Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome and thank you for joining TORM plc fourth quarter and full year 2022 results call. Throughout today's recorded presentation, all participant will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may do so by pressing star one. Press the star key followed by zero for operator assistance. It's my pleasure. I would now like to turn the conference over to Mr. Andreas Abildgaard Hein, Head of IR. Please go ahead, sir.
Thank you. Welcome to TORM's conference call. We have been looking forward to presenting to you the results for the fourth quarter and full year of 2022. We will refer to the slides that we present during our presentation, and at the end of the presentation, you will get the possibility to ask questions. After this conference call, you will be able to listen to a recording of the call, and as usual, you can find our presentation and other relevant data on our website. Please turn to slide two. Before we start presenting the results, I would like to draw your attention to the 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 over to Jacob.
Thank you, Andreas. Good afternoon. Good morning to all. Thank you for connecting with us today for our Q4 and full year 2022 presentation. The headline of today's call is that the very strong product tanker markets have continued here into the fourth quarter of 2022, that the underlying factors have also continued into 2023. No visible signs as of now as to when the market should turn. We have today presented the strongest results for the second quarter in a row. This means that we, for the fourth quarter of 2022, achieved an EBITDA of $267 million and a profit before tax of $222 million.
Our fourth quarter average TCE ended at $47,520 a day across the fleet and above $45,000 per day across our MR vessels. For the full year 2022, with our average TCE rate of $34,154 per day, we reached a total EBITDA of $743 million and a profit before tax of $557 million. With this, we ended with a return on invested capital of 29.2% for the year. TORM's board of directors has approved a dividend of $2.59 per share based on the fourth quarter, and we expect to distribute around $212 million in early April. This means that our total distributions for 2022 will end up at around $378 million.
The distributions are in line with the distribution policy announced last year. After the end of the fourth quarter of 2022, we acquired seven LR1 tankers built between 2011 and 2013. As of today, 2 of the vessels have been delivered, and the remaining vessels will be delivered before the end of April of this year. We today entered into an agreement to purchase 3 2013 built MR tankers for a total cash consideration of $48.5 million in combination with the issuance of 1.42 million shares. We expect that these vessels will be delivered before the end of May, and with this, our fleet will reach a total of 88 controlled vessels.
We also announced that we have obtained a loan commitment from a number of banks to refinance and extend maturity on existing loan and leasing agreements for up to $433 million. At the same time, we obtained commitment to finance additional second-hand vessels for an amount of up to $123 million. With this refinancing that will take place during the second quarter of this year, we have obtained more attractive terms on a large part of our funding. Here, please turn to slide five. Since the start of the Russian invasion of Ukraine in February 2022, we have seen strong improvements in product tanker rates. Increased trade flows, longer trade distances, partly due to the EU sanctions on Russia, and partly due to more fundamental factors such as oil demand recovery, recent refinery closures and consequently increased import needs.
These have all moved the product tanker fleet closer to the point of full utilization, which has also led to higher freight rates and where even small changes in the underlying demand and supply are creating high volatility in the freight rates as we have also experienced over the past 12 months. Here, please turn to slide six. This rate volatility can be demonstrated by movement in average freight rates. In the past 12 months, we have also seen increased rate volatility across the different regions, which has in turn led to even more MR vessels that are ballasting over longer distances to optimize their earnings. These more efficient sailing patterns have tightened the availability of vessels on the market and further support freight rates.
The irregular and suboptimal trading patterns is further emphasized by the fact that owners that are willing to do Russian trades are often also willing to wait for these higher paying cargoes, which is again tightening the vessel availability. In this environment of increased volatility, being able to position our fleet towards the premium trades and regions is even more important, and this means that having access to the right customers, the right cargo combination is essential for earning optimally. We can see that we with our One TORM integrated platform, we are continuing to have strong support from our customers and we remain confident that we will have access to the cargoes and trades that is in turn enabling us to position our fleet towards the premium regions. Slide seven, please.
When we look more closely at the main market drivers, clearly the EU ban on Russian oil and oil products has been the most important demand driver in the past 12 months. We have been estimating that the EU ban on Russian oil products and the corresponding fuel trades recalibration will lead to at least 7% increase in ton miles, as Europe needs to import clean oil products, especially diesel, from sources further afield, and similarly, Russia needs to find new buyers for their products further away. Indeed, this trade recalibration has started. The EU started to prepare for the ban already ahead of the final deadline of the 5th of February this year by importing higher volumes from non-Russian sources, especially the Middle East and India.
