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 Full Year 2024 Results Web Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Federico Rosen, CFO. Please go ahead, sir.

Good morning, everyone, and welcome to D'Amico International Shipping conference call presentation. So moving to our first page. Sorry, I will skip the executive summary as usual. And let's start with Page 7, our usual snapshot of the D'Amico International shipping fleet. So at year-end 2024, we had 33 ships, of which 27 owned, 3 bareboat chartered, and 3 time chartered, 6 of which were LR1s, 21 ships were MRs, and 6 were Handys. 82% of the fleet was IMO class against an industry average of 48%. Average age of our owned and bareboat fleet was 9.2 years, against an industry average of 14.3 for MRs and 15.8 for LR1s. 83% of our owned and bareboat vessels and 85% of the entire control fleet was Eco-design at year end against an industry average of 37%. Moving to Page 8. As usual, here, we show our forecasted bank debt financing cash flow. So on the left, you see a little bit what we have been doing in 2024. So we have scheduled loan repayments for $28.1 million. We repaid debt for $58.6 million, plus we repaid $6.5 million upon the sale of Glenda Melanie in Q2 2024, which was the oldest ship of our fleet. And at the same time, during the year, we drew down debt for $66.3 million. Moving to the following years, we have no refinancing needs for 2025, and we expect scheduled loan repayments, bank loan repayments for $26.8 million. We're going to have approximately the same amount of loan repayments in 2026 at $26.6 million, plus a small refinancing need of $3.2 million on one of our bank loan facilities that is expiring in December 2025, so at the very end of the year. In 2027, the situation is obviously a little bit different. We expect to take delivery of the 4 vessels that we ordered in Yangzijiang in the second half of 2027. And here, we are currently assuming to finance those ships with a 40% loan-to-value relative to their construction price. On top of that, we have some refinancing needs in 2027. We have debt expiring for a total of $66.2 million that we are currently expecting to refinance for the same amount. Interesting graph also on the right-hand side, which is this is our daily bank loan repayment on our own vessels, which has been falling quite dramatically from $6,147 a day in 2019, down to less than $3,000 a day in 2024, and it's going to be, according to our expectation, even lower going forward. This is also due to the fact that, as you know, several of the purchase options that we had exercised are now ships owned and completely free of debt. Moving to the next slide. Here, we give, as usual, a rough guidance, a rough outlook on how Q1 '25 looks. We fixed already, in time charter, 36% of our available vessel days at $25,261 a day. In addition, we also fixed 53% of our spot days at $20,428 a day, which entails a total blended daily TCE, so the sum of the spot and the time charter exposure, of 89% of our total days in Q1 '25 at a very profitable average of $22,373. And as usual, on the graph on the right, we also show a sensitivity depending on our spot rate on the 3 days that we have at the moment. So should we make $18,000 a day on the remaining 3 days that we have right now, then our total blended daily TCE would be of $21,885 a day. Should we make $20,000 a day, then our blended TCE would be $22,100 a day. Should we make $22,000 a day on our free spot days, then our daily blended TCE would be of $22,331. So we're expecting, at the moment, another profitable quarter for DIS. Next page, Page 10. Estimated fleet evolution. We're currently expecting to have an average of 32.2 ships in 2025. The vast majority is going to be obviously owned. As you know, we announced the exercise of one of the vessels that are currently in bareboat charter, [ Cielo di Houston ], earlier in the year, the end of January, and the vessel is going to be delivered to us between September and October this year. Moving to the following graphs, potential upside to earnings. Right now, based on what we have fixed so far, we have a sensitivity for each $1,000 a day on the spot market that we make. We have a sensitivity of $5.9 million for 2025, and this obviously rises in '26 and '27, obviously, because we have a lower coverage for those years at the moment, which is $9.3 million for '26 and $11 million for '27. Looking at the graphs at the bottom on the left, here we show, as usual, what our net result would be should we run the rest of the year at breakeven level. So still very far from where the market is right now and what we have seen before for Q1. So running the rest of the year at breakeven level would entail for DIS a net profit of approximately $47 million in 2029, and already almost $21 million in '26 and $6.5 million in '27. Again, here on the right, we show sensitivity. So should we instead of running it at breakeven level, should we run the rest of the year at $80,000 a day for 2025, then our net result will jump to $61.2 million. Should we run it at $20,000 a day, our net result would be of almost $73 million. Should we run it at $22,000 a day, then our net result would be of $84.7 million, and so on and so forth for the following years, for '26 and '27. Next slide, on the cost side. Daily operating costs. We mentioned this several times in our previous calls this year. And as you can see, after an increase of daily OpEx in 2023, which, as you know, and we've discussed this as I said several times, as you know, this was due to some inflationary pressures that we had on crew costs and also on insurance. And of course, insurance cost -- the higher insurance cost is also a reflection of higher vessel values that we had in the last years. So anyway, after this increase that we had in 2023, as you can see, in '24, we just had a small 3% increase. And as we mentioned before, it looks like this increasing trend has been stabilizing, and it's not increasing much more from now on. On the G&A side, instead, here we had a 10% decrease compared to the previous year, compared to 2023. So our total daily G&As are of $23.3 million. Of course, here, relative to the years prior to 2023, of course, here, there's also a component -- a significant component of the variable part of the personnel costs that is, of course, the reflection and the consequence of 2 very good years, 2 extraordinary years that we have been having. Next page, net financial position. I guess this speaks by itself. Gross debt of $285.5 million at the end of the year, cash and cash equivalent of almost $165 million. That gives us a total net financial position of $121 million, excluding IFRS 16. This is $117.6 million. And these figures were in 2023, respectively, $224.3 million and $198.7 million, so significant reduction of our net financial position during the year. This compares to a fleet market value of over $1.2 billion at the end of the year, and that gives us a net financial position to a fleet market value ratio of only 9.7%. This figure, as you know, was 73% almost in 2018, at the end of 2018. And this is obviously, as you know, the consequence of a very significant deleveraging plan that we have implemented on top of the huge cash that we have been generating in the last years. Next page, key items of the income statement. TCE earnings came in at $367 million in 2024. Total net revenue of $371.9 million versus $401.8 million in 2023, even though we managed a smaller number of vessels relative to the previous year. We had a positive result on disposal in '24 for $4.1 million that relates to the sale of Glenda Melanie that I mentioned before in the second quarter of the year. EBITDA was $260.9 million, which gives us, as you can see, an EBITDA margin of over 70%. EBIT was $202.5 million -- and as you've already seen, we had a net result of $188.5 million in 2024 against $192.2 million posted in the previous year. Also, excluding some nonrecurring items, which are mainly the result of disposal of vessels and some small nonrecurring financial items, our net result, excluding these items, so our nonrecurring net result -- our recurring net result was $184.7 million in '24 versus $196.7 million in '23. Looking at the quarter, looking at the last quarter of the year, still a very profitable quarter, $25.4 million of net profit. Of course, this is weaker compared to the same quarter of the previous year, given a different market, the market that is still profitable, but not as it used to be in the fourth quarter of '23. Next page, Page 14, our KPIs. So our daily spot for the year was $33,871. So, as I mentioned, extremely profitable. On top of that, we had a coverage of 41.5%, at $27,420 a day, which gave us a total blended daily TCE of $31,195 a day, which is not too far, obviously, from the $31,451 that we achieved in 2023. And looking at Q4, of course, weaker than the same quarter of '23. But, as I mentioned before, still extremely profitable. We had a spot -- a daily spot average of $23,547, 38.7% coverage at an average of $26,381, which gave us a daily blended TCE of $24,644. And I pass it on to our CEO, Carlos di Mottola, for the rest of the presentation.

