ANNUAL REPORT 2021
CONTENTS
STRATEGIC REPORT
AT A GLANCE
Strategic Framework and Highlights
TORM at a Glance
Letter from the Chairman and CEO
2021 in Review
The Product Tanker Market in 2021
Market Drivers and Outlook
BUSINESS MODEL AND STRATEGIC CHOICES
Value Chain in Oil Transportation
Our Strategic Choices
Leading Product Tanker Owner
The TORM Fleet
Solid Capital Structure
Greener Future With Zero Carbon Emission Ambition
Optimizing Performance Now
Long Term Decarbonization
Superior Operating Platform
Integration of 11 Second-Hand Vessels
OUR RESPONSIBILITY
Responsibility Report
Stakeholder Engagement and Materiality
Health, Safety, and Security
Environmental Efforts
People
Human Rights and Business Ethics
Community
Responsible Procurement
SASB Index and Responsibility Data
REVIEW & RISK
Financial Review 2021
Risk Management
4
6
8
9
11
14
17
18
19
20
21
22
23
26
28
30
32
35
37
40
41
44
45
47
48
55
65
GOVERNANCE
GOVERNANCE INTRODUCTION
Chairman’s Introduction
GOVERNANCE STRUCTURE
TORM’s Governance Structure
Board of Directors
Board and Committee Meeting Attendance
Board Activities
COMMITTEE REPORTS
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
OTHER
Investor Information
Engagement and Decision Making
Directors’ Report
Statement of Directors’ Responsibilities
Safe Habor Statement
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 2021
Balance Sheet
Changes in Equity
Notes to Parent Company Financial Statements
OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM
114
114
115
116
118
119
157
158
159
160
164
170
173
71
73
75
76
77
79
85
87
89
100
104
107
110
112
TORM
Strategy
18
Responsibility
Report
Corporate
Governance
32
70
Income
Statement
114
TORM ANNUAL REPORT 2021
CONTENTS
2
Contents
KEY FIGURES
TCE EARNINGS (USD/DAY)
NET PROFIT/LOSS (USDM)
ADJUSTED ROIC (%)
DIVIDEND/SHARE (USD)
19,800
16,526
13,703
12,982
14,621
25,000
20,000
15,000
10,000
5,000
0
200
150
100
50
0
-50
-100
166
88
-42
2
-35
10
8
6
4
2
0
9.3
5.2
0.2
0.3
2.4
1
0.8
0.6
0.4
0.2
0
0.85
0.00
0.10
0.00
0.02
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
2021
2020
2019
2018
2017
INCOME STATEMENT (USDM)
Revenue
620
747
693
635
657
Time charter equivalent earnings (TCE) ¹
379
520
425
352
397
KEY FINANCIAL FIGURES ¹
Gross margins:
Gross profit
⁾
Gross profit ¹
EBITDA ¹
⁾
Operating profit/(loss) (EBIT)
⁾
Financial items
Profit/(loss) before tax
Net profit/(loss) for the year
Net profit/(loss) ex. non-recurrent items¹
BALANCE SHEET AND CASH FLOW (USDM)
⁾
1
139
206
-42
-41
-42
-36
-49
90
88
122
-39
167
166
51
3
-36
-33
-35
-31
158
40
-36
3
2
3
Return on Equity (RoE)
Return on Invested Capital (RoIC)
Adjusted RoIC
Equity ratio
TCE per day (USD)
OPEX per day (USD)
30.4%
45.6%
36.4%
26.6%
30.4%
22.1%
36.4%
29.2%
19.1%
24.0%
-4.1%
0.0%
0.2%
8.7%
7.8%
9.3%
17.9%
-4.3%
12.6%
5.2%
0.1%
0.3%
6.1%
0.3%
2.8%
2.4%
45.1%
50.9%
50.3%
49.4%
48.0%
13,703 19,800 16,526 12,982 14,621
6,633
6,398
6,371
6,389
6,673
⁾
188
137
341
252
169
200
EBITDA
272
202
121
Operating profit/(loss) (EBIT)
0.2%
18.6%
29.7%
0.5%
Non-current assets
1,968
1,755
1,788
1,445
1,385
Loan-to-value (LTV) ratio
52.3%
50.8%
46.1%
52.9%
55.8%
Total assets
Equity
Total liabilities
Invested capital ¹
Net interest-bearing debt ¹
⁾
Net Asset Value (NAV) (USDm) ²
⁾
2,331
1,999
2,004
1,714
1,647
SHARE-RELATED KEY FIGURES ¹
1,052
1,017
1,008
847
791
Basic earnings/(loss) per share (USD)
⁾
-0.54
1.19
2.24
-0.48
0.04
1,279
981
996
867
856
Diluted earnings/(loss) per share (USD)
-0.54
1.19
2.24
-0.48
0.04
2,011
1,720
1,786
1,469
1,406
Dividend per share (USD)
-
0.85
0.10
-
0.02
972
713
786
627
620
Net Asset Value per share (NAV/share) ²
12.5
10.8
13.6
11.6
12.8
1,008
802
1,016
856
796
Stock price in DKK (per share of USD 0.01)³
⁾
51.7
45.0
74.5
43.9
53.5
Cash and cash equivalents, incl. restricted
⁾
cash
Free cash flow
172
136
72
127
134
-243
116
-152
-105
-4
Number of shares (mill.) ³
⁾
Number of shares, weighted average (mill.) ⁴
⁴
⁾
⁾
80.7
74.4
74.4
73.9
62.0
78.1
74.3
74.0
73.1
62.0
¹
²
³
⁴
For a definition of the calculated key figures (the APMs), please refer to the glossary on pages 172-178.
