TORM Annual Report 2019 | Quarterlytics

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FY2019 Annual Report · TORM

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ANNUAL REPORT 2019

CONTENTS

STRATEGIC REPORT

AT A GLANCE
Financial Highlights
CSR Highlights
One TORM, A Strong Platform
Chairman’s Statement

RESULTS
Key Figures
The Year in Review
Outlook 2020
Statement by the Executive Director

STRATEGY
Strategic Ambitions and Business Model

MARKET
Value Chain in Oil Transportation
The Product Tanker Market
IMO 2020 Sulfur Regulaltion
Key Performance Indicators
The TORM Fleet

RISK & REVIEW
Risk Management
Financial Review 2019

OUR RESPONSIBILITY
Our Principles
Environmental Efforts
Green House Gas Emissions Data
Supporting Quality Education
Health, Safety and Security
Employees
Human Rights

S172
Corporate Governance Statement

TORM ANNUAL REPORT 2019

4
5
6
7

9
11
14
17

22
23
28
31
32

33
39

49
50
53
54
56
58
60

GOVERNANCE

GOVERNANCE INTRODUCTION
Chairman’s Introduction
Corporate Governance
Board of Directors

GOVERNANCE INTRODUCTION
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report

OTHER
Investor Information
Directors’ Report
Statement of Directors’ Responsibilities

63
65
69

71
76
79
81

91
94
98

FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes Consolidated

PARENT COMPANY FINANCIAL STATEMENTS
Parent Company 2019
Balance Sheet
Changes in Equity
Notes to Parent Financial Statements

OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM

101
101
102
103
105
106

143
144
145
146

151
157
160

Financial
Highlights

Business
Model

Corporate
Governance

101

Income
Statement

Contents

CONTENTS

TORM ANNUAL REPORT 2019
TORM ANNUAL REPORT 2019

AT A GLANCE
AT A GLANCE

3
3

At a glance

FINANCIAL HIGHLIGHTS

REVENUE

EBITDA

PROFIT BEFORE
TAX

TIME CHARTER
EQUIVALENT

ADJUSTED ROIC

2019

USD
693M

2019

USD
202M

2018
USD 635M

2018
USD 121M

2019

USD
167M

(includes a USD 120m
impairment reversal)

2018
USD -33M

2019

USD/day
16,526

2019

USD
4.9%

2018
USD/day 12,982

2018
USD 0.1%

BALANCE SHEET
as of 31 December 2019

OPERATIONAL LEVERAGE
as of 5 March 2020

NET ASSET
VALUE

2019

USD
1,016M

2018
USD 856M

NET LOAN TO
VALUE

2019

46%

2018
53%

LIQUIDITY

2019

USD
246M

2018
USD 406M

COVERED
DAYS

Q1 2020

5,828

OPEN DAYS

Q1 2020

840

COVERAGE
RATES

Q1 2020

USD
23,818

TORM ANNUAL REPORT 2019

AT A GLANCE

CORPORATE SOCIAL RESPONSIBILITY
HIGHLIGHTS

TORM remains committed to taking an active
role in caring for communities and our
environment. It is not just our shared duty,
but our shared responsibility. Therefore,
TORM continues the work to combat carbon,
sulfur and other emissions and remains
committed to enabling quality education, as
this is a matter of concern for TORM and its
employees. We believe that by having all
involved stakeholders working together on
this, great results can be achieved.

GENDER DIVERSITY

34% WOMEN

IN THE SHORE-BASED
WORKFORCE

22% WOMEN

IN LEADERSHIP
POSITIONS

93 SCHOLARS

SUPPORTED

BY TORM AND OUR
EDUCATION FOUNDATION

FUEL
EFFICIENCY
IMPROVEMENT

RESULTS

9.3%

compared to 2015 baseline

0.42

LOST TIME
ACCIDENT
FREQUENCY
IN 2019

TARGET

Additional savings

TORM ANNUAL REPORT 2019

AT A GLANCE

ONE TORM, A WORLD-CLASS PLATFORM

PURE-PLAY PRODUCT
TANKER EXPOSURE

~80 vessels deployed in the spot
market across all larger product
tanker segments.

SUPERIOR COMMERCIAL
PERFORMANCE

SOLID CAPITAL
STRUCTURE

One TORM approach with in-house
commercial and technical
management provides superior
earnings while maintaining a balanced
cost structure.

Conservative balance sheet and a
strong liquidity position provide
room for potential growth while
maintaining break-even rates at low
levels and no near-term debt
maturities.

SIGNIFICANT OPERATING
LEVERAGE

Significant operating leverage
through spot-orientation allowing
TORM to benefit from increases in
TCE rates.

BALANCED APPROACH
TOWARDS IMO 2020

POSITIVE MARKET
FUNDAMENTALS

IMO 2020 sulfur compliant with a
balanced approach and committed to
scrubber installations on 49 vessels,
just above half of our fleet.

Promising market outlook
impacted by increased demand
from IMO 2020 sulfur regulation,
Middle East refinery expansion and
low order book.

TORM ANNUAL REPORT 2019

AT A GLANCE

CHAIRMAN’S STATEMENT

The product tanker market improved significantly in 2019 compared to the prior year, resulting in the strongest full-year results in three years.
The strengthening of the market, especially in the fourth quarter of the year, was carried over into 2020, driven by the implementation of new
restrictions on sulfur emissions. However, since January 2020, strong freight rates have been challenged by the global impact of the COVID-19
outbreak. Looking ahead, I believe TORM is well positioned to take advantage of market opportunities wherever they may arise, given the scale
of our operations and the integrated One TORM platform.

Christopher H. Boehringer, Chairman of the Board

The underlying product tanker market experienced
volatility throughout the year. In the fourth quarter of
2019, the freight rates reached multi-year highs, and
this trend continued into January 2020 until the
COVID-19 outbreak. TORM was well positioned to
capture periods of market strength due to our spot-
oriented chartering strategy, our continued strong
operational performance and our large commercial
scale.

CONTINUOUS EFFORTS TO RENEW THE FLEET
In 2019, TORM continued to renew our fleet. We took
delivery of five MR newbuildings in 2019 and have
taken delivery of one additional MR vessel and two
LR1 vessels in the first quarter of 2020. In addition, we
purchased four modern second-hand vessels and sold
eight older vessels. The sales were completed at
prevailing broker valuations, while the purchases were
done below market levels. In January 2020, TORM
made an additional purchase of two fuel-efficient,
dual-fuel-ready LR2 newbuildings with scrubbers. The
vessels will be delivered in the fourth quarter of 2021.

The Company’s ongoing effort to maintain scale as
well as a competitive fleet age profile is executed
through TORM’s opportunistic approach to making
acquisitions that leverage on strong relationships with
shipyards, brokers and financial partners.

MAINTAINING A STRONG CAPITAL STRUCTURE
Maintaining a solid capital structure remains a key
priority for TORM, and I am pleased that TORM in
January 2020 has obtained commitment from leading
ship lending banks for two separate term facilities and
a revolving credit facility of up to a total of USD 496m.
These facilities replace four term loans and TORM’s
existing revolving credit facility. Following the
refinancing, TORM does not have any major debt
maturities until 2026, which supports the Company’s
strong liquidity and capital structure. TORM
completed sale and leaseback transactions covering
eight vessels in 2019, providing total proceeds of USD
151m and further demonstrating our ability to raise
capital.

MARKET CONDITIONS HAVE IMPROVED
SIGNIFICANTLY
While product tanker rates trended lower throughout
September 2019 following a strong first quarter of the
year, average rates were well above the prior year’s
levels, indicating a stronger underlying market. Rates
were propelled higher starting in October with a rapid
rise in crude oil tanker rates following sanctions on the
COSCO fleet. While this produced a surge that proved
to be short-lived, the market did stabilize at a higher
level in November and December. TORM has again in
2019 delivered TCE earnings at the top end of what
comparable industry players delivered. This has been
achieved in a period where 17 vessels have been taken
out of service to have scrubbers installed. TORM’s
medium- to long-term outlook for the product tanker
market remains positive. During the last months of
2019 and in 2020 to date, we have already seen that
the reduction in the global limit for sulfur emissions
from 3.5% to 0.5% and the accompanying shift in
marine fuel consumption have led to increased trade
volumes of clean petroleum products to the benefit of
the product tanker market.

TORM ANNUAL REPORT 2019

AT A GLANCE

CHAIRMAN’S STATEMENT

Additionally, the fleet supply outlook is very favorable
as the product tanker order book is at low levels not
seen in the last two decades. However, the COVID-19
outbreak impacted the market sentiment negatively
from end January 2020.

TORM IS TAKING ADVANTAGE OF IMO 2020
During 2019, TORM prepared for the IMO 2020 sulfur
regulation. The Company utilizes a balanced approach
and has decided to install scrubbers on a total of 49
vessels. Already in the first quarter of 2020, we have
seen the benefits of our preparations. As with many
other shipowning companies, TORM did experience
some delays to the scrubber installations at the end of
2019, which resulted in us postponing some
installations into 2020. These installations have only to
a limited extent been affected by the COVID-19
outbreak. For the vessels using compliant fuels from
January 2020, customized preparation schedules were
executed during the third and fourth quarters.

ONGOING FOCUS ON CLIMATE AND ENVIRONMENT
Since 2009, where TORM signed up for the UN Global
Compact, efforts to support both climate and
environmental efforts have been an integrated part of
the Company. Today, these areas continue to have an
important role for TORM, and we address these
through broad industry partnerships as well as our
continuous efforts to reduce climate impact.

130 YEARS AND COUNTING
In 2019, TORM celebrated its 130-year anniversary.
TORM has prospered through numerous historical
events, and today TORM continues to build on its
legacy. With the One TORM platform and strong

company values displayed by our dedicated seafarers
and onshore employees every day, TORM stands on a
strong, but also flexible, foundation that will allow the
Company to keep delivering on its promises for many
years ahead.

1.4m during the first six months of 2020 in open-
market transactions on Nasdaq in Copenhagen. The
total distribution of up to USD 8.8m is in line with the
Company’s Distribution Policy and corresponds to a
maximum of 50% of net income adjusted for the
impairment reversal of USD 120m for the six months
ended 31 December 2019.

Mr. Christopher H. Boehringer, Chairman of the Board

TORM ANNUAL REPORT 2019

AT A GLANCE

KEY FIGURES

2019

2018

2017

2019

2018

2017

INCOME STATEMENT (USDM)

Revenue

Time charter equivalent earnings (TCE) ¹

⁾

Gross profit ¹

EBITDA ¹

⁾

Operating profit/(loss) (EBIT)

⁾

Financial items

Profit/(loss) before tax

Net profit/(loss) for the year

Net profit/(loss) for the year excluding impairment¹

BALANCE SHEET (USDM)

Non-current assets

⁾

Total assets

Equity

Total liabilities

Invested capital ¹

Net interest-bearing debt ¹

⁾

Cash and cash equivalents, including restricted cash
⁾

693

425

252

202

206

-39

167

166

635

352

169

121

-36

-33

-35

657

397

200

158

-36

1,788

1,445

1,385

2,004

1,714

1,647

1,008

996

847

867

791

856

1,786

1,469

1,406

786

627

127

620

134

KEY FINANCIAL FIGURES ¹

Gross margins:

TCE

Gross profit

EBITDA

⁾

Operating profit/(loss)

Return on Equity (RoE)

Return on Invested Capital (RoIC)

Adjusted Return on Invested Capital (Adjusted RoIC)

Equity ratio

SHARE-RELATED KEY FIGURES ¹

Basic earnings/(loss) per share (USD)

⁾

Diluted earnings/(loss) per share (USD)

Dividend per share (USD)

Net Asset Value per share (NAV/share) ²

Stock price in DKK, end of period (per share of USD 0.01)

⁾

Number of shares (excluding treasury shares), end of

61.3%

36.4%

29.2%

29.7%

17.9%

12.6%

4.9%

50.3%

2.24

0.10

13.6

74.5

55.4%

26.6%

19.1%

0.5%

-4.3%

0.1%

60.4%

30.4%

24.0%

6.1%

0.3%

2.8%

2.4%

49.4%

48.0%

-0.48

11.6

43.9

0.04

0.02

12.8

53.5

period (million)

74.4

73.9

62.0

Number of shares (excluding treasury shares), weighted

average (million)

74.0

73.1

62.0

¹
²

For definition of the calculated key figures (the APMs), please refer to the glossary on pages 160-165.
Based on broker valuations as of 31 December, excluding charter commitments.
⁾
⁾

TORM ANNUAL REPORT 2019

RESULTS

Results

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, general market
conditions, including fluctuations in charter hire rates
and vessel values, changes in demand for “ton-miles”
of oil carried by oil tankers and changes in demand for
tanker vessel capacity, 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 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 including “trade wars,” 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 or updates to these
forward-looking statements to reflect events or
circumstances after the date of this release or to
reflect the occurrence of unanticipated events. Please
see TORM’s filings with the U.S. Securities and
Exchange Commission for a more complete discussion
of certain of these and other risks and uncertainties.

TORM ANNUAL REPORT 2019

RESULTS

THE YEAR IN REVIEW

2019 RESULT

MARKET
CONDITIONS

In 2019, TORM realized an EBITDA of USD 202m (2018: USD 121m). The 2019 profit before tax amounted
to USD 167m (2018: USD -33m) including an impairment reversal of USD 120m.
TORM’s performance has been strong compared to industry peers. Return on Invested Capital (RoIC) was
4.9% (2018: 0.1%), when adjusted for the impairment reversal.

For the full year 2019, TORM achieved TCE rates of USD/day 16,526 (2018: USD/day 12,982).
After strong rates at the start of the year, the product tanker market softened through the second and
third quarters, before posting a strong recovery in the fourth quarter with freight rates peaking at highs
not seen since 2008.

VESSEL
TRANSACTIONS

During 2019, TORM took delivery of five MR newbuildings and four second-hand MR vessels.
In addition, TORM executed sale and leaseback transactions for eight vessels, covering the acquired four
second-hand MR vessels and four existing MR vessels.

Further, TORM sold eight older vessels (five MR vessels and three Handysize vessels) for a total
consideration of USD 65m. Seven of the vessels were delivered to their new owners in 2019, and one
Handysize vessel was delivered early January 2020.

As of 31 December 2019, TORM’s fleet consists of 65 owned vessels, 11 vessels under sale and leaseback
arrangements and four vessels on order. During January 2020, TORM made an additional purchase of two
fuel-efficient dual-fuel-ready LR2 newbuildings with scrubbers and took delivery of three newbuildings,
including two LR1s and one MR.

CORPORATE
EVENTS

New Chief Financial Officer and new Board Observer.
Mr. Kim Balle has been appointed Chief Financial Officer (CFO) of TORM A/S with effect from December
2019. Mr. Balle has been Group CFO in DLG and Group CFO in the private equity-owned CASA A/S. Mr.
Balle has a background from the financial sector, where he held a position as Head of Corporate Banking
in Danske Bank.

In addition, TORM has appointed Ms. Annette Malm Justad as Board Observer. Ms. Justad has significant
managerial experience and has previously served as CEO of Eitzen Maritime Services. Ms. Justad currently
holds several director positions including Chairman of American Shipping Company ASA and Board
member of Awilco LNG. As Board Observer, Ms. Justad attended her first Board meeting in August 2019.

TORM ANNUAL REPORT 2019

RESULTS

THE YEAR IN REVIEW

REFINANCING

IMO 2020 SULFUR
REGULATION

LIQUIDITY

In January 2020, TORM has obtained commitment from leading ship lending banks for two separate
term facilities and a revolving credit facility of up to a total of USD 496m.
These facilities replace four term loans and TORM’s existing revolving credit facility that all together on a
fully drawn basis cover USD 502m in debt. Following the refinancing, TORM does not have any major debt
maturities until 2026, which supports the Company’s financial flexibility.

TORM has committed to install 49 scrubbers, and most of these will be delivered from our joint
venture.
During 2019, TORM successfully conducted 18 scrubber installations on the fleet. On 31 December 2019, 20
vessels were operating with scrubbers. As of 11 March 2020, 30 vessels are operating with scrubbers and
17 vessels are intended to be fitted with scrubbers during the first, second and third quarters of 2020. The
last two scrubbers will be delivered when the LR2 newbuildings are delivered in the fourth quarter of 2021.
For the remaining fleet using compliant fuel, customized schedules preparing the vessels for the new
sulfur regulation were executed during the third and the fourth quarters of 2019.

As of 31 December 2019, TORM’s available liquidity was USD 246m and consisted of USD 72m in cash
and USD 174m in undrawn credit facilities.
As of 31 December 2019, the net interest-bearing debt1 amounted to USD 786m, and the net loan-to-value
(LTV)2 ratio was estimated at 46%. Cash and cash equivalents, includes restricted cash of USD 16m,
primarily related to security placed as collateral for financial instruments. As of 29 February 2020, TORM’s
net interest-bearing debt was estimated at USD 791m and the available liquidity was estimated at USD
297m including USD 76m of sale and leaseback financing that is subject to documentation.

NAV, EQUITY AND VESSEL
VALUES

Based on broker valuations, TORM’s fleet including newbuildings had a market value of USD 1,802m as
of 31 December 2019. TORM’s NAV3 excluding charter commitments was estimated at USD 1,016m,
corresponding to a NAV/share of USD 13.6 or DKK 91.1.
As of 31 December 2019, TORM’s book equity amounted to USD 1,008m. This corresponds to a book
equity/share of USD 13.5 or DKK 90.4.

1 See Glossary on page 162 for a definition of net interest-bearing debt.
2 See Glossary on page 164 for a definition of loan-to-value.
3 See Glossary on page 165 for a definition of NAV.

TORM ANNUAL REPORT 2019

RESULTS

THE YEAR IN REVIEW

ORDER BOOK, CAPEX
AND IMPAIRMENT

COVERAGE

DISTRIBUTION
POLICY

As of 31 December 2019, TORM’s order book stood at four newbuildings, consisting of two LR1 and
two MR vessels, all to be delivered from Guangzhou Shipyard International in China.
Three of these newbuildings have been delivered in the first quarter of 2020. As of 11 March 2020, the
order book stands at one MR vessel with expected delivery in the second quarter of 2020 and two LR2
vessels with expected delivery in the fourth quarter of 2021. Outstanding CAPEX4 relating to the order
book, including costs related to the installation of scrubbers, amounted to USD 51m as of 31 December
2019 and USD 112m as of 29 February 2020 including the two LR2 newbuildings.

As of 31 December 2019, TORM performed an impairment test of the recoverable amount of the most
significant assets. Based on this review, Management concluded that the previous impairment
communicated in connection with the 2016 Annual Report should be reversed by USD 120m as the value in
use exceeds the carrying amounts.

The book value of the fleet was USD 1,770m as of 31 December 2019 excluding outstanding installments on
the newbuildings of USD 51m.

As of 31 December 2019, 9% of the total earning days5 in 2020 were covered at USD/day 23,399.
As of 5 March 2020, the coverage for the first quarter of 2020 was 87% at USD/day 23,818. For the
individual segments, the coverage was 92% at USD/day 28,353 for LR2, 83% at USD/day 25,185 for LR1,
87% at USD/day 22,729 for MR and 92% at USD/day 19,963 for Handysize.

TORM intends to distribute 25-50% of net income semi-annually.
The Board of Directors has decided to recommend a dividend of USD 7.4m, equivalent to USD 0.10 per
share, for approval at the AGM on 15 April 2020. Should the dividend be approved, payment is expected
on 6 May 2020 with ex-dividend date on 17 April 2020. In addition, the Board has decided to conduct
share repurchases up to a maximum of USD 1.4m during the first six months of 2020 in open-market
transactions on Nasdaq in Copenhagen. The total distribution of up to USD 8.8m is in line with the
Company’s Distribution Policy and corresponds to a maximum of 50% of net income adjusted for the
impairment reversal of USD 120m for the six months ended 31 December 2019.

4 See Glossary on page 160 for a definition of CAPEX.
5 See Glossary on page 160 for a definition of earning days.

TORM ANNUAL REPORT 2019

RESULTS

OUTLOOK 2020

As of 31 December 2019, TORM had covered 2,376 earning days (9% of the total earning days) for 2020 at an average rate of USD/day 23,399.
As of 5 March 2020, the coverage for the first quarter of 2020 was 87% at USD/day 23,818.

OUTLOOK
Taking economic and political uncertainty into
account, TORM expects the supply and demand
balance within the product tanker market to improve
in the period 2020-2022. On the supply side, limited
fleet ordering activity and a historically low order book
ensure that fleet growth remains limited, with the net
fleet growth currently estimated at approximately 3%.
This is low compared to the five-year average fleet
growth.

During 2020-2022, the product tanker ton-mile
demand is projected to grow at a compound annual
rate of approximately 4%, exceeding growth in
tonnage supply. Improvements in demand are driven
by continued oil demand growth and increasing
demand for transportation. In particular, the reduction
in the global limit for sulfur emissions from 3.5% to
0.5% and the accompanying shift in marine fuel
consumption are expected to lead to continued
increased trade in clean petroleum products, but also
to add to market inefficiencies especially in the early
part of the implementation period. Additionally,
changes in the global refinery landscape and
increasing competitive pressure on older refineries
are expected to add to demand for transportation.

Please see "The Product Tanker Market" section on
pages 23-27.

an average rate of USD/day 23,399. This means that a
change in freight rates of USD/day 1,000 for the

In line with common practice for most UK companies
and other major shipping companies, TORM does not
provide guidance on earnings. To support the
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.

COVERAGE FOR 2020
As of 31 December 2019, TORM had covered 2,376
earning days (9% of the total earning days) for 2020 at

duration of 2020 would impact the full-year EBITDA
by USD 25m.

As of 5 March 2020, the coverage for the first quarter
of 2020 was 87% at USD/day 23,818. For the individual
segments, the coverage was 92% at USD/day 28,353
for LR2, 83% at USD/day 25,185 for LR1, 87% at
USD/day 22,729 for MR and 92% at USD/day 19,963 for
Handysize. The covered rates include a premium that
TORM has obtained for the scrubber-fitted vessels.

2020 EBITDA SENSITIVITY TO CHANGES IN FREIGHT RATES - AS OF 31 DECEMBER 2019

USDm

LR2

LR1

Handysize

Total

Change in freight rates (USD/day)

-5,000

-2,500

-1,000

1,000

2,500

5,000

-16

-14

-93

-3

-127

-8

-7

-47

-2

-63

-3

-19

-1

-25

127

TORM ANNUAL REPORT 2019

RESULTS

ONE-YEAR TIME CHARTER MARKET

Source: Average of selected broker assessments.

USD/day

LR2

LR1

Handysize

Note: The time charter market has limited liquidity.

One-year T/C

rate as of 5

March 2020

22,050

14,500

15,300

14,500

OUTLOOK 2020

As of 31 December 2019, the interest-bearing bank
debt totaled USD 786m, and TORM had fixed 73% of
the interest exposure for 2020. A change in interest
rates of 25 basis points for the duration of 2020 would
impact the result before tax by USD 0.8m.

As of 5 March 2020, the one-year T/C market, shown
in the table to the right, corresponds to a weighted
average one-year T/C rate for TORM’s vessels of
USD/day 16,226.

The most important factors affecting TORM’s earnings
in 2020 are expected to be:

• The effects of the IMO 2020 sulfur regulation
• Global economic growth and consumption of

refined oil products

• Refinery economics and maintenance
• Oil trading activity and developments in ton-mile

trends

• Fleet growth and newbuilding ordering activity
• Bunker price developments
• One-off market-shaping events such as strikes,

embargoes, political instability, weather conditions,
COVID-19, etc.

TORM ANNUAL REPORT 2019

RESULTS

COVERED AND CHARTERED-IN DAYS IN TORM
– AS OF 31 DECEMBER 2019

2020

2021

2022

2020

2021

2022

Owned days

LR2

LR1

Handysize

Total

Covered, %

3,843

3,251

3,936

3,207

3,955

3,207

16,187

16,452

16,595

LR2

LR1

708

726

Handysize

23,988

24,322

24,483

Total

24%

12%

Chartered-in and leaseback days at fixed rate

Covered days

2020

2021

2022

2020

2021

2022

LR2

LR1

Handysize

Total

Total physical days

LR2

LR1

Handysize

Total

364

3,379

363

3,630

3,110

LR2

LR1

Handysize

3,743

3,993

3,168

Total

1,006

397

941

2,376

2020

2021

2022

2020

2021

2022

Coverage rates, USD/day

4,207

3,251

19,566

708

4,299

3,207

20,082

726

4,013

3,207

19,705

LR2

LR1

726

Handysize

27,732

28,315

27,651

Total

21,905

24,433

24,248

32,531

15,294

23,399

15,294

Fair value of freight rate contracts that are mark-to-market in the income statement (USDm):
Contracts not included above: USD -0.3m
Contracts included above: USD 0.0m

Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries.

TORM ANNUAL REPORT 2019

RESULTS

STATEMENT BY THE EXECUTIVE DIRECTOR

TORM’s commercial performance has again in 2019 been among the best within our peer group. I believe this ability is due to our in-house
operational One TORM platform which among other things allows us to manage our cost at low break-even levels. Preparing for the IMO 2020
sulfur regulation has been an ongoing effort throughout 2019, and already in the first quarter of 2020 we are seeing the benefits of our
preparations through captured freight rate premiums on our 30 scrubber-fitted vessels.

Mr. Jacob Meldgaard, Executive Director

In 2019, TORM successfully navigated a volatile
product tanker market that was impacted by the
refining industry’s preparations for the IMO 2020
sulfur regulation. TORM’s results in 2019 were
enhanced by our strong operational focus and our
focus on maintaining efficient operations and a low
cost base.

The product tanker market strengthened notably
following a significant increase in crude tanker rates
due to attacks on Saudi Arabian oil facilities. This
increase accelerated dramatically after the US
imposed sanctions on two subsidiaries of China’s
COSCO Shipping. The last three months of 2019
provided a significant recovery for the broader tanker
market supporting TORM’s earnings. For the full year
2019, TORM’s product tanker fleet realized average
Time Charter Equivalent (TCE) earnings of USD/day
16,526. The multi-year highs at the end of 2019
continued into 2020, positively impacted by the IMO
2020 sulfur regulation. But the market was also
negatively impacted by the global COVID-19 outbreak.
The first half of 2019 was impacted by the refining
industry’s preparations for the IMO 2020 sulfur

regulation. Refinery maintenance was pronounced,
and coupled with a series of unplanned outages, the
volume of global refinery capacity that was offline was
24% higher in the second quarter of 2019 compared to
the same period in 2018. In particular, a heavy refinery
maintenance season in Asia caused long-haul diesel
flows to drop significantly from the record levels seen
in the first quarter of 2019. As the year progressed,
geopolitical tensions were brought to the forefront
with attacks on vessels near the Strait of Hormuz and
the subsequent attack on Saudi Arabia’s crude oil
facilities. Although the effect was temporary, and
most of the affected capacity was restored promptly,
Saudi Arabia cut runs at several refineries in order to
meet its crude export contracts. This resulted in a
decline in product exports, with naphtha flows to the
Far East being affected.

STRONG TANKER RATES
Tanker rates surged at the start of the fourth quarter
of 2019 when the US imposed sanctions on two
subsidiaries of China’s COSCO Shipping. The reaction
to the sanctions was first seen in the crude tanker
sector, where rates increased to the highest levels

seen since 2008. The positive sentiment carried over
into the product tanker segment, where rates for all
vessel classes increased sharply before retreating to
levels that still remained elevated. The dramatic rise in
crude tanker rates also caused around 15% of the LR2
fleet trading in clean petroleum products to switch to
crude, which will help to sustain product tanker rates
over the medium term.

TORM ANNUAL REPORT 2019

RESULTS

STATEMENT BY THE EXECUTIVE DIRECTOR

WELL PREPARED FOR IMO 2020
In preparation for the IMO 2020 sulfur regulation,
TORM has committed to order a total of 49 scrubbers,
meaning that slightly more than half of our fleet will be
equipped with scrubbers by the end of the first half of
2020. As the new regulation has been implemented,
the business case for installing scrubbers has proven
itself as the price spread between 0.5% compliant fuel
and high sulfur fuel oil is at levels strongly supporting
the investment case. We believe that our balanced
approach provides us with flexibility but also ensures
exposure to the economic benefits of scrubbers. Our
remaining fleet was prepared and customized to using
compliant fuel prior to 31 December 2019.

OPERATIONAL PERFORMANCE
Throughout 2019, TORM continued to focus on
optimizing our fleet and operational performance to
further pursue our goal of serving as the Reference
Company in the product tanker industry. To that end,
TORM has reduced the expenditure related to the
operation of the vessels (OPEX) through continued
focus on optimization and planning of the vessels’
repair and maintenance schedules. This has been
achieved, while remaining very competitive on a TCE
level through focus on the geographical positioning of
the vessels.

The strong relative operational performance is
supported by the ongoing development of the One
TORM integrated in-house commercial and technical
management to ensure a flexible business approach

that optimizes performance while maintaining a
proper trade-off between maximizing TCE and
minimizing cost. Further, the integrated nature of
TORM's business model provides transparency and
additional alignment of management and shareholder
interests, thereby mitigating the potential for actual or
perceived conflicts of interest with related parties. To
further support the strong operational performance,
TORM has continued focus on digitalization and
enhancement of business intelligence to monitor the
market and company-specific metrics.

ONE TORM SAFETY CULTURE
In line with the Company’s strategic focus on safety
performance, TORM continued to promote the safety
culture program One TORM Safety Culture – driving
resilience in 2019. The purpose of the program is to
continuously strengthen TORM’s safety culture
beyond mere compliance.

CLIMATE AND ENVIRONMENTAL EFFORTS
In 2009, TORM signed the UN Global Compact 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. TORM has decided to have
specific focus on Sustainable Development Goal
(SDG) no. 4 Quality Education and on SDG no. 13
Climate Action, as these directly link to the Company’s
current corporate activities. These two areas are not
only material to the Company and its stakeholders, the
efforts and initiatives also make good business sense

to TORM. As such, TORM sees its commitment to
contributing to and reporting on the SDGs as a natural
progression of its commitment to the UN Global
Compact.

In September 2019, TORM signed up for the Getting to
Zero Coalition. TORM has decided to be an active
member supporting the efforts to make commercially
viable zero-emission vessels a scalable reality by
2030. The initiative is supported by leading
stakeholders from the maritime industry and the fuel
value chain in addition to other large international
corporations within sectors spanning wider than
shipping. Our support to the coalition also enables us
to be agile if changes are made to the climate and
environmental regulation in the future.

The Strategic Report on pages 3-61 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.

Mr. Jacob Meldgaard
Executive Director

TORM ANNUAL REPORT 2019

RESULTS

STRATEGIC AMBITION AND BUSINESS MODEL

TORM’s focus on operational improvement and integration is illustrated by TORM’s higher MR TCE earnings when compared to peers.
Long-lasting industry relationships and a strong capital structure drive fleet renewal and upgrades with a fully funded newbuilding program.
TORM’s proactive actions to comply with the IMO 2020 sulfur regulation include scrubber investments and the establishment of a scrubber
joint partnership.

TANKER OWNER AND OPERATOR
TORM is a leading product tanker company with an
owned fleet of 67 vessels on the water, 11 vessels under
sale and leaseback arrangements and three
newbuildings as of 11 March 2020. TORM is active within
all larger product tanker segments (LR2, LR1, MR and
Handysize). This enables TORM to meet customer
demand, as global customers have transportation
requirements across various vessel classes. TORM is well
positioned to take advantage of the promising long-term
market supply and demand fundamentals 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 can
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 are compelling. Due to the large scale of TORM’s
fleet, TORM will only enter into long-term charter-in
commitments on a case-by-case assessment and only to
the extent they are likely to result in profit.

The Company believes that ownership of vessels
combined with TORM’s integrated platform provides a

level of control that is essential for ensuring the
maximum amount of flexibility and earning power. At the
same time, short-term charter-in agreements (less than 12
months) are consistently evaluated on an opportunistic
basis as part of TORM’s active spot-oriented market
approach.

SELECTIVE FLEET RENEWAL AND GROWTH
TORM may selectively grow its tanker fleet and serve as
a consolidator in the tanker segment if the right
opportunities arise. TORM’s sale and purchase activities
are conducted by our in-house team that leverages
relationships with shipbrokers, shipyards, financial
institutions and shipowners.

TORM is continuously assessing opportunities to
optimize asset management through acquiring attractive
high-specification second-hand product tankers that will
be franchise-enhancing and financially accretive. TORM
also selectively pursues newbuilding programs with high-
quality shipyards when newbuilding contracts provide
higher expected return, or if the second-hand market has
insufficient supply of vessels that meet TORM’s customer
requirements. In 2019, TORM acquired four additional
second-hand vessels at attractive price points below the
market benchmarks. In January 2020, TORM made an

additional purchase of two fuel-efficient, dual-fuel-ready
LR2 newbuildings with scrubbers. The vessels will be
delivered in the fourth quarter of 2021.

The specific acquisition criteria for newbuildings and
second-hand vessels include:
• Price point attractiveness
• Complementarity to the current fleet
• Vessel quality level and origin (quality yard)
• Operational characteristics including 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 2019, TORM sold eight older vessels.

TORM’s in-house technical management has significant
experience in newbuilding projects from design to
delivery. As of 11 March 2020, TORM’s newbuilding
program consists of one MR vessel with expected
delivery in the second quarter of 2020 and two LR2
vessels with expected delivery in the fourth quarter of
2021. In addition, TORM has taken delivery of two LR1 and
six MR newbuildings since January 2019.

TORM ANNUAL REPORT 2019

STRATEGY

Strategy

STRATEGIC AMBITION AND BUSINESS MODEL

SOLID CAPITAL STRUCTURE
TORM has a solid capital structure combined with a
strong liquidity position, a fully funded newbuilding
program, no near-term debt maturities and limited off-
balance sheet charter-in commitments. The Company
has an attractive debt profile with favorable interest
rates, amortization schedules and covenants.

TORM’s capital structure supports a spot employment
strategy and also enhances the Company’s financial and
strategic flexibility. In addition, balance sheet strength
creates 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. In early 2020, TORM obtained commitment
from leading ship lending banks for two separate term
facilities and a revolving credit facility of up to a total of
USD 496m. These facilities replace four term loans and
TORM’s existing revolving credit facility that all together
on a fully drawn basis cover USD 502m in debt.
Following the refinancing, TORM does not have any
major debt maturities until 2026. Secured bank financing
remains the preferred source of debt funding for TORM,
but recent leasing structures reflect TORM’s broad
access to various sources of competitive financing. 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.

In addition, TORM listed its share on Nasdaq in New York
in 2017, thereby providing access to a broader base of
potential investors. In February 2019, TORM plc’s USD
250m universal shelf registration on Form F-3 became
effective with the Securities and Exchange Commission.

ONE TORM – INTEGRATED OPERATING PLATFORM
TORM’s fleet is managed cost-efficiently and effectively
by the in-house commercial and technical management
teams, which have 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 required
by our customers under their strict vetting criteria. TORM
believes that the largest customers prefer an integrated
operating model as it provides them with better
accountability and insight into safety and vessel
performance. Within the One TORM platform,
digitalization and enhancement of business intelligence
are key focus areas in order to optimize 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. This is also seen in our
competitive OPEX of USD/day 6,371 in 2019.

TORM’s large diverse fleet of well-maintained product
tankers gives the Company the advantages of scale 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, a presence in all product tanker
segments and an 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. In line with the Company’s strategic
focus on safety performance, TORM continued to
promote the safety culture program One TORM Safety
Culture – driving resilience in 2019. The purpose of the
program is to continuously strengthen TORM’s safety
culture beyond mere compliance. This reflects TORM’s
belief that profitability and safety are not mutually
exclusive.

It is a key priority for TORM, as a Reference Company in
the industry, to minimize pollution of the seas and the
atmosphere. Thus, TORM has strong focus on reducing
fuel consumption and CO2 emissions as this is not only
good for the environment but also for TORM’s business.
This is achieved through committed focus on optimal
performance, and industry collaboration.

TORM has identified a number of strategic Key
Performance Indicators (KPIs) that the Company believes
are vital for the fulfillment of its strategic goals. These
strategic KPIs are described on page 31.

