d'Amico International Shipping SA

MIL:DIS

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the d'Amico International Shipping Third Quarter and 9 Months 2024 Results Web 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.

[Antonio Carlos Balestra Mottola, executive]

Yes. Good afternoon to everyone. As usual, we skip the executive summary, and I pass it over to Federico for the overview on key financials.

[Federico Rosen, executive]

Thank you, Carlos, and good afternoon to everyone. So as usual, snapshot of our fleet as of the end of September 2024, 33 vessels, 33 product tankers, 21 MRs, 6 LR1s and 6 Handys, still young fleet. The average age of our owned and bareboat vessels, it's 9 years of age against an industry average of 13.4 years for MRs and 14.8 years for LR1s, 83% of our owned and bareboat vessels and 85% of our entire fleet is eco-design against an industry average of 37%.



Bank debt repayments. So on the bank debt front, here, overall, at the end of September, we had a total bank debt of around $240 million compared to a cash and cash equivalent at the end of the period of $228.7 million, so very low leverage. During the first 9 months of the year, we prepaid, as you can see from the graph on the left, $41.7 million of facilities. We just repaid basically our most expensive facilities, plus we made a loan repayment of $6.5 million on one of the vessels that we sold in Q2 '24.



At the same time, between Q2 and Q3, we drew down some new bank facilities for $66.3 million in total at a significant lower margin compared to the ones that I just mentioned that we prepaid. We had during the period, scheduled loan repayments for $20.8 million. Going forward, in the rest of the year, in Q4 2024, we are expecting to have $7.3 million of scheduled loan repayments plus an additional prepayment that we have already made for $5 million on one of our existing facilities. And going forward, we have no refinancing needs for '25 and basically also '26 apart from a small amount of $3.2 million that is expiring in 2026. And we have scheduled repayments for both years of approximately $28.5 million. Interesting to see also our daily bank loan repayment on the right-hand side, which dropped from $6,147 down to $3,600 at the end of last year, and it's now below $3,000 a day.



Here, we give a little bit of a snapshot of how Q4 looks as we speak. So we have already covered with contracts, with Time charter contracts, 39% of our Q4 days at $27,100 a day, we have already fixed approximately 29% of our days on the spot at slightly less than $26,000 a day, which entails a blended daily TCE for approximately 68% of our total days of Q4 at $26,600 a day. As usual, we show also a little bit of a sensitivity relative to these figures that I just mentioned. So should we make $20,000 a day on our free days for Q4, our blended daily TCE would be $24,473. Should we make $25,000 a day, our daily blended total TCE would be $26,000 almost $100 a day. Should we make $30,000 a day, then we would make $2,700 a day as a blended TCE.



Moving to the next slide. Estimated fleet evolution, we had a fleet of 33.7 average vessels in 2024. We're expecting it to drop a little bit to 31.1 vessels in 2025 and approximately to stay at the same level in 2026. Potential upside to earnings, we show here our sensitivity, which, of course, is relatively low for the remainder of this year. It's $1 million for every $1,000 more or less that we make on the spot market. It's $8.5 million for every $1,000 rate in 2025 and it's currently $9.4 million for 2026.



At the bottom of the page, you see our estimated net results based on everything that we have fixed as of today. So, both on the Time charter side and on the spot market, assuming that the rest of the year, so in this case, Q4 is at basically breakeven level, then our net result would be slightly less than $186 million. And based on the contracts that we have in place right now, the same figure, so assuming 2025 basically a breakeven for most of the year, then we would still make $29 million of net profit next year. And then the same figure would be $19.6 million net profit for 2026.



Then on the right, we show sensitivity relative to these figures that I just mentioned. So if instead of running the rest of Q4 at a breakeven level, we run it at $20,000 a day on our free days, then our net result should be of around $190 million. Should we make $25,000 a day on our free days, then our net result would be almost $195 million. Should we make $30,000 a day on the unfixed days that we have at the moment, then our net result will be of approximately $200 million for this year. And obviously, here, you see the same figure, the same sensitivity also for 2025 and 2026.



On the cost side, we had a small increase of approximately 3% between our daily OpEx of the first 9 months of this year relative to the same period of last year. So currently, we're running our vessels at a daily OpEx of $7,700 a day. As we mentioned before, we saw this year, especially at the beginning, some inflationary pressure, particularly on manning costs, which is the largest component of OpEx. But then this figure stayed pretty stable for the second part of the year.





