A N N UA L R E P O R T 2 0 1 6
TORM AT A GLANCE
A WORLD-
LEADING
PURE-PLAY PRODUCT
TANKER COMPANY
ONE OF THE WORLD'S LARGEST
OWNERS AND OPERATORS
OF PRODUCT TANKERS THAT
TRANSPORT REFINED OIL PRODUCTS
TORM.COM
CUSTOMERS CONSIST OF
MAJOR INDEPENDENT OIL COMPANIES,
STATE-OWNED OIL COMPANIES,
OIL TRADERS AND REFINERS
TORM PLC IS LISTED ON
NASDAQ
COPENHAGEN
128
YEARS OF
TRACK RECORD
~3,000
SEAFARERS
TORM
10 (+4)
7
53
11
LR2
LR1
MR
Handysize
277
LAND-BASED
EMPLOYEES
WORLD
FLEET
On the water
Newbuildings
318
338
1,573
704
A WORLD-
LEADING
PURE-PLAY PRODUCT
TANKER COMPANY
ONE OF THE WORLD'S LARGEST
OWNERS AND OPERATORS
OF PRODUCT TANKERS THAT
TRANSPORT REFINED OIL PRODUCTS
TORM.COM
MAJOR INDEPENDENT OIL COMPANIES,
CUSTOMERS CONSIST OF
STATE-OWNED OIL COMPANIES,
OIL TRADERS AND REFINERS
TORM PLC IS LISTED ON
NASDAQ
COPENHAGEN
128
YEARS OF
TRACK RECORD
~3,000
SEAFARERS
TORM
10 (+4)
7
53
11
LR2
LR1
MR
Handysize
277
LAND-BASED
EMPLOYEES
WORLD
FLEET
On the water
Newbuildings
318
338
1,573
704
CONTENTS
CHAIRMAN'S
STATEMENT
4
HIGHLIGHTS 2017
8
PRODUCT TANKER
MARKET
18
CORPORATE
GOVERNANCE
48
INCOME STATEMENT
78
33
STRATEGIC REPORT
Chairman’s statement
Key figures
TORM’s restructuring, corporate reorganization
and impact on the Annual Report 2016
Highlights
Outlook 2017
Statement by the Executive Director
From exploration to end consumption
The TORM fleet
Strategic ambition and business model
The product tanker market
Key performance indicators
Corporate reorganization
Corporate social responsibility
Risk management
Financial review 2016
GOVERNANCE
Chairman’s introduction
Corporate governance
Audit Committee Report
Risk Committee Report
Remuneration Committee Report
Investor information
Directors' Report
Statement of Directors’ responsibilities
FINANCIAL STATEMENTS 2016
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes
Parent Company 2016
Independent auditor’s report
Fleet overview
Glossary
4
6
7
8
10
12
14
15
16
18
24
26
27
33
36
47
48
51
54
56
70
7 2
75
78
79
80
82
83
84
1 13
120
126
128
TORM PLC · Birchin Court, 20 Birchin Lane · London, EC3V 9DU · United Kingdom · Tel.: +44 203 713 4560 · www.torm.com · VAT: 239 53 53 87
TORM 2016 4
Strategic Report
CHAIRMAN’S
STATEMENT
With the combination of a strong integrated operating platform,
a transparent governance structure and a solid balance sheet, I believe
TORM provides an excellent platform for generating shareholder value
within the product tanker segment. There is ample work to do as we work
through this softer market environment, and I look forward to reporting
on our progress throughout the coming year.
Chairman of the Board Christopher H. Boehringer.
In a year where product tanker rates weakened significantly,
I am pleased to report that TORM maintained its position in
the forefront of its industry with a commercial performance
which was among the best of its peer group. As a pure-play
product tanker company, this performance can be attributed
to the Company’s integrated operating platform, its
well-maintained fleet and its presence in all larger product
tanker classes. With TCE earnings1) and cash flow at the top
end of comparable industry players, I consider the solid
2016 results to be another step towards TORM’s ambition
to be the Reference Company within the product tanker
industry.
INTEGRATED OPERATING PLATFORM
TORM puts customers first, and the Company’s One TORM
integrated operating platform ensures close cooperation
between the commercial and technical divisions and
provides the commercial management team with enhanced
flexibility to service customers across vessel classes. TORM
has a number of functions in-house which other players
outsource, including full commercial management, full
technical management as well as its S&P team. Having
an internal S&P team allows the Company to utilize its
relationships with brokers, yards, banks and shipowners
to track and execute on opportunities to grow and refresh
the fleet, where this makes commercial sense.
TRANSPARENT GOVERNANCE
As part of its drive to become a Reference Company in
the product tanker industry, TORM is very focused on
maintaining a transparent governance structure with no
related party issues or conflicts of interest. This is considered
a key benefit for all stakeholders and a prerequisite to
creating an attractive vehicle for investors looking for
exposure to this sector.
In this vein, on 15 April 2016, the Company undertook a
corporate reorganization which included the establishment
of a UK parent company, TORM plc. We believe that this
step will improve the marketability of the Company by
attracting a broader and more diversified international
investor base and will facilitate an eventual dual listing in
the United States. Amongst other things, the establishment
of a UK company results in TORM reporting under the
internationally recognized UK Corporate Governance Code,
which entails comprehensive reporting and transparency
requirements.
TORM plc was listed on Nasdaq Copenhagen on 19 April
2016 under the ticker “TRMD A”.
SOLID CAPITAL STRUCTURE
Throughout 2016, TORM has maintained its strategic and
financial flexibility. During the year, the Company extended
its relationships with existing lenders and expanded the
lender group. The new financing facilities totaling USD 271m
announced in the second half of 2016 ensure a solid capital
position going forward and allow TORM the flexibility to
pursue investment opportunities where attractive.
1) See Glossary on pages 128-132 for definition of TCE earnings.
TORM 2016
In 2016, TORM adopted a new Distribution Policy. Going
forward, TORM intends to distribute 25-50% of net income
on a semi-annual basis. In September 2016, TORM distributed
the first dividend payment totaling USD 25m, and through
the dividend payment and accretive share repurchases,
the Company has returned a total of USD 47m to its
shareholders during 2016. This balanced approach to
distributions ensures that shareholders will benefit from
the earnings in times of strong cash generation. The
Distribution Policy will be reviewed on a continuous
basis considering TORM’s capital structure, strategic
developments, future obligations, market trends and
shareholder interests.
2016 PERFORMANCE
2016 started on a robust note; however, the product tanker
segment experienced softening freight rates over the course
of the year. High product inventory levels and a lack of
long-haul movements of naphtha from the Atlantic Basin
to the Far East had a negative impact on demand for
seaborne transportation. Despite challenging market
conditions, TORM was able to benefit from the One TORM
platform and deliver competitive results.
Operating within the context of this weakening market,
TORM nevertheless generated strong cash flow from
operations of USD 171m (2015: USD 214m) and an EBITDA2)
of USD 200m (2015: USD 210m).
Throughout the year, vessel values decreased by roughly
25% in total, and TORM has booked an impairment charge
of USD 185m. Following the impairment, the net loss for the
year is USD 142m (2015: net profit of USD 126m), which
corresponds to a net profit of USD 43m when adjusting for
the impairment.
***
With the combination of a strong integrated operating
platform, a transparent governance structure and a solid
balance sheet, I believe TORM provides an excellent
platform for generating shareholder value within the
product tanker segment. There is ample work to do as
we work through this softer market environment, and I
look forward to reporting on our progress throughout
the coming year.
Christopher H. Boehringer, Chairman of the Board
2) See Glossary on pages 128-132 for definition of EBITDA.
TORM 2016 6
Strategic Report
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 excluding impairment charges
BALANCE SHEET (USDm)
Non-current assets
Total assets
Equity
Total liabilities
Invested capital**)
Net interest-bearing debt**)
Cash and cash equivalents
KEY FINANCIAL FIGURES**)
Gross margins:
TCE
Gross profit
EBITDA
Operating profit/(loss)
Return on Equity (RoE)
Return on Invested Capital (RoIC)
Adjusted Return on Invested Capital (RoIC)**)
Equity ratio
SHARE-RELATED KEY FIGURES**)
Earnings per share, EPS (USD)
Diluted earnings/(loss) per share, EPS (USD)
Net Asset Value per share (NAV)***)
Stock price in DKK, end of period (per share of USD 0.01)
Number of shares (excluding treasury shares),
end of period (million)
Number of shares (excluding treasury shares), average (million)
2016
680
458
242
200
-107
-35
-142
-142
43
1,390
1,571
781
790
1,388
609
76
67.4%
35.6%
29.4%
-15.7%
-16.2%
-7.2%
4.9%
49.7%
-2.3
-2.3
11.8
63.5
62.0
62.9
Pro forma
2015*)
Pro forma
2015
2014*)
854
582
361
319
219
-31
188
187
187
1,579
1,867
976
891
1,588
613
168
68.1%
42.3%
37.4%
25.6%
-
14.1%
14.1%
-
-
-
-
-
-
-
540
371
236
210
143
-16
127
126
126
1,579
1,867
976
891
1,588
613
168
68.6%
43.6%
38.9%
26.5%
17.4%
13.2%
13.2%
52.3%
2.4
2.4
18.4
97.5
63.8
51.7
794
414
172
119
24
-23
1
0
0
1,432
1,673
842
831
1,488
619
70
52.2%
21.7%
14.9%
3.0%
-
1.6%
1.6%
-
-
-
-
-
-
-
*) Please refer to "Financial review 2016" on page 36 for further description of pro forma figures.
**) For definition of the calculated key figures, please refer to the glossary on pages 128-132.
***) Based on broker valuations as of 31 December 2016, excluding charter commitments.
TORM 2016 Strategic Report
7
TORM’S RESTRUCTURING, CORPORATE REORGANIZATION
AND IMPACT ON THE ANNUAL REPORT 2016
On 13 July 2015, TORM, its lenders and Oaktree Capital Man-
agement (“Oaktree”) completed a comprehensive restruc-
turing (“Restructuring”) of TORM A/S’ balance sheet and a
transformative merger between TORM and Oaktree. In
return for a vessel contribution by means of the shares in
OCM (Gibraltar) Njord Midco Ltd. (“Njord”), Oaktree
obtained a controlling equity stake in TORM. In accordance
with IFRS 10 and 3, Oaktree was considered to control the
combined entity, and the Restructuring was therefore
accounted for as a reverse acquisition for financial reporting
purposes. This means that Njord is considered the account-
ing acquirer and the continuing reporting entity. For com-
parative figures covering 2015, the period from 1 January
2015 to 13 July 2015 (“Restructuring Completion Date”)
shown in the consolidated financial statements reflects the
activity of Njord only, whereas the period from the Restruc-
turing Completion Date to 31 December 2015 reflects the
combined activities of TORM and Njord.
On 15 April 2016, TORM established a new corporate
structure of the TORM Group including the insertion of a
UK parent company, TORM plc (the "Corporate Reorgani-
zation"). For accounting purposes, the consolidated finan-
cial statements for the TORM Group are presented in the
legal name of TORM plc but are a continuation of the con-
solidated financial statements of TORM A/S.
The Strategic Report and Governance Report sections of
the Annual Report also contain pro forma figures for 2015,
presenting TORM as if the Restructuring had been under-
taken as of 1 January 2015.
The Strategic Report and Governance Report sections
(pages 4–74) focus on the pro forma numbers, as they are
deemed to be the most representative when evaluating
both the Company’s current and future financial perform-
ance and position. The Financial review contains a recon-
ciliation between the reported figures per the consolidated
financial statements (Income statement and Balance sheet)
and the computed pro forma figures, including the assump-
tions applied. The Financial review also contains a brief
review of the reported figures.
For comparative figures covering 2015 displayed in the
Strategic Report (pages 4–45), “TORM” or the “Company”
generally refers to pro forma figures adjusted for non-
recurring items for the combined group or for the legal
entity TORM A/S, unless stated otherwise.
In the Financial review included in the Strategic Report
(pages 36–45), references to the historical financial state-
ments of “TORM A/S” and “Njord” are references to the his-
torical financial statements of Njord, the accounting
acquirer. References to the historical financial statements of
“Former TORM A/S” are references to the historical finan-
cial statements of TORM A/S, the accounting acquiree,
prior to the contribution of Njord.
SAFE HARBOR STATEMENTS AS TO THE FUTURE
Matters discussed in this release may constitute for-
ward-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
words “believe,” “anticipate,” “intend,” “estimate,” “forecast,”
“project,” “plan,” “potential,” “may,” “should,” “expect,”
“pending” and similar expressions generally identify
forward-looking statements.
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
significant uncertainties and contingencies that are difficult
or impossible to predict and are beyond our control, the
Company cannot guarantee that it will achieve or accom-
plish 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 “ton miles”
of oil carried by oil tankers, the effect of changes in OPEC’s
petroleum production levels and worldwide oil consump-
tion 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 international political
conditions, potential disruption of shipping routes due to
accidents, political events or acts by terrorists.
In light of these risks and uncertainties, you should not
place undue reliance on forward-looking statements
contained in this release because they are statements
about events that are not certain to occur as described or
at all. These forward-looking statements are not guarantees
of our future performance, and actual results and future
developments may vary materially from those projected in
the forward-looking statements.
Except to the extent required by applicable law or
regulation, the Company undertakes no obligation to
release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the
date of this release or to reflect the occurrence of unantici-
pated events.
8
Strategic Report
HIGHLIGHTS
In a softening freight rate environment, TORM benefited from its
integrated operating platform and realized an EBITDA of USD 200m
in 2016. With the broadening of the Company's lending group, we have
enhanced TORM’s strategic and financial flexibility.
Executive Director Jacob Meldgaard.
• In 2016, the Company realized an EBITDA of USD 200m
(2015, pro forma: USD 319m). As of 31 December 2016,
TORM has booked a non-cash impairment charge of USD
185m. Following the impairment, TORM's 2016 full-year
results amounted to a loss before tax of USD 142m and a
profit before tax of USD 43m when adjusting for the
non-cash impairment (2015, pro forma: profit of USD
187m). The performance is in line with the guidance
provided as of 15 November 2016 when adjusting for the
impairment charge.
• Product tanker freight rates were at healthy levels at the
beginning of 2016 but softened during the year, as high
product inventory levels globally and lack of long-haul
movements of naphtha from the Atlantic Basin to the Far
East contained the demand for product tankers. For the
full year 2016, TORM achieved TCE rates of USD/day
16,050 (2015, pro forma: USD/day 22,879). The gross
profit amounted to USD 242m (2015, pro forma: USD
361m).
• On 15 April 2016, the TORM Group implemented a
are presented in the legal name of TORM plc but are a
continuation of the consolidated financial statements of
TORM A/S.
• During the first quarter of 2016, TORM took delivery
of three MR newbuildings. As of 31 December 2016,
TORM’s order book stood at four LR23) newbuildings
from Guangzhou Shipyard International with expected
delivery between the fourth quarter of 2017 and the
second quarter of 2018.
• As of 31 December 2016, TORM’s available liquidity was
USD 266m and consisted of USD 76m in cash and USD
190m in undrawn credit facilities. Outstanding CAPEX
relating to the order book and vessel purchases amounted
to USD 149m. Following the balance sheet date, TORM has
completed the sale of one vessel, TORM Anne, and sale
and leaseback transactions for two vessels, TORM Mary
and TORM Helene. In addition, the new term facility of up
to USD 130m, announced in December 2016, was finalized
and drawn in January 2017.
Cor porate Reorganization including the insertion of a
UK parent company, TORM plc. TORM plc was listed on
Nasdaq Copenhagen on 19 April 2016, and TORM A/S
was delisted from Nasdaq Copenhagen on 26 April 2016.
A total of 97.6% of TORM A/S’ shareholders have
exchanged their shareholdings to TORM plc, and TORM
plc has acquired the remaining 2.4% shares from TORM
A/S’ minority shareholders. For accounting purposes, the
consolidated financial statements for the TORM Group
• As of 31 December 2016, net interest-bearing debt
amounted to USD 609m. During 2016, TORM secured
new financing totaling USD 271m against collateral in
four LR2 newbuildings and eleven unen cumbered MR
vessels. Through the new financing agreements, TORM
has been able to both attract new strategic financial
institutions and build on existing relations. As of 31
December 2016, TORM’s loan-to-value ratio (LTV)4) was
58% at Group level.
3) See "The TORM Fleet" on page 15.
4) See Glossary on page 128-132 for definition of LTV.
TORM 2016
• As of 31 December 2016, TORM performed a quarterly
review of the recoverable amount of the assets by
assessing the recoverable amount for the most significant
assets including goodwill within the Tanker Segment.
Based on this review, Management concluded that the
assets within the Tanker Segment were impaired by
USD 185m as of 31 December 2016 (2015: USD 0m), as
the carrying value exceeded the value in use. Following
the impairment charge, the book value of the fleet was
USD 1,388m excluding outstanding installments on
newbuildings of USD 149m. Based on broker valuations,
TORM’s fleet, including newbuildings, had a market value
of USD 1,446m as of 31 December 2016.
• Based on broker valuations, TORM’s net asset value
(NAV)5) excluding charter commitments is estimated at
USD 733m. This corresponds to a NAV/share of USD 11.8
or DKK 83.3.
• TORM’s equity amounted to USD 781m as of 31 December
2016. This corresponds to an equity/share of USD 12.6 or
DKK 88.8.
• As of 31 December 2016, 12% of the total earning days6)
in 2017 were covered at USD/day 19,739.
• As of 3 March 2017, TORM had covered 84% of the
earning days in the first quarter of 2017 at an average
TCE of USD/day 15,250.
• Following TORM’s incorporation in the UK, the Company
reports according to standard UK reporting practice. In
previous quarterly earnings announcements, TORM has
included guidance on earnings. In line with common
practice in most UK-listed companies and other major
shipping companies, TORM has decided not to provide
guidance on earnings in the Annual Report and any
future announcements. Information on covered days,
interest-bearing bank debt, the one-year time charter
market and EBITDA sensitivity to freight rates will remain
included in the Annual Report.
• On 12 May 2016, TORM’s Board of Directors approved a
new Distribution Policy. Going forward, TORM intends to
distribute 25-50% of net income semi-annually. The first
dividend payment of USD 25.0m was distributed on 15
September 2016. Further, TORM has repurchased own
shares totaling USD 22.1m, of which USD 19.2m relates
to the Corporate Reorganization. In total, TORM has
returned USD 47.1m to its shareholders during 2016.
The Board of Directors proposes that no dividend be
distributed for the second half of 2016.
5) See Glossary on pages 128-132 for definition of NAV.
6) See Glossary on pages 128-132 for definition of earning days.
TORM 2016
10
Strategic Report
OUTLOOK 2017
As of 31 December 2016, TORM had covered 3,264 earning days (12% of
total earning days) at an average rate of USD/day 19,739 for 2017
As of 31 December 2016, the interest-bearing bank debt totaled USD
685m, and TORM had fixed 68% of the interest exposure for 2017
OUTLOOK
Taking the economic and political uncertainty into account,
TORM expects the supply and demand balance within the
product tanker market to gradually improve. Going
forward, TORM also expects increasing oil consumption
and increased ton-mile effects of dislocation of refinery
activity to have a positive impact on the demand for
product tankers. During 2017-2019, the product tanker
ton-mile demand is estimated to grow by a compound
annual rate of around 5% with an estimated net growth in
tonnage supply of approximately 4%. During the first part
of this period, the market is expected to be impacted by
product stock drawdowns and a high number of
newbuilding deliveries. Expectations are that the market
balance will improve towards the end of the period
supported by an increasing demand for transportation and
lower fleet growth. Please see "The Product Tanker Market"
section on pages 18-20.
COVERAGE FOR 2017
Following TORM’s incorporation in the UK, the Company
reports according to standard UK reporting practice. In
previous quarterly earnings announcements, TORM has
included guidance on earnings. In line with common
practice in most UK-listed companies and other major
shipping companies, TORM has decided not to provide
guidance on earnings in the Annual Report and any future
announcements. Information on covered days, interest-
bearing bank debt, the one-year time charter market and
EBITDA sensitivity to freight rates will remain included in
the Annual Report.
As of 31 December 2016, TORM had covered 3,264 earning
days (12% of total earning days) at an average rate of USD/
day 19,739 for 2017. This means that a change in freight
rates of USD/day 1,000 would impact the full-year EBITDA
by USD 25m.
As of 31 December 2016, the interest-bearing bank debt
totaled USD 685m, and TORM had fixed 68% of the interest
exposure for 2017. A change in interest rates of 25 basis
points would impact the result before tax by USD 0.9m.
The most important factors affecting TORM’s earnings in
2017 are:
• Global economic growth
• Consumption of refined oil products
• Developments in inventory levels of refined oil products
• Oil trading activity and developments in ton-mile trends
• Fleet growth, scrapping of vessels and delays to
deliveries from the order book
• Bunker price developments
• One-off market-shaping events such as strikes,
em bargoes, political instability, weather conditions, etc.
• Potential difficulties of major business partners
As of 28 February 2017, the one-year time charter (T/C)
market can be seen in the table below, which corresponds
to a weighted average one-year T/C rate for TORM’s
vessels of USD/day 12,690.
2017 EBITDA SENSITIVITY TO CHANGES IN FREIGHT
RATES
ONE-YEAR TIME CHARTER MARKET
Source: Average of selected broker assessments.
USDm
LR2
LR1
MR
Handysize
Total
Change in freight rates (USD/day)
-2,000
-1,000
1,000
2,000
USD/day
One-year T/C rate as
of 28 February 2017
-5
-5
-33
-8
-51
-2
-2
-16
-4
-24
2
2
16
4
24
5
5
33
8
51
LR2
LR1
MR
Handysize
15,200
13,175
12,425
11,375
Note: The time charter market has limited liquidity.
TORM 2016 COVERED AND CHARTERED-IN DAYS IN TORM – DATA AS OF 31 DECEMBER 2016
2017
2018
2019
2017
2018
2019
Strategic Report
11
LR2
LR1
MR
Handysize
Total
LR2
LR1
MR
Handysize
Total
LR2
LR1
MR
Handysize
Total
LR2
LR1
MR
Handysize
Total
LR2
LR1
MR
Handysize
Total
2,868
2,501
18,015
3,915
27,299
Owned days
4,156
2,550
18,494
4,010
29,210
4,380
2,555
18,615
4,015
29,565
T/C-in days at fixed rate
T/C-in costs, USD/day
-
-
16,250
-
16,250
-
-
-
-
-
-
-
-
-
-
-
-
215
-
215
-
-
-
-
-
T/C-in days at floating rate
726
339
-
-
-
-
-
-
726
339
-
-
-
-
-
-
-
-
-
-
Total physical days
Total covered days
4,495
2,550
18,494
4,010
4,380
2,555
18,615
4,015
29,549
29,565
1,166
63
1,942
93
3,264
1,092
-
1,095
-
2,187
85
-
148
-
232
Covered, %
Coverage rates, USD/day
24%
0%
6%
0%
7%
2%
0%
1%
0%
1%
22,816
18,094
18,244
13,513
19,739
24,180
24,352
-
-
17,535
17,535
-
-
20,853
20,021
3,594
2,501
18,230
3,915
28,240
32%
3%
11%
2%
12%
Fair value of freight rate contracts that are mark-to-market in the income statement (USDm):
Contracts not included above: 0.0
Contracts included above: 0.6
Note: 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 of profit split arrangements. T/C-in days at floating rate determine rates at the entry of each quarter, and then TORM will receive
approximately 10% profit/loss compared to this rate.
TORM 2016 12
Strategic Report
STATEMENT BY THE
EXECUTIVE DIRECTOR
In the past several quarters, TORM has consistently performed very
competitively both in terms of total TCE/day and in terms of RoIC. TORM
believes that this performance is a result of the One TORM approach with
in-house commercial and technical management.
Executive Director Jacob Meldgaard.
TORM’s continued focus on optimizing the operational
performance supports the ambition to be the Reference
Company in the product tanker industry.
In 2016, TORM’s product tanker fleet realized average TCE
earnings of USD/day 16,050. 2016 started well with freight
rates at similar levels as at the end of 2015. Initially, the
product tanker market benefited from relatively strong
refinery margins, resulting in high production of clean
petroleum products and all-time high inventory levels. In
the second quarter, the product tanker market began to
soften, as high global inventory levels combined with lower
refinery utilization had a negative impact on the demand
for long-haul arbitrage movements and product tanker
freight rates in general.
High inventory levels remained the most important factor
during the second half of 2016, limiting the demand for
seaborne transportation. In addition, penetration from
newly delivered Very Large Crude Carriers (VLCC) and
Suezmax vessels into traditional LR2 routes influenced the
market negatively. Towards the end of the fourth quarter,
the long-haul naphtha arbitrage increased and freight rates
improved.
TORM has focused its operational efforts on generating the
highest possible operational return by ensuring the right
trade-off between maximizing the TCE and minimizing
cost. In 2016, TORM generated an EBITDA of USD 200m
and an adjusted RoIC7) of 4.9%.
The One TORM approach with in-house commercial and
technical management ensures maximum flexibility to
optimize performance and has proven its strength by
ensuring the right trade-off between maximizing the TCE
and minimizing cost. The integrated nature of TORM's
business model provides transparency and additional
alignment of management and shareholder interests, which
mitigates the potential for actual or perceived conflicts of
interest with related parties and allows for closer control
over operating expenses.
The Company’s capital structure supports the operational
performance by ensuring sufficient financial and strategic
flexibility to allow for spot employment. As a recognized
shipping name, TORM is one of a few within the industry
with access to financing. The balance sheet strength
combined with TORM's access to funding provides a
competitive advantage when pursuing vessel acquisitions.
7) See Glossary on pages 128-132 for definition of adjusted RoIC.
TORM 2016 In 2016, TORM's fleet on the water increased by 13% in
terms of earning days. Following the delivery of three MR
newbuildings in 2016, TORM’s owned fleet numbers 77
product tankers on the water and four LR2 newbuildings to
be delivered in 2017 and 2018.
Culture. With the new safety program, the Company wants
to take safety culture, performance and quality to a higher
level and to ensure a common understanding of safety
across the organization. The One TORM Safety Culture
involves all employees both ashore and at sea.
The TORM fleet covers all larger product tanker classes
(LR2, LR1, MR and Handysize). This further supports
TORM’s operational performance and is an important factor
in meeting customer demands, as global customers in
general have transportation requirements that move
between vessel classes.
In line with the Company’s strategic focus on safety
performance and the journey towards becoming the
Reference Company in the product tanker industry, TORM
introduced a new safety program called One TORM Safety
***
In the past several quarters, TORM has consistently
performed very competitively both in terms of total
TCE/day and in terms of RoIC. TORM believes that this
performance is a result of the One TORM approach with
in-house commercial and technical management.
The Strategic Report on pages 4-45 has been prepared
in accordance with the requirements of the Companies
Act 2006 and is approved and signed on behalf of the
Board of Directors.
Jacob Meldgaard, Executive Director
TORM 2016 14
Strategic Report
FROM EXPLORATION TO
END CONSUMPTION
The global oil industry includes a range of activities and
processes which contribute to the transformation of
primary petroleum resources into usable end products for
industrial and private customers.
The value chain begins with the identification and
subsequent exploration of productive petroleum fields. The
unrefined crude oil is transported from the production area
to the refinery facilities by crude oil tankers, pipelines, road
and rail.
TORM is primarily involved in the transportation of refined
oil products from the refineries to the end user. TORM
transports different types of refined products such as
transportation fuels like gasoline, diesel or jet fuel, naphtha,
which is used in the petrochemical industry, and fuel
additives like MTBE. TORM is also able to transport other
types of liquid products such as ethanol and vegetable oil,
which can be used as a component in cosmetics or
biofuels.
After the refinery process, refined oil products are
primarily transported by product and chemical tankers,
pipelines, road and rail to the final customer for direct
usage or to be further marketed.
Road transportation fuels, such as gasoline and diesel, are
primarily distributed at retail stations. Heating oil is generally
delivered to residential and industrial customers, and jet fuel
is purchased directly by individual airlines and airports.
Residual fuels are sold directly to utilities, industrial plants or
as marine bunker to shipping companies.
In addition to clean products, TORM uses some of its
vessels for the transportation of residual fuels from the
refineries as well as crude oil directly from the production
field to the refinery. These fuel types are commonly
referred to as dirty petroleum products, as extensive
cleaning of the vessel’s cargo tanks is required before a
vessel can trade with clean products. In 2016, 91% of
TORM's turnover was generated from clean products
transportation.
VALUE CHAIN
EXPLORATION
TRANSPORTATION
REFINING
TRANSPORTATION
END USER
STORAGE/DISTRIBUTION
TYPICAL REFINED OIL PRODUCTS CARRIED ON TORM’S VESSELS
Crude
oil
Fuel
oil
Conden-
sate
Diesel/
gasoil
Jet fuel/
kerosene
Naphtha
Gasoline
MTBE
Ethanol
Vegetable
oil
Biofuel
“DIRTY PRODUCTS”
“CLEAN PRODUCTS”
TORM 2016
TORM 2016 FROM EXPLORATION TO
END CONSUMPTION
THE TORM FLEET
LR2
LR1
TOTAL NUMBER OF VESSELS
NEWBUILDINGS
LENGTH OVERALL (m)
WIDTH (m)
10
4
245
42
TOTAL NUMBER OF VESSELS
LENGTH OVERALL (m)
WIDTH (m)
CUBIC (m3)
CUBIC (m3)
117,000-122,000
CARGO CAPACITY (dwt)
Stategic Report
15
7
228
32
84,000
72,000-
75,000
CARGO CAPACITY (dwt)
90,000-
100,000
Long Range 2 vessels are the largest vessels in
TORM’s fleet. They are typically employed on longer
trade routes, including naphtha transportation from
the Middle East to the Far East. The global LR2 fleet
consisted of 318 vessels at the end of 2016.
Long Range 1 vessels are typically employed on the
same routes as LR2 vessels, but they also have the
flexibility to cover trades and routes that are
traditionally dominated by the smaller MR vessel
class. A typical LR1 trade could be diesel or jet fuel
from the Middle East to Europe. The global LR1 fleet
consisted of 338 vessels at the end of 2016.
MR
HANDYSIZE
53
183
32
TOTAL NUMBER OF VESSELS
LENGTH OVERALL (m)
WIDTH (m)
CUBIC (m3)
50,000-57,000
CARGO CAPACITY (dwt)
45,000-
55,000
The Medium Range vessels are often referred to as
the “workhorse” of the product tanker fleet. They
cover longer trade routes and, compared to the larger
LR vessels, this vessel type has the flexibility to enter
into more ports and cover shorter and coastal trades.
A typical trade for MR vessels would be gasoline from
Europe to the US East Coast. The global MR fleet
consisted of 1,573 vessels at the end of 2016.
TOTAL NUMBER OF VESSELS
LENGTH OVERALL (m)
WIDTH (m)
CUBIC (m3)
CARGO CAPACITY (dwt)
11
183
27
42,000
35,000-
37,000
Handysize vessels are the smallest and most flexible
vessel type. They are involved in more varied and
typically shorter and coastal trade routes. Typical
trades for a Handysize vessel include transportation
of various clean petroleum products within Europe
and the Mediterranean. The global Handysize fleet
consisted of 704 vessels at the end of 2016.
TORM 2016
16
Strategic Report
STRATEGIC AMBITION
AND BUSINESS MODEL
TORM is a pure-play product tanker owner and a reference company in the
product tanker segment
The Company has a solid capital structure
One TORM offers a strong operating platform
PURE-PLAY PRODUCT TANKER OWNER AND OPERATOR
TORM is one of the world’s largest product tanker com panies
with an owned fleet of 77 vessels on the water and four
newbuildings as of 31 December 2016. TORM is active
within all larger product tanker classes (LR2, LR1, MR
and Handysize). This is an important factor in meeting
customer demands, as global customers in general have
transportation requirements that move between vessel
classes. TORM is a pure-play product tanker company
and is well-positioned to take advantage of the promising
long-term supply-and-demand fundamentals in this
segment by utilizing its extensive experience and expertise
as a product tanker operator. TORM’s chartering strategy is
to employ the fleet primarily in the spot market, where the
Company is able to optimize earnings from voyage to
voyage. TORM may seek to employ some of its vessels on
longer-term time charter-out contracts, if customer needs
and expected returns make it attractive. Due to its own
scale, TORM will only enter into long-term charter-in
commitments if deemed profitable on a case-by-case
assessment. The Company believes that ownership of
vessels combined with TORM’s integrated platform
provides an essential control and allows more flexibility.
Short-term charter-in agreements (<12 months) are
considered and evaluated as an active part of the spot-
oriented market approach.
SELECTIVE FLEET GROWTH
TORM may selectively grow its product tanker fleet and
serve as a consolidator in the product tanker segment if
the right opportunities arise. TORM’s sale and purchase
activities are conducted by an in-house team leveraging
relationships with shipbrokers, shipyards, financial institutions
and shipowners. TORM is continuously following the market
for attractive opportunities to acquire high-specification
second-hand product tankers that will be franchise
enhancing and financially accretive. The specific acquisition
criteria include for example:
• Price point attractiveness
• Complementarity to the current fleet
• Vessel quality level and origin (quality yard)
• Operational characteristics incl. main engine design,
bunker consumption and cargo intake
TORM may also selectively pursue attractive newbuilding
programs with high-quality shipyards, where second-hand
purchases do not meet TORM’s return thresholds, or where
the second-hand market has insufficient liquidity in vessels
that meet customer requirements. TORM’s in-house
technical management has significant experience in
newbuilding projects from design to delivery. TORM’s
current newbuilding program consists of four LR2 vessels
with scheduled delivery between the fourth quarter of 2017
and the second quarter of 2018.
TORM will from time to time sell vessels that no longer fit
the commercial strategy, or if the price point is deemed
attractive.
SOLID CAPITAL STRUCTURE
TORM has a solid capital structure with long-dated debt
maturities, a strong liquidity position and limited off-
balance sheet liabilities. The Company has an attractive
debt profile with favorable interest rates, amortization
schedule and covenants. The solid capital structure
supports TORM’s spot employment strategy and enhances
financial and strategic flexibility. In addition, the balance
sheet strength gives a competitive advantage when
pursuing vessel acquisitions, as counterparties prefer
contracting with well-capitalized counterparties. TORM
plans to finance its business and fleet growth with a
combination of cash-on-hand and financing from lenders
and from the capital markets. During the second half of
2016, TORM was able to attract new strategic financial
partners and announced three separate financings totaling
up to USD 271m. This illustrates the Company’s ability to
source capital and supports TORM’s strategic and financial
flexibility.
TORM 2016 Strategic Report
17
TORM is a pure-play product tanker owner
active in all larger product tanker classes in
order to meet customer demands
Primarily spot-oriented and
owns ~80 product tankers
Limited T/C-in
commitment
(off-balance sheet)
TORM’s strong integrated
operating platform includes
in-house technical and commercial
management (preferred by customers)
Enhanced responsiveness to
TORM’s customers
and higher TCEs
Cost-efficient set-up
without leakages
TORM has a solid
capital structure
with financial strength to
pursue growth
Competitive advantage when
pursuing vessel acquisitions from
lenders and yards
Semi-annual distribution policy of
25-50% of net income
TORM pursues selective
growth based on
projected financial
returns and may serve as
a consolidator
In-house S&P team utilizing
relationships with brokers,
yards, banks and shipowners
ONE TORM – STRONG INTEGRATED
OPERATING PLATFORM
TORM’s fleet is managed cost-efficiently and effectively by
the in-house commercial and technical management team,
which has a reputation for strong commercial performance,
safety and operational expertise. Within the One TORM
platform, TORM’s employees ensure the high quality of the
fleet that is essential for acceptance by our customers
under their strict vetting criteria. TORM believes that the
largest customers prefer the integrated operating model,
as it provides them with better accountability and insight
into safety and vessel performance.
The integrated nature of TORM’s operating platform
provides transparency and additional alignment of
management and shareholder interests, which mitigates
the potential for actual or perceived conflicts of interest
with related parties. In addition, it allows for closer control
over operating expenses.
TORM’s diverse fleet of well-maintained product tankers
gives the Company the necessary and critical mass to reap
scale advantages both commercially and in terms of
cost-efficiency compared to smaller product tanker
owners.
The Company’s Management believes that the combination
of well-maintained vessels, the presence in all product tanker
classes and the integrated operating platform provides the
commercial management team with enhanced flexibility
and responsiveness to customer demands. As a result,
TORM has consistently delivered TCE earnings and cash
flows above industry average.
TORM has identified a number of strategic KPIs that the
Company believes are vital for the fulfillment of the
strategic ambition. These strategic KPIs are described on
pages 24-25.
TORM 2016 18
Strategic Report
THE PRODUCT TANKER
MARKET
The One TORM platform enabled market-leading TCE results
High inventory levels globally led to softening product tanker freight rates
Demand expected to gradually outperform supply
2016 MARKET
2016 was characterized by a healthy consumer-driven
demand for clean petroleum products, which is expected to
continue. However, high product inventory levels globally
meant that consumer demand to a large extent was met via
local inventory drawdowns. During the second half of 2016,
inventory levels started to retract. At the time of reporting,
the levels were still above the historical average.
2015 was a strong year for product tanker freight rates
in general, and 2016 started with freight rates at similar
levels as at the end of 2015. In the first quarter of 2016,
the product tanker market benefited from relatively strong
refinery margins, which resulted in high production of clean
petroleum products on a global scale. The high production
levels of clean petroleum products in 2015 and the first
quarter of 2016 led to all-time high global inventory levels.
In the second quarter of 2016, high inventory levels
combined with lower refinery utilization led to a reduction
of long-haul arbitrage movements and softening product
tanker freight rates in general.
During the second half of 2016, product tanker freight rates
continued to soften, as high inventory levels limited the
demand for seaborne transportation. Long-haul arbitrage
movements remained limited for most of the period.
Furthermore, a weak market for dirty petroleum products in
the third quarter of 2016 combined with a high number of
crude tanker newbuildings caused the newly delivered VLCC
and Suezmax vessels to penetrate traditional LR2 routes,
which influenced LR2 freight rates negatively. In the fourth
quarter of 2016, freight rates for dirty products recovered
alleviating pressure on the LR2 market. During the fourth
quarter of 2016, the long-haul naphtha arbitrage from the
Atlantic Basin to the Far East increased led by improved
naphtha import economics for Far Eastern petrochemicals.
Asset prices on second-hand product tankers were under
pressure during 2016 (source: Clarksons). The declining asset
prices were mainly driven by a combination of a relatively
large supply of sales candidates, limited access to financing
and decreasing freight rates in general. The value of TORM's
fleet measured by broker values decreased by 25% during
2016.
TANKER FREIGHT RATES 2016
Source: Clarksons
ASSET PRICES ON FIVE-YEAR-OLD SECOND-HAND
PRODUCT TANKERS IN 2016
Source: Clarksons
USD/day
60,000
50,000
40,000
30,000
20,000
10,000
0
Jan
Feb Mar
Apr May
Jun
Jul Aug Sep
Oct Nov Dec
USDm
55
50
45
40
35
30
25
20
15
Ras Tanura Chiba Clean 75K Average Earnings - LR2
Jan
Feb Mar
Apr May
Jun
Jul Aug Sep
Oct Nov Dec
Ras Tanura Chiba Clean 55K Average Earnings - LR1
Average MR Clean Earnings
LR2
LR1
MR
Handysize
TORM 2016
Strategic Report
19
In 2016, TORM’s product tanker fleet realized TCE earnings
of USD/day 16,050 or down 30% year on year, with the LR2
class at USD/day 19,172, the LR1 class at USD/day 18,371, the
MR class at USD/day 15,447 and the Handysize class at USD/
day 12,633. TORM achieved a gross profit of USD 242m
(2015, pro forma: USD 361m) primarily due to lower freight
rates. See note 3 on page 93 for further details on results.
During the first quarter of 2016, TORM took delivery of
three MR newbuildings. At the end of 2016, TORM’s order
book stood at four LR2 newbuildings being contracted at
Guangzhou Shipyard International with expected delivery
between the fourth quarter of 2017 and the second quarter
of 2018. At the end of 2016, TORM operated a fleet of 81
vessels of which 77 are fully owned and four are chartered in.
SUPPLY OUTLOOK
In 2016, the global product tanker fleet grew by 6.5% in
terms of capacity and 5.6% in terms of number of vessels.
This was a slightly lower growth rate than in 2015, due to
fewer deliveries of MR vessels. Meanwhile, the LR1 and LR2
classes experienced the highest number of vessel deliveries
since 2011 and 2009, respectively. The growth ranged from
4.0% for the LR1 vessels to 11.6% for LR2 vessels. 2017 is
expected to see a global fleet growth of 5.7% with the
majority being LR1 and LR2 vessels.
