Ladies and gentlemen, thank you for standing by. Welcome, and thanks for joining the TORM plc third quarter 2022 results call. Throughout today's recorded presentation, all participants are in a listen-only mode. The presentation will be followed by a question and answer session. If you'd like to ask a question, you can do so by pressing star followed by one on your telephone keypad. Please press the star key followed by zero if you need operator assistance. I would now like to turn the conference over to Andreas Abildgaard-Hein, Head of Investor Relations. Please go ahead.
Welcome to TORM's conference call on the results for the third quarter and first nine months of 2022. I'm Andreas Abildgaard-Hein, and I'm heading Investor Relations in TORM. As usual, we will refer to the slides as we speak, and then, at the end of the presentation, we will open up for questions. Subsequent to this conference call, you'll be able to listen to a recording of the call, and as usual, find the presentation and other relevant material on our website. Please turn to slide two. Before commencing, I would like to draw your attention to our safe harbor statement. Please turn to slide three. The results will, as usual, be presented by Executive Director and CEO Jacob Meldgaard and CFO Kim Balle. Please turn to slide four. I will now hand the call over to Jacob.
Yeah. Thank you, Andreas, and good morning or good afternoon to all. Thank you for connecting with us here today. We have, as I'm sure you've seen, today presented the strongest results from our operations on record. For the third quarter of 2022, we achieved an EBITDA of $262 million and a profit before tax of $217 million. Our TCE for the quarter ended at $44,376 per day across the fleet and above $40,000 per day across our MR vessels, which is the largest segment in our fleet.
As of last Friday, TORM had fixed 55% of our open days in the fourth quarter of the year at $45,257 per day, and the market is currently trading at similar levels. TORM's Board of Directors has approved a dividend of $1.46 per share based on the third quarter results. We expect to distribute just around $119 million, which brings us to a total of around $166 million of distributed 2022 earnings thus far. The distributions are in line with the distribution policy, which we announced earlier in the year.
During the third quarter, we sold one MR vessel, which has already delivered to its new owners here in September, and the net proceeds related to the sale of this vessel were $10 million. Further, we finalized all the previously communicated vessel transactions with delivery in Q2 2022, and now we have no vessels held for sale. As of today, we have installed 55 scrubbers out of a total of 68 planned scrubbers. The remaining scrubber installations will come due within the next 12 months. Please turn to slide five. Since the start of the Russian invasion of Ukraine in February of this year, we've seen strong improvements in product tanker rates. Increased trade flows, longer trade distances, more inefficient trading patterns, partly due to the EU sanctions on Russia and partly due to more fundamental factors such as oil demand recovery and increased import needs.
This has moved the product tanker fleet closer to the point of full utilization. This also means that at the current utilization level, even small changes in the underlying demand and supply can create strong volatility in freight rates, as we have also experienced here over the past months. Due to the high utilization, these more volatile freight rates are higher on average. Here, please turn to the next slide, to slide six, please. The approaching deadline for the EU sanctions against Russian oil products has been one of the drivers behind strong freight rates. The EU ban on Russian oil products leads to a need to recalibrate the whole oil product tanker trade ecosystem, with Europe having to source more diesel from regions further afield, while Russia also needs to find new markets for its diesel in regions further away.
According to our own internal estimates, a full recalibration of the diesel trade flows would add around 7% to the ton-mile demand for product tankers. Thus far, Europe has cut its product imports from Russia by around 40% compared to the high base in February 2022, meaning that 60% still needs to be redirected within the next three months. So far, Europe has replaced lower diesel flows from Russia with increased flows from the Middle East, with the increase in the latter more than offsetting the fall in the former. Consequently, our calculations show that around 3% of the expected 7% ton-mile increase has already materialized, while the remaining 4% supported by a ramp up of new refining capacity in the Middle East.
We've recently seen that China has allocated new higher product export quotas, and this can not only facilitate the full trade recalibration effect, but also raise the ton-mile estimates given the extra long distance to Europe. Please turn to slide seven. The geopolitical tensions in Europe and the sanctions against Russia are no doubt the main drivers of the strong freight rate environment. However, fundamental drivers not directly related to the geopolitical situation in Europe, such as changes in the refinery landscape, are also significant contributors. Since 2020, more than 2 million barrels a day of refining capacity has been closed down permanently, and a further 0.6 million is scheduled to be closed down during this year and into 2023. On top of that, another 1 million barrels a day of capacity is at risk of being shut down.
