TORM Annual Report 2017 | Quarterlytics

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FY2017 Annual Report · TORM

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ANNUAL REPORT 2017

CONTENTS

CHAIRMAN’S
STATEMENT

HIGHLIGHTS
2017

PRODUCT TANKER
MARKET

CORPORATE
GOVERNANCE

FINANCIAL
STATEMENTS

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

Chairman’s Statement

Key Figures

Highlights

Outlook 2018

Statement by the Executive Director

Strategic Ambition and Business Model

Value Chain in Oil Transportation

The Product Tanker Market

Key Performance Indicators

US Listing

Corporate Social Responsibility

Risk Management

Financial Review 2017

4
6
8
11
14
16
20
21
26
27
28
37
41

Chairman’s Introduction

Corporate Governance

Audit Committee Report

Risk Committee Report

Nomination Committee Report

Remuneration Committee Report

Investor Information

Directors’ Report

Statement of Directors’ Responsibilities

51
52
58
63
66
68
77
80
84

Consolidated Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

87
Consolidated Income Statement
Consolidated Statement of Comprehensive Income 87
88
89
91
92
128
129
130
131

Notes to Consolidated Financial Statements

Company Statement of Changes in Equity

Notes to Parent Financial Statements

Company Balance Sheet

Parent Company 2017

Independent Auditor’s Report to the Members of

TORM plc

TORM Fleet Overview

Glossary

135
141
144

TORM ANNUAL REPORT 2017

CONTENTS

Contents

TORM ANNUAL REPORT 2017

CONTENTS

CHAIRMAN’S STATEMENT

In 2017, TORM continued to execute on its strategic objectives. I am pleased that we were able to grow the fleet through attractively priced vessel
acquisitions, complete the US listing in December and finally, in January this year, we raised USD 100m in new equity for further growth.
Looking ahead, I have confidence in the strength and performance of the TORM platform. With an encouraging market outlook for product
tankers, I look forward to reporting on our progress throughout 2018.
Christopher H. Boehringer, Chairman of the Board

In a year where product tanker rates were subdued for
most of the year, I am pleased to report that TORM
was able to execute on its strategic objectives. In
December 2017, TORM reached an important
milestone by completing the dual-listing on NASDAQ1
in the US. The dual-listing was one of the factors
supporting TORM’s successful equity capital raise in
January 2018, a capital raise that further strengthens
TORM’s strategic and financial flexibility by securing
additional capacity to pursue growth opportunities.

INDUSTRY-LEADING PERFORMANCE IN 2017
At the beginning of 2017, global clean petroleum
product inventory levels were at all-time highs, which
dampened transportation demand and kept product
tanker freight rates under pressure throughout most
of 2017. This is a natural part of the cycle, where we
saw strong product tanker freight rates in 2015
through the first half of 2016 as inventory levels grew.
Since then, demand has partly been met by local
supply from either production or inventory.

DUAL-LISTING COMPLETED
On 11 December 2017, TORM plc listed on NASDAQ in
New York under the ticker “TRMD”. The Board of
Directors considers the completed dual-listing a key
benefit for all stakeholders and a prerequisite to
creating an attractive vehicle for investors looking for
exposure to the product tanker industry. Initially, the
dual-listing provides shareholders with the optionality
of trading shares on both exchanges, and over time
the increased exposure towards the US equity market
is expected to improve trading liquidity.

I find it encouraging that the latest data points
suggest that we are back at normalized inventory
levels on a global scale. Furthermore, we have seen
regional freight rate spikes over the course of 2017,
which suggests that the product tanker market is
more balanced and reacts as expected when local
inventory levels are low.

remained profitable with a pre-tax profit of USD 3m
(2016: USD -142m, or USD 43m when excluding
impairments).

As a pure-play product tanker company, this
performance can be attributed to TORM’s integrated
operating platform, a well-maintained fleet and a
presence in all larger product tanker classes. With TCE
earnings2 and cash flow at the top end of comparable
industry players, I consider the 2017 results to be solid
and to prove TORM’s position as Reference Company
in the product tanker industry.

Looking ahead, the supply growth looks manageable,
and when considering that inventory levels are back at
normalized levels, the fundamentals are in place for a
sustained strengthening of the product tanker market.

Operating within the context of a difficult market,
TORM nevertheless generated a strong cash flow from
operations of USD 110m (2016: USD 171m) and

SOLID CAPITAL STRUCTURE, READY FOR GROWTH
Throughout 2017, TORM has maintained its strategic
and financial flexibility. During the year, the Company
undertook initiatives to grow and rejuvenate the fleet

1 NASDAQ Global Select Market.

2 See Glossary on pages 144-149 for a definition of TCE earnings.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

Strategic Report

by acquiring a total of eight vessels (six MR resales
and two LR1 newbuildings). Two of the MR vessels
were delivered in 2017, the remaining four and the two
LR1s are scheduled for delivery in 2019 through the
first quarter of 2020.

The USD 100m equity capital raise announced in
January 2018 further strengthens the Company’s
capital position and gives TORM the financial strength
to continue pursuing attractive investment
opportunities in 2018.

The transaction is a testament to the One TORM
platform and the value that both existing and new
investors associate with the platform.

Christopher H. Boehringer, Chairman of the Board

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

KEY FIGURES

2017

2016

2015

2015 ¹

2017

2016

2015

2015 ¹

Pro forma

INCOME STATEMENT (USDm)

Revenue

Time charter equivalent earnings (TCE) ²

⁾

Gross profit ²

EBITDA ²

⁾

Operating profit/(loss) (EBIT)

⁾

Financial items

Profit/(loss) before tax

Net profit/(loss) for the year

Net profit/(loss) for the year excluding

657

397

200

158

-36

680

458

242

200

-107

-35

-142

540

371

236

210

143

-16

127

126

⁾

854

582

361

319

219

-31

188

187

impairment charges

126

187

KEY FINANCIAL FIGURES ²

⁾

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 ²

Basic earnings/(loss) per share (USD)

⁾

Diluted earnings/(loss) per share (USD)

60.4%

30.4%

24.0%

6.1%

0.3%

2.8%

2.4%

48.0%

67.4%

35.6%

29.4%

-15.7%

-16.2%

-7.2%

4.9%

49.7%

68.6%

43.6%

38.9%

26.5%

17.4%

13.2%

52.3%

0.04

0.02

-2.3

0.4

2.4

BALANCE SHEET (USDm)

Non-current assets

Total assets

Equity

Total liabilities

Invested capital ²

Net interest-bearing debt ²

⁾

Cash and cash equivalents
⁾

1,385

1,390

1,579

1,647

1,571

1,867

Dividend per share (USD)

791

856

781

790

976

891

976

891

1,406

1,388

1,588

620

134

609

613

168

613

168

Net Asset Value per share (NAV/share) ³

12.8

11.8

18.4

Stock price in DKK, end of period (per share

⁾

of USD 0.01)

53.5

63.5

97.5

Number of shares (excluding treasury shares),

end of period (million)

62.0

63.8

Number of shares (excluding treasury shares),

average (million)

62.0

62.9

51.7

Pro forma 2015 represents the financial information of the combined businesses of Former TORM A/S and Njord
adjusted for non-recurring items. See page 93 for discussion of the “2015 Restructuring”.
For definition of the calculated key figures, please refer to the glossary on page 144-149.
Based on broker valuations as of 31 December 2017, excluding charter commitments.

²
³

⁾

⁾
⁾

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

⁾

68.1%

42.3%

37.4%

25.6%

14.1%

SAFE HARBOR STATEMENTS AS TO THE
FUTURE

Matters discussed in this release may constitute
forward-looking statements. Forward-looking
statements reflect our current views with respect to
future events and financial performance and may
include statements concerning plans, objectives, goals,
strategies, future events or performance, and
underlying assumptions and statements other than
statements of historical facts. The 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 limitation, 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
accomplish these expectations, beliefs or projections.

Important factors that, in our view, could cause actual
results to differ materially from those discussed in the
forward-looking statements include the strength of
the world economy and currencies, changes in charter
hire rates and vessel values, changes in demand for
“ton-miles” of oil carried by oil tankers, the effect of
changes in OPEC’s petroleum production levels and
worldwide oil consumption and storage, changes in
demand that may affect attitudes of time charterers to
scheduled and unscheduled dry-docking, changes in
TORM’s operating expenses, including bunker prices,
dry-docking and insurance costs, changes in the
regulation of shipping operations, including
requirements for double hull tankers or actions taken
by regulatory authorities, potential liability from
pending or future litigation, domestic and 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
unanticipated events.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

HIGHLIGHTS

2017 RESULT

MARKET
CONDITIONS

In 2017, TORM realized an EBITDA of USD 158m (2016: USD 200m). The 2017 profit before tax
amounted to USD 3m (2016: USD -142m).
TORM’s performance in 2017 is satisfactory considering the market conditions and strong when comparing
to peers. Return on Invested Capital (RoIC) was 2.8% (2016: -7.2%, or 4.9% when adjusting for
impairments).

For the full year 2017, TORM achieved TCE rates of USD/day 14,621 (2016: USD/day 16,050).
Despite a healthy consumer-driven demand for refined oil products, the record high clean petroleum
product inventory levels globally that were built up during 2015 and 2016 had a negative impact on the
product tanker market in 2017. Inventory drawdown was an overriding theme in 2017, which naturally had
a negative impact on product tanker demand. In fact, global Clean Petroleum Products (CPP) stocks
decreased by a volume equivalent to a loss of potential trade of 4%.

VESSEL
TRANSACTIONS

During 2017, TORM acquired six MR resale vessels and executed newbuilding options for two LR1
vessels for a total consideration of USD 259m.
Two of the MR resale vessels were delivered in the third quarter of 2017. TORM has bank financing in place
for all eight vessels. TORM’s order book stood at ten newbuildings: four LR2s, four MRs and two LR1s all
from Guangzhou Shipyard International3.

In addition to the vessel acquisitions, TORM has over the course of 2017 sold five older vessels (one MR
vessel and four Handysize vessels). TORM also made three sale and leaseback transactions that are
treated as financial leases although they have no purchase obligation attached.

3 Guangzhou Shipyard International Company Limited (GSI).

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

HIGHLIGHTS - continued

CORPORATE
EVENTS

US listing completed in 2017.
On 11 December 2017, TORM achieved a milestone by listing its A-shares on NASDAQ in New York under
the ticker TRMD. TORM’s shares are now dual-listed in Copenhagen and New York, and the dual listing
enables shareholders to move shares between the two exchanges. TORM believes that over time, a dual
listing will attract further investor interest, which will strengthen the Company’s strategic and financial
flexibility.

USD 100m private placement completed in 2018.
On 26 January 2018, TORM completed an equity raise of USD 100m. The new equity strengthens TORM’s
ability to pursue attractively priced growth opportunities.

LIQUIDITY

As of 31 December 2017, TORM’s available liquidity was USD 405m and consisted of USD 134m in cash
and USD 271m in undrawn credit facilities.
As of 31 December 2017, net interest-bearing debt4 amounted to USD 620m.

As of 31 December 2017, TORM's net loan-to-value (LTV)5 ratio was 56%.

NAV AND EQUITY

Based on broker valuations, TORM’s NAV6 excluding charter commitments is estimated at USD 796m.
This corresponds to a NAV/share of USD 12.8 or DKK 79.7.
TORM’s book equity amounted to USD 791m as of 31 December 2017. This corresponds to a book
equity/share of USD 12.8 or DKK 79.2.

4 See Glossary on pages 144-149 for a definition of net interest-bearing debt
5 See Glossary on pages 144-149 for a definition of loan-to-value.
6 See Glossary on pages 144-149 for a definition of NAV

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

HIGHLIGHTS - continued

VESSEL VALUES,
ORDER BOOK AND
CAPEX

Based on broker valuations, TORM’s fleet including newbuildings had a market value of
USD 1,661m as of 31 December 2017.
As of 31 December 2017, TORM’s order book stood at ten newbuildings: four LR2s, four MRs and two LR1s
all from Guangzhou Shipyard International.

The LR2s are expected to be delivered in 2018 and the MRs and the LR1s in 2019 throughout the first
quarter of 2020. Outstanding CAPEX7 relating to the order book and vessel purchases amounted to USD
307m.

As of 31 December 2017, TORM performed a review of the recoverable amount of its assets by assessing
the recoverable amount for the most significant assets. Based on this review, Management concluded that
the assets were not impaired as the value in use approximates the carrying value.

The book value of the fleet was USD 1,383m as of 31 December 2017 excluding outstanding installments on
the newbuildings of USD 307m.

COVERAGE

As of 31 December 2017, 13% of the total earning days8 in 2018 were covered at USD/day 18,814.

As of 2 March 2018, 27% of the total earning days in 2018 were covered at USD/day 15,792.

DISTRIBUTION
POLICY

TORM intends to distribute 25-50% of net income semi-annually.
For the first half of 2017, TORM distributed USD 1.2m in dividends.
For the second half of 2017, the Board of Directors proposes that no dividend be distributed.

7 See Glossary on pages 144-149 for a definition of CAPEX.
8 See Glossary on pages 144-149 for a definition of total earning days.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

OUTLOOK 2018

As of 31 December 2017, TORM had covered 3,698 earning days (13% of total earning days) for 2018 at an average rate of USD/day 18,814, which
is above the available benchmarks.
As of the same date, the interest-bearing bank debt totaled USD 721m, and TORM had fixed 63% of the interest exposure for 2018.

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 2018-2020, the product tanker ton-mile
demand is estimated to grow by a compound annual
rate of approximately 5% with an estimated net growth
in tonnage supply of approximately 4%. 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 21-24.

COVERAGE FOR 2018
As of 31 December 2017, TORM had covered 3,698
earning days (13% of total earning days) for 2018 at an
average rate of USD/day 18,814, which is above the
available benchmarks. This means that a change in
freight rates of USD/day 1,000 would impact the full-
year EBITDA by USD 24m.

As of 31 December 2017, the interest-bearing bank
debt totaled USD 721m, and TORM had fixed 63% of
the interest exposure for 2018. A change in interest
rates of 25 basis points would impact the result before
tax by USD 0.8m.

2018 EBITDA SENSITIVITY TO CHANGES IN FREIGHT RATES - AS OF 31 DECEMBER 2017

In line with common practice in most UK companies
and other major shipping companies, TORM does not
provide guidance on earnings. To support the
investors’ assessment of TORM, information on
covered days, interest-bearing bank debt, the one-year
time charter (T/C) market and EBITDA sensitivity to
freight rates is included in the Annual Report.

USDm

LR2

LR1

Handysize

Total

Change in freight rates (USD/day)

-2,000

-1,000

1,000

2,000

-6

-5

-33

-5

-48

-3

-2

-16

-2

-24

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

OUTLOOK 2018 - continued

ONE-YEAR TIME CHARTER MARKET

Source: Average of selected broker assessments.

USD/day

LR2

LR1

Handysize

Note: The time charter market has limited liquidity.

As of 2 March 2018, the one-year T/C market can be
seen in the table to the right, which corresponds to a
weighted average one-year T/C rate for TORM’s
vessels of USD/day 13,570.

The most important factors affecting TORM’s earnings
in 2018 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,

embargoes, political instability, weather conditions,
etc.

One-year T/C

rate as of 2

March 2017

14.950

12.925

13.500

12.475

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

COVERED AND CHARTERED-IN DAYS IN TORM – DATA AS OF 31 DECEMBER
2017

2018

2019

2020

2018

2019

2020

Owned days

LR2

LR1

Handysize

Total

Covered, %

3,431

3,961

4,010

2,510

2,476

2,546

17,849

18,682

19,349

LR2

LR1

2,564

2,404

2,523

Handysize

26,354

27,523

28,428

Total

Charter-in and leaseback days at fixed rate

Covered days

LR2

LR1

Handysize

Total

363

324

726

668

LR2

LR1

Handysize

1,089

992

Total

Charter-in days at floating rate

Coverage rates, USD/day

LR2

LR1

Handysize

Total

Total physical days

LR2

LR1

Handysize

Total

338

4,133

2,510

4,324

2,476

4,334

2,546

18,576

19,408

20,018

2,564

2,404

2,523

27,783

28,612

29,421

LR2

LR1

Handysize

28.0%

5.0%

12.0%

5.0%

13.0%

1,157

130

2,289

122

2.0%

1.0%

150

3,698

234

23,222

24,338

15,744

17,021

17,412

13,949

Total
Fair value of freight rate contracts that are mark-to-market in the income statement:
Contracts not included above: USD 0.8m
Contracts included above: USD -0.4m

18,814

19,900

Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries. T/C-
in days at fixed rate do not include effects from profit split arrangements. T/C-in days at floating rate determine rates at
the entry of each quarter, and then TORM will receive approx. 10% profit/loss compared to this rate.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

STATEMENT BY THE EXECUTIVE DIRECTOR

TORM’s continued focus on optimizing the operational
performance supports the ambition to be the
Reference Company in the product tanker industry.

management and shareholder interests, which
mitigates the potential for actual or perceived
conflicts of interest with related parties and allows for
close control over operating expenses.

In 2017, TORM’s product tanker fleet realized average
TCE earnings of USD/day 14,621. Product tanker
freight rates remained at subdued levels for most of
2017. Despite the sluggish market, each quarter had its
own regional freight rate spike mostly driven by
demand for clean petroleum products in the western
markets.

One example of these regional spikes was in the
second half of 2017 when Hurricane Harvey’s arrival on
the US Gulf Coast caused a spike in the transatlantic
freight rate, however, the spike proved temporary.
More importantly, the transatlantic spike was followed
by a significant increase in transpacific voyages from
Asia to the US West Coast. The strengthening in the
transpacific market proved more robust than the initial
transatlantic spike and carried a positive momentum
into the fourth quarter.

The Company’s capital structure supports the
operational performance by ensuring sufficient
financial and strategic flexibility to allow for spot
employment. The balance sheet strength combined
with TORM's access to funding at competitive terms
provides a competitive advantage when pursuing
vessel acquisitions.

During 2017, TORM continued its efforts to rejuvenate
and expand the fleet by acquiring a total of eight
vessels: six MR resale vessels and two LR1
newbuildings. Two of the MR resale vessels were
delivered in 2017, the remaining vessels are scheduled
for delivery in 2019 and 2020. At the end of 2017,
TORM’s owned fleet numbers 72 product tankers on
the water, five vessels on bareboat charters and ten
newbuildings to be delivered in 2018, 2019 and 2020.

The One TORM approach with in-house commercial
and technical management ensures flexibility to
optimize performance and has proven its strength by
ensuring the right trade-off between maximizing TCE
and minimizing cost. In 2017, TORM generated an
EBITDA of USD 158m and a RoIC of 2.8%.

The TORM fleet covers all key product tanker classes,
and TORM's distribution is roughly in line with the
global product tanker fleet. In general, global
customers have transportation requirements that
move between vessel classes, and TORM is well-
positioned to meet these demands.

The integrated nature of TORM's business model
provides transparency and additional alignment of

Over the past several quarters,
TORM’s commercial performance has
consistently been among the best in
its peer group both in terms of total
TCE/day and in terms of Return on
Invested Capital. TORM believes that
this performance is a result of the
One TORM approach with the full
value chain being managed in-house.

Jacob Meldgaard, Executive Director

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

STATEMENT DY THE EXECUTIVE DIRECTOR - continued

Safety is part of TORM’s strategic focus and an
integral part of the ambition of becoming the
Reference Company within the product tanker
industry. As part of this strategic focus, TORM wants
to take safety culture, performance and quality to a
higher level and to ensure a common understanding
of safety across the organization. This will be
accomplished through a companywide safety
program called One TORM Safety Culture – driving
resilience and involves all employees both ashore and
at sea.

The Strategic Report on pages 4-49 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 ANNUAL REPORT 2017

STRATEGIC REPORT

STRATEGIC AMBITION AND BUSINESS MODEL

TORM offers a strong operating platform illustrated by TORM’s superior RoIC margins and higher MR TCE earnings compared to peers.
Strong industry relationships enabling fleet renewal at attractive prices.
USD 100m in new equity capital and up to USD 300m in new debt capital since January 2017, which supports TORM’s solid capital structure.

PURE-PLAY PRODUCT TANKER OWNER AND
OPERATOR
TORM is a leading product tanker company with an
owned fleet of 73 vessels on the water, five vessels on
charter-in and eight newbuildings as of 6 March 2018.
TORM is active within all larger product tanker classes
(LR2, LR1, MR and Handysize). This supports TORM in
meeting customer demands, as global customers 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 these are deemed
profitable on a case-by-case assessment.

The Company believes that ownership of vessels
combined with TORM’s integrated platform provides
essential control giving more flexibility and earning
power. Short-term charter-in agreements (less than 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. TORM also
selectively pursues attractive newbuilding programs
with high-quality shipyards, where newbuilding
contracts provide higher expected return, or where
the second-hand market has insufficient liquidity in
vessels that meet customer requirements. In 2017,
TORM has acquired eight new vessels at attractive
price points below the market benchmarks.

TORM’s in-house technical management has
significant experience in newbuilding projects from
design to delivery.

As of 6 March 2018, TORM’s current newbuilding
program consists of two LR2 vessels, two LR1 vessels
and four MR vessels. The vessels are expected to be
delivered in the period between the second quarter of
2018 and the first quarter of 2020. In addition, TORM
has since January 2017 taken delivery of two LR2
newbuildings and two MR newbuildings. The specific
acquisition criteria for newbuildings or second-hand
vessels include:

• 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 will from time to time sell vessels that no longer
fit the commercial strategy, or if the price point is
deemed attractive. During 2017, TORM sold five older
vessels.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

STRATEGIC AMBITION AND BUSINESS MODEL -
continued

SOLID CAPITAL STRUCTURE
TORM has a solid capital structure with long-dated
debt maturities (2020 and beyond), a strong liquidity
position and limited off-balance sheet liabilities. The
Company has an attractive debt profile with favorable
interest rates, amortization schedules 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
well-capitalized companies. TORM plans to finance its
business and fleet growth with a combination of
operating cash flows, cash-on-hand as well as
financing from lenders and the capital markets. During
2017, TORM has secured four new loan facilities,
covering approximately USD 300m, and extended an
existing facility of USD 74m. In addition, TORM has
financed three older vessels under sale and leaseback
structures without purchase obligations. This, together
with the USD 100m equity capital raise in January
2018, illustrates the Company’s ability to source capital
and supports TORM’s strategic and financial flexibility.

To support the capital structure, TORM works towards
improving the liquidity in the Company’s share to
attract a broader investor base. TORM is continuously
marketing the share towards investors via investor
roadshow activities, conference participation and
panel discussions. TORM also believes that the recent

US listing and the USD 100m equity raise will increase
the liquidity in the share over time.

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 an industry 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 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 MR TCE earnings and
cash flows above industry average.

TORM’s integrated model includes a strategic focus on
safety performance. To enhance this focus, TORM
introduced a new safety culture program in 2016
called One TORM Safety Culture – driving resilience.
The program has been further rolled out during 2017,
and safety has been integrated into TORM’s
Leadership Philosophy together with the remaining
three values, Performance, Relations and Personal
Leadership. This illustrates TORM’s belief that
profitability and safety should be viewed together.

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 page 26.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

VALUE CHAIN IN OIL TRANSPORTATION

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 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. In addition to clean products, TORM uses some
of its vessels for 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
transport clean products again. In 2017, 94% of
TORM's turnover was generated from clean products
transportation.

term success of the Company further builds on the
intellectual property of the workforce at TORM and
the relationship and cooperation with external
stakeholders such as oil traders, state-owned oil
companies, oil majors, financial institutions, shipyards,
brokers and governmental agencies.

TORM’s integrated operating platform with in-house
technical and commercial management enhances
responsiveness to customers’ demands and allows
TORM to generate value for stakeholders as well as for
the Company.

The long-term success of the Company is dependent
on TORM’s ability to provide safe and reliable
transportation services. In addition to the items
explicitly stated in the financial statements, the long-

TORM values the relationship with its key stakeholders
and aims at conducting business for the benefit of the
Company’s shareholders and other stakeholders.

The interaction with key stakeholders is described on
pages 16-18 under “Strategic Ambition and Business
Model”. For more information on broader value
generation and TORM’s Corporate Social
Responsibility (CSR) policy, please see pages 28-36.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

THE PRODUCT TANKER MARKET

In 2017, high inventory levels globally led to softening product tanker freight rates.
Looking ahead, demand is expected to gradually outpace supply.

The second half of 2017 started out soft until late
August where freight rates for transatlantic MR cargos
spiked sharply following Hurricane Harvey’s arrival on
the US Gulf Coast. However, the spike proved
temporary and lasted approximately one week.

Despite positive demand for LR vessels, the overall
freight market for larger vessels in the second half of
2017 was negatively impacted by an increased supply
of product tanker and crude tanker newbuildings.

More importantly, the transatlantic spike was followed
by a significant increase in transpacific voyages. The
strengthening in the transpacific market proved more
robust than the initial transatlantic spike and carried a
positive momentum into the fourth quarter.

At the end of 2017, indications that global inventory
levels were back at normalized levels were positive for
product tankers. The strengthened freight rates seen in
the fourth quarter could indicate that the potential for
arbitrage-driven trades has improved.

2017 MARKET
Despite a healthy consumer-driven demand for refined
oil products, the record high clean petroleum product
inventory levels globally that were built up during 2015
and the first part of 2016 had a negative impact on the
product tanker market in 2017.

During the majority of 2017, the general product
tanker freight market was challenged, as local
production and stocks could satisfy demand for clean
petroleum products in most of the world. Global clean
petroleum product stocks decreased by a volume
equivalent to a loss of potential trade of 4%. Despite
the overall inventory drawdown trend, every quarter
had its own regional spike in freight rates showing
that the market for product tankers improved
instantly when inventory levels retracted locally.

During the first half of 2017, product tanker freight
rates remained at weak levels, similar to the fourth
quarter of 2016. The exception was two freight rate
spikes in March and June, primarily driven by
increased demand for clean petroleum products in the
western markets.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

THE PRODUCT TANKER MARKET - continued

Asset prices on second-hand product tankers were
relatively flat during 2017 but saw an increase towards
the end of the year (source: Clarksons). The end-of-
year increase in asset prices was mainly driven by a
combination of improved freight rates, a relatively low
supply of vessels for sale and a shrinking order book.
The value of TORM's fleet measured by broker values
decreased by 2% during 2017 (when excluding vessels
acquired and sold during 2017).

In 2017, TORM achieved a gross profit of USD 200m
(2016: USD 242m) primarily due to lower freight rates.
See note 3 on page 104 for further details on results.
TORM’s product tanker fleet realized TCE earnings of
USD/day 14,621, down 9% year on year, with the LR2
class at USD/day 16,304, the LR1 class at USD/day
13,771, the MR class at USD/day 14,850 and the
Handysize class at USD/day 12,239.

During the third quarter of 2017, TORM took delivery
of two MR resale vessels from Hyundai Mipo. At the
end of 2017, TORM’s order book stood at ten vessels,
all contracted at Guangzhou Shipyard International,
and consisted of four LR2 newbuildings with expected
delivery within the first three quarters of 2018, four MR
resale vessels for expected delivery in 2019 and two
LR1 vessels for expected delivery in 2019 and the first
quarter of 2020.

At the end of 2017, TORM operated a fleet of 77
vessels on the water of which 72 are fully owned and
five are either leasebacks or chartered-in.

SUPPLY OUTLOOK
In 2017, the global product tanker fleet grew by 4.6%
in terms of capacity and 3.6% in terms of number of
vessels. This was a markedly lower growth rate than in
2016 and due to fewer deliveries of MR vessels as well
as an increase in scrapping of vessels in all segments.
The LR1 and LR2 segments saw continued high vessel
deliveries; deliveries of LR1 vessels were the highest
since 2011, whereas LR2 deliveries were at the same
level as in 2016. The growth ranged from 2.1% for the
Handysize segment to 9.2% for LR2 segment. 2018 is
expected to see a global fleet growth of 4.0% with the
LR2 and LR1 segments leading the growth.

The number of newbuilding orders placed in 2017
increased from the very low level seen in 2016, but it
was nevertheless the fifth lowest new order intake
since year 2000. A total of 70 product tankers were

ordered in 2017 compared to 28 in 2016. The MR class
accounted for the majority of orders with 51 units
contracted. At the end of 2017, the existing order
book for deliveries for 2018-2019 totaled 254 units,
including 44 LR2 vessels, 25 LR1 vessels, 143 MR
vessels and 42 Handysize vessels.

TORM anticipates limited ordering of new product
tankers with delivery before the end of 2019. The
Company expects ordering activity in 2018 to increase
slightly from the level seen in 2017 but to remain
below the long-term average.

In 2017, only 70% of the deliveries scheduled for the
year actually materialized. TORM also expects to see
some slippage in 2018.

ORDER BOOK
As of 31 December 2017

LR2

LR1

Handysize

Total

Order book

Fleet

Delivered in

Scrapped in

Fleet

Order book

as % of end-

31.12.2016

2017

31.12.2017

for 2018-2020

2017 fleet

315

339

1.572

703

2.929

143

344

355

1.618

719

3.036

159

277

13%

10%

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

THE PRODUCT TANKER MARKET - continued

Around 1.9m dwt of product tanker capacity was
recycled in 2017, corresponding to approximately 1.2%
of the fleet capacity as of January 2017. This was an
increase from 2016, when 0.8m dwt was scrapped,
and corresponds to the highest scrapping level since
2013. TORM estimates that approximately 2% of the
existing capacity of the global fleet will be phased out
or scrapped during 2018-2020. During 2018-2020, the
net product tanker fleet capacity is estimated to grow
by a compound annual rate of approximately 4%.

DEMAND OUTLOOK
The global oil demand grew by 1.6 mb/d (1.6%) in 2017,
well above the initial forecast and up from the 1.3
mb/d (1.4%) demand in 2016 (source: IEA OMR
February 2018). Support from stronger global
industrial activity offset the negative impact of an
increase in oil prices of approximately 20% (Brent
benchmark increased from USD 56/bbl by end-2016
to USD 66/bbl by end-2017).