The number of newbuilding orders placed in 2016 fell by
more than 80% from 2015, corresponding to only 30 orders
placed across all product tanker classes. This is the lowest
number of newbuilding orders since 1995. The MR class
accounted for the majority of orders with 24 units contracted,
while no LR2 vessels were contracted. At the end of 2016,
the existing order book for deliveries for 2017-2019 totaled
311 vessels, including 55 LR2 vessels, 47 LR1 vessels, 148 MR
vessels and 61 Handysize vessels.
TORM anticipates limited ordering of new product tankers
with delivery before the end of 2018. The Company expects
ordering activity in 2017 to increase from the historically
low level seen in 2016 but to remain below the long-term
average.
In 2016, only 75% of the deliveries scheduled for the year
actually materialized. TORM expects to see some slippage
in 2017 as well.
Around 0.8m dwt of product tanker capacity was scrapped
in 2016, corresponding to approximately 0.5% of the fleet
capacity at the beginning of the year. This was a slight
decline from 2015, when 0.95m dwt was scrapped, and
corresponds to the lowest scrapping since 2001. TORM
estimates that approximately 2% of the existing capacity
of the global fleet will be phased out or scrapped during
2017-2019.
During 2017-2019, product tanker fleet capacity is estimated
to grow by a compound annual rate of approximately 4%.
DEMAND OUTLOOK
The global oil demand grew by 1.5 mb/d (1.6%) in 2016,
exceeding expectations (source: IEA January 2017). Although
this was a relatively robust growth pace in a historical
context, it was down from a five-year high global oil demand
growth of 2.0 mb/d (2.1%) in 2015, as the effect of lower oil
prices started to wane. The main oil demand growth drivers
remained Asia and Europe. Similar to 2015, it was the
light-end products such as LPG and gasoline that drove
demand growth in 2016, although the demand for jet fuel
also increased. Demand for diesel and gasoil declined
compared to last year, affected by the economic slowdown
in China and weaker oil demand from the industrial sector in
the US. In 2017, global oil demand is projected to grow at a
slower pace, by 1.3 mb/d (1.3%), likely supported by a slightly
stronger macroeconomic background, as the International
Monetary Fund (IMF) expects global economic growth to
increase from 3.1% in 2016 to 3.4% in 2017. This should add
support to the demand for diesel and gasoil, leading to
growth that is more evenly spread across products than
seen in 2016.
Global refinery throughput increased by 0.4 mb/d in 2016
(source: IEA January 2017), which was below the 1.5 mb/d
demand growth. The relatively low increase in refinery
throughput was mainly driven by high product inventory
levels, low refinery capacity expansions and refinery margins
below 2015 levels. Despite drawdowns, product inventories
have remained at elevated levels.
Increasing LPG production and suppressed propane prices
weakened the competitiveness of naphtha as a feedstock
in the Asian petrochemical sector. This negatively affected
the long-haul naphtha flows from West to East, resulting in
a decreased ton-mile demand for larger product tankers.
According to preliminary estimates, product tanker
ton-mile demand increased by around 3% in 2016.
In the short term, TORM expects the market to remain
negatively impacted by inventory drawdowns, a relatively
high number of product tanker newbuilding deliveries
during 2017 and market penetration by Suezmax tanker
newbuildings in 2017.
ORDER BOOK
As of 31 December 2016
LR2
LR1
MR
Handysize
Total
Fleet
start 2016
Delivered
in 2016
Scrapped
in 2016
Order
book for
2017-2019
order books
as % of
Fleet
end 2016
2017-2019
end-2016 fleet
284
326
1,492
677
2,779
33
14
93
37
177
1
10
11
22
317
339
1,575
703
2,934
55
47
148
61
311
17%
14%
9%
9%
11%
TORM 2016
20
Strategic Report
In the medium and long term, additional global refining
capacity coming online will put renewed pressure on older
and less competitive European refiners. According to IEA
estimates, the net global refinery capacity is projected to
grow by around 4.0 mb/d during 2017-2019 (IEA 2016). The
majority of the refinery capacity additions continue to
come from Asia, and towards the end of the period a new
wave of refineries will come online in the Middle East.
TORM expects this to lead to cuts in refinery activity in
Europe and, consequently, growing diesel imports from
Russia, the US Gulf and – to an increasing degree – from
the Middle East. The current, still relatively high diesel and
gasoil inventories in Europe could, however, soften the
need for imports in 2017.
Weakened oil demand coupled with refinery capacity
additions in Latin America in 2018 could potentially limit
increases in the region’s seaborne imports; yet weak
macroeconomic conditions may result in potential delays
in new refineries scheduled to come online in the region.
Fundamentally strong oil demand in developing Asia will
continue to support seaborne trade, and the region is
forecast to become reliant on imported gasoline. The
global shift in marine fuel specifications towards cleaner
fuels in 2020 could lead to new long-haul trade flows.
Increasing petrochemical capacity in the Middle East and
India is expected to reduce naphtha availability for exports
from these regions, supporting long-haul naphtha flows
from West to East.
Consequently, the product tanker ton-mile demand on main
trade routes is estimated to grow by a compound annual rate
of around 5% during 2017-2019.
***
For further details on factors most likely to change this
outlook in either a negative or a positive direction, please
see Outlook on page 10.
YEARLY NET FLEET GROWTH (BASED ON NO. OF VESSELS)
Source: SSY
GLOBAL OIL DEMAND GROWTH AND
NET REFINING CAPACITY ADDITIONS
Source: TORM
% of existing fleet
15
10
5
0
-5
-10
2012
LR2
2013
2014
2015
2016
LR1
MR
Handysize
Mb/d
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
2014
2015
2016
2017F
2018F
2019F
Atlantic Basin
Latin America
Middle East
OECD Pacific
Asia
Other
Total Crude Destillation
Unit net additions
Global oil demand growth
Other
Asia
OECD Pacific
Middle East
Latin America
Atlantic basin
TORM 2016 OFFICES
TRADE ROUTES
Transatlantic
trade
Gasoline from Europe
to the US and diesel
from the US to Europe
HELLERUP
DENMARK
LONDON
UK
Arabian Gulf &
India to Europe
Jet fuel and diesel
Europe & Arabian
Gulf to the Far East
Far East petrochemical industry
is reliant on naphtha imports
MUMBAI
INDIA
SINGAPORE
SINGAPORE
MAKATI CITY
PHILIPPINES
CEBU CITY
PHILIPPINES
Europe & US
to West Africa
Gasoline and
diesel imports
Intra-Asia
Intra-regional trading
in various refined oil products
I
N
T
E
R
N
A
T
I
O
N
A
L
D
A
T
E
L
I
N
E
Intra-Americas
Diesel, gasoline and jet fuel
trading in the Americas
HOUSTON
USA
WITH SEVEN OFFICES
AROUND THE WORLD,
TORM IS OPEN
24/7
UTC -10
UTC -9
UTC -8
UTC -7
UTC -6
UTC -5
UTC -4
UTC -3
UTC -2
UTC -1
UTC
UTC +1
UTC +2
UTC +3
UTC +4
UTC +5
UTC +6
UTC +7
UTC +8
UTC +9
UTC +10 UTC +11 UTC +12 UTC -12
UTC -11
OFFICES
TRADE ROUTES
Transatlantic
trade
Gasoline from Europe
to the US and diesel
from the US to Europe
HELLERUP
DENMARK
LONDON
UK
Arabian Gulf &
India to Europe
Jet fuel and diesel
Europe & Arabian
Gulf to the Far East
Far East petrochemical industry
is reliant on naphtha imports
MUMBAI
INDIA
SINGAPORE
SINGAPORE
MAKATI CITY
PHILIPPINES
CEBU CITY
PHILIPPINES
Europe & US
to West Africa
Gasoline and
diesel imports
Intra-Asia
Intra-regional trading
in various refined oil products
I
N
T
E
R
N
A
T
I
O
N
A
L
D
A
T
E
L
I
N
E
Intra-Americas
Diesel, gasoline and jet fuel
trading in the Americas
HOUSTON
USA
WITH SEVEN OFFICES
AROUND THE WORLD,
TORM IS OPEN
24/7
UTC -10
UTC -9
UTC -8
UTC -7
UTC -6
UTC -5
UTC -4
UTC -3
UTC -2
UTC -1
UTC
UTC +1
UTC +2
UTC +3
UTC +4
UTC +5
UTC +6
UTC +7
UTC +8
UTC +9
UTC +10 UTC +11 UTC +12 UTC -12
UTC -11
24
Strategic Report
KEY PERFORMANCE
INDICATORS
TORM assesses the performance across a wide range of measures and
indicators. The Key Performance Indicators (KPIs) help the Board of
Directors and Management measure performance against the strategic
priorities and business plans. TORM reviews the metrics and tests the
relevance of these KPIs to the strategy on an ongoing basis.
MR TCE EARNINGS
USD/day
2016: 15,462
LOST TIME ACCIDENT
FREQUENCY (LTAF)
Injuries/million work hours
2016: 0.65
2015: 21,935
2015: 0.96
In 2016, TORM’s commercial performance has
consistently been among the best in the peer group.
This can be accredited to the Company’s well-maintained
fleet, the presence in all main product tanker classes
and the integrated operating platform. This combination
provides the Company’s commercial management team
with flexibility and responsiveness to meet customer
demands, thereby enabling TORM to outperform
available earning benchmarks.
During most of 2016, TORM delivered MR TCE
earnings above average compared to industry peers.
The majority of TORM's vessels are MR vessels. The
Company achieved TCE rates of USD/day 15,462 for
the MR vessels, which is a decrease of USD/day 6,473
compared to 2015. The softening in the MR freight
rates during 2016 was caused by high inventory levels
globally, which limited the demand for transportation.
In line with the Company’s strategic focus on safety
performance, TORM introduced a new safety program
in 2016 called One TORM Safety Culture.
Lost Time Accident Frequency (LTAF) is an indicator
of serious work-related personal injuries that result in
more than one day off work per million of work hours.
The definition of LTAF follows standard practice among
shipping companies. During 2016, TORM had an LTAF
of 0.65 compared to an LTAF of 0.96 in 2015. The
decrease from 2015 to 2016 is a result of four fewer
injuries.
TORM 2016 Strategic Report
25
ADJUSTED RETURN ON
INVESTED CAPITAL (ROIC)
FUEL EFFICIENCY
POTENTIAL
2016: 4.9%
2015: 14.1%
2016: 3.6%
2015: N/A
Adjusted RoIC illustrates TORM’s ability to generate
shareholder value from the capital invested in TORM.
It is defined as the net operating profit after tax
(excluding impairment charges) divided by the invested
capital over the period (excluding impairment charges).
The KPI reflects that although the average age of
TORM’s fleet is approximately 10 years, TORM is still
able to generate a very attractive RoIC compared to its
peers. This has been achieved by delivering competitive
TCE results considering TORM’s asset base and market
conditions in general. The decrease in RoIC from 2015
to 2016 is due to the lower freight rates in 2016.
Fuel efficiency potential illustrates TORM's continued
strong focus on fuel consumption and the efforts made
in this area.
In 2016, TORM set a goal to improve fuel efficiency by
3% compared to 2015. The Company achieved an
improvement of 3.6% in 2016, which is better than the
3% target.
The goal for 2017 is a further improvement of 2%.
TORM 2016 26
Strategic Report
CORPORATE
REORGANIZATION
On 15 April 2016, TORM established a new corporate
structure of the TORM Group including the insertion
of a UK parent company, TORM plc (the “Corporate
Reorganization”). TORM plc was listed on Nasdaq
Copenhagen on 19 April 2016, and TORM A/S was
delisted from Nasdaq Copenhagen on 26 April 2016.
The purpose of the Corporate Reorganization was to
improve the marketability of the TORM Group, to attract a
broader and more diversified international investor base
and to facilitate a possible dual listing in the US. The
Company believes the UK holding company structure
should contribute to this, as the UK legal system, corporate
governance structure and tax regime are more familiar and
beneficial for TORM’s investor base going forward.
A total of 97.6% of TORM A/S’ shareholders exchanged their
shareholdings to TORM plc, and TORM plc has acquired the
remaining 2.4% shares from TORM A/S’ minority shareholders
for a total consideration of USD 19.2m. All TORM A/S
warrant holders transferred their warrants to TORM plc.
All main corporate governance provisions, including
minority protection rights, have been maintained in TORM
plc compared to TORM A/S. The key change relates to the
adoption of the UK one-tier system with no segregation of
power between the Board and Management. TORM plc’s
Board of Directors now consists of the four previous TORM
A/S shareholder-elected Board members and TORM A/S'
CEO as Executive Director. In addition, the Board has three
Board Observers, two employee-elected members and one
shareholder-elected observer representing the minority
shareholders. TORM plc has decided to follow the UK
Corporate Governance Codes. TORM has also adopted a
new set of Articles of Association, Rules of Procedures and
new Terms of Reference for the four Board Committees
(Audit, Risk, Remuneration and Nomination) to comply
with UK legislation.
All commercial and technical management will continue
to be led out of TORM A/S via the Danish office and
subsidiaries in India, the Philippines, the US and Singapore.
THE TRANSACTION – SHARE EXCHANGE OFFER
TORM A/S
Technical management
Commercial management
Administrative functions
LISTED ON
COPENHAGEN (DK)
TORM A/S GOVERNANCE AND BOARD OF DIRECTORS
Two-tier system
Board of Directors
Mr. Christopher H. Boehringer (Chairman), Mr. David Weinstein (Deputy Chairman/Minority Director), Mr. Göran Trapp,
Mr. Torben Janholt, Mr. Kari Gardarnar (employee-elected), Mr. Rasmus Hoffmann (employee-elected),
Mr. Jeffrey S. Stein (Board Observer)
97.6% SHAREHOLDERS TRANSFERRED TO TORM PLC
LISTED ON
COPENHAGEN (DK)
TORM PLC (UK)
Certain administrative functions
TORM A/S (DK)
Technical management
Commercial management
Certain administrative functions
TORM PLC GOVERNANCE AND BOARD OF DIRECTORS
One-tier system
Board of Directors:
Mr. Christopher H. Boehringer (Chairman), Mr. David Weinstein (Deputy Chairman/Minority Director and Senior
Independent Director), Mr. Göran Trapp, Mr. Torben Janholt, Mr. Jacob Meldgaard (Executive Director), Mr. Kari Gardarnar
(Board Observer), Mr. Rasmus Hoffmann (Board Observer), Mr. Jeffrey S. Stein (Board Observer)
Board composition largely unchanged, but aligned with the UK one-tier system.
TORM 2016
Strategic Report
27
CORPORATE SOCIAL
RESPONSIBILITY
Enhanced safety program launched across offices and fleet
New branch office opened in Cebu to further strengthen ties to seafarers
TORM aims to improve fuel efficiency by 2% in 2017
REPORTING PRINCIPLES AND TRANSPARENCY
As a long-standing member of the UN Global Compact,
TORM remains committed to protecting its employees,
assets, reputation and the environment by maintaining
the highest possible standards. Transparency and
accountability are central parts of TORM’s way of doing
business. Thus these values play a central role in the
Company’s Corporate Social Responsibility (CSR) approach.
TORM signed the UN Global Compact in 2009 as the
first shipping company in Denmark to commit to the
inter nationally recognized set of principles regarding
health, safety, labor rights, environmental protection and
anti- corruption.
Being a signatory also means that TORM reports on its
social and environmental performance on an annual basis
to ensure progress and accountability to stakeholders.
TORM’s approach to responsible behavior and CSR is
further rooted in the Company’s Business Principles and
has the following five objectives:
GEOGRAPHICAL DISTRIBUTION OF SEAFARERS IN %
100% = 3,062 seafarers at the end of 2016 incl. contracted crew
1% Poland
5% Croatia
6% Denmark
50% The Philippines
38% India
• 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
• 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 or bribery
• Make TORM’s CSR performance transparent to all
stakeholders
For further information on TORM’s Business Principles,
please visit: http://csr.torm.com/torm-s-way-of-doing-
business.
RESPONSIBILITY
TORM’s CSR commitment is not limited to the Company’s
own business practices, as real impact often requires
industry collaboration. Thus TORM cooperates with
peers and stakeholders in a number of areas to increase
responsibility in the shipping industry and the supply chain.
As a member of the Danish Shipowners’ Association’s CSR
work group and as co-founder and member of the
Maritime Anti-Corruption Network, TORM strives to
increase corporate transparency and accountability and
minimize corruption.
INSPECTIONS AND AUDITS
In order to maintain Company standards and exceed the
targets set by customers, TORM has enhanced the vetting
preparations and increased the number of internal audits
on its vessels carried out by Safety Quality and Environment
(SQE) officers. On average, each vessel is subject to ten
inspections a year. Inspections are carried out by customers,
terminals, internal auditors, ports and classification
societies. TORM is committed to meeting and outperforming
the ever increasing standards set both internally and by its
customers.
TORM 2016 ENVIRONMENT AND CLIMATE PERFORMANCE
Within the shipping industry, marine pollution constitutes
the largest environmental risk. Thus it is a key priority for
TORM to avoid pollution of the seas and the atmosphere.
In 2016, TORM experienced zero oil spills larger than one
barrel, but one small oil spill overboard of less than one
barrel. The incident was investigated and procedures
revised where required.
Throughout the year, TORM continued to have a strong
and dedicated focus on fuel consumption, and the efforts
made within this area have generated a positive impact.
During 2016, the Company implemented a number of new
tools and procedures to monitor and oversee daily fuel
consumption in order to identify areas where efficiency
can be higher and to be able to minimize the global
environmental impact and reduce TORM’s overall fuel
costs.
TORM’s Operational Performance Team shares the
performance of the vessels with their respective vessel
managers on a monthly basis. This ensures that corrective
action can be taken at the right time. The One TORM
platform facilitates efficient knowledge sharing of key fuel
performance data across the Company.
In 2016, TORM set a goal to improve fuel efficiency by 3%
compared to 2015. Due to the Company’s continued focus
on operational procedures and on minimizing hull fouling,
TORM achieved an improvement of 3.6% in 2016, which is
better than the 3% target. The goal for 2017 is a further
improvement of 2%.
GREENHOUSE GAS EMISSIONS
In 2015, TORM changed the system used for generating
emissions data. Thus the Annual Report 2016 includes
emissions data from 2015 and 2016 only. Data for the three
consecutive years, 2015-2017, will be included in the Annual
Report 2017.
TORM 2016 GREEN HOUSE GAS EMISSIONS DATA
VESSEL EMISSIONS AND INDICATORS
Number of vessels in operation at the end of the year (in technical management)
Number of vessel months (one vessel one year equals 12 vessel months)
Usage of oil and the generated CO2 emissions
Used heavy fuel oil (ton)
Used low sulfur heavy fuel oil (ton)
Used marine gas oil (ton)
Generated CO2 emission from vessels (ton)
NOX (ton)
SoX (ton)
Distance and cargo
Distance sailed in nautical miles
Average cargo on board (ton)
Ton-km
Strategic Report
29
2016
76.0
910
308,467
0
56,549
2015
72.0
813
343,785
9,579
50,704
1,141,862
1,262,933
26,992
15,289
30,227
17,477
3,279,977
3,214,943
37,433
39,117
251,946,149,526
263,691,358,733
CO2 emission in grams per ton-km (one ton of cargo transported one km)
4.5 g/ton-km
4.8 g/ton-km
OFFICE EMISSIONS AND INDICATORS
Electricity, heating and other office-related activities
Electricity used in kWh all office locations
District heating in Gj
Generated CO2 emission in ton from office location
Employees
Number of office employees at the end of the year
CO2 emission per employee (ton)
FLIGHT EMISSIONS AND INDICATORS
Air travel
Air mileage in kilometers
Number of travels
CO2 emissions in ton
*) This figure has been amended compared to the figure in TORM’s Annual Report 2015 due to revised data.
924,951
1,619
562
277
2.0
1,099,823
1,340*)
646*)
271
2.4*)
77,284,100
68,523,791
13,056
6,750
12,725
6,069
TORM 2016 30
Strategic Report
REPORTING SCOPE
• Scope 1
Environmental and social data is based on all vessels under
TORM’s technical management (vessels for which TORM
holds the Document of Compliance). Having the technical
management of a vessel implies having control over the
vessel in terms of environmental performance and crew.
As of 1 January 2017, TORM had 76 vessels under
technical management compared to 72 vessels as of 1
January 2016. The report includes emissions from TORM’s
offices in Copenhagen, Mumbai, Singapore, Manila,
Stamford and Houston. Emissions from the Company's
office in London will be included in the Annual Report for
2017. Emissions from air travel are included for all office
staff and crew. Data from vessels is collected according
to a specific reporting routine, mainly on a monthly
basis but for certain data with less frequency. Other
environmental data is collected on an annual basis. Safety
data is based on reporting made to TORM’s Safety, Quality
and Environmental Department whenever an incident
occurs.
REPORTING GUIDELINES
The 2016 greenhouse gas emissions (GHG) reporting
covers scope 1 (direct emissions from own production) and
scope 2 (emissions from own production but others’
emissions) of the Greenhouse Gas Protocol except for the
activities listed below, as well as selected scope 3 (others'
production and emissions services) activities.
Consumption of bunker oil has been calculated to CO2
emissions using IMO’s factors for heavy fuel oil and
marine gas oil. SOx and NOx emissions are calculated
using the third IMO GHG Study from 2014. Emissions are
calculated for each single vessel and then consolidated.
Numbers under scope 1 data sheet have been collected
on board the vessels or at the offices. The collection is
based on actual usage or disposals.
• Scope 2
Emissions from heating (district heating) in the
Copenhagen and USA offices are calculated using
Danish and World Resources Institute emission factors.
• Scope 3
Emissions from air travel are provided by TORM's travel
agent.
• Other principles
2016 greenhouse gas emissions are calculated for vessels
in technical management (vessels for which TORM holds
the Document of Compliance) in TORM, amounting to a
total of 910 vessel months of operation.
Ton-km is calculated by use of actual cargo multiplied
by the distance with actual cargo; thus a ballast voyage
will give 0 (zero) in ton-km.
CO2 emission per ton-km is the full CO2 emissions on
board all vessels divided by the ton-km for all voyages;
thus it includes emissions from ballast voyages, electricity
production, inerting, cargo operations, etc.
HEALTH, SAFETY AND SECURITY
Approximately 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.
TORM's policies are outlined in TORM’s Business Principles
and the commitment to the UN Global Compact. The
Company’s safety policy is rooted in the rules and regulations
issued by the Danish Maritime Occupational Health Service.
ONE TORM SAFETY CULTURE
In line with the Company’s strategic focus on safety
performance, TORM introduced a new safety program in
2016 called "One TORM Safety Culture". TORM has the
ambition to be the Reference Company in the product
tanker industry, and with the enhanced safety program the
Company wants to take the safety culture, performance and
quality to a higher level. In order to ensure a common
understanding of safety across the organization, One TORM
Safety Culture involves all employees ashore and at sea.
In 2017, TORM will further roll out the program including a
new safety philosophy, training courses and workshops for
employees.
LOST TIME ACCIDENT FREQUENCY AND NEAR-MISS
Lost Time Accident Frequency (LTAF) is an indicator of
serious work-related personal injuries that result in more
than one day off work per million hours of work. The
definition of LTAF follows standard practice among
shipping companies. During 2016, TORM had an LTAF
of 0.65 (0.96). In 2016, a member of TORM's crew
dissappeared on board a vessel. The crew member has
not been found. The decrease in LTAF from 2015 to 2016
is a result of four fewer injuries.
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
reports indicate that the organization is aware of the risks
and responds to them. In 2016, TORM exceeded the target
of 6.0 near-miss reports per month per vessel on average
by reaching 6.7 (6.6) due to continued focus on this area.
TORM 2016 Strategic Report
31
SECURITY
TORM’s response to piracy is founded in the Best
Management Practice 4 (BMP). In 2016, TORM experienced
six robberies and seven cases of stowaways found on
board the Company’s vessels. Throughout the year, the
security situation and developments in the various risk
areas have been monitored closely and actions have been
taken to safeguard TORM’s seafarers and vessels.
The Company will continue to monitor the risk situation
and pre-empt hijacking and robbery attempts by following
security procedures.
EMPLOYEES
Employees are the core and valuable assets of TORM. The
Company continues to grow and thrive due to the efforts
and dedication of its staff both at sea and on land.
TORM respects the values and cultures of our
employees and business partners. The Company does not
accept discrimination with respect to gender, ethnicity,
religion, sexual orientation, disability or age. TORM works
towards a diverse workplace in which everyone is included
and respected and TORM regards well-being at work as a
shared responsibility.
AT SEA
In 2016, TORM continued its focus on increasing commitment
and engagement among seafarers. At year-end, TORM’s
retention rate for Senior Officers was above 95%, and for
the second year in a row TORM could demonstrate 100%
compliance with customer requirements (the so-called
officer matrix compliance).
In the period from the fourth quarter of 2015 to the first
quarter of 2016, TORM assumed technical management of
additional vessels with a full-year effect equivalent to +10
vessels. This meant that the Company was able to increase
the number of seafarers working on board its vessels by
approximately 18%. This was supported by a strengthened
process for recruitment and promotion.
In November 2016, TORM opened a branch office in Cebu,
the Philippines. The opening of the new office will allow
TORM to adjust to the increase in seafarers. Furthermore,
with a branch in the southern part of the Philippines, TORM
will be able to provide excellent service to the Company’s
seafarers from this region and have a presence in its
second largest recruitment area.
In 2016, TORM continued its focus on activities to further
improve cooperation between seafarers and the shore-
based organization and to allow seafarers to join the same
vessel whenever possible. Throughout the year, TORM
continued hosting town hall meetings and seminars for its
officers, as these gatherings constitute a valuable forum for
sharing knowledge and best practice regarding the
operation of TORM’s vessels.
In 2016, the Company changed its training set-up for
seafarers, thereby allowing TORM to better direct and
align training with on-board learning from the vessels.
TORM further enhanced its training facilities with the
installation of new bridge, engine and cargo simulators
at the Company’s office in Manila.
At the end of 2016, TORM had 177 permanently employed
seafarers.
LOST TIME ACCIDENT FREQUENCY (LTAF)
Source: TORM
ONE TORM SAFETY CULTURE
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 2016:
<1
1.0
0.5
0
1.49
0.96
0.65
2014
2015
2016
In 2016, TORM introduced a new safety program called
"One TORM Safety Culture" to take the safety culture,
performance and quality to a higher level.
TORM 2016 32
Strategic Report
ASHORE
TORM’s annual employee motivation and satisfaction
survey is of great importance to the Company. The positive
results for 2016 prove that TORM continues to have
dedicated and motivated staff.
In 2016, 98.1% of all shore-based employees worldwide
participated in the voluntary survey, which in itself can be
viewed as a testament to employee commitment. The
outcome of the survey showed improvements in almost
all areas, notably with regard to categories covering
engagement, loyalty and satisfaction.
TORM aims to attract and retain the best employees by
living the values in the TORM Leadership Philosophy and
by ensuring that the Company’s leaders are investing in
their employees. Through the One TORM platform, the
Company strives to continuously develop the employees’
abilities to do what they do best.
At the end of 2016, the shore-based organization had 277
full-time employees: 131 in Hellerup, 90 in Mumbai, 36 in
Manila, 1 in Cebu, 13 in Singapore, 5 in Houston and 1 at the
Company’s new office in London, which was opened during
2016.
GENDER DIVERSITY
TORM has an obligation to its customers, shareholders,
employees and other stakeholders to develop the Company’s
talent pool irrespective of attributes such as gender, religion,
sexuality, nationality, ethnicity or disabilities. As stated in
TORM’s Business Principles under "Respecting People", the
Company does not accept discrimination with respect to any
of the above. TORM works towards a diverse workplace, in
which everyone is included and respected, and in which
well-being at work is regarded as a shared responsibility.
For further information on TORM’s Business Principles, please
visit: http://csr.torm.com/torm-s-way-of-doing-business.
The Company, along with other major Danish-based
shipowners, has signed the Charter on more women on
boards, and the Board of Directors has formulated an
ambition for females to constitute at least 20% of the
Board of Directors by 2018.
EMPLOYEE GENDER DIVERSITY
(Permanently employed, sea and shore)
Directors of the Company
Employees in other senior executive
positions
Directors of subsidiary companies not
included in the above
Total top management other than
directors of the Company*)
Other employees of the Group
Total employees of the Group
Male Female
5
3
0
18
322
342
0
0
0
1
111
112
*) One member of the Board of Directors is also part of senior
management and therefore not included in this figure.
Females constitute 5.1% of all permanently employed
seafarers, 0.0% of ratings and 5.1% of officers.
With the enforcement of the Company’s Leadership
Philosophy and the planned sustained investments in
diversity-enhancing measures, the Company is seeking to
increase diversity. In 2017, the Company will continue to
focus its diversity efforts on encouraging and developing
female talent.
LOCAL COMMUNITIES
TORM is a long-standing supporter of maritime education
in India and the Philippines. This commitment reflects the
Company’s ties to local communities.
The TORM Philippines Education Foundation currently
supports 66 scholars across the Philippines. In 2016, nine
students supported by the Foundation graduated. Apart
from maritime education, the support also includes training
courses for teachers, IT equipment and school kits for
students in rural schools. TORM expects to include an
account of the result of its commitment within India in the
Annual Report 2017.
This section constitutes TORM’s CSR reporting according
to the requirements in UK law.
In terms of gender diversity globally as of December 2016,
females constitute 24.7% of all permanently employed
employees.
As part of the Company’s commitment to the UN Global
Compact, TORM submits its communication on progress
every year. Please visit www.unglobalcompact.org to see
the reports.
Females constitute 41.3% of land-based employees (defined
as non-managerial individual performers), 27.3% of middle
management and 5.3% of top management (Vice Presidents
and above).
TORM 2016 Strategic Report
33
RISK MANAGEMENT
With the current risk management, TORM is well-positioned to pursue
market opportunities
Market risks remain high given TORM’s spot-oriented trading strategy
Asset price volatility will always affect the capital structure
Risk management is an integrated part of doing business in
TORM. In taking balanced risks, TORM strives to foster a
high awareness and internal control geared towards
aligning risk appetite while providing transparency in the
Company’s operations. TORM’s anchored risk management
framework is vital to protect the Company and to achieve
its strategic ambition. The objective remains that TORM
and its shareholders are adequately rewarded for accepting
risk and that the governance is tailored to oversee this.
TORM’s risk management framework seeks to provide
reasonable assurance that business objectives can be
achieved and obligations to customers, shareholders and
employees are met. Risks are defined as all events or
developments that could significantly reduce TORM’s
ability to sustain the long-term value of the Company.
TORM’s risk management approach emphasizes
management accountability and oversight. Risks identified
through the Company’s risk management processes are
prioritized based on probability and severity. Identified
risks are discussed, and responsibility is assigned to the
Senior Management member most suited to manage the
risk. Assigned owners are required to continually monitor
the risk, implement mitigating actions and evaluate and
report on risks for which they bear responsibility. TORM’s
Management and the Risk Committee discuss and decide
on TORM’s risk tolerance for the most significant risks.
TORM’s overall risk tolerance and inherited exposure to
risks are divided into four main categories as detailed
below:
LONG-TERM STRATEGIC RISKS (“RISK-SEEKING”)
Risks and opportunities beyond the immediate strategy
window are monitored by Management and incorporated in
updates of the corporate strategy. Industry-changing risks,
such as the substitution of oil for other energy sources,
technological changes and radical changes in transportation
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 product tanker freight rates and changes in
bunker prices. 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.
OPERATIONAL AND COMPLIANCE RISKS (“RISK-AVERSE”)
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.
MAIN RISKS ASSOCIATED WITH TORM’S ACTIVITIES
LONG-TERM
STRATEGIC RISKS
INDUSTRY AND
MARKET-RELATED RISKS
OPERATIONAL AND
COMPLIANCE RISKS
FINANCIAL RISKS
• Political risk
• Substitution of oil
• Technological changes
• Freight rate fluctuations
• Bunker price fluctuations
• Sales and purchase price
fluctuations
• Compliance with relevant
• Funding and liquidity
risk
• Interest rate risk
• Currency risk
• Counterparty risk
maritime regimes
• Vessel utilization
• Safe operation of vessels
• Terrorism and piracy
• Availability of experienced
seafarers and staff
• Compliance with environmental
regulations
• Stability of IT systems
• Fraud
• Insurance coverage
TORM 2016 34
Strategic Report
TORM aims to maintain 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 environment,
health, safety and compliance. TORM constantly focuses
on reducing these risks, and this is achieved by a strong
integrated platform, where cross functional collaboration
ensures that rigorous procedures and standardized
controls are maintained to the highest quality.
TORM’S CURRENT RISK PROFILE
The key aspects of TORM’s current risk profile are
summar ized below:
• Through 2016, TORM saw continued volatility in the
product tanker market and with a low coverage ratio
going into 2017, the Company is exposed to potentially
adverse market conditions. As a consequence, market
risks remain high. However, TORM is financially solid and
well-positioned to pursue opportunities
• TORM faces market risks in terms of vessel sale and
FINANCIAL RISKS (“MODERATELY RISK-AVERSE/RISK
NEUTRAL”)
Management believes that a prudent approach to financial
risks benefits the Company the most. TORM’s global
presence means that its financial position is exposed to a
number of risk factors including interest rate, foreign
exchange, credit and liquidity risks. TORM’s treasury policy
is approved by the Risk Committee, which sets the limits
for the various financial risks. The policy is adjusted on an
ongoing basis to adapt to the market situation.
purchase activities
• Risks within the Company’s immediate sphere of control,
including compliance with quality and environmental
requirements, have remained stable at a low level due to
a strong continuous focus and efficient controls
TORM’s top risks and changes compared to last year 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 20 on pages 104-106.
TORM assesses the Company’s risks on a continuous basis.
The Directors of TORM confirm that they have carried out a
robust assessment of the principal risks facing the Group,
including those that would threaten its business model,
future performance, solvency or liquidity.
TORM TOP RISK MAP (RISK EVALUATION INCLUDES EFFECT OF CURRENTLY DEPLOYED MITIGATION)
H
H
A
A
C
C
E D
G
F
B
s
e
c
n
e
u
q
e
s
n
o
C
5
4
3
2
1
1
2
3
Likelihood
4
5
2016
2015
Unchanged
A Tanker freight rates
B Bunker price
C Timing of sale and purchase of
vessels
D Oil major approval
E Severe vessel accidents
F Technical costs
G Code of conduct
H Capital structure
TORM 2016
# RISK
DESCRIPTION
SEVERITY MITIGATION
High
TORM’s spot-oriented strategy lim-
its possible mitigation. Time char-
ter-outs are considered when terms
and pricing are deemed attractive.
Strategic Report
35
COMMENTS TO DEVELOPMENT
2015–2016 / STATUS 2016
TORM has maintained a low cover-
age and high exposure towards the
product tanker market. The product
tanker market remained volatile in
2016 resulting in suppressed freight
rates.
A Tanker
freight
rates
B Bunker
price
C Timing
of sale
and pur-
chase of
vessels
D Oil major
approval
E Severe
vessel
acci-
dents
The risk of sus-
tained 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 cor-
responding
freight rate in-
creases.
The risk of TORM
not purchas-
ing and selling
vessels timely
relative to market
developments
and business re-
quirements.
The risk of a
partial ban of
the TORM tanker
fleet by oil ma-
jors.
The risk of a
severe vessel
accident.
Medium In general, TORM does not hedge
future bunker expenses. Only when
freight income is fixed does TORM
hedge future bunker exposures.
Adequate bunker purchase proced-
ures continue to be in place, but as
bunker prices are volatile and not
ne cessarily reflected in the freight
rates, TORM continues to be ex-
posed to bunker price changes.
High
TORM maintains flexibility to man-
age the composition of the fleet to
ensure a strategic fit.
Market risk remains high, and vessel
prices have come under additional
pressure due to lower freight rates.
Medium TORM has continuous focus on
quality and has quality assessment
standards in place both ashore and
at sea.
TORM’s integrated platform with
in-house safety, technical and oper-
ational staff secures continued fo-
cus on high vetting standards.
Medium Contingency plans for emergency
situations are in place, should an
accident occur. Equally important,
TORM has high focus on training of
seafarers and standard procedures
in place for managing, operating
and maintaining vessels.
Safety is at the top of TORM’s
agenda.
F Technical
costs
The risk of
technical costs
related primarily
to OPEX.
Medium TORM's vessels all have a planned
maintenance plan to ensure vessels
are well kept in order to secure a
high tradability.
TORM’s Technical Division is orga-
nized to be close to the vessels to
ensure accountability and focus on
identifying and handling risks early.
G Code of
conduct
Fraud and
misconduct
risk.
Medium Compliance and awareness training
is mandatory for all employees.
H Capital
structure
The risk of
going concern
High
TORM has strong focus on leverage
levels and on pursuing a debt pro-
file with staggered maturities.
In addition, the Company hedges
part of its currency and interest
rate risks.
TORM recognizes the risk of fraud
and misconduct as a top risk, as
the potential impact of misconduct
can be severe.
TORM has a healthy capital struc-
ture, and it is a top priority to main-
tain a long-term sustainable capital
structure. Sustained low freight
rates could jeopardize the capital
structure in the long term.
TORM 2016 36
Strategic Report
FINANCIAL REVIEW 2016
FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2016
page 38 for Financial Performance Overview (pro forma
Financials).
TORM achieved a net loss of USD 142m in 2016, resulting in
negative earnings per share (EPS) of USD 2.3 in 2016
compared with positive USD 2.4 in 2015. Excluding effects
from impairment charges, TORM generated a net profit of
USD 43m or earnings per share of USD 0.7. The lower result
in 2016 was mainly due to the impairment charge and a
reduction in freight rates following the softening product
tanker market.
The operating profit decreased by USD 250m to a loss of
USD 107m in 2016. This decrease was also primarily due to
a reduction in freight rates as well as a USD 185m impair-
ment charge.
EBITDA for 2016 was USD 200m, which is in the high end
of the latest guidance of an EBITDA of USD 185-205m
dated 15 November 2016.
In 2016, total revenue was USD 680m compared to USD
540m in 2015 and TCE earnings increased from USD 371m
to USD 458m. The increase in TCE earnings was primarily
attributable to two opposite effects. On one hand, the
Corporate Restructuring in 2015 increased the number of
vessels and thereby the available earning days. On the
other hand, the soft market, which was a consequence of
continued high refined product stocks globally, limited
trade arbitrage opportunities for oil traders and the
demand for seaborne transportation.
MR. CHRISTIAN SØGAARD-CHRISTENSEN
Chief Financial Officer, TORM A/S
REPORTED FINANCIALS
With reference to TORM’s Corporate Reorganization on 15
April 2016, TORM established a new corporate structure of
the TORM Group including the insertion of a UK parent
company, TORM plc. For accounting purposes, the
consolidated financial statements for the TORM Group are
presented in the legal name of TORM plc but are a
continuation of the consolidated financial statements of
TORM A/S.
As part of the reorganization in 2015, the fleet increased
significantly. The reported numbers reflect the actual
capacity during the year, whereas the pro forma numbers
equal out the effect for comparison reasons. Please refer to
TORM’s total assets decreased by USD 296m in 2016 to
USD 1,571m, of which the carrying amount of vessels,
capitalized dry-docking and prepayments on vessels
KEY HIGHLIGHTS
USDm
INCOME STATEMENT
Revenue
Time charter equivalent (TCE)
Gross profit
EBITDA
Operating profit/(loss) (EBIT)
Financial items
Net profit/(loss) for the year
Net profit/(loss) for the year excluding impairment charges
BALANCE SHEET
Non-current assets
Total assets
Equity
Total liabilities
2016
680
458
242
200
-107
-35
-142
43
1,390
1,571
781
790
2015
Change
540
371
236
210
143
-16
126
126
1,579
1,867
976
891
140
87
6
-10
-250
-19
-268
-83
-189
-296
-195
-101
TORM 2016 Strategic Report
37
The 2016 EBITDA of USD 200m is at the high end of the latest guid-
ance, which reflects that our cost-efficient platform also delivered rela-
tively well in the fourth quarter of 2016. TORM has booked a non-cash
impairment charge of USD 185m in a year where vessel values dropped by
~25%. The net profit excluding impairment is USD 43m and corresponds to
a RoIC of 4.9%.
CFO Christian Søgaard-Christensen.
amounted to USD 1,388m compared to USD 1,565m in 2015.
There was a reduction in the current assets, especially
related to the cash and cash equivalents. Most cash was
invested in installments and CAPEX and used to pay out
outstanding loan facilities.
In 2016, total equity decreased year on year by USD 195m to
USD 781m from USD 976m in 2015. The decrease is primarily
related to the negative result for the year that includes
impairment losses of USD 185m. The reduction also includes
a paid dividend of USD 25m and purchase of treasury shares
of USD 3m. The Return on Equity (RoE) decreased from
17.4% to -16.2% due to the impairment and lower earnings.