Based on broker valuations as of 31 December, ex. charter commitments.
⁾
End of period.
⁾
Excluding treasury shares.
⁾
⁾
⁾
TORM ANNUAL REPORT 2021
KEY FIGURES
3
Key Figures
STRATEGIC FRAMEWORK
OUR STRATEGY
The reference product tanker company.
Safely leading the way with environmentally responsible results.
OUR BUSINESS MODEL
Leading product tanker owner
Green future with a zero emission ambition
Financial flexibility
and fleet growth
TORM’s solid capital structure and
our solid liquidity position support
selective and efficient fleet growth,
while returning value to our
shareholders.
Spot exposure
TORM has scale in all major product
tanker vessel classes and is actively
managing the spot market exposure
through charter agreements, FFAs,
and fleet composition.
Ambitious and ongoing
decarbonization
Imminent CO2 reductions for
reaching 2030 industry target
already in 2025.
Zero CO2 emissions
Long-term industry collaborations
supporting our pledge of zero
carbon emissions from operating
our fleet in 2050.
Read more on page 18
Read more on page 19
Read more on page 20-25
Read more on page 26-27
HOW WE DO IT
Superior operating platform (One TORM)
Integrated operations
Optimal vessel positioning
Safe technical management
Commercial, technical, sale &
purchase, and support divisions
work towards common goals in a
network-based organization with
easy internal access supporting
efficient data-based decision
making
TORM uses advanced data-driven
modelling and commercial
experience to assess customers’
needs and provide for optimal
vessel positioning supporting
superior performance.
The highest safety standards are the
cornerstones in our in-house
technical operations. This is
obtained through continued training
and development of our +3,000
seafarers.
Efficiency supported by
digitalization
A transparent and data driven
platform with focus on optimizing
processes and advanced modelling
for supporting efficient commercial
and technical operations.
Read more on page 28-30
Read more on page 28-30
Read more on page 28-30
Read more on page 28-30
TORM ANNUAL REPORT 2021
DIGITAL FOUNDATION
At a Glance
AT A GLANCE
4
STRATEGIC HIGHLIGHTS
LEADING PRODUCT
TAKNER OWNER
GREEN FUTURE WITH A
ZERO EMISSION AMBITION
SUPERIOR OPERATING
PLATFORM
85
Vessels in all major product tanker vessel
classes
Largest fleet since 1889 as per the date of this report
37.6%
AER reduction compared to IMO
baseline (2008)
USD
30.4%
Gross profit margin
Zero
Carbon Shipping Ambition in 2050
TORM signed up for Mærsk Mc-Kinney Møller
Center for Zero Carbon Shipping
0%
ROIC
In a highly challenged market
52.3%
Net LTV
Additional capacity available for fleet growth
USD
210m
Available liquidity
Including undrawn facilities and restricted cash
TORM ANNUAL REPORT 2021
4 OUT
OF 4
Quarters in 2021 we outperformed our
peers in our largest vessel class MR
0.37
Accidents per one million
exposure hours LTAF
(Lost Time Accidents Frequency)
AT A GLANCE
5
TORM ANNUAL REPORT 2021
TORM ANNUAL REPORT 2021
AT A GLANCE
AT A GLANCE
6
6
Despite a year with challenging
markets, TORM once again
demonstrated its superior platform
by commercially outperforming peers
in the MR vessel class in all four
quarters of 2021. Further, TORM
managed to expand its fleet to the
largest in the history of the company,
while keeping a strong focus on
imminent CO2 reductions and long-
term decarbonization collaborations.
Christopher H. Boehringer,
Chairman of the Board
TORM ANNUAL REPORT 2021
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
AT A GLANCE
7
7
LETTER FROM THE CHAIRMAN AND CEO
TORM IS ON TRACK ON ALL STRATEGIC AMBITIONS
In 2021, the product tanker market showed low
demand for product tanker services due to COVID-19
which inevitably affected the industry’s earnings.
SUPERIOR OPERATING PLATFORM
Running a fully integrated One TORM platform is a very
deliberate strategic choice made by TORM. We
continuously benchmark our performance against
peers to make sure that our business model is always
optimized. Once again, we are pleased that 2021 was
also a year where TORM demonstrated outstanding
commercial performance while keeping a steady hand
on operations in challenging markets.
PREPARATIONS FOR A GREENER FUTURE
The Board of Directors has a strong focus on TORM’s
exposure to environmental, social, and governmental
risks and opportunities. In 2021, the Board of Directors
identified a number of indicators which could change
the fundamentals of the product tanker market.
To prepare for the future, the Board of Directors has
been working with various topics together with TORM’s
Management. Focus has been on long-term challenges
such as future fuels and next generation tanker vessels,
but also on more near-term potential challenges, such
as the access to capital markets. Investors and banks
are becoming more selective, and they require a high
level of transparency and that companies are prepared
to meet relevant industry ESG requirements.