The main oil demand growth drivers remained Asia
and Europe. Opposite to 2016, where gasoline
dominated the additional demand, growth was more
evenly split between oil products in 2017. Stronger
industrial activity increased demand for diesel, and
higher demand from the petrochemical industry
boosted naphtha consumption, while gasoline demand
growth lessened due to diminished effect of lower
prices. In 2018, global oil demand is projected to grow
at a slightly slower pace given the expectations for
higher oil prices. Nevertheless, the growth pace

remains robust at 1.4 mb/d (1.3%), supported by solid
underlying economic fundamentals (source: IEA OMR
February 2018).

Stronger-than-expected demand growth and a high
level of unexpected refinery outages resulted in firmer
refinery margins in 2017. In the US, annual average
benchmark margins even exceeded the record high
levels seen in 2015. This was supported by supply
shortages resulting from Hurricane Harvey and an
ample supply of domestic crude. High margins
resulted in high refinery utilization, but as global
refinery capacity additions in 2017 were relatively
scarce and the level of refinery outages high, global
refinery runs increased less than demand, by an
estimated 0.9 mb/d in 2017 (source: WoodMackenzie
December 2017).

With global product demand growing faster than
refinery runs, demand was increasingly supplied from
inventories. Following a product stock build-up
through 2015 and 2016, there was a steep product
stock draw in 2017, equivalent to a loss of potential
demand for seaborne transportation of 4%, which kept
several traditional arbitrage trades closed for most of
the year. By November 2017, global stockpiles of clean
petroleum products had fallen back to historical
norms. Tighter markets mean that further
improvements in oil demand should lead to greater
arbitrage opportunities and to a stronger extent
translate into demand for product tankers.

Despite a favorable price ratio between naphtha and
liquid petroleum gas and subsequently a strong
demand for naphtha in the Asian petrochemical
sector, higher long-haul naphtha flows from West to
East did not materialize. Instead, higher demand was
to a greater extent supplied by local production as
well as increased imports from the Middle East.
According to preliminary estimates, product tanker
demand increased by around 3% in 2017.

In the short term, TORM expects the product tanker
market to be supported by solid demand
fundamentals, greater arbitrage opportunities and
lower fleet growth in 2018. Yet, the market remains
negatively impacted by spill-over effects from the
crude market, which continues to be characterized by
OPEC crude production cuts and relatively high crude
tanker fleet growth in 2018.

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 International Energy Agency
(IEA) estimates, the net global refinery capacity is
projected to grow by around 2.8 mb/d during 2018-
2020 (IEA 2017). The majority of the refinery capacity
additions continue to come from Asia, accompanied
by a new wave of refineries coming online in the
Middle East from 2019 onwards. TORM expects this to
reinforce the role of the Middle East as a new major
clean product exporter, with middle distillates going
to the West and light distillates to the East.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

THE PRODUCT TANKER MARKET - continued

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. Consequently, the product tanker ton-
mile demand on main trade routes is estimated to grow
by a compound annual rate of around 5% during 2018-
2020.

For further details on factors most likely to change this
outlook in either a negative or a positive direction,
please see “Outlook” section on page 11.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

KEY PERFORMANCE INDICATORS

TORM assesses the Company’s performance across a wide range of measures and indicators against strategic targets.
TORM reviews the metrics and tests the relevance of these KPIs to the strategy on an ongoing basis.

Adjusted Return on Invested

Fuel Efficiency Improvements

MR TCE Earnings
USD/day
2017: 14,850
2016: 15,462

In 2017, TORM’s commercial
performance has consistently been
among the best in its peer group. This
can be accredited to the Company’s
well-maintained ﬂeet and the
integrated operating platform.

This combination provides TORM’s
commercial management team with the
ﬂexibility and responsiveness to meet
customer demands, thereby enabling
TORM to outperform available earning
benchmarks.

In 2017, TORM achieved MR TCE
earnings of USD/day 14,850 down from
USD/day 15,462 in 2016 driven by
inventory drawdown.

Lost Time Accident
Frequency (LTAF)
2017: 0.67
2016: 0.65

Capital (RoIC)
2017: 2.4%
2016: 4.9%

In line with the Company’s strategic
focus on safety performance, TORM
introduced its new safety program, One
TORM Safety Culture – driving
resilience in 2016. The implementation
has been ongoing during 2017 and will
continue in 2018.

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
same period (excluding impairment
charges).

LTAF is an indicator of serious work-
related personal injuries that result in
more than one day off work per million
work hours. The deﬁnition of LTAF
follows standard practice among
shipping companies.

During 2017, TORM had an LTAF of
0.67 compared to 0.65 in 2016.

In 2017, TORM achieved a RoIC of 2.4%
compared to 4.9% in 2016. The
decrease in RoIC from 2016 to 2017 is
driven by lower freight rates

This KPI reﬂects that although the
average age of TORM’s ﬂeet is
approximately 11 years, TORM is still
able to generate a very attractive RoIC
compared to its peers.

2017: 5.2%
2016: 3.6%

Fuel efficiency improvement illustrates
TORM's continued strong focus on
reducing fuel consumption and the
efforts made in this area.

In 2016, TORM improved its fuel
efficiency by 3.6% compared to a 2015
baseline figure. In 2017, TORM has
continued its efforts and achieved
further improvements bringing the fuel
efficiency to 5.2% compared to the
2015 baseline.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

US LISTING

On 11 December 2017, TORM’s Class A common shares
were listed on NASDAQ in New York under the ticker
TRMD. Consequently, TORM’s shares are now dual-
listed via the NASDAQ platform in both Copenhagen
and New York.

The purpose of a dual listing is to provide TORM's
investors with the opportunity to trade their Class A
common shares on a USD-denominated exchange and
to improve the liquidity in the TORM share. TORM
believes that over time a dual listing will attract further
investor interest and provide stronger visibility
towards an international investor community, which
will strengthen TORM's strategic and financial
flexibility.

The dual listing enables shareholders to move shares
between the two exchanges.

Further information is available on TORM’s website
under https://investors.torm.com/shareholders/share-
transfer or by contacting Investor Relations at
ir@torm.com.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY

New safety program One TORM Safety Culture – driving resilience implemented across the offices and the fleet.
New branch office opened in New Delhi to further strengthen ties to TORM’s seafarers in this region.
TORM has reduced its fuel consumption by 5.2% since 2015.

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 CSR approach.

TORM signed the UN Global Compact in 2009 as the
first shipping company in Denmark to commit to the
internationally 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:

• Comply with statutory rules and regulations 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://www.torm.com/uploads/media_items/torm-
business-priciples.original.pdf.

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 Danish
Shipping’s CSR work group and as co-founder and
member of the Maritime Anti-Corruption Network,
TORM strives to increase transparency and
accountability and to minimize corruption.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY - continued

INSPECTIONS AND AUDITS
In order to maintain Company standards and exceed
the targets set by its 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.

ENVIRONMENT AND CLIMATE PERFORMANCE
Within the shipping industry, marine pollution
constitutes the largest environmental risk. It is
therefore a key priority for TORM to avoid pollution of
the seas and the atmosphere.

In 2017, TORM experienced zero oil spills larger than
one barrel, but did experience one small oil spill
overboard of less than one barrel. The incident was
investigated and procedures revised where required.

Throughout 2017, TORM continued to have a strong
and dedicated focus on reducing fuel consumption,
and the efforts made within this area have generated
a positive result.

As in previous years, TORM’s Operational Performance
team shares the performance of each vessel with the
respective vessel managers and vessels on a monthly
basis.

A new initiative was introduced during 2017 with the
purpose of engaging the vessels on a daily basis to
encourage best practice behavior with regard to
power consumption and thereby fuel consumption.
The initiative ensures that corrective action can be
taken swiftly if needed.

In addition, increased focus was placed on the
improvement of hull condition for vessels with a
relatively long time to the next scheduled dry-docking.
In total, five vessels were taken out of service for a
short four-to-five-day docking during which hull
coating repairs were carried out.

In 2016, TORM improved its fuel efficiency by 3.6%
compared to a 2015 baseline figure. In 2017, TORM has
continued its efforts and achieved further
improvements bringing the fuel efficiency to 5.2%
compared to the 2015 baseline. The target for 2018 is
to improve fuel efficiency by further 1.5%.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY - continued

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 sailed in nautical miles

Average cargo on board (ton)

Ton-km

2017

914

236,505

45,470

882,253

20,800

11,728

3,207,147

34,721

2016

910

308,467

56,549

1,141,862

26,992

15,289

3,279,977

37,433

2015

813

343,785

9,579

50,704

1,262,933

30,227

17,477

3,214,973

39,117

207,597,070,516

251,946,149,526

263,691,358,733

CO2 emission in grams per ton-km (one ton of cargo transported one km)

4.3 g/ton-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 in all office locations

District heating in Gj

Generated CO2 emission in ton from office location

Number of office employees at the end of the year

CO2 emission per employee (ton)

FLIGHT EMISSIONS AND INDICATORS

Air mileage in kilometers

Number of travels

CO2 emissions in ton

849,644

1,293

524

296

1.8

924,951

1,619

562

277

2.0

1,099,823

1,340

646

271

2.4

76,832,985

77,284,100

68,523,791

12,354

6,650

13,056

6,750

12,725

6,069

TORM ANNUAL REPORT 2017

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CORPORATE SOCIAL RESPONSIBILITY - continued

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.

REPORTING SCOPE
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
2018, TORM had 74 vessels under technical
management compared to 76 vessels as of 1 January
2017.

Office emissions are included from TORM’s offices in
Copenhagen, Mumbai, Singapore, Manila and Houston.
TORM’s offices in New Delhi and Cebu are not
included as they have started tracking in 2018.
Emissions from TORM’s office in London is not
included as data is currently unavailable. 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 2017 greenhouse gas emissions (GHG) reporting
covers scope 1 (direct emissions from own
production), scope 2 (emissions from own production
but others’ emissions) of the Greenhouse Gas Protocol
except for the activities listed below and selected

scope 3 (others' production and emissions services)
activities.
• Scope 1

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 the
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 US 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

2017 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 914 vessel months
of operation.

Ton-km is calculated by use of actual cargo multiplied
by the distance with actual cargo; thus, a ballast

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY - continued

ONE TORM SAFETY CULTURE
In line with the Company’s strategic focus on safety
performance, TORM continued its focus on the safety
culture program called One TORM Safety Culture –
driving resilience in 2017.

In April 2017, a kick-off campaign for all employees at
sea and ashore was launched. The campaign included
workshops where employees were introduced to
TORM’s new safety philosophy and five best-practice
behavior principles, the Five Safety I’s: Insight,
Innovation, Influence, Intervention and Integration. See
figure: Five Safety I’s.

The One TORM Safety Culture - driving resilience
program is focused on continuously strengthening
TORM’s safety culture beyond compliance – the way
we think about and act towards safety, including how
we interact with each other across the organization.
Thus, during 2017, safety was integrated as the fourth
value in TORM’s overall leadership philosophy.

In June 2017, a comprehensive safety training program
was implemented for all staff. Depending on their role,
employees ashore participated in Basic Safety
Behavior or Advanced Safety Behavior courses.

For Senior Officers on board TORM’s vessels, Safety
Leadership courses were introduced with the intention
of training the top four officers on board each vessel.
These two-and-a-half-day workshops focus on how to
be a good leader when it comes to safety and how to

positively influence and support colleagues on TORM’s
journey to be the Reference Company within safety.
Safety Leadership courses are mandatory for all Senior
Officers and key marine shore staff.

In 2017, nine Safety Leadership courses have been
conducted with a total of 175 attending officers. The
program will continue in 2018 with new activities to
ensure that the safety program is fully anchored
across the organization.

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 2017, TORM had
an LTAF of 0.67 (2016: 0.65). There has been a slight
increase in the LTAF from 2016. Each injury has been
investigated and corrective measures taken as
required.

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 2017, TORM
exceeded the target of 6.0 near-miss reports per
month per vessel on average by reaching 6.7 (2016:
6.7) due to continued focus on this area.

FIVE SAFETY I’s.

SECURITY
TORM’s response to piracy is founded in the Best
Management Practice 4. In 2017, TORM experienced
one robbery, four attempts to board our vessels by
suspected thieves and four 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

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY - continued

In 2017, TORM continued its focus on activities to
further improve cooperation between seafarers and
the shore-based organization. For this purpose, the
Company conducted seminars for its senior and junior
officers as well as cadets, providing opportunities to
interact with colleagues from the shore organization
and share best practice regarding operation of
TORM’s vessels.

Throughout the year, TORM also continued its efforts
to allow seafarers to join the same vessel whenever
possible. The Company employs seafarers from
several countries, and it is TORM’s experience that

having more than one nationality of seafarers on
board the same vessel will help build a professional,
resilient and safe working environment.

As part of the Company’s continued focus on the
promotion process, TORM introduced promotion logs
and individual development plans in 2017.
Furthermore, a new bonus program for seafarers was
implemented during the year.

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 and
industry guidelines.

EMPLOYEES
Employees are the core and most valuable asset of
TORM. The Company continues to grow and thrive
due to the efforts and dedication of its staff both at
sea and on land.

AT SEA
In 2017, TORM continued its focus on increasing
commitment and engagement among seafarers. At
year-end, TORM’s retention rate for Senior Officers
was above 90%, and for the third year in a row TORM
could demonstrate 100% compliance with customer
requirements (the so-called officer matrix
compliance).

In September 2017, TORM opened a branch office in
Aero City, a prime business location in New Delhi,
India. Thus, TORM expanded its presence in the
important Indian crewing market and is now also able
to provide closer proximity to seafarers from this
location. Among other things, this means reduced
domestic traveling for seafarers from this region and
smooth sign-on and sign-off procedures.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY - continued

At the end of 2017, TORM had 153 permanently
employed seafarers, the remaining 2,909 seafarers are
on time-bound contracts.

14 in Singapore, five in Houston and one at the
Company’s office in London.

In 2018, TORM will continue its focus on retention and
development plans, on-time relief and back-to-back
rotation on senior positions.

ASHORE
TORM’s annual employee motivation and satisfaction
survey is of great importance to the Company. The
increased positive results for 2017 prove that TORM
continues to have dedicated and motivated staff.

In 2017, 96% 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
all areas, notably with regard to categories covering
engagement, reputation, loyalty and satisfaction.

TORM aims to attract and retain the best employees
by living the TORM Leadership Philosophy values and
by ensuring that the Company’s leaders invest 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 2017, the shore-based organization had
296 full-time employees: 127 in Hellerup, 109 in
Mumbai, two in New Delhi, 36 in Manila, two in Cebu,

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://www.torm.com/uploads/media_items/torm-
business-priciples.original.pdf.

EMPLOYEE GENDER DIVERSITY

Permanently employed, sea and shore

Directors of the Company¹

Employees in other senior executive positions

⁾
Directors of subsidiary companies not included above

Total top management other than directors of the Company (VPs)

Other employees of the group

Total employees of the group
¹

The four Non-Executive Directors are not included as employees of the Group.

⁾

In 2017, the Company monitored the employee
population and discussed how to increase gender
diversity, particularly within leadership positions. In
2018, the Company will continue to focus its diversity
efforts on encouraging and developing female talent.

In terms of gender diversity globally, females
constitute 33% of all permanently employed
employees as of December 2017. Females constitute
34.7% of land-based employees (defined as non-
managerial individual performers), 16.4% of middle
management and 4.8% of top management (Vice
Presidents and above).

Females constitute 5.2% of all permanently employed
seafarers, all of which are 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.

Male

Female

318

338

110

111

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY - continued

SOCIAL MATTERS
TORM is a long-standing supporter of maritime
education in India and the Philippines. This
commitment reflects the Company’s ties to local
communities and leads to positive effects on TORM’s
core business and on the needs of the societies in
which TORM operates.

In 2017, 18 students supported by the TORM
Philippines Education Foundation graduated. For the
school year 2017/2018, the Foundation supports 72
scholars across the Philippines. By June 2018, it is
expected that the scholarship program will support an
additional 19 new students. Apart from maritime and
general education, the program also includes training
courses for teachers and a four-year training program
for scholars. Furthermore, the program encompasses
the distribution of IT equipment and school kits for
students in rural schools.

In India, TORM supported the building of the ZP
Prathmik School in Zadgewadi near Kurkumbh, Pune,
which was opened in 2017. With donations from the
Company, the school was constructed and the
facilities were furnished.

The school enables the students to raise their level of
education and increase their chances for better
economic conditions for themselves and their families.
Furthermore, the personal pride of the students as
scholarship recipients of a well-acknowledged
foundation is raised. The benefits also include

professional and well-educated potential employees
for TORM.

implementing the anti-corruption and anti-bribery
policy.

ANTI-CORRUPTION AND ANTI-BRIBERY
Corruption and bribery impede global trade and can
restrict non-corrupt companies’ access to
international markets. In this way, corruption and
bribery have a negative impact on economic and
social development. For TORM, the risk of corruption
does not only mean increased costs. Corruption also
exposes TORM’s seafarers to safety and security risks
and poses a potential risk to the Company’s legal
standing and reputation.

TORM does not accept corrupt business practices and
as part of its compliance program, TORM has a policy
on anti-bribery and anti-corruption, which supports
the Company’s Business Principles.

It is TORM’s policy to conduct all business in an honest
and ethical manner. TORM has a “zero tolerance”
approach to bribery and corruption, and the Company
is committed to acting professionally, fairly and with
integrity in all business dealings and relationships,
wherever the Company operates. TORM will uphold all
laws relevant to countering bribery and corruption in
all the jurisdictions in which the Company operates.

To continue a high level of transparency and
accountability, due diligence, monitoring and control
as well as training of TORM’s staff are central parts of

In 2011, TORM co-founded the Maritime Anti-
Corruption Network (MACN) to take a joint stand
within the industry towards the request for facilitation
payments, which exist in many parts of the world
where TORM conducts business. Within the network,
best practices are shared and members align their
approach to minimizing facilitation payments.

The network seeks support from government bodies
and international organizations to eliminate the root
causes of corruption. TORM is committed to
addressing corrupt business practices among
stakeholders by supporting this cross-sector
approach.

In addition to its efforts within MACN, TORM
continued to strengthen its companywide anti-
corruption policies in 2017 to mitigate the risk of
bribery and corruption. TORM has continued its anti-
corruption training program, which includes
mandatory anti-corruption courses for all shore-based
staff and all officers on board TORM’s vessels. The
training not only targets new hires, but must be
repeated once a year by all the mentioned employees.
TORM will continue these efforts in 2018.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CORPORATE SOCIAL RESPONSIBILITY - continued

No claims or offenses have been reported regarding
human rights in 2017.

This section constitutes TORM’s CSR reporting
according to the requirements of UK law. Read more
about TORM and our CSR efforts at
http://www.torm.com/csr-at-torm.

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.

Since 2006, TORM’s Board of Directors has provided
for a whistleblower facility with an independent lawyer
as part of the internal control system. In 2017, the
whistleblower facility received zero notifications.

HUMAN RIGHTS
With the TORM Leadership Philosophy, TORM’s
Business Principles and commitment to the United
Nations Global Compact, TORM is committed to
respecting internationally recognized human rights as
outlined in the United Nations Guiding Principles on
Business and Human Rights (UNGPs).

TORM recognizes that implementing the necessary
policies and respective processes to be in line with the
requirements of the UN Global Principles is part of an
ongoing effort. Going forward, TORM will continue to
promote its human rights-related policies and
processes.

TORM complies with the International Labor
Organization’s Maritime Labor Convention, an
international set of standards on labor conditions at
sea, which were ratified by 30 countries in 2012. All
vessels under TORM’s technical management were
audited and certified as required under the Maritime
Labor Convention of 2006 when it took effect in
August 2013. TORM respects employees’ right to
associate freely, to join – or not join – unions and to
bargain collectively. TORM offers equal opportunities
for our employees as stated in TORM’s Business
Principles.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

RISK MANAGEMENT

Prolonged periods of subdued freight rates and volatile vessel values remain a risk for TORM.
A solid capital structure ensures that TORM is well-positioned to pursue opportunities and face down-side risks.
Uncertainty persists around 2020 sulfur emission regulation compliance, including the investment opportunity to install scrubbers.

RISK MANAGEMENT FRAMEWORK
Risk management is an integrated part of doing
business in TORM. By taking balanced risks, TORM
strives to foster high awareness and internal controls
geared towards aligning risk appetite while providing
transparency in the Company’s operations.

On an annual basis, TORM conducts an Enterprise Risk
Management process, during which the key risks
facing the Company are identified, assessed,
addressed and reported at different levels of the
organization. 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 and to meet
expectations of investors and lenders.

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
Team 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.

MAIN RISKS ASSOCIATED WITH TORM’S ACTIVITIES
TORM’s overall risk tolerance and inherited exposure
to risks are divided into four main categories as
detailed below:

Furthermore, electrification and automation of
personal and commercial transportation will likely lead
to a decline in the demand for oil; however, a decline
in oil demand is not necessarily equal to a drop in
demand for product tankers. The main driver in the
product tanker market is the regional imbalances of
oil-based products driven by the global refinery
landscape.

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.

LONG-TERM STRATEGIC RISKS (“RISK-SEEKING”)
Industry-changing risks such as the substitution of oil
for other energy sources and technological changes.
Radical changes in transportation patterns have the
possibility to alter the landscape of the markets that
TORM serves.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

RISK MANAGEMENT - continued

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.

TORM aims to maintain its position as a quality
operator with high focus on operating vessels in a safe
and reliable manner. TORM constantly focuses on
reducing potentially severe risks with respect to
environment, health, safety and compliance, 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.

Cyber risk
Digital infrastructure and cyber security are two of the
Company’s focus areas. The operation of our business
processes depends on reliable IT systems. A breach or
failure of our digital infrastructure due to intentional
actions such as attacks on our cyber security could
disrupt our operations. This could damage our
operations, result in additional operational costs and
have reputational consequences. To mitigate the risk
of cyber attacks, TORM continuously monitors and
implements key security procedures and behaviors
aimed at preventing recurrence.

Reporting risk
TORM’s dual listing in New York and Copenhagen
requires compliance with both locations’ reporting
requirements and therefore exposes the Company to

reporting risk in terms of incorrect or incomplete
financial reporting. The Company is in the process of
implementing a COSO 2013 control framework that
will help to mitigate risks identified.

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.

GENERAL RISKS ASSOCIATED WITH TORM’S ACTIVITIES

LONG-TERM STRATEGIC RISKS

INDUSTRY AND MARKET-RELATED RISKS OPERATIONAL AND COMPLIANCE RISKS

FINANCIAL RISKS

•

Political risk

Substitution for oil

Technological changes

•

Freight rate fluctuations

Bunker price fluctuations

Sales and purchase price fluctuations

•

Funding risk

Liquidity risk

Currency risk

Derivatives risk

Counterparty risk

•

Safe operation of vessels

Compliance with relevant maritime regimes

Compliance with environmental regulations

Availability of experienced seafarers and

staff

Vessel utilization

Terrorism and piracy

Stability of IT systems and cyber attacks

Insurance coverage

Reporting risk

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

RISK MANAGEMENT - CONTINUED

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 the

Company’s business model, future performance,
solvency or liquidity.

TORM’S CURRENT RISK PROFILE
Throughout 2017, TORM saw continued volatility in the
product tanker market. With a low coverage ratio
going into 2018, the Company is exposed to
potentially adverse market conditions; consequently
market risk remains high. However, TORM is financially
solid and well-positioned to pursue opportunities.

In addition to freight rates, TORM also faces market
risks in its vessel sale and purchase activities. The
likelihood of this risk is considered to be lower today
due to TORM’s proven ability to execute in the
second-hand and newbuilding markets.

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, an
integrated platform and efficient controls.

Some uncertainty persists on compliance with the
2020 sulfur emission regulation and the inherent
investment opportunity of installing scrubbers on
vessels versus using a low-sulfur fuel alternative.

TORM’s top risks and changes compared to 2016 are
depicted on the right. 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 118-121. TORM assesses the Company’s risks on a
continuous basis.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

FINANCIAL REVIEW 2017

FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2017

Mr. Christian Søgaard-Christensen
Chief Financial Officer, TORM A/S

In a year where the market conditions
for product tankers proved to be
difficult, I am satisfied that TORM
realized a positive net result of USD
2m, corresponding to a RoIC of 2.8%.
Our cost-efficient platform is one of
the key reasons behind TORM being
profitable. In addition, our financial
flexibility has enabled us to act on
commercial opportunities in 2017.

Christian Søgaard-Christensen, CFO

FINANCIAL RESULTS
In 2017, TORM achieved a net profit of USD 2m
resulting in basic earnings per share (EPS) of USD
0.04 in 2017 compared with negative USD 2.3 in 2016.
The 2016 EPS included an impairment loss of USD
185m. If this impairment is excluded, TORM achieved a
net profit of USD 43m. The lower result in 2017 was
mainly due to a reduction in freight rates following a
subdued freight market for product tankers.

In 2017, the operating profit increased by USD 147m to
USD 40m. This increase was also primarily due to the
USD 185m impairment charge in 2016.

EBITDA for 2017 was USD 158m, which is in line with
the EBITDA range of USD 155-160m as announced on
22 January 2018.

In 2017, total revenue was USD 657m compared to
USD 680m in 2016, and TCE earnings decreased from
USD 458m to USD 397m. The decrease in TCE
earnings was primarily attributable to a softer freight
market in 2017 compared to 2016. In addition, TORM
had approximately 5% fewer available earning days in
2017 compared to 2016 due to vessel sales.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

FINANCIAL REVIEW 2017 - continued

TORM’s total assets increased by USD 76m in 2017 to
USD 1,647m, of which the carrying amount of vessels,
capitalized dry-docking and prepayments on vessels
amounted to USD 1,383m compared to USD 1,388m in
2016.

There was an increase in current assets of USD 80m,
to USD 261m in 2017, 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 2017, total equity increased by USD 10m to USD
791m from USD 781m in 2016. The increase is primarily
related to the result for the year and to the market
value adjustments on derivatives held for hedge
accounting. The year also includes a paid dividend of
USD 1m. The Return on Equity (RoE) increased from -
16.2% to 0.3% where 2016 was negatively affected by
the impairment charge.

In 2017, TORM’s total liabilities increased by USD 66m
to USD 856m from USD 790m in 2016. This was
primarily attributable to an increase of mortgage and
bank debt related to the newbuildings delivered in
2017 and to the financial leases regarding the sale and
leaseback of three vessels in 2017.

In 2017, the Net Asset Value per share based on
broker values increased to USD 12.8 from USD 11.8 in
2016 mainly due to increasing vessel prices.

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

2017

2016

Change

657

397

200

158

-36

1,385

1,647

791

856

680

458

242

200

-107

-35

-142

1,390

1,571

781

790

-23

-61

-42

147

-1

144

-41

-5

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

FINANCIAL REVIEW 2017 - continued

LIQUIDITY AND CASH FLOW
In 2017, invested capital increased by USD 18m to USD
1,406m as of 31 December 2017. In addition, Return on
Invested Capital (RoIC) increased by 10%-points from
-7.2% to 2.8%.

Total cash and cash equivalents amounted to USD
134m at the end of 2017, resulting in a net increase in
cash and cash equivalents for the year of USD 58m
compared to 2016.

As of 31 December 2017, TORM had undrawn credit
facilities totaling USD 271m, consisting of a USD 75m
Working Capital Facility, a USD 115m facility financing
the Company’s LR2 newbuildings and a USD 81m
facility financing the MR resale vessels under
construction.

As of 31 December 2017, TORM had CAPEX
commitments of USD 307m, related to the LR2 and
LR1 newbuildings as well as the four MR resale vessels
under construction. Following the balance sheet date,
TORM had signed a term sheet with ABN AMRO
providing up to USD 50m of new financing with five-
year maturity against collateral in the two LR1
newbuildings. The financing agreement will at the
latest mature on 31 December 2024. The main
conditions of the agreement are in line with the
Company's existing loan agreements.

TORM ANNUAL REPORT 2017

In 2017, net cash inflow from operations decreased
from USD 171m in 2016 to USD 110m due to the lower
freight rates and an increase in port expenses, bunkers
and commissions. Net cash outflow from investing
activities amounted to USD 114m in 2017. The cash was
used on tangible fixed assets, primarily related to the
two acquired and delivered MR vessels (TORM
Supreme and TORM Sovereign), prepayments in
relation to the LR2 newbuildings to be delivered in
2018 and capitalized dry-docking, offset by sale of
vessels during 2017. In 2016, the net cash outflow from
investments was USD 119m.

Net cash inflow from financing activities amounted to
USD 62m in 2017, compared to a cash outflow of USD
144m in 2016. Repayment on mortgage debt, bank

KEY HIGHLIGHTS

Key figures

Invested capital in USDm

Net Asset Value per share (NAV)

Return on Invested Capital (RoIC)

Return on Equity (RoE)

Basic earnings per share (EPS)

loans and financial leases amounted to USD 142m
primarily in connection with ordinary repayments and
with vessel sale during the year. Additional borrowings
generated a cash inflow of USD 206m relating to the
new Term Facility Agreement II, the ING facility and to
the three sale and lease back agreements entered
during the 2017. TORM paid out USD 1m in dividends
to its shareholders during 2017.

2017

2016

Change

1,406

12.8

2.8%

0.3%

1,388

11.8

1.0

-7.2%

10.0%-points

-16.2%

16.5%-points

0.04

-2.3

2.3

STRATEGIC REPORT

FINANCIAL REVIEW 2017 - continued

TANKER FLEET
Revenue in the tanker fleet decreased by 3.3% to USD
657.0m in 2017 from USD 680.1m in 2016, and TCE
earnings decreased by 13.3% to USD 397.1m in 2017
from USD 458.3m in 2016. The decrease in TCE
earnings was primarily due to a subdued product
tanker freight market in 2017 compared to 2016.
During most of 2017, demand for transportation of
clean petroleum products was negatively impacted by
high inventory levels globally. As the year progressed,
inventory levels came down in terms of demand. The
global clean petroleum stocks have decreased by a
volume equivalent to a loss of potential trade of 5%.

In the LR2 fleet, the average spot freight rates
decreased by 31% between 2017 and 2016, resulting in
a decrease in earnings of USD 16.4m. The available
earning days in the LR2 fleet decreased by 2% in 2017
compared to 2016 resulting in a decrease in TCE by
USD 1.5m.

