in China in the coming years, a lot of that also likely to be export-driven. And we also see here Africa, which is an important contributor this year, that have got a refinery in Nigeria. It's already up and running. It's going to be, when it's at capacity, potentially producing up to 650,000 barrels per day. And it will dampen demand for imports into Nigeria, but it will also lead to more exports out of Nigeria. And often refineries are not able to produce exactly what is needed for the domestic market. And therefore, we expect the same to happen in the case of Tecolote, and they are probably going to have surpluses of certain products, and scarcity in other products as well. So there's still going to be some import activity, but also some export activity. So it's uncertain whether this is going to be positive or negative for the market. Time will tell. Going back to the U.S. and to the crude oil market, we see how resilient oil output out of the U.S. has been, despite flat rig count sales around the middle of last year. The high oil pricing environment we are in now should support an increase in rig counts going forward, which would further stimulate U.S. production. And -- then moving on to the supply side. There are several factors which should be stimulating demolitions going forward. One of them is the very high scrap steel prices we are seeing currently. Of course, in the very strong freight environment we are in, demolitions have been minimal. But they are an important safety buffer we have because the fleet, as we will see in the following slides, is aging quite rapidly. And if for some reason the market were to correct, this could be an important rebalancing factor, which could then allow us to recover and to see stronger markets quite fast. There are also regulatory pressures, which should penalize all the vessels -- both polluting vessels, which should encourage demolition of these over tonnage. As we see here, we have, as at the end of March, 12.1% of the fleet which was more than 20 years of age, whilst the orderbook at the same day was at 8.9%. So this is an important increase from 3.5% at the end of 2022. But if you look at the delta between the vessels which are more than 20 and the order book, it was at 3.7% at the time, now it's 3.2%. So it's actually not a big increase in this -- or big decrease in this delta. And the potential for demolitions will keep rising in the coming years, as by the end of '25 when this was taken, around 16% of the fleet will have more than 20 years and almost 56% will have more than 15 years. This other line here is important, because as vessels cross the 15 years of age, they are limited commercially. They cannot call on all terminals. As they cross the 20 years of age threshold, then they face even tougher limitations and they tend to start operating in the niche markets. They also are less productive as they get older. They have to stop after 15 years of age, every 2.5 years for special surveys, rather than every 5 years. So -- and of course, they also usually encounter more breakdowns and more fires. So fleet productivity should decrease in the coming years because of this aging -- rapidly aging fleet, which should provide further support for the market. And at the bottom here, we see vessels which are reaching the 25 years of age threshold where most likely, they're going to get demolished. Rarely do they stay -- do they operate beyond this age, only in very strong markets. So we see that, for example, already 27, 2.2% of the vessels -- the vessels reaching 25 years of age would represent 2.2% of the current trading fleet. And by 2029, this figure goes up to 7% and then 11% by 2033. So it is unlikely that the yards, given the current production capacity, are going to be able to deliver in that fast. So to compensate for the likely demolition that we are going to be witnessing from 2028 onwards, which should be very supportive for the markets in the medium term. Here we see how demolitions have collapsed because of the strong markets, creating room for pent-up demolitions going forward. Here we see how there were a lot of vessels ordered in '23. But for the reasons we mentioned just now, we don't see this as an issue. One additional factor we didn't refer to is the fact that vessels ordered today are for delivery, in most cases, in '27. Very few slots still available for delivery in '26. So the current order book, which is rather low by historical standards. If we look where we were at the end of 27 (sic) [ 2007 ], the ratio was at 60% is going to be delivered over a number of years. And therefore, that should also avoid any oversupply issues. In our case, we just ordered now 4 LR1s, and we had to accept deliveries at the end of 2027. So I think that's quite indicative of how spread out these deliveries are going to be going forward. And you see the anticipated fleet growth, which is a historical low this year of less than 1%. And of -- slightly higher next year where we anticipate a small increase in demolitions, which remains at historically low levels. And so a very good supply picture. Also, our NAV at the end of March in absolute numbers was at almost $1.1 billion, and translated on a per share basis, it equates to $9.10 per share, which as at the end of March was equivalent to 24, we were trading at a 24% discount to NAV. The share price has traded up since then, but of course, also the NAV, which we don't measure that activity, but has, I would expect, moved up because of the strong cash generation since the end of the first quarter. And vessel values held up since then, possibly they actually even increased slightly, so. And finally, use of funds. Here we show the use of funds and up to the end of 2027. We show what we have already committed to here, for example the second-hand vessel we acquired for $43.5 million and the investments associated with the 4 LR1s ordered, which this year would amount -- will amount to $43 (sic) [ $55.4 ] million [ each ] with most of the [ mess of these vessels ] occurring in '26 and in particular in '27 at delivery. And inside the plan investments for which we are still not committed for the exercise of the purchase options on the PC and the bareboat charter-in vessels in '24 and '25. That's our current plan. So for a total investment of $471 million during the period. Which is quite a substantial figure, but one which we don't foresee any problems managing because of our current, very strong balance sheet and current very strong cash generation. As well as because of some vessel disposals which will be generating some cash for us. The Glenda Melanie that we already sold, as Federico mentioned, which was the oldest vessel in our fleet, a 2010 built vessel as well as 3 2011 built vessels, which we are most likely going to be selling in the coming 2 to 3 years and replacing them with the LR1s that are going to be coming in. So -- and in terms of shareholder returns, we have been increasing them over the course of the last years, and we plan to continue doing so, now that we have achieved most of our deleveraging objectives. And so although we don't have an explicit dividend policy, as we have stated several times in the past that as we even up on our balance sheet, we intend to distribute a higher proportion of our profit. So if this year we do as well as last year, which came in the beginning of the year, we think there are good chances we could achieve this, we are likely to be distributing more units out of this 2024 results than we distributed in 2025. So I believe that is it. So I pass it over for the Q&A section, please.