On the G&A side, we had total G&A of $16.2 million, so lower than the $18.4 million that we had in the same period of last year. Again, this is a figure that is stabilizing. We're not expecting at the moment further increases relative to this number here.



Net financial position. We had a net financial position of $83 million at the end of September compared to $224 million at the end of 2023. Excluding the effects of IFRS 16, our net financial position was lower than $77 million, $76.9 million. This compares to a fleet market value of over $1.2 billion at the end of September, which gives us a ratio between our net financial position and our fleet market value of only 6.2% at the end of September. This figure was 18% at the end of '23, and it was 72.9% at the end of 2018. 



Cash and cash equivalent, very strong. We had cash and cash equivalent $228.7 million at the end of September. We generated significant cash during the first 9 months of the year of over $117.5 million of net cash flow with a strong operating cash flow of $228.4 million. Key items of our income statement for the first 9 months of the year. Well, first of all, net profit of $163.1 million, strong EBITDA of almost $219 million for the first 9 months of the year. Looking at Q3 alone, we made a profit of $40.2 million in the quarter with EBITDA of slightly less than $58 million. So as you can see, we outperformed the same period of last year, in which we made $148.7 million. 





On the other side, as you know, Q3 this year was slightly weaker on the spot market relative to the same quarter of last year. So we made $40.2 million this year in the third quarter against $48.9 million in the same quarter of last year. Excluding some nonrecurring items, we made $158.9 million of profit in the -- of nonrecurring profit in the first 9 months of the year and $40.5 million of nonrecurring profit in the third quarter of the year.



Moving to the next page, our key operating measures. Daily spot rate of $37,563 a day in the first 9 months of the year on the spot market. We had a coverage of 42% at $27,700 a day. So we made a blended LTCE of $33,000, almost $400 a day. This was obviously higher than the same period of last year, both on the spot market and in total. We made last year $33,400 a day of spot and $31,900 a day of blended LTCE -- as I just mentioned before, Q3 on the spot market was a little bit weaker than the same quarter of last year, so $29,679 against $31,782 in the same quarter of last year. And our daily blended, so the total LTCE was $28,600 a day against $30,860 in the same quarter of 2023. So still extremely profitable, but a bit weaker than the same quarter of last year. And I pass it on to Carlos.

[Antonio Carlos Balestra Mottola, executive]

Thank you, Federico. So now we have a few slides, which cover some strategic matters for us, such as investments and contract coverage. And then we go on to the market slides. So in terms of CapEx commitments here, we have been quite active this year because of the 4 LR1s we ordered and also because of the options we exercised on TCM vessels.



So we show for the 9 months, this investment of almost $76 million, which includes the first installments for the LR1s, which was 20% of the contract price, plus the option we exercised on the Crimson Jay vessel which was delivered to us in July. For the rest of year '24, we show the $31 million there, which is the purchase option we exercised on the other Crimson vessel, the Crimson Pearl that was delivered to us in October. 



And then we have $67 million in investments shown in '25, which relate to the exercise of the Leader and Navigator, which will be delivered to us between Q1 and Q3 next year. And then the investments we show for '26 and '27 relates to the remaining installments for the 4 LR1 vessels, which will be delivered to us in the second half of '27. On the yellow bars, we show the estimated maintenance CapEx for our fleet for the coming years. 



On the options on the lease vessels, 2 of these are already exercisable. We decided to postpone their exercise because the implicit cost of financing is low in today's high interest rate environment. As interest rates come down, we are likely to be exercising these possibly already next year. So the Charity Houston, we have an obligation actually to exercise next year in September. And so that is a certainty. On the discovery, we still have a lot of flexibility. The obligation is only 32, but we are likely to be exercising the option next year. The same applies for the fidelity, which we can still not exercise, but we will be able from September next year. 



And if we do see a sharp correction in interest rates, we are likely to do so. On the following slide, we show instead the options, which were already exercised on our TCN vessels. We exercised the 6 options we had, as we had announced we will do for some time now. These options were -- the exercise prices were well below the market values at the time of exercise. We showed that on this column we inserted in this table, which shows a total of $71 million in value generated at the time of exercise.



We also show on the column on the right for the vessels, which we already became owners of, what is the difference between the market value as of 30th of September and the book value of the vessel as of the same date, and we see that for the 3 vessels, which were already part of our own fleet, there was an increase in this value, which was generated through the exercise of the options. 



So it was great we had this optionality within our fleet. And yes, so we are very glad we exercised these options at very attractive prices and that we were able to generate substantial value for our shareholders by doing so.



