ANNUAL REPORT 2020
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. Words like “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 on various assumptions, many of which are, in
turn, based on 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, the duration and severity of the
ongoing COVID-19 pandemic, including its impact on
the demand for petroleum products and the seaborne
transportation of these, the operations of our
customers and our business in general, 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 of terrorism.
In light of these risks and uncertainties, undue reliance
should not be placed 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 2020
SAFE HARBOUR STATEMENT
2
Safe Harbour Statement
KEY FIGURES
TCE EARNINGS (USD/DAY)
EBITDA (USDM)
ADJUSTED ROIC (%)
DIVIDEND/SHARE (USD)
19,800
16,526
14,621
16,050
12,982
25,000
20,000
15,000
10,000
5,000
0
272
300
200
100
0
202
200
158
121
9.3
10
8
6
4
2
0
5.2
4.9
0.3
2.4
0.85
1.00
0.80
0.60
0.40
0.20
0.00
0.40
0.10
0.00
0.02
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
2020
2019
2018
2017
2016
INCOME STATEMENT (USDM)
KEY FINANCIAL FIGURES ¹
Revenue
747
693
635
657
680
Gross margins:
⁾
Time charter equivalent earnings (TCE) ¹
520
425
352
397
458
EBITDA
36.4%
29.2%
19.1%
24.0%
29.4%
Gross profit ¹
EBITDA ¹
⁾
Operating profit/(loss) (EBIT)
⁾
Financial items
Profit/(loss) before tax
Net profit/(loss) for the year
⁾
341
252
169
200
242
Operating profit/(loss) (EBIT)
18.6%
29.7%
0.5%
6.1%
-15.7%
272
202
121
158
200
Return on Equity (RoE)
139
206
3
40
-107
Return on Invested Capital (RoIC)
-49
-39
90
88
167
166
-36
-33
-35
-31
-36
-35
Adjusted RoIC
3
2
3
-142
-142
43
Equity ratio
TCE per day (USD)
OPEX per day (USD)
8.7%
7.8%
9.3%
17.9%
-4.3%
0.3%
-16.2%
12.6%
5.2%
0.1%
0.3%
2.8%
2.4%
-7.2%
4.9%
50.9%
50.3%
49.4%
48.0%
49.7%
19,800 16,526 12,982 14,621 16,050
6,398
6,371
6,389
6,673
6,771
Loan-to-value (LTV) ratio
50.8%
46.1%
52.9%
55.8%
52.4%
Net profit/(loss) ex. non-recurrent items¹
122
51
BALANCE SHEET (USDM)
⁾
Non-current assets
Total assets
Equity
Total liabilities
Invested capital ¹
Net interest-bearing debt ¹
⁾
Net Asset Value (NAV) (USDm) ²
⁾
1,755
1,788
1,445
1,385
1,390
SHARE-RELATED KEY FIGURES ¹
1,999
2,004
1,714
1,647
1,571
Basic earnings/(loss) per share (USD)
⁾
1.19
2.24
-0.48
0.04
-2.27
1,017
1,008
847
791
781
Diluted earnings/(loss) per share (USD)
1.19
2.24
-0.48
0.04
-2.27
981
996
867
856
790
Dividend per share (USD)
0.85
0.10
-
0.02
0.40
1,719
1,786
1,469
1,406
1,388
Net Asset Value per share (NAV/share) ²
10.8
13.6
11.6
12.8
11.8
713
786
627
620
609
801
1,016
856
796
733
Stock price in DKK (per share of USD 0.01)³
⁾
Number of shares ex. treasury shares (mill.)³
⁾
45.0
74.5
43.9
53.5
63.5
74.4
74.4
73.9
62.0
62.0
Cash and cash equivalents, incl. restricted cash
⁾
136
72
127
134
76
¹
²
³
For a definition of the calculated key figures (the APMs), please refer to the glossary on pages 165-170.
Based on broker valuations as of 31 December, excluding charter commitments.
⁾
End of period
⁾
⁾
⁾
TORM ANNUAL REPORT 2020
KEY FIGURES
3
Key Figures
CONTENTS
STRATEGIC REPORT
AT A GLANCE
TORM at a Glance
CSR Highlights
Chairman’s Statement
Statement by the Executive Director
2020 HIGHLIGHTS
The Year in Review
Key Performance Indicators
Navigating COVID-19 challenges
The Product Tanker Market
Unconventional Fuels
Outlook 2021
BUSINESS MODEL AND STRATEGIC CHOICES
Value Chain in Oil Transportation
The Torm Fleet
Strategic Ambitions and Business Model
OUR RESPONSIBILITY
Our Principles
Environmental Efforts
Greenhouse Gas Emissions Data
Supporting Quality Education
Health, Safety and Security
Employees and Human Rights
REVIEW & RISK
Financial Review 2020
Risk Management
S172
Engagement and Decision Making
5
6
8
9
10
14
15
16
20
22
25
26
27
32
34
36
37
39
41
44
54
59
GOVERNANCE
GOVERNANCE INTRODUCTION
Chairman’s Introduction
GOVERNANCE STRUCTURE
TORM’s Governance Structure
Board of Directors
Board and Committee Meeting Attendance
COMMITTEE REPORTS
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
Remuneration Policy
OTHER
Investor Information
Directors’ Report
Statement of Directors’ Responsibilities
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 2020
Balance Sheet
Changes in Equity
Notes to Parent Company Financial Statements
OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM
106
106
107
108
110
111
149
150
151
152
157
162
165
63
64
67
68
69
74
76
78
88
97
99
103
2020
Highlights
10
Business
Model
25
Corporate
Governance
62
Income
Statement
106
TORM ANNUAL REPORT 2020
CONTENTS
4
Contents
TORM ANNUAL REPORT 2020
TORM ANNUAL REPORT 2020
AT A GLANCE
AT A GLANCE
5
5
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
36% WOMEN
IN THE SHORE-BASED
WORKFORCE
21% WOMEN
IN LEADERSHIP
POSITIONS
2030
CLIMATE TARGET
REDUCTION
22%
compared to 2008 baseline (AER)
100 SCHOLARS
SUPPORTED
BY TORM AND OUR
EDUCATION FOUNDATION
0.65
LOST TIME
ACCIDENT
FREQUENCY
IN 2020
TARGET
40%
AER reduction by 2030
TORM ANNUAL REPORT 2020
AT A GLANCE
6
In this highly unusual year, I am very
pleased that TORM can report solid
EBITDA of USD 272m for the year and
on the back of the strong
performance has returned USD 71m in
dividends to shareholders. It further
pleases me that TORM has continued
to forge the path to a greener future
by committing to ambitious CO2
reduction targets.
Mr. Christopher H. Boehringer,
Chairman of the Board
TORM ANNUAL REPORT 2020
TORM ANNUAL REPORT 2020
AT A GLANCE
AT A GLANCE
7
7
SUCCESFULLY NAVIGATING A HIGHLY UNUSUAL YEAR
LETTER FROM THE CHAIRMAN
The pandemic caused a sharp decline in demand for
oil products and led to stock build-up at an
unprecedented scale. With limited inventory space
ashore, a significant share of the global fleet of
product tankers became tied up in floating storage
and freight rates temporarily jumped to all-time high
levels. The market was further heated by prolonged oil
output discussions between OPEC and Russia that led
to a continued high level of oil supply.
Continued efforts to contain the pandemic in the
second half of the year stalled the otherwise
recovering oil demand and kept trade flows at low
levels which continued into 2021.
STRATEGY REVIEW
During the year, TORM performed a review of its key
strategic choices, business model and organization.
The review substantiated that the integrated nature of
the operating platform offers intrinsic added value
across TORM and is a vital element in TORM’s ability
to outperform the product tanker market.
A GREENER FUTURE
In a year as extraordinary as 2020, it pleases me to
note that TORM has continued and even further
intensified its integration of environmental measures.
At TORM, the green agenda has been an integral part
of the Company since it signed up for the UN Global
Compact in 2009, and to quantify its future ambitions
TORM has set targets to reduce its relative CO2
emissions by a minimum of 40% by 2030 compared to
2008. We will pursue the targets by continuing the
behavioral and technical optimizations that have
enabled us to realize a 22% reduction as well as
engage in the development of next generation fuel
efficient vessel design with selected partners.
SHAREHOLDER RETURN
I am also very pleased to note that on the back of an
extremely strong financial performance in the first half
of the year and based on the Company’s strong
liquidity and capital structure, TORM was able to pay
out USD 71m in dividends during the year.
71m
Returned to investors in dividends
TORM continued to maintain its robust financial
position in 2020 and following the refinancing of five
term loans during 2020, TORM has no material debt
maturities until 2026. On this basis, I am confident that
the Company is well positioned to deliver value to its
shareholders also in the coming years.
Mr. Christopher H. Boehringer, Chairman of the Board
-40%
CO2 reduction target by 2030
TORM ANNUAL REPORT 2020
AT A GLANCE
8
THE POWER OF TORM’S INTEGRATED PLATFORM
LETTER FROM THE EXECUTIVE DIRECTOR
The year 2020 presented many operational and
commercial challenges, and I am pleased to note that
TORM’s integrated operational platform was a key
factor for the Company to successfully navigate the
extraordinary market for product tankers over the
year.
The embedded ties between TORM’s commercial,
technical and support departments ensured an
operational flexibility that was critical to handle the
many issues created by the COVID-19 pandemic, for
example the extremely challenging crew change
conditions caused by global travel bans and other
restrictions.
HIGH EARNINGS
Again in 2020, TORM was able to deliver best-in-class
commercial performance and with TORM’s focus on
optimal geographical positioning of the fleet and
strategic priority of trading in the spot market, the
fleet was well positioned to capture the sudden
market strength in the second quarter of the year.
For the full year 2020, TORM realized average Time
Charter Equivalent (TCE) earnings of USD/day 19,800
vs. USD/day 16,526 last year. This was considerably
above TORM’s low fleet-wide profit before tax break-
even level of USD/day 15,100 and in the top range
compared to industry peers.
CONTINUED AND WELL-TIMED FLEET RENEWAL
During the year, TORM continued to renew the fleet
and took delivery of four vessels under its newbuilding
program, purchased two 2010-built MRs and ordered
two fuel-efficient, dual-fuel ready LR2 newbuildings.
TORM also acted fast and decisively as the market for
older product tankers turned out favorable especially
towards the end of the second quarter and sold eight
vessels built between 1997-2003. In the first quarter of
2021, TORM has further purchased eight MR product
tankers with chemical trading capabilities in a partly
share-based transaction.
INDUSTRY LEADING
Adding all up, I am extremely satisfied that our strong
earnings in relation to the capital invested in TORM
show that TORM is delivering industry-leading results
for our investors. For the full year, TORM achieved an
adjusted return on invested capital (ROIC) of 9.3% vs.
5.2% last year.
9.3%
Adjusted Return on Invested Capital
(ROIC)
I would like to thank our seafarers and onshore staff
for their hard work and the dedication they have
shown every day through this challenging year and I
am confident that, based on the One TORM mindset
and the strong safety-first principles, TORM will
continue to deliver on its promises to its customers
and other stakeholders in 2021 and for many years to
come.
Mr. Jacob Meldgaard, Executive Director
19,800
Average TCE/Day
TORM ANNUAL REPORT 2020
AT A GLANCE
9
THE YEAR IN REVIEW
2020 RESULTS
MARKET
CONDITIONS
VESSEL
TRANSACTIONS
In 2020, TORM realized an EBITDA of USD 272m (2019: USD 202m). The 2020 profit before tax
amounted to USD 90m (2019: USD 167m).
Net profit adjusted for non-recurring items was USD 122m (2019: USD 51m) and Adjusted Return on
Invested Capital (RoIC) was a very strong 9.3% (2019: 5.2%).
For the full year 2020, TORM achieved TCE rates of USD/day 19,800 (2019: USD/day 16,526).
In the first half of the year product tanker rates reached all-time high levels following the significant
market disruption caused by the COVID-19 outbreak and OPEC+ oil price war. In the second half of the
year, the product tanker market went into a downturn and together with substantial draws on global oil
stocks, product tanker rates declined as product stocks normalized.
In 2020, TORM contracted two LR2 newbuildings, purchased two 2010-built MR vessels and sold eight
older vessels.
The two LR2 newbuildings are scheduled to be delivered in the fourth quarter of 2021 and the first quarter
of 2022. One of the 2010-built MR vessels was delivered in 2020 and one was delivered in January 2021.
Further, TORM took delivery of four vessels under its newbuilding program in 2020. As of 31 December
2020, TORM’s order book consisted of the two LR2 newbuildings and the remaining 2010-built MR vessel.
The total outstanding CAPEX related to the order book, including costs related to the installation of
scrubbers, amounted to USD 101m.
The vessel sales cover two LR2s and six MRs for a total consideration of USD 77m. The vessels were
delivered to their new owners in 2020 and debt of USD 41m has been repaid.
As of 31 December 2020, TORM’s fleet consisted of 64 owned vessels, eight vessels under sale and
leaseback agreements, two vessels on order and one second-hand vessel to be delivered to TORM.
In the first quarter of 2021, TORM has entered into an agreement to purchase eight 2007-2012 built MR
product tanker vessels for a total cash consideration of USD 82.5m and the issuance of 5.97 million shares.
Subject to documentation, TORM has obtained financing of up to USD 94m for the vessels that are
scheduled to be delivered to TORM in the second and third quarter of 2021.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
10
2020 Highlights
THE YEAR IN REVIEW
COVID-19 OPERATIONAL
IMPLICATIONS
During the COVID-19 pandemic, TORM has fully maintained its excellent operations thanks to the One
TORM platform.
This is especially due to extraordinary and very professional efforts from our crew members. While crew
changes remain an issue due to travel bans and quarantine rules in several countries around the world,
TORM has reduced the percentage of crew with overdue employment from approximately 35% in May and
June to the current level of 1% of the total crew on board TORM’s vessels. TORM is very satisfied with this
achievement and maintains the safety and welfare of our seafarers as a key focus area – especially during
the COVID-19 pandemic.
FINANCING UPDATE
USD 602m debt refinanced extending all material debt maturities to 2026 or later.
In the first quarter of 2020, TORM closed the refinancing of four term loans and an existing revolving
credit facility. The term loans and the revolving credit facility were replaced by two separate term facilities
and a new revolving credit facility covering up to USD 496m.
In the fourth quarter, TORM refinanced its existing facility with Danish Ship Finance with a new facility of
USD 180m in senior secured debt covering ten vessels including the two MR vessels purchased in the
fourth quarter. In connection with the transaction, five vessels were transferred for refinancing under the
Hamburg Commercial Bank facility for USD 35m. Lastly, TORM has obtained financing of USD 12m related
to the installation of scrubbers and Ballast Water Treatment Systems on four vessels. Following the
refinancing, TORM has extended all material debt maturities until 2026, ensuring annual scheduled
repayments over the term which supports the Company’s financial flexibility.
In connection with the refinancing a CO2 emission-linked pricing mechanism was included in the Danish
Ship Finance facility. Accordingly, the pricing is linked to the reductions in CO2 emissions year on year,
aligning it with TORM’s and the International Maritime Organization’s industry target of a 40% reduction in
greenhouse gas emissions by 2030. The key performance indicator and the decarbonization target are
consistent with the Poseidon Principles, the global framework by which a number of leading financial
institutions assess the climate alignment of their ship finance portfolios. The agreement is TORM’s first loan
agreement that includes a CO2 emission-linked price adjustment mechanism.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
11
THE YEAR IN REVIEW
LIQUIDITY
SCRUBBER UPDATE
NAV, EQUITY AND
VESSEL VALUES
IMPAIRMENT
AND BOOK VALUE
As of 31 December 2020, TORM’s available liquidity was USD 268m and consisted of USD 136m in cash
and restricted cash and USD 132m in undrawn financing and committed facilities.
Undrawn and committed facilities includes USD 45m in undrawn working capital facilities, USD 76m of sale
and leaseback financing and USD 11m of financing related to the installation of scrubber and Ballast Water
Treatment Systems. Cash and restricted cash include USD 46m in restricted cash, primarily related to
collateral for financial instruments. As of 31 December 2020, net interest-bearing debt1 amounted to USD
713m, and the net loan-to-value (LTV)2 ratio was estimated at 51%.
TORM has committed to install 50 scrubbers.
As of 1 March 2021, TORM has installed 46 scrubbers. The remaining four are expected to be installed in
2021 and the first quarter of 2022, including the two scrubbers for the LR2 newbuildings.
Based on broker valuations, the market value of TORM’s fleet, including newbuildings, was USD
1,585m as of 31 December 2020. TORM’s NAV3, excluding charter commitments, was estimated at USD
801m, corresponding to a NAV/share of USD 10.8 or DKK 65.3.
As of 31 December 2020, TORM’s book equity amounted to USD 1,017m. This corresponds to a book
equity/share of USD 13.6 or DKK 82.3.
The book value of the fleet was USD 1,723m as of 31 December 2020 excluding outstanding installments
on the LR2 newbuildings and the 2010-built MR vessel of USD 101m.
As of 31 December 2020, TORM tested the carrying amount of its fleet for impairment within three CGUs,
being the Main Fleet and the two Handysize vessels. Based on this review, Management has recognized
impairment losses related to TORM’s two Handysize vessels with a total charge of USD 5.5m. No
impairment was recorded for the Main Fleet covering TORM’s LR2, LR1 and MR vessels, since the value in
use is in line with the carrying amount at 31 December 2020. See note in note 8 to the financial statements
for further details.
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 2020
2020 HIGHLIGHTS
12
THE YEAR IN REVIEW
NEW DIRECTOR
INTRODUCING
ESG REPORTING
COVERAGE
DIVIDEND
At the 2020 AGM, Ms. Annette Malm Justad was appointed as Director of the Company replacing Mr.
Torben Janholt.
Ms. Justad has more than 20 years of executive experience and has previously served as CEO of Oslo
listed Eitzen Maritime Services ASA, amongst other.
To supplement the Annual Report and TORM’s CSR report, TORM has published its first dedicated ESG
Report to provide easy access to data specifically within Environmental, Social and Governance aspects.
The ESG Report documents the results of TORM’s efforts within the environment, its commitment to the
UN’s Sustainable Development Goals including social and governance aspects, and the targets set for
2030 onwards.
As of 31 December 2020, 28% of total earning days4 in 2021 were covered at USD/day 15,049.
As of 23 February 2021, the total coverage for the first quarter of 2021 was 85% at USD/day 12,914. For the
individual vessel classes, the coverage was 89% at USD/day 16,506 for LR2, 67% at USD/day 13,400 for
LR1, 88% at USD/day 12,355 for MR and 84% at USD/day 6,725 for Handysize.
USD 72m shareholder distribution in 2020, but no dividends for the second half of 2020.
TORM made a total shareholder distribution of USD 72.0m in 2020 covering earnings in the second half of
2019 and the first half of 2020. The majority of the payment was made in September 2020, where TORM
paid an ordinary dividend of USD 63m, or USD 0.85 per share. In line with the Company’s Distribution
Policy the payment corresponded to 50% of net income for the six months ended 30 June 2020.
The net income for the second half of 2020 was USD -39m and in line with TORM’s Distribution Policy the
Board of Directors has decided to recommend that no dividends be paid for that period.
4 See Glossary on page 165 for a definition of earning days.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
13
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.
TCE Earnings
USD/day
2020: 19,800
2019: 16,526
In 2020, TORM’s commercial
performance was again among the
best compared with peers in the
product tanker industry. This can be
accredited to the Company’s scale,
quality fleet and 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 earnings benchmarks.
In 2020, TORM achieved average TCE
earnings of USD/day 19,800 up from
USD/day 16,526 in 2020.
Lost Time Accident
Frequency (LTAF)
2020: 0.65
2019: 0.42
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.
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.
Following two years of continued
improvement, TORM had nine
accidents during 2020 and as a
consequence LTAF increased to 0.65
compared to 0.42 in 2019.
Adjusted Return on Invested
2030 Climate target
Capital (RoIC)
2020: 9.3%
2019: 5.2%
Adjusted RoIC illustrates TORM’s
ability to generate shareholder value
from the capital invested in TORM. It is
defined as net operating profit after
tax (excluding non-recurring items)
divided by the invested capital over
the same period (excluding impairment
charges).
In 2020, TORM achieved an adjusted
RoIC of 9.3% compared to 5.2% in
2019. The increase in RoIC from 2019
to 2020 is driven by higher freight
rates.
This KPI reflects that with an average
age of TORM’s fleet of approximately
10 years, TORM is able to generate a
very attractive RoIC compared to its
peers.
2020: 22%
2019: 24%
TORM continues its path towards
achieving a 40% reduction in CO2
emissions by 2030. This performance is
measured by Fleet AER (Annual
Efficiency Ratio) compared to the 2008
baseline figure.
In 2020, TORM continued its efforts and
compared to the 2008 baseline, achieved
a 22% reduction in Co2 emissions. The
corresponding number in 2019 was 24%.
TORM is motivated more than ever to
create a more environmentally friendly
future and to develop innovative
solutions to reduce CO2 emissions in
order to fulfil its target by 2030.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
14
FULLY MAINTAINED OPERATIONS DURING COVID-19
Although COVID-19 imposed challenges both at sea and ashore, TORM has continued to serve its customers as usual but has taken
several safety measures to manage the situation.
During the COVID-19 pandemic, TORM has fully
maintained its operations at sea and ashore thanks to
the One TORM platform, but especially due to the
extraordinary and very professional efforts of our crew
members.
At their peak, the travel restrictions caused an almost
complete shutdown of crew changes. Crew were not
allowed to leave their home countries as international
air travel virtually stopped and ports around the world
refused crew changes to take place.
of command. For one thing, TORM has moved its crew
management closer to its commercial department and
implemented swift, efficient and predictive crew
change rules of procedures.
SEAFARERS
The COVID-19-imposed travel restrictions complicated
crew movements throughout the year and led to crew
overdue employment across the fleet.
CREW MOVEMENTS AND OVERDUE EMPLOYMENT
Source: TORM
Overdue (%)
Crew movements
This led to a sharp increase in overdue crew
employment, reaching 35% of TORM’s working crew in
May and June. As the travel ban for seafarers eased,
TORM conducted up to 900 crew movements per
month to reduce the overdue level. This is 2-3 times the
normal level for TORM.
At the end of the year, TORM managed to bring the
overdue employment down to normalized pre-COVID-
19 levels.
50
40
30
20
10
0
Apr May Jun
Jul Aug Sep Oct Nov Dec
Crew movements
Overdue (%)
TORM ANNUAL REPORT 2020
1000
800
600
400
200
0
LAND-BASED EMPLOYEES
In line with the relevant authorities, TORM has on
several occasions chosen to close part of its offices and
recommend that land-based employees work from
home.
TORM has been able to conduct its business almost
unaffected of these measures due to the integrated
nature of its operating platform ensuring cohesive lines
2020 HIGHLIGHTS
15
THE PRODUCT TANKER MARKET
The COVID-19 pandemic led to unprecedented changes in the oil market, sending product tanker freight rates on a rollercoaster ride.
Looking ahead, the product tanker market is supported by positive demand developments and limited supply growth.
2020 PRODUCT MARKET
The COVID-19 pandemic generated considerable
volatility in the product tanker market, temporarily
sending freight rates to all-time highs. An
unprecedented decline in oil demand and an increase in
product stockpiles affected trade patterns and led to a
significant share of the fleet being tied up in floating
storage.
Following the initial COVID-19 outbreak in China and
the spread of the virus to the rest of the world, the
impact of the measures taken to contain the COVID-19
pandemic considerably gained momentum in the
second quarter. With most of the world in some type of
lockdown, the global oil demand declined at an
unprecedented rate. The crude and product supply did
not respond as swiftly and sharply and this was even
exaggerated by the OPEC+ price war in March and
early April, leading to a stock build-up at an
unprecedented scale.
For the product tanker market, this provided a
temporary boost from several export regions, leading
to longer and more inefficient trading patterns, such as
vessels sailing around the Cape of Good Hope in order
to take advantage of contango or trying to find new
buyers further away. Secondly, an increased oil
oversupply gave rise to floating storage, which at its
peak in early May tied up 14% of clean-trading tonnage.
This sent freight rates for product tankers to
unprecedented levels, with rates for the LR2 vessels
reaching an all-time high of around USD/day 170,000,
double the all-time peak. Rates in the MR class similarly
reached all-time highs at above USD/day 70,000.
As the global economies slowly started to recover from
various stages of lockdown, the oil market rebalanced
resulting in product tanker freight rates coming off as
tonnage in floating storage was released back into the
market. The returning demand for oil products was
largely met by drawing on local stocks rather than
water-way imports. This sent MR benchmark rates to
levels below USD/day 10,000 by the end of the second
quarter.
FLOATING STORAGE REACHED 14% OF THE FLEET
Source: TORM
CPP INVENTORIES AT MAIN TRADING HUBS
REACHED UNPRECEDENTED LEVELS
Source: EIA, Reuters
Percentage
15
12
9
6
3
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
16
THE PRODUCT TANKER MARKET
During the third quarter, freight rates generally
continued to decline, albeit with historically large
regional differences and significant premiums in the
West relative to the eastern regions. The underlying oil
demand continued to improve, but the historically
weak refinery margins kept refinery output below the
level of consumption and with that, the draw on
inventories continued. Despite OPEC’s crude
production cuts being partially released in the third
quarter, crude tanker freight rates fell and caused an
increase in newbuilt crude carriers, cannibalizing the
clean product trade from North Asia into the Atlantic.
At the start of the fourth quarter, the increasing
number of COVID-19 cases led to renewed mobility
restrictions in several countries, stalling the recovery in
oil demand and keeping refineries from ramping up
their runs. This kept trade flows at low levels and
freight rates under pressure. The level of vessels
remaining in floating storage stood at around 4% of the
fleet at the end of the year.
Weak freight rates carried over into the start of 2021, as
the increasing number of new cases led to a tightening
of mobility restrictions not only in North America and
Europe, but also in several Asian countries. Colder than
average winter weather in some Asian countries,
however partly mitigated the negative effect on oil
demand, which is expected to be further supported by
advancing vaccine rollouts.
TORM
The value of TORM’s fleet measured by broker values
decreased by 15% during 2020 (when adjusted for
vessels acquired and sold during 2020).
In 2020, TORM achieved a gross profit of USD 341m
(2019: USD 252m). The increase from 2019 was
primarily driven by higher freight rates. TORM’s
product tanker fleet realized TCE earnings of USD/day
19,800, up 20% year on year, with the LR2 vessels at
USD/day 26,637, the LR1 vessels at USD/day 22,839,
the MR vessels at USD/day 18,098 and the Handysize
vessels at USD/day 13,416.
During 2020, TORM contracted two fuel-efficient, dual-
fuel-ready LR2 newbuildings from Guangzhou Shipyard
International (GSI) and additionally two 2010-built MR
vessels. The two LR2 newbuildings are scheduled to be
delivered during the fourth quarter of 2021 and the first
quarter of 2022. One of the two 2010-built MR vessels
was delivered to TORM during the fourth quarter of
2020 and one was delivered in January 2021. Further,
TORM took delivery of four vessels from its
newbuilding program during 2020. At the end of 2020,
TORM operated a fleet of 72 vessels on the water, of
which 64 are fully owned and eight are operated under
sale and leaseback arrangements.
ASSET PRICES OF FIVE-YEAR-OLD SECOND-HAND
PRODUCT TANKERS IN 2020
Source: Clarksons
TANKER FREIGHT RATES IN 2020
Source: Clarksons
USDm
30
25
20
15
10
5
0
Average TCE in USD/day
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
LR2
LR1
MR
Handysize
LR1 Ras Tanura - Chiba
MR Average
LR2 Ras Tanura - Chiba
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
17
THE PRODUCT TANKER MARKET
MARKET DRIVERS AND OUTLOOK
Tonnage supply
In 2020, the global product tanker fleet grew by 2.8%
in terms of capacity (2.9% in terms of number of
vessels), down from 4.6% in 2019.The slower fleet
growth was mainly driven by fewer LR2 deliveries, as
fleet growth decreased from 7% in 2019 to less than 2%
in 2020. However, effective fleet growth was further
reduced both by LR2s migrating to dirty trade, mainly
early in the year, and especially by widespread floating
storage of oil. At the peak in the second quarter, 14% of
the fleet was tied up in floating storage. While the
majority of the affected MRs were released by the end
of the second quarter, contango-related floating
storage on LR2s lasted into the fourth quarter.
However, by the end of the year, the vast majority of all
volumes in floating storage had been discharged and
as such had a negative impact on freight rates in the
FLEET AND ORDER BOOK
As of 31 December 2020
second half of the year. Taking floating storage and
vessel migration between clean and dirty markets into
account, the effective fleet capacity is estimated to
have declined by 1.2% in 2020 from the previous year.
The number of newbuilding orders placed in 2020 was
84 vessels, slightly above the level seen in the previous
year, remaining significantly below the average of 125
vessels ordered per year in the past decade. The MR
vessels accounted for the majority of orders with 53
units contracted, while the number of LR2 vessels
ordered was 23. At the end of 2020, the existing order
book for deliveries in 2021-2023 totaled 211 units
(corresponding to 7.3% of the existing fleet, in terms of
capacity), including 47 LR2 vessels, 3 LR1 vessels, 134
MR vessels and 27 Handysize vessels.
Taking into account the lead time in production, TORM
anticipates the ordering of new product tankers with
delivery before the end of 2022 to be limited. Given the
uncertainty around the requirements for vessel
propulsion systems in the future, TORM expects the
newbuilding ordering activity to remain relatively
limited in the next couple of years.
Around 0.9m dwt of product tanker capacity was
recycled in 2020, corresponding to approximately 0.5%
of the fleet capacity as of the end of 2019. This was
down from 1.2m 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 2021-2023, as these vessels reach an
age where the trading possibilities are limited.
2021-2023
Order book
Fleet
Delivered in
Scrapped in
Fleet
Order book
as % of end-
31.12.2019
2020
2020
31.12.2020
for 2021-2023
2020 fleet
385
372
1,707
750
3,214
8
3
76
27
114
2
0
8
10
20
391
375
1,775
767
47
3
134
27
3,308
211
12%
1%
8%
4%
6%
LR2
LR1
MR
Handysize
Total
~2%
Expected fleet growth 2021-2023 (CAGR)
With a historically low order book and newbuilding
ordering activity expected to be limited in the coming
years, TORM expects the net product tanker fleet
capacity to grow by a compound annual rate of
approximately 2% during 2021-2023.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
18
THE PRODUCT TANKER MARKET
Tonnage demand
The COVID-19 pandemic and the associated lockdowns
are estimated to have lowered the global oil demand
by almost 9% in 2020, with jet fuel being especially
hard hit by travel restrictions. Despite an expected
demand rebound in 2021, supported by an earlier-than-
expected breakthrough in vaccines, global oil demand
is not expected to reach pre-COVID-19 levels until
2022.
Demand destruction also led to a strong inventory
build-up in the first half of 2020, with clean petroleum
product stocks at main trading hubs climbing to 17%
above the 5-year average by June. Nevertheless, stocks
started to draw as the oil market began to rebalance in
the second half of the year. By the end of 2020, oil
DEMAND FOR JET FUEL FELL BY 40% IN 2020
Source: WoodMackenzie
-1%
-7%
-12%
-41%
Index
100
80
60
40
20
0
Naphtha
Diesel
Gasoline
Jet fuel
2019
2020
product inventories still stood at around 6% above the
5-year average, with middle distillates in particular
being significantly oversupplied. High inventories
generally mean headwinds for the product tanker
market as demand is supplied by local inventories
rather than imports. However, this negative impact is
partially offset by the fact that a large share of
inventories is located in regions that are net exporters
of oil products, such as China, entailing that a large
share of stocks are either trade neutral or even trade
supportive.
An important effect of the COVID-19 pandemic was the
historical pressure on refinery margins, which kept
refinery runs down, but also has a more long-lasting
effect as several refineries announced closures in 2020.
Consequently, around 3 mb/d of refining capacity will
potentially be removed from the market in the next
three years, with most of it located in regions which are
already large importers of refined oil products, such as
Europe, US West Coast, US East Coast, Australia, New
Zealand, and South Africa. These refineries account for
5% of the total refining capacity in Europe, the world’s
largest diesel importing region, 12% of the US West
Coast and 28% of the US East Coast capacity. For
Australia and New Zealand, the figures are even more
significant – it has been announced that two out of four
refineries in Australia will be closed down, with another
one at risk of closure, while the sole remaining refinery
in New Zealand could similarly be shut down.
At the same time, approximately 5 mb/d of new
refining capacity is scheduled to come online during
the same period. New capacity is mainly situated in the
Middle East and China – the regions that are already
today large exporters of oil products. Both these
developments are positive for trade flows and ton-mile
in the post-COVID-19 world. Only a few projects are
less positive for trade, most notably the large-scale
Dangote refinery in Nigeria, which is expected to come
online in 2022 at the earliest.
~4%
Expected ton-mile growth 2021-2023 (CAGR)
Subsequently, TORM expects the product tanker ton-
mile demand on main trade routes to grow by a
compound annual rate of around 4% during 2021-2023,
driven by recovery in global oil demand from COVID-19
and refinery dislocation induced by recent refinery
closure announcements. 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 that are most likely to
change this outlook in either a negative or a positive
direction, please see the “Outlook” section on pages
22-23.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
19
UNCONVENTIONAL FUELS
The uptake of alternative fuel systems in the global fleet remains limited. The number of newbuilding orders placed for vessels with an
unconventional fuel system is constrained by uncertainty around the new technologies.
Current viable unconventional fuels are primarily
biofuels and LNG, which on a smaller scale have been
introduced outside the product tanker market.
In the product and chemical tanker fleet the uptake of
alternative fuel systems remains very limited and takes
up less than 1% of the global fleet.
Approximately 19% of the product and chemical
tankers on order are equipped with a dual fuel system.
It is notable that the methanol dual fuel vessels are
mainly dedicated methanol carriers.
For shipping companies at large to reach the IMO 2030
CO2 reduction target, increased fuel efficiency of the
existing global fleet and operational optimization is
required.
Potential future viable fuel systems are expected to be
decisive factors to reach TORM’s ambitious climate
agenda for 2050. At this point, the future fuel type is
associated with great uncertainty.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
20
OPTIMIZING PERFORMANCE
TORM follows the development in alternative fuel systems closely and at the same time applies a broad set of actions
to cut down the fuel consumption of its existing fleet.
Voyage optimization
Behavioral optimization
Technology improvement
There are many factors involved in setting the ideal
speed, and TORM works closely with its stakeholders
to ensure the optimal speed of its vessels. To support
this, TORM utilizes predictive quantitative modelling
and multiple data sources for real time surveillance and
recommendation.
Measures to achieve operational savings, including
optimal route planning, enhanced energy management
onboard and rigid anti-fouling monitoring.
TORM applies a range of new and updated
technologies to enhance the fuel efficiency of its
current fleet. In the longer–term, TORM is also engaged
in developing next generation ship design and
technology together with selected partners.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
21
OUTLOOK 2021
As of 31 December 2020, TORM had covered 7,346 earning days (28% of total earning days) for 2021 at an average rate of USD/day 15,049.
As of 23 February 2021, the coverage for the first quarter of 2021 was 85% at USD/day 12,914.
OUTLOOK
TORM expects the supply and demand balance in the
product tanker market to improve in the period 2021-
2023.
On the supply side, limited fleet ordering activity and a
historically low order book ensure that fleet growth
remains limited, with net fleet growth currently
estimated at approximately 2%. This is considerably
lower than the five-year average fleet growth of 4%.
TORM projects the product tanker ton-mile demand on
main trade routes to grow by a compound annual rate
of around 4% during 2021-2023, driven by a recovery in
global oil demand from the COVID-19 pandemic and
refinery dislocation induced by increasing competitive
pressure on older refineries and recent refinery closure
announcements.
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 2021
As of 31 December 2020, TORM had covered 7,346
earning days (28% of total earning days) for 2021 at an
average rate of USD/day 15,049. This means that a
change in freight rates of USD/day 1,000 for the
duration of 2021 would impact the full-year EBITDA by
approximately USD 18.8m.
As of 23 February 2021, the coverage for the first
quarter of 2021 was 85% at USD/day 12,914. For the
individual segments, the coverage was 89% at
USD/day 16,506 for LR2, 67% at USD/day 13,400 for
LR1, 88% at USD/day 12,355 for MR and 84% at
USD/day 6,725 for Handysize.
2021 EBITDA SENSITIVITY TO CHANGES IN FREIGHT RATES - AS OF 31 DECEMBER 2020
Subsequently, TORM believes that the positive trends
on the product tanker demand side combined with
limited tonnage supply growth provide fundamental
support to a positive freight market development in the
next three-year period, although market volatility is
expected. See also the “The Product Tanker Market”
section on pages 16-19.
USDm
LR2
LR1
MR
Handysize
Total
Change in freight rates (USD/day)
-5,000
-2,500
-1,000
1,000
2,500
5,000
-4
-11
-2
-6
-76
-38
-3
-2
-94
-47
-1
-2
-15
-1
-19
1
2
15
1
19
2
6
38
2
47
4
11
76
3
94
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
22
ONE-YEAR TIME CHARTER MARKET
Source: Average of selected broker assessments.
USD/day
LR2
LR1
MR
Handysize
Note: The time charter market has limited liquidity.