The average spot freight rates in the LR1 fleet were
24% lower than in 2016, resulting in a decrease in the
TCE of USD 12.5m. The available earning days in the
LR1 fleet decreased by 3%. In total, earnings decreased
by USD 13.8m.

In 2017, the available earning days in the MR fleet
decreased by 664 days equaling a decrease of 4%
compared with 2016. The spot freight rates decreased
by 5%, resulting in total earnings of USD 267.2m, a
decrease of USD 21.2m.

In the Handysize fleet, the average spot freight rates
were 5% lower in 2017 compared to 2016, resulting in a
decrease in earnings of USD 0.8m. There was a
decrease in available earning days of 15% in 2017 due
to vessel sales, resulting in a decrease of earnings of
USD 7.3m.

CHANGE IN TIME CHARTER EQUIVALENT EARNINGS IN THE TANKER FLEET

USDm

Time charter equivalent earnings 2016

Change in number of earning days

Change in freight rates

Other

Time charter equivalent earnings 2017

Handysize

48.0

-7.3

-0.8

39.9

288.4

-10.3

-11.0

0.1

267.2

LR1

48.0

-1.4

-12.5

0.1

34.2

LR2

Un-allocated

73.6

-1.5

-16.4

0.1

55.8

0.3

-0.3

Total

458.3

-20.5

-40.7

0.0

397.1

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 ANNUAL REPORT 2017

STRATEGIC REPORT

EARNINGS DATA

USDm

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

⁾

Total

⁾
Available earning days

Owned

T/C

Spot rates ¹

TCE per earning day ²
¹
²

⁾

⁾
⁾

2016

% change

Full year

full year

2017

-2%

-13%

45%

-31%

-23%

-3%

-24%

-27%

-4%

-2%

3,490

2,828

662

826

637

189

889

634

254

833

594

240

871

3,419

596

275

2,461

958

19,172

13,425

12,487

9,886

15,726

13,158

21,106

15,913

16,338

14,772

18,106

16,304

2,557

600

619

630

634

2,483

18,371

15,751

11,502

11,981

16,145

13,881

18,800

15,612

10,941

11,960

16,593

13,771

18,659

17,949

710

4,623

4,497

126

4,412

4,324

4,430

4,388

4,530

17,995

4,353

17,561

177

432

-39%

15,447

15,117

14,066

14,364

14,794

14,604

15,462

15,490

14,098

14,827

14,952

14,850

3,850

955

798

776

734

3,263

12,633

13,313

11,418

11,810

10,494

12,020

12,490

13,389

11,886

12,501

10,849

12,239

28,555

27,184

1,372

7,004

6,689

315

6,718

6,375

342

6,669

6,388

6,769

27,160

6,317

25,770

281

452

1,390

15,598

14,804

13,350

13,405

14,508

14,058

16,050

15,264

13,841

14,290

15,067

14,621

-5%

-4%

-15%

-5%

-2%

-5%

-10%

-9%

Spot rate = Time Charter Equivalent Earnings for all charters with less than six months’ duration = Gross freight income less bunker, commissions and port expenses.
TCE = Time Charter Equivalent Earnings = Gross freight income less bunker, commissions and port expenses.

⁾

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

FINANCIAL REVIEW 2017 - continued

OPERATION OF VESSELS
In 2017, the charter hire cost in the tanker fleet
decreased by USD 13.0m to USD 8.5m compared to
USD 21.5m in 2016. The decrease in the tanker fleet
was caused by lower charter rates and the redelivery
of two vessels in the beginning of 2017.

The development in operating expenses is
summarized in the table below. The table also
summarizes the operating data for the Company’s
fleet of owned and bareboat-chartered vessels.

CHANGE IN OPERATING EXPENSES

USDm

Operating expenses 2016

Change in operating days

Change in operating expenses per day

Other

Operating expenses 2017

OPERATING DATA

USD/day

Operating expenses per operating day in 2016

Operating expenses per operating day in 2017

Change in the operating expenses per operating day in %

Operating days in 2017 ¹

- Off hire

- Dry-docking

⁾

+/- Bareboat contracts in/out

+ Vessels chartered-in

Available earning days 2017

Including bareboat charters.

⁾
TORM ANNUAL REPORT 2017

Handysize

25.8

-3.6

0.4

-0.1

120.0

-0.1

-0.4

LR1

18.7

-0.1

LR2

30.7

-0.1

-2.9

0.1

Total

195.2

-3.9

-2.9

0.0

22.5

119.5

18.6

27.8

188.4

Handysize

6,386

6,508

6,459

6,435

LR1

LR2

Total

7,294

8,411

7,286

7,608

-10%

6,771

6,673

-1%

3,459

18,566

2,555

3,650

28,230

132

106

366

-532

432

159

214

700

-1,014

-1,546

958

1,390

3,263

17,994

2,483

3,419

27,160

Operating expenses (OPEX) for the fleet decreased by
USD 6.8m to USD 188.4m in 2017 compared to USD
195.2m in 2016, mainly due to a decrease in the
number of operating days of 5%. On a per-day-basis,
OPEX decreased by 1% in 2017.

The total fleet of owned vessels had 914 off-hire and
dry-docking days, corresponding to 3% of the
operating days in 2017. This compares to 911 off-hire
days in 2016, or 3% of the number of operating days.

ADMINISTRATIVE EXPENSES AND OTHER
OPERATING INCOME
Total administrative expenses and other operating
expenses amounted to USD 45.4m in 2017, compared
with USD 41.7m in 2016. The increase was mainly due
to an increasing number of employees.

FINANCIAL INCOME AND EXPENSES
Net financial expenses in 2017 were USD 36.3m
compared to USD 34.5m in 2016, corresponding to an
increase of USD 1.8m. 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 0.8m
compared to an expense of USD 0.8m in 2016. The tax
for 2017 comprises the current tax expense for the
year of USD 1.0m and a minor adjustment of tax
related to previous years.

STRATEGIC REPORT

FINANCIAL REVIEW 2017 - continued

ASSESSMENT OF IMPAIRMENT OF ASSETS
Management has followed the usual practice of
performing a review of impairment indicators every
quarter and presenting the outcome to the Audit
Committee. The Audit Committee evaluates the
impairment indicator assessment and prepares a
recommendation 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 significant assets within the tanker fleet.

When assessing the fair value less costs to sell,
Management 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 2017, 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
fleet. As of 31 December 2017, the recoverable amount
of the Tanker Segment was based on the value in use.
Based on this review, Management concluded that the

value in use of the assets within the Tanker Segment
was materially equivalent to the carrying amount.

The assessment of the value in use of the Tanker
Segment was based on the present value of the
expected future cash flows. The freight rate estimates
in the period 2018-2020 are based on the Company’s
business plans. Beyond 2021, the freight rates are
based on the Company’s 10-year historical average
rates, amended to reduce strong rates in 2008 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.

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.

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

FINANCIAL REVIEW 2017 - continued

• 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 cargos for shipment and the number
of vessels available at any given time to transport
these cargos. Vessels operating in the spot market
generate revenue that is less predictable but may
enable the Company to capture increased profit
margins during periods of improvements in tanker
rates.

• Time charter rates. A time charter is generally a
contract to charter a vessel for a fixed period of
time at a set daily or monthly rate. Under time
charters, the charterer pays voyage expenses such
as port, canal and bunker costs. 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.

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.

LR2s are expected to be delivered between the first
and the second quarter of 2018, the LR1s are expected
to be delivered between the fourth quarter of 2019
and the first quarter of 2020 and finally the MRs are
expected to be delivered in 2019. The value of the
prepayments included in the total asset value amounts
to USD 88.4m compared to USD 44.0m in 2016.

• 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 insurance and other expenses
on a per operating day basis. Operating expenses
are only paid for owned vessels. The Company
does not pay such costs for the time chartered-in
vessels, as they are paid by the vessel owner and
instead factored into the charter hire cost for such
chartered-in vessels.

RETURNS TO SHAREHOLDERS
Analysis of dividends
On 12 September 2017, TORM distributed a dividend
payment of USD 1.2m, equivalent to USD/share 0.02,
as reported on 16 August 2017 in the second quarter
release. The Board of Directors proposes that no
dividend be declared for the second half of 2017.

GOING CONCERN
As of 31 December 2017, TORM’s cash position was
USD 134m, TORM’s net debt was USD 620m (of which
USD 271m was undrawn) and the net interest-bearing
debt loan-to-value ratio was 55.8%. In January 2018
the Group’s financial position was further
strengthened via an equity raise of USD 100m. 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.

• 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.

ACQUISITIONS AND CAPITAL EXPENDITURE
As of 31 December 2017, TORM had a total of ten
vessels under construction: Four LR2 newbuildings,
two LR1 newbuildings and four MR resale vessels. The

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

FINANCIAL REVIEW 2017 - continued

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.

• Three years is generally in line with the forecast
horizon for external equity analysts covering the
shipping sector

• TORM will have paid its commitments relating to
the Company’s ten newbuildings and will as of 31
December 2020 not have any currently known off-
balance sheet liabilities

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 to:
• 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

•

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 2020. 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

The expected financial performance and cash flows
utilise assumptions which are consistent with those
used in the Group’s impairment calculations, further
details of which are provided in note 8 to the financial
statements. Vessel values used in forecasting
compliance with financial covenants are based on the
latest market valuations from leading, independent
and internationally recognised shipbrokers. These
base case forecasts have then 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. Further details on TORM’s principal
risks and uncertainties are set out on pages 39-40.

Based on the sensitivity analysis outlined above, the
Board of Directors does not currently expect that
TORM will breach its financial covenants or experience
a liquidity shortfall over the three-year forecast period.
However, should the product tanker market (in terms
of either freight rates or vessel values) materialize
significantly below TORM’s expectations, there is a risk
of a covenant breach in the second half of the third-
year period. 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
8 March 2018

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

GOVERNANCE

Chairman’s Introduction

Corporate Governance

Audit Committee Report

Risk Committee Report

Nomination Committee Report

Remuneration Committee Report

Investor Information

Directors’ Report

Statement of Directors’ Responsibilities

51
52
58
63
66
68
77
80
84

TORM ANNUAL REPORT 2017

STRATEGIC REPORT

CHAIRMAN’S INTRODUCTION

TORM’s key minority shareholder protection rights
imply that 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.

TORM has a 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.

For the first half of 2017, TORM distributed a total of
USD 1.2m through dividend payments to its
shareholders. The Board of Directors proposes that no
dividend be declared for the second half of 2017.

A primary focus for the Board of Directors in 2017 has
been the US listing on NASDAQ in New York, which
was completed in December 2017. Apart from this, the
Board of Directors was carefully overseeing the
ongoing day-to-day business of TORM plc.

The US listing was the logical next step following the
Corporate Reorganization in 2016. The purpose of the
listing has been to enhance the marketability of the
TORM Group and to attract a broader and more
diversified international investor base. To support a US
listing, it has been important for the Board of
Directors to ensure that the appropriate internal
controls are in place to live up to the requirements of
the US environment.

For further details on the US listing, please see page
27 of the “Strategic Report”.

In accordance with UK legislation, TORM has a one-
tier management system in place. This implies that
Executive Director Jacob Meldgaard serves on TORM
plc’s Board of Directors and as the Chief Executive
Officer of TORM A/S – the main subsidiary within the
TORM Group.

TORM plc follows the UK Corporate Governance
Code. The Company complies with 51 out of 55
provisions.

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 of Directors that TORM
maintains a transparent governance structure and
operational set-up with all elements of the operating
platform integrated under the One TORM strategy.
The Board of Directors believes this is in the best
interests of all key stakeholders and will support
TORM as the Reference Company in the product
tanker industry.

TORM ANNUAL REPORT 2017

GOVERNANCE

Governance

CORPORATE GOVERNANCE

THE BOARD OF DIRECTORS
The Board of Directors is entrusted with the overall
responsibility 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 2017, the Board of Directors had 11
meetings. The extraordinary meetings primarily
focused on the capital raise completed in January
2018 and the US listing.

In accordance with UK company legislation, TORM has
a one-tier management structure.

The Board of Directors of TORM plc consists of Mr.
Christopher H. Boehringer as Chairman and Non-
Executive Director, Mr. David N. Weinstein as Deputy

The Board of Directors conducted a self-evaluation in
2017 and will do so again in 2018.

Chairman, Senior Independent 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 until 30 June 2017),
Mr. Lars Bjørn Rasmussen (employee-elected in TORM
A/S from 1 July 2017), Mr. Rasmus J. Skaun Hoffmann
(employee-elected in TORM A/S) and Mr. Jeffrey S.
Stein (Deputy Minority Director).

The Directors were all elected at TORM plc’s Annual
General Meeting on 15 March 2016. Mr. Christopher H.
Boehringer, Mr. Torben Janholt and Mr. Göran Trapp
were all elected for a two-year period until 2018.

COMPOSITION OF THE BOARD OF DIRECTORS
Members and attendance at meetings held during 2017

Board of Directors

Mr. Christopher H. Boehringer (Chairman)

Mr. David Weinstein (Deputy-Chairman)

Mr. Göran Trapp

Mr. Torben Janholt

Mr. Jacob Meldgaard (Executive Director)

David Weinstein, Göran Trapp and Torben Janholt are considered Independent Directors.

Meetings

attended/held

10/11

9/11

11/11

10/11

TORM ANNUAL REPORT 2017

GOVERNANCE

CORPORATE GOVERNANCE - continued

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
remuneration 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 four committees can
be found in the individual committee reports.

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 as Chief Executive
Officer in the Group’s largest subsidiary, TORM A/S.

Transactions of an unusual nature or of major
importance may only be effected by the Executive
Director based on 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 is subsequently
informed. Any transaction shall always be subject to
the authorizations stated in the Company’s Articles of
Association, including any required approvals by the
Minority Director.

The Executive Director is assisted by the Senior
Management 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 S. 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 further authority
delegation 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 2017, 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.

TORM ANNUAL REPORT 2017

GOVERNANCE

CORPORATE GOVERNANCE - continued

SELECTED MINORITY PROTECTION PROVISIONS IN
TORM’S 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, namely 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
• The 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.

B-shareholder, who represents the minority
shareholders, can replace the B-Director at any
time.

• The Audit Committee should consist of

independent Directors (provision 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. In
addition to the UK Corporate Governance Code,
NASDAQ in New York York requires that the Audit
Committee of a US-listed company is comprised
entirely of Directors who the Board of Directors
has determined to be independent. Pursuant to
phase-in periods for newly listed companies
allowed under the rules of NASDAQ in New York,
the Company is required to have a fully
independent Audit Committee within one year
from the date of the listing in New York. As a
result, Christopher H. Boehringer will resign from
the Audit Committee prior to the expiration of the
one-year phase-in period.

The Articles of Association are available on TORM’s
website www.torm.com/about-torm.

CORPORATE GOVERNANCE CODE
In terms of Corporate Governance, TORM follows the
UK Corporate Governance Code as issued by the
Financial Reporting Council in April 2016. The Code
sets out principles to apply and provisions which
operate on a “comply or explain” basis.

TORM has considered the individual provisions and is
compliant with 51 out of 55 provisions. TORM is not in
compliance with the provisions 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, with the exception of provision
C.3.1:

• Non-Executive Directors should be appointed for a
specified term (provision B.2.3): and no longer than
a three-year term (provision 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 this Director serves as a
representative for the minority shareholders. The

TORM ANNUAL REPORT 2017

GOVERNANCE

CORPORATE GOVERNANCE - continued

TORM does not believe that the reliance on such
one-year phase-in period would materially
adversely affect the ability of the Audit Committee
to act independently and to satisfy the other
requirements of Rule 10A-3. The Board of Directors
has determined that Mr. Göran Trapp, who serves
as Chairman of the Audit Committee, qualifies as
an “Audit Committee financial expert” and that he
is “independent” in accordance with SEC rules and
the principles of the UK Corporate Governance
Code.

• The Remuneration Committee should consist of
independent Directors and the Chairman of the
Board of Directors should not chair the Committee
(provision 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 remuneration, it is
appropriate for Mr. Boehringer to chair the
Remuneration Committee.

An overview of TORM’s position on the individual
provisions is available on TORM’s website
www.torm.com/about-torm.

TORM ANNUAL REPORT 2017

GOVERNANCE

BOARD OF DIRECTORS

CHRISTOPHER H. BOEHRINGER
Non-Executive Director and Chairman of TORM’s Board of
Directors.

DAVID NEIL WEINSTEIN
Senior Independent Director and Deputy Chairman of TORM’s
Board of Directors.

GÖRAN TRAPP
Non-Executive Director.

Born: 01-01-1971.
Nationality: Canadian.
Employment: Managing Director, Oaktree Capital
Management, 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 Committee
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, FI Travel Corporation, Warburg
Dillon Read/SG Warburg and LTU GmbH & Co.

Other Board directorships: Principal Home Loans Holdings
Limited, Oaktree Capital Management (UK) LLP, Life
Company Consolidation Group Limited, Amber GP (London)
Limited, Eolia Renovables de Inversiones, S.C.R., S.A.

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, Juris Doctor.

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. Weinstein is a member of TORM’s Nomination Committee
and Remuneration Committee.

Mr. Trapp is Chairman of TORM’s Audit Committee and Risk
Committee.

Mr. Weinstein has had a number of Board leadership positions
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.

Other Board directorships: Chairman of The Oneida Group,
Board member of Seadrill Ltd., Stone Energy Corporation and
TRU Taj LLC.

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, Global Head of Oil 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, and
Energex Partners Ltd.

TORM ANNUAL REPORT 2017

GOVERNANCE

BOARD OF DIRECTORS

TORBEN JANHOLT
Non-Executive Director.

JACOB MELDGAARD
Executive Director.

Born: 11-10-1946.
Nationality: Danish.
Employment: CEO of Pioneer Marine Inc., Pioneer Marine
Hellas S.A. and 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 (Certificate 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. Lauritzen
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 Inc. Singapore, Pioneer
Marine Hellas S.A., A/S United Shipping & Trading Company,
Bunker Holding A/S, Uni-Chartering A/S, Uni-Tankers A/S.

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 and held
a number of management positions in J. Lauritzen A/S and
A. P. Møller-Mærsk.

Other Board directorships: Board member of Danish Ship
Finance, SYFOGLOMAD Ltd., Danish Shipping and The TORM
Foundation.

TORM ANNUAL REPORT 2017

GOVERNANCE

AUDIT COMMITTEE REPORT

The Company applies the requirements of the UK
Corporate Governance Code (April 2016) for TORM
plc’s year ended 31 December 2017.

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.

Senior Independent Director David Weinstein
attended seven meetings in his capacity as Deputy
Board Chairman either in person or by telephone.

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

COMPOSITION OF THE AUDIT COMMITTEE
Members and attendance at meetings held during 2017

Committee members

Mr. Göran Trapp (Chairman)

Mr. Christopher H. Boehringer

Mr. Torben Janholt

Mr. Göran Trapp
Chairman of TORM’s Audit Committee

CHAIRMAN’S STATEMENT
Dear Shareholder

The Audit Committee is pleased to present its report
for 2017.

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 monitor and review: the integrity of
the Company’s financial statements, internal control
and risk management, audit and risk programs,
business conduct and ethics, "whistleblowing" and the
appointment of the independent auditor.

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, Mr. 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.

Meetings

attended/held

7/7

6/7

TORM ANNUAL REPORT 2017

GOVERNANCE

Senior Independent Director David Weinstein attended seven meetings in his capacity as Deputy Board Chairman either in person or by telephone.

AUDIT COMMITTEE REPORT - continued

NASDAQ in New York requires that the Audit
Committee of a US-listed company is comprised
entirely of Directors who the Board of Directors has
determined to be independent. This term is defined
under Rule 10A-3 promulgated under the Exchange
Act and under the rules of NASDAQ in New York.
Christopher H. Boehringer, a current member of the
Audit Committee, is not considered independent.

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.

Pursuant to phase-in periods for newly listed
companies allowed under the rules of NASDAQ in
New York, the Company is required to have a fully
independent Audit Committee within one year from
the date of the listing in New York. As a result,
Christopher H. Boehringer will resign from the Audit
Committee prior to the expiration of the one-year
phase-in period.

TORM does not believe that the reliance on such
exemption would materially adversely affect the
ability of the Audit Committee to act independently
and to satisfy the other requirements of Rule 10A-3.
The Board of Directors has determined that Mr. Göran
Trapp, who serves as Chairman of the Audit
Committee, qualifies as an “Audit Committee financial
expert” and that he is “independent” in accordance
with SEC rules.

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

The Audit Committee’s function is one of oversight
only and does not relieve the Board of Directors of its
responsibilities 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 reporting, risk
management processes and the audits of the
Company’s financial statements. It also provides
advice 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
http://www.torm.com/uploads/media_items/terms-
of-reference-audit-committee.original.pdf.

MEETINGS
The Audit Committee meets at least four times a year,
and the Chief Financial Officer of TORM A/S, the Head
of Group Finance at TORM A/S as well as the
Company’s independent auditor will normally attend
these meetings. During 2017, the Committee met
seven times. Mr. Göran Trapp and Mr. Christopher H.
Boehringer attended all meetings held in 2017 in
person or by telephone. Mr. Torben Janholt attended
six meetings.

FINANCIAL REPORTING AND SIGNIFICANT
FINANCIAL JUDGEMENTS
The Audit Committee considered the issues
summarized below as significant in the context of the
2017 financial statements. These issues 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 109-110, it was concluded that neither an
additional impairment nor a reversal of the 2016
impairment was necessary, as the value in use was
materially equivalent to the carrying amount.

TORM ANNUAL REPORT 2017

GOVERNANCE

AUDIT COMMITTEE REPORT - continued

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.

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 future cash
flows related to operating expenses in the Tanker fleet
appropriately reflected current market assessments.

In view of the softening product tanker market,
Management 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 2018-2020 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, as TORM’s own historical spot rates were
applied, instead of historical rates from Clarksons as
had been applied in previous years. The Audit
Committee reviewed the arguments for the change in
historical spot rates as well as calculations and
assumptions made to ensure the accuracy and the
completeness of the adjustments.

The Audit Committee was satisfied that the most
material assumptions on which the impairment
assessment is based are appropriate.

For further description please refer to note 8 in the
Financial Statements on page 109-110.

US listing
The Audit Committee discussed TORM plc’s plan to
file a registration statement with the U.S. Securities
and Exchange Commission in connection with its
direct share listing on NASDAQ in New York. The
purpose of a dual listing was to provide the
Company’s investors with the ability to trade their
Class A common shares on a USD-denominated
exchange and to improve the liquidity in TORM’s Class
A common shares over time.

The Company believes that a dual listing would attract
further investor interest and provide stronger visibility
towards an international investor community, which
will strengthen TORM’s strategic and financial
flexibility. No new TORM securities were issued in

connection with the direct share listing on NASDAQ in
New York.
The Audit Committee discussed the need to complete
a Form 20-F following the US listing. In order to
facilitate this, it was decided to prepare the UK Annual
Report as the main document and a 20-F document
with cross-references to the Annual Report. Preparing
the 20-F in this manner did, however, mean that
certain non-GAAP figures such as TCE, gross profit
and EBITDA would not be allowed to be included in
the financial statements. The omitted non-GAAP
figures could, however, be included in the front
section of the Annual Report. The Company
successfully completed the listing on 11 December
2017.

Selection of finance system
The Audit Committee supported the recommendation
to find a new finance and accounting system, but
stressed the importance of using a standard system
that could be updated regularly. A detailed
presentation was made to the Audit Committee
explaining the differences in content, functionality and
investment cost of the two alternative systems: MS
Dynamics NAV 2017 and MS Dynamics 365 AX. The
Audit Committee was also informed about the
Company’s reasons for selecting MS Dynamics NAV
2017.

The Audit Committee reviewed this information and
asked relevant questions related to price, functionality,
dimensions, modifications, updates, supplier security
and scalability. The Audit Committee considered the

TORM ANNUAL REPORT 2017

GOVERNANCE

AUDIT COMMITTEE REPORT - continued

selection of a new finance and accounting system, and
based on this discussion the Audit Committee
authorized the Company to proceed with the project.

Effectiveness
In 2017, 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 the independent
audit and certain non-audit work. They provided the
Audit Committee with information and
recommendations on the financial statements and
internal controls.
In May 2017, the Audit Committee reviewed and
approved the terms, areas of responsibility and scope
of the 2017 audit as set out in the independent
auditors’ engagement letter. During the year, Deloitte
provided the Audit Committee with recommendations
and updates regarding audit-related services on
subjects such as regulatory and statutory reporting,
Audit Committee training, etc. The independent
auditors are expected to perform the audit according
to relevant auditing standards. The Independent Audit
Plan was approved in August 2017 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, with David Paterson being the statutory

auditor since that date. Prior to that, Deloitte
Statsautoriseret Revisionspartnerselskab (Denmark)
had been the independent auditors of TORM A/S
(now a subsidiary of TORM plc). From a Group
perspective, Deloitte Denmark was elected in April
2003 replacing Arthur Andersen, and there has not
been an audit tender since that date.

(FRC). Details of the services that the independent
auditors cannot be engaged to perform were
provided to the Audit Committee in the February 2017
Audit Committee meeting documentation. The policy
regarding pre-approval of audit and non-audit fees
will be available on request.

TORM plc will undertake a tender and rotation of the
independent audit appointment at the latest after
completion of the 2020 audit.

Audit and non-audit fees
Full disclosure of the audit and non-audit fees paid
during 2017 can be found in note 5 to the consolidated
financial statements.

Audit fees:
Non-audit fees:

USD 0.6m
USD 0.4m

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 Company’s policy on
the provision of non-audit services by the Company’s
auditors. Copies of the pre-approval procedures are
available on request.

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 Audit
Committee concluded that the effectiveness of the
independent auditors has not been impaired in any
way, and accordingly they will be proposed for
reappointment at the forthcoming 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

TORM ANNUAL REPORT 2017

GOVERNANCE

AUDIT COMMITTEE REPORT - continued

Fees relating to the provision of non-audit services by
Deloitte amounted to USD 0.4m and related primarily
to advisory services related to the US listing (USD
0.3m) and quarterly reviews (USD 0.1m). The Audit
Committee considered that such services were most
efficiently provided by the external auditors, as much
of the information used in performing such work was
derived from audited financial information. In order to
maintain the external auditors’ independence and
objectivity, the external auditors did not make any
decisions on behalf of Management.

Internal audit
The Audit Committee assesses the need for an internal
audit function on an annual basis and makes a
recommendation to the Board of Directors. The Audit
Committee was satisfied that based on the Company’s
size, complexity and its internal control environment,
the Company can defer the establishment of an
internal audit function but has to revisit the decision in
2018. Further, the Audit Committee supported the use
of an audit firm to review selected areas when needed
or requested by the Audit Committee and/or TORM
Management.

RISK MANAGEMENT AND INTERNAL CONTROLS
Risk management
The Audit 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 2017, the Audit
Committee was given a presentation by the risk
management team.

The principal risks and uncertainties are outlined in the
“Risk Management” section of the “Strategic Report”
on pages 37-40.

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. An 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 NASDAQ
stock exchange in the USA (see page 27), the Audit
Committee has increased focus on the future
compliance requirements. These efforts are expected
to continue throughout 2018.

Full details of how the business implements its
enterprise risk management on a Group basis are set
out in the “Risk Management” section of the “Strategic
Report” on pages 37-40.

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 TORM plc’s website
http://www.torm.com/uploads/media_items/torm-
business-priciples.original.pdf. The Audit Committee
received reports providing details of matters reported
through the Group’s international, 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 during the quarter.

Approval
On behalf of the Audit Committee

Mr. Göran Trapp
Chairman of the Audit Committee
8 March 2018

TORM ANNUAL REPORT 2017

GOVERNANCE

RISK COMMITTEE REPORT

http://www.torm.com/uploads/media_items/terms-
of-reference-risk-committee.original.pdf.

In 2017, the Risk Committee had focus on
understanding risks related to disruptive technologies
and their impact on the clean product trade and
transportation. The electric vehicle could be on the
verge of transforming road transportation and thereby
affecting global fuel demand. Furthermore, the Risk
Committee focused on the risks related to derivatives
trading and financial risks as well as risks related to
strategic decisions around the Company’s capital
structure.

The Risk Committee seeks to balance independent
oversight of matters within the scope of the Risk
Committee with providing support and guidance to
Management. The Risk Committee is confident that
the Committee, supported by members of TORM A/S
Management, has carried out its duties effectively and
to a high standard in 2017.

COMPOSITION OF THE RISK COMMITTEE
Members and attendance at meetings held during 2017.

Committee members

Mr. Göran Trapp (Chairman)

Mr. Christopher H. Boehringer

Mr. Torben Janholt

MEETINGS
The Risk Committee normally meets no less than four
times a year. In 2017, the Committee decided to
reduce the frequency to three meetings a year from
2018 onwards. The Risk Committee is confident that
three annual meetings enable the Committee to
effectively carry out its responsibilities. The
appropriateness of the frequency will be evaluated
annually. TORM’s annual Enterprise Risk Management
Report is approved at the Board of Directors meeting
in Q1 2018.

Senior Independent Director David Weinstein
attended all Risk Committee meetings in 2017.
Ordinarily, the Executive Director, the Chief Financial
Officer of TORM A/S and TORM A/S’ Head of Group
Treasury attend the Risk Committee meetings.

Meetings

attended/held

4/4

3/4

GOVERNANCE

Mr. Göran Trapp
Chairman of TORM’s Risk Committee

CHAIRMAN’S STATEMENT
Dear Shareholder

The Risk Committee is pleased to present its report
for 2017.

The Risk Committee is delegated by the Board of
Directors to oversee TORM’s risk management and to
advise the Board on risk-related matters. The Risk
Committee is also responsible for endorsing TORM’s
risk policies for Board approval and assessing quality
and effectiveness of the companywide risk
management program.

The Risk Committee’s Terms of Reference are
available at:

TORM ANNUAL REPORT 2017

RISK COMMITTEE REPORT - continued

MEMBERSHIP
The Risk Committee assesses that the committee
members have sufficient qualifications within risk
management and capital market knowledge and
abilities to make an independent assessment of risks
that are applied consistently throughout the
organization, 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 Risk Committee is also authorized to
seek further external advice at the Company’s
expense, if required.