Most of the affected capacity is located in regions which are already large importers of refined oil products, with Australia, New Zealand and South Africa as some of the most prominent examples. According to our calculations, increased imports to these regions are set to increase the ton-mile demand for product tankers by 2% this year. Given the fact that oil demand in these regions is still lagging behind the pre-COVID-19 levels, the full effect of refinery closures is yet to be seen. On the other hand, these refinery closures coincide with more than 4 million barrels a day of new capacity coming online, mainly in the Middle East, China and India, regions which already today are large exporters of oil products. Both these developments are positive for trade flows and ton-mile in the coming years, with only a few projects which are not positive for trade.
Here kindly turn to slide eight. The third demand side factor we see as a key driver on the market is the need to replenish oil inventories. Since the summer of 2020, product inventories have declined as refinery production has lacked the recovery in oil demand. This is especially the case for diesel, where inventories in main trading hubs have fallen to 20% below normal seasonal levels, the same magnitude as the excess stocks seen in the early months of the COVID-19 pandemic. The need to replenish the stocks to at least pre COVID-19 levels translates into higher fuel transportation needs, adding at least 2% to the ton-mile demand for product tankers. The exact timing of this effect is, however, uncertain given the current tight supply demand situation for diesel and the backwardated price structure.
We can say that with such a low stock level, any imminent increase in demand beyond domestic supply needs to be met by imports. Even if demand should decline in the current weakening macroeconomic environment, the decline in demand could in fact accelerate stock building. Please turn to slide nine. The positive outlook for the demand for product tankers in the next 2-3 years coincides with the supply side, which is the most supportive it has been for more than two decades. With record high new building prices and limited shipyard space, tanker ordering so far this year has been very low, corresponding to less than 1% of the existing fleet. This is 5x-6x less than what we have seen in recent years. Consequently, the order book to fleet ratio for product tankers is at a historically low level of 5%.
This is further supported by a similarly historically low 4% order book to fleet ratio for crude tankers. With the shipyards filled with container vessels and targeting other vessel segments, for instance LNG, which leaves basically that the earliest delivery date for potential product tanker orders at renowned yards is in a few cases towards the end of 2024, but generally it's three years from now. In second half 2025, this will effectively limit the fleet growth over the next two years. Here, please turn to slide 10. Now concluding remarks on the product tanker market. We see the main demand and supply drivers on the product tanker market continuing to be very supportive.
As I've already mentioned, the key demand driver is expected to be the EU ban on Russian oil products and the corresponding need to recalibrate the whole oil product tanker trade ecosystem towards longer trading distances. This comes on top of the changes in the refinery landscape, with recent refinery closures in importing regions and new capacity additions in exporting regions. Further support is expected from the need to replenish inventories.
We feel it's important not to disregard the fact that the current environment has high inflationary pressure on the global economy, which is likely to slow down the growth pace of the global oil demand. Nevertheless, we do believe that the effects of the redistribution of the energy supply chain will outweigh the potential effects caused by slower demand growth. As we also discussed, the positive demand side is complemented by the supportive supply side situation, securing a low fleet growth for at least the next two years. Please turn to slide eight. Slide eleven, sorry. As Jacob mentioned, we have seen continuous rate increases in the tanker market in the third quarter of 2022, with our TCE rates reaching $44,376 per day, an increase of 165% from the first quarter of 2022.
During the quarter, we have seen high volatility in owned vessel classes, but all of them have increased significantly, with LR rates going up more than 200% since Q1 2022. During October and November 2022, the strong markets have continued, and as per November 6, 2022, 49% of our Q4 2022 tanker days for LR2s were fixed at $55,105 per day. 44% of our LR1s fixed at $47,661 per day, and 58% of our MR days fixed at $43,268 per day. Across the free fleet, we have thus fixed 55% of our tanker days at $45,257 per day.
With the rest of the days in Q4 being unfixed, our Q4 results will be impacted by the rates we can fix for the rest of the quarter naturally. Currently, the markets are trading at around similar levels. Please turn to slide 12. The strong performance in TCE leads to the highest EBITDA from our operations on record. The EBITDA of $262 million in Q3 was almost as high as the very strong full year of 2020. In a surging freight environment, a logical consequence is that our net working capital will increase as the MR and freight receivables increase.
