Ladies and gentlemen, thank you for standing by. Welcome to today's TORM's annual report 2018 webcast. At this time, all participants are in a listen-only mode. During the presentation, we will have a question-and-answer session. At this time, if you wish to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. Alternatively, you can submit questions at any time via the webcast. To submit a question, click the Q&A icon in the lower left-hand corner of your screen, type your question in the open area, and click Send to submit. I must advise you that this webcast is being recorded today, Tuesday, the twelfth of March, 2019. I would now like to hand the webcast over to the presenter today, Mr. Christian Søgaard Thank you. Please go ahead.
Thank you, thank you to all for dialing in, and welcome to TORM's conference call for our full year 2018 results. As mentioned, my name is Christian Søgaard and I'm the CFO of TORM. As usual, we'll refer to the slide as we speak, and at the end of the presentation, we will open up for questions. Turn to slide two, please. Before commencing, I would like to draw your attention to our usual safe harbor statement presented on this slide. Slide three, please. I will now hand over to my co-presenter, Executive Director, Jacob Meldgaard, as we turn to the presentation for the full year 2018 results on slide four, please.
Thank you, Christian. Thank you all for dialing in. In 2018, TORM's results were impacted by a challenging product tanker market. I'm however pleased that TORM's commercial and operational performance during the year continuously has been among the best within our peer group, and that we've been able to secure fleet growth and renewal at attractive terms through 3 new building contracts and more than 20 committed scrubber installations. While at the same time, maintaining a strong capital structure and a low break-even rate. In 2018, we realized a positive EBITDA of $121 million and a loss before tax of $33 million, equivalent to $0.48 per share. TORM's return on invested capital for the year was slightly positive at 0.1%.
Illustrating our continued focus on maintaining a solid balance sheet, the net loan-to-value was 53% at year-end versus 56% at year-end 2017. The available liquidity was $406 million. In a challenging product tanker market, TORM realized an average TCE rate of $12,982 per day in 2018. Towards the end of the year and going into 2019, the market has shown a significant recovery, and as of fifth March this year, we have covered 85% of our first quarter earning days at an average TCE rate of $18,522 per day. We believe that there are positive dynamics present in the market to support a sustained recovery, and I will discuss the market in further details on the following slides.
During 2018, we've continued our fleet renewal activities and took delivery of four LR2 new buildings and placed an order for an additional 3 MR new buildings, bringing the remaining new building program up to nine vessels. During the year, we also sold four older units. We will continue from time to time to sell older vessels in the fleet and as during the first quarter of 2019, sold an additional MR vessel. Supporting our fleet renewal activities, we have, during 2018, secured debt financing and loan extension for more than $200 million. We will continue to leverage TORM's strong relationship with debt financing providers, and we will focus on securing new funding on pricing comparable to our remaining secured financing in order to maintain our low break-even rate and our competitive cost structure.
We have further, during the year, completed an equity raise of $100 million. To prepare for the new restrictions on sulfur emissions, the IMO 2020 regulation, TORM has committed to install scrubbers on 21 vessels and will potentially conduct installations of up to roughly half of our fleet. Supporting our preparations, we have done two pilot scrubber installations, one on a new building and one retrofit installation. These installations will provide us with valuable operational experience in advance of the 2020 deadline. I will now turn to our further preparations towards the 2020 deadline. Turn to slide 5, please. In 2018, we established a joint venture with ME Production, a leading Danish scrubber manufacturer, and Guangzhou Shipyard International, GSI, which is part of the China State Shipbuilding Corporation group.
The joint venture, ME Production China, will manufacture and install scrubbers in China and deliver them to a range of maritime industry customers for both new buildings and retrofitted vessels. TORM holds an ownership stake of 27.5% in the new joint venture. We believe that this is a unique joint venture at a time when demand for scrubbers is expected to increase significantly. This strategic move provides us with a substantial economic interest in a venture that has the potential to be a large-scale international scrubber manufacturer. Production has commenced at the joint venture's production facilities, and the first scrubber has been produced. That scrubber was delivered to TORM. The JV will also result in TORM securing scrubber capacity and obtaining attractive prices for the scrubber investments that already have a relatively short payback time.