In 2016, TORM’s total liabilities decreased by USD 101m
to USD 790m from USD 891m in 2015. This was primarily
attributable to a reduction of mortgage and bank debt
of USD 97m.
The Net Asset Value per share based on broker values
decreased from USD 18.4 to USD 11.8 mainly due to falling
vessel prices.
Liquidity and cash flow
In 2016, invested capital decreased by USD 200m to USD
1,388m as of 31 December 2016. In 2016, Return on Invested
Capital (RoIC) decreased by 20.4%-points from 13.2% to
-7.2% (or 4.9% excluding the impairment charge).
TORM has an undrawn USD 115m facility in place to finance
the Company’s LR2 newbuilding program. As of 31
December 2016, TORM had CAPEX commitments of USD
149m, all related to the LR2 newbuildings. In addition,
TORM had signed a term sheet with Danish Ship Finance
(DSF) providing USD 30m of new financing with six-year
maturity against collateral in two MR vessels. The loan
agreement was paid out in December 2016 and is a new
tranche on the Company's existing DSF loan agreements.
The loan matures in December 2022. In December 2016,
TORM also signed a term sheet for financing of up to USD
130m with collateral in nine MR vessels. The financing
agreement was concluded in January 2017 with ABN
AMRO, Danske Bank, DVB and ING. The financing agree-
ment will mature on 31 March 2022. The main conditions of
the agreement are in line with the Company's existing loan
agreements.
Total cash and cash equivalents amounted to USD 76m at
the end of 2016, resulting in a net decrease in cash and
cash equivalents for the year of USD 92m compared to a
net increase of USD 130m in 2015. In addition to the USD
115m CEXIM credit facility, the undrawn credit facilities as of
31 December 2016 remained unchanged and amounted to
USD 75 m. Net cash inflow from operations decreased from
USD 214m in 2015 to USD 171m in 2016 due to the lower
freight rates. Net cash outflow from investing activities
amounted to USD 119m in 2016. The cash was used on
tangible fixed assets, primarily related to prepayments in
relation to the LR2 newbuildings and capitalized dry-dock-
ing. In 2015, the net cash outflow from investments was
USD 159m.
Net cash outflow from financing activities amounted to
USD 144m compared to a cash inflow of USD 75m in 2015.
Repayment on mortgage debt and bank loans amounted
to USD 146m, primarily in connection with the Term Facility.
Additional borrowings generated an inflow of USD 49m
relating to the new DSF loan and financing of the acquisi-
tion of outstanding shares in TORM A/S. TORM paid out
USD 25m in dividends to its shareholders during 2016.
Earnings per share
Basic earnings per share was a net loss of USD 2.3 in 2016
compared to net earnings of USD 2.4 in 2015. There was no
difference between the earnings per share and the diluted
earnings per share in neither 2016 nor 2015. Due to the
change in the Group structure in 2016, the 2015 numbers
have been recalculated based on the new number of shares.
KEY HIGHLIGHTS
KEY FIGURES
Invested capital in USDm
Net Asset Value per share (NAV)
Return on Invested Capital (RoIC)
Return on Equity (RoE)
Earnings per share (EPS)
2016
1,388
11.8
-7.2%
-16.2%
-2.3
2015
1,588
18.4
13.2%
17.4%
2.4
Change
-200
-6.6
-20.4%-points
-33.6%-points
-4.7
TORM 2016
38
Strategic Report
FINANCIAL PERFORMANCE OVERVIEW (PRO FORMA
FINANCIALS)
For the purpose of presenting historical financial perform-
ance and the financial position of the continuing business,
TORM has in this section presented 2015 pro forma
financial information and a financial review of the combined
businesses of Former TORM A/S and Njord adjusted for
non-recurring items. In 2016, the financial statements
contain the full continuing operation without any adjust-
ments.
TORM achieved a net loss of USD 142m in 2016 compared
to a net profit of USD 187m in 2015. The 2016 result
excluding impairment losses was a net profit of USD 43m.
The lower result in 2016 was mainly due to the impairment
charge of USD 185m and a significant reduction in freight
rates and freight margins in the product tanker market.
EBITDA for 2016 was USD 200m compared to USD 319m in
2015. The lower result in 2016 was mainly due to a reduc-
tion in freight rates in the softening product tanker market.
The operating profit decreased from USD 219m in 2015 to a
loss of USD 107m in 2016. This was primarily due to a
decrease in gross profit of USD 119m to USD 242m as well
as the USD 185m impairment charge.
In 2016, total revenue decreased from USD 854m in 2015 to
USD 680m, and TCE earnings amounted to USD 458m.
This was a decrease of USD 124m that was primarily
attributable to a decrease of 24% in freight rates in the
Company’s Tanker Segment.
KEY HIGHLIGHTS
USDm
Revenue
Time charter equivalent (TCE)
Gross profit
EBITDA
Operating profit (EBIT)
Financial items
Net profit for the year
Net profit for the year excluding impairment charges
Return on Invested Capital (RoIC)
2016
680
458
242
200
-107
-35
-142
43
-7.2%
2015
(Pro forma)
Change
854
582
361
319
219
-31
187
187
-174
-124
-119
-119
-326
-4
-329
-144
14.1%
-21.3%-points
SEGMENT RESULTS
The table “Segment Gross Profit/(Loss)” below presents
the results of shipping activities by operating segment for
2016 and 2015. The gross profit for 2016 in the Tanker
Segment decreased by USD 123m to USD 242m.
The change in TCE earnings in the Tanker Segment and the
Bulk Segment is summarized in the table.
Furthermore, the table on page 39 summarizes earnings
data per quarter.
SEGMENT GROSS PROFIT/(LOSS)
(Pro forma)
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
2016
Tanker
Segment
Bulk
Segment
Total
2015
680.1
-221.8
0.0
458.3
-21.5
-195.2
241.5
-
-
-
-
-
-
-
680.1
844.0
-221.8
-269.7
0.0
458.3
-21.5
0.0
574.3
-23.3
-195.2
-186.5
241.5
364.5
10.3
-2.6
0.0
7.7
-8.1
-3.1
-3.5
854.3
-272.3
0.0
582.0
-31.4
-189.6
361.0
CHANGE IN TIME CHARTER EQUIVALENT EARNINGS
USDm
Time charter equivalent earnings
2015 (pro forma)
Handy-
size
MR
LR1
LR2
Tanker
Seg-
ment
Total
Un-
allo-
cated
Handy-
max
Pana-
max
Un-
allo-
cated
Bulk
Seg-
ment
Total
Total
72.2
344.0
64.2
97.0
-3.1
574.3
-0.3
7.5
0.5
7.7
582.0
Change in number of earning days
5.1
65.4
2.1
0.1
-
72.7
0.3
-7.5
-0.5
-7.7
65.0
Change in freight rates
-29.3 -120.8
-18.3
-23.5
- -191.9
Other
-
-0.2
-
-
3.4
3.2
-
-
-
-
-
-
- -191.9
-
3.2
Time charter equivalent earnings
2016
48.0
288.4
48.0
73.6
0.3 458.3
-
-
-
- 458.3
Unallocated earnings comprise fair value adjustment of freight and bunker derivatives that are not designated as hedges and gains and losses on freight
and bunker derivatives that are not entered into for hedging purposes.
TORM 2016 EARNINGS DATA
USDm
TANKER SEGMENT
LR2 vessels
Available earning days
Owned
T/C
Spot rates 1)
TCE per earning day 2)
LR1 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)
Tanker Segment
Available earning days
Owned
T/C
Spot rates
TCE per earning day 2)
BULK SEGMENT
Bulk
Available earning days
Owned
T/C
TCE per earning day 2)
Strategic Report
39
2015
Full year
(Pro forma)
Q1
Q2
Q3
Q4 Full year
%
Change
full year
2016
3,486
2,814
672
27,884
27,826
2,476
2,476
-
26,047
25,938
15,676
14,987
689
21,998
21,935
3,595
3,595
-
20,942
20,090
893
713
180
811
696
115
867
684
183
919
735
184
23,754
22,598
21,868
21,875
18,383
22,031
13,868
18,107
637
637
-
635
635
-
642
642
-
643
643
-
22,306
22,305
19,018
20,235
17,291
18,219
14,496
14,490
4,448
4,266
182
19,393
19,449
4,651
4,491
160
17,417
17,085
4,778
4,594
184
13,159
13,388
4,782
4,598
184
12,172
12,522
995
995
-
954
954
-
17,230
17,567
14,823
14,680
902
902
-
9,485
9,635
999
999
-
8,356
7,921
3,490
2,828
662
19,172
21,106
2,557
2,557
-
18,371
18,800
18,659
17,949
710
15,447
15,462
3,850
3,850
-
12,633
12,490
25,233
23,872
6,973
6,611
7,051
6,776
7,188
6,822
7,343
6,975
28,555
27,184
1,361
362
275
367
368
1,372
22,986
22,879
19,680
19,845
17,457
17,594
13,508
14,391
11,968
12,767
15,598
16,050
1,287
594
693
5,805
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0%
-
-
-31%
-24%
3%
-
-
-29%
-28%
19%
-
-
-30%
-30%
7%
-
-
-40%
-38%
13%
-
-
-32%
-30%
-
-
-
-
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.
TORM 2016 40
Strategic Report
CHANGE IN OPERATING EXPENSES
USDm
Tanker Segment
Operating expenses 2015 (pro forma)
Change in operating days
Change in operating expenses
per day
Other
Operating expenses 2016
Handysize
28.0
0.2
-1.5
-0.9
25.8
MR
110.0
20.4
-10.4
0.0
120.0
LR1
19.0
0.1
0.1
-0.5
18.7
Bulk Segment
LR2
Panamax
30.0
0.1
0.3
0.3
30.7
3.0
-3.0
0.0
0.0
0.0
Total
190.0
17.8
-11.5
-1.1
195.2
OPERATING DATA
USD/day
Operating expenses per
operating day in 2015
(pro forma)
Operating expenses per
operating day in 2016
Change in operating expenses
per operating day in %
Tanker Segment
Bulk Segment
Handysize
MR
LR1
LR2
Tanker Panamax
Bulk
Total
6,768
7,031
7,252
8,319
7,193
5,414
5,414
7,154
6,386
6,459
7,294
8,411
6,771
-
-
6,771
-6%
-8%
1%
1%
-6%
-
-
-6%
Operating days in 2016*)
4,026
18,578
2,562
3,660
28,826
- Off-hire
- Dry-docking
+/- Bareboat charters out/in
+ Vessels chartered in
14
162
-
-
152
478
-
710
5
-
-
-
24
76
195
716
-732
-732
662
1,372
Available earning days
3,850
18,658
2,557
3,490
28,555
-
-
-
-
-
-
-
28,826
-
-
-
-
195
716
-732
1,372
-
28,555
*) Including bareboat charters.
Tanker Segment
Revenue in the Tanker Segment decreased by 19.4% to USD
680m in 2016 from USD 844m in 2015, and TCE earnings
decreased by 20.2% to USD 458m in 2016 from USD 574m
in 2015. The decrease in TCE earnings was primarily due to
the softening market as a consequence of continued high
gasoline and diesel stocks globally, which limited trade
arbitrage opportunities for oil traders and the demand for
transportation. Maintenance in the Far Eastern petrochem-
ical sector and among European refineries also had a
negative impact on the market, as petrochemicals and
refiners turned to maintenance earlier than usual.
In the LR2 fleet, the average freight rates decreased by
24% from 2016 to 2015, resulting in a decrease in earnings
of USD 23m. The number of available earning days in the
LR2 fleet was unchanged between 2015 and 2016.
The average freight rates in the LR1 fleet were 28% lower
than in 2015. The available earning days in the LR1 fleet
increased by 3% due to less dry-docking. In total, earnings
decreased by USD 16m.
In 2016, three MR newbuildings were delivered to TORM.
Furthermore, vessels delivered and acquired during the
second half of 2015 increased the number of available
earning days by 2,983 days or 19%. Due to the softening
market this increase in available earning days did not result
in increased earnings. The rates decreased by 30%,
resulting in total earnings of USD 288m, a decrease of USD
55.6m.
In the Handysize fleet, the average freight rates were 38%
lower in 2016 compared to 2015, resulting in a net decrease
in earnings of USD 24m. There was an increase in available
earning days of 7% in 2016.
Bulk Segment
During 2015, TORM discontinued its bulk activities as part
of its Restructuring. The remaining vessels were sold and
there was no activity in this segment in 2016.
Operation of vessels
As compared to 2015, the charter hire cost in the Tanker
Segment decreased by USD 2m or 8% to USD 22m in 2016.
The decrease in the Tanker Segment was caused by lower
charter rates.
The development in operating expenses is summarized in
the table above. The table also summarizes the operating
data for the Company’s fleet of owned and bareboat
chartered vessels.
Operating expenses for the owned vessels increased by
USD 9m to USD 195m in 2016, as a consequence of more
operating days. On a per-day-basis, OPEX decreased by
6% in 2016.
The total fleet of owned vessels had 911 off-hire and
dry-docking days, corresponding to 3% of the number of
operating days in 2016 compared to 1,274 off-hire days in
2015, or 5% of the number of operating days. This was
mainly attributable to a decrease in dry-docking activities.
TORM 2016 Strategic Report
41
Administrative expenses and other operating income
Total administrative expenses and other operating
expenses amounted to USD 41m in 2016, which was at the
same level as in 2015 although the earning days increased
by 13%.
Financial income and expenses
Net financial expenses in 2016 were USD 35m compared to
USD 31m in 2015, corresponding to an increase of USD 4m.
The increase was mainly due to an increase in interest-
bearing debt and to a rise in the interest rate level.
Tax
Tax for the year amounted to an expense of USD 1m
compared to an expense of USD 1m in 2015. The tax for
2016 comprises the current tax expense for the year of
USD 1m and a minor adjustment of tax related to previous
years.
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 recom-
mendation to the Board of Directors. The recoverable
amount of the assets is calculated by assessing the fair
value less costs to sell and the value in use of the signifi-
cant assets within the Tanker Segment.
When assessing the fair value less costs to sell, Manage-
ment included a review of market values calculated as the
average 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 of the
expected future cash flows. The key assumptions are
related to future developments in freight rates, operating
expenses and to the weighted average cost of capital
(WACC) applied as discounting factor in the calculations.
As of 31 December 2016, Management performed a review
of the recoverable amount of the assets by calculating the
recoverable amount (being higher of fair value less costs to
sell and value in use) of the significant assets including
goodwill within the Tanker Segment. As of 31 December
2016, the recoverable amount of the Tanker Segment was
based on the value in use. Based on this review, Manage-
ment concluded that the assets within the Tanker Segment
were impaired by USD 185m as of 31 December 2016 (2015:
USD 0m), as the carrying value exceeded the value in use.
The assessment of the value in use of the Tanker Segment
was based on the present value of the expected future
cash flows. This overall methodology is unchanged
compared to previous years. Accordingly, the freight rate
estimates in the period 2017-2019 are based on the
Company’s business plans. Beyond 2020, the freight rates
are based on the 10-year historical average rates from
Clarksons, amended to reduce strong rates in 2007 and
also adjusted for inflation. Please refer to note 8 for further
details.
The Company will continue to monitor developments on a
quarterly basis for indications of impairment.
PRO FORMA FINANCIAL INFORMATION FOR 2015
ADJUSTED FOR NON-RECURRING ITEMS
TORM has prepared pro forma financial information by
performing consolidation and elimination of all significant
transactions between Former TORM A/S and Njord (OCM
(Gibraltar) Njord Midco Ltd.) for the previous year.
Pro forma adjustments give effect to the completion of the
Restructuring in 2015, which also reflects the write-down of
part of TORM’s debt to current asset values against
issuance of Consideration Warrants, the exchange of part
of Former TORM’s debt for equity and, subject to certain
adjustments, reinstatement of Former TORM’s remaining
debt under the New Term Facility Agreement.
The pro forma income statement for 2015 has been
prepared as though the Restructuring occurred as of 1
January 2015. The pro forma adjustments and adjustments
for non-recurring items were based on available informa-
tion and assumptions that TORM believed were reasonable.
There have been no changes in the estimates in 2016.
For the purpose of pro forma financial information, the
purchase price allocation is based upon the estimated fair
value of assets and liabilities of Former TORM as of 1
January 2015. The pro forma adjustments consist of the
differences between those fair values and the carrying
amount of the same assets and liabilities as of 1 January
2015 except for write-down of debt.
For the purpose of pro forma financial information, the
write-down of part of Former TORM’s debt to current asset
values against issuance of warrants and the exchange of
part of Former TORM’s debt for equity are the actual
numbers despite the carrying amount of the debt being
different from the amount as of the Restructuring Comple-
tion Date.
The impact of the write-down of debt and the cost
incurred to affect the business combination have not been
incorporated in the pro forma income statements, as the
pro forma financial information has been prepared as
though the Restructuring took place as of 1 January 2015.
Furthermore, in addition to the pro forma adjustments, the
pro forma income statement has been adjusted for costs
incurred in relation to the Restructuring.
The following pro forma adjustments have been made to
the unadjusted financial information of Former TORM and
Njord:
1) Elimination of revenue generated and costs incurred
in connection with the chartering of three vessels
from Njord to Former TORM A/S.
2) In 2011, Former TORM sold two LR2 tankers at prices
above market and leased them back on seven-year
bareboat contracts. The excess profit arising from the
sales was recognized as deferred income and
amortized over the term of the leases. In connection
with the purchase price allocation, no new value has
been allocated to these contracts, as it has been
TORM 2016 42
Strategic Report
determined that the charter rate according to the
agreements approximates the current market rate.
Accordingly, the amortized income recognized in 2015
has been reversed to reflect the situation as if the
purchase price allocation occurred on 1 January 2015.
Furthermore, there have been added amortizations of
the value allocated to time charter contracts as part
of the purchase price allocation on 1 January 2015,
calculated as the difference between the contract
value and the fair value of the monthly time charter as
of the date of the Restructuring.
3) Depreciations during 2015 on vessels are reduced to
reflect that the depreciable amount would have been
reduced, had the vessels been adjusted to fair values
as of 1 January 2015 in connection with the purchase
price allocation on these dates. No adjustments have
been made to depreciations on other tangible assets.
4) Former TORM A/S disposed of its investment in
Danish Ship Finance in connection with the Restruc-
turing. For the presentation of the pro forma income
statement, dividend received in 2015 has been
reversed.
5) In 2015, Former TORM recognized financial expenses
related to amortized borrowing costs and an
amortization of the cash flow hedging reserve
generated by interest rate swaps that were canceled
in connection with the 2012-Restructuring. For pro
forma presentation purposes, amortized borrowing
costs and amortized hedging reserve costs are
reversed to reflect that had the Restructuring
occurred as of 1 January 2015, any unamortized
borrowing costs and hedge reserves would have been
eliminated, as such borrowing costs and hedge
reserves would not have been part of the purchase
price allocation.
6) As part of the Restructuring, Former TORM’s debt
was significantly reduced. Consequently, for pro
forma presentation purposes, interest expenses are
reduced to reflect that had the Restructuring
occurred as of 1 January 2015, the interest-bearing
debt had been lower.
The following adjustments have been made for non-recur-
ring items:
7) As of the Restructuring Completion Date, Former
TORM A/S had incurred advisor fees directly related
to the Restructuring, which are reversed as they are
considered of non-recurring nature.
TORM 2016 PRO FORMA CONSOLIDATED INCOME STATEMENT
ADJUSTED FOR NON-RECURRING ITEMS
USDm
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/(expenses)
Share of profit/(loss) from joint ventures
TORM A/S
(Njord)
Former
TORM A/S*)
2015
Pro forma
adjustments,
etc.
540.4
315.4
-1.5
-169.7
0.0
370.7
-12.0
-122.9
235.8
-19.5
-6.3
0.2
-102.6
0.0
212.8
-21.3
-66.7
124.8
-22.4
6.3
-0.1
-1.5
1.9
0.4
EBITDA
210.2
108.6
0.4
Impairment losses on tangible and
intangible assets
Amortizations and depreciation
Operating profit/(EBIT)
Financial income
Financial expenses
Profit/(loss) before tax
Tax
Net profit/(loss) for the year
*) Former TORM A/S refers to the period 1 January to 13 July 2015.
Pro forma adjustments:
0.0
-67.3
142.9
0.6
-16.6
126.9
-1.0
125.9
0.0
-50.4
58.2
3.1
-57.8
3.5
-0.1
3.4
17.0
17.4
-2.3
42.3
57.4
57.4
Strategic Report
43
Note
1, 2
1, 2
3
4
5, 6, 7
Pro
forma
Group
854.3
-272.3
0.0
582.0
-31.4
-189.6
361.0
-41.9
0.0
0.1
319.2
0.0
-100.7
218.5
1.4
-32.1
187.8
-1.1
186.7
1) Elimination of charter-in income and charter hire of vessels between
5) Reversal of amortization of deferred borrowing costs and interest rate
Former TORM and Njord and amortization of the fair value of Former
TORM’s time charter book.
2) Reversal of amortization of deferred income on sale and leaseback
transactions involving two Former TORM LR2 product tankers and
amort ization of fair value of Former TORM’s time charter book as fol-
lows from the purchase price allocation.
3) Adjustment to depreciation to reflect depreciation on the fair value of
the vessels at the assumed dates for the business combination.
4) Reversal of dividends from disposed investment in Danish Ship Finance.
swaps relating to the 2012-Restructuring.
6) Adjustments to interest expenses based on the reinstated debt.
Non-recurring items:
7) Reversal of Former TORM advisor fees related to the financing and
restructuring plan of USD 26.6m in 2015.
TORM 2016 44
Strategic Report
PRIMARY FACTORS AFFECTING RESULTS OF
OPERATIONS
TORM generates revenue by charging customers for the
transportation of refined oil products and crude oil, using
the Company’s tanker vessels. The Company’s focus is on
maintaining a high quality fleet, and TORM actively
manages the deployment of the fleet between spot market
voyage charters, which generally last from several days to
several weeks, and time charters.
TORM believes that the important measures for analyzing
trends in the results of its operations of tanker vessels
consist of the following:
• Time charter equivalent (TCE) earnings per available
earning day. TCE earnings per available earning day is
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 particular 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
expenses, 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.
• Spot charter rates. A spot market voyage charter is
generally 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 charters, TORM pays voyage expenses
such as port, canal and bunker costs. Spot charter rates
are volatile and fluctuate on a seasonal and year-to-year
basis. Fluctuations derive from imbalances in the
availability of cargoes for shipment and the number of
vessels available at any given time to transport these
cargoes. 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.
Vessels 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 favorable market conditions.
• Available earning days. Available earning days are the
total number of days in a period when a vessel is ready
and available 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 calculation is required, because charter
hire is only paid on earning days and not for off-hire days
or days in dry-dock.
• Operating days. Operating days are the total number of
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 insur-
ance 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 char-
tered-in vessels, as they are paid by the vessel owner and
instead factored into the charter hire cost for such
chartered-in vessels.
ACQUISITION AND CAPITAL EXPENDITURE
TORM has four LR2 newbuildings on order with expected
delivery between the fourth quarter of 2017 and the second
quarter of 2018. The value of the prepayments included
within the total asset value amounts to USD 44m com-
pared to USD 73m in 2015.
TORM 2016 RETURNS TO SHAREHOLDERS
Analysis of dividends
On 12 May 2016, TORM’s Board of Directors approved a
new Distribution Policy intending to distribute 25-50% of
net income semi-annually. On 15 September 2016, TORM
distributed an interim dividend payment of USD 25m,
equivalent to USD/share 0.4, as reported on 16 August 2016
in the second quarter release. The Board of Directors
proposes no dividend for the second half of 2016.
Share buyback
During 2016, TORM plc repurchased 312,871 own shares for
a total consideration of USD 2.9m. As part of the Corporate
Reorganization, TORM plc's purchased 2.4% of TORM A/S’
shares (the “Squeeze-out”). This corresponds to total
accretive repurchases of USD 22.1m. TORM may continue to
conduct limited share repurchases in the market.
GOING CONCERN
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are set out on pages
36-44. As of 31 December 2016, TORM’s cash position was
USD 76.0m, TORM’s net debt was USD 609m and the
loan-to-value ratio was 58%. Further information on the
Group’s objectives and policies for managing its capital, its
financial risk management objectives and its exposure to
credit and liquidity risk can be found in note 20 to the
financial statements. The principal risks and uncertainties
facing the Group are set out on pages 33-35.
The Group monitors its funding position throughout the
year to ensure that it has access to sufficient funds to meet
its forecast cash requirements, including newbuilding loan
commitments, and to monitor compliance with the financial
covenants within its loan facilities, details of which are in
note 2 to the financial statements. Sensitivity calculations
are run to reflect different scenarios including, but not
limited to, future freight rates and vessel valuations, in
order to identify risks to future liquidity and covenant
compliance and to enable Management to take corrective
actions, if required.
The Board of Directors has considered the Group’s cash
flow forecasts and the expected compliance with the
Company’s financial covenants for a period of not less than
12 months from the date of approval of these financial
statements. Based on this review, the Board of Directors
has a reasonable expectation that, taking into account
reasonably possible changes in trading performance and
vessel valuations, the Group will be able to continue in
operational existence and comply with its financial
covenants for the foreseeable future. Accordingly, the
Group continues to adopt the going concern basis in
preparing its financial statements.
Strategic Report
45
LONG-TERM VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate
Governance Code, the Board of Directors confirms that
they have a reasonable expectation that the Group will
continue in operation and meet its liabilities as they fall due
for the three-year period ended 31 December 2019. This
period has been selected for the following reasons:
• The general volatility and uncertainty in the product
tanker market leads to a significant increase in the degree
of judgement and uncertainty beyond a three-year period
• Three years is generally in line with the forecast horizon
for external equity analysts covering the shipping sector
The assessment of the Board of Directors has been made
with reference to the Group’s current financial position and
prospects. The assessment of financial performance and
cash flows is primarily dependent on the expectations for:
• Demand-supply picture in the product tanker sector
including the expected vessel values and freight rates
achieved by the Group
• Development of the fleet
• Operational expenditures
• Capital expenditures covering newbuildings and
maintenance of the existing fleet
• Interest rate
The expected financial performance and cash flows have
been subjected to a stress test and sensitivity analysis over
the three-year period, using a conservative outlook for the
product tanker sector, with sensitivities including freight
rates and vessel values, in addition to operational expenses.
Further details on TORM’s principal risks and uncertainties
are set out on pages 33-35.
The Board of Directors does not currently expect that
TORM will breach its financial covenants over the three-
year forecast period. However, should the product tanker
market materialize significantly below TORM’s expecta-
tions, there is a risk of a covenant breach. If this occurs,
mitigating actions or appropriate waivers regarding the
Company’s financial covenants would be required, and the
Board of Directors has, in making their statement in relation
to long-term viability, an expectation that TORM would
avoid a breach in such a scenario.
On behalf of TORM plc
Christian Søgaard-Christensen
Chief Financial Officer, TORM A/S
9 March 2017
TORM 2016
GOVERNANCE
Chairman’s introduction
Corporate governance
Audit Committee Report
Risk Committee Report
Remuneration Committee Report
Investor information
Directors' Report
Statement of Directors’ responsibilities
47
48
51
54
56
70
72
75
Governance
47
CHAIRMAN’S
INTRODUCTION
and to facilitate a possible dual listing in the US. To support
those purposes, it has been important for the Board to
ensure that the appropriate governance structure is in
place. In accordance with UK legislation, TORM has
changed its past two-tier management system with a
separation of Board and management to a one-tier system.
This has meant that TORM A/S’ Chief Executive Officer,
Jacob Meldgaard, has joined the Board of TORM plc as
Executive Director and, as it is not customary for UK
companies to have employee-elected members, the roles
of Mr. Kari Millum Gardarnar and Mr. Rasmus J. Skaun
Hoffmann have been changed to Board Observers. Further-
more, TORM plc has decided to follow the UK Corporate
Governance Code. The Company complies with 51 out of
55 recommendations.
TORM’s key minority shareholder protection rights, which
were put in place under the 2015 Restructuring, have been
maintained in all material aspects in the Corporate Reorga-
nization. Consequently, TORM’s Minority Director maintains
approval rights over Reserved Matters such as related party
transactions, larger business acquisitions and the issuance
of certain share, warrant or convertible debt instruments.
The Corporate Reorganization was supported by the
majority of the Company’s shareholders with a total of
97.6% of TORM A/S’ shareholders transferred to TORM plc.
The Board of Directors would like to thank the shareholders
for their continued support of TORM in connection with
the Corporate Reorganization. TORM plc has acquired
the remaining 2.4% shares from TORM A/S’ minority
shareholders.
In 2016, TORM announced a new distribution policy with the
intention to distribute 25-50% of net income semi-annually
via dividends or share repurchases. The Board of Directors
believes that this policy strikes a balance between retaining
financial and strategic flexibility and allowing shareholders
to benefit directly from TORM’s positive financial results.
TORM initiated the dividend payments with one fixed
payment of USD 25m in September 2016 and has returned
USD 47.1m in total to the shareholders in 2016 including the
shares repurchased in connection with the Corporate
Reorganization and ordinary share repurchases. The Board
of Directors proposes that no dividend be distributed for
the second half of 2016.
In line with the ambition for TORM’s potential dual listing in
the US, TORM has also made extensive preparations for
future compliance with internal control requirements. This
effort will continue during 2017.
MR. CHRISTOPHER H. BOEHRINGER / Chairman of TORM’s Board
of Directors
For 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. It is important for the Board that TORM
maintains a transparent governance structure and
oper ational set-up with all elements of the operating
platform integrated under the One TORM strategy.
The Board believes this is in the best interests of all key
stakeholders and will support TORM as a Reference
Company in the product tanker industry.
TORM plc was established in connection with TORM’s
Corporate Reorganization on 15 April 2016 and benefits
from more than 125 years of history from the TORM Group.
A primary focus for the Board in 2016 has been the
Corporate Reorganization, with the Board working in
parallel on managing both TORM A/S and TORM plc up
until the time of the Corporate Reorganization. During that
period, the TORM plc Board meetings primarily focused on
establishing TORM plc and preparing for the Corporate
Reorganization, whereas the TORM A/S Board meetings
focused on the ongoing day-to-day business of TORM A/S.
As for the remaining sections in the Annual Report, the
Governance sections are described as a continuation of
TORM A/S, but in the legal name of TORM plc. Key matters
covering the period up until the Corporate Reorganization will
be mentioned throughout the Corporate Governance Report.
For further details on the Corporate Reorganization, see
page 7 of the Strategic Report.
The purpose of the Corporate Reorganization has been to
enhance the marketability of the TORM Group, to attract a
broader and more diversified international investor base
The Board is pleased that the Company has secured
financing totaling USD 271m during the second half of 2016.
The financing supports TORM’s financial and strategic
flexibility.
TORM 2016
48
Governance
CORPORATE GOVERNANCE
THE BOARD OF DIRECTORS
The Board of Directors is entrusted with the overall responsi-
bility for the Company. The duties of the Directors include
establishing policies for strategy, accounting, organization
and finance and the appointment of executive officers. The
Board of Directors governs the Company in accordance with
the limits prescribed by the Articles of Association or by any
special resolution of the shareholders. The Board of Directors
is also overall responsible for the Company’s internal controls
and risk assessment. This is described in further detail in the
Risk Management section of the Strategic Report and in the
Audit and Risk Committee reports.
The Board of Directors has six prescheduled meetings on
an annual basis held in connection with the quarterly result
announcements, the approval of the annual budget and
the Annual General Meeting. The actual meeting frequency
is in general higher, as extraordinary meetings are held to
account for specific matters. In 2016, the Board of Directors
had 5 meetings in TORM A/S and 15 meetings in TORM plc.
The extraordinary meetings primarily focused on the
Corporate Reorganization.
In accordance with UK company legislation, TORM now has
a one-tier management structure. In connection with the
Corporate Reorganization, it was decided that the Board of
Directors of TORM plc should consist of Mr. Christopher H.
Boehringer as Chairman and Non-Executive Director, Mr.
David N. Weinstein as Deputy Chairman, Senior Independ-
ent Director, Minority Director and Non-Executive Director,
Mr. Torben Janholt as Non-Executive Director, Mr. Göran
Trapp as Non-Executive Director and Mr. Jacob Meldgaard
as Executive Director. In addition, TORM plc has three Board
Observers who attend all Board meetings. The Board
Observers are Mr. Kari Millum Gardarnar (employee -elected
in TORM A/S), Mr. Rasmus J. Skaun Hoffmann (employ-
ee-elected in TORM A/S) and Mr. Jeffery S. Stein (Deputy
Minority Director). The Directors were all re-elected at TORM
plc’s Annual General Meeting on 15 March 2016, and Mr.
Christopher H. Boehringer, Mr. Torben Janholt and Mr. Göran
Trapp were all elected for a two year period until 2018. The
Board of Directors has not conducted a self-evaluation in
2016 but will do that in 2017.
BOARD COMMITTEES
The Board of Directors has established four committees for
which formal Terms of Reference have been approved by
the Board of Directors and can be found on TORM’s website.
• The Audit Committee assists the Board of Directors in
supervising and enhancing financial reporting, internal
controls and auditing processes
• The Risk Committee is responsible for supervisory
oversight and monitors responsibilities with respect to
internal controls and risk management
• The Remuneration Committee assists the Board of
Directors in reviewing Management’s performance and
remuneration as well as the Company’s general remuner-
ation policies
• The Nomination Committee is responsible for maintaining
and developing a number of governance procedures and
evaluation processes in relation to the Board of Directors
Further details on the work in the Audit Committee, Risk
Committee and Remuneration Committee can be found in
the individual Committee reports.
No meetings were held in the Nomination Committee during
2016, as the Board of Directors were appointed in connec-
tion with the Corporate Reorganization in 2016. No separate
Nomination Committee report is therefore deemed required.
Details on TORM’s gender policy is set out on page 32.
MANAGEMENT STRUCTURE AND DELEGATION OF
AUTHORITY
The Board of Directors has delegated the day-to-day
management of the business to the Executive Director, Mr.
Jacob Meldgaard. This includes the Company’s operational
development and responsibility for implementing the
strategies and overall decisions approved by the Board of
Directors. The Executive Director also serves a position as
Chief Executive Officer in the Group’s largest subsidiary,
TORM A/S.
MEETINGS ATTENDED/HELD
Members
Christopher H. Boehringer
David N. Weinstein
Göran Trapp
Jacob Meldgaard
Torben Janholt
Kari Millum Gardarnar
Rasmus J. Skaun Hoffmann
Board of
Directors TORM A/S
(Meetings held 1 January -
14 April 2016)
Board of
Directors TORM plc
(Meetings held 15 April -
31 December 2016)
Audit
Committee
Remuner-
ation
Committee
Nomination
Committee
Risk
Committee
5/5
4/5
3/5
NA
4/5
3/5
4/5
15/15
14/15
14/15
15/15
14/15
N/A
N/A
5/5
5/5
5/5
4/4
4/4
0/0
0/0
3/4
0/0
3/3
3/3
3/3
David Weinstein, Göran Trapp and Torben Janholt are considered independent directors.
TORM 2016 Governance
49
Transactions of an unusual nature or of major importance
may only be effected by the Executive Director on the basis
of a special authorization granted by the Board of Directors.
If certain transactions cannot await approval of the Board of
Directors due to their urgency, the Executive Director shall,
taking into consideration the interests of the Company to the
extent possible, obtain the approval of the Chairman and
ensure that the Board of Directors are subsequently informed.
Any transaction shall always be subject to the authoriza-
tions stated in the Company’s Articles of Association,
including any required approvals by the Minority Director.
The Executive Director is assisted by the Senior Manage-
ment Team in the day-to-day management of the business.
The Senior Management Team consists of the following
employees in TORM A/S (in addition to the Executive
Director): Mr. Christian Søgaard-Christensen (Chief Financial
Officer), Mr. Lars Christensen (Senior Vice President and
Head of Projects) and Mr. Jesper Jensen (Senior Vice
President and Head of Technical Division). The Senior
Management Team holds weekly meetings. Mr. Christian
Søgaard-Christensen generally attends the Board meetings.
The Senior Management Team members are individually
responsible for authority delegation further within the
organization. TORM maintains an overview of mandates
and authorities for different levels within the organization.
SHAREHOLDER COMMUNICATION
To ensure consistent communication to all investors,
quarterly and annual financial statements and other stock
exchange announcements are the main channels of
communication. In 2016, TORM maintained regular capital
market contact through analyst and industry presentations,
investor meetings and conference calls. Roadshows are
primarily held in Copenhagen and in the major European
and US financial centers. In addition to the Executive
Director and the remaining management team, TORM’s
Senior Independent Director, Mr. David Weinstein, has
attended a number of meetings with investors.
SELECTED MINORITY PROTECTION PROVISIONS IN
TORMS ARTICLES OF ASSOCIATION
TORM’s central corporate governance provisions aim to
ensure appropriate minority shareholder protection. The
key provisions include:
• The appointment of a Minority Trustee who shall hold a B
share giving the Minority Trustee the right to appoint a
Minority Director, the Deputy Chairman of the Board. The
Minority Director has approval rights over Reserved
Matters such as related party transactions, larger
business acquisitions and the issuance of certain share,
warrant or convertible debt instruments
• Appointment of a Board Observer and alternates for the
Minority Director
The B share has no other rights than the right to elect one
member of the Board of Directors and one Board Observer
in TORM. The Minority Trustee will exercise this voting right
on behalf of all A shareholders other than Oaktree Capital
Management (Oaktree) and its affiliates. Further, a single
redeemable and non-transferable C share has been issued to
Oaktree in order to give Oaktree sufficient voting rights to
elect all Board members other than the Minority Director
(and employee representatives) and to vote for amendments
to TORM’s Articles of Association with the exception of
certain minority protection rights. The C share has no voting
rights on any other matters.
Both the B share and the C share will be redeemed by
TORM upon a reduction in Oaktree’s shareholding below
1/3 of the issued and outstanding shares in TORM.
TORM’s Articles of Association are available on TORM’s
website (www.torm.com/about-torm).
CORPORATE GOVERNANCE RECOMMENDATIONS
In connection with the Corporate Reorganization, TORM
decided to change its corporate governance code from the
Danish Recommendations on Corporate Governance,
available at www.corporategovernance.dk, to the UK
Corporate Governance Code as issued by the Financial
Reporting Council in April 2016. The change to the UK
Corporate Governance Code was carried out to align with
domestic legislation for the Company and to increase
transparency. The Code sets out principles and operates on a
"comply or explain" basis. TORM has considered the individual
recommendations and is compliant with 51 of 55 recom-
mendations. TORM is not in compliance with the principles
outlined below because of business decisions taken based
on careful consideration by the Board of Directors. Based on
the explanations provided below, no plan is currently in
place to attain compliance with the below recommendations:
• Non-executive Directors should be appointed for a
specified term (recommendation B.2.3): and no longer than
a three-year term (recommendation B.7.1): The B Director is
not appointed for a specified term but will continue until
removed by the B shareholder. The Company believes that
continuity in the B Director role is important, as he serves
as a representative for the minority shareholders. The B
shareholder, who represents the minority shareholders, can
replace the B Director at any time.
• The Audit Committee should consist of independent
Directors (recommendation C.3.1): The Chairman of the
Board of Directors, Mr. Boehringer, was not considered
independent at the time of his appointment or on an
ongoing basis. The Company believes that, given that the
Chairman of the Audit Committee is independent, the
Company’s controlling shareholder structure and the
rights of the C share held by Oaktree, it is appropriate for
Mr. Boehringer to be on the Audit Committee.
• The Remuneration Committee should consist of
independent Directors and the Chairman of the Board of
Directors should not chair the Committee (recommenda-
tion D.2.1): The Chairman of the Board of Directors, Mr.
Boehringer, is Chairman of the Remuneration Committee.
Mr. Boehringer was not considered independent at the
time of his appointment or on an ongoing basis. The
Company believes that, given the Company’s controlling
shareholder structure and the alignment of interests with
regard to remuner ation, it is appropriate for Mr. Boeh-
ringer to chair the Remuneration Committee.
An overview of TORM’s position on the individual recommen-
dations is available on TORM’s website (www.torm.com/
about-torm).
TORM 2016 50
Governance
BOARD OF DIRECTORS
CHRISTOPHER H. BOEHRINGER / Non-Executive Director and Chairman of TORM’s Board of Directors
Other Board directorships:
LCCG UK Limited
Life Company Consolidation Group Limited
LCCG UK Holdings Limited
Mars Acquisition Limited
Amber GP (London) Limited
Eolia Renovables de Inversiones, S.C.R., S.A.