One-year T/C
rate as of 23
February
2021
16,100
13,500
12,375
11,188
OUTLOOK 2021
As of 31 December 2020, the interest-bearing bank
debt totaled USD 713m, and TORM had fixed 75% of
the interest exposure for 2021. A change in interest
rates of 25 basis points for the duration of 2021 would
impact pre-tax profit or loss by USD 0.9m.
As of 23 February 2021, 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 12,991. Last year, as of 5 March
2020, the weighted average one-year T/C rate for
TORM’s vessels was assessed at USD/day 16,226.
The most important factors affecting TORM’s earnings
in 2021 are expected to be:
• Continued COVID-19 restrictions and associated
lockdowns lowering oil demand and causing
operational obstacles
Speed and efficiency of COVID-19 vaccines rollout
•
• Global economic growth and consumption of
refined oil products
• Refinery closures 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
etc.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
23
COVERED AND CHARTERED-IN DAYS AT TORM
– AS OF 31 DECEMBER 2020
2021
2022
2023
2021
2022
2023
Owned days
LR2
LR1
MR
Handysize
Total
Covered, %
3,497
3,235
3,630
3,093
3,485
3,234
15,703
15,814
15,798
LR2
LR1
MR
726
725
726
Handysize
23,161
23,262
23,243
Total
80%
32%
18%
16%
28%
3%
0%
0%
0%
1%
0%
0%
0%
0%
0%
Chartered-in and leaseback days at fixed rate
Covered days
2021
2022
2023
2021
2022
2023
LR2
LR1
MR
Handysize
Total
61
-
726
-
726
-
2,905
2,903
2,899
LR2
LR1
MR
-
-
-
Handysize
2,965
3,629
3,625
Total
2,843
1,025
3,360
118
7,346
136
-
-
-
136
-
-
-
-
-
Total physical days
Coverage rates, USD/day
2021
2022
2023
2021
2022
2023
LR2
LR1
MR
Handysize
Total
3,557
3,235
18,608
726
26,126
4,356
3,093
18,717
725
4,211
3,234
18,697
LR2
LR1
MR
726
Handysize
26,891
26,868
Total
16,321
14,812
14,196
10,737
15,049
16,778
-
-
-
16,778
-
-
-
-
-
Fair value of freight rate contracts that are mark-to-market in the income statement (USDm):
Contracts not included above: USD 2.5m
Contracts included above: USD 2.1m
Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries.
TORM ANNUAL REPORT 2020
2020 HIGHLIGHTS
24
VALUE CHAIN IN OIL TRANSPORTATION
The global oil industry covers a range of activities and
processes which contribute to the transformation of
primary petroleum resources into usable end products
for industrial and private customers.
commonly referred to as dirty petroleum products, as
extensive cleaning of the vessel’s cargo tanks is
required before a vessel can transport clean products
again. In 2020, 94.5% of TORM’s turnover was
generated from clean products transportation.
intellectual property of the workforce at TORM and the
relationship and cooperation with external stakeholders
such as oil traders, state-owned oil companies, oil
majors, financial institutions, shipyards, brokers, and
governmental agencies.
The value chain begins with the identification and
subsequent exploration of productive petroleum fields.
The unrefined crude oil is transported from the
production area to refinery facilities by crude oil
tankers, pipelines, road, and rail.
TORM is primarily involved in the transportation of
refined oil products from the refineries to the end user.
In addition to clean products, TORM uses some of its
vessels for the transportation of residual fuels from the
refineries as well as crude oil directly from the
production field to the refinery. These fuel types are
TORM’s integrated operating platform with in-house
technical and commercial management enhances the
response to customer demands and allows TORM to
generate value for stakeholders as well as for the
Company.
The long-term success of the Company is dependent
on TORM’s ability to provide safe and reliable
transportation services. In addition to the items
explicitly stated in the financial statements, the long-
term success of the Company further builds on the
TORM ANNUAL REPORT 2020
BUSINESS MODEL AND STRATEGIC CHOICES
25
Business model and strategic choices
THE TORM FLEET
as of 1 March 2021
LR2
Long Range 2 vessels are the largest vessels in
TORM’s fleet. They are typically employed on long
trade routes, including naphtha transportation from
the Middle East to the Far East and diesel from the
eastern hemisphere into the Atlantic. Ten vessels
are currently on the water, and two newbuildings
are expected to be delivered in the fourth quarter
of 2021 and the first quarter of 2022.
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.
10
Vessels
90-114,000 dwt
9
Vessels
72-75,000 dwt
MR
Medium Range vessels are often referred to as the
“workhorses” 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.
TORM has 52 MR vessels currently on the water. In
the first quarter of 2021, TORM has purchased eight
MR product tankers with expected delivery during
the second and third quarter of 2021.
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.
52
Vessels
45-50,000 dwt
2
Vessels
35-37,000 dwt
TORM is present in all large vessel classes in the
product tanker market with specific focus on the LR2,
LR1 and MR vessel classes as these three segments
offer the greatest synergies.
TORM’s fleet has decreased from 76 vessels in
December 2019 to 73 vessels on the water in March
2020. Two LR2 vessels are scheduled to be delivered
in the fourth quarter of 2021 and the first quarter of
2022 and eight MR vessels are scheduled to be
delivered in the second and third 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.
TORM ANNUAL REPORT 2020
BUSINESS MODEL AND STRATEGIC CHOICES
26
STRATEGIC AMBITION AND BUSINESS MODEL
TORM is a leading product tanker owner with a large, diverse fleet of high-quality vessels and a solid capital structure. TORM’s integrated
operating platform provides superior commercial performance and earnings potential. TORM actively pursues a greener future and has set an
ambitious emission reduction agenda for 2030 and 2050.
LEADING PRODUCT TANKER OWNER
TORM is an international leading product tanker
company and one of the largest owners of product
tankers in the world. TORM primarily employs its fleet of
73 vessels in the spot market. With its presence in all the
large product tanker segments and across all regional
supply and demand hubs, TORM is well positioned to
meet its customers’ transport and storage requirements.
The Company seeks to selectively grow its fleet and to
serve as a consolidator in the product tanker segment if
the right opportunities arise. TORM continuously assesses
opportunities to optimize its fleet by acquiring attractive
high-specification second-hand product tankers or
selectively pursuing newbuilding programs with high-
quality shipyards.
quarter of 2021, TORM has further purchased eight MR
product tankers with chemical trading capabilities in a
partly share-based transaction.
From time to time, TORM will also sell vessels that no
longer fit with the commercial strategy, or if the price
point is deemed attractive. In 2020, TORM sold eight
older vessels, capitalizing on the strong market during
the first half of the year that provided attractive
opportunities to dispose of older tonnage.
BEST IN CLASS PERFORMANCE
(Q4 2019 – Q3 2020)
Source: TORM
In this way, the Company serves as a consolidator while
at the same time optimizing elevating its invested capital
to enable the highest possible ROIC. TORM’s scalable
business platform is a supportive and required enabler
for this strategic objective.
In 2020, TORM acquired two second-hand vessels and
made additional purchases of two fuel-efficient, dual-fuel-
ready LR2 newbuildings with scrubbers. In the first
25
20
15
10
5
0
TCE per day
X 1.14
ROIC
X 1.91
19.694
17.253
11.6
6.1
TORM
Peer group
TORM
Peer group
TORM’s solid capital structure balances the spot-based
employment profile with low leverage, a strong liquidity
position, a fully funded newbuilding program and limited
off-balance sheet charter-in commitments. Further, in
2020, TORM refinanced debt of USD 602m, postponing
all material maturities until 2026 or later.
Secured bank financing remains the preferred source of
debt funding for TORM, but the use of leasing structures
reflects TORM’s broad access to various sources of
competitive financing.
To support the Company’s shares and to attract a broad
investor base, TORM frequently markets its shares
towards investors through investor roadshow activities,
conference participation and panel discussions. Further,
TORM believes that its transparent company structure
and corporate governance principles enhance the
attractiveness of its shares.
TORM ANNUAL REPORT 2020
BUSINESS MODEL AND STRATEGIC CHOICES
27
STRATEGIC AMBITION AND BUSINESS MODEL
optimal position of the fleet in the global basins, where
differences in earnings can be significant during a year.
TORM’s fleet is managed by its in-house technical
management. The department is responsible for
maintaining the high quality of our vessels and the
delivery of an environmentally friendly, safe, and cost-
efficiently technical operation. Our technical
management also has extensive experience in vessel
design and construction and provides essential
knowledge for TORM to execute newbuilding programs.
Apart from the office staff, more than 3,000 seafarers are
employed in our technical department.
TORM’s sale and purchase activities are conducted by an
in-house team. The sale and purchase team leverages
relationships with shipbrokers, shipyards, financial
institutions and shipowners to ensure fleet renewal and
actively pursue lucrative opportunities in the second-
hand and newbuilding markets.
The support division is an integral part of TORM’s day-
to-day operations and provides optimized business
practices, reporting and payment processes, proactive
business partnering, stringent risk management,
liquidity and funding management etc. The support
division has for years built a strong data and digitalized
business support function. By means of significant,
advanced analytics and applied AI competences, this
function has created an analytical model to further
support the commercial performance of the Company.
TORM has identified several strategic Key Performance
Indicators (KPIs) that the Company believes are vital to
fulfill its strategic goals. These strategic KPIs are
described on page 14.
SUPERIOR OPERATING PLATFORM
TORM’s fleet is effectively managed on the in-house
integrated operating platform known as One TORM.
Operations are conducted combined for the entire fleet
to reap synergies across vessel classes.
The integrated nature of TORM’s operating platform
provides transparency and clear alignment of
management and shareholder interests, which mitigates
the potential for actual or perceived conflicts of interest
with related parties. TORM also believes that the largest
customers prefer an integrated operating model as it
provides them with better accountability and insight into
safety and vessel performance.
In line with the Company’s strategic focus on safety, the
One TORM platform features its One TORM Safety
Culture program. The purpose of the program is to
continuously strengthen TORM’s safety culture beyond
mere compliance and reflects the belief that profitability
and safety are not mutually exclusive.
On the One TORM platform the commercial, technical,
sale and purchase and support divisions work towards
common goals in a network-based organization.
TORM’s commercial team is responsible for employment
and operation of our fleet and has continuously
demonstrated superior performance compared to peers
and market benchmarks. One of the key elements for the
commercial team to succeed is the ability to ensure an
TORM ANNUAL REPORT 2020
BUSINESS MODEL AND STRATEGIC CHOICES
28
STRATEGIC AMBITION AND BUSINESS MODEL
FOR A GREENER FUTURE
TORM strives to utilize its market position and strength
to lead the product tanker industry into a more
environmentally friendly future and to develop
innovative solutions for a greener future, and the
Company has reduced its CO2 impact by 22% since
2008.
TORM believes that both the CO2 and the ESG agendas
will be integral and determining elements of the future of
the product tanker business. At the same time, TORM
acknowledge that oil and refined oil products are
essential resources that the world will continue to rely on
for the foreseeable future.
It is a key priority for TORM to contribute to
combatting the accelerating global climate change and
to minimizing pollution of the seas and the atmosphere.
Thus, TORM has strong focus on reducing fuel
consumption and CO2 emissions. This is achieved
through a committed focus on optimal performance,
and industry collaboration.
TORM embraces the climate combat and is dedicated
to developing innovative solutions for our industry and
easing the impact of our vessels on the environment.
To quantify our ambition, TORM has set a target to
reduce its relative CO2 emissions by 40% by 2030
compared to 2008 and an ambition to have zero CO2
emissions from operating our fleet by the year 2050
TOWARDS DECARBONIZING SHIPPING
2030 TARGET
40% relative CO2 reduction
Reduce fuel usage in
current fleet
Develop fuel efficient design
Utilize new technology
2050 AMBITION
Zero CO2 emissions from
operating our fleet
Next generation fuel
technology
Pursue industry cooperation
Influence decision makers
TORM believes that its integrated focus on its
environmental impact will be beneficial both from an
environmental and an investment point of view. TORM
will therefore investigate the potential of green
business adjacencies that can co-create long-term
value and optionality for the company. TORM has
already formed a successful partnership with a
scrubber producer, supporting the company’s scrubber
investments.
To reach the CO2 target set for 2030, optimization and
improvement of the existing fleet are paramount, and
TORM is applying a broad set of actions to enhance the
fuel efficiency of its fleet. This includes both operational
and technical improvements. TORM is also engaged in
developing next generation ship design and new
energy improving technologies with selected partners.
To support the target TORM will incorporate the impact
on the reduction trajectory when assessing future fleet
renewal options.
In the longer term and to meet its ambition for 2050,
TORM believes that new alternative fuels in shipping
will be required on a global scale. TORM will seek to
influence this development and pursue broad industry
cooperation on this important journey. These new
technologies are still in the developing stages and what
will be the technology of the future is so far associated
with great uncertainty.
TORM ANNUAL REPORT 2020
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29
STRATEGIC AMBITION AND BUSINESS MODEL
TORM ANNUAL REPORT 2020
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30
ONE TORM, A WORLD-CLASS PLATFORM
PURE-PLAY PRODUCT
TANKER EXPOSURE
SUPERIOR COMMERCIAL
PERFORMANCE
SOLID CAPITAL
STRUCTURE
~73 vessels deployed in the spot
market across all four large product
tanker classes
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
PROVEN ESG COMMITMENT
ESG is embedded in our culture.
TORM has ambitious targets to
reduce its CO2 emissions, continued
social commitment through
educational support in rural areas,
and a clear governance structure
without leakage
POSITIVE MARKET
FUNDAMENTALS
Despite market volatility caused by
the COVID-19 pandemic, the market
fundamentals remain intact and the
market outlook is positive
TORM ANNUAL REPORT 2020
BUSINESS MODEL AND STRATEGIC CHOICES
31
OUR RESPONSIBILITY
Responsible behavior is embedded in the way TORM conducts its business and in the mindset of our employees. TORM remains committed to
protecting our employees, the environment, our reputation, and our assets by maintaining the highest possible standards.
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 key to 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.
In 2020, TORM continued to extend its support to the
UN Sustainable Development Goals (SDGs) and its
targets for 2030. In order to ensure ample contribution,
TORM continues to focus on specifically SDG 4 Quality
Education and SDG 13 Climate Action which are closely
linked to our value chain, business practices, and
company values. This is seen as a natural progression
of our commitment to the UN Global Compact.
This section, Our Responsibility, constitutes TORM’s
CSR reporting according to the requirements of UK
law. Read more about TORM and our CSR efforts at
www.torm.com/csr-at-torm.
Data specifically within Environmental, Social and
Governance aspects can be found in TORM’s ESG
report which will be published on www.torm.com.
As part of the Company’s commitment to the UN
Global Compact, TORM submits its communication on
progress every year.
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
32
Our Responsibility
TORM’S ESG TARGETS
2030 CLIMATE TARGET (FLEET AER1)
2050 CLIMATE AMBITION
-22%
6.74
-40%
5.24
4.04
2008
2020
2030 target
TORM is pursuing an ambitious climate agenda, whereby we
will have zero CO2 emissions from operating our fleet by 2050.
2030 SAFETY TARGET (LTAF2)
2030 LEADERSHIP DIVERSITY TARGET
(PERCENTAGE OF FEMALE LEADERS3)
-54%
0.65
0.30
2020
2030 target
+67%
35
2030 target
21
2020
1 Unit of measure: CO2 g / dwt nm.
2 Accidents per one million exposure hours.
3 % of women in leadership positions onshore compared to all leadership positions.
TORM ANNUAL REPORT 2020
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33
ENVIRONMENTAL EFFORTS
TORM supports SDG 13 Climate Action
as marine pollution constitutes the
largest environmental risk in the
shipping industry.
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 continued its 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 the decarbonization of shipping with the
mutual goal of having commercially viable zero-
emission vessels operating along deep-sea trade routes
by 2030.
FUEL CONSUMPTION AND ENERGY EFFICIENCY
2020 offered significant changes to the fuel picture in
international shipping. The IMO 2020 Sulphur cap
required many changes in reporting and systems to
measure and evaluate consumption. This is caused by
the change from 3.5% Heavy Fuel Oil (HFO) and 0.1%
Marine Gas Oil to a worldwide limit of 0.5%. Some
vessels with scrubbers may still use 3.5% HFO, but not
all ports allow it. TORM’s solution is to move from two
fuel types to five.
Irrespective of the challenges of managing the fuels
and evaluating the propulsion performance, the One
TORM platform has continued to have a strong and
dedicated focus on reducing fuel consumption. The
efforts made within this area generated a positive
result as can be seen in the Greenhouse gas emissions
table on page 36.
TORM’s Operational Performance Team continues to
share the performance of each vessel with the
respective vessel managers and the vessels on a
monthly basis.
To encourage and support best practice behavior with
regard to energy consumption, daily engagement with
the vessels continue to create significant value. The
efforts ensure that corrective actions can be taken
swiftly, when needed.
Fuel consumption for cargo operations remain a focus
area that has been developed during 2019 and 2020. It
is clear that the subject is very complex, and studies
reveal that we are in need of much stronger data – this
data is scheduled to become available through the
Connected Vessels and Connected Machinery internal
subprojects.
Investing in and implementing well-proven
technologies will allow TORM to concentrate its efforts
on unlocking the potential that lies outside the
boundaries of behavioral activities. TORM is also
testing several innovative projects regarding
optimizing machinery and use of the latest technology
is prioritized in our effort to reduce the energy
consumption of our fleet.
TORM continues to focus on continuously improving
the hull condition of its vessels. During 2020, three
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 the environmental impact and making good
business sense. By maintaining its strong focus on fuel
consumption reductions in 2020, TORM achieved fuel
efficiency improvements of 12.8% compared to the
2015 baseline
22%
Relative CO2 reduction since 2008
Our energy efficiency focus and operational
performance is a vital part of our efforts to achieve our
target of reducing CO2 emissions by 40% by 2030
compared to 2008 using the AER calculation method.
In 2020 we had reduced our CO2 emissions by 22%
since 2008. More information can be found in TORM’s
ESG report.
TORM ANNUAL REPORT 2020
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34
ENVIRONMENT – REPORTING
CO2 emissions (ton)
The 2020 greenhouse gas emissions (GHG) reporting
covers scope 1 (direct emissions from own production)
and scope 2 (emissions from own production but
others’ emissions) of the Greenhouse Gas Protocol
except for the activities listed below.
Environmental data applies to owned vessels with its
respective shares of ownership. Bareboat-in vessels are
included while T/C-in vessels are excluded. Similarly,
vessels on bareboat-out contracts are excluded while
vessels on all other employments are included.
Scope 1
Co2 emissions have been calculated based on the
consumption of heavy fuel oil and marine gas oil
according on IMO’s conversion factor for emission per
ton. Emissions are calculated for each single vessel and
then consolidated. Numbers under the scope 1 data
sheet have been collected on board the vessels or at
the offices. The collection is based on actual usage or
disposals.
Scope 2
CO2 emissions generated indirectly from operational
activities at the TORM offices are calculated using
Danish and World Resources Institute emission factors.
Only offices where data is available are included.
AER (g/dwtxnm)
AER (g/dwtxnm) is a measure of efficiency using the
total fuel consumption, distance travelled and design
deadweight. The measure is defined as grams CO2
emissions per deadweight-ton-nautical mile. AER is
affected by vessel size, speed, duration of waiting time
and port stays.
EEOI (g/cargoxnm)
EEOI is a measure of efficiency using the total fuel
consumption, distance travelled and cargo intake. The
measure is defined as grams CO2 emissions per cargo-
ton-nautical mile. EEOI is affected by vessel size, speed,
cargo availability, duration of ballast voyages, waiting
time and port stays.
SOX emissions (ton)
SOx emissions are calculated based on average sulfur
content for the different fuel types.
A comprehensive study for TORM by an independent
specialist which compared the emissions from vessels
fitted with exhaust gas cleaning systems (scrubbers) to
emissions from vessels using low-sulfur fuel found that
the sulfur emissions are reduced to an average of just
0.025% when using the exhaust gas cleaning system
compared to 0.45% when using low sulfur fuel.
Energy consumption (TJ)
All fuel burned on board the vessels has been
converted into energy based on fuel oil analysis results.
Office electricity consumption (kWh)
Electricity consumed indirectly in operational activities
at the TORM offices excluding the London and
Houston offices.
Office water consumption (m3)
Water consumed indirectly in operational activities at
the TORM offices excluding London, Houston, Mumbai
and New Delhi offices.
Ballast Water Treatment Systems
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. 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. TORM
has installed Ballast Water Treatment Systems which
eliminate this impact to 65% of its fleet.
A further 13 vessels will have Ballast Water Treatment
Systems installed by the end of 2022.
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
35
GREENHOUSE GAS EMISSIONS DATA
Thanks to the installation of exhaust gas cleaning
systems, also known as scrubbers, on 62.5% of the fleet
and the use of low-sulfur compliant fuel in 2020, TORM
achieved a notable reduction in SOx emissions in 2020.
Further information on TORM’s environmental efforts
can be found in our ESG report which is located on
TORM’s homepage.
Indicator
Greenhouse gas (GHG) emissions
Direct GHG emissions (scope 1)
Indirect GHG emissions (scope 2)
CO2 emissions, AER – total fleet
CO2 emissions, EEOI – total fleet
Total GHG emissions
Sulfur emissions
SOx emissions
Energy consumption
Heavy fuel
Low-sulfur heavy fuel
Marine Gas Oil
Total energy consumption for vessels
Office consumption
Electricity consumption
Water consumption
Ballast Water
Unit
2020
2019
2018
Ton CO2
1,335,896
1,302,390
1,374,835
Ton CO2
g/dwtxnm
g/cargoxnm
434
5.24
11.18
488
5.13
11.31
525
5.42
12.28
Ton CO2
1,336,330
1,302,878
1,375,360
Ton
1,760
18,112
18,367
Ton
Ton
Ton
TJ
kWh
M3
170,907
349,056
375,196
174,836
12,174
80,865
17,665
55,371
16,921
152
64,255
17,747
445,093
702,850
823,844
3,268
-
33
-
16
% of fleet with Ballast Water Treatment Systems
%
65
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
36
SUPPORTING QUALITY EDUCATION
employees and strengthen the overall competence
level among seafarers in these regions.
Foundation graduated from scholarships with the other
current scholars still working hard in the 2nd and 3rd
years at school.
EDUCATION FOUNDATION IN THE PHILIPPINES
TORM Philippines runs educational development
actions through the TORM Philippines Education
Foundation (TPEF) which has been helping Philippine
communities since 2007. In 2020, two students
supported by the TORM Philippines Education
For the school year 2020/2021, the foundation
supports 64 students (34% being females) across the
Philippines of whom 35 are scholars at various colleges
and universities and the remaining 29 are apprentices
at maritime courses.
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 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 4
Quality Education and cooperates with several
educational institutions and universities internationally.
In Denmark and Singapore, the efforts include offering
internships and trainee and student assistant positions
at 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 thus support potential future TORM
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
37
SUPPORTING QUALITY EDUCATION
constructed and the facilities furnished with donations
from the Company.
to renovating the town hall and library at SAMPARC
Bhaje.
Through SAMPARC, TORM is sponsoring 36 students
attending the school. Apart from tuition, TORM also
assists them with their basic needs, such as school
equipment and certain living expenses. The pandemic
has restricted movements in India, however in
November 2020, a team from TORM India visited
SAMPARC Bhaje to celebrate the Deepawali Festival
with the students. As a token, dresses, sweets, and
masks were distributed to them. TORM has committed
This will enhance the extra-curricular activities for the
girls living there and augment the infrastructure for
multiuse. This will be completed by March 2021.
Earlier this year, TORM India pledged to construct
three classrooms at Nalasopara, Mumbai. This project is
expected to be completed in 2021 instead of the
original timeline of September 2020 due to the COVID-
19 pandemic.
In addition to the scholarships and apprenticeships, the
education foundation also runs a number of social
development initiatives. In 2020, this involved the
provision and distribution of IT equipment, personal
protective equipment, and school supplies. The
beneficiaries of this equipment were four public
elementary schools in Pandan, Catanduanes.
TORM also has an Employee Committee (TEC) which
also performs activities with an educational focus. In
2020, and in partnership with TPEF, TEC sent portable
WIFI connections to 16 selected scholars who cannot
afford one for themselves. An Internet connection
ensures that our scholars have access to the rest of
world and can complete their studies to the best of
their ability.
EDUCATION FOUNDATION IN INDIA
In India, TORM has funded specific projects that it
undertakes towards social causes. Since 2018, TORM
India has engaged with three organizations to achieve
this. Firstly, SAMPARC, an organization caring for
disadvantaged children across India. Secondly, BAIF, an
organization dedicated to upgrading and providing
rural infrastructure. Lastly, Akshayshakti, which is
dedicated to improving the lives of students, the
development of women, and care for abandoned
children, for various CSR initiatives.
In previous years, TORM has supported the
construction of the ZP Prathmik School in Zadgewadi
in Kurkumbh, near Pune, India. The school was
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
38
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 despite the COVID-19
pandemic, TORM developed a robust remote audit
scheme at the beginning of 2020. With travel
restrictions significantly reducing the possibilities of
visiting our vessels, our first-rate tools and data
collection processes made it possible to create a
robust remote audit system. The number of visits has
declined during the year, however by using the One
TORM platform, the interaction with all stakeholders,
internal as well as external, has shown that audits,
inspections, change of flag etc. are achievable and
successful despite the pandemic.
SIRE INSPECTIONS
The main body responsible for managing the
overarching processes and requirements of these
vessel inspections is OCIMF (Oil Companies
International Marine Forum). In 2020, due to the travel
restrictions caused by the COVID-19 pandemic, new
avenues like remote documentation review and
inspection were introduced by OCMIF. The challenges
experienced in connection with physical SIRE (Ship
Inspection Report Program) arrangements were
mitigated by close co-operation among internal
stakeholders as well as among oil majors.
in 2020. The purpose of the program is to continuously
strengthen TORM’s safety culture beyond compliance.
TORM continued to conduct Safety Leadership courses
for Senior Officers on board the Company’s vessels.
Nine courses were conducted for all crew nationalities.
One course was conducted onsite at the Manila office,
while the remaining courses were conducted online
due to the lockdown of offices. A total of 93 Senior
Officers and 24 Junior Officers participated in 2020. In
total, 699 officers have completed the course since it
was introduced in 2017. Safety Leadership courses are
mandatory, involving two-and-a-half days of
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.
SAFETY DELTA
We also continued 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 been scheduled to complete three Safety
Delta cycles in 2020.
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
Since 2018, TORM has used a revised performance
appraisal program as a way to systematically enhance
work behavior and leadership to ensure excellent
safety performance.
TORM ANNUAL REPORT 2020
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39
HEALTH, SAFETY AND SECURITY
Through the One TORM Safety Culture – driving
resilience program, TORM has defined standards and
expectations for excellent performance. A key element
of leadership is to evaluate employee performance with
a view to managing the development and motivating
employees to develop. TORM believes this will facilitate
the best possible means for developing performance as
an individual and as a company.
In 2020, TORM introduced a new induction framework
for its Junior Officers as well as ratings. The induction
program focuses on enhancing work behavior and
safety leadership to ensure excellent performance for
newly hired seafarers. A revised induction framework
for Senior Officers is being implemented in January
2021.
In 2020, TORM continued to promote the One TORM
Safety Culture – driving resilience program. In the
fourth quarter, we launched our new Virtual Senior
Officers Conference program. The content of the
Virtual Senior Officers concept is focused on Safety
Culture, Mental Health, Work Culture, and Social
Culture in order to support and ensure that TORM’s
safety culture is anchored across the organization,
ashore as well as on board the vessels.
LOST TIME ACCIDENT FREQUENCY AND NEAR-MISS
INCIDENTS
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 the standard practice
among shipping companies. During 2020, TORM’s
LTAF measure increased to 0.65 (2019: 0.42).
by the vessel crew and the TORM emergency response
team. The crew retreated to the citadel and no crew
were harmed or injured during the incident.
Each injury has been investigated and corrective
measures have been taken as required. We have not
detected any definitive causes of the declined
performance. To improve safety especially during the
pandemic, we have introduced new measures for
TORM’s seafarers, e.g. virtual town halls.
Near-miss reports provide TORM with an opportunity
to analyze conditions that might lead to accidents and
ultimately prevent potential future accidents. A high
number of near-miss reports indicate that the
organization proactively monitors and responds to
risks.
In 2020, TORM’s focus on near-miss incidents shifted
from the number of near-miss incidents to the quality
of the incident reports. The total for 2020 was 5,991.
(2019: 6,099, 2018: 6,310)
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 2020, TORM experienced one incident
when a vessel was boarded by pirates, two incidents
when thieves or robbers came on board and two
incidents of stowaways found on board the Company’s
vessels. The pirates incident was handled professionally
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 security
situation in some regions has changed due to the
COVID-19 pandemic. TORM has adapted its procedures
to the changing threat levels across the areas called at
by TORM vessels. The Company will continue to
monitor the risk situation and pre-empt hijacking and
robbery attempts by following security procedures and
industry guidelines.
LOST TIME ACCIDENT FREQUENCY (LTAF)
Source: TORM
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1.2
0.96
1.0
0.8
0.8
0.7
0.65
0.67
0.47
0.42
0.6
0.65
2015
2016
2017
2018
2019
2020
LTAF
Target<
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
40
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.
To drive high employee engagement and improve the
sense of belonging, the company has been working on
a strategy to modernize internal communication. In
light of the pandemic, this strategy was accelerated
and an employee app was introduced to all employees,
both at sea and ashore.
AT SEA
In 2020, 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’s main priority was to
relieve seafarers on time despite the heavy constraints
caused by the COVID-19 pandemic. The One TORM
platform proved its strength by enabling the
organization to conduct crew changes better than the
industry average, and by the end of 2020, the number
of overdue seafarers on board was normalized. For
further details, please refer to page 15.
importantly, health. Despite the COVID-19 limitations,
TORM continued its efforts to strengthen the
relationship between seafarers and the shore-based
organization. In 2020, this involved a transition from
physical meetings and gatherings to a more virtual
form which included seminars, trainings, and general
gatherings.
As part of TORM’s continued focus on the promotion
of its employees, seafarers completed the “Promotion
assessment training” prior to being promoted to the
highest ranks. Officers visit one of TORM’s offices for
an introduction and training with key stakeholders. In
2020, this was maintained through virtual tools.
TORM maintains an ongoing focus on seafarer
commitment and engagement. In 2020, 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).
Following a pilot in 2019, TORM rolled out the Well at
TORM program in 2020. The program focuses on well-
being by increasing engagement, mental resilience,
physical health, and embracing socialization among
crew members.
During these times, focus was on supporting both staff
on board as well as our seafarers at home and their
relatives, with all aspects of such unprecedented times.
This support included both financial, and most
At the end of 2020, TORM employed a total of 3,023
seafarers of whom 108 were permanently employed,
with the remaining seafarers being on time-bound
contracts.
GEOGRAPHICAL DISTRIBUTION OF SEAFARERS IN %
Total number of seafarers at the end of 2020: 3,023
Denmark
Croatia
4%
5%
India
41%
50%
The Philippines
ASHORE
In 2020, 97% of all shore-based employees responded
to the annual employee motivation and satisfaction
survey. This is an increase on last year’s rate of 95%.
TORM continued the survey introduced in 2019 which
provides real time data. The outcome of the survey
showed the continuous high engagement among our
employees across categories ranging from
engagement, freedom of opinion, management
support, work environment and safety.
In order to strengthen and develop TORM’s leading
position as the Reference Company, continuous
development is a key criterion for success. On this
background leadership training has been identified as a
focus area for 2021.
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
41
EMPLOYEES
The high scores were evenly spread across divisions
and locations which is a testament to the strength of
the unified One TORM approach.
The overall outcome of the survey improved slightly on
the previous year and positions TORM among the top
10% of companies across all industries using the same
platform.
TORM’s ambition of investing in this engagement
survey combined with such a high response rate is to
help the Company improve, build the culture needed to
fulfill the Company’s strategy and develop initiatives
that matter to the employees. By the end of 2020, the
retention rate for all shore-based employees was 92%,
the same rate as in 2019.
In 2020, TORM included a number of questions to
understand how our shore-based employees cope with
the changes to work conditions caused by the COVID-
19 pandemic. The survey showed that the measures
introduced were highly appreciated by the employees.
TORM aims to attract and retain the best employees by
exemplifying the four values of the TORM Leadership
Philosophy and by ensuring that the Company’s
leaders motivate their employees.
At the end of 2020, the shore-based organization had
345 employees: 141 in Hellerup, 136 in Mumbai, 4 in New
Delhi, 34 in Manila, 3 in Cebu, 17 in Singapore, 9 in
Houston, and 1 in London.
DIVERSITY
TORM has an obligation to develop the Company’s
talent pool irrespective of gender, religion, sexuality,
nationality, ethnicity or disabilities etc. As stated in
TORM’s Business Principles, the Company works
towards a diverse workforce in every aspect and an
inclusive environment that respects and supports all
our people and helps improve business performance.
TORM believes that diverse teams led by diverse
leaders deliver better business performance. The
Company provides equal opportunity in recruitment,
career development, promotion, training and rewards
for all employees.
In 2020, TORM continued its participation in and was
driving the aim of Danish Shipping’s work group “More
Women at Sea”. TORM has incorporated the 10
recommendations into processes and procedures as
best practice.
TORM actively monitors the representation of females
in the workforce and in leadership positions. At the end
of 2020, the proportion of females in the shore-based
workforce was 35.8%, while women in leadership
positions, defined as having one or more direct reports,
constituted 20.9%. By 2021, the Company aims to have
35% women in the shore-based workforce in line with
the industry average, and 25% women in leadership
positions. Additionally, TORM has a target for 2030 of
35%.
At the end of 2020, the Board of Directors consisted of
four male members and one female member elected at
the Annual General Meeting. In 2020, the Board of
Directors fulfilled its target of 20% female Board
members (1 out of 5).
The Company embraces diversity in every aspect, and
it has been stated as a fundamental part of TORM’s
Business Principles since 2012. The Company will
continue on this path at all levels of the Company.
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
¹
The five Non-Executive Directors are not included as employees of the Group.
⁾
Male
Female
4
3
147
173
327
1
-
11
118
130
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
42
HUMAN RIGHTS
ANTI-CORRUPTION AND ANTI-BRIBERY
Corruption and bribery impede global trade and can
restrict non-corrupt companies’ access to 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.
TORM has three elements which it leverages to
continue a high level of transparency and
accountability of its anti-corruption and anti-bribery
policy. One being strict employee guidelines and
processes to prevent and manage anti-corruption and
anti-bribery, the second being specific reporting
processes, and the last being compulsory e-learning
courses. TORM further complies with SOX regulations
according to which employees must confirm adherence
to the policies and guidelines, as well as training
completion, ensuring 100% compliance. No further
corrective action has been required.
Since 2011 when TORM co-founded the Maritime Anti-
Corruption Network (MACN), TORM has been taking a
joint stand with the industry against 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 2020 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 2021.
Since 2006, TORM’s Board of Directors has provided a
whistleblower facility with an independent lawyer as
part of the internal control system. In 2020, the
whistleblower facility received three notifications, two
of which were investigated and closed without any
critique or requirements for new measures. The third
claim is under investigation with the whistleblower
service facilitating a dialogue between TORM
Management and the whistleblower,
HUMAN RIGHTS
With the TORM Leadership Philosophy, TORM’s
Business Principles and commitment to the UN Global
Compact, TORM is committed to respecting 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 are
audited and certified as required under the Maritime
Labor Convention of 2006. TORM respects employees’
right to associate freely, to join – or not to 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 2020.
TORM ANNUAL REPORT 2020
OUR RESPONSIBILITY
43
FINANCIAL REVIEW 2020
FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2020
TORM’s 2020 results were positively impacted by our strong commercial performance and TORM generated industry-leading results for
our investors. TORM achieved an adjusted return on invested capital (ROIC) of 9.3%, generated cash from operations of USD 236m and was
able to return USD 72m to its shareholders during the year while maintaining a solid capital structure.
Kim Balle, CFO
In 2020, total revenue was USD 747m compared to
USD 693m in 2019, and TCE earnings increased from
USD 425m to USD 520m, a total increase of 22%. The
increase in TCE earnings was primarily attributable to a
stronger freight market in 2020 compared to 2019. The
increase was achieved on the basis of an approximately
20% higher TCE per day and 2% more available earning
days (509 days) in 2020 compared to 2019, underlining
the strong performance.
FINANCIAL RESULTS
In 2020, TORM recorded a net profit of USD 88m
compared to USD 166m in 2019 resulting in earnings
per share (EPS) of USD 1.19 compared to earnings per
share (EPS) of USD 2.24 in 2019. When excluding the
impact of impairment in both 2020 and 2019, net profit
reached USD 94m in 2020, an increase of USD 48m
from USD 46m in 2019. The higher result in 2020 was
mainly due to increasing freight rates following a
strong freight market for product tankers in the first
two quarters of 2020.
In 2020, operating profit decreased by USD 67m to
USD 139m, primarily reflecting the impairment reversal
in 2019 of USD 120m, which was partly offset by the
higher revenue.
TORM ANNUAL REPORT 2020
REVIEW & RISK
44
Review & Risk
Capital (RoIC) decreased by 4.8% points from 12.6% to
7.8%. Adjusted RoIC in 2020 reached 9.3%, an increase
of 4.1%-points from 2019.
mainly due to the sale of vessels in 2020 and
decreasing broker values.