We are very confident that TORM is in a good position,
and therefore, we have decided to accelerate our
environmental efforts and have set a target to deliver
on IMO’s CO2 reduction target by 2025 – instead of
2030 (AER reduction compared to IMO baseline
(2008). Further, we will actively participate in the
strongest coalitions to achieve our ambition of no
emissions from operating our fleet by 2050. TORM is
determined to take responsibility for and create a
greener future.
-40%
CO2 reduction target by 2025
LEADING PRODUCT TANKER OWNER
Despite operating in a challenging market in 2021,
TORM managed to increase its fleet to the largest in
TORM’s history. The Team Tanker transaction was
financed partly through issuance of new shares,
contributing to our maintenance of a robust capital
structure. The access to capital markets is diverse, as
attractive terms have been obtained in both the bank
and leasing markets. TORM is prepared for the
opportunities arising in the years to come.
100%
Outperformance of all peers on
Adjusted Return on Invested Capital
(ROIC)
In 2021, TORM’s integrated platform delivered strong
results in a challenged market. Once again, we have
shown the ability to perform amongst the strongest in
the product tanker market, and we believe that TORM
is well positioned to deliver market leading value to its
shareholders also in the coming years.
Christopher H. Boehringer, Chairman of the Board
Jacob Meldgaard, Executive Director
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
8
2021 Highlights
2021 IN REVIEW
January
March
May
June
TRIBUTE TO THE
PHILIPPINES
TORM took delivery of a second-
hand MR product tanker vessel, and
to pay tribute to our Philippine
seafarers, the vessel was named
TORM Philippines.
EIGHT VESSELS WITH
CHEMICAL CAPABILITIES
ADDED
TORM purchased eight 2007-2012
built MR product tanker vessels
from Team Tankers in a combined
cash and share based transaction.
Six of the vessels provided TORM
with enhanced trading flexibility
through chemical trading
capabilities.
TORM SEAFARERS GOT
THEIR FIRST VACCINES
TORM seafarers were among the
first to receive COVID-19 vaccines
onboard vessels calling ports in
the US.
THREE MODERN LR2
VESSELS ADDED
TORM took delivery of the first of
three 2015-built scrubber-fitted
LR2 vessels from Okeanis.
The transaction supported our
strategy to increase exposure in
the LR2 vessel class.
Read more on page 30
Read more on page 30
Full Year
Full Year
Full Year
YET ANOTHER YEAR
OUTPERFORMING PEERS
2021 was a year in which TORM once again
demonstrated superior commercial performance.
In all quarters, we outperformed our peers on TCE
in TORM’s largest vessel class, the vessel class.
LARGEST FLEET IN TORM HISTORY
Despite challenging markets TORM managed to
add eleven second-hand and one newbuilding
vessels to the fleet during 2021 preparing TORM
for recovering markets with the largest fleet in
TORM’s history.
DIVERSIFIED FUNDING OBTAINED
TORM raised a total of USD 549m in financing
and refinancing transactions in a combination of
bank and sale and leaseback financing.
Throughout the year, we demonstrated that we
have access to attractive funding in various
markets.
Read more on page 55
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
9
2021 IN REVIEW
October
November
December
December
WELL AT TORM – OUR
WELLNESS PROGRAM
Our wellness program promoting
and encouraging physical and
mental wellbeing celebrated its first
anniversary.
FLETTNER ROTORS
Through our joint venture with ME
Production and GSI, we have
decided to test the potential of
modern Flettner Rotors – to be
installed on TORM Houston and
TORM Helene – with expected
energy savings of 5-7%.
LR2 NEWBUILDING
DELIVERED
The scrubber-fitted newbuilding
TORM Helene was delivered and is
ready to be fitted with two
Flettner Rotors. In 2021, a total of
USD 320m was invested in fixed
assets.
TORM JOINED MÆRSK
MC-KINNEY MØLLER
CENTER FOR ZERO CARBON
SHIPPING
TORM became a mission
ambassador in efforts to achieve
zero carbon emissions from
operating our fleet in 2050.
Read more on page 42
Read more on page 25
Read more on page 30
Read more on page 26
Full Year
Full Year
CO2 REDUCTION
Already in 2025, TORM aims to reach IMO’s 2030
target of reducing emissions by 40%, and we will
be even more ambitious for 2030. In 2021, we
managed to reduce our Annual Efficiency Ratio
(AER) by 37.6% compared to the IMO baseline
(2008).
Read more on page 22-27
VACCINATION DRIVES
Thanks to the extraordinary and very
professional efforts of our crew members, we
managed to vaccinate more than 1,100 seafarers
against COVID-19 in harbors around the world
supporting our efforts to secure optimal
operations.
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
10
THE PRODUCT TANKER MARKET IN 2021
The stock draws which prevailed throughout 2021 kept product tanker freight rates depressed, despite improving underlying oil demand and
positive developments on the tonnage supply side. Looking ahead, the product tanker market is supported by positive demand trends and limited
supply growth.
2021 PRODUCT TANKER MARKET
2021 continued to see generally weak market
conditions, affected by temporary disruptions on the
global oil demand recovery path, a weak crude tanker
market, and continued oil stock draws which were
aggravated by supply tightness.