TORM ANNUAL REPORT 2019

STRATEGY

STRATEGIC AMBITION AND BUSINESS MODEL

TORM ANNUAL REPORT 2019

STRATEGY

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.

extensive cleaning of the vessel’s cargo tanks is
required before a vessel can transport clean products
again. In 2019, 95% of TORM's turnover was generated
from clean products transportation.

such as oil traders, state-owned oil companies, oil
majors, financial institutions, shipyards, brokers and
governmental agencies.

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’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.

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

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-
term success of the Company further builds on the
intellectual property of the workforce at TORM and the
relationship and cooperation with external stakeholders

TORM values the relationship with its key stakeholders
and aims at conducting business for the benefit of the
Company’s shareholders and other stakeholders. TORM
has supported the UN Global Compact since 2009 and
is committed to supporting the UN Sustainable
Development Goals. TORM was the first shipping
company in Denmark to commit to the internationally
recognized set of principles.

The interaction with key stakeholders is described on
pages 19-21 under “Strategic Ambition and Business
Model”. For more information on broader value
generation and TORM’s Corporate Social Responsibility
(CSR) policy, please see pages 49-60.

TORM ANNUAL REPORT 2019

MARKET

Market

THE PRODUCT TANKER MARKET

Despite volatility, average product tanker earnings in 2019 reached the highest levels since 2015.
Looking ahead, the product tanker market is supported by positive demand developments and limited supply growth.

further intensified by a frontloaded crude tanker
newbuilding program for 2019, with deliveries in the
first quarter being particularly high.

Product tanker rates softened nevertheless as spring
refinery maintenance gained pace and narrowed the
arbitrage opportunities. Refinery maintenance was not
only particularly heavy in 2019, but it also stretched
over a longer period than normal, not peaking until
May. The particularly heavy spring refinery

maintenance in 2019 was influenced by the refineries’
preparations for the IMO 2020 marine fuel shift. In
several regions, planned refinery maintenance was
coupled with series of unplanned outages and
economic run cuts amid lower-than-average refinery
margins. For example, a crude oil contamination in the
Druzhba pipeline in Russia disrupted work at several
European refineries. In the US, outages at a number of
gasoline-producing units and the closure of the largest
refinery on the US East Coast supported transatlantic
and transpacific gasoline flows.

2019 PRODUCT MARKET
After strong rates at the start of the year, the product
tanker market softened through the second and third
quarters, before posting a strong recovery in the fourth
quarter with freight rates for larger vessels peaking at
levels not seen since 2008.

Demand for oil products was negatively affected by
general macroeconomic weakness, resulting in
subdued oil demand growth. This together with new
refining capacity entering the market kept refinery
margins generally under pressure, notwithstanding
temporary margin hikes. Refinery margins deteriorated,
especially in Asia, due to slower oil demand growth,
new refineries ramping up production and the region’s
typical crude diet becoming more expensive relative to
other benchmark regions.

Product tanker freight rates started the year at strong
levels supported by open long-haul arbitrage trades
and a more supportive supply side after a considerable
number of LR2 vessels had switched to the dirty
market at the end of 2018. On the other side, strong
diesel arbitrage economics between the East and the
West incentivized a high number of newbuilt crude
tankers to carry clean petroleum products on their
maiden voyage from the East to the West. This was

TORM ANNUAL REPORT 2019

MARKET

THE PRODUCT TANKER MARKET

Towards the end of the third quarter, the tanker market
was shaken by attacks on Saudi Arabia’s oil facilities
and the imposition of US sanctions on two subsidiaries
of China’s COSCO Shipping, with the latter affecting
around 4% of the global VLCC fleet. This initially sent
crude tanker rates to highs not seen since 2008,
further spreading to the product tanker market with
the impact especially pronounced in the larger
segments. The strong reaction of the crude tanker
freight rates encouraged several LR2 vessels to switch
into dirty trades at the end of the third quarter, during
the fourth quarter and into the first months of 2020.
This corresponded to a drop in clean-trading LR2
capacity of around 15% and was further supported by a
temporary removal of vessels for scrubber retrofitting,
which gained pace in the second half of the year. In
addition, crude tanker cannibalization eased in the
second half of the year as the crude market improved
and newbuilding deliveries decreased.

After the initial strong surge in product tanker freight
rates, the rates underwent a downward correction yet
remaining at strong levels, with rates in the fourth
quarter being the highest since the third quarter of
2015. Rates were supported by seasonal demand and
multiple open product arbitrage opportunities. Indian
diesel exports to the western hemisphere showed
strong momentum. Similarly, gasoline flows from
Europe to the Middle East and West Africa picked up.
Naphtha arbitrage flows from the West to the East
reached a 6-month high in November-December. New

refinery capacity ramping up in China continued to
support the country’s product exports.

With an improved freight market, vessel values
continued to increase. Asset prices on second-hand
product tankers climbed by 9% for modern MR
tonnage and 24% for modern LR2 tonnage (source:
Clarksons).

Strong freight rates carried over into the start of 2020,
as LR2 vessels continued to shift to dirty trades and
vessel availability was reduced by scrubber retrofits.
However, the start of a heavy refinery maintenance in
the Middle East and a weakening sentiment due to
removal of the COSCO sanctions and the outbreak of
the COVID-19 in particular weighted on the crude and
product tanker markets.

TORM
The value of TORM's fleet measured by broker values
increased by 6% during 2019 (when adjusted for
vessels acquired and sold during 2019).

In 2019, TORM achieved a gross profit of USD 252m
(2018: USD 169m). The increase from 2018 was driven
by higher freight rates. TORM’s product tanker fleet
realized TCE earnings of USD/day 16,526, up 27% year
on year, with the LR2 segment at USD/day 19,730, the
LR1 segment at USD/day 17,102, the MR segment at
USD/day 15,840 and the Handysize segment at
USD/day 14,965.

During 2019, TORM took delivery of five MR vessels
from Guangzhou Shipyard International (GSI) all
equipped with a scrubber. In January 2020, TORM
made an additional purchase of two fuel-efficient, dual-
fuel-ready LR2 newbuildings with scrubbers.

ORDER BOOK
As of 31 December 2019

LR2

LR1

Handysize

Total

Order book

Fleet

Delivered in

Recycled in

Fleet

Order book

as % of end-

31.12.2018

2019

31.12.2019

for 2020-2022

2019 fleet

358

364

1,646

720

384

372

1,720

738

154

3,088

152

3,214

223

10%

TORM ANNUAL REPORT 2019

MARKET

THE PRODUCT TANKER MARKET

As of 11 March 2020, TORM has taken delivery of three
additional newbuildings from GSI – one MR vessel and
two LR1 vessels. One remaining MR newbuilding is
expected to be delivered in April 2020, and two LR2
vessels are expected to be delivered in the fourth
quarter of 2021.

At the end of 2019, TORM operated a fleet of 76
vessels on the water, of which 65 are fully owned and 11
are under sale and leaseback arrangements.

MARKET DRIVERS AND OUTLOOK
Tonnage supply
In 2019, the global product tanker fleet grew by 4.7% in
terms of capacity (4.1% in terms of number of vessels).
This was up from 2.4% in 2018, which was the lowest
growth in more than 20 years. Vessel deliveries
increased in all segments. Fleet growth ranged from
7.3% for the LR2 segment, 2.2% for the LR1 segment,
4.5% for the MR segment and 2.5% for the Handysize
segment. However, effective tonnage supply growth
was reduced by the LR2 net migration to the dirty
market as well as temporary removal of vessels from
the market for scrubber retrofitting, with the latter
reportedly experiencing delays compared to initially
planned timelines.

4.7%

Product tanker fleet growth

The number of newbuilding orders placed in 2019
remained at similar levels as in 2018, thus remaining
below the ten-year average level. A total of 87 product
tankers were ordered in 2019 compared to an annual
average of 118 over the past decade. The MR segment
accounted for the majority of orders with 62 units
contracted, while the number of LR2 vessels ordered
was 23. At the end of 2019, the existing order book for
deliveries in 2020-2022 totaled 223 units
(corresponding to 6.9% of the current fleet), including
39 LR2 vessels, 8 LR1 vessels, 154 MR vessels and 22
Handysize vessels.

Taking into account lead time in production, TORM
anticipates limited ordering of new product tankers
with delivery before the end of 2021. Along with
improvements on the freight market, TORM expects
ordering activity in 2020 to increase from the relatively
low levels seen in the last couple of years. Nevertheless,
the ordering activity is expected to remain below the
peaks seen in the previous years underpinned by
uncertainty around requirements for vessel propulsion
systems in the future.

Around 1.2m dwt of product tanker capacity was
recycled in 2019, corresponding to approximately 0.7%
of the fleet capacity as of the end of 2018. This was
down from 2.2m dwt in the previous year. TORM
estimates that approximately 3% of the existing
capacity of the global fleet will be phased out or
recycled during 2020-2022, as these vessels reach an
age where trading possibilities are limited.

With a historically low order book and low probability
of over-ordering in the coming years, TORM expects
the net product tanker fleet capacity to grow by a
compound annual rate of approximately 3% during
2020-2022.

Tonnage demand
With a slowdown in several major consuming regions
and countries, the global demand for oil products grew
by 0.9 mb/d in 2019 (source: IEA OMR February 2020).
Looking at individual products, diesel demand was
affected by weak global industrial performance, while
LPG continued to replace naphtha in the petrochemical
industry especially in the OECD countries. In 2020,
global oil demand is projected to grow by around 0.8
mb/d, the lowest since 2011, as the outbreak of the
COVID-19 and the widespread shutdown of the Chinese
economy are expected to have shaved off around 0.4
mb/d of the global growth (source: IEA OMR February
2020). Nevertheless, the sharp decline in oil demand in
China in the first quarter of the year (and the
corresponding cut in refinery runs) is expected to be
followed by a rebound that is likely to be supported by
additional government stimulus measures.

Clean petroleum product inventories, which were
contributing to the market weakness in the previous
three years, normalized at historical levels in 2019. This
removed some of the headwinds from the product
tanker market recovery.

TORM ANNUAL REPORT 2019

MARKET

THE PRODUCT TANKER MARKET

supplies. This development continued into the first
month of 2020, leaving gains in marine gas oil (MGO)
demand relatively limited. However, the price
difference between MGO and VLSFO has been very
low or even negative so far this year, which has
reportedly led to several vessel owners in Europe
opting for MGO instead of VLSFO. Also, the VLSFO
availability could be lower during the summer months
when a stronger gasoline market increasingly
competes for feedstocks.

already started in 2019 will continue in 2020, thereby
supporting the market.

Over the longer term, global refinery capacity additions
will exceed the growth in oil demand, adding to the
already existing oversupply of the global refining
capacity. While new refining capacity is primarily
located in Asia and the Middle East, the competitive
pressure on older and less efficient refineries in regions
such as Europe and South America will thus increase.

On the tonnage supply side, the temporary removal of
vessels from the market for scrubber retrofitting that

In 2020, the market will be affected by the IMO 2020
sulfur regulation. TORM expects that the shift towards
low sulfur fuels could lead to an increase of up to 1
mb/d in demand for diesel/gasoil as a low sulfur
bunker fuel or as a feedstock for the latter. This, in turn,
is expected to lead to higher interregional trade with
clean petroleum products, which will support the
product tanker market. The regions that are diesel net
exporters already today have more flexibility to
increase diesel production compared to net importing
regions, leading to additional demand for large- and
medium-sized product tankers. For example, new
refining capacity comes online in Asia and the Middle
East, while the complex refining system in the US Gulf
allows the region to a higher degree to take advantage
of the cheaper excess high sulfur fuel oil (HSFO) in
producing cleaner fuels such as gasoline and
diesel/gasoil. The latter development was already
clearly visible in the last months of 2019, with
increasing flows of HSFO from Russia to the US Gulf
refining hub. On top of increased interregional trades,
demand for smaller vessels is expected to increase for
intraregional redistribution of new bunker fuels.

The initial evidence from the IMO 2020 effects shows
that in the first month of the implementation of the
new sulfur rules, uptake of very low sulfur fuel oil
(VLSFO) in Singapore, the world’s largest bunkering
hub, increased strongly as owners rushed to shift to
new compliant fuels and test the available VLSFO

TORM ANNUAL REPORT 2019

MARKET

THE PRODUCT TANKER MARKET

For the European refineries, this effect will be
aggravated by increased difficulties in finding export
markets for the region’s excess gasoline, as fuel
efficiency gains in regions like North America and new
refining capacity coming online in West Africa will
reduce demand from the traditional gasoline outlets.
Despite refinery capacity addition in Asia and slower
demand growth compared to previous years, the
regions’ naphtha deficit is expected to increase,
thereby supporting long-haul product tanker trade.

Subsequently, TORM expects the product tanker ton-
mile demand on main trade routes to grow by a
compound annual rate of around 4 % during 2020-
2022, driven by a shift in demand for marine bunkers
towards cleaner fuels and trends in geographical
refinery relocation. Generally, positive trends on the
product tanker demand side combined with limited
tonnage supply growth support a positive freight
market development in the next three-year period,
although market volatility is expected.

For further details on factors most likely to change this
outlook in either a negative or a positive direction, please
see “Outlook” section on pages 14-16.

TORM ANNUAL REPORT 2019

MARKET

IMO 2020 SULFUR REGULATION

REGULATION
In October 2016, IMO’s Marine Environment Protection
Committee (MEPC) announced that as of 1 January
2020, the global limit for sulfur emissions from fuel oil
used on board vessels operating outside designated
emission control areas will be reduced from 3.5% to
0.5%. This will significantly reduce the amount of sulfur
oxides emanating from vessels and should have major
health and environmental benefits for the world.

There are two relevant methods for TORM vessels to
comply with the new sulfur regulation: Install an
exhaust gas cleaning system, also known as a
“scrubber”, which is designed to remove sulfur oxides
from a vessel’s engine and boiler exhaust gases, or use
compliant fuel with a sulfur content level below 0.5%

TORM IMO 2020 SULFUR LIMIT PREPARATIONS
TORM has been preparing for the sulfur regulation
since 2016, when the first internal sulfur compliance
working team was established. The work has included
committed scrubber installations including pilot
installations and a joint venture with a scrubber
production facility. In addition, TORM ensured that the
remaining fleet would be in compliance by 1 January
2020.

Committed scrubber installations
TORM has committed to install 49 scrubbers on both
newbuildings and second-hand vessel and has already
installed 30 scrubbers as of 11 March 2020. These
scrubbers are installed on two LR2, six LR1 and 22 MR

vessels based on a business case and technical and
commercial considerations.

Scrubber partnership
In order to secure availability of scrubbers and to forge
a closer relationship with the China State Shipbuilding
Corporation (CSSC) yard group, TORM established a
joint venture in 2018 with Guangzhou Shipyard
International, which is part of the CSSC group, and ME
Production, a leading scrubber manufacturer. TORM
holds an ownership stake of 27.5% in the joint venture:
ME Production China.

The main benefits to TORM have been increased
flexibility to secure scrubber production slots. In
addition, if the partnership continues to prove
successful, TORM will generate an additional income
stream.

ME Production China’s production of scrubbers
commenced in November 2018, and the company will
deliver a total of 43 scrubbers to TORM.

Scrubber experiences
Throughout 2019, TORM has gained valuable
experience from using and installing scrubbers through
the pilot scrubber installations on TORM Hilde and
TORM Lene. Further knowledge has been gained from
the additional 18 scrubber installations that have taken
place in the second half of 2019 on both newbuildings
and vessels on the water. These installations have
helped TORM to be fully able to use the scrubbers from
1 January 2020.

TORM ANNUAL REPORT 2019

MARKET

IMO 2020 SULFUR REGULATION

supply is limited due to feedstock competition for the
gasoline pool.

A strong increase in VLSFO demand in the last quarter
of 2019 coupled with logistical challenges at a number
of bunkering ports supported VLSFO prices, resulting
in VLSFO-HSFO spot spreads in Rotterdam reaching
new highs of above USD 300 per ton. In Singapore,
VLSFO even reached a premium to the MGO price in
December. In the first week of 2020, the VLSFO-HSFO
forward spread for the calendar year 2020 peaked at
around USD 275 per ton. The recent COVID-19
outbreak and the accompanying fall in the crude oil
price have caused the VLSFO-HSFO spot and forward
spreads to fall to new lows as the HSFO has recently
been linked to the crude oil price while the new VLSFO
product has decreased even further. The spot spread
as of 5 March 2020 was USD 109 per ton while the 2021
forward spread was USD 151 per ton. With these
spreads, TORM’s scrubber investment has a payback
time well below three years.

0.5% compliant fuel readiness for remaining fleet
In early 2019, TORM initiated an internal working group
to ensure that the remaining TORM fleet without
scrubbers would be in full compliance with the IMO
2020 sulfur regulation by using compliant fuel.

This work included the emptying and cleaning of tanks
and investigating potential tank modifications as well
as testing, assessing and evaluating the specifications
of the new 0.5% compliant fuels including determining
the commingling ability. In the second half of 2019,
there was also focus on training the crew to handle the
new fuels and ensuring that the vessels switched over
to the new 0.5% compliant fuel as late in December
2019 as possible in order to save fuel costs.

On a global scale, published data on bunker sales
shows that the shift from high sulfur fuel oil (HSFO) to
low sulfur fuel oil (VLSFO) took off in the last months
of 2019, as vessel operators were taking measures to
prepare for the IMO 2020 sulfur regulation. In one of
the largest bunker hubs, Singapore, the HSFO market
share dropped to barely 28% in December from 85% in
September. It was primarily VLSFO that replaced
HSFO, reaching a market share of 59% from just 4%
three months earlier, when the shipping industry was
testing the new compliant fuel. Initial gains in marine
gas oil (MGO) demand were less pronounced, reaching
an 12% market share, which was nevertheless up from
7% at the start of 2019 and has a potential to increase
further when VLSFO inventories ran down and its

TORM ANNUAL REPORT 2019

MARKET

TORM ANNUAL REPORT 2019

MARKET

KEY PERFORMANCE INDICATORS

For TORM to be considered the Reference Company, TORM assesses the Company’s performance across a wide range of measures and indicators
against strategic targets.

MR TCE Earnings
USD/day
2019: 15,840
2018: 12,847

In 2019, TORM’s commercial
performance has consistently been
among the best within 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 2019, TORM achieved MR TCE
earnings of USD/day 15,840 up from
USD/day 12,847 in 2018 due to the One
TORM platform and the general market
development.

Lost Time Accident
Frequency (LTAF)
2019: 0.42
2018: 0.47

In line with the Company’s strategic
focus on safety performance, TORM
continued to promote the safety
culture program One TORM Safety
Culture – driving resilience in 2019.

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 2019, TORM had an
improvement of LTAF to 0.42
compared to 0.47 in 2018.

Adjusted Return on Invested

Fuel Efficiency Improvement

Capital (RoIC)
2019: 4.9%
2018: 0.1%

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 or
reversals) divided by the invested
capital over the same period (excluding
impairment charges).

In 2019, TORM achieved an adjusted
RoIC of 4.9% compared to 0.1% in 2018.
The increase in RoIC from 2018 to 2019
is driven by higher 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.

2019: 9.3%
2018: 6.9%

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

In 2018, TORM improved fuel efficiency
by 6.9% compared to a 2015 baseline
figure. In 2019, TORM has continued its
efforts and achieved further
improvements bringing the fuel
efficiency to 9.3% compared to the
2015 baseline. This impressive reduction
is a testimony to the strengths of our
One TORM platform.

TORM ANNUAL REPORT 2019

MARKET

THE TORM FLEET

as of 11 March 2020

LR2
Long Range 2 vessels are the largest vessels in
TORM’s fleet. They are typically employed on
longer trade routes, including naphtha
transportation from the Middle East to the Far East
and diesel from the eastern hemisphere into the
Atlantic. 12 vessels are currently on the water, and
two newbuildings are expected to be delivered in
2021.

LR1

Long Range 1 vessels are typically employed on the
same routes as LR2 vessels, but they also have the
flexibility to cover trades and routes that are
traditionally dominated by the smaller MR vessels.
A typical LR1 trade could be diesel or jet fuel from
the Middle East to Europe.

Vessels

90-114,000 dwt

Vessels

72-75,000 dwt

MR
The Medium Range vessels are often referred to as
the “workhorse” of the product tanker fleet. They
cover more trade routes and, compared to the
larger LR vessels, this vessel type has the flexibility
to enter into more ports and cover shorter and
coastal trades. A typical trade for MR vessels would
be gasoline from Europe to the US East Coast.
55 vessels are currently on the water, and one
newbuilding is expected to be delivered in the
second quarter of 2020.

Handysize

Handysize vessels are the smallest vessels in
TORM’s fleet. They are involved in more varied and
typically shorter and coastal trade routes. Typical
trades for a Handysize vessel include transportation
of various clean petroleum products within Europe
and in the Mediterranean.

Vessels

45-50,000 dwt

TORM ANNUAL REPORT 2019

Vessels

35-37,000 dwt

TORM is present in all larger segments in the product
tanker market with specific focus on the LR2, LR1 and
MR segments as these three segments have the
highest degree of synergies.

TORM’s fleet has increased from 75 vessels in
December 2018 to 78 vessels on the water in March
2020. Two LR2 vessels and one MR newbuilding are
pending delivery in the second quarter of 2020 and in
the fourth quarter of 2021. The change is primarily
driven by our opportunistic approach to fleet renewal
through disposal of older tonnage, acquisition of
younger tonnage and modern second-hand vessels
and contracting of newbuildings.

MARKET

RISK MANAGEMENT

Spot-oriented trading strategy exposes TORM to freight rate volatility. The cyclical nature of the shipping industry can put pressure on TORM’s
liquidity. With the current and integrated risk management, TORM is well positioned to pursue market opportunities.

RISK MANAGEMENT FRAMEWORK
TORM acknowledges that the Company faces a range
of risks in doing business, and that the Company’s
success depends on identifying, balancing and
mitigating these as early as possible. TORM believes
that a strong risk management framework is vital to
protect the Company and to ensure that the Company
is well positioned in key markets. Risk management is
an integrated part of doing business in TORM. It
enables transparency and insight into the risks related
to the Company and provides a common risk
framework, making it simpler to communicate and take
decisions.

On an annual basis, TORM conducts an Enterprise Risk
Management process, during which the critical risks
facing the Company are identified, assessed and
discussed by TORM’s Senior Management Team and
subsequently approved by the Risk Committee. In
between the annual Enterprise Risk Management
processes, TORM assesses the identified critical risks to
reconfirm and iterate TORM’s view on the risks.

The objective is that TORM and its shareholders are
adequately rewarded for accepting risk, and that the
governance structure tailored to oversee risk
management is in place. This is to ensure that risks

related to core and non-core activities are mitigated to
the extent desired. TORM’s risk management
framework seeks to provide reasonable assurance that
business objectives can be achieved and obligations
towards customers, shareholders and employees can
be met.

RISK MEASURE
Risks are assessed based on a two-dimensional heat
map rating system that estimates the consequence of a
risk based on financials or reputation and the likelihood
of that risk materializing. Risk likelihood and
consequence is considered based on the immediate
strategic window of the coming 12 months.

GOVERNANCE
TORM’s risk management approach emphasizes
Management accountability and oversight. Identified
risks are analyzed, discussed, and responsibility is
assigned to the Senior Management Team member
most suited to manage the risk. Assigned owners are
required to continually monitor risk, implement and
maintain mitigating actions and evaluate and report on
risks for which they bear responsibility.

If the consequence of a risk exceeds the agreed risk
tolerance, Management is required to assess if

implementation of additional mitigation controls is
necessary until the desired risk level is achieved. As
part of the Enterprise Risk Management process, risks
are reviewed and challenged by the Risk Committee.

RISK ASSESSMENT PROCESS
TORM’s risk identification process involves that the risk
department on an annual basis conducts risk interviews
with heads of departments and senior management to
identify principal risks. Identified risks are prioritized,
challenged and approved by senior management as
risk owners. This also includes the assessment of
availability and effectiveness of mitigating actions
taken to avoid or reduce the impact or occurrence of
the underlying risks.

The identified risks in TORM are divided into three risk
groups: “Potential Risks”, “Top Risks” and “Emerging
Risks” in order to facilitate and clarify the type of action
required for each risk.

Potential Risks are events that are not currently
perceived having a significant adverse or unanticipated
impact. TORM seeks to implement early warnings for
monitoring if these risks begin to evolve. TORM
typically develops long-term mitigation plans such as
clearly defined mandates reducing risk exposure.

TORM ANNUAL REPORT 2019

RISK & REVIEW

Risk & Review

RISK MANAGEMENT

Identified risks include, among other things, exposure
to financial derivatives, IT and cyber risk and
counterparty credit risk.

are reported to the Risk Committee, facilitating a
discussion and evaluation of mitigating activities to
reduce the uncertainty.

functional collaboration ensures that rigorous
procedures and standardized controls are maintained
to the highest quality.

Top 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 the
expectations of investors and lenders. Each risk is
stress-tested including a consideration of the impact of
a number of severe but plausible events that could
impact the business. The work also takes into account
the availability and likely effectiveness of mitigating
actions that could be taken to avoid or reduce the
impact or occurrence of the underlying risks. TORM
executes monitoring plans and mitigation of these risks
in order to ensure that the risks are aligned with the
risk tolerance level. TORM’s Top Risks are depicted in
the heat map on page 36. Please also see the table on
pages 37-38 for a description of each of the risks in the
heat map.

Emerging Risks are developing long-term risks which
are often difficult to quantify. They usually also have a
relatively low likelihood and are often driven by
external factors. TORM aspires to be a sustainable
company, which requires a long-term perspective on
value creation. In the context of risk management, this
means taking an active role in addressing risks related
to long-term value creation. Risks and opportunities
beyond the immediate strategy window are monitored
by TORM’s Senior Management Team and incorporated
in the corporate strategic planning. As part of the
Enterprise Risk Management process, emerging risks

TORM’S RISK APPETITE AND MAIN RISK EXPOSURE
The Senior Management Team and the Risk Committee
discuss and decide on TORM’s risk appetite and risk
tolerance to the Company’s principal risk exposures.
TORM’s risk appetite and inherited exposure to
principal risks is divided into three main categories as
detailed below:

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.

Industry and Market-Related Risks (“Risk Tolerant”)
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.

TORM’S CURRENT RISK PROFILE
The Board of Directors and the Senior Management
Team confirm that they have carried out a robust
assessment, under the new Governance Code, of the
principal and emerging risks facing the Company,
including those that would threaten its business model,
future performance, solvency or liquidity and
reputation.

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 and comply with our
strategy 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. This is
achieved by a strong integrated platform, where cross-

The majority of risks are repeated from last year, albeit
with slight adjustments. The key aspects of TORM’s
current risk profile are summarized below:

• Throughout 2019, TORM experienced continued
volatility in the product tanker market. Given
TORM’s spot orientated trading strategy, the
Company is exposed to potentially adverse market
conditions including those relating to the impact on
freight rates caused by COVID-19; consequently, the
market risk related to freight rates and bunker
prices remains high.

TORM ANNUAL REPORT 2019

RISK & REVIEW

RISK MANAGEMENT

• TORM is exposed to cyclical asset prices, and

consequently the market risk remains high within
vessel sale and purchase activities. This risk is
closely related to the freight rate risk, the liquidity
risk and risks in the terms of funding. TORM has
proven its ability to execute in the second-hand and
newbuilding markets.

• Risks within the Company’s immediate sphere of

control, including technical costs, legal compliance
and quality requirements from oil majors, have
remained stable at a low level due to strong
continuous focus, the integrated platform and
efficient controls.

• The risk of a severe vessel accident such as an

environmental disaster or material and personal
damage is deemed to be at the same level as last
year.

• Growing pressure from regulations to address

climate-related matters, the most recent regulation
being the IMO 2020 sulfur regulation. To address
this risk TORM has made investments in installing
scrubbers on vessels, but such investments may
prove to be uncommercial depending on the price
spread development of high-sulfur fuel versus low-
sulfur fuel.

• Following the conflict escalation and terrorism in

the Strait of Hormuz, TORM has included maritime
safety threat as a top risk. TORM’s Trading

Restrictions Committee has oversight and mandate
to advise vessels and management on how best to
avoid and mitigate security threats.

• Liquidity, breach of covenants and terms and

sources of funding replace capital structure as top
risks. The liquidity and breach of covenants risk is a
consequence of the cyclical nature of the shipping
industry that can put pressure on TORM’s liquidity
and hence result in a breach of covenants if not
managed to withstand periods of low profitability.
This risk is deemed high, and mitigating activities
include TORM’s conservative financial leverage and
strong focus on liquidity requirements.

• The terms and sources of funding risk is the inability
to obtain equity or debt financing on attractive
terms due to a narrower range of banks and
investors being willing to support the shipping
industry with the usual funding structures. Banks
and investors are more focused on exposures with a
perceived link to climate change. This risk is
currently considered relatively low but is expected
to develop as new regulation is introduced over the
coming years.

TORM’s Top Risks and the changes compared to last
year are depicted on page 36. A detailed description of
each of the Top Risks is available on page 37-38.
For a more in-depth description of mandates and
sensitivity analyses of the various risks, please see note
20 on pages 134-137.

EMERGING RISKS
TORM considers the main emerging risks to be:

Climate change
Like other ship operators TORM is subject to the
impact of climate change on its business model.
Independent studies generally forecast that demand
for the products that TORM transports will remain
robust over the short to medium term. However, the
longer term future is difficult to predict given the wide
range of potential outcomes associated with the many
variables and varying emissions pathways. At the more
extreme end, the consequences are potentially severe,
with society likely to face transformational change
across all scenarios. This makes climate change and the
risk TORM faces broad in nature. Climate change is
likely to have far-reaching consequences for TORM in
the long term and to impact several areas of TORM’s
core business activities. Below we have outlined
additional emerging risk. All have elements directly
related to climate change.

Peak oil demand
Industry-changing risks such as the substitution of oil
for other energy sources and technological changes
have the possibility to alter the landscape of the
markets TORM serves and as such radically change
transportation patterns. Longer term, this will likely
have a negative impact on the tanker markets. The
time at which oil demand will peak is highly uncertain.
According to several prominent oil market observers,
among others the International Energy Agency and
WoodMackenzie, there is little reason to believe that
once it does peak, the oil demand will fall sharply.

TORM ANNUAL REPORT 2019

RISK & REVIEW

RISK MANAGEMENT

However TORM believes that the demand for oil and
oil-related products will phase out over a longer period
of time, which leaves TORM with time to adjust its
business.

As TORM’s emerging risks develop and become more
tangible to the industry, they may impact several of the
top risks outlined in the top risk heat map. In particular
reduction or acceleration of peak oil demand could
impact the risk related to tanker freight rates.

Technology of vessels could impact the risk related to
timing of sale and purchase of vessels as vessel values
may decline, and the trend of TORM’s stakeholder
becoming increasingly affected by climate change may
increase the risk of insufficient access to financing.

Technology of vessels
External requirements from society to operate more
environmentally friendly vessels pose a transition risk
to TORM and other vessel owners as existing vessels
may become obsolete earlier than initially expected.
Both in terms of peak oil demand and technology of
vessels, TORM is focusing on the long economic life of
its assets. Customers will demand more clean vessels
which could put pressure on vessel values and may
render vessels to become redundant. TORM is already
focusing on how to treat this asset risk.

Insufficient access to financing
The challenges of new regulation, such as the IMO
2020 sulfur regulation, IMO’s commitment to a 50%
reduction of CO2 emissions and Basel IV are likely only
the first step. Such regulation may result in an inability
to obtain equity or debt financing on attractive terms,
due to the lack of banks and investors available to
shipping. Equity investors are selective and are
increasingly seeking “green” investments. Banks have
adopted the “Poseidon Principles” to ensure that
lenders disclose and confront climate change.
Navigating these new complex issues may turn out to
be an opportunity for TORM to position itself as a
Reference Company with an attractive profile for
investors and banks.

TORM ANNUAL REPORT 2019

RISK & REVIEW

RISK MANAGEMENT

TORM ANNUAL REPORT 2019

RISK & REVIEW

RISK MANAGEMENT

TORM ANNUAL REPORT 2019

RISK & REVIEW

FINANCIAL REVIEW 2019

FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2019

TORM’s 2019 results were positively impacted by our strong commercial performance. The performance has generated cash from operations of

USD 171m, enhanced TORM’s capital structure and decreased the loan-to-value. TORM benefited from a series of financing transactions

concluded over the past several months, and with the recent refinancing TORM has no major debt maturities until 2026, strengthening our

financial and strategic flexibility.

Kim Balle, CFO

FINANCIAL RESULTS
In 2019, TORM’s activities resulted in a net profit of
USD 166m resulting in earnings per share (EPS) of USD
2.24 in 2019 compared to a loss per share (EPS) of USD
0.48 in 2018. The higher result in 2019 was mainly due
to an impairment reversal of USD 120m combined with
increasing freight rates following a strong freight
market for product tankers in Q4 2019.

In 2019, total revenue was USD 693m compared to
USD 635m in 2018, and TCE earnings increased from
USD 352m to USD 425m. The increase in TCE earnings
was primarily attributable to a stronger freight market
in 2019 compared to 2018. The increase was achieved
with approximately 5% less available earning days in
2019 compared to 2018, underlining the strong
performance.

In 2019, the operating profit increased by USD 203m to
USD 206m. This increase was primarily due to the
impairment reversal, significantly higher freight rates
combined with the strong cost focus, lowering the
operating expenses.

TORM ANNUAL REPORT 2019

RISK & REVIEW

FINANCIAL REVIEW 2019

TORM’s total assets increased by USD 289m in 2019 to
USD 2,004m. The carrying amount of vessels,
capitalized dry-docking and prepayments on vessels
amounted to USD 1,770m compared to USD 1,442m in
2018. During the year, TORM took delivery of five MR
newbuildings and four MR second-hand vessels and
sold eight older vessels as part of the ongoing renewal
of the tanker fleet. Furthermore, TORM entered into a
number of sale and leaseback transactions covering
eight vessels to secure attractive financing.

In 2019, total equity increased by USD 161m to USD
1,008m from USD 847m in 2018. The increase is
primarily related to the positive result for the period
including the effect of the impairment reversal of USD
120m. The market value adjustments on derivatives
held for hedge accounting had a negative effect on the
equity of USD 12m, mainly related to the decreasing
market values of TORM’s interest rate swaps. The
Return on Equity (RoE) increased from a negative
return of 4.3% in 2018 to a positive return of 18.6%
in 2019.

In 2019, TORM’s total liabilities increased by USD 129m
to USD 996m. In 2019, the borrowings increased by
USD 106m to USD 855m. The increase was mainly
driven by drawdowns on existing loan facilities in
relation to the delivery of the MR newbuildings, the
new funding achieved via the sale and leaseback
transactions during the year and the effects of
implementing IFRS 16 as of 1 January 2019.

TORM ANNUAL REPORT 2019

In 2019, invested capital increased by USD 317m to USD
1,786m as of 31 December 2019. In addition, Return on
Invested Capital (RoIC) increased by 12.5%-points from
0.1% to 12.6%, or to 4.9% on an adjusted basis when
excluding the impairment reversal.

In 2019, the Net Asset Value per share based on broker
values increased to USD 13.6 from USD 11.6 in 2018
mainly due to increasing vessel values.

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

Balance sheet

Non-current assets

Total assets

Equity

Total liabilities

Key figures

Invested capital in USDm

Net Asset Value per share (NAV) (USD)

Return on Invested Capital (RoIC)

Adjusted RoIC

Return on Equity (RoE)

Basic earnings per share (EPS)

2019

2018

Change

693

425

252

202

206

-39

166

1,788

2,004

1,008

996

1,786

13.6

12.6%

4.9%

18.6%

2.24

635

352

169

121

-36

-35

1,445

1,714

847

867

1,469

11.6

203

-3

201

343

290

161

129

317

2.0

0.1%

12.5%-points

0.1%

4.8%-points

-4.3%

22.9%-points

-0.48

2.72

RISK & REVIEW

FINANCIAL REVIEW 2019

LIQUIDITY AND CASH FLOW
Total cash and cash equivalents, including restricted
cash, amounted to USD 72m at the end of 2019,
resulting in a net decrease in cash and cash
equivalents, including restricted cash, for the year of
USD 55m compared to 2018.