In 2020, the Net Asset Value per share based on broker
value decreased to USD 10.8 from USD 13.6 in 2019
FINANCIAL REVIEW 2020
TORM’s total assets decreased by USD 5m in 2020 to
USD 1,999m. The carrying amount of vessels,
capitalized dry-docking and prepayments on vessels
amounted to USD 1,734m compared to USD 1,770m in
2019. During the year, TORM sold eight older vessels,
covering two LR2s and six MRs. In addition, TORM
purchased two LR2 newbuilding and two 2010-built MR
vessels. One MR vessel was delivered in 2020 and one
was delivered in January 2021. The two LR2
newbuilding are scheduled to be delivered in the fourth
quarter of 2021 and the first quarter of 2022. Further,
TORM took delivery of four vessels under its
newbuilding program in 2020.
In 2020, total equity increased by USD 9m to USD
1,017m from USD 1,008m in 2019. The increase primarily
relates to the positive net profit result for the period
and is offset by a dividend pay-out. The market value
adjustments on derivatives held for hedge accounting
had a negative effect on equity of USD 21m, mainly
related to the decreasing market values of TORM’s
interest rate swaps. The Return on Equity (RoE)
decreased from 17.9% in 2019 to 8.7% in 2020, due to
impairment reversal of USD 120m in 2019.
TORM’s total liabilities decreased by USD 15m to USD
981m in 2020 and borrowings decreased by USD 13m
to USD 842m.
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)
In 2020, invested capital decreased by USD 67m to
USD 1,719m as of 31 December 2020, mainly due to the
sale of vessels in 2020. In addition, Return on Invested
Adjusted RoIC
Return on Equity (RoE)
Basic earnings per share (EPS)
TORM ANNUAL REPORT 2020
2020
2019
Change
747
520
341
272
139
-49
88
1,755
1,999
1,017
981
1,719
10.8
7.8%
9.3%
8.7%
1.19
693
425
252
202
206
-39
166
1,788
2,004
1,008
996
1,786
13.6
54
95
89
70
-67
-10
-78
-33
-5
9
-15
-67
-2.8
12.6%
-4.8%points
5.2%
4.1%points
17.9%
-9.2%points
2.24
-1.05
REVIEW & RISK
45
FINANCIAL REVIEW 2020
LIQUIDITY AND CASH FLOW
Total cash and cash equivalents, including restricted
cash, amounted to USD 136m at the end of 2020,
resulting in a net increase in cash and cash equivalents,
including restricted cash, for the year of USD 64m
compared to 2019.
As of 31 December 2020, TORM had closed the
refinancing of four term loans and an existing revolving
credit facility, the term loans and the revolving credit
facility were replaced by two separate term facilities
and a new revolving credit facility covering up to USD
496m. Furthermore, TORM refinanced its existing
facility with Danish Ship Finance with a new facility of
USD 180m in senior secured debt covering ten vessels.
Lastly, TORM has obtained financing of USD 12m
related to the installation of scrubbers and Ballast
Water Treatment Systems on four vessels. Following
the refinancing, TORM does not have any material debt
maturities until 2026, which supports the Company’s
financial flexibility.
As of 31 December 2020, TORM had CAPEX
commitments of USD 101m related to the outstanding
two LR2 new buildings under construction and one MR
second-hand vessel to be delivered.
In 2020, net cash inflow from operating activities
increased from USD 171m in 2019 to USD 236m due to
the higher freight rates combined with lower bunkers,
receivables and payables.
Net cash outflow from investing activities amounted to
USD 120m in 2020 compared to USD 335m in 2019.
The cash outflow was used for tangible fixed assets,
primarily related to the newbuilding delivered during
2020. CAPEX investments on scrubbers decreased in
2020 compared with 2019 and contributed to the
decrease in investment activities. The decrease was
further enhanced by the sale of eight vessels during
2020. Furthermore, total restricted cash increased by
USD 30m, mainly due to initial margin calls.
Net cash outflow from financing activities amounted to
USD 83m in 2020 compared to a cash inflow of USD
96m in 2019. Repayment on borrowings amounted to
USD 746m in connection with scheduled repayments
and vessel sales during the year. Additional borrowings
generated a cash inflow of USD 734m. TORM paid out
dividends amounting to USD 71m during 2020.
236m
Cash flow from operating activities
-120m
Cash flow from
investing activities
-83m
Cash flow from
financing activities
TORM ANNUAL REPORT 2020
REVIEW & RISK
46
FINANCIAL REVIEW 2020
TANKER FLEET
Revenue in the tanker fleet increased by 8% to USD
747m in 2020, up from USD 693m in 2019, and TCE
earnings increased by 22% to USD 520m from USD
425m in 2019. The increase in TCE earnings was
primarily due to a stronger product tanker freight
market in 2020 compared to 2019.
The OPEC+ price war and the COVID-19 pandemic
generated considerable volatility in the product tanker
market, temporarily sending freight rates to all-time
highs. An unprecedented decline in oil demand and an
increase in product stockpiles affected trade patterns
and led to a significant share of the fleet being tied up
in floating storage.
For the LR2s, the average TCE rates increased by 35%
between 2019 and 2020. The increasing freight rates is
partly offset by a decrease of 10% in available earning
days resulting in an increase in total earnings from 2019
to 2020 of USD 17m.
In 2020, the available earning days of MR vessels
increased by 793 days, equalling an increase of 4%
compared to 2019. The TCE rates increased by 14%,
resulting in total earnings of USD 336m, an increase of
USD 55m.
The average TCE rates for the LR1s were 34% higher
than in 2019. The increasing freight rates combined
with an increase of 50% in available earning days. In
combination, this resulted in a total increase in earnings
of USD 38m from 2019 to 2020.
For the Handysize vessels, the TCE rates decreased by
10% in 2020 compared to 2019. With a significant
decrease in available earning days of 59% in 2020 due
to vessel sales in 2019 the total earnings for the
Handysize vessels ended at USD 9m, a decrease of
USD 15m.
CHANGE IN TIME CHARTER EQUIVALENT EARNINGS IN THE TANKER FLEET
USDm
Time charter equivalent earnings 2019
Change in number of earning days
Change in freight rates
Other
Time charter equivalent earnings 2020
TORM ANNUAL REPORT 2020
Handysize
MR
24.2
281.4
-14.3
-1.0
-
12.6
41.8
-0.2
LR1
36.5
18.4
18.5
1.5
LR2
82.8
-7.9
26.2
-1.0
Total
424.9
8.8
85.5
0.3
8.9
335.6
74.9
100.1
519.5
REVIEW & RISK
47
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
⁾
2019
% change
Full year
Q1
Q2
Q3
Q4
Full year
full year
2020
4,198
1,019
1,002
3,907
928
291
91
911
91
901
886
15
873
873
-
3,795
3,598
197
21,783
31,013
37,677
21,495
18,510
29,030
19,730
29,108
32,732
23,854
19,632
26,637
2,153
2,153
-
779
779
-
812
812
-
811
811
-
826
826
-
3,228
3,228
-
17,912
25,421
30,116
20,703
13,081
22,424
17,102
24,329
31,655
20,629
14,931
22,839
17,736
16,145
1,591
4,703
3,868
835
4,791
3,997
794
4,663
3,900
763
4,372
18,529
3,675
15,440
697
3,089
16,063
22,974
23,297
15,259
11,082
18,229
15,840
22,461
23,012
15,077
11,243
18,098
1,620
1,620
-
183
183
-
182
182
-
183
183
-
116
116
-
664
664
-
14,945
19,535
15,872
7,193
9,051
13,116
14,965
20,649
15,270
7,628
8,257
13,416
25,707
23,825
1,882
6,684
5,758
926
6,787
5,902
885
6,558
5,780
778
6,187
26,216
5,490
22,930
697
3,286
16,875
24,116
25,528
16,220
11,717
19,619
16,526
23,643
25,274
16,762
12,863
19,800
-10%
-8%
-32%
33%
35%
50%
50%
-
25%
34%
4%
-4%
94%
13%
14%
-59%
-59%
-
-12%
-10%
2%
-4%
75%
16%
20%
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 2020
⁾
REVIEW & RISK
48
FINANCIAL REVIEW 2020
OPERATION OF VESSELS
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.
Operating expenses (OPEX) for the fleet increased by
USD 5m to USD 178m in 2020 compared to USD 173m
in 2019, mainly due to an increasing number of
operating days. On a per-day-basis, OPEX remained at
the same level in 2020 compared to 2019.
The total fleet of owned vessels had 1,332 off-hire and
dry-docking days, corresponding to 5% of the
operating days in 2020. This compares to 1,267 off-
hire days in 2019 or 5% of the number of operating
days.
CHANGE IN OPERATING EXPENSES
USDm
Operating expenses 2019
Change in operating days
Change in operating expenses per day
Other
Operating expenses 2020
OPERATING DATA
USD/day
Operating expenses per operating day in 2019
Operating expenses per operating day in 2020
Change in the operating expenses per operating day in %
Operating days in 2020 ¹
Offhire
Dry-docking
⁾
Bareboat contracts in/out
Vessels chartered-in
Available earning days 2020
¹
Including bareboat charters.
⁾
TORM ANNUAL REPORT 2020
Handysize
MR
10.4
117.6
-5.8
0.0
-0.0
7.9
-1.2
0.0
4.6
124.3
LR1
16.9
4.8
-0.8
-0.0
20.9
LR2
Total
28.1
-1.9
2.4
0.1
173.0
5.0
0.4
0.1
28.7
178.5
Handysize
6,124
6,163
1%
MR
6,350
6,287
-1%
LR1
6,597
6,355
-4%
LR2
Total
6,427
7,013
9%
6,371
6,398
0%
740
19,763
3,287
4,088
27,878
-7
-69
-
-
-266
-659
-3,398
3,089
-27
-32
-
-
-164
-108
-218
197
-464
-868
-3,616
3,286
664
18,529
3,228
3,795
26,216
ADMINISTRATIVE EXPENSES AND OTHER
OPERATING EXPENSES
Total administrative expenses and other operating
expenses amounted to USD 70m in 2020 compared
to USD 51m in 2019. The increase was mainly due to
higher number of employees and a one-off provision
covering an exposure related to cargo claims of USD
18m.
FINANCIAL INCOME AND EXPENSES
Net financial expenses in 2020 were USD 49m
compared to USD 39m in 2019. The increase in
borrowings obtained during the year and write-off of
capitalized bank fees relating to the refinanced
facilities increased the net financial expenses in 2020.
TAX
Tax for the year amounted to an expense of USD 1m
compared to an expense of USD 1m in 2019.
REVIEW & RISK
49
FINANCIAL REVIEW 2020
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 in 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 2020, Management tested the
carrying amount of its fleet for impairment within 3
CGUs, being the Main Fleet (LR2/LR1 and MR vessels)
and the two Handysize vessels.
In 2020, the recoverable amount of the Main Fleet and
the Handy vessels was based on its value in use.
Based on this review, Management concluded that:
• Assets within the Main Fleet were not impaired as
the value in use was in line with the carrying
amount.
The two Handy vessels were impaired with USD
5.5m in total as the calculated value in use was
lower than the carrying amount on a vessel by
vessel basis
•
The assessment of the value in use of the Main Fleet
and the Handy vessels was based on the present value
of the expected future cash flows. The freight rate
estimates in the period 2021-2023 are based on the
Company’s business plans. Beyond 2023, the freight
rates are based on the Company’s 10-year historical
average rates adjusted for the anticipated beneficial
impact of scrubber installations.
The impairment testing is sensitive to changes in the
key assumptions applied. Note 8 provides additional
details of the impairment assessment as well as
sensitivity analysis in respect of freight and discount
rates.
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
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 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 primarily bases its
financial decisions on expected TCE rates rather than
expected revenue. The analysis of revenue is therefore
primarily based on developments in TCE earnings.
TORM ANNUAL REPORT 2020
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50
FINANCIAL REVIEW 2020
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 2020, TORM had two LR2
newbuildings under construction and one MR second-
hand vessel to be delivered. The MR second-hand
(TORM Philippines) was delivered in January 2021, and
the two LR2 newbuildings are expected to be
delivered in Q4 2021 and Q1 2022. The value of the
prepayments included in the total asset value amounts
to USD 12m compared to USD 95m in 2019. The
decrease is due to the delivery of one MR second-
hand vessel in January 2021, compared with two LR1
and one MR vessels delivered at the beginning of
January 2020.
TORM ANNUAL REPORT 2020
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51
FINANCIAL REVIEW 2020
RETURNS TO SHAREHOLDERS
In line with the Company’s semi-annual Distribution
Policy TORM made a total shareholder distribution of
USD 72.0m in 2020.
In the first half of 2020, TORM made a total
shareholder distribution of USD 8.8m. The distribution
related to a dividend distribution of USD 7.4m for the
second half of 2019, equivalent to USD 0.10 per share,
and a repurchase of 180,500 A-shares in the open
market. In the second half of 2020, TORM paid an
ordinary dividend of USD 63.2m for the first half of
2020, equivalent to USD 0.85 per share.
The Board of Directors has decided to recommend
that no dividends be paid for the second half of 2020.
GOING CONCERN
As of 31 December 2020, TORM’s available liquidity
including undrawn and committed facilities was USD
267.8m, including a total cash position of USD 135.6m
(including restricted cash of USD 46.1m). TORM’s net
interest-bearing debt was USD 713.1m, and the net
debt loan-to-value ratio was 51%. 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 54-58 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 in its loan
facilities, details of which are available in note 2 to the
financial statements. A key element for TORM’s
financial performance in the going concern period
relates to the development of the COVID-19 pandemic
and the associated lockdowns in the different
economies. TORM’s base case assumes an economic
rebound during the second half of 2021, however
neither freight rates nor vessel values will reach 2020
levels. In the base case, TORM has sufficient liquidity
and headroom above all the covenant limits.
TORM performs sensitivity calculations to reflect
downside 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 downside scenarios
cover the principal risks and uncertainties facing the
Group as set out on pages 57-58 and include different
distressed outlook for the product tanker market. In a
low case scenario management have assumed freight
rates that on average are 15% below those in the base
case and a similar decline in vessel values. In the low
case scenario there remains sufficient headroom on
liquidity and covenants. In a stress case scenario
management have further stressed the freight rates to
the lowest rolling four quarter average since 2000. In
the stress case scenario there remains sufficient
liquidity, but limited headroom on covenants.
The Board of Directors has considered the Group’s
cash flow forecasts and the expected compliance with
the Company’s financial covenants for the period until
31 March 2022. The Group’s cash flow forecast and
expected covenant compliance is based on the Board
approved business plan. Based on this review, the
Board of Directors has a reasonable expectation that
taking reasonably possible changes in trading
performance and vessel valuations into account, the
Group will be able to continue the 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.
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 2023. This period has been selected for the
following reasons:
• Three years is generally in line with the forecast
horizon for external equity analysts covering the
shipping sector
TORM ANNUAL REPORT 2020
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FINANCIAL REVIEW 2020
• TORM will have paid its commitments relating to
the Company’s remaining newbuildings and will as
of 31 December 2023 not have any currently
known off-balance sheet liabilities
• The current key uncertainty in the product tanker
market relating to the rebound of global oil
demand is expected to be determined by the
development of the COVID-19 pandemic and is
expected to be resolved within the three-year
horizon
The assessment of the Board of Directors has been
made with reference to the Group’s current financial
position and prospects. The assessment of financial
performance and cash flows is primarily dependent on
the expectations for:
• Demand-supply picture in the product tanker
sector including the expected vessel values and
freight rates achieved by the Group
• Development of the fleet
• Operating and administrative expenses
• Capital expenditures covering newbuildings and
maintenance of the existing fleet including
installations of scrubbers and Ballast Water
Treatment Systems
• Changes in 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, 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. 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. Management has assumed that low case
and stress case freight rate assumptions as per the
going concern assessment continue throughout the
viability period and have further sensitized the vessel
values downward over the period to reflect a
continued downturn. In the base and low case
scenario sufficient liquidity and headroom on all
covenants are maintained. In the stress case scenario
management actions will be required to maintain
compliance with covenants and 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 going concern period,
which would require mitigating actions, including cost
savings, sale of vessels or increased leverage which
are considered within management’s control and
achievable. Management would also consider
obtaining appropriate waivers and although they
would be confident of obtaining them these are not
within management’s control.
The Board of Directors monitors if TORM is moving
towards a covenant breach in order to incorporate
any mitigating actions in due course on an ongoing
basis. 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.
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 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 the utilization of energy sources into
consideration. 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
Mr. Kim Balle, Chief Financial Officer, TORM A/S
1 March 2021
TORM ANNUAL REPORT 2020
REVIEW & RISK
53
RISK MANAGEMENT
Prolonged periods of subdued freight rates and volatile vessel values remain a risk for TORM.
A solid capital structure ensures that TORM is well-positioned to pursue opportunities and face down-side risks.
Uncertainty persists over how climate change and the related legislation will impact TORM.
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
deciding how best to manage and mitigate them.
TORM believes that a strong risk management
framework is vital to protect the Company.
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.
TORM’s Risk Assessment Process
Risk types
Risk assessment is made of the potential
financial, reputational and compliance
impact of individual risks.
Risks are assessed as to whether they
are of a Short-term, Recurring or Long-
term (Emerging Risks) nature.
Risk appetite
The Senior Management Team and the
Risk Committee decide on TORM’s risk
appetite for the Company’s principal risk
exposures.
The objective is for TORM and its shareholders to be
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 CURRENT RISK PROFILE
The Board of Directors and the Senior Management
Team confirm that they have carried out a robust
assessment, under the Corporate 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.
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:
Coming into 2021, TORM has 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 the COVID-19 pandemic; consequently, the
market risk remains high. To mitigate the risk TORM
has taken on more than usual coverage via time-
charters and forward freight agreements.
Market risks associated with unexpected changes in
vessel values have a significant impact on the value of
TORM. Potential additional environmental legislation
may lead to a decline in the price curve of vessel
values with particular vulnerability for older vessels.
TORM has focused on sustaining a healthy capital
structure to maintain adequate flexibility in the asset
market. TORM has proven its ability to execute in the
second-hand and newbuilding markets.
Risks within the Company’s immediate sphere of
control, including legal compliance and oil major
approval, have remained stable at a low level due to
strong continued focus and efficient controls.
TORM ANNUAL REPORT 2020
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54
RISK MANAGEMENT
The risk of a severe vessel accident such as an
environmental disaster or material damage and
personal injury is deemed to be at the same level as
last year.
TORM operates in high-risk geographies with
politically motivated terrorism and piracy. The risk
became a reality in November 2020 when TORM
Alexandra was boarded by pirates in the Gulf of
Guinea. The crew followed TORM’s safety procedures
and the situation was controlled without injuries.
TORM maintains a Trading Restrictions Committee
with oversight and mandate to advise vessels and
Management on how best to avoid and mitigate
security threats.
The liquidity risks are 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 are 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
increasingly focused on exposures with a perceived
link to CO2 emissions. This risk is currently considered
to be relatively low but is expected to develop as new
regulation are introduced over the coming years.
IT and cyber security has been included as a top risk.
The risk is system unavailability and data loss due to
cyber attack. Increasing interconnectivity and
“commercialization” of cyber crime are driving a
higher frequency and severity of incidents. In addition
to damages paid due to loss of customer data and the
impact of business interruption, loss of reputation can
be a significant cause of financial loss for businesses
after a cyber incident. The cyber risk continues to be
acknowledged by TORM as a business risk and not
only an IT risk. Mitigating activities include business
continuity plans and assessment of critical systems.
TORM considers the risk to be limited due to its
business model and current mitigating activities.
TOP RISK HEAT MAP
TORM TOP RISKS WITHIN THE COMING 12 MONTHS – POST-MITIGATION ACTIVITIES:
2019
2020
Unchanged
Worst
case
Major
s
e
c
n
e
u
q
e
s
n
o
C
Moderate
E
Minor
Min.
effect
I
D
G
J
D
H
C
A
A
B
F
A Tanker freight rates
B Bunker price
C Asset management risk
D Oil major approval
E Severe vessel accident
F Maritime safety threats
G Legal compliance
H IT and cyber security
I Liquidity risk
J Terms and sources of funding
Rare
Unlikely
Possible
Likely
Frequent
Likelihood
TORM ANNUAL REPORT 2020
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55
RISK MANAGEMENT
TORM has removed the risk of adverse developments
in technical costs from the top risks as the risk is
deemed limited due to TORM’s proven ability to
maintain stable operating costs.
A detailed description of each of the top risks is
available on the next page. For a more in-depth
description of mandates and sensitivity analyses of the
various risks, please see note 20 on pages 140-143.
EMERGING RISKS
As part of the Enterprise Risk Management process,
long-term (emerging) risks are reported to the Risk
Committee, facilitating a discussion and evaluation of
mitigating activities to reduce the uncertainty. These
are often initiatives with a long-term impact. TORM
considers the main long-term 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, it is
difficult to predict the longer-term future 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 faced by TORM
broad in nature. Climate change is likely to have far-
reaching consequences for TORM in the long term and
to impact several areas of core business activities.
Below we have outlined additional emerging risk. All
have elements directly related to climate change.
management risk and is likely to benefit from its
strong operating model when transitioning to new
technologies.
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 that TORM serves and as such radically
change transportation patterns. In the 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, such as the International Energy
Agency and WoodMackenzie, there is little reason to
believe that once it does peak, oil demand will fall
sharply. 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.
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.
Potential changes to regulation such as a CO2 tax or
maximum emission requirements will affect the need
for a transition towards cleaner technologies. TORM’s
stakeholders are expected to demand more clean
vessels. This demand for transition will put pressure on
vessel values and may render vessels redundant.
TORM is already focusing on how to treat this asset
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 other current
initiatives, such as the EU Taxonomy are probably just
the first steps. Such regulation may result in a reduced
ability to obtain equity or debt financing and may
affect pricing, due to a potential reallocation of funds
with 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.
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 freight rates.
The technology of vessels could impact the risk
related to asset management as vessel values may
decline, and the trend towards TORM’s stakeholder
becoming increasingly affected by climate change
may increase the risk of insufficient access to
financing.
TORM ANNUAL REPORT 2020
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RISK MANAGEMENT
Description of top risks
Industry or market-related risks
Operational risks
Tanker
freight rate
Bunker price
Asset
Management
Oil major
approval
Severe
vessel accident
Maritime
safety threats
Sustained low tanker
freight rates or inability
to predict and respond
timely and accurately
to freight rate
developments
Unexpected bunker
price increases that are
not covered by
corresponding freight
rate increases
TORM’s profitability will
be negatively impacted
in case of a distressed
product tanker market.
Vulnerability to a
sustained increase in
the bunker price and
pass-through to
charterers may not
have an immediate
effect, meaning that
TORM may bear the
full effect of price
increases.
Unexpected value
depreciation of vessels,
the most exposed
vessels are older
vessels due to new
legislation driven by
the climate change
agenda
A drop in TORMs net
asset value, which can
lead to a requirement
from banks to provide
additional security.
TORM is also exposed
to cyclical asset prices
and contracted at too
high prices
A sudden and
unexpected breach in
quality requirements of
a single vessel or
continuous decrease in
quality across the fleet
A severe vessel
accident such as an
environmental disaster
or material damage or
personal injury.
A maritime venture has
inherent hazards. Events
such as piracy and
terrorism are considered
main security risks
The risk of a partial
ban of the TORM
tanker fleet by one or
more oil majors.
TORM’s involvement in
an environmental
disaster will damage
the Company’s
reputation and impair
the tradability with oil
majors.
Events such as piracy
and terrorism could result
in kidnapping of or injury
to seafarers or vessel
damage.
TORM’s spot-oriented
strategy limits possible
mitigation. Time
charter-outs and FFA
coverage are
considered when terms
and pricing are deemed
attractive.
In general, TORM does
not hedge future
bunker expenses. In
case freight income is
fixed, TORM hedges
future bunker
exposures
With a conservative
capital structure, focus
on loan-to-value and
close view of the
market TORM
maintains flexibility
and an ability to act on
the asset market
TORM’s integrated
platform with in-house
safety, technical and
operational staff
secures continued
focus on quality and
high vetting standards
Disaster recovery
plans for emergency
situations are in place.
Ongoing safety
resilience program to
enhance safety culture,
including officers being
trained as “safety
ambassadors”.
TORM’s Trading
Restrictions Committee
has oversight of security
threats and decides how
best to avoid and
mitigate the risk. TORM
follows all industry best
practices and has
procedures in case of an
incident.
Risk
Potential
impact
Mitigating
activities
TORM ANNUAL REPORT 2020
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57
RISK MANAGEMENT
Description of top risks
Compliance risks
Financial risks
Legal compliance
IT and cyber security
Liquidity risk
Terms and sources
of funding
Legal or policy non-compliance or
ethical misconduct. The risk consists
of competition law, corruption, fraud
and sanctions.
System unavailability and data loss
due to cyber attack due to
increasing interconnectivity and
“commercialization” of cyber crime
are driving higher frequency and
severity of incidents
Liquidity risk is driven by financial
gearing, liquidity reserve,
distribution policy, maintenance
requirements, fleet employment
strategy and required vessel
investments.
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.
TORM’s inability to comply with rules
and regulations could lead to
penalties, reputational damage or
the inability to operate in key
markets.
Business interruption and disruption
to trading resulting in loss of
business or theft of money.
Sustained low freight
rates or another unforeseen adverse
development could jeopardize
the liquidity, lead to covenant
breaches and hence inflict costs and
lack of operational maneuverability.
Inability to grow the business or
maintain the current average fleet
age. TORM’s long-term profitability
will be negatively impacted.
Compliance and awareness training
is mandatory for all employees. In
connection with sanctions, a know-
your-customer screening system is
implemented.
Business continuity plans
implemented covering the entire
group. Plan includes assessment
and contingency of critical systems
in case of business interruption
Conservative financial leverage
guided by short-and long-term cash
flow forecasting with stress-testing
of critical assumptions. Constantly
maintaining a tangible catalogue of
available liquidity enhancing
initiatives
TORM has a conservative capital
structure profile and has access to
multiple funding sources. TORM has
no larger debt repayments until
2026
Risk
Potential
impact
Mitigating
activities
TORM ANNUAL REPORT 2020
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58
ENGAGEMENT AND DECISION-MAKING
The following information comprises our section 172 statement, setting out how, in performing their duties over the course of the year, Directors
have had regard to the matters set out in section 172(1) (a-f) of the UK Companies Act 2006.
We have integrated our reporting on how our stakeholders have been considered in terms of our business model and governance throughout this
report. The Board of Directors of TORM considers, 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 during the year ended 31 December 2020
Who?
How?
Outcomes and actions
Why is it important to engage
How did Management and Directors engage?
What was the impact of the engagement?
SHAREHOLDERS
Transparent and open shareholder
communication is expected to support the
price of TORM shares and future funding
opportunities in the capital markets. TORM’s
integrated operating model without
perceived or actual leakage and a
continuous focus on RoIC generation is
developed with the aim of maximizing the
long-term value for TORM’s shareholders.
EMPLOYEES
TORM’s employees are fundamental to
enable the Company to do business, and
their continued engagement is an integral
part of the decision-making across the
organization. The Board supports an open
dialogue between the Board and the
workforce.
TORM regards responsible behavior as a
central part of the Company, our business
and the mindset of our people.
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.
TORM issued 30 stock exchange announcements during 2020. The
COVID-19 pandemic challenged the possibility to conduct physical
meetings with investors and instead TORM organized several conference
calls and presentations via digital platforms with investors through e.g.
analysts. Further, TORM was represented on a number of industry panels.
In connection with the development of TORM’s updated ESG reporting,
equity analysts and investors have been consulted about their
requirements for such reporting. Full details can be found on pages 32-
43.
The Board oversees the mechanisms we have in place to help
ensure that employees can raise any matters of concern, how such
matters are considered and, when necessary, investigated,
through the whistleblower facility.
Two employee-elected representatives attended all Board
meetings as observers, The current observers include one office-
based employee and one sea-based employee. Observers are
permitted to participate but are not permitted to formally vote on
matters submitted to a vote.
Since 2006, TORM’s Board of Directors has provided a whistleblower
facility with an independent lawyer as part of the internal control system.
Full details can be found on page 73.
The observers on TORM’s Board allow TORM’s employees to have a
direct line of questioning to and receive feedback from the Board. Full
details of attendance can be found on page 68.
The Board has agreed on focus areas to be followed up on with regard to
TORMs Employee Engagement Survey. Full details can be found on
pages 77.
TORM ANNUAL REPORT 2020
ENGAGEMENT AND DECISION-MAKING
59
Engagement and Decision-making
Who?
How?
Outcomes and actions
Why is it important to engage
How did Management and Directors engage?
What was the impact of the engagement?
SUPPLIERS & CUSTOMERS
Managing the relationship with suppliers
and customers is an integral part of the way
TORM conducts business. The COVID-19
pandemic highlighted the importance of
maintaining a dialogue as well as a good
relationship with both suppliers and
customers. TORM depends on them as
much as they on TORM.
The Board receives and follows up on the Employee Engagement
Survey performed twice a year.
Mr. Goran Trapp, Chairman of the Audit Committee, engaged
directly with employees in the Finance area through a town hall
meeting.
Throughout the COVID-19 pandemic, the Company has ensured
that every employee is provided with the required equipment to
work safely from home when required.
Throughout the year, a main priority was to relieve seafarers on
time despite the heavy constraints caused by the COVID-19
pandemic.
At the beginning of the COVID-19 pandemic, TORM reviewed the
supplier chain to search for critical vendors, ensuring that a
dialogue took place to pre-empt any unforeseen problems that
might occur.
Beyond national and international regulation, TORM’s largest
customers have their own compliance criteria that TORM and
other product tanker operators have to comply with.
Ensuring quality in everything TORM does, is part of the one
TORM KPI Framework. Within this framework, the Board includes
a Tradability KPI ensuring that TORM vessels are available to meet
our customers’ demands.
In order to maintain Company standards and exceed the targets
set by its customers despite the COVID-19 pandemic, TORM
developed a robust remote audit scheme at the beginning of
2020.
TORM encourages feedback from its customers and suppliers.
Whilst working from home during the COVID-19 pandemic, employees
received and continued to receive regular updates , and measures were
taken to enable our employees to continue to perform their work in the
best possible way.
The One TORM platform proved its strength by enabling the organization
to conduct crew changes better than the industry average, and by the
end of 2020, the number of overdue seafarers onboard was normalized.
See pages 15 and 41 for more details
The Board’s pre-emptive actions enabled TORM to ensure smooth
continuation of operations throughout 2020.
TORM has a high degree of approval by oil majors and regularly receives
feedback from our customers. TORM utilizes this feedback in solving
future logistical demands, understanding our customers’ difficulties and
requirements and to help resolve issues each time they are encountered.
See pages 39 for more detail on how TORM meets customers’
requirements.
During 2020, TORM received notification of its fifth successful Tanker
Management and Self Assessment (TMSA) carried out in the last two
years
LENDERS
Strong relationships with our banks,
financial institutions and investors supports
the Company’s ability to be financially
flexible.
TORM maintains an ongoing dialogue with several funding
providers. This dialogue was intensified with several providers in
2020 in connection with the refinancing conducted by TORM
throughout the year.
Some of TORM’s existing debt was refinanced, postponing debt maturity
and providing the Company with additional financial flexibility and
liquidity to allow the Company to continue the fleet renewal program.
One refinancing included a CO2-linked pricing mechanism. The
adjustment in pricing is linked to the reductions in CO2 emissions year on
year, so that it aligns with the International Maritime Organization’s 40%
TORM ANNUAL REPORT 2020
ENGAGEMENT AND DECISION-MAKING
60
Who?
How?
Outcomes and actions
Why is it important to engage
How did Management and Directors engage?
What was the impact of the engagement?
REGULATORS
As a company incorporated in the UK and
listed on Nasdaq both in Copenhagen and
New York, the Company must ensure that
the high standards required by the local
regulatory bodies are met.
Through close dialogue with Management, its committees and
through its compliance systems, the Board ensures that the
Company remains up to date with the latest regulatory changes.
Examples of matters discussed this year by the Board or the
committees include:
•
•
•
•
•
Brexit and the effect on the home state
Sanctions due to China’s COSCO Shipping
IMO regulations on CO2 emissions
Danish Shipping and the Charter for more women in shipping
The Modern Slavery Act
industry reduction target for greenhouse gas emissions by 2030. More
information on TORM’s CO2 targets can be found on pages 33-36.
TORM’s Business Principles, see Our Responsibility on pages 32-43
ensure that TORM is always in compliance with legislation and lives up to
the commitment to responsible business practices.
TORM’s Corporate Social Responsibility Statement and Corporate
Governance statement can be found at www.torm.com/about-torm
TORM’s Modern Slavery Act Statement can be found at
www.modernslaveryregistry.org
To find out more about TORM’s participation in the Danish Shipping work
group “More Women at Sea”, see page 42.
COMMUNITY &
ENVIRONMENT
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.
TORM is engaged in several local and global initiatives supporting
the different communities in which the Company operates and
also the overarching climate issues faced by the world. Different
initiatives include our education foundation, our commitment to
the UN SDGs 4 and 13 and our climate engagement supporting
initiatives. More information on TORM’s SDGs can be found on
page 32.
Encouraged and supported with funding by the Board and the TORM
Foundation, TORM Philippines runs educational development actions
through the TORM Philippines Education Foundation which has been
helping Philippine communities since 2007. Since 2016, through TORM
India, the Board has supported the construction of the ZP Prathmik
School in Zadgewadi, near Pune, India. For more details of these and the
Board’s ongoing support for community projects see page 37-38.
To quantify our ambition, TORM has set a target to reduce its
relative CO2 emissions. More information on TORM’s CO2 targets
can be found on page 33.
TORM has set a target to reduce its relative CO2 emissions by 40% by
2030 and is pursuing an ambitious climate agenda, whereby we will have
zero CO2 emissions from operating our fleet by the year 2050.
TORM strives to utilize its market position and strength to lead the
product tanker industry into a more environmentally friendly future and
develop innovative solutions for a greener future. For more information
on our strategy, see page 27-30.
TORM ANNUAL REPORT 2020
ENGAGEMENT AND DECISION-MAKING
61
GOVERNANCE
GOVERNANCE
GOVERNANCE INTRODUCTION
Chairman’s Introduction
GOVERNANCE STRUCTURE
TORM’s Governance Structure
Board of Directors
Board and Committee Meeting Attendance
COMMITTEE REPORTS
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
Remuneration Policy
OTHER
Investor Information
Directors’ Report
Statement of Directors’ Responsibilities
63
64
67
68
69
74
76
78
88
97
99
103
TORM ANNUAL REPORT 2020
TORM ANNUAL REPORT 2020
ENGAGEMENT AND DECISION-MAKING
GOVERNANCE
62
62
CHAIRMAN’S INTRODUCTION
being able to quickly respond to the changing needs
of our stakeholders.
I am once again pleased to announce that we are
able to confirm compliance in 39 out of 41
provisions of the 2018 UK Corporate Governance
Code. A summary of how we have complied with
the Code during the year is presented on page 66.
At the AGM held in April 2020, we welcomed Ms.
Annette Malm Justad as a new member of the
Board of Directors. Ms. Annette Malm Justad is
considered an independent Non-Executive Director
and has since 2019 been engaged as a Board
Observer. In connection with the AGM, Non-
Executive Director Mr. Torben Janholt also stepped
down and now holds a role as a Board Observer. Mr.
Torben Janholt has been a Non-Executive Director
and Committee member of TORM since 2015 and I
would like to thank Torben for his contribution to
the development of TORM.
Following the appointment of Ms. Annette Malm
Justad, female Board members now make up 20%
of TORM’s Board of Directors, which is in line with
our target. A summary of the Board and Committee
meetings held during the year is presented on page
68.
35% of the shore-based employees at TORM are
currently females and to support a continued
increase in diversity, the Board has set a target of
35% of shore-based managers being female by
2030. More information on our diversity targets can
be found on page 33.
In order to supplement the Annual Report and
TORM’s CSR report, TORM is very pleased to have
published its first dedicated ESG report, providing
easy access to data specifically within
Environmental, Social and Governance aspects. This
ESG report documents the results of TORM’s efforts
within the environment, our commitment to the
UN’s Sustainable Development Goals, and social
and governance aspects, and the targets that
TORM as a company has set towards 2030
onwards.
In order to further increase the independence of the
Board’s work, I have decided to step down as a
member of the Risk Committee as of 1 January 2021.
Senior Independent Director and Deputy Chairman
David Weinstein will replace me.
Mr. Christopher H. Boehringer
Chairman of the Board
Mr. Christopher H. Boehringer, Chairman of TORM’s
Board of Directors
CHAIRMAN’S STATEMENT
Dear Shareholder
On behalf of the Board of Directors, I am pleased to
present the Corporate Governance Report for the
year ended 31 December 2020.
The Board is committed to delivering strong
corporate governance for the benefit of our
shareholders, employees, customers, suppliers and
other stakeholders, especially during these times of
uncertainty and instability presented by the COVID-
19 pandemic. Despite this uncertainty, the Board has
continued to work closely, however remotely, with
the Senior Management ensuring that we continue to
make good progress on our strategic priorities whilst
TORM ANNUAL REPORT 2020
GOVERNANCE INTRODUCTION
63
Governance Introduction
TORM’S GOVERNANCE STRUCTURE
The Board:
Chaired by Mr. Christopher H. Boehringer.
The Board of Directors holds six prescheduled meetings on an annual basis, but usually holds several ad hoc meetings. 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.
Chairman
Senior Independent Director
Non-Executive Directors
Executive Directors
Board Observers
Leads the Board, sets the agenda
and promotes a culture of open
debate between Executive and
Non-Executive Directors.
