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TORM A/S
TUBORG HAVNEVEJ 18
2900 H ELLERUP
DENMARK
TEL.: +45 3917 9200
WWW.TORM.COM
HISTORY OF TORM
2009-
ON 14 JANUARY 2014, TORM CELEBRATES
125 YEARS OF SHIPPING WITH PRIDE.
IN 2012, TORM COMPLETES A
RESTRUCTURING IN COOPERATION
WITH TIME CHARTER OWNERS, LENDERS
AND SHAREHOLDERS
1999-2009
WITH THE ACQUISITION OF OMI IN 2007,
TORM REALIZES THE GREATEST FLEET
INCREASE IN TORM’S RECENT HISTORY
1989-1999
IN THE EARLY 1990S, TORM MAKES
SHIPPING HISTORY WHEN IT
ESTABLISHES A POOL
PARTNER COLLABORATION
1979-1989
TORM’S FIRST DOUBLE-HULL TANKERS
ARE DELIVERED, AND WASTE WATER
TREATMENT SYSTEMS ARE INSTALLED
ON THE OLDER VESSELS
1969-1979
MERGERS AND EFFICIENCY
IMPROVEMENTS HELP STREAMLINING
OPERATIONS. IN 1974, TORM MERGES
WITH THE STEAMSHIP COMPANY
BORNHOLM OF 1866. A NUMBER OF THE
OLDER SHIPS ARE SOLD OFF.
TORM TAKES DELIVERY OF ITS FIRST
PRODUCT TANKER
1959-1969
DESIGN AND ENGINEERING
DEVELOPMENTS IN THE
SHIPBUILDING INDUSTRY MEAN
BETTER CONDITIONS FOR TORM’S CREW
MEMBERS. THE TORM FLEET CONTINUES
TO INCREASE
1949-1959
THE POST-WAR PERIOD WAS A PERIOD
OF GROWTH AND CONSOLIDATION.
“GUNHILD TORM”, DENMARK’S LARGEST
DRY BULK CARRIER AT THAT TIME,
JOINS THE FLEET
1939-1949
DURING WORLD WAR II, TORM LOSES
SEVERAL VESSELS AND EMPLOYEES.
HOWEVER, TORM RECOVERS AND
INCREASES THE NUMBER OF SAILING
ROUTES. THE COMPANY ESTABLISHES
WHAT TODAY IS KNOWN AS THE TORM
FOUNDATION
1929-1939
TORM EXPANDS OPERATIONS AND
TAKES DELIVERY OF ITS FIRST
MOTORIZED VESSEL
1919-1929
THE COMPANY CARRIES ITS FIRST
CARGO OF FRUIT FROM THE MIDDLE
EAST TO ENGLAND AND ORDERS ITS
FIRST REFRIGERATED VESSEL
1909-1919
TORM CONTINUES TO EXPAND ITS
SHIPPING OPERATIONS. TORM VESSELS
BEGIN TO SAIL INTERNATIONAL VOYAGES
1899-1909
THE COMPANY GROWS
RAPIDLY. TORM IS LISTED ON THE
COPENHAGEN STOCK EXCHANGE
1889-1899
IN 1889, TORM IS FOUNDED BY CAPTAIN
DITLEV E. TORM AND CHRISTIAN
SCHMIEGELOW. THE TORM FLEET GROWS
TO FOUR VESSELS DURING THE FIRST
TEN YEARS
116,000 TONS WHEN FULLY LOADED WITH GASOLINE, AN LR2
TANKER DISPLACES 116,000 TONS OF WATER
EQUAL TO THE WEIGHT OF 2,212 LORRIES
AN LR2 TANKER MEAS-
URES 48 METERS FROM THE
AERIAL MAST TO THE KEEL,
CORRESPONDING TO
30
CARS
PILED ON TOP OF EACH OTHER
A STANDARD MR TANKER OF
45,000 DWT CAN CONTAIN 53.5
MILLION LITERS OF WATER
EQUIVALENT TO THE ANNUAL
3
9
WATER CONSUMPTION OF 2
DANISH
STANDARD
HOUSEHOLDS
ON AVERAGE, AN MR TANKER CROSSES THE ATLANTIC
OCEAN 26 TIMES IN A YEAR – CORRESPONDING TO
4 TIMES
AROUND THE WORLD
CONTENTS
3
INTRODUCTION 4
PEOPLE 20
TANKER SEGMENT 12
FINANCIAL REVIEW 38
HIGHLIGHTS
Introduction
Five-year key figures
2014 highlights
Outlook 2015
4
6
7
8
ABOUT TORM
TORM’s 125th anniversary
People
Corporate Social Responsibility
Risk management
One TORM - a world-class operational platform
11
Corporate governance
SEGMENTS
Tanker Segment
Tanker Segment – supply and demand
Bulk Segment
12
14
16
Board of Directors
Executive Management and Chief Financial Officer
Investor information
FINANCIAL STATEMENTS
Financial review
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes
Statement by Management
Independent auditor’s report
Parent Company
Fleet overview
Glossary
18
20
22
25
28
31
32
33
38
44
45
46
48
49
50
80
81
83
96
98
TORM A/S · Tuborg Havnevej 18 · DK-2900 Hellerup · Denmark · Tel.: +45 3917 9200 · www.torm.com · Founded: 1889 · CVR: 22460218
TORM 2014
4
Highlights
INTRODUCTION
TORM has been sailing the world seas since 1889, and in
January 2014, the Company hosted the first reception to
celebrate and commemorate 125 years of TORM history.
Such a long history is both a source of motivation and a
great asset for TORM in the daily business. It has been a
privilege and a unique occasion to mark the anniversary at
different customer events throughout 2014. Furthermore,
TORM paid tribute to the Company’s approx. 3,000 employ-
ees worldwide – at sea and ashore – as well as the many
customers, investors, authorities and many others who
have influenced the development of TORM through the
years.
2014 PERFORMANCE
In 2014, TORM’s product tanker fleet realized average spot
TCE earnings of USD/day 15,968 or up 6% year-on-year
driven by a strong market towards the end of the year. The
overall operational result (EBITDA) was positive with USD
77m, which is a decline of USD 19m and mainly driven by
12,187 fewer earning days. The unsatisfactory loss before
tax of USD 283m (2013: USD -166m) included impairment
charges of USD 192m related to vessel sales (USD 60m).
In the first part of 2014, the product tanker freight rates
were under pressure especially from low European
demand, limited arbitrage trades and lower ton-mile on
US exports. The second part of the year saw a market
recovery initially in the LR segment, which later spilled
over into the other segments leading to the highest freight
rates obtained since 2008. The main drivers were open
arbitrage trades, new refinery capacity in the Middle East
and lower oil prices. During 2014, TORM remained focused
on optimizing the fully integrated operational platform to
ensure flexible commercial trading and a higher contribu-
tion margin. TORM was well- positioned to take advantage
of the stronger market towards the end of the year and
leveraged the Company’s strong operational platform to
perform well against the commercial benchmarks.
In 2014, the dry bulk freight rates continued to be under
pressure and were at historically low levels according to the
Baltic Dry Index. TORM has for a period maintained a
cautious view on the dry bulk markets in the short to
medium term, and the Company has previously decided to
focus all available resources on its scale and operational
platform in the product tanker segment. Consequently, since
the summer of 2013, TORM has minimized market risk by
redelivering bulk vessels and maintaining a relatively high
coverage. During 2014, TORM continued to scale down its
bulk activities. TORM has therefore only been operating the
existing core bulk fleet of approx. eight vessels on time
charter contracts. This has resulted in TORM delivering TCE
levels significantly above the prevailing spot market in 2014.
TORM 2014
With the One TORM framework in place, TORM’s organiza-
tion has continued to drive performance improvements, i.e.
forging closer customer relations, reaping continuous
quality improvements, maintaining the highest safety,
environment and CSR standards, while delivering cost-
efficient operations. In 2014, TORM’s cost program
delivered savings of USD 44m mainly related to fuel,
administration and CAPEX, whereas OPEX trended up.
This means that TORM has generated savings of USD 99m
between 2012 and 2014, which is in line with the target
communicated in 2012.
CAPITAL LOSS IN MARCH 2014
As part of the Restructuring Agreement from November
2012, three banks were granted certain specific option
rights until July 2014 that could trigger a sales process for
up to 22 vessels and repayment of the related debt. In
March 2014, the third bank exercised its option rights
leading to the sale of ten MR and three LR2 product tankers
financed by this bank facility. Consequently, TORM conclud-
ed an agreement to sell the product tankers to entities
controlled by Oaktree Capital Management (Oaktree),
whereby the 13 vessels remained under TORM’s commer-
cial management and utilized TORM’s integrated operating
platform for technical management. Following this
transaction, the associated vessel financing was fully
repaid, thereby reducing the Company’s debt by USD 223m.
This transaction also led to an impairment charge of USD
192m that resulted in negative equity on TORM’s balance
sheet. When a company recognizes a capital loss, the
Board of Directors has an obligation to test whether the
justification for the company’s operations as a going
concern is sufficiently solid, while the possibilities for a
recapitalization is investigated and implemented. TORM’s
Board of Directors assessed that it has been and remains
completely justifiable to continue TORM’s operations in an
intermediate period whilst finalizing the ongoing restruc-
turing efforts.
RESTRUCTURING
On 27 October 2014, TORM entered into an agreement with
a group of its lenders, representing 61% of TORM’s ship
financing, and Oaktree regarding a financial restructuring.
The parties are negotiating to secure the required lender
support to implement the agreement. The restructuring is
expected to include that the lenders will initially write
down the debt to the current asset values in exchange for
warrants. In addition, they may choose to convert part of
the remaining debt into new equity in the Company.
Oaktree is expected to contribute product tankers in
exchange for a controlling equity stake in the combined
Company, which will reinforce TORM’s position as one of
the largest product tanker owners. The agreement
Highlights
5
Chairman of the Board, Flemming Ipsen (right), and CEO of TORM, Jacob Meldgaard (left).
envisages a new Working Capital Facility of USD 75m as a
replacement of the current Facility. The exact consequenc-
es of the restructuring will be presented to the sharehold-
ers when the proposed implementation structure is agreed
upon, however, it is currently anticipated that existing
shareholders would retain approximately 1-2% of the
ordinary share capital. No later than 26 March 2015 at the
Annual General Meeting, TORM expects to have reached
the minimum required lender support (75% by value and
50% by number) to be able to implement the proposed
agreement.
2015 – NEW HORIZONS
Already now, it is clear that 2015 will be a significant
period in the Company’s history where the organization
will continue the work on three important dimensions.
First, TORM has entered into the above-mentioned
agreement with its lenders and Oaktree regarding a
financial restructuring of the Company, which will secure
the future, long-term capital structure. This will give TORM
financial and strategic agility to navigate towards new
horizons.
Secondly, TORM has taken a cautious view on the dry bulk
markets, and the decision to scale down the bulk activities
has proven correct. In 2015, TORM will continue the
orientation towards being a pure product tanker company,
as this segment offers a promising market outlook.
Thirdly, TORM will continue to optimize the Company’s
operational performance through the framework called
One TORM. The overall objective is to operationally position
TORM as the reference company in the product tanker
industry, and the framework serves as a scoreboard to
measure progress on a number of key performance
indicators. In 2015, TORM will remain focused on deliver-
ing industry-leading results via a number of measures
designed to support the strong integrated commercial and
technical platform.
We are convinced that superior operational results and a
new capital structure will serve as the long-term founda-
tion for TORM. TORM would like to thank all stakeholders
for their continued support.
Jacob Meldgaard, CEO
Jacob Meldgaard, CEO
Flemming Ipsen, Chairman of the Board
Flemming Ipsen, Chairman of the Board
TORM 2014
6
Highlights
FIVE-YEAR KEY FIGURES
INCOME STATEMENT (USDm)
Revenue
Time charter equivalent earnings (TCE)
Gross profit
EBITDA
Operating profit/(loss) (EBIT)
Financial items
Profit/(loss) before tax
Net profit/(loss) for the year
Net profit/(loss) for the year excl. impairment charges
and restructuring costs
BALANCE SHEET (USDm)
Non-current assets
Total assets
Equity
Total liabilities
Invested capital
Net interest-bearing debt
Cash and cash equivalents
CASH FLOW (USDm)
From operating activities
From investing activities,
thereof investment in tangible fixed assets
From financing activities
Total net cash flow
KEY FINANCIAL FIGURES*)
Gross margins:
TCE
Gross profit
EBITDA
Operating profit
Return on Equity (RoE)
Return on Invested Capital (RoIC) **)
Equity ratio
Exchange rate DKK/USD, end of period
Exchange rate DKK/USD, average
SHARE-RELATED KEY FIGURES*)
Earnings/(loss) per share, EPS (USD)
Diluted earnings/(loss) per share, EPS (USD)
Cash flow per share, CFPS (USD)
Share price in DKK, end of period (per share of DKK 0.01 each) ***)
Number of shares, end of period (million)
Number of shares (excl. treasury shares), average (million)
2014
2013
2012
2011
2010
624
326
123
77
-211
-72
-283
-284
992
443
150
96
-91
-76
-166
-162
1,121
1,305
466
-93
-195
-449
-131
-579
-581
644
81
-44
-389
-63
-451
-453
856
561
180
97
-80
-57
-136
-135
-77
-102
-255
-253
-100
1,231
1,384
-164
1,548
1,219
1,394
45
27
313
-42
-324
16
1,712
2,008
118
1,890
1,823
1,718
29
68
93
-41
-161
1
1,971
2,355
267
2,088
2,128
1,868
28
-100
0
-59
42
-57
52.2%
19.7%
12.3%
-33.8%
44.7%
15.2%
9.7%
-9.1%
41.5%
-8.3%
-17.3%
-40.0%
-
-84.3%
-127.4%
-13.9%
-11.8%
6.12
5.62
-0.4
-0.4
0.0
0.31
728.0
721.3
-4.6%
5.9%
5.41
5.62
-0.2
-0.2
0.1
1.4
728.0
721.3
-19.7%
11.4%
5.66
5.79
-3.3
-3.3
-0.6
1.7
728.0
178.2
2,410
2,779
644
2,135
2,425
1,787
86
-75
168
-118
-128
-34
49.4%
6.2%
-3.4%
-29.8%
-51.5%
-14.4%
23.2%
5.75
5.36
-6.5
-6.5
-1.1
3.7
72.8
69.5
2,984
3,286
1,115
2,171
2,987
1,875
120
-1
-187
-254
186
-2
65.5%
21.0%
11.3%
-9.3%
-11.4%
-2.7%
33.9%
5.61
5.62
-2.0
-2.0
0.0
39.7
72.8
69.3
*)
Key figures are calculated in accordance with recommendations from the Danish Society of Financial Analysts.
**)
Return on Invested Capital is defined as: Operating profit divided by average Invested capital, defined as average of beginning and ending balances of
(equity plus Net interest bearing debt less Non-operating assets).
***) 2010-2011: Per share of DKK 5.00 each.
TORM 2014
Highlights
7
2014 HIGHLIGHTS
In the fourth quarter of 2014, the product tanker freight rates reached the highest level since
2008 and the positive market sentiments have continued in 2015. TORM’s integrated platform has
managed to take advantage of the stronger market,
says CEO Jacob Meldgaard.
In 2014, the Company realized a positive EBITDA of USD
77m (USD 96m) and a loss before tax of USD 283m (USD
-166m). The performance is in line with the revised
forecasts of 6 November 2014. The result before tax was
negatively affected by special items of USD 192m (USD
-60m).
In the first part of 2014, the product tanker freight rates
were under pressure especially from low European
demand, limited arbitrage trades and lower ton-mile on
US exports. The second half of the year saw a market
recovery initially in the LR segment, which later spilled
over into the other segments leading to the highest
freight rates experienced since 2008. The main drivers
were open arbitrage trades, new refinery capacity in the
Middle East and lower oil prices. In 2014, TORM’s largest
segment, MRs, achieved spot rates of USD/day 15,224
(USD/day 15,914). The gross profit for the Tanker
Division was USD 123m (USD 172m), which was a
decline of USD 49m year-on-year primarily caused by
22% fewer earning days and higher OPEX.
In 2014, the dry bulk freight rates continued to be under
pressure and were at historically low levels. TORM had
expected a soft market and taken time charter coverage,
which means that the Company’s largest segment,
Panamax, achieved TCE earnings of USD/day 10,477
(USD/day 8,019) despite the weak spot market that
averaged USD/day 7,800. The gross profit for the bulk
activities was USD 0m (USD -22m), despite the histori-
cally low freight rates. During 2014, TORM continued to
scale down its bulk activities to operating the existing
core fleet of approx. eight vessels, which are on time
charter contracts.
In March 2014, one bank exercised its option rights
leading to the sale of ten MR and three LR2 product
tankers financed by this bank. Consequently, TORM
concluded an agreement to sell these product tankers to
entities controlled by Oaktree Capital Management,
whereby the 13 vessels remained under TORM’s
commercial management and utilized TORM’s integrat-
ed operating platform for technical management.
Following this transaction, the associated vessel
financing was fully repaid, thereby reducing the
Company’s debt by USD 223m. This transaction also led
to an impairment charge of USD 192m that resulted in
negative equity on TORM’s balance sheet.
financing, and Oaktree regarding a financial restructuring.
The parties are negotiating to secure the required lender
support to implement the agreement. The restructuring is
expected to include that the lenders will initially write down
the debt to the current asset values in exchange for
warrants. In addition, they may choose to convert part of
the remaining debt into new equity in the Company.
Oaktree is expected to contribute product tankers in
exchange for a controlling equity stake in the combined
Company. No later than 26 March 2015 at the Annual
General Meeting, TORM expects to have reached the
minimum required lender support (75% by value and 50%
by number) to be able to implement the agreement. The
final implementation of any restructuring would be subject
to shareholder approval and certain conditions precedent,
including required approvals from public authorities. The
Company’s continuing operation is dependent on the
outcome of the ongoing recapitalization process.
As of 31 December 2014, TORM’s available liquidity was
USD 65m consisting of USD 45m in cash and USD 20m
in undrawn credit facilities. There are no newbuildings
on order or CAPEX commitments related hereto.
The book value of the fleet was USD 1,215m as of 31
December 2014. Based on broker valuations, TORM’s
fleet had a market value of USD 859m as of 31 Decem-
ber 2014. In accordance with IFRS, TORM estimates the
product tanker fleet’s total long-term earning potential
each quarter based on discounted future cash flow. The
estimated value of the fleet as of 31 December 2014
supports the carrying amount.
As of 31 December 2014, net interest-bearing debt
amounted to USD 1,394m (USD 1,718m).
TORM’s equity is negative at USD 164m as of 31
December 2014 (positive at USD 118m).
As of 31 December 2014, 4% of the total earning days in
the Tanker Division for 2015 were covered at a rate of
USD/day 23,140 and 64% of the total earning days for the
bulk activities at USD/day 8,454.
The financial results for 2015 are subject to considerable
uncertainty related to the completion of the proposed
Restructuring Agreement. Consequently, TORM has
decided not to provide earnings guidance for 2015.
On 27 October 2014, TORM entered into an agreement with
a group of its lenders, representing 61% of TORM’s ship
The Board of Directors proposes that no dividend be
distributed for 2014.
TORM 2014
•
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8
Highlights
OUTLOOK 2015
EARNINGS AND COVERAGE FOR 2015
The financial results for 2015 are subject to considerable
uncertainty related to the completion of the proposed
Restructuring Agreement. Consequently, TORM has
decided not to provide earnings guidance for 2015.
As 16,669 earning days are uncovered at year-end 2014, a
change in freight rates of USD/day 1,000 would impact the
financial results by USD 17m.
As of 31 December 2014, the Tanker Division had covered
4% of the total earning days in 2015 at an average rate of
USD/day 23,140 (8% at an average rate of USD/day 14,908
in 2013).
OUTLOOK FOR THE TANKER SEGMENT
The product tanker market is expected to see a gradually
improving supply and demand balance. Going forward,
TORM expects increasing oil consumption and increased
ton-mile effects from relocation of refinery capacity to have
a positive effect on the demand for product tankers. The
product tanker ton-mile demand is estimated to grow by a
compound annual rate of 6% during 2015-2017, exceeding
the estimated net growth in tonnage supply of approxi-
mately 5% and subsequently contributing to a positive
development in the product tanker fleet utilization during
that period. Going forward, the freight rates are expected
to be gradually improving although volatility is still
anticipated.
As of 31 December 2014, the bulk activities had covered
64% of the total earning days in 2015 at an average rate of
USD/day 8,454 (56% at an average rate of USD/day 11,350
in 2013).
TORM does not publish its freight rate forecast, but instead
provides market expectations as of 23 February 2015 on
page 10.
OUTLOOK FOR THE BULK SEGMENT
TORM maintains a cautious view on the dry bulk markets
for the coming period. Consequently, since the summer of
2013, the Company has minimized market risk by
redelivering bulk vessels and maintaining a relatively high
coverage of 64% for 2015 from T/C activity. TORM will
continue to scale down the Company’s bulk activities in
2015.
The table on this page shows the effect of variations in
freight rates for product tankers and bulk carriers on the
EBITDA result and the result before tax for 2015.
The most important factors affecting TORM’s earnings in
2015 are:
Global economic growth
Consumption of refined oil products
Oil trading activity and developments in ton-mile
Bunker price developments
Fleet growth from addition of vessels, scrapping of
vessels and delays to deliveries from the order book
One-off market shaping events such as strikes,
embargoes, political instability, weather conditions, etc.
Potential difficulties of major business partners
TORM’s profile as a counterpart
2015 PROFIT SENSITIVITY TO CHANGES IN FREIGHT RATES
USDm
LR2
LR1
MR
Handysize
Tanker Segment
Panamax
Handymax
Bulk Segment
Total
Change in freight rates (USD/day)
-2,000
-1,000
1,000
2,000
-5
-5
-15
-7
-32
-1
-0
-1
-2
-2
-8
-3
2
2
8
3
-16
16
-1
-0
-1
1
0
1
5
5
15
7
32
1
0
1
-33
-17
17
33
TORM 2014
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COVERED AND CHARTERED-IN DAYS IN TORM – DATA AS OF 31 DECEMBER 2014
2015
2016
2017
2015
2016
2017
Highlights
9
LR2
LR1
MR
Handysize
Tanker Division
Panamax
Handymax
Bulk activities
Total
LR2
LR1
MR
Handysize
Tanker Division
Panamax
Handymax
Bulk activities
Total
LR2
LR1
MR
Handysize
Tanker Division
Panamax
Handymax
Bulk activities
Total
LR2
LR1
MR
Handysize
Tanker Division
Panamax
Handymax
Bulk activities
Total
LR2
LR1
MR
Handysize
Tanker Division
Panamax
Handymax
Bulk activities
Total
Owned days
1,782
2,510
7,077
3,797
1,815
2,546
7,155
3,960
1,825
2,555
7,186
4,015
15,166
15,476
15,581
726
-
726
728
-
728
730
-
730
15,892
16,204
16,311
T/C-in days at fixed rate
T/C-in costs, USD/day
-
-
-
-
15,697
16,000
-
15,697
12,458
-
-
16,000
11,000
-
-
-
-
-
-
11,000
-
12,458
11,000
11,000
13,678
11,600
11,000
-
-
752
-
752
1,245
-
1,245
1,997
-
-
104
-
104
760
-
760
864
-
-
-
-
-
730
-
730
730
T/C-in days at floating rate
726
684
730
-
-
-
726
-
41
41
767
-
-
-
684
-
13
13
697
-
-
-
730
-
-
-
730
Total physical days
Total covered days
2,509
2,510
7,829
3,797
2,499
2,546
7,259
3,960
2,555
2,555
7,186
4,015
16,644
16,263
16,311
1,971
1,488
1,460
41
13
-
2,011
1,501
1,460
18,656
17,764
17,771
116
73
194
332
705
1,283
-
1,283
1,987
-
-
-
-
-
-
-
-
-
Covered, %
Coverage rates, USD/day
5%
3%
2%
8%
4%
65%
-
64%
11%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,486
40,138
25,949
18,532
23,140
8,454
-
8,454
13,661
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Fair value of freight rate contracts that are mark-to-market in the income statement: Contracts not included above USD -1.6m, contracts included above USD -0.1m.
Notes: Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries. T/C-in days at fixed rate do not
include effects from profit split arrangements. T/C-in days at floating rate determine rates at the entry of each half year, and then TORM will recieve approx.
10% profit/loss compared to this rate.
TORM 2014
10
Highlights
TCE RATES IN THE FORWARD CONTRACT MARKET FOR THE PRODUCT TANKER AND THE BULK SEGMENTS AS OF
23 FEBRUARY 2015
USD/day
Product tankers
LR2
LR1
MR
Handysize
Dry bulk vessels
Panamax
Handymax
Bulk based on SSY Dry FFA Report
LR is based on T/C5 roundtrip, MR is based on mix of West, T/C14+T/C2 and East, modified T/C12
2014
realized
15,413
17,556
14,697
15,287
10,477
12,748
Q2
-
18,300
16,500
-
2015
Q3
-
19,200
15,500
-
Q4
-
19,300
18,300
-
6,850
5,825
6,800
5,825
7,875
6,300
SAFE HARBOR STATEMENTS AS TO THE FUTURE
Matters discussed in this release may constitute forward-
looking statements. Forward-looking statements reflect our
current views with respect to future events and financial
performance and may include statements concerning plans,
objectives, goals, strategies, future events or performance,
and underlying assumptions and statements other than
statements of historical facts. The Company desires to
take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and is including this
cautionary statement in connection with this safe harbor
legislation. The words “believe,” “anticipate,” “intend,”
“estimate,” “forecast,” “project,” “plan,” “potential,” “may,”
“should,” “expect,” “pending” and similar expressions
identify forward-looking statements.
Forward-looking statements in this company announcement
reflect our current views with respect to future events and
financial performance and may include statements
concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and
statements other than statements of historical facts.
The forward-looking statements in this release are based
upon various assumptions, many of which are based, in
turn, upon further assumptions, including without limita-
tion, management’s examination of historical operating
trends, data contained in our records and other data
available from third parties. Although the Company believes
that these assumptions were reasonable when made,
because these assumptions are inherently subject to
TORM 2014
significant uncertainties and contingencies which are
difficult or impossible to predict and are beyond our control,
the Company cannot guarantee that it will achieve or
accomplish these expectations, beliefs or projections.
Important factors that, in our view, could cause actual
results to differ materially from those discussed in the
forward- looking statements include the strength of the
world economy and currencies, changes in charter hire
rates and vessel values, changes in demand for “tonne
miles” of oil carried by oil tankers, the effect of changes
in OPEC’s petroleum production levels and worldwide oil
consumption and storage, changes in demand that may
affect attitudes of time charterers to scheduled and
unscheduled dry-docking, changes in TORM’s operating
expenses, including bunker prices, dry-docking and
insurance costs, changes in the regulation of shipping
operations, including requirements for double hull tankers
or actions taken by regulatory authorities, potential liability
from pending or future litigation, domestic and interna-
tional political conditions, potential disruption of shipping
routes due to accidents and political events or acts by
terrorists.
Forward-looking statements are based on management’s
current evaluation, and TORM is only under an obligation
to update and change the listed expectations to the extent
required by law.
ONE TORM – A WORLD-CLASS
OPERATIONAL PLATFORM
Highlights
11
TORM will be a pure product tanker company
The product tanker fleet is spot-oriented
One TORM platform integrates commercial and technical management
Long-term capital structure addressed
CAPITAL STRUCTURE
TORM has for a number of years been operating under the
constraints of an inadequate capital structure.
These KPIs are cascaded in the organization and have
enabled the employees to deliver noticeable improvements
on for instance:
On 27 October 2014, TORM entered into an agreement with
a group of its lenders, representing 61% of TORM’s ship
financing, and Oaktree regarding a financial restructuring.
The parties are negotiating to secure the required lender
support to implement the agreement. The restructuring is
expected to include that the lenders will initially write down
the debt to the current asset values in exchange for
warrants. In addition, they may choose to convert part of
the remaining debt into new equity in the Company. Oaktree
is expected to contribute product tankers in exchange for a
controlling equity stake in the combined Company, which
will reinforce TORM’s position as one of the largest product
tanker owners. The agreement also envisages a new
Working Capital Facility of USD 75m as a replacement of
the current Facility. The final implementation of any
restructuring would be subject to shareholder approval and
certain conditions precedent, including required approvals
from public authorities.
ONE TORM
Since the beginning of 2013, TORM has pursued a
framework for TORM’s operational performance which
focuses on four common goals named One TORM:
Acting responsibly to maintain the highest safety,
environment and CSR standards
Putting customers first and thereby enabling TORM to
outperform available earnings benchmarks
Ensuring quality in everything, e.g. by improving
technical and commercial tradability and delivering
optimized processes across the entire value chain
Operating in a cost-efficient manner to deliver a
competitive cost base
The overall objective is to operationally position TORM as
the reference company in the product tanker industry, and
the framework serves as a scoreboard to measure progress
on a number of key performance indicators (KPIs).