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.

ACTIVITIES DURING THE YEAR
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 compliance with internal mandates and
exposure to financial derivatives.

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 Company’s risk management
program.

This is an ongoing process of refinement and
embedding of risk management best practice
throughout the organization. The risk management
framework builds on clear policies and procedures
that are applied consistently throughout the
organization.

SELECTED RISKS REVIEWED DURING 2017
TORM safety culture
The Risk Committee reviewed the global One TORM
safety culture program aimed to enhance the overall
safety performance for employees, the environment,
customers and maintain a high safety awareness
throughout TORM.

Disruptive technology risk
The Risk Committee investigated the potential impact
on trade within the refined products sector due to a
reduction caused by the uptake of electric vehicle
technologies in public and commercial transportation
and autonomous vehicles over a long-term horizon.

Review of TORM’s 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 what
measures TORM takes to mitigate these risks.

Cyber Risk
The Risk Committee reviewed TORM’s preparedness
and resilience in case of a breach or failure of the
Company’s digital infrastructure due to intentional
actions such as attacks on the Company’s cyber
security. TORM has held internal workshops to identify
critical systems, establish business continuity plans
and emergency plans in case of cyber incidents.

Financial risk management and review of 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
instruments and subsequently approved the Financial
Policy that clearly outlines mandates.

Liquidity risk and counterparty risk
The Risk Committee reviewed the Company’s liquidity
forecast model and the underlying key assumptions as
well as TORM’s forecasted liquidity position and

TORM ANNUAL REPORT 2017

GOVERNANCE

RISK COMMITTEE REPORT - continued

Approval
On behalf of the Risk Committee

Mr. Göran Trapp
Chairman of the Risk Committee
8 March 2018

compliance with financial covenants on borrowing
facilities over the coming 12 months. The Risk
Committee performed an in-depth review of
counterparty risk related to TORM’s customers.

Capital structure risks
The Risk 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.

Enterprise risk management
The Risk 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 Risk Committee approved the
Company’s risk profile based on these discussions.
Furthermore, the Risk Committee reviewed the
assigned management accountability, which highlights
current and planned risk mitigating activities.

TORM ANNUAL REPORT 2017

GOVERNANCE

NOMINATION COMMITTEE REPORT

SUMMARY OF THE ROLE OF THE NOMINATION
COMMITTEE

•

Identify individuals qualified to become members
of the Board of Directors and recommend to the
Board of Directors nominees for election as
members of the Board of Directors
• Maintain oversight of the operation and

effectiveness of the Board of Directors and the
corporate governance and management of the
Company
Evaluate the balance of skills, experience and
knowledge of the Board of Directors
Establish the process for conducting the review of
the performance of the CEO of the Company

•

• Review and approve appointments and

succession planning for the Senior Management
team

• Monitor compliance with such principles and

policies

The Nomination Committee’s Terms of Reference are
available at
http://www.torm.com/uploads/media_items/terms-
of-reference-nomination-committee.original.pdf

COMMITTEE DISCUSSIONS IN 2017

Assessment of effectiveness of the Board of
Directors
According to the recommendations of the UK
Corporate Governance Code, the Board is to review
and assess its performance annually. The review
focused on Board accountability and composition, the
Board’s role in setting strategy, risk management and
succession planning and the effectiveness of the
Board committees. The Nomination Committee
discussed the results of the internally-run evaluation of
both the Board and the Chairman.

COMPOSITION OF THE NOMINATION COMMITTEE
Members and attendance at meetings held during 2017

Committee members

Mr. Christopher H. Boehringer (Chairman)

Mr. Torben Janholt

Mr. David Weinstein

Meetings

attended/held

1/1

GOVERNANCE

Mr. Christopher H. Boehringer
Chairman of TORM’s Nomination Committee

CHAIRMAN’S STATEMENT
Dear Shareholder

The Nomination Committee is pleased to present its
report for 2017.

The purpose of this report is to describe how the
Nomination Committee has carried out its
responsibilities during the year.

TORM ANNUAL REPORT 2017

NOMINATION COMMITTEE REPORT - continued

Approval
On behalf of the Nomination Committee

Mr. Christopher H. Boehringer
Chairman of the Nomination Committee
8 March 2018

Future Board representatives
Based on the governance self-assessment survey
originating from the previous Board of Directors
meeting, it had been decided that the Nomination
Committee would consider the independence and
diversity theme arising from the US listing.

The Nomination Committee discussed that according
to NASDAQ in New York requirements, the Audit
Committee of a US-listed company must consist
entirely of Directors who the Board of Directors has
determined to be independent. According to Rule
10A-3 promulgated under the Exchange Act and
under the rules of NASDAQ in New York, Christopher
Boehringer, a current member of the Company’s Audit
Committee, is not considered independent. Pursuant
to phase-in periods for newly listed companies
allowed under the rules of NASDAQ in New York, the
Company is required to have a fully independent
Audit Committee within one year from the date of the
Company’s listing on NASDAQ in New York. As a
result, Christopher Boehringer will be required to
resign from the Company’s Audit Committee prior to
the expiration of the one-year phase-in period.

With respect to governance codes and Company
ambitions, the Nomination Committee discussed how
to increase gender diversity, particularly within
leadership positions.

Succession planning
The Nomination Committee received a presentation
covering potential successors (temporary and
permanent solutions). The presentation covered 23
key roles on Senior Vice President, Vice President and
General Manager level with impact on the One TORM
strategy and/or critical to the TORM business. In
addition, eight key employees (below Vice President
level) have been identified. All suggested successors
were internal candidates.

All candidates were distributed in three categories:
• A temporary solution (interim and with short

notice)

• Candidates ready for permanent succession in 0-1

years

• Candidates ready for permanent succession in 1-2

years.

The development of successors is supported by
various activities ranging from MBA studies,
development of management and leadership skills,
360 degree evaluations and various courses.

TORM ANNUAL REPORT 2017

GOVERNANCE

REMUNERATION COMMITTEE REPORT

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 two main areas:
• The statement by the chair of the Remuneration

Committee

• The annual report on remuneration

The Remuneration Policy, approved by the
shareholders at the Annual General Meeting (AGM) on
4 April 2017, took effect from the date of that meeting.
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 additional information required by the
Regulations.

COMPOSITION OF THE REMUNERATION COMMITTEE
Members and attendance at meetings held during 2017.

Committee members

Mr. Christopher H. Boehringer (Chairman)

Mr. David Weinstein

Mr. Torben Janholt

At the 12 April 2018 AGM, a revised Remuneration
Policy may be proposed for shareholder approval. The
changes could encompass amendments to the LTIP.

The Companies Act 2006 requires the auditors to
report to the shareholders on certain parts of the
Directors’ Remuneration Report and to state whether,
in their opinion, those parts of the report have been
properly prepared in accordance 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 itself are not subject
to audit.

Meetings

attended/held

2/2

GOVERNANCE

Mr. Christopher H. Boehringer
Chairman of TORM’s Remuneration Committee

STATEMENT BY THE CHAIRMAN OF THE
REMUNERATION COMMITTEE

Dear Shareholder

On behalf of the Remuneration Committee, the
Directors’ Remuneration Report is presented in the
following section for the year ended 31 December
2017.

This report is on the activities of the Remuneration
Committee for the period 1 January 2017 to 31
December 2017. It sets out the Remuneration Policy

TORM ANNUAL REPORT 2017

REMUNERATION COMMITTEE REPORT - continued

The Remuneration Committee assists the Board of
Directors in its responsibilities in relation to
remuneration. The main role of the Company’s
Remuneration Committee remains to ensure that the
remuneration arrangements for the Executive Director
and Senior Management offer appropriate incentives
to enhance the Company’s performance.

• The responsibilities of the Remuneration Committee

reflected in the Terms of Reference for the
Remuneration Committee

• The members of the Remuneration Committee
• Shareholder voting at the AGM
• The remuneration of the Board of Directors
• The remuneration of the CEO

The Remuneration Committee’s responsibilities
include:
• Setting the strategy, structure and levels of

remuneration 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

Director 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
guidelines for incentive pay for the Board of
Directors and Executive Management

The Remuneration Committee assessed the Executive
Director’s performance against long-term and short-
term targets. The Remuneration Committee has
assessed the Executive Director’s contribution against
his personal performance measures. As a result, the
performance bonus was calculated at 50% of the
yearly salary for the objective-based contributions in
2016. Further, in relation to achievements relating to
the TORM Leadership Philosophy (TLP), an additional
17% was awarded. Throughout this past year, the
Remuneration Committee maintained the link between
pay and performance and will continue to do so.

The Remuneration Committee continues to monitor
developments in corporate governance and
remuneration and, where considered appropriate
based on the best interests of TORM plc and its
shareholders, the Remuneration Committee would
propose to adopt the developments.

The Remuneration Committee has taken the
opportunity to update the Company’s remuneration
policy (as approved at the 2017 AGM). This was

performed in order to bring the policy in line with the
Company’s 20-F filing related to its US listing.

During the year, the Remuneration Committee
received advice and/or services from the Head of
Group HR and the Executive Director together with
other senior group employees and independent
advisor CWT as necessary.

On behalf of the Remuneration 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
2018 AGM, and I will be available at the meeting to
respond to your questions on any aspect of this
report.

Finally, the Remuneration Committee has taken the
opportunity to make some changes to the layout and
design of the report, which we hope will make the
Company’s remuneration strategy and outcomes
clearer.

Christopher H. Boehringer
Chairman of the Remuneration Committee
8 March 2018

TORM ANNUAL REPORT 2017

GOVERNANCE

REMUNERATION COMMITTEE REPORT - continued

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 table sets out the 2016-17 remuneration for Jacob
Meldgaard in his roles as Executive Director of TORM
plc and CEO of TORM A/S, a subsidiary of TORM plc.

Base salary
The CEO’s base salary was reviewed on the 15 March
2017 to determine the appropriate salary for the
coming year. Base salary as of 1 January 2016: DKK
5.6m. Base Salary as of 1 January 2017: DKK 6.0m.

The base salary will be discussed and agreed with the
Chairman of the Board once a year. The next
discussion shall take place in February 2019. Unless
otherwise agreed, any adjustment of the salary will
take effect on 1 January 2019.

JACOB MELDGAARD

USD '000

2016 restated

2017³

⁾

USD '000

Salary and Directors Fees

Taxable benefits

Annual bonus

Total
¹
²

Annual

Taxable

performance

Salary¹

benefits

bonus²

873

⁾

1,004

559

⁾

580

Total

1,473

1,626

Employees

entire Group

% change

Chief Executive Officer

2017

1,004

580

1,626

2016

873

559

15%

1,473

10.4%

-1%

N/A

Taxable benefits
The Company can place a car costing no more than
DKK 1m at the CEO’s disposal; however, the CEO has
instead accepted to receive an amount of DKK 23t per
month, covering the running and maintenance
expenses associated with a private vehicle. For 2017,
the amount of DKK 276t (USD 42t) has been included
within the single figure amount.

Other benefits provided directly include two
newspapers, 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.

For 2018, changes in allowances and benefits are not
expected.

The total salary of Jacob Meldgaard consists of both his salary as CEO of TORM A/S (USD 923t) and as Executive Director of TORM plc (USD 81t).
The 2016 figures have been restated in order to include the figure for the annual bonus for 2016 as this was finalised and subsequently paid in 2017. No value
was shown in the 2016 annual report. The total annual performance bonus of the Executive Director of TORM plc for 2016 arising in the period 1 January 2016
to 31 December 2016 was DKK 3.758.700 (USD 559t).

⁾
⁾

TORM ANNUAL REPORT 2017

GOVERNANCE

REMUNERATION COMMITTEE REPORT - continued

Performance bonus 2016
The Board of Directors provided the CEO with a
performance cash bonus for the financial year 2016 in
the following ranges and based upon the following
parameters:

Performance bonus 2017
The Board of Directors has provided the CEO with a
performance cash bonus opportunity for the financial
year 2017 in the following ranges and based upon the
following parameters:

Performance bonus 2018
The Remuneration Committee has provided the CEO
with a performance cash bonus for the financial year
2018 in the following ranges and based upon the
following parameters:

1. The fulfillment of specific performance metrics set
by the Company. The main components included:
MR TCE/day performance, cost control and LTAF
performance (up to 50% of the CEO’s fixed annual
salary)

2. The weighted average P/NAV 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 fixed annual salary)
3. Up to 20% of the CEO’s fixed annual salary based
on the sole discretion of the Company’s Board of
Directors

In aggregate, the maximum achievable cash bonus for
the financial year 2016 for the CEO was equal to 120%
of the CEO’s fixed annual salary in 2016.

Based on the specific measure and calculation
methodology for each of the above parameters, the
CEO’s performance cash bonus for 2016 was
determined to be a total of 67% (50% on parameter 1
and 17% on parameter 3) of the 2016 fixed annual
salary of DKK 5,610,000, resulting in an amount of
DKK 3,758,700 (USD 559t).

•

The fulfillment of specific performance metrics set
by the Company (up to 50% of the CEO’s base
salary). The performance metrics are specified at
the start of the performance period and are
commercially sensitive. Further detail will be
provided in the 2018 Annual Report once the 2017
award is finalized
TORM P/NAV ratio vs. peers, based on weighted
average P/NAV ratio 2017 (up to 50% of the
CEO’s base salary)

• Up to 20% of the CEO’s base salary based on the

sole discretion of the Company’s Board of
Directors

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 for each
of the above parameters have been determined by the
Remuneration Committee.

•

The fulfillment of specific performance metrics set
by the Company (up to 50% of the CEO’s base
salary). The performance metrics are specified at
the start of the performance period and are
commercially sensitive
TORM P/NAV vs. peers, based on weighted
average P/NAV ratio 2018 (up to 50% of the
CEO’s base salary)

• Up to 20% of the CEO’s base salary based on the

sole discretion of the Company’s Board of
Directors

In aggregate, the maximum achievable cash bonus for
the financial year 2018 for the CEO is equal to 120% of
the CEO’s base salary in the financial year 2018. The
specific metrics and calculation methodology for each
of the parameters have been determined by the Board
of Directors.

TORM ANNUAL REPORT 2017

GOVERNANCE

REMUNERATION COMMITTEE REPORT - continued

Long-Term Incentive Plan – Restricted Share Units
granted in 2016
TORM has in accordance with its Remuneration Policy
granted the CEO a number of Restricted Share Units
(RSUs) which was communicated in company
announcement no. 2 dated 18 January 2016. There are
no performance 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. As at 1
January 2017, one fifth of the grant amounting to
255,345 RSUs vested, and as at 31 December 2017 the
exercise period relating to those vested RSUs expired.
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 (LTIP) (cf. company
announcements dated 18 January and 8 March 2016).

The total number of securities granted was 1,276,725
(assuming 100% vesting). No further grants were
made to the CEO during 2017. As of 31 December
2017, 1,021,380 RSUs remain.

DKK 93.6 due to the dividend payment in September
2016. The exercise price was further adjusted in
December 2017 to DKK 93.5 due to the dividend
payment in September 2017.

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.

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. However, 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.

LTIP element of Jacob Meldgaard's remuneration package 2017

grant¹

per share²

100% vesting

RSU LTIP

Exercise price

value assuming

RSU grant

Jacob Meldgaard
¹

USD 3.4m
LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 2 of 18 January 2016, therefore there is no minimum or
maximum for 2017.
Exercise price originally DKK 96.3. Subsequently adjusted on 13 December 2016 to DKK 93.6 due to the dividend payment in September 2016. Further
adjusted in December 2017 to DKK 93.5 due to the dividend payment in September 2017.

1,276,273.0

DKK 96.3

⁾

TORM ANNUAL REPORT 2017

GOVERNANCE

REMUNERATION COMMITTEE REPORT - continued

Remuneration table Non-Executive Directors. The
information provided in this part of the Directors’
Remuneration Report is subject to audit.

The 2017 remuneration table below sets out the
remuneration paid to the Non-Executive Directors of
the Company in 2017. Fees shown include any
additional fees paid in respect of chairmanships of
committees or other roles such as Senior Independent
Director.

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-
Executive 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 2017, 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.

2017 Remuneration table Non-Executive Directors

USD '000

Director

Christopher H. Boehringer

David Weinstein

Göran Trapp

Torben Janholt

SUMMARY OF DIRECTORS’ INTEREST IN SHARES¹

Base fee

Committee fee

2017

2016

2017

2016

174

116

158

105

116

105

Director

Christopher H. Boehringer

David Weinstein

Göran Trapp

Torben Janholt

Jacob Meldgaard

⁾

Unvested

Vested

held

RSUs

Total

31-12-2016

7,566

31-12-2017

7,566

31-12-2016

31-12-2017

31-12-2016

12,820

31-12-2017

12,820

31-12-2016

31-12-2017

7,566

12,820

31-12-2016

66 1,276,725

- 1,276,791

31-12-2017

66 1,021,380

255,345 1,276,791

The above table shows, in relation to each Director, the total number of share interests with and without performance conditions, the total number of RSUs
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, has RSUs which are listed in the above table.

⁾

TORM ANNUAL REPORT 2017

GOVERNANCE

REMUNERATION COMMITTEE REPORT - continued

Taxable benefits
As members of the Board of TORM plc, the Directors
do not receive any additional benefits.

Payments for loss of office
No payments for loss of office have been made in
2017.

STATEMENT OF DIRECTORS’ SHAREHOLDING AND
SHARE INTEREST
The figure below summarizes the total interests of the
Directors in shares of TORM plc as of 31 December
2017. No changes took place in the interests of the
Directors between 31 December 2017 and 8 March
2018.

The information provided in this part of the Annual
Report on remuneration is not subject to audit.

The graph shows the Company’s performance,
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. The total
shareholder return is calculated in USD.

The top table shows the total remuneration earned by
the Executive Director over the same period, along
with the proportion of maximum bonus opportunity
earned.

PERFORMANCE GRAPH AND CEO REMUNERATION TABLE (USD ‘000)
Source: Bloomberg

Jacob Meldgaard

Total remuneration (single figure)

Annual bonus (% of maximum)

LTIP (% of maximum)

2017

2016

1,626

1,473

60%

67%

CHANGE IN CHIEF EXECUTIVE OFFICER’S REMUNERATION COMPARED TO GROUP EMPLOYEES WORLDWIDE

2016 - 2017 in %

Chief Executive Officer

USD ('000)

% change

Average %

change

Salary¹

Benefits³

Bonus⁴

1,004
⁾
⁾
15%

42
⁾
3%

580

⁾
4%

-1%

N/A

Employees entire Group
¹
²
³

The comparative figures used to determine the % change take into consideration the CEO's salary and benefits.
Measured in local currency.
Other benefits provided directly in 2016/17 relates to company car benefit.

⁾
⁾
⁾

TORM ANNUAL REPORT 2017

GOVERNANCE

REMUNERATION COMMITTEE REPORT - continued

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.

Implementation of Non-Executive Director
Remuneration for 2018
The remuneration of the Non-Executive Directors for
2018 is subject to approval by ordinary resolution at
the AGM of the Company to be held on 12 April 2018.

RELATIVE IMPORTANCE OF SPEND ON PAY

Expenditure USD '000

Dividends paid

Purchase outstanding shares in TORM A/S

Purchase/disposal of treasury shares

Total

Staff costs

Retained earnings

The figure below shows the response to the 2017
Annual General Meeting (AGM) shareholder voting.

RESPONSE TO 2017 AGM SHAREHOLDER VOTING

Vote

Vote on 2017 Remuneration Report

In %

TORM ANNUAL REPORT 2017

2017

1.2

43.8

786.0

2016

25.0

19.2

2.8

47.0

46.7

783.0

For

Against

Abstain

42,282,772

598,535

99.0%

1.0%

GOVERNANCE

REMUNERATION COMMITTEE REPORT - continued

Statement of voting at General Meeting
The Remuneration Policy was approved at the 2017
AGM of the Company 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 at
http://www.torm.com/uploads/media_items/terms-
of-reference-remuneration-committee.original.pdf.

Approval of TORM plc Remuneration Report for 2017
This report was approved by the Board of Directors
on 8 March 2018 and signed on its behalf by:

REMUNERATION POLICY
The TORM plc remuneration policy approved at the
2017 AGM remains unchanged. While the
Remuneration Committee will consider the
appropriateness of the remuneration policy annually
to ensure it continues to align with the business
strategy, there is no current intention to revise the
policy more often than every third years, unless
required due to changes to regulations or legislation.

Adoption and publication
The Board of Directors shall review the remuneration
policy at least once a year. Any changes to the
Remuneration Policy shall be adopted by the Board of
Directors and approved by the shareholders at an
AGM.

TORM’s Remuneration Report will be included in the
Company’s annual reports for all financial years
commencing with the financial year ended 31
December 2017 and will contain information on
remuneration paid to the Board of Directors and
Executive Management.

The remuneration policy is available at
http://www.torm.com/uploads/media_items/torm-
remuneration-policy-2017.original.pdf.

Christopher H. Boehringer
Chairman of the Remuneration Committee
8 March 2018

The Board of Directors has adopted the remuneration
policy.

TORM ANNUAL REPORT 2017

GOVERNANCE

INVESTOR INFORMATION

US listing on NASDAQ in New York completed in 2017.

COMMUNICATION TO 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 2017, TORM issued a total of 12 announcements to
the stock exchange. 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
There were no changes to TORM plc’s share capital
during 2017. As of 31 December 2017, TORM plc’s total
share capital was USD 622,988.48 consisting of
62,298,846 A-shares of USD 0.01 each, one B-share
and one C-share both of USD 0.01.

invest in the fleet. For the first six months of 2017,
TORM distributed a total of USD 1.2m through
dividends.

The Board of Directors proposes that no dividend be
distributed for the second half of 2017.

Following the balance sheet date, on 26 January 2018,
TORM completed a Private Placement for gross
proceeds of USD 100m. The Private Placement
resulted in an issuance of 11,920,000 new A-shares. As
of 8 March 2018, TORM’s total share capital is USD
742,188.48 consisting of 74,218,846 A-shares of USD
0.01 each, one B-share and one C-share both of USD
0.01.

TRADING
In 2017, TORM had 62,298,846 A-shares outstanding.
The average daily trading volume on Nasdaq
Copenhagen has been approximately 43t shares.
During 2017, the share price declined from
approximately DKK 63.5 to DKK 53.5. Throughout
2017, TORM has been part of the MidCap segment on
NASDAQ Copenhagen.

DISTRIBUTION POLICY
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
obligations, market trends and shareholder interests.

TORM’s distribution policy allows investors to benefit
directly from the earnings generated in TORM, while at
the same time enabling the Company to selectively

DUAL LISTING
In 2017, TORM completed a listing of the Company’s
A-shares on NASDAQ in New York. Following the US
listing, TORM’s A-shares can move freely between the
two NASDAQ exchanges in Copenhagen and New
York. TORM’s A-shares are listed on NASDAQ
Copenhagen and NASDAQ in New York under the
tickers TRMD A and TRMD, respectively.

TORM ANNUAL REPORT 2017

GOVERNANCE

INVESTOR INFORMATION - continued

SHAREHOLDERS
As of 31 December 2017, TORM had approximately
8,100 registered shareholders representing 89% of the
share capital.

In compliance with section 29 of the Danish Securities
Trading Act, the following shareholders have reported
to TORM that they own 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 2017, TORM’s treasury shares
represented 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 2017, the members of the Board of
Directors held a total of 20,478 shares, equivalent to a
total market capitalization of DKK 1,095,573 or USD
176,486. 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, United States of
America.

WARRANTS AND RESTRICTED SHARE UNITS
As of 31 December 2017, 4,787,692 warrants were
outstanding 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
at
http://www.torm.com/uploads/media_items/warrant-
transfer-notice-2016.original.docx.

Following the Private Placement and the issuance of
11,900,000 new Class A common shares, certain
warrant terms were adjusted as of 6 March 2018.
Following this adjustment, a total of 4,838,827
warrants were outstanding, each with an exercise
price of DKK 95.24.

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 (RSUs) 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. 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.

Based on the Black-Scholes model, 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.

NET ASSET VALUE
TORM’s net asset value (NAV) as of 31 December 2017
is estimated at USD 796m based on i) broker values of
USD 1,661m, ii) outstanding debt of USD 754m, iii)
outstanding newbuilding installments of USD 307m,
iv) a cash position of USD 134m, v) other current
assets of USD 123m and vi) current liabilities of USD
61m. Based on 61,985,975 outstanding A-shares,
excluding treasury shares, as of 31 December 2017, this
corresponds to a NAV/share of USD 12.8 or DKK 79.7.

For further information about investor relations, please
visit www.torm.com/investors.

TORM ANNUAL REPORT 2017

GOVERNANCE

INVESTOR INFORMATION - continued

INVESTOR RELATIONS CONTACT

ANALYST COVERAGE

Christian Lintner, Senior Treasury and IR Manager
Group IR, Communication and Treasury
Phone: +45 3917 9335
Email: ir@torm.com

Carnegie Investment Bank
Marcus Bellander
Phone: +45 3288 0298
Email: marcus.bellander@carnegie.dk

FINANCIAL CALENDAR 2018

12 April 2018, Annual General Meeting

17 May 2018, First quarter 2018 results

16 August 2018, First half 2018 results

15 November 2018, Nine months 2018 results

Danske Bank
Finn Bjarke Pedersen
Phone: +45 4512 8036
Email: finpe@danskebank.dk

Handelsbanken
Dan Togo Jensen
Phone: +45 4679 1246
Email: dato01@handelsbanken.dk

Jyske Bank
Frans Høyer
Phone: +45 8989 7033
Email: frans.hoyer@jyskebank.dk

Nordea Markets
Jørgen V. Bruaset
Phone: +45 2185 8575
Email: jorgen.bruaset@nordea.com

SEB
Ole G. Stenhagen
Phone: +47 2100 8527
Email: ole.g.stenhagen@seb.no

TORM ANNUAL REPORT 2017

GOVERNANCE

DIRECTORS’ REPORT

The Directors are pleased to present the Annual
Report on the affairs of the TORM Group, including
the financial statements and the auditor’s report, for
2017. Details on the Directors’ responsibilities are
available in the Directors Responsibility Statement on
page 84-85.

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 pages 48-49. For
details on any significant events after 31 December
2017, please refer to note 2 on page 103. Details on
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 2017. TORM has
distributed a total of USD 1.2m to shareholders in 2017
through dividends in September 2017. For further
details on distributions to shareholders in 2017, please
see the “Investor Information” section pages 77-79.

ANNUAL GENERAL MEETING
TORM’s next Annual General Meeting will be held on 12
April 2018. 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 8
March 2018 are available on pages 56-57.

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 documentation related to the
Corporate Reorganization.

SHARE CAPITAL
TORM’s share capital as of 8 March 2018 amounts to a
total nominal value of USD 742,188.48 divided into
74,218,846 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
74,218,846 votes are attached to the A-shares. Only
the A-shares are admitted to trading and official listing
on NASDAQ Copenhagen and NASDAQ in New York.

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, 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.

TORM ANNUAL REPORT 2017

GOVERNANCE

DIRECTORS’ REPORT - continued

Until the Threshold Date, 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 pages 77-79.

A number of the A-shares are issued subject to
restrictions on transfer (“Restricted Shares”) imposed
by US securities laws. 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 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’s website,
http://www.torm.com/uploads/media_items/articles-
of-association-15-march-2016.original.pdf.

The B-share and the C-share do not have any rights to
receive dividends or other distributions which the
Company decides to pay.

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-share and the C-share must be cancelled, and
no further B-shares or C-shares can be issued by the
Company.
Pursuant to TORM’s Articles of Association and
authorities passed at TORM plc’s Annual General

Meeting on 15 March 2016 (2016 AGM), the Board of
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:

• 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 2017, leaving a current authority to issue
up to 137,228,300 A-shares)

• 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 Directors (of which zero nominal value was
used during the period ended 31 December 2017).
Since the balance sheet date of 31 December 2017, a
nominal value of USD 119,200 was used in
connection with the Private Placement, leaving a
current authority to issue up to 2,477,026 A-shares.

TORM ANNUAL REPORT 2017

GOVERNANCE

DIRECTORS’ REPORT - continued

• 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
8,666 nominal value was used for the grant of
restricted share units during the period ended 31
December 2017), leaving a current authority to issue
up to 80,098,450 A-shares

Furthermore, the Board of 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 not
repurchased any A-shares during the period ended 31
December 2017, leaving a current authority to
purchase up to 6,548,542 A-shares or approximately
9% of TORM's share capital excluding treasury shares.

All the above share authorities expire on 14 March
2021. The Board of Directors will not be seeking any
new authorities at the 2018 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 pages 77-79.

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 2017.

excluding the Deputy Chairman) and certain
amendments to the Articles of Association.

OTHER INFORMATION INCLUDED IN THE
STRATEGIC REPORT
The “Strategic Report” set out on pages 4-49 provides
a review of TORM’s operations in 2017 and the
potential future developments on those operations.
Details on greenhouse gas emissions are included in
the “Strategic Report” on page 30, and details on
TORM’s general policy relating to recruitment, training,
career development and disabled employees are
included on pages 33-36.

REQUIREMENTS TO THE LISTING RULES
TORM plc is listed on Nasdaq Copenhagen and
NASDAQ in New York. 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 companies.

FINANCIAL INSTRUMENTS
The Company uses financial instruments to manage
risks related to freight rates, bunker fuels, interest
rates and foreign exchange. For further information on
the use of financial instruments, please refer to Note
20 on pages 118-121.

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 in Denmark, India, the
Philippines, Singapore, the UK and the US. Further
details on the Company's global presence is set out on
pages 123-125.

SIGNIFICANT SHAREHOLDINGS
Details on significant shareholdings are set out in the
“Investor Information” section on pages 77-79.

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

TORM ANNUAL REPORT 2017

GOVERNANCE

DIRECTORS’ REPORT - continued

INDEPENDENT AUDITORS
Each person who is a Director at the date of approval
of the Annual Report confirms that:

Approval
On behalf of the Board of Directors

• 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 4 April 2017, Deloitte LLP was reappointed as
auditors for TORM plc. Deloitte LLP has expressed
willingness to continue in office as auditors, and a
resolution to reappoint them will be proposed at the
forthcoming Annual General Meeting on 12 April 2018.