The CapEx related to the 21 confirmed scrubber orders is on average, estimated below $2 million per scrubber, including installation cost. TORM expects to be able to obtain financing for a significant portion of this investment. Turn to slide 6, please. I'll turn to the product tanker market. In 2018, our product tanker fleet realized average TCE earnings of $12,982 per day. In the LR segment, TORM achieved LR2 rates of $15,425 per day, and LR1 rates of $12,982 per day. For TORM's largest segment, MR, TORM achieved rates of $12,847 per day, and for TORM's Handysize segment, the earning was just below $10,000 per day.
During the first half of the year, product tanker freight rates remained at a level similar to the rates seen in the same period in 2017. 2018 started out with healthy trading volumes, and exports from the U.S. Gulf showed particularly strong growth, supported by increasing demand from Mexico and South America. Nevertheless, the positive impact of higher trading volumes was offset by shorter trading distances, partly as a result of the continuous stock growth in some of the key importing regions. In addition, an increasing number of newbuild crude tankers opted for a clean cargo on their maiden voyage, reducing demand for product tankers in the east. Crude cannibalization intensified in the second quarter, driven by a depressed crude tanker market.
In the third quarter, product tanker freight rates declined further, and some of the benchmarks reached historically low levels as higher oil prices and weaker currencies in several emerging market economies weighted negatively on oil demand and reduced trading volumes. Crude cannibalization continued at a high level in the 3rd quarter. On top of the pressure from crude tankers, a backwardated oil price structure favored shorter hauls throughout the first three quarters of 2018. From the middle of the fourth quarter, product tanker freight rates started to pick up and reach levels not seen since the end of 2015 and beginning of 2016. Key is the regional product arbitrage spreads, which had been closed for most of the year, widened and lifted demand for product tankers.
Both the price spreads for gasoline and naphtha between West and East, as well as spreads for diesel and jet fuel between East and West, became supportive for product flows. Product prices also turned from backwardation into contango, incentivizing trades of products. In addition, a strong crude tanker market led to lower market cannibalization and encouraged a significant number of LR2s to shift from the clean market into the dirty market, effectively reducing tonnage supply. The strong market is illustrated by TORM's recent fixings, where TORM, as of fifth March 2019, has covered 85% of its quarter earning days at an average TCE rate of $18,522 per day. Slide seven, please.
During the first half of 2018, global clean petroleum product inventory drawdowns continued, with the volume of stock draws being equivalent to a loss of potential trade of 4% over the period. After falling below 5-year average levels in the second quarter, global product stocks started to build again in the third quarter as oil product demand slowed. At the same time, 2018 saw 1 million barrels per day of net new refinery capacity coming online globally. Several of these new products were configured to maximize gasoline output, which, together with the lightening of the global crude supply, led to an increase in global gasoline output and subsequently a buildup in stockpiles.
Diesel inventory remained tight globally throughout the first three quarters of the year but normalized in some key exporting areas in the second half of the year, opening up several arbitrage spreads that had been closed throughout most of the year. On a global scale, clean petroleum product inventories have now returned to 5-year averages, with diesel stocks below average levels in main importing regions being a positive driver and high gasoline stocks in main importing regions being a negative driver for future demand. Turn to slide eight, please. The structural dislocation between demand and export center is expected to continue. More refined products will be produced and exported from the Middle East to the rest of the world. Over the coming years, the expansion in the region is expected to be significantly higher than the previous three years.
More comparable to the level in 2015, as facilities such as the new Saudi Aramco refinery, Jazan, and KNPC's new refinery, Al Zour, will come online. TORM expects this to reinforce the role of the Middle East as a key clean product exporter, contributing positively to product tanker ton-mile demand in the coming years. Slide 90s. As the overall shipping industry is preparing for the IMO 2020 regulation and the accompanying shift in fuels for marine transportation towards cleaner fuels, including clean petroleum products, an increase in demand for product carriers is expected. For the shipping industry to comply with this new regulation, it will be necessary to build and maintain stocks of compliant, low sulfur fuels in bunker ports around the world, which may create new and considerable trades for product tankers.