Product tanker spot rates significantly above available
benchmarks
Record-high oil major approval rate – also called
tradability – above 97.5%
Highest safety standards
Savings from cost program of USD 99m for the period
2012-2014
2014 administrative expenses reduced by 10% year-on-year
PRODUCT TANKER SEGMENT
TORM’s business model in this segment centers on
continued presence in the spot market. This will allow the
Company to take advantage of the anticipated volatility and
the stronger market fundamentals observed especially
towards the end of 2014. In the short term, TORM will not
seek to increase the current cover level, as the Company is
of the opinion that there is an upside potential in the
market. However, TORM will seek to take coverage if
market conditions provide sufficiently attractive rate levels.
As of 31 December 2014, TORM owned 43 product tankers. In
addition, TORM had chartered-in seven product tankers and
had 22 product tankers under commercial management.
BULK SEGMENT
TORM continues to have a cautious view on the dry bulk
markets for the coming period. Therefore, the Company
will minimize market risk by redelivering vessels and
maintaining a high coverage for 2015, primarily from
period activity.
Since the summer of 2013, TORM has gradually scaled
down the Company’s bulk activities. TORM has decided to
focus all available resources on its scale and operational
platform in the product tanker segment. As of 31 Decem-
ber 2014, TORM’s bulk fleet counted two owned vessels
and five time charter vessels with expiry over the coming
years.
TORM 2014
•
•
•
•
•
•
•
•
•
•
•
•
•
12
Segments
TANKER SEGMENT
Strong freight rates in the second half of 2014
TORM outperforms commercial benchmarks
Simplification of the Company’s One TORM platform
In the first part of 2014, the product tanker freight rates
were under pressure especially from low European demand,
limited arbitrage trades and lower ton-mile on US exports.
The second part of the year saw a market recovery in the
LR segment, which spilled over into the other segments
leading to the highest freight rates experienced since 2008.
The main drivers were open arbitrage trades, new refinery
capacity in the Middle East and lower oil prices. In 2014,
TORM’s largest segment, MRs, achieved spot rates of
USD/day 15,224 (USD/day 15,914). The gross profit for the
Tanker Division was USD 123m (USD 172m), which was a
decline of USD 49m year-on-year primarily caused by 22%
fewer earning days and higher OPEX.
The first quarter of the year is usually a strong period for
product tankers. However, in the West, the MR activity was
negatively impacted by the cold weather in the US, result-
ing in increased domestic demand for heating oil and re-
duced export of diesel. The mild weather in Europe caused
the reverse situation with reduced demand for heating oil,
less imports and subsequently reduced activity levels. In
the East, the LR market was negatively impacted by the
middle distillate arbitrage to Europe being closed for long
periods.
In the second quarter of 2014, the product tanker market
saw increased US export volumes, but this was partly off-
set by shorter transportation distances. The MR freight
rates were negatively impacted by shorter ton-mile effect
especially in the West. The LR vessels captured a larger
part of the export market to West Africa and Europe, which
had a positive impact on LR1 freight rates. Nevertheless,
the LR market was negatively impacted by continued ton-
nage overhang and the fact that the naphtha arbitrage
from Europe to the Far East was closed for long periods.
The pressure on LR freight rates spilled over into the MRs
in the East.
During the third quarter of 2014, the product tanker
market showed signs of recovery for the LRs. In the West,
the freight rates were negatively impacted by weak demand
in Europe and refinery maintenance in the US. The Atlantic
Basin experienced an oversupply of tonnage and freight
rates remained subdued for most of the quarter. In the
East, especially the LR freight rates in the Arabian Gulf
improved as a result of increased demand in general and
for naphtha in particular as well as new refinery capacity
coming on stream. The MR freight rates followed suit in
the North East and in the Middle East.
The fourth quarter of the year is usually a strong period for
product tankers, and the market continued to strengthen
due to the opening of several long-haul arbitrage trades.
A significant decrease in oil prices resulted in lower bunker
TANKER FREIGHT RATES 2014
Source: Clarksons
ASSET PRICES ON FIVE-YEAR-OLD SECOND-HAND PRODUCT
TANKERS IN 2014
Source: Clarksons
USD/day
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Jan
Feb Mar
Apr May Jun
Jul Aug Sep
Oct Nov Dec
USDm
50
40
30
20
10
0
Ras Tanura Chiba Clean 75K Average Earnings - LR2
Ras Tanura Chiba Clean 55K Average Earnings - LR1
Rotterdam New York Clean 37K Average Earnings - MR
Jan
Feb Mar
Apr May Jun
Jul Aug Sep
Oct Nov Dec
LR2
LR1
MR
Handysize
TORM 2014
•
•
•
Divisions
13
LR1 product tanker TORM Estrid at Proevestenen in Denmark discharging vacuum gasoil.
costs, increased oil demand and stock building. In the
West, a decrease in the price for light distillates opened up
further arbitrage in the Atlantic Basin. Unplanned main-
tenance of South American refineries led to increased import
demand and ton-mile. In the East, the earnings for the LRs
peaked in November due to continued strong demand and
LR2 congestion. The difference between earnings in the
East and the West became significant in the fourth quarter.
In December 2014, the product tanker market reached the
highest level since 2008 (source: Clarksons).
During the year, TORM focused on optimizing processes
and simplifying the One TORM platform. Furthermore, TORM
and Maersk Tankers dissolved the LR2 Pool cooperation
which enabled TORM to take full strategic and commercial
control of the Company’s LR2 vessels. This is a further
step towards simplifying the set-up of the One TORM
platform. Going forward, TORM will cross-sell all vessel
segments and offer customers a full range of services
from the four product tanker segments.
In the volatile market, TORM’s Tanker Division outper-
formed commercial spot benchmarks by 47% for MRs and
17% for LR1s, whereas TORM’s LR2 spot rates were 8%
below spot benchmarks (source: Clarksons).
During 2014, TORM entered into an agreement to sell a
total of 13 product tankers, ten MRs and three LR2s, to
entities owned by Oaktree. According to the agreement, all
13 vessels will remain with TORM for commercial and
technical management.
Houston, Texas, is increasingly becoming a hub for ship-
ping customers in the US, and therefore TORM relocated
its office from Stamford to Houston in order to be closer to
the customers.
At year-end, TORM operated a total of 72 product tankers,
of which 43 are owned, seven are chartered-in and 22 are
under commercial management. There were no newbuild-
ings on order.
TORM’S RESULTS IN THE TANKER SEGMENT
USDm
INCOME STATEMENT
Revenue
Port expenses, bunkers and commissions
Freight and bunker derivatives
Time charter equivalent earnings
Charter hire
Operating expenses
Gross profit/(loss) (Net earnings from shipping activities)
Impairment losses
Operating profit/(loss) (EBIT)
2013
Total
774.8
-410.8
0.1
364.1
-22.1
-169.9
172.1
-59.8
173.1
-95.2
-
77.9
-4.2
-41.4
32.3
-195.0
112.3
-162.7
2014
Q1
Q2
Q3
Q4
2014
Total
140.4
-71.2
0.1
69.3
-5.6
132.1
-65.8
-0.2
66.1
-8.9
151.5
597.1
-69.9
-302.1
0.1
-
81.7
295.0
-8.1
-26.8
-38.1
-32.6
-33.2
-145.3
25.6
2.6
28.2
24.6
-0.2
24.4
40.4
122.9
0.9
-191.7
41.3
-68.8
TORM 2014
14
Segments
TANKER SEGMENT
– SUPPLY AND DEMAND
Current order book indicates high number of deliveries in 2015-2016
Higher ton-mile demand driven by increased oil consumption and relocation of refineries
SUPPLY
In 2014, the global product tanker fleet grew by 3.8% in terms
of capacity and 3.4% in terms of number of vessels. This was
the highest growth since 2011, but the figure covers consider-
able differences in the individual segments. The growth was
ranging from 0.2% for the LR1 segment to 5.8% for MR
vessels, and while all other segments have seen an increas-
ing growth trend in recent years, the LR1 segment stands out
as growth has stagnated. At the end of 2014, the global
product tanker fleet totaled 2,635 vessels, counting 259 LR2
vessels, 328 LR1 vessels, 1,397 MR vessels and 651 Handy-
size vessels.
CURRENT NEWBUILDING ORDER BOOK
New contracting in 2014 declined by 56% compared to the
7-year high ordering activity in 2013, yet ordering activity in
2014 was higher than in any of the years 2008-2012. It was
especially the first quarter which saw a high ordering
activity, however, a number of LR1 orders placed in the
second half of the year took new ordering in the LR1
segment to a 8-year high. At the end of 2014, the existing
order book for deliveries in 2015-2017 totaled 459 vessels,
including 75 LR2 vessels, 38 LR1 vessels, 236 MR vessels
and 110 Handysize vessels.
CANCELLATIONS AND POSTPONEMENTS
In 2014, only 73% of the deliveries scheduled for the year
actually materialized, with the remaining 27% being split
between order cancellations (5%) and order delays/
postponements (22%) as of 1 February 2015. For 2015,
TORM expects a delivery slippage of approximately 20%.
SCRAPPING
In 2014, almost 1.7m dwt of product tanker capacity was
scrapped, corresponding to approx. 1.2% of the fleet capacity
at the beginning of the year. Compared to 2013, scrapping
activity slowed down, yet remained above the average
scrapping level during 2000-2013. It is expected that approx.
3% of the existing capacity in the global fleet will be phased
out or scrapped during 2015-2017.
NEW CONTRACTING OF NEWBUILDINGS
TORM anticipates limited ordering of new product tankers
with delivery before the end of 2016. The Company expects
the ordering activity in 2015 to be at around the 2000-2014
average level, which is considerably lower than what was
seen in 2013 and also marks a slowdown from the 2014 level.
During 2015-2017, the product tanker fleet capacity is
estimated to grow by a compound annual rate of approx. 6%.
However, taking expected vessel migration between dirty and
clean segments into account, the total product tanker supply
available for transportation of clean products is estimated to
increase by an annual rate of approx. 5% during the same
period.
YEARLY NET FLEET GROWTH (BASED ON NO. OF VESSELS)
Source: TORM
PRODUCT TANKER UTILIZATION RATE
Source: TORM
% of existing fleet
Index 2000 = 100
20
15
10
5
0
-5
2010
2011
2012
2013
2014
140
120
100
80
60
40
2
0
2
0
2
0
0
0
0
1
0
2
2
0
2
0
2
0
2
0
2
0
0
3
0
4
0
5
0
6
0
7
2
0
2
0
2
0
2
0
2
0
2
0
0
8
0
9
1
0
1
1
1
2
1
3
2
0
2
0
2
0
2
0
1
4
1
5
1
6
1
7
E
F
F
F
F
LR2
LR1
MR
Handysize
Product tanker utilization rate
TORM 2014
•
•
Segments
15
DEMAND
Global oil demand growth in 2014 fell short of expectations
due to lower-than-expected economic growth in the
Eurozone, China and most of the emerging economies. Yet,
global macroeconomic momentum is set to gather strength
in 2015. Consequently, global oil demand is expected to grow
by 0.9m barrels/day (1.0%) in 2015 after only 0.6m barrels/
day (0.7%) in 2014 (source: IEA January 2015). Whereas
much of the oil demand weakness in 2014 was due to
deteriorated demand for gasoil/diesel in the non-OECD
countries, this type of demand is anticipated to become the
largest contributor to accelerating oil demand in 2015 with a
product switch in the bunker fuel market from heavier fuel
oil to marine gasoil as one of the key contributors. Never-
theless, there is some upside to the oil demand growth,
were the currently low crude oil prices to stay for a longer
period. The non-OECD areas, especially China and the
Middle East, followed by Africa and Latin America, are
expected to drive growth in global oil demand, whereas
demand in the OECD economies as a group will continue to
slide despite stronger-than-expected demand from the US
in 2014.
REFINERY CAPACITY AND TRANSPORTATION
According to TORM estimates, the net global refinery
capacity is expected to grow by approximately 4.4m barrels/
day during 2015-2017. The majority of the refinery additions
are in China and in the Middle East. In the latter region, a
significant part of the additional supply is likely to be
transported long-haul by product tankers to regions where
demand outpaces local refinery capacity or refineries are
being closed.
Several new condensate splitter capacity projects are
underway in the US in 2015 and 2016, helping to absorb the
abundant domestic supplies of light tight oil (LTO) and
condensates. This will likely lead to increased export
capacity of light end products. At the same time, the
traditional role of the US as an importer of Europe’s excess
gasoline continues to decline, as vehicle efficiency gains are
anticipated to exceed any potential gains in miles travelled,
the latter being a result of improved economic situation and
lower gasoline prices.
European refiners face increasing competition from new
refining capacity on their traditional export markets in Africa
and the rest of the Americas, offsetting the gains experi-
enced in the fourth quarter of 2014 from lower crude costs.
TORM expects this to lead to further cuts in refinery runs in
Europe, if not refinery shutdowns.
European diesel imports from Russia, the US Gulf and
increasingly from the new refineries in the Middle East will
grow, underpinned by increase in demand for ultra-low
sulphur diesel as a result of a change in bunker fuel rules in
the North Sea Emission Control Area.
Despite new refining capacity coming online in South
America, the regions’ import needs remain high, only
temporarily disrupted by new regional refinery capacity
additions in 2015/2016. Imports to Australia will increase,
mainly met by South East Asia and the North Pacific.
A sustained demand for naphtha imports in the North
Pacific will increasingly be met by supplies from Europe
and the US, the latter potentially supported by the expansion
of the Panama Canal.
Consequently, the product tanker ton-mile demand is
estimated to grow by a compound annual rate of around 6%
during 2015-2017, exceeding growth in tonnage supply and
subsequently contributing to a positive development in the
product tanker fleet utilization during that period.
SWING FACTORS
The main swing factors, that can change this outlook in
either negative or positive direction, include the impact of
sustained low oil prices on demand and trade patterns,
higher-than-expected newbuilding contracting activity,
lacking or slower refining industry rationalization in Europe,
the level of compliance with the new ECA (Emission Control
Area) rules, a total or partial relaxation of the US crude oil
export ban, the export strategy of the new Middle East
refineries, slower-than-forecast shift in Russia’s refining
sector’s exports between fuel oil and cleaner products as
well as uncertainty around China’s new refinery projects.
Similarly, product price volatility and arbitrage are potential
swing factors.
Other swing factors affecting the supply of vessels available
for transportation of clean products are substitution of
tonnage between dirty and clean product transportation
and the use of vessels for floating storage purposes as
seen in 2009 and 2010. With a possible crude market
recovery, a larger number of product tankers will likely
switch to the dirty segment. Furthermore, slow-steaming is
a factor although the effect is likely to be less pronounced
the smaller the vessels.
TORM 2014
16
Segments
BULK SEGMENT
Financial result in break-even despite freight and charter rates at historically low levels
Continued scale-down of TORM’s bulk activities
Remaining fleet employed on time charter contracts
The dry bulk market was at historically low levels during
2014. The average spot freight rates in the Panamax
segment were approx. 67% below the 10-year historical
average (source: Baltic Panamax Index). A declining spot
market during the first half of the year led the period
market to gradually erode and the second-hand asset
market to decline.
The one-year time charter rate for Panamax averaged
around USD/day 12,000, which was also approx. 20% above
the level for 2013. The period market was relatively strong
during the first half of 2014, upheld by expectations of a
firming forward market, but eventually the depressed spot
market led the period market to fall to USD/day 10,000 in
the second half of the year.
In line with the general market expectations, the global
bulk fleet grew by approx. 4.4% in 2014 net after scrapping.
Trade volumes increased by approx. 4.2%, which was less
than market expectations and partly explained by slowing
demand for coal from China.
The second-hand market for bulk vessels reversed the
positive trend from 2013, and the price for a five-year-old
second-hand Panamax bulk carrier declined by almost
20% during the year (source: Clarksons).
During the year, the spot freight rates in the Panamax
segment varied from USD/day 3,500 to USD/day 14,000
with an average market level of USD/day 7,800, which was
20% below 2013 levels (source: Baltic Panamax Index).
As previously announced, TORM has continued to scale
down the Company’s bulk activities, and the remaining
fleet will continue to be employed in the long-term period
market.
BULK FREIGHT RATES 2014
Source: Clarksons
ASSET PRICES ON FIVE-YEAR-OLD SECOND-HAND
DRY BULK CARRIERS IN 2014
Source: Clarksons
TCE in USD/day
USDm
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
40
35
30
25
20
15
10
Jan
Feb Mar
Apr May
Jun
Jul Aug Sep
Oct Nov Dec
Jan
Feb Mar
Apr May Jun
Jul Aug Sep
Oct Nov Dec
Panamax
Handymax
Panamax
Handymax
TORM 2014
•
•
•
Divisions
17
The bulk vessel TORM Anholt carrying out a discharge operation in Asia.
The gross profit for the Company’s bulk activities was USD
0m (USD -22) despite freight and charter rates at histori-
cally low levels. In the Panamax segment, TORM achieved
average earnings of USD/day 10,477, which was 30%
higher than in the same period last year and 36% above
the average spot market (source: Baltic Panamax Index).
The improvement is a result of the Company’s high
coverage policy.
As of 31 December 2014, TORM’s active bulk fleet con-
sisted of two owned vessels and five long-term time
charter vessels. TORM expects to have approx. 2,000 bulk
earning days in 2015 (-33%). There are no bulk vessels on
order.
TORM’S RESULTS IN THE BULK SEGMENT
USDm
INCOME STATEMENT
Revenue
Port expenses, bunkers and commissions
Freight and bunker derivatives
Time charter equivalent earnings
Charter hire
Operating expenses
Gross profit/(loss) (Net earnings from shipping activities)
Depreciation incl. impairment losses
Operating profit/(loss) (EBIT)
2013
Total
217.5
-139.7
1.3
79.1
-97.1
-3.7
-21.7
0.0
-21.7
2014
Q1
Q2
Q3
Q4
9.8
-0.1
-0.2
9.5
-7.5
-1.0
1.0
0.0
1.0
8.3
0.5
-
8.8
-6.5
-1.0
1.3
0.0
1.3
7.9
-0.6
-
7.3
-6.5
-1.0
-0.3
0.0
-0.3
1.0
4.2
-
5.2
-6.3
-0.9
-2.0
0.0
-2.0
2014
Total
27.0
4.0
-0.2
30.8
-26.8
-3.9
0.1
0.0
0.1
TORM 2014
18
About TORM
TORM’S 125TH ANNIVERSARY
On 14 January 1889, Captain Ditlev E. Torm and Christian
Schmiegelow founded the Company and later the same
year, TORM’s first vessel, TORM Alice, was delivered. This
year, the Company celebrated its 125th anniversary.
TORM benefits from a strong heritage and many years of
embedded know-how. The Company has been “shipping
with pride” throughout the changing times and the cyclical
nature of the shipping industry.
sea, were encouraged to use their smartphones and
upload video clips demonstrating what TORM is or means
to them. More than 350 video clips were received from all
parts of the organization, and these clips were trans-
formed into an anniversary film.
On the day of the anniversary, TORM hosted an internal
celebration event including the Company’s five offices
worldwide via a live Skype connection. The anniversary film
was released during this event.
TORM has celebrated this historical milestone worldwide
throughout the year – externally with customers and
business partners and internally with the Company’s
employees.
In close cooperation with the TORM Foundation, the
Training Ship DANMARK anchored outside TORM’s
premises in Tuborg Havn for a special employee event.
During the year, TORM hosted receptions in Singapore,
Dubai, Geneva, Houston and London for the Company’s
customers.
At sea, the anniversary was celebrated with a get-together
on board almost all vessels. The vessels also received a
link to the anniversary film showing the spirit of TORM.
At TORM’s headquarters in Copenhagen, a reception was
held for the Company’s external business partners and
employees with more than 300 visitors.
Furthermore, TORM created a 125th anniversary film made
by the Company’s employees. All employees, ashore and at
TORM has achieved remarkable results over the years
which have made the Company what it is today – one of the
world’s leading shipping companies within the product
tanker segment with a strong integrated operational
platform.
Pictures from the anniversary reception at TORM’s headquarters in Copenhagen on 17 January 2014. The reception was held for TORM’s external business partners and employees.
TORM 2014
About TORM
19
TORM 2014
20
About TORM
PEOPLE
Employee satisfaction surveys demonstrate dedication and understanding of the One TORM
strategic direction
Performance Leadership focus in the Technical Division and on board TORM’s vessels
SEAFARERS
The positive commitment and engagement from seafarers
continued throughout 2014 with a strong retention level of
99% for Senior Officers and 99% compliance with custom-
er requirements (the so-called officer matrix compliance).
Dedication amongst seafarers was also demonstrated in
the Company’s seafarer survey that is carried out every
third year. This year, the survey showed an overall improve-
ment in all four measures (Satisfaction, Engagement,
Loyalty and Reputation).
In 2014, TORM implemented the TORM Evaluation and
Leadership Development Program, which is an assess-
ment program for the Company’s Senior Officers. In total,
90 Captains, Chief Engineers, Chief Officers and Second
Engineers participated in the program. The purpose is to
exemplify how TORM expects Senior Officers to act as
leaders on board the Company’s vessels and to increase
awareness about individual competences. As part of this
program, all Senior Officers will have a development plan,
which will be followed up regularly.
In 2014, TORM continued to focus on integrating the TORM
Leadership Philosophy and on increasing awareness and
understanding of the One TORM strategic direction. In line
with the TORM Leadership Philosophy and One TORM, the
Company has introduced the Performance Leadership
project in the Technical Division and on board the vessels.
This includes a number of KPIs for TORM’s vessels and is
divided into six overall areas: Energy efficiency, reliability,
cost, operations, safety and tradability. Each KPI area has a
number of directly related action points for the vessels.
Furthermore, TORM has developed a global cadet program
to ensure alignment and quality in the way the Company
recruits and develops cadets.
Performance was also an important topic on the four
officers’ seminars which were conducted in Denmark,
Croatia, India and the Philippines during 2014.
SHORE ORGANIZATION
In 2014, TORM continued to focus on employee perform-
ance which is a central part of the One TORM strategic
direction. In the beginning of the year, TORM’s Senior
Management hosted workshops for all employees, where
the objectives of all departments were shared and linked
to the One TORM framework in order to create transpar-
ency around the overall objectives of the Company.
TORM conducts an annual employee satisfaction survey for
all land-based employees. In 2014, 95% of the employees
participated in the survey that included One TORM as one
of the focus areas. The results demonstrated that TORM’s
employees have a high level of understanding of One TORM
and know how they can contribute to the strategic direction
of the Company.
TORM experienced a satisfactory employee retention rate
for 2014 of 84%. Retaining motivated employees is central
to the Company’s continued ability to deliver to customers.
When it comes to attraction and recruitment of new
employees, TORM has also received a satisfactory number
of qualified applications to the vacant positions during the
year.
GEOGRAPHICAL DISTRIBUTION OF SEAFARES IN %
100% = 2,729 seafarers ultimo 2014 incl. contracted crew
GEOGRAPHICAL DISTRIBUTION OF LAND-BASED EMPLOYEES IN %
100% = 278 employees ultimo 2014
5% Croatia
1% Poland
6% Denmark
3% USA
5% Singapore
11% The Philippines
49% The Philippines
52% Denmark
39% India
29% India
TORM 2014
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About TORM
21
Chief Engineer, Rasmus J. Skaun Hoffmann, on board TORM Lotte sailing off Skagens Rev. Positive commitment and engagement from seafarers continued
throughout 2014 with a strong retention level of 99% for Senior Officers.
Another element of the One TORM strategic direction is to
have an integrated technical platform handling technical
management and the manning of TORM’s vessels. In 2014,
TORM welcomed a new Head of the Technical Division and
introduced a number of initiatives to further optimize
operations and focus on higher reliability as well as better
cost and quality control of the vessels.
One TORM
Performance
LeaderShip
KPI – Action
In line with the One TORM strategic direction, the Company has introduced
the Performance Leadership project in the Technical Division and on board
the vessels. This includes a number of KPIs for TORM’s vessels.
TORM 2014
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About TORM
CORPORATE SOCIAL
RESPONSIBILITY
New investments in retrofitting program to reduce oil consumption and CO2 emissions
Armed guards retained while the number of piracy attacks in the High Risk Area off the
African Horn are reduced
REPORTING AND TRANSPARENCY
TORM’s approach to Corporate Social Responsibility (CSR)
is rooted in the values of the Company and based on the
Company’s commitment to the UN Global Compact, an
internationally recognized set of principles regarding
health, safety, labor rights, environmental protection and
anti-corruption. The importance of CSR is also empha-
sized in the One TORM strategic direction and TORM’s
Business Principles.
In 2009, TORM became the first Danish shipping company
to sign the UN Global Compact. Since then, the Company
has reported on its social and environmental performance
every year to ensure progress and accountability to
stakeholders. The Company believes that accountability in
all aspects is necessary in order to be the preferred carrier
in the industry.
Responsible behavior is central to the way TORM does
business. TORM’s CSR policy has the following overall
objectives:
Strive to eliminate all known risks that may result in
accidents, injuries, illness, damage to property or to the
environment
Integrate sustainability into TORM’s business operations
Avoid any form of corruption and bribery
Make TORM’s CSR performance transparent to all
stakeholders
INSPECTIONS AND AUDITS
In order to exceed the standards set by stakeholders, the
Company has enhanced the vetting preparations and
increased the number of internal vettings on the vessels
carried out by SQE officers.
On average, each product tanker is subject to nine
inspections a year. Inspections are carried out by custom-
ers, terminals, internal auditors, ports and classification
societies. TORM is committed to meeting and outperform-
ing the increasingly high standards set both internally and
by customers.
Comply with statutory rules and regulations in order to
ensure that all employees are able to execute their work
under safe, healthy and proper working conditions
ENVIRONMENT AND CLIMATE
Marine pollution constitutes the largest environmental
risk. Consequently, the Company seeks to minimize its
CO2 EMISSION PER VESSEL PER G/TON-KM
Source: TORM
CO2 EMISSION PER OFFICE EMPLOYEE IN TON
Source: TORM
3.0
2.5
Target
for
2020:
2.2 ton-
employee
7.6
7.1
7.0
2.6
2.6
2.3
2.0
1.5
1.0
0.5
0
2012
2013
2014
2012
2013
2014
10.0
8.0
Target
for 2020:
6.4 g/
ton-km
6.0
4.0
2.0
0
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23
To exceed the standards set by stakeholders, TORM has enhanced the vetting preparations and increased the number of internal vettings on the vessels carried
out by SQE officers.
environmental impact by taking constant care and by
measuring CO2 emissions per ton-km and per office
employee.
one barrel of oil. All incidents were investigated and
procedures revised where required.
FUEL EFFICIENCY
TORM takes a proactive approach to fuel efficiency as this
has a significant environmental and economic impact.
During 2014, TORM installed retrofit equipment on a
number of vessels, such as propeller boss cap fins and
bunker flow meters, to reduce oil consumption and CO2
emissions. Furthermore, the Company implemented
initiatives to strengthen energy efficient navigation,
including upgrades of autopilots and voyage decision
support software. To drive energy efficient behavior, TORM
is implementing a new vessel reporting system and has
installed advanced auto data logging on a number of
vessels. TORM will continue these efforts in 2015 with a
number of additional initiatives, including launch of weekly
performance indicators to the vessels.
HEALTH, SAFETY AND SECURITY
Approx. 90% of TORM’s employees work at sea, and
providing healthy, safe and secure working conditions for
them is an essential part of the business. Respecting
employees’ human rights is pivotal to the Company, and
policies are outlined in TORM’s Business Principles and
the commitment to the UN Global Compact. The Com-
pany’s safety policy is rooted in the rules and regulations
issued by the Danish Maritime Occupational Health
Service.
In July 2014, one of TORM’s product tankers, TORM Lotte,
performed a Search and Rescue operation in the Mediter-
ranean Sea and rescued the lives of more than 560 boat
refugees. This is part of a trend that has manifested itself
especially in 2014.
CLIMATE PERFORMANCE
TORM has reduced the year-on-year CO2 emissions from
7.07 to 6.99 g/ton-km, or by 12.6% since 2008. This is
primarily driven by increased fuel efficiency. In 2015, TORM
will continue to invest in fuel efficiency projects.
CO2 emissions from TORM’s offices were reduced from
2.58 to 2.32 ton-employee. Since 2008, TORM has improved
performance on this measure by approx. 19%.