Born: 01-01-1971
Nationality: Canadian
Employment: Managing Director, Oaktree Capital Man-
agement, L. P.
Education: BA degree in Economics
from Harvard University and an MBA from INSEAD in
France, where he graduated with Distinction and was
the recipient of the INSEAD Canadian Foundation
Scholarship.
Mr. Boehringer is Chairman of TORM’s Nomination Com-
mittee and the Remuneration Committee and a member
of the Audit Committee and the Risk Committee.
Prior to joining Oaktree in March 2006,
Mr. Boehringer worked at Goldman Sachs, FITravel
Corporation, Warburg Dillon Read/SG Warburg and LTU
GmbH & Co.
DAVID NEIL WEINSTEIN / Senior Independent Director and Deputy Chairman of TORM’s Board of Directors
Born: 22-08-1959
Nationality: US citizen
Employment: Senior Investment Banking, Governance
and Reorganization Specialist
Education: Brandeis University,
BA Economics and Columbia University School of Law.
Mr. Weinstein has had a number of Board leadership
pos itions in inter alia Horizon Lines, Inc., Interstate
Bakeries Corporation, Pioneer Companies, Inc. and York
Research Corporation and has served as Managing
Director of Calyon Securities Inc., BNP Paribas, Bank of
Boston and Chase Securities Inc.
Mr. Weinstein is a member of TORM’s Nomination Com-
mittee and Remuneration Committee.
Other Board directorships: Chairman of Everyware Glob-
al Inc., Board member of DeepOcean Group Holdings AS
and TORM plc.
GÖRAN TRAPP / Non-Executive Director
Born: 31-01-1962
Nationality: Swedish
Employment: Board member
Education: Stockholm School of Economics,
MSc Economics and Business Administration (Majoring
in Finance, 1983-1987).
Mr. Trapp is Chairman of TORM’s
Audit Committee and Risk Committee.
Mr. Trapp was with Morgan Stanley from 1992 to 2013
where he started as crude oil trader, then became Head
of Oil Products Trading Europe & Asia, Head of Global
Trading and Head of Commodities EMEA. Prior to joining
Morgan Stanley, Mr. Trapp was crude oil trader at Statoil.
Other Board directorships: Chairman of Madrague
Capital Partners AB, Board member of Amara Living Ltd,
Board member of Energex Partners Ltd. and TORM plc.
TORBEN JANHOLT / Non-Executive Director
Born: 11-10-1946
Nationality: Danish
Employment: Just Water ApS
Education: IESE, Barcelona (2012/2008), Harvard,
Copenhagen (Board of Directors Program) (2011), IMD,
Lausanne (2010/2007/2003/2000/1999),
CEDEP/INSEAD Management School, Fontainebleau
(1990), Niels Brock Business College, Copenhagen (Cer-
tificate in Business Administration, 1974).
Mr. Janholt is a member of TORM’s Audit Committee,
Risk Committee and Remuneration Committee.
Mr. Janholt has been the CEO and President for J. Lau-
ritzen A/S from 1998 to 2013 and Chairman of the Danish
Shipowners’ Association from 2005 to 2009 and holds a
number of management duties/directorships.
Other Board directorships: Chairman of Otto Suenson
& Co. A/S, Board member of Pioneer Marine Pty Ltd.
Singapore, PostNord A/B, A/S United Shipping & Trad-
ing Company, Bunker Holding A/S, Uni-Chartering A/S,
Uni-Tankers A/S and TORM plc.
JACOB MELDGAARD / Executive Director
Born: 24-06-1968
Nationality: Danish
Education: Copenhagen Business School, Denmark
(Bachelor’s degree in International Trade) and Wharton
Business School and Harvard Business School, USA
(Advanced Management Program).
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.
TORM 2016
AUDIT COMMITTEE REPORT
Governance
51
Board Observer Jeffrey S. Stein attended the November
2016 meeting by phone. Senior Independent Director David
Weinstein attended the November 2016 meeting in his
capacity as Deputy Board Chairman by phone.
The Board is satisfied that the Audit Committee meets the
independence requirements established and applicable
laws, regulations and listing requirements, including the UK
Corporate Governance Code. At least one Audit Committee
member has, in the judgement of the Board, recent and
relevant financial experience in order to have the ability to
make an independent assessment of the appropriateness
of the Company’s financial statements and internal controls
as well as the planning and execution of the external audit.
Further, members of the Audit Committee have the
necessary qualifications and competences relevant to the
shipping sector. The Chairman of the Audit Committee,
Göran Trapp, possesses the necessary qualifications to
fulfill the requirements. The Audit Committee also has
access to the financial expertise of the Group and its
independent auditors and can seek further professional
advice at the Company’s expense, if required.
SUMMARY OF THE ROLE OF THE AUDIT COMMITTEE
The purpose of the Audit Committee is to assist the Board
of Directors in fulfilling its responsibilities relating to the
oversight of the quality and integrity of the accounting,
auditing, financial reporting and risk management of the
Company and such other duties as may from time to time
be assigned to the Audit Committee by the Board and are
required by the rules and regulations of the UK Corporate
Governance Code or any securities exchange on which the
Company’s securities are traded.
The Audit Committee’s function is one of oversight only
and does not relieve the Board of Directors of its responsi-
bilities for preparing financial statements that accurately
and fairly present the Company’s financial results and
condition, nor the auditors of their responsibilities relating
to the audit or review of financial statements. The Audit
Committee shall oversee the accounting, financial report-
ing, risk management processes and the audits of the Com-
pany’s financial statements. It also provides advise to the
Board on whether the Annual Report as a whole is fair,
balanced and understandable. The Audit Committee shall
oversee and control the qualifications, independence and
performance of the appointed independent auditors.
The formal role of the Audit Committee is set out in its
Terms of Reference, which are available at www.torm.com.
MEETINGS
The Audit Committee meets at least four times a year. The
Chief Financial Officer of TORM A/S, the Head of Group
Finance of TORM A/S as well as the Company’s independ-
ent auditor will normally attend these meetings. During
MR. GÖRAN TRAPP / Chairman of TORM’s Audit Committee
CHAIRMAN’S STATEMENT
Dear Shareholder
The Audit Committee is pleased to present its report for 2016.
The purpose of this report is to describe how the Audit
Committee has carried out its responsibilities during the
year. In overview, the role of the Audit Committee is to mon-
itor and review: the integrity of the Company’s financial
statements, internal control and risk management, audit and
risk programs, business conduct and ethics, "whistleblow-
ing" and the appointment of the independent auditor.
The Audit Committee took note of the publication in April
2016 of an updated version of the UK Corporate Govern-
ance Code (Code). As stipulated, the Company applies the
requirements of the updated Code for TORM plc’s year
ended 31 December 2016.
In discharging its duties, the Audit Committee seeks to
balance independent oversight of the matters within its
remit with providing support and guidance to management.
COMPOSITION OF THE AUDIT COMMITTEE
Members and attendance at meetings held during 2016.
Committee members
Mr. Göran Trapp (Chairman)
Mr. Christopher H. Boehringer
Mr. Torben Janholt
Meetings
attended/held*)
5/5
5/5
5/5
*) Two of the five meetings were held in TORM A/S. The
remaining three meetings were held in TORM plc.
See Board of Directors biographies on page 50
TORM 2016 52
Governance
2016, the Audit Committee met five times, and each
meeting was attended by all Audit Committee members in
person or by phone.
FINANCIAL REPORTING AND SIGNIFICANT FINANCIAL
JUDGEMENTS
The Committee considered the issues summarized below as
significant in the context of the 2016 financial statements.
These were discussed and reviewed with Management and
the independent auditors, and the Audit Committee
challenged judgements and sought clarification where
necessary.
Impairment considerations
As explained in note 8 to the financial statements on page
97, an impairment charge of USD 185m has been recorded
regarding the Tanker Segment (2015: USD 0m). In order to
determine whether a cash-generating unit (CGU) is
impaired, management assesses whether there are any
indicators for impairment of the vessels in the Tanker
Segment. If such indicators exist, the future discounted net
cash flow deriving from the CGU must be estimated. These
estimates are based on a number of assumptions including
future freight rates, estimated operating expenses,
weighted average cost of capital (WACC) and level of
inflation.
In view of the softening product tanker market, Manage-
ment prepared a detailed impairment test for the Audit
Committee setting out the key assumptions for the CGU.
The Audit Committee challenged these assumptions and
judgements to ensure that all material factors were
included.
The Audit Committee noted in particular that the freight
rates in the years 2017-2019 are consistent with the
long-term planning assumptions used by the Company.
The Audit Committee discussed with Management the
adjustments made to the 10-year historical average spot
rates from Clarksons. The Audit Committee reviewed the
calculations to ensure the accuracy and the completeness
of the adjustments.
The Audit Committee was satisfied that future cash flows
related to operating expenses in the Tanker Segment
appropriately reflected current market assessments.
The Audit Committee was satisfied that the rates used to
discount future cash flows appropriately reflected current
market assessments of the time value of money and the
risk associated with the CGU concerned.
The Audit Committee was satisfied that the most material
assumptions on which the amount of the impairment
charges is based are appropriate.
For further description please refer to note 8 in the
Financial Statements on page 97.
Corporate Reorganization
The Audit Committee considered how to reflect the
Corporate Reorganization in the consolidated financial
statements. The Corporate Reorganization, where TORM
plc was inserted as new parent of TORM A/S, is treated as
a “Capital Restructuring” (reverse acquisition – but not
reverse business combination as in scope of IFRS 3), and
accordingly the consolidated financial statements of TORM
plc are a continuation of the consolidated financial
statements of TORM A/S.
The prepared consolidated financial statements are similar to
those prepared under reverse acquisition accounting, except
for the fact that no purchase price allocation is prepared and
thus no goodwill will be recorded. The consolidated financial
statements for the TORM Group are prepared in the legal
name of TORM plc but are in principle a continuation of the
consolidated financial statements of TORM A/S with the only
adjustment of retroactively reflecting the legal capital of the
legal parent (TORM plc). The Committee approved the
suggested accounting treatment.
The Audit Committee also reviewed and approved the
accounting treatment in relation to the TORM plc squeeze-
out.
Financial Reporting Standards
The Audit Committee reviewed the information on the
adoption of the new standards IFRS 15 and IFRS 16.
IFRS 15 specifies how and when an IFRS reporter will
recognize revenue as well as requiring such entities to
provide users of financial statements with more informative,
relevant disclosures. Going forward, revenue recognition will
be determined on the basis of transfer of the transportation
service to the customer. The standard will be applied to
TORM’s Annual Report no later than in 2018, and the impact
on the Company is not expected to be significant.
IFRS 16 eliminates the current dual accounting model for
lessees, which distinguishes between on-balance sheet
finance leases and off-balance sheet operating leases.
Instead, there is a single, on-balance sheet accounting model
that is similar to current finance lease accounting. Lessor
accounting remains similar to current practice in that lessors
continue to classify leases as finance and operating leases.
The standard will be applied to TORM’s Annual Report no
later than in 2019, and the impact on the Company is
deemed minimal with the current operating model, but
would need to be applied on any current Time Charter
agreements.
Effectiveness
In 2016, the Audit Committee carried out a detailed
self-assessment. Based on the self-assessment, no material
concerns arose.
Independent audit
During the year, Deloitte undertook independent audit and
certain non-audit work. They provided the Committee with
information and recommendations on the financial
statements and internal controls.
In August 2016, the Audit Committee reviewed and
approved the terms, areas of responsibility and scope of
the 2016 audit as set out in the independent auditors’
engagement letter. During the year, Deloitte provided the
Committee with recommendations and updates regarding
audit-related services on subjects such as regulatory and
statutory reporting, Audit Committee training, etc. The
TORM 2016 Governance
53
independent auditors are expected to perform audit
according to relevant auditing standards. The Independent
Audit Plan was approved in August 2016 and has been
successfully completed at the date of this report.
AUDITOR APPOINTMENT AND TENDERING
In 2016, TORM plc, which was newly incorporated, became
the holding company of the Group, and Deloitte LLP (UK)
has been its independent auditors since then. Prior to that,
Deloitte Statsautoriseret Revisionspartnerselskab (Den-
mark) had been the independent auditors of TORM A/S
(now a subsidiary of TORM plc). From a Group perspective,
Deloitte Denmark was elected for the first time in April
2003 replacing Arthur Andersen, and there has not been
an audit tender since that date.
TORM plc will at the latest undertake a tender and rotation
of the independent audit appointment at the time of the
rotation of the lead engagement partner, which is due after
completion of the 2020 audit.
Auditor effectiveness
The Audit Committee conducts an annual review of the
performance of the independent auditors by a combination
of discussions with Management, the quality of written
deliverables to the Audit Committee and the quality of
dialogue and insights provided during Audit Committee
meetings. The Committee concluded that the effectiveness
of the independent auditors has not been impaired in any
way, and accordingly they will be proposed for re-appoint-
ment at the forthcomming Annual General Meeting.
Auditor independence and objectivity
The Company has policies and procedures in place to
ensure that the independence and objectivity of the
independent auditor is not impaired. These include
restrictions on the types of services which the independent
auditor can provide, in line with Ethical Standards on
Integrity, Objectivity and Independence published by the
UK Financial Reporting Council (FRC). Details of the
services that the independent auditors cannot be engaged
to perform were provided to the Audit Committee within
the November 2016 Audit Committee meeting documenta-
tion. The policy regarding pre-approval of audit and
non-audit fees will be available on request.
Audit and non-audit fees
Full disclosure of the audit and non-audit fees paid during
2016 can be found in note 5 to the consolidated financial
statements.
USD 0.5m
Audit fees:
Non-audit fees: USD 1.0m
The independent auditors may be contracted to perform
certain non-audit activities. The Audit Committee believes
this can be performed without compromising the auditor’s
independence and objectivity. The Audit Committee will
allocate the non-audit work after considering the Compa-
ny’s policy on the provision of non-audit services by the
company auditors. Copies of the pre-approval procedures
are available on request.
Internal audit
The Audit Committee assesses the need for an internal
audit function on an annual basis and makes a recommen-
dation to the Board. Based on the Company’s size,
complexity and its internal control environment, the
Company has decided to defer the establishment of an
internal audit function until the need arises.
RISK MANAGEMENT AND INTERNAL CONTROLS
Risk management
The Committee regularly discusses the principles for risk
assessment and risk management related to the financial
reporting and reviews the Company’s significant risks,
including fraud, and their impact on the financial reporting
including stress testing, when relevant. During 2016, the
Committee was given a presentation by the risk manage-
ment team.
The principal risks and uncertainties are outlined in the Risk
Management section of the Strategic Report on pages 33
and 35.
Internal controls
The Board of directors fulfills its responsibility in regard to
effectiveness of the risk management and internal controls
over financial reporting through the Audit Committee. The
oversight is conducted through review of reports covering
all aspects of the framework from planning, test of
operational effectiveness and adequacy of the internal
control environment. In-depth review of specific risks is
performed when changes in the internal or external
environment make it relevant.
In line with the planned dual listing on the US stock
exchange see page 26, the Audit Committee has increased
focus on the future compliance requirements. The effort is
expected to continue throughout 2017.
Full details of how the business implements its enterprise
risk management on a Group-wide basis are set out in the
Risk Management section of the Strategic Report on pages
33 to 35.
Whistleblowing
The Group’s Whistleblower Policy, which supports the
Group-wide Business Principles, is monitored by the Audit
Committee. A copy of the Group’s Business Principles is
available on the TORM plc website www.torm.com/
about-torm. The Audit Committee received reports providing
details of matters reported through the Group’s inter-
national, confidential telephone reporting lines and secure
e-mail reporting facility, which is operated on its behalf by
an independent third party, Holst, Advokater. All matters
reported are investigated by Holst, Advokater and, where
appropriate, reported to the Audit Committee together
with details of any corrective action taken. The Audit
Committee also received reports at each Audit Committee
meeting providing details of any fraud losses in each quarter.
Approval
On behalf of the Audit Committee
Mr. Göran Trapp, Chairman of the Audit Committee
9 March 2017
TORM 2016 54
Governance
RISK COMMITTEE REPORT
carried out its duties effectively and to a high standard in
2016.
Senior Independent Director David Weinstein, Executive
Director Jacob Meldgaard and Board Observer Jeffery S.
Stein attended all risk committee meetings in 2016.
The Risk Committee assesses that the committee members
have sufficient qualifications within risk management and
capital market knowledge to have the ability to make an
independent assessment of the appropriateness of the
Company’s risk management and control environment as
well as the planning and execution of the risk management
policies and funding activities. The Risk Committee has
access to the financial and risk management competencies
within the TORM Group and its external advisors. The
Committee is also authorized to seek further external
advice at the Company’s expense, if required.
SUMMARY OF THE ROLE OF THE COMMITTEE
The purpose of the Risk Committee is to assist the Board
of Directors in fulfilling its responsibilities in relation to the
oversight of the quality and effectiveness of the compa-
ny-wide risk management program.
This is an ongoing process of refinement and embedding of
risk management best practice throughout the organiza-
tion. The risk management framework builds on clear
policies and procedures that are applied consistently
throughout the organization.
The Risk Committee oversees the risk management
processes and reporting of the Company and discusses
relevant risk management policies, capital structure targets
and planned funding initiatives. The Risk Committee is
responsible for providing recommendations to the Board of
Directors with respect to these targets and initiatives.
MEETINGS
The Risk Committee normally meets no less than four times
a year; however, in 2016 the Committee covered its material
through three extended meetings instead. Ordinarily, the
Executive Director, the Chief Financial Officer of TORM A/S
and TORM A/S’ Head of Group Treasury attend these
meetings.
ACTIVITIES DURING THE YEAR
Continuous review of selected risk exposures
At each meeting the Risk Committee follows up on key risk
indicators to ensure alignment between risk tolerance,
actual risk level and business objectives. These measures
include: monitoring of credit lines, monitoring of compli-
ance with internal mandates and exposure to financial
derivatives.
MR. GÖRAN TRAPP / Chairman of TORM’s Risk Committee
CHAIRMAN’S STATEMENT
Dear Shareholder
The Risk Committee is pleased to present its report for 2016.
The purpose of this report is to describe how the Risk
Committee has fulfilled its duties during 2016. In essence,
the role of the Risk Committee is to assist the Board of
Directors in fulfilling its responsibilities relating to the
oversight of the quality and effectiveness of the company-
wide risk management program.
In 2016, the Risk Committee had special focus on reviewing
the vetting practices and policies of oil majors to under-
stand risks related to tradability. Furthermore, the Risk
Committee focused on the risks related to derivatives
trading and exposures as well as risks related to strategic
decisions around the Company’s capital structure.
The Risk Committee seeks to balance independent
oversight of the matters within the scope of the Committee
with providing support and guidance to Management. The
Risk Committee is confident that the Risk Committee,
supported by members of TORM A/S Management, has
COMPOSITION OF THE RISK COMMITTEE
Members and attendance at meetings held during 2016.
Committee members
Mr. Göran Trapp (Chairman)
Mr. Christopher H. Boehringer
Mr. Torben Janholt
Meetings
attended/held*)
3/3
3/3
3/3
*) All three Risk Committee meetings were held in TORM plc.
TORM 2016 Governance
55
Oil major vetting practices
The Risk Committee reviewed the oil majors’ vetting
practices and policies in terms of inherent risk and
tradability. Furthermore, the Risk Committee had a
discussion on TORM’s ability to continue having a strong
tradability record by further understanding the oil majors’
standard vetting approach.
Review of Company governance principles and policies
related to IT and insurances
The Risk Committee reviewed TORM’s IT Policy and
governance set-up as well as TORM’s Insurance Policy. The
policies outline major issues at risk and which corres-
ponding measures TORM takes to mitigate the risks.
Financial risk management and review of TORM’s
Financial Policy
TORM uses financial derivatives to manage market risks
and to optimize earnings. In addition, the Company uses
derivatives to hedge exposures related to interest rate and
foreign exchange risks.
The Risk Committee reviewed TORM’s exposures, the
relevant tolerance levels and appropriate hedging instru-
ments and subsequently approved the Financial Policy that
clearly outlines mandates.
Liquidity risk
The Committee reviewed the Company’s liquidity forecast
model and the underlying key assumptions as well as
TORM’s forecasted liquidity position and compliance with
financial covenants on borrowing facilities over the coming
12 months.
Capital structure risks
The Committee reviewed risk considerations related to the
Company’s capital structure, including: Liquidity position,
Loan-to-Value, distribution policy, off-balance sheet
liabilities, terms and sources of funding, vessel investments
and fleet employment strategy.
Counterparty risk
The Risk Committee performed an in-depth review of
counterparty risk related to TORM’s customers.
Enterprise risk management
The Committee reviewed the key risks faced by TORM and
the underlying drivers of those exposures. The alignment of
actual risk and desired risk was discussed, and the
Committee approved the Company risk profile based on
these discussions. Furthermore, the Committee reviewed
the assigned management accountability, which highlights
current and planned risk mitigating activities.
Approval
On behalf of the Risk Committee
Mr. Göran Trapp, Chairman of the Risk Committee
9 March 2017
TORM 2016 56
Governance
REMUNERATION
COMMITTEE REPORT
INTRODUCTION
This report is on the activities of the Remuneration
Committee for the period 1 January 2016 to 31 December
2016. It sets out the remuneration policy and remuneration
details for the Executive and non-Executive Directors of
the Company. It has been prepared in accordance with
Schedule 8 of The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 as
amended in August 2013 (the “Regulations”).
The report is split into three main areas:
• The statement by the chair of the Remuneration
Committee
• The annual report on remuneration
• The Remuneration Policy
The Remuneration Policy, if approved by the shareholders
at the General Meeting on 4 April 2017, will take effect from
the date of that meeting. Notwithstanding the foregoing,
as at the date of this Annual Report, TORM plc is in
compliance with the requirements of this remuneration
policy. The annual report on remuneration provides details
on remuneration in the period and some other information
required by the Regulations.
The Companies Act 2006 requires the auditors to report to
the shareholders on certain parts of the Directors’ Remuner-
ation Report and to state whether, in their opinion, those
parts of the report have been properly prepared in accord-
ance with the Regulations. The parts of the Annual Report on
remuneration that are subject to audit are indicated in that
report. The statement by the Chairman of the Remuneration
Committee and the policy report are not subject to audit.
COMPOSITION OF THE REMUNERATION COMMITTEE
Members and attendance (eligibility) at meetings held
during the year ended 31 December 2016. The Committee
comprised the non-Executive Directors shown below
during the year ended 31 December 2016.
Committee members
Mr. Christopher H. Boehringer (Chairman)
Mr. David Weinstein (Deputy Chairman)
Mr. Torben Janholt
Meetings
attended/held
4/4
4/4
3/4
Committee discussions in 2016
Date of Meeting
Agenda items discussed
17 March 2016
• Overview of Short-Term Incentive
Plan (STIP) allocations 2015
• Performance evaluation and bonus
to the CEO
4 May 2016
• Bonus model presentation by the
Head of HR
• Performance evaluation and bonus
to the CEO
14 November 2016 • Compensation recommendations
2017 (STIP and LTIP)
13 December 2016 • Updated draft policy reviewed and
agreed
• Long-Term Incentive Plan (LTIP) –
2017 Restricted Share Unit (RSU)
allocation and 2016 RSU vesting
• 2017 KPIs for the CEO
Advisers to the Committee
During the year, the Committee received advice and/or
services from the Head of Group HR and the Executive
Director together with other senior group employees and
CWT as necessary.
Minority Board Observer Mr. Jeffrey S. Stein attended the
meeting held on 14 November 2016.
Remuneration Committee
The Committee met regularly during the year. There were
four meetings held in 2016.
TORM 2016 Governance
57
STATEMENT BY THE CHAIRMAN OF THE REMUNERATION
COMMITTEE
Dear Shareholder
• The members of the Remuneration Committee
• Shareholder voting at the Annual General Meeting
• The remuneration to the Board of Directors
• The remuneration to the CEO
On behalf of the Remuneration Committee, the Director’s
Remuneration Report for the year ended 31 December 2016
is presented in the following section.
The Remuneration Committee assists the Board of
Directors in its responsibilities in relation to remuneration.
The Remuneration Committee’s responsibilities include:
• Setting the strategy, structure and levels of remuner ation
of the Company’s Directors, Executive Director and
Senior Management
• Ensuring compliance with policies while adhering to
legislative regulations
• Aligning the financial interests of the Executive Directors
and other management employees with the achievement
of the Company’s objectives
The overall remuneration structure comprises:
• Base salary, benefits and allowances, set at a level
appropriate to the sector and markets in which the
company operates
• An annual bonus, based on measures of annual financial
and strategic performance
• A share-based long-term incentive plan, based on
growth in the share price
This Remuneration Report includes:
• The Company’s Remuneration Policy, including guide-
lines for incentive pay for the Board of Directors and
Executive Management
• The responsibilities of the Remuneration Committee
reflected in the Terms of Reference for the Committee,
reflected in full
The Committee assessed the Executive Director's perform-
ance against long-term and short-term targets. We have
assessed the Executive Director's contribution against his
personal performance measures. As a result, the perform-
ance bonus was calculated at 20% of the yearly salary for
the objective-based contributions in 2015. Further, in relation
to achievements relating to the TORM Leadership Philoso-
phy, an additional 20% was awarded. Throughout 2016, the
Committee maintained the link between pay and perform-
ance and will continue to do so.
As a Committee, we continue to monitor developments in
corporate governance and remuneration and, where we
consider it appropriate and in the best interests of TORM
plc and its shareholders, we would propose to adopt them.
The Company's Remuneration Policy set out within this
Remuneration Report is the first policy to be approved by
the shareholders.
On behalf of the Committee, I thank you for your continued
support and trust that you find the Directors’ Remuneration
Report informative. I very much hope that we will receive
your support at the 2017 Annual General Meeting.
Christopher H. Boehringer
Chairman of the Remuneration Committee
9 March 2017
TORM 2016 58
Governance
ANNUAL REPORT ON REMUNERATION
-The information provided in this part of the Directors' Remuneration Report is subject to audit.
Executive Director's remuneration table
(showing single total figure of pay for the year)
The 2015-16 Executive Director’s remuneration for Jacob Meldgaard’s role as Executive Director of TORM plc and CEO of
TORM A/S, a subsidiary of TORM plc, is shown in the below table.
Jacob Meldgaard
USD (‘000)
Salary 1)
Taxable
benefits 2)
Annual
performance
bonus 3)
2015
2016
2016
TORM A/S
TORM A/S
TORM plc
362
834
39
19
42
-
144
-
-
EBITDA
bonus 4)
Transaction
bonus 5)
-
-
-
345
-
-
Total
870
876
39
1) The salary for 2015 only includes amounts arising subsequent to
the Restructuring on 13 July 2015, as this was treated as a reverse
acquisition (see note 1 of the financial statements). The total salary
of the CEO of TORM A/S for 2015, including amounts arising in the
period 1 January to 13 July 2015, was DKK 5,100,000.
2) The Company can place a car costing no more than DKK 1m at the
CEO’s disposal and pay the running and maintenance expenses
associated with the car (DKK 23,000 per month). Allowances and
benefits: Other benefits provided directly include two newspapers
(DKK 5,500 per annum), mobile phone which may be used for both
business and private purposes, a PC at the CEO’s disposal at his
home address which may be used for both business and private
purposes including ADSL and call charges (DKK 2,700 per annum).
3) Annual bonus 2015 paid in 2016. The Annual Performance Bonus for
2015 only includes amounts arising subsequent to the Restructuring
on 13 July 2015. The total Annual Performance Bonus of the CEO of
TORM A/S for 2015, including amounts arising in the period 1 january
to 13 July 2015, was DKK 2,072,300. The performance bonus for 2016
has not yet been set by the Remuneration Committee. Full explanati-
on of TORM's Performance Bonus Policy is available in the Remune-
ration Policy on page 65.
4) EBITDA bonus 2015 paid in 2016. The EBITDA Bonus for 2015 only
includes amounts arising subsequent to the Restructuring on 13 July
2015. The total EBITDA Bonus of the CEO of TORM A/S for 2015,
including amounts arising in the period 1 January to 13 July 2015,
was DKK 2,755,508. This bonus is not applicable for 2016.
5) Transaction success bonus 2015 paid in 2016 - The Transaction
Success Bonus was related to the Corporate Restructuring and is
not applicable for 2016.
LTIP element of
Jacob Meldgaard's
remuneration package 2016 RSU LTIP grant
Exercise price
per Share
RSU grant value
assuming 100% vesting Comment
Jacob Meldgaard
1,276,725
DKK 96.3
USD 3.4m
Exercise price originally 96.3.
Subsequently adjusted to 93.6
due to dividend payment in
September 2016
Base salary
The CEO’s base salary was reviewed on 10 November 2015
to determine the appropriate salary for the coming year.
The base salary for 2016 was set as follows: base salary as
of 1 January 2015: DKK 5,100,000. Base salary as of 1
January 2016: DKK 5,610,000.
The base salary will be discussed and agreed with the
Chairman of the Board of Directors once a year in May. The
first discussion shall take place in May 2017, and unless
otherwise agreed any adjustment of the salary will take
effect on 1 January 2017.
Company car
The Company can place a car costing no more than DKK 1m
at the CEO’s disposal and pay the running and maintenance
expenses associated with the car (DKK 23,000 per month).
Allowances and benefits
Other benefits provided directly include two newspapers
(DKK 5,500 per annum), mobile phone which may be used
for both business and private purposes, a PC at the CEO’s
disposal at his home address which may be used for both
business and private purposes including ADSL and call
charges (DKK 2,700 per annum).
For 2017, changes in allowances and benefits are not
expected.
Performance bonus 2016
The Board of Directors has provided the CEO with a cash
bonus opportunity for the financial year 2016 in the
following ranges and based upon the following parameters:
• The fulfillment of specific performance metrics related to
TCE earnings, LTAF, employee retention and cost-effi-
ciency (up to 50% of the CEO’s base salary)
• The weighted average Price to Net Asset Value ratio of
the Company’s shares, based on the closing share price
on each trading day during the financial year 2016 (up to
50% of the CEO’s base salary)
• Up to 20% of the CEO’s base salary, based on the
discretion of the Board of Directors on the basis of,
among others, progress on strategic projects, stakeholder
orientation.
In aggregate, the maximum achievable cash bonus for the
financial year 2016 for the CEO is equal to 120% of the
CEO’s base salary in the financial year 2016. The specific
metrics and calculation methodology for each of the above
parameters have been determined by the Board of
Directors. At the time of writing, this figure had yet to be
TORM 2016 Governance
59
Post service salary
If the CEO dies during the employment, the Company shall
pay to the widow or any of his children below the age of 18
the fixed salary including non-salary benefits for the
current month and post-service salary for three months
equal to the fixed salary. Notwithstanding the foregoing,
such post-service salary will only be paid until the date of
which the employment would have terminated as a result
of termination of the Service Agreement.
Remuneration table non-Executive Directors
(showing single total figure of pay for the year)
USD ‘000
Board of Directors
Cheam Directors Limited 1)
Christopher H. Boehringer
Kari Millum Gardarnar 2, 3)
Rasmus Johannes Hoffmann 2, 3)
Flemming Ipsen 2)
Olivier Dubois 2)
Alexander Green 2)
Jon Syvertsen 2)
David Weinstein
Torben Janholt
Göran Trapp
Jeffery Stein 2, 3)
2016
20154)
-
237
-
-
-
-
-
-
131
131
158
-
658
3
88
31
29
38
17
19
19
48
48
58
7
405
1)
2)
3)
4)
Former member of the Board of Directors of Njord. Left the Board
of Directors due to the reverse acquisition on 13 July 2015.
Former member of the Board of Directors of Former TORM A/S.
Resigned on 25 August 2015.
Took up position as Board Observer of TORM plc.
The 2015 figures represent amounts earned subsequent to the
Restructuring on 13 July 2015.
Annual bonuses and LTIPs
The Company’s Remuneration Policy stipulates that the
non-Executive Directors’ remuneration cannot include
participation in share or warrant programs. The non-Execu-
tive Directors of TORM plc do not receive any part of their
compensation from the Company in shares or warrants.
The remuneration for the non-Executive Directors is
determined by the Board of Directors subject to limits in
the Company’s Articles of Association. During 2016, none
of the non-Executive Directors received any part of their
compensation in shares or warrants.
Total pension entitlements
The Directors of TORM plc do not receive any pension from
the Company. In addition, Denmark-based Executive
Director, Jacob Meldgaard, in his role as CEO of TORM A/S,
does not receive any pension.
Payments for loss of office
No payments for loss of office have been made in 2016.
set by the Remuneration Committee or agreed with the
Chairman of Remuneration Committee. This will be
discussed at the next Remuneration Committee meeting in
2017.
Performance bonus 2017
The Board of Directors has provided the CEO with a
performance bonus opportunity for the financial year 2017
in the following ranges and based upon the following
parameters:
• The fulfillment of specific performance metrics related to
TCE earnings, LTAF, employee retention and cost-effi-
ciency (up to 50% of the CEO’s base salary)
• TORM P/NAV vs. peers, based on weighted average Price
to Net Asset Value ratio 2017 (up to 50% of the CEO’s
base salary)
• Up to 20% of the CEO’s base salary, based on the
discretion of the Company’s Board of Directors on the
basis of, among others, progress on strategic projects,
stakeholder orientation.
In aggregate, the maximum achievable cash bonus for the
financial year 2017 for the CEO is equal to 120% of the
CEO’s base salary in the financial year 2017. The specific
metrics and calculation methodology have been deter-
mined by the Board of Directors.
EBITDA cash bonus program 2015
Subject to TORM reaching a full-year 2015 EBITDA above
USD 77m, the CEO received a cash EBITDA bonus
equivalent to 12 months’ base salary pro-rated for the
period of 1 January to 13 July 2015 (the date of restructur-
ing) of DKK 2,755,508 or USD 389,815.
Long-Term Incentive Plan – RSUs granted in 2016
TORM has in accordance with its Remuneration Policy
granted the CEO a number of Restricted Share Units
(“RSU”) which was communicated in company announce-
ment no. 2 dated 18 January 2016. There are no perfor-
mance conditions associated with this grant of RSUs.
The RSUs granted to the CEO will vest over a five-year
period, with one fifth of the grant amount vesting at each
anniversary during the five-year period. The total value of
the RSU allocation is calculated based on the Black-Scholes
model and is included in the overall cost estimate for the
Company’s Long-Term Incentive Program (cf. company
announcements dated 18 January and 8 March 2016).
The total number of securities granted was 1,276,725
(assuming 100% vesting).
The value of the grant, USD 3.4m, is based on the Black-
Scholes model with an exercise price of DKK/share 96.3, a
market value of one TORM A share of DKK 84.05 (the closing
price on 15 January 2016 and assuming 100% vesting).
Subsequently, the exercise price was adjusted to DKK/share
93.6 due to the dividend payment in September 2016.
End of service gratuity
The Company may terminate the CEO’s Service Agreement
with 12 months’ notice to expire on the last day of a month.
The CEO may terminate the Service Agreement with six
months’ written notice to expire on the last day of a month.
TORM 2016
60
Governance
2016 REMUNERATION TABLE NON-EXECUTIVE DIRECTORS
USD ‘000
Director
Christopher H.
Boehringer 1)
David Weinstein 1)
Göran Trapp
Torben Janholt 1)
Possible to earn 1)
Total earned
Paid by TORM A/S 3)
Paid by TORM plc 2)
Board
Committee
Board
Committee
Board
Committee
Board
Committee
158
105
53
53
105
53
105
105
158
105
53
53
79
26
105
79
47
32
16
16
24
8
32
24
111
74
37
37
55
18
74
55
1)
2)
3)
Mr. Boehringer, Mr. Weinstein and Mr. Janholt are members of the Nomina tion Committee. There were no Nomination Committee meetings held in
2016, explaining the variance between possibility to earn figures and earned figure.
From 20 April 2016, TORM plc remunerated members of the Board of Directors.
Board fees earned prior to 20 April 2016 relate directly to TORM A/S directorships.
Taxable benefits
As members of the Board of TORM plc, the Directors do not receive any additional benefits.
STATEMENT OF DIRECTORS’ SHAREHOLDING AND
SHARE INTEREST
The table below shows the total number of Directors’
interests in shares.
Director
Christopher H. Boehringer
David Weinstein
Göran Trapp
Torben Janholt
Jacob Meldgaard
31 December
2016
31 December
2015
7,566
0
12,820
26
66
0
0
0
0
0
No changes took place in the interests of the Directors
between 31 December 2016 and 9 March 2017.
The table below shows, in relation to each Director, the
total number of share interests with and without perform-
ance conditions, the total number of Restricted Share Units
with and without performance measures, those vested but
unexercised and those exercised. It should be noted that
Denmark-based Executive Director, Jacob Meldgaard, in his
role as CEO of TORM A/S, received Restricted Share Units
which are listed in the below table.
Director
Christopher H. Boehringer
David Weinstein
Göran Trapp
Torben Janholt
Jacob Meldgaard
Shares held
Unvested RSUs
RSU grant value
assuming 100% vesting
Without performance
measures
Without performance
measures
Without performance
measures
7,566
0
12,820
26
66
0
0
0
0
0
0
0
0
1,276,725
USD 3.4m
Under article 3 of the Remuneration Policy, non-Executive Directors are not offered participation in any incentive schemes. However, the Executive
Director participates in an incentive scheme of TORM plc's subsidiary, TORM A/S, in his role as CEO of that company.
TORM 2016 Governance
61
-The information provided in this part of the Annual Report on Remuneration is not subject to audit.
PERFORMANCE GRAPH AND CEO REMUNERATION TABLE (USD ‘000)
Jacob Meldgaard
Salary and Directors
fees
2016
TORM A/S
873
All Taxable
benefits
42
Annual
Bonus
- 1)
Total for
2016
915
Maximum bonus
Opportunity attainable
The maximum
attainable is 120%
of base salary.
1) At the time of writing this figure had yet to be set by the Remuneration committee or agreed by the Chairman. This will be discussed at the next
remuneration committee meeting in 2017.
2016
Jacob
Meldgaard
RSU LTIP
grant
Exercise price
per Share
RSU assuming
100% vesting
1,276,725
DKK 96.3
USD 3.4m
Comment
LTIP award is fixed by the Chairman and was
communicated via Company announcement
no. 2 of 18 January 2016, therefore there is
no minimum or maximum for 2016.
Exercise price originally 96.3.
Subsequently adjusted to 93.6
due to dividend payment in
September2016
The following graph shows the Company’s perform-
ance, measured by total shareholder return, compared
with the performance of the Danish stock index KAX.
The KAX index is a market cap weighted index of all
stocks listed on Nasdaq Copenhagen.
TORM PLC VERSUS THE KAX INDEX
Source: Bloomberg
USD/day
1 1 0
100
90
80
70
60
50
40
April 2016
May
June
July
Aug
Sep
Oct
Nov
Dec 2016
TORM plc
KAX index
CHANGE IN CHIEF EXECUTIVE’S REMUNERATION COMPARED TO GROUP EMPLOYEES WORLDWIDE
2015 – 2016 %
Chief Executive
% Change4)
Employees entire group
Average % change
Salary1)
10.0%
2.5%
Benefits2)
Bonus3)
1.4%
0.0%
-1.0%
1)
2)
3)
The 2015 comparative figures used to determine the % change take into consideration the CEO’s salary and benefits for the full 12 months of 2015,
both prior to and subsequent to the Restructuring in July 2015.
Other benefits provided directly in 2016 includes, two newspapers (DKK 5,500 per annum).
At the time of writing this figure had yet to be set by the Remuneration committee or agreed by the Chairman. This will be discussed at the next
remuneration committee meeting in 2017.
4)
Measured in local currency (DKK).
TORM 2016 62
Governance
Relative importance of spend on pay
The graph below shows the actual expenditure of the Group
for employee pay and distributions to shareholders
compared to the retained earnings of the Group.
The actual amounts are shown in the table on the right.
ACTUAL EXPENDITURE OF THE GROUP
Dividends paid
USDm
1,200
1,000
800
600
400
200
0
Total employee pay
Retained earnings
Dividends and
share buyback
2016
2015
For comparison, the 2015 figures have been included. These are effected
by the restructuring at 13/7/2015. Please refer to description on page 7.
IMPLEMENTATION OF NON-EXECUTIVE DIRECTOR
REMUNERATION FOR 2017
The remuneration of the non-Executive Directors for 2017 is
subject to approval by ordinary resolution at the Annual
General Meeting of the Company to be held on 04 April
2017.