Christopher H. Boehringer
Chairman of the Board of Directors
8 March 2018

TORM ANNUAL REPORT 2017

GOVERNANCE

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual
Report and financial statements in accordance with
applicable law and regulations.

In preparing the parent company financial statements,
the Directors are required to:
• Select suitable accounting policies and then apply

them consistently

• Make judgements 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

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 Company for that period.

In preparing the Group financial statements,
International Accounting Standard 1 - Presentation of
Financial Statements - requires that Directors:
• 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 transactions, 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

TORM ANNUAL REPORT 2017

GOVERNANCE

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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

This responsibility statement was approved by the
Board of Directors on 8 March 2018 and is signed on
its behalf by:

Jacob Meldgaard
Executive Director
8 March 2018

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,

TORM ANNUAL REPORT 2017

GOVERNANCE

FINANCIAL
STATEMENTS

FINANCIAL STATEMENTS 2017

Consolidated Income Statement ............................................................................................................. 87
Consolidated Statement of Comprehensive Income.................................................................... 87
Consolidated Balance Sheet ...................................................................................................................... 88
Consolidated Statement of Changes in Equity ............................................................................... 89
Consolidated Cash Flow Statement ...................................................................................................... 91
Notes to Consolidated Financial Statements ................................................................................... 92
Parent Company 2017 ................................................................................................................................ 128
Company Balance Sheet ............................................................................................................................ 129
Company Statement of Changes in Equity ..................................................................................... 130
Notes to Parent Financial Statements ................................................................................................ 131
Independent Auditor’s Report to the Members of TORM plc ............................................... 135
TORM Fleet Overview ................................................................................................................................. 141
Glossary .............................................................................................................................................................. 144

TORM ANNUAL REPORT 2017

GOVERNANCE

CONSOLIDATED INCOME STATEMENT
1 JANUARY-31 DECEMBER

CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
1 JANUARY-31 DECEMBER

USD '000

Revenue

Note

2017

2016

2015

USD '000

656,991

680,143

540,404

Net profit/(loss) for the year

2017

2016

2015

2,407

-142,491

125,983

Port expenses, bunkers and commissions

-259,888 -221,859 -169,646

-8,517

-21,498

-12,023

Other comprehensive income/(loss):

Charter hire

Operating expenses

Profit from sale of vessels

Administrative expenses

Other operating expenses

Share of profit/(loss) from joint ventures

Impairment losses on tangible and intangible

assets

Depreciation

4 -188,374 -195,249 -122,867

Items that may be reclassified to profit or loss:

2,762

Exchange rate adjustment arising from translation of

4, 5

-45,007

-41,406

-19,486

entities using a functional currency different from USD

360

-240

160

-418

-304

-6,299

Fair value adjustment on hedging instruments

9,181

-2,675

1,067

176

202

Fair value adjustment on hedging instruments transferred

to income statement

-2,262

1,665

333

6, 7, 8, 23

-3,572 -185,000

Other comprehensive income/(loss) after tax ¹

7,279

-1,250

1,560

7 -114,451

-122,215

-67,327

Total comprehensive income/(loss) for the year

⁾

9,686

-143,741

127,543

Operating profit/(loss) (EBIT)

39,529

-107,212

142,958

No income tax was incurred relating to other comprehensive income/(loss) items.

Financial income

Financial expenses

4,255

2,814

992

⁾

-40,601

-37,333

-16,926

Profit/(loss) before tax

3,184

-141,731

127,024

Tax

-777

-760

-1,041

Net profit/(loss) for the year

2,407

-142,491

125,983

EARNINGS PER SHARE

Basic earnings/(loss) per share (USD)

Diluted earnings/(loss) per share (USD)

0.04

-2.3

2.4

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements

Note

2017

2016

USD '000

Note

2017

2016

CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER

USD '000

ASSETS

NON-CURRENT ASSETS

Tangible fixed assets

EQUITY AND LIABILITIES

EQUITY

Common shares

Treasury shares

Vessels and capitalized dry-docking

7,8,16 1,294,472 1,343,778

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

Current assets, excluding assets held-for-sale

Assets held-for-sale

Total current assets

TOTAL ASSETS

88,378

44,036

Hedging reserves

1,945

1,836

Translation reserves

1,384,795 1,389,650

Retained profit

Total equity

324

322

LIABILITIES

329

326

NON-CURRENT LIABILITIES

Deferred tax liability

Mortgage debt and bank loans

1,385,124 1,389,976

Finance lease liabilities

33,204

31,616

71,281

62,533

11,787

8,134

4,422

3,024

134,207

75,971

254,901

181,278

6,550

261,451

181,278

1,646,575 1,571,254

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

The financial statements of TORM plc, company number 09818726, have been approved by the
Board of Directors and signed on their behalf by:

Jacob Meldgaard, Executive Director
8 March 2018

TORM ANNUAL REPORT 2017

623

-2,887

7,309

280

390

-80

785,725

782,532

791,050

780,578

44,906

44,967

2,15,16,18

629,198

593,912

18,23

25,294

699,398

638,879

2,15,16,18

91,720

75,652

18,23

2,899

13,624

26,150

28,498

1,393

773

14,18

33,822

33,055

143

195

156,127

151,797

855,525

790,676

1,646,575 1,571,254

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY-31 DECEMBER

USD '000

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 ¹

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

Equity as of 31 December 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

Corporate Reorganization TORM plc

Acquisition of outstanding shares in TORM A/S, cost ²

Acquisition of treasury shares, cost

⁾

Share-based compensation

Dividend paid

Total changes in equity 2016

Equity as of 31 December 2016

Common

Treasury

Hedging

Translation

Retained

shares ³

reserves

profit

Total

87,986

-87,590

396

242

638

-15

⁾
-

-176

1,400

160

381,528

87,590

469,514

469,118

469,514

125,983

1,560

125,983

127,543

14,040

367,536

367,778

-2,723

-176

1,400

160

504,836

506,462

-176

1,400

160

973,954

975,976

176

-2,887

-1,010

-142,491

-240

-1,250

-142,491

-143,741

-6,564

-19,396

2,029

-6,564

-19,235

-2,887

2,029

-25,000

-15

-2,711

-1,010

-240

-191,422

-195,398

623

-2,887

390

-80

782,532

780,578

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - CONTINUED
1 JANUARY-31 DECEMBER

USD '000

Equity as of 1 January 2017

Comprehensive income/(loss) for the year:

Net profit/(loss) for the year

Other comprehensive income/(loss) for the year ⁴

Total comprehensive income/(loss) for the year

⁾

Corporate Reorganization TORM plc

Share-based compensation

Dividend paid

Total changes in equity 2017

Equity as of 31 December 2017

Common

Treasury

Hedging

Translation

Retained

shares ³

reserves

profit

Total

623

-2,887

⁾

390

-80

782,532

780,578

6,919

360

6,919

360

2,407

146

1,880

-1,240

3,193

2,407

7,279

9,686

146

1,880

-1,240

10,472

623

-2,887

7,309

280

785,725

791,050

In connection with the Exchange Offer of 15 April 2016, the common shares were adjusted to reflect those of TORM plc. The adjustment with respect to the common shares reflects the change in currency of the shares changed from DKK to
USD and the reduction in the nominal value of each share was reduced from DKK 15 each to USD 0.01 each.
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".

²
³
⁴

⁾

⁾
⁾
⁾

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY-31 DECEMBER

USD '000

Note

2017

2016

2015

USD '000

Note

2017

2016

2015

CASH FLOW FROM OPERATING ACTIVITIES

CASH FLOW FROM INVESTING ACTIVITIES

Net profit/(loss) for the year

2,407

-142,491

125,983

Investment in tangible fixed assets

-145,112

-119,408

-253,964

Adjustments:

Reversal of profit from sale of vessels

-2,762

Cash from business combination

Sale of tangible fixed assets

31,382

77,544

17,640

Reversal of depreciation

7 114,451

122,215

67,327

Net cash flow from investing activities

-113,730

-119,408 -158,780

Reversal of impairment loss on tangible and

intangible assets

6, 7, 8

3,572

185,000

CASH FLOW FROM FINANCING ACTIVITIES

Reversal of share of profit/(loss) from joint

ventures

Reversal of financial income

Reversal of financial expenses

Reversal of tax expenses

-3

-176

-4,255

-2,814

-202

-992

Borrowing, mortgage debt

175,377

49,256

93,100

Borrowing, sale and leaseback transactions

30,195

Repayment/redemption, mortgage debt

-125,487 -142,740

-29,214

40,601

37,333

16,926

Repayment/redemption, finance lease liabilities

-16,724

-3,410

777

760

1,041

Dividend paid

-1,240

-25,000

Reversal of other non-cash movements

3,696

-7,114

-874

Acquisition of outstanding shares in TORM A/S

Dividends received from joint ventures

188

Interest received and realized exchange gains

1,641

2,735

200

624

Interest paid and realized exchange losses

-36,698

-31,385

-12,364

Shareholders' contribution

Transaction costs share issue

Purchase/disposal of treasury shares

-19,241

14,040

-2,723

-2,887

-176

Income taxes paid

-586

-1,430

-584

Net cash flow from financing activities

62,121 -144,022

75,027

Change in bunkers, receivables and payables, etc.

-12,996

8,322

16,870

Net cash flow from operating, investing and

Net cash flow from operating activities

109,845

171,143

213,955

financing activities

58,236

-92,287

130,202

Cash and cash equivalents as of 1 January

75,971

168,258

38,056

Cash and cash equivalents as of 31 December

134,207

75,971

168,258

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

93
Note 1 – Accounting policies, critical accounting estimates and judgements
103
Note 2 – Liquidity, capital resources and subsequent events
104
Note 3 – Consolidated segment information
104
Note 4 – Staff costs
Note 5 – Remuneration to auditors appointed at the parent company’s annual general meeting 107
107
Note 6 – Intangible assets
108
Note 7 – Tangible fixed assets
109
Note 8 – Impairment testing
110
Note 9 – Financial items
110
Note 10 – Freight receivables
111
Note 11 – Other receivables
111
Note 12 – Tax
111
Note 13 – Common shares & Treasury shares
113
Note 14 – Other liabilities
113
Note 15 - Effective Interest Rate, Outstanding Mortgage Debt And Bank Loans
115
Note 16 – Collateral security for mortgage debt and bank loans
115
Note 17 – Guarantee commitments and contingent liabilities
115
Note 18 – Contractual obligations
117
Note 19 – Derivative financial instruments
118
Note 20 – Risks associated with TORM’s activities
122
Note 21 – Financial instruments
123
Note 22 – Related party transactions
123
Note 23 – Non-current assets sold during the year
123
Note 24 – Cash flows
124
Note 25 – Entities in the group
126
Note 26 – Earnings per share & Dividend per share
127
Note 27 – Business combinations in 2015

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ACCOUNTING POLICIES, CRITICAL ACCOUNTING ESTIMATES AND
JUDGEMENTS

NOTE 1 - CONTINUED

OVERVIEW OF BUSINESS
TORM plc is a shipping company, incorporated in the United Kingdom, which owns and
operates a fleet of product tankers. Unless otherwise indicated, the terms "TORM plc," "we," "us,"
"our," the "Company" and the "Group" refer to TORM plc and its consolidated subsidiaries, which
includes TORM A/S and its consolidated subsidiaries following the closing of the Exchange Offer
(defined below). When used herein to describe events prior to the closing of the Exchange
Offer, the terms “TORM A/S," "we," "us," "our," the "Company" and the "Group" refer to TORM
A/S and its consolidated subsidiaries before such time. References to "Former TORM A/S" refer
to TORM A/S and its consolidated subsidiaries prior to the Combination (defined below).

On March 27, 2015, TORM A/S, a company organized under the laws of Denmark, Oaktree
Capital Management L.P., or Oaktree, and certain of TORM A/S' lenders entered into a
restructuring agreement to recapitalize TORM A/S. The agreement included a mandatory and
an optional debt cancellation of a part of TORM A/S' debt and required that OCM Njord
Holdings S.à r.l., or Njord Luxco, a subsidiary of Oaktree, contribute OCM (Gibraltar) Njord Midco
Ltd., or Njord, to TORM A/S in exchange for shares in TORM A/S. We refer to this transaction as
the "Combination." The Combination was completed on July 13, 2015, the date on which Njord
was transferred to TORM A/S, and comprised a part of a series of transactions, discussed more
fully herein, which together we refer to as the “2015 Restructuring.” We refer to the
consummation of the 2015 Restructuring on July 13, 2015 as the Restructuring Completion Date.

The Combination was accounted for as a reverse acquisition, based on guidance in IFRS 3
"Business Combinations”, under the acquisition method of accounting, with Njord considered to
be the accounting acquirer of TORM A/S and the continuing reporting entity, though TORM A/S
continued as the legal entity (we refer to Njord and Former TORM A/S, including their
respective subsidiaries, together as the "Combined Group"). This was largely due to the fact that
following the acquisition, Njord Luxco held 62% of the voting rights in TORM A/S (excluding the
additional voting rights associated with the TORM A/S C-share, which relates to election and
dismissal of members of our Board of Directors and certain amendments to our Articles of
Association), was exposed to variable returns from involvement with the Combined Group and
had the ability to use its control to affect the amount of the Group's return.

On 15 April 2016, a new corporate structure was established, whereby TORM plc effectively
acquired all of the outstanding A-shares of TORM A/S (referred to herein as Danish A-shares) in
exchange for TORM plc’s securities. A total of 97.6% of TORM A/S’ shareholders exchanged
their shareholdings to TORM plc, and TORM plc acquired the remaining 2.4% shares from TORM
A/S’ minority shareholders in a statutory squeeze-out transaction under the Danish Companies
Act for a total cash consideration of USD 19.2m.

In addition and in connection with the exchange of the Danish A-shares, all TORM A/S warrant
holders exchanged their warrants on a one-for-one basis for warrants of TORM plc. We refer to
these transactions collectively as the "Exchange Offer." On 19 April 2016, upon the closing of the
Exchange Offer, TORM plc became the Group’s publicly-held parent company incorporated
under the laws of England and Wales. We refer to this as the "Redomiciliation”. The
Redomiciliation was accounted for as an internal reorganization of entities under common
control and, therefore, the assets and liabilities of TORM A/S were accounted for at their
historical cost basis and not revalued in the transaction.

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 are presented in the legal name of
TORM plc, but are a continuation of the financial statements of TORM A/S with a retroactive
adjustment of the legal capital of the legal parent (TORM plc). The consolidated financial results
reflect the activities for TORM A/S only for 2015 and the period from 1 January 2016 until 15 April
2016, whereas the remaining period of 2016 and all of 2017 reflects the combined activity of
TORM plc and TORM A/S.

The impact on equity in 2016 of the Corporate Reorganization reflected the accumulated deficit
of TORM plc at that date and the squeeze-out transaction impact of USD 19.2m.

TORM plc is listed on the stock exchange NASDAQ Copenhagen, Denmark and on NASDAQ
New York, United States.

BASIS OF PREPARATION
The consolidated financial statements of the Group have been prepared in accordance with the
International Financial Reporting Standards (“IFRS”) as adopted by the EU and as issued by the
International Accounting Standards Board (“IASB”).

The consolidated financial statements have been prepared on a going concern basis and under
the historical cost convention except where fair value accounting is specifically required by
IFRS.

The functional currency is USD, and the Company applies USD as presentation currency in the
preparation of the consolidated financial statements.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - continued

GOING CONCERN
As of 31 December 2017, TORM’s cash position was USD 134m, TORM’s net debt was USD 620m
(of which USD 271m was undrawn) and the net interest-bearing debt loan-to-value ratio was
55.8%. In January 2018 the Group’s financial position was further strengthened via an equity
raise of USD 100m. 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 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 and 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.

ADOPTION OF NEW OR AMENDED IFRSS
TORM has implemented the following standard amendments issued by IASB and adopted by
the EU and the interpretations in the consolidated financial statements for 2017:

ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
IASB has issued a number of new or amended accounting standards (IFRS) and interpretations
(IFRIC) that have not yet come into effect:

•

Amendments to IFRS 2 “Classification and Measurement of Share-based Payment

Transactions”. Effective date is 1 January 2018. The Company has evaluated the impact

of this standard on the financial statements as insignificant.

IFRS 9 “Financial Instruments”. The effective date of the standard is 1 January 2018.

The standard and subsequent amendments will substantially change the classification

and measurement of financial instruments and hedging requirements. Furthermore,

IFRS 9 changes the recognition of credit losses from “incurred losses” to “expected

losses”. TORM has assessed the new requirement and concludes that the effect of the

change will be insignificant, as TORM historically has had very limited actual incurred

losses on receivables. The changes in the standard regarding classification will not

change the measurement of the majority of financial assets from amortized cost

except from derivatives that also under IFRS 9 will be measured at fair value through

profit & loss unless cash flow hedge accounting is applied.

•

IFRS 15 “Revenue from Contracts with Customers”. The effective date is 1 January

2018. The standard will change the recognition pattern of revenue. The change in

revenue recognition will go from recognizing from “discharge-to-discharge” to “load-

to-discharge”. The cumulative effect of adopting the standard as at 1 January 2018 was

a reduction in total equity of USD 1m. As this is not considered material the impact will

be reflected in the results of the group for the year ending 31 December 2018 and prior

•

•
•

Amendments to IAS 7: “Disclosure initiative”

periods will not be restated.

Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealised Losses”

Amendments to IFRS 12 included in Annual Improvements to IFRS Standards 2014-

•

IFRS 16 “Leases”. The effective date is 1 January 2019. The standard will change the

recognition of leases. The standard is not expected to have a material impact on the

2016 Cycle

The implementation of the standard amendments and improvements had no significant impact
on the Group’s financial statements.

TORM Group as TORM mainly operates owned vessels. It will however result in a right

of use asset and related lease liability being recorded for certain (mostly property

related) leases which are currently treated as operating leases. It will also result in a

reclassification of costs associated with these operating leases from “Administrative

expenses” (operating leases) to either “Depreciations” or “Financial expenses”.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - continued

ACCOUNTING POLICIES

Consolidation principles
The consolidated financial statements comprise the financial statements of the Parent Company,
TORM plc, and entities controlled by the Company and its subsidiaries. Control is achieved when
the Company:

•

•
•

has the power over the investee; and

is exposed, or has the right to variable returns from involvement with the investee; and

has the ability to use its power to affect its returns

The Company should reassess whether it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power
over the investee when the voting rights are sufficient to give it the practical ability to direct the
relevant activities unilaterally. The Company considers all facts and circumstances in assessing
whether or not the Company’s voting rights in an investee are sufficient to give it power,
including:

•

•
•

•

the size of the Company’s holding of voting rights relative to the size and dispersion of

holdings of the other vote holders

potential voting rights held by the Company, other vote holders or other parties

rights arising from other contractual arrangements, and

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 accounted for using the equity method.

Companies which are managed jointly by agreement 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.

NOTE 1 - continued

The consolidated financial statements are prepared on the basis of the financial statements of
the Parent Company, its subsidiaries and the Company’s share of the income statement and
balance sheet of joint operations by combining items of a uniform nature and eliminating
intercompany transactions, balances and shareholdings as well as realized and unrealized gains
and losses on transactions between the consolidated entities. The financial statements used for
consolidation purposes are prepared in accordance with the Company’s accounting policies.

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
retrospectively to reflect the legal capital of the accounting acquiree. Comparative information
is adjusted accordingly.

Business combinations
Newly acquired or formed entities are recognized in the consolidated financial statements from
the date of acquisition 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’ identifiable assets, liabilities and contingent liabilities are measured 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 combination are accounted
for together with the debt or equity issuance. All other costs associated with the acquisition are
expensed in the income statement.

In reverse acquisitions the purchase price of a business combination is measured as the fair
value of the consideration agreed upon. The purchase price in a reverse acquisition 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 business combination not been a reverse
acquisition.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - continued

The excess of the cost of the business combination over the fair value of the acquired assets,
liabilities and contingent 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 liabilities and the processes of measuring the fair
value of the assets and liabilities and the cost of the business combination are reassessed. If the
fair value of the business combination continues to exceed the cost, the resulting gain is
recognized in the income statement.

Derivative financial instruments
Derivative financial instruments, primarily forward currency exchange contracts, forward freight
agreements and forward contracts regarding bunker purchases, are entered to hedge future
committed or anticipated transactions. TORM applies hedge accounting under the specific rules
on cash flow hedges when appropriate.

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.

Foreign currencies
The functional currency of all significant entities, including subsidiaries and associated
companies, is United State dollars (USD), because the Company’s vessels operate in
international shipping markets, in which income and expenses are settled in USD, and because
the Companies most significant assets and liabilities in the form of vessels and related liabilities
are denominated in USD. Transactions in currencies other than the functional currency are
translated into the functional currency at the transaction date. Cash, receivables and payables
and other monetary items denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rate at the balance sheet date. Gains or
losses due to differences between the exchange rate at the transaction date and the exchange
rate at the settlement date or the balance sheet date are recognized in the income statement
under “Financial income” and “Financial 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 recognition 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 year, 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 through other comprehensive income. 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.

Changes in the fair value of derivative financial instruments that 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 measurement of the cost of the fixed asset. Changes in the fair value of a portion of a
hedge deemed to be ineffective are recognized in the income statement.

Changes in the fair value of derivative financial instruments that are not designated as hedges
are recognized in the income statement. While effectively reducing cash flow risk in accordance
with the Company’s risk management policy, interest rate swaps with cap features and certain
forward freight agreements and forward contracts regarding bunker purchases do not qualify
for hedge accounting. Changes in fair value of these derivate financial instruments are therefore
recognized in the income statement under “Financial income” or “Financial expenses” for
interest rate swaps with cap features, under “Revenue” for forward freight agreements and
under “Port expenses, bunkers and commissions” for forward bunker contracts.

Segment information
In 2015, TORM consisted of two business segments: The Tanker Segment and Bulk Segment.
Due to divestment of the Bulk Segment during 2015, only the Tanker Segment remains for 2016
and 2017.

The segmentation is based on the Group’s internal management 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 reporting does not provide such information.
Consequently, it is not possible to provide geographical segment information on revenue from
external customers or non-current segment assets.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - continued

The segment income statement comprises income and expenses 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,
including cash and bank balances, interest-bearing debt, income tax, deferred tax, etc.

The accounting policies applied for the segments regarding recognition and measurement are
consistent with the policies for TORM as described in this note.

Employee benefits
Wages, salaries, social security contributions, 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. Please also refer to the accounting policy for share-based payment.

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.

For the purpose of calculating the present value, the interest rate implicit in the lease or an
incremental borrowing rate is used as discount factor. The lease assets are depreciated and
written down under the same accounting policy as the vessels owned by the Company or over
the lease period depending on the lease terms.

The corresponding lease obligation is recognized as a liability in the balance sheet, and the
interest element of the lease payment is charged to the income statement as incurred.

Other charter agreements concerning vessels and other leases are classified as operating leases,
and lease payments are charged to the income statement on a straight-line basis over the lease
term. The obligation for the remaining lease term is disclosed in the notes to the financial
statements.

Agreements to charter out vessels 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
carrying amount of the vessel is derecognized, and any gain or loss on disposal is recognized in
the income statement. Other agreements to charter out vessels are classified as operating
leases, and lease income is recognized in the income statement on a straight-line basis over the
lease term.

NOTE 1 - continued

INCOME STATEMENT

Revenue
Income 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
measured reliably. Accordingly, freight, charter hire and demurrage 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 accordance with the terms and conditions of
the charter parties. For cross-over voyages (voyages in progress at the end of a reporting
period), the uncertainty and the dependence on estimates are greater than for finalized
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 balance sheet date.
The estimate of revenue is based on the expected duration and destination of the voyage.
Voyage expenses are recognized as incurred.

When recognizing revenue, there is a risk that the actual number of days it takes to complete
the voyage will differ from the estimate, and for time charter parties a lower day rate may have
been agreed for additional days. The contract for a single voyage may state several alternative
destination ports. The destination port may change during the voyage, and the rate may vary
depending on the destination port. Changes to the estimated duration of the voyage as well as
changing destinations and weather conditions will affect the voyage expenses.

Demurrage revenue
Freight contracts contain conditions regarding the amount of time available for loading and
discharging of the vessel. If these conditions are breached, TORM is compensated for the
additional time incurred in the form of demurrage revenue. Demurrage revenue is recognized
upon delivery of services in accordance with the terms and conditions of the charter parties.
Upon completion of the voyage, the Company assesses the time spent in port, and a demurrage
claim based on the relevant contractual conditions is submitted to the charterers.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - continued

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 upon initial recognition. 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. Any adjustments to the final agreement are recognized as
demurrage revenue.

Depreciation and impairment losses
Depreciation and impairment losses comprise depreciation of tangible fixed assets for the year
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 carrying
amount is assessed, and the value of the asset is written down to its recoverable amount equal
to the higher of value in use based on net present value of future earnings from the assets and
its fair value less cost to sell.

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 adjustments and gains and losses on forward
freight agreements, forward bunker contracts and other derivative financial instruments directly
relating to shipping activities which are not designated as hedges. The freight and bunker
derivatives that qualify for hedge accounting are recognized in Revenue and Port expense,
bunkers and commissions respectively, as the hedging instrument is realized.

Financial income
Financial income comprises interest income, realized and unrealized exchange rate gains
relating to transactions in currencies other than the functional currency, realized gains from
other equity investments and securities, unrealized gains from securities, dividends received and
other financial income including value adjustments of certain financial instruments not
accounted for as hedges of future transactions.

Interest is recognized in accordance with the accrual basis of 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.

Charter hire
Charter hire comprises expenses related to the chartering in of vessels under operating leases
which have been incurred in order to achieve the net revenue for the year.

Operating expenses
Operating expenses, which comprise crew expenses, repair and maintenance expenses and
tonnage duty, are expensed as incurred.

Profit from sale of vessels
Profit from sale of vessels is recognized when the significant risks and rewards of ownership
have been transferred to the buyer, representing the difference between the sales price less
cost to sell and the carrying value of the vessel.

Administrative expenses
Administrative expenses, which comprise administrative staff costs, management costs, office
expenses and other expenses relating to administration, are expensed as incurred.

Other operating expenses
Other operating expenses primarily comprise 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.

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
securities and other financial expenses including value adjustments of certain financial
instruments not accounted for as hedges of future transactions.

Interest is recognized in accordance with the accrual basis of accounting taking into account
the effective interest rate.

Tax
Tax expenses comprise the expected tax including tonnage tax on the taxable income for the
year for the Group, adjustments relating to previous years and the change in deferred tax for
the year. However, tax relating to items in other comprehensive income is recognized directly in
the statement of other comprehensive income.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - continued

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 amortized as it is considered to have an indefinite useful life,
but the recoverable amount of goodwill is assessed at least once a year. 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 depreciation and accumulated impairment
losses. Cost comprises acquisition cost and costs directly related to the acquisition up until the
time when the asset is ready for use, including interest expenses incurred during the period of
construction based on the loans obtained for the vessels. All major components of vessels
except for dry-docking costs are depreciated on a straight-line basis to the estimated residual
value over their 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 tonnage. Depreciation is based on cost less the estimated residual value.
Residual value is estimated as the lightweight tonnage of each vessel multiplied by scrap value
per ton. The useful life and the residual value of the vessels are reviewed at least at each
financial year-end based on market conditions, regulatory requirements and the Company’s
business plans.

The Company also evaluates the carrying amounts to determine if events have occurred that
indicate impairment and would require a modification of the carrying amounts. Prepayment on
vessels is 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 major maintenance of other components, which cannot
be carried out while the vessels are operating. These dry-docking costs are capitalized 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.

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 newbuildings, the initial dry-docking asset is estimated based on
the expected costs related to the first-coming dry-docking, which again is based on experience
and past history of similar vessels. For second-hand vessels, a dry-docking asset is also
segregated and capitalized separately, taking into account the normal docking intervals of the
vessels.

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 replacements and
repairs, the cost of parts and materials used, cost of travel, lodging and supervision of Company
personnel as well as the cost of hiring third-party personnel to oversee a dry-docking. Dry-
docking activities include, but are not limited to, the inspection, service on turbocharger,
replacement of shaft seals, service on boiler, replacement of hull anodes, applying of anti-fouling
and hull paint, steel repairs as well as refurbishment and replacement of other parts of the
vessel.

Other plant and operating equipment
Operating equipment is measured at cost less accumulated depreciation.

Computer equipment is depreciated on a straight-line basis over three years, and other
operating equipment is depreciated on a straight-line basis over five years.

Leasehold improvements are measured at cost less accumulated amortization and impairment
losses, and leasehold improvements are amortized on a straight-line basis over the shorter of
the term of the lease and the estimated useful life. Cost comprises acquisition cost and costs
directly related to the acquisition up until the time when the asset is ready for use.

Investments in joint ventures
Investments in joint ventures comprise investments in companies which by agreement are
managed jointly with one or more companies and therefore are subject to joint control and in
which the parties have rights to the net assets of the joint venture. Joint ventures are accounted
for using the equity method. Under the equity method, the investment in joint ventures is initially
recognized at cost and thereafter adjusted to recognize TORM’s share of the profit or loss in the
joint venture. When TORM’s share of losses in a joint venture exceeds the investment in the joint
venture, TORM discontinues recognizing its share of further losses. Additional losses are
recognized only to the extent that TORM has incurred legal or constructive obligations or made
payments on behalf of the joint venture.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - continued

Financial assets
Financial assets are initially recognized at the settlement date at fair value plus transaction
costs, except for financial assets at fair value through profit or loss, which are recognized at fair
value. Financial assets are derecognized when the rights to receive cash flows from the assets
have expired or have been transferred.

Financial assets are classified as:

•
•
•

Financial assets at fair value through profit or loss

Loans and receivables

Available-for-sale financial assets

Other investments
Other investments comprise shares in other companies and are 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 income” or “Financial expenses” in the
income statement. The cumulative value adjustment recognized in “Other comprehensive
income” is transferred to the income statement when the shares are sold. Dividends on shares in
other companies are recognized as “Financial income” in the period in which they are declared.

Other investments are presented as non-current, unless Management intends to dispose of the
investments within 12 months from the balance sheet date.