Good afternoon to everyone. So we start with the CapEx commitments. We were quite busy in this respect last year, with investments of almost $107 million, relating to the 4 LR1s that we ordered to continue controlling a competitive and efficient fleet. And these vessels will be delivered to us in the second half of 2027, and it entailed a payment to the yard already last year of around $45 million for 20% of the contract price. And another $62 million in investments, relating to the exercise of 2 options on vessels, which we previously controlled through time-chartered-in contracts. Another $68 million around in investments in this year, also relating to the exercise of 2 options on TC-in vessels. One of these vessels was already delivered to us. Another one will be delivered in Q2, most likely. And then we show the investments for '26 and '27, which relates to the remaining installments on the 4 LR1s, with most of the payments occurring closer to delivery or at delivery. Going on to the following slide, these are the vessels which we still have on bareboat-chartered-in. A number of options were already exercised, as we see on the left -- on the table on the left on this slide. We still have the Fidelity and Discovery that can be exercised. The Discovery we could already exercise now, the Fidelity from September this year. We have refrained from exercising the Discovery so far because the implicit cost of this transaction is very low. We closed these deals just before interest rates started moving up early in 2022. And so, they are fixed rate transactions. They're also very long financings that run until 2032. So we, of course, will continue monitoring the situation. We expected last year interest rates to come down faster than they did. This year, the policies which the U.S. government seems to want to implement will create -- should create inflationary pressures and the interest rates might take a while to come down. And therefore, we are in a wait-and-see mode here to see how these rates develop before deciding whether to exercise these options. Going on to the following slide, we have already exercised all the options on the TC-in vessels. The Navigator, as shown on the table here, was delivered to us in February and the Leader will be delivered to us most likely in Q2. On the left, we show on the column the difference between the estimated market value and the exercise price at the exercise date. And we see that substantial value was generated at the time through the exercise of these options. For those vessels which we already owned at the end of the year, we also show the difference between the estimated market value and the book value at the end of the year. And we see that for the vessels which had already been exercised, these values were slightly higher than they were at the exercise date. Vessel values since then have come down slightly, but I would say that the vessel -- the correction in vessel values is mostly, that we have experienced this year, is mostly linked to older vessels, not the younger tonnage, which is very sought after and very few companies are willing to sell. And here, we show instead the contract coverage. It took us a while, but we did manage to increase our contract coverage for 2025 and to take it to 35%. So not the 40% that we would have aimed for, but getting closer. We continue searching for opportunities. Of course, there's a lot of uncertainty right now relating to several geopolitical events, which could impact the markets, some positively, some less positively. So there's not a lot of -- at this stage, several charters are refraining from committing to longer-term contracts. But we are confident that we will be able to gradually increase this contract coverage during the course of the year and hopefully also cover some of the 2026 days this year. And here, we look at the TC rates and spot rates. They have softened since the first half of last year, but they are still at very attractive levels, much higher than they were during the [ charter ] period from 2009 to 2022. So still at very profitable levels. Asset values have softened, especially for older vessels. Here, we see the 10-year-old vessel, the red line, has come down a bit. Also the 5-year-old, but less so in percentage terms, especially. And then we see newbuilding prices, which are holding firm for now, but the reality is very few vessels have been ordered this year. On the trade disruptions, which there are quite a few now, this part of the presentation for me is increasing. It's also quite difficult to keep it updated because things are moving very fast. But here, this is a slide that we have presented already several times, and we show how there was this big change in flows out of Russia as a result of the sanctions, which were imposed by Europe because of the war in Ukraine, with Russia selling -- which used to sell around 50% of its refined products to Europe, now selling a large portion of that to more distant locations in Asia, the Middle East, but also to add some of it staying more regionally in Turkey and going to African countries, but contributing to an increase in overall trade flows. And Europe, of course, then replaced the lost Russian barrels with imports also from more distant locations from the U.S., from the Middle East and Asia. And so also contributing to an increase in ton-miles. This is the, let's say, the second big disruption that is affecting the market and has affected the market, especially in the first half of last year, which is one of the main drivers which contributed to the very strong markets in the first half of last year because of the Houthi attacks, the Bab-el-Mandeb strait, the vessels had to sail