Regularly meets with the Chief
Executive Officer, the other
Executive Directors and other
senior management executives to
stay informed.
Ensures that the views of each
Non-Executive Director are given
due consideration.
Available to both Non-Executive
Directors and shareholders if they
have concerns.
On an annual basis, meets with
each Non-Executive Director to
appraise the performance of the
Chair.
Committed to contribute
constructively, challenge and help
develop proposals on strategy.
Responsible for the day-to-day
management of the Company,
Responsible for the Company’s
operational development, results
and internal development.
Implements the strategies and
overall decisions approved by the
Board.
Three types. Employee-elected,
providing a communication
platform between the employees
and the Board. Minority Board
Observer appointed by the B
Shareholder and Board Member
elected. All observers are entitled to
attend and speak at Board
meetings.
Audit Committee
Risk Committee
Nomination Committee
Remuneration Committee
Chaired by Mr. Göran Trapp
Meets a minimum of four times a year.
Assists 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
The Audit Committee report on pages 69-73
describes in detail the committees roles and
activities
Chaired by Mr. Göran Trapp
Meets a minimum of three times a year.
Responsible for supervisory oversight and
monitors responsibilities with respect to
internal controls and risk management
The Risk Committee report on pages 74-75
describes in detail the committees roles and
activities
Chaired by Mr. Christopher H. Boehringer
Meets a minimum of two times a year.
Reviews the structure, size and composition
(including skills, knowledge, experience and
diversity) of the Board of Directors and
makes recommendations to the Board of
Directors with regard to any changes.
Considers succession planning for Directors
and the Chief Executive Officer and others.
The Nominations Committee report on
pages 76-77 describes in detail the
committees roles and activities
Chaired by Christopher H. Boehringer
Meets a minimum of two times a year.
Assists the Board of Directors in reviewing
Management’s performance and
remuneration as well as the Company’s
general remuneration policies
The Remuneration Committee report on page
78-87 describes in detail the committees roles
and activities
Senior Management Team
Consists of the following employees of TORM A/S (in addition to the Executive Director, Mr. Jacob B Meldgaard): 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. Assists the Executive
Director in the day-to-day management of the business.
TORM ANNUAL REPORT 2020
GOVERNANCE STRUCTURE
64
Governance Structure
TORM’S GOVERNANCE STRUCTURE
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 5-61. The Board of Directors has
delegated the day-to-day management of the
business to 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 of 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 must,
taking into consideration the interests of the
Company to the extent possible, obtain the
approval of the Chairman and ensure that the Board
of Directors is subsequently informed. Any
transaction must always be subject to the
authorizations stated in the Company’s Articles of
Association, including any approvals required by
the Minority Director.
The Executive Director is assisted by the Senior
Management Team in the day-to-day management
of the business. The Senior Management Team
holds weekly meetings. The Senior Management
Team members are individually responsible for
further delegation of authority in the organization.
TORM maintains an overview of mandates and
authorities for different levels in the organization.
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 must
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, major business
acquisitions and the issuance of certain shares,
warrants or convertible debt instruments and 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 at TORM. The Minority Trustee
will exercise this voting right on behalf of all
A-shareholders other than Oaktree Capital
Management (Oaktree) and its affiliates. Further,
a single redeemable and non-transferable C-share
has been issued to Oaktree in order to give Oaktree
sufficient voting rights to elect all Board members
other than the Minority Director (and employee
representatives) and to vote for amendments to
TORM’s Articles of Association with the exception
of certain minority protection rights. The C-share
has no voting rights on any other matters.
Both the B-share and the C-share will be redeemed
by TORM upon a reduction in Oaktree’s
shareholding below one third of the issued and
outstanding shares in TORM.
TORM ANNUAL REPORT 2020
GOVERNANCE STRUCTURE
65
TORM’S GOVERNANCE STRUCTURE
COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE
The Board is committed to high standards of
Governance and has applied the principles set out
in the UK Corporate Governance Code 2018 (Code)
throughout the period under review.
TORM has considered the individual provisions and
is compliant with 39 out of 41 provisions. TORM is
not in compliance with provisions 18 and 32
because of business decisions taken after careful
consideration by the Board of Directors. Based on
the explanations provided in the individual
committee reports, no plan is currently in place to
attain compliance with the recommendations
below. 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
Board leadership and company purpose
Fully compliant with the Code. See pages 63-66 for
details on our culture, purpose and values.
Division of responsibilities
Fully compliant with the Code. For details on the
Board and Committee composition, see pages 63-
66.
Composition, succession and evaluation
For details on the activities of the Nomination
Committee and its compliance with the Code, see
pages 76-77.
Audit, risk and internal control
Fully compliant with the Code. See pages 69-73 for
details on our Audit Committee and pages 74-75
for details on our Risk Committee. For more
information on our Risk Management Structure, see
pages 54-58.
Remuneration
For details on the Remuneration Committee and its
compliance with the Code, see pages 78-87. To
view the proposed Remuneration Policy for 2021,
see pages 88-96.
The Financial Reporting Council (FRC) is
responsible for the publication and periodic review
of the UK Corporate Governance Code. This is
available at www.frc.org.uk
TORM ANNUAL REPORT 2020
GOVERNANCE STRUCTURE
66
BOARD OF DIRECTORS
Christopher H Boehringer
Non-Executive Director
and Chairman of TORM’s
Board of Directors
David Neil Weinstein
Senior Independent Director
and Deputy Chairman of
TORM’s Board of Directors
Nationality: Canadian
Nationality: US citizen
Tenure: 4 years
Employment: Managing Director
and Head of Europe, Oaktree
Capital Management
(International) Limited
Skills & experience: Shipping,
Strategy, Capital Investment,
Tenure: 4 years, continues until
removed by the B-shareholder
Employment: Senior Investment
Banking, Governance and
Reorganization Specialist
Göran Trapp
Non-Executive Director
Annette Malm Justad
Non-Executive Director
Jacob B Meldgaard
Executive Director and
Chief Executive Officer
Torben Janholt
Former Non-Executive
Director
Nationality: Swedish
Tenure: 4 years
Nationality: Norwegian
Tenure: <1 year.
Appointed at the 2020 AGM
Nationality: Danish
Tenure: 4 years
Employment: Board member
Employment: Board member
Employment: Chief Executive
Officer TORM plc since 1 April 2010
Nationality: Danish
Tenure: 4 years
Resigned from the Board and its
Committees at the 2020 AGM
Employment: Board member
Skills & experience: Strategy,
Capital, M&A, US listings. Inter alia
Skills & experience: Shipping,
Strategy, Customers, Finance.
Skills & experience: Shipping,
Customers, Strategy, Capital,
Skills & experience: Shipping,
Customers, Strategy, Capital, M&A,
Skills & experience: Shipping,
Strategy, Customers, International
Mergers & Acquisitions. Goldman
Sachs, FI Travel Corporation,
Seadrill, Ltd., Stone Energy Corp,
Tru Taj LLC, Deep Ocean Group,
Morgan Stanley crude oil trader,
Head of Oil Products Trading
Finance. More than 20 years of
executive experience from
US listing. Previously served as
Executive Vice President of
markets, Executive Management,
Leadership. Previously CEO and
Warburg Dillon Read/SG Warburg
Axiall Corporation, The Oneida
Europe & Asia, Global Head of Oil
shipping and industry including
Dampskibsselskabet NORDEN A/S
President of J. Laurtizen 1998-2012,
and LTU GmbH & Co
Group, Horizon Lines, Inc.,
Trading and Head of Commodities
CEO of Oslo listed Eitzen Maritime
and held a number of management
Chairman of Danish Shipowners
Interstate Bakeries Corp, Pioneer
EMEA. Crude oil trader at Statoil.
Services ASA from 2006-2010
positions in J. Lauritzen A/S and A.
Association 2005-2009 and
Companies Inc. and York Research
Founding director of energy
Corp and as MD of Calyon
advisory boutique Energex
P. Møller-Maersk
Managing director Pioneer Marine
2017-2020.
External appointments:
Utmost Group Limited and
Oaktree Capital Management
(International) Limited
Securities Inc., BNP Paribas, Bank
of Boston and Chase Securities Inc.
External appointments: Pacific
Drilling S.A
External appointments: Board
member of Energex Partners Ltd.
External appointments: Partner at
Recore Norway AS. Chair of the
External appointments: Chairman
of the Board of Danish Shipping
External appointments: Board
member of United Shipping and
Board of Directors of Store Norske
and Board member of Danish Ship
Trading, Unitankers and Bunker
Spitsbergen Kulkompani AS,
Finance, SYFOGLOMAD Ltd, Grant
Holding.
American Shipping Company ASA,
Compass A/S and The TORM
RECSilicon ASA and Norske tog
Foundation
AS. Board member of Awilco LNG
ASA, PowerCell Sweden AB
Committees:
C`
C
Committees:
`
Committees:
C
C
Committees:
`
Committees: None
Committees:
`
Key: Audit:
/ Remuneration:
`
/ Nomination:
/ Risk:
/ Chairman:
C
TORM ANNUAL REPORT 2020
GOVERNANCE STRUCTURE
67
BOARD AND COMMITTEE MEETING ATTENDANCE
Audit
Remuneration
Nomination
Risk
Board
Committee
Committee
Committee
Committee
C
C
C
C
C
Meetings held in 2020
Chairman of the Board
Christopher Boehringer
Senior Independent Non-Executive Director
David N. Weinstein
Executive Director
Jacob Meldgaard
Non-Executive Independent Directors
Annette Malm Justad ¹
Göran Trapp
Torben Janholt ²
Board Observers
⁾
Annette Malm Justad ¹
Christian Gorrissen ⁴
⁾
⁾
Jeffrey S. Stein
⁾
Lars Bjørn Rasmussen ³
Torben Janholt ²
⁾
Rasmus J. Skaun Hoffmann
⁾
10
5
4
3
5
2
8
9
10
8
10
2
2
6
6
4
7
9
3
3
3
2
1
2
2
2
1
1
3
0
3
3
0
¹
²
³
⁴
Resigned as an Observer and appointed as Director, 12 April 2020 at the Annual General Meeting
Resigned as Director and appointed as an Observer, 12 April 2020 at the Annual General Meeting
Resigned as employee-elected Observer, 27 May 2020
⁾
Appointed as employee-elected Observer, 27 May 2020
⁾
⁾
⁾
Key: Board of Directors:
Remuneration:
Nomination:
Audit:
`
Risk:
Chairman:
C
TORM ANNUAL REPORT 2020
GOVERNANCE STRUCTURE
68
AUDIT COMMITTEE REPORT
AT A GLANCE
Chairman
Göran Trapp
Members
Annette Malm Justad appointed on 12 April 2020
David Weinstein
Torben Janholt resigned on 12 April 2020
Composition
The Committee is composed solely of independent
Non
Executive Directors
‑
Meetings
The Committee had five scheduled meetings during 2020.
Attendance by members at Committee meetings can be
seen on page 68.
2020 Highlights
• Onboarding of EY as new independent auditors
• Quarterly impairment indicator test
• Annual impairment testing of the CGUs
CHAIRMAN’S STATEMENT
Dear Shareholder
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
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 Reporting, Compliance and Tax of TORM A/S
as well as the Company’s independent auditor will
normally attend these meetings by invitation. During
2020, the Audit Committee met five times. Mr. Göran
Trapp attended all meetings and Mr. David N.
Weinstein attended four meetings held in 2020 in
person or by telephone. Mr. Christopher H. Boehringer
attended two meetings held in 2020 as an Observer.
Mr. Torben Janholt was replaced on the Audit
Committee at the AGM on 12 April 2020 by Ms.
Annette Malm Justad.
The Audit Committee is pleased to present its report
for 2020.
The purpose of the 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
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 page 67. In the judgement of the Board, the
Chairman of the Audit Committee, Mr. Göran Trapp,
has 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 to be fully independent.
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.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
69
Committees Report
AUDIT COMMITTEE REPORT
SUMMARY OF THE ROLE OF THE AUDIT COMMITTEE
The purpose of the Audit Committee (the
“Committee”) is to assist the Board of Directors (the
“Board”) 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 Committee by the Board
and are required by the rules and regulations of the
Securities and Exchange Commission (the “SEC”), the
New York Stock Exchange (the “NYSE”) or any other
securities exchange on which the Company’s securities
are traded. The Committee advises the Board on
whether the annual report and accounts are fair,
balanced, and understandable.
The Committee’s function is one of oversight only and
does not relieve Management 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 Committee oversees the accounting, financial
reporting, risk management processes related to the
financial reporting of the Company and the audits of
the Company’s financial statements. The Committee
oversees and controls the qualifications, independence
and performance of the appointed independent
auditors.
The formal role of the Audit Committee is set out in its
Terms of Reference, which are available at
www.torm.com/uploads/media_items/terms-of-
reference-audit-committee.original.pdf.
2020 IN REVIEW
The Committee reviewed the quarterly, half-year and
annual financial statements with Management, focusing
on the:
• Integrity of the Group’s financial reporting process
• Clarity of disclosure
• Compliance with relevant legal and financial reporting
As explained in note 8 to the financial statements, it
was concluded that an impairment was not identified
for the Main Fleet, as the value in use was in line with
the carrying amount. The two Handy vessels were
impaired with USD 5.5m in total as the calculated value
in use was lower than the carrying amount on a vessel
by vessel basis.
standards
• Application of accounting policies and judgements
In 2020, the Audit Committee particularly discussed
the quarterly impairment indicator test of the vessels in
the fleet, the quarterly going concern statement as well
as the Seafarers Taxation, Internal transfer of Vessel
Ownership, Tax Policy and Controls to mitigate the risk
of Management override of controls. Furthermore, the
Audit Committee discussed the internal control
environment, the new finance system, Dynamics 365
Business Central, and business ethics compliance.
Financial reporting and significant financial
judgements
The principal matter of judgement considered as
significant by the Audit Committee in relation to the
2020 financial statements was the impairment testing
of the carrying amount of its fleet within 3 CGUs, being
the Main Fleet (LR2/LR1 and MR vessels) and the two
Handysize vessels. This issue was discussed and
reviewed with Management and the independent
auditors, and the Audit Committee challenged
judgements and sought clarification where necessary.
In order to determine whether a cash-generating unit
(CGU) is impaired, Management assesses whether
there are any indicators for impairment or reversal of
impairment of the vessels in the CGUs. If such
indicators exist, the future discounted net cash flow
deriving from the CGUs 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 has 3 CGUs
within its single reporting segment – The Tanker
Segment – the largest of which is its Main Fleet
(comprising LR1/LR2 and MR vessels). The Main Fleet is
considered to be a single cash generating unit because
the vessels in the Main Fleet are largely
interchangeable and the cash flows generated by them
are interdependent. These vessels are operated
collectively as a combined internal pool, employed
principally in the spot market and actively managed to
meet the needs of our customers in that market,
particularly regarding the location of vessels meeting
required specifications and the price of transport rather
than vessel type. Given the technical specifications and
TORM ANNUAL REPORT 2020
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AUDIT COMMITTEE REPORT
capacity of vessels, the Main Fleet is relatively
homogenous with a very high degree of
interoperability. All vessels in the Main Fleet are able to
handle multiple sizes of cargoes and sail all seas and
oceans, over both shorter and long distances. The Main
Fleet is monitored and managed on an aggregated
level as one pool, i.e. each vessel or vessel class does
not generate cash inflows that are largely independent
of those from other vessels or vessel classes. The other
groups of CGUs outside the Main Fleet comprise the
two Handysize vessels (which are typically used for
shorter and coastal trade routes and more frequent
port calls, including for transportation of various clean
petroleum products within Europe and in the
Mediterranean).
Management prepared a detailed impairment test for
the Audit Committee setting out the key assumptions
for the CGUs. The Audit Committee challenged these
assumptions and judgements to ensure that all material
factors were included. Further, the Audit Committee
discussed the sensitivity analysis and the other
disclosures in the Annual Report. The Audit Committee
noted in particular that the freight rates in the years
2021-2023 are consistent with the long-term planning
assumptions used by the Company.
Further, the Audit Committee discussed with
Management the freight rates beyond 2023 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 reviewed the key parameters in
the standard Weighted Average Costs of Capital model
and 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 CGUs concerned.
It was a key objective of the Committee to ensure that
EY became fully familiar with all aspects of TORM that
were relevant to the external audit process as part of
its audit planning. Subsequently, EY performed detailed
planning activities and reviewed Deloitte audit files.
The Audit Committee was satisfied that future cash
flows related to operating expenses 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 129.
Effectiveness
In 2020, the Audit Committee carried out a detailed
self-assessment by way of a questionnaire and
discussions facilitated by the Head of Group Reporting,
Compliance and Tax. Based on the self-assessment, no
material concerns arose.
Auditor appointment and tendering
Following a formal tender process in the previous
financial year and the Committee’s recommendation to
the Board, TORM’s shareholders appointed Ernst &
Young LLP (EY) as the Group’s external auditor in April
2020. EY replaced Deloitte LLP (UK).
The lead audit partner is Lloyd Brown who has held the
role since the appointment of EY.
Following this work, EY presented to the Committee its
detailed audit plan for the 2020 financial year, which
outlined its audit scope, planning materiality and its
assessment of key audit risks. The audit plan was a key
output from the transition process and was reviewed in
detail by the Committee.
Independent audit
During the year, EY 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 August 2020, the Audit Committee reviewed and
approved the terms, areas of responsibility and scope
of the 2020 audit as set out in the independent
auditors’ engagement letter. During the year, EY
provided the Audit Committee with recommendations
and updates regarding audit-related services on
subjects such as regulatory and statutory reporting,
etc. The independent auditors are expected to perform
the audit according to relevant auditing standards. The
Independent Audit Plan was approved in August 2020
and has been successfully completed at the date of this
report.
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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 auditors’ 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 2020 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 2020 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 2020
Fees relating to the provision of non-audit services by
EY amounted to USD 0.1m corresponding to 14% of the
total cost and related primarily to the review of
quarterly statements and legacy tax service immaterial
to the Group. 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 2021.
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 Price
Waterhouse Coopers 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 2020, 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 54-58.
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72
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 54-58.
Approval
On behalf of the Audit Committee
Mr. Göran Trapp
Chairman of the Audit Committee
1 March 2021
Whistleblowing
The Group’s Whistleblower Policy, which supports the
groupwide Business Principles, is monitored by the
Audit Committee. The Group’s Business Principles are
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 2020
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RISK COMMITTEE REPORT
AT A GLANCE
Chairman
Göran Trapp
Members
Annette Malm Justad appointed on 12 April 2020
David Weinstein
Torben Janholt resigned on 12 April 2020
Christopher Boehringer resigned in January 2021
Composition
The Committee is composed solely of independent
Non
Executive Directors.
‑
Meetings
The Committee had three scheduled meetings in 2020.
Attendance by members at Committee meetings can be
seen on page 68.
2020 highlights
•
•
•
•
Risk Management review of TORM’s policies on
Insurance, IT, financial Instruments and its financial
policy;
Review of TORM’s capital structure risk;
Review of TORM’s compliance with sanctions;
Review and approval of Enterprise Risk Management
report.
CHAIRMAN’S STATEMENT
Dear Shareholder
The Risk Committee is pleased to present its report
for 2020.
In 2020, the Risk Committee had special focus on
TORM’s risk in relation to the ongoing COVID-19
pandemic and TORM’s activities to cope with
challenges. Another special focus areas was the risks
related to derivatives trading. Another focus area was
the risks related to strategic decisions on the
Company’s capital structure with particular focus on
funding and liquidity management.
ROLE OF THE RISK COMMITTEE
An overview of the Committee’s areas of responsibility
is set out on page 64 and the Committee’s Terms of
Reference are available at
www.torm.com/uploads/media_items/terms-of-
reference-audit-committee.original.pdf .
ACTIVITIES DURING THE YEAR
At each meeting, the Risk Committee follows up on key
risk indicators to ensure alignment of risk tolerance and
actual risk level. These measures include the risks
described in the Risk Management section and
monitoring of the compliance with internal mandates. A
liquidity forecast is presented at each meeting and
refinance risk was included as an ongoing focus area
presented at each Risk Committee meeting.
Special focus areas covered in 2020 were:
COVID-19
The COVID-19 pandemic has had a significant impact
on society and shipping, including product tankers.
During the spring of 2020, TORM made an
extraordinary assessment of our most vulnerable areas.
To mitigate the changed risk picture, the frequency of
credit assessment of top customers has increased and
the impact of potential liquidity enhancing initiatives is
reviewed periodically.
Forward Freight Agreements (FFAs)
and Liquidity Risk
In April 2020, as freight rates surged to record highs,
the liquidity risk associated with the current FFA
mandate was reviewed. To account for a potential
increase in liquidity risk, liquidity stress tests are
periodically reviewed together with TORM’s liquidity
forecast and more frequent reporting has been
implemented.
Sanctions
The Risk Committee reviewed TORM’s compliance set-
up, designed to avoid that TORM is engaging with
sanctioned counterparties thereby violating sanctions.
Maritime safety threats
TORM was the target of a piracy attack in the Gulf of
Guinea. TORM averted the attack as the crew made it
to safety in the ship’s citadel. The Risk Committee
reviewed the measures taken by TORM to assess,
manage and mitigate future attacks.
TORM ANNUAL REPORT 2020
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74
RISK COMMITTEE REPORT
Capital structure risks
The Risk Committee reviewed risk considerations
related to the Company’s capital structure including:
Liquidity position, loan-to-value, Distribution Policy, off-
balance sheet liabilities, terms and sources of funding,
vessel investments and fleet employment strategy.
Review policies
The Risk Committee reviewed TORM’s IT Policy,
Financial Policy, FFA and Bunker Policy, Credit Risk
Policy and Insurance Policy. These policies outline core
activities and risks and the measures that TORM has
taken to mitigate these risks.
Letter of indemnity
The Risk Committee reviewed two cargo claims, both
relating to one of TORM’s customers having issued
indemnities to allow TORM A/S for the discharge of
cargo, without the customer being able to honor those
indemnity obligations. Both cases involved irregular
activities by the customer in relation to the handling of
bills of lading. Legal action has been initiated by the
Group in the UK and in India against the customer and
a number of individual owners and management
representatives. The proceedings are ongoing. TORM’s
mitigation activities include, but are not limited to,
credit assessment of all customers and contract
clauses requiring documentation of the receiver stated
in the bill of lading. TORM has adopted a policy that in
some cases will require the customer to document that
a discharge to a party other than the
receiver/consignee stated in the bill of lading is in
agreement with such receiver/consignee.
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 2021.
TORM’s annual risk assessment is presented
in detail in the “Risk Management” section on
pages 54-58.
Approval
On behalf of the Risk Committee
Mr. Göran Trapp
Chairman of the Risk Committee
1 March 2021
TORM ANNUAL REPORT 2020
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75
NOMINATION COMMITTEE REPORT
AT A GLANCE
Chairman
Christopher Boehringer
Members
Annette Malm Justad appointed on 12 April 2020
David Weinstein
Torben Janholt resigned on 12 April 2020
Composition
With the exception of the Chairman, the Committee is
composed solely of independent Non
Executive Directors
Meetings
The Committee had two scheduled meetings in 2020.
Attendance by members at Committee meetings can be
seen on page 68.
‑
2020 highlights
• Annette Malm Justad joins TORM’s Board as first
female Board and Committee member.
• TORM joins Danish Shipping’s Charter for more
women in shipping.
• TORM ranks in top 10% in Employee Engagement
Survey.
• Succession Planning for critical roles
• Employee population survey – progress on gender
diversity.
CHAIRMAN’S STATEMENT
Dear Shareholder
The Nomination Committee is pleased to present its
report for 2020.
This year, the main focus of the Nomination Committee
has been on Board and Committee composition,
diversity and succession planning.
The Committee is delighted to welcome Ms. Annette
Malm Justad who was duly elected at the Company’s
Annual General Meeting on 15 April 2020. Annette
brings a wealth of shipping experience, having served
as CEO of ship management company Eitzen Maritime
Services. In addition, Ms. Annette Malm Justad
currently serves on the boards of Awilco LNG and
American Shipping Company. Ms. Annette Malm
Justad’s biography can be found on page 67. In 2020,
Mr. Torben Janholt stepped down as a Non-Executive
Director and Committee member of TORM since 2015.
However, the Board of Directors is pleased that Mr.
Torben Janholt has agreed to take on the role as a
Board Observer.
In order to further increase the independence of the
Board of Directors, Mr. Christopher Boehringer will step
down as a member of the Risk Committee on 1 January
2021. His position on the committee will be taken over
by Senior Independent Director and Deputy Chairman
David Weinstein, increasing the number of independent
Non-Executive Directors on the Risk Committee from
two to three.
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
believes that a gender-diverse workforce led by
gender-diverse leaders delivers better performance.
The Nomination Committee supports equal opportunity
in recruitment, career development, promotion, training
and rewards for all employees. See pages 33 and 42 for
more information.
THE ROLE OF THE NOMINATION COMMITTEE
An overview of the Committee’s areas of responsibility
is set out on page 64 and the Committee’s Terms of
Reference are available at
www.torm.com/uploads/media_items/terms-of-
reference-nomination-committee-6-november-
2019.original.pdf
COMPLIANCE WITH THE CODE
The Nomination committee is in compliance with the
UK Corporate Governance Code with the exception of
provision 18. The Corporate Governance Code states
that all directors should be subject to annual re-
election, however, TORM’s 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 of the minority
shareholders. The B-shareholder, who represents the
minority shareholders, can replace the B-Director at
any time.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
76
NOMINATION COMMITTEE REPORT
The remaining Directors of TORM are elected on a bi-
annual basis as defined in the Company’s Articles of
Association. The Board has discussed whether to
change to annual re-election of the remaining
Directors, however, to ensure continuity in the Board of
Directors, it has been decided to continue with a bi-
annual election for now.
ACTIVITIES DURING THE YEAR
Assessment of effectiveness of the Board of Directors
According to the recommendations of the UK
Corporate Governance Code 2018, the Board is to
review and assess its performance annually.
Whilst the Committee keeps the composition of the
Board under regular review, the annual review of Board
effectiveness provides an opportunity for reflection on
how we can continue to enhance the profile of the
Board. This year, additional questions were included in
the Board self-evaluation, which focused on ESG. The
Board recognized the Company’s role in contributing
to the wider society and that these values should be
embedded in its business model and ESG framework,
placing people, safety and environment at its core. The
Chairman of the Nomination Committee is pleased to
report the publishing of TORM’s first ESG report. in
TORM’s ESG report which will be published on
www.torm.com and more information can be found on
page 32-43.
Succession planning
During the year, the Nomination Committee has
continued to review and develop the composition of
and succession plans for 14 roles at SVP and VP level
who are deemed to have a critical impact on the
execution of TORM’s strategy and keeping the business
running.
Employee Population Survey
The Committee was presented with a summary of the
Company’s employee population status. The
presentation included highlights of FTE numbers, new
hires, retention rates (voluntary and involuntary
leavers), progress on gender diversity targets and
outcome of the 2020 Employee Engagement Survey,
see pages 41-42 for further details. The Committee is
pleased to advise that there had been a significant
improvement in the retention rate (voluntary leavers) in
the 2016 to 2019 period.
Periodical review of each Director
In line with the UK Corporate Governance Code and
following a formal evaluation, the Chairman of the
Nomination Committee confirmed that the Directors’
performance continues to be effective and to make a
valuable contribution to the Board, demonstrating full
commitment to the role, including devoting an
appropriate amount of time to the role. The Committee
reviewed the independence of all the Non-Executive
Directors. All with the exception of the Chairman are
considered independent in accordance with UK
requirements and they continue to make effective
contributions and to effectively challenge Management.
Diversity
Great progress has also been made on TORM’s 2020
gender diversity targets. Within the Board of Directors,
the target of having 20% female Board members
elected by the shareholders was reached in April with
the election of Ms. Annette Malm Justad. The
Committee is also proud to announce that TORM has
acceded to Danish Shipping’s “Charter for more
women in shipping”. By 2020, the Company aims to
have 35% women in the shore-based workforce in line
with the industry average and 25% females in
leadership positions. See page 33 for more information
on our ESG targets.
2020 Employment Engagement Survey
The Committee reviewed the results of the 2020
Employment Engagement Survey which, in general,
was very positive and ranks TORM in the top 10% of
companies across all industries utilizing the global
Peakon platform, covering 145 million answers. The
response rate was 97% and 1,598 comments were
received from employees. In collaboration with
Management, the Board of Directors will use this
information to create focus points for 2021.
Mr. Christopher H. Boehringer
Chairman of the Nomination Committee
1 March 2021
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
77
REMUNERATION COMMITTEE REPORT
AT A GLANCE
Chairman
Christopher Boehringer
Members
Annette Malm Justad appointed on 12 April 2020
David Weinstein
Torben Janholt resigned on 12 April 2020
Composition
With the exception of the Chairman, the Committee is
composed solely of independent Non
Executive Directors
Meetings
The Committee had three scheduled meetings in 2020.
Attendance by members at Committee meetings can be
seen on page 68.
‑
2020 highlights
•
•
•
•
•
Non-Executive Director remuneration review.
Review of pay and conditions across the Company.
LTIP - 2020 Restricted Share Unit allocation.
Remuneration Committee assessment.
Review and update of the Remuneration Policy for
approval at the AGM.
CONTENTS OF THE REMUNERATION REPORT
Page 88 Remuneration Policy
Page 84 Non-Executive Director Remuneration
Page 80 Executive Director remuneration
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 2020.
This report describes the activities of the Remuneration
Committee for the period 1 January 2020 to
31 December 2020. 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
and Groups (Accounts and Reports) Regulations 2008
as amended (the “Regulations”).
The report is split into three main areas:
• The statement by the Chairman of the
Remuneration Committee;
• The annual report on remuneration;
• The revised Remuneration Policy
The 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. During 2020, the Committee wished to
undertake a further review of the Remuneration Policy
that was approved by the shareholders at the Annual
General Meeting (AGM) on 12 April 2018. The
Committee reviewed the policy and in particular the
section related to fees paid to our Non-Executive
Directors and CEO. Their conclusion was that it is
appropriate to propose some amendments to the
Company’s Remuneration Policy. The proposed
changes include:
• Non-Executive Directors whose UK income is above
the threshold of GBP 100,000 per annum can, if
required, use the services of the Company’s
external tax advisors to prepare their UK personal
tax return. The fees incurred by the Company for
the service offered will be deducted from the
Directors’ net board fees.
Updating the performance measures related to
•
the CEO bonus, from 2017 to 2020. See Table 2 on
page 90 for further details.
• Update of the Indicative Executive Director Total
Remuneration at different levels of performance
shown under performance scenarios on page 92
using the 2020 remuneration figures for the current
CEO.
The annual report on remuneration provides details on
remuneration in the period and additional information
required by the Regulations.
The Companies Act 2006 requires that auditors report
to the shareholders on certain parts of the Directors’
Remuneration Report and state whether, in their
opinion, those parts of the report have been properly
prepared in accordance with the Regulations. The parts
of the annual report on remuneration that are subject
to audit are indicated in that report. The statement by
the Chairman of the Remuneration Committee and the
policy report itself are not subject to audit.
TORM ANNUAL REPORT 2020
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REMUNERATION COMMITTEE REPORT
ROLE OF THE REMUNERATION COMMITTEE
An overview of the Committee’s areas of responsibility
is set out on page 64 and the Committee’s Terms of
Reference are available at
www.torm.com/uploads/media_items/terms-of-
reference-remuneration-committee-6-november-2019-
1.original.pdf
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 members of Management may attend when
necessary.
Annual Remuneration Committee reviews
The Remuneration Committee reviewed the
Remuneration Policy. Their conclusion was that it is
appropriate to propose some amendments to the
Remuneration Policy as identified on page 78.
COMPLIANCE WITH THE CODE
The Remuneration committee is in full compliance with
the UK Corporation Governance Code with the
exception of provision 32. The UK Corporate
Governance Code states that 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.
TORM’s 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 considers it appropriate for
Mr. Boehringer to chair that Committee.
ACTIVITIES DURING 2020
Assessment of effectiveness of the Remuneration
Committee
The Remuneration Committee reviewed its own
performance using an online survey. The questions
related to the Terms of Reference, composition, duties,
meeting frequency and reporting responsibilities.
Additional questions related to access to information
and material supplied. 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 provided the CEO with
his performance objectives framework for 2020. In
addition to fulfilment of specific performance metrics,
TORM’s Chief Executive Officer has a portion of his
total potential yearly bonus payment linked to the
Company’s year-on-year CO2 emission reductions. The
reduction target is determined based on a trajectory
towards TORM’s 2030 CO2 reduction target.
Mr. Christopher H. Boehringer
Chairman of the Remuneration Committee
1 March 2021
TORM ANNUAL REPORT 2020
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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 2019-20 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 5 March 2020
to determine the appropriate salary for the coming
year. Base salary as of 1 January 2019: DKK 6.55m. Base
salary as of 1 January 2020: DKK 7.0m.
The base salary is discussed and agreed with the
Chairman of the Board and the Remuneration
Committee once a year. The next discussion by the
Remuneration Committee will take place in early 2021.
Unless otherwise agreed, any adjustment of the salary
will take effect on 1 January 2021.
MR. JACOB MELDGAARD
Annual
USD '000
Salary¹
benefits
bonus²
Total
remuneration
remuneration
Taxable
performance
Total fixed
Total variable
2019
2020
1,041
⁾
1,129
41
41
1,126
⁾
1,262
2,208
2,432
1,082
1,170
1,126
1,262
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 an amount of DKK 23t per month,
covering the running and maintenance expenses
associated with a private vehicle. For 2020, the amount
of DKK 276t (USD 41t) has been included in the single
figure amount.
Other benefits provided directly include two
newspapers, a 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.
No changes in allowances and benefits are expected
for 2021.
Salary and Directors Fees
USD '000
Taxable benefits
Annual bonus
Total
Chief Executive Officer
2019
1,041
41
1,126
2,208
2020
% Change³
1,129
41
1,262
2,432
8%
⁾
2%
12%
10%
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 from 1 January 2020 to 31 December 2020 was DKK 8,203t (USD1,262t). This is
⁾
an estimated amount as the final decision has yet to be made.
⁾
% change in DKK for salary is 7%, taxable benefits is 0% and annual bonus is 10%.
⁾
TORM ANNUAL REPORT 2020
Employees
entire Group
% change
4.6%
0.0%
23.4%
COMMITTEES REPORT
80
REMUNERATION COMMITTEE REPORT
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 on the
following parameters:
• The fulfilment of specific performance metrics set
by the Company (up to 70% of the CEO’s base
salary). These include but are not limited to, RoIC,
cost structure and environmental footprint.
• 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 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.
At the time of issue, the CEO’s bonus figures had yet to
be set by the Remuneration Committee or agreed with
the Chairman of the Remuneration Committee. This will
be discussed at the next Remuneration Committee
meeting in 2021. The Annual Report therefore includes
an estimate of DKK 8.4m (USD 1.262m), equating to
120% of his base salary.
Long-Term Incentive Program – Restricted Share
Units granted to the Chief Executive Officer
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
LTIP element of Mr. Jacob Meldgaard’ s remuneration package 2020
grant¹
per share
100% vesting
RSU LTIP
Exercise price
value assuming
RSU grant
Mr. Jacob Meldgaard
LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 10 of 25 April 2018,
¹
therefore there is no minimum or maximum for 2018.
766,035
⁾
DKK 53.7
USD 0.9m
⁾
communication, announcement no. 10 issued on 25
April 2018, detailed changes to the grant of RSUs, as
agreed 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.
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 2016, 8 March 2016
and 25 April 2018).
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 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).
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
81
REMUNERATION COMMITTEE REPORT
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 on 1
January 2022. The second would vest in equal
installments over three years beginning on 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 2020 Annual Report and the second
tranche on the publication of the 2021 Annual Report.
The exercise period for vested RSUs will be 360 days.
Long-Term Incentive Program – Restricted Share
Units granted to the employees
In accordance with TORM’s Remuneration Policy, the
Board of Directors has as part of the Long-Term
Incentive Program (LTIP) granted Restricted Share
Units (RSUs) in the form of restricted stock options to
certain employees. 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 2017, the Board agreed to grant a total of 866,617
RSUs to other management executives. 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 executives. 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 2019. The exercise price of each
vested RSU is DKK 53.7, which corresponds to the daily
average closing price on Nasdaq in Copenhagen during
90 calendar days before the date of the Annual
General Meeting on 12 April 2018 plus a premium of 15%
and reduced to DKK 53.0 corresponding to TORM’s
dividend payment in May 2020, further reduced to DKK
47.4, corresponding to TORM’s dividend payment in
September 2020. Vested RSUs may be exercised for a
period of 360 days after each vesting date.
In 2019, TORM announced a grant of a total of
1,001,050 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 an
average of the 90 calendar days preceding the
publication of TORM plc’s 2018 Annual Report plus a
15% premium and reduced to DKK 49.0 corresponding
to TORM’s dividend payment in May 2020, further
reduced to DKK 43.4, corresponding to TORM’s
dividend payment in September 2020. Vested RSUs
may be exercised for a period of 360 days after each
vesting date.
On 15 May 2020, TORM announced a grant of a total of
1,047,389 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 2021. The exercise price of each
vested RSU is DKK 69.90, which corresponds to an
average of the 90 calendar days preceding the
publication of TORM plc’s 2019 Annual Report plus a
15% premium and reduced by DKK 0.7, corresponding
to TORM’s dividend payment in May 2020, further
reduced to DKK 64.3, corresponding to TORM’s
dividend payment in September 2020. Vested RSUs
may be exercised for a period of 360 days from each
vesting date.