In terms of contract coverage, we have a good level of coverage still for Q4 at almost 40% at an average rate of $27,100 coverage does fall next year. We are working on increasing this. As announced by us recently, we have signed a few TC contracts, which allowed us to increase this coverage a bit relative to our last quarterly update. But we do aim to take this coverage even higher in the coming months. 



We are currently in quite a soft freight rate environment relative to what we have seen in the recent past. So we are not in a hurry to take more coverage, although that is our intention, and we're also looking for longer contracts. But we are quite certain some attractive opportunities will arise in the course of the next few months, which will allow us to increase this contract coverage possibly to around 40% for '25.



Going on to the following slide, we show here on the left, the yellow line, how the spot market has corrected quite substantially over the summer this year, and it still hasn't recovered since then. We are actually probably now at the lowest levels we have seen since the start of the war in Ukraine. Asset values, however, have remained firm and newbuilding prices are pretty much aligned with the last cycle peak, whilst instead -- which the last cycle peak was around 17 years ago.



So on an inflation-adjusted basis, they are still much lower, but secondhand vessel prices are still well below the last cycle peak, 13% and 18% for 5- and 10-year-old vessel prices. So the period TC rates for 1 year for an EcolMars today are of around $27,000 per day according to Clarksons estimates and for [ Encola ] 1 of $29,000 per day. So that is quite a significant correction of what we have seen earlier in the year, but they are still very attractive levels. 



Why have we seen this relative weakness this summer? It was, in our opinion, linked mostly to the fact that uncoated vessels cleaned up to transport clean petroleum products. Now that often happens when the dirty markets are weak on the maiden voyages of these vessels and they transport gas oil just after being delivered by the shipyard to Europe. But it is quite unusual instead to see vessels of this size. We are talking about VLCCs and Suezmaxes in particular, cleaning up to then transport clean petroleum products. It's very expensive. It takes a lot of time around 2 to 3 weeks to clean up these vessels where the vessels are not trading. 



So this opportunity only arose because there was a very big discrepancy between the earnings of vessels which were transporting clean petroleum products and those which were transporting dirty petroleum products because of the exceptional earnings we earned, we were earning on the clean side up to the end of June. And the much less brilliant performance in the dirty sector. These cleanups were performed mostly by trading houses. A few ship owners did so also, but it is quite a risky practice. There is a risk of contamination if the tanks are not properly cleaned. So not many ship owners had the appetite to do this. But the big trading houses, Trafigura, Vitol, Glencore and some of the trading arms of the big oil majors like Total were also performing such cleanups. 



We see also on the graph on the – so there was 13% on long-haul trades, 13% of the uncoated fleet, which was transporting clean petroleum products this summer in July and August. That is the highest percentage on this time series, which goes back to 2004. So it is -- that in itself, I believe, is the main explanation for the weakness of the market. And on the right-hand side graph here, we see a similar pattern evolving. We see here instead of the transit through Cape of Good Hope of gas oil that is the only product that the vessel which was transporting dirty can transport on the next voyage. And we see that there was a big increase over July, August and September. 



The graph here takes into account the date, not the loading date, but the date in which the vessel transits through Cape of Good Hope. And we see this big increase in the number of Suezmaxes, which were performing such voyages. Even in the beginning of the year, February and March, there were some Suezmaxes involved in such trades, but then there was a sharp increase in the summer. 



And we also saw some VLCCs, which are even less flexible vessels performing such cleanups. It's the gray bars on the graph. The good news is in the month of October, the number of Suezmax is cleaning up has already fallen significantly, and there were no VLCCs performing such cleanups. So this practice we expect to remain very subdued during the winter months in the Northern Hemisphere, which is a period where seasonally, the crude tanker markets tend to do very well. 



And so we are still paying the price of these cleanups now because there was actually a lot of product transported over the summer to Europe with these coated vessels. So stocks of refined products in Europe are quite high, and that is dampening demand for the LR vessels, in particular, on these long-haul trades. And that is, in my opinion, the reason why we are still not the main reason we are still not feeling the effects of the winter market. We also have had a very mild autumn so far, which is also not helping. But as the stocks in Europe are consumed and as the winter becomes colder and the sea is rougher, we are quite convinced we are going to see a sharp improvement in freight rates. 



Going on to the following slide, this is a slide we always update now since a few quarters, showing what happened to Russian refined product exports since sanctions came into force in February '23, and we see how exports, which used to be around 50% sold to Europe are now sold only a negligible amount to Europe, which is shipped through pipelines to landlock countries with the rest being sold to much more distant locations often in Asia and the Middle East, but also partly to closer locations in Africa and Turkey. 