At the same time, the EU countries continued to import high volumes from Russia, basically until the very start of the ban. Higher import volumes added strongly to ton miles, but also allowed the EU countries to build up diesel inventories from multi-year lows. With inventories back to normal levels, the EU import needs are currently lower compared to the high levels seen at the end of last year. These imports are coming from further afield and the inventories will need to be rebuilt again, increasing import demand over the coming months. Similarly, Russia has so far been quite successful in redirecting its clean products to markets in North and West Africa, Turkey, the Middle East and lately also increasingly to Asia.
Considering that around two thirds of Russian clean petroleum products originate from the Baltic Sea ports, these changes in export destinations have resulted in solid ton mile increases. Kindly turn to slide eight. The geopolitical tensions in Europe have no doubt been the main driver of the strong rate raise 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, around 3 million barrels per day of refining capacity has been closed down permanently or is scheduled to be closed down during this year. Most of the affected capacity is located in regions which are already large importers of refined oil products with Australia, New Zealand, South Africa are some of the most prominent examples.
To give an example of the potential impact, refinery closures resulted in an almost 20% increase in clean petroleum imports to these three countries and contributed with a two percentage point increase in the global ton mile demand for product tankers. Given the fact that oil demand in these countries is still lagging behind the pre-COVID levels, we believe that 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 per day of new capacity coming online, mainly in the Middle East and China, regions that already today are large exporters of oil products.
Much of this capacity, especially from the Middle East, is currently ramping up and reaching full capacity this year and is to a large extent concentrated around middle distillates, which we believe will facilitate the trade recalibration triggered by the EU ban on Russian oil. Both these above-mentioned developments are positive for trade flows and ton mile in the coming years, with only a few projects which are not positive for trade. Please turn to slide nine. The positive outlook for the demand for product tankers in the next two to three years coincides with the supply side, which is the most supportive seen for more than two decades. With record high new building prices, limited shipyard space, tanker ordering last year remained very low, especially when considering the strength of the freight market.
Far this year, we've seen some increased interest in new building orders, although not all of this has materialized yet. However, as the shipyards are filled up with other vessel segments and continue to have a presence for these other segments, only very few product tanker positions are available for end 2025, and in China, even the 2026 order book are also being rapidly filled up. This will effectively limit the fleet growth in the next 2 to 3 years. Here, please turn to slide 10. To conclude our remarks on the product tanker market, we see that the main demand and supply drivers on the product tanker market continue to be very supportive.
The trade recalibration changes in refinery landscape that already started last year will continue to support the market also this year, with the new large refineries ramping up in the Middle East being an important brick in this puzzle. We cannot disregard the fact that the current environment with high inflationary pressure on the global economy is likely to slow down the growth pace of the global oil demand. Nevertheless, we have the opinion that the effects of the redistribution of the energy supply chain will overweight the potential negative effects caused by slower demand growth. As we also discussed, the positive demand side is complemented by the supportive supply side situation, ensuring a low fleet growth for at least the next 2 to 3 years.
I'll now hand it over to my colleague, Kim, for further elaboration on our performance, the coverage for the coming period, our declared dividend, and of course, also the refi financing commitments.
Thank you, Jacob. Please turn to slide 11. We reported record high TCE rates in the third quarter of 2022. We managed to obtain even higher rates, average rates in the fourth quarter of 2022. We increased our rates from $44,376 per day in Q3 to above $47,500 per day in the fourth quarter across the fleet. From the beginning of the year, rates have increased from an average of $16,743 per day, equaling an increase of 184% from the first to the fourth quarter. For MRs, the average rates for the fourth quarter ended at $45,029 per day. For LR1s at $48,076 per day. For LR2s, the average rates were $58,889.
I'm very happy with the performance of the One TORM platform that once again demonstrated outperformance. Please turn to slide 12. Looking into the TCE rates we have obtained during the beginning of this year, we have seen that the strong markets are continuing. TORM has covered 90% of our first quarter 2023 tanker days at an average rate of $43,002 per day. For the MRs in the first quarter, we as of the 13th of March, fixed 89% at $37,730 per day, and so far 86 of the LR1 tanker days were fixed at $44,135 per day, and 90% of the LR2 days were fixed at $65,960. Also, in the remaining quarters, we managed to fix rates at strong levels.
As of 12th March, 18% of our days are fixed at $42,237 per day in the second quarter, 13% are fixed at $42,228 per day in the third quarter. Thirteen percent are fixed at $42,527 per day in the fourth quarter of this year. The main part of our coverage beyond the first quarter was made in the LR1s and MR vessel classes remaining. Sorry, maintaining a high operating, operational leverage in the LR2 vessel class. Please turn to slide 13.