the longer route through Cape of Good Hope. Of course, it's more expensive to sail this longer route, but when these disruptions started, the refining margins were such that sailing this longer route was justified. And therefore, there wasn't a loss in volumes transiting on these routes, but there was an increase in distances. Then came the summer months, as we will see later, and we saw this cannibalization happening, whereby vessels which usually transport crude, transported clean products. And then more recently, with refining margins, which fell at the end of last year, we actually saw an overall reduction in volumes going sailing on this route because of the increased costs. So the arbitrage were partially closed. And, of course, this explains, in my opinion, the relative softness in the market we have seen since July last year. So also important to note that despite the peace agreement that there is now in Gaza, the volumes crossing the Suez Canal hasn't picked up substantially. They are still at very low levels, and there are threats currently by the Houthis of starting to attack vessels again if humanitarian aid is not allowed into Gaza. Here, then we see this other slide, which is connected to the previous one, which I was referring to, the blue line on the left-hand chart shows the overall long-haul trades for CPP, and we see that these have been rising steadily, and that is one of the main factors which has been contributing to the demand for product tankers over the last few years. But since the summer, there is this drop in the long-haul -- overall long-haul trades for CPP products, which is explained in my opinion, through the fact that this important route from the Middle East to Europe, because of the fact that these vessels have to sail to the Cape of Good Hope, has become less competitive and that has affected the overall long-haul trades. We have seen that the share -- we also see on the yellow line, that the share, which was of these clean petroleum products, which was transported on uncoated vessels, and we see that there was 5% to 12% in the summer last year, and then it has now dropped again to more normal levels, which was expected. This anomaly, which we experienced in the summer last year was linked to this big gap in earnings, which there was at the time between clean tankers and dirty tankers. Dirty tankers' earnings have since improved quite a bit and clean tanker earnings have softened, although I repeat they stay at very profitable levels. So there is much less of an incentive for these uncoated vessels to transport clean products. On the right-hand side, we see instead gas oil sailing around Cape of Good Hope. We see that the volumes had dropped significantly at the end of last year and then stayed at -- have risen slightly at the beginning of this year, but stayed at lower levels than what we have seen in the Q2, especially and Q3 of last year. There's also quite a lot of jet fuel sailing around Cape of Good Hope generally. So here, we're looking only at gas oil, but we see that there is lower volumes. Unfortunately, the Suezmax vessels do continue transporting. We see these blue bars, gas oil. But the VLCCs, which are the gray bars, we have seen much less of since November last year. Going on to the following slide. This is the third big disruption here, or rather -- so the sanctions. And we see here on the left, the vessels which were sanctioned by OFAC, by the U.S., which have been rising steadily since October '23 with a big jump, which occurred in January this year. Just before the end of the Biden administration, there was a large chunk of vessels which were involved in these, which was part of this shadow fleet, which was explicitly sanctioned by the U.S. U.S. sanctions have historically been very effective in halting trade of targeted vessels. There was a wind-down period whereby vessels which had already loaded once these sanctions came into force were allowed to discharge their cargo. So we are going to start seeing the real effects of these sanctions only from now onwards, I will say. Of course, there are some loopholes and some vessels which were explicitly sanctioned continue trading and they turn off the AISs, and they continue operating. Others, there's also the possibility of less efficient trading occurring through ship-to-ship transfers, and we expect to see more of that. But nonetheless, there is an important number of tankers which were sanctioned and that should affect the fleet productivity and tighten the market substantially in the coming months. We might see further sanctioning because the shadow fleet is much bigger than the vessels which were already sanctioned. It's between 700 vessels and 1,000 vessels, depending on how you classify them. And so there's [Technical Difficulty] for these sanctions to be increased. But already, those that were sanctioned, if you include also the European and U.K. vessels, represent 8.4% of the total tanker fleet. So it's a very substantial number. And then another disruption now, potential disruption, but it is already affecting the market as we speak, is the threat of U.S. port fees on Chinese-built vessels. It's important to know, as per initial proposal from the U.S. Trade Representative, these fees will not apply only to Chinese-built vessels, but also to operators which have Chinese-built vessels in their fleet, irrespective of which vessel is calling the U.S. ports, and also for operators that have Chinese newbuildings in their fleets, irrespective of which vessel calls the U.S. ports. We don't know. This initial proposal, it's very wide-ranging. It is unlikely to pass, in my opinion, as initially proposed. There is a period now of consultation