OIL DEMAND RECOVERY DESPITE COVID-19
OUTBREAKS
At the start of 2021, increasing COVID-19 cases led to
new countermeasures in Europe in particular,
temporarily derailing global oil demand recovery. This
was further aggravated by the OPEC+ decision to
postpone scheduled production increases and leave
output quotas unchanged for the first four months of
the year. In addition, Saudi Arabia voluntarily cut its
production by an additional 1m b/d in February-April
2021, worsening the woes of the crude tanker market.
In the second quarter of 2021, the emergence of the
more transmissible Delta virus variant, which was first
identified in India and spread quickly to the rest of the
world, led to new lockdowns in several Asian countries
where vaccination rates remained low. This resulted in
Southeast Asian clean product imports dropping by
approximately 20% quarter-on-quarter (and year-on-
TORM ANNUAL REPORT 2021
year) in the third quarter of 2021, to a multi-year low
level.
At the same time, successful rollouts of vaccination
programs in Europe and the US allowed countries in
the West to keep economies open despite increasing
COVID-19 cases, resulting in significant improvements
in demand for road transportation fuels. For example,
US gasoline consumption climbed to pre-COVID-19
seasonal levels by the end of 2021, up from a -13% level
a year before. Towards the end of the year, the
emergence of the even more transmissible Omicron
virus variant led a few countries to re-introduce some
restrictions, however, the impact was assessed to
remain relatively muted, with the main effect estimated
to be on jet fuel demand. By the end of the year, global
oil demand was assessed for the first time since the
COVID-19 outbreak in early 2020, to have touched the
100m b/d mark, the average level of 2019 global oil
demand.
GLOBAL OIL DEMAND
Source: WoodMackenzie
TANKER FREIGHT RATES IN 2021
Source: Clarksons
Index (2019=100)
Average TCE in USD/day
105
100
95
90
85
80
30,000
25,000
20,000
15,000
10,000
5,000
0
2019 1q20 2q20 3q20 4q20 1q21
2q21 3q21 4q21
Jan Feb Mar Apr MayJun Jul AugSep Oct NovDec
LR2 Ras Tanura - Chiba
MR Average
/
LR1 Ras Tanura - Chiba
2021 HIGHLIGHTS
11
THE PRODUCT TANKER MARKET IN 2021
OIL SUPPLY LIMITED BY OPEC+ QUOTAS AND
DISRUPTIONS
On the oil supply side, the year was characterized by
several disturbances. Especially the US Gulf
experienced several extensive supply disruptions in
2021, resulting in (temporarily) lower product exports
from the US at the same time as imports increased.
In February 2021, extremely cold weather in Texas led
to around 5m b/d of US Gulf Coast refinery capacity
taken offline at its peak. Consequently, US Gulf exports
dropped by 22% in February-March 2021 compared to
January 2021. However, this also led to an almost 40%
month-on-month surge in US imports in March 2021, as
affected refineries returned online only gradually.
Higher need for imports supported especially the
transatlantic trade, but also led to increased flows from
Asia to cater for lost output in the US and the general
West market. This supported especially the largest
product tankers, with LR2 benchmarks reaching levels
above USD/day 20,000 by the end of the first quarter
of 2021. Further, the week-long blockage of the Suez
Canal in March 2021 sent a number of vessels around
the Cape of Good Hope, although the impact on the
market was short-lived.
In May 2021, the Colonial pipeline was shut for six days
as a result of a cyber-attack, which caused a temporary
spike in MR rates and helped to keep product flows to
the US East Coast at elevated levels. Flows from
Europe to the US East Coast averaged 600 kb/d in the
second quarter of 2021, up 24% from the seasonal level
in 2018-2019.
In late August 2021, the US Gulf was hit by Hurricane
Ida, which sent almost 3m b/d of US Gulf refinery
capacity offline at its peak. This interrupted product
flows onto the pipeline systems which supply the US
East Coast, aggravating the already low product stock
situation in the Atlantic market and pulling in more
barrels from East of Suez. On the other hand, refinery
outages led to lower US Gulf product exports in
September-October 2021. However, in the two final
months of 2021, US Gulf product exports experienced a
strong recovery, supported by strong import demand
into Latin America.
In addition to supply disruptions in the US, China’s
clean product exports declined significantly in the
second half of the year, on reduced runs at smaller
independent refineries, as the country attempted to
curb emissions. Also, increasing power outages at the
start of the fourth quarter of 2021 further curbed
refinery output at some refineries, keeping a lid on
export increases.
US GULF CLEAN PETROLEUM PRODUCT EXPORTS
Source: Kpler
LONG HAUL CLEAN PETROLEUM PRODUCT TRADE
FLOWS
Source: Kpler
M b/d
3.0
2.5
2.0
1.5
1.0
0.5
0
2
-
n
a
J
0
2
-
r
a
M
0
0
0
2
2
2
-
-
-
b
r
y
p
a
e
A
M
F
Exports
0
2
-
n
u
J
0
2
-
l
u
J
‘000 b/d
2,500
2,000
1,500
1,000
500
0
East to West West to East
1
2
-
r
p
A
1
2
-
y
a
M
1
2
-
n
u
J
1
2
-
l
u
J
1
2
-
g
u
A
1
2
-
p
e
S
1
2
-
t
c
O
1
2
-
v
o
N
1
2
-
c
e
D
0
2
-
g
u
A
0
2
-
t
c
O
0
2
-
p
e
S
0
1
2
2
-
-
r
c
a
e
M
D
Exports, 4wk MA
0
2
-
v
o
N
1
2
-
b
e
F
1
2
-
n
a
J
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
12
THE PRODUCT TANKER MARKET IN 2021
NEGATIVE SPILL-OVER FROM THE WEAK CRUDE
TANKER MARKET
The crude tanker market remained weak throughout
the year, as the slow return of OPEC+ crude oil
production was not enough to support the market.