But increasing overall volumes traded because sometimes these products are then reshipped from these locations to other location or they, in any case, create additional volumes, which are shipped because in the case of Turkey, they have their own refining industry. So they both import more and export more. 



Europe instead replaced the lost Russian volumes with more imports from the U.S., the Middle East and Asia also with longer ton miles than the products which were previously imported from Russia. We see here that the transit through the Suez Canal continue declining. And in September, they were at the lowest level since January '22. And that is not unexpected. It's basically the only vessels which are linked to Russian and Chinese interests, which are crossing the canal. 



And the oil demand continued growing this year, although at a much slower pace than last year, where we were still benefiting from the effects of China exiting the restrictive COVID policies, which it had enacted. And oil demand for next year is expected to be oil demand growth similar to this year of around 0.9 million barrels per day.



In relation to this year, the expected growth at the beginning of the year was higher than what are the estimates now. The biggest disappointment in this respect was China, whose economy underperformed. And China seed the leadership in oil demand growth to India this year. So India was the biggest contributor to oil demand growth for the first time this year. China has recently announced some measures to stimulate its economy. More measures are likely to be announced by the end of this week. 



Hopefully, it will be enough to stabilize the Chinese economy and hopefully also revive and create a more favorable environment for faster growth already next year. Refining throughput growth this year was also lower than initially anticipated only of around 0.5 million barrels per day. As you see on the graph, there is a trough seasonal trough usually around October, and the same applies this year with a rebound expected in November and December as refineries in the Northern Hemisphere come out of maintenance and start producing the winter grades. So that in itself also should contribute to a stronger market in the coming months. 



Going on to the following slide on the oil supply. I think here, we have good news in the sense that there is quite a lot of oil supply from non-OPEC countries, which should be coming to the market next year, around 1.5 million barrels per day, mostly from the U.S., but also important quantities from Brazil, Canada and Guyana. A large share of this additional oil supply will be exported to Asia or usually, it is a large portion is exported to Asia. So we expect the same to happen next year. 



Of course, if the Chinese economy recovers, and then it will be absorbing more of these barrels but other Asian countries can also contribute to absorbing this additional supply. And so that should help the crude tanker market indirectly. It should also help us. Crude tanker supply, as we will see later, is expected to be very limited next year. So here, we show that inventories are aligned with historical average for refined products. 



As I previously mentioned, they're actually a bit higher than usual in Europe, which is dampening demand the pool effect for products coming from the Middle East and Asia, but on those LRs. But it is actually the stocks are quite low in the U.S. Here, we look at the main contributors to oil demand growth in '24, and we see that it was mostly gasoline and jet fuel and unsurprisingly, naphtha also played an important role. The biggest disappointment came from gas oil, and that is linked to the lackluster performance of the real estate and industrial sector in China, in particular, but also in some European countries such as Germany. 



And so yes, we need a recovery in industrial activity and in construction activity for the diesel growth to return positive and oil demand growth to be more robust. On the crude tanker fleet, as previously mentioned, there was an increase in the order book from a low of 3.6% to 7%, almost 8%, but it's still at very low levels by historical standards and fleet growth, especially next year for crude tankers should be very limited. Only 5 VLCCs will be delivered next year and around 28 Suezmax vessels. So it's a very limited number of vessels. And that with the additional oil supply I just referred to that is coming to the market should contribute to a much healthier market for crude tankers. And a lot of analysts are today quite positive on the outlook for the crude tanker market. 



We also saw one of our peers, which actually bought a sizable stake in this crude tanker company to be able to benefit from this expected positive environment for the crude tankers, which we believe will spill over also to the product tanker sector because of the reasons which we previously mentioned. Here, we see on the refinery landscape, the fact that most refineries continue being built in the Middle East and Asia, most new refineries. There's also Dangote in Africa, which is an important refinery, which already came online this year, and it has a capacity of 650,000 barrels per day. It's already producing above 400,000 barrels per day, I understand. 



So still some ramp-up, but mostly done. It recently started producing also gasoline. But the additional refinery, which is coming online in the Middle East and Asia, in particular, and the refinery closures, which are still anticipated in Europe. Oceania and in the Americas should contribute to an increase in ton-miles.



And in terms of demolitions, we see that the fleet is aging fast. Already by October this year, we had almost 50% of the fleet, which was over 15 years of age. And the share of the fleet, which is crossing the 20-year threshold is also rising fast, and it stood at 15.6% as at the same date and above where the order book stood at 15.1%. 