As of 31 December 2019, TORM had undrawn credit
facilities totaling USD 174m consisting of a USD 75m
Working Capital Facility, a USD 53m facility financing
the Company’s LR1 newbuildings and a USD 46m
facility financing two MR newbuildings.

As of 31 December 2019, TORM had CAPEX
commitments of USD 51m related to the outstanding
newbuildings.

In 2019, net cash inflow from operating activities
increased from USD 71m in 2018 to USD 171m due to
the higher freight rates combined with decreasing port
expenses, bunkers and commissions cost and lower
operating expenses.

Net cash outflow from investing activities amounted to
USD 323m in 2019 compared to USD 176m in 2018. The
cash outflow was used on tangible fixed assets,
primarily related to the newbuildings delivered during
2019. CAPEX investments on scrubbers as well as
capitalized dry-docking also contributed to the
increase in investment activities. This increase was
partly offset by sale of vessels during 2019.

Net cash inflow from financing activities amounted to
USD 84m in 2019 compared to a cash inflow of USD
96m in 2018. Repayment on borrowings amounted to
USD 169m in connection with scheduled repayments
and vessel sales during the year. Additional borrowings
generated a cash inflow of USD 262m. TORM did not
pay out any dividends during 2019.

At the beginning of 2020, TORM obtained bank
financing of USD 496m, replacing existing debt and
removing all major debt maturities until 2026.

171m

Cash flow from
operating activities

-323m

Cash flow from
investing activities

84m

Cash flow from
financing activities

TORM ANNUAL REPORT 2019

RISK & REVIEW

FINANCIAL REVIEW 2019

TANKER FLEET
Revenue in the tanker fleet increased by 9% to USD
693m in 2019 from USD 635m in 2018, and TCE
earnings increased by 21% to USD 425m in 2019 from
USD 352m in 2018. The increase in TCE earnings was
primarily due to a stronger product tanker freight
market in 2019 compared to 2018.

After strong rates at the start of 2019, the product
tanker market softened through the second and third
quarters, before posting a strong recovery in the fourth
quarter with freight rates for larger vessels peaking at
levels not seen since 2008.

In the LR2 fleet, the average TCE rates increased by
28% between 2018 and 2019. The increasing freight
rates combined with an increase of 4% in available
earning days made the total earnings increase by USD
21m from 2018 to 2019.

In 2019, the available earning days in the MR fleet
decreased by 446 days, equaling a decrease of 2%
compared to 2018. The TCE rates increased by 23%,
resulting in total earnings of USD 281m, an increase of
USD 48m.

The average TCE rates in the LR1 fleet were 32% higher
than in 2018. The increase was partly offset by a
decrease of 13% in available earning days. In
combination, this resulted in a total increase in earnings
of USD 4m from 2018 to 2019.

In the Handysize fleet, the TCE rates increased by 50%
in 2019 compared to 2018. Despite a decrease in
available earning days of 34% in 2019 due to vessel
sales, the total earnings in the Handysize fleet ended at
USD 24m, the same level as in 2018.

CHANGE IN TIME CHARTER EQUIVALENT EARNINGS IN THE TANKER FLEET

USDm

Time charter equivalent earnings 2018

Change in number of earning days

Change in freight rates

Other

Time charter equivalent earnings 2019

TORM ANNUAL REPORT 2019

Handysize

24.3

-8.3

8.1

0.1

233.6

-5.7

53.1

0.4

24.2

281.4

LR1

32.2

-4.3

8.9

-0.3

36.5

LR2

62.2

2.6

18.1

-0.1

Total

352.4

-15.7

88.2

0.1

82.8

424.9

RISK & REVIEW

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

⁾

2018

% change

Full year

full year

2019

17%

-58%

69%

28%

-13%

37%

32%

-2%

-8%

4,027

3,333

694

1,045

1,069

1,038

1,046

4,198

955

978

1,008

966

3,907

291

12,893

23,431

18,604

15,280

29,878

21,783

15,425

22,469

17,894

14,529

24,032

19,730

2,484

590

589

487

2,153

13,063

17,991

15,365

14,120

23,895

17,912

12,982

18,089

14,582

14,292

21,769

17,102

18,182

4,414

17,461

4,234

721

180

4,267

4,088

179

4,391

4,664

17,736

3,998

393

3,825

16,145

839

1,591

121%

12,689

16,768

15,429

13,603

18,424

16,063

12,847

16,765

15,163

13,125

18,111

15,840

2,450

450

453

390

327

1,620

9,939

19,492

12,864

11,697

16,137

14,945

9,970

18,875

12,882

12,251

16,140

14,965

27,141

25,726

1,415

6,499

6,229

270

6,378

6,108

270

6,306

5,883

423

6,524

25,707

5,605

23,825

919

1,882

12,479

17,897

15,652

13,735

20,156

16,875

12,982

17,949

15,405

13,392

19,234

16,526

27%

23%

-34%

50%

-5%

-7%

33%

35%

27%

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 2019

⁾

RISK & REVIEW

FINANCIAL REVIEW 2019

OPERATION OF VESSELS
In 2019, the charter hire cost in the tanker fleet was
reduced to USD 0m compared to USD 3m in 2018. The
decrease in the charter hire cost was caused by the
redelivery of the two remaining chartered-in vessels
during 2018.

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 2018

Change in operating days

Change in operating expenses per day

Operating expenses 2019

OPERATING DATA

USD/day

Operating expenses per operating day in 2018

Operating expenses per operating day in 2019

Change in the operating expenses per operating day in %

Operating days in 2019 ¹

Offhire

Dry-docking

⁾

Bareboat contracts in/out

Vessels chartered-in

Available earning days 2019

Including bareboat charters.

⁾

TORM ANNUAL REPORT 2019

Handysize

15.5

119.8

-5.0

-0.1

-2.3

0.1

10.4

117.6

LR1

17.3

-0.4

16.9

LR2

27.8

0.5

-0.2

Total

180.4

-6.8

-0.6

28.1

173.0

Handysize

6,201

6,124

-1%

6,344

6,350

LR1

6,787

6,597

-3%

LR2

Total

6,462

6,427

-1%

6,389

6,371

1,694

18,521

2,555

4,380

27,150

-74

-198

-46

-485

-356

-1,693

1,591

-4

-104

-322

-945

-365

-2,058

291

1,882

1,620

17,736

2,153

4,198

25,707

Operating expenses (OPEX) for the fleet decreased by
USD 7m to USD 173m in 2019 compared to USD 180m
in 2018, mainly due to a decreasing amount of
operating days that reduced the OPEX. On a per-day-
basis, OPEX remained at the same level in 2019
compared to 2018.

The total fleet of owned vessels had 1,267 off-hire and
dry-docking days, corresponding to 5% of the
operating days in 2019. This compares to 1,046 off-hire
days in 2018 or 4% of the number of operating days.

ADMINISTRATIVE EXPENSES AND OTHER
OPERATING EXPENSES
Total administrative expenses and other operating
expenses amounted to USD 51m in 2019 compared to
USD 50m in 2018. The increase was mainly due to an
increasing number of employees and a one-off
provision covering an exposure related to the
operations.

FINANCIAL INCOME AND EXPENSES
Net financial expenses in 2019 were USD 39m
compared to USD 36m in 2018. The increase in
borrowings obtained during the year has increased
the net financial expenses in 2019.

TAX
Tax for the year amounted to an expense of USD 1m
compared to an expense of USD 2m in 2018. The
decrease was due to lower current taxes and
adjustments of previous years’ taxes.

RISK & REVIEW

FINANCIAL REVIEW 2019

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 2019, Management performed a
review of the recoverable amount of the assets by
calculating the recoverable amount (being the higher
of fair value less costs to sell and value in use) of
the significant assets within the tanker fleet. As of
31 December 2019, the recoverable amount of the
Tanker Segment was based on the value in use. As the
value in use of the assets within the Tanker Segment
exceeded the historical cost less accumulated
historical depreciations, Management concluded that

the impairment test did provide the basis for a
full reversal of the USD 185m impairment recorded
in 2016.

Note 8 provides additional details of the impairment
reversal as well as sensitivity analysis in respect of
freight and discount rates.

However, the impairment reversal was capped at USD
120m both to exclude the portion relating to goodwill
and vessel disposals since 2016 and also to ensure that
the resulting carrying value did not exceed the figure
that would have arisen if the 2016 impairment had not
been recorded.

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 2020-2022 are based on the Company’s
business plans. Beyond 2022, the freight rates are
based on the Company’s 10-year historical average
rates adjusted for the anticipated beneficial impact of
scrubber installations.

The value in use did not take into consideration the
adverse impact on freight rates that has arisen
subsequent to year end due to COVID-19. Although it
is not possible to reliably estimate the length or
severity of this outbreak and hence the impact on
freight rates over the longer term, freight rates have
fallen significantly since the end of January 2020. If
freight rates continue to be adversely impacted or
vessel valuations decrease due to this outbreak, the
Company will consider if this represents an indicator
of impairment in future periods.

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 tankers. 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
tankers 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

TORM ANNUAL REPORT 2019

RISK & REVIEW

FINANCIAL REVIEW 2019

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
expected revenue. The analysis of revenue is therefore
primarily based on developments in TCE earnings.

Spot charter rates
A spot market voyage charter is generally a contract
to carry a specific cargo from a load port to a
discharge port for an agreed freight rate per ton of
cargo or a specified total amount. Under spot market
voyage charters, TORM pays voyage expenses such as
port, canal and bunker costs.

Spot charter rates are volatile and fluctuate on a
seasonal and year-to-year basis. Fluctuations derive
from imbalances in the availability of 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 freight 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 favourable market
conditions.

Available earning days
Available earning days are the total number of days in
a period when a vessel is ready and available to
perform a voyage, meaning that the vessel is not off-
hire or in dry-dock. For the owned vessels, this is
calculated by taking operating days and subtracting
off-hire days and days in dry-dock. For the chartered-
in vessels, no such calculation is required, because
charter hire is only paid on earning days and not for
off-hire days or days in dry-dock.

Operating days
Operating days are the total number of available days
in a period with respect to the owned vessels, before
deducting unavailable days due to off-hire days and
days in dry-dock. Operating days is a measurement
that is only applicable to the owned vessels, not to the
time chartered-in vessels.

Operating expenses per operating day
Operating expenses per operating day are defined as
crew wages and related costs, the costs of spares and
consumable stores, expenses relating to repairs and
maintenance (excluding capitalized dry-docking),
the cost of 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.

ACQUISITIONS AND CAPITAL EXPENDITURE
As of 31 December 2019, TORM had four vessels under
construction: two LR1 and two MR vessels. Both the
LR1 vessels were delivered to TORM in January 2020
(TORM Elise and TORM Elizabeth). Of the two MR
vessels, TORM Splendid was delivered in January
2020, and TORM Stellar is expected to be delivered in
Q2 2020. The value of the prepayments included in
the total asset value amounts to USD 95m compared
to USD 45m in 2018. The increase is due to the
delivery of the three vessels at the beginning of
January 2020.

TORM ANNUAL REPORT 2019

RISK & REVIEW

FINANCIAL REVIEW 2019

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 next 12 months.
Accordingly, the Group continues to adopt the going
concern basis in preparing its financial statements.

can be found in note 20 to the financial statements.
The principal risks and uncertainties facing the Group
are set out on pages 33-38, and details on the
refinancing are described in note 2.

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 available 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 Group also pays
special attention to the recent COVID-19 outbreak and
the associated effects on the product tanker market
and has included the currently expected impact in the
sensitivity analysis.

RETURNS TO SHAREHOLDERS
The Board of Directors has decided to recommend a
dividend of USD 7.4m, equivalent to USD 0.10 per
share, for approval at the AGM on 15 April 2020.
Should the dividend be approved, payment is
expected on 6 May 2020 with ex-dividend date on 17
April 2020. In addition, the Board has decided to
conduct share repurchases up to a maximum of USD
1.4m during the first six months of 2020 in open-
market transactions on Nasdaq in Copenhagen. The
total distribution of up to USD 8.8m is in line with the
Company’s Distribution Policy and corresponds to a
maximum of 50% of net income adjusted for the
impairment reversal of USD 120m for the six months
ended 31 December 2019.

GOING CONCERN
The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are set out
on pages 39-46. As of 31 December 2019, TORM’s
available liquidity including undrawn facilities was USD
246m, including a cash position including restricted
cash of USD 72m. TORM’s net debt was USD 786m
and the net debt loan-to-value ratio was 46%. In
addition, the Group has in February 2020 obtained
bank financing of USD 496m replacing existing debt
and removing all major debt maturities until 2026. This
has been taken into consideration in the Directors’
assessment of the financial position. 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

TORM ANNUAL REPORT 2019

RISK & REVIEW

FINANCIAL REVIEW 2019

LONG-TERM VIABILITY STATEMENT
In accordance with provision 31 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 ending
31 December 2022. This period has been selected for
the following reasons:
• The general volatility and uncertainty in the
product tanker market leads to a significant
increase in the degree of judgement and
uncertainty beyond a three-year period

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

• TORM will have paid its commitments relating to

the Company’s remaining newbuildings and will as
of 31 December 2022 not have any currently
known off-balance sheet liabilities

The assessment by 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 including
installations of scrubber and ballast water
treatment systems
Interest rates

•

The expected financial performance and cash flows
are based on the same underlying assumptions as
used in TORM’s general financial planning. These
assumptions 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 independent recognized
shipbrokers, and the recently obtained bank financing
of USD 496m replacing existing debt and removing all
major debt maturities until 2026 has also been taken
into consideration. The expected outlook has then
been subject 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. The Group
also pays special attention to the recent COVID-19
outbreak and the associated effects on the product
tanker market and has included the currently
expected impact in the sensitivity analysis. Further
details on TORM’s principal risks and uncertainties are
set out on pages 33-38.

The Board of Directors monitors on an ongoing basis
if TORM is moving towards a covenant breach in order
to incorporate any mitigating actions in due course.
Based on the sensitivity analysis, 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 for a prolonged period,

there is a risk of a covenant breach after the 12-month
going concern period, which would require mitigating
actions and appropriate waivers.

The Board of Directors has also considered the
longer-term prospects of the Group beyond the three-
year forecast viability horizon. In doing so, the
Directors have taken into consideration the longer-
term risks and opportunities for the Group discussed
elsewhere in the strategic report and the potential
impact of economic volatility, new regulations,
technological disruption and general changes in
utilization of energy sources. Based on this
assessment, and taking the current capital structure
and the Company’s operational platform into account,
the Directors believe that the Company is well
positioned both to respond to these risks and to take
advantage of any positive market developments for a
period beyond the three-year forecast horizon.

On behalf of TORM plc

Kim Balle, Chief Financial Officer, TORM A/S
11 March 2020

TORM ANNUAL REPORT 2019

RISK & REVIEW

OUR RESPONSIBILITY

TORM regards responsible behavior as a central part of the Company, of how we do business and of the mindset of our employees.
TORM remains committed to protecting employees, environment, reputation and assets by maintaining the highest possible standards.

Therefore, TORM continues its focus on SDG no. 4
Quality Education and no. 13 Climate Action which are
linked to our CSR activities and company values.

This section, Our Responsibility, constitutes TORM’s
CSR reporting according to the requirements of UK
law. Read more about TORM and the CSR efforts at
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.

In 2009, TORM signed the UN Global Compact 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.

PRINCIPLES
Transparency and accountability are central parts of
TORM’s way of doing business, and these values play
a central role in the Company’s corporate social
responsibility (CSR) approach.

TORM’s approach to responsible behavior is further
rooted in the Company’s Business Principles which
have the following five objectives:

• Maintaining a good and safe workplace
• Reducing environmental impact
• Respecting people
• Doing business responsibly
• Ensuring transparency

For further information on TORM’s Business Principles,
please visit:
www.torm.com/uploads/media_items/torm-business-
priciples.original.pdf.

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 to increase
responsibility in the shipping industry and the supply
chain and to mitigate protectionism and support
progressive trade agreements. This is performed via
TORM’s cooperation with Danish Shipping and
companies all over the world to support global trade
and economic growth.

As an active member of Danish Shipping and a
number of committees within that organization and as
co-founder and member of the Maritime Anti-
Corruption Network, TORM strives to increase
transparency and accountability and to minimize
corruption.

After a comprehensive review of the shipping
industry, TORM's value chain and business practices,
the Company decided at the beginning of 2018 to
extend its support to the UN Sustainable Development
Goals (SDGs) and assessed how best to contribute to
their achievement by 2030. TORM sees this support as
a natural progression of its commitment to the UN
Global Compact.

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

Our responsibility

ENVIRONMENTAL EFFORTS

TORM supports SDG no. 13 Climate
Action, as marine pollution constitutes
the largest environmental risk within
the shipping industry.

efforts made within this area generated a positive
result as can be seen in the Green House Gas
Emissions table on page 53.

It is therefore a key priority for TORM as a Reference
Company to minimize pollution of the seas and the
atmosphere.

To actively contribute to the industry emissions
reduction plans, TORM stepped up our involvement in
industry collaborations such as the innovation
partnership, ShippingLab. A non-profit platform for
maritime research, development and innovation with
30 partners from across the maritime industry to drive
smart shipping of the future.

In 2019, TORM joined the Getting to Zero Coalition
along with other powerful industry leaders. The
purpose of this alliance is to lead the push for
shipping's decarbonization with the mutual goal of
having commercially viable zero-emission vessels
operating along deep-sea trade routes by 2030. The
coalition is a partnership between the Global Maritime
Forum, the Friends of Ocean Action and the World
Economic Forum. The coalition is supported by more
than 100 public and private organizations.

FUEL CONSUMPTION AND ENERGY EFFICIENCY
In 2019, TORM has continued to have a strong and
dedicated focus on reducing fuel consumption. The

TORM’s Operational Performance Team continues to
share the performance of each vessel with the
respective vessel managers and vessels on a monthly
basis.

In 2019, TORM continued to refine an initiative
introduced in 2017 and 2018 to engage the vessels on
a daily basis to encourage best practice behavior with
regard to power and fuel consumption. The efforts in
this area ensure that corrective actions can be taken
swiftly, when needed. In 2019, TORM added human
resources to this function, and consequently we have
seen a tremendous improvement.

Fuel consumption for cargo operations is a focus area
that has developed during 2019, and we therefore
strive to implement meaningful KPIs. It has become
clear that the subject is very complex, and deeper
studies are necessary to obtain meaningful KPIs in this
field.

In 2019, TORM added resources to put additional
focus on energy-efficient voyage execution by
including weather and timing of arrival in a more
holistic evaluation. This is progressing within the
Operations team.

Investing in and implementing well-proven
technologies will allow TORM to concentrate its
efforts on achieving the potential that lies outside the
boundaries of behavioral activities. TORM is also
testing a number of innovative projects with regard to
optimizing machinery, and use of the latest
technology is prioritized in our effort to reduce energy
consumption in our fleet.

TORM continues to focus on continuously improving
the hull condition of its vessels. During 2019, two
vessels were taken out of service between scheduled
dry-dockings for short four-to-six-day dockings.
During these dockings, the hull coatings were
renewed, resulting in significant fuel consumption
reductions.

TORM maintains a constant focus on fuel efficiency
across the fleet. This serves the dual purpose of
minimizing environmental impact and making good
business sense. By maintaining the strong focus on
fuel consumption reductions in 2019, TORM achieved
fuel efficiency improvements of 9.3% compared to the
2015 baseline. The target for 2020 is to improve fuel
efficiency by another 1%.

9.3%

Fuel efficiency improvement

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

ENVIRONMENTAL EFFORTS

ENGAGED EMPLOYEES MAKING A DIFFERENCE
In 2019, TORM Philippines, in partnership with the City
Environment & Natural Resources Office (CENRO),
organized a mangrove tree planting activity on the
coast of Calatagan.

The goal of the activity was to spread awareness of
the importance of mangroves. Mangrove forests serve
as nature's barrier to protect coastal communities
from storm surges and shoreline erosion.

TORM employees organized this activity, and 50
volunteers signed up for the event. The participants,
composed of TORM employees and their families, left
the office early in the morning to coincide with the low
tides on the day. To reach the planting site, the team
walked approximately 500 meters out into the open
sea. With much enthusiasm and perseverance, the
team was able to plant 2,200 mangrove propagules.

Efforts to reduce the Company’s carbon footprint also
cover emissions from air travel by the shore-based
organization. TORM strives to minimize this by using
available technologies such as video conferencing to
the extent possible, e.g. in connection with meetings
across the Company’s eight offices.

BALLAST WATER
Ballast water is taken on by the vessel to stabilize trim
and optimize operational efficiency. The discharge of
ballast water may introduce non-native species into
the recipient marine ecosystem, thereby disturbing
the local maritime ecosystem and endangering
indigenous species. To alleviate this threat and to
prevent the invasion of non-indigenous species in alien
waters, TORM complies with the stipulations of the
IMO Ballast Water Management Convention.

OFFICE EMMISSIONS
Office emissions are included from TORM’s offices in
Copenhagen, Mumbai, New Delhi, Singapore, Manila,
Cebu and Houston. Emissions from TORM’s office in
London are 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.

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

ENVIRONMENT - REPORTING

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 end
December 2019, TORM had 73 vessels under technical
management compared to 72 vessels as of end
December 2018.

• 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.

REPORTING GUIDELINES
The 2019 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
aspects of 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. 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.

• Other principles

2019 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 891 vessel months
of operation.

Cargo transport work (ton-nm) is calculated using the
actual cargo multiplied by the distance with actual
cargo; thus, a ballast voyage will give 0 (zero) in ton-
nm. CO2 emission per ton-nm is the full CO2 emissions
on board all vessels divided by the ton-nm for all
voyages; thus, it includes emissions from ballast
voyages, electricity production, inserting, cargo
operations, etc.

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

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)

Used heavy fuel oil (ton)

Used low-sulfur heavy fuel oil (ton)

Used marine gas oil (ton)

Generated CO2 emissions from vessels (ton)

Distance sailed (nautical miles)

Average cargo on board (ton)

Cargo transport work (ton-nautical miles)

CO2 emissions in grams per ton-nautical miles (one ton of cargo transported one nautical mile)

OFFICE EMISSIONS AND INDICATORS (ELECTRICITY AND HEATING)

Electricity used in office locations (kWh)

District heating (Gj)

Generated CO2 emissions from office locations (ton)

Number of office employees at the end of the year

CO2 emissions per employee (ton)

FLIGHT EMISSIONS AND INDICATORS

Air mileage (km)

Number of travels

* Numbers adjusted due to increased data quality and verification process.

2019

891

348,972

12,174

55,374

1,301,722

4,045,457

36,628

2018

932

375,196*

152

64,255*

1,374,835*

4,129,589*

36,914*

114,715,104,800

112,462,924,810*

11.35

12.22*

702,850

1,423

488

341

1.4

823,844

1,326

525

309

1.7

56,173,910

80,192,490

10,263

13,401

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

SUPPORTING QUALITY EDUCATION

TORM is a long-standing supporter of
maritime education in Denmark, India
and the Philippines, and it is therefore
natural for the Company to support
SDG no. 4 Quality Education.

This commitment reflects the Company’s ties to local
communities and has a positive effect on the needs of
the societies in which TORM operates and where
many of the Company’s seafarers come from.

In addition, TORM believes that supporting education
has positive effects on its core business in terms of
developing the pipeline of competences in the
industry and in terms of higher employee retention
and a positive brand recognition.

TORM is therefore dedicated to supporting SDG no. 4
Quality Education and cooperates with several
educational institutions and universities internationally.

In Denmark and Singapore, the efforts include offering
trainee positions in TORM’s offices to students from
Copenhagen Business School, the Copenhagen School
of Marine Engineering & Technology Management and
the Nanyang Technological University Singapore.

The majority of TORM’s seafarers are of Indian or
Filipino nationality, and the Company’s activities in
these areas are thus supporting potential future TORM
employees and strengthening the overall competence
level among seafarers in these regions.

EDUCATION FOUNDATION
TORM Philippines runs educational development
actions through the TORM Philippines Education
Foundation which has been helping Philippine
communities since 2007. In 2019, 25 students
supported by the TORM Philippines Education
Foundation graduated from scholarships.

For the school year 2019/2020, the foundation
supports 58 scholars across the Philippines with half at
various colleges and universities and the other half
with apprentices within maritime courses.

Thanks to a close collaboration between TORM, our
education foundation and Department of Education
Division Office of Mountain Province, a new classroom
with toilet was constructed and inaugurated under the
Adopt-A-School Program. 45 students from
kindergarten to Grade six can now receive school
training.

In addition to the scholarships, the education
foundation ran a number of social development
initiatives in 2019. ‘Trainers of scholars’- graduates
trained in Training of Trainers and Facilitators was
conducted to 33 Grade 7- 8 students of San Roque
National High School of Bulalacao, Oriental Mindoro.

Another social development initiative was the
construction of a basketball court and donation of
sport equipment for basketball, volleyball, taekwondo

and more. This was funded by employees of TORM in
Denmark as part of a Christmas donation initiative.

Scholars’ Community Outreach Project in Magabta,
Kabugao, Apayao, provided provisions such as school
kits to 60 daycare and elementary students, and also
the repainting of the daycare center, handout of
medicine kits and learning resources. Additionally,
former students supported by the foundation decided
to donate a water tank to Addang Elementary School,
Paracelis, as the school only had access to water via a
hosepipe from a water source uphill from the school
site.

Essential computer training was also conducted to 40
teachers and staff of Santos E. Conag National High
School in Esperanza, Masbate.

TORM ANNUAL REPORT 2019

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SUPPORTING QUALITY EDUCATION

With BAIF, an organization dedicated to upgrading
and providing rural infrastructure, TORM India has
constructed a water tank for regular use by school
kids and villagers.

TORM India is also looking to partner with SWADESH
Foundation, which is aimed at focusing on reverse

migration of people who moved to the cities in search
of jobs due to financial needs. SWADESH upgrades
their skills, provides opportunities to create
sustainable financial models and migrates people back
to villages. This creates a good eco-balance and, in
turn, upgrades villages to become more self-
sustainable.

In India, TORM has funded specific projects towards
local social challenges. Starting in 2018, TORM India
engaged with SMPARC, BAIF Development Research
Foundation and Akshayshakti towards various CSR
initiatives.

Since 2016, TORM India has supported the building of
the ZP Prathmik School in Zadgewadi, near Pune,
India. The school was constructed and the facilities
were furnished with donations from the Company.

Through SAMPARC, TORM India is sponsoring 35
students to attend the school. In addition to education
fees, TORM India assists them with their regular needs.
TORM India is also actively considering renovation of
the town hall for SAMPARC Bhaje. This will enhance
the extra-curricular activities for girls staying there
and augment the infrastructure for multi-use.

In 2018, in coordination with Akshayshakti and with
TORM India’s support, construction of an additional
toilet and bathing block for the female students of
'Swami Vivekananda School Girls' hostel' was carried
out. This will greatly encourage more girls to attend
school. As a continued project, TORM supported the
'V Promote Education' project with the distribution of
100,000 notebooks to nearly 350 schools in 2019.

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

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 TORM’s
business. In addition, it is TORM’s belief that a safe and
secure working environment supports the overall
performance level and employee retention.

Respecting employees’ human rights is pivotal to the
Company. TORM's policies that support this are
outlined in TORM’s Business Principles. The
Company’s safety policy is rooted in the rules and
regulations issued by the Danish Maritime
Occupational Health Service.

INSPECTION 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 10 inspections per year.
Inspections are carried out by customers, terminals,
internal auditors, ports and classification societies.
TORM is committed to meeting the ever-increasing
standards set both internally and by its customers.

The main body responsible for managing the
overarching processes and requirements of these
vessel inspections is OCIMF (Oil Companies
International Marine Forum). In 2019, a new OCMIF
SIRE (Ship Inspection Report Programme) inspection
regime (vessel inspection questionnaire 7th edition)
was fully implemented and took effect. The most

significant difference was the change in the inspection
methodology from system verification to knowledge
verification of ship’s crew. Specific familiarization and
training of ship’s crew was implemented in order to
cater to this change.

ONE TORM SAFETY CULTURE
In line with the Company’s strategic focus on safety
performance, TORM continued the safety culture
program One TORM Safety Culture – driving resilience
in 2019. The purpose of the program is to continuously
strengthen TORM’s safety culture beyond mere
compliance.

In 2019, TORM continued conducting Safety
Leadership courses for Senior Officers on board the
Company’s vessels. A total of eight courses were
conducted, including three in India, three in the
Philippines, one in Denmark and one in Croatia with a
total of 148 officers attending in 2019. In total, 582
officers have completed the course since it was
introduced in 2017. Safety Leadership courses are
mandatory, two-and-a-half-day workshops for all
Senior Officers and key marine shore staff. The focus
of these courses is 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 in the product tanker market.

SAFETY DELTA
We also continue with the Safety Delta tool, which
was launched in 2018 and used across the fleet to

track and monitor the safety culture on board the
individual vessels. The safety delta concept supports
processes and activities and helps to build and
maintain a proactive safety culture based on
continuous crew evaluation, dialogue, reflection and
development. All vessels have conducted minimum
three safety delta cycles in 2019.

In addition, TORM’s revised performance development
program from 2018 continues to be used. This concept
is TORM’s way of systematically enhancing work
behavior and leadership to ensure excellent
performance. Through the One TORM Safety Culture –
driving resilience program, TORM has defined

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

HEALTH, SAFETY AND SECURITY

ultimately prevent potential future accidents. A high
number of near-miss reports indicate that the
organization is proactively monitoring and responding
to risks. In 2019, TORM exceeded the target of 6.0
near-miss reports per month per vessel on average by
reaching 6.96 (2018: 7.1) due to continued focus on
this area.

SECURITY
TORM’s response to piracy is founded on the Best
Management Practice, which is the industry guideline
for companies and vessels sailing in areas with
increased risk. In 2019, TORM experienced six
situations where thieves came on board and three
cases of stowaways found on board the Company’s
vessels. Throughout the year, the security situation
and developments in the various risk areas have been
monitored closely, and actions have been taken to
safeguard TORM’s seafarers and vessels. The
Company will continue to monitor the risk situation
and pre-empt hijacking and robbery attempts by
following security procedures and industry guidelines.

standards and expectations for excellent performance.
A key element in leadership is to evaluate employees’
performance with a view to manage development and
motivate employees to develop. TORM believes this
will facilitate the best possible means for developing
performance as an individual and as a company.

TORM will continue promoting the One TORM Safety
Culture – driving resilience program in 2020. Focus
will be on supporting and ensuring that TORM’s safety
culture is anchored across the organization, ashore as
well as on board the vessels.

In 2020, TORM will introduce a new induction
framework for its seafarers. The purpose is to ensure
that new employees at sea are introduced to the
safety culture in TORM as soon as possible when
joining the Company.

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 2019, TORM
continued to improve its LTAF with the result of 0.42
(2017: 0.67, 2018: 0.47).

Each injury has been investigated and corrective
measures have been taken as required.

Near-miss reports provide TORM with an opportunity
to analyze conditions that might lead to accidents and

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

EMPLOYEES

The employees constitute the true quality of TORM
and are the Company’s most valuable assets. TORM
continues to grow and thrive due to the efforts and
dedication of its staff both at sea and ashore.

AT SEA
In 2019, TORM continued its strategy to employ
seafarers with different nationalities, as the Company
believes that diversity on board is an important
foundation for cooperation, high performance and a
safe working environment.

Throughout the year, TORM continued its efforts to
relieve seafarers on time and to build strong teams
that rotate back to the same vessels whenever
possible. This will reinforce vessel-specific knowledge
and the foundation for a safe working environment.

TORM also continued its efforts to strengthen the
relations between seafarers and the shore-based
organization. This included seminars and other
opportunities where colleagues can share best
practice regarding the operation of TORM’s vessels.

As part of TORM’s continued focus on the promotion
process for its employees, seafarers completed the so-
called ‘promotion assessment training’ prior to being
promoted to the highest ranks on board the
Company’s vessels in 2018. During this training,
officers visit one of TORM’s offices for an introduction
and training with key stakeholders.

TORM maintains an ongoing focus on seafarer
commitment and engagement. In 2019, the retention
rate for Senior Officers remained above 90%, and
TORM demonstrated 100% compliance with customer
requirements when it comes to ensuring the right level
of experience among Senior Officers per vessel across
the fleet (the so-called officer matrix compliance).

During 2019, TORM initiated a pilot project on 14
vessels – a project focusing on well-being by
increased engagement, mental resilience, physical
health and embracing socialization among crew
members. Initial findings show a decrease in smoking,
hypertension and obesity. We expect to introduce this
concept to the entire fleet in 2020.

At the end of 2019, TORM employed a total of 3,050
seafarers of which 141 were permanently employed,
with the remaining seafarers on time-bound contracts.

ASHORE
In 2019, 95% of all shore-based employees responded
to the annual employee motivation and satisfaction
survey. This is an increase on last year’s response rate
of 93%.

In 2019, a new engagement survey providing real time
data was introduced across shore staff. The outcome
of the One TORM Engagement Survey showed the
continuous high engagement among our employees
across categories ranging from engagement, freedom
of opinions, management support, work environment

and safety. The high scores were evenly spread across
divisions which is a testament to the strength of the
unified One TORM approach.

The overall outcome of the survey is an engagement
score of 8.3, which is in the top 10% of the companies
across all industries using the same platform. TORM’s
ambition with this new engagement survey together
with such a high response rate is to help the Company
improve, build the culture needed to fulfill the
Company’s strategy and make initiatives that matter
to the employees. By the end of 2019, the retention
rate for all shore-based employees was 92%, which is
slightly higher than the 90% in 2018.

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

EMPLOYEES

TORM aims to attract and retain the best employees
by exemplifying the four values in the TORM
Leadership Philosophy and by ensuring that the
Company’s leaders motivate their employees.

led by gender diverse leaders, deliver better business
performance. The Company provides equal
opportunity in recruitment, career development,
promotion, training and rewards for all employees.

By 2020, the Company aims at having 35% women in
the shore-based workforce in line with industry
average, and with 25% females in leadership positions.
At the end of 2019, the Board of Directors consisted of
five male members elected at the Annual General
Meeting.

In 2020, the Board of Directors has set a target of
20% female Board members elected at the Annual
General Meeting (1 out of 5).

In 2019, TORM participated in Danish Shipping´s
workgroup concerning “more women at sea”. This
work has resulted in a Danish Shipping charter driving
for more women at sea, which TORM has signed up to.
Furthermore, 10 recommendations have been
produced, which will be incorporated in our processes
and procedures as best practice.

TORM actively monitors the representation of females
in the workforce and in leadership positions. At the
end of 2019, the proportion of females in the shore-
based workforce was 34.5%, while females in
leadership positions, defined as having one or more
direct reports, constituted 21.7%.

At the end of 2019, the shore-based organization had
341 employees: 141 in Hellerup, 132 in Mumbai, 4 in
New Delhi, 36 in Manila, 2 in Cebu, 16 in Singapore, 9 in
Houston and 1 at the Company’s office in London.

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.

TORM aims at a gender diverse workforce and an
inclusive environment that respects and supports all
our people and helps improve our business
performance.

TORM’s gender diversity approach focuses on talent
attraction, promotion and retention. The Company’s
leaders aim at assuming accountability for continuous
progress. TORM believes that gender diverse teams,

EMPLOYEE GENDER DIVERSITY

Permanently employed

Directors of the Company¹

Employees in other senior executive positions

⁾

Total management other than directors of the Company (VPs, GMs, Marine Officers)

Other permanent employees of the Group

Total permanent employees of the Group

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

⁾

Male

Female

162

175

337

110

118

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

HUMAN RIGHTS

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

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 was 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 its employees as stated in TORM’s Business
Principles.

No claims or offenses have been reported regarding
human rights in 2019.

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 mean increased costs alone. 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
implementing the anti-corruption and anti-bribery
policy.

Since 2011 when TORM co-founded the Maritime Anti-
Corruption Network (MACN), TORM has been taking a

joint stand within the industry towards the request for
facilitation payments that exists in many parts of the
world where TORM conducts business. Best practice is
shared between members of the network, and
members align their approach to minimizing
facilitation payments.

The MACN 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 2019 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 targets new hires as well as existing
employees and must be repeated annually. TORM will
continue these efforts in 2020.