SAFETY CULTURE
A strong safety culture is central to TORM, and the
Company has not experienced any work-related fatalities
in 2014. Lost Time Accident Frequency (LTAF) is an
indicator of serious work-related personal injuries that
result in more than one day off work. During 2014, TORM
had an LTAF of 1.49 (1.26). The increase from 2013 to 2014
is caused by one additional accident. The definition of LTAF
follows standard practice among shipping companies.
OIL SPILLS
In 2014, TORM experienced no oil spills larger than one
barrel, but four smaller oil spills over board of less than
Near-miss reports provide TORM with an opportunity to
analyze conditions that might lead to accidents and
ultimately prevent accidents. A high number of near-miss
TORM 2014
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About TORM
reports indicate that the organization is aware of the risks
and responds to them. In 2014, TORM exceeded the target
of 6.0 near-miss reports per month per vessel on average
by reaching 6.8 due to continued focus on this area.
2014 PIRACY
TORM’s response to piracy is founded in the Best Manage-
ment Practice (BMP) developed by the International
Chamber of Shipping, the International Shipping Federa-
tion and national navy forces. In 2014, TORM experienced
four robberies and seven suspicious approaches. Further-
more, the Company observed a significant reduction in the
number of piracy attacks in the High Risk Area off the
African Horn. Piracy activity in the West African region cen-
tered around the Gulf of Guinea has been monitored
thoroughly throughout the year. The Company will continue
to monitor the risk situation and preempt hijacking by
following Company security procedures. TORM made 175
voyages with armed guards in 2014 against 302 in 2013.
The decrease in the number of voyages with armed guards
from 2013 to 2014 is primarily due to changes in the
boundaries of the High Risk Area.
RESPONSIBLE BUSINESS
TORM’s CSR commitment is not limited to the Company’s
own business practices, as real impact often requires
industry collaboration. TORM cooperates with peers and
stakeholders in a number of areas to increase responsibil-
ity in the shipping industry and the supply chain. As a
member of the Danish Shipowners’ Association’s CSR
work group and co-founder and member of the Maritime
Anti-Corruption Network (MACN), TORM strives to
increase corporate transparency and accountability and
minimize corruption.
EMPLOYEES AND COMMUNITIES
The Company has been a long-standing supporter of
maritime education in India and the Philippines. This
commitment also has a strategic purpose and reflects the
Company’s ties to local communities.
This section constitutes TORM’s reporting according to the
requirements of The Danish Financial Statements Act on
CSR.
TORM reports to the UN Global Compact. To see the
reports, please visit www.unglobalcompact.org.
LOST TIME ACCIDENT FREQUENCY (LTAF)
Source: TORM
LTAF = work-related personal injuries that result in more than one day off
work per million hours of work
2.0
1.5
Target
for 2014:
1.0
1.0
0.5
0
TORM 2014
0.99
1.26
1.49
2012
2013
2014
About TORM
25
RISK MANAGEMENT
Capital structure continues to be addressed through ongoing restructuring efforts
Current restrictions on vessel sale and purchase activities and ageing of the fleet remain
a strategic risk
Market risks remain high, but TORM is well-positioned for a strengthening of the product
tanker market
TORM believes that a strong risk management framework
is vital to protect the Company and to ensure that the
Company is well-positioned in key markets. The objective
remains a balance of risk and reward generating the most
value for shareholders.
Risks are defined as all events or developments that could
significantly reduce TORM’s ability to sustain the long-term
value of the Company.
The risk management approach emphasizes management
accountability and broad organizational anchoring of risk
management and mitigation activities. The approach is
based on a combination of overall risk management tools
such as scenario and sensitivity analyses, active monitor-
ing of the risk profile and specific policies governing the
risk management in all key areas. Finally, there is a
verification process for the adequacy of TORM’s risk
management infrastructure.
The key risks associated with TORM’s activities can broadly
be divided into the four main categories described in the
figure below.
The Executive Management and the Board of Directors
discuss and decide on the Company’s tolerance of the
most significant risks, while the Executive Management is
responsible for the ongoing monitoring of risks and
implementation of mitigating actions. TORM’s overall risk
tolerance for and inherited exposure to risks in each of the
four main categories are detailed below.
LONG-TERM STRATEGIC RISKS (“RISK-SEEKING”)
Risks and opportunities beyond the immediate strategy
window are monitored by the Executive Management and
incorporated in updates of the corporate strategy.
Industry-changing risks, such as the substitution of oil for
other energy sources and radical changes in transporta-
tion patterns, are considered to have a relatively high
potential impact, but are considered as long-term risks.
INDUSTRY AND MARKET-RELATED RISKS
(“RISK-SEEKING”)
TORM’s business is sensitive to changes in market-related
risks such as changes in the global economic situation,
changes in freight rates in the product tanker market and
changes in bunker prices.
Adequate management of operational and compliance
risks within TORM’s risk tolerance limits is a prerequisite
for TORM to succeed as a tanker owner and operator.
It remains a cornerstone of the Company’s strategy to
actively pursue this type of risk by taking positions to
benefit from fluctuations in freight rates.
MAIN RISKS ASSOCIATED WITH TORM’S ACTIVITIES
LONG-TERM
STRATEGIC RISKS
INDUSTRY AND
MARKET-RELATED RISKS
OPERATIONAL AND
COMPLIANCE RISKS
FINANCIAL RISKS
Political risks
Macroeconomic development
Compliance with relevant maritime regimes
Funding and liquidity risk
Substitution of oil
Freight rate fluctuations
Vessel utilization
Bunker price fluctuations
Safe operation of vessels
Vessel sales and purchase price
Terrorism and piracy
fluctuations
Availability of experienced seafarers and
Interest rate risk
Currency risk
Counterparty risk
staff
Compliance with environmental regulations
Stability of IT systems
Fraud
Insurance coverage
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About TORM
TORM continues to limit the exposure to the dry bulk
business and as a result the risk tolerance in this business
area is “risk-averse”.
TORM’S CURRENT RISK PROFILE
The key aspects of TORM’s current risk profile are
summarized below:
OPERATIONAL AND COMPLIANCE RISKS
(“RISK-AVERSE”)
TORM aims at maintaining its position as a quality
operator with high focus on operating vessels in a safe and
reliable manner. Consequently, commercial operations are
an important part of TORM’s business model. This area
involves potentially severe risks with respect to environ-
ment, health, safety and compliance. TORM constantly
focuses on reducing these risks through rigorous pro-
cedures and standardized controls carried out by well-
trained employees. Quality-enhancing measures were
implemented during 2014 and will continue in 2015.
FINANCIAL RISKS (“MODERATELY RISK-AVERSE”)
Management believes that a prudent approach to financial
risks benefits the Company the most.
During 2014, TORM has continued efforts towards a
financial restructuring in order to create a long-term,
sustainable capital structure.
Through 2014, TORM’s product tanker fleet has realized
better average spot TCE earnings than in 2013. Despite
this, the overall result is lower than in 2013 mainly
driven by fewer earning days. With a low coverage ratio,
TORM remains well-positioned for a strengthening of
the market. As a consequence, the market risks remain
high.
In 2014, TORM realized negative equity (a top risk
identified in the 2013 Annual Report) due to an impair-
ment charge following the forced sale of 13 vessels.
Despite realizing negative equity, TORM has been able to
maintain customers and credit lines in place. However,
the fact that the Company has negative equity under-
lines the risks related to the current capital structure.
As at 31 December 2014, the risks remained high and
above the desired level.
TORM continues to face strategic risks caused by
restrictions on vessel sale and purchase activities.
Risks within the Company’s immediate sphere of
control, including compliance with quality and environ-
mental requirements, have remained stable at a low
level due to the implemented mitigating controls.
TORM’s top risks and changes compared to 2013 are
described below. For a more in-depth description of the
various risks and TORM’s risk management as well as
sensitivity analyses, please see note 23 on page 72. TORM
assesses the Company’s risks on a continuous basis.
TORM TOP RISK MAP (RISK EVALUATION INCLUDES EFFECT OF CURRENTLY DEPLOYED MITIGATION)
J
B
J
D
G
K
E
I
F
H
F
C
E
A
A
High
s
e
c
n
e
u
q
e
s
n
o
C
Low
Low
Likelihood
High
TORM 2014
A
A
A
2014
2013
Unchanged
A Bulk trading exposure
B Tanker freight rates
C Bunker price
D Timing of sale and purchase of vessels
E Oil major approval
F Environmental regulations
G Severe vessel accidents
H Technical costs
I Code of conduct
J Capital structure
K
Interest rates
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About TORM
27
# RISK
DESCRIPTION
SEVERITY
COMMENTS TO DEVELOPMENT 2013 – 2014 / STATUS 2014
A Bulk trading
exposure
B Tanker freight
rates
C Bunker price
D Timing of sale
and purchase
of vessels
The risk of a bulk coun-
terparty failing to fulfill
its obligation and of
TORM not being able
to predict and act on
freight rate develop-
ments.
The risk of sustained
low tanker freight rates
or of TORM not being
able to predict and act
on the development of
these.
The risk of unexpected
bunker price increases
not covered by
corresponding freight
rate increases.
The risk of TORM not
purchasing and selling
vessels timely relative
to market develop-
ments and business
requirements.
Low
High
During 2014, TORM has continued the scale-down of its dry
bulk activities, and the exposure is equivalent to seven ves-
sels as per the end of 2014. TORM has maintained a high
coverage for the dry bulk business, and as a consequence the
bulk trading exposure is low.
The product tanker market remained volatile during 2014.
TORM has maintained a low coverage and accordingly, the
Company has maintained a high exposure towards the
product tanker market.
Medium
Adequate bunker purchase procedures continue to be in
place, but as bunker prices are volatile and not necessarily
reflected in the freight rates, TORM continues to be exposed
to bunker price changes.
High
The financing agreements and TORM’s capital structure
prohibit the Company from actively managing the composition
of the fleet, thereby exposing the Company to strategic risk.
E Oil major
approval
The risk of a partial
ban of the TORM tanker
fleet by oil majors.
Medium
F Environmental
regulations
The risk of violations
of environmental
regulations.
G Severe vessel
accidents
The risk of a severe
vessel accident.
H Technical costs
(new)
The risk of technical
costs related to in-
creasing OPEX and an
extensive dry-docking
schedule in 2015.
Medium
Medium
Medium
The overall tradability of the fleet with oil majors is unchanged,
and TORM is considered a top performer in the market.
However, as vetting requirements increase with vessel age
and as customers take on an increasingly holistic approach
to vetting, the risk is increased to Medium (2013: Low).
TORM’s comprehensive environmental compliance and
monitoring infrastructure has been maintained, and the
risk remains unchanged as Medium.
TORM’s comprehensive quality and safety procedures have
been maintained, thereby leaving the risk unchanged.
Technical costs are a new top risk in TORM, reflecting an
increasing OPEX trend through 2014 and the risks related to
an extensive dry-docking and survey schedule in 2015. TORM
takes a serious and prudent approach to reversing the OPEX
trend by outlining a number of reduction areas and mitigating
the risks related to the 2015 dry-docking schedule.
I Code of
conduct
(new)
J Capital
structure
K Interest rates
Fraud and misconduct
risk.
Medium
TORM recognizes the risk of fraud and misconduct as a top
risk as the potential impact of misconduct can be severe.
High
Medium
The risk of going
concern.
The risk of TORM being
restricted from acting
against increasing
interest rates.
TORM’s top priority is to secure a long-term sustainable
capital structure.
During 2014, TORM has benefitted from low interest rates
due to the entire debt being on floating rate terms. Although
the debt level is lower, the severity of the risk is on the same
level as in 2013 as TORM remains exposed to interest rate
changes.
TORM 2014
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About TORM
CORPORATE GOVERNANCE
As of 31 December 2014, TORM complied with 49 out of 50 of the 2013 Danish Corporate
Governance Recommendations
A comprehensive system for internal control and risk management has been in place for
years and is continuously improved
To TORM, good Corporate Governance represents the
framework and guidelines for business management and
aims to ensure that the Company is managed in a proper
and orderly manner, consistent with applicable laws and
regulations.
CORPORATE GOVERNANCE RECOMMENDATIONS
In line with the “comply or explain” principle, the Board of
Directors has considered the 2013 Corporate Governance
Recommendations, which form part of the disclosure
obligations for companies listed on NASDAQ OMX
Copenhagen. The Company has chosen not to be in
compliance with one recommendation regarding one year
election periods for all shareholder-elected Board
members. In the interest of continuity, the TORM share-
holder-elected Board members are all elected for two
years, meaning that TORM is in compliance with 49 out of
50 recommendations.
TORM complies with recommendations regarding diversity
at management level. Along with other major Danish
shipowners, TORM has signed the Charter on More Women
on Boards. As of December 2014, females represented
44% of the land-based employees globally (defined as
non-managerial individual performers), 25% of middle
management and 11% of top management (Vice Presi-
dents and above). TORM has set a target to reach mini-
mum 20% of top management and 40% of middle manage-
ment being female by 2016, for example by adjusting the
Company’s recruitment procedures. To comply with
existing legal requirements for goal setting with respect to
gender diversity on the Board of Directors, TORM has
defined a diversity policy including a goal of having at least
25% female Board members (elected by the shareholders)
in 2016.
This Corporate Governance section and an overview of
TORM’s position on the individual recommendations are
available on TORM’s website. They constitute TORM’s
mandatory Corporate Governance Report in accordance
with Section 107b of the Danish Financial Statements’ Act.
THE BOARD OF DIRECTORS
In accordance with Danish company legislation, TORM has
a two-tier management structure. The Board of Directors
lays out policies and directives, which in turn the Executive
Management implements in the day-to-day operations.
The Board of Directors acts as a partner as well as a
supervisory body to the Executive Management. No
member of the Executive Management is a member of the
Board of Directors, but the Executive Management
ordinarily attends Board meetings.
The primary responsibilities of the Board of Directors are
to safeguard the interests of the shareholders, to ensure
that the Company is properly managed in accordance with
the Articles of Association and applicable laws and
regulations and to pursue the commercial goals as well as
the strategic development of the Company.
At the end of 2014, the Board of Directors consisted of six
members, of whom four were elected by the Annual
General Meeting. The remaining two members have been
elected by the employees. Board members elected by the
employees have the same rights, duties and responsibili-
ties as shareholder-elected members.
The Board of Directors has issued management guidelines
and Business Principles.
The Board of Directors meets at least five times a year in
accordance with the Rules of Procedure. In 2014, 23 Board
meetings were held.
The Board of Directors regularly evaluates the work, the
results and the composition of the Board of Directors and
the Executive Management.
At the Ordinary General Meeting on 3 April 2014, Mr.
Flemming Ipsen, Mr. Olivier Dubois, Mr. Alexander Green
and Mr. Jon Syvertsen were re-elected as Board members.
THE AUDIT COMMITTEE
The Audit Committee meets at least four times a year, and
both the Executive Management and the independent
auditors attend these meetings. In 2014, five meetings
were held. As of 31 December 2014, the Audit Committee
had two members elected by the Board of Directors from
its members.
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29
The Audit Committee performs its duties under a charter
approved by the Board of Directors on an annual basis, and
the Audit Committee assists the Board of Directors in
supervising and enhancing financial reporting, risk
management processes, internal controls and auditing
processes.
THE REMUNERATION COMMITTEE
The Remuneration Committee meets at least three times a
year, and four meetings were held in 2014. As of 31
December 2014, the Remuneration Committee had three
members elected by the Board of Directors. The Remu-
neration Committee assists the Board of Directors in
reviewing Management’s performance and remuneration
as well as the Company’s general remuneration policies.
The amounts and components of the remuneration to the
individual members of the Board of Directors and Execu-
tive Management are disclosed in note 4 to the financial
statements.
THE NOMINATION COMMITTEE
The Nomination Committee meets at least twice a year,
and two meetings were held in 2014. As of 31 December
2014, the Nomination Committee had three members
elected by the Board of Directors. The Company’s Nomina-
tion Committee is responsible for maintaining and
developing a number of governance procedures and
evaluation processes in relation to the Board of Directors
and the Executive Management.
THE EXECUTIVE MANAGEMENT
As of 31 December 2014, the Executive Management
consists of Mr. Jacob Meldgaard, CEO. The position as CFO
is held by Mr. Mads Peter Zacho.
INTERNAL CONTROL AND RISK MANAGEMENT
The Board of Directors is overall responsible for the
Company’s internal control and risk assessment and
management. The Executive Management is responsible
for the identification of key risks, the operation of an
effective internal control environment and the implemen-
tation of adequate risk management processes.
Management is also responsible for periodical risk
reporting to the Audit Committee and the Board of
Directors. The Board of Directors reviews the key risks
with the Executive Management as appropriate, but at
least once a year.
TORM’s financial controls are defined and monitored in a
compliance framework consistent with the recognized
framework established by the Committee of Sponsoring
Organizations (COSO 1992) and provides a clear audit trail
of changes in risk assessments and design of controls.
TORM’s processes for financial reporting and financial
controls consist of the following elements, performed
throughout the financial year:
Overall scoping: It is assessed whether changes should
be made to the scoping.
Risk assessment: TORM performs a risk assessment to
identify financial reporting risks. TORM uses a top-down
risk-based approach. The process starts with the
identification and assessment of the risks related to
financial reporting, including relevant changes. Further-
more, the entity-wide controls and general IT controls
are considered. The likelihood of risks occurring as well
as the financial impact of such are assessed.
Mapping: The material risks identified in the risk
assessment are mapped in relation to the financial
statements and the existing internal controls.
Monitoring: Based on information from TORM’s
subsidiaries and the Parent Company’s financial data, an
internal financial report is prepared to Management
every month. At the end of each quarter, external
financial statements are prepared, and additional
controls and analyses are performed. At the end of the
year, further controls and analyses are performed to
ensure a correct and complete presentation in the
annual report.
Conclusion: At the end of each financial year, TORM
concludes whether any material weaknesses have been
found in the internal controls for the financial reporting.
Management has concluded that there were no material
weaknesses or areas of concern during 2014. In view of
TORM’s compliance program and comprehensive system
for internal control and risk management in connection
with the financial reporting as well as the size of the
Company, the Board of Directors has not found it
relevant to establish an internal audit function. The
Board of Directors continues to evaluate the need for an
internal audit function annually.
MEETINGS ATTENDED/HELD
Members
Flemming Ipsen, Chairman
Olivier Dubois, Deputy Chairman
Kari Millum Gardarnar
Alexander Green
Rasmus J. Hoffmann
Jon Syvertsen
Board of
Directors
23/23
19/23
9/23
20/23
18/23
18/23
Audit
Committee
5/5
5/5
Remuneration
Commitee
4/4
Nomination
Committee
2/2
4/4
4/4
2/2
2/2
TORM 2014
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30
About TORM
On 8 January 2014, TORM filed a Form 15-F with the U.S.
Securities and Exchange Commission (SEC) to voluntarily
terminate the SEC registration of its securities and its SEC
reporting obligations. TORM’s reporting obligations with
the SEC, including its obligation to file reports on Form
20-F and furnish reports on Form 6-K, were immediately
suspended. The termination is associated with the delisting
of TORM’s ADR program from NASDAQ Capital Market in
2013 and became effective in April 2014. As a consequence,
TORM is no longer subject to the reporting requirements
as set forth in this section.
independent lawyer to detect any violations of laws,
regulations or business ethics by TORM representatives.
In 2014, there were three enquiries to the whistleblower
facility, which were investigated and closed without any
critique or requirements for new measures.
The whistleblower facility is registered and approved by the
Danish Data Protection Agency. For further information on
the whistleblower facility, please visit TORM’s website
www.torm.com/about-torm/corporate-governance/
whistle-blower.
In addition to ensuring compliance with the relevant
legislation, TORM believes that the increased focus on
internal controls and risk management contributes
positively to improving the effectiveness of the Company’s
business.
For TORM’s overall guidelines for incentive schemes for
members of the Board of Directors and the Management,
please visit www.torm.com/about-torm/
corporate-governance/incentive-scheme.
WHISTLEBLOWER FACILITY
Since 2006, the Board of Directors has, as part of the
internal control system, a whistleblower facility with an
For further information on TORM’s position on the individual
corporate governance recommendations, please visit
TORM’s website www.torm.com/about-torm/
corporate-governance/corporate-governance.
TORM 2014
About TORM
31
BOARD OF DIRECTORS
FLEMMING IPSEN / Born: 16-04-1948 / TORM shares: 500
Flemming Ipsen became a Board
member and Chairman of TORM in
January 2013. Mr. Ipsen holds a PMD
from Harvard Business School and an
LLM from the University of Copenhagen.
Mr. Ipsen is Chairman of the Nomina-
tion Committee and the Remuneration
Committee and a member of the Audit
Committee and has management duties
in the following companies:
Ejendomsselskabet Lindø
Mærsk Broker A/S
Port of Hanstholm
Maritime & Commercial Court
J. Poulsen Shipping A/S
Julius Koch International A/S
The Danish Institute of Arbitration
TORM Foundation
Special competencies:
General management
Active management from boards
Shipping and maritime law
OLIVIER DUBOIS / Born: 20-03-1954 / TORM shares: 10
Special competencies:
General and financial management
Active management from boards
Audit committees
Shipping
Olivier Dubois became a Board member
and Deputy Chairman of TORM in Janu-
ary 2013. Mr. Dubois is CFO of the Elior
Group. Mr. Dubois holds an MBA degree
from ESSEC, a Political Science degree
from Institut d’Etudes Politiques in Paris
and a Bachelor’s degree in Economics
from the University of Paris. Mr. Dubois
is Chairman of TORM’s Audit Committee
and has management duties in:
Elior Group
KARI MILLUM GARDARNAR / Born: 05-05-1951 / TORM shares: 2,880
A member of the Board since April 2011,
representing the employees of TORM on
the Board. Mr. Gardarnar is employed by
TORM as Captain and has been with the
Company since 1975.
Special competencies:
Worldwide sea services since 1975
with experience from general,
refrigerated, container and project
cargos as well as dry bulk and tanker
cargo
ALEXANDER GREEN / Born: 26-07-1963 / TORM shares: 100
Special competencies:
Oil, energy and commodity trading
Management of physical and deriva-
tive trading
Risk management
Alexander Green became a Board mem-
ber in January 2013. Mr. Green holds a
Master’s degree in Global History from
the London School of Economics and
Political Science, a Bachelor’s degree
in Civil Engineering from the University
of Salford and is a graduate of the Royal
Military Academy at Sandhurst and the
Royal School of Military Engineering. Mr.
Green is a member of TORM’s Nomina-
tion and Remuneration Committees.
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About TORM
RASMUS J. SKAUN HOFFMANN / Born: 10-04-1977 / TORM shares: 1,675
A member of the Board since April 2011,
representing the employees of TORM on
the Board. Mr. Hoffmann is employed by
TORM as Chief Engineer and has been
with the Company since 2003.
Special competencies:
20 years of sailing experience on
various vessel types
Project management in fleet
reliability initiatives, energy efficiency
and operational optimization of
technical systems
JON SYVERTSEN / Born: 22-08-1961 / TORM shares: 10,000
Jon Syvertsen became a Board member
in January 2013. Mr. Syvertsen holds an
MBA from IESE Business School and
a Master’s degree in Naval Architec-
ture from the Norwegian Institute of
Technology. Mr. Syvertsen is a member
of TORM’s Nomination Committee and
Remuneration Committee and has
management duties in the following
companies:
Arne Blystad AS
Offshore Heavy Transport AS
Special competencies:
General management from boards
Shipping
EXECUTIVE MANAGEMENT AND
CHIEF FINANCIAL OFFICER
JACOB MELDGAARD / Born: 24-06-68 / TORM shares: 100,000
Jacob Meldgaard has been Chief Executive Officer since 1 April 2010. Before this, Mr.
Meldgaard served as Executive Vice President of Dampskibsselskabet NORDEN A/S.
Mr. Meldgaard holds a Bachelor’s degree in International Trade from Copenhagen
Business School, Denmark, and has attended the Advanced Management Program
at Wharton Business School and Harvard Business School in the US. As of 31 De-
cember 2014, the Executive Management consists of Mr. Jacob Meldgaard, CEO.
MADS PETER ZACHO / Born: 24-05-69 / TORM shares: 0
Chief Financial Officer since September 2013. From 2010 to 2013, Mads Peter Zacho
served as CFO of Svitzer. He was Deputy Head of Group Finance in A P Moller–
Maersk, which he joined in 2004. Prior to this, Mads Peter Zacho held positions
with Nordea and The World Bank. Mads Peter Zacho holds a Master of Science,
Economics, from the University of Copenhagen and has an executive MBA from IMD
in Switzerland.
TORM 2014
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INVESTOR INFORMATION
About TORM
33
19 company announcements issued in 2014
Impairment charge triggered a capital loss
COMMUNICATION TO THE INVESTORS
To ensure consistent communication to all investors,
quarterly and annual financial statements and other
stock exchange announcements are the main vehicles of
communication. In 2014, TORM issued 19 announcements
to the stock exchange, which are accessible in both Danish
and English versions on www.torm.com/investors/releases.
Interested stakeholders can sign up for TORM’s investor
relations mailing list there.
TORM maintains regular capital market contact through
analyst and industry presentations, investor meetings and
conference calls. For a three-week period prior to the
publication of quarterly and annual financial statements,
communication is limited to issues of a general nature and
no individual investor meetings are held.
In 2014, TORM also convened an Extraordinary General
Meeting on 16 September 2014 to report on the ongoing
efforts regarding the long-term capital structure and the
Company’s financial position.
LOSS OF CAPITAL
At the Annual General Meeting in April 2014, TORM’s
Board of Directors informed the shareholders that at the
end of the first quarter of 2014 the Company had suffered
a capital loss. The specific event that triggered the
negative equity was a USD 192m impairment charge
related to vessel sales as an indirect consequence of the
Restructuring Agreement from November 2012.
TORM SHARE PRICE PERFORMANCE AND TURNOVER, COPENHAGEN
# of shares
12,000,000
10,000,000
8,000,000
6,000,000
2,000,000
0
According to section 119 of the Danish Companies Act,
when a company recognizes a capital loss, it is the Board
of Directors’ responsibility to report the capital loss to the
Company’s shareholders and to test whether the founda-
tion for the Company’s operation as a going concern is
sufficiently solid to continue operations while the possibili-
ties of a recapitalization are explored and implemented.
The Board of Directors assessed that it was in the best
interest of all stakeholders to continue the Company’s
operations while working to secure a recapitalization.
RESTRUCTURING
With reference to the Introduction on page 4, TORM is
working to finalize and implement a financial restructur-
ing. The exact consequences of the restructuring will be
presented to the shareholders when the proposed
implementation structure is agreed upon, however, it is
currently anticipated that existing shareholders would
retain approx. 1-2% of the ordinary share capital.
TRADING
The average daily trading volumes in 2014 were
approx.1.1m on NASDAQ OMX. The share price declined
from DKK 1.35 per share at the beginning of 2014 to DKK
0.31 per share at the end of 2014.
Price in DKK
2.0
1.6
1.2
0.8
0.4
0.0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Share volume (LH)
Share price (RH)
TORM 2014
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34
About TORM
SHAREHOLDERS
As of 31 December 2014, TORM had approx. 14,400
registered shareholders representing 76% of the share
capital. In compliance with section 29 of the Danish
Securities Trading Act, the following shareholders have
reported to TORM that they owned more than 5% and 10%
respectively:
HSH Nordbank AG, Germany (>10%)
Danske Bank, Denmark (>10%)
Nordea Bank Danmark A/S, Denmark (>10%)
Deutsche Bank AG, Germany (>5%)
DBS Bank Ltd., Singapore (>5%)
At the end of 2014, the members of the Board of Directors
held a total of 15,165 shares, equivalent to a total market
capitalization of DKK 4,701 or USD 768. The Executive
Management held a total of 100,000 shares, equivalent to a
market capitalization of DKK 31,000 or USD 5,064. The
Board of Directors and all employees are limited to trading
shares during a four-week period after the publication of
financial reports.
TORM’s company’s registrar is VP Securities, Wei-
dekampsgade 14, P.O. Box 4040, DK-2300 Copenhagen S,
Denmark.
DIVIDEND
TORM’s dividend policy states that up to 50% of the net
profit for the year may be distributed as dividend. Further-
more, dividend distribution should always be considered in
light of TORM’s capital structure, strategic developments,
future obligations, market trends and shareholder interest.
Following the restructuring in 2012, the terms of the credit
facilities include a covenant according to which the issue of
new shares and payment of dividends require the lenders’
consent.
The Board of Directors recommends that no dividend be
paid for 2014.
For further information about investor relations, please
visit www.torm.com/investors.