So despite the big increase in the order book that we have seen, we have seen a parallel also important increase in the share of the fleet, which is more than 20 years of age. Which means that the situation, at least for these segments, MRs and MR1s, MR2s and LR1s seems to still be quite healthy the supply picture.



Very few vessels demolished over the last few years, but big potential for demolition going forward with the vessels reaching 25 years of age from 2027, starting to increase quite rapidly, peaking in 2023 at almost 11 million deadweight ton, which should equate to around 8% of the trading fleet at the time, which is a very significant figure. 



And that should help markets stay healthy and profitable for a number of years. Also, it's important to note that as vessels cross the 20-year threshold, irrespective of whether they are demolished, they become much less productive. They can only have limitations as to the trades they can perform. The charters that are willing to charter such vessels are much more limited. And so they have much more waiting time than the other vessels. Their productivity is much lower. So that in itself, the statural aging of the fleet even prior to demolition leads to a contraction in the availability of tonnage. And we see here how the fleet demolitions have been very limited since Q3 '22, and how the deliveries were very low this year, and they expect it to stay at still quite low levels until the end of the first half '25. 



And then in Q3 and Q4 '25, there is quite a big pickup in deliveries, which should lead to eventually to a softening in the market, but it's not something that will happen overnight. But of course, as more vessels are delivered and before vessels start being demolished, there is this possibility that unless also the demand dynamics are particularly favorable, the market could start to soften.



A lot of vessels ordered this year, as we see on the graph here on the right, but we already referred to the fact that this was met also by an important aging of the fleet. Very limited fleet growth also for next year. And then I think we pass over here to the NAV slide, where we show that our NAV is now above $1.2 billion and the NAV per share as at the end of September was at $10.2 around EUR 9.5 at today's exchange rate and our shares are trading below EUR 5 per share. 



So we are trading at almost a 50% discount to NAV. So it's a very significant discount to NAV at which we are trading today in an environment where we are still generating substantial amount of cash. So if we don't see a correction in vessel prices, then our NAV should continue increasing, maybe not at the same pace as it has increased in the last few years, but still, it should continue rising. 



And here, the use of funds that for our fleet here, this is similar to the slide that we have on the CapEx, but we show here also the use of funds for the exercise of the vessels, which are bareboat chartered in the $60 million that we assume here, the vessels are going to be exercised in '25, the 3 vessels. So it ended up to a use of funds of $24 million, of which $76 million already occurred in the first 9 months of this year.



And here, finally, a slide where we show the increasing shareholder returns. We approved today the Board an interim dividend of $30 million, which also take into account the share buybacks that we have been performing this year. 



As at 30th of September, we had bought EUR 6.5 million worth of shares. As of today or as at the end of last week, it is EUR 8.3 million worth of shares. So it's quite a sizable amount more than we did last year in terms of share buybacks. And dividends are also, they should also be more generous this year than they were last year. And as Federico mentioned already, our financial leverage ratios have improved significantly.



And yes, here, we just show some slides, which cover the different measures from a technical and operational perspective that we have taken to increase the efficiency of our vessels. The green cells show what was already done and the yellow one, what is planned still to be done from that perspective. And this is not a final. 



This is always an evolution. And as new technologies become available and we're always studying new solutions, we will assess whether we should be adopting them. And of course, we will if we think it makes sense from an economic perspective to do so. And that is it. So I pass it over to you for the Q&A.

[Operator]

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

[Matteo Bonizzoni, analyst]

I have some questions on the outlook. Clearly, the situation has got trickier for the equity market for product tankers over the last months because as you have said, there has been a sharp correction of rates and stock rates have also tracked mostly rates than asset values. So asset values have remained for the time being up. But as usual, let's say, stock prices have more followed the evolution of the spot rates. And so the discount to NAV has enlarged, as you said, close to 50%. So it seems in some way that the market is pricing in some prolonged weakness, let's say, or maybe is worried about a potential prolonged weakness. 



So my question around the outlook. I was willing to know as regards to the outlook for 2025, you are seeing that fleet growth should slightly accelerate from 1% up in '23 and '24 to 2.4% up. So some pickup in the supply of product tanker. What about the demand? In particular, are you assuming the end of the rerouting via Cape of Good Hope any soon? Because, for example, our analyst, sector analysts in Oslo have assumed in 2025, some end of the rerouting to come with several percentage points of impact on negative impact on the ton miles. 