Since 2006, TORM’s Board of Directors has provided a
whistleblower facility with an independent lawyer as
part of the internal control system. In 2019, the
whistleblower facility received two notifications, which
were investigated and closed without any critique or
requirements for new measures.

TORM ANNUAL REPORT 2019

OUR RESPONSIBILITY

CORPORATE GOVERNANCE STATEMENT

STATEMENT BY THE DIRECTORS IN PERFORMANCE
OF THEIR STATUTORY DUTIES IN ACCORDANCE
WITH S172(1) COMPANIES ACT 2006
The Board of Directors of TORM consider, both
individually and together, that they have acted in the
way they consider, in good faith, would be most likely
to promote the success of the Company for the
benefit of its members as a whole (having regard to
the stakeholders and matters set out in s172(1)(a-f) of
the Act) in the decisions taken during the year ended
31 December 2019.

a) In order to take long-term perspective into

account when making business decisions the
Board of Directors gets a bi-annual update on the
expected development in the market within the
next five years and the consequences for TORM.
These updates ensure that the long-term
perspectives are taken into account when business
decisions are made. This includes the Company’s
ongoing fleet renewal, the recently concluded
refinancing, both decisions being further described
on page 11-13.

b) TORM’s employees are fundamental to enable the
Company to do business, and their continued
engagement is an integrated part of the decision-
making across the organization. Our recent
employee engagement survey shows that TORM is
in the top 10% of the companies across all
industries utilizing the same external platform.
Further, the Board of Directors believes that a safe
environment is fundamental for engaged

employees at sea as well as on shore. TORM
continues the safety culture program One TORM
Safety Culture to continuously strengthen TORM’s
safety culture beyond mere compliance.
Supporting an open dialogue with the workforce,
two employee representatives are attending all
Board meetings, with the observers currently being
sea-based employees. Further, in connection with
earning releases and other key events, the
Executive Director holds town hall meetings with
all offices across the organization to provide a
formal opportunity for the workforce to engage in
a dialogue with the Board.

c) TORM’s business relationships cover different
stakeholders such as suppliers and customers.
Managing our different stakeholders is an
integrated part of the way TORM conducts
business. In order to go beyond customers’
expectations, TORM conducts a survey to make
sure that TORM stays relevant and follows the
trend in the market.

d) TORM’s impact on the community and the
environment is important for the Board of
Directors. TORM is engaged in several local as well
as global initiatives supporting the different
communities the Company operates in and also
the larger climate issues faced by the world.
Different initiatives include our education
foundation, our commitment to the UN SDGs and
our climate engagement supporting initiatives, see
page 49-60.

e) High standards are important due to the reputation
of our business. Larger oil companies conduct
regular vetting checks of TORM’s vessels, and
approval from these vettings ensures access to
cargos. TORM’s approach to responsible behavior
is further rooted in the Company’s Business
Principles, see page 49.

f) Fair treatment between members of our Company

is governed in TORM’s central corporate
governance provisions that 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.

TORM ANNUAL REPORT 2019

S172

GOVERNANCE

Chairman’s Introduction
Corporate Governance
Board of Directors
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
Investor Information
Directors’ Report
Statement of Directors’ Responsibilities

63
65
69
71
76
79
81
91
94
98

TORM ANNUAL REPORT 2019
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S172
S172

62
62

CHAIRMAN’S INTRODUCTION

in which everyone is included and respected, and in
which well-being at work is regarded as a shared
responsibility.

THE UK CORPORATE GOVERNANCE CODE
There were changes to UK legislation and governance
requirements in 2018 that have now come into effect. As a
result from 1 January 2019, TORM is reporting against the
2018 UK Corporate Governance Code (the Code)
available at www.frc.org.uk. The Company complies with
39 out of 41 provisions. In particular, the new version of
the code encourages greater board engagement with
both our workforce and with other stakeholders. As a
board, we fully support this, and we will continue to
evolve and enhance this engagement. Please see the
Employee section on pages 58-59. Explanations of how
the Principles have been applied are set out on the
following pages in the Corporate governance section, the
Remuneration report, the Nomination Committee report,
the Risk Committee report and the Audit Committee
report.

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.

ACHIEVEMENTS
As the new IMO 2020 sulfur regulation was
implemented on 1 January 2020, a key focus for the
Company in 2019 has been to prepare the fleet for the
new requirements. The Board of Directors has
supported the preparations and ensured that detailed
plans for compliance are in place and have been
executed. Further, the Board has sought external
guidance on the regulatory requirements.

Throughout 2019, TORM has maintained its focus on
internal controls and compliance with the Sarbanes-
Oxley Act (SOX) to ensure timely and accurate
reporting.

In 2019, the Nomination Committee approved the
Company’s proposed Gender Diversity Policy, which
included the proposed targets for 2020. The Company
aims that at least 35% of our shore-based workforce
are female in line with industry average, and with 25%
female in leadership positions. TORM recognizes that it
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. TORM works towards a diverse workplace,

Mr. Christopher H. Boehringer, Chairman of TORM’s
Board of Directors

CHAIRMAN’S STATEMENT
Dear Shareholder

My role as Chairman is to lead the Board of Directors
and to ensure that TORM has a Board that works
effectively. A key role is to ensure the Board of
Directors works in unison with the Senior Management
Team, providing not only support but also constructive
challenge when necessary whilst exercising an
appropriate level of enquiry and intellectual debate.
This involves having Directors with the correct balance
of skills, experience and attributes, including a broad
diversity of perspectives. I believe that TORM has this
on our Board, which in 2019 has been further enhanced
by the appointment of Annette Malm Justad as an
additional Board Observer, please see the “The year in
review” section on page 11.

TORM ANNUAL REPORT 2019

GOVERNANCE INTRODUCTION

Governance Introduction

CHAIRMAN’S INTRODUCTION

income adjusted for the impairment reversal of USD
120m for the six months ended 31 December 2019.

CONCLUSION
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 interest of all
key stakeholders and will continue to support TORM as
the Reference Company in the product tanker industry.

Mr. Christopher H. Boehringer
Chairman of the Board

DISTRIBUTION POLICY
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.

TORM generated a profit for the first six months of
2019; however, the Board of Directors considered the
benefit of the Company’s combined shareholder and
stakeholder base and decided at that time that the
continued modernization of the fleet through
newbuildings, purchase of modern second-hand
tonnage and scrubber installations provided for the
optimal capital allocation, and therefore a decision not
to distribute dividends for the first six months of 2019
was taken.

The Board of Directors has decided to recommend a
dividend of USD 7.4m, equivalent to USD 0.10 per
share, for approval at the AGM on 15 April 2020. Should
the dividend be approved, payment is expected on 6
May 2020 with ex-dividend date on 17 April 2020. In
addition, the Board has decided to conduct share
repurchases up to a maximum of USD 1.4m during the
first six months of 2020 in open-market transactions on
Nasdaq in Copenhagen. The total distribution of up to
USD 8.8m is in line with the Company’s Distribution
Policy and corresponds to a maximum of 50% of net

TORM ANNUAL REPORT 2019

GOVERNANCE INTRODUCTION

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, 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. In accordance with the
Corporate Governance Code, 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 and in
the “Audit and Risk Committee Reports”. The Board is
confident that it has in place the Rules of Procedure,
internal board policies, time and resources in order to
function effectively and efficiently. Directors have
access to advice and services from the Company
Secretary who is responsible to the Board of Directors
for keeping all statutory minutes and records.

The Board delegates day-to-day responsibility for
running the Company to the Executive Director and
certain responsibilities to various Board committees.

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 2019, the Board of Directors had 10
meetings.

TORM has a one-tier management system in place. This
means that Executive Director Mr. 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.

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
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 line with the Corporate
Governance Code, TORM’s Chairman will be a different
position to any Chief Executive Officer (CEO) or sole
Executive Director appointed from time to time. The
division of responsibilities between the Chairman and
any CEO or sole Executive Director is stated in the
Rules of Procedure for the Board.

All Directors have committed to allocating enough time
to fulfill his/her responsibilities towards the Company.
The non-Executive Directors have undertaken that they
have enough time to carry out their duties. Any
significant commitments of each non-Executive
Director are disclosed to the Board before
appointment. Changes to such commitments are
reported to the Board as they arise, and details of
these commitments are included in the Annual Report.

In addition, TORM plc has four Board Observers who
attend most Board meetings. The Board Observers are
Mr. Lars Bjørn Rasmussen, Mr. Rasmus J. Skaun
Hoffmann (both employee-elected in TORM A/S),
Mr. Jeffrey S. Stein (Deputy Minority Director) and
Ms. Annette Malm Justad, who was appointed at the 14
August 2019 Board meeting.

COMPOSITION OF THE BOARD OF DIRECTORS
Members and attendance at meetings held during 2019

Board of Directors

Mr. Christopher H. Boehringer (Chairman)

Mr. David N. Weinstein (Deputy Chairman and Senior Independent Director)

Mr. Göran Trapp

Mr. Torben Janholt

Mr. Jacob Meldgaard (Executive Director)
Mr. David Weinstein, Mr. Göran Trapp and Mr. Torben Janholt are considered Independent Directors.

Meetings

attended/held

9/10

10/10

9/10

10/10

TORM ANNUAL REPORT 2019

GOVERNANCE INTRODUCTION

CORPORATE GOVERNANCE

All the Company’s Directors are briefed on the duties
they owe as Directors of an English public company
when they join the Board, including their statutory
duties under the Companies Act 2006.

The Directors, with the exception of the B-Director who
is not appointed for a specified term but will continue
until removed by the B-shareholder, all retired and
were re-elected for a period of two years at TORM
plc’s Annual General Meeting on 12 April 2018.
Mr. Christopher H. Boehringer, Mr. Torben Janholt and
Mr. Göran Trapp were all elected for a two-year period
until 2020.

BOARD EVALUATION
In compliance with the Corporate Governance Code,
the Board of Directors conducted a self-evaluation. The
evaluation focused on Board accountability and
composition, the Board’s role in setting strategy, risk
management, cyber security, crisis management,
gender diversity, talent strategy and succession
planning and the effectiveness of the Board
committees. The evaluation is in the form of a survey.
The overall conclusion was that the Board worked well
and continued to function in an open and collaborative
way with a high level of trust and respect. The Board of
Directors agreed that no further follow-up was
required. In addition to the formal Board evaluation, the
Board Chairman scheduled to meet each Non-
Executive Director individually during the year to
discuss their contribution to the Board. The Board will
continue to perform an evaluation on an annual basis.

TORM ANNUAL REPORT 2019

GOVERNANCE INTRODUCTION

CORPORATE GOVERNANCE

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.

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.

Further details on the work in the four committees can
be found in the individual committee reports.

MANAGEMENT STRUCTURE AND DELEGATION
OF AUTHORITY
TORM’s Board sets the strategy of the Company and
ensures that Management operates the business in
accordance with this strategy. Details of the strategy
and purpose are set out in the strategic report on
pages 3-61. 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 by 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 by the Chairman
and ensure that the Board of Directors is subsequently

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. Kim Balle (Chief Financial
Officer - CFO), 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. In December 2018, Mr. Christian Søgaard-
Christensen tendered his resignation as CFO in TORM
A/S; however, he continued his normal duties as CFO
until June 2019, when he left the Company. The
transition period until Mr. Kim Balle joined TORM in
December 2019 was covered by Mr. Jacob Melgaard
CEO, as acting CFO.

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 vehicles
of communication. TORM maintains regular capital

TORM ANNUAL REPORT 2019

GOVERNANCE INTRODUCTION

CORPORATE GOVERNANCE

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.

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.

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

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.

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

STATEMENT OF COMPLIANCE WITH THE UK
CORPORATE GOVERNANCE CODE
This year, TORM is reporting against the 2018 UK
Corporate Governance Code (the Code) available at
www.frc.org.uk. The Code sets out principles to apply
and provisions which operate on a “comply or explain”
basis. TORM’s Corporate Governance Statement is
available at www.torm.com/about-torm.

TORM has considered the individual provisions and is
compliant with 39 out of 41 provisions. TORM is not in
compliance with the provisions outlined below because
of business decisions taken after 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.

• Provision 18 – All directors should be subject to

annual re-election. 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 B-shareholder, who represents
the minority shareholders, can replace the B-
Director at any time. The remaining Directors of
TORM are elected on a bi-annual basis as defined
under the Company’s Articles of Association. The
Board has discussed whether to change to annual
re-election of the remaining Directors, however, to
ensure continued continuity within the Board of
Directors, it has been decided to continue for the
present on a bi-annual basis.

• Provision 32 – The Board should establish a

Remuneration Committee of Independent Non-
Executive Directors, with a minimum membership
of three. In addition, the Chairman of the Board can
only be a member if he was independent on
appointment, and he cannot chair the committee.
The Chairman, Mr. Boehringer, has been appointed
as Chairman of the Remuneration Committee.
However, given his association with the controlling
shareholder and the alignment of interest with
regard to remuneration, the Board believes it to be
appropriate for Mr. Boehringer to chair that
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 2019

GOVERNANCE INTRODUCTION

BOARD OF DIRECTORS

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

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

MR. 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 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: Life Company Consolidation Group
(No 1) Limited, Life Company Consolidation Group (No 2)
Limited and Oaktree Capital Management (International)
Limited.

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 Audit Committee,
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 Seadrill, Ltd., Stone Energy Corporation, Tru Taj
LLC, Deep Ocean Group, Axiall Corporation, The Oneida
Group, Horizon Lines, Inc., Interstate Bakeries Corporation,
Pioneer Companies, Inc. and York Research Corporation and
has served as Managing Director of Calyon Securities Inc., BNP
Paribas, Bank of Boston and Chase Securities Inc.

Mr. 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. Mr. Trapp is
currently involved part time with energy advisory boutique
Energex Partners.

Other Board directorships: Pacific Drilling S.A. and Alex
Brands, Inc.

Other Board directorships: Chairman of Madrague Capital
Partners AB and Board member of Energex Partners Ltd.

TORM ANNUAL REPORT 2019

GOVERNANCE INTRODUCTION

BOARD OF DIRECTORS

MR. TORBEN JANHOLT
Non-Executive Director.

MR. 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, Remuneration Committee and Nomination
Commitee.

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: Board member of Pioneer Marine
Inc. Singapore, Pioneer Marine Hellas S.A., A/S United Shipping
& Trading Company, Bunker Holding A/S and 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).

Mr. 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: Chairman of the Board of Danish
Shipping and Board member of Danish Ship Finance,
SYFOGLOMAD Ltd. and The TORM Foundation.

TORM ANNUAL REPORT 2019

GOVERNANCE INTRODUCTION

AUDIT COMMITTEE REPORT

remit with providing support and guidance to
Management.

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 of TORM A/S as well as the
Company’s independent auditor will normally attend
these meetings by invitation. During 2019, the Audit
Committee met five times. Mr. Göran Trapp and Mr.
David N. Weinstein attended all meetings held in 2019
in person or by telephone. Mr. Torben Janholt attended
all meetings held in 2019 in person. Mr. Christopher H.
Boehringer attended four meetings held in 2019 in
person as an Observer.

MEMBERSHIP
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.
Members of the Audit Committee have the necessary

qualifications and competences relevant to the
shipping sector - please see the members’ biographies
on pages 69-70. The Chairman of the Audit Committee,
Mr. Göran Trapp, has in the judgement of the Board
recent and relevant financial experience in order to
have the ability to make an independent assessment of
the appropriateness of the Company’s financial
statements and internal controls as well as the planning
and execution of the external audit. 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.

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. The Audit Committee
is considered fully independent.

COMPOSITION OF THE AUDIT COMMITTEE
Members and attendance at meetings held during 2019

Committee members

Mr. Göran Trapp (Chairman)

Mr. David N. Weinstein

Mr. Torben Janholt

Meetings

attended/held

5/5

Mr. Göran Trapp
Chairman of TORM’s Audit Committee

CHAIRMAN’S STATEMENT
Dear Shareholder

The Audit Committee is pleased to present its report
for 2019.

The purpose of this report is to describe how the Audit
Committee has carried out its responsibilities during
the year. Overall, the role of the Audit Committee is to
monitor and review the integrity and quality of the
Company’s financial statements, internal controls and
risk management, audit and risk programs, business
conduct and ethics, "whistleblowing" and the
appointment and findings of the independent auditor.

In discharging its duties, the Audit Committee seeks to
balance independent oversight of the matters within its

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

Governance Committees

independence and performance of the appointed
independent auditors.

impairment of USD 120m, as the value in use was
materially higher than the carrying amount.

AUDIT COMMITTEE REPORT

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
relating to the oversight of the quality and integrity of
the accounting, auditing, financial reporting and risk
management of the Company and such other duties as
may from time to time be assigned to the Audit
Committee by the Board and are required by the rules
and regulations of the UK Corporate Governance Code
or any securities exchange on which the Company’s
securities are traded.

The formal role of the Audit Committee is set out in its
Terms of Reference, which are available at
www.torm.com/uploads/media_items/terms-of-
reference-audit-committee.original.pdf.

2019 IN REVIEW
In 2019, the Audit Committee particularly discussed
accounting policies and estimates, including the
quarterly impairment indicator test of the vessels in the
Tanker Segment, the quarterly going concern
statement as well as the treatment and impact of the
revised IFRS standards. Furthermore, the Audit
Committee discussed the internal control environment,
the new finance system, Dynamics 365 Business
Central, and business ethics compliance.

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,

Financial reporting and significant financial
judgements
The principal matter of judgement considered as
significant by the Audit Committee in relation to the
2019 financial statements was the impairment of the
vessels in the Tanker Segment. This issue was
discussed and reviewed with Management and the
independent auditors, and the Audit Committee
challenged judgements and sought clarification where
necessary.

As explained in note 8 to the financial statements on
page 124, it was concluded to record a reversal of

In order to determine whether a cash-generating unit
(CGU) is impaired or a reversal of impairment should
be recorded, Management assesses whether there are
any indicators for impairment or reversal of 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.

Management has assessed that TORM only has one
CGU, because the vessels in the fleet are largely inter-
changeable and the fleet is monitored and managed on
an aggregated level as one unit.

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 2020-2022
are consistent with the long-term planning
assumptions used by the Company.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

AUDIT COMMITTEE REPORT

Further, the Audit Committee discussed with
Management on the freight rates beyond 2022 that are
based on the Company’s 10-year historical average
spot rates adjusted for estimated scrubber premiums
consistent with last year. The Audit Committee was
satisfied with the freight rates applied.

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.

Auditor appointment and tendering
In 2016, TORM plc, which was newly incorporated,
became the holding company of the Group. Deloitte
LLP (UK) has been its independent auditors since then,
with David Paterson acting as audit partner. 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.

The Audit Committee was satisfied that future cash
flows related to operating expenses in the tanker fleet
appropriately reflected current market assessments.

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 124.

Effectiveness
In 2019, the Audit Committee carried out a detailed
self-assessment by way of questionnaire and
discussions facilitated by the Head of Group Finance.
Based on the self-assessment, no material concerns
arose.

Due to UK transitional provisions, TORM plc must
undertake a tender and rotation of the independent
audit appointment at the latest after completion of the
2020 audit. Consequently, the Audit Committee
decided to launch an audit tender process in 2019, with
a view to appointing a new external auditor for the
2020 financial year. This is to facilitate an orderly and
thorough handover from the existing auditor and to
ensure that the new auditor meets all relevant
independence criteria before the commencement of
the appointment. A mixture of big-four and tier-two
firms were invited to tender to ensure a competitive
tendering process. Selection criteria included shipping
experience, audit approach, quality, service and
strength of the team. At the conclusion of the process,
the Audit Committee recommended to the Board of
Directors that Ernst & Young LLP (EY) be appointed as
external auditors with effect from the financial year
ending on 31 December 2020. The Audit Committee
had a reasoned preference for EY based on the agreed
selection criteria.

The Board accepted the Audit Committee’s
recommendation to appoint EY as external auditors,
and a resolution for the appointment of EY will be put
to the shareholders at the 2020 Annual General
Meeting. The Audit Committee monitored the
preliminary transition of the statutory auditor from
Deloitte to EY, including activities to enable EY to
achieve independence by the end of December 2019.
This included the termination of the non-audit services
being provided by EY to TORM, which would be
prohibited when EY becomes the Group’s statutory
auditor. EY confirmed its independence to the Audit
Committee in March 2020.

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 2019, the Audit Committee reviewed and
approved the terms, areas of responsibility and scope
of the 2019 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 2019 and has been
successfully completed at the date of this report.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

AUDIT COMMITTEE REPORT

Auditor quality assessment
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. Having completed
this review, the Audit Committee agreed that the audit
process, independence and quality of the external audit
were satisfactory.

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 independence and objectivity
The Company has policies and procedures in place to
ensure that the independence and objectivity of the
independent auditor are not impaired. These include
restrictions on the types of services which the
independent auditor can provide, in line with the
Ethical Standard published by the UK Financial
Reporting Council (FRC). Details of the services that
the independent auditors cannot be engaged to
perform were provided to the Audit Committee at the
November 2019 Audit Committee meeting.
The policy regarding pre-approval of audit and non-
audit fees will be available on request.

Audit and non-audit fees
Full disclosure of the audit and non-audit fees paid
during 2019 can be found in note 4 to the consolidated
financial statements.

Audit fees:
Non-audit fees:

USD 0.6m
USD 0.1m

TORM ANNUAL REPORT 2019

Fees relating to the provision of non-audit services by
Deloitte amounted to USD 0.1m corresponding to 17%
of the total cost and related primarily to the review of
quarterly statements. 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 must revisit the decision in 2020.
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’s
Management. In the absence of an internal audit
function, internal assurance is achieved through the
work of the Group Internal Control function and PwC
testing of the internal controls. This has not affected
the work of the external audit.

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 2019, the Audit Committee was given a
presentation by the risk management team covering
the enterprise risk management set-up.

The principal risks and uncertainties are outlined in the
“Risk Management” section on pages 33-38.

GOVERNANCE COMMITTEES

AUDIT COMMITTEE REPORT

Internal controls
The Board of Directors fulfills its responsibility
regarding effectiveness of the risk management and
Internal Controls over Financial Reporting (ICFR)
through the Audit Committee. As a result of the US
listing on Nasdaq in 2017, TORM was required to
become compliant with the Sarbanes-Oxley Act (SOX)
resulting in increased regulatory requirements.
Therefore, Management has, together with the Audit
Committee, focused on ensuring that the ICFR meet all
relevant requirements.

The ICFR are based on the Internal Control – Integrated
Framework 2013 issued by the Committee of
Sponsoring Organizations of the Treadway
Commission (COSO), which ensures enabling of best
practice and strong control environment. The oversight
by the Audit Committee includes the recurring
reporting, including management oversight and the
outcome of management testing.

Full details of how the business implements its
enterprise risk management on a Group basis are set
out in the “Risk Management” section on pages 33-38.

Approval
On behalf of the Audit Committee

Mr. Göran Trapp
Chairman of the Audit Committee
11 March 2020

Whistleblowing
The Group’s Whistleblower Policy, which supports the
groupwide Business Principles, is monitored by the
Audit Committee. A copy of the Group’s Business
Principles is available on TORM plc’s website:
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 reported to the Board of Directors as
well as the Audit Committee together with details of
any corrective actions taken. The Audit Committee also
received reports at each Audit Committee meeting
providing details of any fraud losses during the quarter.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

RISK COMMITTEE REPORT

Company’s capital structure with particular focus on
funding and liquidity management.

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.

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
Risk Committee, supported by members of TORM’s
Senior Management, has carried out its duties
effectively and to a high standard in 2019.

MEETINGS
The Risk Committee normally meets no less than three
times a year. The Risk Committee is confident that
three annual meetings enable the Risk Committee to
effectively carry out its responsibilities. The
appropriateness of the frequency is evaluated annually.

Senior Independent Director Mr. David N. Weinstein
attended all Risk Committee meetings in 2019.

COMPOSITION OF THE RISK COMMITTEE
Members and attendance at meetings held during 2019

Committee members

Mr. Göran Trapp (Chairman)

Mr. Christopher H. Boehringer

Mr. Torben Janholt

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
applied consistently throughout the organization, the
appropriateness of the Company’s risk management
and control environment as well as the planning and
execution of the risk management policies and funding
activities. The Risk Committee has access to the
financial and risk management competencies within the
TORM Group and its external advisors. The Risk
Committee is also authorized to seek further external
advice at the Company’s expense, if required.

Meetings

attended/held

3/3

2/3

3/3

Mr. Göran Trapp
Chairman of TORM’s Risk Committee

CHAIRMAN’S STATEMENT
Dear Shareholder

The Risk Committee is pleased to present its report
for 2019.

In 2019, the Risk Committee had special focus on
TORM’s risk and opportunities in relation to the IMO
2020 sulfur regulation and TORM’s preparations for
this regulation. Another special focus area was the
maritime safety threat and the measures taken by
TORM to mitigate the risk following the incidents in the
Strait of Hormuz. Furthermore, the Risk Committee
focused on the risks related to derivatives trading as
well as risks related to strategic decisions around the

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

RISK COMMITTEE REPORT

SUMMARY OF THE ROLE OF THE COMMITTEE
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.

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

The Risk Committee oversees the risk management
processes and reporting of the Company and discusses
relevant risk management policies, capital structure
targets and planned funding initiatives. The Risk
Committee is responsible for providing
recommendations to the Board of Directors with
respect to these targets and initiatives.

The Risk Committee’s Terms of Reference are available
at: www.torm.com/uploads/media_items/terms-of-
reference-risk-committee-6-november-2019-
signed.original.pdf

These measures include: Monitoring of credit lines,
monitoring of compliance with internal mandates and
exposure to financial derivatives.

over a long-term horizon the potential to impact
demand and trading patterns within the refined
products sector due to a reduction of transportation
requirements.

Special focus areas covered during 2019 were:

IMO 2020 sulfur regulation
The Risk Committee together with an external advisor
discussed the drivers behind the IMO 2020 sulfur
regulation and the general maritime industry’s
preparedness and preparations. The Risk Committee
reviewed TORM’s preparations for this regulation
including operational compliance risks such as fuel
availability, documentation and training, vessel and
machinery and communication to seafarers.

Tanker management and self-assessment (TMSA)
TMSA audits are conducted by oil majors and are part
of the vetting process and key for entering into long-
term charters with customers. A central element is the
overall safety performance for employees and
maintaining a high safety awareness throughout TORM.
Having access to long-term charters provides TORM
with flexibility in relation to the employment strategy.
The Risk Committee reviewed feedback from the latest
TMSAs.

Maritime safety threats
The Risk Committee reviewed the status on the safety
threat following the incidents in the Strait of Hormuz.
The Risk Committee evaluated the measures taken by
TORM to assess, manage and mitigate the safety risk.

Review 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.
These policies outline core activities and risks within IT
and insurance and what measures TORM has taken 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 identified critical systems,
increased awareness and established business
continuity plans and emergency plans in case of cyber
incidents.

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.

Disruptive technology risk
During 2019, the Risk Committee followed up on key
indicators assessing the uptake of electric vehicle
technologies in public and commercial transportation
and autonomous vehicles. These technologies have

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

RISK COMMITTEE REPORT

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’s
annual Enterprise Risk Management Report was
approved at the Board of Directors meeting in Q1
2020. TORM’s annual risk assessment is presented in
detail in the “Risk Management” section on pages 33-
38.

Approval
On behalf of the Risk Committee

Mr. Göran Trapp
Chairman of the Risk Committee
11 March 2020

Financial risk management and review of
Financial Policy and FFA and Bunker 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. During
2019, the Risk Committee reviewed TORM’s interest
rate hedging risk to ensure continued alignment with
the Company’s desired risk appetite.

The Risk Committee reviewed TORM’s exposures, the
relevant tolerance levels and appropriate hedging
instruments and subsequently approved the Financial
Policy and the FFA and Bunker Policy that clearly
outline mandates.

Liquidity risk and counterparty risk
The Risk Committee monitored TORM’s current and
forecasted liquidity position and compliance with
financial covenants on borrowing facilities over the
coming 12 months. The Risk Committee performed a
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 and scrubber investments and fleet employment
strategy.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

NOMINATION COMMITTEE REPORT

believes that a gender diverse workforce lead by
gender diverse leaders delivers better performance.
The Nomination Committee supports equal
opportunity in recruitment, career development,
promotion, training and rewards for all employees.

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

SUMMARY OF THE ROLE OF
THE NOMINATION COMMITTEE
It is the responsibility of the Nomination Committee to
regularly review the structure, size and composition
(including the skills, knowledge, experience and
diversity) of the Board of Directors and further to make
recommendations to the Board of Directors with
regard to any changes that may be deemed necessary.
The Nomination Committee will also maintain an
oversight of the operation and effectiveness of the
Board of Directors and the corporate governance and
management of the Company.

In addition, the Nomination Committee considers
succession planning for Directors and the Chief
Executive Officer in the course of its work, considering
the challenges and opportunities facing the Company,
and the skills and expertise needed on the Board of
Directors in the future.

The Nomination Committee also reviews the leadership
needs of the organization, both Executive and Non-
Executive, with a view to ensuring the continued ability
of the organization to compete effectively in the
marketplace.

The Nomination Committee also establishes the
process for conducting the review of the performance
of the Executive Director of the Company.

The Nomination Committee’s Terms of Reference are
available at:
www.torm.com/uploads/media_items/terms-of-
reference-nomination-committee-6-november-
2019.original.pdf

COMPOSITION OF THE NOMINATION COMMITTEE
Members and attendance at meetings held during 2019

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 2019.

The Nomination Committee held two meetings during
the year, which were attended by all members. These
primarily focused on the search for the new CFO,
diversity, succession planning and inclusion.

TORM’s policy for the composition of the Board is to
support diversity in its widest sense. Our Board
members have a diverse range of backgrounds
contributing a wealth of knowledge, understanding and
experience. The Nomination Committee strongly

Committee members

Mr. Christopher H. Boehringer (Chairman)

Mr. Torben Janholt

Mr. David N. Weinstein

Meetings

attended/held

2/2

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

NOMINATION COMMITTEE REPORT

MEETINGS
During 2019, there were two scheduled Nomination
Committee meetings held. The Head of Group Human
Resources attends all meetings and management may
attend where necessary.

ACTIVITIES DURING THE YEAR
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 2019 review
focused on Board accountability and composition. It
also included topics such as setting strategy, risk
management, succession planning, cyber security, crisis
management, gender diversity and talent strategy. No
areas of material concern were highlighted. The Board
will continue to evaluate on an annual basis.

Succession planning
The Nomination Committee approved the succession
plan for TORM. The plan covers 32 key roles on Senior
Vice President, Vice President and General Manager
level as well as four key employees below General
Manager level that could impact the One TORM
strategy and/or are critical to the TORM business.
Please see the Employee section on pages 58-59.

Gender diversity
The Nomination Committee discussed TORM’s
proposed Gender Diversity Policy, which included the
proposed targets for 2020. These detail that the Board
of Directors has set a target of 20% female
representatives on the Board by the end of 2020, and

in addition to have 25% of leadership and 35% of the
shore-based population of the Company to be female
by the end of 2020. Please see the Employee section
on pages 58-59.

New Board Observer
The Nomination Committee initiated a process with an
executive search firm, Heidrick & Struggles, regarding
the proposed selection of a new Board Observer. In
August 2019, Ms. Annette Malm Justad was appointed
by the Board of Directors as a new Board Observer
please see the “The year in review” section on page 11.
In keeping with the guidance provided under the
current UK Corporate Governance Code, Heidrick &
Struggles has no other connection to the Company or
any of its Directors.

New Chief Financial Officer
With the resignation of Christian Søgaard-Christensen
as Chief Financial Officer (CFO), the Nomination
Committee discussed the search for the new CFO of
TORM. Substantial interest was shown to the role, and
subsequently Mr. Kim Balle was appointed as new CFO.

Executive Director Event Management Process
The Nomination Committee discussed and approved
the Executive Director Event Management Process.
This sets out the process to be followed in order to
minimize disruption in the operations of TORM plc in
the eventuality of the resignation, termination, death,
temporary or permanent incapacity or disability, or
other temporary or permanent absence of the
Executive Director.

Review of the Terms of Reference
In accordance with its Terms of Reference, the
Nomination Committee reviewed and reapproved its
Terms of Reference and agreed that no changes were
warranted.

Annual Nomination Committee reviews
The Nomination Committee reviewed the structure,
size and composition of the Board of Directors and its
committees. The Nomination Committee took the
opportunity to review the FRC guidance on Board
effectiveness and made relevant recommendations to
the Board of Directors as deemed required. In addition,
the Nomination Committee evaluated that the Non-
Executive Directors were able to contribute the
required time commitment to discharge their
responsibilities effectively. The Nomination Committee
reviewed developments in UK corporate governance
and shareholder guidance and considered its approach
to the 2018 Code.

Approval
On behalf of the Nomination Committee

Mr. Christopher H. Boehringer
Chairman of the Nomination Committee
11 March 2020

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

and Groups (Accounts and Reports) Regulations 2008
(as amended) (the “Regulations”).

The report is split into two main areas:
• The statement by the Chairman of the

Remuneration Committee

• The annual report on remuneration, see pages 84-

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.

The revised Remuneration Policy, approved by the
shareholders at the Annual General Meeting (AGM) on
12 April 2018, took effect from the date of that meeting.
As of 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.

SUMMARY OF THE ROLE OF THE REMUNERATION
COMMITTEE
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 Chief Executive
Officer offer appropriate incentives to enhance the
Company’s performance.

The Companies Act 2006 requires the auditors to
report to the shareholders on certain parts of the
Directors’ Remuneration Report and to state whether,

COMPOSITION OF THE REMUNERATION COMMITTEE
Members and attendance at meetings held during 2019

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

CHAIRMAN’S STATEMENT
Dear Shareholder

On behalf of the Remuneration Committee, the
Directors’ Remuneration Report is presented in
the following section for the year ended
31 December 2019.

This report describes the activities of the Remuneration
Committee for the period 1 January 2019 to
31 December 2019. It sets out the 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

Committee members

Mr. Christopher H. Boehringer (Chairman)

Mr. David N. Weinstein

Mr. Torben Janholt

Meetings

attended/held

2/2

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

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

remuneration of the Company’s Directors and Chief
Executive Officer

• Ensuring compliance with policies while adhering to

legislative regulations

• Aligning the financial interests of the Chief
Executive Officer 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 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 Chief Executive Officer

MEETINGS
The Chairman and the Executive Director attend
meetings of the Remuneration Committee except for
matters relating to their own remuneration. The Head
of Group Human Resources attends all meetings and
other management may attend where necessary.

ACTIVITIES DURING 2019
Assessment of effectiveness of the Remuneration
Committee
In accordance with its Terms of Reference, the
Remuneration Committee reviewed its own
performance using an internet-based survey. The
questions related to the Remuneration Committee’s
Terms of Reference, composition, duties, meeting
frequency and reporting responsibilities. In addition,
there were questions related to access of information
and material supplied to the Remuneration Committee.
The evaluation concluded that the Remuneration
Committee had worked well and that there were no
action points to follow up on.

Chief Executive Officer’s KPIs
The Remuneration Committee reviewed the Chief
Executive Officer’s personal Key Performance
Indicators (KPIs) for 2019 to ensure alignment with the
Group strategy. There were also discussions related to
the Chief Executive Officer’s performance in 2018 to
adjudicate on bonus outcomes. The Remuneration
Committee assessed the Chief Executive Officer’s
performance against long-term and short-term targets.
The Remuneration Committee has assessed the Chief

Executive Officer’s contribution against his personal
performance measures. As a result, the performance
bonus was calculated at 45% of the yearly salary for
2018. The Chief Executive Officer’s performance bonus
outcomes for 2019 were discussed at the February
2020 meeting. As a result, the performance bonus was
calculated at 117% of the yearly salary for 2019.
Throughout this past year, the Remuneration
Committee maintained the link between pay and
performance and will continue to do so.

Annual Remuneration Committee reviews
The Remuneration Committee reviewed the
Remuneration Policy. The current Policy was
recommended to stay unchanged by the Board of
Directors. The Remuneration Policy is available at
www.torm.com/uploads/media_items/torm-
remuneration-policy-2017.original.pdf.