Purchase outstanding shares in TORM A/S
Purchase/disposals of treasury shares
Total 2016
USD 25.0m
USD 19.2m
USD 2.8m
USD 47.1m
Staff costs
2016
2015
USD 46.7m
USD 23.9m
Retained Earnings
USD 783m
USD 974m
2016
2015
TORM 2016
Governance
63
REMUNERATION POLICY
1. Introduction
The following pages set out the Remuneration Policy for
Directors of TORM plc which, if approved by the sharehold-
ers at the General Meeting on 4 April 2017, will take effect
from the date of that meeting. Notwithstanding the
foregoing, as at the date of this Annual Report, TORM plc is
in compliance with the requirements of this Directors’
Remuneration Policy.
The Board of Directors (the “Board of Directors”) of TORM
plc (“TORM” or the “Company”) has adopted this remuner-
ation policy (the “Remuneration Policy”), including overall
guidelines on incentive pay, in line with the previous
Remuneration Policy adopted by TORM A/S prior to the
Exchange Offer for TORM A/S by the Company, which was
completed on 15 April 2016.
This Remuneration Policy provides the framework for
remuneration paid to non-Executive members of the Board
of Directors and certain specified members of the Com-
pany’s Executive Management (the “Executive Manage-
ment”; the Board of Directors and the Executive Manage-
ment jointly referred to as the “Management”).
In accordance with the requirements of the UK Companies
Act 2006 and as part of its Annual Report for the year
ended 31 December 2016, the Company will be required to
prepare a Remuneration Report for that financial year (the
“Remuneration Report”).
As part of the Remuneration Report, the Company is
required to have a remuneration policy for the Company
which complies with the contents requirements of the UK
Companies Act. The Remuneration Policy will be proposed
for approval at the Annual General Meeting of the Com-
pany to be held in 2017 and will continue to be subject to a
binding shareholder vote at least once every three years
thereafter.
2. Background and general objectives
The growth and future success of the Company depend on
the efforts of the members of Management. Therefore, it is
the overall objective of this Remuneration Policy to attract,
motivate and retain qualified Management members.
Remuneration of members of Management, including the
size and composition of the Board of Directors, shall be
determined with a view to promote value-creation within
the Company, to implement its short-term as well as
long-term strategic goals and to create common interests
between members of Management and TORM shareholders.
2.1 Consideration of employment conditions elsewhere in
the Company
The Company does not specifically consult with employees
in relation to this policy, and no direct comparison metrics
are applied between employees and the remuneration
levels for Executive Director(s). However, this Remuneration
Policy seeks to ensure that the combined remuneration to
members of Management for work performed in and for
the Company is market comparable not only in comparison
to other industry groups, but also in comparison with peer
companies within the global shipping industry. When
considering salary increases for the Executive Director(s),
the Company will seek to ensure comparison against other
companies within the same market capitalization range.
2.2 Statement of consideration of shareholder views
The Chairman of the Annual General Meeting of the
Company will inform the shareholders of any proposal by
the Board of Directors in relation to level of Management
remuneration. The Committee is strongly committed to an
open and transparent dialogue with shareholders on
remuneration matters, and the Chairman will invite com-
ments from the shareholders before any level is agreed
upon.
3. Remuneration of the Board of Directors
Members of the Board of Directors receive a fixed annual
fee in line with the amounts set out in Table 1 below. The
level of the fixed annual fee is proposed by the Board of
Directors at the Annual General Meeting, after comparison
against other companies within the same market capital-
ization range.
Members of the Board of Directors are not offered any
participation in any incentive schemes. However, the Execu-
tive Director participates in an incentive scheme of TORM
plc’s subsidiary, TORM A/S, in his role as CEO of that
company. The Chairman and the Deputy Chairman of the
Board of Directors as well as the Chairman and members of
the committees established by the Board of Directors may
receive additional fees in line with the amounts set out in
Table 1 below.
If a member of the Board of Directors is instructed to take
on a specific ad hoc task that falls outside the scope of
that member’s ordinary duties, such member may be
offered an additional fee for the work carried out related to
such task subject to the approval by the Board of Directors.
The Company will be required, under the UK Companies
Act 2006, to prepare a Remuneration Report for each
financial year, which will be provided to the shareholders as
part of the Company’s Annual Report, and which will set
out details of all payments made to the Board of Directors
in the preceding financial year.
The Remuneration Policy will be subject to a binding
shareholder vote at least once every three years.
TORM may reimburse relevant reasonable expenses, such
as travel and accommodation, in connection with attend-
ance at meetings of the Board of Directors (or duly
appointed committees of the Board of Directors).
The remuneration principles applicable to members of the
Board of Directors also apply to any Board Observer
appointed in accordance with articles 74 or 76 of the
Company's Articles of Association.
Any fees payable to the members of the Board of Directors
and any Board Observer may be paid in cash or as a
share-based payment.
TORM 2016 64
Governance
TABLE 1 – BOARD FEES
Board members and Observers
Chairman
Deputy Chairman
Minority Board Observer
Executive Director
Director
Board Observer
Additional duties
Chairman of the Audit Committee
Other Audit Committee members
Chairman of the Risk Committee
Other Risk Committee members
Directors' fee
per annum
EUR 150,000
EUR 100,000
EUR 70,000
EUR 70,000
EUR 50,000
EUR 50,000
Additional fees
per annum
EUR 50,000
EUR 25,000
EUR 50,000
EUR 25,000
3.1 Approach to recruitment remuneration of Executive
Director
When considering the appropriate remuneration for a new
Executive Director, the Remuneration Committee will
consider the level of the fixed annual fee proposed by the
Board of Directors and agreed at the Annual General
Meeting as detailed in Table 2 below. The aim is to provide
a remuneration package which is sufficient to attract, retain
and motivate key talent, while at all times ensuring we pay
no more than is necessary with due regard to the best
interests of the Company and our shareholders. The
Remuneration Committee will provide full details of the
recruitment package for any new Executive Director in the
next Annual Report on remuneration and will provide
shareholders with the rationale for any decisions taken.
Chairman of the Nomination Committee*)
EUR 25,000
Other Nomination Committee members*)
EUR 25,000
Chairman of the Remuneration Committee
EUR 25,000
Other Remuneration Committee members
EUR 25,000
*) Only payable in a year where actual meetings are held.
TABLE 2 – EXECUTIVE BOARD MEMBERS
Elements and purpose
Operation and performance measures
Director's fees – provide base
level remuneration.
The level of the fixed annual fee is proposed by the Board of Directors at the
Annual General Meeting, after comparison against other companies within the
same market capitalization range. There are no performance measures associated
with the Director's fees.
CEO base salary provides
base level remuneration at
a competitive market rate.
The salary will be discussed and agreed with the Chairman of the Board of
Directors once a year in May. There are no performance measures associated
with the base salary.
CEO taxable benefits - provide
base level remuneration at a
competitive market rate.
Company car: The Company can place a car costing no more than DKK 1m at the
CEO’s disposal and pay the running and maintenance expenses associated with the
car (DKK 23,000 per month). There are no performance measures associated with
this benefit.
Allowances and benefits: Other benefits provided directly include two newspapers
(DKK 5,500 per annum), mobile phone which may be used for both business and
private purposes, a PC at the CEO’s disposal at his home address which may be
used for both business and private purposes including ADSL and call charges (DKK
2,700 per annum). There are no performance measures associated with this benefit.
CEO bonus – provides a variable
level of remuneration based on
short-term performance against
the annual plan.
The Board of Directors will provide the CEO with a performance bonus for each
financial year in the following range and based upon the following parameters:
• The fulfillment of specific performance metrics related to TCE earnings, LTAF,
employee retention and cost-efficiency (up to 50% of the CEO’s base salary)
• TORM P/NAV vs. peers, based on weighted average price to net asset value ratio
(up to 50% of the CEO’s base salary)
• Up to 20% of the CEO’s base salary, based on the discretion of the Board of
Directors on the basis of, among others, progress on strategic projects, stakeholder
orientation.
In aggregate, the maximum achievable cash bonus for any financial year for the
CEO is equal to 120% of the CEO’s base salary in that financial year.
Incentives under the LTIP may be granted in any one or a combination of the
following forms:
• Share options
• Restricted share units
• Other share-based awards
CEO LTIP – provides the largest
potential remuneration to long-
term performance. Each type
of award is discussed in greater
detail in the sub-paragraph 4.2
“Types of Incentives” including all
relevant performance measures.
TORM 2016 Governance
65
3.2 Service contracts
In accordance with the Companies Act 2006, Chapter 5,
Section 228 (1) b, the Company has chosen to issue a
written memorandum setting out the terms of the
non-Executive and Executive Directors’ contracts. The
memorandum is available for viewing at the Company's
registered office upon demand. Under the Company’s
Articles of Association, each Director must retire at the end
of the second Annual General Meeting after his appoint-
ment or last reappointment, unless he has been reappoint-
ed at that Annual General Meeting.
3.3 Payments for loss of office
Non-Executive Directors: The Company does not consider
making payments for loss of office of non-Executive
Directors.
Executive Directors: A termination notice cannot exceed 24
months. Termination by the Executive Director shall be sub-
ject to a minimum of six months’ prior written notice. Any
severance pay cannot exceed an amount corresponding to
the remuneration paid for the preceding two years. The
Remuneration Committee will maintain a discretionary
approach to the treatment of leavers, on the basis that the
facts and circumstances of each case are unique. In an exit
situation, the Remuneration Committee will consider: The
individual circumstances, any mitigating factors that might
be relevant, the appropriate statutory and contractual
position and the requirements of the business for speed of
change.
The Company may terminate the CEO’s Service Agreement
with at least 12 months’ notice to expire on the last day of
a month. The CEO may terminate his Service Agreement
with six months’ written notice to expire on the last day
of a month.
4. Remuneration of the Executive Director
4.1 Composition
TABLE 3 - EXECUTIVE DIRECTOR REMUNERATION
Executive Board members
Operation and performance measures
Director's fees
The level of the fixed annual fee of EUR 70,000 is proposed by the Board of Direct ors at the
Annual General Meeting, after comparison against other companies within the same market
capitalization range. The figure of EUR 35,000 paid in compensation in 2016 relates to the
period from 20 April 2016 to 31 December 2016.
CEO base salary – provides
base level remuneration at
a competitive market rate.
CEO taxable bene-
fits – provide base level
remuneration at a
competitive market rate.
The base salary will be discussed and agreed with the Chairman of the Board of Directors once
a year in May.
Company car: The Company can place a car costing no more than DKK 1m at the CEO’s dis-
posal and pay the running and maintenance expenses associated with the car (DKK 23,000 per
month). The CEO has chosen to receive the benefit of DKK 23,000 per month as salary instead.
Allowances and benefits: Other benefits provided directly include two newspapers (DKK 5,500
per annum), mobile phone which may be used for both business and private purposes, a PC at
the CEO’s disposal at his home address which may be used for both business and private pur-
poses including ADSL and call charges (DKK 2,700 per annum).
CEO bonus – provides
a variable level of
remuneration based on
short-term performance.
EBITDA cash bonus program, 2015. Subject to TORM plc reaching a full-year 2015 EBITDA
above USD 77m, the CEO received a cash EBITDA bonus equiva lent to 12 months’ base sal-
ary pro-rated to the period of 1 January to 13 July 2015 (the date of restructuring) of DKK
2,755,508.
Transaction success bonus: DKK 2,500,000. Payment of bonus related to securing a long-term
solution to the capital structure of the TORM Group.
Annual bonus 2015 paid in 2016: A performance bonus of 20% of the basic maximum yearly
salary for the objective-based contributions in 2015. Further,
in relation to achievements relating to the TORM Leadership Philosophy, an additional 20% was
awarded. Total award: DKK 2,072,300. The performance bonus for 2016 has not yet been set by
the Remuneration Committee.
This will be discussed at the next Remuneration Committee meeting in 2017.
CEO LTIP – provides
the largest potential
remuner ation to long-term
perform ance. Each type of
award is discussed in greater
detail in the sub-paragraph
“Types of Incentives” below.
The Restricted Share Units (RSUs) granted to the CEO will vest over a five-year period, with
one fifth of the grant amount vesting at each anniversary during the five-year period. The the-
oretical market value of the RSU allocation is calculated based on the Black-Scholes model and
is included in the overall cost estimate for the Company’s Long-Term Incentive Program (cf.
company announcements of 18 January and 8 March 2016).
The number of securities is 1,276,725 (assuming 100% vesting).
The market value of the grant was DKK 3.4m (based on the Black-Scholes model with an exer-
cise price of DKK/share 96.3 and assuming 100% vesting). Subsequently, the exercise price was
adjusted to DKK/share 93.6 due to the dividend payment made in September 2016.
TORM 2016 66
Governance
TABLE 4 - EXECUTIVE DIRECTOR REMUNERATION
ILLUSTRATION OF APPLICATION OF THE EXECUTIVE DIRECTOR REMUNERATION POLICY
USD ‘000s
55
55
Maximum
On Target
834
42
1,001
3%
43%
2%
52%
Maximum
834
42
417
4%
62%
3%
31%
55
834
42
0
Fixed
On Target
6%
Fixed
90%
4% 0%
0
500
1,000
1,500
2,000
0%
20%
40%
60%
80%
100%
120%
Director’s Fees 1)
Taxable Benefits 3)
Director’s Fees 1)
Taxable Benefits 3)
Base Salary 2)
Performance Bonus 4)
Base Salary 2)
Performance Bonus 4)
1) Director's Fee - the figure of EUR 50,000.
2) Base salary – is a fixed figure. Therefore, there is no minimum or maximum.
3) Taxable benefits – is a fixed figure. Therefore, there is no minimum or maximum.
4) Performance bonus
a. Minimum attainable value was zero.
b.
On target - The fulfillment of specific performance metrics by the Company (up to 50% of the CEO’s base salary).
For this example, no other parts of the performance bonus calculation have been taken into account.
c. The maximum attainable was 120% of base salary.
The Executive Director receives a fixed annual base
salary based on assessment of the overall objectives of
this Remuneration Policy, market practice, scope and
nature of the work performed, qualifications required
and perform ance.
When the Executive Director is also the CEO of the
Company’s subsidiary TORM A/S, his/her remuneration
will include compensation from TORM A/S, subject to
the framework of this Remuneration Policy.
The Executive Director’s terms of employment with the
TORM Group including salary, pension and resignation are
determined by the Board of Directors. A termination notice
cannot exceed 24 months. Resignation by the Executive
Director shall be subject to a minimum of six months’ prior
written notice. Any severance pay cannot exceed an
amount corresponding to the remuneration paid for the
preceding two years.
In addition, the Executive Director may be offered to
participate in Management Incentive Plan(s) (a “Plan” or
“Plans”) or be offered extraordinary bonuses as well as
ordinary benefits, inter alia company car, telephone,
Internet access and newspapers.
4.2 TORM’s Management Incentive Plans
The Plans are established by the Board of Directors who
will determine the terms and conditions of each Plan
subject to the framework of this Remuneration Policy.
When determining the composition of a Plan, including the
elements of incentive pay as well as the ratio between fixed
salary and incentive pay under the Plan, due consideration
must be given to the overall objectives of this Remuner-
ation Policy to avoid undesirable incentives. The Plan
should combine an effective means of attracting and
retaining qualified candidates with a long-term focus on
maximizing shareholder value.
Purpose of the Plans
A Plan may comprise a Short-Term Incentive Plan (“STIP”)
and/or a Long-Term Incentive Plan (“LTIP”), both as
described below.
TORM believes that providing the members of Executive
Management with a proprietary interest in the growth and
performance of TORM stimulates individual performance
and enhances shareholder value. TORM also believes that a
significant portion of a named executive’s compensation
should be directly linked to TORM’s performance.
TORM 2016
Governance
67
This Remuneration Policy has several provisions designed
to protect shareholder interests and promote effective
corporate governance in respect of the Plans, including
the following:
• Limitations on grants to Executive Management and
individual participants in a given calendar year
• Awards under the Plans are administered by the
Remuneration Committee, an independent committee of
the Board of Directors
Estimated present value. The estimated present value of
the Plans will be disclosed in TORM’s Annual Report.
Terms of the Plans
Administration. The Board of Directors will, based on
recommendations from the Remuneration Committee,
generally administer a Plan and has the authority to grant
incentives under any Plan and to set the terms of the
awards, amend any outstanding incentives or accelerate
the time at which any outstanding incentives may vest,
correct any defect in the Plans or any incentive as it deems
necessary and establish rules or regulations relating to
administration of the Plans. See further paragraph 4.4
below, “Adjustments”. All provisions of the Plans and any
actions taken thereunder will be subject to applicable law.
STIP. The STIP primarily supports fulfillment of short-term
objectives and goals. The Board of Directors may, based on
recommendations from the Remuneration Committee,
decide to declare annual cash bonuses to members of
Executive Management in order to meet the overall
objectives of this Remuneration Policy. Such bonuses may
be subject to the attainment of certain performance or
other targets.
LTIP. Incentives under the LTIP may be granted in any one
or a combination of the following forms:
• Share options
• Restricted share units
• Other share-based awards
Each type of award is discussed in greater detail in the
sub-paragraph “Types of incentives” below.
The LTIP primarily supports fulfillment of long-term
objectives and goals.
Maximum threshold. The maximum threshold for the
share-based LTIP grants applicable to Executive Manage-
ment as a group is expected to be approximately 7% of the
Company’s share capital from time to time.
Principal conditions for granting incentive pay. The
attainment of performance targets based on TORM’s
strategic and operational initiatives, including inter alia total
shareholder return and cash flow metrics, may be used to
determine allocations under the Plans, in addition to
discretionary allocations.
Minimum vesting requirements. Incentives granted under
the LTIP are generally subject to minimum vesting
requirements of three years and must generally have a
vesting period of five years for members of Executive
Management (with incremental vesting permitted over the
vesting period).
Eligibility. Members of Executive Management will be
eligible to receive incentives under a Plan when designated
as participants.
Types of incentives. Each type of award that may be
granted under the LTIP is described below.
Requirements. The Board of Directors has discretion to
determine the times at which such incentives are to be
made, the size of such incentives, the form of payment and
all other conditions of such incentives, including any
restrictions, deferral periods or performance requirements.
Amendments or discontinuation. The General Meeting must
approve any amendments to, or discontinuation of, this
Remuneration Policy, which provides the framework for the
Plans. No amendment to, or discontinuation of, this
Remuneration Policy may materially impair any previously
granted award under the Plans without the consent of the
recipient.
Term. No incentives may be granted under a Plan more
than ten years after the date on which this Remuneration
Policy was initially approved by the General Meeting.
Incentive agreements. Grants of incentives will be subject
to the terms and conditions of the Plans and may also be
subject to individual restrictions imposed by the Board of
Directors and detailed in an incentive agreement between
TORM and the relevant participant.
• Share Options. A share option is a right to subscribe for
A shares in TORM. The Board of Directors will determine
the number and exercise price of the options and when
the options become exercisable. The term of an option
may not exceed ten years. The Board of Directors may
not decrease the exercise price for any outstanding
options after the date of grant other than as provided for
in the Plans or in accordance with the adjustment
principles set out in the "Adjustments" paragraph. In
addition, an outstanding option may not, as of any date
that the option has a per share exercise price that is
greater than the then current fair market value of a share,
be surrendered to TORM as consideration for the grant
of a new option with a lower exercise price, another
award, a cash payment or A shares, unless provided for
in the Plans or in accordance with the adjustment
principles set out in the "Adjustments" paragraph.
The option exercise price may be paid in cash, by check,
in A shares, through a “cashless” exercise arrangement,
through a net exercise procedure (if approved by the
Board of Directors) or in any other manner authorized by
the Board of Directors.
TORM intends to make A shares available upon exercise
of any share options by way of a fresh issuance of A
shares out of capital and currently has allotment
authorities in place in order to allow any such share
issuances to be made by the Company.
TORM 2016
68
Governance
• Restricted share units. A restricted share unit, or RSU,
represents the right to receive from TORM one share on
a respective vesting or settlement date. Subject to the
restrictions provided in the applicable incentive agree-
ment and the LTIP, a participant receiving RSUs has no
rights as a shareholder as to such units, until the RSUs
vest and A shares are issued to the participant. RSUs
may be granted with dividend equivalent rights; however,
unless determined by the Board of Directors to be paid
currently, TORM shall establish a bookkeeping account
for the participant and reflect in that account any
securities, cash or other property comprising any
dividend or property distribution with respect to each
share underlying each RSU.
• Other share-based awards. The LTIP also permits the
Board of Directors to grant to eligible participants
awards of A shares and other awards that are denom-
inated or payable in, valued in whole or in part by
reference to, or are otherwise based on or related to, A
shares, or the appreciation in value of, A shares.
Termination of employment or service. Each incentive
agreement may, subject to applicable law, include provi-
sions requiring the forfeiture of outstanding incentives in
the event of the participant’s termination of employment, if
such participant is considered a bad Ieaver (as defined by
the Board of Directors in the individual agreement) or, in
the case of performance-based grants, if applicable goals
or targets are not met.
Claw back provisions. RSUs issued under the LTIP are
subject to claw back in the event of material misstatement
of the Company's financial results, gross misconduct, or
material error in the calculation of performance conditions.
Change of control. If determined by the Board of Directors
and if so provided in the incentive agreement, a change of
control of TORM (as defined by the Board of Directors in
the individual agreement) may require that:
• All outstanding incentives will become fully vested and
exercisable
• All restrictions or limitations on any outstanding
incentives will lapse
• All performance criteria and other conditions relating to
the payment of incentives will be deemed to have been
achieved or waived by TORM
• All outstanding options are required to be exercised by a
certain date
• The surrender to TORM of some or all outstanding
options in exchange for a share or cash payment for
each option equal in value to the per share change of
control value, calculated as described in the LTIP, over
the exercise price
• Any equitable adjustment be made to outstanding
incentives as deemed necessary to reflect TORM’s corpo-
rate changes
• An option will become an option relating to the number
of A shares or other securities or property (including
cash) to which the participant would have been entitled
in connection with the change of control transaction if
the participant had been a shareholder
See further paragraph below, “Adjustments”.
Transferability of incentives. The Board of Directors may
determine that the incentives granted under the LTIP may
not be transferred except a) by will, b) by the laws of
descent and distribution, c) pursuant to any court order in
connection with separation of domestic property or d) as
to options only, if permitted by the Board of Directors and
so provided in the applicable incentive agreement, to
immediate family members or to a partnership, limited
liability company or trust for which the sole owners,
members or beneficiaries are the participant or immediate
family members.
Awards to be granted
Grants of incentives to members of Executive Management
will be made by the Board of Directors as deemed
necessary or appropriate considering the overall objectives
of this Remuneration Policy.
4.3 Extraordinary bonus
The Board of Directors may in individual cases grant a
one-off bonus or other extraordinary incentive-based pay,
e.g. retention bonus, severance payment, sign-on bonus or
other schemes in connection with the appointment,
provided that it is deemed necessary by the Board of
Directors in order to meet the overall objectives of this
Remuneration Policy. A grant of extraordinary bonus may
consist of cash and/or be share-based and may be subject
to the attainment of certain performance targets.
4.4 Adjustments
For the various types of incentive-based pay, the Board of
Directors may lay down specific terms governing the lapse
of the scheme or repayment of the incentive-based pay.
In exceptional cases or in extraordinary circumstances,
TORM may reclaim in full or in part incentive pay paid to
members of Executive Management (claw back), e.g. in the
event of manifest errors in the accounting figures or other
basis for award or vesting. There is no specific provision on
claw back in the CEO service agreement. Under Danish law,
the principle of "condictio indebiti" may apply to payments
made in error. Also, under the Danish Companies Act, a
CEO may be held liable for damages to his employer, in
cases of negligence or willful misconduct.
Furthermore, the Board of Directors may lay down
provisions on accelerated vesting or exercise and adjust-
ment of the incentive-based pay, exercise price, perform-
ance targets, etc. in the event of changes to the capital
structure or other material events, which would otherwise
adversely influence the value or effect of the incen-
tive-based pay in contravention with the general objectives
of this Remuneration Policy.
TORM 2016 In respect of the share limitations provided in the LTIP,
including the number of A shares subject to the LTIP,
proportionate adjustments may be made by the Board of
Directors in the event of any recapitalization, reclassifica-
tion, share dividend, share split, combination of A shares or
other similar change in the A shares. In addition, the
exercise price of any outstanding options and any perform-
ance goals will be adjusted downwards for dividends and
will also be subject to other adjustments if necessary to
provide participants with the same relative rights before
and after the occurrence of any such event.
Adoption and publication
The Board of Directors shall review this Remuneration
Policy at least once a year. Any changes to this Remuner-
ation Policy shall be adopted by the Board of Directors and
approved by the shareholders at a General Meeting1).
TORM’s Remuneration Report will be included in the
Company’s annual reports for all financial years com-
mencing with the financial year ended 31 December 2016
and will contain information on remuneration paid to the
Board of Directors and Executive Management.
Governance
69
This Remuneration Policy is available on TORM’s website,
www.torm-plc.com.
This Remuneration Policy has been adopted by the Board
of Directors.
This Remuneration Policy has been prepared in both a
Danish and an English version. In the event of a conflict
between them or in case of difficulty of interpretation, the
English version shall prevail.
Statement of voting at General Meeting
As the Company did not become a “quoted company” for
the purposes of the UK Companies Act until after comple-
tion of the Exchange Offer and its subsequent listing on
Nasdaq Copenhagen in April 2016, it was not subject to the
relevant provisions of the UK Companies Act relating to the
preparation of a Remuneration Report and the approval of
its Remuneration Policy for the financial year ended 31
December 2015.
The revised Remuneration Policy will be proposed for
approval at the Annual General Meeting of the Company to
be held in 2017 and will continue to be subject to a binding
shareholder vote at least once every three years thereafter.
Terms of Reference for the Remuneration Committee of
the Company
The Terms of Reference of the Remuneration Committee
can be found on the TORM website at the following link:
http://www.torm.com/uploads/media_items/terms-of-
reference-remuneration-committee.original.pdf.
Approval of TORM plc Remuneration Report for 2016
This report was approved by the Board of Directors on 9
March 2017 and signed on its behalf by:
Christopher H. Boehringer
Chairman of the Remuneration Committee
9 March 2017
1) Once the Revised Remuneration Policy has been adopted by the Company at its 2017 Annual General Meeting, any amendments
to, or exceptions from, the terms of that policy will require approval by the shareholders at a General Meeting.
TORM 2016 70
Governance
INVESTOR INFORMATION
Introduction of a Distribution Policy
Corporate Reorganization completed in 2016
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. TORM maintains regular capital market
contact through analyst and industry presentations,
investor meetings and conference calls. Investor meetings
are primarily held in Copenhagen and in the major
European and US financial centers. In addition to the
Executive Director and the remaining management team,
TORM’s Senior Independent Director, Mr. David Weinstein,
has attended a number of meetings with investors in the
US.
In 2016, TORM issued a total of 34 announcements to the
stock exchange, 12 announcements as TORM A/S and 22
announcements as TORM plc. These announcements are
available in both Danish and English versions on www.torm.
com/investors. Interested stakeholders can sign up for
TORM’s investor relations mailing list there.
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.
CHANGES TO THE SHARE CAPITAL
TORM A/S’ share capital as of 31 December 2015 consisted
of 63,836,249 A shares of DKK 15.00 each, 1,054 A shares
of DKK 0.01 each, one B share and one C share, both of
DKK 0.01.
On 13 January 2016, TORM A/S completed a share
redemption process by cancelling 9,810 A shares of DKK
15.00 each and the 1,054 A shares of DKK 0.01 each held as
treasury shares by the Company. The shares cancelled were
acquired in connection with the reverse split of A shares on
23 September 2015. Following the share redemption, the
Company’s share capital consisted of 63,826,439 A shares
of DKK 15.00 each, one B share and one C share of DKK
0.01 each.
In connection with the Corporate Reorganization (cf. page
26), 97.6% of TORM A/S’ shareholders exchanged their
shareholdings to TORM plc. This corresponded to
62,298,846 TORM A/S A shares of DKK 15.00 each being
converted one-for-one to 62,298,846 TORM plc A shares of
USD 0.01 each. The TORM A/S B share and C share of DKK
0.01 each were also converted into one TORM plc B share
and one TORM plc C share of USD 0.01 each. The remaining
1,523,139 TORM A/S A shares were purchased by TORM plc.
Upon completion of the Corporate Reorganization, TORM
plc’s share capital consisted of 62,298,846 A shares of USD
0.01 each, one B share of USD 0.01, one C share of USD
0.01 and 50,000 redeemable shares of GBP 1.00 each.
In September 2016, the Board of Directors approved to
redeem the 50,000 redeemable shares of GBP 1.00 each.
Following the redemption, TORM plc’s share capital
consisted of 62,298,846 A shares of USD 0.01 each, one B
share of USD 0.01 and one C share of USD 0.01.
INTRODUCTION OF DISTRIBUTION POLICY
On 12 May 2016, TORM announced a new distribution policy
in order to allow investors to benefit directly from the
earnings generated in TORM, while at the same time
enabling the Company to selectively invest in the fleet.
During 2016, TORM has returned a total of USD 47m to its
shareholders consisting of USD 25m through the dividend
payment made in September and USD 22m in share
repurchases, of which the USD 20m was related to the
Corpo r ate Reorganization.
Going forward, TORM intends to distribute 25-50% of net
income on a semi-annual basis. The distribution policy will
be reviewed periodically, carefully considering TORM’s
capital structure, strategic developments, future obliga-
tions, market trends and shareholder interests.
The Board of Directors proposes that no dividend be
distributed for the second half of 2016.
TRADING
TORM had 63,837,303 A shares outstanding at the
beginning of 2016. Following the share redemption on 13
January 2016 and the Corporate Reorganization, TORM had
62,298,846 A shares outstanding. The average daily trading
volume on Nasdaq Copenhagen has been approximately
79t shares. During 2016, the share price declined from
approximately DKK 98 to DKK 63.5. Throughout 2016,
TORM has been part of the MidCap segment on Nasdaq
Copenhagen.
SHAREHOLDERS
TORM’s A shares are listed on Nasdaq Copenhagen under
the ticker TRMD A. As of 31 December 2016, TORM had a
share capital of USD 622,988.48 divided into 62,298,846 A
shares with a nominal value of USD 0.01, one B share and one
C share, both with a nominal value of USD 0.01. As of 31
TORM 2016 Governance
71
December 2016, TORM had approximately 8,600 registered
shareholders representing 98% 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 50% of the share
capital, respectively:
• OCM Njord Holdings S.à r.l. (Oaktree) (>50%)
• DW Partners, LP (>5%)
As of 31 December 2016, TORM’s treasury shares com-
prised approximately 0.5% of the total share capital. The C
share is held by Oaktree, and the B share is held by the
Minority Trustee, SFM Trustees Limited, on behalf of
TORM’s non-Oaktree shareholders. The B and the C share
have certain voting rights.
At the end of 2016, the members of the Board of Directors
held a total of 20,478 shares, equivalent to a total market
capitalization of DKK 1,300,353 or USD 184,447. The Board
of Directors and certain employees are limited to trading
shares during a four-week period after the publication of
financial reports. TORM’s Transfer Agent is Computershare
Inc, Dept CH 19228, Palatine, IL 60055-9228, United States
of America.
WARRANTS AND RESTRICTED SHARE UNITS
As of 31 December 2016, 4,787,692 warrants are outstand-
ing with each warrant being convertible into one A share
with a nominal value of USD 0.01 against payment of a
subscription price in cash to TORM of DKK 96.3. The
warrants can be exercised until 13 July 2020. The warrants
are not publicly listed but can be transferred by submitting
a warrant transfer notice to the Company. The warrant
transfer notice is available on http://www.torm.com/
uploads/media_items/warrant-transfer-notice-2016.
original.docx.
In accordance with TORM’s Remuneration Policy, the Board
of Directors has as part of the long-term incentive program
granted certain employees Restricted Share Units (“RSU”)
in the form of restricted stock options. The RSUs aim at
incentivizing the employees to seek to improve the
performance of TORM and thereby the TORM share price
for the mutual benefit of themselves and the shareholders
of TORM. A total of 2,994,009 RSUs have been granted in
2016 and 2017 and, subject to vesting, each RSU entitles
the holder to acquire one TORM A share. The RSUs will vest
over a three-year period from the grant date with an
exercise price for each TORM A share of DKK 93.6.
Of the 2,994,009 RSUs granted, 1,276,725 were granted to
the Executive Director. RSUs granted to the Executive
Director vest over a five-year period with an exercise price
for each TORM A share of DKK 93.6.
The theoretical market value of the RSU allocations in 2016
and 2017 was around the time of issuance calculated at
USD 5.0m and USD 1.0m respectively, based on the
Black-Scholes model.
NET ASSET VALUE (NAV)
TORM’s net asset value (NAV) as of 31 December 2016 is
estimated at USD 733m based on i) broker values of USD
1,446m, ii) outstanding debt of USD 685m, iii) outstanding
newbuilding installments of USD 149m, iv) a cash position
of USD 76m, v) other current assets of USD 105m and vi)
current liabilities of USD 60m. Based on 61,985,975
outstanding A shares, excluding treasury shares, as of 31
December 2016, this corresponds to a NAV/share of USD
11.8 or DKK 83.3.
For further information about investor relations, please visit
www.torm.com/investors.
INVESTOR RELATIONS CONTACT
FINANCIAL CALENDAR 2017
Christian Mens
Vice President
Head of IR, Communication
and Treasury
Phone +45 3917 9231
Email: ir@torm.com
Christian Lintner
Senior Treasury and IR
Manager
Group IR, Communication
and Treasury
Phone: +45 3917 9335
Email: ir@torm.com
04 April 2017
16 May 2017
Annual General Meeting
First quarter 2017 results
16 August 2017
First half 2017 results
15 November 2017
Nine months 2017 results
ANALYST COVERAGE
As of 7 March 2017, the following analysts from Nordic investment banks cover TORM:
Carnegie Investment Bank
Marcus Bellander
Phone: +45 3288 0298
Email:
marcus.bellander@carnegie.dk
Fearnley Securities
Peder Jarlsby
Phone: +47 2293 6471
Email:
pnj@fearnleys.no
Danske Bank
Finn Bjarke Petersen
Phone: +45 4512 8036
Email: finpe@danskebank.dk
Espen L. Fjermestad
Phone: +47 2293 6484
Email:
elf@fearnleys.no
Handelsbanken
Dan Togo Jensen
Phone: +45 4679 1246
Email:
dato01@handelsbanken.dk
Nordea Markets
Jørgen V. Bruaset
Phone: +45 2185 8575
Email:
jorgen.bruaset@nordea.com
Jyske Bank
Frans Høyer
Phone: +45 8989 7033
Email: frans.hoyer@jyskebank.dk
SEB
Lars Heindorff
Phone: +45 3328 3307
Email: lars.heindorff@seb.dk
Ole G. Stenhagen
Phone: +47 2100 8527
Email: ole.g.stenhagen@seb.no
The list of analysts is updated on a regular basis and is available on www.torm.com/investors.
TORM 2016
72
Governance
DIRECTORS’ REPORT
The Directors are pleased to present the Annual Report on
the affairs of the TORM Group, including the financial
statements and auditor’s report, for 2016. Details on the
Directors’ responsibilities are available in the Directors
Responsibility Statement on page 75.
Other disclosure requirements, which form part of the
Directors’ Report, are included in other sections of this
Annual Report. Details on information incorporated by
reference are generally set out under the relevant topics in
the Directors’ Report. For TORM’s going concern statement
and viability statement, please see the Financial Review
section on page 45, and for details on any significant
events after 31 December 2016, please refer to note 2 on
page 92. Details of financial risks are provided in note 20 of
the financial statements.
DIVIDENDS
The Board of Directors proposes that no dividend
be distributed for the second half of 2016. TORM has
distributed a total of USD 47.1m to shareholders in 2016,
covering USD 25m in dividends in September 2016 and
USD 22.1m in share repurchases. For further details on
distributions to shareholders in 2016, please see the Investor
section page 70.
ANNUAL GENERAL MEETING
TORM’s next Annual General Meeting will be held on 4 April
2017. The notice of the Annual General Meeting including
the complete proposals will be available on TORM’s website
www.torm.com prior to the meeting.
DIRECTORS
Information on TORM’s Board of Directors as of 9 March
2017 are available on page 50.
INDEMNIFICATION OF DIRECTORS AND INSURANCE
TORM has not granted any indemnity for the benefit of the
Directors but has a general Directors’ and Officers’ Liability
Insurance and a Public Offering of Securities Insurance
covering the Prospectus and Exchange Offer documenta-
tion related to the Corporate Reorganization.
SHARE CAPITAL
TORM’s share capital as of 9 March 2017 amounts to a total
nominal value of USD 622,988.48 divided into 62,298,846
A shares of USD 0.01 each, one B share of USD 0.01 and
one C share of USD 0.01. A total of 62,298,846 votes are
attached to the A shares. Only the A shares are admitted to
trading and official listing on Nasdaq Copenhagen.
Each A share has one vote on all resolutions proposed at
general meetings of the Company except for the election
or removal of the B Director. Until the Threshold Date (as
defined below), the sole B share has one vote at the
general meeting and special administrative rights, including
the right to appoint the Deputy Chairman of the Board of
Directors. After the Threshold Date, all directors can be
appointed or removed by passing an ordinary resolution.
The B shareholder also has the right to appoint one Board
Observer. Pursuant to the Articles of Association no more
than one B share can be issued by the Company.
The Company may only take certain material actions
relating to supermajority matters and Reserved Matters (as
specified in its Articles of Association) if either (i) the
majority of the Directors (which must include the Chairman
and the B Director) approve the relevant action or (ii) (a) in
case of a supermajority action, if the B Director did not
approve such action or attend the relevant Board meeting,
such action is approved by a shareholder resolution
approved by at least 86% of the votes capable of being
cast on such supermajority action or (ii) (b) in the case of a
Reserved Matter action, if the B Director did not approve
such action or attend the relevant Board meeting, such
action is approved by a shareholder resolution approved by
at least 70% of the votes capable of being cast on such
Reserved Matter action.
Until the Threshold Date (as defined below), the sole TORM
C share has 350,000,000 votes at the general meeting in
respect of certain Specified Matters only, including election
of members to the Board of Directors of TORM (including
the Chairman, but excluding the B Director) and certain
amendments to the Articles of Association. The sole C
shareholder, OCM Njord Holdings S.à r.l. (“Oaktree”), shall
continue to hold the C share so long as it or its affiliates
beneficially own at least one third of the issued shares
(”Threshold Date”). Accordingly, Oaktree may continue to
operate as the Company’s controlling shareholder, even
where it does not own a majority of the A shares. Pursuant
to the Articles of Association, no more than one C share
can be issued by the Company.
Further details and movements in the share capital during
the year are shown in note 13 and described in the Investor
information section on page 70.
A number of the A shares are issued subject to restrictions
on transfer (“Restricted Shares”) imposed by US securities
laws, and these Restricted Shares may only be transferred
pursuant to an effective registration statement filed with
the United States Securities Exchange Commission or an
exemption from the registration requirements of the United
States Securities Act of 1933 as amended. There are no
specific restrictions on the size of a holding of the A shares
nor the transfer of the A shares (except for the Restricted
Shares as detailed above), which are both governed by the
general provisions of the Articles of Association and
prevailing legislation.
The B share can only be transferred to (i) another trustee
(it is currently held by SFM Trustee Limited on behalf of the
minority shareholders), or (ii) the Company if the B share is
redeemed or (iii) any person who has acquired 100% of the
issued A shares. The B share cannot be encumbered.
The C share is held by Oaktree and can only be transferred
(i) to one of Oaktree’s affiliates or (ii) to the Company if the
TORM 2016 Governance
73
C share is redeemed or (iii) any person who has acquired
100% of the issued A shares. The C Share cannot be
encumbered. For further details on the transferability,
please see the Articles of Association on TORM website,
www.torm.com.
The B share and the C share do not have any rights to
receive dividends or other distributions which the Compa-
ny decides to pay.
All the above share authorities expire on 14 March 2021. The
Directors will not be seeking any new authorities at the
2017 AGM.
Details of TORM’s employee share schemes and any rights
attaching to the shares under the employee share schemes
are set out in note 4. Details of the warrants issued by
TORM giving the right to buy A shares are set out in the
Investor information section on page 70.
The Company must redeem the B share and the C share at
the same time as soon as possible after the Threshold Date
for USD 0.01 each. Once redeemed, the B and C share must
be cancelled and no further B shares or C shares can be
issued by the Company.
The U.K. Takeover Code, issued and administered by the
U.K. Takeover Panel, applies to the Company.
POLITICAL DONATIONS
No political donations were made during 2016.
Pursuant to TORM’s Articles of Association and authorities
passed at TORM plc’s Annual General Meeting on 15 March
2016 (2016 AGM), the Directors were granted authority to
allot shares or rights relating to shares for cash free from
pre-emption up to an aggregate nominal amount of USD
5,493,160 comprising:
FINANCIAL INSTRUMENTS
The Company uses financial instruments to manage risks
related to freight rates, bunker fuels, interest rates and
foreign exchange. Further information on the use of
financial instruments please refer to Note 20 on pages
104-106.