In preparation for the January 1, 2020 deadline, it is expected that the impact will emerge already from the second half of 2019. Crude tankers are expected to gain from IMO 2020 due to increased refinery runs and the need to store excess high sulfur fuel oil. TORM currently expects the IMO 2020 sulfur regulation to lead to an incremental increase of around 5% in product tanker trade in 2020. The increase is subject to the refinery sector shifting their production to low sulfur fuel oils faster than currently anticipated. As mentioned earlier, TORM is strategically preparing for the new regulation through our newly established joint venture, installation of scrubbers on a large number of vessels, and our already conducted pilot installations on two vessels.
I'm convinced that the demand effects of the IMO 2020 sulfur regulation, combined with our strategic steps ahead of the implementation date on January 1, 2020, will prove beneficial for TORM over the coming years. Turn to slide 10, please. The product tanker orderbook-to-fleet ratio is at a comparatively low level, and we can see deliveries of new tonnages has started to fall. In 2018, the product tanker fleet grew by 2.4%, which compares to 4.5% for the full year 2017, and 6.5% for 2016. The product tanker orderbook-to-fleet ratio currently stands at 9%, which is low in a historic context.
TORM estimates that the product tanker fleet will grow by an average of approximately 3.3% per annum in the period 2019-2021, down from an average of approximately 5.8% during the period 2015-2017. Slowing growth rate is a key point to the fundamental positive development we expect for the product tanker industry. Slide 11, please. In TORM's largest segment, MR, we have continued to obtain very competitive freight rates throughout 2018. I'm pleased that our results are at the top of our peer group again this quarter.
In fact, if we look back over the past four years, we have outperformed the peer group in average 15, the peer group average 15 out of 16 times, which translates into additional earnings of almost $100 million over the period and $18 million in 2018 alone. In general, I'm very satisfied that TORM's operational platform delivers very competitive TCE earnings, and TORM is well positioned to take advantage of the promising supply-demand fundamentals in the market. Slide 12, please. We believe that a key decisive factor for delivering above average TCE earnings is driven by our continued focus on positioning our vessels in the basins with the highest earning potential.
We have a balanced strategy, where we generally do not position all our vessels in one basin, but instead have some overweight in either east or west, depending on our expectations to the future market. In a scenario where the market is strengthening in the west relatively compared to the east, we want to increase our exposure to the west. To illustrate our strategy and choices, we've depicted our share of MR vessels positioned west of the Suez Canal, together with a measure of the premium the west market has realized over the east market. We have seen historically that this strategy has assisted us in generating higher TCE earnings than the peer group average, and believe this will continue in the future. I'll now hand over to Christian for a further review of TORM's cost structure and financial position.
Thank you, and let's turn to slide 13, please. With our spot-based profile, we have a significant leverage towards increases in underlying product tanker rates. This is particularly true in 2019 and 2020, when our unticked days increase as a result of growth in our fleet. As of 31st of December, 2018, every $1,000 increase in the average daily TCE rate translates into an increase in EBITDA of around $25 million for 2019. Here, beginning of March, we have covered 24% of the year at $18,500, which is about $4,000-$4,500 above our TCE breakeven level, which means that the sensitivity now for the remaining year is about $21 million for each $1,000 change in TCE earnings.
The figure increases to $29 million in 2020 and $30 million in 2021. TORM has a positive long-term view on the market. We believe that we are well positioned to generate significant cash flow. Slide 14, please. Before reviewing our OpEx and admin expenses, I briefly want to touch upon our operating model. We believe that TORM derives significant competitive advantages from operating a fully integrated commercial and technical platform, including all support functions such as internal sale and purchase teams. Importantly, it also provides a transparent cost structure for our shareholders and eliminates the possibility of related party transactions. Naturally, we are focused on maintaining efficient operations and providing a high quality of service to our customers. Despite this trade-off, we have seen a gradual decrease of 17% in our OpEx figures over the last five years.