The Remuneration Committee also reviewed and
reapproved its Terms of Reference and agreed that no
changes were warranted. Additionally, the
Remuneration Committee conducted an in-depth
review of all areas of the Remuneration Committee’s
activities. The Remuneration Committee reviewed
developments in UK corporate governance and
shareholder guidance and considered its approach to
the 2018 Code.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

General discussion
The Remuneration Committee also discussed
organizational health, including key metrics such as
hires, retention and demography.

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.

Restricted share unit allocation for 2019
In line with the continued Long-Term Incentive
Program (LTIP), the Remuneration Committee
discussed and approved the terms of the suggested
2019 Restricted Share Unit (RSU) allocation. The strike
price for the LTIP 2019 allocation was agreed to be the
average of 90 days before publication of the TORM plc
Annual Report 2018 on 12 March 2019. The exercise
period for vested RSUs was discussed, and it was
agreed to be maintained at 360 days.

Board of Directors fees
In accordance with the UK Corporate Governance
Code, levels of remuneration for Non-Executive
Directors should reflect the time commitment and
responsibilities of the role. The Remuneration
Committee took the opportunity to review the Board
and Committee Fees. The Board and Committee fees
were found to be appropriate.

Mr. Christopher H. Boehringer
Chairman of the Remuneration Committee

11 March 2020

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

ANNUAL REPORT ON REMUNERATION
The information provided in the following part of the
Directors' Remuneration Report is subject to audit.

Chief Executive Officer’s remuneration table
(showing single total figure of pay for the year)
The table sets out the 2017-19 remuneration for Mr.
Jacob Meldgaard in his roles as Executive Director of
TORM plc and Chief Executive Officer (CEO) of TORM
A/S, a subsidiary of TORM plc.

Base salary
The CEO’s base salary was reviewed on 6 March 2019
to determine the appropriate salary for the coming
year. Base salary as of 1 January 2018: DKK 6.2m. Base
salary as of 1 January 2019: DKK 6.55m.

The base salary will be discussed and agreed with the
Chairman of the Board and the Remuneration
Committee once a year. The next discussion shall take
place in early 2020 by the Remuneration Committee.
Unless otherwise agreed, any adjustment of the salary
will take effect on 1 January 2020.

MR. JACOB MELDGAARD

2017

2018

2019

Salary and Directors Fees

Taxable benefits

Annual bonus

Annual

Taxable

performance

USD '000

Salary¹

benefits

bonus²

1,004

⁾

1,063

1,041

580
⁾
425

1,126

Chief Executive Officer

Total

1,626

1,531

2,208

Employees

entire group

USD '000

2019

1,041

1,126

2,208

2018

% Change³

% change

1,063

425

1,531

-2%
⁾
-7%

165%

44%

4.6%

0.0%

28.4%

Total
¹
²
³

The total salary consists of both salary as CEO of TORM A/S (USD 962t) and as Executive Director of TORM plc (USD 79t).
The total annual performance bonus arising in the period 1 January 2019 to 31 December 2019 was DKK 7,663,500 (USD 1,126t).
⁾
% Change in DKK for Salary and Directors Fees is 6%, Taxable Benefits is 0% and Annual Bonus is 175%.
⁾
⁾
TORM ANNUAL REPORT 2019

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 2019,
the amount of DKK 276t (USD 41t) 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 2020, changes in allowances and benefits are not
expected.

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

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

Performance bonus 2019
The Remuneration Committee has provided the CEO
with a performance cash bonus for the financial year
2019 in the following ranges and based upon the
following parameters:

Performance bonus 2020
The Remuneration Committee has provided the CEO
with a performance cash bonus for the financial year
2020 in the following ranges and based upon the
following parameters:

• The fulfilment of specific performance metrics set
by the Company (up to 50% of the CEO’s base
salary)

• The weighted average Price to Net Asset Value

ratio of the Company’s shares versus peers (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 above parameters have been determined by the
Remuneration Committee.

Based on the specific measure and calculation
methodology for each of the above parameters, the
CEO’s performance cash bonus for 2018 was
determined to be a total of 45% (25% on parameter 1
and 20% on parameter 3) of the 2018 fixed annual
salary of DKK 6.2m, resulting in an amount of DKK 2.8m
(USD 425t). The detail of the targets are closely linked
to the internal strategy and are therefore considered
by the Board to be commercially sensitive. The Board
will continue to keep the approach to disclosure under
review.

• The fulfilment of specific performance metrics set
by the Company (up to 70% of the CEO’s base
salary)

• Up to 50% 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 2019 for the CEO is equal to 120% of
the CEO’s base salary in the financial year 2019. The
specific metrics and calculation methodology for each
of the parameters have been determined by the Board
of Directors.

In aggregate, the maximum achievable cash bonus for
the financial year 2020 for the CEO is equal to 120% of
the CEO’s base salary in the financial year 2020. The
specific metrics and calculation methodology for each
of the parameters have been determined by the Board
of Directors.

Based on the specific measure and calculation
methodology for each of the above parameters, the
CEO’s performance cash bonus for 2019 was
determined to be a total of 117% (67% on parameter 1
and 50% on parameter 2) of the 2019 fixed annual
salary of DKK 6.55m, resulting in an amount of DKK
7.7m (USD 1,126t). The detail of the targets are closely
linked to the internal strategy and are therefore
considered by the Board to be commercially sensitive.
The Board will continue to keep the approach to
disclosure under review.

Long-Term Incentive Program – Restricted Share
Units granted
In accordance with its Remuneration Policy, TORM has
granted the CEO a number of Restricted Share Units
(RSUs), which was communicated in company
announcement no. 2 dated 18 January 2016. A further
communication, announcement no. 10 issued on 25
April 2018, detailed changes to the grant of RSUs, as
agreed to at the AGM on 12 April 2018. There are no
performance conditions associated with this grant
of RSUs.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

The original RSUs granted to the CEO in 2016
amounted to 1,276,725 and vested over a five-year
period, with one fifth of the grant amount vesting at
each anniversary during the five-year period. The
exercise price for the 2016 RSUs were DKK 96.3. As of 1
January 2017, one fifth of the original grant, amounting
to 255,345, vested with an exercise period ending 31
December 2017. None of these RSUs were exercised.
As of 1 January 2018, one fifth of the original grant,
amounting to 255,345, vested with an exercise period
ending 31 December 2018. None of these RSUs were
exercised.

As detailed in announcement no. 10 issued on 25 April
2018, the CEO was granted a total of 766,035 RSUs
with effect as of 1 January 2018, which will vest in equal
installments over the next three years. The RSU grant
corresponds to the unvested portion (60%) of the
CEO’s original five-year grant from 2016. It has been
agreed that the CEO will not exercise the original RSUs.
The exercise price for each RSU is DKK 53.7,
corresponding to the average price of TORM shares
during 90 calendar days preceding the approval at
TORM plc’s AGM on 12 April 2018 plus a 15% premium.
Vested RSUs may be exercised for a period of 360
days from each vesting date. As of 1 January 2019, one
fifth of the grant, amounting to 255,345, vested with an
exercise period ending 31 December 2019. These RSUs
amounting to one third of the re-grant issued on
25 April 2018 were exercised. In November 2019,
255,345 RSUs were exercised by Executive Director
Mr. Jacob Meldgaard.

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 and 25 April 2018).

The value of the 2018 grant, USD 0.9m, is estimated
taking into account that the CEO as part of the grant
will not exercise the unvested portion of the 2016
grant. The valuation is based on the Black-Scholes
model with an exercise price of DKK/share 53.7, a
market value of one TORM A-share of DKK 49.5 (the
closing price per A-share at the time of allocation and
assuming 100% vesting).

The single figure remuneration table for the CEO does
not include any amounts in relation to the RSU awards
since, as of the date each tranche vested, the
Company’s share price was less than the exercise price.

three years beginning 1 January 2023. The strike price
for each tranche will be determined as the average of
90 days before publication of the TORM plc Annual
Report plus a 15% premium. The first tranche will be
based on the publication of the Annual Report 2020
and the second tranche on the publication of the
Annual Report 2021. The exercise period for vested
RSUs will be 360 days.

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 Mr. Jacob Meldgaard's remuneration package 2018

grant¹

per share

100% vesting

RSU LTIP

Exercise price

value assuming

RSU grant

LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 10 of 25 April 2018. Therefore there is no minimum or
maximum for 2018.

766,035

⁾

DKK 53.7

USD 0.9m

Mr. Jacob Meldgaard
¹

⁾

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

Remuneration table Non-Executive Directors.
The 2019 remuneration table sets out the remuneration
paid to the Non-Executive Directors of the Company in
2019. Therefore, fees shown include any additional fees
paid in respect of chairmanships of committees or
other roles such as Senior Independent Director.

Statement of Directors’ shareholding and share
interest
The table to the right summarizes the total interests of
the Directors in shares of TORM plc as of 31 December
2019. No changes took place in the interests of the
Directors between 31 December 2019 and 11 March
2020.

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 2019, none of the Non-Executive
Directors received any part of their compensation in
shares or warrants. The table to the right summarizes
the Restricted Share Units awarded to the Executive
Director.

2019 REMUNERATION TABLE NON-EXECUTIVE DIRECTORS

USD '000

Director

Base fee

Committee Fees

Total

2019

2018

2017

2019

2018

2017

2019

2018

2017

Mr. Christopher H. Boehringer

168

172

174

Mr. David Weinstein

Mr. Göran Trapp

Mr. Torben Janholt

113

114

116

104

116

252

276

290

198

182

174

113

114

116

170

171

174

113

114

116

170

171

174

2019 STATEMENT OF DIRECTORS’ SHAREHOLDING AND SHARE INTEREST

DIRECTOR

Mr. Christopher H. Boehringer

Mr. David Weinstein

Mr. Göran Trapp

Mr. Torben Janholt

Mr. Jacob Meldgaard
¹

The above table shows, in relation to each Director, the total number of share interests.

⁾

Changes from

Ordinary

31 Dec 2019

Ordinary

shares as of 1

shares as of

to 11 Mar

shares as of

Jan 2019

31 Dec 2019

2020

11 Mar 2020

21,204

5,000

12,820

6,526

255,411

21,204

5,000

12,820

6,526

255,411

2019 STATEMENT OF EXECUTIVE DIRECTOR’S RESTRICTED SHARE UNIT HOLDINGS

Restricted Share Units

2016

2017

2018

2019

Vested

Agreed

not

not to

Awarded

exercised

exercise Exercised Unvested

1,276,725

255,345

766,035

255,345

766,035

- 1,276,725

1,021,380

766,035

255,345

510,690

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

Total pension entitlements
The Directors of TORM plc do not receive any pension
from the Company. In addition, Denmark-based
Executive Director Mr. Jacob Meldgaard, in his role as
CEO of TORM A/S, does not receive any pension.

Taxable benefits
Non-Executive Directors Mr. Torben Janholt and Mr.
David Weinstein both received benefits in the form of
tax consultancy assistance amounting to £7,250 each.
In general, members of the Board of TORM plc do not
receive any additional benefits.

Payments for loss of office
No payments for loss of office have been made in 2019.

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

The graph shows the Company’s performance since
the listing of TORM plc, measured by total shareholder
return, compared with the average of a selection of the
Company’s main peers in the industry and with the
performance of the Danish stock index KAX. The KAX
index is a market cap weighted index of all stocks listed
on Nasdaq in Copenhagen. The total shareholder return
is calculated in USD.

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

Mr. Jacob Meldgaard

Total remuneration (single figure)

2019

2,208

Annual bonus (% earned of base salary)
LTIP has not been disclosed in this table. The CEO only receives Restricted Share Units (RSUs) with no performance conditions.

117.0%

2018

1,531

45.0%

2017

1,626

60.0%

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

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

2018 - 2019 in %

Chief Executive Officer

USD ('000)

% Change³

Average %
⁾

change

Salary¹

Benefits²

1,041

⁾
-2%

41
⁾
-7%

Bonus

1,126

165%

4.6%

0.0%

28.4%

Employees entire group
¹
²
³

The comparative figures used to determine the % change take into consideration the CEO's salary and benefits.
Other benefits provided directly relate to company car benefit.
⁾
% Change in DKK for Salary and Directors Fees is 6%, Taxable Benefits is 0% and Annual Bonus is 175%.
⁾
⁾
The table above shows the average percentage year-on-year change in base salary, benefits and annual bonus in
2018 for the Chief Executive Officer compared to the entire Group’s employees.

Managing executive pay
TORM intends to focus on the relationship between
executive pay and the wider workforce in the period
ahead and develop further the disclosure on this topic.

Outside appointments
The Executive Director is entitled to retain the fees
earned from non-executive appointments outside the
Company. Jacob Meldgaard was appointed as a Non-
Executive Director of Danish Ship Finance A/S for
which he received DKK 350,000 and as a Non-
Executive Director of SYFOGLOMAD Limited for which
he received Euro 5,000 for his services during 2019.

RELATIVE IMPORTANCE OF SPEND ON PAY

Expenditure USDm

Dividends paid

Purchase of outstanding treasury shares in TORM A/S

Purchase/disposals of treasury shares

Total

Staff costs

Retained earnings

2019

2018

2017

1.2

45.8

46.2

43.8

920.0

752.0

786.0

The table above shows the actual expenditure of the Group for employee pay and distributions to shareholders
compared to the retained earnings of the Group.

RESPONSE TO 2019 AGM SHAREHOLDER VOTING

Vote

Vote on 2019 implementation report

In % of eligible votes

For

Against

Abstain

52,355,637

163,629

70.8%

0.2%

0.0%

The table above shows the response to the 2019 AGM shareholder voting.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

REMUNERATION COMMITTEE REPORT

Statement of voting at General Meeting
The Remuneration Policy was approved at the 2018
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 for the Remuneration
Committee can be found at
www.torm.com/uploads/media_items/terms-of-
reference-remuneration-committee-6-november-2019-
1.original.pdf

Approval of TORM plc Remuneration Report for 2019
This report was approved by the Board of Directors on
11 March 2020 and signed on its behalf by:

Mr. Christopher H. Boehringer
Chairman of the Remuneration Committee
11 March 2020

REMUNERATION POLICY
The TORM plc Remuneration Policy approved at the
2018 AGM remains unchanged. In accordance with the
Corporate Governance Code, TORM’s Remuneration
Policy and practices are designed to support business
strategy and promote the Company’s long-term
sustainable success. 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 Remuneration Policy more often
than every third year, 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 and will
contain information on remuneration paid to the Board
of Directors and Executive Management.

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

The Board of Directors has adopted the Remuneration
Policy.

TORM ANNUAL REPORT 2019

GOVERNANCE COMMITTEES

INVESTOR INFORMATION

SHARE INFORMATION

Exchanges

ISIN (CPH)

CUSIP (NY)

Tickers

Year high (TRMD A)

Year low (TRMD A)

Number of shares (31 Dec. 2019)

Number of treasury shares

Nasdaq CPH and NYC

GB00BZ3CNK81

G89479102

TRMD A and TRMD

DKK 74.6 (23 Dec.)

DKK 40.5 (30 Jan.)

74,748,248

312,871

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 2019, TORM issued a total of 24 announcements to
the stock exchange. These announcements are
available in both Danish and English versions on:
https://investors.torm.com/announcements/releases
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 generally no individual investor meetings are held
in that period.

SHARE PRICE PERFORMANCE
In 2019, TORM had an average of 74,272,711 A-shares
outstanding. The average daily trading volume on
Nasdaq in Copenhagen has been approximately 94t
shares and approximately 1t shares on Nasdaq in New
York. During 2019, the share price increased from DKK
43.9 to DKK 74.5 on Nasdaq in Copenhagen and from
USD 5.9 to USD 10,8 on Nasdaq in New York.
Throughout 2019, TORM has been part of the MidCap
segment on Nasdaq in Copenhagen.

SHAREHOLDERS
As of 31 December 2019, TORM had approximately
8,800 registered shareholders representing
approximately 97% of the share capital.

In compliance with the UK Disclosure Guidance and
Transparency Rules, the following shareholders have
reported to TORM that they own more than 3% of the
share capital based on outstanding shares as of the
release of the Annual Report:

• OCM Njord Holdings S.à r.l. (Oaktree) (65%)
• DW Partners, LP (5%)

CHANGES TO THE SHARE CAPITAL
As of 31 December 2018, TORM plc’s total share capital
was 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.

As of 31 December 2019, TORM’s treasury shares
represented approximately 0.4% 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.

As of 31 December 2019, TORM plc’s total share
capital was USD 747,482.50 consisting of 74,748,248
A-shares of USD 0.01 each, one B-share and one C-
share both of USD 0.01. During 2019, TORM has
increased its share capital by 529,402 A-shares as a
result of a corresponding number of Restricted Share
Units being exercised. The increase includes the
issuance of 255,345 A-shares to TORM plc’s Executive
Director, Jacob Meldgaard.

At the end of 2019, the members of the Board of
Directors held a total of 300,961 shares, equivalent to a
total market capitalization of DKK 22,421,595 or USD
3,358,531. 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, USA.

TORM ANNUAL REPORT 2019

OTHER

Other

INVESTOR INFORMATION

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.

While TORM also generated a profit for the first six
months of 2019, the Board of Directors considered the
benefit of the Company’s combined shareholder and
stakeholder base and decided at that time that the
continued modernization of the fleet through
newbuildings, purchase of modern second-hand
tonnage and scrubber installations provided for the
optimal capital allocation, and therefore a decision not
to distribute dividends for the first six months of 2019
was taken.

DUAL LISTING AND TRADING
TORM’s A-shares are listed on Nasdaq in Copenhagen
under the ticker TRMD-A and on Nasdaq in New York
under the ticker TRMD. TORM’s A-shares can move
freely between the two Nasdaq exchanges.

WARRANTS AND RESTRICTED SHARE UNITS
As of 31 December 2019, 4,701,864 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 95.2. The warrants can be exercised until 13 July
2020. The warrants are not publicly listed but can be
transferred by submitting a warrant transfer notice to
the Company. The warrant transfer notice is available
on: https://investors.torm.com/shareholders/warrant-
transfer-form

During 2019, TORM has upon request from certain
warrant holders cancelled 10,089 warrants.

In accordance with TORM’s Remuneration Policy, the
Board of Directors has as part of the Long-Term
Incentive Program (LTIP) granted certain employees
Restricted Share Units (RSUs) in the form of restricted
stock options. The RSUs aim at retaining and
incentivizing the employees to seek to improve the
performance of TORM and thereby the TORM share
price for the mutual benefit of themselves and TORM’s
shareholders. Each RSU granted under the LTIP entitles
its holder to acquire one Class A common share,

subject to vesting. Below is a description of the RSUs
that have not expired without exercise.

In 2016, the Board agreed to grant 1,276,725 RSUs to
the Executive Director. The RSUs were subject to a
five-year vesting period, with one fifth of the grant
amount vesting at each anniversary date beginning on
1 January 2017. Following certain adjustments for
dividends, the exercise price of each vested RSU is
DKK 93.6, and the exercise period is one year.

In 2017, the Board agreed to grant a total of 866,617
RSUs to other management. The RSUs were subject to
a three-year vesting period, with one third of the grant
amount vesting at each anniversary date beginning on
1 January 2018. The exercise price of each vested RSU
is DKK 93.6, and the exercise period is six months.

In 2018, the Board agreed to grant a total of 944,468
RSUs to other management and an additional 766,035
RSUs to the Executive Director. The RSUs to both
other management and the Executive Director were
subject to a three-year vesting period, with one third of
the grant amount vesting at each anniversary date
beginning on 1 January 2019. The exercise price of each
vested RSU is DKK 53.7, which corresponds to the daily
average closing price on Nasdaq in Copenhagen across
90 calendar days before the date of the General
Meeting on 12 April 2018 plus a premium of 15%. Vested
RSUs may be exercised for a period of 360 days after
each vesting date. The grant to the Executive Director
represented the unvested portion, or approximately

TORM ANNUAL REPORT 2019

OTHER

INVESTOR INFORMATION

60%, of the RSUs that he was granted in 2016, which
were subject to a five-year vesting period, and which
Mr. Meldgaard has agreed not to exercise.

On 19 March 2019, TORM announced a grant of a total
of 873,450 RSUs to certain employees. The RSUs were
subject to a three-year vesting period, with one third of
the grant amount vesting at each anniversary date
beginning on 1 January 2020. The exercise price of
each vested RSU is DKK 49.7, which corresponds to
the average of 90 calendar days preceding the
publication of TORM plc’s 2018 Annual Report plus a
15% premium. Vested RSUs may be exercised for a
period of 360 days after each vesting date. In
connection with the appointment of CFO Kim Balle, an
additional 127,600 RSUs were granted on similar terms.

of USD 4.3m iii) outstanding debt of USD 863m, iv)
outstanding newbuilding installments of USD 51m, v) a
cash position of USD 72m, vi) other current assets of
USD 148m and vii) current liabilities of USD 96m. Based
on 74,435,377 outstanding A-shares, excluding
treasury shares as of 31 December 2019, this
corresponds to a NAV/share of USD 13.6 or DKK 91.1.

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

ANALYST COVERAGE

Carnegie Investment Bank
Mr. Dan Togo Jensen
Phone: +45 3288 0245
Email: dan.togo@carnegie.dk

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

INVESTOR RELATIONS CONTACT

Mr. Morten Agdrup, Vice President,
Head of Corporate Finance & Strategy
Phone: +45 3917 9249
Email: ir@torm.com

As of 31 December 2019, 2,228,230 RSUs were
outstanding, and zero of the 2016 and 2017 RSUs had
been exercised. 529,402 of the 2018 RSUs were
exercised during 2019.

Mr. Mark Poulsen, Investor Relations
Phone: +45 3917 9244
Email: ir@torm.com

Based on the Black-Scholes model, the theoretical
market value of the RSU allocations in 2016, 2017, 2018
and 2019 around the time of issuance was calculated at
USD 5.0m, USD 1.0m, USD 2.3m and USD 1.7m,
respectively.

NET ASSET VALUE
TORM’s net asset value (NAV) as of 31 December 2019
is estimated at USD 1,016m based on i) broker values of
USD 1,802m, ii) Other plant and operating equipment

FINANCIAL CALENDAR 2020

15 April 2020, Annual General Meeting

14 May 2020, First quarter 2019 results

17 August 2020, First half 2019 results

11 November 2020, Nine months 2019 results

Evercore ISI
Mr. Jonathan B. Chappell
Phone: +1 212-497-0827
Email: jonathan.chappell@evercoreisi.com

Fearnley Securities
Mr. Espen L. Fjermestad
Phone: +47 2293 6484
Email: e.fjermestad@fearnleys.no

Skandinaviska Enskilda Banken AB
Mr. Ulrik Bak
Phone: +45 3328 3314
Email: ulrik.bak@seb.dk

TORM ANNUAL REPORT 2019

OTHER

DIRECTORS’ REPORT

The Directors are pleased to present the Annual Report
on the affairs of the TORM Group for 2019, including
the financial statements and the auditor’s report.
Details on the Directors’ responsibilities are available in
the Directors Responsibility Statement on page 98-99.

ANNUAL GENERAL MEETING
TORM’s next Annual General Meeting (AGM) will be
held on 15 April 2020. The notice of the AGM including
the complete proposals will be available on TORM’s
website www.torm.com prior to the meeting.

Other disclosure requirements, which form part of the
Directors’ Report, are included in other sections of this
Annual Report. Details on information incorporated by
reference are generally set out under the relevant
topics in the Directors’ Report. For TORM’s Going
Concern Statement and Viability Statement, please see
the “Financial Review” section on page 39-48. For
details on any significant events after 31 December
2019, please refer to note 2 on page 117. Details on
financial risks are provided in note 20 of the financial
statements on page 134-137. TORM’s S172 statement
can be found on page 61.

DIVIDENDS
The Board of Directors has decided to recommend a
dividend of USD 7.4m, equivalent to USD 0.10 per
share, for approval at the AGM on 15 April 2020. Should
the dividend be approved, payment is expected on 6
May 2020 with ex-dividend date on 17 April 2020. In
addition, the Board has decided to conduct share
repurchases up to a maximum of USD 1.4m during the
first six months of 2020 in open-market transactions on
Nasdaq in Copenhagen. The total distribution of up to
USD 8.8m is in line with the Company’s Distribution
Policy and corresponds to a maximum of 50% of net
income adjusted for the impairment reversal of USD
120m for the six months ended 31 December 2019.

DIRECTORS
Information on TORM’s Board of Directors as of 11
March 2020 is available on page 69-70.

DIRECTORS’ INTERESTS
The interests (in shares of the Company or calculated
equivalents) of the Directors in office at the end of the
year can be found in the “Remuneration Report” on
page 81-90.

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 the Exchange
Offer documentation related to the Corporate
Reorganization.

RETIREMENT, REAPPOINTMENT AND APPOINTMENT
OF DIRECTORS
In line with the Company’s Articles of Association on
file at Companies House, apart from the B-director,
each director must retire at the end of the second AGM
after his appointment or last reappointment unless he
has been reappointed at that AGM. The Company’s
Directors were reelected at the 2018 Annual General
Meeting and will therefore be due to retire in 2020.

The Terms and Conditions of appointment of Non-
Executive Directors are set out in the Memorandum of
Terms and Conditions with the Company which, in
accordance with Companies Act 2006, Chapter 5,
Section 228, is available for inspection from the
Company Secretary.

SHARE CAPITAL
TORM’s share capital amounts to USD 747,606.55
divided into 74,760,653 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 74,760,653 votes are attached to the
A-shares. Only the A-shares are admitted to trading
and official listing on Nasdaq in 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 first time at which OCM Njord
Holdings S.à r.l. Oaktree and its affiliates cease to
beneficially own at least one third of the issued shares),
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.

TORM ANNUAL REPORT 2019

OTHER

DIRECTORS’ REPORT

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 case of a Reserved Matter action, if
the B-Director did not approve such action or attend
the relevant Board meeting, such action is approved by
a shareholder resolution approved by at least 70% of
the votes capable of being cast on such Reserved
Matter action.

Until the Threshold Date, 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 if Oaktree 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 described in the “Investor
information” section on page 91-93.

www.torm.com/uploads/media_items/articles-of-
association-15-march-2016.original.pdf

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:

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 AGM on 15 March
2016 (2016 AGM), the Board of Directors was 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

TORM ANNUAL REPORT 2019

OTHER

DIRECTORS’ REPORT

• Up to an aggregate nominal amount of USD

1,372,283 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 from 1 January 2019 to 31
December 2019, 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 was issued from 1
January 2019 to 31 December 2019, leaving a
current authority to issue up to 247,702,600 A-
shares)

approximately 9% of TORM's share capital excluding
treasury shares.

All of the above share authorities expire on 14 March
2021 and the Board of Directors will be seeking new
authorities at the 2020 AGM.

Details of TORM’s employee share schemes and any
rights attached to the shares under these schemes are
set out on page 94-95 of the Directors Remuneration
Report. Details of the warrants issued by TORM giving
the right to buy A-shares are set out in the “Investor
information” section on page 91-93.

The U.K. Takeover Code, issued and administered by
the U.K. Takeover Panel, applies to the Company.

• 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
10,011 nominal value was used for the grant of
Restricted Share Units during the period from 1
January 2019 to 31 December 2019, leaving a
current authority to issue up to 78,272,950 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 from 1
January 2019 to 31 December 2019, leaving a current
authority to purchase up to 6,548,542 A-shares or

POLITICAL DONATIONS
No political donations were made during 2019.

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
page 134-137.

RESEARCH AND DEVELOPMENT
The Company has 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 USA. Further
details on the Company's global presence is set out on
page 30.

SIGNIFICANT SHAREHOLDINGS
Details on significant shareholdings are set out in the
“Investor Information” section on page 91-93.

CONTROLLING SHAREHOLDER
TORM’s controlling shareholder, Oaktree, owns TORM
plc’s sole C-share, which carries 350,000,000 votes at
the general meeting in respect of Specified Matters,
including election of members to the Board of
Directors of TORM plc (including the Chairman, but
excluding the Deputy Chairman) and certain
amendments to the Articles of Association.

OTHER INFORMATION INCLUDED
IN THE STRATEGIC REPORT
The “Strategic Report” set out on page 3-61 provides a
review of TORM’s operations in 2019 and the potential
future developments of those operations. Details on
greenhouse gas emissions are included in the
“Strategic Report” on page 53, and details on TORM’s
general policy relating to recruitment, training, career
development and disabled employees are included on
page 58-59.

Please refer to page 61 for information on how the
Directors have had regard to the need to foster the

TORM ANNUAL REPORT 2019

OTHER

DIRECTORS’ REPORT

Company’s business relationship with suppliers,
customers and other stakeholders.

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

STATEMENT BY THE DIRECTORS IN PERFORMANCE
OF THEIR STATUTORY DUTIES IN ACCORDANCE
WITH S172(1) COMPANIES ACT 2006
To see the full statement, please see the “Strategic
Report” on page 61.

REQUIREMENTS TO THE LISTING RULES
TORM plc is listed on Nasdaq in 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 of the
UK Companies Act, including provisions for EEA-listed
companies.

RECENT DEVELOPMENTS AND POST-BALANCE
SHEET EVENTS
To see post-balance sheet events, please see the
subsequent events disclosed under note 2 on page 117.

• 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.

Mr. Christopher H. Boehringer
Chairman of the Board of Directors
11 March 2020

TORM ANNUAL REPORT 2019

OTHER

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for preparing the Annual
Report and the 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 applicable UK Accounting Standards

have 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
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 and Article 4 of the IAS Regulation
and have elected to prepare the parent company
financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable
law), including FRS 101 “Reduced Disclosure
Framework”. Under company law, the Directors must
not approve the accounts 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 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 ability to

continue as a going concern

TORM ANNUAL REPORT 2019

OTHER

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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 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
United Kingdom 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:

This responsibility statement was approved by the
Board of Directors on 11 March 2020 and is signed on
its behalf by:

• The financial statements, prepared in accordance
with the relevant financial reporting framework,
give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company
and the undertakings included in the consolidation
taken as a whole

• The Strategic Report includes a fair review of the

development and performance of the business and
the position of the Company and the undertakings
included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face

• The annual report and financial statements, taken as
a whole, are fair, balanced and understandable and
provide the information necessary for shareholders
to assess the Company’s position and performance,
business model and strategy

Mr. Jacob Meldgaard
Executive Director
11 March 2020

TORM ANNUAL REPORT 2019

OTHER

FINANCIAL
STATEMENTS

FINANCIAL STATEMENTS 2019

PARENT COMPANY FINANCIAL STATEMENTS
Parent Company 2019
Balance Sheet
Changes in Equity
Notes to Parent Financial Statements

OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM

101
101
102
103
105
106

143
144
145
146

151
157
160

TORM ANNUAL REPORT 2019

OTHER

100

CONSOLIDATED INCOME STATEMENT
1 JANUARY-31 DECEMBER

CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
1 JANUARY-31 DECEMBER

USD '000

Revenue

Note

2019

2018

2017

USD '000

692,610

635,366

656,991

Net profit/(loss) for the year

2019

2018

2017

166,022

-34,779

2,407

Port expenses, bunkers and commissions

-267,739 -283,018

-259,888

-2,506

-8,517

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 and reversal of impairment

3 -172,983 -180,443 -188,374

Items that may be reclassified to profit or loss:

1,180

752

2,762

Exchange rate adjustment arising from translation of

3, 4

-47,724

-47,826

-45,007

entities using a functional currency different from USD

426

-316

240

-2,911

-1,963

-422

189

-418

Fair value adjustment on hedging instruments

-13,289

-6,748

9,181

Fair value adjustment on hedging instruments transferred

to income statement

1,284

-307

-2,262

on tangible assets

Depreciation

6, 8, 23 114,004

-3,249

-3,572

6,7 -110,124

-114,480

-114,451

Items that may not be reclassified to profit or loss:

Remeasurements of net pension and other post-retirement

Operating profit/(loss) (EBIT)

205,891

2,822

39,529

benefit liability or asset

-82

-48

120

Financial income

Financial expenses

2,796

3,302

4,255

Other comprehensive income/(loss) after tax ¹

-11,661

-7,419

7,279

-41,881

-39,345

-40,601

Total comprehensive income/(loss) for the year

⁾

154,361

-42,198

9,686

Profit/(loss) before tax

166,806

-33,221

3,184

Tax

-784

-1,558

-777

No income tax was incurred relating to other comprehensive income/(loss) items due to the Danish tonnage tax
scheme.

⁾

Net profit/(loss) for the year

166,022

-34,779

2,407

EARNINGS PER SHARE

Basic earnings/(loss) per share (USD)

Diluted earnings/(loss) per share (USD)

2.24

-0.48

0.04

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

101

Consolidated Financial Statements

Note

2019

2018

USD '000

Note

2019

2018

CONSOLIDATED BALANCE SHEET
AS OF 31 DECEMBER

USD '000

ASSETS

NON-CURRENT ASSETS

Tangible fixed assets

Land and buildings

EQUITY AND LIABILITIES

EQUITY

Common shares

Share premium

Treasury shares

6,7

8,127

Vessels and capitalized dry-docking

6,7,8,16 1,674,795 1,396,558

Prepayments on vessels

Other plant and operating equipment

Total tangible fixed assets

Financial assets

Investments in joint ventures

Loan receivables

Other investments

Total financial assets

95,003

45,491

Hedging reserves

4,256

2,973

Translation reserves

1,782,181 1,445,022

1,169

4,617

Retained profit

Total equity

LIABILITIES

NON-CURRENT LIABILITIES

Deferred tax liability

5,787

Borrowings

Total non-current liabilities

Total non-current assets

1,787,968 1,445,098

CURRENT ASSETS

Bunkers

Freight receivables

Other receivables

Prepayments

34,837

39,404

89,830

85,997

6,168

3,468

7,488

2,855

Cash and cash equivalents, including restricted cash

72,483

127,361

Current assets, excluding assets held for sale

206,786

263,105

Assets held for sale

Total current assets

TOTAL ASSETS

9,127

6,197

215,913

269,302

2,003,881 1,714,400

CURRENT LIABILITIES

Borrowings

Trade payables

Current tax liabilities

Other liabilities

Deferred income

Total current liabilities

Total liabilities

TOTAL EQUITY AND LIABILITIES

747

742

101,289

97,092

-2,887

-11,751

330

254

-96

919,959

752,106

1,007,687

847,211

44,901

44,909

7,15,16,18

756,352

655,164

801,253

700,073

7,15,16,18

99,025

94,422

47,120

35,122

1,476

1,010

14,18

47,316

36,503

194,941

167,116

996,194

867,189

2,003,881 1,714,400

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

102

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

Mr. Jacob Meldgaard, Executive Director, 11 March 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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

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

Effect as of 1 January 2018 of new IFRS standards implemented

Adjusted equity as of 1 January 2018

Comprehensive income/loss for the year:

Net profit/(loss) for the year

Other comprehensive income/(loss) for the year ²

Total comprehensive income/(loss) for the year

⁾

Capital increase

Transaction costs capital increase

Share-based compensation

Total changes in equity 2018

Equity as of 31 December 2018

Common

Treasury

Hedging

Translation

Retained

premium

shares ¹

reserves

profit

Total

623

119

99,880

-2,788

119

97,092

-2,887

⁾

390

-20

782,472

780,578

6,919

240

6,919

240

2,407

120

2,527

146

1,880

-1,240

3,313

2,407

7,279

9,686

146

1,880

-1,240

10,472

-2,887

7,309

220

785,785

791,050

-878

-2,887

7,309

220

784,907

790,172

-7,055

-34,779

-316

-48

-7,419

-34,827

-42,198

2,026

99,999

-2,788

2,026

-7,055

-316

-32,801

57,039

742

97,092

-2,887

254

-96

752,106

847,211

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

103

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY-31 DECEMBER

USD '000

Equity as of 1 January 2019

Comprehensive income/(loss) for the year:

Net profit/(loss) for the year

Other comprehensive income/(loss) for the year ²

Total comprehensive income/(loss) for the year

⁾

Capital increase

Share-based compensation

Total changes in equity 2019

Equity as of 31 December 2019

¹
²

Please refer to note 13 for further information on treasury shares.
Please refer to "Consolidated Statement of Comprehensive Income".
⁾
⁾

Common

Treasury

Hedging

Translation

Retained

premium

shares ¹

reserves

profit

Total

742

97,092

-2,887

⁾

254

-96

752,106

847,211

4,197

-12,005

426

166,022

-82

-11,661

165,940

154,361

1,913

4,202

1,913

-12,005

426

167,853

160,476

747

101,289

-2,887

-11,751

330

919,959

1,007,687

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

104

CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY-31 DECEMBER

USD '000

Note

2019

2018

2017

USD '000

Note

2019

2018

2017

CASH FLOW FROM OPERATING ACTIVITIES

CASH FLOW FROM INVESTING ACTIVITIES

Net profit/(loss) for the year

166,022

-34,779

2,407

Investment in tangible fixed assets

-384,349

-202,439

-145,112

Reversals:

Profit from sale of vessels

Depreciation

-1,180

-752

-2,762

Investments in joint ventures

Sale of tangible fixed assets

-275

61,801

26,847

31,382

6 110,124

114,480

114,451

Net cash flow from investing activities

-322,823 -175,592

-113,730

Impairment losses and reversal of impairment

losses on tangible assets

6, 8, 23 -114,004

3,249

3,572

Share of profit/(loss) from joint ventures

422

-189

-3

Financial income

Financial expenses

Tax expenses

Other non-cash movements

-2,796

-3,302

-4,255

41,881

39,345

40,601

784

925

1,558

2,039

777

3,696

Dividends received from joint ventures

440

Interest received and realized exchange gains

2,535

2,720

1,641

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds, borrowings

Repayment, borrowings

Dividend paid

Capital increase

Transaction costs share issue

Change in restricted cash

5, 18

261,830

114,530

205,572

18 -169,177

-113,733

-142,211

-1,240

4,202

99,999

-2,788

-12,364

-2,014

594

Net cash flow from financing activities

84,491

95,994

62,715

Interest paid and realized exchange losses

-45,283

-39,792

-36,698

Net cash flow from operating, investing and

Income taxes paid

-216

-1,611

-586

financing activities

-67,241

-8,860

58,830

Change in bunkers, receivables and payables,

etc.