INVESTOR RELATIONS CONTACT
FINANCIAL CALENDAR 2015
Christian Søgaard-Christensen
Vice President, Investor Rela-
tions & Corporate Support
Phone: +45 3917 9285
E-mail: csc@torm.com
26 March 2015
Annual General Meeting
13 May 2015
First quarter 2015 results
12 August 2015
First half 2015 results
11 November 2015
Nine months 2015 results
TORM 2014
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About TORM
35
TORM 2014
TORM 2014 FINANCIAL STATEMENTS
Financial review
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes
Statement by Management
Independent auditor’s report
Parent Company
Fleet overview
Glossary
38
44
45
46
48
49
50
80
81
83
96
98
TORM 2014
38
Financial review 2014
FINANCIAL REVIEW
FINANCIAL PERFORMANCE OVERVIEW
TORM achieved a net loss of USD 284m in 2014 (2013: USD
-162m), resulting in earnings/(loss) per share, or EPS, of USD
-0.4 in 2014 (2013: USD -0.2). The lower result in 2014 was
mainly due to impairment charges. In 2014, TORM recorded
impairment losses of USD 192m (2013: USD 60m) relating to
vessels held-for-sale and the fleet on water. Please refer to
note 9 of the Company’s consolidated financial statements for
a review of the impairment testing performed by Management.
EBITDA for 2014 was USD 77m, which is in line with the latest
guidance of an EBITDA of USD 70-80m dated 6 November
2014.
The loss before tax for 2014 was USD 283m, which is also in
line with the latest guidance of a loss before tax of USD 280-
290m.
In 2014, total revenues were USD 624m (2013: USD 992m)
and TCE earnings amounted to USD 326m (2013: USD 443m).
The decrease in TCE earnings was primarily attributable to a
decrease of 35% in the number of available earning days, cor-
responding to a reduction in earnings of USD 141m. This was
offset by higher freight rates in both the Company’s Tanker
Segment and the Bulk Segment, corresponding to an increase
in earnings of USD 19m.
The operating loss increased by USD 120m to a loss of USD
211m in 2014 (2013:USD 91m). This increase was primarily
due to a decrease in gross profit (net earnings from shipping
activities) of USD 27m and an increase of USD 132m in impair-
ment losses on vessels. This was partly offset by decreases
in administrative expenses of USD 6m and amortizations and
depreciations on tangible and intangible assets of USD 31m.
TORM’s total assets decreased by USD 624m in 2014 to USD
1,384m (2013: USD 2,008m), of which the carrying amount of
vessels including vessels held-for-sale, capitalized dry-dock-
ing and prepayments on vessels amounted to USD 1,215m
(2013: USD 1,812m). The decrease was primarily attributable
to sale of vessels of USD 385m, impairment losses of USD
192m and depreciation of USD 96m.
In 2014, current assets excluding cash decreased by USD
158m. This was primarily due to a decrease in assets held-
for-sale of USD 120m, a decrease in bunkers of USD 22m and
a decrease in freight receivables of USD 8m. The decrease in
bunkers was driven by the decrease in the fleet of owned and
chartered vessels and the decrease in bunker prices, whereas
the decrease in freight receivables primarily was driven by the
decrease in revenue.
Total equity decreased year-on-year by USD 282m in 2014 to
USD -164m from USD 118m in 2013. The decrease was mainly
relating to the loss for the year of USD 284m. The impact of
the loss for the year was partly offset by a reversal of a hedg-
ing reserve of USD 5m.
TORM 2014
TORM’s total liabilities decreased by USD 342m in 2014 to
USD 1,548m from USD 1,890m in 2013. This was primarily
attributable to repayment of bank loans in connection with the
sale and delivery of 17 vessels of USD 329m and a decrease
in trade payables of USD 26m due to the decrease in the fleet
of owned and chartered vessels. This was partly offset by
additional net drawdowns of USD 8m on the Working Capital
Facility.
SEGMENT RESULTS
TORM’s revenues derive from two segments: The Tanker Seg-
ment and the Bulk Segment. The table Segment gross profit/
(loss) on page 39 presents the results of shipping activities by
operating segment for 2014 and 2013. The gross profit for 2014
in the Tanker Segment decreased by USD 49m, and the gross
profit in the Bulk Segment increased by USD 22m compared
to 2013.
The change in TCE earnings in the Tanker Segment and the
Bulk Segment is summarized in the table on page 39.
Furthermore, the table on page 40 summarizes earnings data
per quarter.
Tanker Segment
Revenue in the Tanker Segment decreased by 23% to USD
597m in 2014 from USD 775m in 2013, and TCE earnings
decreased by USD 69m or 19% to USD 295m in 2014 from USD
364m in 2013. The decrease in TCE earnings was primarily due
to a decrease in the number of available earning days of 22%,
partly offset by an increase in the weighted average TCE earn-
ings per available earning day of 3% compared to 2013.
In the LR2 fleet, three vessels were sold and delivered to the
new owners in 2014, causing the number of available earning
days in the LR2 fleet to decrease by 15% in 2014, thereby
resulting in a reduction in earnings of USD 7m. On the other
hand, the average freight rates increased by 15% from 2013 to
2014, resulting in an increase in earnings of USD 6m. Hence,
earnings in total decreased by USD 1m.
The available earning days in the LR1 fleet were 13% lower
compared to 2013 as TORM no longer has time-chartered
vessels in this segment. However, this was compensated by an
increase in the average freight rates of 17% in 2014. In total,
earnings increased by USD 1m.
In the MR fleet, 14 vessels were sold and delivered to the new
owners in 2014, three of which were time-chartered back to
TORM. Combined with the sale of five vessels during 2013,
the number of available earning days decreased by 4,180
days or 29%, resulting in a decrease in earnings of USD 66m.
Furthermore, freight rates decreased by 6%, resulting in lower
earnings of USD 10m. Hence, total earnings decreased by USD
76m.
In the Handysize fleet, the average freight rates were 20%
higher in 2014 compared to 2013, resulting in a net increase in
earnings of USD 7m. There were no changes in the fleet size
during 2014.
Financial review 2014
39
SEGMENT GROSS PROFIT/(LOSS)
USDm
Revenue
Port expenses, bunkers and commissions
Freight and bunker derivatives
Time charter equivalent earnings
Charter hire
Operating expenses
Gross profit/(loss) (Net earnings from shipping activities)
Tanker
Segment
Bulk
Segment
Total
2013
Tanker
Segment
Bulk
Segment
774.8
-410.8
0.1
364.1
-22.1
-169.9
172.1
217.5
-139.7
1.3
79.1
-97.1
-3.7
-21.7
992.3
-550.5
1.4
443.2
-119.2
-173.6
150.4
597.1
-302.1
0.0
295.0
-26.8
-145.3
122.9
27.0
4.0
-0.2
30.8
-26.8
-3.9
0.1
Total
2014
624.1
-298.1
-0.2
325.8
-53.6
-149.2
123.0
CHANGE IN TIME CHARTER EQUIVALENT EARNINGS
USDm
Time charter equivalent earnings 2013
Change in number of earning days
Change in freight rates
Other
Handy-
size
50.2
-2.8
9.3
MR
225.9
-65.5
-10.0
LR1
41.5
-5.4
6.3
LR2
46.5
-7.1
6.1
-
-
-
-
Time charter equivalent earnings 2014
56.7
150.4
42.4
45.5
Tanker
Seg-
ment
Total
364.1
-80.8
11.7
-
295.0
Un-
allo-
cated
0.0
-
-
-
-
Handy-
max
Pana-
max
Bulk
Seg-
ment
Total
Un-
allo-
cated
Total
28.2
51.7
-0.8
79.1
443.2
-25.1
-34.9
-
-
-1.3
-60.0
-140.8
7.5
4.2
19.2
4.2
6.2
4.0
27.0
-2.1
30.8
325.8
1.3
1.5
5.9
Unallocated earnings comprise fair value adjustment of freight and bunker derivatives, which are not designated as hedges, and gains
and losses on freight and bunker derivatives, which are not entered into for hedging purposes.
Bulk Segment
TORM has continued to scale down the bulk activities in 2014,
and the remaining fleet is employed in the long-term period
market.
The revenue decreased by 88% to USD 27m (2013: USD 218m),
whereas TCE earnings decreased by 61% or USD 48m to
USD 31m in 2014 (2013:USD 79m). Earnings were negatively
affected by an overall decrease of 70% in the number of avail-
able earning days. This was only partly offset by an increase in
the weighted average TCE earnings per available earning day
of 26% compared to 2013.
In the Panamax fleet, the number of available earning days
decreased by 4,352 days or 63% in 2014 as compared to 2013
due to a decrease in the time charter fleet, which caused
earnings to decrease by USD 35m. Freight rates were on aver-
age 31% higher in 2014 and increased earnings by USD 6m in
2014 as compared to 2013.
OPERATION OF VESSELS
As compared to 2013, the charter hire cost in the Tanker
Segment increased by USD 5m or 21% to USD 27m in 2014,
whereas the charter hire cost in the Bulk Segment decreased
by USD 70m or 72% to USD 27m. The increase in the Tanker
Segment was caused by three MR vessels that were sold and
time chartered back by TORM. The decrease in the Bulk Seg-
ment was due to reduced activity.
The development in operating expenses is summarized in the
table on page 41. The table also summar i zes the operating
data for the Company’s fleet of owned and bareboat chartered
vessels.
Operating expenses for the owned vessels decreased by USD
25m to USD 149m in 2014 due to fewer operating days as a
result of the final delivery of 17 vessels. This was partly offset
by an increase in operating expenses per day following invest-
ments in the owned fleet in order to increase the quality and
performance.
In the Handymax fleet, the number of available earning days
decreased by 2,544 days or 85% in 2014 compared to 2013
due to a decrease in the time charter fleet. The decrease in
available earning days reduced earnings by USD 25m, whereas
a decrease in average freight rates of 29% resulted in a de-
crease in earnings of USD 1m.
The total fleet of owned vessels had 802 off-hire and dry-dock-
ing days, corresponding to 4% of the number of operating days
in 2014 compared to 651 off-hire days in 2013, equivalent to 3%
of the number of operating days. This was mainly attributable
to an increase in dry-docking activities.
TORM 2014
40
Financial review 2014
EARNINGS DATA
USDm
TANKER DIVISION
LR2/Aframax vessels
Available earning days
Owned
T/C
Spot rates 1)
TCE per earning day 2)
LR1/Panamax vessels
Available earning days
Owned
T/C
Spot rates 1)
TCE per earning day 2)
MR vessels
Available earning days
Owned
T/C
Spot rates 1)
TCE per earning day 2)
Handysize vessels
Available earning days
Owned
T/C
Spot rates 1)
TCE per earning day 2)
BULK ACTIVITIES
Panamax vessels
Available earning days
Owned
T/C
TCE per earning day 2)
Handymax vessels
Available earning days
Owned
T/C
TCE per earning day 2)
2013
Full year
Q1
Q2
Q3
Q4
Full year
2014
%
Change
full year
3,493
2,765
728
13,134
13,350
2,803
2,535
268
14,212
14,958
14,369
13,297
1,072
15,914
15,682
3,930
3,930
0
12,783
12,773
6,868
706
6,162
8,019
3,009
0
3,009
9,880
880
706
174
12,415
11,499
610
610
0
15,579
15,067
3,115
2,912
203
15,207
14,141
947
947
0
15,633
15,404
818
643
175
14,596
14,952
621
446
175
17,582
17,829
641
458
183
23,577
19,033
604
604
-
597
597
-
635
635
-
17,258
15,927
19,172
17,963
22,274
21,110
2,554
2,235
319
13,130
13,481
921
921
0
14,992
13,988
2,245
1,788
457
14,295
14,049
881
881
0
14,690
14,740
2,275
1,817
458
18,574
17,461
960
960
0
17,739
16,917
2,960
2,253
707
16,807
15,413
2,445
2,445
0
17,770
17,556
10,189
8,752
1,437
15,224
14,697
3,710
3,710
0
15,583
15,287
637
180
457
627
182
445
638
172
466
614
165
449
2,516
699
1,817
-15%
28%
15%
-13%
25%
17%
-29%
-4%
-6%
-6%
22%
20%
-63%
12,147
12,286
10,426
6,952
10,477
31%
174
0
174
107
0
107
92
0
92
92
0
92
465
0
465
-85%
19,162
9,401
6,097
11,176
12,748
29%
1) Spot rate = Time Charter Equivalent earnings for all charters with less than six months’ duration = Gross freight income less bunker, commissions and port expenses.
2) TCE = Time Charter Equivalent earnings = Gross freight income less bunker, commissions and port expenses.
Administrative expenses and other operating income
Total administrative expenses amounted to USD 51m in 2014,
which was a decrease of USD 6m or 10% (2013: USD 57m).
This was mainly driven by a reduction in staff-related expenses
and audit, consultancy costs and the appreciation of USD.
Other operating income primarily consisting of chartering
commissions and service fees amounted to USD 5m in 2014
(2013: USD 2m). The increase is due to the fact that the major-
ity of the product tankers sold to entities controlled by Oaktree
Capital Management were placed under TORM’s commercial
and technical management.
TORM 2014
Financial income and expenses
Net financial expenses in 2014 were USD 72m (2013: USD
76m), corresponding to a decrease of USD 4m. This was
mainly due to the sale of vessels, where the associated vessel
financing was fully repaid, thereby reducing of the Company’s
interest expenses by USD 17m. This was partly offset by an in-
crease of USD 14m relating to fees to advisors of the Company
and the Company’s creditors for the ongoing work regarding a
restructuring.
Financial review 2014
41
CHANGE IN OPERATING EXPENSES
USDm
Tanker Division
Bulk Activities
Operating expenses 2013
Change in operating days
Change in operating expenses per day
Other
Operating expenses 2014
Handysize
28
-
4
-
32
MR
98
-33
6
-
71
LR1
17
-
2
-
19
LR2
Panamax Unallocated
Total
27
-4
2
-2
23
4
-
-
-
4
0
-
-
-
0
174
-37
14
-2
149
OPERATING DATA
USD/day
Operating expenses per operating
day in 2013
Operating expenses per operating
day in 2014
Change in the operating expenses
per operating day in %
Tanker Division
Bulk Activities
Handysize
MR
LR1
LR2
Tanker Handymax Panamax
Bulk
Total
7,067
7,155
6,842
7,354
7,134
7,862
7,801
7,351
8,023
7,788
-
-
5,060
5,060
7,071
5,320
5,320
7,695
11%
9%
7%
9%
9%
N/A
5%
15%
9%
Operating days in 2014*)
4,015
9,072
2,555
3,019
18,661
- Off-hire
- Dry-docking
+/- Bareboat charters out/in
+ Vessels chartered in
Available earning days
*) Including bareboat charters.
88
218
-
-
160
159
-
1,436
11
99
-
0
28
8
287
484
-730
-730
707
2,143
3,710
10,189
2,445
2,960
19,304
-
-
-
465
465
730
730
19,391
6
25
-
6
25
-
1,817
2,282
293
509
-730
4,425
2,516
2,981
22,285
Tax
Tax for the year amounted to an expense of USD 1m compared
to an income of USD 4m in 2013. The tax for 2014 comprises
a current tax expense for the year of USD 2m, which was
unchanged from the previous year, and an income of USD 1m
in the deferred tax liability mainly related to adjustments to
the transition account under the Danish tonnage tax scheme
following the sale of vessels. In 2013, there was an expense of
USD 1m due to an adjustment of the estimated tax liabilities
for the previous years, and an income of USD 7m in the de-
ferred tax liability, mainly related to the reduction in the Danish
company tax rate from 25% in 2014 to 22% in 2016 when the
reduction will be fully phased in.
Vessels and dry-docking
The decrease in tangible fixed assets of USD 480m to USD
1,218m in 2014 is mainly attributable to impairment losses for
the year, sale of vessels and depreciation for the year.
Transfer to assets held-for-sale amounted to USD 0m in
2014 (2013: USD 120m). Depreciation regarding tangible fixed
assets amounted to USD 96m in 2014 (2013: USD 127m), and
an impairment loss of USD 192m mainly relating to the sale of
ten MR vessels and three LR2 vessels was recorded in 2014,
whereas the impairment loss relating to the tanker fleet in
2013 was USD 60m.
Assessment of impairment of assets
Management has followed the usual practice of performing an
impairment review every quarter and presenting the outcome
to the Audit Committee. The Audit Committee evaluates the
impairment review and prepares a recommendation to the
Board of Directors. The recoverable amount of the assets is
reviewed by assessing the net selling price and the value in
use for the significant assets within the two cash generat-
ing units of the Company: The Tanker Segment and the Bulk
Segment.
In the assessment of the net selling price, Management
included a review of market values calculated as the aver-
age of two internationally recognized shipbrokers’ valuations.
The shipbrokers’ primary input is deadweight tonnage, yard
and age of the vessel. The assessment of the value in use
was based on the net present value (NPV) of the expected
future cash flows. The key assumptions are considered to be
related to future developments in freight rates and operating
expenses and to the weighted average cost of capital (WACC)
applied as discounting factor in the calculations.
The impairment assessment, which is made under the as-
sumption that TORM will continue to operate its fleet in the
current set-up, is highly sensitive in particular to changes in
the freight rates. Please refer to note 9 for further details.
Investments in entities, including joint ventures
The carrying amount of the investment in jointly controlled
entities was USD 1m at 31 December 2014 (2013: USD 1m).
The share of results of jointly controlled entities in 2014 was
USD 0m (2013: USD 0m).
In 2014, one bank exercised its option to initiate a sales process
of the ten MR and three LR2 product tankers financed by that
bank. These 13 vessels were subsequently sold to a company
controlled by Oaktree Capital Management. As a result,
TORM took an impairment loss of USD 43m in addtion to an
TORM 2014
42
Financial review 2014
impairment loss on the remaining fleet of USD 149m.
In 2013, an option leading to the sale of four MR vessels and
an impairment loss of USD 55m was exercised together with
a recorded impairment loss of USD 5m relating to five vessels
sold in 2012 and further impaired in 2013. The Tanker Seg-
ment and the Bulk Segment were not further impaired in 2014.
The Company will continue to monitor developments on a
quarterly basis for indications of impairment.
LIQUIDITY AND CASH FLOW
In 2014, the invested capital decreased by USD 604m to
USD 1,219m at 31 December 2014 (2013: USD 1,823m). The
decrease can primarily be explained by the disposal of vessels,
impairment loss for the year and depreciations for the year.
Total cash and cash equivalents amounted to USD 45m at the
end of 2014 (2013: USD 29), resulting in a net increase in cash
and cash equivalents for the year of USD 16m, compared to a
net decrease of USD 1m in 2013. The undrawn credit facility at
31 December 2014 amounted to USD 20m (2013: USD 78m).
The Company’s operations generated a cash inflow of USD
27m in 2014 (2013: USD 68m) including a cash outflow on fees
amounting to USD 12.2m to advisors of the Company and the
Company’s creditors for the ongoing work on a restructuring.
In addition, the Company invested USD 42m (2013: USD 41m)
in tangible fixed assets during 2014, primarily covering the
capitalized dry-docking. The Company generated USD 355m
(2013: 135m) in cash flow from the sale of non-current assets,
primarily vessels.
The total cash outflow from financing activities amounted to
USD 324m, compared to a cash outflow of USD 161m in 2013.
Repayment on mortgage debt and bank loans amounted to
USD 349m primarily in connection with vessel sales. Additional
borrowings generated an inflow of USD 25m relating to the
Working Capital Facility. TORM did not pay any dividends to its
shareholders during 2014.
PRIMARY FACTORS AFFECTING RESULTS OF OPERATIONS
TORM generates revenue by charging customers for the
transportation of refined oil products, crude oil and, to a lesser
extent, dry bulk cargos, using the Company’s tankers and dry
bulk vessels. The Company’s focus is on maintaining a young,
high quality fleet and optimizing the mix between long-term
chartered-in and owned vessels to the extent allowed in
TORM’s financing agreement. The Company actively manages
the deployment of the fleet between spot market voyage
charters, which generally lasts from several days to several
weeks, and time charters to the extent allowed in TORM’s
financing agreement. Some of the Company’s product tankers
have been employed in a pool during the year, where revenue
is generated from both spot market voyage charters and time
charters.
TORM believes that the important measures for analyzing
trends in the results of its operations for both tankers and dry
bulk vessels consist of the following:
Time charter equivalent (TCE) earnings per available earn-
ing day. TCE earnings per available earning day are defined
as revenue less voyage expenses divided by the number of
available earning days. Voyage expenses primarily consist
of port and bunker expenses that are unique to a particu-
lar voyage, which would otherwise be paid by a charterer
under a time charter, as well as commissions, freight and
bunker derivatives. TORM believes that presenting revenue
net of voyage expenses neutralizes the variability created
by unique costs associated with particular voyages or the
deployment of vessels on the spot market and facilitates
comparisons between periods on a consistent basis. Under
time charter contracts, the charterer pays the voyage ex-
penses, while under voyage charter contracts the shipowner
pays these expenses. A charterer has the choice of entering
into a time charter (which may be a one-trip time charter)
or a voyage charter. TORM is neutral as to the charterer’s
choice because the Company will primarily base its financial
decisions on expected TCE rates rather than on expected
revenue. The analysis of revenue is therefore primarily
based on developments in TCE earnings.
TORM 2014
•
Spot charter rates. A spot market voyage charter is gen -
Operating days. Operating days are the total number of
Financial review 2014
43
available days in a period with respect to the owned vessels,
before deducting unavailable days due to off-hire days and
days in dry-dock. Operating days is a measurement that
is only applicable to the owned vessels, not to the time
chartered-in vessels.
Operating expenses per operating day. Operating expenses
per operating day are defined as crew wages and related
costs, the costs of spares and consumable stores, expenses
relating to repairs and maintenance (excluding capitalized
dry-docking), the cost of insurance and other expenses on
a per operating day basis. Operating expenses are only paid
for owned vessels. The Company does not pay such costs
for the time chartered-in vessels, as they are paid by the
vessel owner and instead factored into the charter hire cost
for such chartered-in vessels.
erally a contract to carry a specific cargo from a load port to
a discharge port for an agreed freight rate per ton of cargo
or a specified total amount. Under spot market voyage char-
ters, TORM pays voyage expenses such as port, canal and
bunker costs. Spot charter rates are volatile and fluctuate
on a seasonal and year-on-year basis. Fluctuations derive
from imbalances in the availability of cargos for shipment
and the number of vessels available at any given time
to transport these cargos. Vessels operating in the spot
market generate revenue that is less predictable, but may
enable the Company to capture increased profit margins
during periods of improvements in tanker rates.
Time charter rates. A time charter is generally a contract
to charter a vessel for a fixed period of time at a set daily
or monthly rate. Under time charters, the charterer pays
voyage expenses such as port, canal and bunker costs. Ves-
sels operating on time charters provide more predictable
cash flows, but can yield lower profit margins than vessels
operating in the spot market during periods characterized
by favourable market conditions.
Available earning days. Available earning days are the total
number of days in a period when a vessel is ready and avail-
able to perform a voyage, meaning the vessel is not off-hire
or in dry-dock. For the owned vessels, this is calculated by
taking operating days and subtracting off-hire days and days
in dry-dock. For the chartered-in vessels, no such calcula-
tion is required because charter hire is only paid on earning
days and not for off-hire days or days in dry-dock.
TORM 2014
•
•
•
•
•
44
Consolidated financial statements 2014
CONSOLIDATED INCOME STATEMENT
1 JANUARY – 31 DECEMBER
USD '000
Revenue
Port expenses, bunkers and commissions
Freight and bunker derivatives
Time charter equivalent earnings
Charter hire
Operating expenses
Gross profit (Net earnings from shipping activities)
Administrative expenses
Other operating income
Share of profits/(loss) from joint ventures
EBITDA
Note
2014
2013
624,173
992,336
-298,124
-550,547
-236
1,408
325,813
443,197
-53,628
-119,203
-149,229
-173,637
122,956
150,357
4
3
4, 5
-50,966
-56,521
4,590
387
1,690
493
28
76,967
96,019
Impairment losses on tangible and intangible assets
Amortizations and depreciation
7, 8, 9, 26
-191,691
-59,772
7, 8
-96,310
-126,903
Operating profit/(loss) (EBIT)
Financial income
Financial expenses
Profit/(loss) before tax
Tax
Net profit/(loss) for the year
EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share (USD)
Earnings/(loss) per share (DKK)*)
Diluted earnings/(loss) per share (USD)
Diluted earnings/(loss) per share (DKK)*)
*) Calculated from USD to DKK at the average USD/DKK exchange rate for the relevant period.
The accompanying notes are an integrated part of these financial statements.
-211,034
-90,656
10
10
3,786
4,199
-76,164
-79,703
-283,412
-166,160
13
-769
3,927
-284,181
-162,233
29
29
2014
-0.4
-2.2
-0.4
-2.2
2013
-0.2
-1.3
-0.2
-1.3
TORM 2014
Consolidated financial statements 2014
45
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
1 JANUARY – 31 DECEMBER
USD '000
Net profit/(loss) for the year
Other comprehensive income:
Items that may be reclassified to profit or loss:
Exchange rate adjustment arising on translation of entities using a functional currency different from USD
Reclassification adjustments relating to disposed entities
Fair value adjustment on hedging instruments
Value adjustment on hedging instruments transferred to income statement
Fair value adjustment on other investments available-for-sale
Other comprehensive income after tax *)
Total comprehensive income for the year
*) No income tax falls on other comprehensive income items.
The accompanying notes are an integrated part of these financial statements.
2014
2013
-284,181
-162,233
-971
-196
-2,326
7,327
-1,467
2,367
-256
0
0
11,553
575
11,872
-281,814
-150,361
TORM 2014
46
Consolidated financial statements 2014
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER
USD '000
ASSETS
NON-CURRENT ASSETS
Intangible assets
Goodwill
Other intangible assets
Total intangible assets
Tangible fixed assets
Land and buildings
Vessels and capitalized dry-docking
Other plant and operating equipment
Total tangible fixed assets
Financial assets
Investments in joint ventures
Other investments
Total financial assets
Total non-current assets
CURRENT ASSETS
Bunkers
Freight receivables
Other receivables
Prepayments
Cash and cash equivalents
Total current assets excluding assets held-for-sale
Non-current assets held-for-sale
Total current assets
TOTAL ASSETS
The accompanying notes are an integrated part of these financial statements.
Note
2014
2013
0
1,355
1,355
0
1,537
1,537
7, 9
0
0
18
1,214,807
1,692,739
3,002
4,684
8, 9
1,217,809
1,697,423
9, 28
6
920
10,890
11,810
1,034
12,322
13,356
1,230,974
1,712,316
11
12
23,863
71,832
5,222
7,727
44,631
46,075
79,713
13,280
7,617
29,109
153,275
175,794
26
0
119,500
153,275
295,294
1,384,249
2,007,610
TORM 2014
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER
USD '000
EQUITY AND LIABILITIES
EQUITY
Common shares
Special reserve
Treasury shares
Revaluation reserves
Hedging reserves
Currency translation reserves
Retained profit/(loss)
Total equity
LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax liability
Mortgage debt and bank loans
Finance lease liabilities
Deferred income
Total non-current liabilities
CURRENT LIABILITIES
Mortgage debt and bank loans
Trade payables
Current tax liabilities
Other liabilities
Deferred income
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
Consolidated financial statements 2014
47
Note
2014
2013
14
14
1,247
60,974
1,247
60,974
-19,048
-19,048
5,458
-6,185
2,581
-209,022
-163,995
6,925
-11,186
3,748
75,048
117,708
13
45,009
46,337
2, 17, 18, 20
1,319,169
1,565,222
20, 21
15
11,901
2,858
12,851
4,041
1,378,937
1,628,451
2, 17, 18, 20
107,906
168,645
20
16, 20
15
18,260
2,026
38,773
2,342
43,891
1,581
43,513
3,821
169,307
261,451
1,548,244
1,889,902
1,384,249
2,007,610
The accompanying notes are an integrated part of these financial statements.