• Up to an aggregate nominal amount of USD 686,142 in
connection with the Exchange Offer (of which USD
622,988.48 nominal value was issued (62,298,846 A
shares, one B share and one C share) during the period
ended 31 December 2016. As the Exchange Offer has
been completed, no further shares will be issued under
this authority
• Up to an aggregate nominal amount of USD 1,372,283
and which can be offered in connection with any
proposed initial public offering of equity securities on
certain US stock exchanges (of which zero was issued
during the period ended 31 December 2016, leaving a
current authority to issue up to 137,228,300 A shares)
RESEARCH AND DEVELOPMENT
The Company has a continuous focus on optimization,
but does not allocate specific costs to research and
development.
COMPANY BRANCHES
The TORM Group has offices globally, covering Denmark,
India, the Philippines, Singapore, the UK and the US.
Further details on the Company's global presence is set
out on pages 20-21.
SIGNIFICANT SHAREHOLDINGS
Details on significant shareholdings are set out in the
Investor information section on page 70.
• Up to an aggregate nominal amount of USD 2,596,226 in
general equity issues including warrants, convertible
debt and general equity with the issue being at fair value
as determined by the Board (of which zero nominal value
was used during the period ended 31 December 2016,
leaving a current authority to issue up to 2,596,226 A
shares)
CONTROLLING SHAREHOLDER
TORM’s controlling shareholder, Oaktree, owns TORM plc’s
sole C share, which carries 350,000,000 votes at the
general meeting in respect of Specified Matters, including
election of members to the Board of Directors of TORM plc
(including the Chairman, but excluding the Deputy
Chairman) and certain amendments to the Articles of
Association.
• Up to an aggregate nominal amount of USD 838,509 to
directors, officers or employees of the Company or any
of its subsidiaries (of which USD 19,998 nominal value
was used for the grant of restricted share units during
the period ended 31 December 2016). Since the balance
sheet date of 31 December 2016, a nominal value of USD
8,666 was used for the grant of restricted share units to
directors, officers or employees of the Company or any
of its subsidiaries, leaving a current authority to issue up
to 809,845 A shares
Furthermore, the Directors received authorization at the
2016 AGM to make market purchases up to a maximum of
6,861,413 A shares within a certain pricing range. TORM has
repurchased 312,871 A shares during the period ended 31
December 2016, leaving a current authority to purchase up
to 6,548,542 A shares or approximately 11% of TORM's
share capital excluding treasury shares.
OTHER INFORMATION INCLUDED IN THE STRATEGIC
REPORT
The Strategic Report set out on pages 4 to 45 provides a
review of TORM’s operations in 2016 and the potential
future developments on those operations. Details on
Greenhouse Gas Emissions are included in the Strategic
Report on page 29, and details on TORM’s general policy
relating to recruitment, training, career development and
disabled employees are included on page 31.
REQUIREMENTS TO THE LISTING RULES
TORM plc is listed on Nasdaq Copenhagen, and the only
listing rule requirement regarding the content of the
Annual Report is that TORM’s Annual Report follows the
requirements according to the UK Companies Act,
including provisions for EEA listed coompanies.
TORM 2016
74
Governance
INDEPENDENT AUDITORS
Each person who is a Director at the date of approval of
the Annual Report confirms that:
• As far as the Director is aware, there is no relevant audit
information of which the Company’s independent auditor
is unaware
• The Director has taken all reasonable steps that he/she
ought to have taken as a Director in order to make him/
herself aware of any relevant audit information and to
establish that the Company’s independent auditor is
aware of that information
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies
Act 2006.
On 15 March 2016 Deloitte LLP were reappointed as
auditors for TORM plc. Deloitte LLP has expressed
willingness to continue in office as auditors, and a resolu-
tion to reappoint them will be proposed at the forthcoming
Annual General Meeting on 4 April 2017.
Approved on behalf of the Board of Directors,
Christopher H. Boehringer, Chairman of the Board of
Directors
9 March 2017
TORM 2016
Governance
75
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing the Annual
Report and financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare such
financial statements for each financial year. Under that law,
the Directors are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European
Union (“EU”) and Article 4 of the International Accounting
Standards (“IAS”) Regulation and have also chosen to
prepare the parent company financial statements in
accordance with Financial Reporting Standard 101 Reduced
Disclosure Framework. Under company law, the Directors
must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Com-
pany for that period.
In preparing the parent company financial statements, the
Directors are required to:
• Select suitable accounting policies and then apply them
consistently
• Make judgments and accounting estimates that are
reasonable and prudent
• State whether Financial Reporting Standard 101 Reduced
Disclosure Framework has been followed, subject to any
material departures disclosed and explained in the
financial statements
• Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Company will continue in business
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Company
and the Group and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the Company’s website. Legislation in the UK
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
• The financial statements, prepared in accordance with
the relevant financial reporting framework, give a true
and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole
• The Strategic Report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face
• The Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy
In preparing the Group financial statements, International
Accounting Standard 1 - Presentation of Financial State-
ments - requires that Directors:
This responsibility statement was approved by the Board of
Directors on 9 March 2017 and is signed on its behalf by:
• Properly select and apply accounting policies
• Present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information
• Provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable
users to understand the impact of particular transac-
tions, other events and conditions on the entity’s
financial position and financial performance
• Make an assessment of the Company’s and the Group’s
ability to continue as a going concern
Jacob Meldgaard
Executive Director
9 March 2017
TORM 2016
FINANCIAL STATEMENTS
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes
Parent Company 2016
Independent auditor’s report
Fleet overview
Glossary
78
79
80
82
83
84
1 1 3
120
126
128
78
Consolidated financial statements 2016
CONSOLIDATED INCOME STATEMENT
1 JANUARY -31 DECEMBER
USD '000
Revenue
Port expenses, bunkers and commissions
Time charter equivalent earnings
Charter hire
Operating expenses
Gross profit (Net earnings from shipping activities)
Administrative expenses
Other operating expenses
Share of profit/(loss) from joint ventures
EBITDA
Impairment losses on tangible and intangible assets
Depreciation
Operating profit/(loss) (EBIT)
Financial income
Financial expenses
Profit/(loss) before tax
Tax
Net profit/(loss) for the year
EARNINGS PER SHARE
Earnings per share (USD)
Diluted earnings per share (USD)
Note
2016
2015
680,143
540,404
-221,859
-169,646
458,284
370,758
-21,498
-12,023
-195,249
-122,867
241,537
235,868
4
3
4,5
-41,406
-19,486
-304
176
-6,299
202
200,003
210,285
6,7,8
-185,000
0
6,7
-122,215
-67,327
-107,212
142,958
9
9
2,814
992
-37,333
-16,926
-141,731
127,024
12
-760
-1,041
-142,491
125,983
2016
-2.3
-2.3
2015
2.4
2.4
26
26
TORM 2016 Consolidated financial statements 2016
79
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 from translation of
entities using a functional currency different from USD
Fair value adjustment on hedging instruments
Value adjustment on hedging instruments transferred to income statement
Other comprehensive income after tax *)
2016
2015
-142,491
125,983
-240
160
-2,675
1,665
-1,250
1,067
333
1,560
Total comprehensive income/(loss) for the year
-143,741
127,543
*) No income tax was incurred relating to other comprehensive income/(loss) items.
TORM 2016 80
Consolidated financial statements 2016
CONSOLIDATED BALANCE SHEET
AS 31 DECEMBER
USD '000
ASSETS
NON-CURRENT ASSETS
Intangible assets
Goodwill
Total intangible assets
Tangible fixed assets
Vessels and capitalized dry-docking
Prepayments on vessels
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
TOTAL ASSETS
Note
2016
2015
6,8
0
0
11,400
11,400
7,8,16 1,343,778 1,492,046
7
7
44,036
72,540
1,836
2,499
1,389,650 1,567,085
322
4
326
334
5
339
1,389,976 1,578,824
10
11
31,616
25,557
62,533
83,088
8,134
3,024
5,791
5,923
75,971
168,258
181,278
288,617
1,571,254 1,867,441
TORM 2016
CONSOLIDATED BALANCE SHEET
AS 31 DECEMBER
Consolidated financial statements 2016
81
USD '000
EQUITY AND LIABILITIES
EQUITY
Common shares
Treasury shares
Hedging reserves
Translation reserves
Retained profit
Total equity
LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax liability
Mortgage debt and bank loans
Finance lease liabilities
Total non-current liabilities
CURRENT LIABILITIES
Mortgage debt and bank loans
Finance lease liabilities
Trade payables
Current tax liabilities
Other liabilities
Deferred income
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
Accounting policies, critical estimates and judgements
Liquidity, capital resources and subsequent events
Guarantee commitments and contingent liabilities
Contractual obligations and rights
Derivative financial instruments
Risks associated with TORM's activities
Financial instruments
Related party transactions
Non-current assets sold during the year
Note
2016
2015
13
13
623
-2,887
390
-80
638
-176
1,400
160
782,532
973,954
780,578
975,976
12
44,967
45,105
2,15,16,18
593,912
717,530
18
0
12,937
638,879
775,572
2,15,16,18
18
18
75,652
13,624
28,498
773
48,727
624
22,284
1,763
14,18
33,055
42,055
195
440
151,797
115,893
790,676
891,465
1,571,254
1,867,441
1
2
17
18
19
20
21
22
23
The financial statements of TORM plc, company number 09818726, have been approved by the Board of Directors and
signed on their behalf by:
Jacob Meldgard, Executive Director
9 March 2017
TORM 2016 82
Consolidated financial statements 2016
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
USD ‘000
EQUITY
Balance as of 1 January 2015, as shown in the
financial statements of TORM A/S
Effect as of 1 January 2015 of
the Exchange Offer *)
Equity as of 1 January 2015
Comprehensive income/(loss) for
the year:
Net profit/(loss) for the year
Other comprehensive income/(loss)
for the year
Total comprehensive income/(loss) for the
year
Shareholders' contribution
Reverse acquisition of TORM A/S
Transaction costs share issue
Acquisition treasury shares, cost
Total changes in equity 2015
Common
shares
Treasury
shares
***)
Hedging
reserves
Trans-
lation
reserves
Retained
profit
Total
87,986
-87,590
396
-
-
-
-
-
242
-
-
-
-
-
-
-
-
-
-
-
- 381,528
469,514
-
87,590
-
- 469,118
469,514
-
-
-
- 125,983
125,983
-
1,400
160
-
1,560
-
1,400
160
125,983
127,543
-
-
-
-
-
-
-
-
-
14,040
14,040
367,536
367,778
-2,723
-2,723
-
-176
-
-
-
-176
242
-176
1,400
160
504,836
506,462
Equity as of 31 December 2015
638
-176
1,400
160
973,954 975,976
Equity as of 1 January 2016
638
-176
1,400
160
973,954
975,976
Comprehensive income/(loss) for the year:
Net profit/(loss) for the year
Other comprehensive income/(loss)
for the year ****)
Total comprehensive income/(loss) for the
year
-
-
-
-
-
- -142,491 -142,491
-
-1,010
-240
-
-1,250
-
-1,010
-240 -142,491 -143,741
Corporate Reorganization TORM plc
-
-
Acquisition outstanding shares in
TORM A/S, cost **)
Acquisition treasury shares, cost
Share-based compensation
Dividend paid
Total changes in equity 2016
-15
176
-
-
-
-2,887
-
-
-
-
-
-
-
-
-6,564
-6,564
- -19,396
-19,235
-
-
-
-2,887
2,029
2,029
- -25,000
-25,000
-15
-2,711
-1,010
-240 -191,422 -195,398
Equity as of 31 December 2016
623
-2,887
390
-80
782,532
780,578
*)
In connection with the Exchange Offer of 15 April 2016, common shares and the reserve for treasury shares were adjusted to reflect those of TORM
plc. The adjustment on common shares reflects the fact that the currency of shares changed from DKK to USD and that the nominal value of each
share was reduced from DKK 15 each to USD 0.01 each. Reserve for treasury shares was the holding of own shares in TORM A/S. As the items
related to TORM A/S, the reserves were eliminated to reflect the reserves of TORM plc. Please refer to note 1 for further information.
**)
Relates to the squeeze-out of remaining minority shareholders in TORM A/S.
***)
Please refer to note 13 for further information on treasury shares.
****) Please refer to "Consolidated Statement of Comprehensive Income"
TORM 2016 CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY-31 DECEMBER
Consolidated financial statements 2016
83
USD '000
CASH FLOW FROM OPERATING ACTIVITIES
Operating profit/(loss)
Adjustments:
Reversal of 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 from joint ventures
Interest received and exchange gains
Interest paid and exchange losses
Income taxes paid/repaid
Change in bunkers, receivables and payables etc.
Net cash flow from operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Investment in tangible fixed assets
Cash from business combination
Sale of non-current assets
Net cash flow from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing, mortgage debt
Repayment/redemption, mortgage debt
Dividend paid
Acquisition outstanding shares in TORM A/S
Shareholders' contribution
Transaction costs share issue
Purchase/disposal of treasury shares
Cash flow from financing activities
Note
2016
2015
-107,212
142,958
122,215
185,000
-176
24
-7,114
188
2,735
67,327
0
-202
-874
200
624
24
27
23
-31,385
-12,364
-1,430
8,322
-584
16,870
171,143
213,955
-119,408
-253,964
0
0
77,544
17,640
-119,408
-158,780
49,256
93,100
-146,150
-29,214
-25,000
-19,241
0
0
-2,887
0
0
14,040
-2,723
-176
-144,022
75,027
Net cash flow from operating, investing and financing activities
-92,287
130,202
Cash and cash equivalents as of 1 January
Cash and cash equivalents as of 31 December
Of which restricted cash equivalents as of 31 December
Non restricted cash and cash equivalents as of 31 December
168,258
38,056
75,971
168,258
1,853
13,768
74,118
154,490
TORM 2016 84
NOTE 1
ACCOUNTING POLICIES, CRITICAL ACCOUNTING
ESTIMATES AND JUDGEMENTS
Basis of preparation
TORM plc is a company incorporated in the United King-
dom under the Companies Act. References to the “Com-
pany”, “TORM” and “TORM Group” refer to TORM plc and
its subsidiaries. References to “Former TORM A/S” refer
to the activities of TORM A/S, and “Njord” refers to the
activ ities of OCM (Gibraltar) Njord Midco Ltd. prior to the
business combination in 2015. For more information on the
business combination, please refer to the sections “Busi-
ness combination”, “Reverse acquisition” below and note
27.
Comparative figures for the consolidated financial results
reflect the activities of Njord only for the period from 1
January–13 July 2015, whereas the remaining period of
2015 reflects the combined activity of Former TORM A/S
and Njord. Refer to "Accounting for Corporate Reorgani-
zation" below.
The Annual Report has been prepared in accordance with
the International Financial Reporting Standards as adopted
by the EU.
The financial statements have been prepared under the
going concern basis. For further information relating to the
use of the going concern assumption please refer to the
“Going Concern” section of the Financial Review as set out
on page 45.
The functional currency is USD, and the Company applies
USD as presentation currency in the preparation of the An-
nual Report.
Accounting for Corporate Reorganization
On 15 April 2016, TORM established a new corporate
structure of the TORM Group (the “Corporate Reorga-
nization”). The Corporate Reorganization involved the
insertion of a UK parent company, TORM plc, where the
former shareholders of TORM A/S exchanged their shares
in TORM A/S with shares in TORM plc and a relisting on
Nasdaq Copenhagen of TORM plc. The Corporate Reorga-
nization was supported by 97.6% of TORM A/S’ sharehold-
ers. In addition, TORM plc acquired the shares from the
remaining TORM A/S minority shareholders not accepting
the share transfer in a squeeze-out transaction for an
amount of USD 19m.
The Corporate Reorganization is accounted for as a capital
restructuring, where the assets and liabilities of TORM A/S
and its subsidiaries are accounted for at their historical
cost basis and not revalued at market value.
The consolidated financial statements for the TORM Group
is presented in the legal name of TORM plc, but is a con-
tinuation of the financial statements of TORM A/S with a
retroactive adjustment of the legal capital of the legal par-
ent (TORM plc). The consolidated financial results reflect
the activities for TORM A/S only for 2015 (refer to "Basis
for Preparation" for the impact of the Reverse Acquisition
in 2015) and the period from 1 January 2016 until 15 April
2016, whereas the remaining period of 2016 reflects the
combined activity of TORM plc and TORM A/S.
TORM’s equity is affected negatively by the Corporate Re-
organization by USD 6m primarily caused by advisor fees
in connection with the incorporation and listing of TORM
plc and by the squeeze-out transaction of USD 19m.
ADOPTION OF NEW OR AMENDED IFRS
TORM has implemented the following standard amend-
ments issued by IASB and adopted by the EU and the
interpretations in the Annual Report for 2016:
• Annual improvement to IFRS 2012-2014 cycle
• Amendments to IFRS 11 “Accounting for Acquisitions of
Interests in Joint Operations”
• Amendments to IAS 1 “Disclosure initiative”
• Amendments to IAS 16 and IAS 38 “Clarification of Ac-
ceptable Methods of Depreciation and Amortization”
The implementation of the standard amendments and
improvements had no significant impact on the Group’s
financial statements.
ACCOUNTING STANDARDS AND INTERPRETATIONS NOT
YET ADOPTED
IASB has issued a number of new or amended accounting
standards (IFRS) and interpretations (IFRIC) that poten-
tially could have an effect on TORM’s financial statements:
• Amendments to IFRS 2 “Classification and Measurement
of Share-based Payment Transactions”. The impact on
the consolidated financial statements has not yet been
determined on a sufficiently reliable basis. Effective date
is 1 January 2018.
• IFRS 9 “Financial Instruments”. The standard and sub-
sequent amendments will substantially change the clas-
sification and measurement of financial instruments and
hedging requirements. Effective date is 1 January 2018.
The impact on the consolidated financial statements has
not yet been determined on a sufficiently reliable basis.
• IFRS 15 “Revenue from Contracts with Customers” The
standard will change the recognition pattern of revenue.
However, the impact will only be visible in the imple-
mentation year. Effective date is 1 January 2018. The
impact on the consolidated financial statements is not
expected to be significant.
• IFRS 16 “Leases”. The standard will change the recog-
nition of leases. Effective date is 1 January 2019. The
impact on the consolidated financial statements is not
expected to be significant.
• Amendments to IAS 7 “Disclosure initiative”. The impact
on the consolidated financial statements has not yet
been determined on a sufficiently reliable basis. Effec-
tive date is 1 January 2017.
TORM 2016Notes 85
The consolidated financial statements following a reverse
acquisition are issued under the name of the legal parent
(accounting acquiree) but as a continuation of the financial
statements of the legal subsidiary (accounting acquirer).
The accounting acquirer’s legal capital is adjusted retro-
spectively to reflect the legal capital of the accounting ac-
quirer. Comparative information is adjusted accordingly.
Business combinations
Newly acquired or formed entities are recognized in the
consolidated financial statements from the date of acquisi-
tion or formation. The date of acquisition is the date on
which control over the entity is effectively transferred.
Business combinations are accounted for by applying the
purchase method, whereby the acquired entities’ identifi-
able assets, liabilities and contingent liabilities are meas-
ured at fair value at the acquisition date. The tax effect
of the revaluation activities is also taken into account.
When a business combination agreement provides for an
adjustment to the cost of the combination contingent on
future events, the amount of that adjustment is included
in the cost of the combination if the event is probable and
the adjustment can be measured reliably. Costs of issuing
debt or equity instruments in connection with a business
com bination are accounted for together with the debt or
equity issuance. All other costs associated with the acqui-
sition are expensed in the income statement.
In reverse acquisitions the purchase price of a business
combination is measured as the fair value of the consider-
ation agreed upon. The purchase price in a reverse acqui-
sition is calculated as the fair value of the interest in the
accounting acquirer that the existing shareholders of the
accounting acquiree would have received, had the busi-
ness combination not been a reverse acquisition.
The excess of the cost of the business combination over
the fair value of the acquired assets, liabilities and contin-
gent liabilities is recognized as goodwill under intangible
assets and is tested for impairment at least once every
year. Upon acquisition, goodwill is allocated to the cash
generating units, which subsequently form the basis for
the impairment test. If the fair value of the acquired assets,
liabilities and contingent liabilities exceeds the cost of the
business combination, the identification of assets and li-
abilities and the processes of measuring the fair value of
the assets and liabilities and the cost of the business com-
bination are reassessed. If the fair value of the business
combination continues to exceed the cost, the resulting
gain is recognized in the income statement.
NOTE 1 – CONTINUED
ACCOUNTING POLICIES
Consolidation principles
The consolidated financial statements comprise the finan-
cial statements of the Parent Company, TORM plc, and en-
tities 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 in-
volvement 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 abil-
ity to direct the relevant activities unilaterally. The Com-
pany 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 rela-
tive 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 Company has, or does not have, the current
ability to direct the relevant activities at the time when
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
on which the Company obtains control until the date when
the Company loses control 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 com-
bining items of a uniform nature and eliminating intercom-
pany transactions, balances and shareholdings as well as
realized and unrealized gains and losses on transactions
between the consolidated entities. The financial state-
ments used for consolidation purposes are prepared in ac-
cordance with the Company’s accounting policies.
TORM 2016Notes 86
NOTE 1 – CONTINUED
Foreign currencies
The functional currency of all significant entities, including
subsidiaries and associated companies, is USD, because
the Company’s vessels operate in international shipping
markets, in which income and expenses are settled in USD,
and because the Company's 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 denominated in cur-
rencies 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 be-
tween 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 “Finan-
cial income and expenses”.
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 reporting currency of the Company is USD. Upon rec-
ognition of entities with functional currencies other than
USD, the financial statements 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 of the
balance 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 forward currency
exchange contracts, forward freight agreements and for-
ward 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.
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 instru-
ments, 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 cumulative 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 accumulated in
“Other comprehensive income” are transferred from “Other
comprehensive income” and included in the initial mea-
surement 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 instru-
ments that are not designated as hedges are recognized
in the income statement. While effectively reducing cash
flow risk in accordance with the Company's risk manage-
ment policy, interest rate swaps with cap features and
certain forward freight agreements and forward contracts
regarding bunker purchases do not qualify for hedge ac-
counting. Changes in fair value of these derivate financial
instruments are therefore recognized in the income state-
ment under “Financial income” or "Financial expenses"
for interest rate swaps with cap features and under “Port
expenses, bunkers and commissions” for forward freight
agreements and forward bunker contracts.
Segment information
In 2015, TORM consisted of two business segments: The
Tanker and Bulk Segments. Due to divestment of The Bulk
Segment in 2015, only the Tanker Segment remains in
2016.
The segmentation is based on the Group’s internal man-
agement and reporting structure. In the Tanker Segment,
the services provided primarily comprise transportation of
refined oil products such as gasoline, jet fuel and naphtha.
The Group has only 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 report-
ing does not provide such information. Consequently, it is
not possible to provide geographical segment information
on revenue from external customers or non-current seg-
ment assets.
The segment income statement comprises income and ex-
penses which are directly attributable to the segment. Not
allocated items primarily comprise assets and liabilities as
well as revenues and expenses relating to the Company’s
administrative functions and investment activities, includ-
ing cash and bank balances, interest-bearing debt, income
tax, deferred tax, etc.
The accounting policies applied for the segments regard-
ing recognition and measurement are consistent with the
policies for TORM as described in this note.
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.
Leases
Agreements to charter in vessels and to lease other plant
and operating equipment, for which TORM substantially
has 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.
TORM 2016Notes 87
NOTE 1 – CONTINUED
For the purpose of calculating the present value, the inter-
est rate implicit in the lease or an incremental borrowing
rate is used as discount factor. The lease assets are depre-
ciated 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 li-
ability 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 pay-
ments are charged to the income statement on a straight-
line basis over the lease term. The obligation for the re-
maining lease term is disclosed in the notes to the financial
statements.
Agreements to charter out vessels, for which 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 carry-
ing 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.
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 transaction will flow to the Company
• Costs relating to the transaction can be measured reliably
Revenue comprises freight, charter hire and demurrage
revenues from the vessels and gains and losses on forward
freight agreements designated as hedges. Revenue is
recognized when it meets the general criteria mentioned
above, and when the stage of completion can be meas-
ured reliably. Accordingly, freight, charter hire and demur-
rage revenue are recognized at selling price upon delivery
of the service as per the charter parties concluded.
Cross-over voyages
Revenue is recognized upon delivery of services in accord-
ance 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 depend-
ence on estimates are greater than for finalized voyages.
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 bal-
ance 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 dif-
fer 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 dur-
ing 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 demur-
rage 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 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 agreement on the amount,
which on average is approximately 100 days after the
original demurrage claim was submitted. If the Group ac-
cepts a reduction of more than 5% of the original claim, or
if the charterer is not able to pay, demurrage revenue will
be affected.
Port expenses, bunkers and commissions
Port expenses, bunker fuel consumption and commissions
are recognized 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.
Freight and bunker derivatives
Freight and bunker derivatives comprise fair value adjust-
ments and gains and losses on forward freight agree-
ments, 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 charter-
ing in of vessels under operating leases which have been
incurred in order to achieve the net revenue for the period.
Operating expenses
Operating expenses, which comprise crew expenses, re-
pair and maintenance expenses and tonnage duty, are
expensed as incurred.
Administrative expenses
Administrative expenses, which comprise administra-
tive staff costs, management costs, office expenses and
other expenses relating to administration, are expensed as
incurred.
TORM 2016Notes 88
NOTE 1 – CONTINUED
Other operating expenses
Other operating expenses primarily comprises chartering
commissions and management fees paid to commercial
and technical managers for managing the fleet and to a
lesser extent profits and losses deriving from the disposal
of other plant and operating equipment.
Depreciation and impairment losses
Depreciation and impairment losses comprise deprecia-
tion 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
carry ing 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 earn-
ings 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, unreal-
ized gains from securities, dividends received and other
financial income including value adjustments of certain fi-
nancial instruments not accounted for as hedges of future
transactions.
Interest is recognized in accordance with the accrual basis
of accounting 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.
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 from secur-
ities and other financial expenses including value adjust-
ments of certain financial instruments not accounted for as
hedges of future transactions.
Interest is recognized in accordance with the accrual basis
of accounting taking into account the effective interest
rate.
Tax
Tax expenses comprise the expected tax including ton-
nage 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 items in
other comprehensive income is recognized directly in the
statement of other comprehensive income.
BALANCE SHEET
Goodwill
Goodwill is measured as the excess of the cost of the
business combination over the fair value of the acquired
assets, liabilities and contingent liabilities and is recognized
as an asset under intangible assets. Goodwill is not amorti-
zed as it is considered to have an indefinite useful life,
but the recoverable amount of goodwill is assessed every
quarter. For impairment testing purposes, goodwill is on
initial recognition allocated to the cash generating unit
expected to benefit from the synergies of the combination.
If the recoverable amount of the cash generating unit is
less than the carrying amount of the unit, the impairment
loss is first allocated to reduce the carrying amount of any
goodwill allocated to the unit and then to the other assets
of the unit pro-rata on the basis of the carrying amount of
each asset in the unit. An impairment loss for goodwill is
not reversed in a subsequent period.
Vessels
Vessels are measured at cost less accumulated deprecia-
tion and accumulated impairment losses. Cost comprises
acquisition cost and costs directly related to the acquisi-
tion 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 es-
timated residual value over their estimated 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 ton-
nage. Depreciation is based on cost less the estimated re-
sidual 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 re-
viewed 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 de-
termine if events have occurred that indicate impairment
and would require a modification of the carrying amounts.
Prepayment on vessels is measured 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 carried out while the
vessels are operating. These dry-docking costs are capit-
alized and depreciated on a straight-line basis over the
estimated period until the next dry-docking. The residual
value of such components is estimated at nil. The useful
life of the dry-docking costs is reviewed at least at each
financial year-end based on market conditions, regulatory
requirements and TORM’s business plans.
TORM 2016Notes 89
NOTE 1 – CONTINUED
A portion of the cost of acquiring a new vessel is allocated
to the components expected to be replaced or refurbished
at the next dry-docking. Depreciation hereof is carried
over the period until the next dry-docking. For newbuild-
ings, the initial dry-docking asset is estimated based on
the expected costs related to the first-coming dry-dock-
ing, 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 incurred at the dry-docking yard. Dry-docking costs
may include the cost of hiring crews to carry out replace-
ments and repairs, the cost of parts and materials used,
cost of travel, lodging and supervision of Company per-
sonnel 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 anti-fouling and hull paint, steel
repairs and refurbishment and replacement of other parts
of the vessel.
Other plant and operating equipment
Operating equipment is measured at cost less accumu-
lated depreciation.
Financial assets
Financial assets are initially recognized at the settlement
date at fair value plus transaction costs, except for finan-
cial 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 classified 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 cumulative value adjustment recognized
in “Other comprehensive income” is transferred to the in-
come statement when the shares are sold. Dividends on
shares in other companies are recognized as financial in-
come in the period in which they are declared.
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.
Other investments are presented as non-current, unless
Management intends to dispose of the investments within
12 months from the balance sheet date.
Leasehold improvements are measured at cost less ac-
cumulated amortization and impairment losses, and lease-
hold 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 dir-
ectly 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 companies and therefore subject to joint con-
trol 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 invest-
ment 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 ven-
ture, TORM discontinues recognizing its share of further
losses. Additional losses are recognized only to the extent
that TORM has incurred legal or constructive obligations or
made payments on behalf of the joint venture.
Receivables
Outstanding freight receivables and other receivables that
are expected to be realized within 12 months from the bal-
ance 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 provision for bad debts. Derivative financial in-
struments included in other receivables are measured at
fair value.
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 gener-
ated by the assets. In case of such indication, the recover-
able amount of the asset is estimated as the higher of the
asset’s fair value less costs to sell and its value in use. The
value in use is the present value of the future cash flows
expected to derive from a cash generating unit, utilizing a
pre-tax discount rate that reflects current market estimates
of the time value of money and the risks specific to the
unit for which the estimates of future cash flows have not
been adjusted. If the recoverable amount is less than the
carrying amount of the cash generating unit, the carrying
amount is reduced to the recoverable amount. The impair-
ment loss is recognized immediately in the income state-
ment. Where an impairment loss subsequently reverses, the
carrying amount of the cash generating unit is increased
to the revised estimate of the recoverable amount, but so
that the increased carrying amount does not exceed the
carrying amount that would have been determined had no
impairment loss been recognized in prior years.
TORM 2016Notes 90
NOTE 1 – CONTINUED
For the purpose of assessing impairment, assets includ-
ing goodwill and time charter and bareboat contracts are
grouped at the lowest levels at which goodwill is moni-
tored for internal management purposes.
The two cash generating units of the Company are the
Tanker Segment and the Bulk Segment. In 2016 there was
only one cash generating unit since the Bulk segment has
been without activity.
Mortgage debt and bank loans
At the time of borrowing, mortgage debt and bank loans
are measured at fair value less transaction costs. Mort-
gage debt and bank loans are subsequently measured at
amort ized cost. This means that the difference between
the net 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.
Bunkers
Bunkers and luboil are stated at the lower of cost and net
realizable value. Cost is determined using the FIFO method
and includes expenditures incurred in acquiring the bun-
kers 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.
Share-based payments
The Group makes equity settled share-based payments
to certain employees, which are measured at fair value at
the date of grant and expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of
shares that will eventually vest. The fair value of the share
schemes is calculated using the Black Scholes method at
grant date.
Dividend
Dividend is recognized as a liability at the time of declara-
tion 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 constructive obligation as a result of past events, and
when it is probable that this will lead to an outflow of re-
sources that can be reliably estimated. Provisions are mea-
sured at the estimated liability that is expected to arise,
taking into account the time value of money.
Deferred tax
Deferred tax is recognized in respect of temporary differ-
ences between the carrying amounts of assets and liabil-
ities for financial reporting purposes and the amounts used
for taxation purposes. In addition, the deferred tax also
constitutes the reserve in relation to the transition balance
in connection with the Danish tonnage tax scheme.
Deferred tax is calculated at the tax rates that are ex-
pected to apply in the period when the liability is settled
or the asset is realized, based on the laws that have been
enacted by the reporting day. The deferred tax is charged
through the income statement except when it relates to
other comprehensive income items.
When terms of existing financial liabilities are renegoti-
ated, 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 extinguish-
ment 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 dis-
counted using the original effective interest rate, is at least
10% different from the discounted present value of the re-
maining cash flows of the original financial liability.
Other liabilities
Liabilities are generally measured at amortized cost. De-
rivative financial 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. Cash flow from operating activities is
presented using the indirect method and is based on net
operating profit for the year adjusted for tax, financial
income and expenses, net profit/(loss) from sale of ves-
sels, non-cash operating items, changes in working capital,
income tax paid, dividends received and interest paid/
received.
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, pur-
chases or sales of treasury shares and dividend paid to
shareholders.
Cash and cash equivalents comprise cash at bank and in
hand including restricted cash and cash equivalents. Other
investments are classified as investment activities.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the con-
solidated net operation profit/(loss) for the year available
to common shareholders by the weighted average number
of common shares outstanding during 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.
TORM 2016Notes 91
JUDGEMENTS
Reverse acquisition
TORM’s Restructuring was completed on 13 July 2015 and
included inter alia a contribution by OCM Njord Holdings
S.à r.l. (“Njord Luxco”) of Njord to TORM in exchange for a
controlling interest in TORM. The transaction is described
in detail in note 27. Management has concluded that the
contribution should be accounted for as a reverse acquisi-
tion according to IFRS 3 (Revised 2008) – Business Combi-
nations (“IFRS 3”), i.e. Njord is the acquirer and Former
TORM is the acquiree. Management's most significant
judgements applying to the accounting policies relate to:
• Identification of the acquirer
• Calculation of consideration
Identification of the acquirer
IFRS 3 requires that the determination of the acquirer
shall be determined based on the guidance in IFRS 10 –
“Consolidated Financial Statements”, which means that
the acquirer will be the entity that obtains control over
the acquiree. The acquirer in a business combination will
therefore most often be the entity (Former TORM A/S)
legally acquiring the other (Njord) in exchange for cash,
other assets or in exchange for issuing its equity interests.
However, IFRS 3 states that in some cases the accounting
acquirer can be the entity that is legally being acquired,
i.e. Former TORM A/S. The latter is typically the case when
the former shareholder (Njord Luxco) of the entity whose
shares are being acquired (Njord) owns the majority of
shares and controls the majority of votes in the combined
entity (TORM) after the transaction.
Following the transaction, Njord Luxco will have control
with the majority of the share capital and associated votes
of Former TORM A/S, which led Management to conclude
that the transaction is to be accounted for as a reverse ac-
quisition, i.e. as if Former TORM A/S has been acquired by
Njord rather than Former TORM A/S acquiring Njord.
Calculation of consideration
Based on the provision of IFRS 3, Njord’s purchase price
for a controlling interest in Former TORM A/S is calculated
as the fair value of the interest in Njord that the existing
shareholders and warrant holders in Former TORM A/S
would have received, had the business combination of For-
mer TORM A/S and Njord not been a reverse acquisition.
As the issued shares of Former TORM A/S are publicly
traded, Management has considered whether the fair value
of Former TORM A/S would be a more reliable measure
of the consideration. Management believes that the fair
value of the interest in Njord that would have been issued
represents the fair value of the consideration more reliably
than the share price of Former TORM A/S. The share price
of Former TORM A/S was very volatile during the period
before the Restructuring due to the significant uncertainty
about Former TORM A/S' future as an independent group.
NOTE 1 – CONTINUED
Diluted earnings per share is calculated by adjusting the
consolidated profit or loss available to common sharehold-
ers 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
earnings per share or reduce a loss per share.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in accordance with
IFRS requires Management to make estimates and as-
sumptions 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 reported
amounts of revenues and expenses during the reporting
period. These estimates and assumptions are affected by
the way TORM applies its accounting policies. An account-
ing estimate is considered critical if the estimate requires
Management to make assumptions about matters subject
to significant uncertainty, if different estimates could rea-
sonably 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 prepara-
tion of the consolidated financial statements:
ACCOUNTING ESTIMATES
Carrying amounts of vessels
The Company evaluates the carrying amounts of the ves-
sels to determine if events have occurred that would
require a modification of their carrying amounts. The valu-
ation 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 assess-
ing 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 ship-
brokers 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.
The review for potential impairment indicators and projec-
tion of future discounted cash flows related to the vessels
is complex and requires the Company to make various
estimates including future freight rates, utilization, earnings
from the vessels, future operating and capital expenditure
and discount rates. For more information on key assump-
tions and related sensitivities, please refer to note 8 in
these financial statements. All these factors have been his-
torically volatile. 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 re-
quired.
TORM 2016Notes 92
NOTE 2
LIQUIDITY, CAPITAL RESOURCES AND SUBSEQUENT
EVENTS
SUBSEQUENT EVENTS
Liquidity and capital resources
As of 31 December 2016, TORM’s cash position totaled
USD 76m (2015: USD 168m) and undrawn credit facilities
amounted to USD 190m (2015: USD 75m). The undrawn
credit facilities consisted of a USD 75m Working Capi-
tal Facility and a bilateral USD 115m facility with China
Export-Import Bank. TORM had four (2015: seven) new-
buildings on order for delivery in 2017-2018. The total out-
standing CAPEX related to these newbuildings was USD
149m (2015: USD 224m), and is mainly financed by the
undrawn USD 115m China Export-Import Bank facility.
TORM has a Term Facility Agreement of USD 470m and an
undrawn Working Capital Facility of USD 75m both with
maturity in 2021. In addition, a finance lease liability with
a purchase obligation of USD 13.6m (JPY: 1.5 bn) expiring
in 2017 was acquired as part of the reverse acquisition. In
addition to the Term Facility Agreement and the Working
Capital Facility, TORM also had bilateral loan agreements
with Danish Ship Finance of 202m in total at the end of
2016. As of 31 December 2016, the scheduled minimum
payments on mortgage debt and bank loans in 2017 were
USD 75m.
TORM’s bank debt facilities include financial covenants
related to:
• Minimum liquidity including committed credit lines
• Minimum cash
• Loan-to-value
• Equity ratio
As of 31 December 2016, TORM is in compliance with all
covenants.
On 6 January 2017, TORM plc signed a syndicated financ-
ing agreement with Danske Bank, ABN AMRO, DVB and
ING with collateral in nine MR vessels. The available facil-
ity was fully utilized on 27 January 2017 where TORM plc
drew USD 126m on the facility which matures on 31 March
2022. Main conditions are in line with the Company’s exist-
ing loan agreements.
On 12 January 2017, the Board of Directors granted
certain employees (the “Participants”) Restricted Share
Units (“RSU”) in the form of restricted stock options. The
Board of Directors of TORM has granted the Participants
a total of 866,617 RSUs and, subject to vesting, each RSU
entitles the holder to acquire one TORM A share. The
RSUs will vest over a three-year period, with one third of
the grant amount vesting at each anniversary during the
three-year period. The exercise price for each TORM A
share is DKK 93.6.
The theoretical market value of the RSU allocation is calcu-
lated at USD 1.0m based on the Black-Scholes model (cf.
company announcement no. 1 dated 12 January 2017).
In March 2017, the Company entered an agreement to sell
and lease back two vessels, TORM Helene and TORM Mary.
The Company’s liquidity is expected to increase by USD
6.1m following repayment of debt.
In March 2017, the Company entered an agreement to
sell one vessel, TORM Anne. After the repayment of the
mortgage debt of the vessel along with transaction-related
expenses and fees, the Company expects to receive net
cash proceeds of ca USD 0.9m.
The events described in the sections above are deemed
to have no material impact on the financial statements for
2017.