with groups which are going to be affected by this legislation. They have until the 24th of March to provide their comments. And I expect strong pushback from several groups in the U.S., several export industries are going to be severely affected, not only the oil industry, which will also be affected by these regulations. And, of course, it will affect also the U.S. consumers, and it has the potential to generate also a lot of inflation. So it could be severely damaging for the U.S. economy, as currently proposed. We see here, only focusing on the tankers, there's not -- if you look only at the vessels on the water, there's not a huge percentage, but still a significant percentage already of vessels, which are Chinese-built, around 28% of all tankers. But if you look at the order book, then the percentages are much higher. In some cases, you go above 80%, for example, the Panamax/LR1 sector, which are Chinese-built, or are going to be built in China. If you then look at how this regulation was -- the initial proposal, and the fact that it affects fleets of vessels, and not only the Chinese vessels specifically, you see that the unencumbered vessels, so the vessels which would be free to trade to U.S. ports without being subject to such fees, is actually very small. And we are talking about only 20 -- sorry, I cannot see the figure here, 26% of the MR/handy fleet, for example, which would be free to trade without being subject to such fees. So it would have a huge impact in the market. I expect that if the strategic objective of these fees is to penalize Chinese shipbuilding, then I expect the initial proposal to be modified to only include such fees for vessels which are ordered from now onwards at Chinese yards. That, of course, would be much less detrimental to the U.S. economy, and it would achieve, I believe, it's strategic objective of reducing interest for Chinese newbuildings. Going on to the following slide, there's also the possibility of tariffs by the U.S. on its 2 possibly most important trading partners, because of they are also neighbors, Mexico and Canada. Both countries are important traders of crude oil and refined products with the U.S. We see here the volumes which are involved, and Mexico is a very important exporter of crude oil to the U.S., almost 0.5 million barrels per day. And the U.S. exports 600,000 barrels per day of CPP to Mexico. So if such tariffs were to be imposed, it would affect most likely the competitiveness of the refining industry in the U.S., reduce refining throughputs, less products would be exported from the U.S. to Mexico. Mexico is likely to import therefore from other locations, which are further away. And there is also the possibility of an escalation with Mexico imposing tariffs on the U.S. And in that case, U.S. exports of refined products to Mexico would fall more drastically, and it would be more impactful on the market. Also, the U.S. might need to replace the crude oil and the DPP it imports from Mexico, importing crude oil and DPP from more distant locations. So once again, an inefficiency, which would be introduced in the market, which would lead to an increase in ton-miles and be beneficial for the market. The same applies to Canada. Here the potential tariffs on energy products are lower, 10%. But Canada is a very important exporter of crude oil to the U.S., 4 million barrels per day, mostly through pipeline, but part of it also, 340,000 barrels per day seaborne. And the seaborne crude oil, which goes to the U.S. West Coast is likely to be replaced in such a circumstance with imports from other locations. Some of the crude oil, which goes through pipeline, could also potentially be exported through this TMX pipeline, which doesn't have a huge capacity, however, it's 900,000 barrels per day, to other locations in Asia possibly, and with the U.S. having to replace these imports with imports by sea from the Middle East possibly, because it needs to import some heavy crude oil because of the way its refining industry is configured. And then you have also the U.S. exporting to Canada 600,000 barrels per day of CPP. So the important trade flows between the 2 countries, and it could be very impactful on the market if these tariffs go ahead. Going back to the fundamentals, well, things are changing fast because of the geopolitical situation, these estimates from the EIA are from February. We have to see how they are modified in March. But it is a very difficult environment in which to make a forecast. There was an anticipation that oil demand was going to accelerate this year from the tepid growth that we experienced last year of just under 1 million barrels per day, which was affected by the weak industrial activity, in particular, in Germany and France last year. The growth this year will be driven by -- well, it was expected to be driven by an improvement in the performance of the German economy, but also mainly by the growth in emerging markets, in particular, in India and Brazil, but also, of course, in China, where, however, demand growth is slowing down over the last few years. Refining throughput is expected to increase this year slightly more than it increased last year by around 600,000 barrels per day. So the fundamentals on paper should look good. Of course, there is a possibility that the German economy might grow even faster than initially anticipated if the stimulus package, which is currently being discussed, is approved, which will entail substantial investments in infrastructure and on military equipment, but that is still to be seen. And there's also the possibility that the U.S. economy might not perform as well as anticipated at the beginning of the year because