The strong TCE rates led to the highest EBITDA from our operations on record, and our fourth quarter EBITDA of $267 million brought us to a full year of $743 million, which is more than the previous four years combined. As per December 31, 2022, the value of the 78 vessels in our fleet reached $2.65 billion, which is an average of more than 37% increase compared to the end of 2021, where we even had 85 vessels. The increasing freight rates that we saw in Q2 and Q3 of 2022 naturally led to increasing net working capital. The high but more stable rate environment from Q3 to Q4 resulted in a likewise more stable development in our net working capital.
The working capital development in the fourth quarter only had limited impact on the net cash generation, and thus also the dividend declared based on our end Q4 2022 cash position. During the fourth quarter of 2022, TORM's net loan-to-value decreased to the lowest level in recent years. Our net LTV decreased to 25% at the end of Q4 2022, coming from 52% at the end of 2021. It was largely driven by said increase in vessel values, ordinary debt installments, and our strong cash generation. If we take the declared dividend amount for Q4 of 2022 of around $212 million into account, the net loan-to-value would instead be 33%.
Lastly, I can inform you that as per year-end, TORM had low CapEx commitments of $18 million in total, which is mostly related to scrubber investments. Please turn to slide 14. As mentioned, we will distribute around $212 million or $2.59 per share based on our end of Q4 cash balance. Consistent with our distribution policy, our distribution is based on our cash position of $324 million and the working capital facilities of $93 million. We deduct restricted cash primarily related to financial instruments and cash in Marine Exhaust of around $6 million. Finally, our earmark proceeds of $58 million. Our minimum cash reserve for 78 vessels was $140 million at the end of the fourth quarter.
In conclusion, it resulted in a payout ratio for Q4 2022 with a profit of $222 million of more than 95%. The total dividend distributed in relation to 2022 will thus be $378 million. We expect that the potential dividend payment in the next quarter will not be notably impacted by the acquisition of the 7 LR1 vessels that we completed in January this year. The unfinanced part of the acquisition will thus be taken from our earmarked proceeds. All other things being equal, this will leave our earmarked proceeds of around $11.8 million at the end of Q1 2023. Please turn to slide 15. This morning, we announced that we have acquired 3 additional MR vessels. The vessels have fuel-efficient ECO vessel specifications, and are expected to be delivered no later than 31st May 2023.
We will pay for the transaction with 50% cash and 50% shares that will be issued in conjunction with the delivery of the vessels. The cash element of the transaction is expected to be financed through traditional bank financing. Today, we obtained commitment for the refinancing of $433 million bank and leasing agreements with two new bank facilities, thereby extending debt maturities until mid-2028, with the possibility to extend most of the debt expiration to mid-2029. We have obtained commitment for financing of additional secondhand vessels for up to $123 million with the same expiration terms. The refinanced debt will be structured as a syndicated facilities agreement insert into with 6-9 banks of up to $322 million.
That will refinance 21 vessels built between 2009 and 2020, and a bilateral facilities agreement of up to $111 million that would refinance 26 vessels built in 2003 to 2008. Looking at our repayment profile, we will increase repayments in 2023 and 2024 slightly, thereby deleveraging more than under the existing loan agreements in the first years. In addition to extending maturity, we have obtained attractive terms on this new financing agreement. The closing of the agreements is subject to documentation and is expected during the second quarter this year. We are very pleased with the support from our existing relationship banks and our new banks. With them, we are confident that we will have set the group of banks that for the years to come can assist us in growing TORM's business.
During all of 2022, TORM was in compliance with all financial covenants. With that, we will let the operator open us for questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. We have the first question from Jonathan Chappell from Evercore. Please go ahead, sir.
Thank you. Good afternoon. Jacob, two somewhat obvious strategic questions for you this afternoon. I like the slide 12 that you put in on the 2023 coverage, and it feels like it's pretty balanced on the LR1. You know, clearly with your optimism on the market, keeping a lot of spot exposure on the core LR2 and MR fleets makes sense. At a certain point, do you start to lock in, you know, some of the longer term, maybe one to three year contracts that are out there? Maybe as part of that question, can you speak to the liquidity of that market and how representative it is of the current spot rate environment?
Thanks for that question, John. Jacob here. We've had the same, I think, conversation over the last couple of quarters. What would be sort of the time when you start to take cover a bit deeper? Clearly we would be more inclined to look at it today than in the last quarter. The rates on an, let's say, on an LR2, just an example, have gone from 3 years being sort of in the mid-high 30s to probably around 40 now.
Given that you, in the meantime, as you can see, have had the benefit of a strong spot market, it's of course, you know, encouraging that the long end of the market is creeping up at the same time as more time has passed on your asset at rates that are above that. I don't have a precise idea about what it is that we would look at. Of course it's a better return today than having done it three months ago.