And the second question, in addition to the potential rerouting end of the rerouting, yes or no, is the tariffs impact. There have been a lot of literature recently because of the potential Trump win and then the actual Trump win, let's say. Clearly, the impact seems to be more pronounced on containers and maybe crude, but there could be also a spillover to product tankers. So I was just willing to know if you want to elaborate what is the expected impact from potential tariffs on product tankers.

[Antonio Carlos Balestra Mottola, executive]

Okay. Thank you for the questions. So they are all very relevant. And I think that I mean we try to explain what our outlook is on the presentation. Of course, we don't have a crystal ball, but we do expect the markets to improve this winter. And as they usually improve, I would say, yes, so by the beginning of November, we do sometimes already see markets moving in the right direction. We haven't seen that yet. So that is, of course, a source of concern. I think that one of the explanations now is the --explanation for this current weakness is still linked partly to the cleanups that occurred this summer and the overhang of products that it created in some regions like in Europe, so which is dampening demand for new imports. 



And also the very mild weather that we have experienced so far is not helping. The non-brilliant Chinese economy is not helping because it's not helping the crude tanker sector and our fortunes are linked to that sector, not only through cleanups that we have seen, which is quite unusual this summer, but more simply because of the LR2s, which tend to migrate to dirty or clean trades depending on the convenience on the earnings that they can achieve in the different sectors, different type of trades. And now you have, for example, a large portion, 62% of the LR2s, which are trading clean.



And so if crude tanker earnings, Aframax earnings improve, there is likely to be a migration of these vessels into these 30 trades, which tightens the supply for the clean trades. So yes, this volatility is always present in our sector. Even within a very strong market, you can have moments of quite significant weakness. And then all of a sudden, the market catches fire again.



So we still expect that to happen because these disruptions are still there that we have benefited from and nothing really fundamentally changed from a negative perspective. So yes, oil demand was not as spectacular as had been anticipated. Refining throughput growth was also a bit more subdued than had been anticipated, but it still grew. It still grew in an environment where product tanker supply growth was very limited. So if anything, the fundamentals should have improved throughout the course of this year. And we saw that in the first half, and we saw that.



The only thing that changed since -- from July onwards was the cleanups. And so as this become less of a factor because we anticipate a strong crude market next year, we expect the clean markets also to benefit indirectly.



The supply picture is good in the first half of the year. In particular, it becomes a bit more concerning after that and into '26. So yes, I mean, we do expect the market to recover to have a good first half of the year. Then thereafter, maybe there will be some softening in the second half of '25 and '26.



Will the disruption linked to the [ Otis ] remain? I think so. I think that the [ Otis ], they are being financed as far as I understand, by Iran, the conflict between Iran and Israel and the Western world in general is very important. And second, if anything, it is expected that Trump is going to impose even harsher sanctions on Iran, which Iran has been exporting a lot of crude oil on sanctioned vessels. If they are not able or they are able to export lower volumes only, this will benefit all the other vessels, which are performing the non-sanctioned trades.



There is a possibility that authorities start becoming tougher on sanctioned vessels and vessels which are performing sanctioned trades. We are already seeing that partly U.K. authorities, some European authorities also specifically sanctioning vessels, and that should also help the market. And so I don't see -- even if a solution is found, which for the conflict in Gaza, I don't – I think that doesn't necessarily mean that the [ Otis ] will stop doing what they are doing. The geopolitical situation is extremely complicated there. And it is a very effective way they found of creating damage for the Western economies because of how important this passage way is for a lot of vessel classes and for product tankers in particular.



The Trump, is it positive? Is it negative? Longer term, it is potentially positive for the oil industry because he always declared himself to be a champion of the oil industry. So I expect potentially more -- even more oil, shale oil exploration. Although those -- the exploration activities are -- the decisions in relation to such activities are taken by private companies, which look at the expected profit from such exploration.



So whilst Biden had a negative stance in theory, in practice, he didn't do that much against the shale oil industry and shale oil continued increasing production. Although at a more limited pace than it had done previously, but not because of the obstacles which were created by the Biden administration, but simply because they prioritize distributing more cash to shareholders than reinvesting for more production. So I think that those -- a similar environment, we will face a similar environment with Trump unless he more specifically tries to really incentivize such activity. And in that case, then potentially oil supply from the U.S. could grow even faster.



Whether it will slow down in the transition, I don't know because he was financed to one of his biggest owners was Elon Musk and then Trump already very pragmatically claim that in the past, he was against the EV industry. Now he's actually has a much more favorable opinion because of the backing he received from Musk. So -- so yes, I don't know.