OPEC crude oil exports remained almost 3m b/d below
the levels seen in 2019. This was aggravated by
Hurricane Ida, which knocked off 0.3m b/d of US crude
exports in September 2021. Consequently, market
cannibalization from newbuilt crude tankers was at an
elevated level for most of 2021.
CLEAN PETROLEUM PRODUCT STOCKS AT MAIN
TRADING HUBS
Source: EIA, Reuters
Percentage vs 2015-2019 average
20%
15%
10%
5%
0%
-5%
-10%
OIL STOCK DRAWDOWNS TO BELOW PRE-COVID
LEVELS
The fact that OPEC+ production has been returning
only gradually and there have been interruptions to the
US crude and product supply, at the same time as
global oil demand has continued to improve towards
pre-COVID-19 levels, resulted in a situation where crude
and product stocks continued to draw even after the
COVID-19 led excess stock levels had been cleared by
mid-year 2021.
By the end of the year, combined clean product stocks
in the US, the Amsterdam-Rotterdam-Antwerp (ARA)
area and Singapore had dropped to a level 7% below
the pre-COVID-19 seasonal average level. This posed a
strong headwind for the general tanker market, as
demand was supplied by local inventories instead of
seaborne imports. The coordinated Strategic
Petroleum Reserve (SPR) release by the US and some
other countries towards the end of the year targeted at
the tight supply situation marginally alleviated the
market tightness, but the general stock draws
throughout the year limited the need for vessel
demand.
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
13
MARKET DRIVERS AND OUTLOOK
OUTLOOK
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 are included in the Quarterly reporting of
TORM.
The most important factors affecting TORM’s earnings
in 2022 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
• Bunker price developments
• Oil trading activity and developments in ton-mile
•
•
trends
Fleet growth and newbuilding ordering activity
The impact of the war in Ukraine on the global
economy
One-off market-shaping events such as strikes,
embargoes, political instability, weather conditions etc.
In this section, we explain the market outlook, and the
market drivers, which may affect TORM’s financial
performance, are explained in more detail.
TONNAGE SUPPLY
In 2021, the global product tanker fleet grew by 2.2% in
terms of capacity (1.5% in terms of number of the
number of vessels), down from 2.7% in 2020.The
slower fleet growth was mainly driven by increased
GLOBAL PRODUCT TANKER FLEET AND ORDER BOOK
As of 31 December 2021
2022-2024
Order book
Fleet
Delivered in
Scrapped in
Fleet
Order book
as % of end-
31.12.2020*
2021
2021
31.12.2021
for 2022-2024
2021 fleet
LR2
LR1
MR
Handysize
Total
384
378
1,764
786
28
2
80
11
9
4
36
22
403
376
1,808
775
44
1
117
40
* Number differs from Annual report 2020 since TORM changed data provider from IHS Fairplay to Clarksons in 2021
71
3,362
202
3,312
121
11%
0%
6%
5%
6%
scrapping activity. However, the effective fleet growth
turned out higher as the LR2s migration back to clean
trade, which started in the second quarter of 2020,
continued for most of 2021. Consequently, the share of
LR2s trading in the dirty market declined from 45% at
the end of 2020 to 41% at the end of 2021.
The number of newbuilding orders placed in 2021 was
105 vessels, slightly above the levels seen in the
previous three years. The MR vessels accounted for the
majority of orders with 69 units contracted, while the
number of LR2 vessels ordered was 21. No new orders
for LR1s were placed. At the end of 2021, the existing
order book for deliveries in 2022-2024 totaled 202
units (corresponding to a record low 6.6% of the
existing fleet, in terms of capacity), including 44 LR2
vessels, one LR1 vessel, 117 MR vessels and 40 handy-
size vessels.
Due to the record high ordering activity in the
container vessels segment, ordering of product tankers
with delivery before 2024 has become more difficult.
This will limit the fleet growth in 2022-2023 even
further, in addition to already record low order book
ratio. 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 3.6m dwt of product tanker capacity was
recycled in 2021, corresponding to approximately 2.0%
of the fleet capacity as at the end of 2020.
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
14
MARKET DRIVERS AND OUTLOOK
This was the highest level in 11 years, driven by
increased scrap prices and weak freight markets.
TORM estimates that approximately 4% of the existing
capacity of the global fleet will be phased out or
recycled during 2022-2024, as these vessels reach the
typical scrapping age of 25 years or above. 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 2022-2024.
On the supply side, OPEC+ continues to unwind its
production cuts in 2022, and crude output in the US,
Canada and Brazil is expected to see a strong growth
as well. This together with increasing refinery runs is
alleviating the tightness on the oil market, and supply
growth is expected to exceed further improvements in
demand in 2022. Not only does this mean that stock
draws are not a headwind to the tanker market
anymore, but the fact that stocks are below normal
levels also indicates a need to rebuild stocks, giving an
additional boost to the product tanker demand.