As of 31 December 2020, 2,187,454 RSUs were
outstanding, and none of the 2016 and 2017 RSUs had
been exercised. A further 12,405 of the 2018 RSUs were
exercised in 2020 bringing the total exercised RSUs to
541,807 and 95,276 of the 2019 RSUs were exercised in
2020.
Based on the Black-Scholes model, the theoretical
market value of the RSU allocations in 2016, 2017, 2018,
2019 and 2020 around the time of issuance was
calculated at USD 5.0m, USD 1.0m, USD 2.3m, USD 1.7m
and USD 1.3m, respectively.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
82
REMUNERATION COMMITTEE REPORT
End of service gratuity
The Company can terminate the CEO’s Service
Agreement giving 12 months’ notice to expire on the
last day of a month. The CEO can terminate the Service
Agreement giving six months’ written notice to expire
on the last day of a month.
Total pension entitlements
The Directors of TORM plc are not entitled to any
pension contributions from the Company. In addition,
Denmark-based Executive Director Mr. Jacob
Meldgaard, in his role as CEO of TORM A/S, is not
entitled to any pension contributions.
Post-service salary
If the CEO dies during his employment, the Company
will 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 a post-service salary for
three months equal to the fixed salary. However, such
post-service salary will only be paid until the date on
which the employment would have terminated as a
result of termination of the Service Agreement.
Taxable benefits
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 2020.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
83
REMUNERATION COMMITTEE REPORT
Remuneration table Non-Executive Directors.
The 2020 remuneration table sets out the
remuneration paid to the Non-Executive Directors of
the Company in 2020. Therefore, fees shown include
any additional fees paid in respect of chairmanships of
committees or other roles such as Senior Independent
Director. Board Observer fees are not shown in this
report, however the fees payable can be found in the
Remuneration Policy.
Statement of Directors’ shareholdings
and share interests
The table to the right summarizes the total interests of the
Directors in shares of TORM plc as of 31 December 2020.
No changes took place in the Directors’ interests between
31 December 2020 and 1 March 2021.
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 remuneration 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 2020, none of the Non-Executive
Directors received any part of their remuneration in
shares or warrants. The table to the right summarizes
the Restricted Share Units awarded to the Executive
Director.
2020 REMUNERATION TABLE
NON-EXECUTIVE DIRECTORS
USD '000
Director
Base fee
Committee fees
Total
2020
2019
2018
2020
2019
2018
2020
2019
2018
Mr. Christopher H. Boehringer
171
168
172
Mr. David Weinstein
Mr. Göran Trapp
Mr. Torben Janholt
Ms. Annette Justad
114
113
114
57
57
57
57
57
-
57
57
-
85
86
84
85
104
256
252
276
68
200
198
182
114
113
114
172
170
171
32
82
113
114
89
170
171
-
-
139
-
-
2020 STATEMENT OF DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS
DIRECTOR
Mr. Christopher H. Boehringer
Mr. David Weinstein
Mr. Göran Trapp
Ms. Annette Justad
Mr. Jacob Meldgaard
¹
The above table shows each Director’s shareholding.
⁾
Changes from
Ordinary
Ordinary
31 Dec 2020
Ordinary
shares as at 1
shares as at
to 11 Mar
shares as at
Jan 2020
31 Dec 2020
2021
11 Mar 2021
21,204
21,204
5,000
5,000
12,820
12,820
-
2,700
255,411
255,411
-
-
-
-
-
21,204
5,000
12,820
2,700
255,411
STATEMENT OF EXECUTIVE DIRECTOR’S RESTRICTED SHARE UNIT HOLDINGS AS AT 31 DECEMBER 2020
Restricted Share Units
2016
2017
2018
2019
2020
Vested
Agreed
not
not to
Awarded
exercised
exercise Exercised
1,276,725
-
-
255,345
-
-
766,035
255,345
766,035
-
-
-
-
-
-
255,345
-
-
255,345
-
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
84
REMUNERATION COMMITTEE REPORT
The information provided in the following part of the
Annual Report on remuneration is not subject to audit.
TORM PLC VS PEER AVERAGE AND THE KAX INDEX
Source: Bloomberg, peer group consists of Scorpio, Ardmore and d’Amico.
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.
160
140
120
100
80
60
40
20
0
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.
Managing executive pay
TORM intends to focus on the relationship between
executive pay and the wider workforce in the period
ahead and to develop the disclosure of this topic
further.
Outside appointments
The Executive Director is entitled to retain the fees
earned from non-executive appointments outside the
Company. Mr. 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 EUR 5,000 for his services in 2019.
Mr. Jacob Meldgaard is also Chairman of Grant
6
1
0
2
-
4
0
-
9
1
6
1
0
2
-
8
0
-
9
1
6
1
0
2
-
2
1
-
9
1
7
1
0
2
-
4
0
-
9
1
7
1
0
2
-
8
0
-
9
1
7
1
0
2
-
2
1
-
9
1
8
1
0
2
-
4
0
-
9
1
8
1
0
2
-
8
0
-
9
1
8
1
0
2
-
2
1
-
9
1
9
1
0
2
-
4
0
-
9
1
9
1
0
2
-
8
0
-
9
1
9
1
0
2
-
2
1
-
9
1
0
2
0
2
-
4
0
-
9
1
0
2
0
2
-
8
0
-
9
1
0
2
0
2
-
2
1
-
9
1
TORM plc
KAX
Average of peers
Mr. Jacob Meldgaard
Total remuneration (single figure)
2016
1,473
2017
1,626
2018
1,531
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
67.0%
60.0%
45.0%
2019
2,208
117.0%
2020
2,432
120.0%
Compass A/S for which he receives no fee but has
been granted warrants.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
85
REMUNERATION COMMITTEE REPORT
CHANGE IN DIRECTORS REMUNERATION COMPARED
TO GROUP EMPLOYEES WORLDWIDE
2019 - 2020 in %
Chief Executive Officer
Mr. Christopher H. Boehringer
Mr. David Weinstein
Mr. Göran Trapp
Mr. Torben Janholt
Ms. Annette Justad
The table to the left shows the average percentage
year-on-year change in base salary, benefits and annual
bonus in 2020 for the Directors’ compared to the entire
Group’s employees.
Salary¹
Benefits²
8.4%
⁾
1.6%
1.0%
1.0%
-47.4%
N/A
4.6%
2.3%
⁾
N/A
N/A
N/A
N/A
N/A
0.0%
Bonus
12.1%
N/A
N/A
N/A
N/A
N/A
23.4%
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 relate directly to company car benefit.
⁾
% change in DKK for salary and Executive Directors fees is 7%, taxable benefits is 0% and annual bonus is 11%. % change for Non-Executive Directors fees in
⁾
Euro's is 0% other than for Mr. Torben Janholt who retired as a Non-Executive Director in 2020.
⁾
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
STATEMENT OF VOTING
The table to the left shows the actual expenditure of
the Group for employee pay and distributions to
shareholders compared to the retained earnings of the
Group.
2020
70.6
-
1.3
71.9
50.7
2019
2018
-
-
-
-
-
-
-
-
45.8
46.2
939.2
920.0
752.0
Annual Remuneration Report
Votes for
%
Votes against %
Total votes
Abstentions
49,463,891
66.6
2,433,359
3.3
51,897,250
-
Directors' Remuneration Policy
Votes for
%
Votes against %
Total votes
Abstentions
49,356,868
66.8
2,418,586
3.3
51,775,454
16,678
The table to the left shows shareholder voting on the
resolution to approve the annual Remuneration Report
put to the 2020 AGM and the shareholder voting on
the resolution to approve the Directors Remuneration
Policy put to the 2018 AGM.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
86
REMUNERATION COMMITTEE REPORT
For 2021, the Board of Directors has adopted the
revised Remuneration Policy as detailed in the
Chairman’s statement and included on page 88 of
this Annual Report. The revised policy will be put
before the shareholders for approval at the AGM on
14 April 2021.
Statement of voting at General Meeting
The current Remuneration Policy was re-approved at
the 2020 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 2020
This report was approved by the Board of Directors on
1 March 2021 and signed on its behalf by:
Mr. Christopher H. Boehringer
Chairman of the Remuneration Committee
1 March 2021
REMUNERATION POLICY
The TORM plc Remuneration Policy approved at the
2018 AGM remained unchanged during 2020. In
accordance with the UK Corporate Governance Code,
TORM’s Remuneration Policy and practices are
designed to support the business strategy and
promote the Company’s long-term sustainable success.
The Remuneration Committee will continue to consider
the appropriateness of the Remuneration Policy
annually to ensure that it continues to align with the
business strategy. At this point, there is no 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 must review the Remuneration
Policy at least once a year. Any changes to the
Remuneration Policy must 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 the Executive Management.
The Remuneration Policy is available at
www.torm.com/uploads/media_items/torm-
remuneration-policy-2017.original.pdf
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
87
REMUNERATION POLICY
1. INTRODUCTION
The following pages set out the Remuneration Policy
for the Directors of TORM plc which, if approved by the
shareholders at the Annual General Meeting on 14 April
2021, will take effect from 1 January 2021.
2. BACKGROUND AND GENERAL OBJECTIVES
The growth and future success of the Company
depend on the efforts of the members of Management.
Therefore, it is the overall objective of this
Remuneration Policy to attract, motivate and retain
qualified Management members.
The Board of Directors (the “Board of Directors”) of
TORM plc (“TORM” or the “Company”), has adopted
this Remuneration Policy (the “Remuneration Policy”),
including the overall guidelines on incentive pay.
This Remuneration Policy provides the framework for
remuneration paid to Non-Executive members of the
Board of Directors and certain specified members of
the Company’s Executive Management (the “Executive
Management”; the Board of Directors and the
Executive Management jointly referred to as
“Management”).
In accordance with the requirements of the UK
Companies Act 2006, and as part of its Annual Report,
the Company will be required to prepare a
Remuneration Report for the financial year (the
“Remuneration Report”).
As part of the Remuneration Report, the Company is
required to have a Remuneration Policy for the
Company which complies with the requirements of the
UK Companies Act. The Remuneration Policy will be
proposed for approval at the Annual General Meeting
of the Company and will continue to be subject to a
binding shareholder vote at least once every three
years thereafter.
The remuneration of members of Management,
including the size and composition of the Board of
Directors, will be determined with a view to promoting
value creation in the Company, to implementing its
short-term as well as long-term strategic goals, and to
creating common interests between members of
Management and TORM shareholders.
2.1. CONSIDERATION OF EMPLOYMENT CONDITIONS
ELSEWHERE IN THE COMPANY
The Company does not specifically consult with
employees in relation to this Policy and no direct
comparison metrics are applied between employees
and the remuneration levels for the Executive
Director(s). However, this Remuneration Policy seeks
to ensure that the combined remuneration paid to
members of Management for work performed in and
for the Company is market competitive, not only in
comparison with other industry groups, but also in
comparison with peer companies in the global
shipping industry. When considering salary increases
for the Executive Director(s), the Company will seek to
ensure comparison with other companies within the
same market capitalization range.
2.2. STATEMENT OF CONSIDERATION OF
SHAREHOLDER VIEWS
The Chairman of the Annual General Meeting of the
Company will inform the shareholders of any proposal
made by the Board of Directors in relation to the level
of Management remuneration. The Committee is
strongly committed to an open and transparent
dialogue with shareholders on remuneration matters,
and the Chairman will invite comments from the
shareholders before any level is agreed on.
3. REMUNERATION OF THE BOARD OF DIRECTORS
Members of the Board of Directors receive a fixed
annual fee in line with the amounts set out in Table 1 on
the following page. The level of the fixed annual fee is
proposed by the Board of Directors at the Annual
General Meeting after comparison with other
companies within the same market capitalization range.
Members of the Board of Directors are not offered
participation in any incentive schemes. However, the
Executive Director participates in an incentive scheme
of TORM plc’s subsidiary, TORM A/S, in his role as CEO
of that Company. The Chairman and the Deputy
Chairman of the Board of Directors, as well as the
Chairman and members of the committees established
by the Board of Directors, may receive additional fees
in line with the amounts set out in Table 1 below.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
88
REMUNERATION POLICY
TABLE 1: BOARD FEES
Board fees
Chairman
Deputy Chairman
Minority Board Observer
Executive Director
Director
Board Observer **
Additional duties
Chairman of the Audit Committee
Other Audit Committee members
Chairman of the Risk Committee
Other Risk Committee members
Chairman of the Nomination Committee*
Other Nomination Committee members*
Chairman of the Remuneration Committee
Other Remuneration Committee members
Director’s fee
per annum
(EUR)
150,000
100,000
70,000
70,000
50,000
50,000
Additional
fees per
annum (EUR)
50,000
25,000
50,000
25,000
25,000
25,000
25,000
25,000
* Only payable in the year in which the actual meetings are held.
** Not payable to TORM A/S employee-elected Board Observers.
If a member of the Board of Directors is instructed to
take on a specific ad hoc task that falls outside the
scope of that member’s ordinary duties, such member
may be offered an additional fee for the work carried
out in relation to such a task, subject to the approval of
the Board of Directors.
Under the UK Companies Act 2006, the Company will
be required to prepare a Remuneration Report for each
financial year, which is made available to the
shareholders as part of the Company’s Annual Report
and which will set out the details of all payments made
to the Board of Directors in the preceding financial
year.
The Remuneration Policy will be subject to a binding
shareholder vote at least once every three years.
TORM may reimburse relevant reasonable expenses,
such as travel and accommodation, in connection with
attendance at meetings of the Board of Directors (or
duly appointed committees of the Board of Directors).
The remuneration principles applicable to members of
the Board of Directors also apply to any Board
Observer appointed in accordance with article 74 or 76
of the Articles of Association of the Company.
Any fees payable to the members of the Board of
Directors and any Board Observer may be paid in cash
or as share-based payments.
Fees paid to tax advisors for the preparation of UK tax
returns
TORM plc Directors whose UK income is above the
threshold of GBP 100,000 per annum can, if required,
use the services of the Company’s external tax advisors
to prepare their personal UK tax return. The fees
incurred by the Company for the service offered will be
deducted from the Director’s net board fees.
3.1. APPROACH TO THE REMUNERATION OF THE
EXECUTIVE DIRECTOR
When considering the appropriate remuneration for a
new Executive Director, the Remuneration Committee
will consider the level of the fixed annual fee proposed
by the Board of Directors and adopted at the Annual
General Meeting as detailed in Table 2 below. The aim
is to provide a remuneration package which is
sufficient to attract, retain and motivate key talents,
while at all times ensuring that the Company pays no
more than necessary with due regard to the best
interests of the Company and our shareholders. The
Remuneration Committee will provide full details of the
recruitment package for any new Executive Director in
the next annual report on remuneration and will
provide shareholders with the rationale for any
decisions taken.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
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REMUNERATION POLICY
TABLE 2: KEY ASPECTS OF THE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
Elements
Purpose
Operation and performance measures
Directors’ fees
To attract and retain high-calibre
Executive Directors by offering
market competitive fees.
CEO base salary
To recruit and retain high-calibre
Executive(s) providing base level
remuneration at a competitive
market rate.
CEO taxable benefits To provide market competitive
benefits set at a level which the
Committee considers appropriate
for the role and individual
circumstances. There are no
performance measures associated
with this benefit.
CEO bonus
To encourage and reward delivery
of the Company’s strategic
priorities. To provide a variable
level of remuneration based on
short-term performance against the
annual plan.
The level of the fixed annual fee is proposed by the Board of Directors at the Annual General Meeting after comparison with other
companies within the same market capitalization range.
Assessment of performance
There are no performance measures associated with the Director’s fees.
The salary will be discussed and agreed with the Chairman of the Board of Directors once a year in February, and take effect from 1
January that year.
Assessment of performance
There are no performance measures associated with the base salary.
Executive Directors receive a competitive benefits package, which may include a company car, newspapers, a mobile phone, PC,
ASDL and call charges. Other benefits may be introduced from time to time to ensure that the benefits package is appropriately
competitive and reflects the circumstances of the individual Director.
Assessment of performance
There are no performance measures associated with this benefit.
The Board of Directors will provide the CEO with a performance bonus for each financial year in the following range and based on
the following parameters:
Assessment of performance
The fulfilment of specific performance metrics set by the Company (up to 70% of the CEO’s base salary). The performance metrics
are specified at the start of the performance period; and up to 50% of the CEO’s base salary is based on the sole discretion of the
Company’s Board of Directors.
Maximum opportunity
120% of the base salary in the financial year.
TORM ANNUAL REPORT 2020
COMMITTEES REPORT
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REMUNERATION POLICY
TABLE 2: KEY ASPECTS OF THE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS (CONTINUED)
Elements
Purpose
Operation and performance measures
CEO LTIP
To encourage and reward the
generation of long-term shareholder
returns and the delivery of financial
or strategic priorities. To provide the
largest potential remuneration for
long-term performance.
Incentives under the LTIP may be granted in any one or a combination of the following forms:
•
share options • restricted share units and • other share-based awards
Maximum threshold
The maximum threshold for the share-based LTIP grants applicable to the Executive Management as a group is expected to be
approximately 7% of the Company's share capital from time to time.
Minimum vesting requirements
Incentives granted under the LTIP are generally subject to minimum vesting requirements of three years and must generally have a
vesting period of five years for members of the Executive Management (with incremental vesting permitted over the vesting
period).
Performance measures
Each type of award, including all relevant performance measures, is discussed in greater detail in 4.2 "Types of Incentives" below.
Pension
To offer market competitive levels
The Directors of TORM plc do not receive any pension contributions from the Company. In addition, in the role as CEO of TORM A/S,
of pension contribution.
the Denmark-based Executive Director does not receive any pension contributions.
3.2. SERVICE CONTRACTS
In accordance with the UK Companies Act 2006,
Chapter 5, Section 228 (1) b, the Company has chosen
to issue a written memorandum setting out the terms
of the Non-Executive and Executive Directors’
contracts. The memorandum is available for viewing at
the Company’s registered office on request. Under the
Company’s Articles of Association, each Director must
retire at the end of the second Annual General Meeting
after his appointment or last reappointment, unless he
has been reappointed at that Annual General Meeting.
3.3. PAYMENTS FOR LOSS OF OFFICE
Non-Executive Directors – the Company does not
consider making payments for loss of office to Non-
Executive Directors.
Executive Directors – a termination notice cannot
exceed 24 months. Termination by the Executive
Director must be subject to a minimum of six months'
written notice. Any severance pay cannot exceed an
amount corresponding to the remuneration paid for
the preceding two years. The Remuneration Committee
will maintain a discretionary approach to the treatment
of leavers given that the facts and circumstances of
each case are unique. In an exit situation, the
Remuneration Committee will consider the individual
circumstances, any mitigating factors that may be
relevant, the appropriate statutory and contractual
position, and the requirements of the business for
speed of change.
TORM ANNUAL REPORT 2020
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REMUNERATION POLICY
The Company can terminate the CEO’s Service
Agreement giving at least 12 months’ notice to expire
on the last day of a month. The CEO can terminate his
Service Agreement giving six months’ written notice to
expire on the last day of a month.
4. REMUNERATION OF THE EXECUTIVE DIRECTOR
4.1. PERFORMANCE SCENARIOS
The performance scenarios in Table 3 below show the
estimated remuneration that could be received by the
Executive Director, both in absolute terms and as a
proportion of the total package under different
performance scenarios. The assumptions underlying
each performance scenario are detailed in the table
below:
The following chart gives an illustrative value of the
remuneration package that the Executive Director
could receive under three different performance
scenarios, in accordance with this Remuneration Policy.
INDICATIVE EXECUTIVE DIRECTOR TOTAL
REMUNERATION AT DIFFERENT LEVELS OF
PERFORMANCE
USDm
USDm
2.5
2.0
1.5
1.0
0.5
0.0
Minimum
1.1
93%
7%
On Target
1.7
35%
61%
4%
Maximum
2.3
52%
45%
3%
Minimum
On Target
Maximum
Directors Fees
Fixed Pay
Performance Bonus
The annual bonus maximum is 120% of the CEO’s base
salary in the financial year.
Fixed pay is based on current values as set out in the
table above. As it is a fixed figure, there is no minimum
or maximum figure.
TABLE 3 – INDICATIVE EXECUTIVE DIRECTOR TOTAL REMUNERATION LEVELS
Pay element
Above
Target
Below
Directors fees
Fixed pay
Fixed fee EUR 70,000
Fixed fee EUR 70,000
Fixed fee EUR 70,000
Fixed salary DKK 7m and
Fixed salary DKK 7m
Fixed salary DKK 7m
benefits DKK 276,000
and benefits DKK 276,000
and benefits DKK 276,000
Performance bonus
100% of maximum bonus
50% of maximum bonus
Zero
The Executive Director receives a fixed annual base
salary based on an assessment of the overall objectives
of the Remuneration Policy, market practice, scope and
nature of the work performed, qualifications required,
and the performance of each member.
When the Executive Director is also the CEO of
the Company’s subsidiary TORM A/S, his or her
remuneration will include compensation from TORM
A/S subject to the framework of this Remuneration
Policy.
The Executive Director’s terms of employment with the
TORM Group, including salary, pension, and resignation
terms, are determined by the Board of Directors. A
termination notice cannot exceed 24 months.
Resignation by the Executive Director must be subject
to at least six months’ written notice. Any severance
pay cannot exceed an amount corresponding to the
remuneration paid for the preceding two years.
In addition, the Executive Director may be offered to
participate in management incentive plan(s) (“Plan(s)”)
or be offered extraordinary bonuses as well as ordinary
benefits, such as a company car, telephone, internet
access, and newspapers.
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REMUNERATION POLICY
4.2. TORM'S MANAGEMENT INCENTIVE PLANS
The Plans are established by the Board of Directors
determining the terms and conditions of each Plan
within the framework of this Remuneration Policy.
When determining the composition of a Plan, including
the elements of incentive pay as well as the ratio
between fixed salary and incentive pay under the Plan,
due consideration must be given to the overall
objectives of this Remuneration Policy to avoid
undesirable incentives. The Plan should combine an
effective means of attracting and retaining qualified
candidates with a long-term focus on maximizing
shareholder value.
Purpose of Plans
A Plan may comprise a short-term incentive plan
(“STIP”) and/or a long-term incentive plan (“LTIP”),
both as described below.
TORM believes that providing the members of the
Executive Management with a proprietary interest in
the growth and performance of TORM will stimulate
the individual performance and enhance shareholder
value. TORM also believes that a significant portion of a
named Executive's compensation should be directly
linked to TORM's performance.
This Remuneration Policy has several provisions
designed to protect shareholder interests and promote
effective corporate governance in respect of the Plans,
including the following:
• Limitations on grants to the Executive Management
and individual participants in a given calendar year.
• Awards under the Plans are administered by the
Eligibility. Members of the Executive Management will
be eligible to receive incentives under a Plan when
designated as participants.
Remuneration Committee, an independent
committee of the Board of Directors.
Estimated Present Value. The estimated present value
of the Plans will be disclosed in TORM’s Annual Report.
Terms of Plans
Administration. Based on the recommendations of the
Remuneration Committee, the Board of Directors will
generally administer a Plan and has the authority to
grant incentives under any Plan and to set the terms of
the awards, amend any outstanding incentives or
accelerate the time at which any outstanding
incentives may vest, correct any defect in the Plans or
any incentive as it deems necessary, and establish rules
or regulations relating to the administration of the
Plans. See paragraph 4.4 “Adjustments” below. All
provisions of the Plans and any actions taken in this
respect will be subject to applicable law.
Principal Conditions for Granting Incentive Pay. The
attainment of performance targets based on TORM's
strategic and operational initiatives, such as total
shareholder return and cash flow metrics, may be used
to determine allocations under the Plans in addition to
discretionary allocations.
Requirements. The Board of Directors has discretion to
determine the times at which such incentives are to be
made, the size of such incentives, the form of payment
and all other conditions of such incentives, including
any restrictions, deferral periods or performance
requirements.
Amendments or Discontinuation. The General Meeting
must approve any amendments to or discontinuation
of this Remuneration Policy, which provides the
framework for the Plans. No amendment to nor
discontinuation of this Remuneration Policy may
materially impair any previously granted award under
the Plans without the consent of the recipient.
Term. No incentives may be granted under a Plan more
than ten years after the date on which this
Remuneration Policy was initially approved by the
General Meeting.
Incentive Agreements. Grants of incentives will be
subject to the terms and conditions of the Plans and
may also be subject to individual restrictions imposed
by the Board of Directors and detailed in an incentive
agreement between TORM and the relevant
participant.
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REMUNERATION POLICY
STIP. The STIP primarily supports the fulfilment of
short-term objectives and goals. Based on the
recommendations of the Remuneration Committee, the
Board of Directors can decide to award annual cash
bonuses to members of the Executive Management in
order to meet the overall objectives of this
Remuneration Policy. Such bonuses may be subject to
the attainment of certain performance or other targets.
LTIP. Incentives under the LTIP may be granted in any
one or a combination of the following forms:
• share options
•
restricted share units and
• other share-based awards
Each type of award is discussed in greater detail under
“Types of Incentives” below.
The LTIP primarily supports the fulfilment of long-term
objectives and goals.
Maximum threshold. The maximum threshold for the
share-based LTIP grants applicable to the Executive
Management as a group is expected to be
approximately 7% of the Company's share capital from
time to time.
Minimum vesting requirements. Incentives granted
under the LTIP are generally subject to minimum
vesting requirements of three years and must generally
have a vesting period of five years for members of the
Executive Management (with incremental vesting
permitted over the vesting period).
Types of Incentives. Each type of award that may be
granted under the LTIP is described below.
• Share Options. A share option is a right to subscribe
for A-shares in TORM. The Board of Directors will
determine the number and exercise price of the
options and when the options become exercisable.
The term of an option may not exceed ten years.
The Board of Directors may not decrease the
exercise price for any outstanding options after the
date of grant other than as provided for in the Plans
or in accordance with the adjustment principles set
out in paragraph 4.4 below. In addition, an
outstanding option may not, as of any date that the
option has a per share exercise price that is greater
than the then current fair market value of a share,
be surrendered to TORM as consideration for the
grant of a new option with a lower exercise price,
another award, a cash payment or A-shares, unless
provided for in the Plans or in accordance with the
adjustment principles set out in paragraph 4.4
below.
The option exercise price may be paid in cash, by
check, in A-shares, through a “cashless” exercise
arrangement, through a net exercise procedure (if
approved by the Board of Directors) or in any other
manner authorized by the Board of Directors.
TORM intends to make A-shares available upon
exercise of any share options by way of a fresh
issuance of A-shares out of capital and currently has
allotment authorities in place in order to allow any such
share issuances to be made by the Company.
• Restricted Share Units. A Restricted Share Unit, or
RSU, represents the right to receive one share on a
respective vesting or settlement date from TORM.
Subject to the restrictions provided in the
applicable incentive agreement and the LTIP, a
participant receiving RSUs has no rights as a
shareholder to such units, until the RSUs vest and
A-shares are issued to the participant. RSUs may be
granted with dividend equivalent rights; however,
unless determined by the Board of Directors to be
paid currently, TORM must establish a bookkeeping
account for the participant and reflect in that
account any securities, cash or other property
comprising any dividend or property distribution
with respect to each share underlying each RSU.
• Other share-based awards. The LTIP also permits
the Board of Directors to grant eligible participants
awards of A-shares and other awards that are
denominated or payable in, valued in whole or in
part by reference to, or are otherwise based on or
related to A-shares, or the appreciation in value of
A-shares.
TORM ANNUAL REPORT 2020
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94
REMUNERATION POLICY
Termination of employment or service. Each incentive
agreement may, subject to applicable law, include
provisions requiring the forfeiture of outstanding
incentives in the event of the participant's termination
of employment, if such participant is considered a
voluntary leaver (as defined by the Board of Directors
in the individual agreement) or, in the case of
performance-based grants, if applicable goals or
targets are not met.
Claw back provisions. RSUs issued under the LTIP are
subject to claw back in the event of material
misstatement of the Company’s financial results, gross
misconduct, or material error in the calculation of
performance conditions.
Change of control. If determined by the Board of
Directors and if so provided in the incentive agreement,
a change of control of TORM (as defined by the Board
of Directors in the individual agreement) may require
that:
• all outstanding incentives will become fully vested
and exercisable;
• all restrictions or limitations on any outstanding
incentives will lapse;
• all performance criteria and other conditions
relating to the payment of incentives will be
deemed to have been achieved or waived by TORM;
• all outstanding options are required to be exercised
by a certain date;
•
the surrender to TORM of some or all outstanding
options in exchange for a share or cash payment for
each option equal in value to the per share change
of control value, calculated as described in the LTIP,
over the exercise price;
Awards to be granted
Grants of incentives to members of the Executive
Management will be made by the Board of Directors as
deemed necessary or appropriate considering the
overall objectives of this Remuneration Policy.
4.3. EXTRAORDINARY BONUS
The Board of Directors may in individual cases grant a
one-off bonus or other extraordinary incentive-based
pay, such as retention bonus, severance payment, sign-
on bonus or other schemes in connection with the
appointment, provided that it is deemed necessary by
the Board of Directors in order to meet the overall
objectives of this Remuneration Policy. A grant of
extraordinary bonus may consist of cash and/or be
share-based and may be subject to the attainment of
certain performance targets.
• any equitable adjustment will be made to
outstanding incentives as deemed necessary to
reflect TORM's corporate changes; and/or
• an option will become an option relating to the
number of A-shares or other securities or property
(including cash) to which the participant would
have been entitled in connection with the change of
control transaction if the participant had been a
shareholder.
See paragraph 4.4 “Adjustments” below.
Transferability of incentives. The Board of Directors
may determine that the incentives granted under the
LTIP may not be transferred except (a) by will, (b) by
the laws of descent and distribution, (c) pursuant to
any court order in connection with separation of
domestic property or (d) as to options only, if
permitted by the Board of Directors and so provided in
the applicable incentive agreement, to immediate
family members or to a partnership, limited liability
company or trust for which the sole owners, members
or beneficiaries are the participant or immediate family
members.
TORM ANNUAL REPORT 2020
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95
REMUNERATION POLICY
4.4. ADJUSTMENTS
For the various types of incentive-based pay, the Board
of Directors may lay down specific terms governing the
lapse of the scheme or repayment of the incentive-
based pay.
In exceptional cases or in extraordinary circumstances,
TORM may reclaim, in full or in part, incentive
payments made to members of the Executive
Management (claw back), e.g. in the event of manifest
errors in the accounting figures or other basis for
award or vesting. There is no specific provision on claw
back in the CEO Service Agreement. Under Danish law,
the principle of “condictio indebiti” may apply to
payments made in error. Also, under the Danish
Companies Act, a CEO may be held liable for damages
to his employer, in case of negligence or willful
misconduct.
Furthermore, the Board of Directors may lay down
provisions on accelerated vesting or exercise and
adjustment of the incentive-based pay, exercise price,
performance targets, etc., in the event of changes to
the capital structure or other material events, which
would otherwise adversely influence the value or effect
of the incentive-based pay in contravention to the
general objectives of this Remuneration Policy.
In respect of the share limitations provided in the LTIP,
including the number of A-shares subject to the LTIP,
proportionate adjustments may be made by the Board
of Directors in the event of any recapitalization,
reclassification, share dividend, share split, combination
of A-shares or other similar change in the A-shares. In
addition, the exercise price of any outstanding options
and any performance goals will be adjusted
downwards for dividends and will also be subject to
other adjustments if necessary to provide participants
with the same relative rights before and after the
occurrence of any such event.
Adoption and publication
The Board of Directors must review this Remuneration
Policy at least once a year. Any changes to this
Remuneration Policy will be adopted by the Board of
Directors and approved by the shareholders at a
General Meeting.
TORM's Remuneration Report will be included in the
Company’s Annual Report for all financial years and will
contain information on remuneration paid to the Board
of Directors and the Executive Management.
This Remuneration Policy is available on TORM's
website, www.torm.com .
This Remuneration Policy has been adopted by the
Board of Directors.
This Remuneration Policy has been prepared in both a
Danish and an English version. In the event of a conflict
between the two versions or in case of difficulty of
interpretation, the English version prevails.
TORM ANNUAL REPORT 2020
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96
INVESTOR INFORMATION
SHARE INFORMATION
Exchanges
ISIN (CPH)
CUSIP (NY)
Tickers
Year high (TRMD A)
Year low (TRMD A)
Number of A shares (end 2020)
Number of treasury share
Nasdaq CPH and NY
GB00BZ3CNK81
G89479102
TRMD A and TRMD
DKK 76.0 (2 Jan.)
DKK 39.8 (29 Oct.)
74,855,929
493,371
FINANCIAL CALENDAR 2021
14 April 2021, Annual General Meeting
12 May 2021, First quarter 2021 results
10 August 2021, First half 2021 results
3 November 2021, Nine months 2021 results
INVESTOR RELATIONS CONTACT
Mr. Morten Agdrup
Corporate Finance & Strategy
Phone: +45 3917 9249
Email: ir@torm.com
Mr. Finn Bjarke Petersen
Investor Relations
Phone: +45 3917 9225
Email: ir@torm.com
ANALYST COVERAGE
Danske Bank
Mr. Anders Redigh Karlsen
Phone: +45 8540 7072
Email: akarl@danskebank.dk
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
Kepler Cheuvreux
Mr. Petter Haugen
Phone: +47 2313 9078
Email: phaugen@keplercheuvreux.com
Skandinaviska Enskilda Banken AB
Mr. Ulrik Bak
Phone: +45 3328 3314
Email: ulrik.bak@seb.dk
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 2020, TORM issued a total of 30 announcements to
the stock exchange. These announcements are
available in both Danish and English versions on:
https://investors.torm.com/announcements/releases
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 2020, TORM had an average of 74,799,580 A-shares
outstanding. The average daily trading volume on
Nasdaq in Copenhagen has been approximately 262t
shares and approximately 52t shares on Nasdaq in New
York. During 2020, the share price decreased from
DKK 74.5 to DKK 45.0 on Nasdaq in Copenhagen and
from USD 10.8 to USD 7.1 on Nasdaq in New York.
Throughout 2020, TORM has been part of the MidCap
segment on Nasdaq in Copenhagen.
TORM ANNUAL REPORT 2020
OTHER
97
Other
INVESTOR INFORMATION
CHANGES TO THE SHARE CAPITAL
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.
As of 31 December 2020, TORM’s treasury shares
represented approximately 0.7% 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-
share and the C-share have certain voting rights.
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.
During 2020, TORM has increased its share capital by
107,681 A-shares as a result of a corresponding number
of Restricted Share Units being exercised. Following
this, as of 31 December 2020, TORM plc’s total share
capital was USD 748,559.31 with 74,855,929 A-shares,
one B-share and one C-share. During 2020 TORM
repurchased 180,500 A-shares and as of 31 December
2020, TORM holds 493,371 as treasury shares.
SHAREHOLDERS
As of 31 December 2020, TORM had approximately
10,800 registered shareholders representing
approximately 94% of the share capital.
In 2020, TORM has been subject to UK Disclosure
Guidance and Transparency Rules under which
shareholders have a 3% ownership notification
requirement. From 1 January 2021, as a consequence of
Brexit, TORM has changed its home member state in
relation EU’s Prospectus Regulation and Transparency
Directive to Denmark. This implies that shareholders
now have a 5% ownership notification requirement.
Based on notifications received during 2020 and 2021
to date OCM Njord Holdings S.à r.l. (Oaktree) is the
only shareholder with more than 5% of the share
capital holding 71% of the share capital.
At the end of 2020, the members of the Board of
Directors held a total of 297,135 shares, equivalent to a
total market capitalization of DKK 13,371,075 or USD
2,109,659. The Board of Directors and certain
employees are limited to trading shares during a four-
week period after the publication of financial report.
TORM’s Transfer Agent is Computershare Inc, Dept CH
19228, Palatine, IL 60055, USA.
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.
For the first six months of 2020, TORM generated a net
profit of USD 127.5m and the Board of Directors was
pleased to declare an ordinary dividend of USD 63.2m,
or USD 0.85 per share for the period. The material
payment was possible due to TORM’s strong capital
structure. In line with the Distribution Policy, the Board
of Directors has decided not to recommend any
distributions for the second half
of 2020.
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 expired on 13 July 2020 and
none were exercised
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.
As of 31 December 2020, 2,187,454 RSUs were
outstanding with 107,681 being exercised during 2020.
The specific terms for the RSU’s are further described
in the Remuneration Committee Report on page 82.
For further information about investor relations, please
visit https://investors.torm.com
TORM ANNUAL REPORT 2020
OTHER
98
DIRECTORS’ REPORT
The Directors are pleased to present the Annual Report
on the affairs of the TORM Group for 2020, including
the financial statements and the auditor’s report.
Details on the Directors’ responsibilities are available in
the Statement of Directors Responsibility on page 103.
ANNUAL GENERAL MEETING
TORM’s next Annual General Meeting (AGM) will be
held on 14 April 2021. 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 44. For details
on any significant events after 31 December 2020,
please refer to note 2 on page 121. Details on financial
risks are provided in note 20 of the financial statements
on page 142. TORM’s section 172 statement can be
found on pages 59-61.
DIVIDENDS
TORM made a total shareholder distribution of USD
72.0m in 2020 covering earnings in the second half of
2019 and the first half of 2020. The majority of the
payment was made in September 2020, where TORM
paid an ordinary dividend of USD 63.2m, or USD 0.85
per share. In line with the Company’s Distribution Policy
the payment corresponded to 50% of net income for
the six months ended 30 June 2020.