11,858

-12,668

-12,996

Net cash flow from operating activities

171,091

70,738

109,845

Cash and cash equivalents as of 1 January

124,088

132,948

74,118

Cash and cash equivalents as of 31 December

56,847

124,088

132,948

Restricted cash as of 31 December

15,636

3,273

1,259

Cash and cash equivalents, including restricted

cash as of 31 December

72,483

127,361

134,207

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

105

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Accounting policies, critical accounting estimates and judgements
Note 2 – Liquidity, capital resources and subsequent events
Note 3 – Staff costs
Note 4 – Remuneration to auditors appointed at the parent company’s

annual general meeting

Note 5 – Loan receivables
Note 6 – Tangible fixed assets
Note 7 – Leasing
Note 8 – Impairment testing
Note 9 – Financial items
Note 10 – Freight receivables
Note 11 – Other receivables
Note 12 – Tax
Note 13 – Common shares and Treasury shares
Note 14 – Other liabilities
Note 15 - Effective Interest Rate, Outstanding Borrowings
Note 16 – Collateral security for Borrowings
Note 17 – Guarantee commitments and contingent liabilities
Note 18 – Contractual rights and obligations
Note 19 – Derivative financial instruments
Note 20 – Risks associated with TORM’s activities
Note 21 – Financial instruments
Note 22 – Related party transactions
Note 23 – Assets held for sale and Non-current assets sold during the year
Note 24 – Cash flows
Note 25 – Entities in the group
Note 26 – Earnings per share and Dividend per share

107
117
118

120
121
121
122
124
125
125
126
126
126
127
128
129
129
129
131
134
138
139
139
139
140
142

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

106

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.

TORM plc is listed on the stock exchange Nasdaq in Copenhagen, Denmark, and on Nasdaq in
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 of the Company is USD, and the Company applies USD as presentation
currency in the preparation of the consolidated financial statements.

GOING CONCERN
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
set out on pages 39-46. As of 31 December 2019, TORM’s available liquidity including undrawn
facilities was USD 246m, including a cash position including restricted cash of USD 72m. TORM’s
net debt was USD 786m and the net debt loan-to-value ratio was 46%. In addition, the Group
has in February 2020 obtained bank financing of USD 496m replacing existing debt and
removing all major debt maturities until 2026. This has been taken into consideration in the
Directors’ assessment of the financial position. Further information on the Group’s objectives
and policies for managing its capital, its financial risk management objectives and its exposure
to credit and liquidity risk can be found in note 20 to the financial statements. The principal risks
and uncertainties facing the Group are set out on pages 33-38, and details on the refinancing
are described in note 2.

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 available 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 Group also pays special attention to the
recent COVID-19 outbreak and the associated effects on the product tanker market and has
included the currently expected impact in the sensitivity analysis.

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 next 12 months. Accordingly, the Group
continues to adopt the going concern basis in preparing its financial statements.

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NOTE 1 - continued

NOTE 1 – continued

ADOPTION OF NEW OR AMENDED IFRS STANDARDS
TORM has implemented the following standards and amendments issued by the IASB and
adopted by the EU in the consolidated financial statements for 2019:
•
IFRIC Interpretation 23, Uncertainty over Income Tax Treatments
• Amendments to IFRS 9: Prepayment Features with Negative Compensation
• Annual Improvements 2015-2017 Cycle (issued in December 2017)
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement
• Amendments to IAS 28: Long-term interests in associates and joint ventures
• TORM has elected to early adopt the amendments to IFRS 9, IAS 39 and IFRS 7, ‘Interest
Rate Benchmark Reform‘. The transition provisions require that the amendments are
adopted retrospectively to hedging relationships that existed at the start of the reporting
period or were designated thereafter, and to the amount accumulated in the cash flow
reserve at that date. The reliefs specify that the IBOR reform should not generally cause
hedge accounting to terminate. Hence there are reliefs in the amendments that apply to the
hedging relationships directly affected by the IBOR reform.
IFRS 16: On 1 January 2019, TORM adopted IFRS 16 “Leases”, which is mandatory for
accounting periods beginning 1 January 2019 or later. The standard was implemented using
the modified retrospective approach, whereby right-of-use assets at the date of initial
application are measured at an amount equal to the lease liability, which as of 1 January
2019 amounted to USD 9.9m. The impact of the standard for TORM was limited to leasing
agreements regarding office buildings and other administrative contracts such as cars, office
equipment, etc. The presentation in the 2019 income statement has changed, which resulted
in the recording of “Depreciation” of USD 2.5m and “Financial expenses” (interest) of USD
0.4m, in contrast to the recording of an operating lease charge of a materially equivalent
figure within the line item “Administrative expenses” under IAS 17. Although this
reclassification has had an insignificant overall net effect on the Profit and Loss in 2019, it
has improved the Alternative Performance Measure (APM) “EBITDA” by approximately USD
2.5m. Comparative information has not been restated.
•

In implementing IFRS 16, TORM has applied the following recognition exemptions and
practical expedients:

•

• Relied on the definition under IAS 17 and IFRIC 4 to determine whether contracts at the

date of initial application contain a lease

• Not recognized right-of-use assets and lease liabilities related to low value and short-

term leases. Short-term leases are defined as leases with a remaining contract period of
12 months or less at the date of initial application

• Applied a single discount rate to a portfolio of leases with reasonably similar

characteristics

• Excluded initial direct costs from the recognition of right-of-use assets at the date of

initial application

• Relied on the assessment of whether a contract is onerous under IAS 37 at the date of

initial application instead of performing an impairment review under IAS 36
• For leases held under finance lease as of 31 December 2018, the carrying amount

continues under IFRS 16

Reconciliation of lease liabilities pursuant to IFRS 16 on transition:

USDm

Total operating lease commitments at 31 December 2018

Recognition exemptions:

Leases of low value assets

Leases with remaining lease term of 12 months or less

Operating lease liabilities before discounting

Discounted using incremental borrowing rate

Operating lease liability

Reasonably certain extension options

Other adjustments

Finance lease liabilities recognized under IAS 17

Total lease liabilities recognized under IFRS 16 at 1 January 2019

2019

6.2

-0.6

5.6

4.5

-0.2

25.3

35.2

On transition to IFRS 16, TORM recognized lease liabilities in relation to leases which had
previously been classified as operating leases in accordance with IAS 17.

The weighted average borrowing rate applied to lease liabilities recognized in the balance sheet
as of 1 January 2019 is 4.9 %.

It is assessed that application of other new interpretations effective on 1 January 2019 has not
had any material impact on the consolidated financial statements in 2019.

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NOTE 1 - continued

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. In general, the following standards are expected to
have the most significant impact on current accounting regulation:
•
•

IFRS 17 Insurance Contracts
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture

• Amendments to IFRS 3 Definition of a business
• Amendments to IAS 1 and IAS 8 Definition of material

TORM has assessed the accounting standards and interpretations not yet adopted and does not
expect the new standards to have any material impact on neither TORM’s figures nor the
disclosures.

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 all the following:
• Power over the investee
• Exposure, or rights, to variable returns from its involvement with the investee
• The ability to use its power over the investee to affect the amounts of the investor’s 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
• 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.

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.

Foreign currencies
The functional currency of all significant entities, including subsidiaries and associated
companies, is United States dollars (USD), because the Company’s vessels operate in
international shipping markets, in which income and expenses are settled in USD, and because
the Company’s most significant assets and liabilities in the form of vessels and related liabilities
are denominated in USD. Transactions in currencies other than the functional currency are
translated into the functional currency at the transaction date. Cash, receivables and payables
and other monetary items denominated in 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”.

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NOTE 1 - continued

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 rate for the year, whereas balance sheet
items are translated at the exchange rate as of the balance sheet date. Exchange differences
arising from the translation of financial statements into USD are recognized as a separate
component in “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 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 and certain forward freight agreements and
forward contracts regarding bunker purchases do not qualify for hedge accounting. Changes in
fair value of these derivative 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.

Derivative financial instruments and hedge accounting
Derivative financial instruments, primarily forward currency exchange contracts, forward freight
agreements, interest rate hedges and forward contracts regarding bunker purchases, are
entered into to eliminate risks relating to future fluctuations in prices and interests, etc. on future
committed or anticipated transactions. TORM applies hedge accounting under the specific rules
on cash flow hedges when appropriate as described below for each type of derivative.

Derivative financial instruments are initially recognized in the balance sheet at fair value at the
date when the derivative contract is entered into and are subsequently measured at their fair
value as other receivables or other liabilities, respectively.

Changes in the fair value of derivative financial instruments 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, 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
The segmentation is based on the Group’s internal management and reporting structure. The
Group only has one reportable segment, the Tanker Segment, for which 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.

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.

TORM ANNUAL REPORT 2019

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NOTE 1 - continued

Leases
TORM assesses whether a contract is or contains a lease at inception of the contract and
recognizes right-of-use assets and corresponding lease liabilities at the lease commencement
date, except for short-term leases and leases of low value. For these leases, TORM recognizes
the lease payments as an operating expense on a straight-line basis over the term of the lease.

Agreements to charter in vessels and to lease land and buildings and other plant and operating
equipment for which TORM substantially has the control are recognized on the balance sheet as
right-of-use assets and initially measured cost, which comprises the initial amount of the lease
liabilities adjusted for any lease payments made at or before the commencement date.
Subsequently the right-of-use assets are measured at cost less accumulated depreciation and
impairment losses. The right-of-use 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 under
“Borrowings” and initially measured at the present value of the lease payments that are not paid
at the commencement date, discounted using the interest rate implicit in the lease or, in case
that rate cannot be determined, TORM’s incremental borrowing rate. Subsequently lease
liabilities are measured at amortized cost using the effective interest method, where the lease
liabilities are remeasured when there is a change in future lease payments.

Sale and leaseback
Following a sale transaction, agreements to immediately charter-in the related vessels (sale and
leaseback) but for which TORM maintains substantially all the risks and rewards incidental to
economic ownership, the proceeds received are presented as a financial liability in “Borrowings”.
No gain or loss is recorded, and the asset remains recognized on the balance sheet.

TORM has three sale and leaseback agreements previously accounted for as financial leases in
accordance with IAS 17. The right-of-use assets and related lease liabilities are presented as a
part of “Vessels and capitalized dry-docking” and “Borrowings” respectively.

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. Revenue is recognized when or as performance
obligations are satisfied by transferring the promised goods or services to the customer, i.e. at a
point in time or over time provided that the stage of completion can be measured reliably.
Revenue is measured at the consideration the Group expects to be entitled to.

The completion is determined using the load-to-discharge method based on the percentage of
the estimated duration of the voyage completed at the reporting date. Freight revenue and
related voyage and operating costs are recognized in the income statement according to the
entered charter parties from the date of load to the date of delivery of the cargo (discharge).

Accordingly, freight, charter hire and demurrage revenue are recognized at selling price upon
delivery of the service as specified in the agreement with the charter parties.

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.

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.

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NOTE 1 - continued

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 in
accordance with the terms and conditions of the charter parties. Upon completion of the
voyage, the Company assesses the time spent in port, and a demurrage claim based on the
relevant contractual conditions is submitted to the charterers.

The claim will often be met by counterclaims due to differences in the 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.

Port expenses, bunkers and commissions
Port expenses, bunker fuel consumption and commissions are recognized as incurred. To the
extent the costs are recoverable, costs directly attributable to relocate the vessel to the load
port are capitalized and amortized over the course of the transportation period.

Profit from sale of vessels
Profit from sale of vessels is recognized at the time of delivery to the buyer, representing the
difference between the sales price less costs 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 profits and losses
deriving from the disposal of fixed assets other than vessels.

Depreciation and impairment losses and reversals of 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 costs to sell.

Gains and losses on forward bunker contracts and write-down and provisions for losses on
freight receivables are included in this line.

Subsequent reversal of impairment losses are recognized if the recoverable amount exceeds the
carrying amount to the extent that the carrying amount does not exceed the carrying amount
without any historic impairment losses.

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. The freight and bunker derivatives that qualify for hedge
accounting are recognized in Revenue and Port expense, bunkers and commissions respectively,
at the same time as the hedged items are recognized in profit and loss. Fair value adjustments
of derivatives that do not qualify for hedge accounting are recognized in the same line when
incurred.

Charter hire
Charter hire comprises expenses related to the chartering in of vessels on short-term
agreements under 12 months 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.

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 payments under interest rate hedge instruments.

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.

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NOTE 1 - continued

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 payments under interest rate hedge
instruments.

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.

BALANCE SHEET

Vessels
Vessels consist of owned vessels and leased vessels. The accounting policy for leased vessels is
specified under “Leases” and “Sale and leaseback” above. Owned 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 (scrubbers, etc.) 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 24 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. 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, the 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.

Prepayments on vessels
Prepayments consist of prepayments related to newbuilding contracts for vessels not yet
delivered and include the share of borrowing costs that are directly attributable to the
acquisition of the underlying vessel. When a vessel is delivered, the prepaid amount is
reallocated to the financial statement line “Vessels and capitalized dry-docking”.

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NOTE 1 – continued

Land and buildings and other plant and operating equipment
Land and buildings and other plant and operating equipment consist of leaseholds regarding
office buildings, leasehold improvements, company cars, IT equipment and software and is
measured at historical cost less accumulated depreciation and any impairment loss. Any
subsequent cost is included in the asset’s carrying amount or recognized as a separate asset
only when it is probable that future economic benefits are associated with the item and the cost
of the item can be measured reliably. Depreciation is based on the straight-line method over the
estimated useful life of the assets. The current estimates are:

• Office buildings: Over the shorter of the remaining leasing term and the estimated useful life
• Leasehold improvements: Over the shorter of the remaining leasing term and the estimated

useful life

IT equipment: 3–5 years

• Company cars: Over the lease term, typically 3 years
•
• Software: 3–5 years
• Other equipment 3–5 years

The depreciation commences when the asset is available for use, i.e. when it is in the location
and condition necessary for it to be capable of operating in the manner intended by
Management. For a right-of-use asset, depreciation commences at the commencement date of
the lease.

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.

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.

Loan receivables
Loan receivables are initially recognized on the balance sheet as fair value less transaction costs.
Subsequent to initial recognition, loan receivables are measured at amortized cost. Amortized
cost is defined as the amount initially recognized deducted by principal repayments and
allowances for the expected credit loss (ECL).

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

Receivables are at initial recognition measured at their transaction price less allowance for
expected credit losses over the lifetime of the receivable and are subsequenly measured at
amortized cost adjusted for changes in expected credit losses. Derivative financial instruments
included in other receivables are measured at fair value.

Expected credit losses
Expected credit losses at initial recognition are determined using an ageing factor as well as a
specific customer knowledge, such as customers’ ability to pay, considering historical
information about payment patterns, credit risks, customer concentrations, customer
creditworthiness as well as prevailing economic conditions. The estimates are updated
subsequently, and if the debtor’s ability to pay is becoming doubtful, expected credit losses are
calculated on an individual basis. When there are no reasonable expectations of recovering the
credit losses, the receivable is written off in part or entirely.

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 (CGU), 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.

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NOTE 1 - continued

The Management in TORM has assessed the inflow of cash in TORM to allocate these into
separate cash generating units (CGU). Management has assessed that TORM only has
one CGU.

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.

Bunkers
Bunkers and lube oil are stated at the lower of cost and net realizable value. Cost is determined
using the FIFO method and includes expenditure incurred in acquiring the bunkers and lube oil
and cost of delivery 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.

Assets held for sale mainly refer to vessels being sold and 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 when 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.

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 model at the grant date.

Dividend
Interim dividends are recognized as a liability at the time of declaration. Any year-end dividend
is recognized as a liability at the date of approval at the AGM.

Provisions
Provisions are recognized when the Group 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.

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.

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 at the
balance sheet date. The deferred tax is charged through the income statement except when it
relates to other comprehensive income items.

Borrowings
Borrowings consist of mortgage debt, bank loans and lease liabilities.

Borrowings, are initially 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.

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.

Lease liabilities are measured on the commencement date of the lease at the present value of
lease payments to be made over the lease term. The lease term comprises the non-cancellable
period of the leasing agreement plus options to extend the lease if the exercise of the extension
is reasonably certain. This assessment is made annually.

In the calculation of the present value of lease payments, TORM uses the incremental borrowing
rate at the date of lease commencement. The carrying amount of lease liabilities is reassessed if
there is a change in the lease term.

Trade payables
Trade payables are recognized at the fair value of the item purchased and are subsequently
measured at amortized cost.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

115

NOTE 1 – continued

NOTE 1 - continued

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 how income and changes in the balance sheet items affect cash
and cash equivalent, i.e. how cash is generated or used in the period. The cash flow statement
is presented in accordance with the indirect method commencing with “Net profit/(loss) for
the year”.

Cash flow from operating activities converts income statement items from the accrual basis of
accounting to cash basis. Starting with “Net profit/(loss) for the year”, non-cash items are
reversed and actual payments included. Further, the change in working capital is taken into
account, as this shows the development in money tied up in the balance sheet.

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

Cash flow from financing activities comprises changes in borrowings, purchases or sales of
treasury shares and dividend paid to shareholders.

Cash and cash equivalents including restricted cash comprise cash and short-term bank
deposits with an original maturity of three months or less, net of outstanding bank overdrafts.
The carrying amount of these assets is approximately equal to their fair value. Cash and cash
equivalents including restricted cash at the end of the reporting period are shown in the
consolidated cash flow statement and can be reconciled to the related items in the consolidated
balance sheet.

The restricted cash balance primarily relates to cash provided as security for negative market
values of derivatives and other cash positions.

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.

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.

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 is the significant accounting estimate used in the
preparation of the consolidated financial statements that has a significant risk of resulting in a
material adjustment to the carrying amounts of assets and liabilities within the next financial
year. Management does not believe there were any critical accounting judgements used in the
preparation of the consolidated financial statements:

Management has assessed that TORM only has one CGU - the product tanker segment -
because the vessels in the fleet and the cashflow are largely interchangeable, and the fleet is
monitored and managed on an aggregated level as one unit, i.e. each vessel or vessel class does
not generate cash inflows that are largely independent of those from other vessels or vessel
classes.

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 or
indication that past impairment losses should be reversed 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 or
reversal of past impairment is identified, the need for recognizing an impairment loss or a
recognition of a reversal of a past impairment loss is assessed by comparing the carrying
amount of the vessels to the higher of the fair value less costs 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 expenses and capital
expenditure including dry-docking costs and discount rates. For more information on key
assumptions and related sensitivities, please refer to note 8 in these financial statements. All

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

116

NOTE 1 - continued

NOTE 2 - continued

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 freight 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 impairment may be required.

NOTE 2 – LIQUIDITY, CAPITAL RESOURCES AND SUBSEQUENT EVENTS

LIQUIDITY AND CAPITAL RESOURCES
As of 31 December 2019, TORM’s cash and cash equivalents including restricted cash totaled
USD 72m (2018: USD 127m; 2017: USD 134m), and undrawn credit facilities amounted to USD
173m (2018: USD 279m; 2017: USD 271m). The undrawn credit facilities consisted of a USD 75m
Working Capital Facility, a bilateral USD 53m facility with ABN AMRO Bank and a USD 46m
facility with KfW. TORM had four newbuildings on order for delivery in 2020 (2018: nine; 2017:
ten). The total outstanding CAPEX related to these newbuildings was USD 51m (2018: USD
258m; 2017: USD 307m) and is mainly financed by the undrawn facilities with ABN AMRO Bank
and Danish Ship Finance.

TORM has a Term Facility I of USD 237m 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 75m with maturity in 2022 and bilateral loan agreements
with ING of USD 36m maturing in 2024, with China Export-Import Bank of USD 104m with
maturity in 2030, with ABN AMRO of USD 21m maturing in 2024 and with Danish Ship Finance
of USD 207m maturing in 2026. The loan agreement with Danish Ship Finance consists of four
tranches, two of which expire in 2021 with total balloon payments of USD 72m. As of 31
December 2019, the scheduled minimum payments on mortgage debt and bank loans in 2020
were USD 83m.

TORM’s bank debt facilities include financial covenants related to:
• Minimum liquidity including committed credit lines
• Minimum cash
• Loan-to-value
• Equity ratio

During 2019, 2018 and 2017, TORM did not have any covenant breaches.

SUBSEQUENT EVENTS
• On 3 January 2020, TORM took delivery of the newbuilding TORM Elise (hull no. 15121140), a

75,000 DWT LR1 tanker from Guangzhou Shipyard International.

• On 6 January 2020, TORM took delivery of the newbuilding TORM Elizabeth (hull no.

15121141), a 75,000 DWT LR1 tanker from Guangzhou Shipyard International.

• On 8 January 2020, TORM delivered the Handysize tanker TORM Garonne to its new owner.

In the financial statements, TORM Garonne is treated as an asset held for sale. The delivery
resulted in a net impairment of vessels of USD 0.7m in 2019.

• On 14 January 2020, TORM took delivery of the newbuilding TORM Splendid (hull no.

15121039), a 50,000 DWT MR tanker from Guangzhou Shipyard International.

• On 14 January 2020, TORM announced the obtaining of a USD 496m bank financing for the
refinancing of four existing facility agreements and the replacement of the existing working
capital facility, thereby removing all major debt maturities until 2026. The new agreements
include financing of 46 existing vessels. The refinancing was successfully closed on 6
February 2020.

• On 16 January 2020, TORM carried out a capital increase due to the exercise of Restricted
Share Units as part of the Company’s incentive program. TORM increased its share capital
by 12,405 A-shares corresponding to a nominal value of USD 124.05. After the capital
increase, TORM’s share capital amounts to USD 747,606.55 divided into 74,760,653 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
74,760,653 votes are attached to the A-shares.

• On 23 January 2020, TORM entered into an agreement to purchase two scrubber-fitted,

fuel-efficient and dual-fuel-ready LR2 newbuildings from Guangzhou Shipyard International
with expected delivery in the fourth quarter of 2021. TORM expects to have total CAPEX
relating to the two vessels of USD 95m including extra costs related to TORM’s design
requirements and scrubber installations. TORM has secured financing of USD 76m with an
international financial institution. The financing will be structured as a ten-year sale and
leaseback agreement with purchase options during the lease period and at maturity,
providing TORM with maximum capital commitment flexibility.

• Since the end of 2019, TORM has decided to conduct retrofit scrubber installations on three
additional MR vessels. This brings the total scrubber-fitted vessels to 49 when the two LR2
newbuildings are delivered in the fourth quarter of 2021.

• Towards the end of January 2020, the product tanker market softened from strong levels,
negatively impacted by the global outbreak of the COVID-19. Although it is not possible to
reliably estimate the length or severity of this outbreak and hence its financial impact, this has
lowered both the general freight rate environment and the market values of TORM’s vessels.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

117

NOTE 3 – STAFF COSTS

USDm

Total staff costs

NOTE 3 - continued

2019

2018

2017

USD '000

2019

2018

2016

Non-Executive Board and Committee Remuneration, short term

9.2

Christopher H. Boehringer

252

276

290

Staff costs included in operating expenses

Staff costs included in administrative expenses

Total

8.1

37.7

45.8

9.3

36.9

46.2

34.6

43.8

Staff costs comprise the following

Wages and salaries

Share-based compensation

Pension costs

Other social security costs

Other staff costs

Total

Average number of permanent employees

Seafarers

Land-based

Total

37.2

38.1

36.4

1.9

3.5

0.9

2.3

2.1

3.3

0.6

2.1

1.9

3.1

0.3

2.1

45.8

46.2

43.8

107.6

313.5

111.7

302.2

130.6

286.6

421.1

413.9

417.2

Employee information
The majority of the staff on vessels are not employed by TORM. Staff costs included in
operating expenses relate to the 108 seafarers (2018: 112, 2017: 131).

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.

David Weinstein

Torben Janholt

Göran Trapp

Total

Executive Management

198

170

182

171

790

800

174

812

Annual

perfor-

Taxable

mance

USD '000

Salary

benefits

bonus

Total

Executive Management Remuneration

Jacob Meldgaard

2017, TORM A/S¹

2017, TORM plc¹

2018, TORM A/S¹
⁾

2018, TORM plc¹

2019, TORM A/S¹
⁾

2019, TORM plc¹

⁾

Paid by legal entity as noted.

⁾

923

983

962

580

1,545

425

1,452

1,126

2,129

⁾
Key management personnel consists of the Board of Directors and the Executive Director.

Senior Management Team
The aggregate compensation paid by the Group to the other members of the Senior
Management Team (excluding Mr. Meldgaard) was USD 1,736,750 (2018: USD 2,186,679, 2017:
USD 1,987,726), which includes an aggregate of USD 115,880 (2018: USD 125,959, 2017: USD
112,236) allocated for pensions for these individuals.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

118

NOTE 3 - continued

Long-Term Incentive Plan - RSUs granted in 2019:

Exercise

RSU grant value

RSU LTIP

price per

assuming 100%

grant ¹

vesting

LTIP element of Jacob Meldgaard's remuneration

⁾

package 2018:

Jacob Meldgaard

766,035 DKK 53.7

USD 0.9m

The LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 10 of 25

¹
April 2018. Therefore there is no minimum or maximum for 2018.

⁾

TORM operates an equity-settled, share-based compensation plan. The fair value of the
employee services received in exchange for the grant of shares is recognized as expense and
allocated over the vesting period. Employment in TORM throughout the period is in most cases
a prerequisite for upholding the full vesting rights in the RSU program. For good leavers subject
to the Danish Stock Options Act, the RSU’s will vest in accordance with the vesting schedule,
but for all other leavers, all unvested RSU’s shall be immediately forfeited for no consideration.
Options are granted under the plan for no consideration and carry no dividend or voting rights.

In accordance with its Remuneration Policy, TORM has granted the CEO a number of Restricted
Share Units (RSUs), which was communicated in company announcement no. 2 dated 18
January 2016. A further communication, announcement no. 10 issued on 25 April 2018, detailed
changes to the grant of RSUs, as agreed to at the AGM on 12 April 2018. There are no
performance conditions associated with this grant
of RSUs.

The original RSUs granted to the CEO in 2016 amounted to 1,276,725 and vested over a five-year
period, with one fifth of the grant amount vesting at each anniversary during the five-year
period. The exercise price for the 2016 RSUs was DKK 96.3. As of 1 January 2017, one fifth of the
original grant, amounting to 255,345, vested with an exercise period ending 31 December 2017.
None of these RSUs were exercised. As of 1 January 2018, one fifth of the original grant,
amounting to 255,345, vested with an exercise period ending 31 December 2018. None of these
RSUs were exercised.

As detailed in announcement no. 10 issued on 25 April 2018, the CEO was granted a total of
766,035 RSUs with effect as of 1 January 2018, which will vest in equal installments over the next
three years. The RSU grant corresponds to the unvested portion (60%) of the CEO’s original
five-year grant from 2016. It has been agreed that the CEO will not exercise the original RSUs.
The exercise price for each RSU is DKK 53.7, corresponding to the average price of TORM
shares during 90 calendar days preceding the approval at TORM plc’s AGM on 12 April 2018 plus
a 15% premium. Vested RSUs may be exercised for a period of 360 days from each vesting date.
As of 1 January 2019, one fifth of the grant, amounting to 255,345, vested with an exercise
period ending 31 December 2019. These RSUs, amounting to one third of the re-grant issued on
25 April 2018, were exercised. In November 2019, 255,345 RSUs were exercised by Executive
Director Mr. Jacob Meldgaard.

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 and 25 April 2018).

The value of the 2018 grant, USD 0.9m, is estimated taking into account that the CEO as part of
the grant will not exercise the unvested portion of the 2016 grant. The valuation is based on the
Black-Scholes model with an exercise price of DKK/share 53.7, a market value of one TORM A-
share of DKK 49.5 (the closing price per A-share at the time of allocation and assuming 100%
vesting).

The single figure remuneration table for the CEO does not include any amounts in relation to the
RSU awards since, as of the date each tranche vested, the Company’s share price was less than
the exercise price.

In December 2019, the CEO was informed that he would receive two additional tranches of
255,200 RSUs in 2021 and 2022 respectively. The first would vest in equal installments over
three years beginning 1 January 2022. The second would vest in equal installments over three
years beginning 1 January 2023. The strike price for each tranche will be determined as the
average of 90 days before publication of the TORM plc Annual Report plus a 15% premium. The
first tranche will be based on the publication of the Annual Report 2020 and the second tranche
on the publication of the Annual Report 2021. The exercise period for vested RSUs will be 360
days.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

119

NOTE 3 - continued

NOTE 4 – REMUNERATION TO AUDITORS APPOINTED AT THE PARENT
COMPANY’S ANNUAL GENERAL MEETING

Long-term employee benefit obligations
The obligation comprises an obligation under the incentive programs to deliver Restricted Share
Units 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.

USDm

Audit fees

The program was established during the year and comprises the following number of shares in
TORM plc:

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

Number of shares (1,000)

Outstanding as of 1 January

Granted during the period

Exercised during the period

Expired during the period

Forfeited during the period

2019

2018

2017

Total audit fees

2,719.1

2,611.2

1,999.8

Non-audit fees

1,001.1

907.3

866.6

Audit-related services

-529.4

Tax services

-785.3

-764.0

-233.9

Total non-audit fees

-177.2

-35.4

-21.3

Total

2019

2018

2017

0.4

0.2

0.6

0.1

0.0

0.1

0.7

0.4

0.2

0.6

0.2

0.8

0.4

0.2

0.6

0.4

1.0

Under SEC regulations, the remuneration of the auditor of USD 0.7m (2018: USD 0.8m, 2017:
USD 1.0m) is required to be presented as follows: Audit USD 0.6m (2018: USD 0.6m, 2017: USD
0.6m) and other audit-related services USD 0.1m (2018: USD 0.2m, 2017: USD 0.4m).

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.

Outstanding as of 31 December

2,228.3

2,719.1

2,611.2

Exercisable as of 31 December

255.3

In 2017, the Board agreed to grant a total of 866.6 RSUs to other management. The RSUs to
other management were subject to a three-year vesting period, with one third of the grant
amount vesting at each anniversary date beginning on 1 January, 2018. The exercise price of
each vested RSU is following certain adjustments for dividends at DKK 93.6 and an exercise
period of six months.

In 2018, the Board agreed to grant a total of 944,468 RSU’s to other management. The vesting
period of the program is three years for key employees and three years for the Executive
Director. The exercise price is set to DKK 53.7. The exercise period is 12 months after the vesting
date for key employees and 12 months after the vesting date for the Executive Director. The fair
value of the options granted in 2018 was determined using the Black-Scholes model and is not
material. The average remaining contractual life for the restricted shares as per 31 December
2018 is 1.1 years (2017: 1.3 years).

In 2019, the Board agreed to grant a total of 1,001,100 RSUs to other management. The vesting
period of the program is three years for key employees. The exercise price is set to DKK 53.7.
The exercise period is 12 months after the vesting date. The fair value of the options granted in
2019 was determined using the Black-Scholes model and is not material. The average remaining
contractual life for the restricted shares as per 31 December 2019 is 1.5 years.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

120

NOTE 5 – LOAN RECEIVABLES

NOTE 6- continued

These loans were issued as part of sale and leaseback transactions for two MR vessels. Further
details are provided in note 23. The loans mature in 2026 and have an interest rate applicable,
fixed at 1% per annum.

USDm

Loan receivables

Cost:

Balance as of 1 January

Additions during the year

Balance as of 31 December

Expected credit loss

Balance as of 1 January

Additions during the year

Balance as of 31 December

Carrying amount as of 31 December

NOTE 6 – TANGIBLE FIXED ASSETS

USDm

Land and buildings

Cost:

Balance as of 1 January

Adjustment on transition to IFRS 16

Additions

Balance as of 31 December

Depreciation:

Balance as of 1 January

Depreciation for the year

Balance as of 31 December

Carrying amount as of 31 December

2019

2018

2017

USDm

2019

2018

2017

Vessels and capitalized dry-docking

Cost:

Balance as of 1 January

Additions

Disposals

Transferred from prepayments

Transferred to assets held for sale

1,886.3

1,726.6

1,697.4

81.3

162.7

103.1

-25.6

252.3

-30.2

-14.3

81.8

-130.1

-54.6

-59.6

Balance as of 31 December

2,064.2

1,886.3

1,726.6

4.7

0.1

4.6

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

327.6

-25.6

264.8

180.0

-30.2

-14.3

106.5

113.4

113.6

-47.9

-20.4

-14.5

360.6

327.6

264.8

162.1

167.3

173.6

6.0

-120.0

3.2

3.6

-19.3

-8.4

-9.9

28.8

162.1

167.3

2019

2018

2017

Reversal of impairment ¹

Transferred to assets held for sale

⁾

Balance as of 31 December

9.9

0.5

10.4

2.3

8.1

Carrying amount as of 31 December

1,674.8

1,396.6

1,294.5

For additional information regarding impairment considerations, please refer to note 8.

⁾
Included in the carrying amount for "Vessels and capitalized dry-docking" are capitalized dry-
docking costs in the amount of USD 60.7m (2018: USD 67.5m, 2017: USD 68.1m).

The sale and leaseback transactions in 2019 were all classified as financing arrangements and
did not result in derecognition of the underlying assets as control was retained by the Group.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

121

NOTE 6 - continued

USDm

Prepayments on vessels

Cost:

Balance as of 1 January

Additions

Transferred to vessels

Balance as of 31 December

2019

2018

2017

45.5

301.8

88.4

38.9

-252.3

-81.8

44.1

44.3

95.0

45.5

88.4

NOTE 7 – LEASING

TORM has leases for the office buildings, some vehicles and other administrative equipment.
With the exception of short-term leases and leases of low-value assets, each lease is reflected
on the balance sheet as a right-of-use asset with a corresponding lease liability. The right-of-use
assets are included in the financial statement line item in which the corresponding underlying
assets would be presented if they were owned. Please refer to note 6.

As of 31 December 2019, TORM had recognized the following right-of-use assets:

Carrying amount as of 31 December

95.0

45.5

88.4

USDm

2019

2018

2017

Cost:

Other plant and operating equipment

Cost:

Balance as of 1 January

Adjustment on transition to IFRS 16

Additions

Disposals

Balance as of 31 December

Depreciation:

Balance as of 1 January

Disposals

Depreciation for the year

Balance as of 31 December

Carrying amount as of 31 December

Balance as of 1 January

Adjustment on transition to IFRS 16

3.6

2.2

5.8

2.7

1.0

-0.1

3.6

Additions

Disposals

Balance as of 31 December

Depreciation:

Balance as of 1 January

Disposals

1.7

0.9

Depreciation for the year

-0.1

Balance as of 31 December

1.1

2.8

3.0

0.9

1.7

1.9

Carrying amount as of 31 December

5.8

0.3

2.2

-0.2

8.1

2.8

1.0

3.8

4.3

For information on assets provided 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 1.0m relates
to "Administrative expense" (2018: USD 1.1m, 2017: USD 0.9m). Depreciation and impairment
losses on tangible fixed assets on "Vessels and capitalized dry-docking" relate to operating
expenses.