~2%
Expected fleet growth 2022-2024
(CAGR)
TONNAGE DEMAND
Despite the temporary flare-ups of new virus variants,
global oil demand improved during 2021, growing 5.4m
b/d (IEA December 2021). For 2022, a further growth
of 3.3m b/d is expected, to a pe-COVID-19 level of
99.5m b/d (IEA December 2021). The impact of any
potential new measures to halt the spread of the virus
is expected to be more muted, as vaccination rates
have increased. Consequently, demand for
petrochemical feedstocks and road transport fuels is
expected to continue its robust growth, while demand
for jet fuel is not expected to reach pre-COVID-19
levels in 2022 yet.
As a result of the COVID-19 pandemic, several
refineries mainly in oil net importing regions had
announced closures in 2020. The same trend continued
in 2021, and consequently 2.7m b/d of refining capacity
mainly in Europe, Australasia, Southeast Asia, US West
Coast and South Africa has been permanently shut
down or is scheduled to cease operations during the
next couple of years. In addition, another 1.1m b/d of
capacity could potentially close down. At the same
time, approximately 4.4m b/d of new refining capacity
is scheduled to come online during 2021-2023. New
capacity is mainly situated in the Middle East and China
– the regions which 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 exact
start date is, nevertheless, still uncertain.
~4%
Expected ton-mile growth 2022-2024
(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 2022-
2024, 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.
The invasion by Russia of Ukraine and the consequent
sanctions on Russia increased uncertainty on the
general energy market, sending the price of crude oil to
the highest since 2008 in early March 2022. The initial
sanctions were not targeting the oil trade, however, the
uncertainty and potential for re-routing of trade flows
sent the crude tanker freight rates in the European
market to the highest since Spring 2020, followed by
an increase in the product tanker rates. Due to the
continuous development and complexity of the
situation, the impact on the tanker markets going
forward is uncertain and volatile.
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
15
FINANCIAL OUTLOOK FOR 2022
As of 20 March 2022, TORM had covered 34.3% of the
earning days in 2022 at USD/day 17,497.
Assuming an unchanged TCE rate of 17,497 USD/day
for the rest of 2022 and a rate sensitivity of +/- 1,000
USD/day, profit before tax excluding non-recurrent
items would amount to USD 53-96m assuming all other
things equal.
The COVID-19 pandemic and the Russian invasion of
Ukraine continues to severely impact the global oil
market and the product tanker industry leading to
material uncertainties and lack of visibility related to
the global demand for transportation of refined oil
products. Accordingly, the development in the TCE
rates going forward is highly uncertain.
For 2022, TORM expects higher rates than 2021 (2021:
USD 13,703/day) and to return to a net profit before
tax (2021: loss of USD 41m).
TORM expects to maintain a low cost base in line with
a normalized profit before tax (PBT) break-even TCE
rate in FY 2022 of approximately USD/day 15,000. The
below table illustrates the PBT sensitivity per each
increase in TCE of USD 1,000/day assuming 21,120
open days in 2022.
PROFIT BEFORE TAX1 SENSITIVITY TO USD 1,000 / DAY TCE RATE INCREASE (ASSUMING ALL OTHER
THINGS EQUAL)
DISCLAIMER ON FINANCIAL
OUTLOOK
The purpose of this Financial Outlook for 2022 is to
comply with reporting requirements for Companies
listed in Denmark. Actual results may vary, and this
information may not be accurate or appropriate for
other purposes. Information about our financial outlook
for 2022, including the various assumptions underlying
it, is forward-looking and should be read in conjunction
with the Safe Harbor Statements on page 112, and the
related disclosure and information about various
economic, competitive, and regulatory assumptions,
factors, and risks that may cause our actual future
financial and operating results to differ materially from
what we currently expect.
The information included this Financial Outlook for 2022
is preliminary, unaudited and based on estimates and
information available to us at this time. TORM has not
finalized its financial statements for the periods
presented. During the course of the financial statement
closing process, TORM may identify items that would
require it to make adjustments, which may be material
to the information provided in this section. As
mentioned above, the provided information constitutes
forward-looking statements and is subject to risks and
uncertainties, including possible adjustments to the
Earning days
Open days
Coverage Ratio
PBT effect
1H 2022
2H 2022
FY 2022
14,863
6,466
61,6%
14,948
14,655
7.2%
29,810
21,120
34.3%
USD 6m
USD 15m
USD 21m
financial outlook for 2022.
1 Profit before tax excluding non-recurrent items such as profit from sale of vessels, impairment losses and reversals on tangible assets, expense of capitalized bank fees at refinancing and change in provisions.
TORM ANNUAL REPORT 2021
2021 HIGHLIGHTS
16
THE 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.
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 onshore
distributors, that transports refined oil products 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 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 2021, 98.6% of TORM’s turnover was
generated from clean products transportation.
term success of TORM further builds on the intellectual
property of the workforce at TORM and the
relationship and cooperation with external stakeholders
such as oil traders, state-owned oil companies, oil
majors, financial institutions, shipyards, brokers, and
governmental agencies.
TORM’s integrated operating platform with in-house
technical and commercial management enhances the
response to customer demands and allows TORM to
generate value for stakeholders as well as for the
Company.