During the third quarter of 2022, our net working capital thus increased with $212 million to $312 million, primarily driven by the increase in trade receivables to $248 million. Which logically will be released to cash later. The cash conversion rate is in general lower in an increasing freight environment, compared to a stable or declining market. In addition to the strong operational results, the development of balance sheet has also been quite favorable. During the third quarter of 2022, TORM's net loan to value decreased to the lowest level on record. Our net LTV decreased to 31% end of Q3 from 43% end of Q2, 2022, which was largely driven by the 20% increase in vessel values now exceeding $2.5 billion and our strong cash generation.
As Jacob mentioned, we will declare a dividend amount of around $119 million, and if we correct for this amount, TORM's net LTV will instead be 36%. Lastly, I can inform you that TORM has low CapEx commitments of $23 million in the third quarter of 2022, which predominantly is related to our scrubber investments. Please turn to lide 13. We will distribute a large part of the net cash added during the third quarter of 2022 as dividends.
Consistent with our distribution policy announced in May 2022, our distribution is based on a cash position of $334 million, including the net working capital facility of $95 million, less restricted cash primarily related to financial instruments of $15 billion, less earmarked proceeds of $57 million, less cash balance from our marine exhaust activities, less $2 million, and the minimum cash reserve for safety administrators of $114 million. For this part going forward, we will keep the cash per vessel at $1.8 million. In conclusion, TORM will distribute dividends per share of $1.46, or approximately $119 million.
We have so far in total distributed $166 million based on our 2022 results. Please turn to slide 14. TORM has a very conservative debt profile. We have no significant maturities on our debt until 2026, and we have hedged a large part of our debt on fixed interest rates. TORM is thus very resistant to the interest rate increases we currently see globally, and have seen globally, and especially in the U.S. As per end of Q3 2022, we have fixed 89% of the interest rate exposure over the coming five years at 1.38% excluding margin, and the five-year interest rate swap in U.S. dollars is currently trading around 4.33%. As for the coming three years, we have actually fixed 93% of the interest rate exposure.
During the third quarter of 2022, we repaid debt of $94 million, including $52 million on our RCF and an RCF that can be redrawn if preferred. We further repaid $19 million on mortgage-related debt on sold vessels.
For the funding of TORM Hannah, we took on additional sale and lease-back financing. Net of repayment on the leasing, we took on an additional financing of $28 million. Looking at our maturity profile, we have low financial leverage and earmarked proceeds, which provides us with the financial flexibility and strategic flexibility to pursue value-enhancing opportunities in the market. We are very pleased with our stable maturity profile. As of the third quarter of 2022, TORM is in compliance with all of its financial covenants. With that, we will let the operator open for questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question by phone may press star followed by one on their telephone keypad. If you wish to remove yourself from the question queue, you may press star then two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question is from the line of Jonathan Chappell with Evercore. Please go ahead.
Thank you. Good afternoon, everyone. Kim, if I can start with you.
Good morning, John.
Yeah, good afternoon. If I can start with you, Kim, on slide 12, as you noted, this LTV ratio, the lowest you've been, pretty much ever. TORM's come a really long way in the last six months from a capital structure perspective. It's amazing what a cycle can do. Is there a target type of balance sheet or capital structure that you think about as we go through this cycle, especially at the high point right now, and given the outlook that you've laid out, where, you know, there's a part of the capital structure you'd like to maximize, and then there's kind of spare liquidity you can do for more offensive measures?
Thank you, John. I think that's a very relevant and good question. We don't have a specific target that we aim for. We are very pleased with, of course, as you said, in this strong cycle that we are bringing down our leverage quarter by quarter. I also think it's fair to say that in a market we have right now, it is wise to consider if you should potentially bring it down a bit more utilizing the market and the window that is right now. Hopefully, it will stay here for quite a while, but in this industry, you never know. The way we think about it is, we know it will, all else being equal, gradually decline over the coming quarters.
If we were to do anything, we would probably lower it a bit more if possible.
Okay.
We don't have a specific target, but if we were to do anything, we would probably yeah lower a bit more.