In line with TORM’s Distribution Policy, the Board of
Directors has decided to recommend that no dividends
be paid for the second half of 2020 due to the negative
results for the six months ended 31 December 2020.
DIRECTORS
Information on TORM’s Board of Directors as of 1 March
2021 is available on page 67.
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 84.
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, each Director, apart from the
B-Director, must retire at the end of the second AGM
after his or her appointment or last reappointment
unless he or she has been reappointed at that AGM.
The Company’s Directors were re-elected at the 2020
Annual General Meeting and will therefore be due to
retire in 2022. The terms and conditions of the
appointment of Non-Executive Directors are set out in
the Company's Memorandum of Terms and Conditions
which, in accordance with the UK Companies Act
2006, Chapter 5, Section 228, is available for inspection
from the Company Secretary.
SHARE CAPITAL
TORM’s share capital amounts to USD 748,559.31
divided into 74,855,929 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 74,855,929 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 carries one vote on all resolutions
proposed at the 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 2020
OTHER
99
DIRECTORS’ REPORT
The Company can 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 (who 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 the 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”), must continue to hold the C-share as 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 pages 97-98.
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 U.S. Securities and 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 granted at TORM plc’s AGM on 15 March
2016 (2016 AGM) and updated authorities granted at
TORM plc’s AGM on 14 April 2020, 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 5,073,293
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 2020
OTHER
100
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
none was issued from 1 January 2020 to 31
December 2020, leaving a current authority to issue
up to 137,228,300 A-shares
• Up to an aggregate nominal amount of USD
2,477,026 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 none was issued from 1
January 2020 to 31 December 2020, leaving a
current authority to issue up to 247,702,600 A-
shares.
• Up to an aggregate nominal amount of USD
777,625 to Directors, officers or employees of the
Company or any of its subsidiaries, of which USD
10,474 nominal value was used for the grant of
Restricted Share Units during the period from 1
January 2020 to 31 December 2020, leaving a
current authority to issue up to 77,225,513 A-shares
Furthermore, the Board of Directors received
authorization at the 2020 AGM to make market
purchases up to a maximum of 7,476,065 A-shares
within a certain price range. TORM has repurchased
180,500 A-shares in the period from 1 January 2020 to
31 December 2020, leaving a current authority to
purchase up to 7,295,565 A-shares or approximately
10% of TORM's share capital excluding treasury shares.
All of the above authorities to issue and purchase
shares expire on 14 April 2025.
SIGNIFICANT SHAREHOLDINGS
Details on significant shareholdings are set out in the
“Investor Information” section on page 98.
Details of TORM’s employee share schemes and any
rights attached to the shares under these schemes are
set out on pages 81-82 of the Directors’ Remuneration
Report.
The U.K. Takeover Code, issued and administered by
the U.K. Takeover Panel, applies to the Company.
POLITICAL DONATIONS
No political donations were made during 2020.
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 1 on
page 114.
RESEARCH AND DEVELOPMENT
The Company continues to 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 are set out
on page 5.
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 pages 5-61 provides a
review of TORM’s operations in 2020 and the potential
future developments of those operations. Details on
greenhouse gas emissions are included in the
“Strategic Report” on page 36, and details on TORM’s
general policy relating to recruitment, training, career
development and disabled employees are included on
page 41.
Please refer to pages 59-61 for information on how the
Directors have had regard to the need to foster the
Company’s business relationship with suppliers,
customers and other stakeholders.
TORM ANNUAL REPORT 2020
OTHER
101
DIRECTORS’ REPORT
STATEMENT BY THE DIRECTORS IN PERFORMANCE
OF THEIR STATUTORY DUTIES IN ACCORDANCE
WITH SECTION 172(1) OF THE UK COMPANIES ACT
2006
To see the full statement, please see page 59-61.
REQUIREMENTS OF 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 must comply with the
provisions 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 in note 2 on page 121.
INDEPENDENT AUDITORS
Each person who is a Director at the date of approval
of the Annual Report confirms that:
Approval
On behalf of the Board of Directors
• As far as the Director is aware, there is no relevant
audit information of which the Company’s
independent auditor is unaware.
• The Director has taken all reasonable steps that he
or she ought to have taken as a Director in order to
make him or 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 section 418 of the
UK Companies Act 2006.
Mr. Christopher H. Boehringer
Chairman of the Board of Directors
1 March 2021
TORM ANNUAL REPORT 2020
OTHER
102
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
•
In respect of the parent company financial
statements state whether applicable UK Accounting
Standards, including FRS 101, 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
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable United Kingdom law and regulations.
In preparing these financial statements, the Directors
are required to:
• Select suitable accounting policies in accordance
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) in conformity
with the Companies Act 2006 and IFRS as adopted
pursuant to Regulation (EC) No. 1606/2002 as it
applies to the European Union 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 Financial
Reporting Standard 101 “Reduced Disclosure
Framework” (FRS 101). Under company law, the
Directors must not approve the financial statements
unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the
Company and of the profit or loss of the Group and the
Company for that period.
with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors and then apply
them consistently
• Make judgements and accounting estimates that
are reasonable and prudent
• 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 (or in respect
of the parent company financial statements, FRS
101) is insufficient to enable users to understand the
impact of particular transactions, other events and
conditions on the entity's financial position and
financial performance
In respect of the group financial statements, state
whether IFRSs in conformity with the Companies
Act 2006 and IFRSs adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the
European Union have been followed, subject to any
material departures disclosed and explained in the
financial statements
TORM ANNUAL REPORT 2020
OTHER
103
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s and the Group’s transactions
and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and
enable them to ensure that the company and the group
financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
Under applicable law and regulations, the directors
are also responsible for preparing a strategic report,
directors’ report, directors’ remuneration report and
corporate governance statement that comply with
that law and those regulations. 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 1 March 2021 and is signed on
its behalf by:
• The financial statements, prepared in accordance
with the Companies Act 2006 and IFRSs as
adopted pursuant to Regulation (EC) No.
1606/2002 as it applies to the European Union, 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 annual report, including 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, taken as a whole, is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the Company’s
position and performance, business model and
strategy
Mr. Jacob Meldgaard
Executive Director
1 March 2021
TORM ANNUAL REPORT 2020
OTHER
104
FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS 2020
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 2020
Balance Sheet
Changes in Equity
Notes to Parent Company Financial Statements
OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM
106
106
107
108
110
111
149
150
151
152
157
162
165
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
105
Consolidated financial statements
CONSOLIDATED INCOME STATEMENT
1 JANUARY-31 DECEMBER
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
1 JANUARY-31 DECEMBER
USD '000
Revenue
Note
2020
2019
2018
USD '000
747,356
692,610
635,366
Net profit/(loss) for the year
2020
2019
2018
88,114
166,022
-34,779
Port expenses, bunkers and commissions
-227,924
-267,739
-283,018
0
0
-2,506
Other comprehensive income/(loss):
Charter hire
Operating expenses
Profit from sale of vessels
Administrative expenses
Other operating expenses
3 -178,376
-172,983
-180,443
Items that may be reclassified to profit or loss:
23
1,069
1,180
752
Exchange rate adjustment arising from translation of
3, 4
-50,773
-47,724
-47,826
entities using a functional currency different from USD
16
426
-316
-19,185
-2,911
-1,963
Fair value adjustment on hedging instruments
-2,070
-13,289
-6,748
Share of profit/(loss) from joint ventures
-242
-422
189
Fair value adjustment on hedging instruments transferred
Impairment losses and reversal of impairment on
to income statement
-6,860
1,284
-307
tangible assets
Depreciation
6, 8, 23
-11,096
114,004
-3,249
6,7 -121,922
-110,124
-114,480
Items that may not be reclassified to profit or loss:
Remeasurements of net pension and other post-retirement
Operating profit/(loss) (EBIT)
138,907
205,891
2,822
benefit liability or asset
103
-82
-48
Financial income
Financial expenses
9
9
536
2,796
3,302
Other comprehensive income/(loss) after tax ¹
-8,811
-11,661
-7,419
-49,914
-41,881
-39,345
Total comprehensive income/(loss) for the year
⁾
79,303
154,361
-42,198
Profit/(loss) before tax
89,529
166,806
-33,221
¹
Tax
12
-1,415
-784
-1,558
Net profit/(loss) for the year
88,114
166,022
-34,779
EARNINGS PER SHARE
Basic earnings/(loss) per share (USD)
Diluted earnings/(loss) per share (USD)
27
27
1.19
1.19
2.24
2.24
-0.48
-0.48
No income tax was incurred relating to other comprehensive income/(loss) items due to the Danish tonnage tax
scheme.
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
106
Note
2020
2019
USD '000
Note
2020
2019
CONSOLIDATED BALANCE SHEET
AS OF 31 DECEMBER
Vessels and capitalized dry-docking
6,7,8,16 1,722,465 1,674,795
6,7
7,098
8,127
USD '000
ASSETS
NON-CURRENT ASSETS
Tangible fixed assets
Land and buildings
Prepayments on vessels
Other plant and operating equipment
Total tangible fixed assets
Financial assets
Investments in joint ventures
Loan receivables
Deferred tax asset
Other investments
Total financial assets
Total non-current assets
CURRENT ASSETS
Bunkers
Freight receivables
Other receivables
Prepayments
EQUITY AND LIABILITIES
EQUITY
Common shares
Share premium
Treasury shares
6
6
12,024
95,003
Hedging reserves
6,847
4,256
Translation reserves
Retained profit
1,748,434
1,782,181
Total equity
1,588
1,169
NON-CURRENT LIABILITIES
LIABILITIES
5
4,617
4,617
344
1
-
1
6,550
5,787
1,754,984 1,787,968
22,459
34,837
10
11
58,574
89,830
24,881
6,168
2,181
3,468
CURRENT LIABILITIES
Borrowings
Trade payables
Current tax liabilities
Other liabilities
Provisions
Deferred income
Total current liabilities
Cash and cash equivalents, including restricted cash
28 135,564
72,483
Current assets, excluding assets held for sale
243,659
206,786
Total liabilities
Assets held for sale
Total current assets
TOTAL ASSETS
23
-
9,127
TOTAL EQUITY AND LIABILITIES
243,659
215,913
1,998,643 2,003,881
Non-current tax liability related to held over gains
12
44,923
44,901
Borrowings
Total non-current liabilities
7,15,16,18 739,543
756,352
784,466
801,253
13
748
747
102,044
101,289
13
-4,235
-2,887
-20,681
-11,751
346
330
939,247
919,959
1,017,469 1,007,687
7,15,16,18
102,858
99,025
18
14,350
47,120
1,418
1,476
14,18
59,782
47,316
26
18,300
-
-
4
196,708
194,941
981,174
996,194
1,998,643 2,003,881
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
107
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY-31 DECEMBER
USD '000
Equity as of 1 January 2018
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
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
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
Common
Share
Treasury
Hedging
Translation
Retained
shares
premium
shares ¹
reserves
reserves
profit
Total
623
-
623
-
-
-
-
-
-
-
-
-
119
99.880
-
-
-2.788
-
119
97.092
-2.887
⁾
-
7.309
-
-2.887
7.309
220
-
220
785.785
791.050
-878
-878
784.907
790.172
-
-
-
-
-
-
-
-
-7.055
-7.055
-
-
-
-
-34.779
-34.779
-316
-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
742
97.092
-2.887
-
-
-
5
-
5
-
-
-
4.197
-
4.197
-
-
-
-
-
-
254
254
-
-12.005
-12.005
-
-
-96
752.106
847.211
-96
752.106
847.211
-
426
426
-
-
166.022
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 2020
CONSOLIDATED FINANCIAL STATEMENTS
108
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY-31 DECEMBER
USD '000
Equity as of 1 January 2020
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 cost of capital increase
Acquisition of treasury shares
Share-based compensation
Dividend paid
Total changes in equity 2020
Equity as of 31 December 2020
¹
²
Please refer to note 13 for further information on treasury shares.
Please refer to "Consolidated Statement of Comprehensive Income".
⁾
⁾
Common
Share
Treasury
Hedging
Translation
Retained
shares
premium
shares ¹
reserves
reserves
profit
Total
747
101,289
-2,887
⁾
-11,751
330
919,959
1,007,687
-
-
-
1
-
-
-
-
1
-
-
-
787
-32
-
-
-
-
-
-
-
-
-1,348
-
-
-
-8,930
-8,930
-
-
-
-
-
-
16
16
-
-
-
-
-
88,114
103
88,114
-8,811
88,217
79,303
-
-
-
1,682
788
-32
-1,348
1,682
-70,611
-70,611
755
-1,348
-8,930
16
19,288
9,782
748
102,044
-4,235
-20,681
346
939,247
1,017,469
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
109
CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY-31 DECEMBER
USD '000
Note
2020
2019
2018
USD '000
Note
2020
2019
2018
CASH FLOW FROM OPERATING ACTIVITIES
CASH FLOW FROM INVESTING ACTIVITIES
Net profit/(loss) for the year
88,114
166,022
-34,779
Investment in tangible and intangible fixed
Reversals:
Profit from sale of vessels
Depreciation
Impairment losses and reversal of impairment
-1,069
-1,180
-752
6 121,922
110,124
114,480
assets
Investments in joint ventures
Sale of tangible fixed assets
Change in restricted cash
-173,050
-384,349
-202,439
-
-275
-
23
83,662
61,801
26,847
-30,414
-
-
losses on tangible assets
6, 8, 23
11,096
-114,004
3,249
Net cash flow from investing activities
-119,802
-322,823 -175,592
Share of profit/(loss) from joint ventures
242
422
-189
Financial income
Financial expenses
Tax expenses
Other non-cash movements
Dividends received from joint ventures
Interest received and realized exchange gains
9
9
12
24
-536
-2,796
-3,302
49,914
41,881
39,345
1,415
1,093
275
583
784
925
19
2,535
1,558
2,039
440
2,720
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds, borrowings
Repayment, borrowings
Dividend paid
Capital increase
Transaction costs share issue
Purchase/disposal of treasury shares
Interest paid and realized exchange losses
-52,905
-45,283
-39,792
Change in restricted cash
Income taxes paid
-252
-216
-1,611
5, 18 734,346
261,830
114,530
18 -746,475
-169,177
-113,733
-70,611
-
-
788
-32
-1,348
4,202
99,999
-
-
-2,788
-
-
-12,364
-2,014
Change in bunkers, receivables and payables,
Net cash flow from financing activities
-83,332
84,491
95,994
etc.
24
15,909
11,858
-12,668
Net cash flow from operating, investing and
Net cash flow from operating activities
235,801
171,091
70,738
financing activities
32,667
-67,241
-8,860
Cash and cash equivalents as of 1 January
56,847
124,088
132,948
Cash and cash equivalents as of 31 December
89,514
56,847
124,088
Restricted cash as of 31 December
46,050
15,636
3,273
Cash and cash equivalents, including restricted
cash as of 31 December
135,564
72,483
127,361
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
110
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 - Provisions
Note 27 – Earnings per share and Dividend per share
Note 28 – Cash and cash equivalents, including restricted cash
112
121
122
124
125
125
127
129
130
131
131
131
132
133
134
135
135
135
137
140
144
145
145
145
146
147
148
148
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
111
NOTE 1 – ACCOUNTING POLICIES, CRITICAL ACCOUNTING ESTIMATES
AND JUDGEMENTS
NOTE 1 – continued
OVERVIEW OF BUSINESS
TORM plc is a shipping company, which owns and operates a fleet of product tankers.
TORM plc is a public company limited by shares and is incorporated in England and Wales. Its
registered number is 09818726 and its registered address is Birchin Court, 20 Birchin Lane,
London, EC3V 9DU. 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
International Financial Reporting Standards (“IFRS”) in conformity with the requirements of the
Companies Act 2006 and as adopted pursuant to regulation (EC) No. 1606/2002 as it applies
in the EU and as issued by the International Accounting Standards Board (“IASB”) as applied to
financial periods beginning on or after 1January 2020.
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 the
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 44-53. As of 31 December 2020, TORM’s available liquidity including undrawn
and committed facilities was USD 267.8m, including a total cash position of USD 135.6m
(including restricted cash of USD 46.1m). TORM’s net interest-bearing debt was USD 713.1m, and
the net debt loan-to-value ratio was 51%. 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 54-58, 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 in its loan facilities,
details of which are available in note 2 to the financial statements. A key element for TORM’s
financial performance in the going concern period relates to the development of the COVID-19
pandemic and the associated lockdowns in the different economies. TORM’s base case assumes
an economic rebound during the second half of 2021, however neither freight rates nor vessel
values will reach 2020 levels. In the base case, TORM has sufficient liquidity and headroom
above all the covenant limits.
TORM performs sensitivity calculations to reflect downside 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
downside scenarios cover the principal risks and uncertainties facing the Group as set out on
page 57-58 and include different distressed outlook for the product tanker market. In a low case
scenario management have assumed freight rates that on average are 15% below those in the
base case and a similar decline in vessel values. In the low case scenario there remains sufficient
headroom on liquidity and covenants. In a stress case scenario management have further
stressed the freight rates to the lowest rolling four quarter average since 2000. In the stress
case scenario there remains sufficient liquidity, but limited headroom on covenants.
The Board of Directors has considered the Group’s cash flow forecasts and the expected
compliance with the Company’s financial covenants for the period until and including 31 March
2022. The Group’s cash flow forecast and expected covenant compliance is based on the Board
approved business plan. Based on this review, the Board of Directors has a reasonable
expectation that taking reasonably possible changes in trading performance and vessel
valuations into account, the Group will be able to continue the 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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
112
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 2020:
• Amendments to IFRS 3 Business Combinations (issued on 22 October 2018)
• Amendments to IAS 1 and IAS 8: Definition of Material (issued on 31 October 2018)
• Amendments to References to the Conceptual Framework in IFRS Standards (issued on 29
March 2018)
It is assessed that application of these effective on 1 January 2020 has not had any material
impact on the consolidated financial statements in 2020.
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:
•
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture issued in September 2014
• Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS
37 Provisions, Contingent Liabilities and Contingent Assets (all mandatory 1 Jan 2022)
• Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as
Current or Non-current (1 Jan 2023)
• Annual Improvements 2018-2020 (1 Jan 2022)
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.
NOTE 1 - continued
ACCOUNTING POLICIES
Consolidation principles
The consolidated financial statements comprise the financial statements of the Parent Company,
TORM plc and entities controlled by the Company and its subsidiaries. Control is achieved when
the Company has 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 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 using consistent accounting policies and
eliminating intercompany transactions, balances and shareholdings as well as gains and losses
on transactions between the consolidated entities.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
113
NOTE 1 - continued
NOTE 1 - continued
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”.
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 exchange rate for each transaction, 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.
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 interest rates, 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 operating segment which is the sole 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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
114
NOTE 1 - continued
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.
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
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.
Revenue comprises freight, charter hire and demurrage revenue from the vessels. Revenue is
recognized when or as performance obligations are satisfied by transferring services to the
customer, i.e. 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.
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 at 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 assets 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, the Company uses its incremental borrowing rate at the lease
commencement date because the interest rate implicit in the lease is not readily determinable .
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, for 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.
Freight revenue, including charter hire and demurrage (and related voyage 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). 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.
Cross-over voyages
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. The contract for a single voyage may state several
alternative destination ports. The destination port may change during the voyage, and the rate
may vary depending on the destination port. Changes to the estimated duration of the voyage
as well as changing destinations and weather conditions will affect the voyage expenses.
Demurrage revenue
Freight contracts contain conditions regarding the amount of time available for loading and
discharging of the vessel. If these conditions are breached, TORM is compensated for the
additional time incurred in the form of demurrage revenue. Demurrage revenue is recognized in
accordance with the terms and conditions of the charter parties. Upon completion of the
voyage, the Company assesses the time spent in port, and a demurrage claim based on the
relevant contractual conditions is submitted to the charterers.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
115
NOTE 1 – continued
NOTE 1 - continued
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.
Interest is recognized in accordance with the accrual basis of accounting taking into account
the effective interest rate. Dividends from other investments are recognized when the right to
receive payment has been decided, which is typically when the dividend has been declared and
can be received without conditions.
Financial expenses
Financial expenses comprise interest expenses, financing costs of leases liabilities, 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 income tax charge for the year in accordance with IAS 12
as well as tonnage tax related to the Group’s vessels for the year. The income tax charge for the
year includes adjustments relating to previous years and the change in deferred tax for the year.
However, income tax relating to items in other comprehensive income is recognized directly in
the statement of other comprehensive income.
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.
Gains and losses on forward bunker contracts and write-down for losses on freight receivables
are included in this line.
Operating expenses
Operating expenses, which comprise crew expenses, repair and maintenance expenses and
tonnage duty, are expensed as incurred.
Profit from sale of vessels
Profit from sale of vessels is recognized 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 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.
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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
116
NOTE 1 - continued
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. 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 at the reporting
date. 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.
NOTE 1 - continued
Prepayments on vessels
Prepayments consist of prepayments related to newbuilding contracts for vessels not yet
delivered and include the share of borrowing costs that is 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”.
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:
• Land and buildings
• 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
• Other plant and operating equipment
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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
117
NOTE 1 – continued
NOTE 1 – continued
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 reduced 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 subsequently 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
carrying amount , the receivable is written off in part or entirely.
Impairment of assets
Non-current assets are reviewed at the reporting date to determine any indication of
impairment including a significant decline in either the assets’ market value, increase to market
rates of return or in the cash flows expected to be generated by the fleet. If impairment
indicator(s) exists, an impairment test on a cash-generating unit (CGU) level will be performed.
A cash-generating unit is determined as the smallest group of assets that generates
independent cash inflows. An asset/CGU is impaired if the recoverable amount is below the
carrying amount. The recoverable amount of the CGU is estimated as the higher of fair value
less costs of disposal and value in use. The value in use is the present value of the future cash
flows expected to be derived 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.
The Management in TORM has assessed that TORM has three CGUs, being the Main Fleet and
the two Handysize vessels.
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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
118
NOTE 1 - continued
NOTE 1 - continued
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”.
Borrowings
Borrowings consist of mortgage debt, bank loans and lease liabilities.
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.
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.
Trade payables
Trade payables are recognized at the fair value of the item purchased and are subsequently
measured at amortized cost.
Other liabilities
Other liabilities are generally measured at amortized cost. Derivative financial instruments
included in other liabilities are measured at fair value.
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 income tax
purposes. Deferred tax is calculated at the income 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 or substantially enacted at the balance sheet date. The deferred tax is charged through
the income statement except when it relates to other comprehensive income items. No deferred
tax is recognised related to assets and liabilities, including vessels, which are subject to tonnage
tax.
Income tax balances
The expected income tax payable on the taxable profits for the year is classified as current tax
in the balance sheet. Income taxes expected to fall due after more than one year are classified
as non-current liabilities or assets in the balance sheet. Income tax is measured using tax rates
enacted or substantially enacted at the balance sheet date, and includes any adjustment to tax
payable in respect of previous years. Current and non-current income tax balances are not
discounted.
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.
Cash flow from investing activities comprises the cash used or received in 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 the cash used or received in
borrowings (amount of new borrowings and repayments), purchases or sales of treasury shares
and dividend paid to shareholders.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
119
NOTE 1 – continued
NOTE 1 - continued
Cash and cash equivalents including restricted cash comprise cash and short-term bank
deposits with an original maturity of three months or less. 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 initial margin calls
and negative market values on 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 also makes various accounting judgements in the preparation of the consolidated
financial statements that can affect the amounts recognised.
Judgements
Management has assessed that TORM has three CGUs within its single reportable segment
product tanker segment – the largest of which is its Main Fleet (comprising LR1/LR2 and MR
–
vessels). The Main Fleet is considered to be a single cash generating unit because the vessels in
the Main Fleet are largely interchangeable and the cash flows generated by them are
interdependent. These vessels are operated collectively as a combined internal pool, employed
principally in the spot market and actively managed to meet the needs of our customers in that
market, particularly regarding the location of vessels meeting required specifications and the
price of transport rather than vessel class. Given the technical specifications and capacity of
vessels, the Main Fleet is relatively homogenous with a very high degree of interoperability. All
vessels in the Main Fleet are able to handle multiple sizes of cargoes and sail all seas and oceans,
over both shorter and long distances. The Main Fleet is monitored and managed on an
aggregated level as one pool, i.e. each vessel or vessel class does not generate cash inflows that
are largely independent of those from other vessels or vessel classes.
the
The other groups of CGUs outside the Main Fleet comprise the two Handysize vessels (which
are typically used for shorter and coastal trade routes and more frequent port calls, including for
transportation of various clean petroleum products within Europe and in the Mediterranean).
Estimates
Carrying amounts of vessels
The Company evaluates the carrying amounts of the vessels (including newbuildings) to
determine if events have occurred that would require a modification of their carrying amounts.
The recoverable amount 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 at the reporting date 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 of disposal 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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
120
NOTE 1 - continued
NOTE 2 - continued
All these factors have been historically volatile, especially the freight rates. 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.
SUBSEQUENT EVENTS
• On 5 January 2021, TORM signed an Additional Facilities Agreement of USD 56.4m with
Danish Ship Finance to finance two MR vessels and with option of financing one more
vessel.
• On 7 January 2021, the drawdown of USD 13.6m from the DSF Facilities Agreement was
made to finance the purchase of the MR vessel TORM India.
NOTE 2 – LIQUIDITY, CAPITAL RESOURCES AND SUBSEQUENT EVENTS
LIQUIDITY AND CAPITAL RESOURCES
As of 31 December 2020, TORM’s cash and cash equivalents including restricted cash totaled
USD 136m (2019: USD 72m; 2018: USD 127m), and undrawn and committed credit facilities
amounted to USD 132m (2019: USD 173m; 2018: USD 279m). The undrawn and committed credit
facilities consisted of a USD 45m Working Capital Facility and two leasing facilities of USD 76m
and USD 11m with BoComm Leasing. TORM had two newbuildings (2019: four; 2018: nine) and
one secondhand vessel on order. The newbuildings are for delivery in late 2021 and early 2022
respectively and the secondhand vessel is for delivery in early 2021. The total outstanding
CAPEX related to these newbuildings was USD 86m (2019: USD 51m; 2018: USD 258m) and is
mainly financed by the committed BoComm Leasing facilities of USD 76m. The secondhand
vessel will be financed by traditional bank mortgage financing.
TORM has a Syndicated Facilities Agreement which includes a USD 299m Term Facility
Agreement and an undrawn USD 45m Working Capital Facility both with maturity in 2026. The
Term Facility Agreements were refinanced in 2020. In addition to the Syndicated Facilities,
TORM has a USD 150m Term Facility Agreement with Danish Ship Finance with maturity in 2027.
Furthermore, TORM has a USD 81m Term Facility Agreement and a USD 33m Term Facility
Agreement with Hamburg Commercial Bank with maturity in 2025, with China Export-Import
Bank of USD 96m with maturity in 2030 and with KfW-IPEX Bank of USD 44m with maturity in
2032. As of 31 December 2020, the scheduled minimum payments on mortgage debt and bank
loans in 2021 were USD 89m.
TORM has lease agreements of a total USD 83m with various Japanese leasing providers and a
USD 58m lease agreement with BoComm Leasing expiring in 2025. Furthermore, TORM has two
committed leasing facilities with BoComm Leasing, a leasing facility of USD 76m to finance the
two newbuilding vessels on order, and a leasing facility of USD 11.2m to finance scrubber and
ballast water treatment systems installations. As of 31 December 2020, the scheduled
repayments on lease agreements in 2021 were USD 16m.
TORM’s bank debt facilities include financial covenants related to:
• Minimum liquidity (cash and cash equivalents minimum amount requirement at all times)
• Minimum security value (loan-to-value for individual borrowings)
• Equity ratio (minimum level)
During 2020, 2019 and 2018, TORM did not have any covenant breaches.
• On 29 January 2021, the drawdown of USD 13.6m from the DSF Facilities Agreement took
place to finance the purchase of the MR vessel TORM Philippines.
• On 25 January 2021, 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 7,089 A-shares corresponding to a nominal value of USD 70.89. After the capital
increase, TORM’s share capital amounts to USD 748,630.20 divided into 74,863,018 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
74,863,018 votes are attached to the A-shares.
• On 5 February 2021, the drawdown of USD 11.2m from Bocomm Leasing took place to
finance the installation of scrubbers for the four vessels financed by BoComm Leasing.
• On 1 March 2021 TORM entered into an agreement to purchase eight 2007-2012 built MR
product tanker vessels from TEAM Tankers Deep Sea Ltd. for a total cash consideration of
USD 82.5m and the issuance of 5.97 million shares, corresponding to approximately 8% of
TORM’s current outstanding shares. Six of the vessels have specialized cargo tank
configurations and extended tank segregations (IMO 2), allowing for enhanced trading
flexibility through chemical trading options. Based on broker valuations, the market value of
the acquired vessels is assessed at USD 148m.
TORM has obtained attractive terms on the financing with maturities in 2026.The 2009-2012
built vessels will be financed by increasing TORM’s existing Syndicated Term Facility with a
new Revolving Facility of up to USD 67m provided pro rata by the existing syndicate banks
(ABN AMRO, Danske Bank, ING, Nordea, Credit Agricole, Société Générale and Swedbank),
and the 2007-2008 built vessels will be financed through a new term facility with Hamburg
Commercial Bank amounting up to USD 28m. The financing is subject to finalization of the
documentation.
The vessels are scheduled to be delivered during the second and third quarter of 2021, and
in connection with each delivery, TORM will issue the 5.97 million shares to TEAM Tankers in
tranches based on the individual vessel’s relative value. The agreed individual share
issuances are subject to adjustments related to potential capital increases and shareholder
distributions, as applicable.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
121
NOTE 3 – STAFF COSTS
Employee information
The majority of the staff on vessels are not employed by TORM. Staff costs included in
operating expenses relate to the 109 seafarers employed under Danish contract (2019: 108, 2018:
112).
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.
USDm
Total staff costs
Staff costs included in operating expenses
Staff costs included in administrative expenses
Total
Staff costs comprise the following
Wages and salaries
Share-based compensation
Pension costs
Other social security costs
Other staff costs
Total
2020
2019
2018
9.2
41.5
50.7
42.3
1.7
3.3
1.3
2.1
8.1
37.7
45.8
37.2
1.9
3.5
0.9
2.3
9.3
36.9
46.2
38.1
2.1
3.3
0.6
2.1
50.7
45.8
46.2
NOTE 3 - continued
USD '000
2020
2019
2018
Non-Executive Board and Committee Remuneration, short term
Christopher H. Boehringer
David Weinstein
Göran Trapp
Torben Janholt
Annette Justad
Total
Executive Management
256
200
172
89
139
252
276
198
170
170
-
182
171
171
-
856
790
800
Annual
perfor-
Taxable
mance
USD '000
Salary
benefits
bonus
Total
Executive Management Remuneration
Jacob Meldgaard
2018, TORM A/S¹
2018, TORM plc¹
2019, TORM A/S¹
⁾
2019, TORM plc¹
2020, TORM A/S¹
⁾
2020, TORM plc¹
⁾
⁾
⁾
983
80
962
79
1,052
77
44
425
1,452
-
-
80
41
1,126
2,129
-
41
-
-
1,262
-
79
2,355
77
Average number of permanent employees
Seafarers
Land-based
Total
109
332
441
108
313
112
302
421
414
¹
Paid by legal entity as noted.
⁾
Majority of the seafarers on vessels are on short term contracts. The number of seafarers on
short term contracts in 2020 was on average 1,474 (2019: 1,510, 2018: 1,594). Total seafarers
costs in 2020 was USD 80.5m (2019: USD 79.5m, 2018: USD 81.4m), which has been included in
“Operating expenses”.
⁾
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 3 (2019: 3) other members of the Senior
Management Team in 2020 (excluding Mr. Meldgaard) was USD 2,054,424 (2019: USD 1,736,750,
2018: USD 2,186,679), which includes an aggregate of USD 126,726 (2019: USD 115,880, 2018:
USD 125,959) allocated for pensions (defined contribution plans) for these individuals.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
122
NOTE 3 - continued
NOTE 3 - continued
Long-Term Incentive Plan - RSUs granted in 2020:
RSU grant
value
Exercise
assuming
RSU LTIP
price per
100%
grant ¹
share
vesting
LTIP element of Jacob Meldgaard's remuneration package 2018:
⁾
Jacob Meldgaard
766,035 DKK 53.7 USD 0.9m
¹
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.
⁾
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 RSUs 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 2020
CONSOLIDATED FINANCIAL STATEMENTS
123
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
2020
2019
2018
The program comprises the following number of shares in TORM plc:
Number of shares (1,000)
2020
2019
2018
Outstanding as of 1 January
Granted during the period
Exercised during the period
Expired during the period
Forfeited during the period
2,228.3
2,719.1
2,611.2
1,047.4
1,001.1
907.3
-107.7
-529.4
-
-980.5
-785.3
-764.0
-
-177.2
-35.4
Fees payable to the Company's auditor for the audit of the
Company's annual accounts
Audit of the Company's subsidiaries pursuant to legislation
Total audit fees
Non-audit fees
Audit-related services
Tax services
Total non-audit fees
0.4
0.2
0.6
0.0
0.1
0.1
0.4
0.2
0.6
0.1
-
0.1
Outstanding as of 31 December
2,187.5
2,228.3
2,719.1
Total
0.7
0.7
0.4
0.2
0.6
0.2
-
0.2
0.8
Exercisable as of 31 December
-
-
255.3
In 2018, the Board agreed to grant a total of 944,468 RSUs 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 49.7.
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.
In 2020, the Board agreed to grant a total of 1,047,389 RSUs to other management. The vesting
period of the program is three years for key employees. The exercise price is set to DKK 69.9.
The exercise period is 12 months after the vesting date. The fair value of the options granted in
2020 was determined using the Black-Scholes model and is not material. The average remaining
contractual life for the restricted shares as per 31 December 2020 is 1.5 years.
Under SEC regulations, the remuneration of the auditor of USD 0.7m (2019: USD 0.7m, 2018:
USD 0.8m) is required to be presented as follows: Audit USD 0.6m (2019: USD 0.6m, 2018: USD
0.6m) and tax services USD 0.1m (2019: other audit-related services USD 0.1m, 2018: other audit-
related services USD 0.2m).
EY were appointed as Group’s auditors for the year ended 31. December 2020. Accordingly
comparative figures in the table above for the year ended 31 December 2019 and 31 December
2018 are in respect of remuneration paid to the Group’s previous auditor, Deloitte.
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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
124
NOTE 5 – LOAN RECEIVABLES
NOTE 6 – TANGIBLE FIXED ASSETS
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
2020
2019
2018
USDm
2020
2019
2018
4.7
-
4.7
0.1
-
0.1
-
4.7
4.7
-
0.1
0.1
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
10.4
-
1.3
-
9.9
0.5
11.7
10.4
2.3
2.3
4.6
-
2.3
2.3
Carrying amount as of 31 December
7.1
8.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Carrying amount as of 31 December
4.6
4.6
These loans were issued as part of sale and leaseback transactions for two MR vessels. The loans
mature in 2026 and have an interest rate applicable, fixed at 1% per annum.
Expected credit loss is recognized based on the 12-month expected credit losses.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
125
2020
2019
2018
95.0
45.5
65.1
301.8
88.4
38.9
-148.1
-252.3
-81.8
12.0
95.0
45.5
NOTE 6 - continued
Included in the carrying amount for “Vessels and capitalized dry-docking” are capitalized dry-
docking costs in the amount of USD 66.1m (2019: USD 60.7m, 2018: USD 67.5m).
NOTE 6 - continued
USDm
Prepayments on vessels
2020
2019
2018
Cost:
USDm
Vessels and capitalized dry-docking
Cost:
Balance as of 1 January
Additions
Disposals
Transferred from prepayments
Balance as of 1 January
Additions
Transferred to vessels
Balance as of 31 December
2,064.2
1,886.3
1,726.6
102.5
-29.8
148.1
81.3
162.7
-25.6
252.3
-30.2
81.8
Carrying amount as of 31 December
12.0
95.0
45.5
Transferred to assets held for sale
-124.9
-130.1
-54.6
Balance as of 31 December
2,160.1
2,064.2
1,886.3
USDm
2020
2019
2018
Depreciation:
Balance as of 1 January
Exchange rate adjustment
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
Reversal of impairment ¹
Transferred to assets held for sale
⁾
Balance as of 31 December
Other plant and operating equipment
360.6
327.6
264.8
Cost:
-
-
-
Balance as of 1 January
-29.8
-25.6
-30.2
Adjustment on transition to IFRS 16
118.4
106.5
113.4
-43.0
-47.9
-20.4
Additions
Disposals
406.2
360.6
327.6
Balance as of 31 December
162.1
167.3
Balance as of 1 January
Depreciation:
3.2
-
Disposals
Depreciation for the year
28.8
11.1
6.0
-
-120.0
-8.5
-19.3
-8.4
Balance as of 31 December
31.4
28.8
162.1
Carrying amount as of 31 December
8.1
-
3.8
-4.3
7.6
3.8
-4.2
1.2
0.8
6.8
5.8
0.3
2.2
-0.2
8.1
2.8
-
1.0
3.8
4.3
3.6
-
2.2
-
5.8
1.7
-
1.1
2.8
3.0
Carrying amount as of 31 December
1,722.5
1,674.8
1,396.6
¹
For additional information regarding impairment considerations, please refer to Note 8.