of the policies being adopted and being threatened to be adopted by the U.S. government. The oil supply picture is very healthy. A lot of oil, which is expected to come from non-OPEC countries, in particular, the U.S., Canada, Brazil, and Guyana, but also the possibility of more oil coming from OPEC countries, with OPEC recently announced that it will increase its production in April of around 140,000 barrels per day. So start this unwinding process, which, however, they claim they can stop at any moment if the market is oversupplied. There might be some room for OPEC to continue increasing as long as the U.S. follows through on its threats of trying to prevent Iran from continuing to export substantial amounts of oil. So Iran used to export, last time Trump was President, around 300,000 barrels per day of oil. And over the last few years, it increased it to 1.6 million barrels per day. And so there is a substantial room for more stricter sanctions to be reimposed on Iran to curtail these exports, creating more room for OPEC+ countries to increase their output, which would then be transported on nonsanctioned vessels, so contributing to the demand of these compliant vessels. We see that here that oil inventories are below the 5-year averages. So that is also supportive for the market. And we see that for 2025, oil demand growth should be driven by increases in naphtha and jet fuel demand. Jet fuel demand growth will slow down, but will continue at quite a healthy pace, and the naphtha demand will be instead linked to the large investments, especially in China in new petrochemical plants. But we see also positive contributions from gasoline and diesel. Diesel last year had provided a negative contribution to demand. The crude tanker fleet, the order book, is still at quite low levels by historical standards. We see that it actually has fallen since the end of last year. And we see that on the LR2 fleet, there's still a substantial portion of the LR2 vessels which are trading clean. It has fallen slightly since July last year, but it was in July '20, for example, much lower at 54%. There are going to be quite a lot of LR2 vessels delivered over the coming 2 years. It is a product tanker segment where there are more vessels that are going to be delivered, but there is room for more of these vessels to switch into dirty trades, helping the CPP market. Refining capacity continues growing mostly in the Middle East and Asia. We had also a big increase in Dangote last year. Dangote capacity increased last year, but throughput will continue increasing this year. So Dangote is actually going to be exporting more it's my expectation. This year, it's already now providing some important export barrels to the market. And so all of this should contribute to ton-mile growth going forward. The fleet is aging rapidly. We have already over 50% of the MR and LR1 fleet, which is over 15 years of age. And also importantly, we see here that there is -- the percentage of the vessels which are more than 20 years is again higher than the order book, which has actually fallen since the end of last year. So this is very healthy that we have this higher percentage of vessels, which is higher than 20 years old than we have vessels ordered. The same applies if we look at across all tankers. We decided to include this graph here for all tankers now because since there is also quite a lot of LR2 vessels which have been ordered, we felt we should account for these in the statistics. But if we do account for these, we felt we should account also for the crude tankers because of these linkages and the fact that these LR2 vessels do switch and can switch quite easily between clean and dirty trades. And we see that the supply picture is also very -- it's actually not that bad. If we look across all tankers, we have an even smaller order book of 13.4% and an even bigger gap between this order book and the percentage of the fleet, which is more than 20 years, which stands at 17.2%. We see that there are a lot of vessels which are going to be turning 25 in the coming years, especially from '27 onwards, there's a very sharp increase in the percentage of vessels which are turning 25. So there's a lot of potential for demolitions. The deliveries are going to be quite limited in the first half of the year, but there's an acceleration in the second half and especially in Q4, very little demolished, so a lot of potential for demolition going forward. Only 6 vessels were ordered in the first 2 months of this year. So this is a very low number of vessels ordered. And here, we see that the fleet growth, if we look at MRs and LR1s accelerates a bit, but stays at, historically, quite low levels. It accelerates to 2.7% this year and 3.6% next year, assuming quite limited demolitions. If we look at across all tankers, then the fleet growth is of 2% in '25 and 2.9% in '26. So still quite low and lower than if we look only at MRs and LR1s. Finally, we look here at the discount to NAV, which is substantial. I must say that this NAV here is probably not that reliable because, especially for the older vessels, there were some transactions at lower values since the end of the year. So the NAV might be slightly lower than what we are showing, our current NAV than what we are showing here. But still, we are trading at a substantial discount to NAV. And, well, this we covered, and here, we show the dividend distributions over the last few years. We also include the proposed dividend for the AGM now of $35 million, which including the buybacks would entail a payout ratio of 40%, which has been growing over the last 3 years. So that is it. Thank you very much, and I pass it over to you for the Q&A.