The long-term success of TORM is dependent on
TORM’s ability to provide safe and reliable
transportation services. In addition to the items
explicitly stated in the financial statements, the long-
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
17
Our Business model and strategic choices
OUR STRATEGIC CHOICES
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM’s strategy consists of three key elements:
Leading product tanker owner
TORM is one of the largest and most experienced
product tanker owners in the world and is active in all
key product tanker vessel classes.
TORM primarily employs its fleet in the spot market
and with a solid capital structure, TORM has the
strength and ambition to be at the forefront of the
product tanker industry also in the years to come.
Read more on pages
19 – 21
Greener future with a zero emission ambition
TORM embraces its responsibility to reduce its
environmental footprint by minimizing impact from
exhaust gas emissions.
TORM is actively pursuing an ambitious emission
reduction target of minimum 40% by 2025 and
minimum 45% by 2030 and zero emissions by 2050.
Read more on pages
22 – 27
Superior operating platform
All essential business proficiencies are integrated in
TORM’s digital in-house technical and commercial
platform called One TORM. The integrated nature of
TORM’s operating platform ensures alignment of
corporate targets and has second to none market
responsiveness.
Read more on pages
28 – 31
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
18
LEADING PRODUCT TANKER OWNER
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM is an internationally leading product tanker
company and one of the largest owners of product
tankers in the world.
ACTIVE MANAGEMENT OF SPOT MARKET
EXPOSURE
TORM primarily employs its fleet of more than 80
vessels in the spot market. Going into 2022, TORM had
significant operational leverage and for positioning
TORM to benefit from improved market conditions.
With its presence in all large product tanker vessel
classes, TORM is well positioned to meet its customers’
transport and storage requirements. TORM’s modern
and well-maintained fleet with the majority of the
vessels being scrubber-fitted further provides TORM
and its customers with enhanced flexibility as well as
reduced fuel costs. TORM’s normalized PBT break-even
rate is approximately USD 15,000 per day.
While TORM mainly operates in the spot market, TORM
also enters into medium and long-term contracts when
levels are assessed attractive. Such contracts provide
more cash flow certainty for TORM and include i)
charter contracts on which a specific vessel is
chartered out to a customer for a longer period, ii)
contracts of affreightment (CoA) which involve several
consecutive cargoes with a customer at agreed freight
rate levels and iii) forward freight agreements (FFA)
which are financial instruments hedging the forward
price for freight for a defined period.
TORM ANNUAL REPORT 2021
Through a combination of various employment and
coverage options as well as active fleet management,
TORM aims to benefit from movements in freight rates
to capitalize on market highs and minimize market
exposure to when freight rates are low.
From time to time, TORM will also sell vessels which no
longer fit with our commercial strategy, or if the price
point is deemed attractive. In 2021, TORM sold one older
vessel (TORM Carina).
For more information on the financial effect of TORM’s
Spot market exposure please refer to the Financial
Outlook on page 15.
SELECTIVE FLEET GROWTH
TORM seeks to selectively grow its fleet and to serve
as a consolidator in the product tanker segment if the
right opportunities arise at attractive values. 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.
In this way, TORM serves as a consolidator while at the
same time optimizing its invested capital to enable the
highest possible ROIC. TORM’s scalable business
platform is a supportive and required enabler for being a
leading product tanker owner.
In addition to taking delivery of one MR vessel early in
January 2021, TORM acquired 11 second-hand vessels
covering eight MR product tankers, six of which have
chemical trading capabilities, and three scrubber-fitted
LR2 vessels. In addition, TORM took delivery of one LR2
newbuilding in 2021 and has taken delivery of the last
LR2 newbuilding during the first quarter of 2022.
SOLID CAPITAL STRUCTURE
TORM’s solid capital structure balances the spot-based
employment profile with low leverage, a strong
liquidity position and limited off-balance sheet charter-
in commitments.
With a continuous focus on a solid capital structure, we
maintain our ability to act on desired investment
opportunities, facilitating the potential for future strong
return on invested capital.
Read more about TORM’s capital structure
on page 21
NET LOAN-TO-VALUE
Source: TORM
100%
80%
60%
40%
20%
0%
56%
53%
46%
51%
52%
2017
2018
2019
2020
2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
19
THE TORM FLEET
as of 23 March 2022
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. 15 LR2 vessels
are currently on the water. Since December 2020,
two newbuildings and three second-hand vessels
have been delivered to TORM.
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 which are
traditionally dominated by the smaller MR vessels.
A typical LR1 trade could be diesel or jet fuel from
the Middle East to Europe. Nine LR1 vessel are
currently on the water.
15
Vessels
90-115,000 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.
59 MR vessels are currently on the water. Since
December 2020, nine second-hand vessels have
been delivered to TORM and one older vessel has
been sold.
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. Two Handysize vessels
are currently on the water.
59
Vessels
45-50,000 dwt
2
Vessels
35-37,000 dwt
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
FLEET COMPOSITION
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
offer the greatest synergies.
TORM’s fleet has increased from 73 vessels in
December 2020 to 85 vessels on the water in
March 2022.
During 2021, TORM utilized the market
downturn to increase the fleet at attractive
price points, driven by a selective approach to
fleet renewal through disposal of older
tonnage and acquisition of modern second-
hand vessels. Further, TORM added two LR2
newbuildings ordered in 2020 to the fleet.