⁾
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 1.2m relates
to “Administrative expense” (2019: USD 1.0m, 2018: USD 1.1m). Depreciation and impairment
losses on tangible fixed assets on “Vessels and capitalized dry-docking” relate to operating
expenses.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
126
NOTE 7 – LEASING
NOTE 7 - continued
TORM leases 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 2020, TORM had recognized the following right-of-use assets:
USDm
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
Vessels and
Other plant
capitalized
Land and
and operating
dry-docking
buildings
equipment
USDm
Vessels and
Other plant
capitalized
Land and
and operating
dry-docking
buildings
equipment
42.4
-
-42.4
-
15.5
-17.1
1.6
-
-
10.4
-
1.3
-0.0
11.7
2.3
-
2.3
4.6
7.1
Cost:
0.6
Balance as of 1 January 2019
-
Adjustment on transition to IFRS 16
0.0
Additions
-0.0
Disposals
0.6
Balance as of 31 December 2019
Depreciation:
43.3
-
1.8
-2.7
42.4
-
9.9
0.5
-
10.4
0.2
Balance as of 1 January 2019
13.4 -
-0.0
Disposals
0.2
0.4
Depreciation for the year
Balance as of 31 December 2019
0.2
Carrying amount as of 31 December 2019
-2.7
4.8
15.5
26.9
-
2.3
2.3
8.1
-
0.3
0.4
-0.1
0.6
-
-
0.2
0.2
0.4
The sale and leaseback transactions relating to vessels were all classified as financing
arrangements prior to implementation of IFRS 16 and did not result in derecognition of the
underlying assets as control was retained by the Group. During 2020, the vessels were disposed.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
127
NOTE 7 - continued
NOTE 7 - continued
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 cash outflow for leases, USD 2.3m, is presented as “Depreciation” of USD 1.9m and
“Financial expenses” (interest) of USD 0.4m,.
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
Total
2020
2019
2018
1.5
48.4
49.9
2.4
39.5
41.9
2.3
37.0
39.3
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
Average remaining lease term
No. of leases with extension options
No. of leases with options to purchase
No. of leases with termination options
10
15
0-7 years
0-5 years
2.6 years
1.2 years
10
-
8
15
-
15
Lease liabilities regarding right-of-use assets are included on the balance sheet under
“Borrowings”.
USDm
2020
2019
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
2.8
5.9
0.1
8.8
8.3
6.2
2.1
7.5
27.6
0.1
35.2
30.6
10.2
20.4
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 2020
CONSOLIDATED FINANCIAL STATEMENTS
128
NOTE 8 – IMPAIRMENT TESTING
NOTE 8 - continued
As of 31 December 2020, Management tested the carrying amount of its fleet for impairment
within CGUs, being the Main Fleet and the two Handysize vessels. Each CGU sits within a single
reportable segment – the Tanker Segment
and comprises the following groups of vessels:
–
Main Fleet: Comprising TORM’s LR1/LR2 and MR vessels, the Main Fleet is operated collectively
as a combined internal pool, employed principally in the spot market and actively managed to
meet the needs of our customers in that market, particularly regarding the location of vessels
meeting required specifications. All vessels in the Main Fleet are able to handle multiple sizes of
refined oil cargoes and sail all seas and oceans, over both shorter and long distances. Given the
technical specifications and capacity of vessels, the Main Fleet is relatively homogenous with a
very high degree of interoperability.
Handysize: Comprising two product tankers with a cargo carrying capacity of 35,000–37,000
dwt, these smaller vessels are typically used in shorter and coastal trade routes, including for
transportation of various clean petroleum products within Europe and in the Mediterranean.
As of 31 December 2019, Management performed an impairment test of the recoverable amount
of significant assets within a single cash-generating unit - the Tanker Segment. Management
decided to split out the Handysize vessels into separate CGUs because the cash inflows
generated by these vessels are now determined to be independent of the Main Fleet, which is
predominantly deployed in the global spot market.
In both years, the recoverable amount of the CGUs was based on their value in use. The results
of impairment testing are summarized as follows:
Impairment
losses
Recoverable
amount
Discount rate
Reversals of
impairment
losses
CGU
Main Fleet
Handysize
Total
2020
USDm USDm
2019
2020
USDm
2019
USDm
2020
%
2019
%
2020
USDm
2019
USDm
-
5.5
5.5
Nil
-
-
-
7.0
7.0
120
7.5
1,717
27
1,744
1,883
Based on this review, Management concluded that as of 31 December 2020
• Assets within the Main Fleet were not impaired as the value in use was in line with the carrying
amount
• The two Handy vessels were impaired with USD 5.5m in total as the calculated value in use
was lower than the carrying amount on a vessel by vessel basis
Since there is no headroom between the value in use and carrying value of the Main Fleet, the
impairment test is therefore sensitive to reasonably possible changes in key assumptions. These
sensitivities are set out on the next page.
As of 31 December 2019, the value in use exceeded the carrying amount and 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.
KEY ASSUMPTIONS USED IN THE DETERMINATION OF VALUE IN USE
The assessment of the value in use of each CGU was based on the net present value of the
expected future cash flows. The freight rate estimates in the period 2021-2023 are based on the
Company's business plans. Beyond 2023, 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 three-year
business plan.
The Company’s business plans for 2021-2023 and beyond 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 sulphur
fuel oil.
The discount rate used in the value in use calculation is based on a Weighted Average Cost of
Capital (WACC) of 7.0% as of 31 December 2020 (2019: 7.5%, 2018: 8.3%). WACC is calculated
by using a standard WACC model in which cost of equity, cost of debt and capital structure are
the key parameters.
As of 31 December 2020, the 10-year historical average spot freight rates used in the value in
use calculation are as follows:
• LR2: USD/day 18,884 (2019: USD/day 17,986, 2018: USD/day 18,003)
• LR1: USD/day 17,443 (2019: USD/day 17,060, 2018: USD/day 16,907)
• MR: USD/day 16,076 (2019: USD/day 15,802, 2018: USD/day 15,349)
• Handysize: USD/day 13,435 (2019: USD/day 13,601, 2018: USD/day 13,968)
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
129
NOTE 8 - continued
NOTE 9 – FINANCIAL ITEMS
Operating expenses and administrative expenses are estimated based on TORM's business plans
for the period 2021-2023. Beyond 2023, operating expenses are adjusted for 2% inflation (2019:
2%) and administrative expenses are adjusted for 2% inflation (2019: 2%).
USDm
Financial income
2020
2019
2018
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 (2019: approximately 15 years).
Since there is no headroom between the value in use and carrying value, the impairment test is
sensitive to reasonably possible changes in the key assumptions, which may result in future
impairments. These are related to the future development in freight rates, the WACC applied as
discounting factor in the calculations, the development in operating expenses. 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 248m and USD 6m for the Main Fleet and the
two Handy vessels respectively.
• A decrease in WACC of 1.0% would result in an increase in the value in use of USD 140m and
USD 2m for the Main Fleet and the two Handy vessels respectively. An increase in WACC of
1% would result in a decrease in the value in use of USD 124m and USD 2m for the Main Fleet
and the two Handy vessels respectively.
• An increase/decrease in operating expenses of 10.0% would result in a decrease/increase in
the value in use of USD 175m and USD 4m for the Main Fleet and the two Handy vessels
respectively.
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 for vessels in the Main Fleet including the order book and
chartered-in vessels was USD 1,577m (2019: USD 1.758m), which is USD 245m below the carrying
amount (2019: which was USD 42m below the carrying amount). The fair value based on broker
values for the Handy vessels was 22m (2019: USD 27m), which is USD 10m below the carrying
amount (2019: which was USD 6m below the carrying amount).
Interest income from cash and cash equivalents, including
restricted cash ¹
0.5
2.5
2.7
Exchange rate adjustments, including gain from forward
⁾
exchange rate contracts
Total
Financial expenses
-
0.5
0.3
2.8
0.6
3.3
Interest expenses on mortgage and bank debt ¹
47.1
39.3
35.7
Exchange rate adjustments, including loss from forward
⁾
exchange rate contracts
Commitment fee
Other financial expenses
Total
1.0
1.5
0.3
0.2
1.9
0.5
0.1
2.6
0.9
49.9
41.9
39.3
Total financial items
-49.4
-39.1
-36.0
¹
Interest for financial assets and liabilities not at fair value through profit and loss.
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
130
NOTE 10 – FREIGHT RECEIVABLES
NOTE 11 – OTHER RECEIVABLES
USDm
2020
2019
2018
USDm
Analysis as of 31 December of freight receivables:
Gross freight receivables:
Not due
Due < 30 days
Due between 30 and 180 days
Due > 180 days
Total gross
Allowance for expected credit loss
Total net
17.9
10.8
23.7
12.0
64.4
5.8
58.6
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
Partners and commercial managements
Derivative financial instruments
Other (2020: including escrow account USD 14.9m)
Balance as of 31 December
2020
2019
2018
-
4.5
20.4
24.9
1.9
0.5
2.3
-
3.7
2.6
6.2
7.5
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.
As of 31 December 2020, freight receivables included receivables at a value of USD 0.0m (2019:
USD 0.0m 2018: USD 0.0m) that are individually determined to be impaired to a value of USD
0.0m (2019: USD 0.0m, 2018: 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 the category of the receivable. 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:
NOTE 12 – TAX
USDm
Tax for the year
Current income tax for the year
Adjustments related to previous years
Adjustment of deferred tax liability
Income tax charge for the year
Tonnage tax charge for the year
2020
2019
2018
0.4
0.1
-
0.5
0.9
1.4
0.9
-0.4
-
0.5
0.3
0.8
0.8
-0.1
0.1
0.8
0.8
1.6
USDm
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
2020
2019
2018
Total
3.7
-
3.1
1.7
1.5
2.4
-1.0
-1.9
-
5.8
-
3.7
1.3
-
1.7
-1.0
-0.3
1.7
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.
All allowance for expected credit loss relates to receivables Due > 180 days.
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 2024.
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 that at the time of entering
the tonnage tax scheme.
Under the Danish tonnage tax scheme, income and expenses from shipping activities are not
subject to direct taxation, and accordingly an effective rate reconciliation has not been
provided, as it would not provide any meaningful information. Instead, the taxable income is
calculated from:
• The net tonnage of the vessels used to generate the income from shipping activities
• A rate applicable to the specific net tonnage of the vessel based on a sliding scale
Corporate income tax is primarily levied on the Group’s non-vessel related activities outside
Denmark. The effective tax rate of the Group is 1.6% (2019: 0.5%, 2018: 4.7%).
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
131
NOTE 12 - continued
USDm
Deferred tax liability
Balance as of 1 January
Deferred tax for the year
Adjustments related to previous years
Balance as of 31 December
NOTE 13 – COMMON SHARES AND TREASURY SHARES
2020
2019
2018
Common shares
2020
2019
2018
-
-
-
-
-
-
-
-
-
0.1
Nominal
value per
Number of
Number of
Number of
share (USD)
shares
shares
shares
-0.1
A-shares
0.01
74,855,929
74,748,248
74,218,846
-
B-shares
C-shares
Total
0.01
0.01
1
1
1
1
1
1
74,855,931
74,748,250
74,218,848
No deferred tax is recognized related to assets and liabilities, including vessels, which are
subject to tonnage taxation.
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 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.
USDm
2020
2019
2018
Non-current tax liability related to held over gains
Balance as of 1 January
Balance as of 31 December
44.9
44.9
44.9
44.9
44.9
44.9
The non-current tax liability related to held over gains is the undiscounted income tax payable
calculated on the realized gain on sale of vessels that came from corporate income taxation into
the Danish tonnage tax scheme upon initial application in 2001 (the held over gain reflected in
the transition account under the Danish tonnage tax scheme). This tax liability will become
payable, in part or in full, if the Danish owned fleet of vessels is significantly or fully disposed of,
or if operated to end of useful life and sold for scrap.
If TORM discontinues its participation in the Danish tonnage tax scheme, a deferred tax liability
would arise in relation to the vessels held by the Group and taken out of the tonnage tax
scheme. Management considers this to be a remote scenario.
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.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
132
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
2020
2019
2018
312.9
312.9
312.9
180.5
-
-
-
-
-
-
-
-
Balance as of 31 December
493.4
312.9
312.9
NOTE 13 - continued
Treasury shares - continued
Nominal value USD '000
Balance as of 1 January
Additions
Cancellations
Disposals
2020
2019
2018
3.1
1.8
-
-
3.1
3.1
-
-
-
-
-
-
Balance as of 31 December
4.9
3.1
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%
0.2%
-
-
0.1%
0.7%
0.4%
0.5%
-
-
-
0.0%
0.4%
-
-
-
-0.1%
0.4%
The total consideration for the treasury shares was USD 1.4m (2019: USD 0.0m, 2018: USD
0.0m). As of 31 December 2020, the Company's holding of treasury shares represented 493,371
shares (2019: 312,871 shares, 2018: 312,871 shares) of USD 0.01 each at a total nominal value of
USD 0.0m (2019: USD 0.0m, 2018: USD 0.0m) and a market value of USD 3.7m (2019: USD 3.5m,
2018: USD 2.1m).
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
2020
2019
-
0,5
14,3
14,1
3,1
16,8
24,7
-
0,9
59,8
4,0
14,3
12,3
0,1
2,0
47,3
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 2020
CONSOLIDATED FINANCIAL STATEMENTS
133
NOTE 15 - EFFECTIVE INTEREST RATE, OUTSTANDING BORROWINGS
As of 31 December 2020, no drawdown had been made on the USD 45m Working Capital Term
Facility and USD 87.2 is undrawn on the BoComm Facility.
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)
DSF Facility 2 (USD)
DSF Facility 3 (USD)
TFA Facility 2 (USD)
ING (USD)
ABN AMRO (USD)
DSF Facility 4 (USD)
CEXIM (USD)
Term Facility
DSF Facility
HCOB Facility
HCOB Facility 2
KFW Facility
KFW Facility 2
Bocomm (USD)⁴
Springliner (USD)⁴
⁾
Eifuku (USD)⁴
Showa (USD)⁴
⁾
⁾
Weighted average effective interest rate
⁾
Carrying value
Hereof non-current ³
Hereof current ³
⁾
2020
2019
2018
Fixed/
Effective
Carrying
Effective
Carrying
Effective
Carrying
floating Maturity
interest¹
value²
Maturity
interest¹
value²
Maturity
interest¹
value²
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Fixed
Floating
Floating
-
-
-
-
-
-
-
-
2030
2026
2027
2025
2025
2032
2032
2025
2026
2026
2024
2021
2021
2021
2022
2022
2024
2024
2026
2030
-
-
-
-
-
-
2025
2026
2026
2024
⁾
-
-
-
-
-
-
-
-
3.2%
3.0%
2.9%
4.3%
3.9%
3.3%
3.3%
4.1%
4.8%
3.9%
3.3%
3.4%
⁾
-
-
-
-
-
-
-
-
96.4
299.1
150.3
81.2
33.3
22.0
22.0
57.8
36.0
24.1
23.0
845.2
742.6
102.6
⁾
4.7%
5.1%
4.7%
4.7%
5.1%
4.1%
4.2%
4.4%
4.4%
-
-
-
-
-
-
5.5%
5.5%
5.3%
5.1%
4.9%
⁾
50.0
237.3
48.2
21.8
75.2
35.5
21.1
86.5
2021
2021
2021
2022
2022
2024
-
-
⁾
5.6%
6.0%
5.6%
5.6%
5.4%
4.6%
-
-
⁾
64.1
331.3
52.4
24.3
103.7
42.0
-
-
104.0
2030
5.3%
111.7
-
-
-
-
-
-
63.9
60.3
25.7
25.2
854.7
756.0
98.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2022
8.9%
25.3
-
-
-
-
5.8%
-
-
754.8
659.4
95.4
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.
⁾
Split between current and non-current is based on terms in effect at 31 December 2019, without consideration to the refinancing taking place in 2020.
Financial lease.
⁾
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
134
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
1,711m as of 31 December 2020 (2019: USD 1,675m), 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 (2019: USD 0.1m) and relate to
guarantee commitments to Danish Shipping Finance.
In 2020 the Group was involved in two cargo claims please refer to note 26 for further
information.
The Group is involved in certain other 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 2020.
USDm
Borrowings ¹
Interest payments related to scheduled interest fixing
⁾
Estimated variable interest payments ²
Newbuilding installments ³
⁾
Committed scrubber installations
⁾
Trade payables and other obligations
Total
2021
101.8
32.3
0.2
62.5
4.9 -
42.7 -
2022
101.9
25.3
0.4
38.1 -
-
-
2023
102.1
21.1
0.6
2024
114.4
17.6
0.9
2025
Thereafter
106.9
12.4
1.4
315.3
12.4
6.1
-
-
-
-
-
-
-
-
-
Total
842.4
121.1
9.6
100.6
4.9
42.7
244.4
165.7
123.8
132.9
120.7
333.8
1,121.3
¹
²
³
The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 10.9m (2019: USD 8.0m), which are amortized over the term of the loans. Borrowing costs capitalized during the year amount
to USD 7.5m (2019: USD 5.8m).
⁾
Variable interest payments are estimated based on the forward rates for each interest period including hedging instruments.
As of 31 December 2020, TORM had two contracted newbuildings to be delivered during 2021 -2022; (2019: four) ; 3 delivered during 2020 and 1 to be delivered during 2021. Commitments regarding newbuilding installments are in excess of
⁾
the prepayments included in note 6.
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
135
NOTE 18 – continued
The following table summarizes the Group's contractual obligations as of 31 December 2019.
USDm
Borrowings
Interest payments related to scheduled interest fixing
Estimated variable interest payments
Newbuilding installments
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
8,0
3,5
-
-
-
202,2
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
1.154,2
The following table summarizes the reconciliation of liabilities arising from financing activities:
USDm
Borrowings
Total
Cash
Non-cash
Non-cash
Opening
balance as of
1 January
End balance
as of 31
Changes in
Other
December
2020
Borrowings Repayments
fair value
changes¹
855.4
855.4
734.3
734.3
-746.5
-746.5
-
-
-0.8
⁾
-0.8
2020
842.4
842.4
¹
²
Primarily due to implementation of IFRS 16.
The contractual obligations relating to lease liabilities arising from land and buildings and other plant and operating equipment amount to USD 8.3m (2019: USD 8.7m) and the contractual value of lease liabilities relating to vessels and
⁾
capitalized dry-dockings amount to USD 0.0m (2019: USD 21.9m). For further detail please refer to note 7.
⁾
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 2020
USDm
Contractual rights - as lessor:
Charter hire income for vessels ⁵
Total
⁾
2021
2022
2023
2024
2025
Thereafter
Total
29.8
29.8
2.3
2.3
-
-
-
-
-
-
-
-
32.1
32.1
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 2020 is 1.0 year (2019: 1.0year).
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
136
NOTE 19 – DERIVATIVE FINANCIAL INSTRUMENTS
NOTE 19 – continued
Please refer to note 21 “Financial Instruments” for further information on fair value hierarchies.
2020
2019
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.
-3.2
4.5
-0.3
0.0
TORM held at year end 2020 and 2019 the following derivative financial instruments designated
as hedge accounting:
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
2.0
-0.4
-23.5
-11.1
-20.2
-11.8
Derivative financial instruments are presented as below on the balance sheet:
USDm
2020
Offsetting financial assets and financial liabilities:
Gross amount
Offsetting amount
Net amount presented in the statement of financial position
USDm
2019
Offsetting financial assets and financial liabilities:
Gross amount
Offsetting amount
Net amount presented in the statement of financial position
Financial
Financial
assets
liabilities
9.9
-30.1
-5.4
5.4
4.5
-24.7
Financial
Financial
assets
liabilities
0.7
-12.5
-0.2
0.2
0.5
-12.3
Hedge accounting
Expected maturity
2020
value
Unit
2021
2022
Notional
After
2022
Forward exchange contracts
(USD/DKK) ¹
Interest rate swaps ²
⁾
Bunker swaps ³
⁾
231.5
DKKm
231.5
-
-
757.5
USDm
318.0
84.0
355.5
19,783
MT
19,783
-
-
⁾
¹
²
²
The average hedge of USD/DKK currency was 6,4.
The average interest rate was 2.11% plus margin.
⁾
The average price of the hedging instruments was USD 326.9.
⁾
⁾
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
MT
4,725
-
-
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
⁾
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
137
NOTE 19 - continued
Interest rate swaps with a fair value of USD 23.5m (net loss) are designated as hedge
accounting relationships to fix a part of TORM's interest payments during the period 2021-2026
with a notional value of USD 757.5m (2019: USD 597.8m, 2018: USD 512.8m).
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 43.8m (2019: USD 13.0m) 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 1.9m (net gain) have been recognized in the income
statement in 2020 (2019: USD 0.4m, 2018: USD -2.1m). FFAs are used to mitigate fluctuations in
the freight rates of vessels with a duration of 0–24 months. The FFAs are not designated for
hedge accounting.
Bunker swap agreements of USD 2.9m (net gain) have been recognized in the income
statement in 2020 (2019: USD -0.1m, 2018: USD 1.1m). 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 2.0m (net gain) 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 231.5m (2019: DKK
222.5m, 2018: DKK 250.0m).
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
138
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 2020, 2019 and 2018.
USDm
2020
Forward freight agreements
Bunker swaps
Forward exchange contracts
Interest rate swaps
Total
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
Other
comprehensive
Income statement
income
Equity
Port
expenses,
Adjustment
Hedging
bunkers and
Financial
Operating
Administrativ
to hedging
reserves as of
Revenue
commissions
items
expenses
e expenses
reserve
31 December
1.9
2.9
1.9
2.9
0.4
-
-
-
0.4
-2.1
-
-
-
-2.1
-
-0.1
-
-
-0.1
-
1.1
-
-
1.1
-5.7
-5.7
-
-
-
2.1
2.1
-
-
-
1.0
1.0
-0.1
-0.1
-
-
-2.0
-
-2.0
-
-
0.1
-
0.1
0.1
0.1
-
-
-1.5
-
-1.5
-
-
0.2
-
0.2
-
1.1
2.4
-12.4
-8.9
-0.5
0.9
1.4
-13.8
-12.0
0.9
-2.0
-3.7
-2.3
-7.1
-
0.8
2.0
-23.5
-20.7
-
-0.3
-0.4
-11.1
-11.8
0.5
-1.2
-1.8
2.8
0.3
Fair value adjustments on hedging instruments added to the hedging reserves for interest rate swaps, are for 2020 USD -18.1, for 2019 -11.7m and for 2018 USD -1.3m.
The hedging reserves as of 31 December of the derivatives used for cash flow hedge is equal to the entire fair value of the hedge instruments as no ineffectiveness has been identified and the
¹
²
⁾
reserve includes open hedge instruments, only.
⁾
Please refer to note 20 for further information on commercial and financial risks.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
139
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 2020, 14.4% (2019: 9.5%; 2018: 13.1%) of earning days equal to 26.216 deriving from the
Company’s tankers was hedged in this way. Physical time charter contracts accounted for 41.9%
(2019: 59.3%; 2018: 62.8%) of overall hedging. In 2020, the Company sold FFAs with a notional
contract value of USD 165m (2019: USD 34.9m; 2018: USD 39.6m) and bought FFAs with a
notional contract value of USD 52.7 m (2019: USD 22.5m; 2018: USD 18.8m). The total notional
contract volume sold in 2020 was 8,799,000 metric tons (2019: 1,585,190 metric tons; 2018:
2,683,000 metric tons), and the total notional volume bought was 2,714,000 metric tons (2019:
1,295,000 metric tons; 2018: 1,447,000 metric tons). At the end of 2020, the coverage of
available earning days for 2021 was 28.1% through time charters, current spot voyages, cargo
contracts and FFAs (2019: 8.6%; 2018: 9.9%). No FFA had maturity beyond 2021.
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
2021
2020
2019
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
-18.8
-18.8
-25.4
-25.4
-25.3
-25.3
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 2020, the
carrying value of the fleet was USD 1,722.5m (2019: 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 1,475.8m as of 31 December 2020 (2019: USD 1,632.6m; 2018: USD 1,322.1m).
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
140
NOTE 20 - continued
NOTE 20 - continued
Bunker price fluctuations
The cost of fuel oil consumed by the vessels, known in the industry as bunkers, accounted for
52.5% (2019: 61.1%; 2018: 60.8%) of the total voyage costs in 2020 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 2020, 14.6% (2019: 6.5%; 2018: 4.8%) of TORM’s bunker purchase was hedged through bunker
hedging contracts. At the end of 2020, TORM had covered 15.6% equal to 88,339 metric tons
(2019: 2.6%; 2018: 2.0%) of its bunker requirements for 2021 using hedging instruments at an
average price of USD 388. No bunker derivatives had maturity beyond 2021. Total bunker
exposure is estimated to be approximately 565,882 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
2021
2020
2019
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
-22.0
-22.0
-19.8
-19.8
-20.7
-20.7
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 2020, the aggregate
insured value of hull and machinery and interest for TORM’s owned vessels amounted to USD
1.9bn (2019: USD 1.8bn; 2018: USD 1.5bn).
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 2020
CONSOLIDATED FINANCIAL STATEMENTS
141
NOTE 20 - continued
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.
The part of the Company’s expenses that is denominated in currencies other than USD accounts
for approximately 80.9% (2019: 83.2%; 2018: 81.2%) for administrative expenses and
approximately 23.8% (2019: 20.1%; 2018: 23.4%) for operating expenses. TORM’s expected
administrative and operating expenses in DKK and EUR for 2021 are approximately DKK 393.5m,
whereof 66.1% (2019: 63.0%; 2018: 64.1%) are hedged through FX forward contracts. All FX
forward contracts have maturity within 2021, and TORM’s average hedge USD/DKK currency
rate is 6.36. 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
2021
2020
2019
Effect of a 10% increase of DKK and EUR:
Changes in profit before tax
Changes in equity
-2.2
-2.2
-2.0
-2.0
-2.1
-2.1
A major part of the Company’s freight revenues stems from a small group of customers. In
2020, one customer accounted for 11% of the Company’s freight revenues (2019: one accounted
for more than 10%; 2018: one customer accounted for 17%). 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.
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 96.9% (2019: 98.7%; 2018: 98.1%),
which is considered to be satisfactory given the differences in interpretation of events. In 2020,
demurrage represented 17.3% (2019: 13.1%; 2018: 13.3%) 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 2020, 100.0% (2019: 100.0%; 2018: 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 2020
CONSOLIDATED FINANCIAL STATEMENTS
142
NOTE 20 - continued
NOTE 20 - continued
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
2020, TORM’s loan portfolio was spread across eleven different banks.
As of 31 December 2020, TORM maintains a liquidity reserve of USD 136m in cash and cash
equivalents including restricted cash combined with USD 132m in undrawn and committed
credit facilities. Cash is only placed in banks with a high credit rating.
For further information on contractual obligations, including a maturity analysis, please refer to
Note 18.
Interest rate risk
TORM’s interest rate risk generally relates to interest-bearing borrowings. All the Company’s
loans for financing vessels are denominated in USD. Please refer to Note 15 for additional
information on borrowings. At the end of 2020, TORM has fixed 67.6% (2019: 61.6%; 2018:
70.3%) of the debt with interest rate swaps and fixed rate leasing corresponding to an amount
of USD 571m. USD 537m of this amount is hedged at an interest rate of 2.11% plus margin with
interest rate swaps with maturity in the period 2021-2026.
Most of TORM’s debt and interest hedging is based on USD LIBOR which was set to expire by
the end of 2021, however, currently a proposal is under consultation that would postpone the
cessation of some USD LIBOR settings to 30 June 2023.
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.
Most of TORM’s debt and interest hedging is based on USD LIBOR which was set to expire by
the end of 2021, however, currently a proposal is under consultation that would postpone the
cessation of some USD LIBOR settings to 30 June 2023.
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
2021
2020
2019
Effect of a 1%-point increase in interest rates:
Changes in profit/loss before tax for the following
-3.7
year
-3.0
-2.4
Changes in equity for the following year
11.3
7.9
8.0
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
143
NOTE 21 – FINANCIAL INSTRUMENTS
Categories of financial assets and liabilities (USDm):
2020:
Financial assets
Loan receivables
Freight receivables
Other receivables
Cash and cash equivalents, including restricted cash
Total
Financial liabilities
Borrowings
Trade payables
Other liabilities
Total
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
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.
⁾
⁾
Financial
Financial
instruments
Observable
instruments
measured at
input
measured at
amortized
Total carrying
(level 2)
fair value
cost
value
-
-
4.5
-
4.5
-
-
24.7
24.7
-
0.5
-
0.5
-
-
12.3
12.3
-
-
4.5
-
4.5
-
-
24.7
24.7
-
-
0.5
-
0.5
-
-
12.3
12.3
4.6
58.6
20.4
135.6
219.2
4.6
58.6
24.9
135.6
223.7
842.4
842.4
14.4
35.1
891.9
4.6
89.8
5.7
72.5
172.6
855.4
47.1
35.0
14.4
59.8
916.6
4.6
89.8
6.2
72.5
173.1
855.4
47.1
47.3
937.5
949.8
⁾
¹
¹
⁾
⁾
¹
⁾
¹
²
¹
⁾
¹
⁾
⁾
¹
¹
⁾
⁾
¹
⁾
⁾
¹
²
¹
⁾
¹
⁾
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
144
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 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)
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 23 – ASSETS HELD FOR SALE AND NON-CURRENT ASSETS SOLD
DURING THE YEAR
During 2020, TORM sold eight vessels all of which were delivered to the new owners during the
year. The sales resulted in a profit from sale of vessels of USD 1.1m and impairment losses on
tangible assets of USD 5.5m. No assets were held for sale as at 31 December 2020.
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.
NOTE 22 – RELATED PARTY TRANSACTIONS
NOTE 24 – CASH FLOWS
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.
USDm
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.
Reversal of other non-cash movements:
Exchange rate adjustments
Share-based payments
Other adjustments
The remuneration of key management personnel, which consists of the Board of Directors and
the Executive Director, is disclosed in note 3.
Total
USDm
During 2020, TORM did transactions with its joint venture producing scrubbers for the TORM
fleet amounting to USD 11.7m in total (2019: 26.1m). The joint venture will continue to assist
TORM in installing scrubbers in 2021.
Change in bunkers, receivables and payables:
Change in bunkers
Change in receivables
Change in prepayments
Change in trade payables and other liabilities
Other changes
2020
2019
2018
-0.2
-0.9
1.7
-0.4
1.9
-0.1
-
2.0
-
1.1
0.9
2.0
2020
2019
2018
12.4
5.1
-6.2
12.5
-2.5
-10.4
1.3
-0.7
-20.3
22.8
1.5
11.7
18.9
-0.8
-2.2
Adjusted for fair value changes of derivative financial instruments
-8.9
-12.0
-7.1
Total
15.9
11.9
-12.7
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
145
NOTE 25 – ENTITIES IN THE GROUP
Entity
TORM plc
Country
United Kingdom
Investments in subsidiaries ⁶
:
Entity
TORM A/S
⁾
DK Vessel HoldCo GP ApS
DK Vessel HoldCo K/S
OCM (Gibraltar) Njord Midco Ltd ²
OCM Njord Chartering Inc ²
⁾
OCM Singapore Njord Holdings Alice, Pte. Ltd
⁾
OCM Singapore Njord Holdings Almena, Pte. Ltd
OCM Singapore Njord Holdings Hardrada, Pte. Ltd
OCM Singapore Njord Holdings St.Michaelis Pte. Ltd
OCM Singapore Njord Holdings St. Gabriel Pte. Ltd
OCM Singapore Njord Holdings Agnete, Pte. Ltd
OCM Singapore Njord Holdings Alexandra, Pte. Ltd
OCM Holdings Mrs Inc. ²
OCM Njord Anne Inc. ²
⁾
OCM Njord Freya Inc. ²
⁾
OCM Njord Gerd Inc. ²
⁾
OCM Njord Gertrud Inc. ²
⁾
OCM Njord Gunhild Inc. ²
⁾
OCM Njord Helene Inc. ²
OCM Njord Helvig Inc. ²
⁾
⁾
OCM Njord Ingeborg Inc. ²
⁾
OCM Njord Mary Inc. ²
⁾
OCM Njord Ragnhild Inc. ²
⁾
⁾
Country
Denmark
Denmark
Denmark
Gibraltar
Marshall Islands
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Marshall Islands
Ownership ⁵
100%
⁾
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Investments in subsidiaries ⁶
- continued:
Entity
⁾
OCM Njord Thyra Inc.²
OCM Njord Valborg Inc. ²
⁾
OCM Njord Vita Inc. ²
OMI Holding Ltd.
⁾
⁾
TORM Crewing Service Ltd.
TORM Shipping India Private Limited ⁴
TORM Singapore Pte. Ltd.
⁾
TORM USA LLC
VesselCo 1 K/S ³
VesselCo 3 K/S ³
VesselCo 5 K/S ³
VesselCo 6 K/S ¹
⁾
⁾
³
⁾
VesselCo 6 Pte. Ltd.
⁾
⁾
VesselCo 7 Pte. Ltd. ³
VesselCo 8 Pte. Ltd.
⁾
VesselCo 9 Pte. Ltd.
VesselCo 10 Pte. Ltd.
VesselCo 11 Pte. Ltd.
TORM SHIPPING (PHILS.), INC.
VesselCo A ApS ³
VesselCo C ApS ³
⁾
VesselCo E ApS ³
VesselCo F ApS ¹
⁾
,³
⁾
Country
Ownership ⁵
Marshall Islands
Marshall Islands
Marshall Islands
Mauritius
Bermuda
India
Singapore
USA
Denmark
Denmark
Denmark
Denmark
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Philippines
Denmark
Denmark
Denmark
Denmark
100%
⁾
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
25%
100%
100%
100%
100%
¹
²
³
⁴
⁵
⁶
⁾
⁾
Entities added in the financial year ended 31 December 2018.
Entities dissolved in the financial year ended 31 December 2018.
⁾
Entities dissolved in the financial year ended 31 December 2020.
⁾
Entities with different reporting periods: TORM Shipping India have a Financial reporting period that runs from 1.April
⁾
to 31. March as required by Indian laws and legislations
⁾
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.
⁾
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
146
NOTE 25 - continued
NOTE 25 - continued
The table below shows the registered addresses for the companies mentioned above:
Denmark
India
Tuborg Havnevej 18
2nd Floor
Philippines
7th Floor
6 Battery Road #27-02
Singapore
Interest in legal entities included as joint ventures:
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
Entity (USDm)
Country
% Control
operations
Long Range 2 A/S
Denmark
LR2 Management K/S Denmark
50%
50%
-
-
continuing
Birchin Court
Suite 710
c/o The Trust
c/o Temple Corporate
Marine Exhaust
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
Technology Ltd.
Hong Kong
28%
2.1
For registered addresses, please refer to the table above.
USA
Mauritius
NOTE 26 - PROVISIONS
2020
Profit and
Other
Total
loss from
compre-
compre-
hensive
income
hensive
income
-
-
-
-
-
2.1
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
In 2020 the Group was involved in two cargo claims, both relating to one customer having
issued indemnities to TORM for safe discharge of cargoes, and not being able to honor those
indemnity obligations. Both cases involved irregular activities by the customer in relation to the
handling of bills of lading. Legal action has been initiated by the Group in the UK and in India
against the customer and a number of individual owners and management representatives. The
Group has recognized provisions in the total amount of USD 18.3m relating to the two claims.
The proceedings are ongoing and therefore the provisions recognized are subject to uncertainty
related to both timing and amount.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
147
NOTE 27 – EARNINGS PER SHARE AND DIVIDEND PER SHARE
NOTE 28 – CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED CASH
EARNINGS PER SHARE
Cash at banks and on hand
Net profit/(loss) for the year (USDm)
88.1
166.0
-34.8
Cash and cash equivalents
2020
2019
2018
2020
2019
2018
89.5
56.9
123.9
89.5
56.9
123.9
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.
74.8
-0.5
74.3
-
74.3
-0.3
74.0
0.0
73.4
-0.3
73.1
-
Cash provided as security for initial margin calls and negative
market values on derivatives etc.
Restricted cash
46.1
15.6
3.5
46.1
15.6
3.5
Cash and cash equivalents, including restricted cash
135.6
72.5
127.4
The counterparties have an obligation to return any excess cash provided as security to the
Group upon settlement or early termination of the contracts.
dilutive effect of share options
74.3
74.0
73.1
Basic earnings/(loss) per share (USD)
1.19
2.24
-0.48
Diluted earnings/(loss) per share (USD)
1.19
2.24
-0.48
When calculating diluted earnings per share for 2020 and 2018, RSUs have been omitted as they
are out-of-the-money and thus not 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)
63.2
7.4
-
Number of shares, end of period (million)
Dividend per share
74.9
0.85
74.7
0.10
74.2
-
2020
2019
2018
The Board of Directors has decided not to recommend any dividends relating to the second half
of 2020.