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

I have one question on your, let's say, central case scenario on the rates, given all what you have said here in your detailed presentation. So what we're seeing is an increase of the order and potentially some softening of the ton-miles. The rates have already corrected. But interestingly, in your presentation, you have, for example, say that there could be a ban to the activity of Chinese-built ships, which could mitigate in some way the impact of the increasing newbuilding. So all in all, we know that it's always difficult to make projections for the rates. Would you say that in your central case scenario, a level close to the current one could be a floor or even maybe plus and minus factors for the next quarters, we could have further softening?

Matteo, thanks for the question, but it's a difficult one. It's very difficult to answer. There are several disruptions which are affecting the market, as we tried to cover in the presentation. It took us a while. I think it was a bit longer than usual, the presentation because of this. But there are so many factors at play that we -- of course, the fees which could apply to the Chinese-built vessels calling U.S. ports is also quite impactful, but it's also the less certain of these trade disruptions. This trade disruption today is creating uncertainty, and so it's stopping shipowners from ordering vessels at the Chinese yards. And today, as you see, the order book of tankers is almost exclusively in China, over 80%. So if shipowners stop ordering in China, this would be very positive for the market because Korean and Japanese shipyards will not be able to replace them. It will take them some time to increase production capacity, and they are very high-cost countries. It's also difficult for them to increase production capacity. So India might eventually come into play, but it will take years for that to happen as a shipbuilding country. So of course, the official intention here is to build more vessels in the U.S. That's what the U.S. government declares, but that is even harder. It's utopic, I would say. To build an MR today in the U.S. costs over $200 million. So I don't know how -- the amount of subsidies that would need to be provided to these U.S. yards to make them competitive is enormous. So yes, it is very difficult to say how the market will play out. There are -- especially the sanctions, which are being applied to vessels in the shadow fleet, they could be positive for the market. If these sanctions are toughened further, and there's room for that to happen, that could also be very positive for the market. If sanctions are imposed to Iran, tougher sanctions, that would be very positive for the market because it would create room for more crude oil to be transported on compliant vessels, would tighten benefit, especially the VLCC market, but that will flow through to also the other segments. So these are the really factors which could be supporting the market. But of course, a peace agreement in Ukraine, which would entail the removal of sanctions also by Europe, and that is a big question mark because Europe seems to be moving in a completely different direction from the U.S. If Europe were to remove these sanctions, then that would be a short-term negative for the market. Then of course, there is ample scope for demolitions of vessels to rebalance the market, but short-term, it would be negative. The removal of the normalization of transits to Suez potentially could be negative for the market. But I'm a bit uncertain about that because, as I mentioned, the overall volumes that are being traded on that route have fallen as a result of the higher costs linked to sailing through Cape of Good Hope. So you would be losing some -- you would be sailing shorter routes, but potentially there will be larger volumes sailing on such routes if there is a normalization of the situation in Suez. I hope I answered your question. So I don't know if this is a floor. There's room for rates to rebound, and we have been seeing a positive movement over the last few weeks, so there has been a strengthening in rates, especially East of Suez. It's still very weak in the U.S. Gulf, but that is seasonal. That's linked to refinery maintenance there. And I think by the end of March, beginning of April, that market will recover. But yes, let's see.