OpEx figures are below $6,400 per day for 2018, which we find is a competitive level in light of our fleet composition. We also remain disciplined with respect to general and administrative expenses, although these can be expected to fluctuate a bit going forward based on the size of our fleet. In 2018, we have expanded our current office premises in Mumbai, conducted the required Sarbanes-Oxley compliance preparation for our Copenhagen and New York dual listings, and we have also invested in areas such as digitalization and business intelligence. Slide 15, please. Turning to our CapEx commitments. As of 31st of December, 2018, we had available liquidity of $406 million. Cash total, $127 million, and we had undrawn credit facilities of $279 million.
By the end of the year, our total CapEx commitments were $281 million, of which we expect to pay $255 million this year and $26 million in 2020. The large majority of our commitments relates to our remaining 7 high-specification newbuilding vessels that all include scrubber installations, but we have also committed $23 million in 2019 for retrofit scrubber installations for vessels on the water. With cash and undraw drawing rights above $400 million, the CapEx commitments are fully funded and very manageable. Slide 16, please. I want to sum up our financial position in terms of key metrics such as net asset value and loan to value.
Vessel values have increased during the fourth quarter of 2018. The values of TORM fleets was US dollars, $1.675 billion US dollars end of year. We had a gross outstanding debt amounting to $755 million US dollars. None of our debt facilities matures in 2019 or 2020. Finally, we have outstanding committed newbuilding CapEx of $258 million and cash of $127 million. This gives us a net loan-to-value of 53%, which is down 3 percentage points compared to last year. We consider this to be a conservative level given where we are in the cycle. Net asset value is estimated at $856 million based on broker valuations.
This corresponds to $11.6 per share or DKK 75.5 per share. Just before commencing this call, we were trading at DKK 43 per share or six and a half dollars per share. We are trading at a considerable discount to net asset value. Finally, I want to say that we have a balance sheet that provides us with the strategic and financial flexibility that we would like to have. With this, I'll turn to slide 17 and let the operator open up for questions.
Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. As a reminder, if you wish to ask a question, please press star 1 on your telephone and wait your name to be announced. If you wish to cancel your request, you can press the hash key. You can also type in your questions via the webcast, just click the Q&A tab. Again, to ask a question via the audio, please press star 1. Your first question comes from the line of Jon Chappell. Thank you. Your line is now open.
Thank you, operator. Good afternoon.
Morning, Jon.
Jacob and Christian, I wanted to touch on these last couple of slides that Christian went through, and also lay them next to some of Jacob's comments on the market. Having this type of liquidity is a luxury, and when you see the type of outlook you've laid out for the product tanker market, it seems that it'll build as opposed to degradate. If you take the last slide with the massive discount to your NAV, how are you thinking about the most efficient use of capital and liquidity over the next two years? If you do enter an upturn in the market, is it growth? Is it return of capital to shareholders?
How do you kind of balance keeping a strong balance sheet with some of this disconnect, in the equity markets relative to the outlook in the shipping markets?
Jacob here. Thanks Jon. Yeah, clearly if we are right and in our beliefs around the future market, we need to think about the distribution. We have a policy that we have agreed with with our board a number of years ago that we are sticking to, which is that we will be distributing back, either by dividend or share buybacks, 25% to 50% of our net earning on a semiannual basis. Let's just, for illustration, say that the current market persisted, we would then be looking at, in early autumn, so in August, to be distributing back 25% to 50% of the results of the first half.
Clearly, in the current environment, you can ask yourself how much should then be paid back in cash, and how much should be done in terms of a share buyback program for the company. That would leave a significant amount, obviously, still to have fleet renewal. There, of course, we need to think about this structure as a going concern, where we are depleting year by year. You can say as a rule of thumb, if you look at it, my thinking around this is that we are depleting, depreciating about $120 million of value on a yearly basis. You would be thinking along the lines of that, if you find the right type of investments, that that would be sort of your yearly reinvestment program just to stand still.
That's interesting, and that answered the second part of my question is, it seems that if you do return to the 25%-50% payout, there is positive cash. The remaining 50%-75% then would be focused on fleet renewal as opposed to accelerating your debt repayment. You're pretty happy with the amortization schedule as it stands today?