Receivables
Outstanding freight receivables and other receivables that are expected to be realized within 12
months from the balance sheet date are classified as loans and receivables and presented as
current assets.

Receivables are measured at the lower of amortized cost and net realizable values, which
corresponds to nominal value less provision for bad debts. Derivative financial instruments
included in other receivables are measured at fair value.

Impairment of assets
Non-current assets are reviewed at least annually to determine any indication of impairment due
to a significant decline in either the assets’ market value or in the cash flows generated by the
assets. In case of such indication, the recoverable 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 impairment loss is recognized immediately in
the income statement. 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.

For the purpose of assessing impairment, assets and time charter- and bareboat contracts are
grouped at the lowest levels at which impairment is monitored for internal management
purposes. There were two cash generating units in 2015, the Tanker Segment and the Bulk
Segment. In 2017 and 2016, there was only one cash generating unit as the Bulk Segment was
wound down in 2015.

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 bunkers and luboil
and delivery cost less discounts.

Assets held-for-sale
Assets are classified as held-for-sale if the carrying amount will be recovered principally through
a sales transaction rather than through continuing use. This condition is regarded as met only
when the asset is available for immediate sale in its present condition subject to terms that are
usual and customary for sales of such assets, and when its sale is highly probable. Management
must be committed to the sale, which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.

Provisions for bad debt
Provision for bad debt is defined as the write off of certain accounts receivable assessed as
being uncollectible. The assessment is based on historical experience and on an individual basis.

Assets held-for-sale are measured at the lower of their previous carrying amount and fair value
less costs to sell.

Gains are recognized on delivery to the new owners in the income statement in the item “Profit
from sale of vessels”. Anticipated losses are recognized at the time the asset is classified as
held-for-sale in the item “Impairment losses on tangible and intangible assets”.

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.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

100

NOTE 1 - continued

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 declaration. 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 resources that can be
reliably estimated. Provisions are measured at the estimated liability that is expected to arise,
taking into account the time value of money.

Other liabilities
Other liabilities are generally measured at amortized cost. Derivative financial instruments
included in other liabilities are measured at fair value.

CASH FLOW STATEMENT
The cash flow statement shows the Company’s cash flows as well as 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
profit/(loss) for the year adjusted for tax, financial income and expenses, net profit/(loss) from
sale of vessels, non-cash operating items, changes in working capital, income tax paid, dividends
received and interest paid/received.

Cash flow from investing activities comprises the purchase and sale of tangible fixed assets and
financial assets as well as cash from business combinations.

Deferred tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities 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.

Cash flow from financing activities comprises changes in long-term debt, bank loans, finance
lease liabilities, purchases or sales of treasury shares and dividend paid to shareholders.

Cash and cash equivalents comprise cash at bank and in hand including restricted cash. Other
investments are classified as investing activities.

Deferred tax is calculated at the tax rates that are expected 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
balance sheet date. The deferred tax is charged through the income statement except when it
relates to other comprehensive income items.

EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the consolidated net 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 of
treasury shares during the period are weighted based on the remaining period.

Mortgage debt and bank loans
At the time of borrowing, mortgage debt and bank loans are measured at fair value less
transaction costs. Mortgage debt and bank loans are subsequently measured at amortized cost.
This means that the difference between the 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.

Diluted earnings per share is calculated by adjusting the consolidated profit or loss available to
common shareholders and the weighted average number of common shares outstanding for the
effects of all potentially dilutive shares. Such potentially dilutive common shares are excluded
when the effect of including them would be to increase earnings per share or reduce a loss per
share.

When terms of existing financial liabilities are renegotiated, or other changes regarding the
effective interest rate occur, TORM performs a test to evaluate whether the new terms are
substantially different from the original terms. If the new terms are substantially different from
the original terms, TORM accounts for the change as an extinguishment of the original financial
liability and the recognition of a new financial liability. TORM considers the new terms to be
substantially different from the original terms if the present value of the cash flows under the
new terms, including any fees paid net of any fees received and discounted using the original
effective interest rate, is at least 10% different from the discounted present value of the
remaining cash flows of the original financial liability.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

101

NOTE 1 - continued

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in accordance with IFRS requires Management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial statements and the
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 accounting
estimate is considered critical if the estimate requires Management to make assumptions about
matters subject to significant uncertainty, if different estimates could reasonably have been
used, or if changes in the estimate that would have a material impact on the Company’s financial
position or results of operations are reasonably likely to occur from period to period.
Management believes that the accounting estimates applied are appropriate and the resulting
balances are reasonable. However, actual results could differ from the original estimates
requiring adjustments to these balances in future periods.

Management believes that the following are the significant accounting estimates and
judgements used in the preparation of the consolidated financial statements:

ACCOUNTING ESTIMATES

Carrying amounts of vessels
The Company evaluates the carrying amounts of the vessels (including newbuildings) to
determine if events have occurred that would require a modification of their carrying amounts.
The valuation of vessels is reviewed based on events and changes in circumstances that would
indicate that the carrying amount of the assets might not be recoverable. In assessing the
recoverability of the vessels, the Company reviews certain indicators of potential impairment
such as reported sale and purchase prices, market demand and general market conditions.
Furthermore, market valuations from leading, independent and internationally recognized
shipbrokers 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 projection 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 assumptions and related
sensitivities, please refer to note 8 in these financial statements. All these factors have been
historically 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 or reversal of vessels may be required.

NOTE 1 - continued

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 acquisition according to IFRS 3
(Revised 2008) – Business Combinations (“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. Njord. 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 had 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 acquisition, 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 Former TORM A/S and Njord not been a reverse acquisition. As the issued shares of Former
TORM A/S were publicly traded, Management considered whether the fair value of Former
TORM A/S would have been a more reliable measure of the consideration. Management believes
that the fair value of the interest in Njord that would have been issued represented 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.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

102

NOTE 2 – LIQUIDITY, CAPITAL RESOURCES AND SUBSEQUENT EVENTS

NOTE 2 - continued

On 26 January 2018, TORM delivered the Handysize tanker TORM Rhone to its new owner. In
the financial statements, TORM Rhone is treated as an asset held-for-sale. The delivery results in
a net profit from sale of vessels in TORM of USD 0.6m in 2018.

On 9 February 2018, TORM took delivery of the newbuilding TORM Hermia (hull no. 15121050), a
114,000 DWT LR2 tanker from Guangzhou Shipyard International.

LIQUIDITY AND CAPITAL RESOURCES
As of 31 December 2017, TORM’s cash position totaled USD 134m (2016: USD 76m; 2015: USD
168m) and undrawn credit facilities amounted to USD 271m (2016: USD 190m; 2015: USD 75m).
The undrawn credit facilities consisted of a USD 75m Working Capital Facility, a bilateral USD
115m facility with China Export-Import Bank and a bilateral USD 81m facility with Danish Ship
Finance. TORM had ten newbuildings on order for delivery in 2018-2019 (2016: four; 2015: seven).
The total outstanding CAPEX related to these newbuildings was USD 307m (2016: USD 149m;
2015: USD 224m) and is mainly financed by the undrawn facilities with China Export-Import
Bank and Danish Ship Finance.

TORM has a Term Facility I of USD 401m and an undrawn Working Capital Facility of USD 75m
both with maturity in 2021. In addition to the Term Facility I and the Working Capital Facility,
TORM has a Term Facility II of USD 115m with maturity in 2022 and bilateral loan agreements
with Danish Ship Finance of USD 158m maturing in 2022 and with ING of USD 46m maturing in
2024. As of 31 December 2017, the scheduled minimum payments on mortgage debt and bank
loans in 2018 were USD 93m.

TORM’s bank debt facilities include financial covenants related to:

• Minimum liquidity including committed credit lines

• Minimum cash
•
Loan-to-value
•

Equity ratio

During 2017, 2016 and 2015, TORM did not have any covenant breaches.

SUBSEQUENT EVENTS
On 12 January 2018, TORM took delivery of the newbuilding TORM Herdis,(hull no. 15121049), a
114,000 DWT LR2 tanker from Guangzhou Shipyard International.

On 22 January 2018, TORM secured commitment from ABN AMRO for attractive vessel
financing of up to USD 50m regarding the two LR1 tanker newbuilding options exercised in
December 2017. TORM expects the two LR1 newbuildings to be delivered in 2019 throughout the
first quarter of 2020.

On 23 January 2018, TORM plc announced the USD 100m Private Placement by issuing
11,920,000 new A-shares. The related capital increase was filed on 26 January 2018 with the UK
Companies House. After the capital increase, TORM’s share capital amounts to a total nominal
value of USD 742,188.48 divided into 74,218,846 A-shares of USD 0.01 each, one B-share of USD
0.01 and one C-share of USD 0.01.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

103

NOTE 3 – CONSOLIDATED SEGMENT INFORMATION

NOTE 4 – STAFF COSTS

2015

USDm

2017

2016

2015

USDm

Income Statement

Revenue

Port expenses, bunkers and commissions

Charter hire

Operating expenses

Administrative expenses

Other operating expenses

Share of profit/(loss) from joint ventures

Impairment losses on tangible and intangible

assets

Depreciation

Tanker

Bulk

Not

Total staff costs

Segment

allocated

Total

Staff costs included in operating expenses

538.7

-169.2

-11.1

1.7

-0.5

-0.9

-121.7

-1.2

540.4

-169.7

-12.0

-122.9

Staff costs included in administrative expenses

Total

Staff costs comprise the following

Wages and salaries

Share-based compensation

-67.1

-0.2

-19.5

Pension costs

-6.3

0.2

-6.3

0.2

-67.3

Other social security costs

Other staff costs

Total

Average number of permanent employees

Seafarers

Land-based

Total

Operating profit/(loss) (EBIT)

169.6

-1.0

-25.6

143.0

Financial income

Financial expenses

1.0

-16.9

Profit/(loss) before tax

169.6

-1.0

-41.5

127.1

Tax

-1.0

Net profit/(loss) for the year

169.6

-1.0

-42.5

126.1

In 2015 TORM consisted of two business segments: The Tanker Segment and the Bulk Segment.
Due to the divestment of the Bulk Segment in 2015, only the Tanker Segment remains for 2016
and 2017, and thus no segment information has been presented for 2017 and 2016.

During 2015, there have been no transactions between the Tanker and the Bulk Segments, and
therefore all revenue derives from external customers.

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.

Employee information
The majority of the staff on vessels are not employed by TORM. Staff costs included in
operating expenses relate to the 131 seafarers (2016: 137, 2015: 65).

The average number of employees is calculated as a full-time equivalent (FTE).

The Executive Director is, in the event of termination by the Company, entitled to a severance
payment of up to 12 months' salary.

9.2

34.6

43.8

9.9

31.0

40.9

9.7

14.2

23.9

36.4

32.3

22.4

1.9

3.1

0.3

2.1

2.0

3.6

0.4

2.6

1.4

0.1

43.8

40.9

23.9

130.6

137.0

65.0

286.6

269.1

133.0

417.2

406.1

198.0

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

104

NOTE 4 - continued

USD '000

2017

2016

2015 ⁵

Executive Management

NOTE 4 - continued

Non-Executive Board and Committee Remuneration, Short term

Cheam Directors Limited ¹

Christopher H. Boehringer
⁾

Kari Millum Gardarnar ²

⁴

Rasmus Johannes Hoffmann ²

⁾

Flemming Ipsen ²

⁾

Olivier Dubois ²

⁾
Alexander Green ²

⁾
Jon Syvertsen ²

⁾

David Weinstein
⁾
Torben Janholt

Göran Trapp

Jeffery Stein ²

Total

⁾

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.
Resigned as Board Observer as of 31 July 2017.
The 2015 figures represent amounts earned subsequent to the Restructuring on 13 July 2015.

²
³
⁴
⁵

⁾

⁾
⁾
⁾
⁾

290

237

174

131

158

⁾
3

812

657

405

Annual

perform

Transac

Taxable

ance

tion

USD '000

Salary

benefits

bonus

Total

Executive Management Remuneration

Jacob Meldgaard

2015, TORM A/S¹

2016, TORM A/S - restated ¹

⁾

2016, TORM plc¹

2017, TORM A/S¹
⁾
2017, TORM plc¹

⁾

362

834

923

144

559

580

345

870

1,434

1,545

¹
²

⁾

Paid by legal entity as noted.
The 2016 figures have been restated in order to include the figure for the annual bonus for 2016 as this was finalised
and subsequently paid in 2017. No value was shown in the 2016 annual report. The total annual performance bonus
of the Executive Director of TORM plc for 2016. arising in the period 1 January 2016 to 31 December 2016 was DKK
3.758.700 (USD 559t).

⁾
⁾

Senior Management Team
The aggregate compensation paid by the Group to the other members of the Senior
Management Team (excluding Mr. Meldgaard) was USD 1,625,425 (2016: USD 1,735,563, 2015:
USD 2,944,715), which includes an aggregate of USD 112,236 (2016: USD 93,163, 2015: USD
180,354) allocated for pensions for these individuals.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

105

NOTE 4 - continued

Long-Term Incentive Plan - RSUs granted in 2017:

RSU grant

value

Exercise

assuming

RSU LTIP

price per

100%

grant

share ¹

vesting

Long-term employee benefit obligations
The obligation comprises an obligation under the incentive programs to deliver Restricted Share
Units (RSUs) in TORM plc at a determinable price to the entity's key personnel. The RSUs
granted entitle 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:

LTIP element of Jacob Meldgaard's remuneration

⁾

Number of shares (1,000)

2017

2016

2015

package 2017:

Jacob Meldgaard ²

1,276,273 DKK 96.3 USD 3.4m

Granted during the period

Outstanding 1 January

Exercised during the period

Expired during the period

Forfeited during the period

Outstanding 31 December

Exercisable 31 December

1,999.8

866.6

2,127.4

-233.9

-21.3

-127.6

2,611.2

1,999.8

255.3

538.9

The vesting period of the program is three years for key employees and five years for the
Executive Director. The exercise price is set to DKK 93.5. The exercise period is six months after
the vesting date for key employees and twelve months after the vesting date for the Executive
Director. The fair value of the options granted in 2017 was determined using the Black-Scholes
valuation model and is not material.

⁾

Exercise price originally DKK 96.3. Subsequently adjusted 13 December 2016 to DKK 93.6 due to dividend payment

¹
in September 2016. Further adjusted in December 2017 to DKK 93.5 due to dividend payment in September 2017.
⁾
²
LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 2 of 18
January 2016. Therefore there is no minimum or maximum for 2017.
⁾

TORM has in accordance with its Remuneration Policy granted the CEO a number of Restricted
Share Units (RSUs), which was communicated in company announcement no. 2 dated 18
January 2016. There are no performance 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. As at 1 January 2017, one fifth of
the grant amounting to 255,345 RSUs vested, and as at 31 December 2017, the exercise period
relating to those vested RSUs expired. 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). No further grants
were made to the CEO during 2017. As of 31 December 2017, 1,021,380 RSUs remain.

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 on 13
December 2016 to DKK 93.6 due to the dividend payment in September 2016. The exercise price
was further adjusted in December 2017 to DKK 93.5 due to the dividend payment in September
2017.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

106

2017

2016

2015

USDm

2017

2016

2015

NOTE 5 – REMUNERATION TO AUDITORS APPOINTED AT THE PARENT
COMPANY’S ANNUAL GENERAL MEETING

NOTE 6 – INTANGIBLE ASSETS

USDm

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 audit fees

Non-audit fees

Audit related services

Tax services

Other services

Total non-audit fees

Total

0.4

0.2

0.6

0.4

0.1

0.5

0.6

0.3

0.1

1.0

1.5

Goodwill

Cost:

0.2

0.1

0.3

Balance as of 1 January

Additions during the year

Balance as of 31 December

Impairment losses:

1.1

Balance as of 1 January

Impairment losses for the year

Balance as of 31 December

0.5

0.2

1.8

2.1

Under SEC regulations, the remuneration of the auditor of USD 1.0m (2016: USD 1.5m, 2015: USD
2.1m) is required to be presented as follows: Audit USD 0.6m (2016: USD 0.5m, 2015: USD 0.3m),
other audit-related USD 0.4m (2016: USD 0.6m, 2015: USD 1.1m), tax USD 0.0m (2016: USD 0.3m,
2015: USD 0.5m) and all other fees USD 0.0m (2016: USD 0.1m, 2015: USD 0.2).

Our Audit Committee pre-approves all audit, audit-related and non-audit services not prohibited
by law to be performed by our independent auditors and associated fees prior to the
engagement of the independent auditor with respect to such services.

11.4

-11.4

Carrying amount as of 31 December

11.4

Goodwill is related to the reverse acquisition of TORM A/S in 2015 and has been allocated to the
Tanker Segment.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

107

NOTE 7 – TANGIBLE FIXED ASSETS

NOTE 7 - continued

USDm

2017

2016

2015

USDm

2017

2016

2015

Vessels and capitalized dry-docking

Cost:

Balance as of 1 January

Additions

Prepayments on vessels

Balance as of 1 January

1,697.4

1,567.5

530.1

Additions

103.1

40.8

112.0

Transferred to/from other items

Additions from business combinations

857.4

Balance as of 31 December

44.1

44.3

72.6

76.9

34.7

142.5

-105.4

-104.6

88.4

44.1

72.6

-14.3

-16.3

-18.6

105.4

104.6

-59.6

-18.0

Carrying amount as of 31 December

88.4

44.1

72.6

1,726.6

1,697.4

1,567.5

USDm

2017

2016

2015

180.0

75.5

27.9

Cost:

-14.3

-15.9

-18.6

Balance as of 1 January

Other plant and operating equipment

113.6

120.4

-20.8

258.5

180.0

66.5

-0.3

75.5

173.6

Additions

Additions from business combinations

Disposals

Balance as of 31 December

Depreciation:

Balance as of 1 January

Disposals

Depreciations for the year

Balance as of 31 December

Carrying amount as of 31 December

Of which finance leases as of 31 December

2.7

1.0

3.2

1.1

-0.1

-1.6

3.6

2.7

0.9

2.5

-0.2

3.2

0.9

0.7

-0.1

-1.6

-0.2

0.9

1.7

1.9

1.8

0.9

1.8

0.9

0.7

2.5

Carrying amount as of 31 December

1,294.5

1,343.8

1,492.0

Of which finance leases as of 31 December

28.6

12.4

13.1

Disposals

Transferred to/from other items

Transferred to assets held-for-sale

Balance as of 31 December

Depreciation:

Balance as of 1 January

Disposals

Depreciation for the year

Transferred to assets held-for-sale

Balance as of 31 December

Impairment:

Balance as of 1 January

Impairment losses on tangible fixed assets

Balance as of 31 December

Included in the carrying amount for "Vessels and capitalized dry-docking" are capitalized dry-
docking costs in the amount of USD 68.1m (2016: USD 80.4m, 2015: USD 81.7m).

For information on assets used as collateral security, please refer to note 16. Please refer to note
8 for information on impairment testing.

The depreciation expense related to "Other plant and operating equipment" of USD 0.9m relates
to "Administrative expense" (2016: USD 1.8m, 2015: USD 0.9m). Depreciations and impairment
losses on tangible fixed assets on "Vessels and capitalized dry-docking" relate to operating
expenses.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

108

NOTE 8 – IMPAIRMENT TESTING

NOTE 8 - continued

As of 31 December 2017, Management performed an impairment test of the recoverable amount
of significant assets within the cash-generating unit — the Tanker Segment.

Operating expenses and administrative expenses are estimated based on TORM's business plans
for the period 2018-2020. Beyond 2020, operating expenses are adjusted for 3% (2016: 2%)
inflation and administrative expenses are adjusted for 2% inflation (2016: 2%).

The recoverable amount of the Tanker Segment was based on its value in use.

Management concluded that the impairment test did not provide the basis for any impairment
or reversal of the impairment recorded in 2016, as the value in use was materially equivalent to
the carrying amount.

The assessment of the value in use of the Tanker Segment was based on the present value of
the expected future cash flows. The freight rate estimates in the period 2018-2020 are based on
the Company's business plans. Beyond 2020, the freight rates are based on TORM’s 10-year
historical average rates, amended to reduce strong rates in 2008, and also adjusted for inflation.
The approach used for long-term freight rates outlined above represents a change in estimates,
as in previous years the long-term freight rates have been based on the 10-year historical
average rates from Clarksons .

From the year ended 31 December 2017 and going forward TORM has decided to use its own
historical average rates, rather than the ones from Clarksons, as it has been concluded, following
detailed analysis, that they are better estimates of the future earnings potential of TORM as they
reflect TORM’s actual trading pattern and routes which differ to the benchmarks used by
Clarksons, in addition to reflecting operating efficiencies that TORM is able to achieve due to the
size and interdependency of its fleet. TORM has historically continuously performed at or higher
than the Clarksons benchmark.

The effect of the change in estimate of long-term freight rates on the year end impairment test
was to significantly increase the value in use of the Tanker Segment, as of 31 December 2017.
However, if the lower Clarksons rates were applied instead of TORM’s the impairment charge
arising in the current year would have been capped at USD 20m based on the fair value less
cost to sell of the Tanker Segment, as indicated by a range of market valuations from
independent shipbrokers.

The discount rate used in the value in use calculation is based on a Weighted Average Cost of
Capital (WACC) of 8.7% as of 31 December 2017 (2016: 8.8%, 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 2017, the amended 10-year historical average spot freight rates used in the
value in use calculation are as follows:

• LR2 USD/day 17,216 (2016: USD/day 20,176, 2015: USD/day 21,975 )
• LR1 USD/day 16,445 (2016: USD/day 17,124, 2015: USD/day 18,900)
• MR USD/day 15,794 (2016: USD/day 15,118, 2015: USD/day 16,948)
• Handysize USD/day 14,416 (2016: USD/day 15,203, 2015: USD/day 17,868)

The product tankers are expected to generate normal income for 25 years from delivery from
the shipyard. Given the current age profile of the tanker fleet, the average remaining life would
be approximately 14 years.

The calculation of the value in use is sensitive to changes in the key assumptions which are
related to the future development 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/increase in the tanker freight rates of USD/day 1,000 would result in in a

decrease/increase in the value in use of USD 241m.

• An increase/decrease in WACC of 1.0% would result in a decrease/increase in the value in

use of USD 100-112m.

• An increase/decrease in operating expenses of 10.0% would result in a decrease/increase in

the value in use of USD 187m.

However, if the downside sensitivities outlined above had been applied to the impairment test
as of December 31 2017, the impairment charge arising in the current year would have been
capped at USD 20m based on the fair value less cost to sell of the Tanker Segment, as outlined
above. If the upside sensitivities outlined above had been applied, the impairment reversal
would have been capped at USD 159m being the impairment charge applied to the Group’s
vessels in 2016 adjusted for the impact of the incremental depreciations that would have been
charged during the year and vessel disposals during 2017.

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. The market value based on broker
values of TORM's vessels including the order book and chartered in vessels was USD 1,672m,
which is USD 20 m below the carrying amount.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

109

NOTE 9 – FINANCIAL ITEMS

NOTE 10 – FREIGHT RECEIVABLES

USDm

Financial income

2017

2016

2015

USDm

2017

2016

2015

Analysis as of 31 December of freight receivables:

Interest income from cash and cash equivalents ¹

1.6

0.2

0.3

Neither past due nor impaired

25.5

28.7

40.3

Exchange rate adjustments, including gain from forward

⁾

exchange rate contracts

Total

Financial expenses

2.7

4.3

2.8

3.0

0.7

1.0

Past due not impaired:

Due before 30 days

Due between 30 and 180 days

Interest expenses on mortgage and bank debt ¹

33.3

29.7

15.0

Exchange rate adjustments, including loss from forward

⁾

exchange rate contracts

Other financial expenses

Total

3.2

4.1

40.6

2.6

5.2

0.6

1.3

37.5

16.9

Total net

Past due and impaired:

Due after 180 days

Total gross

Provision for impairment of freight receivables

26.0

18.4

13.0

18.7

22.8

16.4

2.7

72.6

1.3

71.3

4.7

65.1

2.6

62.5

5.3

84.8

1.7

83.1

Total financial items

-36.3

-34.5

-15.9

Interest for financial assets and liabilities not at fair value through profit and loss.

As of 31 December 2017, freight receivables included receivables at a value of USD 0.0m (2016:
USD 0.6m, 2015: USD 1.9m) that are individually determined to be impaired to a value of USD
0.0 m (2016: USD 0.5m, 2015: USD 0.2m).

⁾

Movements in provisions for impairment of freight receivables during the year are as follows:

USDm

2017

2016

2015

Provisions for impairment of Freight receivables

Balance as of 1 January

Addition from business combinations

Provisions for the year

Provisions reversed during the year

Balance as of 31 December

2.6

0.6

1.7

1.9

-1.9

-1.0

1.3

2.6

1.9

0.5

-0.7

1.7

Provisions for impairment of freight receivables have been recognized in the income statement
under "Port expenses, bunkers and commissions".

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

110

NOTE 11 – OTHER RECEIVABLES

USDm

Partners and commercial managements

Derivative financial instruments

Tax receivables

Other

Balance as of 31 December

NOTE 12 - continued

2017

2016

USDm

2017

2016

2015

7.6

1.3

2.9

11.8

0.5

3.3

1.1

3.2

8.1

Deferred tax liability

Balance at 1 January

Addition from business combination

Deferred tax for the year

Balance as of 31 December

45.0

45.1

-0.1

44.9

45.0

45.2

-0.1

45.1

No significant other receivables are past due or impaired.

Please refer to note 21 for further information on fair value hierarchies.

NOTE 12 – TAX

USDm

Tax for the year

Current tax for the year

Adjustments related to previous years

Adjustment of deferred tax asset

Total

2017

2016

2015

1.0

-0.1

0.8

1.2

-0.3

1.3

-0.2

-0.1

0.8

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 legislation. As such, the Group has elected to participate in
the Danish tonnage tax scheme; the participation 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 information. Instead, the taxable income is
calculated from:

- The net tonnage of the vessels used to generate the income from shipping activities; and
- 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 24.4%
(2016: -0.6 %, 2015: 0.8 %).

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 & TREASURY SHARES

Common shares

A-shares

B-shares

C-shares

Total

2017

2016

2015

Number of

62,298,846

63,836,249

62,298,848

63,836,251

For accounting purposes due to the Corporate Reorganization, the common shares have been
adjusted retrospectively to reflect the issued capital and common shares of TORM plc
amounting to USD 0.4m as per 1 January 2015.

The A-shares are listed on NASDAQ Copenhagen and NASDAQ in New York 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 carry no
other rights or obligations.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

111

NOTE 13 - continued

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 election 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 Directors’ 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. Please refer to Note 4.

Treasury shares

Number of shares ('000)

Balance as of 1 January

Additions

Cancellations

Disposals

2017

2016

2015

312.9

15.3

312.9

-15.3

15.3

Balance as of 31 December

312.9

15.3

Treasury shares - continued

2017

2016

2015

Nominal value USDm

Balance as of 1 January

Additions

Cancellations

Disposals

Balance as of 31 December

% of share capital

Balance as of 1 January

Additions

Cancellations

Disposals

Balance as of 31 December

0.5

0.2

0.5

-0.2

0.5

0.2

The total consideration for the treasury shares was USD 0.0m (2016: 2.9m and 2015: USD 0.2m).
At 31 December 2016, the Company's holding of treasury shares represented 312,871 shares
(2016: 312,871 shares and 2015: 15,319 shares) of USD 0.01 each at a total nominal value of USD
0.0m (2016: USD 0.0m and 2015: USD 0.0m) and a market value of USD 2.7m (2016: USD 2.8m
2015: USD 0.2m).

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

112

NOTE 14 – OTHER LIABILITIES

USDm

Partners and commercial managements

Accrued operating expenses

Accrued interest

Wages and social expenses

Derivative financial instruments

Payables to joint ventures

Other

Balance as of 31 December

NOTE 15 - EFFECTIVE INTEREST RATE, OUTSTANDING MORTGAGE DEBT AND
BANK LOANS

In July 2015, TORM completed the Corporate Restructuring. This resulted in a Term Facility
Agreement and a Working Capital Facility of USD 75m both expiring in 2021. In 2017, TORM
agreed on an additional Term Facility Agreement with a syndicate of four banks expiring in
2022. Furthermore, TORM has a debt facility with Danish Ship Finance, the tranches of which
expire in 2021 and 2022, and a debt facility with ING expiring in 2024. In 2018, TORM will take
delivery of four new LR2 tankers. The Export Import Bank of China (CEXIM) has committed
funding of up to USD 115m in a 12-year facility to finance these newbuildings. In 2019, TORM will
take delivery of four new MR and two new LR1 tankers. Danish Ship Finance has committed
funding of up to USD 81m in a 7-year facility to finance the four MR newbuildings.

2017

2016

1.4

8.5

5.2

2.0

5.2

5.8

16.3

14.6

0.1

2.3

33.8

4.8

0.1

0.5

33.0

Please refer to note 21 for further information on fair value hierarchies.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

113

NOTE 15 - continued

As of 31 December 2017, no drawdowns had been made on the Working Capital Facility, the
CEXIM Facility or the new USD 81m DSF Facility.

The table below shows the effective interest and the value of the outstanding mortgage debt
and bank loans.

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.

USDm

LOAN

DSF Facility 1 (USD)

TFA Facility 1 (USD)

DSF Facility 3 (USD)

DSF Facility 4 (USD)

TFA Facility 2 (USD)

ING (USD)

Weighted average effective interest rate

Carrying value

Hereof non-current ²

Hereof current ²

⁾

2017

2016

2015

Fixed/

Effective

Carrying

Effective

Carrying

Effective

Carrying

floating Maturity

interest¹

value²

Maturity

interest¹

value²

Maturity

interest¹

value²

Floating

2021

2022

2024

⁾
5.4%

5.0%

5.1%

5.4%

4.6%

5.1%

⁾

74.3

400.8

56.5

26.8

115.0

45.8

719.1

633.1

86.0

2019

2021

2022

N/A

⁾
4.6%

4.6%

4.8%

N/A

4.6%

⁾

109.4

470.0

62.2

30.0

671.6

595.7

75.9

2019

2021

2019

N/A

⁾
4,1%

4.3%

4,4%

4,1%

N/A

4.3%

⁾

125.7

548.9

66.6

26.0

767.2

717.5

49.7

⁾

Effective interest rate includes deferred and amortized bank fees.
The carrying value of the Group's mortgage debt and bank loans is, due to their short-term nature of fixing of interest, approximate to fair value, and excludes amortized bank fees.