The next question is from Daniele Alibrandi of Stifel.

I have a couple. And first one maybe for Carlos. I know this, again, is a tough one. But what could be, in your view, the most impactful catalyst for a market pickup and the bottom out of spot rates? So you elaborated already on the trade disruption before, but I was curious to understand from your perspective, which is the most relevant one in terms of potential impacts. Second one is a follow-up on the Red Sea situation. It's not clear to me if the situation has already normalized, I guess not, or if it is normalizing or not at all, just to be clear on this point. And the third one, maybe for Federico, on the working capital dynamics, which turned negative in Q4. Should we expect in 2025 a normalization of the tailwinds observed in the past 2 years, and so the absorption actually to continue in the following quarters, maybe as a consequence of the increase in fleet coverage or not?

Thank you, Daniele. So which one is the most impactful? It's difficult. I think that, of course, if we could have these long-haul volumes coming back and being transported on product tankers, not on uncoated tankers, so with the arbitrage opening up, despite the longer distances, which needs to be sailed through Cape of Good Hope, that would be very positive for the market. We have seen, over the last few days, quite a spike in the rates for LR2s and LR1s, which is promising. So hopefully, that's the beginning of a longer strengthening trend. But we will have to wait and see to understand how that evolves. On the Red Sea, no, the situation hasn't normalized at all because we see here that the volumes -- this is okay, it's not updated up to March, but this is the latest figures we have, and it shows that volumes [ that are passing ] through Suez remain very low. And given the threats made by the Houthis recently of further attacks, if there is no -- if humanitarian aid is not allowed into Gaza, I think that it is even less likely that the situation will normalize quickly. But then again, as I mentioned, if it were to normalize, it is not necessarily going to be negative for the market. And, well, I think that the sanctions -- tougher sanctions are being imposed on these vessels by the U.S., in particular, could be very positive for the market. So we have to see here what is going to be the stance of the U.S. authorities, which the U.S. government has been very unpredictable, very difficult to read recently in relation to its stance relative to Russia. There was -- they seem to have gotten much closer and much more aligned with Putin recently, but then there were some announcements that if Putin were not to accept the 30-day truce that was agreed between the U.S. and Ukraine recently, then they could escalate sanctions on Russia substantially. So if that were to happen, then it, of course, would be very positive for the market. Pass it over to Federico.

Yes. No, thank you. On the working capital side, Daniele, there's nothing to write home about in the sense that it's really what happened in Q4 was really a timing effect in working capital. Q3 was actually positive. Q4, as you mentioned, was negative for $8.3 million, but it has a pure timing nature. Generally speaking, when we increase our coverage, we tend to have better working capital dynamics. And this is due to the fact that time charter hires are paid monthly in advance. So that gives you a very positive working capital effect, while in a spot deployment of your vessel, freights are usually paid upon discharging of the cargo. So usually, 4 or 5 days or 1 week after you discharge the cargo. And plus you have to advance port costs, bunkers, et cetera, which you don't have when you fix a vessel out in the charter. So I hope that answers your question.

And maybe just a follow-up on what you said on Russia. In case of, let's say, a resolution of the conflict, I guess that also a potential positive effect could come from the scrap of the shadow fleet, which is quite big. Do you expect in that case that the scrap could be very fast, slow? What kind of reasoning can we do around this topic?

No, it's difficult to forecast how fast the scrapping could occur because there are also -- not all the gray vessels are the same. Some have been operating legitimately under the price cap and are controlled by good shipowners, and these vessels most likely will be able to continue trading without any problem. But of course, a large chunk of these vessels have been maintained very poorly. They are very old, and it is going to be difficult for them to then reenter mainstream trades. And if you remove the sanctioned trades, there is going to be very little left for them, very few trades or opportunities for employment left for them. So it will become very uneconomical to continue employing them, and it is likely that they will then have to be demolished. There might be also bottlenecks if that were to happen at the demolition yards, which would prevent vessels to be demolished as fast as they should be. But we will have to see how that plays out.

The next question is from Massimo Bonisoli of Equita.

Two general questions. One on U.S. tariffs. We have seen U.S. industrial companies anticipating purchases of goods ahead of the introduction of U.S. tariffs. From your perspective, do you see the same trend in the tanker market? You showed in one of your slides that inventories are almost back to past year's average. And I have another question on the market. During summer, spot rates were under pressure and Q4 was seasonally more favorable, but rates were not recovering as much as expected. And you explained also the reasons behind. Can we say that it is also driven by the weaker refining margin environment in the second half, which generated less trading demand for the clean tanker market?