[Operator Instructions] The first question is from Matteo Bonizzoni of Kepler.

It was a very comprehensive presentation. So I have just 2 detailed questions. The first one is as regards capital allocation. So since the 2023 conference call, which was only 2 months ago, you have placed this order for 4 new LR1, so more than $220 million. The question is, you are done for now? Or should we expect potentially more decision of new building for the next weeks or months? And in relation to that, you have already commented at the end of the presentation that the dividend this year should not be lower than the last year. So it was just to check that what is the trade-off between CapEx, potential new CapEx and dividend? I think that there is room for both, given the continuation of strong rates, but just to check. And the second question, which is just a detail on your P&L and particularly cost. I was seeing that your operating cost over the last few quarters are moving sideways in a range of $23 million to $24 million per quarter. And G&A cost probably could have some seasonality in the sense that Q4 last year was much higher than Q1 this year. So the question is, what should you expect, more or less in terms of evolution of your operating costs and G&A costs, including reliable remuneration for 2024?

Matteo, so I'll try to answer the first 2 questions. I'll leave the third question to Federico. Now, in terms of investments, we -- our plans currently are really to keep a pretty stable fleet and the newbuildings that will be coming in are going to be replacing some older secondhand tonnage that I referred to previously that we should be selling. And however, let's say, our fleet composition should improve, we hopefully for the better in the coming years. So we should have by the end of 2027, only owned vessels. We should have almost exclusively, maybe with the exception of 2 vessels, Eco vessels. And we should have a higher proportion of LR1 vessels in our fleet. So that's where the direction we are moving in, pretty much keeping a stable fleet relative to where we are today. But a more modern fleet and a more competitive fleet, hopefully a more profitable fleet, going forward. Because of higher potential earnings, because a higher proportion of Eco vessels but also because of lower costs as we will not have the time charter-in vessels and the bareboat charter-in vessels, which typically had higher breakevens for us. And in terms of the dividend policy, you are correct, if in '24, our results are strong as they were in '23, our expectation is that there will be room to distribute more dividends than we distributed in '23, in addition to being able to pursue these investments we referred to just now. And there's probably not much room now for additional buybacks, which is a shame since we see a lot of value in our shares too, but we don't want to further reduce liquidity of our shares, given the controlling shareholder has already a very important stake in the company. And I pass it over to Fredrico for the other questions.

In terms of other direct operating costs, we're currently not seeing huge increases relative to the trend of Q1 of this year. And probably overall in the year, we should land to something similar to what we achieved in fiscal year 2023. In terms of G&A, what -- obviously it works on an accrual basis. So -- and we obviously accrue, quarter-by-quarter, also the variable component of our personnel costs. What happened last year, I guess you were referring to different figures in terms of G&A from one quarter to the other. I think there was a kind of a catch-up in terms of these accruals, which we increased after Q1. So Q1 G&As we presented slightly lower results in which we increased these G&As in the following quarters. I would say that in 2024, probably we should expect, I'd say, something close to what we had in Q1 2024.

The next question...

Something more stable probably relative to last year.

Sorry. The next question is from Daniele Alibrandi of Stifel.

So the first one, if you can please elaborate a little bit more on the choice of expanding your exposure to LR1 rather than MR with the newbuilding decisions from a strategic point of view. Which are the reasoning behind this choice? First question. Second question, I was wondering about your coverage strategy going forward, especially going into 2025, today is rather low, 13%. Historically, the guidance was 40%, 60% so midpoint 50%. But in the last couple of years, it has clearly decreased due to a strong underlying market. What you should expect, say, going forward? And the last one, just a follow-up on your commentary on the seasonality Q2 versus Q3. The spot rate was really strong in Q2 despite the say, the low seasonal environment was thinking about Q3 if [ chispa regusa ], actually, we could see even an improvement or...

Sorry, we cannot [ identify or classify ] Daniele.

Can you hear me? Can you hear me now?

The question was a bit lower volume, if you can...

Okay. No. The last question was around your seasonality. You -- before you mentioned that seasonally, Q2 is a seasonally lower quarter, but you actually printed a strong spot rate so far. So what should we expect in Q3, possibly even better market conditions?