Accounting policies, critical estimates and judgements
Liquidity, capital resources and subsequent events
Guarantee commitments and contingent liabilities
Derivative financial instruments
Risks associated with TORM's activities
Financial instruments
Related party transactions
1
2
19
22
23
24
25
TORM 2014
48
Consolidated financial statements 2014
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
USD ‘000
EQUITY
Common
shares
Special
reserve*)
Treasury
shares**)
Revalu-
ation
reserves
Hedging
reserves
Trans-
lation
reserves
Retained
profit /
(loss)
Total
Equity at 1 January 2013
1,247
60,974
-19,104
6,350
-22,739
4,004
236,607
267,339
Comprehensive income for the year:
Net profit/(loss) for the year
Other comprehensive income for the year***)
Total comprehensive income for the year
Disposal of treasury shares, cost
Gain from disposal of treasury shares
Share-based compensation
Total changes in equity 2013
-
-
0
-
-
-
0
-
-
0
-
-
-
0
-
-
0
56
-
-
56
-
575
575
-
-
-
-
-
-162,233 -162,233
11,553
11,553
-256
-
11,872
-256 -162,233 -150,361
-
-
-
-
-
-
-
37
637
56
37
637
575
11,553
-256 -161,559 -149,631
Equity at 31 December 2013
1,247
60,974
-19,048
6,925
-11,186
3,748
75,048
117,708
Comprehensive income for the year:
Net profit/(loss) for the year
Other comprehensive income for the year***)
Total comprehensive income for the year
Disposal of treasury shares, cost
Gain from disposal of treasury shares
Share-based compensation
Total changes in equity 2014
-
-
0
-
-
-
0
-
-
0
-
-
-
0
-
-
0
-
-
-
0
-
-1,467
-1,467
-
5,001
5,001
-
-284,181 -284,181
-1,167
-
2,367
-1,167 -284,181 -281,814
-
-
-
-
-
-
-
-
-
-
-
0
0
111
111
-1,467
5,001
-1,167 -284,070 -281,703
Equity at 31 December 2014
1,247
60,974
-19,048
5,458
-6,185
2,581 -209,022 -163,995
*) The special reserve was established in conjunction with a capital decrease in 2012. In accordance with the Danish Companies Act, the special reserve can be used
by the Board of Directors to distribute dividends or for other purposes that the Board of Directors may deem appropriate.
**) Please refer to note 14 in the consolidated financial statements for further information on treasury shares.
***) Please refer to ”Consolidated Statement of Comprehensive Income”.
The accompanying notes are an integrated part of these financial statements.
TORM 2014
CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY - 31 DECEMBER
USD '000
CASH FLOW FROM OPERATING ACTIVITIES
Operating profit/(loss)
Adjustments:
Reversal of amortization and depreciation
Reversal of impairment of tangible and intangible assets
Reversal of share of profit/(loss) from joint ventures
Reversal of other non-cash movements
Dividends received
Dividends received from joint ventures
Interest received and exchange gains
Interest paid and exchange losses
Advisor fees related to financing and restructuring plan
Income taxes paid/repaid
Change in bunkers, receivables and payables
Consolidated financial statements 2014
49
Note
2014
2013
-211,034
-90,656
96,310
191,691
-387
-6,642
877
500
78
-34,726
-12,166
-1,888
4,287
126,903
59,772
-493
5,277
547
500
56
-55,123
-1,172
-1,914
24,249
27
27
Net cash flow from operating activities
26,900
67,946
CASH FLOW FROM INVESTING ACTIVITIES
Investment in tangible fixed assets
Sale of non-current assets
Net cash flow from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing, mortgage debt
Repayment/redemption, mortgage debt
Transaction costs share issue
Purchase/disposal of treasury shares
Net cash flow from financing activities
Net cash flow from operating, investing and financing activities
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Of which restricted cash and cash equivalents
Non-restricted cash and cash equivalents at 31 December
The accompanying notes are an integrated part of these financial statements.
-42,254
355,281
-41,333
134,703
313,027
93,370
25,000
18,000
-349,405
-177,556
0
0
-1,072
93
-324,405
-160,535
15,522
781
29,109
28,328
44,631
29,109
0
0
44,631
29,109
TORM 2014
50
Notes
NOTE 1
ACCOUNTING POLICIES, CRITICAL ACCOUNTING ESTIMATES AND
JUDGEMENTS
KEY ACCOUNTING POLICIES
Management considers the following to be the most important ac-
counting policies for the TORM Group.
The annual report has been prepared in accordance with the Inter-
national Financial Reporting Standards as adopted by the EU and the
additional Danish disclosure requirements for annual reports for listed
companies.
The financial statements are prepared in accordance with the his torical
cost convention except where fair value accounting is specifically
required by IFRS.
The functional currency in all major entities is USD, and the Company
applies USD as presentation currency in the preparation of the annual
report.
ADOPTION OF NEW OR AMENDED IFRSs
TORM has implemented the following standards issued by IASB and
adopted by the EU and the interpretations in the annual report for 2014:
IFRS 10 “Consolidated Financial Statements”
IFRS 11 “Joint Arrangements”
IFRS 12 “Disclosures of Interests in Other Entities”
IAS 27 “Separate Financial Statements”
IAS 28 “Investments in Associates and Joint Ventures”
IFRIC 21 “Levies”
The implemented standards have not had any effect on the recogni-
tion of the consolidated entities, but have only impacted disclosures.
The new control concept in IFRS 10 has not changed the consolidated
entities as all subsidiaries were already included in the consolidated
financial statements. IFRS 11 had no effect as TORM already recognized
joint ventures using the equity method. IFRIC 21 had no effect on the
accounting policies.
Moreover, TORM has implemented minor changes to:
IAS 32 “Financial Instruments: Presentation” – Amendments
relating to the offsetting of assets and liabilities
IAS 36 “Impairment of Assets” - Amendments arising from
Recoverable Amount Disclosures for Non-Financial Assets
IAS 39 “Financial Instruments: Recognition and Measurement”
- Amendments for novations of derivatives
The implementation of the amendments did not affect TORM’s
accounting policies.
ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET
ADOPTED
IASB has issued a number of new or amended and revised accounting
standards and interpretations that potentially could come into effect:
IFRS 9 “Financial Instruments”. The standard and subsequent
amendments will substantially change the classification and meas-
urement of financial instruments and hedging requirements. The
new standard and amendments have not yet been endorsed by the
European Union. IASB has tentatively decided that the mandatory
effective date of the standard will be no earlier than annual periods
beginning on or after 1 January 2018
IFRS 15 “Revenue from Contracts with Customers”
Amendments to IFRS 11 “Accounting for Acquisitions of Interests in
Joint Operations”
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable
Methods of Depreciation and Amortisation”
Amendments to IAS 19 “Defined Benefit Plans: Employee Contribu-
tions”
Changes from Annual Improvements to IFRS 2010–2012
Changes from Annual Improvements to IFRS 2011–2013
The impact on the consolidated financial statements has not yet been
determined on a sufficiently reliable basis.
TORM 2014
Participation in pools
TORM generates its revenue from shipping activities, which to some ex-
tent are conducted through pools. Total pool revenue is generated from
each vessel participating in the pools in which the Group participates
and is based on either voyage or time charter parties. The pool meas-
ures net revenues based on the contractual rates and the duration of
each voyage, and net revenue is recognized upon delivery of services in
accordance with the terms and conditions of the charter parties.
The pools are considered to be joint operations, which is a joint
arrangement whereby the parties that have joint control of the ar-
rangement have rights to the assets and liabilities relating to the
arrangement. Joint control is considered to be the contractually agreed
sharing of control of the arrangement, where the decisions for the
relevant activities require unanimous consent from the partners in the
arrangement.
TORM recognizes the Company’s share of the income statement and
balance sheet in the respective pools by recognizing a proportional
share, based on participation in the pool, combining items of a uniform
nature.
The Company’s share of the income in the pools is primarily dependent
on the number of days the Company’s vessels have been available for the
pools in relation to the total available pool earning days during the period.
In 2014, TORM acted as pool manager of one pool in which the Company
is participating with a significant number of vessels. As pool manager
TORM receives a chartering commission income to cover the expenses
associated with this role. The chartering commission income is cal-
culated as a fixed percentage of the freight income from each charter
agreement. If the pool does not earn any freight income, TORM will not
receive any commission income. The commission income is recognized
in the income statement under “Other operating income” simultane-
ously with the recognition of the underlying freight income in the pool.
Cross-over voyages
Revenue is recognized upon delivery of services in accordance with the
terms and conditions of the charter parties. For cross-over voyages
(voyages in progress at the end of a reporting period), the uncertainty
and the dependence on estimates are greater than for finalized voy-
ages. The Company recognizes a percentage of the estimated revenue
for the voyage equal to the percentage of the estimated duration of the
voyage completed at the balance sheet date. The estimate of revenue is
based on the expected duration and destination of the voyage. Voyage
expenses are recognized as incurred.
When recognizing revenue, there is a risk that the actual number of
days it takes to complete the voyage will differ from the estimate, and
for time charter parties a lower day rate may have been agreed for
additional days. The contract for a single voyage may state several
alternative destination ports. The destination port may change during
the voyage, and the rate may vary depending on the destination port.
Changes to the estimated duration of the voyage as well as changing
destinations and weather conditions will affect the voyage expenses.
Demurrage revenue
Freight contracts contain conditions regarding the amount of time
available for loading and discharging of the vessel. If these conditions
are breached, TORM is compensated for the additional time incurred
in the form of demurrage revenue. Demurrage revenue is recognized
upon delivery of services in accordance with the terms and conditions
of the charter parties. Upon completion of the voyage, the Company
assesses the time spent in port, and a demurrage claim based on the
relevant contractual conditions is submitted to the charterers. The
claim will often be met by counterclaims due to differences in the
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Notes
51
NOTE 1 – CONTINUED
interpretation of the agreement compared to the actual circumstances
of the additional time used. Based on previous experience, 95% of the
demurrage claim submitted is recognized as demurrage revenue. The
Company receives the demurrage payment upon reaching final agree-
ment on the amount, which on average is approximately 100 days after
the original demurrage claim was submitted. If the Group accepts a
reduction of more than 5% of the original claim, or if the charterer is
not able to pay, demurrage revenue will be affected.
Vessels
Vessels are measured at cost less accumulated depreciation and
accumulated impairment losses. Cost comprises acquisition cost and
costs directly related to the acquisition up until the time when the asset
is ready for use, including interest expenses incurred during the period
of construction based on the loans obtained for the vessels. All major
components of vessels except for dry-docking costs are depreciated
on a straight-line basis to the estimated residual value over their esti-
mated useful lives, which TORM estimates to be 25 years. The Company
considers that a 25-year depreciable life is consistent with what is used
by other shipowners with comparable tonnage. Depreciation is based
on cost less the estimated residual value. Residual value is estimated
as the lightweight tonnage of each vessel multiplied by scrap value per
ton. The useful life and the residual value of the vessels are reviewed at
least at each financial year-end based on market conditions, regulatory
requirements and the Company’s business plans.
The Company also evaluates the carrying amounts to determine if
events have occurred that indicate impairment and would require a
modification of the carrying amounts. Prepayment on vessels is meas-
ured at costs incurred.
Dry-docking
Approximately every 30 and 60 months depending on the nature of
work and external requirements, the vessels are required to undergo
planned dry-dockings for replacement of certain components, major
repairs and maintenance of other components, which cannot be car-
ried out while the vessels are operating. These dry-docking costs are
cap italized and depreciated on a straight-line basis over the estimated
period until the next dry-docking. The residual value of such compo-
nents is estimated at nil. The useful life of the dry-docking costs is re-
viewed at least at each financial year-end based on market conditions,
regulatory requirements and TORM’s business plans.
A portion of the cost of acquiring a new vessel is allocated to the com-
ponents expected to be replaced or refurbished at the next dry-docking.
Depreciation hereof is carried over the period until the next dry-
docking. For newbuildings, the initial dry-docking asset is estimated
based on the expected costs related to the first-coming dry-docking,
which again is based on experience and past history of similar vessels.
For second-hand vessels, a dry-docking asset is also segregated and
capitalized separately, taking into account the normal docking intervals
of the Company.
At subsequent dry-dockings, the costs comprise the actual costs in-
curred at the dry-docking yard. Dry-docking costs may include the cost
of hiring crews to carry out replacements and repairs, the cost of parts
and materials used, cost of travel, lodging and supervision of Company
personnel as well as the cost of hiring third-party personnel to oversee
a dry-docking. Dry-docking activities include, but are not limited to, the
inspection, service on turbocharger, replacement of shaft seals, service
on boiler, replacement of hull anodes, applying of antifouling and hull
paint, steel repairs and refurbishment and replacement of other parts
of the vessel.
Deferred tax
All significant Danish entities within the Group entered into the Danish
tonnage tax scheme for a binding 10-year period with effect from 1
January 2001. As a consequence of the acquisition of 50% of OMI in
2007, however, a new 10-year binding period commenced with effect
from 1 January 2008. Under the Danish tonnage tax scheme, taxable
income is not calculated on the basis of income and expenses as under
the normal corporate taxation. Instead, taxable income is calculated
with reference to the tonnage used during the year. The taxable income
of a company for a given period is calculated as the sum of the taxable
income under the tonnage tax scheme and the taxable income from the
activities that are not covered by the tonnage tax scheme computed in
accordance with the ordinary Danish corporate tax rules.
If the entities’ participation in the Danish tonnage tax scheme is aban-
doned, or if the entities’ level of investment and activity is significantly
reduced, a deferred tax liability will become payable. A deferred tax li-
ability is recognized in the balance sheet at each period end calculated
using the balance sheet liability method. The deferred tax liability relat-
ing to the vessels is measured on the basis of the difference between
the tax base of the vessels at the date of entry into the tonnage tax
scheme and the lower of cost and the realized or realizable sales value
of the vessels.
OTHER ACCOUNTING POLICIES
Consolidation principles
The consolidated financial statements comprise the financial state-
ments of the Parent Company, TORM A/S, and entities controlled by the
Company. Control is achieved, when the Company:
Has the power over the investee; and
Is exposed, or has the right to variable returns from involvement
with the investee; and
Has the ability to use its power to affect its returns
The Company reassesses whether it controls an investee if facts and
circumstances indicate that there are changes to one or more of the
three elements of controls listed above.
When the Company has less than a majority of the voting rights of an
investee, it has power over the investee when the voting rights are
sufficient to give it the practical ability to direct the relevant activities
unilaterally. The Company considers all facts and circumstances in
assessing whether or not the Company’s voting rights in an investee
are sufficient to give it power, including:
The size of the Company’s holding of voting rights relative to the size
and dispersion of holdings of the other vote holders
Potential voting rights held by the Company, other vote holders or
other parties
Rights arising from other contractual arrangements
Any additional facts and circumstances that indicate that the Com-
pany has, or does not have, the current ability to direct the relevant
activities at the time that decisions need to be made, including voting
pattern at previous shareholders’ meetings
Entities in which the Group exercises significant but not controlling
influence are regarded as associated companies and are recognized
using the equity method.
Companies which are by agreement managed jointly with one or more
companies and therefore are subject to joint control (joint ventures) are
accounted for using the equity method.
Consolidation of a subsidiary begins when the Company obtains control
over the subsidiary and ends when the Company loses control over the
subsidiary. Specifically, income and expenses of a subsidiary acquired
or disposed of during the year are included in the consolidated income
statement and other comprehensive income from the date that the
Company obtains control until the date when the Company loses con-
trol over the subsidiary.
The consolidated financial statements are prepared on the basis of the
financial statements of the Parent Company, its subsidiaries and the
Company’s share of the income statement and balance sheet of joint
operations by combining items of a uniform nature and eliminating
intercompany transactions, balances and shareholdings as well as
TORM 2014
•
•
•
•
•
•
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52
Notes
NOTE 1 – CONTINUED
realized and unrealized gains and losses on transactions between the
consolidated entities. The financial statements used for consolidation
purposes are prepared in accordance with the Company’s accounting
policies.
interest rate swaps with cap features and under “Freight and bunkers
derivatives” for forward freight agreements and forward bunker
contracts.
Foreign currencies
The functional currency of all significant entities, including subsidiaries
and associated companies, is USD, because the Company’s vessels op-
erate in international shipping markets, in which income and expenses
are settled in USD, and the Companies most significant assets and
liabilities in the form of vessels and related liabilities are denominated
in USD. Transactions in currencies other than the functional currency
are translated into the functional currency at the transaction date.
Cash, receivables and payables and other monetary items denomin-
ated in currencies other than the functional currency are translated
into the functional currency at the exchange rate at the balance sheet
date. Gains or losses due to differences between the exchange rate at
the transaction date and the exchange rate at the settlement date or
the balance sheet date are recognized in the income statement under
“Financial income and expenses”.
Segment information
TORM consists of two business segments: The Tanker Segment and
the Bulk Segment. This segmentation is based on the Group’s internal
management and reporting structure. In the Tanker Segment, the ser-
vices provided primarily comprise transportation of refined oil products
such as gasoline, jet fuel and naphtha, and in the Bulk Segment the
services provided comprise transportation of dry cargo – typically com-
modities such as coal, grain, iron ore, etc. Transactions between seg-
ments are based on market-related prices and are eliminated at Group
level. The Group only has one geographical segment, because the
Company considers the global market as a whole, and as the individual
vessels are not limited to specific parts of the world. Furthermore, the
internal management reporting does not provide such information.
Consequently, it is not possible to provide geographical segment infor-
mation on revenue from external customers or non-current segment
assets.
An exchange rate gain or loss relating to a non-monetary item carried
at fair value is recognized in the same line as the fair value adjustment.
The accounting policies applied for the segments regarding recogni-
tion and measurement are consistent with the policies for TORM as
described in this note.
The reporting currency of the Company is USD. Upon recognition of
entities with functional currencies other than USD, the financial state-
ments are translated into USD. Income statement items are translated
into USD at the average exchange rates for the period, whereas
balance sheet items are translated at the exchange rates as at the bal-
ance sheet date. Exchange differences arising from the translation of
financial statements into USD are recognized as a separate component
of equity. On the disposal of an entity, the cumulative amount of the
exchange differences recognized in the separate component of equity
relating to that entity is transferred to the income statement as part of
the gain or loss on disposal.
Derivative financial instruments
Derivative financial instruments, primarily interest rate swaps, forward
currency exchange contracts, forward freight agreements and forward
contracts regarding bunker purchases, are entered to hedge future
committed or anticipated transactions. TORM applies hedge accounting
under the specific rules on cash flow hedges when appropriate and
allowed according to the restructuring in 2012.
Derivative financial instruments are initially recognized in the balance
sheet at fair value at the date when the derivative contract is entered
into and are subsequently measured at their fair value as other
receivables or other liabilities, respectively.
Changes in the fair value of derivative financial instruments, which
are designated as cash flow hedges and deemed to be effective, are
recognized directly in “Other comprehensive income”. When the
hedged transaction is recognized in the income statement, the cumula-
tive value adjustment recognized in “Other comprehensive income” is
transferred to the income statement and included in the same line as
the hedged transaction. However, when the hedged transaction results
in the recognition of a fixed asset, the gains and losses previously accu-
mulated in “Other comprehensive income” are transferred from “Other
comprehensive income” and included in the initial measurement of the
cost of the fixed asset. Changes in the fair value of a portion of a hedge
deemed to be ineffective are recognized in the income statement.
Changes in the fair value of derivative financial instruments that are not
designated as hedges are recognized in the income statement. While
effectively reducing cash flow risk in accordance with the risk manage-
ment policy of the Company, interest rate swaps with cap features and
certain forward freight agreements and forward contracts regarding
bunker purchases do not qualify for hedge accounting. Changes in fair
value of these derivate financial instruments are therefore recognized
in the income statement under “Financial income” or expenses for
TORM 2014
The segment income statement comprises income directly attribut-
able to the segment and expenses which are directly or indirectly
attributable to the segment. Indirect allocation of expenses is based on
distribution keys reflecting the segment’s use of shared resources.
The segment’s non-current assets consist of the non-current assets
used directly for segment operations.
Current assets are allocated to segments to the extent that they are
directly attributable to segment operations, including inventories,
outstanding freight or other receivables and prepayments.
Segment liabilities comprise segment operating liabilities including
trade payables and other liabilities.
Not allocated items primarily comprise assets and liabilities as well
as revenues and expenses relating to the Company’s administrative
functions and investment activities, including cash and bank balances,
interest-bearing debt, income tax, deferred tax, etc.
Employee benefits
Wages, salaries, social security contributions, paid holiday and sick
leave, bonuses and other monetary and non-monetary benefits are
recognized in the year in which the employees render the associated
services.
Pension plans
The Group has entered into defined contribution plans only. Pension
costs related to defined contribution plans are recorded in the income
statement in the year to which they relate.
Share-based payment
For the period 2007-2009, Management and all land-based employees
and officers employed on permanent contracts (apart from trainees,
apprentices and cadets) that were directly employed by TORM A/S par-
ticipated in an incentive scheme, which included grants of shares and
share options. In 2010 and 2011, a new incentive scheme comprising
share options has been established for Management and certain key
employees. The schemes do not provide the choice of cash settlement
instead of shares. The value of the services received as consideration
for the shares and share options granted under the schemes is meas-
ured at the fair value of the granted shares and share options. The fair
value is measured at the grant date and is recognized in the income
statement as staff costs under administrative expenses and operat-
ing expenses over the vesting period. The counter item is recognized
Notes
53
NOTE 1 – CONTINUED
in equity. The fair value is measured based on the Black-Scholes and
Monte Carlo models.
revenue are recognized at selling price upon delivery of the service
according to the charter parties concluded.
Leases
Agreements to charter in vessels and to lease other plant and operat-
ing equipment, where TORM has substantially all the risks and rewards
of ownership, are recognized in the balance sheet as finance leases.
Lease assets are measured at the lower of fair value and the present
value of minimum lease payments determined in the leases.
Port expenses, bunkers and commissions
Port expenses, bunker fuel consumption and commissions are rec-
ognized as incurred. Gains and losses on forward bunker contracts
designated as hedges and write-down and provisions for losses on
freight receivables are included in this line.
For the purpose of calculating the present value, the interest rate im-
plicit in the lease or an incremental borrowing rate is used as discount
factor. The lease assets are depreciated and written down under the
same accounting policy as the vessels owned by the Company or over
the lease period depending on the lease terms.
The corresponding lease obligation is recognized as a liability in
the balance sheet, and the interest element of the lease payment is
charged to the income statement as incurred.
Other charter agreements concerning vessels and other leases are
classified as operating leases, and lease payments are charged to the
income statement on a straight-line basis over the lease term. The
obligation for the remaining lease term is disclosed in the notes to the
financial statements.
Agreements to charter out vessels, where substantially all the risks
and rewards of ownership are transferred to the lessee, are classified
as finance leases, and an amount equal to the net investment in the
lease is recognized and presented in the balance sheet as a receivable.
The carrying amount of the vessel is derecognized, and any gain or loss
on disposal is recognized in the income statement. Other agreements
to charter out vessels are classified as operating leases, and lease
income is recognized in the income statement on a straight-line basis
over the lease term.
Freight and bunker derivatives
Freight and bunker derivatives comprise fair value adjustments and
gains and losses on forward freight agreements, forward bunker
contracts and other derivative financial instruments directly relating to
shipping activities which are not designated as hedges.
Charter hire
Charter hire comprises expenses related to the chartering in of vessels
incurred in order to achieve the net revenue for the period.
Operating expenses
Operating expenses, which comprise crew expenses, repair and main-
tenance expenses and tonnage duty, are expensed as incurred.
Net profit/(loss) from sale of vessels
Net profit/(loss) from sale of vessels is recognized when the significant
risks and rewards of ownership have been transferred to the buyer,
and it is measured as the difference between the sales price less sales
costs and the carrying amount of the asset. Net profit/(loss) from sale
of vessels also includes onerous contracts related to sale of vessels
and losses from cancellation of newbuilding contracts.
Administrative expenses
Administrative expenses, which comprise administrative staff costs,
management costs, office expenses and other expenses relating to
administration, are expensed as incurred.
Sale and leaseback transactions
A gain or loss related to a sale and leaseback transaction resulting in
a finance lease is deferred and amortized in proportion to the gross
rental on the time charter over the lease term.
Other operating income
Other operating income primarily comprises chartering commissions,
management fees and profits and losses deriving from the disposal of
other plant and operating equipment.
A gain related to a sale and leaseback transaction resulting in an
operating lease is recognized in the income statement immediately,
provided the transaction is established at fair value or the sales price
is lower than the fair value. If the sales price exceeds the fair value,
the difference between the sales price and the fair value is deferred
and amortized in proportion to the lease payments over the term of the
lease. A loss related to a sale and leaseback transaction resulting in
an operating lease is recognized in the income statement at the date
of the transaction, except if the loss is compensated by future lease
payments below fair value, where the loss is deferred and amortized in
proportion to the lease payments over the term of the lease.
INCOME STATEMENT
Revenue
Income, including Revenue, is recognized in the income statement
when:
The income generating activities have been carried out on the basis
of a binding agreement
The income can be measured reliably
It is probable that the economic benefits associated with the trans-
action will flow to the Company
Costs relating to the transaction can be measured reliably
Amortizations, depreciation and impairment losses
Amortizations, depreciation and impairment losses comprise amort-
ization of other intangible assets and depreciation of tangible fixed
assets for the period as well as the write-down of the value of assets
by the amount by which the carrying amount of the asset exceeds its
recoverable amount. In the event of indication of impairment, the car-
rying amount is assessed and the value of the asset is written down to
its recoverable amount equal to the higher of value in use based on net
present value of future earnings from the assets and its net selling price.
Financial income
Financial income comprises interest income, realized and unrealized
exchange rate gains relating to transactions in currencies other than
the functional currency, realized gains from other equity investments
and securities, unrealized gains from securities, dividends received and
other financial income including value adjustments of certain financial
instruments not accounted for as hedges of future transactions.
Interest is recognized in accordance with the accrual basis of account-
ing taking into account the effective interest rate. Dividends from other
investments are recognized when the right to receive payment has
been decided, which is typically when the dividend has been declared
and can be received without conditions.
Revenue comprises freight, charter hire and demurrage revenues from
the vessels and gains and losses on forward freight agreements des-
ignated as hedges. Revenue is recognized when it meets the general
criteria mentioned above, and when the stage of completion can be
measured reliably. Accordingly, freight, charter hire and demurrage
Financial expenses
Financial expenses comprise interest expenses, financing costs of
finance leases, realized and unrealized exchange rate losses relating to
transactions in currencies other than the functional currency, realized
losses from other equity investments and securities, unrealized losses
TORM 2014
•
•
•
•
54
Notes
NOTE 1 – CONTINUED
from securities, advisor fees related to financing and restructuring plan
and other financial expenses including value adjustments of certain
financial instruments not accounted for as hedges of future transac-
tions.
Interest is recognized in accordance with the accrual basis of account-
ing taking into account the effective interest rate.
Tax
In Denmark, TORM A/S is jointly taxed with its Danish subsidiaries. The
Parent Company provides for and pays the aggregate Danish tax on the
taxable income of these companies, but recovers the relevant portion
of the taxes paid from the subsidiaries based on each entity’s portion of
the aggregate taxable income. Tax expenses comprise the expected tax
including tonnage tax on the taxable income for the year for the Group,
adjustments relating to previous years and the change in deferred tax
for the year. However, tax relating to equity items is posted directly in
equity.
BALANCE SHEET
Goodwill
Goodwill is measured as the excess of the cost of the business com-
bination over the fair value of the acquired assets, liabilities and contin-
gent liabilities and is recognized as an asset under intangible assets.
Goodwill is not amortized, but the recoverable amount of goodwill is
assessed every quarter. For impairment testing purposes, goodwill is
on initial recognition allocated to those cash generating units to which
it relates.
Other intangible assets
Other intangible assets were acquired in connection with the acquisi-
tion of OMI and are amortized over their useful lives, which vary from
one to 15 years.
Other plant and operating equipment
Land is measured at cost.
Buildings are measured at cost less accumulated depreciation and
accumulated impairment losses. Buildings are depreciated on a
straight-line basis over 50 years.
Operating equipment is measured at cost less accumulated depre-
ciation. Computer equipment is depreciated on a straight-line basis
over three years, and other operating equipment is depreciated on a
straight-line basis over five years.
Leasehold improvements are measured at cost less accumulated
amortization and impairment losses, and leasehold improvements are
amortized on a straight-line basis over the shorter of the term of the
lease and the estimated useful life. Cost comprises acquisition cost
and costs directly related to the acquisition up until the time when the
asset is ready for use.
Investments in joint ventures
Investments in joint ventures comprise investments in companies
which by agreement are managed jointly with one or more compa-
nies and therefore subject to joint control and in which the parties
have rights to the net assets of the joint venture. Joint ventures are
accounted for using the equity method. Under the equity method, the
investment in joint ventures is initially recognized at cost and thereafter
adjusted to recognize TORM’s share of the profit or loss in the joint
venture. When TORM’s share of losses in a joint venture exceeds the
investment in the joint venture, TORM discontinues recognizing its
share of further losses. Additional losses are recognized only to the ex-
tent that TORM has incurred legal or constructive obligations or made
payments on behalf of the joint venture.
TORM 2014
Financial assets
Financial assets are initially recognized at the settlement date at fair
value plus transaction costs, except for financial assets at fair value
through profit or loss, which are recognized at fair value. Financial
assets are derecognized when the rights to receive cash flows from the
assets have expired or have been transferred.