But once again, the adoption of EVs in the U.S. has been very slow also with the current administration. So unless there are some policies which encourage in the EV adoption, which are enacted by the Trump administration, the increase in penetration of EV cars in the U.S., I think, would face quite a lot of obstacles going forward in any case. The tariffs that he should be putting on, in particular, China is, of course, likely to negatively affect the Chinese economy. That could dampen oil imports into China.



And so crude oil imports mostly, but indirectly, it could also be negative for us in that respect. So there are, of course, many variables out there. We have to see what is done, how it is done and how the Chinese economy reacts. Of course, they have been anticipating this threat for a long time. So I don't think they're going to wake up now all of a sudden, and they already have been working on diversifying the countries to which they sell their products for a long time, and they are less dependent now than they used to be on the U.S. 



So yes, that's our take. So I think we still see a very positive outlook for the market next year, particularly in the first half of the year.

[Operator]

The next question is from Daniele Alibrandi of Stifel.

[Daniele Alibrandi, analyst]

My first one is on current trends. I'm sorry if you have already elaborated on this before, but Mariano was a little bit disturbed. So the underlying market has been actually weak in October, but we have seen the dirty market has bottomed out, right, in September -- since September. So I was curious to know if you're seeing any signs of the unwinding of this cannibalization effect as we speak. So now in November, in the first weeks of November? And if so, if there are some other reasons keeping rates low. And maybe if we should expect the recovery more back-end loaded to, let's say, Q1, given that you fix the spot 1, 2 months, let's say, ahead? This is my first question. 



Second one, if you can update on the commercial strategy and how the negotiations with third parties to secure more time chartered is evolving? Is it accelerating or is it actually getting tougher? So a little bit of, say, granularity on this would be appreciated.



And the last one is a little bit technical, maybe boring, but just to understand the working capital management, which was better than expected, specifically to the receivables dynamics in Q3. So I was wondering if you could elaborate on the drivers and your expectations for the rest of the year, maybe saying if it is reasonable to expect that the operating cash flow before CapEx could be similar to last year and last year was around EUR 290 million.

[Antonio Carlos Balestra Mottola, executive]

Thank you, Daniele. So in relation to the market and the weakness, yes, we have seen in October, October tends to be, unfortunately, quite a weak month also because as we see, there is this drop in refining activity because maintenance purposes in the Northern Hemisphere. So it is not totally unexpected that this was going to happen.



We do see usually a rebound around November and even more so than in December because of the large volumes of clean products, which were transported to Europe over the summer on non-coated tankers, the stocks in Europe are, as I mentioned previously, higher than usual. That is dampening demand for new imports and negatively affecting the product tanker market. So that is, I think that would possibly delay a bit the recovery from what we usually see in the winter market, we might need to wait for December to start seeing a better winter market. 



And as you correctly mentioned, if rates start improving markedly only in December, then we are really only going to be benefiting from this improvement in Q1 next year because of the lags which there are between the improvement in the rates and the employment of the vessel on such voyages at higher levels. And then on the TC front, we have recently announced contract for 2 years at a very attractive level. So there are still the opportunities out there to take coverage at good levels. It is a tougher environment now and charterers will take vessels, but they have a stronger bargaining power now. 



So it means that if you really want to close, you have to accept lower rates sometimes and they would like to. But we are working to increase our coverage at satisfactory levels in the coming months. We are confident there are going to be opportunities to do so. But we are also not going to take coverage at any levels. We're going to take coverage, which makes sense. So we need to see rates which reflect the strong fundamentals of the market because we do expect the market to strengthen this winter and for us to benefit from a very strong market in the first -- especially in the first 2 quarters of next year. I pass it over to Federico for the working capital question.

[Federico Rosen, executive]

Sure. Daniele, there's not any specific reason why we had a positive working capital effect in Q3. I guess that changes a little bit from quarter-to-quarter. This is just a normal timing effect that you have in the evolution of our working capital. For sure, what happened at the beginning of Q3 is that we received some of the freight of voyages that were fixed at the peak of the market. You remember that we made almost $45,000 a day on the spot market. So that obviously had an impact cash flow-wise in Q3. But again, it's only of a timing nature. So I don't know if that answers your question.