Okay. The other one is, I'm sure you're getting great returns on these secondhand vessels. You're buying the seven LR1s and the 3 MRs that you just announced today. A little curious, the market seems incredibly strong from an asset value perspective, especially for ships of that age. You're, you're still out there buying, ton of liquidity to do so. Why haven't we seen kind of a greater, unwinding of some of the older tonnage in the fleet? Kind of a one for one substituting a 10-year-old for maybe a 15-year-old and taking advantage of the strong secondary market, for those older ships.
We actually did do that in a way. I mean, we sold, I think eight assets of older vintage over the course of last year. That movement is more or less already baked in. We are constantly evaluating, as you point to, you know, what is what's the right balance for us around maintaining vessels or selling off. We are quite comfortable in operating our fleet right now, to be honest. We don't see a big price differential between older tonnage and newer tonnage when we operate them in the spot market. Therefore, for now, I don't have a particular sort of silver bullet around offloading more tonnage.
Of course, we may decide to sell, slightly older vessels if the price is right.
Okay. Thanks for the answer, Jacob.
You're welcome.
Ladies and gentlemen, if you would like to ask a question via phone, please press star followed by 1. We have the next question from Petter Haugen from ABG. Please go ahead, sir.
Good afternoon, guys. I'm sort of, I think continuing on the former question, and want to ask you what you think about the new building opportunities out there now, and to what extent TORM would be contemplating to not only add secondhand tonnage, but also new buildings to its fleets.
We prefer, you know, as you can see, vessels that are on the water now. I mean, this is a cyclical industry and it can be quite volatile over the years. For now, our preference is for tonnage where we can, how can I say, see at least the immediate future. If you look at, let's say, a 2026 delivery, I think if we were to think about it would be to be investments that are difficult to get to by virtue of buying the assets today. My strong preference is for assets today. I think it would have to be really something special on price or special on features, capability, on an asset that has a long dated delivery.
Okay. Well, thanks for that. The sort of the obvious question here is that at some point someone needs to build more ships. These ships, as we all know, deteriorates by the day, and at least one needs some sorts of replacement for outgoing tonnage. I guess then the question, how do you suspect the continuation of or what do you expect the order book to fleet ratio to stand at if sort of your $1 billion for 2023 comes through? Will we see more ordering, do you think, through 2023 if markets all holds up as most of us expect?
I think it is definitely feasible that you will have more ordering, more contracting in 2023 than what you had in 2020, 2022. Simply because people are also going longer dated. I think in 2022, people were probably more reluctant to buy, let say, a 2025, 2026 position today. There's not much capacity left as we discussed. I think the contracting itself will probably be bigger. What I expect is that it will not, at least in 2025, 2026, climb above, sort of, this 3%, 4% that we've been contemplating. Of course, when you get into the second half of this decade, what is interesting is to look at the 25-year-old, sort of scrapping potential is increasing dramatically once you get out there.
As I'm sure you've also looked at, Peter.
Oh, yeah. Yes. That's, that's the point here. I'm very curious to see.
The way we think about it is that we actually did spend time in China and in Korea a little earlier this year when it was opened up. We sort of, we have our own view on what is the realistic availability of shipyard capacity in 2025, 2026, 2027. We model it here as if all of that will be filled. When we get that's the extreme case. That's where these shipyards do not get attracted by dry cargo or container or LNG or other segments. In that scenario, there's still a very manageable order book that you get to.
Yeah.
This is all, it's quite dynamic obviously, and it is outside of our two to three year discussion that we've just had. I think that it is totally plausible that that fleet, additional fleet will be subdued at least up to and including 2026. When you get past that point. The fleet that needs to go through recycling is increasing dramatically. That's why we like vessels on the water now, because we think that having 88 vessels on the water now, I think it's better than, let's say, having whatever, you know, 60 now and 20 out in the future.
Understood. Understood and agreed. The final question from my side. The ship-for-share transaction you just did now, should we expect more of that for the next quarters?
Bjørn, we are quite positive around utilizing our equity as part the payment. We think it's good for the, in this case, for the new shareholders. I think they get on board a significant upside potential for for them and for us. We are growing the company without losing the strength of the potential to have the same payout ratios as we've just discussed. Yes, if and when these opportunities arise, we would be willing to entertain that.
Thank you, Jacob. Thank you.
Thank you.
That was all for me.
There are no further questions from the phone. I hand back to Mr. Hein for the web questions.
Thank you. We have no further questions on the web. This concludes the earnings conference call regarding the results for the fourth quarter and full year 2022. Thank you for participating.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.