Financial assets are classified as:
Financial assets at fair value through profit or loss
Loans and receivables
Available-for-sale financial assets
Other investments
Other investments comprise shares in other companies and are clas-
sified as available-for-sale. Listed shares are measured at the market
value at the balance sheet date, and unlisted shares are measured
at estimated fair value. Unrealized gains and losses resulting from
changes in fair value of shares are recognized in “Other comprehensive
income”. Realized gains and losses resulting from sales of shares are
recognized as financial items in the income statement. The cumula-
tive value adjustment recognized in “Other comprehensive income”
is transferred to the income statement when the shares are sold.
Dividends on shares in other companies are recognized as financial
income in the period in which they are declared.
Other investments are presented as non-current, unless Management
intends to dispose of the investments within 12 months of the balance
sheet date.
Receivables
Outstanding freight receivables and other receivables that are expected
to be realized within 12 months from the balance sheet date are
classified as loans and receivables and presented as current assets.
Receivables are measured at the lower of amortized cost and net
realizable values, which corresponds to nominal value less provi-
sion for bad debts. Derivative financial instruments included in other
receivables are measured at fair value.
Non-current assets held-for-sale
Non-current assets are classified as held-for-sale if the carrying
amount will be recovered principally through a sales transaction rather
than through continuing use. This condition is regarded as met only
when the asset is available for immediate sale in its present condition
subject to terms that are usual and customary for sales of such assets
and its sale is highly probable. Management must be committed to
the sale, which should be expected to qualify for recognition as a com-
pleted sale within one year from the date of classification
Non-current assets held-for-sale are measured at the lower of their
previous carrying amount and fair value less costs to sell.
Gains and losses are recognized on delivery to the new owners in the
income statement in the item “Net profit/loss from sale of vessels”.
Impairment of assets
Non-current assets are reviewed quarterly to determine any indication
of impairment due to a significant decline in either the assets’ market
value or in the cash flows generated by the assets. In case of such indi-
cation, the recoverable amount of the asset is estimated as the higher
of the asset’s net selling price and its value in use. The value in use is
the present value of the future cash flows expected to derive from an
asset. If the recoverable amount is less than the carrying amount of the
asset, the carrying amount is reduced to the recoverable amount. The
impairment loss is recognized immediately in the income statement.
For the purpose of assessing impairment, assets including goodwill
and time charter and bareboat contracts are grouped at the lowest
levels at which goodwill is monitored for internal management pur-
poses. The two cash generating units of the Company are the Tanker
Segment and the Bulk Segment.
•
•
•
Notes
55
NOTE 1 – CONTINUED
Bunkers
Bunkers and luboil are stated at the lower of cost and net realizable
value. Cost is determined using the FIFO method and includes expend-
itures incurred in acquiring the bunkers and luboil and delivery cost
less discounts.
Treasury shares
Treasury shares are recognized as a separate component of equity at
cost. Upon subsequent disposal of treasury shares, any consideration
is also recognized directly in equity.
Dividend
Dividend is recognized as a liability at the time of declaration at the
Annual General Meeting. Dividend proposed for the year is moved from
“Retained profit” and presented as a separate component of equity.
Provisions
Provisions are recognized when the Company has a legal or con-
structive obligation as a result of past events and it is probable that
it will lead to an outflow of resources that can be reliably estimated.
Provisions are measured at the estimated liability that is expected to
arise, taking into account the time value of money.
Mortgage debt and bank loans
At the time of borrowing, mortgage debt and bank loans are measured
at fair value less transaction costs. Mortgage debt and bank loans
are subsequently measured at amortized cost. This means that the
difference between the proceeds at the time of borrowing and the
nominal amount of the loan is recognized in the income statement
as a financial expense over the term of the loan applying the effective
interest method.
When terms of existing financial liabilities are renegotiated, or other
changes regarding the effective interest rate occur, TORM performs a
test to evaluate whether the new terms are substantially different from
the original terms. If the new terms are substantially different from the
original terms, TORM accounts for the change as an extinguishment
of the original financial liability and the recognition of a new financial
liability. TORM considers the new terms to be substantially different
from the original terms if the present value of the cash flows under
the new terms, including any fees paid net of any fees received and
discounted using the original effective interest rate, is at least 10% dif-
ferent from the discounted present value of the remaining cash flows of
the original financial liability.
Other liabilities
Liabilities are generally measured at amortized cost. Derivative finan-
cial instruments included in other liabilities are measured at fair value.
CASH FLOW STATEMENT
The cash flow statement shows the Company’s cash flows and cash
and cash equivalents at the beginning and the end of the period.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the consolidated net
operation profit/(loss) for the year available to common shareholders
by the weighted average number of common shares outstanding dur-
ing the period. Treasury shares are not included in the calculation.
Purchases and sales of treasury shares during the period are weighted
based on the remaining period.
Diluted earnings per share is calculated by adjusting the consolidated
profit or loss available to common shareholders and the weighted
average number of common shares outstanding for the effects of all
potentially dilutive shares. Such potentially dilutive common shares are
excluded when the effect of including them would be to increase earn-
ings per share or reduce a loss per share.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in accordance with IFRS re-
quires Management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the re-
ported amounts of revenues and expenses during the reporting period.
These estimates and assumptions are affected by the way TORM
applies its accounting policies. An accounting estimate is considered
critical if the estimate requires Management to make assumptions
about matters subject to significant uncertainty, if different estimates
could reasonably have been used, or if changes in the estimate that
would have a material impact on the Company’s financial position or
results of operations are reasonably likely to occur from period to
period. Management believes that the accounting estimates applied
are appropriate and the resulting balances are reasonable. However,
actual results could differ from the original estimates requiring adjust-
ments to these balances in future periods.
Management believes that the following are the significant accounting
estimates and judgments used in the preparation of the consolidated
financial statement:
Carrying amounts of vessels
The Company evaluates the carrying amounts of the vessels to
determine if events have occurred that would require a modification
of their carrying amounts. The valuation of vessels is reviewed based
on events and changes in circumstances that would indicate that the
carrying amount of the assets might not be recovered. In assessing the
recoverability of the vessels, the Company reviews certain indicators
of potential impairment such as reported sale and purchase prices,
market demand and general market conditions. Furthermore, market
valuations from leading, independent and internationally recognized
shipbroking companies are obtained on a quarterly basis as part
of the review for potential impairment indicators. If an indication of
impairment is identified, the need for recognizing an impairment loss
is assessed by comparing the carrying amount of the vessels to the
higher of the fair value less cost to sell and the value in use.
Cash flow from operating activities is presented using the indirect
method and is based on net operating profit/(loss) for the year adjusted
for tax, financial income and expenses, net profit/(loss) from sale of
vessels, non-cash operating items, changes in working capital, income
tax paid, dividends received and interest paid/received.
The review for potential impairment indicators and projection of future
undiscounted and discounted cash flows related to the vessels is com-
plex and requires the Company to make various estimates including
future freight rates, earnings from the vessels and discount rates. All
these factors have been historically volatile.
Cash flow from investing activities comprises the purchase and sale of
tangible fixed assets and financial assets.
Cash flow from financing activities comprises changes in long-term
debt, bank loans, finance lease liabilities, purchases or sales of treas-
ury shares and dividend paid to shareholders.
The carrying amounts of TORM’s vessels may not represent their fair
market value at any point in time as market prices of second-hand
vessels to a certain degree tend to fluctuate with changes in charter
rates and the cost of newbuildings. However, if the estimated future
cash flow or related assumptions in the future experience change, an
impairment write-down of vessels may be required.
Cash and cash equivalents comprise cash at bank and in hand includ-
ing restricted cash and cash equivalents. Other investments are classi-
fied as investment activities.
TORM 2014
56
Notes
NOTE 2
LIQUIDITY, CAPITAL RESOURCES, GOING CONCERN AND SUB-
SEQUENT EVENTS
Liquidity and capital resources
As part of the Restructuring Agreement from November 2012,
three banks were granted certain specific option rights until July
2014 that could trigger a sales process for up to 22 vessels and
repayment of the related debt. In March 2014, one bank exercised
its option rights leading to a sale of ten MR and three LR2 product
tankers financed by this bank. Consequently, TORM concluded an
agreement to sell the product tankers to entities controlled by
Oaktree Capital Management (Oaktree), whereby the 13 vessels re-
mained under TORM’s commercial control and utilizing TORM’s in-
tegrated operating platform for technical management. Following
the transaction, the associated vessel financing was fully repaid,
thereby reducing the Company’s debt by USD 223m. The transac-
tion also led to an impairment charge of USD 43m together with an
impairment loss on the remaining fleet of USD 149m that resulted
in negative equity on TORM’s balance sheet. When a company
recognizes a capital loss, the Board of Directors has an obligation
to test whether the justification for the company’s operations as
a going concern is sufficiently solid, while the possibilities for a
recapitalization are investigated and implemented. TORM’s Board
of Directors assessed that it has been and remains completely
justifiable to continue TORM’s operations in an intermediate period
whilst finalizing the ongoing restructuring efforts.
As of 31 December 2014, TORM’s cash position totaled USD 45m
(2013: USD 29m) and undrawn credit facilities amounted to USD
20m (2013: USD 78m). TORM has no newbuildings in the order
book and therefore no CAPEX related hereto.
TORM’s bank debt (excluding the Working Capital Facility of USD
50m) has aligned key terms and conditions across all facilities
with maturity on 31 December 2016. The financing agreements
provide for a deferral of installments on the existing bank debt
until 31 March 2015. Annualized minimum amortizations of USD
76m were scheduled as of 31 December 2014 to commence with
effect from 31 March 2015 until 31 December 2015.
On 29 August 2014, TORM’s Working Capital Facility originally
amounting to USD 100m was extended to 31 March 2015, and at
the same time the committed amount was reduced to USD 50m at
TORM’s request.
During 2014, TORM’s bank debt was reduced by USD 329m. This
was driven by the sale of 17 vessels following two lenders’ exercise
of their options to sell vessels in 2013 and 2014 respectively. Here-
after, no further opt-out rights are outstanding. The debt reduction
from vessel sales was partly offset by a net increase of USD 8m in
the utilization of the Working Capital Facility and a capitalization of
interests for the fourth quarter of 2014 of USD 11m.
For the first three quarters of 2014, all interest was paid in
cash. For the fourth quarter of 2014, the interest payment was
capitalized and added to the debt balance in accordance with
the financing agreements. The Company will pay interest on the
Working Capital Facility until its maturity on 31 March 2015.
The financial covenants appear uniformly across the bank debt
facilities and include:
• Minimum liquidity: Cash plus available part of the USD 50m Work-
ing Capital Facility must exceed USD 20m until 31 March 2015
when the minimum cash requirement is adjusted to USD 40m.
Loan-to-value ratio: As of 31 December 2014, the total bank debt
(excluding Working Capital Facility) of USD 1,409m is split into
a senior debt facility of USD 663m, a junior debt facility of USD
380m and a subordinated debt facility of USD 366m. All debt
facilities have collateral in the vessels. As per 31 March 2015, the
TORM 2014
senior debt facility must have an agreed ratio of loan to TORM’s
fleet value (excl. financial lease vessel) below 75%. The agreed
ratio will gradually step down to 65% by 30 June 2016.
• Consolidated total debt to EBITDA: As per 31 December 2014,
there is no requirement for consolidated total debt to EBITDA
ratio. From 31 March 2015, the maximum ratio is agreed to 15:1.
This will gradually step down to a 6:1 ratio by 30 June 2016.
Interest cover ratio: As per 31 December 2014, there is no
requirement for interest cover ratio. From 31 March 2015, the
minimum ratio is agreed to 1.8x. This will gradually step up to
2.5x by 31 December 2015.
The terms of the credit facilities include a catalogue of additional
covenants, including among other things:
A change-of-control provision with a threshold of 25% of shares
or voting rights
No issuance of new shares or dividend distribution without
consent from the lenders
Continued progress in the recapitalization process defined by cer-
tain milestones (cf. announcement no. 13 dated 29 August 2014)
On 27 October 2014, TORM entered into an agreement with a
group of its lenders, representing 61% of TORM’s ship financing,
and Oaktree regarding a financial restructuring. The parties are
negotiating to secure the required lender support to implement
the agreement. The restructuring is expected to include that
the lenders will initially write down the debt to the current asset
values in exchange for warrants. In addition, they may choose to
convert part of the remaining debt into new equity in the Company.
Oaktree is expected to contribute product tankers in exchange for
a controlling equity stake in the combined Company, which will
reinforce TORM’s position as one of the largest product tanker
owners. The agreement envisages a new Working Capital Facility
of USD 75m as a replacement of the current Facility. The exact
consequences of the restructuring will be presented to the share-
holders when the proposed implementation structure is agreed
upon, however, it is currently anticipated that existing sharehold-
ers would retain approximately 1-2% of the ordinary share capital.
No later than 26 March 2015 at the Annual General Meeting,
TORM expects to have reached the minimum required lender sup-
port (75% by value and 50% by number) to be able to implement
the proposed agreement. The final implementation of any re-
structuring would be subject to shareholder approval and certain
conditions precedent, including required approvals from public
authorities. The Company’s continuing operation is dependent on
the outcome of the ongoing recapitalization process.
Until 21 November 2014, TORM was in compliance with all cove-
nants. On 21 November 2014, the Company announced that it was
in non-compliance with the recapitalization milestones agreed in
connection with the extension of the Working Capital Facility.
SUBSEQUENT EVENTS
On 28 January 2015, TORM received confirmation that its major-
ity lenders had waived certain milestone events of default having
occurred as further described in the company announcement no.
18 dated 21 November 2014.
The financial results for 2015 are subject to considerable uncer-
tainty related to the completion of the proposed Restructuring
Agreement. Consequently, TORM has decided not to provide earn-
ings guidance for 2015.
For further details on the forecast, please refer to “Outlook 2015”
on page 8 and “Safe Harbor Statement” on page 10.
•
•
•
•
•
NOTE 3
USDm
Segment Segment allocated
Total Segment Segment allocated
Total
2014
2013
Tanker
Bulk
Not
Tanker
Bulk
Not
Notes
57
CONSOLIDATED SEGMENT INFORMATION
INCOME STATEMENT
Revenue
Port expenses, bunkers and commissions
Freight and bunker derivatives
Time charter equivalent earnings
Charter hire
Operating expenses
597.1
-302.1
0.0
295.0
-26.8
-145.3
27.0
4.0
-0.2
30.8
-26.8
-3.9
Gross profit/(loss) (Net earnings from shipping
activities)
122.9
0.1
Administrative expenses
Other operating income
Share of results of joint ventures
EBITDA
Impairment losses on tangible and intangible assets
Amortization and depreciation
Operating profit/(loss) (EBIT) (Segment result)
-
-
-
122.9
-191.7
-
-68.8
Financial income
Financial expenses
Profit/(loss) before tax
Tax
Net profit/(loss) for the year
-
-
-
0.0
-
-
0.0
-51.0
4.6
0.4
-
-
-
624.1
774.8
217.5
-298.1
-410.8
-139.7
-0.2
325.8
-53.6
0.1
364.1
-22.1
-149.2
-169.9
1.3
79.1
-97.1
-3.7
172.1
-21.7
123.0
-51.0
4.6
0.4
77.0
-
-
-
172.1
-59.8
-
-
-
-
-
-
-
-
-
-191.7
-96.3
-96.3
0.1
-142.3
-211.0
112.3
-21.7
3.8
-76.2
3.8
-76.2
-214.7
-283.4
-0.8
-0.8
-215.5
-284.2
-
-
-
0.0
-
-
0.0
-56.5
1.6
0.5
-
-126.7
-181.1
4.2
-79.7
992.3
-550.5
1.4
443.2
-119.2
-173.6
150.4
-56.5
1.6
0.5
96.0
-59.8
-126.7
-90.5
4.2
-79.7
-256.6
-166.1
3.9
3.9
-252.7
-162.2
0.1
-46.0
-21.7
-54.4
TORM consists of two business segments: The Tanker Segment and the Bulk Segment. This segmentation is based on the Group’s
internal management and reporting structure.
During the year, there have been no transactions between the tanker and the bulk segments, and therefore all revenue derives from
external customers.
All revenue derives from transportation services to customers. In all material aspects, the Company’s customers are domiciled outside
Denmark. A significant part of approximately 30% (2013: 27%) of the Company’s revenue is derived from customers registered in Singa-
pore. Singapore is one of the world’s largest shipping hubs with the presence of a large part of the world’s oil trading industry.
Because the Company considers the global market as a whole, and as the individual vessels are not limited to specific parts of the world,
the Group has only one geographical segment.
In the Tanker Segment, a major part of the Company’s freight revenue is concentrated on a small group of customers. In 2014 and 2013,
no customers in the Tanker Segment accounted for more than 10% of the total freight revenue of the Company.
Please also refer to the section “Segment information” in note 1.
TORM 2014
58
NOTE 4
USDm
STAFF COSTS
Total staff costs
Staff costs included in operating expenses
Staff costs included in administrative expenses
Total
Staff costs comprise the following
Wages and salaries
Share-based compensation
Pension costs
Other social security costs
Total
Of which remuneration to the Board of Directors and
salaries to the Executive Management:
USD ‘000
2014
Board
remu ne r-
ation
Committee
remune r-
ation
Additional
meetings
and travel
allowance
Total
short-term
benefits
Board
remune r-
ation
Committee
remune r-
ation
2014
2013
16.3
33.2
49.5
45.8
0.1
3.4
0.2
49.5
18.1
36.3
54.4
50.0
0.6
3.5
0.3
54.4
2013
Additional
meetings
and travel
allowance
Total
short-term
benefits
Board of Directors
Flemming Ipsen *)
Olivier Dubois *)
Kari Millum Gardarnar
Alexander Green *)
Rasmus Johannes Hoffmann
Jon Syvertsen *)
Total for the year
200
75
75
75
75
75
50
50
-
25
-
25
55
22
-
35
14
32
575
150
158
305
147
75
135
89
132
883
222
75
76
77
79
76
38
51
-
16
-
16
605
121
-
-
-
-
-
-
0
260
126
76
93
79
92
726
*) Appointed on 9 January 2013 and re-elected in April 2014
The former members of the Board of Directors Niels Erik Nielsen, Christian Frigast, Peter Abildgaard and Jesper Jarlbæk resigned from the Board of Directors on 9 January
2013. They did not receive any compensation from 1 January 2013 until their resignation.
Executive Management 2014
Salaries
Bonus
Pension
Short-term benefits
Share-based
compen-
sation
One-time
compen-
sation
Jacob Meldgaard
Total for 2014
980
980
-
0
-
0
-
0
-
0
Executive Management 2013
Salaries
Bonus
Pension
Short-term benefits
Share-based
compen-
sation*)
One-time
compen-
sation
Jacob Meldgaard
Roland M. Andersen **)
Total for 2013
957
687
1,644
-
-
0
-
12
12
143
95
238
-
1,754
1,754
*) Share-based compensation to Executive Management relates to the theoretical value of share options granted before 2012, but allocated to and recognized in
the income statement for 2013. The current share price is well below the exercise prices for these options which are considerably out-of-the-money.
**) Roland M. Andersen resigned as CFO at the end of October 2013. The 2013 compensation includes an extraordinary compensation element, as he invoked a
change-of-control clause in his employment contract.
Total
980
980
Total
1,100
2,548
3,648
Employee information
The average number of permanently employed staff in the Group in the financial year was 281 land-based employees (2013: 281) and 138
seafarers (2013: 147).
The majority of the staff on vessels are not employed by TORM.
The average number of employees is calculated as a full-time equivalent (FTE).
The member of Executive Management is, in the event of termination by the Company, entitled to a severance payment of up to 12 months’ salary.
TORM 2014Notes
Notes
59
NOTE 4 - CONTINUED
INCENTIVE SCHEME FOR MANAGEMENT AND CERTAIN
EMPLOYEES FOR 2010-2012
Incentive scheme
In 2010, a share option-based incentive scheme was established
for certain employees including the Executive Management, mem-
bers of the management group and certain key employees. The
share options were granted in 2010, 2011 and 2012 at the discre-
tion of the Board of Directors in accordance with criteria deter-
mined by the Board of Directors. 35 persons were included in the
2010 grant and 40 persons in the 2011 grant. The Company has
granted 0 share options in 2012.
The Board of Directors is not included in the share option pro-
gram 2010-2012.
The share option program 2010-2012 comprises share options
only and aims at incentivizing the participants to seek to improve
the results of the Company and thereby the value of the Company,
i.e. the share price, to the mutual benefit of themselves and the
shareholders of the Company.
The share options vest in connection with the publication of the
annual report in the third calendar year following the grant.
Vested share options may be exercised from the vesting date
until the publication of the annual report in the sixth year from
the grant. Additionally, the share options may only be exercised in
an exercise window during a period of four weeks from the date
of the Company’s publication of an interim report or an annual
report.
Each share option gives the employee the right to acquire one
share with a nominal value of DKK 0.01. Exercised options are
settled by the Company’s holding of treasury shares or, in certain
situations, by settlement in cash.
For grants made in 2010, the exercise price is DKK 33.59 and for
grants made in 2011, the exercise price is DKK 27.20.
In 2014, no share options have been exerised.
INCENTIVE SCHEME FOR MANAGEMENT AND EMPLOYEES FOR
2007-2009
Incentive scheme
In 2007, an incentive scheme was established for all land-based
employees and officers employed on permanent contracts (apart
from trainees, apprentices and cadets) that were directly em-
ployed in TORM A/S including the members of the Executive Man-
agement. The Board of Directors was not included in the scheme.
The scheme covers the financial years 2007, 2008 and 2009. The
scheme consists of both bonuses and share options.
Share options
Share options granted in 2007 and 2008 expired in 2013 and 2014,
respectively.
Approximately 50% of the share options were granted with a fixed
exercise price (standard options). For the share options granted in
2009, the exercise price is DKK 116.67 per share after adjustment
for the extraordinary dividend paid out in September 2007 and
December 2008 and after adjustment for the discounted issuance
of the new shares.
The other approximately 50% of the share options were granted
with an exercise price that is ultimately determined at the publi-
cation of the Company’s annual report after a three-year period,
e.g. for the grant in 2009, determination took place in March 2012.
For peer group options granted in 2009, the exercise price is DKK
24.56.
For the 2009 grant, share options can be exercised after the pub-
lication of the annual report for 2011 in March 2012 and shall be
exercised by March 2015 at the latest.
Each share option gives the employee the right to acquire one
share with a nominal value of DKK 0.01. Exercised options are
settled by the Company’s holding of treasury shares or in certain
situations, by settlement in cash.
In 2014, no share options have been exerised.
General
Participants resigning from their positions with the Company
as good leavers prior to vesting are allowed to keep their share
options and to exercise them in accordance with the terms and
conditions of the share option program. Bad leaver participants
will lose all share options that have not vested at the time of final
resignation. This is in accordance with the mandatory provisions of
the Danish Stock Option Act.
In 2014, a total expense of USD 0.1m (2013: USD 0.6m) has been
recognized in the income statement regarding share options.
Changes in outstanding share options are as follows:
Number of share options
Not exercised at 1 January
Forfeited/expired
Not exercised at 31 December
Total number of share options that could be exercised at 31 December
Total
options
2014
Total
options
2013
5,041,936
6,654,302
-1,194,211
-1,612,366
3,847,725
5,041,936
3,847,725
3,685,282
TORM 2014
60
Notes
NOTE 5
USDm
REMUNERATION TO AUDITORS APPOINTED AT THE PARENT COMPANY'S ANNUAL GENERAL MEETING
Deloitte
Audit fees
Audit-related fees
Tax fees
Fees for other services
NOTE 6
USDm
OTHER INVESTMENTS
Other investments include shares in other companies
Cost:
Balance at 1 January
Additions
Disposals
Balance at 31 December
Value adjustment:
Balance at 1 January
Exchange rate adjustment
Value adjustment for the year
Disposals
Balance at 31 December
Carrying amount at 31 December
Of which listed
Of which unlisted
Please refer to note 24 for further information on fair value hierarchies.
2014
2013
0.4
0.1
0.3
0.1
0.9
0.4
0.4
0.3
0.1
1.2
2014
2013
5.4
-
-
5.4
6.9
-0.5
-0.9
-
5.5
5.4
-
-
5.4
6.9
0.6
-0.6
-
6.9
10.9
12.3
0.0
10.9
0.0
12.3
TORM 2014
NOTE 7
USDm
INTANGIBLE ASSETS
Cost:
Balance at 1 January 2013
Additions
Disposals
Balance at 31 December 2013
Amortization and impairment losses:
Balance at 1 January 2013
Disposals
Amortization and impairment losses for the year
Balance at 31 December 2013
Carrying amount at 31 December 2013
Cost:
Balance at 1 January 2014
Additions
Disposals
Balance at 31 December 2014
Amortization and impairment losses:
Balance at 1 January 2014
Disposals
Amortization and impairment losses for the year
Balance at 31 December 2014
Carrying amount at 31 December 2014
Notes
61
Other
intangible
assets
Goodwill
Total
89.2
-
-
89.2
89.2
-
-
89.2
0.0
89.2
-
-
89.2
89.2
-
-
89.2
0.0
2.7
-
-
2.7
1.0
-
0.2
1.2
1.5
2.7
-
-
2.7
1.2
-
0.2
1.4
1.3
91.9
0.0
0.0
91.9
90.2
0.0
0.2
90.4
1.5
91.9
0.0
0.0
91.9
90.4
0.0
0.2
90.6
1.3
TORM 2014
62
Notes
NOTE 8
USDm
TANGIBLE FIXED ASSETS
Cost:
Balance at 1 January 2013
Exchange rate adjustment
Additions
Disposals
Transferred to/from other items
Transferred to non-current assets held-for-sale
Balance at 31 December 2013
Depreciation and impairment losses:
Balance at 1 January 2013
Exchange rate adjustment
Disposals
Depreciation for the year
Impairment loss
Transferred to non-current assets held-for-sale
Balance at 31 December 2013
Land and
buildings
Vessels and
capitalized
dry-docking
Other
plant and
operating
equipment
1.7
2,752.0
-
-
-1.7
-
-
0.0
0.9
-
-0.9
-
-
-
0.0
-
41.2
-19.4
-
-197.9
2,575.9
803.7
-
-19.4
122.5
54.8
-78.4
883.2
29.0
-0.1
1.9
-
0.1
-
30.9
22.5
-
-
3.7
-
-
26.2
Total
2,782.7
-0.1
43.1
-21.1
0.1
-197.9
2,606.8
827.1
-
-20.3
126.2
54.8
-78.4
909.4
Carrying amount at 31 December 2013
0.0
1,692.7
4.7
1,697.4
Of which finance leases
Of which financial expenses included in cost
Cost:
Balance at 1 January 2014
Exchange rate adjustment
Additions
Disposals
Transferred to/from other items
Transferred to non-current assets held-for-sale
Balance at 31 December 2014
Depreciation and impairment losses:
Balance at 1 January 2014
Exchange rate adjustment
Disposals
Depreciation for the year
Impairment loss
Transferred to non-current assets held-for-sale
Balance at 31 December 2014
Carrying amount at 31 December 2014
Of which finance leases
-
-
-
-
-
-
-
-
0.0
-
-
-
-
-
-
0.0
-
-
13.7
1.2
2,575.9
-
33.7
-10.4
-
-469.8
2,129.4
883.2
-
-9.2
95.8
191.7
-246.9
914.6
-
-
30.9
-0.1
2.2
-6.6
-
-
26.4
26.2
-
-6.4
3.6
-
-
23.4
13.7
1.2
2,606.8
-0.1
35.9
-17.0
0.0
-469.8
2,155.8
909.4
-
-15.6
99.4
191.7
-246.9
938.0
1,214.8
3.0
1,217.8
12.8
-
-
12.8
0.4
Of which financial expenses included in cost
0.0
0.4
Included in the carrying amount for “Vessels and capitalized dry-docking” are capitalized dry-docking costs in the amount of USD 44.1m
(2013: USD 44.5m).
For information on assets used as collateral security, please refer to note 18.
In all material aspects, the depreciation under “Other plant and operating equipment” of USD 3.6m relates to administration
(2013: USD 3.7m).
Please refer to note 9 for information on impairment testing.
TORM 2014
Notes
63
NOTE 9
IMPAIRMENT TESTING
As of 31 December 2014, Management performed a review of
the recoverable amount of the assets by assessing the recover-
able amount for the significant assets within the cash generat-
ing units: The Tanker Segment and the Bulk Segment.
As of 31 December 2014, the recoverable amount of the Tanker
Segment was the value in use, whereas the recoverable
amount of the Bulk Segment was the net selling price.
Based on this review, Management concluded that:
Assets within the Bulk Segment were not impaired as the net
selling price was in line with the carrying amount
Assets within the Tanker Segment were not further impaired
as the calculated value in use was equal to the carrying
amount
In the assessment of the net selling price of the Bulk Segment,
Management included a review of market values calculated
as the average of valuations from two internationally acknow-
ledged shipbrokers.