Vessels and

Other plant

capitalized

Land and

and operating

dry-docking

buildings

equipment

43.3

1.8

-2.7

42.4

13.4

-2.7

4.8

15.5

26.9

9.9

0.5

10.4

2.3

8.1

0.3

0.4

-0.1

0.6

0.2

0.4

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

122

NOTE 7 - continued

The table below describes the nature of the Group’s leasing activities by type of right-of-use
asset recognized on the balance sheet:

Vessels and

capitalized

Other plant

Land and

and operating

dry-docking

buildings

equipment

No. of right-of-use assets leased

Range of remaining term

2 years

0-9 years

0-3 years

Average remaining lease term

2.3 years

2.8 years

1.3 years

No. of leases with extension options

No. of leases with options to purchase

No. of leases with termination options

Lease liabilities regarding right-of-use assets are included on the balance sheet under
“Borrowings”.

Lease payments not recognized as a liability
The Group has elected not to recognize a lease liability for short-term leases (leases of an
expected term of 12 months or less) or for leases of low value assets. Payments made under
such leases are expensed on a straight-line basis. The expenses relating to payments not
recognized as a lease liability are insignificant.

Administrative expenses
The total outflow for leases, USD 2.9m, is presented as “Depreciation” of USD 2.5m and
“Financial expenses” (interest) of USD 0.4m, in contrast to the recording of an operating lease
charge of a materially equivalent figure within the line item “Administrative expenses” under
IAS 17.

Financial expenses
Financial expenses for the reporting periods:

USDm

Interest expenses:

Financial expenses arising from lease liabilities

regarding right-of-use assets

Other financial expenses

2019

2.4

39.5

41.9

2018

2.3

37.0

39.3

2017

1.8

38.8

40.6

USDm

2019

2018

Total

Maturity analysis - contractual undiscounted cash flow

Less than one year

One to five years

More than five years

Total undiscounted lease liabilities as of 31 December

Lease liabilities included under "Borrowings" as of 31

December

Non-current

Current

7.5

27.6

0.1

35.2

5.2

25.6

30.8

30.6

25.3

10.2

20.4

3.2

22.1

Extension and termination options are included in several leases in order to optimize operational
flexibility in terms of managing contracts. The lease term determined by TORM is the non-
cancellable period of a lease, together with any extension/termination options if these are/are
not reasonably certain to be exercised.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

123

NOTE 8 – IMPAIRMENT TESTING

NOTE 8 - continued

As of 31 December 2019, 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 2020-2022. Beyond 2022, operating expenses are adjusted for 2% (2018: 2%)
inflation and administrative expenses are adjusted for 2% inflation (2018: 2%).

In 2019, the recoverable amount of the Tanker Segment was based on its value in use.

As the value in use exceeded the carrying amount, Management concluded that the impairment
test provided the basis for a full reversal of the USD 185m impairment charge recorded in 2016,
after excluding the portion of the 2016 charge that related to goodwill and vessels that have
been subsequently sold. The impairment reversal has also been capped at USD 120m to ensure
that the carrying value of the Tanker Segment does not exceed the carrying value that would
have arisen if the 2016 impairment charge had not been recorded. The reversal has arisen
primarily due to improvements in prevailing freight rates and a reduction in discount rate.

The assessment of the value in use of the Tanker Segment was based on the net present value
of the expected future cash flows. The freight rate estimates in the period 2020-2022 are based
on the Company's business plans. Beyond 2022, the freight rates are based on TORM’s 10-year
historical average rates, adjusted for expected inflation of 2%. The Company believes that the
approach used for long-term rates appropriately reflects the cyclical nature of the shipping
industry and is the most reliable estimate for periods beyond those included in its 3-year
business plan.

The Company’s business plans for 2020-2022 also include the anticipated benefit arising from
the installation of scrubbers on certain of the Group’s vessels (the “scrubber premium”), based
on current market differentials between the cost of heavy and low sulfur fuel oil. Beyond 2022, it
has been assumed that this cost differential will fall by approximately 50%.

The discount rate used in the value in use calculation is based on a Weighted Average Cost of
Capital (WACC) of 7.5% as of 31 December 2019 (2018: 8.3%, 2017: 8.7%) . 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 2019, the 10-year historical average spot freight rates used in the value in use
calculation are as follows:

• LR2: USD/day 17,986 (2018: USD/day 18,003, 2017: USD/day 17,216)
• LR1: USD/day 17,060 (2018: USD/day 16,907, 2017: USD/day 16,445)
• MR: USD/day 15,802 (2018: USD/day 15,349, 2017: USD/day 15,794)
• Handysize: USD/day 13,601 (2018: USD/day 13,968, 2017: USD/day 14,416)

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 15 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, the development in operating expenses and the long-term scrubber premium.
All other things being equal, the sensitivities to the value in use have been assessed as follows:

• An increase/decrease in the tanker freight rates of USD/day 1,000 would result in an

increase/decrease in the value in use of USD 257m

• An increase in WACC of 1.0% would result in a decrease in the value in use of USD 117m and

a decrease in WACC of 1% would result in an increase in the value in use of USD 131m

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

the value in use of USD 181m

• An increase/decrease in the long-term (post 2022) scrubber premium to 75%/25% of the
amount assumed in 2020-2022 would result in an increase/decrease in the value in use of
USD 73m.

However, if the downside sensitivities outlined above had been applied to the impairment test
as of 31 December 2019, the impairment reversal arising in the current year would still have been
USD 71m based on the fair value less costs to sell of the Tanker Segment. If the upside
sensitivities outlined above had been applied, there would have been no change to the
impairment reversal as it has already been capped at USD 120m for the reasons outlined above.

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 fair value based on broker
values of TORM's vessels including the order book and chartered-in vessels was USD 1,785m,
which is USD 71m above the carrying amount.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

124

NOTE 9 – FINANCIAL ITEMS

NOTE 10 – FREIGHT RECEIVABLES

USDm

Financial income

2019

2018

2017

USDm

2019

2018

2017

Analysis as of 31 December of freight receivables:

Interest income from cash and cash equivalents, including

Gross freight receivables:

restricted cash ¹

2.5

2.7

1.6

Not yet due

Exchange rate adjustments, including gain from forward

⁾

exchange rate contracts

Total

Financial expenses

0.3

2.8

0.6

3.3

2.7

4.3

Interest expenses on mortgage and bank debt ¹

39.3

35.7

33.3

Exchange rate adjustments, including loss from forward

⁾

Due < 30 days

Due between 30 and 180 days

Due > 180 days

Total gross

Allowance for expected credit loss

Total net

39.8

22.5

25.3

6.0

93.6

3.7

89.9

44.0

18.8

20.5

4.4

87.7

1.7

86.0

25.5

26.0

18.4

2.7

72.6

1.3

71.3

exchange rate contracts

Commitment fee

Other financial expenses

Total

0.2

1.9

0.5

0.1

2.6

0.9

3.2

2.4

1.7

41.9

39.3

40.6

Total financial items

-39.1

-36.0

-36.3

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

⁾

As of 31 December 2019, freight receivables included receivables at a value of USD 0.0m (2018:
USD 0.0m 2017: USD 0.0m) that are individually determined to be impaired to a value of USD
0.0m (2018: USD 0.0m, 2017: USD 0.0m).

Management makes allowance for expected credit loss based on the simplified approach to
provide for expected credit losses, which permits the use of the lifetime expected loss provision
for all trade receivables. Expected credit loss for receivables overdue more than 180 days is
25%-100%, depending on category. Expected credit loss for receivables overdue more than one
year is 100%.

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

USDm

2019

2018

2017

Allowance for expected credit loss

Balance as of 1 January

Adjustment to prior years

Provisions for the year

Provisions reversed during the year

Provisions utilized during the year

Balance as of 31 December

1.7

1.5

2.4

-1.9

3.7

1.3

1.7

-1.0

-0.3

1.7

2.6

0.6

-1.9

1.3

Allowance for expected credit loss of freight receivables have been recognized in the income
statement under "Port expenses, bunkers and commissions".

Allowance for expected credit loss of freight receivables is calculated using an ageing factor as
well as a specific customer knowledge and is based on a provision matrix on days past due.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

125

NOTE 11 – OTHER RECEIVABLES

USDm

Partners and commercial managements

Derivative financial instruments

Tax receivables

Other

Balance as of 31 December

NOTE 12 - continued

2019

2018

USDm

2019

2018

2017

1.9

0.5

1.5

2.3

6.2

3.7

1.2

2.6

7.5

Deferred tax liability

Balance as of 1 January

Deferred tax for the year

Adjustments related to previous years

Balance as of 31 December

44.9

0.1

-0.1

44.9

45.0

-0.1

44.9

No significant other receivables are past due or credit impaired.

The carrying amount is a reasonable approximation of fair value due to the short-term nature of
the receivables. 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 liability

Total

2019

2018

2017

1.2

-0.4

0.8

1.6

-0.1

0.1

1.6

1.0

-0.1

0.8

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, as a
minimum, to maintain an investing and activity level equivalent to the time of entering the
tonnage tax scheme.

Essentially all deferred tax relates to vessels included in the transition account under the Danish
tonnage tax scheme at the time of entering this scheme. This is to be paid only if TORM
discontinues 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 AND TREASURY SHARES

Common shares

A-shares

B-shares

C-shares

Total

2019

2018

2017

Number of

74,748,248

74,218,846

62,298,846

74,748,250

74,218,848

62,298,848

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 A-shares are listed on Nasdaq OMX Copenhagen and Nasdaq in New York and are publicly
available for trading. Each A-share carries one vote at the general meeting and gives the
shareholders right to dividends, liquidation proceeds or other distributions. The A-shares carry
no other rights or obligations.

• The net tonnage of the vessels used to generate the income from shipping activities
• A rate applicable to the specific net tonnage of the vessel based on a sliding scale

Due to the provisions of the Danish tonnage tax scheme, the effective tax rate of the Group is
0.5% (2018: 4.7%, 2017: 24.4 %).

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.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

126

NOTE 13 - continued

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 3.

Treasury shares

Number of shares ('000)

Balance as of 1 January

Additions

Cancellations

Disposals

2019

2018

2017

312.9

Balance as of 31 December

312.9

NOTE 13 - continued

Treasury shares - continued

Nominal value USD '000

Balance as of 1 January

Additions

Cancellations

Disposals

2019

2018

2017

3.1

Balance as of 31 December

3.1

Percentage of share capital

Balance as of 1 January

Additions

Cancellations

Disposals

Dilution, due to capital increases

Balance as of 31 December

0.4%

0.5%

0.4%

-0.1%

0.4%

0.5%

0.0%

0.5%

The total consideration for the treasury shares was USD 0.0m (2018: USD 0.0m, 2017: USD
0.0m). As of 31 December 2019, the Company's holding of treasury shares represented 312,871
shares (2018: 312,871 shares, 2017: 312,871 shares) of USD 0.01 each at a total nominal value of
USD 0.0m (2018: USD 0.0m, 2017: USD 0.0m) and a market value of USD 3.5m (2018: USD 2.1m,
2017: USD 2.7m).

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

2019

2018

0.5

14.1

4.0

14.3

12.3

0.1

2.0

47.3

1.2

9.1

4.6

16.1

3.4

0.1

2.0

36.5

The carrying amount is a reasonable approximation of fair value due to the short-term nature of
the receivables. Please refer to note 21 for further information on fair value hierarchies.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

127

NOTE 15 - EFFECTIVE INTEREST RATE, OUTSTANDING BORROWINGS

As of 31 December 2019, no drawdowns had been made on the Working Capital Facility or the
KfW 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 notes 20 and 21 for further information on interest rate swaps and financial risks.

USDm

BORROWINGS

DSF Facility 1 (USD)

TFA Facility 1 (USD) ³

DSF Facility 2 (USD)

DSF Facility 3 (USD)

TFA Facility 2 (USD) ³

ING (USD) ³

CEXIM (USD)

⁾

ABN AMRO (USD) ³

DSF Facility 4 (USD)
⁾

Bocomm (USD)

Springliner (USD)

⁾

Eifuku (USD)

Showa (USD)

Weighted average effective interest rate

Carrying value

Hereof non-current ⁴

Hereof current ⁴

⁾

2019

2018

2017

Fixed/

Effective

Carrying

Effective

Carrying

Effective

Carrying

floating Maturity

interest¹

value²

Maturity

interest¹

value²

Maturity

interest¹

value²

Floating

Fixed

Floating

2021

2022

2024

2030

2024

2026

2025

2026

2024

⁾
4.7%

5.1%

4.7%

5.1%

4.1%

4.4%

4.2%

4.4%

5.5%

5.3%

5.1%

4.9%

⁾

50.0

237.3

48.2

21.8

75.2

35.5

104.0

21.1

86.5

63.9

60.3

25.7

25.2

854.7

756.0

98.7

2021

2022

2024

2030

⁾
5.6%

6.0%

5.6%

5.4%

4.6%

5.3%

⁾

64.1

331.3

52.4

24.3

103.7

42.0

111.7

2021

2022

2024

⁾
5.4%

5.0%

5.1%

5.4%

4.6%

⁾

74.2

400.8

56.5

26.8

115.0

45.8

2022

8.9%

25.3

2022

8.9%

28.2

5.8%

5.2%

754.8

659.4

95.4

747.3

651.6

95.7

¹
²

³
⁴

⁾

Effective interest rate includes deferred and amortized bank fees.
Because of the floating interest rate, the carrying value of the Group's borrowings is approximately equal to the fair value. The carrying value is excluding capitalized bank fees recognized in the balance sheet as well as lease liabilities regarding
⁾
right-of-use assets recognized under Land and buildings and Other plant and equipment.
⁾
Refinanced on 6 February 2020
Split between current and non-current is based on terms in effect as of 31 December, without consideration to the refinancing taking place in 2020.
⁾
⁾

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

128

NOTE 16 – COLLATERAL SECURITY FOR BORROWINGS

NOTE 17 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES

The total carrying amount for vessels that have been provided as security amounts to USD
1,675m as of 31 December 2019 (2018: USD 1,314m), including transferred ownership under sale
and leaseback arrangements, where the vessels are not derecognized and where vessels are
provided as security for the leasing financing.

Please refer to note 1 for further information.

The guarantee commitments of the Group are less than USD 0.1m (2018: USD 0.1m) and relate to
guarantee commitments to Danish Shipping Finance.

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 RIGHTS AND 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 Group's contractual obligations as of 31 December 2019.

USDm

Borrowings ¹

Interest payments related to scheduled interest fixing

⁾

Estimated variable interest payments ³

Newbuilding installments ⁴

⁾

Committed scrubber installations

⁾

Trade payables and other obligations

Total

2020

101.2

33.8

4.3

51.2

32.0

76.3

2021

326.9

25.4

6.7

2022

119.5

13.1

4.4

2023

30.8

10.0

3.6

2024

Thereafter

82.8

202.2

8.0

3.5

6.9

11.6

Total

863.4

97.2

34.1

51.2

32.0

76.3

298.8

359.0

137.0

44.4

94.3

220.7

1,155.2

The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 8.0m (2018: USD 5.1m), which are amortized over the term of the loans. Borrowing costs capitalized during the year amount
to USD 5.8m (2018: USD 1.1m).
⁾
Borrowings include contractual obligations relating to lease liabilities arising from land and buildings and other plant and operating equipment amounted to USD 8.7m (2018: USD 0.0m), and the contractual value of lease liabilities relating to
vessels and capitalized dry-dockings amounted to USD 21.9m (2018: USD 25.3m). For further detail please refer to note 7.
⁾
Variable interest payments are estimated based on the forward rates for each interest period including hedging instruments.

⁾

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

129

NOTE 18 – continued

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

USDm

Borrowings

Total

Primarily due to implementation of IFRS 16.

⁾

USDm

Borrowings

Total

Opening

balance as of

1 January

Cash

Non-cash

End balance

as of 31

Other

December

2019

Borrowings Repayments

changes¹

749.6

261.8

-169.2

13.2
⁾

13.2

2019

855.4

Opening

balance as of

1 January

Cash

Non-cash

End balance

as of 31

Other

December

2018

Borrowings Repayments

changes

749.1

114.5

-113.7

-0.3

2018

749.6

TORM has contractual rights to receive future payments as lessor of vessels on time charter and bareboat charter.

The following table summarizes the Group's contractual rights as of 31 December 2019.

USDm

Contractual rights - as lessor:

Charter hire income for vessels ⁵

Total

⁾

2020

2021

2022

2023

2024

Thereafter

Total

12.6

1.1

13.7

⁵

Charter hire income for vessels on time charter and bareboat charter is recognized under "Revenue". The average period until redelivery of the vessels for the period ended 31 December 2019 is 1.0 year (2018: 0.8 year).

⁾

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

130

NOTE 19 – DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 19 – continued

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

USDm

Fair value of derivatives:

Derivative financial instruments regarding freight and bunkers:

Forward freight agreements

Bunker swaps

Derivative financial instruments regarding interest and currency

exchange rate:

Forward exchange contracts

Interest rate swaps

Fair value of derivatives as of 31 December

Derivative financial instruments are presented as below on the balance sheet:

2019

2018

Hedging of risks with derivative financial instruments are made with a ratio of 1:1. Sources of
ineffectiveness are mainly derived from differences in timing and credit risk adjustments. Any
ineffective portions of the cash flow hedges are recognized in the income statement as financial
items. Value adjustments of the effective part of cash flow hedges are recognized directly in
comprehensive income. Gains and losses on cash flow hedges are upon realization transferred
from the equity hedging reserve into the income statement.

-0.3

0.5

-1.2

TORM held at year end 2019 and 2018 the following derivative financial instruments designated
as hedge accounting:

-0.4

-1.8

-11.1

-11.8

2.8

0.3

Hedge accounting

Expected maturity

2019

value

Unit

2020

2021

Notional

After

2021

Forward exchange contracts

(USD/DKK) ¹

Interest rate swaps ²

⁾
Bunker swaps ³

⁾

222.5

DKKm

222.5

597.8

USDm

120.5

239.5

237.8

4,725

USDm

2019

Offsetting financial assets and financial liabilities:

Gross amount

Offsetting amount

Net amount presented on the balance sheet

USDm

2018

Offsetting financial assets and financial liabilities:

Gross amount

Offsetting amount

Net amount presented on the balance sheet

Financial

assets

liabilities

¹
²
²

⁾

The average hedge of USD/DKK currency was 6,5.
The average interest rate was 2.33% plus margin.
⁾
The average price of the hedging instruments was USD 652.0.
⁾
⁾

0.7

-12.5

-0.2

0.2

0.5

-12.3

Financial

assets

liabilities

7.1

-3.4

3.7

-6.8

3.4

-3.4

Hedge accounting

Expected maturity

2018

value

Unit

2019

2020

Notional

After

2020

Forward exchange contracts

(USD/DKK) ¹

Interest rate swaps ²

⁾
Bunker swaps ³

⁾

250.0

DKKm

250.0

512.8

USDm

46.6

160.9

305.3

10,400

¹
²
³

⁾

The average hedge of USD/DKK currency was 6,5.
The average interest rate was 2.04% plus margin.
⁾
The average price of the hedging instruments was USD 413.7.
⁾
⁾

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

131

NOTE 19 - continued

Interest rate swaps with a fair value of USD 11.1m (net loss) are designated as hedge accounting
relationships to fix a part of TORM's interest payments during the period 2020-2026 with a
notional value of USD 597.8m (2018: USD 512.8m, 2017: USD 406.4m).

The derivatives are not under central clearing but are settled on a bilateral basis with the
counterparties. All contracts are settled in a net amount per counterparty, and therefore the net
value per counterparty is presented in the financial statement.

Cash collateral of USD 13.0m (2018: USD 3.5m) has been provided as security for the
agreements relating to derivative financial instruments, which does not meet the offsetting
criteria in IAS 32, but it can be offset against the net amount of the derivative asset and
derivative liability in case of default and insolvency or bankruptcy in accordance with associated
collateral arrangements.

TORM did not enter into any enforceable netting arrangements.

Further details on derivative financial instruments are provided in note 20 and note 21.

Forward freight agreements of USD 0.4m (net gain) have been recognized in the income
statement in 2019 (2018: USD -2.1m, 2017: USD 0.5m). FFAs are used to mitigate fluctuations in
the freight rates of vessels with a duration of 0–36 months. The FFAs are not designated for
hedge accounting.

Bunker swap agreements of USD 0.1m (net loss) have been recognized in the income statement
in 2019 (2018: USD 1.1m, 2017: USD 1.2m). Bunker swaps with a duration similar to the period
hedged are used to reduce the exposure to fluctuations in bunker prices for fixed voyages.
Bunker swap agreements are designated as hedge accounting when appropriate.

Forward exchange contracts with a fair value of USD -0.4m (net loss) are designated as hedge
accounting relationships to hedge a part of TORM's payments in 2020 regarding administrative
and operating expenses denominated in DKK with a notional value of DKK 222.5m (2018: DKK
250.0m, 2017: DKK 257.0m).

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

132

NOTE 19 - continued

The table below shows realized amounts as well as fair value adjustments regarding derivative
financial instruments recognized in the income statements and equity in 2019, 2018 and 2017.

USDm

2019

Forward freight agreements

Bunker swaps

Forward exchange contracts

Interest rate swaps

Total

2018

Forward freight agreements

Bunker swaps

Forward exchange contracts

Interest rate swaps

Total

2017

Forward freight agreements

Bunker swaps

Forward exchange contracts

Interest rate swaps

Total

Other

comprehensive

Income statement

income ¹

Equity ²

Port

expenses,

⁾

Adjustment to

Hedging

bunkers and

Financial

Operating

Administra-

hedging

reserves as of

Revenue

commissions

items

expenses

tive expenses

reserve

31 December

0.4

-2.1

0.5

-0.1

1.1

1.2

2.1

1.0

-3.4

-2.0

0.1

0.3

-1.5

0.2

-0.5

0.9

1.4

-13.8

-12.0

0.9

-2.0

-3.7

-2.3

-7.1

-0.3

4.4

2.7

6.8

-0.3

-0.4

-11.1

-11.8

0.5

-1.2

-1.8

2.8

0.3

-0.4

0.8

1.8

5.1

7.3

¹
²

Fair value adjustments on hedging instruments added to the hedging reserves for interest rate swaps, are for 2019 USD -11.7m, for 2018 USD -1,3m and for 2017 USD -0.7m.
The hedging reserves as of 31 December of the derivatives used for cash flow hedge are equal to the entire fair value of the hedge instruments as no ineffectiveness has been identified and the reserve includes open hedge instruments only.
⁾
⁾
Please refer to note 20 for further information on commercial and financial risks.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

133

NOTE 20 – RISKS ASSOCIATED WITH TORM’S ACTIVITIES

NOTE 20 - continued

TORM’s overall risk tolerance and inherited exposure to risks is divided into four main
categories:

• Long-term strategic risks
Industry and market-related risks
•
• Operational and compliance risks
• Financial risks

The risks described below 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.

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.

During 2019, 9.5% (2018: 13.1%; 2017: 12.5%) of earning days equal to 25.707 deriving from the
Company’s tankers was hedged in this way. Physical time charter contracts accounted for 59.3%
(2018: 62.8%; 2017: 60.7%) of overall hedging. In 2019, the Company sold FFAs with a notional
contract value of USD 34.9m (2018: USD 39.6m; 2017: USD 44.2m) and bought FFAs with a
notional contract value of USD 22.5m (2018: USD 18.8m; 2017: USD 12.2m). The total notional
contract volume sold in 2019 was 1,585,190 metric tons (2018: 2,683,000 metric tons; 2017:
1,754,000 metric tons), and the total notional volume bought was 1,295,000 metric tons (2018:
1,447,000 metric tons; 2017: 530,000 metric tons). At the end of 2019, the coverage of available
earning days for 2020 was 8.6% through time charters, current spot voyages, cargo contracts
and FFAs (2018: 9.9%; 2017: 13.3%). No FFA had maturity beyond 2020.

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.

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 changes
in profit before tax based on the expected number of earning days for the coming financial year:

Sensitivity to changes in freight rates

USDm

2020

2019

2018

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.

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

Changes in profit/loss before tax for the following year

Changes in equity for the following year

-25.4

-25.3

-24.1

-25.3

-24.1

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. Please refer to note 8 for details on impairment
testing.

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 derivative 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.

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 2019, the
carrying value of the fleet was USD 1,674.8m (2018: USD 1,396.5m). Based on broker valuations,
TORM’s fleet excluding undelivered newbuildings had a market value of USD 1,632.6m as of 31
December 2019 (2018: USD 1,322.1m).

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

134

NOTE 20 - continued

Bunker price fluctuations
The cost of fuel oil consumed by the vessels, known in the industry as bunkers, accounted for
61.1% (2018: 60.8%; 2017: 55.3%) of the total voyage costs in 2019 and is by far the biggest single
cost related to a voyage.

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 if a vessel is
involved in an oil spill or emission of other environmentally hazardous agents.

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 in its entirety for all risks.

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.

In 2019, 6.5% (2018: 4.8%; 2017: 3.3%) of TORM’s bunker purchase was hedged through bunker
hedging contracts. At the end of 2019, TORM had covered 2.6% equal to 13,590 metric tons
(2018: 2.0%; 2017: 2.1%) of its bunker requirements for 2020 using hedging instruments at an
average price of 398. No bunker derivatives had maturity beyond 2020. Total bunker exposure
is estimated to be approximately 529,852 metric tons.

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 changes in expenditure based on the expected
bunker consumption in the spot market:

Sensitivity to changes in the bunker price

USDm

2020

2019

2018

Increase in the bunker prices of 10% per ton:

Changes in profit/loss before tax for the following year

Changes in equity for the following year

-19.8

-20.7

-18.3

-20.7

-18.3

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 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 2019, the aggregate
insured value of hull and machinery and interest for TORM’s owned vessels amounted to USD
1.8bn (2018: USD 1.5bn; 2017: USD 1.4bn).

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. This characterizes the method for identifying the
market value of a derivative instruments.

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 situation are
brought to Management’s attention.

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.

The Company’s counterparty risks are primarily associated with:
• Receivables, cash and cash equivalents, including restricted cash
• Contracts of affreightment with a positive fair value
• Derivative financial instruments and commodity instruments with positive fair value

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

135

NOTE 20 - continued

Receivables, cash and cash equivalents, including restricted cash
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.

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.

A major part of the Company’s freight revenues stems from a small group of customers. In 2019,
no customer accounted for more than 10% of the Company’s freight revenues (2018: one
customer accounted for 17%; 2017: none). 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, a suitable bank guarantee is placed in lieu thereof.

The part of the Company’s expenses that is denominated in currencies other than USD accounts
for approximately 98.3% (2018: 98.3%; 2017: 97.9%) for administrative expenses and
approximately 20.1% (2018: 23.4%; 2017: 24.5%) for operating expenses. TORM’s expected
administrative and operating expenses in DKK and EUR for 2020 are approximately DKK 353.1m,
whereof 63.0% (2018: 64.1%; 2017: 62.0%) are hedged through FX forward contracts. All FX
forward contracts have maturity within 2020, and TORM’s average hedge USD/DKK currency
rate is 6.5. FX exposure is hedged in its entirety for all risks.

TORM assumes identical currency risks arising from exposures in DKK and EUR.

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/loss before tax and equity as follows:

USDm

2020

2019

2018

Effect of a 10% increase of DKK and EUR:

Changes in profit/loss before tax for the following year

Changes in equity for the following year

-2.0

-2.1

-2.5

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 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
original demurrage claimed, the Company’s average stands at 98.7% (2018: 98.1%; 2017: 97.0%),
which is considered to be satisfactory given the differences in interpretation of events. In 2019,
demurrage represented 13.1% (2018: 13.3%; 2017: 13.2%) of the total freight revenues. Please see
note 1 for more details on recognition of demurrage claim into revenue.

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 2019, 100.0% (2018: 100.0%; 2017: 100.0%) of TORM’s forward freight agreements (FFAs)
were cleared through clearing houses, 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.

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.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

136

NOTE 20 - continued

Interest rate risk
TORM’s interest rate risk generally relates to interest-bearing borrowings. All the Company’s
loans for financing vessels are denominated in USD. Please refer to note 15 for additional
information on borrowings.

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 2019,
TORM’s loan portfolio was spread across ten different banks.

At the end of 2019, TORM has fixed 72.9% of the interest exposure for 2020 equal to a total
interest expense exposure of USD 37.4m (2018: 66.2%; 2017: 63.2%). As of 31 December 2019,
TORM has interest rate hedges covering and with maturity in the period 2020-2026 with a
notional value of USD 597.8m, hedged at an interest rate of 2.33% plus margin. Interest exposure
is hedged in its entirety for all risks.

As of 31 December 2019, TORM maintains a liquidity reserve of USD 72m 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.

Most of TORM’s debt and interest hedging is based on US LIBOR which is set to expire by the
end of 2021. While it is not yet clear which reference rate will replace LIBOR after 2021, trade
organizations such as the LMA and ISDA are working with the market, each other and regulators
on the transition of LIBOR. As the expiration of LIBOR affects money market transactions worth
trillions of dollars and preparations are being made by leading trade organizations, a smooth
transition with insignificant risk to TORM is expected. TORM continues to monitor the progress
of the negotiations towards a new reference rate.

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

2020

2019

2018

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

Changes in profit/loss before tax for the following year

Changes in equity for the following year

-3.0

7.9

-2.4

8.0

-3.2

3.6

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

137

NOTE 21 – FINANCIAL INSTRUMENTS

Categories of financial assets and liabilities (USDm):

(level 1)

(level 2)

(level 3)

fair value

cost

value

Quoted

Observable

Unobservable

instruments

measured at

prices

input

measured at

amortized

Total carrying

Financial

instruments

2019:

Financial assets

Loan receivables

Freight receivables

Other receivables

Cash and cash equivalents, including restricted cash

Total

Financial liabilities

Borrowings

Trade payables

Other liabilities

Total

2018:

Financial assets

Freight receivables

Other receivables

Cash and cash equivalents, including restricted cash

Total

Financial liabilities

Borrowings

Trade payables

Other liabilities

Total

⁾

0.5

12.3

3.7

3.4

0.5

12.3

3.7

3.4

4.6

89.8

5.7

72.5

172.6

855.4

47.1

35.0

4.6

89.8

6.2

72.5

173.1

855.4

47.1

47.3

937.5

949.8

86.0

3.8

127.4

217.2

86.0

7.5

127.4

220.9

749.6

35.1

33.1

817.8

35.1

36.5

821.2

¹
²
³

Due to the short maturity, the carrying value is considered to be an appropriate expression of the fair value.
See note 15.
⁾
Derivative financial instruments are presented within the balance sheet line Other receivables and Other liabilities.
⁾
⁾
There have been no transfers between level 1 and 2.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

138

NOTE 21 - continued

FAIR VALUE HIERARCHY FOR FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE IN
THE BALANCE SHEET
Below please find 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.
• 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)

METHODS AND ASSUMPTIONS IN DETERMINING FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative part of other receivables and other payables
The fair value of derivatives in other receivables and other payables is measured using accepted
valuation methods with input variables such as yield curves, forward curves, spreads, etc. and
compared to financial counterparties to ensure acceptable valuations. The valuation methods
discount the future fixed and estimated cash flows and valuation of any option elements.

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. Dividends to related parties are paid out on the basis of the related parties’
ownership of shares.

The remuneration of key management personnel, which consists of the Board of Directors and
the Executive Director, is disclosed in note 3.

NOTE 23 – ASSETS HELD FOR SALE AND NON-CURRENT ASSETS SOLD
DURING THE YEAR

During 2019, TORM sold eight vessels, of which seven were delivered to the new owners during
2019, and one vessel was delivered in Q1 2020 (presented as “assets held for sale” as of 31
December 2019). The sales resulted in a profit from sale of vessels of USD 1.2m and impairment
losses on tangible assets of USD 6.0m. During 2019, TORM sold eight vessels that were leased
back to TORM and which have not been derecognized and where the proceeds provided of
USD 157.8m have been presented as financial liabilities.

During 2018, TORM sold four vessels, of which three were delivered to the new owners during
2018, and one vessel was delivered in Q1 2019 (presented as “assets held for sale” as of 31
December 2018). The sales resulted in a profit from sale of vessels of USD 0.8m and an
impairment loss on tangible assets of USD 3.2m.

During 2017, TORM sold eight vessels, of which four were delivered to the new owners during
2017, one vessel was 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. The sales resulted in a profit
from sale of vessels of USD 2.8m and a total impairment loss on sold or held-for-sale vessels of
USD 3.6m.

NOTE 24 – CASH FLOWS

USDm

2019

2018

2017

Reversal of other non-cash movements:

Exchange rate adjustments

Share-based payments

Other adjustments

Total

USDm

Change in bunkers, receivables and payables:

During 2019, TORM did transactions with its joint venture producing scrubbers for the TORM
fleet amounting to USD 26.1m in total. The joint venture will continue to assist TORM in installing
scrubbers in 2020.

Change in bunkers

Change in receivables

Change in prepayments

Change in trade payables and other liabilities

Other changes

Adjusted for fair value changes of derivative financial

instruments

Total

-0.9

1.9

-0.1

0.9

2.0

1.8

1.9

3.7

2019

2018

2017

5.1

-2.5

-0.7

22.8

-0.8

-6.2

-1.6

-10.4

-12.4

1.5

11.7

-2.2

-1.4

-1.6

-2.9

-12.0

-7.1

6.9

11.9

-12.7

-13.0

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

139

NOTE 25 – ENTITIES IN THE GROUP

Entity

TORM plc

Investments in subsidiaries ⁶

Entity

TORM A/S

⁾

DK Vessel HoldCo GP ApS

DK Vessel HoldCo K/S

OCM (Gibraltar) Njord Midco Ltd ⁴

OCM Njord Chartering Inc ⁴

⁾

OCM Singapore Njord Holdings Agnes, Pte. Ltd ³

⁾

OCM Singapore Njord Holdings Alice, Pte. Ltd

⁾
OCM Singapore Njord Holdings Almena, Pte. Ltd

OCM Singapore Njord Holdings Amalie, Pte. Ltd ³

OCM Singapore Njord Holdings Aslaug, Pte. Ltd ³

⁾

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 Gorm Pte. Ltd ³

OCM Singapore Njord Holdings Knut Pte. Ltd ³

⁾

OCM Singapore Njord Holdings Valdemar Pte. Ltd ³

⁾

OCM Singapore Njord Holdings Agnete, Pte. Ltd

⁾
OCM Singapore Njord Holdings Alexandra, Pte. Ltd

OCM Singapore Njord Holdings Anabel, Pte. Ltd ³

OCM Singapore Njord Holdings Arawa Pte. Ltd ³

⁾

OCM Singapore Njord Holdings Leif Pte. Ltd ³

⁾

Country

United

Kingdom

Country

Denmark

Gibraltar

Marshall Islands

Singapore

Ownership ⁵

100%
⁾
100%

100%

Investments in subsidiaries ⁶

- continued:

Entity

⁾

Country

Ownership ⁵

OCM Holdings Mrs Inc. ⁴

OCM Njord Anne Inc. ⁴

⁾

OCM Njord Freya Inc. ⁴
⁾

OCM Njord Gerd Inc. ⁴

⁾

OCM Njord Gertrud Inc. ⁴

⁾

OCM Njord Gunhild Inc. ⁴

⁾

OCM Njord Helene Inc. ⁴

OCM Njord Helvig Inc. ⁴

⁾

OCM Njord Ingeborg Inc. ⁴

⁾

OCM Njord Mary Inc. ⁴

⁾

OCM Njord Ragnhild Inc. ⁴

⁾
OCM Njord Thyra Inc. ⁴

OCM Njord Valborg Inc. ⁴

⁾

OCM Njord Vita Inc. ⁴

⁾

OMI Holding Ltd.