¹
²

⁾
⁾

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

114

NOTE 16 – COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS

NOTE 17 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES

The total carrying amount for vessels that have been provided as security amounts to USD
1,259m at 31 December 2017 (2016: USD 1,115m, 2015: USD 1,329m).

The guarantee commitments of the Group are less than USD 0.1m (2016: USD 0.1m, 2015: USD
0.1m) and relate to guarantee commitments to Danish Shipowners' Association.

The Group is involved in certain legal proceedings and disputes. It is Management's opinion that
the outcome of these proceedings and disputes will not have any material impact on the
Group's financial position, results of operations and cash flows.

NOTE 18 – CONTRACTUAL OBLIGATIONS

TORM has various contractual obligations and commercial commitments to make future payments including lease obligations, purchase commitments, interest payments and repayment of
mortgage debt and bank loans.

The following table summarizes the Company's contractual obligations at 31 December 2017.

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

Chartered-in vessels (operating lease)

Other operating leases

Trade payables and other obligations

Total

⁾
²

⁾

⁴
⁾
⁵
⁾

⁾

2018

92.7

20.4

11.9

2.9

2.3

144.2

2.9

2.5

51.5

2019

86.7

14.4

13.6

3.2

2.0

162.7

1.8

2020

82.2

12.1

12.2

3.4

1.7

0.7

2021

346.7

8.9

9.1

3.7

1.4

0.2

2022

Thereafter

89.2

0.4

2.6

15.0

0.3

28.3

2.0

Total

725.8

56.2

51.4

28.2

7.7

306.9

2.9

5.2

51.5

331.3

284.4

112.3

370.0

107.5

30.3

1,235.8

The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 4.8m (2016: USD 2.0m), which are amortized over the term of the loans. Borrowing costs capitalized during the year amount
to USD 3.5m (2016: USD 1.3m).
Variable interest payments are estimated based on the forward rates for each interest period.
As of 31 December 2017, TORM had ten contracted newbuildings (2016: four) to be delivered during 2018-2019.
Leases have been entered into with a mutually non-cancellable lease period of up to eight years. Certain leases include a profit-sharing element implying that the actual charter hire may be higher. The average period until redelivery of the
vessels is 0.5 years (2016: 0.9 years). The leasing expense for 2017 amounts to USD 8.5m (2016: USD 21.5m, 2015: USD 12.0m) and is recognized under "Charter hire".
Other operating leases primarily consist of contracts regarding office spaces, cars and apartments as well as IT-related contracts. The leasing expense for 2017 amounts to USD 2.3m (2016: USD 2.2m) and is recognized under "Administrative
expenses".

²
³
⁴

⁵

⁾

⁾
⁾
⁾

⁾

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

115

NOTE 18 - continued

The following table summarizes the reconciliation of liabilities arising from financing
activities:

USDm

Mortgage debt

Financial lease

Swaps, fair value hedging

Total

Cash

Non-cash

Opening

balance as of

1 January

End balance

as of 31

Changes in

Other

December

2017

Borrowings Repayments

fair value

changes

669.6

13.6

2.0

175.4

30.2

-125.5

-16.7

-1.4

685.2

205.6

-143.6

0.7

0.6

-0.6

0.7

0.5

1.2

2017

720.9

28.2

749.1

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 at 31 December 2017.

USDm

Contractual rights - as lessor:

Charter hire income for vessels

Total

2018

2019

2020

2021

2022

Thereafter

Total

⁶

⁾

45.5

4.7

50.2

⁶

Charter hire income for vessels on time charter and bareboat charter is recognized under "Revenue". The average period until redelivery of the vessels is 1.1 year (2016: 2.1 years).

⁾

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

116

NOTE 19 – DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 19 - continued

USDm

Fair value of derivatives:

Derivative financial instruments regarding freight and bunkers:

Forward Freight Agreements

Bunker swaps

2017

2016

Interest rate swaps with a fair value of USD 5.1m are designated as hedge accounting
relationships to fix a part of TORM's interest payments during the period 2017 to 2022 with a
notional value of USD 406.4m (2016: USD 373.8m, 2015: USD 382.3m).

-0.2

0.8

-0.1

0.8

The table below shows realized amounts as well as fair value adjustments regarding derivative
financial instruments recognized in the income statements and equity in 2017, 2016 and 2015.

Derivative financial instruments regarding interest and currency

Income statement

Equity

exchange rate:

Forward exchange contracts

Interest rate swaps

Fair value of derivatives as of 31 December

Of which included in:

Other receivables

Other liabilities

1.8

5.1

7.5

-4.6

2.4

-1.5

7.3

0.2

3.3

-4.8

Please refer to Note 21 “Financial Instruments” for further information on fair value hierarchies.

Bunker swaps and forward freight agreements with a fair value of USD 0.6m (net) of a
previously fixed hedge have been recognized in the income statement in 2017 (2016: USD 0.8m,
2015: USD -0.2m).

Forward exchange contracts with a fair value of USD 1.8m are designated as hedge accounting
relationships to hedge a part of TORM's payments in 2018 regarding administrative and
operating expenses denominated in DKK with a notional value of DKK 257.0m (2016: DKK
336.4m, 2015: DKK 235.1m).

Port

expenses,

bunkers and

Financial

Hedging

Revenue

commissions

items

reserves

USDm

2017

Forward Freight Agreements

0.5

Bunker swaps

Forward exchange contracts

Interest rate swaps

Total

2016

0.5

Forward Freight Agreements

-0.1

Bunker swaps

Forward exchange contracts

Interest rate swaps

1.2

0.0

Total

2015

-0.1

0.0

Forward Freight Agreements

0.6

Bunker swaps

Forward exchange contracts

Interest rate swaps

-0.9

Total

0.6

-0.9

-1.4

-2.0

-3.4

0.1

-2.9

-2.8

Please refer to Note 20 for further information on commercial and financial risks.

-0.3

0.0

4.4

2.7

6.9

-0.2

1.0

-3.4

1.6

-1.0

0.0

-0.2

0.8

1.4

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

117

NOTE 20 – RISKS ASSOCIATED WITH TORM’S ACTIVITIES

NOTE 20 - continued

The risks can generally be divided into four main categories:

•
•
•
•

Long-term strategic risks

industry and market-related risks

operational and compliance risks

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.

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 necessary capabilities to exploit
opportunities created by the same risks.

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 Company’s risk management policies. In 2017, 12% (2016: 10%; 2015: 5%) of
freight earnings deriving from the Company’s tankers was secured in this way. Physical time
charter contracts accounted for 66% (2016: 83%; 2015: 95%) of overall hedging. In 2017, the
Company sold FFAs with a notional contract value of USD 44m (2016: USD 12m; 2015: USD 6m)
and bought FFAs with a notional contract value of USD 12m (2016: USD 3m; 2015: USD 4m). The
total notional contract volume sold in 2017 was 1,754,000 metric tons (2016: 781,000 metric
tons; 2015: 215,000 metric tons) and the total notional volume bought was 530,000 metric tons
(2016: 190,000 metric tons; 2015: 142,000 metric tons). At the end of 2017, the coverage for
2018 was 13% (2016: 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, segregation of
duties and other internal control procedures.

INDUSTRY AND MARKET RELATED RISKS
Industry and market-related risk factors relate to changes in the markets and in the political,
economic and physical environment that Management cannot control such as freight rates and
vessel and bunker prices.

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:

FREIGHT RATE FLUCTUATIONS
The Company’s income is principally generated from voyages carried out by its fleet of vessels.
As such, TORM is exposed to the considerable volatility that characterizes freight rates for 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 services offered to customers.

SENSITIVITY TO CHANGES IN FREIGHT RATES

USDm

2018

2017

2016

Decrease in freight rates of USD/day 1,000:

Changes in profit before tax

Changes in equity

24.1

25.0

26.7

SALES AND PURCHASE PRICE FLUCTUATIONS
As an owner of vessels, TORM is exposed to risk associated with changes in the value of the
vessels, which can vary considerably during their useful lives. As of 31 December 2017, the
carrying value of the fleet was USD 1,294m (2016: USD 1,344m). Based on broker valuations,
TORM’s fleet excluding undelivered newbuildings had a market value of USD 1,260m as of 31
December 2017 (2016: USD 1,260m). During 2017, TORM has sold three Handysize tankers and
one MR tanker and bought two new MR tankers. Furthermore, TORM has ten vessels on order
for delivery in 2018-2019 and options for purchase of an additional one LR1 tanker and three MR
tankers.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

118

NOTE 20 - continued

BUNKER PRICE FLUCTUATIONS
The cost of fuel oil consumed by the vessels, known in the industry as bunkers, accounted for
55% of the total voyage costs in 2017 (2016: 50%; 2015: 57%) and is by far the biggest single cost
related to a voyage.

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 as well as insurance and counterparty risk.

TORM is exposed to fluctuations in bunker prices that are not reflected in the freight rates
achieved by the Company. To reduce this exposure, TORM hedges part of its bunker
requirements with oil derivatives.

Bunker trade is subject to specific risk policies and guidelines approved by the Risk Committee
including trading limits, stop-loss, stop-gain and stop-at-zero policies, segregation of duties and
other internal control procedures.

TORM applies hedge accounting to all bunker hedge contracts.

In 2017, 3.3% (2016: 0.9%; 2015: 0.2%) of TORM’s bunker consumption was hedged through
bunker hedging contracts. At the end of 2017, TORM had covered 2.1% (2016: 1.6%; 2015: 0.7%)
of its bunker requirements for 2018 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.

SENSITIVITY TO CHANGES IN THE BUNKER PRICES

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
damage and pollution, cargo damage, third-party casualty and liability, hull and machinery
damage, total loss and war. All of TORM’s owned vessels are insured for an amount
corresponding to their market value plus a margin to cover any fluctuations. Liability risks are
covered in line with international standards. It is TORM’s policy to cooperate with financially
sound international insurance companies with a credit rating of BBB or better, presently some
14-16 companies, along with two P&I clubs, to diversify risk. The P&I clubs are member of the
internationally recognized collaboration, International Group of P&I clubs, and the Company’s
vessels are each insured for the maximum amount available in the P&I system. At the end of
2017, the aggregate insured value of hull and machinery and interest for TORM’s owned vessels
amounted to USD 1.4 billion (2016: USD 1.6 billion; 2015: USD 2.0 billion).

USDm

2018

2017

2016

Increase in the bunker prices of 10% per ton:

Changes in profit before tax

Changes in equity

-18.3

-15.6

-12.8

-18.3

-15.6

-12.8

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

119

NOTE 20 - continued

COUNTERPARTY RISK
Counterparty risk is an ever-present challenge demanding 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 balance 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 a close focus on its risk policies and procedures 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:

Excess liquidity is placed on deposit accounts with major banks with strong and acceptable
credit ratings or invested in secure papers such as American or Danish government bonds. Cash
is invested with the aim of getting the highest possible yield while maintaining a low
counterparty risk and adequate liquidity reserves for possible investment opportunities or to
withstand a sudden drop in freight rates.

Derivative financial instruments and commodity instruments
In 2017, 65% (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 companies, banks or highly reputed partners with a satisfactory credit rating. TORM
also trades FX and interest derivatives. All such derivatives were done with investment grade
counterparties..

•
•
•

Receivables, cash and cash equivalents

Contracts of affreightment with a positive fair value

Derivative financial instruments and commodity instruments with positive fair value

FINANCIAL RISKS
Financial risks relate to the Company’s financial position, financing and cash flows generated by
the business, including foreign exchange risk and interest rate risk. The Company’s liquidity and
capital resources are described in Note 2.

Receivables, cash and cash equivalents
The majority of TORM’s customers are companies that operate in the oil industry. It is assessed
that these companies are, to a great extent, subject to the same risk factors as those identified
for TORM.

A major part of the Company’s freight revenues stems from a small group of customers. One
customer accounted for 8.2% of the freight revenues in 2017 (2016: 12.6%; 2015: 12.6%). The
concentration of earnings on a few customers requires extra attention to credit risk. TORM has a
credit policy under which continued credit evaluations of new and existing customers take
place. For long-standing customers, payment 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 suitable bank
guarantee is placed in lieu thereof.

As a consequence of the payment patterns mentioned above, the Company’s receivables
primarily consist of receivables from voyages in progress at year-end and, to a lesser extent, of
outstanding demurrage. For the past five years, the Company has not experienced any
significant losses in respect of charter payments or any other freight agreements. With regard
to the collection of demurrage, the Company’s average stands at 97.0% (2016: 96.8%; 2015:
96%), which is considered to be satisfactory given the differences in interpretation of events. In
2017, demurrage represented 16.8% (2016: 15.0%; 2015: 17.7%) of the total freight revenues.

FOREIGN EXCHANGE RISK
TORM uses USD as its functional currency because the majority of the Company’s transactions
are denominated in USD. The foreign exchange risk is thereby limited to cash flows not
denominated in USD. The primary risk relates to transactions denominated in DKK, EUR and
SGD and relates to administrative and operating expenses.

The part of the Company’s expenses that are denominated in currencies other than USD
accounts for approximately 98% (2016: 99%; 2015: 98%) for administrative expenses and
approximately 25% (2016: 27%; 2015: 26%) for operating expenses. Approximately 62% (2016:
74%, 2015: 55%) of TORM’s administrative and operating expenses in DKK and EUR in 2018 are
hedged through FX forward contracts. TORM assumes identical currency risks arising from
exposures in DKK and EUR.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

120

NOTE 20 - continued

SENSITIVITY TO CHANGES IN THE USD/DKK AND USD/EUR EXCHANGE RATE
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:

LIQUIDITY RISK
TORM’s strategy is to ensure continuous access to funding sources by maintaining a robust
capital structure and a close relationship with several financial partners. As of 31 December 2017,
TORM’s loan portfolio was spread across nine different banks.

USDm

2018

2017

2016

Effect of a 10% increase of DKK and EUR:

Changes in profit before tax

Changes in equity

-2.5

-1.7

-2.8

As of 31 December 2017, TORM maintains a liquidity reserve of USD 134m in cash, combined
with USD 75m in undrawn revolving credit facilities. Cash is only placed in banks with a high
credit rating.

For further information on contractual obligations, including a maturity analysis, please refer to
Note 18.

INTEREST RATE RISK
TORM’s interest rate risk generally relates to interest-bearing mortgage debt and bank loans. All
of the Company’s loans for financing vessels are denominated in USD, and all are floating rate
loans. At the end of 2017, TORM has fixed 63% of the interest exposure for 2018 (2016: 68%;
2015: 65%). The fixing is a result of floating rate loans, where USD 3 or 6 months Libor were
fixed in 2017 into 2018 and interest hedging through interest rate swaps.

SENSITIVITY TO CHANGES IN INTEREST RATES
All things being equal, a change in the interest rate level of 1%-point would result in a change in
the interest rate expenses as follows:

USDm

2018

2017

2016

Effect of a 1%-point increase in interest rates:

Changes in profit before tax

Changes in equity

-3.2

3.6

-2.5

6.8

-3.3

9.5

TORM’s interest-bearing debt increased from year-end 2016 to year-end 2017 by USD 47m
(2016: decrease of USD 95m; 2015: increase of USD 639m) to USD 719m (2016: USD 672m; 2015:
USD 767m).

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

121

NOTE 21 – FINANCIAL INSTRUMENTS

Categories of financial assets and liabilities (USDm):

Quoted

Observable

Unobservable

prices

input

Fair value

Amortized

Carrying

(level 1)

(level 2)

(level 3)

Total

cost

value

2017:

Loans and receivables

Freight receivables

Other receivables

Cash and cash equivalents

Total

Financial liabilities

Mortgage debt and bank loans

Finance lease liabilities

Trade payables

Other liabilities

Total

2016:

Loans and receivables

Freight receivables

Other receivables

Cash and cash equivalents

Total

Financial liabilities

Mortgage debt and bank loans

Finance lease liabilities

Trade payables

Other liabilities

Total

⁾
¹

⁾

¹
⁾
¹
⁾
¹
⁾

⁾

⁾
¹

⁾

¹
⁾
¹
⁾
¹
⁾

⁾

7.6

-0.2

3.3

4.8

7.6

-0.2

3.3

4.8

71.3

4.2

134.2

209.7

71.3

11.8

134.2

217.3

720.9

28.2

26.2

34.0

809.3

62.5

4.8

76.0

143.3

28.2

26.2

33.8

809.1

62.5

8.1

76.0

146.6

669.6

13.6

28.5

28.3

13.6

28.5

33.1

740.0

744.8

¹
²

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.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

122

NOTE 21 - continued

NOTE 23 – NON-CURRENT ASSETS SOLD DURING THE YEAR

FAIR VALUE HIERARCHY FOR FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE IN
THE BALANCE SHEET
Below shows the fair value hierarchy for financial instruments measured at fair value in the
balance sheet. The financial instruments in question are grouped into levels 1 to 3 based on the
degree to which the fair value is observable.

During 2017, TORM sold eight vessels, of which four were delivered to the new owners during
2017, one vessel is expected to be delivered in Q1 2018 (presented as “assets held-for-sale” as of
31 December 2017) and the remaining three vessels were sold and leased back to TORM as
finance leases. The sales resulted in a profit from sale of vessels of USD 2.8m and an impairment
on sold or held-for-sale vessels of USD 3.6m.

•

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in

active markets for identical assets or liabilities

Level 2 fair value measurements are those derived from input other than quoted prices

included within level 1 that are observable for the asset or liability, either directly (as

prices) or indirectly (derived from prices)

Level 3 fair value measurements are those derived from valuation techniques that

include input for the asset or liability that are not based on observable market data

(unobservable input)

There was no sale of vessels 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

METHODS AND ASSUMPTIONS IN DETERMINING FAIR VALUE OF FINANCIAL INSTRUMENTS

USDm

2017

2016

2015

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.

Reversal of other non-cash movements:

Amortization of acquired assets and liabilities

Exchange rate adjustments

Share-based payments

Equity transactions expensed in relation to the Corporate

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.

Shareholders' contribution and 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 and
the Executive Director, is disclosed in Note 4.

Reorganization

Other adjustments

Total

USDm

Change in bunkers, receivables and payables:

Change in bunkers

Change in receivables

Change in prepayments

Change in trade payables and other liabilities

Adjusted for fair value changes of derivative financial

instruments

Total

1.8

1.9

-0.1

-2.4

2.0

-6.4

-0.2

3.7

-7.1

-0.7

-0.1

-0.9

2017

2016

2015

-1.6

-12.4

-1.4

-4.5

-6.1

18.1

2.7

-5.4

15.6

6.1

4.9

-11.9

6.9

-1.0

2.2

-13.0

8.3

16.9

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

123

NOTE 25 – ENTITIES IN THE GROUP

Entity

TORM plc

Investments in subsidiaries ⁸

Entity

TORM A/S ¹

⁾

DK Vessel HoldCo GP ApS ¹

⁾
DK Vessel HoldCo K/S ¹

⁾

OCM (Gibraltar) Njord Midco Ltd

⁾

OCM Njord Chartering Inc

OCM Singapore Njord Holdings Agnes, Pte. Ltd ⁶

OCM Singapore Njord Holdings Alice, Pte. Ltd

⁾
OCM Singapore Njord Holdings Almena, Pte. Ltd

OCM Singapore Njord Holdings Amalie, Pte. Ltd ⁶

OCM Singapore Njord Holdings Aslaug, Pte. Ltd ⁶

⁾

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 ⁵

OCM Singapore Njord Holdings Gorm Pte. Ltd ⁶

⁾

OCM Singapore Njord Holdings Knut Pte. Ltd ⁶

⁾

OCM Singapore Njord Holdings Valdemar Pte. Ltd ⁶

⁾

OCM Singapore Njord Holdings Agnete, Pte. Ltd

⁾
OCM Singapore Njord Holdings Alexandra, Pte. Ltd

OCM Singapore Njord Holdings Anabel, Pte. Ltd ⁶

OCM Singapore Njord Holdings Arawa Pte. Ltd ⁶

⁾

OCM Singapore Njord Holdings Leif Pte. Ltd ⁶

⁾

OCM Singapore Njord Holdings Rolf Pte. Ltd ⁵
⁾

⁾

Country

United

Kingdom

Country

Denmark

Gibraltar

Marshall Islands

Singapore

Investments in subsidiaries ⁸

- continued:

Ownership ⁷

Entity

⁾

Country

Ownership ⁷

100%
⁾
100%

100%

OCM Holdings Mrs Inc.

OCM Njord Anne Inc.

OCM Njord Freya Inc.

OCM Njord Gerd Inc.

OCM Njord Gertrud Inc.

OCM Njord Gunhild Inc.

OCM Njord Helene Inc.

OCM Njord Helvig Inc.

OCM Njord Ingeborg Inc.

OCM Njord Mary Inc.

OCM Njord Ragnhild Inc.

OCM Njord Thyra Inc.

OCM Njord Valborg Inc.

OCM Njord Vita Inc.

OMI Holding Ltd. ¹

⁶

Torghatten & TORM Shipowning ApS ¹
⁾

⁾

⁵

TORM Brasil Consultoria em Transporte Maritimo LTDA. ¹

⁾

Marshall Islands

Mauritius

Denmark

⁴

Brazil

TORM Crewing Service Ltd.¹

TORM Shipping India Private Limited ¹

⁾

TORM Singapore Pte. Ltd. ¹

TORM USA LLC ¹

TT Shipowning K/S ¹

⁾

⁵

VesselCo 1 K/S ¹

⁾

Bermuda

India

Singapore

USA

Denmark

100%
⁾
100%

100%

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

124

NOTE 25 - continued

Investments in subsidiaries ⁸

- continued:

Entity

⁾

VesselCo 2 Pte. Ltd. ¹

⁴

VesselCo 3 K/S ¹

⁾
⁾
⁴
VesselCo 4 Pte. Ltd. ¹

⁾
³
VesselCo 5 K/S ¹

⁾

VesselCo 6 Pte. Ltd.¹

⁾

VesselCo 7 Pte. Ltd. ¹
⁾
VesselCo 8 Pte. Ltd. ¹
⁾
VesselCo 9 Pte. Ltd. ²
⁾
VesselCo 10 Pte. Ltd. ²
⁾
VesselCo 11 Pte. Ltd. ²
⁾
VesselCo 12 Pte. Ltd. ³
⁾

TORM Shipping (Phils.), Inc. ¹

⁾

VesselCo A ApS ¹

VesselCo C ApS ¹

⁾

VesselCo E ApS ³

⁾

1) Entities added in the financial year ended 31 December 2015.
2) Entities added in the financial year ended 31 December 2016.
3) Entities added in the financial year ended 31 December 2017.
4) Entities dissolved in the financial year ended 31 December 2015.
5) Entities dissolved in the financial year ended 31 December 2016.
6) Entities dissolved in the financial year ended 31 December 2017.
7) For all subsidiaries, ownership and voting rights are the same except for TORM SHIPPING (PHILS.) INC where voting

rights are 100%.

8) All subsidiaries are consolidated in full.

Country

Ownership ⁷

The table below shows the registered addresses for the companies mentioned
above:

Singapore

Denmark

Singapore

Denmark

Singapore

Philippines

Denmark

100%
⁾
100%

100%

25%

100%

Denmark

India

Tuborg Havnevej 18,

2nd Floor

Philippines

7th Floor

Singapore

6 Battery Road #27-02

DK-2900 Hellerup

Leela Business Park

Salcedo Towers, 169 Singapore 049909

Denmark

Andheri-Kurla Road

HV dela Costa Street Singapore

Andheri (E)

Salcedo Village,

Mumbai 400059

Makati City

India

Philippines 1227

United Kingdom

USA

Marshall Islands

Mauritius

Birchin Court

Suite 710

c/o The Trust

c/o Temple Corporate

20 Birchin Lane

2500 City West

Company of

Services

London, EC3V 9DU

Boulevard

Marshall Islands, Inc.

Temple Court 2,

United Kingdom

77042, Houston , Texas P.O. Box 2095

Labourdonnais Street

USA

Reston VA 20195-0095 Port Louis

Bermuda

Gibraltar

USA

Brazil

Mauritius

c/o Estera Services

57/63 Line Wall Road Avenida Rio Branco

(Bermuda Limited)

GX11 1AA

01-1201

Canon's Court

Gibraltar

22 Victoria Street

PO Box 1624

Hamilton HM GX

Bermuda

CEP 200090-003

Rio de Janeiro

Brazil

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

125

NOTE 25 - continued

NOTE 26 – EARNINGS PER SHARE & DIVIDEND PER SHARE

Interest in legal entities included as joint ventures:

2017

2016

2015

2017

EARNINGS PER SHARE

Profit and

Other

Total

loss from

compre-

Net profit/(loss) for the year (USDm)

2.4

-142.5

126.0

Entity

Country

% Control

operations

continuing

hensive

income

hensive

income

Long Range 2 A/S

Denmark

LR2 Management K/S Denmark

50%

Million shares

Average number of shares

Average number of treasury shares

62.3

-0.3

63.1

-0.2

51.7

Average number of shares outstanding

62.0

62.9

51.7

Dilutive effect of outstanding share options

For registered addresses, please refer to the table above.

Average number of shares outstanding incl. dilutive effect

of share options

62.0

62.9

51.7

Basic earnings/(loss) per share (USD)

Diluted earnings/(loss) per share (USD)

0.04

-2.3

0.04

-2.3

2.4

When calculating diluted earnings per share for 2017, RSUs have been omitted as they are out-
of-the-money and thus anti-dilutive, but the RSUs may potentially dilute earnings per share in
the future. Please refer to note 4 for information on the RSU share options.

DIVIDEND PER SHARE

Dividend for the year (USDm)

1.2

25.0

Number of shares, end of period (million)

Dividend per share

62.3

0.02

62.3

0.40

63.8

2017

2016

2015

There is no proposed dividend as of 31 December 2017.

TORM ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

126

NOTE 27 – BUSINESS COMBINATIONS IN 2015

NOTE 27 - continued

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 subsidiary Njord to TORM A/S
in exchange for a controlling interest in TORM A/S.

Following the implementation of the Restructuring, Njord Luxco, held 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”), and controlled the Combined
Group in accordance with IFRS 10 “Consolidated financial statements”, as it controlled the
majority of the voting rights in the Combined Group. Accordingly, the contribution of Njord by
Njord Luxco in exchange for a controlling interest in the Combined Group was accounted for as
a reverse acquisition in accordance with IFRS 3, “Business Combinations”, which means that for
financial reporting purposes, Njord was considered the accounting acquirer and the continuing
reporting entity. Consequently, the consolidated financial statements of TORM following the
Restructuring were 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 combination of TORM A/S and Njord not been a reverse
acquisition. 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 related to the benefit of expected synergies from
combining operations of the acquiree and the acquirer. These benefits were not recognized
separately from goodwill, because they did not meet the recognition criteria for identifiable
intangible assets.

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 expected to be collected is USD 1.9m.

No acquisition-related costs were 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.

Had the business combination been effected as of 1 January 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.

Assets acquired and liabilities assumed in the business combination at fair value

USDm

Tangible fixed assets

Investment in joint ventures

Bunkers

Freight receivables

Other receivables

Prepayments

Cash and cash equivalents

Deferred tax liabilities

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)

Of which:

Warrants

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 ANNUAL REPORT 2017

CONSOLIDATED FINANCIAL STATEMENTS

127

PARENT COMPANY 2017

TORM ANNUAL REPORT 2017

PARENT COMPANY 2017

128

Parent Company 2017

COMPANY BALANCE SHEET
AS OF 31 DECEMBER

[HEADING 2] - continued

USD '000

ASSETS

NON-CURRENT ASSETS

Tangible fixed assets

Vessels

Total tangible fixed assets

Financial assets

Investments in subsidiaries

Total financial assets

Total non-current assets

CURRENT ASSETS

Loans to subsidiaries

Other receivables

Prepayments

Cash and cash equivalents

Total current assets

TOTAL ASSETS

Note

2017

2016

USD '000

Note

2017

2016

28,764

6 933,115

828,555

933,115

828,555

961,879

828,555

EQUITY AND LIABILITIES

EQUITY

Common shares

Treasury shares

Hedging reserves

Share premium

Retained profit

Total equity

LIABILITIES

NON-CURRENT LIABILITIES

Mortgage debt and bank loans

36,039

Finance lease liabilities

1,031

1,066

439

66,181

34,536

103,690

35,602

1,065,569

864,157

Total non-current liabilities

CURRENT LIABILITIES

Mortgage debt and bank loans

Finance lease liabilities

Trade payables

Payables to subsidiaries

Other liabilities

Total current liabilities

Total liabilities

623

-2,887

604

810,263

809,956

16,014

14,240

824,617

821,932

167,550

27,153

25,294

192,844

27,153

17,009

2,565

2,899

293

1,284

26,356

10,338

1,551

885

48,108

15,072

240,952

42,225

The financial statements of TORM plc, company number 09818726, have been approved by the
Board of Directors and signed on their behalf by:

TOTAL EQUITY AND LIABILITIES

1,065,569

864,157

Jacob Meldgaard
Executive Director
8 March 2018

TORM ANNUAL REPORT 2017

PARENT COMPANY 2017

129

COMPANY STATEMENT OF CHANGES IN EQUITY

USD '000

EQUITY

Equity as of 1 January 2016

Comprehensive income for the year:

Net profit for the year

Other comprehensive income for the year

Total comprehensive income for the year

Share capital increase

Contribution in kind of subsidiary

Shareholders' contribution

Share-based compensation

Acquisition treasury shares, cost

Dividend paid

Total changes in equity 2016

Equity as of 31 December 2016

Comprehensive income for the year:

Net profit for the year

Other comprehensive income for the year

Total comprehensive income for the year

Shareholders' contribution

Share-based compensation

Dividend paid

Total changes in equity 2017

Equity as of 31 December 2017

Common

Treasury

Hedging

Retained

reserves

premium

profit

Total

623

-2,887

623

-2,887

623

-2,887

604

813,100

-3,144

-1,097

38,308

2,029

623

813,100

-3,144

2,029

-2,887

-25,000

809,956

15,337

823,029

809,956

14,240

821,932

307

1,134

1,880

-1,240

640

1,134

604

1,738

307

1,880

-1,240

947

623

-2,887

604

810,263

16,014

824,617

TORM ANNUAL REPORT 2017

PARENT COMPANY 2017

130

NOTES TO PARENT FINANCIAL
STATEMENTS

NOTES TO PARENT FINANCIAL STATEMENTS

Note 1 – Accounting policies – Supplementary for the Parent Company ........................ 132
Note 2 – Profit/loss and total comprehensive income for the year .................................... 132
Note 3 – Interests and borrowings ........................................................................................................ 132
Note 4 – Staff costs ....................................................................................................................................... 132
Note 5 – Tangible fixed assets ................................................................................................................. 133
Note 6 – Financial assets ............................................................................................................................ 133
Note 7 – Impairment testing ..................................................................................................................... 134
Note 8 – Collateral security for mortgage debt and bank loans ........................................... 134
Note 9 – Guarantee commitments and contingent liabilities .................................................. 134
Note 10 – Related party transactions ................................................................................................... 134

TORM ANNUAL REPORT 2017

PARENT COMPANY 2017

131

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 financial statements
were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework.