The assessment of the value in use of the Tanker Segment was
based on the present value of the expected future cash flows.
The major assumptions used in the calculation of the value in
use are:
The cash flows are based on known tonnage including ves-
sels contracted for delivery in future periods
The product tankers are expected to generate normal income
for 25 years. Given the current age profile of the tanker fleet,
the average remaining life would be approximately 15 years
Freight rate estimates in the period 2015-2017 are based on
the Company’s business plans
Beyond 2017, freight rates for the Tanker Segment are based
on the following 10-year historical average freight rates from
Clarkson adjusted by the inflation rate:
o LR2 USD/day 23,130 (2013: USD/day 25,461)
o LR1 USD/day 19,967 (2013: USD/day 21,881)
o MR USD/day 17,757 (2013: USD/day 18,951)
o Handysize USD/day 19,360 (2013: USD/day 21,704)
Operating expenses and administrative expenses are
estimated based on TORM’s current run rate adjusted for
cost reductions outlined in the operating budgets and the
business plans for the period 2015-2017. Beyond 2017,
operating expenses per operating day and administrative
expenses are expected to increase with the inflation rate
WACC is set to 7.8% (2013: 8.3%) for the Tanker Segment.
WACC is calculated using a standard WACC model in which
cost of equity, cost of debt and capital structure are the key
parameters
The inflation rate is based on the US Federal Reserve and
ECB inflation target over the medium term, currently set to
2%
Management believes that these major assumptions are
reasonable.
The calculation of value in use is very sensitive to changes in
the key assumptions, which are considered to be related to the
future development in freight rates, WACC applied as discount-
ing factor in the calculations and the development in operating
expenses. The sensitivities have been assessed as follows, all
other things being equal:
A decrease in the tanker freight rates of USD/day 1,000
would result in a further impairment of USD 136m for the
Tanker Segment
An increase of the WACC of 1% would result in a further
impairment of USD 77m for the Tanker Segment
An increase of the operating expenses of 10% would result in
a further impairment of USD 114m for the Tanker Segment
As outlined above, the impairment tests have been prepared
on the basis that the Company will continue to operate its ves-
sels as a fleet in the current set-up. In comparison, the market
value of TORM’s vessels was USD 859m, which is USD 356m
less than the carrying impaired amount.
During the year, TORM recognized an impairment loss of USD
192m relating to the Tanker Segment as a consequence of the
fact that one bank exercised its option rights, leading to a sale
of ten MR and three LR2 product tankers financed by this bank.
After the impairment, the recoverable amount based on value
in use was equal to the carrying amount. The value in use was
based on a discount rate of 8.1%.
TORM 2014
•
•
•
•
•
•
•
•
•
•
•
•
64
Notes
NOTE 10
USDm
FINANCIAL ITEMS
Financial income
Interest income from cash and cash equivalents, etc.
Dividends
Exchange rate adjustments, including net gain from forward exchange rate contracts
Financial expenses
Interest expenses on mortgage and bank debt
Advisor fee related to financing and restructuring plan
Exchange rate adjustments, including net gain/loss from forward exchange rate contracts
Other financial expenses
2014
2013
0.1
0.9
2.8
3.8
57.4
15.4
0.8
2.6
76.2
0.0
0.5
3.7
4.2
74.8
1.8
0.2
2.9
79.7
Total financial items
-72.4
-75.5
NOTE 11
USDm
FREIGHT RECEIVABLES
Analysis at 31 December of freight receivables:
Neither past due nor impaired
Due < 30 days
Due between 30 and 180 days
Due > 180 days
2014
2013
42.5
13.9
13.7
1.7
71.8
50.8
6.6
20.1
2.2
79.7
At 31 December 2014, freight receivables included receivables at a value of USD 3.4m (2013: USD 8.7m), that are individually determined
to be impaired to a value of USD 0,6m (2013: USD 0.5m).
Movements in provisions for impairment of freight receivables during the year are as follows:
USDm
PROVISION FOR IMPAIRMENT OF FREIGHT RECEIVABLES
Balance at 1 January
Provisions for the year
Provisions reversed during the year
Provisions utilized during the year
Balance at 31 December
2014
2013
8.2
1.5
-2.2
-4.7
2.8
0.2
8.0
-
-
8.2
Provision for impairment of freight receivables has been recognized in the income statement under “Port expenses, bunkers and com-
missions”.
The provision is based on an individual assessment of each receivable.
NOTE 12
USDm
OTHER RECEIVABLES
Partners and commercial managements
Derivative financial instruments
Receivables at joint ventures
Tax receivables
Miscellaneous, including items related to shipping activities
TORM 2014
2014
2013
1.2
0.0
0.0
1.2
2.8
5.2
2.3
0.2
2.0
0.8
8.0
13.3
NOTE 13
USDm
TAX
Current tax for the year
Adjustments related to previous years
Adjustment of deferred tax liability
Adjustment of deferred tax asset
RECONCILIATION OF THE EFFECTIVE CORPORATION TAX RATE FOR THE YEAR
Corporation tax rate in Denmark
Differences in tax rates, foreign subsidiaries
Differences in tax rates, foreign joint ventures
Adjustment of tax related to previous years
Change in deferred tax due to reduction of Danish corporation tax from 25% to 22%
Effect from the tonnage tax scheme
Effective corporate tax rate
Notes
65
2014
2013
-2.1
-0.1
1.3
0.1
-0.8
-1.9
-1.4
6.9
0.3
3.9
2014
2013
24.5%
25.0%
0.0%
0.0%
0.0%
-
-24.8%
-0.3%
3.8%
0.0%
0.1%
3.8%
-30.3%
2.4%
The Company participates in the tonnage tax scheme in Denmark. The participation in the tonnage tax scheme is binding until
31 December 2017.
Under the Danish tonnage tax scheme, income and expenses from shipping activities are not subject to direct taxation.
Instead the taxable income is calculated from:
The net tonnage of the vessels used to generate the income from shipping activities
A rate applicable to the specific net tonnage of the vessel, based on a sliding scale
The number of days the vessels are used during the year
The Company expects to participate in the tonnage tax scheme after the binding period and at a minimum to maintain an investing and
activity level equivalent to the time of entering the tonnage tax scheme.
USDm
DEFERRED TAX LIABILITY
Balance at 1 January
Reduction of Danish corporation tax from 25% to 22%
Deferred tax for the year
Balance at 31 December
2014
2013
46.3
-
-1.3
45.0
53.2
-6.3
-0.6
46.3
Essentially all deferred tax relates to vessels included in the transition account under the Danish tonnage tax scheme.
NOTE 14
COMMON SHARES
Balance at 1 January
Balance at 31 December
2014
2013
2014
2013
Number of
shares
million
Number of
shares
million
Nominal
value
DKKm
Nominal
value
DKKm
728.0
728.0
728.0
728.0
7.3
7.3
7.3
7.3
The common shares consist of 728.0m shares of a nominal value of DKK 0.01 each (2013: DKK 0.01 each). No shares carry special
rights. All issued shares are fully paid.
In connection with the restructuring in November 2012, the nominal value of the Company’s shares was reduced from DKK 5.00 to DKK
0.01 per share with a value of DKK 363.3m. The nominal value of the Company’s shares amounted hereafter to DKK 0.7m. The Compa-
ny’s share capital was hereafter increased by a nominal amount of DKK 6.6m to DKK 7.3m by issuance of 655.2m shares with a nominal
value of DKK 0.01 per share.
TORM 2014
•
•
•
66
Notes
NOTE 14 - CONTINUED
TREASURY SHARES
Balance at 1 January
Disposals
Used for share-based compensation
Balance at 31 December
2014
2013
2014
2013
Number of
shares
(1,000)
Number of
shares
(1,000)
Nominal
value
DKKm
Nominal
value
DKKm
2014
% of
share
capital
2013
% of
share
capital
6,683.1
6,711.8
-
-
-28.7
-
6,683.1
6,683.1
0.1
-
-
0.1
0.1
-
-
0.1
0.9
-
-
0.9
0.9
-
-
0.9
The total consideration for the treasury shares was USD 19.0m (2013: USD 19.0m).
At 31 December 2014, the Company’s holding of treasury shares represented 6,683,072 shares (2013: 6,683,072 shares) of DKK 0.01 each
at a total nominal value of USD 0.0m (2013: USD 0.0m) and a market value of USD 0.4m (2013: USD 1.7m). The retained shares equate to
0.9% (2013: 0.9%) of the Company’s common shares.
The treasury shares are held as a hedge of the Company’s program for share-based compensation.
NOTE 15
USDm
DEFERRED INCOME
Deferred gain related to sale and leaseback transactions
Prepaid commissions and management fees
Other
NOTE 16
USDm
OTHER LIABILITIES
Partners and commercial managements
Accrued operating expenses
Accrued interest
Wages and social expenses
Derivative financial instruments
Payables to joint ventures
Miscellaneous, including items related to shipping activities
Please refer to note 24 for further information on fair value hierarchies.
2014
2013
4.0
1.0
0.2
5.2
5.2
2.0
0.7
7.9
2014
2013
8.0
7.4
0.4
14.2
1.8
0.1
6.9
38.8
12.1
14.9
0.3
14.9
0.0
0.1
1.2
43.5
TORM 2014
Notes
67
NOTE 17
EFFECTIVE INTEREST RATE AND FAIR VALUE OF MORTAGE DEBT AND BANK LOANS
In November 2012, TORM completed a restructuring. The group of banks aligned key terms and conditions as well as financial covenants
across all existing debt facilities, and all maturity on existing credit facilities was adjusted to 31 December 2016. As part of the restructuring,
TORM initially secured a Working Capital Facility of USD 100m until 30 September 2014. In August 2014, the Working Capital Facility was
extended until 31 March 2015 and reduced to USD 50m at the Company’s request. Following the sale of 13 vessels during 2014, TORM has
repaid the related debt.
Please refer to note 2 for further information on the Company’s liquidity and capital resources and note 22 and 23 for further information
on interest rate swaps and financial risks.
The table below shows the effective interest and fair value of the mortgage debt and bank loans.
USDm
LOAN
USD
USD
Fixed/
floating
Floating
Floating
2014
Effective
interest
Maturity
Fair
value
Maturity
2013
Effective
interest
Fair
value
2015
2016
18,4% * 30.0
3,6%** 1,409.0
2014
2016
24,2%* 22.0
3,7%** 1,727.6
Weighted average effective interest rate
3.6%
3.7%
Fair value ***)
1,439.0
1,749.6
*) Effective interest rate includes deferred and amortized bank fees and commitment fee.
**) Effective interest rate includes deferred and amortized bank fees related to original facilities and fees related to the restructured bank loans.
***) The fair value of mortgage debt and bank loans is considered for fair value measurement at level 2 in the fair value hierarchy.
The fair value of mortgage debt and bank loans is calculated as the present value of expected future repayments and interest payments using the interest curve, which is
based on actual market rates.
TORM 2014
68
Notes
NOTE 18
USDm
COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS
Fair value of loans collateralized by vessels
The total carrying amount for vessels that have been provided as security amounts to USD 1,215m at 31 December 2014 (2013: USD 1,812m).
NOTE 19
USDm
GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
Guarantee commitments
2014
2013
1,439.0
1,439.0
1,749.6
1,749.6
2014
2013
0.2
0.2
0.0
0.0
NOTE 20
CONTRACTUAL OBLIGATIONS, MORTGAGE DEBT AND BANK LOANS
TORM has various contractual obligations and commercial commitments to make future payments including lease obligations, purchase
commitments, interest payments and repayment of mortgage debt and bank loans.
In March 2014, one bank exercised its option to have TORM to sell 13 vessels. All the sold vessels were delivered in 2014 and the related
debt was repaid during the year.
The following tables summarize the Company’s contractual obligations.
At 31 December 2014:
USDm
Mortgage debt and bank loans 1)
Interest payments related to scheduled interest fixing
Estimated variable interest payments 2)
Total
USDm
Finance lease liabilities 3)
Interest element finance lease
Chartered-in vessels (incl. vessels not
delivered) (Operating lease) 4)
Other operating leases 5)
Trade payables and other liabilities
Total
USDm
Contractual obligations – as lessor:
Charter hire income for vessels on time charter and
bareboat charter (incl. vessels not delivered)
(Operating lease) 6)
Total
2015
113.9
9.0
28.4
2016
1,325.1
-
46.9
2017
2018
2019 Thereafter
-
-
-
-
-
-
-
-
-
-
-
-
Total
1,439.0
9.0
75.3
151.3
1,372.0
0.0
0.0
0.0
0.0
1,523.3
2015
-
4.3
38.5
3.1
47.0
92.9
2016
-
4.5
19.0
3.5
-
27.0
2017
11.9
2.9
17.2
2.3
-
34.3
2018
2019 Thereafter
-
-
7.4
1.6
-
9.0
-
-
-
0.9
-
0.9
-
-
-
0.1
-
0.1
Total
11.9
11.7
82.1
11.5
47.0
164.2
2015
2016
2017
2018
2019 Thereafter
Total
23.0
23.0
-
0.0
-
0.0
-
0.0
-
0.0
-
0.0
23.0
23.0
TORM 2014
Notes
69
NOTE 20 – CONTINUED
At 31 December 2013:
USDm
Mortgage debt and bank loans 1)
Interest payments related to scheduled interest fixing
Estimated variable interest payments 2)
Total
2014
172.9
11.3
33.9
218.1
2015
87.8
-
46.6
2016
1,488.9
-
58.2
2017
2018
-
-
-
-
-
-
There-
after
-
-
-
Total
1,749.6
11.3
138.7
134.4
1,547.1
0.0
0.0
0.0
1,899.6
USDm
Finance lease liabilities 3)
Interest element regarding finance lease
Chartered-in vessels (incl. vessels not
delivered) (Operating lease) 4)
Other operating leases 5)
Trade payables and other liabilities
Total
USDm
Contractual obligations - as lessor:
Charter hire income for vessels on time charter and
bareboat charter (incl. vessels not
delivered) (Operating lease) 6)
Total
2014
2015
2016
-
3.9
45.4
5.2
78.5
133.0
-
4.2
43.7
2.6
-
50.5
-
4.2
17.3
2.5
-
24.0
2017
12.9
2.9
14.5
0.7
-
31.0
2018
There-
after
-
-
7.3
-
-
7.3
-
-
-
-
-
0.0
Total
12.9
15.2
128.2
11.0
78.5
245.8
2014
2015
2016
2017
2018
There-
after
Total
36.7
36.7
0.3
0.3
-
0.0
-
0.0
-
0.0
-
0.0
37.0
37.0
1) The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 11.9m (2013: USD 15.8m), which are amortized over
the term of the loans.
2) Variable interest payments are estimated based on the forward rates for each interest period. This corresponds to an average net interest including margin of 2.8% for
2015 (2013: the average net interest rate for 2014 was 2.5%).
3) One leasing agreement includes a purchase liability at expiry of the leasing period.
4) Leases have been entered into with a mutually non-cancelable lease period of up to four years. Certain leases include a profit sharing element implying that the actual
charter hire may be higher. The average period until redelivery of the vessels is 1.3 years (2013: 2.2 years).
5) Other operating leases primarily consist of contracts regarding office spaces, cars and apartments as well as IT-related contracts.
6) Charter hire income for vessels on time charter and bareboat charter is recognized under revenue. The average period until redelivery of the vessels is 0.3 year (2013: 0.6 year).
TORM 2014
70
Notes
NOTE 21
USDm
FINANCE LEASE LIABILITIES - AS LESSEE
Lease liabilities regarding finance lease assets:
2014
Falling due within one year
Total current
Falling due between one and five years
Falling due after five years
Total non-current
Total
Fair value
2013
Falling due within one year
Total current
Falling due between one and five years
Falling due after five years
Total non-current
Total
Fair value
Minimum
lease
payments
Interest
element
Carrying
amount
3.2
3.2
20.4
-
20.4
-4.3
-4.3
-7.4
-
-7.4
-1.1
-1.1
13.0
0.0
13.0
23.6
-11.7
11.9
11.9
-0.9
-0.9
13.8
0.0
13.8
3.0
3.0
25.1
-
25.1
-3.9
-3.9
-11.3
-
-11.3
28.1
-15.2
12.9
12.9
Finance lease in 2014 relates to one MR product tanker (2013: one) chartered on bareboat expiring no later than 2017. At the expiry of the charter period, the Company has
an obligation to purchase the vessel.
Please refer to note 24 for further information on fair value hierarchies.
TORM 2014
NOTE 22
DERIVATIVE FINANCIAL INSTRUMENTS
The table below shows the fair value of the derivative financial instruments:
USDm
Hedge accounting cash flows:
Derivative financial instruments regarding freight and bunkers:
Forward Freight Agreements
Bunker swaps
Non-hedge accounting:
Derivative financial instruments regarding freight and bunkers:
Bunker swaps
Of which included in:
Current assets
Other receivables
Current liabilities
Other liabilities
Notes
71
Fair value
as of 31
December
2014
Fair value
as of 31
December
2013
0.1
-1.7
-0.1
-1.7
-
-
0.0
0.0
0.1
0.0
-1.8
-1.7
0.0
0.0
Please refer to note 24 for further information on fair value hierarchies.
The table below shows realized amounts as well as fair value adjustments regarding derivative financial instruments recognized in the
income statements and equity in 2014 and 2013:
USDm
Bunker swaps
Forward Freight Agreements
Interest rate swaps
Total 2014
Bunker swaps
Forward Freight Agreements
Interest rate swaps
Total 2013
Income statement
Port expenses,
bunkers and
commissions
Freight and
bunker
derivatives
Revenue
Financial
items
Equity
hedging
reserves
-
-0.6
-
-0.6
-
0.3
-
0.3
-0.1
-
-
-0.1
-
-
-
0.0
-0.1
-
-
-0.1
1.4
-
-
1.4
-
-
-6.6
-6.6
-
-
-11.6
-11.6
-1.7
-0.6
-2.3
-
-
-
0.0
Please refer to the section “Risk Management” and note 23 for further information on commercial and financial risks.
TORM 2014
72
Notes
NOTE 23
RISKS ASSOCIATED WITH TORM’S ACTIVITIES
The risks can generally be divided into four main categories: 1)
Long-term strategic risks, 2) Industry and market-related risks, 3)
Operational and compliance risks and 4) Financial risks.
All things being equal and to the extent the Company’s vessels
have not already been chartered out at fixed rates, a freight rate
change of USD/day 1,000 would lead to the following change in
profit before tax based on the expected number of earning days
for the coming financial year:
The risks described under each of the four categories are consid-
ered to be among the most significant risks for TORM within each
category.
1) LONG-TERM STRATEGIC RISKS
Industry-changing risks, such as the substitution of oil for other
energy sources and radical changes in transportation patterns,
are considered to have a relatively high potential impact, but
are long-term risks. Management continues to monitor long-
term strategic risks to ensure the earliest possible mitigation of
potential risks as well as to develop necessary capabilities to ex-
ploit opportunities created by the same risks.
2) INDUSTRY AND MARKET-RELATED RISKS
Industry and market-related risk factors relate to changes in the
markets and in the political, economic and physical environment
that Management cannot control, such as freight rates, vessel and
bunker prices.
FREIGHT RATE FLUCTUATIONS
The Company’s income is principally generated from voyages
carried out by its fleet of vessels. As such, TORM is exposed to
the considerable volatility that characterizes freight rates on such
voyages.
In the tanker segment, it is the Company’s strategy to seek a
certain exposure to this risk, as volatility also represents an op-
portunity because earnings historically have been higher in the
day-to-day market compared to time charters. The fluctuations
in freight rates for different segments and different routes may
vary substantially. However, TORM is aiming at reducing the sen-
sitivity to the volatility of such specific freight rates by achieving
economies of scale, by actively seeking the optimal geographical
positioning of the fleet and by optimizing the service offered to
customers.
Within the tanker segment, freight income is to a certain extent
covered against general fluctuations through the use of physical
contracts such as cargo contracts and time charter agreements
with durations of 6-24 months. In addition, TORM has historically
used financial instruments such as forward freight agreements
(FFAs) and synthetic time charter contracts, with coverage of typ-
ically 3-12 months forward, based on market expectations and
in accordance with the Company’s risk management policies. In
2014, 8% (2013: 8%) of freight earnings deriving from the Com-
pany’s tankers was secured in this way. Physical time charter con-
tracts accounted for 89% (2013: 94%) of overall hedging, as this
hedging instrument resulted in higher rates than those offered
by the forward market. In 2014, the Company entered into FFAs
with a total notional contract value of USD 5m (2013: USD 5m). At
the end of 2014, the coverage for 2015 for all segments was at a
relatively low level of 11% (2013: 14%).
FFA trade and other freight-related derivatives are subject to spe-
cific policies and guidelines approved by the Board of Directors,
including trading limits, stop-loss policies, segregation of duties
and other internal control procedures.
By the end of 2014, TORM had a long-term bulk T/C-in fleet of
seven vessels (2013: six vessels). During the summer of 2013,
TORM made a strategic transition from spot operator to tonnage
provider and has since then operated the existing core bulk fleet
on time charter contracts. As of 31 December 2014, the coverage
for 2015 was 64% (2013: 56%). As of 31 December 2014, the mar-
ket value of the FFA hedge position was USD 0 (2013: USD 0).
TORM 2014
USD m
2015
2014
SENSITIVITY TO CHANGES IN FREIGHT RATES
Change in freight rates of USD/day 1,000:
Change in profit before tax
Change in equity
16.7
16.7
21.2
21.2
SALES AND PURCHASE PRICE FLUCTUATIONS
As an owner of 45 vessels, TORM is exposed to risk associated
with changes in the value of the vessels, which can vary consider-
ably during their useful lives. As of 31 December 2014, the carry-
ing value of the fleet was USD 1,215m (2013: USD 1,693m). Based
on broker valuations, TORM’s fleet had a market value of USD
859m as of 31 December 2014 (2013: USD 1,137m).
During the year, TORM has reduced its fleet by 17 product tank-
ers which were sold as a consequence of two lenders deciding
to exercise their options to have TORM sell the vessels in 2013
and 2014 respectively. Following the sale, the vessels were placed
under commercial and technical management with TORM. During
the year, TORM has not taken delivery of any vessels and has no
vessels on order.
Under the financing agreements, TORM must obtain consent from
the banks to sell and purchase vessels, and thus the Company’s
mitigation options are limited.
BUNKER PRICE FLUCTUATIONS
The cost of fuel oil consumed by the vessels, known in the industry
as bunkers, accounted for 69% of the total voyage costs in 2014
(2013: 66%) and is by far the biggest single cost related to a voyage.
TORM is exposed to fluctuations in bunker prices that are not
reflected in the freight rates achieved by the Company. To reduce
this exposure, TORM hedges part of its bunker requirements with
oil derivatives.
Bunker trade is subject to specific risk policies and guidelines
approved by the Board of Directors including trading limits, stop-
loss, stop-gain and stop-at-zero policies, segregation of duties
and other internal control procedures.
TORM applies hedge accounting to certain bunker hedge con-
tracts. Hedge accounting is applied systematically and is based on
specific policies.
In 2014, TORM covered 2.2% (2013: 8.3%) of its bunker require-
ments using hedging instruments. As of 31 December 2014, the
total market value of bunker hedge contracts was USD 2m (2013:
USD 0m).
All things being equal, a price change of 10% per ton of bunker oil
(without subsequent changes in freight rates) would lead to the
following change in expenditure based on the expected bunker
consumption in the spot market:
USD m
2015
2014
SENSITIVITY TO CHANGES IN THE BUNKER
PRICES
Change in the bunker prices of 10% per ton:
Change in profit before tax
Change in equity
13.7
13.7
21.5
21.5
Notes
73
NOTE 23 – CONTINUED
3) OPERATIONAL AND COMPLIANCE RISKS
Operational risks are risks associated with the ongoing opera-
tions of the business and include risks such as safe operation of
vessels, availability of experienced seafarers and staff, terrorism,
piracy and insurance and counterparty risk.
INSURANCE COVERAGE
In the course of the fleet’s operation, various casualties, accidents
and other incidents may occur that may result in financial losses
for TORM. For example, national and international rules, regula-
tions and conventions mean that the Company may incur substan-
tial liabilities in the event that a vessel is involved in an oil spill or
emission of other environmentally hazardous agents.
In order to reduce the exposure to these risks, the fleet is insured
against such risks to the extent possible. The total insurance
program comprises a broad cover of risks in relation to the opera-
tion of vessels and transportation of cargos, including personal
injury, environmental damage and pollution, cargo damage, third-
party casualty and liability, hull and machinery damage, total loss
and war. All TORM’s owned vessels are insured for an amount
corresponding to their market value plus a margin to cover any
fluctuations. Liability risks are covered in line with international
standards. Furthermore, all vessels are insured for loss of hire for
a period of up to 90 days in the event of a casualty. It is TORM’s
policy to cooperate with financially sound international insurance
companies with a credit rating of BBB or better, presently some
14-16 companies, along with two P&I Clubs, to diversify risk.
The P&I Clubs are member of the internationally recognized col-
laboration, International Group of P&I Clubs, and the Company’s
vessels are each insured for the maximum amounts available in
the P&I system. At the end of 2014, the aggregate insured value
of hull and machinery and interest for TORM’s owned vessels
amounted to USD 1.7 billion (2013: USD 2.5 billion).
COUNTERPARTY RISK
The negative development in the shipping industry since 2009
caused counterparty risk to be an ever-present challenge de-
manding close monitoring to manage and decide on actions to
minimize possible losses. The maximum counterparty risk as-
sociated is equal to the values recognized in the balance sheet.
A consequential effect of the counterparty risk is loss of income
in future periods, e.g. counterparts not being able to fulfill their
responsibilities under a time charter, a contract of affreightment
or an option. The main risk is the difference between the fixed
rates under a time charter or a contract of affreightment and the
market rates prevailing upon default.
The Company has focused closely on its risk policies and
procedures during the year to assure that risks managed in the
day-to-day business are kept at agreed levels and that changes in
the risk situations are brought to Management’s attention.
The Company’s counterparty risks are primarily associated with:
Receivables, cash and cash equivalents
Contracts of affreightment with a positive fair value
Derivative financial instruments and commodity instruments
with positive fair value
Receivables, cash and cash equivalents
The majority of TORM’s customers are companies that operate in
the oil industry. It is assessed that these companies are, to a great
extent, subject to the same risk factors as those identified for
TORM’s Tanker Segment.
In the Tanker Segment, a major part of the Company’s freight rev-
enues stems from a small group of customers. The largest cus-
tomer accounted for 9.8% (2013: 6.4%) of the freight revenues in
2014. The concentration of earnings on a few customers requires
extra attention to credit risk. TORM has a credit policy under
which continued credit evaluations of new and existing customers
take place. For longstanding customers, payment of freight nor-
mally takes place after a vessel’s cargo has been discharged. For
new and smaller customers, the Company’s credit risk is limited
as freight most often is paid prior to the cargo’s discharge. Alter-
natively, a suitable bank guarantee is placed in lieu thereof.
The Bulk Segment enforces appropriate vetting of counterparties
using all available information and insists on additional mitigation
such as bank guarantees, upfront payment of freight or parent
company guarantee, if required, to reduce the risk profile of a
contract to a reasonable level without jeopardizing the commercial
opportunity.
As a consequence of the payment patterns mentioned above, the
Company’s receivables within the Tanker and the Bulk Segments
primarily consist of receivables from voyages in progress at year-
end and, to a lesser extent, of outstanding demurrage. For the past
five years, the Company has not experienced any significant losses
in respect of charter payments or any other freight agreements.
With regard to the collection of demurrage, the Company’s average
stands at 97% (2013: 95%), which is considered to be satisfactory
given the differences in interpretation of events. In 2014, demur-
rage represented 10.0% (2013: 8.0%) of the total freight revenues.
The Company only places cash deposits with major banks covered
by a government guarantee or with strong and acceptable credit
ratings.
Derivative financial instruments and commodity instruments
In 2014, 100% of TORM’s forward freight agreements (FFAs) and
fuel swaps were cleared either through NASDAQ, London Clear-
inghouse (LCH) or NYMEX Clearport, effectively reducing counter-
party credit risk by daily clearing of balances.
4) FINANCIAL RISKS
Financial risks relate to the Company’s financial position,
financing and cash flows generated by the business, including for-
eign exchange risk and interest rate risk. The Company’s liquidity
and capital resources are described in note 2.
Under the current financing agreements, TORM is prohibited from
hedging its currency and interest rate exposures. The risks related
hereto are uncovered, and as a result the entire debt is uncovered
in relation to interest risk, and non-USD denominated expenses
are exposed to foreign exchange risk. Any changes in interest rates
and foreign exchange rates could therefore have a material adverse
effect on TORM’s future performance, results of operations, cash
flows and financial position. Going forward, TORM may obtain con-
sent to increase the use of derivatives, and then the policies and
guidelines mentioned under the various risks will still apply.