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
148
PARENT COMPANY 2020
TORM ANNUAL REPORT 2020
CONSOLIDATED FINANCIAL STATEMENTS
149
COMPANY BALANCE SHEET
AS OF 31 DECEMBER
Note
2020
2019
USD '000
Note
2020
2019
USD '000
ASSETS
NON-CURRENT ASSETS
Tangible fixed assets
Vessels
Land and buildings
Other plant and operating equipment
Total tangible fixed assets
Financial assets
Investments in subsidiaries
Loan receivables
Total financial assets
Total non-current assets
CURRENT ASSETS
Loans to subsidiaries
Other receivables
Prepayments
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
EQUITY
Common shares
Treasury shares
Hedging reserves
Share premium
5
-
24,644
72
7
-
35
79
24,679
Retained profit/(loss)
6 1,031,005 1,061,559
7
4,617
4,617
LIABILITIES
Total equity
1,035,622 1,066,176
NON-CURRENT LIABILITIES
Borrowings
1,035,701 1,090,855
Total non-current liabilities
552,939
242,221
207
254
215
370
625,809
313,407
CURRENT LIABILITIES
Borrowings
Trade payables
Payables to subsidiaries
Other liabilities
Total current liabilities
1,661,510 1,404,262
Total liabilities
Cash and cash equivalents, including restricted cash
72,409
70,601
Note: The profit/(loss) for the financial year dealt with in the financial statements of the
Company is USD -15,516k (2019: USD 275,725k).
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
1,661,510 1,404,262
Mr. Jacob Meldgaard
Executive Director
1 March 2021
TORM ANNUAL REPORT 2020
Parent company financial statement 2020
PARENT COMPANY FINANCIAL STATEMENT 2020
150
748
747
-4,235
-2,887
-21,489
-10,902
12,307
911,552
2 1,038,097
222,543
1,025,428
1,121,053
3 479,709
235,839
479,709
235,839
3
78,337
23,230
203
250
54,440
12,234
8
23,393
11,656
156,373
47,370
636,082
283,209
COMPANY STATEMENT OF CHANGES IN EQUITY
USD '000
EQUITY
Common
Treasury
Hedging
Share
Retained
shares
shares
reserves
premium
profit
Total
Equity as of 1 January 2019
742
-2,887
-2,677
907,355
-55,095
847,438
Comprehensive income 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
Share-based compensation
Total changes in equity 2019
Equity as of 31 December 2019
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
Capital decrease
Transaction costs capital decrease
Share-based compensation
Acquisition treasury shares, cost
Dividend paid
Total changes in equity 2020
Equity as of 31 December 2020
0
-
-
-
5
-
5
-
-
-
-
-
-
-
-8,225
-8,225
-
-
-
-
-
-
4,197
-
4,197
275,725
275,725
-
-8,225
275,725
267,500
-
1,913
1,913
4,202
1,913
6,115
747
-2,887
-10,902
911,552
222,543
1,121,053
-
-
-
1
-
-
-
-
-
1
-
-
-
-
-
-
-
-1,348
-
-1,348
-
-10,587
-10,587
-
-
-
-15,516
-
-15,516
-15,516
-10,587
-26,103
788
-
-32
1,681
-1,348
-
-
-
-
-
-
-
787
-
-900,000
900,000
-32
-
-
-
-
1,681
-
-70,611
-70,611
-899,245
831,070
-69,522
748
-4,235
-21,489
12,307
1,038,097
1,025,428
TORM ANNUAL REPORT 2020
PARENT COMPANY FINANCIAL STATEMENT 2020
151
NOTES TO PARENT
COMPANY FINANCIAL STATEMENTS
Note 1 – Accounting policies – Supplementary for the Parent Company
Note 2 – Profit/loss and total comprehensive income for the year
Note 3 – 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
153
154
154
154
154
154
155
155
155
156
156
156
TORM ANNUAL REPORT 2020
PARENT COMPANY FINANCIAL STATEMENT 2020
152
NOTE 1 – ACCOUNTING POLICIES – SUPPLEMENTARY FOR
THE PARENT COMPANY
NOTE 1 - continued
BASIS OF PREPARATION
TORM plc is a public company limited by shares and is incorporated in England and Wales. Its
registered number is 09818726 and its registered address is Birchin Court, 20 Birchin Lane,
London, EC3V 9DU. 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 United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law), including
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 following exemptions available under FRS 101 have been applied:
• Paragraphs 45(b) and 46 to 52 of IFRS 2, “Shared-based payment” (details of the number
and weighted-average exercise prices of share options, and how the fair value of goods or
services received was determined);
IFRS 7 “Financial Instruments: Disclosures”;
•
• Paragraph 91 to 99 of IFRS 13, “Fair value measurement” (disclosure of valuation techniques
and inputs used for fair value measurement of assets and liabilities);
• Paragraph 38 of IAS 1 “Presentation of financial statements” comparative information
requirements in respect of paragraph 79(a)(iv) of IAS 1;
• The following paragraphs of IAS 1 “Presentation of financial statements”
10(d) (statement of cash flows);
16 (statement of compliance with all IFRS);
•
•
• 38A (requirement for minimum of two primary statements, including cash flow
statements);
111 (cash flow statement information); ; and
134-136 (capital management disclosures).
•
•
IAS 7 “Statement of cash flows”;
•
• Paragraph 30 and 31 of IAS 8 “Accounting policies, changes in accounting estimates and
errors” (requirement for the disclosure of information when an entity has not applied a new
IFRS that has been issued but is not yet effective);
• Paragraph 17 and 18A of IAS 24 “Related Party Disclosures” (Key management personnel
compensation)
• The requirements in IAS 36 “Impairment of Assets” (disclosure of valuation technique and
assumptions used in determining recoverable amount)
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 112.
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 123-124.
ACCOUNTING POLICIES
In supplement to the accounting policies provided in note 1 of the Group consolidated financial
statements on pages 112-121, 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”.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In supplement to the critical accounting estimates and judgements provided in note 1 of the
Group consolidated financial statements pages 120-121, 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 Group’s cash-
generating unit, 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.
TORM ANNUAL REPORT 2020
PARENT COMPANY FINANCIAL STATEMENT 2020
153
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.
NOTE 3 – BORROWINGS
As of 31 December 2020, the Company had borrowed USD 563.8m (2019: USD 240.1m, 2018:
USD 170.0m). The loan proceeds was USD 5.9m lower (2019: USD 3.0m, 2018: USD 3.6m) due to
borrowing fees. The fees are amortized over the loan periods. In 2020, the Company had
interest expenses of USD 16.5m (2019: USD 9.4m, 2018: USD 8.5m) regarding these loan facilities.
As of 31 December 2020, the Company had finance lease liabilities of USD 0.1m (2019: USD
21.9m, 2018: USD 25.3m). In 2020, the Company had interest expenses of USD 1.1m (2019: USD
2.0m, 2018: USD 2.3m) regarding financial leases.
NOTE 4 – STAFF COSTS
USD'000
Total staff costs
2020
2019
Staff costs included in administrative expenses
Total staff costs
Average number of permanent employees
1,348
1,348
1
Employee information
The average number of employees is calculated as a full-time equivalent (FTE).
1,338
1,338
USD '000
Vessels
Cost:
Balance as of 1 January
Disposals
Balance as of 31 December
Depreciation:
Balance as of 1 January
Disposals
Depreciations for the year
Balance as of 31 December
Carrying amount as of 31 December
Of which right-of-use assets
NOTE 6 – FINANCIAL ASSETS
2020
2019
30,500
30,500
-30,500
-
-
30,500
5,856
4,088
-6,973
-
1,117
1,768
-
-
-
5,856
24,644
24,644
USD'000
2020
2019
1
Investments in subsidiaries
Cost:
Balance as of 1 January
Additions
Disposals
Capital decreases in subsidiaries
Capital increases related to share-based payments
1,205,059 1,292,080
-
-
-
-
-33,635
-88,934
1,681
1,913
Balance as of 31 December
1,173,105 1,205,059
Impairment:
Balance as of 1 January
Impairment (reversal)/losses for the year
Balance as of 31 December
143,500
415,800
-1,400
-272,300
142,100
143,500
Carrying amount as of 31 December
1,031,005 1,061,559
TORM ANNUAL REPORT 2020
PARENT COMPANY FINANCIAL STATEMENT 2020
154
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
Expected credit loss:
Balance as of 1 January
Additions during the year
Balance as of 31 December
2020
2019
As of 31 December 2020, 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
-
-
4,711.2
4,711.2
4,711.2
94.2
-
94.2
-
94.2
94.2
As of 31 December 2020, 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 impairment charge of USD 1.4m
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.
Carrying amount as of 31 December
4,617.0
4,617.0
NOTE 8 – OTHER LIABILITIES
USD '000
Derivative financial instruments
Other
Balance as of 31 December
2020
2019
21,489
10,902
1,904
754
23,393
11,656
TORM ANNUAL REPORT 2020
PARENT COMPANY FINANCIAL STATEMENT 2020
155
NOTE 10 – COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS
NOTE 12 – RELATED PARTY TRANSACTIONS
The vessels owned by subsidiaries of the company that have been provided as security for the
Company’s debt amounting to USD 563,821k as of 31 December 2020 (2019: USD 238,743k).
The Company's ultimate controlling party is Oaktree Capital Group, LLC, a limited liability
company incorporated in the USA. The immediate controlling shareholder is Njord Luxco.
Shareholders' contribution, dividend paid and treasury statement of changes in equity.
NOTE 11 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
The Company has received dividends from subsidiaries amounting to USD 0.1m (2019: USD
7.6m, 2018: USD 12.1m).
The Company is guarantor for loan agreements established in the subsidiaries TORM A/S and
VesselCo 9 Pte. Ltd.
The Company has income in the form of interests from its subsidiaries of USD 16.2m (2019: USD
8.8m, 2018: USD 2.6m), relating to loans to subsidiaries.
As part of sale and leaseback transactions made by a subsidiary, 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 24.9m.
The Company has income in form of bareboat hire from its subsidiary TORM A/S of USD 70.3m
(2019: USD 53.0m, 2018: USD 48.7m).
The Company has paid bareboat hire to its subsidiaries in the amount of USD 66.2m (2019: USD
47,2m, 2018: USD 43.0m).
There have been no or limited transactions with related parties during the financial year other
than the transactions disclosed above.
TORM ANNUAL REPORT 2020
PARENT COMPANY FINANCIAL STATEMENT 2020
156
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
•
•
TORM plc’s group financial statements and parent
company financial statements (the “financial
statements”) give a true and fair view of the state of
the group’s and of the parent company’s affairs as at 31
December 2020 and of the group’s profit for the year
then ended;
the group financial statements have been properly
prepared in accordance with International Accounting
Standards in conformity with the requirements of the
Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to Regulation
(EC) No. 1606/2002 as it applies in the European
Union; the parent company financial statements have
been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
We have audited the financial statements of TORM plc (the ‘parent company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2020 which comprise:
GROUP
PARENT COMPANY
Consolidated balance sheet as at 31 December 2020
Balance sheet as at 31 December 2020
Consolidated income statement for the year then ended
Statement of changes in equity for the year then ended
Consolidated statement of comprehensive income for the
Related notes 1 to 12 to the financial statements including a
year then ended
summary of significant accounting policies
Consolidated statement of changes in equity for the year
then ended
Consolidated cash flow statement for the year then ended
Related notes 1 to 28 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in
the preparation of the Group financial statements is
applicable law and International Accounting Standards in
conformity with the requirements of the Companies Act 2006
and International Financial Reporting Standards adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in
the European Union. The financial reporting framework that
has been applied in the preparation of the parent company
financial statements is applicable law and United Kingdom
Accounting Standards, including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally Accepted
Accounting Practice).
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit of the
financial statements section of our report. We are
independent of the Group and 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 believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our
evaluation of the directors’ assessment of the Group and
parent company’s ability to continue to adopt the going
concern basis of accounting included carrying out the
following procedures:
• We confirmed our understanding of management’s
going concern assessment process and also engaged
with management early to ensure key factors were
considered in their assessment, including the evaluation
TORM ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT
157
Independent Auditor’s report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - continued
of any operational and economic impacts of COVID-19
on the Group;
• We obtained management’s board approved forecast
cash flows and covenant calculations covering the
period of assessment from the date of signing to 31
March 2022. As part of this assessment, the Group has
modelled a low case and stress case adverse scenario in
their cash forecasts and covenant calculations in order
to incorporate unexpected changes to the forecasted
liquidity of the Group;
• We assessed the reasonableness of the cashflow
forecast by analysing management’s historical
forecasting accuracy and understanding how the
anticipated impact of COVID-19 has been modelled. We
evaluated the key assumptions underpinning the Group’s
assessment by challenging the appropriateness of the
downside scenarios modelled by management and how
these compare with principal risks and uncertainties of
the Group;
• We tested the clerical accuracy and logical integrity of
the model used to prepare the Group’s going concern
assessment;
• We considered whether the Group’s forecasts in the
going concern assessment were consistent with other
forecasts used by the Group in its accounting estimates,
including impairment testing of the carrying value of
vessels;
• Our analysis also considered the mitigating actions that
management could undertake in an extreme downside
scenario and whether these were achievable and in
control of management considering timing and quantum;
• We also confirmed the continued availability of debt
facilities through the going concern period, and reviewed
their underlying terms, including covenants, by
examination of executed documentation.
We considered whether management’s disclosures in the
financial statements sufficiently and appropriately reflect the
going concern assessment and outcomes. Despite COVID-19
the Group performed strongly in 2020 and is forecast to
continue to be profitable and generate positive cashflows in
the going concern period. Under both its low case and stress
case scenarios the Group is forecast to maintain adequate
liquidity and it is only in the stress scenario that headroom on
the covenants becomes limited. However, in that unlikely
stress scenario management consider the impact can be
mitigated by cash and cost saving measures which are within
their control during the going concern period.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group and parent company’s ability to continue as a going
concern for the period to 31 March 2022.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events
or conditions can be predicted, this statement is not a
guarantee as to the Group’s ability to continue as a going
concern.
OVERVIEW OF OUR AUDIT APPROACH
Audit scope
• We performed an audit of the complete
financial information of the Group.
Key audit matter • Carrying value of vessels
Materiality
• Overall Group materiality of $10m which
represents 0.5% of Group total assets.
AN OVERVIEW OF THE SCOPE OF THE PARENT
COMPANY AND GROUP AUDITS
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope for each company within the Group. Taken together,
this enables us to form an opinion on the consolidated
financial statements. We take into account size, risk profile,
the organisation of the Group and effectiveness of group-
wide controls, changes in the business environment and other
factors when assessing the level of work to be performed for
the Group.
In establishing our overall approach to the Group audit, we
considered that all significant elements of the Group’s finance
and accounting function are situated and managed centrally
in Copenhagen, Demark, and operate under one common
internal control environment; and all operations of the Group
are also managed from this location together with the UK
headquarters. All audit work performed for the purposes of
the audit was undertaken by the Group audit team, as an
integrated audit engagement team, consisting of team
members located in Denmark and the UK. As an integrated
team all audit work was performed in a shared electronic
workspace. The audit plan was developed jointly and both
teams were involved in the execution of the plan and in the
consideration of areas of significant judgement and
estimation.
During the course of the audit, the UK senior members,
including the Senior Statutory Auditor, supervised the
members of the audit team who are based in Copenhagen,
Denmark. As a result of UK lockdown, travel restrictions, and
government’s recommendation to work from home, the year
end audit procedures performed by UK audit team members
were completed remotely. We held regular meetings with
management and the Denmark based audit team via video
calls to direct and supervise the audit and the UK team
continued to access client documentation and document our
work in the shared electronic work file.
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 our opinion thereon,
and we do not provide a separate opinion on these matters.
TORM ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT
158
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - continued
Risk
Our response to the risk
Carrying value of vessels (Group)
Refer to the Audit Committee Report (page 69);
Accounting policies (page 117,118 and 120); and Note
8 of the Consolidated Financial Statements (page
129)
The carrying value of the Group’s vessels carried as
at 31 December 2020 totalled $1,734.5m (2019:
$1,769.8m).
The carrying values of vessels are reviewed
quarterly by management for indicators of
impairment. If impairment indicators exist, an
impairment test is carried out where the future
discounted net cash flow deriving from the cash
generating units (CGUs) must be estimated. These
estimates are based on a number of assumptions
principally future freight rates and weighted average
cost of capital (WACC).
As of 31 December 2020, Management tested the
carrying amount of its fleet for impairment within 3
CGUs, being the Main Fleet (LR2,LR1 and MR
vessels) and the 2 Handysize vessels.
There is a risk that CGUs are not correctly classified
and that the testing is not performed at the
appropriate level, which may mask impairments that
would otherwise arise.
Auditing the Group's impairment assessment was
complex due to significant judgements involved in
determining the cash-generating units (CGUs) and
the significant estimation uncertainty in forecasting
the undiscounted cashflows of the CGUs. These
significant assumptions are forward looking and
subject to future economic and market conditions.
We performed a walkthrough of the Group’s impairment process to gain an understanding of
the process and assessed the design effectiveness of the controls.
We challenged management’s CGU determination by evaluating their analysis in respect of
the smallest group of assets that generate largely independent cash inflows. This considered
management’s view of the homogenous nature and joint operation of the LR1, LR2 and MR
vessels, thereby forming a single CGU (the Main Fleet) and that the 2 Handysize vessels were
each the lowest level at which independent cash flows are identified.
We inspected evidence to support the explanations and rationale supporting the joint
operation of the LR1, LR2 and MR vessels (the Main Fleet).
We obtained management’s impairment model containing the value in use calculations and
tested the clerical accuracy of the model.
We challenged the key assumptions by comparing them with publicly available market
information, our knowledge of the Group and industry and the Group’s most recent
business plan.
We analysed the assumptions and estimates made by management in their impairment
assessment for the prior year against the actual outcomes in 2019 to assess the robustness
and accuracy of management’s forecasting process. We involved our internal valuation
specialists to independently assess the appropriateness of the discount rate (WACC) applied
to the value-in-use calculation. This included assessing management’s methodology and
preparing our own independent point estimate to check management’s rate fell within an
acceptable range.
We reviewed management’s sensitivities on the group’s value in use calculation incorporating
reasonably possible changes in key assumptions including in respect of freight rates, the
discount rate and operating costs. We have ensured the fact there is limited headroom in
value in use over carrying value has been disclosed and have checked the impact of
reasonably possible changes in key assumptions is correctly calculated and disclosed.
At the conclusion of the above procedures we stood back and considered all evidence
gathered to reassess and confirm our conclusions remained appropriate.
We assessed the appropriateness of disclosures provided in the financial statements in
accordance with IAS 36.
Key observations communicated
to the Audit Committee
Based on our audit procedures performed, we
concur with management’s conclusion on
impairment of vessels at 31 December 2020,
including:
•
That the determination of CGUs is highly
judgemental, but is supported by
management’s assessment;
•
•
•
•
No impairment recognised for the Main
Fleet, however there is no headroom
between the value in use and carrying
value and is therefore sensitive to
reasonably possible changes in key
assumptions;
Impairment loss recognised for the
Handysize vessels is appropriate;
The determined discount rate is within the
range determined by our internal valuation
specialist;
The freight rates assumed and applied have
been benchmarked to external sources and
assessed as reasonable.
We consider the disclosures in the financial
statements to be sufficient and appropriate and
in compliance with accounting standards.
TORM ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT
159
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - continued
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality in planning and
performing the audit, in evaluating the effect of identified
misstatements on the audit and in forming our audit opinion.
On the basis of our risk assessments, together with our
assessment of the Group’s overall control environment and
taking into account this is our first year audit of TORM plc, our
judgement was that performance materiality be set at 50%
(2019: 70%) of our materiality, namely $5m (2019: $7m).
material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
Materiality
The magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be expected
to influence the economic decisions of the users of the
financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $10 million
(2019: $10 million), which is 0.5% (2019: 0.5%) of the Group’s
total assets. We believe that total assets provides us with an
appropriate materiality basis given that the key users of the
Group’s financial statements are primarily focused on the
Group’s assets, primarily the vessel value. In addition, we also
considered that total assets be the most stable and consistent
benchmark in a period of significant freight rate volatility. In
2019, the predecessor auditor set Group materiality using the
same basis.
We determined materiality for the parent company to be $8.2
million (2019: $10 million), which is 0.5% (2019: 0.7%) of total
assets as the parent entity principally holds investments in
subsidiary entities and does not trade.
During the course of our audit, we reassessed initial materiality
and no change has been made to the materiality level
reflecting the insignificant movement in the carrying value of
vessels between the time we set initial materiality and 31
December 2020.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds
materiality.
Reporting threshold
An amount below which identified misstatements are
considered as being clearly trivial.
We agreed with the Audit Committee that we would report to
them all uncorrected audit differences in excess of $0.5m
(2019: $0.5m), which is set at 5% of materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in
light of other relevant qualitative considerations in forming our
opinion.
•
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE
COMPANIES ACT 2006
In our opinion, the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
•
the information given in the strategic report and the
directors’ report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
the strategic report and directors’ report have been
prepared in accordance with applicable legal
requirements.
Other information
The other information comprises the information included in
the annual report other than the financial statements and our
auditor’s report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in this report, we do not express any form of
assurance conclusion thereon.
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 course of 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 themselves. If, based
on the work we have performed, we conclude that there is a
Matters on which we are required to report by
exception
In the light of the knowledge and understanding of the Group
and the parent company and its environment obtained in the
course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters
in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:
•
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 and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by
law are not made; or
•
•
• we have not received all the information and explanations
we require for our audit
TORM ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT
160
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - continued
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 102, 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 and parent company’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either
intend to liquidate the Group or the parent company or to
cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
EXPLANATION AS TO WHAT EXTENT THE AUDIT WAS
CONSIDERED CAPABLE OF DETECTING IRREGULARITIES,
INCLUDING FRAUD
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material
misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
•
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with
governance of the company and management.
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and
determined that the most significant are those related to
the reporting framework (IFRS as adopted by the EU, FRS
101, the Companies Act 2006 and Corporate Governance
Code), the Danish and UK tax legislation as well as IMO
2020 Sulphur Regulation.
• We understood how TORM plc is complying with those
frameworks by making inquiries of management and
identifying the policies and procedures regarding
compliance with law and regulations. We also identified
those members of management who have the primary
responsibilities for ensuring compliance with law and
regulations, and for reporting any known instance of non-
compliance to those charged with governance. We
corroborated our enquiries through our review of board
minutes, discussion with the Audit Committee and any
correspondence received from regulatory bodies.
• We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud
might occur by meeting with management to understand
where they considered there was susceptibility to fraud,
reviewing the Group’s risk register, enquiry with
management and the Audit Committee during the
planning and execution phases of our audit. We also
considered performance targets and their influence on
efforts made by management to manage earnings. Where
this risk was considered to be higher, we performed audit
procedures to address each identified fraud risk. These
procedures included testing manual journals and were
designed to provide reasonable assurance that the
financial statements were free from material
misstatements arising from fraud.
Based on this understanding we designed our audit
procedures to identify non-compliance with such laws
and regulations. Our procedures involved: journal entry
testing, with a focus on manual journals and journals
indicating large or unusual transactions based on our
understanding of the business; inquiries of members of
senior management, and when appropriate, those
charged with governance regarding their knowledge of
any non-compliance or potential non-compliance with
laws and regulations that could affect the financial
statements, review of board minutes and correspondence
received from regulatory bodies.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
OTHER MATTERS WE ARE REQUIRED TO ADDRESS
•
•Following the recommendation from the audit committee,
we were appointed by the company on 15 April 2020 to
audit the financial statements for the year ending 31
December 2020 and subsequent financial periods.
• The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the parent
company and we remain independent of the Group and
the parent company in conducting the audit.
• The audit opinion is consistent with the additional report to
the audit committee
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.
Lloyd Brown (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London, 1 March 2021
TORM ANNUAL REPORT 2020
INDEPENDENT AUDITOR’S REPORT
161
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2020
Vessel type
Vessel class
Vessel
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR2
LR1
LR1
LR1
LR1
LR1
LR1
LR1
LR1
LR1
MR
MR
MR
MR
MR
MR
MR
TORM GUDRUN
TORM HELLERUP
TORM HERMIA
TORM HERDIS
TORM HILDE
TORM INGEBORG
TORM MAREN
TORM MARINA
TORM MATHILDE
TORM VALBORG
TORM EMILIE
TORM ESTRID
TORM ISMINI
TORM SARA
TORM SIGNE
TORM SOFIA
TORM VENTURE
TORM ELISE
TORM ELIZABETH
TORM AGNES
TORM AGNETE
TORM ALEXANDRA
TORM ALICE
TORM ALMENA
TORM AMALIE
TORM ANABEL
TORM ANNUAL REPORT 2020
Fleet overview
DWT
99,965
114,000
114,000
114,000
114,000
99,999
109,672
109,672
109,672
99,999
74,999
74,999
74,999
72,718
72,718
72,660
73,700
75,000
75,000
49,999
49,999
49,999
49,999
49,999
49,999
49,999
Built
2000
2018
2018
2018
2018
2003
2008
2007
2008
2003
2004
2004
2004
2003
2005
2005
2007
2019
2019
2011
2010
2010
2010
2010
2011
2012
Ownership
Carrying value (USDm)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
12¹
48¹
46¹
47¹
49¹
15¹
35¹
29¹
31¹
15¹
19¹
16¹
19¹
15¹
21¹
22¹
21¹
39¹
39¹
22¹
25¹
25¹
22¹
22¹
22¹
25¹
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
162
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2020 - continued
Vessel type
Vessel class
Vessel
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
TORM ARAWA
TORM ASLAUG
TORM ASTRID
TORM ATLANTIC
TORM AUSTRALIA
TORM CARINA
TORM ERIC
TORM FREYA
TORM HARDRADA
TORM HELVIG
TORM HORIZON
TORM INDIA
TORM KANSAS
TORM LAURA
TORM LENE
TORM LILLY
TORM LOKE
TORM LOTTE
TORM LOUISE
TORM MOSELLE
TORM MALAYSIA
TORM NEW ZEALAND
TORM PLATTE
TORM RAGNHILD
TORM REPUBLICAN
TORM RESILIENCE
DWT
49,999
49,999
49,999
49,999
51,737
46,219
51,266
45,990
45,983
46,187
46,955
49,999
46,955
49,999
49,999
49,999
51,372
49,999
49,999
47,024
51,737
51,737
46,959
46,187
46,955
49,999
Built
2012
2010
2012
2010
2011
2003
2006
2003
2007
2005
2004
2010
2006
2008
2008
2009
2007
2009
2009
2003
2011
2011
2006
2005
2006
2005
Ownership
Carrying value (USDm)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
25¹
22¹
26¹
24¹
23¹
11¹
14¹
⁾
⁾
⁾
⁾
⁾
⁾
11¹
⁾
12
⁾
18¹
12¹
⁾
17
⁾
15¹
20¹
19¹
22¹
18¹
22¹
22¹
10¹
23¹
25¹
15¹
19¹
15¹
16¹
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
TORM ANNUAL REPORT 2020
FLEET OVERVIEW
163
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2020 – continued
Vessel type
Vessel class
Vessel
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
Tanker
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
MR
TORM SINGAPORE
TORM THAMES
TORM THOR
TORM THUNDER
TORM TIMOTHY
TORM TITAN
TORM TORINO
TORM TROILUS
TORM THYRA
TORM SOLUTION
TORM SOVEREIGN
TORM SUPREME
TORM STRENGTH
TORM STRONG
TORM SUBLIME
TORM SUCCESS
TORM STELLAR
TORM SPLENDID
Handysize
TORM GYDA
Handysize
TORM TEVERE
¹
Indicates vessels for which TORM believes that, as of 31 December 2020, the basic charter-free market value is lower than the vessel's carrying amount.
⁾
DWT
51,737
47,036
49,842
49,842
49,842
49,842
49,842
49,842
45,950
49,999
49,999
49,999
49,999
49,999
49,999
49,999
49,999
49,999
36,207
37,383
Built
2011
2005
2015
2015
2015
2015
2015
2015
2003
2019
2017
2017
2019
2019
2019
2019
2020
2020
2009
2005
Ownership
Carrying value (USDm)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
24¹
18¹
31¹
31¹
31¹
31¹
31¹
32¹
⁾
⁾
⁾
⁾
⁾
⁾
⁾
11¹
⁾
32
⁾
28
28
32
32
32
32
32
32
15¹
11¹
⁾
⁾
TORM ANNUAL REPORT 2020
FLEET OVERVIEW
164
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.
Bunker hedge: A forward agreement used to reduce a
company’s exposure to fluctuating bunker costs.
Bunkers: Fuel with which to run a vessel’s engines.
CAPEX: Capital expenditure.
Charter-in and leaseback days: A measure of operating days
available for generating earnings from vessels that are not
owned by the Company.
Charter party: A lease or freight agreement between a
shipowner and a charterer for a longer period of time or for a
single voyage.
Classification society: Independent organization, which
ensures through verification of design, construction, building
process and operation of vessels that the vessels at all times
meet a long list of requirements to seaworthiness, etc. If the
vessels do not meet these requirements, insuring and
mortgaging the vessel will typically not be possible.
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.
EBIT/Operating profit/(loss): Earnings Before Interest
and Tax.
Earning days: A measure of operating days available for
generating earnings.
ESG: Environmental, Social, and Governance.
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.
FFA: Forward freight agreement. A financial derivative
instrument enabling freight to be hedged forward at a fixed
price.
Product tanker: A vessel suitable for carrying clean petroleum
products such as gasoline, jet fuel and naphtha.
Handysize: A specific class of product tankers with a cargo
carrying capacity of 20,000–40,000 dwt.
Spot market: Market in which vessels are contracted for a
single voyage for near-term delivery.
IAS: International Accounting Standards.
IFRS: International Financial Reporting Standards.
IMO: International Maritime Organization.
COA: Contract of Affreightment. A contract that involves a
number of consecutive cargos at previously agreed freight
rates.
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.
Coating: The internal coatings applied to the tanks of a
product tanker enabling the vessel to load refined oil products.
Loan-to-value (LTV): A measure of notional debt divided by
broker values of the encumbered vessels.
Commercial management: An agreement to manage a vessel’s
commercial operations for the account and risk of the
shipowner.
LR1: Long Range 1. A specific class of product tankers with a
cargo carrying capacity of 60,000–80,000 dwt.
LR2: Long Range 2. A specific class of product tankers with a
cargo carrying capacity of 80,000–110,000 dwt.
TORM ANNUAL REPORT 2020
Glossary
T/C: Time charter: An agreement covering the chartering out
of a vessel to an end user for a defined period of time, where
the owner is responsible for crewing the vessel, but the
charterer must pay port costs and bunkers.
Technical management: An agreement to manage a vessel’s
technical operations and crew for the account and risk of the
shipowner.
Ton-mile: A unit of freight transportation equivalent to a ton of
freight moved one mile.
UN Global Compact: The United Nation’s social charter for
enterprises, etc.
Vetting: An audit of the safety and performance status of a
tanker vessel made by oil majors.
GLOSSARY
165
GLOSSARY
KEY FINANCIAL FIGURES
TCE %
TCE per day
Gross profit %
EBITDA %
Operating profit/(loss) %
Return on Equity (RoE) %
Return on Invested Capital
(RoiC) %
Equity ratio
Earnings per share, EPS
Diluted earnings/(loss) per share,
EPS (USD)
=
=
=
=
=
=
=
=
=
=
TCE
Revenue
TCE
Available earning days
Gross profit
Revenue
EBITDA
Revenue
Operating profit/(loss) (EBIT)
Revenue
Net profit/(loss) for the year
Average equity
Operating profit/(loss) less tax
Average invested capital
Equity
Total assets
Net profit/(loss) for the year
Average number of shares
Net profit/(loss) for the year
Average number of shares less average number of treasury shares
TORM ANNUAL REPORT 2020
GLOSSARY
166
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
Net profit/(loss) for the year excluding non-recurrent items: 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. The APM
replaces “Net profit/(loss) for the year excluding impairment as it is more relevant and provides
more useful information.
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
2020
2019
2018
747.4
692.6
635.4
USDm
2020
2019
2018
Revenue
Reconciliation to net profit/(loss) for the year
Net profit/(loss) for the year
Profit from sale of vessels
88.1
166.0
-34.8
-1.1
-1.2
Impairment losses and reversals on tangible assets
11.1
-114.0
Expense of capitalized bank fees at refinancing
Termination of finance leases
Provisions
2.8
2.7
18.5
-
-
-
-0.8
3.2
-
-
1.9
Net profit/(loss) for the year ex. non-recurrent items
122.1
50.8
-30.5
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:
USDm
Reconciliation to revenue
Revenue
2020
2019
2018
747.4
692.6
635.4
Port expenses, bunkers and commissions
-227.9
-267.7
-283.0
TCE earnings
519.5
424.9
352.4
Port expenses, bunkers and commissions
-227.9
-267.7
-283.0
Charter hire
Operating expenses
Gross profit
-
-
-2.5
-178.4
-173.0
-180.4
341.1
251.9
169.5
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
Borrowings
Loans receivables
2020
2019
2018
853.3
863.4
754.7
-4.6
-4.6
-
Cash and cash equivalents, including restricted cash
-135.6
-72.5
-127.4
Net interest-bearing debt
713.1
786.3
627.3
TORM ANNUAL REPORT 2020
GLOSSARY
167
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:
The Adjusted RoIC expresses the returns generated on capital invested in the Group adjusted
for impacts related to the impairment of the fleet. The progression of RoIC is used by TORM to
measure progress against our longer-term value creation goals outlined to investors. Adjusted
RoIC is calculated as follows:
USDm
Operating profit/(loss) (EBIT)
Tax
EBIT less Tax
Invested capital, opening balance
Invested capital, ending balance
2020
2019
2018
138.9
205.9
-1.4
-0.8
137.5
205.1
2.8
-1.6
1.2
USDm
EBIT less Tax
Profit from sale of vessels
1,786.0
1,469.4
1,406.0
Impairment losses and reversals on tangible assets
11.1
-114.0
1,719.4
1,786.0
1,469.4
Provisions
Average invested capital for the year
1,752.7
1,627.7
1,437.7
EBIT less tax and impairment
Return on Invested Capital (RoIC)
7.8%
12.6%
0.1%
Average invested capital¹
2020
2019
2018
137.5
205.1
-1.1
-1.2
18.5
-
166.0
89.9
1.2
-0.8
3.2
1.9
5.5
1,752.7
1,627.7
1,437.7
41.5
98.2
185.0
1,794.2
1,725.9
1,622.7
Average impairment ²
⁾
Average invested capital less average impairment
⁾
Adjusted RoIC
9.3%
5.2%
0.3%
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.
⁾
Liquidity: TORM defines liquidity as available cash, comprising cash and cash equivalents,
including restricted cash, as well as undrawn and committed 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
Cash and cash equivalents, including restricted cash
Undrawn credit facilities and committed facilities incl. sale
& leaseback financing transactions
Liquidity
2020
135.6
2019
2018
72.5
127.4
132.2
173.1
278.7
267.8
245.6
406.1
TORM ANNUAL REPORT 2020
GLOSSARY
168
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
2020
2019
2018
88.1
166.0
-34.8
1.4
49.9
-0.5
0.8
41.9
-2.8
1.6
39.3
-3.3
121.9
110.1
114.5
Impairment (reversal)/losses on tangible assets
11.1
-114.0
3.2
EBITDA
271.9
202.0
120.5
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
2020
2019
2018
Vessel values including newbuildings (broker values)
1,585.3
1,801.5
1,675.1
Total (value)
Borrowings
1,585.3
1,801.5
1,675.1
853.3
863.4
754.7
- Hereof debt regarding Land and buildings & Other plant
and operating equipment
-8.3
Committed CAPEX on newbuildings and second-hand vessels
100.6
Loans receivables
-4.6
-6.8
51.2
-4.6
-
258.0
-
Cash and cash equivalents, including restricted cash
-135.6
-72.5
-127.4
Total (loan)
805.4
830.7
885.3
Loan-to-value (LTV) ratio
50.8%
46.1%
52.9%
TORM ANNUAL REPORT 2020
GLOSSARY
169
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
- continued
Invested capital: TORM defines invested capital as the sum of intangible assets, tangible fixed
assets, investments in joint ventures, bunkers, accounts receivables, assets held-for-sale (when
applicable), non-current tax liability related to held over gains, 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
2020
2019
2018
USDm
2020
2019
2018
Total vessel values including newbuildings (broker values)
1,585.3
1,801.5
1,675.1
Tangible and intangible fixed assets
1,748.4
1,782.2
1,445.0
Investments in joint ventures
Bunkers
Accounts receivables ¹
Assets held-for-sale
⁾
Non-current tax liability related to held over gains
Trade payables ²
Provisions
⁾
Current tax liabilities
Deferred income
1.6
22.5
85.6
-
-44.9
-74.1
-18.3
-1.4
-
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
1,719.4
1,786.0
1,469.4
Invested capital
¹
²
Accounts receivables includes Freight receivables, Other receivables and Prepayments.
Trade payables includes Trade payables and Other liabilities.
⁾
⁾
Committed CAPEX on newbuildings and second-hand vessels
-100.6
-51.2
-258.0
Cash and cash equivalents, including restricted cash
135.6
72.5
127.4
Loans receivables
Bunkers
Freight receivables
Other receivables
Other plant and operating equipment
Land and buildings
Investments in joint ventures
Prepayments
Borrowings
Trade payables
Provisions
Other liabilities
Current tax liabilities
Total Net Asset Value (NAV)
4.6
22.5
58.6
24.9
6.8
7.1
1.6
2.2
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
-853.3
-863.4
-754.7
-14.4
-18.3
-59.8
-1.4
-47.1
-35.1
-
-47.3
-1.5
-
-36.5
-1.0
801.4
1,016.0
856.1
Total number of shares excluding treasury shares (million)
74.4
74.4
73.9
Total Net Asset Value per share (NAV/share) (USD)
10.8
13.6
11.6
TORM ANNUAL REPORT 2020
GLOSSARY
170