As permitted by FRS 101, the Company has taken advantages of the disclosure exemptions
available under that standard in relation to accounting standards issued but not yet effective or
implemented, share-based payment information, financial instruments, capital management,
presentation of comparative information in respect of certain assets, presentation of a cash-flow
statement and certain related party transactions.

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 amounted to USD 1,134k (2016: USD 38,308k), and other
comprehensive income for the year of the Company amounted to USD 604k (2016: USD 0k).

NOTE 3 – INTERESTS AND BORROWINGS

As of 31 December 2017, the Company had borrowed USD 187.5m (31 December 2016: USD
30m). The loan proceeds was USD 2.9m lower (2016: USD 0.3m) due to borrowing fees. The
fees are amortized over the loan periods. In 2017, the Company had interest expenses of USD
6.0m (2016: USD 0.1m) regarding these loan facilities.

The financial statements have been prepared on a going concern basis. Further information
relating to the going concern assumption is provided in note 1 of the Group consolidated
financial statements on page 94.

As of 31 December 2017, the Company had finance lease liabilities of USD 28.2m (31 December
2016: USD 0m). In 2017, the Company had interest expenses of USD 1.8m (2016: USD 0m)
regarding financial leases.

Where required, the equivalent disclosures are given in the Group's consolidated financial
statements. Key sources of estimation uncertainty disclosure are provided in the accounting
policies and in relevant notes to the Group consolidated 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 104.

Investment in subsidiaries and joint ventures
Investment in subsidiaries, associated companies and joint ventures 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".

NOTE 4 – STAFF COSTS

USD'000

Total staff costs

Staff costs included in administrative expenses

Total staff costs

Average number of permanent employees

2017

2016

1,292

662

The carrying amount of investment in subsidiaries and joint ventures is increased to its
recoverable amount, if there have been changes in the estimates used to determine the
recoverable amount since the last impairment loss was recognized.

Employee information
The average number of employees is calculated as a full-time equivalent (FTE).

Reversal of impairment losses on investment in subsidiaries and joint ventures is recognized in
“Financial income”.

TORM ANNUAL REPORT 2017

PARENT COMPANY 2017

132

NOTE 5 – TANGIBLE FIXED ASSETS

NOTE 6 – FINANCIAL ASSETS

USD '000

Vessels

Cost:

Balance as of 1 January

Additions

Balance as of 31 December

Depreciation:

Balance as of 1 January

Depreciations for the year

Balance as of 31 December

Carrying amount as of 31 December

Of which finance leases as of 31 December

2017

2016

USD'000

2017

2016

30,500

1,736

28,764

Investments in subsidiaries

Cost:

Balance as of 1 January

Contribution in kind of subsidiary

Additions

Disposals

Capital increases in subsidiaries

Capital increases related to share-based payments

Balance as of 31 December

Impairment:

Balance as of 1 January

Impairment losses for the year

Balance as of 31 December

1,072,555

813,673

29,341

-728

197,007

227,512

1,880

2,029

1,270,715 1,072,555

244,000

93,600

244,000

337,600

244,000

Carrying amount as of 31 December

933,115

828,555

TORM ANNUAL REPORT 2017

PARENT COMPANY 2017

133

NOTE 7 – IMPAIRMENT TESTING

NOTE 9 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES

As of 31 December 2017, Management performed an impairment test of investments in
subsidiaries. The subsidiaries of TORM plc are the formal owners of the TORM vessels and
operate in the product tanker market.

The Company is guarantor for loan agreements established in the subsidiaries TORM A/S and
VesselCo 9 Pte. Ltd.

As of 31 December 2017, the recoverable amount of the investments in subsidiaries was based
on the value in use.

NOTE 10 – RELATED PARTY TRANSACTIONS

Based on this test, Management concluded that the investments in subsidiaries were impaired
by USD 93.6m, as the carrying amount exceeded the value in use. The impairment 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. Which is primarily influenced by the cash flows of the vessels
owned by each subsidiary

Please refer to note 8 in the consolidated financial statements for further information in respect
of the value in use of these vessels.

NOTE 8 – COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS

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.

Shareholders' contribution, dividend paid and treasury shares are disclosed in the consolidated
statement of changes in equity.

The Company has received dividends from subsidiaries amounting to USD 103.0m (2016: 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 (2016: USD 0.0m, 2015: USD 00.m).
The Company has income in form of bareboat hire from its subsidiary TORM A/S of USD 21.2m
(2016: USD 9.9m, 2015: USD 0.0m).
The Company has paid bareboat hire to its subsidiaries in the amount of USD 17.1m (2016: USD
9.7m, 2015: USD 0.0m).

The carrying amount of investments in subsidiaries that have been provided as security for
mortgage debt and bank loans amounts to USD 346,961k (2016: USD 18,800k, 2015: USD 0k).

There have been no or limited transactions with related parties during the financial year other
than the above disclosed.

TORM ANNUAL REPORT 2017

PARENT COMPANY 2017

134

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

OPINION

•

the related notes 1 to 27 in respect of the group financial

SUMMARY OF OUR AUDIT APPROACH

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 2017 and of
the group’s profit for the year then ended;
the group financial statements have been properly
prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted
by the European Union;
the parent company financial statements have
been properly prepared in accordance 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.

We have audited the financial statements of TORM plc (the
‘parent company’) and its subsidiaries (the ‘group’) which
comprise:

•
•
•

•

the consolidated income statement;

the consolidated statement of comprehensive income;

the consolidated and parent company balance sheets;

the consolidated and parent company statements of

changes in equity;

the consolidated cash flow statement; and

statements and notes 1 to 10 in respect of the parent

company financial statements.

Key audit matters
The key audit matter that we identified in the current year was:

•

Impairment of the Group’s Tanker Segment

The key audit matter is the same as the prior year.

Materiality
The materiality that we used for the group financial statements
was USD 10 million which was determined on the basis of 0.6%
of total assets as the primary metric. In addition to this primary
metric, we have also taken into consideration a number of
other income statement and balance sheet metrics.

Scoping
All operations of the group were subject to a full scope audit.

Significant changes in our approach
In the current period we no longer identify the Recognition of
Revenue and Voyage Expenses as a key audit matter.

The financial reporting framework that has been applied in the
preparation of the group financial 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, including FRS 101
“Reduced Disclosure Framework” (United Kingdom generally
accepted accounting practice).

BASIS FOR OPINION

We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the auditor’s responsibilities for the audit of the
financial statements section of our report.

We are independent of the group and the parent company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the group or the parent company.

We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

TORM ANNUAL REPORT 2017

INDEPENDENT AUDITOR’S REPORT

135

Independent auditor’s report

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - CONTINUED

•

the directors’ explanation on page 49 as to how they have

Impairment of the Group’s Tanker Segment

CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL
RISKS AND VIABILITY STATEMENT

Going concern
We have reviewed 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 and company’s ability to continue
to do so over a period of at least twelve months from the date
of approval of the financial statements.

assessed the prospects of the group, over what period

they have done so and why they consider that period to

be appropriate, 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 report, add or
draw attention to in respect of these matters.

Principal risks and viability statement
Based solely on reading the directors’ statements and
considering whether they were consistent with the knowledge
we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the directors’
assessment of the group’s and the company’s ability to
continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in
relation to:

•

the disclosures on pages 39 to 40 that describe the

principal risks and explain how they are being managed or

mitigated;

the directors' confirmation on page 39 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;

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or
not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team.

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.

We have determined that recognition of revenue and voyage
expenses is no longer a key audit matter for the financial
statements as there is low inherent accounting complexity and
no history of material error in this account balance.

Key audit matter description
As a consequence of ongoing low prevailing freight rates
during 2017, the carrying value of the Group’s Tanker segment
was considered to be a key audit matter. Due to the high level
of judgements involved, we have determined that there was a
potential for fraud through possible manipulation of this
balance. The carrying value of the Tanker segment at 31
December 2017, which consists of vessels and capitalized dry-
docking and prepayments on vessels, was USD 1,382 million
(2016: USD 1,388 million), a figure which incorporates the
impact of a USD 185 million impairment charge recorded in the
prior year. The recoverable amount of the Tanker segment is
highly sensitive to a number of key assumptions, as outlined
further below.

Management has performed a review of the CGU for indicators
of impairment and has subsequently conducted an impairment
test, on a value in use (discounted cash flow) basis, using the
following key assumptions:

•

future freight rates, which are based on the Group’s most

recent business plan for 2018-2020 and thereafter the 10-

year historical average rates as achieved by the group,

amended to exclude unusually high rates in 2008 as these

are not considered to be representative of the future

market, and also adjusted for inflation;

• utilisation;
• discount rate;

inflation rate;

•
• operating expenditure; and
• capital expenditure, including dry-docking.

TORM ANNUAL REPORT 2017

INDEPENDENT AUDITOR’S REPORT

136

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - CONTINUED

In their prior year impairment assesment, management used
the 10-year historical freight rate from Clarksons beyond the
first 3 years. In the current year, as disclosed in note 8 of the
financial statements, management has concluded that a more
reliable estimate of long term future freight rates is the rate
that has been achieved by the group over the previous 10
years, amended to exclude strong rates in 2008.

As referenced on page 102 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 neither an impairment charge nor
an impairment reversal was required. Further details of the
amounts capitalised at 31 December 2017 and the related
assumptions and sensitivities considered by management are
provided in note 8 of the financial statements and in the Audit
Committee report on page 60.

How the scope of the audit responded to the key audit
matter
We have obtained management’s value in use calculations and
challenged the key assumptions 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 the process by which management has

derived its value in use estimates;

• understanding and evaluating the process used to develop

the Group’s business plan and comparing the key

assumptions used for 2018-2020 to those applied in the

value in use calculations;

• challenging the freight rate assumptions used for 2018-

2020 by comparing to third party forecasts for those

periods;

• obtaining an analysis from management which compares
the rates that TORM has generated in the previous 10

years with the 10-year rates as published by Clarksons;

obtaining appropriate supporting evidence for the rates

included in this analysis; understanding the basis by which

management believes TORM’s historical rates are a more

reliable estimate of long term future rates than the rates

published by Clarksons; and understanding the basis for

the exclusion of the 2008 rates from this analysis;

• using our internal valuation specialists to perform an
independent recalculation of the discount rate used;

• evaluating management’s historical ability to budget for

operating expenses per day;

• completing a scenario analysis, through which we

sensitised future freight rates, the discount rate and the

inflation rate and computed what we believed to be a

reasonable range of recoverable amounts for the CGU, and

then comparing the carrying value of the CGU against this

range; and

•

testing the clerical accuracy of the value in use

calculations.

Key observations
Based on our scenario analysis, we are satisfied that
management’s conclusion that neither an additional
impairment charge nor an impairment reversal are required,
lies towards the conservative (but acceptable) end of the
range and we are satisfied it is reasonable.

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.

Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:

Group financial statements

Group materiality
USD 10 million (2016: USD 10million)

Basis for determining materiality
We determined materiality for the Group to be USD 10 million,
which represents 0.6% of total assets, 1.3% of net assets, 2.5%
of time charter equivalent earnings (TCE) and 6.3% of earnings
before interest, tax, depreciation and impairment (EBITDA).

Our 2016 materiality was USD 10 million, representing 8.6% of
normalized profit before tax (being average profit before tax
for 2015 and 2016, adjusted to exclude impairment), 2.0% of
2016 TCE earnings, 5% of 2016 EBITDA and 1.3% of year end
net assets.

Rationale for the benchmark applied
We have utilised total assets as our primary metric as we
consider this represents the most stable and appropriate
benchmark in a period of significant freight rate volatility.
However, in addition to this primary metric, we have also taken
into consideration a number of other income statement and
balance sheet metrics, as outlined above.

TORM ANNUAL REPORT 2017

INDEPENDENT AUDITOR’S REPORT

137

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - CONTINUED

model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or

• Audit committee reporting – the section describing the

work of the audit committee does not appropriately

address matters communicated by us to the audit

committee; or

• Directors’ statement of compliance with the UK Corporate
Governance Code – the parts of the directors’ statement

required under the Listing Rules relating to the company’s

compliance with the UK Corporate Governance Code

containing provisions specified for review by the auditor in

accordance with Listing Rule 9.8.10R(2) do not properly

disclose a departure from a relevant provision of the UK

Corporate Governance Code.

We have nothing to report in respect of these matters.

OUR APPLICATION OF MATERIALITY - CONTINUED
Parent company financial statements

Materiality
USD 6.2 million (2016: USD 8.0 million)

Basis for determining materiality
0.75% of total equity

Rationale for the benchmark applied
The nature of the parent Company is to have investments in
subsidiaries and receive dividends from those subsidiaries.

As such, we find that the focus of the financial statement users
will be total equity based on the fact that equity in all material
regards expresses the investment made by the owners and is
used to measure the return of investment made through the
holding Company, and further indicates the Company´s ability
to continue operating.

We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of USD 0.5
million (2016: 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 presentation of the financial statements.

AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit was scoped by obtaining an understanding of
the group and its environment, including group-wide controls,
and assessing the risks of material misstatement 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.

OTHER INFORMATION
The directors are responsible for the other information. The
other information comprises the information included in the
annual report, other than the financial statements and our
auditor’s report thereon.

Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.

In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated.

If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or
a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a
material misstatement of this other information, we are
required to report that fact.

In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the
other information include where we conclude that:
• Fair, balanced and understandable – the statement given
by the directors that they consider the annual report and

financial statements taken as a whole is fair, balanced and

understandable and provides the information necessary for

shareholders to assess the group’s performance, business

TORM ANNUAL REPORT 2017

INDEPENDENT AUDITOR’S REPORT

138

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - CONTINUED

RESPONSIBILITIES OF DIRECTORS
As explained more fully in the statement of directors
responsibilities, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent
company’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either
intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise FROM fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.

A further description of our responsibilities for the audit of the
financial statements is located on the financial reporting
council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.

USE OF OUR REPORT
This report is made solely to the company’s members, as a
body, in accordance with Chapter 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.

REPORT ON OTHER LEGAL AND REGULATORY
REQUIREMENTS

OPINIONS ON OTHER MATTERS PRESCRIBED BY THE
COMPANIES ACT 2006
In our opinion the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.

In our opinion, based on the work undertaken in the course of
the audit:

•

the information given in the strategic report and the

directors’ report for the financial year for which the

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 adequate 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.

financial statements are prepared is consistent with the

We have nothing to report in respect of these matters.

financial statements; and

•

the strategic report and the directors’ report have been
prepared in accordance with applicable legal requirements.

OTHER MATTERS

In the light of the knowledge and understanding of the group
and of the parent company and their environment obtained in
the course of the audit, we have not identified any material
misstatements in the strategic report or the directors’ report.

Auditor tenure
Following the recommendation of the audit committee, we
were appointed by the Board of Directors following
incorporation of the new holding company on 14 December
2015 to audit the financial statements for the year ending 31
December 2015 and subsequent financial periods. The period
of total uninterrupted engagement including previous
renewals and reappointments of the firm is 3 years, covering
the years ending 31 December 2015 to 31 December 2017.

TORM ANNUAL REPORT 2017

INDEPENDENT AUDITOR’S REPORT

139

Consistency of the audit report with the additional report to
the audit committee
Our audit opinion is consistent with the additional report to
the audit committee we are required to provide in accordance
with ISAs (UK).

For and on behalf of Deloitte LLP:

David Paterson, ACA (Senior statutory auditor)
Statutory Auditor
London, UK
8 March 2018

TORM ANNUAL REPORT 2017

INDEPENDENT AUDITOR’S REPORT

140

TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2017

Vessel Type

Vessel Class Vessel

Tanker

LR2

LR1

TORM GUDRUN

TORM HELENE ²

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 ARAWA

TORM ASLAUG

TORM ASTRID

TORM ATLANTIC

DWT

99,965

99,999

109,672

99,999

74,999

72,718

72,660

73,700

49,999

47,275

49,999

Carrying

Value

Built

Ownership

(USDm)

2000

1997

2003

1999

2008

2007

2008

2003

2004

2003

2005

2007

2011

2010

2011

2002

2012

2010

2012

2010

100%

12³

10³
⁾
18³
⁾
13³
⁾
31³
⁾
32³
⁾
31³
⁾
18³
⁾

⁾
17³

17³
⁾
17³
⁾
15³
⁾
19³
⁾
20³
⁾
23³
⁾

⁾
19

22³

22³
⁾
19
⁾
19

11³

23
⁾
23

25³

21³
⁾

⁾

TORM ANNUAL REPORT 2017

FLEET OVERVIEW

141

Fleet overview

TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2017 - continued

Vessel Type

Vessel Class Vessel

Tanker

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

TORM LILLY

TORM LOKE

TORM LOTTE

TORM LOUISE

TORM MARY ²

TORM MOSELLE

⁾
TORM NECHES

TORM PLATTE

TORM RAGNHILD

TORM REPUBLICAN

TORM RESILIENCE

DWT

44,990

46,219

44,999

51,266

45,990

45,960

45,990

44,999

45,983

46,187

46,955

49,999

51,372

49,999

44,990

47,024

47,052

46,959

46,187

46,955

49,999

Carrying

Value

Built

Ownership

(USDm)

2003

2002

2001

2000

2006

2003

2002

1999

2007

2005

2004

2006

2008

2009

2007

2009

2002

2003

2000

2006

2005

2006

2005

100%

12³

10³
⁾
9³
⁾
14
⁾
12³

13³
⁾
11³
⁾
7
⁾
14

16³

12
⁾
16³

17
⁾
17

19³

19
⁾
19

13³

11
⁾
8³

16³
⁾
16³
⁾
16³
⁾
15³
⁾

⁾

TORM ANNUAL REPORT 2017

FLEET OVERVIEW

142

TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2017 - continued

Vessel Type

Vessel Class Vessel

Tanker

TORM ROSETTA

TORM SAN JACINTO

TORM THAMES

TORM THOR

TORM THUNDER

TORM TIMOTHY

TORM TITAN

TORM TORINO

TORM TROILUS

TORM THYRA

TORM SOVEREIGN

TORM SUPREME

TORM VITA ²

Handysize

TORM CHARENTE

⁾

Handysize

TORM GARONNE

Handysize

TORM GYDA

Handysize

TORM LOIRE

Handysize

TORM OHIO

Handysize

TORM RHONE ¹

Handysize

TORM SAONE

⁾

Handysize

TORM TEVERE

Indicates that the vessels are assets held-for-sale.
Finance leases.
Indicates vessels for which TORM believes that, as of 31 December 2017, the basic charter-free market value is lower than the vessel's carrying amount.

¹
²
³

⁾
⁾
⁾

DWT

47,015

47,038

47,036

49,842

45,950

49,999

45,990

35,751

37,178

36,207

37,106

37,278

35,770

36,986

37,383

Carrying

Value

Built

Ownership

(USDm)

2003

2002

2005

2015

2003

2017

2002

2001

2004

2009

2004

2001

2000

2004

2005

100%

11³

11³
⁾
16³
⁾
29
⁾
29

12³

32
⁾
32

12³

⁾
8³

13³
⁾
18³
⁾
15³
⁾
7
⁾
7

14³

⁾

TORM ANNUAL REPORT 2017

FLEET OVERVIEW

143

GLOSSARY

Available earning days: A measure of unfixed operating days
available for generating earnings.

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-in and Leaseback Days: A measure of operating days
available for generating earnings from vessels that are not
owned by the Company.

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 seaworthiness, etc. If the
vessels do not meet these requirements, insuring and
mortgaging the vessel will typically not be possible.

COA: Contract of Affreightment. A contract that involves a
number of consecutive cargos at previously agreed freight
rates.

Coating: The internal coatings applied to the tanks of a
product tanker enabling the vessel to load refined oil products.

Commercial management: An agreement to manage a vessel’s
commercial operations for the account and risk of the
shipowner.

Coverage: A measure of Covered days divided by Earning
days.

Covered days: A measure of fixed operating days.

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.

MT: Metric ton.

Oaktree: Oaktree Capital Management, L.P.

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.

Handysize: A specific class of product tankers with a cargo
carrying capacity of 20,000–40,000 dwt.

IAS: International Accounting Standards.

IFRS: International Financial Reporting Standards.

IMO: International Maritime Organization.

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.

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.

Owned days: A measure of operating days available for
generating earnings from vessels that are owned by the
Company.

P&I club: Protection & Indemnity club.

Pool: A grouping of vessels of similar size and characteristics,
owned by different owners but commercially operated jointly.
The pool manager is mandated to charter the vessels out for
the maximum 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.

Ton-mile: A unit of freight transportation equivalent to a ton of
freight moved one mile.

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 ANNUAL REPORT 2017

GLOSSARY

144

Glossary

GLOSSARY
KEY FINANCIAL FIGURES

TORM ANNUAL REPORT 2017

GLOSSARY

145

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:

Gross profit: TORM defines Gross profit, a performance measure as revenues less port expenses,
bunkers and commissions, charter hire and operating expenses. The Company reports Gross
profit because we believe it provides additional meaningful information to investors, as Gross
profit measures the net earnings from shipping activities. Gross profit is calculated as follows:

USDm

2017

2016

2015

Reconciliation to net profit/(loss)

Net profit/(loss) for the year

2.4

-142.5

126.0

186.7

Reversal of impairment losses on tangible and

USDm

Reconciliation to revenue

Revenue

Pro forma

2017

2016

2015

Pro forma

657.0

680.1

540.4

854.3

intangible assets

185.0

Port expenses, bunkers and commissions

-259.9

-221.9

-169.6

-272.3

Net profit excluding impairment

2.4

42.5

126.0

186.7

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 additional meaningful
information to investors in relation to revenue, the most directly comparable IFRS measure. TCE
earnings is a standard shipping industry performance 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:

2017

2016

2015

Pro forma

USDm

Reconciliation to revenue

Revenue

Charter hire

Operating expenses

Gross profit

-8.5

-21.5

-12.0

-31.4

-188.4

-195.2

-122.9

-189.6

200.2

241.5

235.9

361.0

Net interest-bearing debt: Net interest-bearing debt is defined as mortgage debt and bank
loans (current and non-current), finance lease liabilities, and amortised bank fees 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 measure
which Management uses to measure the overall development of our use of financing, other than
equity. Such measure may not be comparable to similarly titled measures of other companies.
Net interest-bearing debt is calculated as follows:

USDm

2017

2016

2015

Pro forma

657.0

680.1

540.4

854.3

Mortgage debt and bank loans (current and

Port expenses, bunkers and commissions

-259.9

-221.9

-169.6

-272.3

non-current)

TCE earnings

397.1

458.3

370.8

582.0

Finance lease liabilities

Amortized bank fees

720.9

28.2

4.8

669.6

13.6

2.0

766.2

13.6

1.0

766.2

13.6

1.0

Cash and cash equivalents

-134.2

-76.0

-168.3

Net interest-bearing debt

619.7

609.2

612.5

TORM ANNUAL REPORT 2017

GLOSSARY

146

GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
– continued

Return on Invested Capital (RoIC): TORM defines RoIC as earnings before interest and tax
(EBIT) less tax, divided by the average invested capital for the period. Invested capital is defined
below.

Adjusted Return on Invested Capital (Adjusted RoIC): TORM defines Adjusted RoIC as earnings
before interest and tax (EBIT) less tax and impairment, divided by the average invested capital
less average impairment for the period. Invested capital is defined below.

RoIC expresses the returns generated on capital invested in the Group. The progression of RoIC
is used by TORM to measure progress against our longer-term value creation goals outlined to
investors. RoIC is calculated as follows:

The Adjusted RoIC expresses the returns generated on capital invested in the Group adjusted
for impacts related to the impairment of the fleet. The progression of RoIC is used by TORM to
measure progress against our longer-term value creation goals outlined to investors. Adjusted
RoIC is calculated as follows:

USDm

2017

2016

2015

USDm

Operating profit/(loss) (EBIT)

39.5

-107.2

143.0

EBIT less Tax

Tax

EBIT less Tax

-0.8

-1.0

Impairment

38.8

-108.0

141.9

EBIT less tax and impairment

Average invested capital ¹

1,396.9

1,487.7

1,080.3

Average invested capital¹

Return on Invested Capital (RoIC)

⁾

2.8%

-7.2%

13.2%

Average invested capital is calculate as the average of the opening- and closing balance of invested capital.

⁾

Average impairment ²

⁾
Average invested capital less average impairment

⁾

2017

2016

2015

38.8

-108.0

141.9

185.0

38.8

77.0

141.9

1,396.9

1,487.7

1,080.3

185.0

92.5

1,581.9

1,580.2

1,080.3

Adjusted RoIC

2.4%

4.9%

13.2%

Average invested capital is calculate as the average of the opening- and closing balance of invested capital.
Average impairment is calculated as the average of the opening- and closing balances of impairment charges on
vessels and goodwill in the balance sheet.

¹
²

⁾
⁾

TORM ANNUAL REPORT 2017

GLOSSARY

147

GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
– continued

EBITDA: TORM defines EBITDA as earnings before financial income and expenses,
depreciation, impairment, amortization and taxes. The computation of EBITDA refers to financial

USDm

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.

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

Reconciliation to net profit/(loss)

Net profit/(loss) for the year

Tax

Financial expenses

Financial income

Depreciation

2017

2016

2015

Pro forma

2.4

0.8

40.6

-4.3

-142.5

126.0

186.7

0.8

37.3

-2.8

1.1

16.9

-1.0

1.1

32.1

-1.4

114.5

122.2

67.3

100.7

compliance with the financial covenants and restrictions contained in the Company's financing

Impairment losses on tangible and intangible

agreements. TORM believes that EBITDA assists Management and investors by increasing

comparability of the Company's performance from period to period. This increased

assets

EBITDA

3.6

185.0

157.6

200.0

210.3

319.2

comparability is achieved by excluding the potentially disparate effects of interest, depreciation,

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 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

Loan-to-value (LTV): TORM defines Loan-to-value (LTV) ratio as Vessel values divided by net
borrowings of the vessels.

LTV describes the net debt ratio of the vessels, and is used by TORM to describe the financial
situation, the liquidity risk as well as to express the future possibilities to raise new capital by
new loan facilities.

to net profit/ (loss), the most directly comparable IFRS financial measure, for the periods

USDm

2017

2016

2015

presented:

Vessel values including newbuildings (broker values)

1,661.1

1,445.8

1,951.0

Total (value)

Outstanding debt ¹

Committed CAPEX on newbuildings

⁾

Cash and cash equivalents

Total (loan)

1,661.1

1,445.8

1,951.0

753.9

306.9

685.2

148.8

780.8

223.9

-134.2

-76.0

-168.3

926.6

758.0

836.4

Loan-to-value (LTV) ratio

55.8%

52.4%

42.9%

Outstanding debt includes long-term and short-term Mortgage and bank loans and Finance liabilities.

⁾

TORM ANNUAL REPORT 2017

GLOSSARY

148

GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
- continued

Invested capital: TORM defines invested capital as the sum of intangible assets, tangible fixed
assets, investments in joint ventures, bunkers, accounts receivables, 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:

Net Asset Value per share (NAV/share): TORM believes that the NAV/share is a relevant
measure that Management 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

2017

2016

2015

Pro forma

Total vessel values including newbuildings (broker values)

1,661.1

1,445.8

1,951.0

USDm

2017

2016

2015

Committed CAPEX on newbuildings

Tangible and intangible fixed assets

1,384.8

1,389.7

1,578.5

Investments in joint ventures

Bunkers

Accounts receivables ¹

Assets held-for-sale

⁾

Deferred tax liability

Trade payables ²

Current tax liabilities

⁾
Deferred income

Invested capital
¹
²

⁾
⁾

0.3

33.2

87.5

6.6

-44.9

-60.0

-1.4

-0.1

0.3

31.6

73.7

0.3

25.6

94.8

0.3

25.6

94.8

-45.0

-45.1

-61.6

-64.3

-0.8

-0.2

-1.8

-0.4

-1.8

-0.4

1,406.0

1,387.7

1,587.6

Cash position

Bunkers

Freight receivables

Other receivables

Other plant and operating equipment

Investments in joint ventures

Prepayments

Outstanding debt ¹

Trade payables

Other liabilities

⁾

Current tax liabilities

Total Net Asset Value (NAV)

Accounts receivables includes Freight receivables, Other receivables and Prepayments.
Trade payables includes Trade payables and Other liabilities.

-306.9

-148.8

-223.9

134.2

76.0

168.3

33.2

71.3

11.8

1.9

0.3

4.4

31.6

62.5

8.1

1.8

0.3

3.0

25.6

83.1

5.8

2.5

0.3

5.9

-753.9

-685.2

-780.8

-26.2

-33.8

-1.4

-28.5

-33.0

-0.8

-22.3

-42.1

-1.8

796.0

732.8

1,171.6

Total number of shares excluding treasury shares (million)

62.0

63.8

Total Net Asset Value per share (NAV/share)
¹

11.8
Outstanding debt includes long-term and short-term Mortgage and bank loans and Finance liabilities.

12.8

18.4

⁾

TORM ANNUAL REPORT 2017

GLOSSARY

149