FOREIGN EXCHANGE RISK
TORM uses USD as its functional currency because the majority of
the Company’s transactions are denominated in USD. The foreign
exchange risk is thereby limited to cash flows not denominated
in USD. The primary risk relates to transactions denominated in
DKK, EUR and SGD and relates to administrative and operating
expenses.
The part of the Company’s expenses that are denominated in cur-
rencies other than USD account for approximately 97% for admin-
istrative expenses (2013: 95%), approximately 16% for operating
expenses (2013: 10%) and approximately 10% for capital expendi-
tures (2013: 38%).
Other significant cash flows in non-USD-related currencies occur
occasionally, including certain purchase obligations denominated
in JPY. No other significant cash flows in non-USD-related cur-
rencies occurred in 2014.
TORM 2014
•
•
•
74
Notes
NOTE 23 – CONTINUED
All things being equal, a change in the USD/DKK exchange rate
of 10% would result in a change in profit before tax and equity as
follows:
USDm
2015
2014
INTEREST RATE RISK
TORM’s interest rate risk generally relates to interest-bearing
mortgage debt and bank loans. All the Company’s loans for fi-
nancing vessels are denominated in USD, and all are floating rate
loans. Fixing interest exposure is therefore reduced to the sched-
uled interest fixing of the debt.
At the end of 2014, TORM has fixed 25% (2013: 25%) of the interest
exposure for 2015. The fixing is a result of the scheduled interest
fixing of the debt through 31 March 2015.
5.5
5.5
7.5
7.5
All things being equal, a change in the interest rate level of 1%
point on the unhedged debt will result in a change in the interest
rate expenses as follows:
USDm
2015
2014
SENSITIVITY TO CHANGES IN INTEREST
RATES
Effect of a change in the interest rate level
of 1% point:
Change in interest rate expenses
Change in equity
10.4
10.4
12.4
12.4
TORM’s interest-bearing debt decreased from year-end 2013 to
year-end 2014 by USD 324m (2013: decrease of USD 150m) to
USD 1,394m (2013: USD 1,718 m).
SENSITIVITY TO CHANGES IN THE USD/DKK
EXCHANGE RATE
Effect of a change in the USD exchange
rate of 10% in relation to DKK:
Change in profit before tax
Change in equity
TORM 2014
NOTE 24
FINANCIAL INSTRUMENTS
USDm
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES:
Loans and receivables
Freight receivables
Other receivables
Cash and cash equivalents
Available-for-sale assets
Other investments
Derivative financial instruments (assets)
Other receivables - hedge accounting
Financial liabilities measured at amortized cost
Mortage debt and bank loans
Finance lease liabilities
Trade payables
Other liabilities
Derivative financial instruments (liabilities)
Other liabilities - fair value through profit or loss (held-for-trading)
Other liabilities (hedge accounting)
Notes
75
2014
2013
71.8
4.0
44.6
79.7
12.5
29.1
120.4
121.3
10.9
10.9
12.3
12.3
0.0
0.0
-
0.0
1,427.1
1,733.9
11.9
18.3
22.8
12.9
43.9
28.6
1,480.1
1,819.3
0.1
1.7
1.8
0.0
0.0
0.0
In all material aspects, the fair value of the financial assets and liabilities above equals the carrying amount except for mortage debt and
bank loans for which the fair value can be found in note 17.
FAIR VALUE HIERARCHY FOR FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE IN THE BALANCE SHEET
The table below shows the fair value hierarchy for financial instruments measured at fair value in the balance sheet. The financial instru-
ments in question are grouped into level 1 to 3 based on the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 fair value measurements are those derived from input other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (as prices) or indirectly (derived from prices)
Level 3 fair value measurements are those derived from valuation techniques that include input for the asset or liability that are not
based on observable market data (unobservable input)
TORM 2014
•
•
•
76
Notes
NOTE 24 – CONTINUED
USDm
Available-for-sale financial assets:
Other investments
Derivative financial instruments (assets):
Other receivables - fair value through profit or loss (held-for-trading)
Other receivables (hedge accounting)
Total financial assets
Derivative financial instruments (liabilities):
Other liabilities - fair value through profit or loss (held-for-trading)
Other liabilities (hedge accounting)
Total financial liabilities
USDm
Available-for-sale financial assets:
Other investments
Derivative financial instruments (assets):
Other receivables - fair value through profit or loss (held-for-trading)
Other receivables (hedge accounting)
Total financial assets
Derivative financial instruments (liabilities):
Other liabilities - fair value through profit or loss (held-for-trading)
Other liabilities (hedge accounting)
Total financial liabilities
There were no transfers between level 1 and 2 in 2014 and 2013.
2014
Quoted
prices
(Level 1)
Observable
input
(Level 2)
Un observ-
able input
(Level 3)
Total
-
-
-
0.0
-
-
0.0
10.9
10.9
-
-
10.9
-
-
0.0
0.0
0.0
10.9
0.1
1.7
1.8
-
-
0.0
0.0
0.1
1.7
1.8
2013
Quoted
prices
(Level 1)
Observable
input
(Level 2)
Unobserv-
able input
(Level 3)
Total
0.0
-
12.3
12.3
-
-
0.0
-
-
0.0
0.0
0.0
0.0
0.0
0.0
0.0
-
-
12.3
-
-
0.0
0.0
0.0
12.3
0.0
0.0
0.0
In all material aspects, the estimation of the fair market value of TORM’s unlisted shares (level 3) is based on market multiples for comparable listed companies (peer
group). The peer group is selected from companies in comparable industries and is assessed as representative for the assessment of the value of the shareholding. Further-
more, TORM applies an average of both a price to earnings and a price to book multiple in determining the fair market value.
Derivative financial instruments of USD 1.7m (2013: USD 0.0m) are measured at fair value based on discounted cash flow on a recurring basis. Future cash flows are esti-
mated on forward curves for bunker swaps and FFAs from observable forward curves at the end of the reporting period and contract forward rates discounted at a rate that
reflects the credit risk of the counterparties.
RECONCILIATION OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE IN THE BALANCE SHEET BASED ON LEVEL 3
USDm
Other investments, available-for-sale:
Balance at 1 January
Gain/loss in other comprehensive income
Transfers to/from level 3
Balance at 31 December
2014
2013
12.3
-1.4
-
10.9
12.3
0.6
-0.6
12.3
Gain/loss in the income statement for assets held at the end of the reporting period
0.0
0.0
TORM 2014
Notes
77
NOTE 25
RELATED PARTY TRANSACTIONS
During the financial year, TORM carried on trading with its joint ventures for a total amount of USD 1.4m (2013: USD 1.9m).
Management remuneration is disclosed in note 4.
To the best of TORM’s knowledge, there have not been any other transactions with related parties during the financial year.
NOTE 26
NON-CURRENT ASSETS HELD-FOR-SALE
In November 2013, the Company entered into an agreement concerning the sale of four MR tankers. The tankers were classified as held-
for-sale and presented separately in the balance sheet and included under the Tanker Segment in the segment information.
An impairment loss of USD 55m from adjusting the carrying amount of the tankers to the market value was recognized in the income
statement for 2013 under “Impairment losses on tangible and intangible assets”. The vessels were delivered to the new owners in March
and April 2014.
NOTE 27
CASH FLOWS
USDm
Reversal of other non-cash movements:
Amortization of acquired assets and liabilities
Share-based payment
Adjustments on derivative financial instruments
Exchange rate adjustments
Other adjustments
USDm
Change in bunkers, receivables and payables:
Change in bunkers
Change in receivables
Change in prepayments
Change in trade payables and other liabilities
Adjusted for fair value changes of derivative financial instruments
2014
2013
1.4
0.1
0.1
0.0
-8.2
-6.6
-0.7
0.6
1.3
0.0
4.1
5.3
2014
2013
1.7
20.8
-1.2
-15.3
-1.7
4.3
22.5
38.5
8.6
-44.0
-1.4
24.2
TORM 2014
78
Notes
NOTE 28
ENTITIES IN THE GROUP
Parent Company:
TORM A/S
Investments in subsidiaries*):
DK Vessel HoldCo GP ApS
DK Vessel HoldCo K/S
Long Range 1 A/S **)
LR1 Management K/S **)
Medium Range A/S **)
MR Management K/S **)
OMI Holding Ltd.
Torghatten & TORM Shipowning ApS
TORM Brasil Consultoria em Transporte Maritimo LTDA.
TORM Crewing Service Ltd.
TORM Shipping India Private Limited
TORM Singapore Pte. Ltd.
TORM USA LLC
TT Shipowning K/S
VesselCo 1 K/S
VesselCo 2 K/S **)
VesselCo 2 Pte. Ltd.
VesselCo 3 K/S
VesselCo 4 K/S **)
VesselCo 4 Pte. Ltd.
VesselCo 6 Pte. Ltd.
VesselCo 7 Pte. Ltd.
VesselCo A ApS
VesselCo B ApS **)
VesselCo C ApS
VesselCo D ApS **)
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Denmark
Mauritius
Denmark
Brazil
Bermuda
India
Singapore
Delaware
Denmark
Denmark
Denmark
Singapore
Denmark
Denmark
Singapore
Singapore
Singapore
Denmark
Denmark
Denmark
Denmark
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
As part of the restructuring in 2012, TORM made substantial changes to the internal legal group structure of the Company to align it with the
individual loan facilities. This involves transfer of vessels to separate legal entities in Denmark and Singapore. All legal entities are ultimately
owned by TORM A/S. The vessels in the vessel owning entities can only be sold with approval from the lenders of the Group.
Investments in legal entities included as joint ventures*):
Long Range 2 A/S
LR2 Management K/S
TORM SHIPPING (PHILS.), INC.
Interest in joint operations:
50%
50%
25%
Denmark
Denmark
The Philippines
During the financial year, TORM had a material joint operation, The LR2 Pool, which was based out of the offices in Copenhagen and Singapore.
The LR2 Pool consisted of 29 double-hull Aframax tankers, including ten of TORM’s vessels, which mainly trade clean petroleum products. TORM
recognizes a proportional share of the revenue, costs, assets and liabilities, based on the number of days the Company’s vessels have been avail-
able for the pool in relation to the total available earning days during the period (approx. 35%). The LR2 Pool ceased the activities with effect from 1
October 2014.
*) Entities with activities in the financial year.
**) Dissolved during the year.
TORM 2014
NOTE 28 – CONTINUED
AGGREGATE FINANCIAL INFORMATION OF INDIVIDUALLY IMMATERIAL JOINT VENTURES
USDm
TORM's share of profit/(loss) from continuing operations
TORM's share of total comprehensive income
Aggregate carrying amount of the Group's interest in these joint ventures
NOTE 29
EARNINGS/LOSS PER SHARE
Net profit/(loss) for the year (USDm)
Million shares
Average number of shares
Average number of treasury shares
Average number of shares outstanding
Dilutive effect of outstanding share options
Average number of shares outstanding incl. dilutive effect of share options
Earnings/(loss) per share (USD)
Diluted earnings/(loss) per share (USD)
Notes
79
2014
2013
0.4
0.4
0.9
0.5
0.5
1.0
2014
2013
-284.2
-162.2
728.0
-6.7
721.3
0.0
721.3
728.0
-6.7
721.3
0.0
721.3
-0.4
-0.2
-0.4
-0.2
When calculating diluted earnings per share for 2014, 3,847,725 share options (2013: 5,041,936) have been omitted as they are out-of-the-money, but potentially the share
options might dilute earnings per share in the future.
TORM 2014
80
Statement by Management
STATEMENT BY
MANAGEMENT
We have today presented the annual report of TORM A/S for
the financial year 1 January - 31 December 2014.
BOARD OF DIRECTORS:
EXECUTIVE MANAGEMENT:
The annual report is prepared in accordance with International
Financial Reporting Standards as adopted by the EU and
additional Danish disclosure requirements for annual reports
of listed companies.
In our opinion, the consolidated financial statements and the
parent financial statements give a true and fair view of the
Group’s and the Parent’s financial position as of 31 December
2014 as well as of their financial performance and cash flows
for the financial year 1 January - 31 December 2014.
We also believe that the management report contains a fair
review of the development and performance of the Group’s
and the Parent’s business and of their financial position as a
whole, together with a description of the principal risks and
uncertainties that they face.
The Company’s continuing operation is dependent on the
outcome of the ongoing recapitalization process. Reference
is made to note 2 to the consolidated financial statements
“Liquidity, capital resources, going concern and subsequent
events” as well as announcement no. 16 dated 27 October
2014 on TORM’s agreement with a group of its lenders, rep-
resenting 61% of TORM’s ship financing, and Oaktree Capital
Management regarding a possible restructuring of TORM.
No later than 26 March 2015 at the Annual General Meeting,
TORM expects to have reached the minimum required lender
support (75% by value and 50% by number) to be able to
implement the proposed agreement. The final implementation
of any restructuring would be subject to shareholder approval
and certain conditions precedent, including required approvals
from public authorities.
We recommend the annual report for adoption at the Annual
General Meeting.
Copenhagen, 4 March 2015
Flemming Ipsen
Chairman
Jacob Meldgaard
CEO
Olivier Dubois
Deputy Chairman
Kari Millum Gardarnar
Alexander Green
Rasmus Johannes Hoffmann
Jon Syvertsen
TORM 2014
Auditor’s report
81
INDEPENDENT AUDITOR’S
REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF TORM A/S
REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS AND
PARENT FINANCIAL STATEMENTS
We have audited the consolidated financial statements and parent
financial statements of TORM A/S on pages 44 – 94, for the finan-
cial year 1 January to 31 December 2014, which comprise the in-
come statement, the statement of comprehensive income, balance
sheet, statement of changes in equity, cash flow statement and
notes, including accounting policies, for the Group as well as for
the Parent. The consolidated financial statements and the parent
financial statements are prepared in accordance with International
Financial Reporting Standards as adopted by the EU and Danish
disclosure requirements for listed companies.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE PARENT FINANCIAL
STATEMENTS
Management is responsible for the preparation of consolidated fi-
nancial statements and parent financial statements that give a true
and fair view in accordance with International Financial Reporting
Standards as adopted by the EU and Danish disclosure require-
ments for listed companies and for such internal control as the
Management determines is necessary to enable the preparation
and fair presentation of consolidated financial statements and par-
ent financial statements that are free from material misstatement,
whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the consolidated
financial statements and the parent financial statements based on
our audit. We conducted our audit in accordance with International
Standards on Auditing and additional requirements under Danish
audit regulation. This requires that we comply with ethical require-
ments and plan and perform the audit to obtain reasonable assur-
ance about whether the consolidated financial statements and the
parent financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements and the parent financial statements. The procedures
selected depend on the auditor’s judgment, including the assess-
ment of the risks of material misstatements of the consolidated
financial statements and the parent financial statements, whether
due to fraud or error. In making those risk assessments, the audi-
tor considers internal control relevant to the entity’s preparation of
consolidated financial statements and parent financial statements
that give a true and fair view in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting es-
timates made by Management, as well as the overall presentation
of the consolidated financial statements and the parent financial
statements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.
Our audit has not resulted in any qualification.
OPINION
In our opinion, the consolidated financial statements and parent
financial statements give a true and fair view of the Group’s and the
Parent’s financial position at 31 December 2014, and of the results of
their operations and cash flows for the financial year 1 January to 31
December 2014 in accordance with International Financial Reporting
Standards as adopted by the EU and Danish disclosure requirements
for listed companies.
EMPHASIS OF MATTER
EMPHASIS OF MATTER REGARDING THE FINANCIAL
STATEMENTS – FINANCIAL RESTRUCTURING
In forming our unqualified conclusion on the consolidated financial
statements and parent financial statements, we have considered
the adequacy of the disclosure made in note 2 to the consoli-
dated financial statements concerning TORM’s liquidity, capital
resources and ability to comply with its financial covenants.
Note 2 to the consolidated financial statements discloses that the
Company, Oaktree Capital Management and TORM’s lenders are
working towards completing a financial restructuring involving
new investors, a foregiveness of part of TORM’s current debt and
amended loan terms that will allow TORM to continue to trade
as a going concern. The Company expects to reach the minimum
required lender support to implement the proposed agreement
no later than at the Annual General Meeting on 26 March 2015.
Accordingly, the consolidated financial statements have been
prepared on a going concern basis.
STATEMENT ON THE MANAGEMENT COMMENTARY (PAGES 3-43)
Pursuant to the Danish Financial Statements Act, we have read
the management commentary. We have not performed any further
procedures in addition to the audit of the consolidated financial
statements and parent financial statements.
On this basis, it is our opinion that the information provided in the
management commentary is consistent with the consolidated
financial statements and parent financial statements.
OTHER MATTERS
If before the Annual General Meeting on 26 March 2015, TORM is
able to present documentation that the restructuring agreement
has been approved by the relevant parties, and the disclosures
in the consolidated financial statements and the parent financial
statements are amended to appropriately reflect this, we will in the
annual report to be approved by the Annual General Meeting amend
our auditor’s report accordingly.
Copenhagen, 4 March 2015
DELOITTE
Statsautoriseret Revisionspartnerselskab
Anders Dons
State Authorised
Public Accountant
Henrik Kjelgaard
State Authorised
Public Accountant
TORM 2014
82
TORM 2014
PARENT COMPANY 2014
Financial review 2014
83
TORM 2014
84
Parent Company 2014
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TORM 2014
96
Fleet overview
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2014
BUILT OWNERSHIP
CARRYING
VALUE
(USDm)
1999
2000
2007
2008
2008
2003
2004
2004
2004
2005
2005
2007
2000
2000
2001
2002
2002
2002
2003
2003
2003
2003
2004
2005
2006
2006
2006
2008
2008
2009
2009
2009
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
20*)
21*)
39*)
42*)
42*)
27*)
22
29*)
23
30*)
30*)
27
21*)
20*)
21*)
13
25*)
23*)
26*)
27*)
23*)
22*)
33*)
32*)
32*)
32*)
32*)
34*)
34*)
34*)
34*)
35*)
DWT
105,001
101,122
109,672
110,000
110,000
72,718
74,999
74,999
74,999
72,718
72,718
74,999
47,052
45,999
44,946
47,275
47,038
44,946
47,024
47,015
44,990
44,990
46,955
47,035
46,922
46,893
46,920
52,000
52,000
52,000
52,000
52,000
TANKERS/
BULKERS
SEGMENT
VESSEL
TORM KRISTINA
TORM GUDRUN
TORM MARINA
TORM MAREN
TORM MATHILDE
TORM SARA
TORM ESTRID
TORM EMILIE
TORM ISMINI
TORM SIGNE
TORM SOFIA
TORM VENTURE
TORM NECHES
TORM CLARA
TORM CECILIE
TORM AMAZON
TORM SAN JACINTO
TORM CAROLINE
TORM MOSELLE
TORM ROSETTA
TORM CAMILLA
TORM CARINA
TORM HORIZON
TORM THAMES
TORM KANSAS
TORM REPUBLICAN
TORM PLATTE
TORM LAURA
TORM LENE
TORM LOTTE
TORM LOUISE
TORM LILLY
LR2
LR2
LR2
LR2
LR2
LR1
LR1
LR1
LR1
LR1
LR1
LR1
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
TORM 2014
SEGMENT
VESSEL
DWT
BUILT OWNERSHIP
Fleet overview
97
CARRYING
VALUE
(USDm)
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Panamax
Panamax
TORM MADISON
TORM TRINITY
TORM RHONE
TORM CHARENTE
TORM OHIO
TORM LOIRE
TORM GARONNE
TORM SAONE
TORM FOX
TORM TEVERE
TORM GYDA
TORM ANHOLT
TORM BORNHOLM
35,828
35,834
35,751
35,751
37,274
37,106
37,178
37,106
37,006
36,990
37,000
74,195
75,912
2000
2000
2000
2001
2001
2004
2004
2004
2005
2005
2009
2004
2004
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
19*)
19*)
19*)
21*)
21*)
28*)
28*)
30*)
28*)
28*)
35*)
16*)
18*)
TANKERS/
BULKERS
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Bulker
Bulker
*) Indicates vessels for which TORM believes that, as of 31 December 2014, the basic charter-free market value is lower than the vessel’s carrying amount.
TORM 2014
98
Glossary
GLOSSARY
Bareboat: See B/B.
B/B: Bareboat. A form of charter arrangement, where the
charterer is responsible for all costs and risks in connection
with the operation of the vessel.
Bulk: Dry cargo – typically commodities such as coal, grain,
iron ore, etc.
Bunker hedge: A forward agreement used to reduce a
company’s exposure to fluctuating bunker costs.
Bunkers: Fuel with which to run a vessel’s engines.
Charter party: A lease or freight agreement between a
shipowner and a charterer for a longer period of time or for
a single voyage.
Capesize: Bulk carriers with a cargo carrying capacity of
120,000-200,000 dwt.
Classification society: Independent organization, which
ensures through verification of design, construction,
building process and operation of vessels that the vessels at
all times meet a long list of requirements to seaworthiness,
etc. If the vessels do not meet these requirements, insuring
and mortgaging the vessel will typically not be possible.
COA: Contract of Affreightment. A contract that involves a
number of consecutive cargos at previously agreed freight
rates.
Coating: The internal coatings applied to the tanks of a
product tanker enabling the vessel to load refined oil products.
Commercial management: An agreement to manage a
vessel’s commercial operations for the account and risk of the
shipowner.
Demurrage: A charge against the charterer of a vessel for
delaying the vessel beyond the allowed free time. The
demurrage rate will ty pically be at a level equal to the
earnings in USD/day for the voyage.
DKK: Danish kroner.
Dry cargo: See Bulk.
Dwt: Deadweight ton. The cargo carrying capacity of a
vessel.
FFA: Forward Freight Agreement. A financial derivative
instrument enabling freight to be hedged forward at a fixed
price.
KPI: Key Performance Indicator. A measure of performance
used to define and evaluate how the Company is making
progress towards its long-term organizational goals.
LR1: Long Range 1. A specific class of product tankers with
a cargo carrying capacity of 60,000 – 80,000 dwt.
LR2: Long Range 2. A specific class of product tankers with
a cargo carrying capacity of 80,000 – 110,000 dwt.
LTAF: Lost Time Accident Frequency. Work-related personal
injuries that result in more than one day off work per million
hours of work.
MR: Medium Range. A specific class of product tankers with
a cargo carrying capacity of 40,000 – 60,000 dwt.
Oil major: One of the world’s largest publicly owned oil and
gas companies. Examples of oil majors are BP, Chevron,
ExxonMobil, Shell and Total.
OPEC: Organization of the Petroleum Exporting Countries.
Panamax: Dry bulk carriers with a cargo carrying capacity
of 60,000–80,000 dwt. The biggest vessel allowed to pass
through the Panama Canal.
P&I club: Protection & Indemnity Club.
Pool: A grouping of vessels of similar size and characteristics,
owned by different owners, but commercially operated jointly.
The pool manager is mandated to charter the vessels out for
the maximum be nefit of the pool as a whole. Earnings are
equalized taking account of differences in vessel specifications,
the number of days the vessels have been ready for charter, etc.
Product tanker: A vessel suitable for carrying clean
petroleum products such as gasoline, jet fuel and naphtha.
Spot market: Market in which vessels are contracted for a
single voyage for near-term delivery.
Supramax: Dry bulk carriers with a cargo carrying capacity
of 40-60,000 dwt.
T/C: Time charter. An agreement covering the chartering
out of a vessel to an end user for a defined period of time,
where the owner is responsible for crewing the vessel, but
the charterer must pay port costs and bunkers.
TCE: See T/C equivalent.
Technical management: An agreement to manage a vessel’s
technical operations and crew for the account and risk of
the shipowner.
Handymax: Dry bulk carriers with a cargo carrying capacity
of 40,000-60,000 dwt.
Time charter: See T/C.
Handysize: A specific class of product tankers with a cargo
carrying capacity of 20,000 – 40,000 dwt.
Ton-mile: A unit of freight transportation equivalent to a ton
of freight moved one mile.
IAS: International Accounting Standards.
IFRS: International Financial Reporting Standards.
IMO: International Maritime Organization.
T/C equivalent: The freight receivable after deducting port
expenses, consumption of bunkers and commissions.
UN Global Compact: The United Nation’s social charter for
enterprises, etc.
Kamsarmax: Dry bulk carriers with a cargo carrying
capacity of 80,000–85,000 dwt.
Vetting: An audit of the safety and performance status of a
tanker vessel made by oil majors.
TORM 2014
2009-
ON 14 JANUARY 2014, TORM CELEBRATES
125 YEARS OF SHIPPING WITH PRIDE.
IN 2012, TORM COMPLETES A
RESTRUCTURING IN COOPERATION
WITH TIME CHARTER OWNERS, LENDERS
AND SHAREHOLDERS
1999-2009
WITH THE ACQUISITION OF OMI IN 2007,
TORM REALIZES THE GREATEST FLEET
INCREASE IN TORM’S RECENT HISTORY
1989-1999
IN THE EARLY 1990S, TORM MAKES
SHIPPING HISTORY WHEN IT
ESTABLISHES A POOL
PARTNER COLLABORATION
1979-1989
TORM’S FIRST DOUBLE-HULL TANKERS
ARE DELIVERED, AND WASTE WATER
TREATMENT SYSTEMS ARE INSTALLED
ON THE OLDER VESSELS
1969-1979
MERGERS AND EFFICIENCY
IMPROVEMENTS HELP STREAMLINING
OPERATIONS. IN 1974, TORM MERGES
WITH THE STEAMSHIP COMPANY
BORNHOLM OF 1866. A NUMBER OF THE
OLDER SHIPS ARE SOLD OFF.
TORM TAKES DELIVERY OF ITS FIRST
PRODUCT TANKER
1959-1969
DESIGN AND ENGINEERING
DEVELOPMENTS IN THE
SHIPBUILDING INDUSTRY MEAN
BETTER CONDITIONS FOR TORM’S CREW
MEMBERS. THE TORM FLEET CONTINUES
TO INCREASE
1949-1959
THE POST-WAR PERIOD WAS A PERIOD
OF GROWTH AND CONSOLIDATION.
“GUNHILD TORM”, DENMARK’S LARGEST
DRY BULK CARRIER AT THAT TIME,
JOINS THE FLEET
1939-1949
DURING WORLD WAR II, TORM LOSES
SEVERAL VESSELS AND EMPLOYEES.
HOWEVER, TORM RECOVERS AND
INCREASES THE NUMBER OF SAILING
ROUTES. THE COMPANY ESTABLISHES
WHAT TODAY IS KNOWN AS THE TORM
FOUNDATION
1929-1939
TORM EXPANDS OPERATIONS AND
TAKES DELIVERY OF ITS FIRST
MOTORIZED VESSEL
1919-1929
THE COMPANY CARRIES ITS FIRST
CARGO OF FRUIT FROM THE MIDDLE
EAST TO ENGLAND AND ORDERS ITS
FIRST REFRIGERATED VESSEL
1909-1919
TORM CONTINUES TO EXPAND ITS
SHIPPING OPERATIONS. TORM VESSELS
BEGIN TO SAIL INTERNATIONAL VOYAGES
1899-1909
THE COMPANY GROWS
RAPIDLY. TORM IS LISTED ON THE
COPENHAGEN STOCK EXCHANGE
1889-1899
IN 1889, TORM IS FOUNDED BY CAPTAIN
DITLEV E. TORM AND CHRISTIAN
SCHMIEGELOW. THE TORM FLEET GROWS
TO FOUR VESSELS DURING THE FIRST
TEN YEARS
DID YOU KNOW THAT....
116,000 TONS WHEN FULLY LOADED WITH GASOLINE, AN LR2
TANKER DISPLACES 116,000 TONS OF WATER
EQUAL TO THE WEIGHT OF 2,212 LORRIES
AN LR2 TANKER MEAS-
URES 48 METERS FROM THE
AERIAL MAST TO THE KEEL,
CORRESPONDING TO
30
CARS
PILED ON TOP OF EACH OTHER
A STANDARD MR TANKER OF
45,000 DWT CAN CONTAIN 53.5
MILLION LITERS OF WATER
EQUIVALENT TO THE ANNUAL
3
9
WATER CONSUMPTION OF 2
DANISH
STANDARD
HOUSEHOLDS
ON AVERAGE, AN MR TANKER CROSSES THE ATLANTIC
OCEAN 26 TIMES IN A YEAR – CORRESPONDING TO
4 TIMES
AROUND THE WORLD
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ANNUAL REPORT 2014
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TORM A/S
TUBORG HAVNEVEJ 18
2900 HELLERUP
DENMARK
TEL.: +45 3917 9200
WWW.TORM.COM