⁾

TORM Crewing Service Ltd.

TORM Shipping India Private Limited

TORM Singapore Pte. Ltd.

TORM USA LLC

VesselCo 1 K/S

VesselCo 3 K/S

Marshall Islands

Mauritius

Bermuda

India

Singapore

USA

Denmark

100%
⁾
100%

100%

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

140

NOTE 25 - continued

Investments in subsidiaries ⁶

- continued:

Entity

⁾

VesselCo 5 K/S ¹

VesselCo 6 K/S ²

⁾

VesselCo 6 Pte. Ltd.

⁾

VesselCo 7 Pte. Ltd.

VesselCo 8 Pte. Ltd.

VesselCo 9 Pte. Ltd.

VesselCo 10 Pte. Ltd.

VesselCo 11 Pte. Ltd.

VesselCo 12 Pte. Ltd. ¹

TORM SHIPPING (PHILS.), INC.

⁾

VesselCo A ApS

VesselCo C ApS

VesselCo E ApS ¹

VesselCo F ApS ²

⁾

Country

Denmark

Singapore

Philippines

Denmark

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

Ownership ⁵

Denmark

India

Tuborg Havnevej 18

2nd Floor

Philippines

7th Floor

Singapore

6 Battery Road #27-02

100%
⁾
100%

100%

25%

100%

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

USA

Mauritius

¹
²
³
⁴
⁵

⁶

⁾

Entities added in the financial year ended 31 December 2017.
Entities added in the financial year ended 31 December 2018.
⁾
Entities dissolved in the financial year ended 31 December 2017.
⁾
Entities dissolved in the financial year ended 31 December 2018.
⁾
For all subsidiaries, ownership and voting rights are the same except for TORM SHIPPING (PHILS.), INC where voting
⁾
rights are 100%.
⁾
All subsidiaries are consolidated in full.

⁾

Bermuda

Gibraltar

Hong Kong

c/o Estera Services

57/63 Line Wall Road Room A, 7/F

(Bermuda Limited)

GX11 1AA

China Overseas Bldg.

Canon's Court

Gibraltar

139 Hennessy Road

22 Victoria Street

PO Box 1624

Hamilton HM GX

Bermuda

Wanchai

Hong Kong

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

141

NOTE 25 - continued

NOTE 26 – EARNINGS PER SHARE AND DIVIDEND PER SHARE

Interest in legal entities included as joint ventures:

2019

2018

2017

2019

EARNINGS PER SHARE

Profit and

Other

Total

loss from

compre-

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

166.0

-34.8

2.4

continuing

Entity (USDm)

Country

% Control

operations

Long Range 2 A/S

Denmark

LR2 Management K/S Denmark

50%

Marine Exhaust

Technology Ltd.

Hong Kong

28%

3.4

hensive

income

hensive

income

3.4

Million shares

Weighted average number of shares

Weighted average number of treasury shares

Weighted average number of shares outstanding

Dilutive effect of outstanding share options

Weighted average number of shares outstanding incl.

74.3

-0.3

74.0

0.0

73.4

-0.3

62.3

-0.3

73.1

62.0

For registered addresses, please refer to the table above.

dilutive effect of share options

74.0

73.1

62.0

Basic earnings/(loss) per share (USD)

2.24

-0.48

0.04

Diluted earnings/(loss) per share (USD)

2.24

-0.48

0.04

When calculating diluted earnings per share for 2018 and 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 3 for information on the RSU share options.

DIVIDEND PER SHARE

Dividend for the year (USDm)

Number of shares, end of period (million)

Dividend per share

2019

2018

2017

7.4

74.7

74.2

0.10

1.2

62.3

0.02

The Board of Directors has decided to recommend a dividend of USD 7.4m, equivalent to USD
0.10 per share, for approval at the AGM on 15 April 2020.

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

142

PARENT COMPANY 2019

TORM ANNUAL REPORT 2019

CONSOLIDATED FINANCIAL STATEMENTS

143

Note

2019

2018

USD '000

Note

2019

2018

COMPANY BALANCE SHEET
AS OF 31 DECEMBER

- continued

USD '000

ASSETS

NON-CURRENT ASSETS

Tangible fixed assets

Vessels

EQUITY AND LIABILITIES

EQUITY

Common shares

Treasury shares

24,644

26,412

Other plant and operating equipment

Total tangible fixed assets

Hedging reserves

24,679

26,412

Share premium

Financial assets

Investments in subsidiaries

Loan receivables

Total financial assets

Total non-current assets

CURRENT ASSETS

Loans to subsidiaries

Other receivables

Prepayments

Cash and cash equivalents, including restricted cash

Total current assets

TOTAL ASSETS

Retained profit/(loss)

Total equity

6 1,061,559

876,280

4,617

LIABILITIES

1,066,176

876,280

NON-CURRENT LIABILITIES

Borrowings

1,090,855

902,692

Total non-current liabilities

242,221

105,876

215

370

490

621

70,601

73,035

313,407

180,022

CURRENT LIABILITIES

Borrowings

Trade payables

Payables to subsidiaries

Other liabilities

Total current liabilities

1,404,262 1,082,714

Total liabilities

747

742

-2,887

-10,902

-2,677

911,552

907,355

2 222,543

-55,095

1,121,053

847,438

3 235,839

169,015

235,839

169,015

23,230

22,761

250

103

12,234

39,476

11,656

3,921

47,370

66,261

283,209

235,276

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

1,404,262 1,082,714

Mr. Jacob Meldgaard
Executive Director
11 March 2020

TORM ANNUAL REPORT 2019

Parent Company 2019

PARENT COMPANY 2019

144

COMPANY STATEMENT OF CHANGES IN EQUITY

USD '000

EQUITY

Common

Treasury

Hedging

Retained

reserves

premium

profit

Total

Equity as of 1 January 2018

623

-2,887

604

810,263

16,014

824,617

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

Capital increase

Transaction costs capital increase

Share-based compensation

Total changes in equity 2018

Equity as of 31 December 2018

Comprehensive income/(loss) for the year:

Net profit for the year

Other comprehensive income/(loss) for the year

Total comprehensive income/(loss) for the year

Capital increase

Share-based compensation

Dividend paid

Total changes in equity 2019

Equity as of 31 December 2019

119

-3,281

-73,135

-3,281

-73,135

-76,416

99,880

-2,788

97,092

2,026

99,999

-2,788

2,026

99,237

742

-2,887

-2,677

907,355

-55,095

847,438

-8,225

4,197

275,725

-8,225

275,725

267,500

1,913

4,202

1,913

4,197

1,913

6,115

747

-2,887

-10,902

911,552

222,543

1,121,053

TORM ANNUAL REPORT 2019

PARENT COMPANY 2019

145

NOTES TO PARENT
FINANCIAL STATEMENTS

Note 1 – Accounting policies – Supplementary for the Parent Company

Note 2 – Profit/loss and total comprehensive income for the year

Note 3 – Interests and borrowings

Note 4 – Staff costs

Note 5 – Tangible fixed assets

Note 6 – Financial assets

Note 7 – Loan receivables

Note 8 – Other liabilities

Note 9 – Impairment testing

Note 10 – Collateral security for mortgage debt and bank loans

Note 11 – Guarantee commitments and contingent liabilities

Note 12 – Related party transactions

147
148
148
148
148
148
149
149
149
150
150
150

TORM ANNUAL REPORT 2019

PARENT COMPANY 2019

146

NOTE 1 – ACCOUNTING POLICIES – SUPPLEMENTARY FOR
THE PARENT COMPANY

NOTE 1 - continued

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In supplement to the critical accounting estimates and judgements provided in note 1 of the
Group consolidated financial statements on pages 116-117, the following is considered a
significant accounting estimate used in the preparation of the Company’s financial statements.

Carrying amounts of investments in subsidiaries
The Company evaluates the carrying amounts of subsidiaries to determine if events have
occurred that would require a modification of their carrying amounts. The valuation of
subsidiaries is reviewed based on the performed impairment testing of the Groups cash-
generating unit – the Tanker Segment, excluding the Parent Company’s effect on the value in
use of the cash-generating unit.

For further information regarding the underlying impairment testing of the vessels in the Group,
please refer to note 8 of the Group consolidated financial statements.

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 cashflow
statement and certain related party transactions.

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 107.

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 3 of the Group
consolidated financial statements on pages 118-120.

ACCOUNTING POLICIES
In supplement to the accounting policies provided in note 1 of the Group consolidated financial
statements on pages 107-117, the following accounting policies were applied to the Company’s
financial statements.

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 less provision for
impairment and classified as "non-current assets". Dividends are recognized under “Financial
income".

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.

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

TORM ANNUAL REPORT 2019

PARENT COMPANY 2019

147

NOTE 2 – PROFIT/LOSS AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR

NOTE 5 – TANGIBLE FIXED ASSETS

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 275,725k (2018: USD -73,135k), and other
comprehensive income for the year of the Company amounted to USD -8,225k (2018: USD -
3,281k).

NOTE 3 – INTERESTS AND BORROWINGS

As of 31 December 2019, the Company had borrowed USD 240.1m (31 December 2018: USD
170.0m, 2017: USD 187.5m). The loan proceeds was USD 3.0m lower (2018: USD 3.6m, 2017: USD
2.9m) due to borrowing fees. The fees are amortized over the loan periods. In 2019, the
Company had interest expenses of USD 9.4m (2018: USD 8.5m, 2017: USD 6.0m) regarding
these loan facilities.

As of 31 December 2019, the Company had finance lease liabilities of USD 21.9m (31 December
2018: USD 25.3m, 31 December 2017: USD 28.2m). In 2019, the Company had interest expenses
of USD 2.0m (2018: USD 2.3m, 2017: USD 1.8m) regarding financial leases.

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 right-of-use assets

Implementation of IFRS 16 did not have any material effect on the Company’s financial
statements.

NOTE 6 – FINANCIAL ASSETS

NOTE 4 – STAFF COSTS

USD'000

Total staff costs

2019

2018

USD'000

Investments in subsidiaries

Cost:

Balance as of 1 January

Additions

Staff costs included in administrative expenses

Total staff costs

1,338

1,322

Capital decreases in subsidiaries

Capital increases related to share-based payments

Average number of permanent employees

Balance as of 31 December

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

Impairment:

Balance as of 1 January

Impairment (reversal)/losses for the year

Balance as of 31 December

2019

2018

30,500

4,088

1,736

1,768

2,352

5,856

4,088

24,644

26,412

24,644

26,412

2019

2018

1,292,080 1,270,715

34,587

-88,934

-15,248

1,913

2,026

1,205,059 1,292,080

415,800

337,600

-272,300

78,200

143,500

415,800

Carrying amount as of 31 December

1,061,559

876,280

TORM ANNUAL REPORT 2019

PARENT COMPANY 2019

148

NOTE 7 – LOAN RECEIVABLES

NOTE 9 – IMPAIRMENT TESTING

USD '000

Loan receivables

Cost:

Balance as of 1 January

Additions during the year

Balance as of 31 December

Provision for impairment:

Balance as of 1 January

Additions during the year

Balance as of 31 December

Carrying amount as of 31 December

2019

2018

As of 31 December 2019, 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.

4,711.2

94.2

4,617.0

As of 31 December 2019, the recoverable amount of the investments in subsidiaries was based
on the value in use.

Based on this test, Management concluded that a reversal of previous impairment charges of
USD 272.3m was needed, as the value in use exceeded the carrying amount.

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.

Loans arised as part of sale and leaseback transactions for two MR vessels in 2019. Further
details are provided in note 23 of the Group consolidated financial statements. The loans mature
in 2026 and have an interest rate applicable fixed at 1% per annum.

NOTE 8 – OTHER LIABILITIES

USD '000

Derivative financial instruments

Other

Balance as of 31 December

2019

2018

10,902

3,149

754

772

11,656

3,921

TORM ANNUAL REPORT 2019

PARENT COMPANY 2019

149

NOTE 10 – COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS

NOTE 12 – RELATED PARTY TRANSACTIONS

The carrying amount of investments in subsidiaries that have been provided as security for
mortgage debt and bank loans amounts to USD 315,700k (2018: USD 228,084k).

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.

NOTE 11 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES

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

During 2019, a subsidiary of the Company sold eight vessels to, and concurrently leased them
back from, a third party (see note 23 to the Group Financial statements). As part of this
transaction, the Company issued a guarantee to the third party in relation to future lease
payments to be made by the subsidiary, which are expected to total approximately USD 27.9m.

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 7.6m (2018: USD
12.1m, 2017: USD 103.0m).

The Company has income in the form of interests from its subsidiaries of USD 8.8m (2018: USD
2.6m, 2017: USD 0.3m), relating to loans to subsidiaries.

The Company has income in form of bareboat hire from its subsidiary TORM A/S of USD 53.0m
(2018: USD 48.7m, 2017: USD 21.2m).

The Company has paid bareboat hire to its subsidiaries in the amount of USD 47.2m (2018: USD
43.0m, 2017: USD 17.1m).

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

TORM ANNUAL REPORT 2019

PARENT COMPANY 2019

150

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

OPINION

BASIS FOR OPINION

In our opinion:
•

the financial statements of TORM plc (the ‘parent
company’) and its subsidiaries (the ‘group’) give a true
and fair view of the state of the group’s and of the parent
company’s affairs as at 31 December 2019 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 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
the related notes 1 to 26 in respect of the group financial
statements and notes 1 to 12 in respect of the parent
company financial statements.

•
•

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).

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.

SUMMARY OF OUR AUDIT APPROACH

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

•

Impairment of the group’s Tanker Segment

This 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 0.5%
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.

Significant changes in our approach
There were no significant changes in our approach in the
current year.

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 parent 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.

We considered as part of our risk assessment the nature of the
group, its business model and related risks including where
relevant the impact of Brexit, the requirements of the
applicable financial reporting framework and the system of
internal control. We evaluated the directors’ assessment of the
group’s ability to continue as a going concern, including
challenging the underlying data and key assumptions used to
make the assessment, and evaluated the directors’ plans for
future actions in relation to their going concern assessment.

We also state whether we have anything material to add or
draw attention to in relation to the directors’ statement and
report if the statement is materially inconsistent with our
knowledge obtained in the audit.

Going concern is the basis of preparation of the financial
statements that assumes an entity will remain in operation
for a period of at least 12 months from the date of approval
of the financial statements.

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

We confirm that we have nothing material to report, add or
draw attention to in respect of these matters.

TORM ANNUAL REPORT 2019

INDEPENDENT AUDITOR’S REPORT

151

Independent auditor’s report

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

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 parent
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 33 to 38 that describe the
principal risks, procedures to identify emerging risks and
an explanation of how these are being managed or
mitigated;
the directors' confirmation on page 34 that they have
carried out a robust assessment of the principal and
emerging risks facing the group, including those that
would threaten its business model, future performance,
solvency or liquidity; or
the directors’ explanation on page 48 as to how they have
assessed the prospects of the group, over what period
they have done so and why they consider that period to
be 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 also report whether the directors’ statement relating to the
prospects of the group is materially inconsistent with our
knowledge obtained in the audit.

Viability means the ability of the group to continue over the
time horizon considered appropriate by the directors.

We confirm that we have nothing material to report, add or
draw attention to in respect of these matters.

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.

IMPAIRMENT OF THE GROUP’S TANKER SEGMENT

Impairment of the Group’s Tanker Segment
As a consequence of ongoing volatility in freight rates during
2019, the carrying value of the Group’s Tanker segment cash
generating unit (“CGU”) 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 2019, which consists of
vessels and capitalized dry-docking and prepayments on
vessels, was USD 1,770 million (2018: USD 1,442 million), a
figure which incorporates the impact of a USD 120 million
impairment reversal in 2019. 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 or impairment reversal 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 2020-2022 and thereafter the 10-
year historical average rates as achieved by the group, and
also adjusted for inflation of 2%pa;

• vessel utilisation;

• discount rate of 7.5%;
•
• operating expenditure.

inflation rate of 2% pa; and

The group has also installed scrubbers on certain of its vessels
which enable them to continue using heavy sulfur fuel oil after
the implementation of the IMO sulfur regulations on 1 January
2020. Management’s value in use estimate includes the
anticipated benefit arising from the use of scrubbers
(“scrubber premiums”) based on current market differentials
between the cost of heavy and low sulfur fuel oil for 2020 to
2022, with a 50% reduction thereafter.

As referenced on page 116 of the financial statements, the
carrying value of vessels is considered by management as a
key source of estimation uncertainty.

Management concluded that an impairment reversal of USD
120 million was required. This represents the reversal in full of
the USD 185 million impairment charge recorded in 2016, after
excluding the portion of this charge relating to goodwill and
vessels that have been subsequently sold, and also capping
the reversal so that it does not result in a carrying value in
excess of the amount that would have arisen if the 2016
impairment charge had not been recorded.

Further details of the amounts capitalised at 31 December 2019
and the related assumptions and sensitivities considered by
management are provided in notes 8 of the financial
statements and in the Audit Committee report on page 72.

TORM ANNUAL REPORT 2019

INDEPENDENT AUDITOR’S REPORT

152

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

How the scope of our 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. Our initial
assessment included:
• obtaining an understanding of controls relevant to the risk

of impairment of its CGU;

• understanding the process by which management has

•

derived its value in use estimates; and
challenging management’s assessment that the fleet is a
single cash generating unit.

We subsequently concluded that the most effective method
for testing management’s value in use estimate was to develop
our own independent point estimate. This estimate utilised
management’s value in use model but replaced certain key
assumptions with our own independent estimates. The most
significant of our independent estimates were:
•

future freight rates: based on third party forecasts for
2020 and thereafter the 10-year historical average rates as
achieved by the group, adjusted for inflation;

• utilisation: based on historical utilisation rates, adjusted for

estimated future dry dock requirements;

• discount rate: based on an independent calculation from

•

our internal valuation specialists;
inflation rate: 2% pa, based on published central bank
target rates;

• operating expenditure: based on 2019 figures adjusted for

•

inflation; and
scrubber premiums: included for 2020, based on third
party forecasts, but not thereafter.

We also:
•

•

tested the clerical accuracy of the resulting value in use
calculations;
confirmed that management’s calculation of the carrying
value that would have arisen if the 2016 impairment charge
had not been recorded was appropriate, and hence that
the impairment reversal was correctly capped at USD 120
million; and
considered the extent to which climate change could
materially impact the value in use of the CGU. In this
context, we concluded that the principal potential impact
was the extent to which future freight rates would be
adversely impacted by the transition to a low carbon
global economy. Based on third party forecasts of global
energy demand, which included scenarios consistent with
the Paris climate agreement, we concluded that there was
not a risk that changes to future freight rates due to
climate change would result in a material adjustment to
our independent value in use estimate.

Key observations
We are satisfied that management’s decision to record an
impairment reversal of USD 120 million is appropriate.

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 – Materiality:
USD 10 million (2018: USD 10 million)

Basis for determining materiality
We determined materiality for the group to be USD 10 million,
which represents 0.5% of total assets, 1.0% of net assets and
2.35% of time charter equivalent earnings (TCE).
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 have also
taken into consideration a number of other income statement
and balance sheet metrics, as outlined above.

Parent company financial statements – Materiality:
USD 10 million (2018: USD 8.8 million)

Basis for determining materiality
We audited the group financial statements, including the
parent company, as a single component.

Separately, we determined that the overall group materiality of
USD 10 million was also appropriate to use as materiality for
the parent company financial statements as this represents
0.9% 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
parent company, and further indicates the parent company´s
ability to continue operating.

TORM ANNUAL REPORT 2019

INDEPENDENT AUDITOR’S REPORT

153

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

Performance materiality
We set performance materiality at a level lower than
materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the
materiality for the financial statements as a whole. Group
performance materiality was set at 70% of group materiality
for the 2019 audit (2018: 70%). In determining performance
materiality, we considered the following factors:
• our historical understanding of the entity and its

environment;
•
the existence of a highly centralised control environment;
• our ability to place reliance on the operating effectiveness
of internal controls in respect of certain elements of the
revenue cycle, including related general IT controls;
the lack of significant control deficiencies identified during
the course of the audit;
the limited turnover of management or key accounting
personnel;

•

• our risk assessment did not identify a disproportionate

•

number of significant risks of material misstatements; and
the history of a low number of corrected and uncorrected
misstatements identified in previous periods.

Error reporting threshold
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of USD 0.5
million (2018: 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.

performance, business 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
relating to the company’s compliance with the UK
Corporate Governance Code containing provisions that
would be specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) if the company was premium
listed on the London Stock Exchange 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.

RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities
statement, 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.

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
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 position and

TORM ANNUAL REPORT 2019

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154

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

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.

Details of the extent to which the audit was considered
capable of detecting irregularities, including fraud and non-
compliance with laws and regulations are set out below.

A further description of our responsibilities for the audit of the
financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.

This description forms part of our auditor’s report.

EXTENT TO WHICH THE AUDIT WAS CONSIDERED
CAPABLE OF DETECTING IRREGULARITIES,
INCLUDING FRAUD

We identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those
risks, including obtaining audit evidence that is sufficient and
appropriate to provide a basis for our opinion.

Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance
with laws and regulations, our procedures included the
following:
• enquiring of management and the audit committee,

including obtaining and reviewing supporting
documentation, concerning the group’s policies and
procedures relating to:
identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances
of non-compliance;

•

• detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged
fraud;
the internal controls established to mitigate risks related to
fraud or non-compliance with laws and regulations;
• discussing among the engagement team and involving

•

relevant internal specialists, including tax, valuations, and
IT regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As part of this discussion, we identified potential for fraud
in the following area: impairment of the group’s Tanker
segment; and

• obtaining an understanding of the legal and regulatory

frameworks that the group operates in, focusing on those
laws and regulations that had a direct effect on the
financial statements or that had a fundamental effect on
the operations of the group. The key laws and regulations
we considered in this context included the UK Companies
Act, Danish and UK tax legislation.

In common with all audits under ISAs (UK), we also performed
specific procedures to respond to the risk of management
override.

Audit response to risks identified
As a result of performing the above, we identified impairment
of the group’s Tanker segment as a key audit matter.

The key audit matter section of our report explains the matter
in more detail and also describes the specific procedures we
performed in response to that key audit matter. As a result of
performing the above, we did not identify any key audit
matters related to the potential risk of fraud or non-
compliance with laws and regulations.

In addition to the above, our procedures to respond to risks
identified included the following:
•

reviewing the financial statement disclosures and testing
to supporting documentation to assess compliance with
relevant laws and regulations discussed above;
• enquiring of management, the audit committee and

external legal counsel concerning actual and potential
litigation and claims;

• performing analytical procedures to identify any unusual or

•

unexpected relationships that may indicate risks of
material misstatement due to fraud;
reading minutes of meetings of those charged with
governance;
in addressing the risk of fraud through management
override of controls, testing the appropriateness of journal
entries and other adjustments; assessing whether the
judgements made in making accounting estimates are
indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or
outside the normal course of business.

We also communicated relevant identified laws and
regulations and potential fraud risks to all engagement team
members, including internal specialists, and remained alert to
any indications of fraud or non-compliance with laws and
regulations throughout the audit.

TORM ANNUAL REPORT 2019

INDEPENDENT AUDITOR’S REPORT

155

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

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.

For and on behalf of Deloitte LLP

David Paterson, ACA (Senior statutory auditor)
Statutory Auditor
London, UK
11 March 2020

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.

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 diectors’ remuneration
report to be audited is not in agreement with the accounting
records and returns.

We have nothing to report in respect of these matters.

OTHER MATTERS

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 five years, covering
the years ending 31 December 2015 to 31 December 2019.

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).

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
financial statements are prepared is consistent with the
financial statements; and
the strategic report and the directors’ report have been
prepared in accordance with applicable legal requirements.

•

In the light of the knowledge and understanding of the group
and 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.

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.

TORM ANNUAL REPORT 2019

INDEPENDENT AUDITOR’S REPORT

156

TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2019

Vessel type

Vessel class

Vessel

Tanker

LR2

LR1

TORM GUDRUN

TORM HELENE ²

TORM HELLERUP

⁾

TORM HERMIA

TORM HERDIS

TORM HILDE

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 ²

⁾

TORM ALICE ²

TORM ALMENA

⁾
TORM AMALIE

TORM ANABEL

DWT

99,965

99,999

114,000

99,999

109,672

99,999

74,999

72,718

72,660

73,700

49,999

Built

2000

1997

2018

2003

1999

2008

2007

2008

2003

2004

2003

2005

2007

2011

2010

2011

2012

Carrying

Ownership

value (USDm)

100%

8³

48
⁾
48

11³

36³

31³

⁾

34³

⁾
17
⁾

21³

18³

21³

16³

22³

21³

23³

⁾

⁾
21

26³

21³

⁾

23³

⁾
21
⁾

24³

⁾

TORM ANNUAL REPORT 2019

FLEET OVERVIEW

157

Fleet overview

TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2019 - continued

Vessel type

Vessel class

Vessel

Tanker

TORM ARAWA

TORM ASLAUG

TORM ASTRID

TORM ATLANTIC

TORM AUSTRALIA ²

TORM CAMILLA

TORM CARINA

⁾

TORM CAROLINE

TORM ERIC

TORM FREYA

TORM GERD

TORM GERTRUD

TORM HARDRADA

TORM HELVIG

TORM HORIZON

TORM KANSAS

TORM LAURA

TORM LENE

TORM LILLY

TORM LOKE

TORM LOTTE

TORM LOUISE

TORM MALAYSIA ²

TORM MARY ²

⁾

TORM MOSELLE

⁾

DWT

49,999

51,737

44,990

46,219

44,999

51,266

45,990

45,960

45,990

45,983

46,187

46,955

49,999

51,372

49,999

51,737

44,990

47,024

Built

2012

2010

2012

2010

2011

2003

2002

2006

2003

2002

2007

2005

2004

2006

2008

2009

2007

2009

2011

2002

2003

Carrying

Ownership

value (USDm)

100%

26³

23³

27³

⁾

24³

⁾
22
⁾

12³

⁾

10³

⁾
14
⁾

12³

11³

⁾

11³

⁾
13
⁾

15³

13³

16³

22³

21³

23³

19³

23³

⁾

22³

⁾
22
⁾

10³

12³

⁾

TORM ANNUAL REPORT 2019

FLEET OVERVIEW

158

TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2019 – continued

Vessel type

Vessel class

Vessel

Tanker

TORM NEW ZEALAND ²

TORM PLATTE

TORM RAGNHILD

⁾

TORM REPUBLICAN

TORM RESILIENCE

TORM SINGAPORE ²

TORM THAMES

TORM THOR

⁾

TORM THUNDER

TORM TIMOTHY

TORM TITAN ²

TORM TORINO ²

⁾

TORM TROILUS

⁾

TORM THYRA

TORM SOLUTION

TORM SOVEREIGN

TORM SUPREME

TORM STRENGTH

TORM STRONG

TORM SUBLIME

TORM SUCCESS

TORM VITA ²

Handysize

TORM GARONNE ¹

⁾

Handysize

TORM GYDA

⁾

Handysize

TORM TEVERE

¹
²
³

Indicates that the vessels are assets held-for-sale.
Sale-and-leaseback transactions.
⁾
Indicates vessels for which TORM believes that, as of 31 December 2018, the basic charter-free market value is lower than the vessel's carrying amount.
⁾
⁾

DWT

51,737

46,959

46,187

46,955

49,999

51,737

47,036

49,842

45,950

49,999

45,990

37,178

36,207

37,383

Built

2011

2006

2005

2006

2005

2011

2005

2015

2003

2019

2017

2019

2002

2004

2009

2005

Carrying

Ownership

value (USDm)

100%

16³

⁾

14³

⁾
21
⁾

15³

30
⁾
30

12³

33
⁾
29

10³

⁾
9

19³

13³

⁾

TORM ANNUAL REPORT 2019

FLEET OVERVIEW

159

LTAF: Lost Time Accident Frequency. Work-related personal
injuries that result in more than one day off work per million
hours of work.

MR: Medium Range. A specific class of product tankers with a
cargo carrying capacity of 40,000–60,000 dwt.
MT: Metric ton.

Oaktree: Oaktree Capital Management, L.P.

Oil major: One of the world’s largest publicly owned oil and
gas companies. Examples of oil majors are BP, Chevron,
ExxonMobil, Shell and Total.

OPEC: Organization of the Petroleum Exporting Countries.

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.

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.

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.

Backwardation: A situation in which the spot price of a
commodity is higher than the forward price. The opposite is
known as contango.

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.

DKK: Danish kroner.

Dwt: Deadweight ton. The cargo carrying capacity of a vessel.

Bunker hedge: A forward agreement used to reduce a
company’s exposure to fluctuating bunker costs.

EBIT/Operating profit/(loss): Earnings Before Interest
and Tax.

Bunkers: Fuel with which to run a vessel’s engines.

Earning days: A measure of operating days available for
generating earnings.

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.

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.

Technical management: An agreement to manage a vessel’s
technical operations and crew for the account and risk of the
shipowner.

Loan-to-value (LTV): A measure of notional debt divided by
broker values of the encumbered vessels.

Ton-mile: A unit of freight transportation equivalent to a ton of
freight moved one mile.

LR1: Long Range 1. A specific class of product tankers with a
cargo carrying capacity of 60,000–80,000 dwt.

UN Global Compact: The United Nation’s social charter for
enterprises, etc.

LR2: Long Range 2. A specific class of product tankers with a
cargo carrying capacity of 80,000–110,000 dwt.

Vetting: An audit of the safety and performance status of a
tanker vessel made by oil majors.

TORM ANNUAL REPORT 2019

GLOSSARY

160

Glossary

GLOSSARY
KEY FINANCIAL FIGURES

TORM ANNUAL REPORT 2019

GLOSSARY

161

GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES

Net profit/(loss) for the year excluding impairment: Net profit excluding impairment is net
profit less impairment and reversals of impairment generated from impairment testing during
the year (Please refer to Note 8). The Company reports Net profit excluding impairment
because we believe it provides additional meaningful information to investors regarding the
operational performance excluding fluctuations in the valuation of fixed assets.

USDm

2019

2018

2017

Reconciliation to net profit/(loss) for the year

Net profit/(loss) for the year

166.0

-34.8

Reversal of impairment losses on tangible assets

-120.0

Net profit/(loss) for the year excluding impairment

46.0

-34.8

2.4

Gross profit: TORM defines Gross profit, a performance measure, as revenue 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

Reconciliation to revenue

Revenue

2019

2018

2017

692.6

635.4

657.0

Port expenses, bunkers and commissions

-267.7

-283.0

-259.9

Charter hire

Operating expenses

Gross profit

-2.5

-8.5

-173.0

-180.4

-188.4

251.9

169.5

200.2

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:

Net interest-bearing debt: Net interest-bearing debt is defined as borrowings (current and non-
current) less loans receivables and cash and cash equivalents, including restricted cash. 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 the Company’s
investments. As such, TORM believes that net interest-bearing debt is a relevant measure which
Management uses to measure the overall development of the 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

Reconciliation to revenue

Revenue

2019

2018

2017

692.6

635.4

657.0

USDm

Borrowings

Loans receivables

2019

2018

2017

863.4

754.7

753.9

-4.6

Port expenses, bunkers and commissions

-267.7

-283.0

-259.9

TCE earnings

424.9

352.4

397.1

Cash and cash equivalents, including restricted cash

-72.5

-127.4

-134.2

Net interest-bearing debt

786.3

627.3

619.7

TORM ANNUAL REPORT 2019

GLOSSARY

162

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 losses and reversals, 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:

USDm

Operating profit/(loss) (EBIT)

Tax

EBIT less Tax

Invested capital, opening balance

Invested capital, ending balance

2019

205.9

-0.8

205.1

2018

2017

2.8

-1.6

1.2

39.5

-0.8

38.7

USDm

EBIT less Tax

Impairment reversal

1,469.4

1,406.0

1,387.7

EBIT less tax and impairment

1,786.0

1,469.4

1,406.0

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:

2019

205.1

-120.0

2018

1.2

2017

38.8

85.1

1.2

38.8

1,627.7

1,437.7

1,396.9

98.2

185.0

1,725.9

1,622.7

1,581.9

Average invested capital¹

Average impairment ²

⁾
Average invested capital less average impairment

⁾

Adjusted RoIC

4.9%

0.1%

2.4%

¹
²

Average invested capital is calculated 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.
⁾

Average invested capital for the year

1,627.7

1,437.7

1,396.9

Return on Invested Capital (RoIC)

12.6%

0.1%

2.8%

Liquidity: TORM defines liquidty as available cash, comprising cash and cash equivalents,
including restricted cash, as well as undrawn credit facilities.

TORM finds the APM important as the liquidity expresses TORM’s financial position, ability to
meet current liabilities and cash buffer. Furthermore, it expresses TORM’s ability to act and
invest when possibilities occur.

USDm

2019

2018

2017

Cash and cash equivalents, including restricted cash

72.5

127.4

134.2

Undrawn credit facilities

Liquidity

173.1

278.7

270.7

245.6

406.1

404.9

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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 income and
expenses which the Company deems to be equivalent to “interest” for purposes of presenting
EBITDA. Financial expenses consist of interest on borrowings, 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
compliance with the financial covenants and restrictions contained in the Company's financing
agreements. TORM believes that EBITDA assists Management and investors by increasing
comparability of the Company's performance from period to period. This increased
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 and 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
to net profit/ (loss), the most directly comparable IFRS financial measure, for the periods
presented:

USDm

Reconciliation to net profit/(loss)

Net profit/(loss) for the year

Tax

Financial expenses

Financial income

Depreciation

2019

2018

2017

166.0

-34.8

0.8

41.9

-2.8

1.6

39.3

-3.3

2.4

0.8

40.6

-4.3

110.1

114.5

Impairment (reversal)/losses on tangible assets

-114.0

3.2

3.6

EBITDA

202.0

120.5

157.6

Loan-to-value (LTV): TORM defines Loan-to-value (LTV) ratio as Vessel values divided by net
borrowings on the vessels.

LTV describes the net debt ratio on the vessel, 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.

USDm

2019

2018

2017

Vessel values including newbuildings (broker values)

1,801.5

1,675.1

1,661.1

Total (value)

Borrowings

- Hereof debt regarding Land and buildings & Other plant

and operating equipment

Committed CAPEX on newbuildings

Loans receivables

1,801.5

1,675.1

1,661.1

863.4

754.7

753.9

-8.7

51.2

-4.6

258.0

306.9

Cash and cash equivalents, including restricted cash

-72.5

-127.4

-134.2

Total (loan)

828.8

885.3

926.6

Loan-to-value (LTV) ratio

46.0%

52.9%

55.8%

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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 the Company’s 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 the 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

2019

2018

2017

USDm

2019

2018

2017

Total vessel values including newbuildings (broker values)

1,801.5

1,675.1

1,661.1

Tangible and intangible fixed assets

1,782.2

1,445.0

1,384.8

Committed CAPEX on newbuildings

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

Accounts receivables includes Freight receivables, Other receivables and Prepayments.
Trade payables includes Trade payables and Other liabilities.
⁾
⁾

1.2

34.8

99.5

9.1

-44.9

-94.4

-1.5

0.1

39.4

96.3

6.2

-44.9

-71.6

-1.0

-0.1

0.3

33.2

87.5

6.6

-44.9

-60.0

-1.4

-0.1

1,786.0

1,469.4

1,406.0

Cash position

Loans receivables

Bunkers

Freight receivables

Other receivables

Other plant and operating equipment

Land and buildings

Investments in joint ventures

Prepayments

Borrowings

Trade payables

Other liabilities

Current tax liabilities

-51.2

-258.0

-306.9

72.5

127.4

134.2

4.6

34.8

89.8

6.2

4.3

8.1

1.2

3.5

39.4

86.0

7.5

3.0

0.1

2.9

33.2

71.3

11.8

1.9

0.3

4.4

-863.4

-754.7

-753.9

-47.1

-35.1

-47.3

-1.5

-36.5

-1.0

-26.2

-33.8

-1.4

Total Net Asset Value (NAV)

1,016.0

856.1

796.0

Total number of shares excluding treasury shares (million)

74.4

73.9

62.0

Total Net Asset Value per share (NAV/share) (USD)

13.6

11.6

12.8

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