[Daniele Alibrandi, analyst]

Yes. So should we expect maybe a reabsorption in this quarter or --

[Federico Rosen, executive]

Not necessarily. Look, what happens over the entire year, we generally assume a neutral working capital effect as it's also a little bit hard to estimate it precisely from a quarter to the other, you have to basically estimate the exact ending of the voyages because usually freight are paid after a few days from the completion of a voyage.



We discussed you and I this in the past. What happens generally is that when you increase your coverage, then obviously, which is, as Carlos just mentioned, is what we're trying to do now. This obviously has also a positive impact on the working capital. Why? Because time charter hires are paid monthly in advance on product tankers. So from a working capital perspective, then you have obviously a very positive impact, while spot rates are paid, as I said before, after the completion of the voyage. 



So that's obviously increasing your coverage has a potential positive effect on the working capital. Plus on the time charter contract, obviously, you don't have to pay for voyage expenses like bunkers and port costs. So you receive a net amount per day that is paid, as I said, monthly in advance.

[Operator]

The next question is from Massimo Bonisoli of Equita.

[Massimo Bonisoli, analyst]

A couple of questions from my side. One on G&A cost. In your chart, you showed the declining trend in -- over the past 9 months in G&A cost. Just would like to understand the Q4 numbers, if there is any variable compensation in there or maybe will be already in 2025 and also some hints on 2025 evolution if they will continue to decline. 



The second question is on shareholder remuneration. Stock price discount to NAV sharply. You have already discussed it in the past. Any thoughts on the buyback versus the dividend? You have increased somewhat the buyback over the past few months. But maybe now it is even more convenient, especially if you expect that the spot price would recover over the coming months. Any thoughts there would be appreciated.

[Federico Rosen, executive]

Okay. Just to answer to you Massimo, I hope you're well. Just to answer to you on the first question on the G&A. If you see the quarterly evolution of our G&A this year, it was rather stable. If you compare it to last year, we had a much lower Q1 and then a very much of an increasing trend in the following quarters of the year. And I expect it to be stable also in Q4 relative to the previous quarters of this year. 



What we do is that we generally accrue provision for the variable component of our personnel cost quarter-by-quarter. So what happened really in 2023 is that we had a timing effect and a difference between what we had been accrued in the year before and what we actually paid in 2023 alone. That's why you had that big of a difference. So G&A, excluding this timing effect are in reality, rather stable relative to the previous year. 



And we are expecting it at the moment to remain this way. Then obviously, as we said this before, a significant part of that total cost is really dependent, again, on the variable component of our personnel costs. So it really depends on how we perform. So given we made $192.2 million last year, this year is going to be also an extremely profitable year. So G&A is especially the variable component of our personnel costs reflect also those numbers. So it's not a fixed cost. Should the market be different, should our performance be different, obviously, we would have lower G&As. And I pass it on to Carlos for the shareholder remuneration question.

[Antonio Carlos Balestra Mottola, executive]

Yes. On the shareholder remuneration, Massimo, as you know, I mean, there was an ABB by the controlling shareholder earlier this year through which they sold a 5% stake in the company. And prior to that, we had kind of refrained from pursuing buybacks for some time because we were compromising the liquidity of the stock. After that transaction, we felt we had room to be a bit more aggressive in this respect. And we saw this big gap between the NAV and the share price, which justified us acting aggressively in this respect. So we did so. We want to maintain a balance between the 2. 



The controlling shareholder is also quite happy to receive dividends. And so although we don't have a dividend policy, what we have investors is that the sum of the buybacks plus the dividends out of the '24 results should correspond to 40% of the net profits. So if we do more buybacks, which I don't rule it out, then that would negatively affect the final dividend that would be approved and distributed in around April next year. So yes, we do have room to do more buybacks. Will we do more buybacks? 



Maybe. But we also once again, want to then get carried away and then have the same problem we had previously where the free float falls too much. So we will assess carefully the convenience of pursuing more buybacks. But we would anticipate that if as expected markets start improving, in the course of November and then even more so in December, this window for buybacks will close very soon because the share price would then follow suit the freight rates as it usually does. So if we do see a recovery in freight rates, share prices should go up and the discount to NAV should come down, and it will become less attractive to pursue other buybacks.

[Operator]

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

[Antonio Carlos Balestra Mottola, executive]

Thank you, everyone, for participating in today's call, and thank you for the very good questions. And well, I wish you all a good end of the year and some of you I might meet before the end of the year at some investor events. But if we don't see each other before, then good festivities as they come up and a good end of the year and see you next year. Thank you.

[Operator]

Ladies and gentlemen, the conference is now over you may disconnect your devices. Thank you.