TORM 2016Notes
93
NOTE 3
USDm
Segment Segment allocated
Total Segment Segment allocated
Total
2016
2015
Tanker
Bulk
Not
Tanker
Bulk
Not
CONSOLIDATED SEGMENT INFORMATION
INCOME STATEMENT
Revenue
Port expenses, bunkers and commissions
Time charter equivalent earnings
Charter hire
Operating expenses
Gross profit (Net earnings from shipping
activities) (Segment result)
Administrative expenses
Other operating expenses
Share of profit/(loss) from joint ventures
EBITDA
Impairment losses on tangible and intangible
assets
Depreciation
680.1
-221.9
458.2
-21.5
-195.2
241.5
-
-
-
241.5
-
-
-
-
-
-
-
-
-
-
-
680.1
538.7
- -221.9
-169.2
-
458.2
369.5
-
-21.5
-11.1
- -195.2
-121.7
1.7
-0.4
1.3
-0.9
-1.2
-
540.4
- -169.6
-
370.8
-
-12.0
- -122.9
-
241.5
236.7
-0.8
-
235.9
-41.4
-41.4
-0.3
0.2
-0.3
0.2
-
-
-
-
-
-
-19.5
-19.5
-6.3
0.2
-6.3
0.2
-41.5
200.0
236.7
-0.8
-25.6
210.3
-
-
-
-185.0
-185.0
- -122.2
-122.2
-
-
-
-
-
-
-67.3
-67.3
Operating profit/(loss) (EBIT)
241.5
- -348.7
-107.2
236.7
-0.8
-92.9
143.0
Financial income
Financial expenses
-
-
2.8
2.8
-
-
1.0
1.0
- -
-37.3
-37.3 - -
-16.9
-16.9
Profit/(loss) before tax
241.5
- -383.2
-141.7
236.7
-0.8
-108.8
127.1
Tax
-
-
-0.8
-0.8
-
-
-1.0
-1.0
Net profit/(loss) for the year
241.5
- -384.0
-142.5
236.7
-0.8
-109.8
126.1
As 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 2015, TORM consisted of two business segments: The Tanker and the Bulk Segments. Due to divestment of the Bulk
segment in 2015, only the Tanker Segment remains in 2016.
During 2015, there have been no transactions between the Tanker and the Bulk Segments, and therefore all revenue de-
rives from external customers.
In the Tanker Segment, a major part of the Company’s freight revenue is concentrated on a small group of customers. In
2016, one (2015: one) customer in the Tanker Segment accounted for more than 10% of the total freight revenue of the
Company. The customer accounted for USD 86.1m (2015: USD 68.2m) of the total freight revenue.
TORM 2016Notes
94
NOTE 4
USDm
STAFF COSTS
Total staff costs
Staff costs included in operating expenses
Staff costs included in administrative expenses
Total
Average number of permanent employees
Seafarers
Land-based
Total
2016
2015
15.7
31.0
46.7
9.7
14.2
23.9
137.0
269.1
406.1
65.0
133.0
198.0
Executive Management
The remuneration of Executive Management is disclosed in the Remuneration Committee Report on page 56.
Please refer to the Remuneration Report for a detailed split.
Employee information
The majority of the staff on vessels are not employed by TORM. Staff costs included in OPEX relates to the 137 seafarers.
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.
Long-term employee benefit obligations
The obligation comprises an obligation under incentive programs to deliver Restricted Share Units ("RSUs") in TORM plc
at a determinable price to the entity's key personnel. The RSUs granted entitles the holder to acquire one TORM A share.
The program was established during the year and comprises the following number of shares in TORM plc:
Outstanding 1 January
Granted during the period
Exercised during the period
Expired during the period
Forfeited during the period
Outstanding 31 December
Exercisable 31 December
2016
Number
of shares
('000)
0,0
2,127.4
0,0
0,0
0,0
2,127.4
538.9
The vesting period of the program is three years for key employees and five years for the CEO. The exercise price
is set to DKK 96.3. The exercise period is six months after the vesting date. The fair value of the options granted in
2016 was determined using the Black-Scholes valuation model and is not material.
TORM 2016Notes NOTE 5
USDm
REMUNERATION TO AUDITORS APPOINTED AT
THE PARENT COMPANY'S ANNUAL GENERAL MEETING
Audit fees
Fees payable to the Company's auditor for the audit of the Company's annual accounts
Audit of the Company's subsidiaries pursuant to legislation
Total
Non-audit fees
Other services pursuant to legislation
Tax services
Other fees
Total
NOTE 6
USDm
INTANGIBLE ASSETS
Cost:
Balance as of 1 January 2015
Additions
Balance as of 31 December 2015
Impairment losses:
Balance as of 1 January 2015
Impairment losses for the year
Balance as of 31 December 2015
Carrying amount as of 31 December 2015
Cost:
Balance as of 1 January 2016
Additions
Balance as of 31 December 2016
Impairment losses:
Balance as of 1 January 2016
Impairment losses for the year
Balance as of 31 December 2016
Carrying amount as of 31 December 2016
95
2016
2015
0.4
0.1
0.5
0.6
0.3
0.1
1.0
0.2
0.1
0.3
1.1
0.5
0.2
1.8
Goodwill
0.0
11.4
11.4
0.0
0.0
0.0
11.4
11.4
0.0
11.4
0.0
11.4
11.4
0.0
Goodwill is related to the reverse acquisition of TORM A/S in 2015 and has been allocated to the Tanker Segment.
Please refer to note 8 for information on impairment testing of goodwill.
TORM 2016Notes 96
NOTE 7
USDm
TANGIBLE FIXED ASSETS
Cost:
Balance as of 1 January 2015
Additions
Additions from business combinations
Disposals
Transferred to/from other items
Transferred to assets held-for-sale
Balance as of 31 December 2015
Depreciation:
Balance as of 1 January 2015
Disposals
Depreciations for the year
Transferred to assets held-for-sale
Balance as of 31 December 2015
Vessels and
capitalized
dry-
docking
Prepay-
ments on
vessels
Other
plant and
operating
equipment
530.1
112.0
857.4
-18.6
104.6
-18.0
1,567.5
27.9
-18.6
66.5
-0.3
75.5
34.7
142.5
0.0
0.0
-104.6
0.0
72.6
0.0
0.0
0.0
0.0
0.0
0.0
0.9
2.5
-0.2
0.0
0.0
3.2
0.0
-0.2
0.9
0.0
0.7
Total
564.8
255.4
859.9
-18.8
0.0
-18.0
1,643.3
27.9
-18.8
67.4
-0.3
76.2
Carrying amount as of 31 December 2015
1,492.0
72.6
2.5
1,567.1
Of which finance leases
13.1
-
-
13.1
Cost:
Balance as of 1 January 2016
Additions
Disposals
Transferred to/from other items
Balance as of 31 December 2016
Depreciation:
Balance as of 1 January 2016
Disposals
Depreciations for the year
Balance as of 31 December 2016
Impairment
Balance as of 1 January 2016
Impairment losses on tangible fixed assets
Balance as of 31 December 2016
1,567.5
40.8
-16.3
105.4
1,697.4
72.6
76.9
0.0
-105.4
44.1
75.5
-15.9
120.4
180.0
0.0
173.6
173.6
0.0
0.0
0.0
0.0
-
-
-
3.2
1.1
-1.6
0.0
2.7
0.7
-1.6
1.8
0.9
0.0
0.0
0.0
1,643.3
118.8
-17.9
0.0
1,744.2
76.2
-17.5
122.2
180.9
0.0
173.6
173.6
Carrying amount as of 31 December 2016
1,343.8
44.1
1.8
1,389.7
Of which finance leases
12.4
-
-
12.4
Included in the carrying amount for "Vessels and capitalized dry-docking" are capitalized dry-docking costs in
the amount of USD 80.4m (2015: USD 81.7m).
For information on assets used as collateral security, please refer to note 16.
In all material aspects, the depreciation under "Other plant and operating equipment" of USD 1.8m relates to
administration (2015: USD 0.9m).
Depreciations and impairment losses on tangible fixed asstes on "Vessels and capitalized dry-docking" and "Prepay-
ments on vessels" relates to operating expenses.
Please refer to note 8 for information on impairment testing.
TORM 2016Notes 97
NOTE 8
IMPAIRMENT TESTING
As of 31 December 2016, Management performed an
impairment test of the recoverable amount of significant
assets including goodwill within the cash-generating unit
— the Tanker Segment.
As of 31 December 2016, the recoverable amount of the
Tanker Segment was based on the value in use.
Based on this test, Management concluded that the assets
within the Tanker Segment were impaired by USD 185m,
as the carrying amount exceeded the value in use. The
impairment, which was primarily due to the significant fall
in expected freight rates during the year, was recognized
in the profit and loss in "impairment losses on tangible and
intangible assets".
The assessment of the value in use of the Tanker Segment
was based on the present value of the expected future
cash flows. The overall methodology used for calculating
the value in use is unchanged compared to prior years.
Accordingly the freight rate estimates in the period 2017-
2019 are based on the Company's business plans. Beyond
2019, the freight rates are based on the 10-year historical
average rates from Clarksons, amended to reduce strong
rates in 2007 and also adjusted for inflation.
The discount rate is based on a WACC of 8.8% as of 31
December 2016 (2015: 8.3%). WACC is calculated by using
a standard WACC model in which cost of equity, cost of
debt and capital structure are the key parameters.
As of 31 December 2016, the amended 10-year historical
average spot freight rates are as follows:
• LR2 USD/day 20,176 (2015: USD/day 21,975)
• LR1 USD/day 17,124 (2015: USD/day 18,900)
• MR USD/day 15,118 (2015: USD/day 16,948)
• Handysize USD/day 15,203 (2015: USD/day 17,868)
Operating expenses and administrative expenses are es-
timated based on TORM's business plans for the period
2017-2019. Beyond 2019, operating expenses and adminis-
trative expenses are adjusted for 2% inflation.
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 14 years.
The inflation rate is based on the US Federal Reserve and
ECB inflation target over the medium term and is set to 2%.
Management believes that these major assumptions are
reasonable.
The calculation of the value in use is sensitive to changes
in the key assumptions which are related to the future
developments in freight rates, the WACC applied as
discounting factor in the calculations and the development
in operating expenses. All other things being equal, the
sensitivities to the value in use have been assessed as
follows:
• A decrease in tanker freight rates of USD/day 1,000
would result in a further decline of USD 228m
• An increase in WACC of 1.0% would result in a further
decline of USD 105m
• An increase in operating expenses of 10.0% would result
in a further decline of USD 174m
• A decrease in inflation rate of 0.5 percentage points
would result in a further decline of USD 15m
However, if these sensitivities had been applied to the
impairment test as of 31 December 2016, the maximum
additional impairment would be USD 91m as the recoverable
amount is to be assessed as the higher of value in use and
the fair value less cost to sell.
As outlined above, the impairment test has been prepared
on the basis that the Company will continue to operate its
vessels as a fleet in the current set-up. In comparison, the
market value based on broker values of TORM's vessels
including the order book and remaining CAPEX on new-
buildings was USD 1,297m, which is USD 91m below the
carrying amount.
TORM 2016Notes 98
NOTE 9
USDm
FINANCIAL ITEMS
Financial income
Interest income from cash and cash equivalents, etc.*)
Exchange rate adjustments, including net gain from forward exchange rate contracts
Total
Financial expenses
Interest expenses on mortgage and bank debt*)
Exchange rate adjustments, including net gain/loss from forward exchange rate contracts
Other financial expenses
Total
Total financial items
*) Interest for financial assets and liabilities not at fair value through profit and loss.
NOTE 10
USDm
FREIGHT RECEIVABLES
Analysis as of 31 December of freight receivables:
Neither past due nor impaired
Past due not impaired:
Due < 30 days
Due between 30 and 180 days
Past due and impaired:
Due > 180 days
Total gross
Provision for impairment of freight receivables
Total net
2016
2015
0.2
2.6
2.8
29.6
2.5
5.2
37.3
0.3
0.7
1.0
15.0
0.6
1.3
16.9
-34.5
-15.9
2016
2015
28.7
40.3
13.0
18.7
4.7
65.1
2.6
62.5
22.8
16.4
5.3
84.8
1.7
83.1
As of 31 December 2016, freight receivables included receivables at a value of USD 0.6m (2015: USD 1.9m), that are
individually determined to be impaired to a value of USD 0.5m (2015: USD 0.2m).
Movements in provisions for impairment of freight receivables during the year are as follows:
USDm
PROVISIONS FOR IMPAIRMENT OF FREIGHT RECEIVABLES
Balance as of 1 January
Addition from business combinations
Provisions for the year
Provisions reversed during the year
Provisions utilized during the year
Balance as of 31 December
2016
2015
1.7
0
1.9
-1.0
0.0
2.6
0.0
1.9
0.5
-0.7
0.0
1.7
Provisions for impairment of freight receivables have been recognized in the income statement under "Port expenses,
bunkers and commissions".
NOTE 11
USDm
OTHER RECEIVABLES
Partners and commercial managements
Derivative financial instruments
Tax receivables
Other
Balance as of 31 December
No significant other receivables are past due or impaired.
2016
2015
0.5
3.3
1.1
3.2
8.1
0.3
1.6
1.7
2.2
5.8
TORM 2016Notes NOTE 12
USDm
TAX
Current tax for the year
Adjustments related to previous years
Adjustment of deferred tax asset
Total
99
2016
2015
1.2
-0.3
-0.1
0.8
1.3
-0.2
-0.1
1.0
The majority of the Group's taxable income is located in Denmark and therefore the majority of the tax base is subject
to Danish tax legi slation. In this connection the Group has elected to participate in the Danish tonnage tax scheme. The
participation in the tonnage tax scheme is binding until 31 December 2025.
The Group 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.
Under the Danish tonnage tax scheme, income and expenses from shipping activities are not subject to direct taxation
and accordingly an effective rate reconciliation has not been provided as it would not provide any meaningful informa-
tion. 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
Due to the provisions of the tonnage tax scheme, the effective tax rate of the Group is -0.6 % (2015: 0.8 %).
USDm
DEFERRED TAX LIABILITY
Balance at 1 January
Addition from business combination
Deferred tax for the year
Balance as of 31 December
2016
2015
45.1
0.0
-0.1
45.0
0.0
45.2
-0.1
45.1
Essentially all deferred tax relates to vessels included in the transition account under the Danish tonnage tax scheme.
The Group operates in a wide variety of jurisdictions, in some of which the tax law is subject to varying interpretations
and potentially inconsistent enforcement. As a result, there can be practical uncertainties in applying tax legislation to the
Group’s activities. Whilst the Group considers that it operates in accordance with applicable tax law, there are potential
tax exposures in respect of its operations, the impact of which cannot be reliably estimated but could be material.
NOTE 13
COMMON SHARES
A shares
B shares
C shares
Total
2016
2015
Number
of shares
Number
of shares
62,298,846 63,836,249
1
1
1
1
62,298,848 63,836,251
For accounting purposes and due to the Corporate Reorganization, the common shares have been adjusted retrospec-
tively to reflect the issued capital and common shares of TORM plc amounting to USD 0.4m as per 1 January 2015.
TORM 2016Notes 100
NOTE 13 - CONTINUED
A shares are listed on Nasdaq Copenhagen and are publicly available for trading. Each A share carries one vote at the
Annual General Meeting and gives the shareholder right to dividends, liquidation proceeds or other distributions. The A
shares carries no other rights or obligations.
The B share has one vote at the general meeting, has no pre-emption rights in relation to any issue of new shares of other
classes and carries no right to receive dividends, liquidation proceeds or other distributions from TORM. The holder of the
B share has the right to elect one member to the Board of Directors (being the Deputy Chairman), up to three alternates
as well as one Board Observer. The B share cannot be transferred or pledged, except for a transfer to a replacement
trustee.
The C share represents 350,000,000 votes at the general meeting in respect of certain Specified Matters, including elec-
tion of members to the Board of Directors (including the Chairman but excluding the Deputy Chairman) and certain
amendments to the Articles of Association proposed by the Board of Directors. The C share has no pre-emption rights in
relation to any issue of new shares of other classes and carries no right to receive dividends, liquidation proceeds or other
distributions from TORM. The C share cannot be transferred or pledged, except to an affiliate of Njord Luxco.
The B share and the C share are redeemable by TORM in the event that (i) TORM has received written notification from
Njord Luxco (or its affiliates) that Njord Luxco and its affiliates (as defined in the Articles of Association) hold less than
1/3 in aggregate of TORM’s issued and outstanding shares, (ii) five business days have elapsed from the Board of Dir-
ectors’ receipt of such written notice either without any Board member disputing such notice or with at least 2/3 of the
Board members confirming such notice, and (iii) both of the B share and the C share are redeemed at the same time.
Issued warrants
Key management participates in an LTIP program which gives the right to buy TORM shares at a predefined share price.
The program is described in the Remuneration Report. Please refer to the Remuneration Report on page 56 for more in-
formation on the LTIP program. Please also see note 4.
Treasury shares
Balance as of 1 January
Additions
Cancellations
Disposals
Balance as of 31 December
2016
2015
2016
2015
Number of
shares
('000)
Number of
shares
('000)
Nominal
value
USDm
Nominal
value
USDm
2016
% of
share
capital
2015
% of
share
capital
15.3
312.9
-15.3
0.0
312.9
0.0
15.3
0.0
0.0
15.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.5
-0.2
0.0
0.5
0.0
0.2
0.0
0.0
0.2
The total consideration for the treasury shares was USD 2.9m (2015: USD 0.2m). At 31 December 2016, the Company's
holding of treasury shares represented 312,871 shares (2015: 15,319 shares) of USD 0.01 each at a total nominal value of
USD 0.0m (2015: USD 0.0m) and a market value of USD 2.8m (2015: 0.2m).
NOTE 14
USDm
OTHER LIABILITIES
Partners and commercial managements
Accrued operating expenses
Accrued interest
Wages and social expenses
Derivative financial instruments
Payables to joint ventures
Acquired time charter contracts
Other
Balance as of 31 December
Please refer to note 21 for further information on fair value hierarchies.
2016
2015
2.0
5.2
5.8
14.6
4.8
0.1
0.0
0.5
3.3
13.1
4.7
17.0
0.2
0.1
0.2
3.5
33.0
42.1
TORM 2016Notes 101
NOTE 15
EFFECTIVE INTEREST RATE AND OUTSTANDING MORTAGE DEBT AND BANK LOANS
In July 2015, TORM completed the Corporate Restructuring. This resulted in a new Term Facility Agreement of USD 470m
and a Working Capital Facility of USD 75m both expiring in 2021. Furthermore, TORM has a debt facility with Danish Ship
Finance totaling USD 202m, the tranches of which expire in 2019, 2021 and 2022. In 2017 and 2018, TORM will take delivery
of four new LR2 vessels. The Export Import Bank of China (CEXIM) has committed funding of up to USD 115m in a 12-year
facility to finance these newbuildings. As of 31 December 2016, no drawdowns had been made on the CEXIM Facility or the
Working Capital Facility.
Please refer to note 2 for further information on the Company’s liquidity and capital resources and note 19 and 20 for further
information on interest rate swaps and financial risks.
The table below shows the effective interest rate and the value of the outstanding mortgage debt and bank loans.
USDm
LOAN
USD
USD
USD
USD
Weighted average effective interest rate
Carrying value
Fixed/
floating
Floating
Floating
Floating
Floating
2016
Effective
interest
Maturity
2015
Carrying
value**) Maturity
Effective
interest
Carrying
value**)
2019
2021
2021
2022
4.6%*
4.6%*
4.6%
4.8%*
4.6%
109.4
470.0
62.2
30.0
671.6
2019
2019
2021
2021
4.1%*
4.1%*
4.3%
4.4%*
4.3%
125.7
26.0
548.9
66.6
767.2
*) Effective interest rate includes deferred and amortized bank fees.
**) The carrying value of the Group's mortgage debt and bank loans are due to their short-term nature of fixing approximate to fair value.
The fair value of mortgage debt and bank loans is calculated as the present value of expected future repayments and
interest payments.
NOTE 16
COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS
The total carrying amount of vessels that have been provided as security amounts to USD 1,115m at 31 December 2016
(2015: USD 1,329m).
NOTE 17
GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
The guarantee commitments of the Group are less than USD 0.1m and relate to guarantee commitments to the Danish
Shipowners' Association.
The Group is involved in some legal proceedings and disputes. It is Management's opinion that the outcome of these pro-
ceedings and disputes will not have any material impact on the Group's financial position, results of operations and cash
flows.
TORM 2016Notes
102
NOTE 18
CONTRACTUAL OBLIGATIONS AND RIGHTS
TORM has various contractual obligations and commercial commitments to make future payments including lease obliga-
tions, purchase commitments, interest payments and repayment of mortgage debt and bank loans.
The following table summarizes the Company's contractual obligations:
As of 31 December 2016:
USDm
Mortgage debt and bank loans
Interest payments related to
scheduled interest fixing
Estimated variable interest payments
Finance lease liabilities
Interest element regarding finance lease
Newbuilding installments and
exercised purchase options
Chartered-in vessels (Operating lease)
Derivative financial liabilities
Other operating leases
Trade payables and other liabilities
1)
2)
3)
4)
5)
6)
2017
75.9
18.8
8.9
13.6
0.8
62.4
10.3
4.8
2.1
48.9
2018
75.1
14.4
10.6
-
-
86.4
3.2
-
1.8
-
2019
137.5
2020
59.7
2021 Thereafter
306.5
16.9
Total
671.6
12.0
10.0
9.6
6.8
7.1
4.5
0.0
0.8
-
-
-
-
-
-
-
-
-
-
1.2
-
0.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
62.3
41.2
13.6
0.8
148.8
13.5
4.8
5.3
48.9
Total
246.5
191.5
160.3
76.7
318.1
17.7
1,010.8
TORM has contractual rights to receive future payments as lessor of vessels on time charter and bareboat charter.
The following table summarizes the Company's contractual rights:
USDm
Contractual rights — as lessor:
Charter hire income for vessels
7)
Total
2017
2018
2019
2020
2021 Thereafter
Total
46.1
46.1
46.5
46.5
4.7
4.7
-
0.0
-
0.0
-
0.0
97.3
97.3
1) The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 2.0m (2015: USD 1.0m), which are
amortized over the term of the loans.
2) Variable interest payments are estimated based on the forward rates for each interest period.
3) One leasing agreement includes a purchase liability at expiry of the leasing period in 2017.
4) As of 31 December 2016, TORM had four contracted newbuildings (2015: seven) to be delivered during 2017-2018.
5) Leases have been entered into with a mutually non-cancelable lease period of up to eight years. Certain leases include a profit sharing element imply-
ing that the actual charter hire may be higher. The average period until redelivery of the vessels is 0.9 years (2015: 1.9 years). The leasing expense for
2016 amounts to USD 21.5m and is recognized under "Charter hire".
6) Other operating leases primarily consist of contracts regarding office spaces, cars and apartments as well as IT-related contracts. The leasing expense
for 2016 amounts to USD 2.2m and is recognized under "Administrative expenses".
7) Charter hire income for vessels on time charter and bareboat charter is recognized under "Revenue". The average period until redelivery of the vessels
is 2.1 year (2015: 0.6 year).
TORM 2016Notes
NOTE 19
DERIVATIVE FINANCIAL INSTRUMENTS
The table below shows the fair value of the derivative financial instruments:
USDm
Fair value of derivatives:
Derivative financial instruments regarding freight and bunkers:
Forward freight agreements
Bunker swaps
Derivative financial instruments regarding interest and currency exchange rate:
Forward exchange contracts
Interest rate swaps
Total
Of which included in:
Current assets
Other receivables
Current liabilities
Other liabilities
Total
103
Fair value
as of 31
December
2016
Fair value
as of 31
December
2015
-0.1
0.8
-4.6
2.4
-1.5
-
-0.2
0.8
0.8
1.4
3.3
1.6
-4.8
-1.5
-0.2
1.4
Please refer to note 21 for further information on fair value hierarchies.
Bunker swaps and forward freight agreements with a fair value of USD 0.8m (net) of a previously fixed hedge will be rec-
ognized in the income statement in 2017 (2016: USD -0.2m).
Forward exchange contracts with a fair value of USD -4.6m are designated as hedge accounting to hedge a part of
TORM's payments in 2017 regarding administrative and operating expenses denominated in DKK with a notional value of
DKK 336.4m (2015: DKK 235.1m).
Interest rate swaps with a fair value of USD 2.4m are designated as hedge accounting to hedge a part of TORM's interest
payments during the period 2016-2021, with a notional value of USD 373.8m (2015: USD 382.3m).
The table below shows realized amounts as well as fair value adjustments regarding derivative financial instruments rec-
ognized in income statements and equity in 2016 and 2015.
2016
USDm
Forward freight agreements
Bunker swaps
Forward exchange contracts
Interest rate swaps
Total
2015
Forward freight agreements
Bunker swaps
Forward exchange contracts
Interest rate swaps
Total
Income statement
Port
expenses,
bunkers and
commissions
Financial
items
Equity
hedging
reserves
Revenue
-0.1
-
-
-
-0.1
0.6
-
-
-
-
0.0
-
-
0.0
-
-0.9
-
-
-
-
0.1
-2.9
-2.8
-
-
-
-
0.6
-0.9
0.0
-0.2
0.8
-2.6
2.4
0.4
0.0
-0.2
0.8
0.8
1.4
Please refer to the section "Risk Management" and note 20 for further information on commercial and financial risks.
TORM 2016Notes
104
NOTE 20
RISKS ASSOCIATED WITH TORM’S ACTIVITIES
The risks can generally be divided into four main cat-
egories: 1) Long-term strategic risks, 2) Industry and
market-related risks, 3) Operational and compliance risks
and 4) Financial risks.
The risks described under each of the four categories
are considered 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 and develop neces-
sary capabilities to exploit 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 physi-
cal environment that Management cannot control such as
freight rates and vessel and bunker prices.
FREIGHT RATE FLUCTUATIONS
The Company’s income is principally generated from voy-
ages carried out by its fleet of vessels. As such, TORM is
exposed to the considerable volatility that characterizes
freight rates on such voyages.
It is the Company’s strategy to seek a certain exposure
to this risk, as volatility also represents an opportunity
because earnings historically have been higher in the day-
to-day market compared to time charters. The fluctuations
in freight rates for different routes may vary substantially.
However, TORM is aiming at reducing the sensitivity to the
volatility of such specific freight rates by actively seeking
the optimal geographical positioning of the fleet and by
optimizing the service offered to customers.
Tanker 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 6-36 months. In addition, TORM uses financial
instruments such as forward freight agreements (FFAs)
with coverage of typically 0-24 months forward, based
on market expectations and in accordance with the Com-
pany’s risk management policies. In 2016, 10% (2015: 5%)
of freight earnings deriving from the Company’s tankers
was secured in this way. Physical time charter contracts
accounted for 83% (2015: 95%) of overall hedging. In 2016,
the Company sold FFAs with a notional contract value of
USD 12m (2015: USD 6m) and bought FFAs with a no-
tional contract value of USD 3m (2015: USD 4m). The total
notional contract volume sold in 2016 was 781,000 mt
(2015: 215,000 mt) and the total notional volume bought
was 190,000 mt (2015: 142,000 mt). At the end of 2016,
the coverage for 2017 was 12% (2015: 8%).
FFA trade and other freight-related derivatives are subject
to specific policies and guidelines approved by the Risk
Committee, including trading limits, stop-loss policies, seg-
regation of duties and other internal control procedures.
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:
USDm
SENSITIVITY TO CHANGES
IN FREIGHT RATES
2017
2016
Increase in freight rates of USD/day 1,000:
Change in profit before tax
Change in equity
25.0
25.0
26.7
26.7
SALES AND PURCHASE PRICE FLUCTUATIONS
As an owner of 77 vessels, TORM is exposed to risk as-
sociated with changes in the value of the vessels, which
can vary considerably during their useful lives. As of 31
December 2016, the carrying value of the fleet was USD
1,344m (2015: USD 1,492m). Based on broker valuations,
TORM’s fleet excluding undelivered newbuildings had a
market value of USD 1,260m as of 31 December 2016
(2015: USD 1,626m). During the year, TORM has increased
its fleet by three new product tankers. Furthermore, TORM
has four vessels on order for delivery in 2017-2018.
BUNKER PRICE FLUCTUATIONS
The cost of fuel oil consumed by the vessels, known in the
industry as bunkers, accounted for 50% of the total voyage
costs in 2016 (2015: 57%) 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 guide-
lines approved by the Risk Committee including trading
limits, stop-loss, stop-gain and stop-at-zero policies, seg-
regation of duties and other internal control procedures.
TORM applies hedge accounting to all bunker hedge con-
tracts.
In 2016, TORM covered 1.6% (2015: 0.7%) of its bunker re-
quirements using hedging instruments.
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
2017 2016
SENSITIVITY TO CHANGES
IN THE BUNKER PRICES
Increase in the bunker prices of 10% per ton:
Change in profit before tax
Change in equity
-15.6 -12.8
-15.6 -12.8
TORM 2016Notes
105
NOTE 20 – CONTINUED
3) OPERATIONAL AND COMPLIANCE RISKS
Operational risks are risks associated with the ongoing
operations 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, regulations and conventions mean that
the Company may incur substantial 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 operation of vessels and transportation
of cargo, including personal injury, environmental dam-
age 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 cor-
responding to their market value plus a margin to cover
any fluctuations. Liability risks are covered in line with
international standards. 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 recog-
nized collaboration, 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 2016,
the aggregate insured value of hull and machinery and in-
terest for TORM’s owned vessels amounted to USD 1.6bn
(2015: USD 2.0bn).
COUNTERPARTY RISK
Counterparty risk is an ever-present challenge demand-
ing close monitoring to manage and decide on actions to
minimize possible losses. The maximum counterparty risk
associated is equal to the values recognized in the bal-
ance sheet. A consequential effect of the counterparty
risk is loss of income in future periods, e.g. counterparties
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 close focus on its risk policies and pro-
cedures to ensure 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 instru-
ments 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 com-
panies are, to a great extent, subject to the same risk fac-
tors as those identified for TORM.
A major part of the Company’s freight revenues stems
from a small group of customers. One customer accounted
for 12.6% (2015: 12.6%) of the freight revenues in 2016.
The concentration of earnings on a few customers requires
extra attention to credit risk. TORM has a credit policy un-
der which continued credit evaluations of new and existing
customers take place. For long-standing customers, pay-
ment of freight normally takes place after a vessel’s cargo
has been discharged. For new and smaller customers, the
Company’s credit risk is limited as freight is usually paid
prior to the cargo’s discharge, or, alternatively, that a suit-
able bank guarantee is placed in lieu thereof.
As a consequence of the payment patterns mentioned
above, the Company’s receivables primarily consist of re-
ceivables 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 96.8% (2015: 96%), which
is considered to be satisfactory given the differences in
interpretation of events. In 2016, demurrage represented
15.0% (2015: 17.7%) of the total freight revenues.
Excess liquidity is placed on deposit accounts with major
banks with strong and acceptable credit ratings or in-
vested in secure papers such as American or Danish gov-
ernment bonds. Cash is invested with the aim of getting
the highest possible yield while maintaining a low coun-
terparty risk and adequate liquidity reserves for possible
investment opportunities or to withstand a sudden drop in
freight rates.
TORM 2016Notes 106
NOTE 20 – CONTINUED
Derivative financial instruments and commodity
instruments
In 2016, 93% (2015: 100%) of TORM’s forward freight
agreements (FFAs) and fuel swaps were cleared through
NASDAQ, effectively reducing counterparty credit risk by
daily clearing of balances. Over the counter fuel swaps
have restrictively been entered into with major oil com-
panies, banks or highly reputed partners with a satis-
factory credit rating. TORM also trades FX and interest
derivatives. In 2016, all such derivatives were done with
investment grade counterparties.
4) FINANCIAL RISKS
Financial risks relate to the Company’s financial position,
financing and cash flows generated by the business, in-
cluding foreign exchange risk and interest rate risk. The
Company’s liquidity and capital resources are described in
Note 2.
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 re-
lates to administrative and operating expenses.
The part of the Company’s expenses that are denominated
in currencies other than USD accounts for approximately
99% (2015: 98%) for administrative expenses and ap-
proximately 27% (2015: 26%) for operating expenses. Ap-
proximately 74% (2015: 55%) of TORM’s administrative and
operating expenses in DKK and EUR in 2017 are hedged
through FX forward contracts. TORM assumes identical
currency risks arising from exposures in DKK and EUR.
Other significant cash flows in non-USD-related currencies
occur occasionally, including certain purchase obligations
denominated in JPY.
All things being equal, a change in the USD/DKK and
USD/EUR exchange rate of 10% would result in a change in
profit before tax and equity as follows:
USDm
2017
2016
SENSITIVITY TO CHANGES IN THE USD/DKK
AND USD/EUR EXCHANGE RATE
Effect of a 10% increase of DKK and EUR:
Change in profit before tax
Change in equity
-1.7
-1.7
-2.8
-2.8
INTEREST RATE RISK
TORM’s interest rate risk generally relates to interest-
bearing mortgage debt and bank loans. All the Company’s
loans for financing vessels are denominated in USD, and all
are floating rate loans. At the end of 2016, TORM has fixed
68% of the interest exposure for 2017 (2015: 65%). The fix-
ing is a result of floating rate loans where Libor 3 or Libor
6 was fixed in 2016 into 2017 and interest hedging through
interest rate swaps.
All things being equal, a change in the interest rate level
of 1% point will result in a change in the interest rate ex-
penses as follows:
USDm
2017
2016
SENSITIVITY TO CHANGES
IN INTEREST RATES
Effect of a 1% point increase
in interest rates:
Change in profit before tax
Change in equity
-2.5
6.8
-3.3
9.5
TORM’s interest-bearing debt decreased from year-end
2015 to year-end 2016 by USD 95m (2015: increase of
USD 639m) to USD 672m (2015: USD 767m).
TORM 2016Notes 107
NOTE 21
FINANCIAL INSTRUMENTS
2016
USDm
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES:
Quoted
prices
(Level 1)
Observable
input
(Level 2)
Unobservable
input
(Level 3)
Carrying
value
Loans and receivables
Freight receivables, amortized cost
Other receivables, amortized cost
Other receivables, fair value
Cash and cash equivalents, amortized cost
Total
Financial liabilities
Mortgage debt and bank loans, amortized cost
Finance lease liabilities, amortized cost
Trade payables, amortized cost
Other liabilities, amortized cost
Other liabilities, fair value
Total
USDm
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES:
Loans and receivables
Freight receivables, amortized cost
Other receivables, amortized cost
Other receivables, fair value
Cash and cash equivalents, amortized cost
Total
Financial liabilities
Mortgage debt and bank loans, amortized cost
Finance lease liabilities, amortized cost
Trade payables, amortized cost
Other liabilities, amortized cost
Other liabilities, fair value
Total
*)
*)
**)
*)
*)
*)
*)
*)
**)
*)
*)
*)
-
-
-
-
-
-
-
-
-
-
-
-
-
3.3
-
3.3
-
-
-
-
4.8
4.8
2015
-
-
-
-
-
-
-
-
-
-
-
62.5
7.2
-
76.0
145.7
669.6
13.6
28.5
28.3
4.8
744.8
Quoted
prices
(Level 1)
Observable
input
(Level 2)
Unobservable
input
(Level 3)
Carrying
value
-
-
-
-
-
-
-
-
-
-
-
-
-
1.6
-
1.6
-
-
-
-
0.2
0.2
-
-
-
-
-
-
-
-
-
-
-
83.1
2.5
1.6
168.3
255.5
766.3
13.6
22.3
24.6
0.2
827.0
*) Due to the short maturity, the carrying value is considered to be an appropriate expression of the fair value.
**) See note 15.
There have been no transfers between level 1 and 2.
FAIR VALUE HIERARCHY FOR FINANCIAL INSTRUMENTS
MEASURED AT FAIR VALUE IN THE BALANCE SHEET
Below shows the fair value hierarchy for financial instru-
ments measured at fair value in the balance sheet. The fi-
nancial instruments in question are grouped into Levels 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 identi-
cal 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 di-
rectly (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)
METHODS AND ASSUMPTIONS IN DETERMINING FAIR
VALUE OF FINANCIAL INSTRUMENTS
Derivative part of other receivables and other payables
The fair value of derivatives in other receivables and other
payables is measured using accepted valuation methods
with input variables such as yield curves, forward curves,
spreads, etc. The valuation methods discount the future
fixed and estimated cash flows and valuation of any option
elements.
TORM 2016Notes 108
NOTE 22
RELATED PARTY TRANSACTIONS
The Company's ultimate controlling party is Oaktree Capital Group, LLC, a limited liability company incorporated in the USA.
The immediate controlling shareholder is Njord Luxco.
Dividends paid are disclosed in the consolidated statement of changes in equity.
The remuneration of key management personnel, which consists of the board of directors, is disclosed in the Remuneration
Committee Report on page 56.
NOTE 23
NON-CURRENT ASSETS SOLD DURING THE YEAR
There has been no sale of non-current assets in 2016.
During 2015, TORM sold its two remaining bulk vessels for USD 18m in connection with the wind-down of the Company's
bulk activities. Both vessels were delivered to the new owners during 2015. The sales did not result in any gain or losses.
NOTE 24
CASH FLOWS
USDm
Reversal of other non-cash movements:
Amortization of acquired assets and liabilities
Exchange rate adjustments
Share-based payments
Equity transactions expensed in relation to Corporate Reorganization
Other adjustments
Total
Change in bunkers, receivables and payables etc.:
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
Total
2016
2015
-0.1
-2.4
2.0
-6.4
-0.2
-7.1
-6.1
18.1
2.7
-5.4
-1.0
8.3
-0.7
-0.1
-0.0
-
-0.1
-0.9
15.6
6.1
4.9
-11.9
2.2
16.9
TORM 2016Notes
109
NOTE 25
ENTITIES IN THE GROUP
Parent Company:
TORM plc
Investments in subsidiaries*):
United Kingdom
Entity
TORM A/S
Ownership Country
Entity
Ownership Country
100% Denmark
OCM Holdings Mrs Inc.
100% Marshall Islands
DK Vessel HoldCo GP ApS
100% Denmark
OCM Njord Anne Inc.
100% Marshall Islands
DK Vessel HoldCo K/S
100% Denmark
OCM Njord Freya Inc.
100% Marshall Islands
OCM (Gibraltar) Njord Midco Ltd
100% Gibraltar
OCM Njord Gerd Inc.
100% Marshall Islands
OCM Njord Chartering Inc
100%
Marshall
Islands
OCM Njord Gertrud Inc.
100% Marshall Islands
OCM Njord Gunhild Inc.
100% Marshall Islands
OCM Singapore Njord Holdings
Agnes, Pte. Ltd.
OCM Singapore Njord Holdings
Alice, Pte. Ltd.
OCM Singapore Njord Holdings
Almena, Pte. Ltd.
OCM Singapore Njord Holdings
Amalie, Pte. Ltd.
OCM Singapore Njord Holdings
Aslaug, Pte. Ltd.
OCM Singapore Njord Holdings
Hardrada, Pte. Ltd.
OCM Singapore Njord Holdings
St.Michaelis Pte. Ltd.
OCM Singapore Njord Holdings
St. Gabriel Pte. Ltd.
OCM Singapore Njord Holdings
Harald Pte. Ltd. **)
OCM Singapore Njord Holdings
Gorm Pte. Ltd.
OCM Singapore Njord Holdings
Knut Pte. Ltd.
OCM Singapore Njord Holdings
Valdemar Pte. Ltd.
OCM Singapore Njord Holdings
Agnete, Pte. Ltd.
OCM Singapore Njord Holdings
Alexandra, Pte. Ltd.
OCM Singapore Njord Holdings
Anabel, Pte. Ltd.
OCM Singapore Njord Holdings
Arawa Pte. Ltd.
OCM Singapore Njord Holdings
Leif Pte. Ltd.
OCM Singapore Njord Holdings
Rolf Pte. Ltd. **)
100%
Singapore
OCM Njord Helene Inc.
100% Marshall Islands
OCM Njord Helvig Inc.
100% Marshall Islands
100%
Singapore
OCM Njord Ingeborg Inc.
100% Marshall Islands
100%
Singapore
OCM Njord Ragnhild Inc.
100% Marshall Islands
OCM Njord Mary Inc.
100% Marshall Islands
100%
Singapore
100%
Singapore
100%
Singapore
100%
Singapore
100%
Singapore
OCM Njord Thyra Inc.
100% Marshall Islands
OCM Njord Valborg Inc.
100% Marshall Islands
OCM Njord Vita Inc.
OMI Holding Ltd.
100% Marshall Islands
100% Mauritius
Torghatten & TORM Shipowning
ApS **)
100% Denmark
TORM Crewing Service Ltd.
100% Bermuda
TORM Shipping India Private
Limited
100%
India
TORM Singapore Pte. Ltd.
100%
Singapore
100%
Singapore
TORM USA LLC
100% United States
100%
Singapore
VesselCo 1 K/S
TT Shipowning K/S **)
100%
Singapore
100%
Singapore
100%
Singapore
100%
Singapore
VesselCo 3 K/S
VesselCo 6 Pte. Ltd.
VesselCo 7 Pte. Ltd.
VesselCo 8 Pte. Ltd.
VesselCo 9 Pte. Ltd.
VesselCo 10 Pte. Ltd.
VesselCo 11 Pte. Ltd.
100% Denmark
100% Denmark
100% Denmark
100%
Singapore
100%
Singapore
100%
Singapore
100%
Singapore
100%
Singapore
100%
Singapore
TORM SHIPPING (PHILS.), INC.