Yes, Massimo. Thanks for the questions. Good questions. On the tariffs, yes, I think there is some anticipation of purchases, especially of crude oil by U.S. refineries. There are some U.S. refineries which are landlocked in the Midwest, which don't have much choice but to buy, for example, from Canada through pipeline. And so they have a big incentive to anticipate these purchases. When the tariffs -- there was the first threat of introducing these tariffs in February, there was quite a sharp movement up also on the TC2 with a lot of cargoes fixed from Europe to the U.S. Atlantic Coast. But then a lot of these fixtures were not confirmed after Trump decided to postpone the implementation of the tariffs. So this time, as we approach the March deadline, there wasn't a similar movement as the one we saw in February. And so the market seems to be -- in that respect, at least seems to be waiting to see what happens before moving because maybe there is some skepticism as to whether these tariffs will actually be implemented or whether they are just being used as tools to negotiate other concessions from Canada and Mexico. Regarding the lack of rebound of the market in the second half of the year, especially in Q4, I agree with you. I was expecting a stronger market, to be honest, Q4 and also Q1 this year. I think there was quite a lot of refined product, which was imported by Europe on uncoated tankers over the summer. So that might have created a bit of an overhang in Europe of refined -- of such products, which has dampened the demand and closed this arbitrage for these longer haul trades in the last 2 quarters of last year. And I agree that the lower refining margins also play a role here, that some trades are not viable or profitable because of that. And therefore, yes, that might have negatively affected the market also. One other factor which could explain a bit of this relative weakness is the ramp-up in production from Dangote. One negative factor which we saw in the market last year was this reduction in imports from Europe by Nigeria. But the positive aspect here is that Nigeria is now starting to export more. So hopefully, we have already experienced the negative consequences of this new refinery coming online in Nigeria and the effects from now onwards would be positive for the market.

The next question is from Climent Molins of Value Investor Edge.

I wanted to start by asking about how shareholder returns fit into your capital allocation priorities going into 2025. In 2024, you ended up paying around 40% of net profits. Could you provide some insight on what payout we should expect in 2025? And secondly, should we expect dividends to remain the priority?

Thank you for the question. No, it is a tough one to answer, I must say, because of the volatility of the market and the uncertainty relating to all these geopolitical factors, we need to better understand how this market is going to be moving in the second part of the year, in the rest of the year, let's say, before providing an indication of the expected payout for 2025. So dividends are -- I wouldn't say they are a priority, but, of course, we are mindful that shareholders would like to receive more dividends, including our controlling shareholder would be very happy to receive more dividends. So we will try to find the right balance when deciding how much to distribute, given the investments we have already committed to, given the outlook for the market, and providing us -- keeping enough firepower to be able to profit from a downturn, which is not our base case. But if it were to happen, then we will then be deploying some of this firepower to acquire more vessels, either on the secondhand market or resales or newbuildings, let's see, which is more convenient at the time. So, yes, I apologize for not being able to provide a clearer answer at this stage, but hopefully, in the course of the year, we will be able to provide more visibility in this respect.

I understand. You provided some commentary on recent pressures on both daily operating costs and G&A. But as we go into 2025, could you talk a bit further about whether we should expect a normalization of these costs or whether we should expect them to remain near current levels?

Well, no, thank you for the question. I think we've already seen, as I mentioned before, a normalization of these costs, both on the OpEx side, as you could see before. I can go back to the previous slide that we were showing. We had an increase in 2024 of 3% that is here at $7,728 a day for our daily operating cost of our vessels. And the G&As in 2024 were also lower than in the previous year. So I would expect these figures, more or less, depending also a little bit, of course, on the inflation, to stay more or less in line with these numbers. I don't expect additional bumps in these figures here. And as I mentioned before, we always have to remember -- sorry to interrupt, we always have to remember that in 2024 and 2023, of course, G&A-wise are also the consequence of some very, very good and exceptional years in which we made last year $192 million profit, this year $188 million profit. So consequently, obviously, there's also an increase for these 2 years of the variable component of personnel costs. So that part is really related to how the company performs.

Yes, makes sense. And final question from me, which is more on the modeling side. You recently exercised the purchase option on the Cielo di Houston, which was previously bareboat-in. Could you quantify the liabilities associated with the bareboat-in as of year end?

Sure. I'll tell you immediately. On the Fidelity and Discovery, wait a second, on the one that we just exercised, Cielo di Houston...

I was wondering on the Cielo di Houston, yes, on the recent one.

Sure. I'll tell you immediately. It was $27.2 million.

[Operator Instructions] Gentlemen, there are no more questions registered at this time. I'll turn the call back to you for any closing remarks.

Well, thank you, everyone, for participating in the call today, and thank you for the very good questions. And I look forward to seeing you and speaking with you soon when we present our Q1 results in May. Thank you, and good afternoon.

Thank you.