Yes, that's correct, yeah.
Okay. Second question's on slide twelve. It's a really interesting chart on the, you know, positioning of the fleet. You know, without giving away too many commercial secrets, as you talk about the impact on the market, expected impact on the market in the second half of this year as the global bunkering market prepares for IMO 2020, do you have a kind of a strong lean as to where you think it'll most benefit the product tanker markets? Is it an Atlantic basin event? Is it a, you know, broadly global event, you know, like to have a balanced fleet? How do you think about positioning for what could be a real disruptive factor in the market?
That is a very good question, Jon. We actually do have an opinion around it, but it is something where I would say, if there is any secret source element that I'm not comfortable sharing here, that would be our forward-looking. I think we've been very transparent in giving you here insight as to our analysis on how we optimize our earnings based on geographical optimization. Going forward, yes, we have opinions around it, but it is something that we are refining. It's something that is moving and that we will not be with a forward-looking statement, making any statements around. Having said that, we look forward to sharing with you how it will be looking in the quarters to come.
Yep, perfectly understandable. If I may just add one more quick one. Just to be clear, the scrubbers that you already agreed upon, I assume, especially given your joint venture, they will all be installed in the ships back in the trading market by January 1, 2020. The options on the 18, when do you feel you would need to exercise those to have them back in the trading fleet by the turn of the year?
Given that we have intimate, of course, understanding of the production of the scrubber inside of the joint venture, I think we can say that we are closing up to the final inning on that.
Okay. That's fair. Thanks very much, Jacob. Thanks very much, Christian.
Thanks.
Thank you. No further questions over the phone line. Again, if you wish to ask a question, please press star and one. We have one question over the phone line now. Next question comes from the line of Randy Giveans. Thank you. Your line is now open.
Yes, thank you and good afternoon. Just one question. As deliveries of crude has on them Virgin Voyage has, you know, affected negatively on product tankers throughout 2018. How does that look in 2019, the delivery schedule for crude? Thanks.
Dan, Jacob here. Thanks for that. Yeah, I think there's two things to bear in mind. The delivery in the crude tanker market is relatively front loaded. It's here in the first and the second quarter that you have the predominant part of the order book. We are sort of eating ourselves through that portion. At the same time, crude tanker rates have come up considerably from the low points of where it was that there was real cannibalization taking place in the second and the third quarter of last year. I think that in combination, that gives some comfort to that by second half of this year, the number of deliveries are 50% lower than in the first half of this year, and at the same time, the freight rate environment generally has improved.
That leads to that it is, in general, more favorable conditions that leads them to have a less tendency to cannibalize on clean. Okay. Very helpful. Thank you. Thank you.
Thank you, and no further questions at this time. Please continue.
We have a couple of questions from the web that we're just asking the operator to put through.
We have, as Christian said, a couple of questions here. There's one: What are the plans for more disposal sales, scrapping of older vessels? Here, generally, in the product tanker space, the scrapping age is around 25 years of age. We have no vessels that are of that vintage in our fleet. There will be no plans for any scrapping of vessels. Disposals of vessels, as alluded, we last year, we sold 4 older vessels in the second half of the year. So far, we've sold 1 here in 2019. Average age of those vessels are around 18 years. We will, as an ongoing thing, be looking at how we can manage our fleet by virtue of selling off older units and taking on younger units.
The second question is, what free cash flow will come from non-scrubber fitted MRs to TORM, and how much will come from the scrubber investments in 2020? Here, what we think about it is that based on our assumptions on the spread between compliant fuels and high sulfur fuel oil, and also on the relative usage that we can have of a scrubber, that in essence, on an MR, the payback time is around two to two and a half years on a scrubber-fitted MR. That's the way we look upon that investment. There are no further questions from the web at this time.
Good. With this, we are concluding the earnings conference call for the full year results for 2018. We will host our annual general meeting on 11th of April, 2019, and release our Q1 results on 14th of May, 2019. Thank you for dialing in.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. They all disconnect.