Okay. It kind of leads me to my next question. Jacob, obviously, again, you've done a lot of heavy lifting since you started there. You know, kudos to you for being balanced in your views of the market, but it's certainly looks very strong even though we have some macro risks here. As you think about the next, call it, two years, what's your strategy for TORM? Is it just kind of harvest mode right now? Do you look to get more long-term coverage to kind of protect you throughout the cycle? Do you continue to prune older ships and maybe just, you know, make this a four-parter? Any commentary on your appetite for existing assets given the fact that prices have moved so far so fast?
Yeah. Thanks, John. Jacob here. I think we are a little early in sort of this cycle to make conclusive remarks about how it should play out over the next two years. We do believe that the actions that we've taken leading up to this surging freight rate environment, that they have been prudent. I think we've done two things. We've shied away from smaller vessels and moved, migrated sort of our balances into larger ships. We are very pleased with that. Now we have LR2, LR1, and MR as our core segments. We have also decided already before this upturn to become how can I say, more spot-oriented, so that we basically took away all cover we have.
Currently, we have one vessel on TC out of 78, and that is expiring here in the first quarter of next year. I think those are the two strategic choices that we have made being ready for a better market. Obviously, the strength of the market that we currently see is not something that we had predicted. If you sort of then say my immediate reaction right now is to really harvest, but to be very nimble around the opportunities that would be to supplement our fleet with existing vessels. Most likely, you know, you saw in Kim's presentation that we do have a small reservation for earmarked proceeds. We could also potentially utilize our stock like we did with the Team Tankers transaction.
I think we've got plenty of room to do things without a real necessity. We feel that we've, how can I say, paved the way here for quite a long runway with the existing platform and the size of it.
Mm-hmm. Yep, that makes sense. Thanks, Jacob. Thanks, Kim.
Thank you.
As a reminder, please press star followed by one if you would like to ask a question. The next question on the line is Anders Karlsen with Kepler Cheuvreux. Please go ahead.
Yeah. Thank you, much of our questions were really answered, but I was thinking at what level do you think that it will be sensible to enter into term charters? I mean, today's levels are quite good, but at what level are you tempted? Can you give any guidance on that?
Yeah. Thank you. Obviously we need to reflect on that constantly. Currently, we are not tempted. We don't think that the pressure that we are experiencing in our daily trading our ships and where the utilization really is, that is currently reflected in the term rates. We would probably today look towards going slightly longer. We are not that concerned. Of course, there could be something of a black swan event that we don't know of, but currently we are not really nervous about being open for the foreseeable future. It makes not much sense to go short charters like 1-2 years.
I really think that you need to see time charter rates for longer, more strategically 3-5 years to really move up from where they are before we are tempted. I don't have a precise number, but it's not where they are now.
All right. Okay. No, that's fine. In terms of potential acquisitions, you mentioned you could use cash, you also have the earmarked proceeds. Where would you kind of focus that? Would that be in the MR segment or in the bigger segments? Or
Yeah. I mean, we are in constant dialogue in the market and clearly, what we tried to do over the last not since the market has jumped, but let's say before, was to move for the larger sizes. My preference, our preference would be to go for LR2, LR1. At the same time, I think we have a really strong platform in MR, so we wouldn't be shy to also look at that if it's the right assets. Probably slight preference if I had the luxury of choice to go for larger ships.
Okay. That's all from me. Thank you.
Thank you.
Are there any further questions on the phone? Please press star followed by one at this time. There are no further questions on the phone. I will hand over to Andreas for any web questions.
Thank you. We have one question on the web here. You have reclassified two vessels that were held for sale. Can you elaborate some more on that decision? How do you look at your fleet going forward?
Yeah. That's correct that we had two vessels that we had as assets held for sale. In the current environment, we simply found that the earning potential from operating the vessels in comparison with a straight sale that is more attractive for us to maintain the vessels in the fleet. That was a decision that we made deliberately during the quarter. As I mentioned before, we are actually quite pleased with the fleet the way it is right now and feel that we've got the right tools in the toolbox to harvest in the current environment.
Thank you, Jacob. I think we covered the remaining questions already. This concludes the earnings conference call regarding the results for the third quarter and the first nine months of 2022. Thank you for participating.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephones. Thank you very much for joining and have a pleasant day. Goodbye.