25%
Philippines
100%
Singapore
VesselCo A ApS
VesselCo C ApS
100% Denmark
100% Denmark
100%
Singapore
100%
Singapore
100%
Singapore
Interest in legal entities included as joint ventures:
2016
USDm
Entity
Long Range 2 A/S
LR2 Management K/S
Ownership Country
50%
50%
Denmark
Denmark
Profit and loss
from continuing
operations
Other
comprehensive
income
Total
comprehensive
income
0.0
0.0
0.0
0.0
0.0
0.0
*) For all companies in this list, ownership and voting rights are the same except for TORM SHIPPING (PHILS.) INC where voting rights are 100%.
**) Dissolved during the year.
TORM 2016Notes
110
NOTE 26
EARNINGS PER SHARE
2016
2015
Net profit/(loss) for the year (USDm)
-142.5
126.0
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 per share (USD)
Diluted earnings per share (USD)
63.1
-0.2
62.9
0.0
62.9
-2.3
-2.3
51.7
0.0
51.7
0.0
51.7
2.4
2.4
When calculating diluted earnings per share for 2016, share options have been omitted as they are out-of-the-money, but
the share options may potentially dilute earnings per share in the future. See also note 4 for information related to share
options.
DIVIDEND PER SHARE
Dividend for the year (USDm)
Number of shares, end of period (million)
Dividend per share
There is no proposed dividend as of 31 December 2016.
2016
2015
25.0
0.0
62.3
0.4
63.8
0.0
TORM 2016Notes Notes
111
Had the business combination been effected as of 1 Janu-
ary 2015, the revenue of the combined Group would have
been USD 854.3m and the profit for the year would have
been USD 186.7m in 2015.
The preparation of the pro forma figures for revenue
and profit for the year is based on actual earnings for
the period and the fair values used in the pre-acquisition
balance sheet and the effect thereof on earnings, including
depreciation on tangible fixed assets.
Assets acquired and liabilities assumed in the business
combination at fair value
NOTE 27
BUSINESS COMBINATIONS IN 2015
TORM A/S’ Restructuring was completed on 13 July
2015 and included inter alia a contribution by OCM Njord
Holdings S.à.r.l. (“Njord Luxco”) of its 100% owned sub-
sidiary Njord to TORM A/S in exchange for a controlling
interest in TORM A/S.
Following the implementation of the Restructuring, Njord
Luxco, holding 61.99% of the voting rights (excluding the
voting rights attached to the C Share) in TORM A/S, and
its subsidiaries, including Njord and Njord’s subsidiaries
(the “Combined Group”), controls the Combined Group
in accordance with IFRS 10 “Consolidated financial state-
ments”, as it controls the majority of the voting rights in
the Combined Group. Accordingly, the contribution of
Njord by Njord Luxco in exchange for a controlling inter-
est in the Combined Group has been accounted for as a
reverse acquisition in accordance with IFRS 3, “Business
Combinations”, which means that for financial reporting
purposes, Njord is considered the accounting acquirer and
the continuing reporting entity. Consequently, the con-
solidated financial statements of TORM following the Re-
structuring are a continuation of the financial statements
of Njord as the reporting continuing entity, despite TORM
A/S being the legal acquirer and the continuing publicly
listed company.
Njord’s purchase price for a controlling interest in TORM
A/S is calculated as the fair value of the interest in Njord
that the existing shareholders and warrant holders of
TORM A/S would have received, had the business com-
bination of TORM A/S and Njord not been a reverse ac-
quisition. The value is based on the value agreed between
TORM A/S, Njord Luxco and certain of TORM A/S’ pre-
Restructuring shareholders and lenders for the purposes of
determining the ownership interest in TORM A/S obtained
by Njord Luxco in exchange for the contribution of Njord.
Goodwill that arose in the combination relates to the bene-
fit of expected synergies from combining operations of the
acquiree and the acquirer. These benefits are not recog-
nized separately from goodwill, because they do not meet
the recognition criteria for identifiable intangible assets.
Of which:
Shares
Warrants
The freight and other receivables acquired with a total
fair value of USD 60.0m had a gross contractual amount
of USD 61.9m. The best estimate at the acquisition date
of the contractual cash flows not to be collected is USD
1.9m.
No acquisition-related costs have been incurred.
Since the acquisition date, revenue of USD 390.8m and
profit for the period ended 31 December 2015 of USD
88.2m are included in the consolidated income statement
in 2015.
USDm
Tangible fixed assets
Investment in joint ventures
Bunkers
Freight receivables
Other receivables
Prepayments
Cash and cash equivalents
Deferred tax liability
Mortgage debt and bank loans
Finance lease liabilities
Trade payables
Current tax liabilities
Other liabilities
Time charter contracts
Deferred income
Net assets acquired
Goodwill
Consideration (purchase price)
859.9
0.3
27.8
53.4
6.6
10.6
77.5
-45.1
-560.7
-13.5
-27.3
-1.4
-29.7
-1.6
-0.4
356.4
11.4
367.8
349.8
18.0
367.8
TORM 2016 TORM 2016 PARENT COMPANY 2016
TORM 2016 114
Parent Company 2016
COMPANY BALANCE SHEET
AS OF 31 DECEMBER
USD '000
ASSETS
NON-CURRENT ASSETS
Financial assets
Investments in subsidiaries
Total financial assets
Total non-current assets
CURRENT ASSETS
Other receivables
Prepayments
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
EQUITY
Common shares
Treasury shares
Share premium
Retained profit
Total equity
LIABILITIES
NON-CURRENT LIABILITIES
Mortgage debt and bank loans
Total non-current liabilities
CURRENT LIABILITIES
Mortgage debt and bank loans
Trade payables
Payables to subsidiaries
Other liabilities
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
Accounting policies
Staff costs
Collateral security for mortgage debt and bank loans
Guarantee commitments and contingent liabilities
Related party transactions
Note
2016
2015
5
828,555
828,555
828,555
-
-
-
1,066
286
-
1,379
34,536
-
35,602
1,665
864,157
1,665
623
-2,887
809,956
0
0
0
2
14,240
821,932
-1,097
-1,097
27,153
27,153
2,565
1,284
10,338
885
15,072
0
0
0
0
30
2,732
2,762
42,225
2,762
864,157
1,665
3
3
1
4
7
8
9
The financial statements of TORM plc, company number 09818726, have been approved by the Board of Directors
and signed on their behalf by:
Jacob Meldgard, Executive Director
9 March 2017
TORM 2016
COMPANY STATEMENT OF CHANGES IN EQUITY
Parent Company 2016
115
USD '000
EQUITY
Common
shares
Treasury
shares
Share
premium
Retained
profit
Total
Balance as of 12 October 2015 (incorporation)
-
-
-
-
-
Comprehensive income/(loss) for the year:
Net profit/(loss) for the year
Other comprehensive income/(loss) for the year
Total comprehensive income/(loss) for the year
Dividend paid
Total changes in equity 2015
-
-
-
-
-
-
-
-
-1,097
-1,097
-
-
-
-1,097
-1,097
-
-
-
-1,097
-1,097
-
Equity as of 31 December 2015
-
-
-
-1,097
-1,097
Equity as of 1 January 2016
-
-
-
-1,097
-1,097
Comprehensive income/(loss) for the year:
Net profit/(loss) for the year
Other comprehensive income/(loss) for the year
-
-
-
-
-
-
38,308
38,308
-
-
Total comprehensive income/(loss) for the year
-
-
-
38,308
38,308
Share capital increase
Contribution in kind of subsidiary
Corporate Reorganization TORM plc
Share-based compensation
Acquisition treasury shares, cost
Dividend paid
Total changes in equity 2016
623
-
-
-
-
-
-
-
-
-
-2,887
-
-
813,100
-3,144
-
-
-
-
-
-
2,029
623
813,100
-3,144
2,029
-
-2,887
-25,000
-25,000
623
-2,887
809,956
15,337
823,029
Equity as of 31 December 2016
623
-2,887
809,956
14,240
821,932
TORM 2016
116
Parent Company 2016
NOTE 1
ACCOUNTING POLICIES - SUPPLEMENTARY FOR THE PARENT COMPANY
Basis of preparation
The Company meets the definition of a qualifying entity
under Financial Reporting Standard 100 (“FRS 100”) issued
by the Financial Reporting Council. Therefore these finan-
cial statements were prepared in accordance with Financial
Reporting Standard 101 Reduced Disclosure Framework.
As permitted by FRS 101, the Company has taken advan-
tages of the disclosure exemptions available under that
standard in relation to accounting standards issued but not
yet effective or implemented, share-based payment infor-
mation, financial instruments, capital management, pre-
sentation of comparative information in respect of certain
assets, presentation of a cash-flow statement and certain
related party transactions.
First time application of FRS 101
In the current year, the Company has adopted FRS 101. In
previous years, the financial statements were prepared in
accordance with IFRS as adopted by the EU.
The change in the basis of preparation has not materially
altered the recognition and measurement of requirements
previously applied. Consequently, the principal accounting
policies are unchanged from previous year.
Investment in subsidiaries
Investment in subsidiaries are recognized and measured
in the financial statements of the Parent Company at cost
and classified as "non-current assets". Dividends are
recognized under “Financial income".
The financial statements have been prepared on a going
concern basis. Further information relating to the going
concer assumption is provided in the Corporate Govern-
ance section of the group financial statements on page 45.
The carrying amount of investments in subsidiaries is
increased to its recoverable amount, if there have been
changes in the estimates used to determine the recover-
able amount since the last impairment loss was recognized.
Where required, the equivalent disclosures are given in the
Group's consolidated financial statements. Key sources of
estimation uncertainty disclosure are provided in the ac-
counting policies and in relevant notes to the Group con-
solidated financial statements as applicable. Details of the
company's share-based payment schemes are provided in
note 4 of the Group consolidated financial statements on
page 94.
Reversal of impairment losses on investments in subsidiar-
ies and joint ventures is recognized in “Financial income”.
NOTE 2
PROFIT/(LOSS) AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR
As permitted by section 408 of the Companies Act 2006,
the statement of comprehensive income of the Company
is not presented as part of these financial statements.
The profit after tax for the year and total comprehensive
income of the Company amounted to USD 38.3m (2015:
USD -1.1m).
NOTE 3
INTERESTS AND BORROWINGS
As of 31 December 2016, the Company had borrowed USD 30.0m. The loan proceed was USD 0.3m lower due to fees.
The fee is amortized over the loan period. The Company has paid interests of USD 0.1m on this loan facility in 2016.
NOTE 4
USDm
STAFF COSTS
Total staff costs
Staff costs included in administrative expenses
Total staff costs
Average number of permanent employees
Employee information
The average number of employees is calculated as a full-time equivalent (FTE).
2016
2015
0.7
0.7
1
0.0
0.0
0
TORM 2016 NOTE 5
USDm
FINANCIAL ASSETS
Cost:
Balance as of 12 October 2015
Additions
Balance as of 31 December 2015
Carrying amount as of 31 December 2015
Cost:
Balance as of 1 January 2016
Contribution in kind of subsidiary
Additions
Capital increases in subsidiaries
Capital increase related to share-based payments
Balance as of 31 December 2016
Impairment:
Balance as of 1 January 2016
Impairment losses for the year
Balance as of 31 December 2016
Carrying amount as of 31 December 2016
Parent Company 2016
117
Investments in subsidiaries
0.0
0.0
0.0
0.0
0.0
813.7
29.3
227.5
2.0
1,072.5
0
244.0
244.0
828.5
TORM 2016 118
Parent Company 2016
NOTE 6
IMPAIRMENT TESTING
As of 31 December 2016, Management performed an
impairment test of investments in subsidiaries. The
subsid iaries of TORM plc are the formal owners of the
TORM vessels and operate in the product tanker market.
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 14 years.
As of 31 December 2016, the recoverable amount of the
investments in subsidiaries was based on the value in use.
The inflation rate is based on the US Federal Reserve and
ECB inflation target over the medium term and is set to 2%.
Based on this test, Management concluded that the
investments in subsidiaries were impaired by USD 244m,
as the carrying amount exceeded the value in use. The
impairment, which was primarily due to the significant fall
in expected freight rates during the year, was recognized
in the profit and loss in "Financial income".
The assessment of the value in use of the subsidiaries was
based on the present value of the expected future cash
flows. Accordingly, the freight rate estimates in the period
2017-2019 are based on the Company's business plans.
Beyond 2019, the freight rates are based on the 10-year
historical average rates from Clarksons, amended to re-
duce strong rates in 2007 and also adjusted for inflation.
The discount rate is based on a WACC of 8.8% as of 31
December 2016 (2015: 8.3%). WACC is calculated by using
a standard WACC model in which cost of equity, cost of
debt and capital structure are the key parameters.
As of 31 December 2016, the amended 10-year historical
average spot freight rates are as follows:
• LR2 USD/day 20,176 (2015: USD/day 21,975)
• LR1 USD/day 17,124 (2015: USD/day 18,900)
• MR USD/day 15,118 (2015: USD/day 16,948)
• Handysize USD/day 15,203 (2015: USD/day 17,868)
Operating expenses and administrative expenses are
estimated based on TORM's business plans for the period
2017-2019. Beyond 2019, operating expenses and adminis-
trative expenses are adjusted for 2% inflation.
Management believes that these major assumptions are
reasonable.
The calculation of the value in use is sensitive to changes
in the key assumptions which are related to the future
developments in freight rates, the WACC applied as
discounting factor in the calculations and the development
in operating expenses. All other things being equal, the
sensitivities to the value in use have been assessed as
follows:
• A decrease in tanker freight rates of USD/day 1,000
would result in a further decline of USD 228m
• An increase in WACC of 1.0% would result in a further
decline of USD 105m
• An increase in operating expenses of 10.0% would result
in a further decline of USD 174m
• A decrease in inflation rate of 0.5 percentage points
would result in a further decline of USD 15m
However, if these sensitivities had been applied to the
impairment test as of 31 December 2016, the maximum
additional impairment would be USD 91m as the recoverable
amount is to be assessed as the higher of value in use and
the fair value less cost to sell.
As outlined above, the impairment test has been prepared
on the basis that the Company will continue to operate the
vessels in the subsidiaries as a fleet in the current set-up.
Please refer to note 8 in the consolidated financial statements
for further information.
TORM 2016 Parent Company 2016
119
NOTE 7
COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS
The carrying amount of investments in subsidiaries that have been provided as security for mortgage debt and bank loans
amounts to USD 18.8m (2015: USD 0.0m).
NOTE 8
GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
The Company is guarantor for loan agreements established in the subsidiaries TORM A/S and VesselCo 9 Pte. Ltd.
NOTE 9
RELATED PARTY TRANSACTIONS
The Company's ultimate controlling party is Oaktree Capital Group, LLC, a limited liability company incorporated in
the US.
The immediate controlling shareholder is Njord Luxco.
Shareholders' contribution and dividend paid are disclosed in the consolidated statement of changes in equity.
The Company has received dividends from subsidiaries amounting to USD 287.1m (2015: USD 0.0m).
The Company has income in the form of management fee from its subsidiary TORM A/S of USD 0.0m (2015: USD 0.0m).
The Company has income in form of bareboat hire from its subsidiary TORM A/S of USD 9.9m (2015: USD 0.0m).
The Company has paid bareboat hire to its subsidiaries in the amount of USD 9.7m (2015: USD 0.0m).
There have been no or limited transactions with related parties during the financial year other than those disclosed above.
TORM 2016 120 Independent auditor’s report
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF TORM PLC
OPINION ON
FINANCIAL
STATEMENTS OF
TORM PLC
GOING CONCERN
AND THE DIRECTORS’
ASSESSMENT OF
THE PRINCIPAL
RISKS THAT WOULD
THREATEN THE
SOLVENCY OR
LIQUIDITY OF THE
GROUP
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of
the parent company’s affairs as at 31 December 2016 and of the Group’s loss for the
year then ended;
• the Group financial statements have been properly prepared in accordance with Inter-
national Financial Reporting Standards (IFRSs) as adopted by the European Union;
• the parent company financial statements have been properly prepared in accord-
ance with United Kingdom Generally Accepted Accounting Practice, including FRS
101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements
of the Companies Act 2006 and, as regards the group financial statements, Article
4 of the IAS Regulation.
The financial statements comprise:
• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated and Parent Company Balance Sheets;
• the Consolidated Cash Flow Statement,
• the Consolidated and Parent Company Statements of Changes in Equity; and
• the related notes 1 to 27 in respect of the Group financial statements and notes 1 to 9 in
respect of the parent company financial statements.
The financial reporting framework that has been applied in the preparation of the Group finan-
cial statements is applicable law and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice), including FRS 101 “Reduced Disclosure Framework”.
We have reviewed the directors’ statement regarding the appropriateness of the going
concern basis of accounting contained within note 1 to the financial statements and the di-
rectors’ statement on the longer-term viability of the Group contained within the strategic
report, on page 45.
We are required to state whether we have anything material to add or draw attention to in
relation to:
• the directors' confirmation on page 34 that they have carried out a robust assessment of
the principal risks facing the Group, including those that would threaten its business model,
future performance, solvency or liquidity;
• the disclosures on pages 34-35 that describe those risks and explain how they are being
managed or mitigated;
• the directors’ statement in note 1 to the financial statements about whether they considered
it appropriate to adopt the going concern basis of accounting in preparing them and their
identification of any material uncertainties to the Group’s ability to continue to do so over a
period of at least twelve months from the date of approval of the financial statements;
• the directors’ explanation on page 45 as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be ap-
propriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We confirm that we have nothing material to add or draw attention to in respect of these
matters.
We agreed with the directors’ adoption of the going concern basis of accounting and we
did not identify any such material uncertainties. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
TORM 2016 Independent auditor’s report
121
INDEPENDENCE
We are required to comply with the Financial Reporting Council’s Ethical Standards for Audi-
tors and confirm that we are independent of the Group and we have fulfilled our other ethi-
cal responsibilities in accordance with those standards.
We confirm that we are independent of the Group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also confirm we have not provided
any of the prohibited non-audit services referred to in those standards.
OUR ASSESSMENT OF
RISKS OF MATERIAL
MISSTATEMENT
The assessed risks of material misstatement described below are those that had the greatest
effect on our audit strategy, the allocation of resources in the audit and directing the efforts
of the engagement team.
IMPAIRMENT OF THE GROUP’S TANKER SEGMENT
RISK DESCRIPTION
As a consequence of significant reductions in prevailing freight rates during 2016, the carry-
ing value of the group’s Tanker segment was considered to be a key risk. Management has
concluded that its Tanker segment represents its sole cash generating unit (CGU) and has
accordingly conducted its impairment assessment at an overall Tanker segment level. The
carrying value of the CGU at 31 December 2016, which consists of goodwill, vessels and
capitalized dry-docking and prepayments on vessels, was USD 1,573m, prior to the determi-
nation of impairment.
The recoverable amount of the CGU is highly sensitive to a number of key assumptions, as
outlined further below. Significant judgement is also required in determining that the CGU
represents the Group’s sole cash generating unit and hence is the smallest identifiable group
of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or groups of assets.
Management has performed a review of the CGU for indicators of impairment and has sub-
sequently conducted an impairment test, on a value in use (discounted cash flow) basis, us-
ing the following key assumptions:
• future freight rates, which are based on the Group’s most recent business plan for 2017-
2019 and the 10-year historical average rates from Clarksons, amended to reduce strong
rates in 2007 and also adjusted for inflation;
• utilisation;
• discount rate;
• operating expenditure; and
• capital expenditure, including dry-docking.
As referenced on page 91 of the financial statements, the carrying value of vessels is considered
by management as a critical accounting judgement and key source of estimation uncertainty.
Management concluded that an impairment charge of USD 185m was required. Further de-
tails of the amounts capitalised at 31 December 2016 and the impairment charge that was
recorded in the year are provided in notes 7 and 8 of the financial statements and in the Au-
dit Committee Report on page 52.
TORM 2016 122
Independent auditor’s report
HOW THE SCOPE
OF OUR AUDIT
RESPONDED TO THE
RISK
We have obtained management’s value in use calculations and challenged the key assump-
tions by comparing them with publicly available information, our knowledge of the Group
and industry and the Group’s most recent business plan.
This included:
• assessing the design & implementation of management’s controls to address the risk of
impairment of its CGU;
• understanding how management manages their fleet and creates positive cashflows in order
to determine whether their judgement that the whole Tanker segment is one CGU is correct;
• understanding the process by which management has derived its value in use estimates;
• understanding and challenging the process used to develop the Group’s business plan and
comparing the key assumptions used for 2017-2019 to those applied in the value in use
calculations;
• comparing the freight rate assumptions used for 2017-2019 to third party forecasts for
those periods;
• comparing assumed freight rates from 2020 onwards with the published 10 year historical
average freight rate and understanding the basis for the adjustments made by manage-
ment to this published rate;
• comparing forecast utilisation by vessel to those achieved in prior periods;
• using our internal valuation specialists to perform an independent recalculation of the dis-
count rate used;
• evaluating management’s historic ability to budget for operating expenses per day;
• completing a scenario analysis, through which we sensitised future freight rates and the
discount rate and computed what we believed to be a reasonable range of impairment
charges, and then comparing management’s impairment charge against this range;and
• testing the clerical accuracy of the value in use calculations.
KEY OBSERVATIONS
We concur with management's assesment that TORM’s fleet is, in all material regards, inter-
changeable, and the identification of a single CGU is consistent with how management man-
ages the business to deliver the strongest returns. As such, considering the Tanker segment
as one CGU is appropriate.
Based on our scenario analysis, we are satisfied that the USD 185m charge recorded by the
Group lies towards the conservative (but acceptable) end of the range and we are satisfied it
is reasonable.
RECOGNITION OF REVENUE AND VOYAGE EXPENSES
RISK DESCRIPTION
Each of the Group’s vessels earns revenues on the basis of specific contracts with charter
parties, with revenue recognized upon delivery of services in accordance with the terms and
conditions of each contract.
Contracts are typically either time charters or voyage charters. For a time charter, revenue is
typically earned based on a specified rate per day, with the Group retaining responsibility for
crewing costs but the counterparty responsible for all other direct vessel costs, including fuel
and port charges. A voyage charter is the hiring of one of the Group’s vessels for a defined
voyage, with revenue typically earned on a lump-sum basis and the Group retaining respon-
sibility for all related costs. Under a voyage charter, revenue is recognised on a percentage
of completion basis, based on the percentage of the estimated duration of the voyage com-
pleted at the balance sheet date. However, the contract for a single voyage may state several
alternative destination ports with the consideration varying depending on the ultimate des-
tination. Voyage expenses (being port expenses, bunkers and commissions) are recognised
as incurred, however changes to the estimated duration of the voyage as well as changing
destinations and weather conditions will affect the expenses that are ultimately incurred.
As the revenue earned in relation to time charters in 2016 was not material, we concluded
that the key risk in respect of revenue and associated voyage expenses relates to the Group’s
voyage charters, which exhibit significant variability in contract terms by vessel and by coun-
terparty and require judgement to be applied in estimating the percentage of revenue to be
recognised, and the associated cost, in respect of voyages in progress at year end.
Further details of revenue recorded during the year and the corresponding judgements
made by management are provided in note 1 of the financial statements.
TORM 2016 Independent auditor’s report
123
HOW THE SCOPE
OF OUR AUDIT
RESPONDED TO THE
RISK
We have assessed the design and implementation of relevant internal controls related to rev-
enue recognition and related port expenses, bunkers and commissions.
We have also obtained a listing of all voyages for which revenue was recognised during the
year and, on a sample basis, recalculated the revenue recognised on the basis of the terms
of the contract, as well as agreeing it back to supporting invoices. Associated port expenses,
bunkers and commissions have been tested on a sample basis by agreeing them back to in-
voices and other third party support.
We have obtained a listing of voyages in progress at year-end and, on a sample basis, have
verified that an appropriate proportion of revenue has been recognised in the year based
on the relevant contract terms. Our procedures included performing a retrospective review,
subsequent to year-end, to compare actual revenue and associated costs upon completion
of a voyage to the amounts estimated and recorded as of 31 December 2016.
KEY OBSERVATIONS
We concur with the accounting policies applied to revenue recognition and voyage expenses
and we have not identified any unadjusted misstatements exceeding our threshold for re-
porting.
These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
OUR APPLICATION OF
MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality for the Company to be USD 10 million, which represents 8.6%
of the average profit before tax for the last two years, adjusted to exclude impairment
charges. We have utilised a two-year average profit figure due to the significant volatility
in prevailing freight rates during 2016 and the difficulty in predicting their future direc-
tion. The profit before tax figure used in this calculation for 2015 was the pro forma
figure prepared as though the restructuring of the Group, which completed in July 2015,
had occurred on 1 January 2015, as we believe this provides a more representative two-
year average profit figure for the Group in its current form. In addition to this primary
metric, we have also taken into consideration a number of other income statement and
balance sheet metrics, with USD 10 million representing 1% of year end net assets, 2% of
time charter equivalent earnings and 5% of earnings before interest, tax,depreciation and
impairment.
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of USD 0.5 million, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presenta-
tion of the financial statements.
Our Group audit was scoped by obtaining an understanding of the Group and its envi-
ronment, including Group-wide controls, and assessing the risks of material misstate-
ment at the Group level. All significant elements of the Group’s finance and accounting
function are situated and managed centrally in Copenhagen, Denmark and operate under
one common internal control environment; all operations of the Group are also managed
from this location. Accordingly, we concluded, that the Group’s business represented a
single component and therefore all operations of the Group were subject to a full scope
audit.
During the course of the audit, senior members of the UK audit team, including the
Senior Statutory Auditor, supervised the members of the audit team who are based in
Copenhagen, Denmark, and visited the Copenhagen operations during the interim and
completion stages of the audit.
AN OVERVIEW OF
THE SCOPE OF OUR
AUDIT
TORM 2016 124
Independent auditor’s report
OPINION ON
OTHER MATTERS
PRESCRIBED BY THE
COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
• the part of the Directors’ Remuneration Report to be audited has been properly pre-
pared in accordance with the Companies Act 2006;
• the information given in the Strategic Report and the Directors’ Report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the Company and its environment
obtained in the course of the audit, we have not identified any material misstatements in
the Strategic Report and the Directors’ Report.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
ADEQUACY OF
EXPLANATIONS
RECEIVED AND
ACCOUNTING
RECORDS
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns ad-
equate for our audit have not been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records
and returns.
We have nothing to report in respect of these matters.
DIRECTORS’
REMUNERATION
Under the Companies Act 2006 we are also required to report if, in our opinion, certain
disclosures of directors’ remuneration have not been made or the part of the Directors’
Remuneration Report to be audited is not in agreement with the accounting records
and returns.
We have nothing to report arising from these matters.
OUR DUTY TO READ
OTHER INFORMATION
IN THE ANNUAL
REPORT
Under International Standards on Auditing (UK and Ireland), we are required to report
to you if, in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowl-
edge of the Group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies
between our knowledge acquired during the audit and the directors’ statement that
they consider the annual report is fair, balanced and understandable and whether the
annual report appropriately discloses those matters that we communicated to the Audit
Committee which we consider should have been disclosed.
We confirm that we have not identified any such inconsistencies or misleading statements.
TORM 2016 Independent auditor’s report
125
RESPECTIVE
RESPONSIBILITIES
OF DIRECTORS AND
AUDITOR
SCOPE OF THE AUDIT
OF THE FINANCIAL
STATEMENTS
As explained more fully in the Directors’ Responsibilities Statement, the directors are respon-
sible for the preparation of the financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an opinion on the financial state-
ments in accordance with applicable law and International Standards on Auditing (UK and
Ireland). We also comply with International Standard on Quality Control 1 (UK and Ireland).
Our audit methodology and tools aim to ensure that our quality control procedures are ef-
fective, understood and applied. Our quality controls and systems include our dedicated
professional standards review team and independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance with Chap-
ter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we
might state to the Company’s members those matters we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the company and the Company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
An audit involves obtaining evidence about the amounts and disclosures in the financial
statements sufficient to give reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group’s and the parent company’s
circumstances and have been consistently applied and adequately disclosed; the reasonable-
ness of significant accounting estimates made by the directors; and the overall presentation
of the financial statements. In addition, we read all the financial and nonfinancial information
in the annual report to identify material inconsistencies with the audited financial statements
and to identify any information that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies we consider the
implications for our report.
David Paterson, ACA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
9 March 2017
TORM 2016 126
Fleet overview
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2016
SEGMENT
VESSEL CLASS
VESSEL
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
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
LR2
LR2
LR2
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
MR
MR
MR
MR
MR
MR
MR
MR
MR
TORM GUDRUN
TORM HELENE
TORM INGEBORG
TORM KRISTINA
TORM MAREN
TORM MARINA
TORM MATHILDE
TORM VALBORG
TORM EMILIE
TORM ESTRID
TORM ISMINI
TORM SARA
TORM SIGNE
TORM SOFIA
TORM VENTURE
TORM AGNES
TORM AGNETE
TORM ALEXANDRA
TORM ALICE
TORM ALMENA
TORM AMALIE
TORM AMAZON
TORM ANABEL
TORM ANNE
TORM ARAWA
TORM ASLAUG
TORM ASTRID
TORM ATLANTIC
TORM CAMILLA
TORM CARINA
TORM CAROLINE
TORM CECILIE
TORM CLARA
TORM ERIC
TORM FREYA
TORM GERD
TORM GERTRUD
TORM GUNHILD
TORM HARDRADA
TORM HELVIG
TORM HORIZON
TORM KANSAS
TORM LAURA
TORM LENE
DWT
99,965
99,999
99,999
99,999
109,672
109,672
109,672
99,999
74,999
74,999
74,999
72,718
72,718
72,660
73,700
49,999
49,999
49,999
49,999
49,999
49,999
47,275
49,999
44,900
49,999
49,999
49,999
49,999
44,990
46,219
44,999
44,999
44,999
51,266
45,990
45,960
45,990
44,999
45,983
46,187
46,955
46,955
49,999
49,999
BUILT
OWNERSHIP
2000
1997
2003
1999
2008
2007
2008
2003
2004
2004
2004
2003
2005
2005
2007
2011
2010
2010
2010
2010
2011
2002
2012
1999
2012
2010
2012
2010
2003
2003
2002
2001
2000
2006
2003
2002
2002
1999
2007
2005
2004
2006
2008
2008
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
TORM 2016
SEGMENT
VESSEL CLASS
VESSEL
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
Tanker
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
Handysize
TORM LILLY
TORM LOKE
TORM LOTTE
TORM LOUISE
TORM MARY
TORM MOSELLE
TORM NECHES
TORM PLATTE
TORM RAGNHILD
TORM REPUBLICAN
TORM RESILIENCE
TORM ROSETTA
TORM SAN JACINTO
TORM THAMES
TORM THOR
TORM THUNDER
TORM TIMOTHY
TORM TITAN
TORM TORINO
TORM TROILUS
TORM THYRA
TORM VITA
TORM CHARENTE
TORM FOX
TORM GARONNE
TORM GYDA
TORM LOIRE
TORM MADISON
TORM OHIO
TORM RHONE
TORM SAONE
TORM TEVERE
TORM TRINITY
Fleet overview 127
BUILT
OWNERSHIP
2009
2007
2009
2009
2002
2003
2000
2006
2005
2006
2005
2003
2002
2005
2015
2015
2015
2015
2015
2015
2003
2002
2001
2005
2004
2009
2004
2000
2001
2000
2004
2005
2000
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%
100%
DWT
49,999
51,372
49,999
49,999
44,990
47,024
47,052
46,959
46,187
46,955
49,999
47,015
47,038
47,036
49,842
49,842
49,842
49,842
49,842
49,842
45,950
45,990
35,751
37,025
37,178
36,207
37,106
35,828
37,278
35,770
36,986
37,383
35,834
TORM 2016
128 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.
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.
CAPEX: Capital expenditure.
Charter party: A lease or freight agreement between a
shipowner and a charterer for a longer period of time or for
a single voyage.
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 seaworthi-
ness, 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 cargoes 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 typically be at a level equal to the
earnings in USD/day for the voyage.
DKK: Danish kroner.
Dwt: Deadweight ton. The cargo carrying capacity of a
vessel.
EBIT/Operating profit/(loss): Earnings Before Interest and
Tax.
Earning days: A measure of operating days available for
generating earnings.
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.
Loan-to-value (LTV): A measure of notional debt divided
by broker values of the encumbered vessels.
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.
MT: Metric ton.
Oaktree: Oaktree Capital Management, L.P.
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.
P&I club: Protection & Indemnity club.
Pool: A grouping of vessels of similar size and characteris-
tics, owned by different owners but commercially operated
jointly. The pool manager is mandated to charter the
vessels out for the maximum benefit 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.
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.
Technical management: An agreement to manage a
vessel’s technical operations and crew for the account and
risk of the shipowner.
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.
UN Global Compact: The United Nation’s social charter for
enterprises, etc.
Vetting: An audit of the safety and performance status of a
tanker vessel made by oil majors.
TORM 2016 Glossary
129
KEY FINANCIAL FIGURES
TCE % =
Gross profit % =
EBITDA % =
TCE
Revenue
Gross profit
Revenue
EBITDA
Revenue
Operating profit/(loss) % =
Return on Equity (RoE) % =
Operating profit/(loss) (EBIT)
Revenue
Net profit/(loss) for the year
Average equity
Return on Invested Capital
(RoIC) % =
Operating profit/(loss) less tax
Average invested capital
Adjusted Return on Invested Capital
(Adjusted RoIC) % =
Operating profit/(loss) less tax less impairment charges
Average invested capital less average impairment charges
Equity ratio =
Equity
Total assets
Earnings per share, EPS =
Net profit/(loss) for the year
Average number of shares
Diluted earnings/(loss) per share,
EPS (USD) =
Net profit/(loss) for the year
Average number of shares less average number of treasury shares
TORM 2016 130 Glossary
ALTERNATIVE PERFORMANCE MEASURES
Net profit excluding impairment: Net profit excluding
impairment is net profit less impairment. The table
below states the net profit without the impact of the
impairment adjustment of 185m USD in 2016:
USDm
Reconciliation to net profit
Reported numbers
Pro forma
2016
2015
2015
2014
Net profit for the year
-142.5
126.0
186.7
Reversal of impairment losses on tangible and
intangible assets
Net profit excluding impairment
185.0
42.5
0.0
126.0
0.0
186.7
0.0
0.0
0.0
EBITDA: TORM defines EBITDA as earnings before financial
income and expenses, depreciation, impairment, amort-
ization and taxes. The computation of EBITDA refers to
financial income and expenses which the Company deems
to be equivalent to “interest” for purposes of presenting
EBITDA. Financial expenses consist of interest on bank
loans, losses on foreign exchange transactions and bank
charges. Financial income consists of interest income and
gains on foreign exchange transactions.
pany's performance from period to period. This in-
creased comparability is achieved by excluding the
potentially disparate effects of interest, deprecia-
tion, impairment, amortization and taxes. These are
items that could be affected by various changing
financing methods, capital structure and which may
significantly affect profit/(loss) between periods.
Including EBITDA as a measure benefits investors in
selecting between investment alternatives.
EBITDA is used as a supplemental financial measure by
management and external users of financial statements,
such as lenders, to assess TORM's operating performance
as well as compliance with the financial covenants and
restrictions contained in the Company's financing agree-
ments. TORM believes that EBITDA assists Management
and investors by increasing comparability of the Com-
EBITDA excludes some, but not all, items that affect
profit/(loss), and these measures may vary among
other companies and not be directly comparable.
The following table reconciles EBITDA to net profit/
(loss), the most directly comparable IFRS financial
measure, for the periods presented:
USDm
Reconciliation to net profit/(loss)
Reported numbers
Pro forma
2016
2015
2015
2014
Net profit/(loss) of the year
-142.5
126.0
Tax
Financial expenses
Financial income
Depreciation
Impairment losses on tangible and intangible assets
EBITDA
0.8
37.3
-2.8
122.2
185.0
200.0
1.0
16.9
-1.0
67.3
0.0
210.3
186.7
1.1
32.1
-1.4
100.7
0.0
319.2
0.0
0.8
25.7
-2.9
94.9
0.0
118.5
TORM 2016 Glossary
131
Time Charter Equivalent (TCE) earnings: TORM defines
TCE earnings, a performance measure, as revenue
after port expenses, bunkers and commissions incl.
freight and bunker derivatives. The Company reports
TCE earnings because we believe it provides addi-
tional meaningful information to investors in relation to
revenue, the most directly comparable IFRS measure.
TCE earnings is a standard shipping industry perform-
ance measure used primarily to compare period-to-
period changes in a shipping company’s performance
irrespective of changes in the mix of charter types (i.e.,
spot charters, time charters and bareboat charters)
under which the vessels may be employed between
the periods. Below is presented a reconciliation from
Revenue to TCE earnings:
USDm
Reconciliation to revenue
Revenue
Port expenses, bunkers and commissions
TCE earnings
Reported numbers
Pro forma
2016
2015
2015
2014
680.1
-221.8
458.3
540.4
-169.6
370.8
854.3
-272.3
582.0
793.8
-379.5
414.3
Invested capital: TORM defines invested capital as the
sum of intangible assets, tangible fixed assets, invest-
ments in joint ventures, bunkers, accounts receiva-
bles, assets held-for-sale (when applicable), deferred
tax liability, trade payables, current tax liabilities and
deferred income. Invested capital measures the net
investment used to achieve our operating profit. The
Company believes that invested capital is a relevant
measure that management uses to measure the overall
development of the assets and liabilities generating our
net profit. Such measure may not be comparable to
similarly titled measures of other companies. Invested
capital is calculated as follows:
USDm
Invested capital
Tangible and intangible fixed assets
Investments in joint ventures
Bunkers
Accounts receivables1)
Deferred tax liability
Trade payables2)
Current tax liabilities
Deferred income
Invested capital
Reported numbers
Pro forma
2016
2015
2015
2014
1,389.7
1,578.5
1,578.5
1,430.7
0.3
31.6
73.7
-45.0
-61.6
-0.8
-0.2
0.3
25.6
94.8
-45.1
-64.3
-1.8
-0.4
0.3
25.6
94.8
-45.1
-64.3
-1.8
-0.4
0.9
32.4
153.1
0.0
-127.4
0.0
-1.7
1,387.8
1,587.6
1,587.6
1,488.0
1) Accounts receivables includes Freight receivables, Other receivables and Prepayments.
2) Trade payables includes Trade payables and Other liabilities.
TORM 2016 132 Glossary
Net interest-bearing debt: Net interest-bearing debt is
defined as mortgage debt and bank loans (current and
non-current), finance lease liabilities less cash and cash
equivalents. Net interest-bearing debt depicts the net
capital resources, which cause net interest expenditure
and interest rate risk and which, together with equity,
are used to finance our investments. As such, TORM
believes that net interest-bearing debt is a relevant
USDm
Net interest-bearing debt
Mortgage debt and bank loans (current and non-current)
Finance lease liabilities
Amortized bank fees
Cash and cash equivalents
Net interest-bearing debt
measure which management uses to measure the
overall development of our use of financing, other than
equity. Such measure may not be comparable to simi-
larly titled measures of other companies. Net interest-
bearing debt is calculated as follows:
Reported numbers
Pro forma
2016
669.6
13.6
2.0
-76.0
609.2
2015
2015
2014
766.2
13.6
1.0
-168.3
612.5
766.2
13.6
1.0
-168.3
612.5
688.5
0.0
0.0
-69.5
619.0
Net Asset Value per share (NAV/share): TORM believes
that the NAV/share is a relevant measure that manage-
ment uses to measure the overall development of the
assets and liabilities per share. Such measure may not
be comparable to similarly titled measures of other
companies. NAV/share is calculated using broker values
of vessels and excluding charter commitments. NAV/
share is calculated as follows:
USDm
Net Asset Value per share
Total vessels value including newbuildings (broker values)
Committed CAPEX on newbuildings
Cash position
Bunkers
Freight receivables
Other receivables
Other plant and operating equipment
Investments in joint ventures
Prepayment
Outstanding debt1)
Trade payables
Other liabilities
Current tax liabilities
Total Net Asset Value (NAV)
Total number of shares excluding treasury shares (million)
Reported numbers
2016
2015
1,445.8
-148.8
76.0
31.6
62.5
8.1
1.8
0.3
3.0
1,951.0
-223.9
168.3
25.6
83.1
5.8
2.5
0.3
5.9
-685.2
-780.8
-28.5
-33.0
-0.8
732.7
62.0
-22.3
-42.1
-1.8
1,171.6
63.8
Total Net Asset Value per share (NAV/share)
11.8
18.4
1) Outstanding debt includes long-term and short-term Mortgage debt and bank loans and Finance lease liabilities.
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TORM PLC
BIRCHIN COURT
20 BIRCHIN LANE
LONDON, EC3V 9DU
UNITED KINGDOM
TEL.: +45 3917 9200
WWW.TORM.COM
CVR: 22460218