After the year-end, TORM sold TORM Emilie
and TORM Tevere which are expected to be
delivered to the buyers in the first half of
2022.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
20
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
IMPORTANT PILLARS OF TORM’S CAPITAL
STRUCTURE
SOLID CAPITAL STRUCTURE
To support our spot-based employment profile, we
maintain a solid capital structure with low leverage, a
strong liquidity position, and limited off-balance sheet
commitments.
The solid capital structure provides us with increased
financial flexibility which enables TORM to purchase
newbuildings and second-hand vessels independent of
underlying product tanker market strength. TORM
currently has no remaining newbuilding CAPEX
commitments.
The purchases made in 2021 have been funded by a mix
of traditional bank debt, issuance of shares and sale and
leaseback structures. This illustrates TORMs strong
access to financing. Secured bank financing remains the
preferred source of debt funding for TORM with the
leases providing for supplementary financing. The new
leasing agreements are all long-term with maturity in
2029 or later and include purchase options during and at
the end of the contract period enhancing TORMs options
in disrupted market scenarios.
TORM has maintained a conservative capital structure
over many years, and monitors capital structure related
risks such as liquidity risk, net and gross LTV risks as well
as debt maturity ratios.
Liquidity risk is assessed on both short term and medium
term. TORM’s liquidity position is stressed with all
relevant risk parameters, such as TCE rates, interest rate
risk, and FFA liquidity risk. TORM is constantly focused
on being resistant to periods of liquidity draws if any of
these risks should persist. A catalogue of liquidity
enhancing initiatives is maintained to be able to pursue
opportunities and have solutions to potential adverse
market development.
LTV risk is monitored to ensure that TORM stays in
control of the relative debt level. Vessel values and cash
levels are stress tested to ensure that TORM can
withstand longer periods of declining vessel values or
stressed TCE rates.
TORM monitors the future debt repayment profile to
make sure cash generation and future available cash is
aligned with upcoming debt liabilities.
These risks are securing TORM’s ability to maintain a solid
capital structure, providing us with the ongoing ability to
pursue growth and fleet maintenance opportunities.
Over a number of years, TORM has grown the fleet as
well as maintained a very stable average age of the fleet.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
21
GREENER FUTURE WITH ZERO EMISSION AMBITION
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
and a 45% CO2 reduction by 2030. For the long term,
TORM has an ambition to have zero CO2 emissions
from operating our fleet in 2050. To support these
goals, TORM’s Management has specific KPIs on
achieving this trajectory, and the impact on the
trajectory is included as decision-making criteria for
instance when assessing fleet renewal options.
Decarbonizing shipping
We strive to utilize our 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.
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 CO2
emissions. This is achieved through a committed focus
on optimal performance in the short and medium term
and industry collaboration in the long term supporting
sustainable solutions.
TORM believes that both the decarbonization and the
ESG agendas will be integral and determining elements
for the future of the product tanker business. At the
same time, TORM acknowledges that oil and refined oil
products are essential resources, and we want to
distribute refined oil products as CO2 efficiently as
possible with currently accessible means.
OPTIMIZING PERFORMANCE NOW
In our efforts to obtain commercially viable
environmentally friendly results, we have established a
new position as Head of Commercial Decarbonization,
a role that together with our Head of Technical
Decarbonization will be pivotal in exploring and
developing business opportunities with our customers,
brokers, and industry stakeholders, so we can utilize
the power of our integrated platform to reinforce our
position as a leading product tanker owner. In 2018,
TORM formed a successful partnership to develop and
produce scrubbers with a scrubber producer,
supporting our scrubber investments, thereby
demonstrating an ability to source environmentally
important assets while controlling cost. As an
important effort to create adjacencies for TORM, we
have decided to expand this cooperation by engaging
in testing modern Flettner Rotors – to be installed on
TORM Houston and TORM Helene. We expect 5-7%
energy and CO2 reductions from the Flettner Rotors.
TORM maintains focus on the optimization and
improvement of our existing fleet and on enhancing the
efficiency of our existing fleet by applying a broad set
of operational and technical improvements.
LONG-TERM INDUSTRY COLLABORATION
Alternative fuels in shipping will be required on a global
scale to reach the ambitious 2050 targets set by IMO.
TORM influences the development through broad
industry cooperation, latest by joining the Mærsk
McKinney Møller Institute for Zero-Carbon Shipping as
a Mission Ambassador. TORM monitors the
development of new fuels and associated technologies,
and TORM wants to be part of shaping the
development and employing new technologies and
alternative fuels whenever commercially and
operationally viable.
2030 TARGET AND 2050 AMBITION
To quantify the green ambitions, TORM has set the
goal to accelerate our climate target and deliver at
least a 40% CO2 reduction by 2025 – instead of in 2030
- compared to 2008 using IMO’s defined methodology,
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
22
OPTIMIZING PERFORMANCE NOW
DIGITIZED PLATFORM SUPPORTS OPTIMIZATION
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
The three main components of TORM’s performance
optimization are voyage optimization, behavioral
optimization, and technology improvements. All three
are designed to help reduce fuel consumption and
supports TORM’s superior commercial performance.
That TORM’s performance optimization efforts work, is
demonstrated by TORM’s strong CO2 emission
performance. CO2 emissions are reduced every day for
the benefit of the environment. As at the end of 2021,
TORM had obtained a Annual Efficiency Ratio (AER)
reduction of 37.6% compared to IMO’s baseline (2008),
and TORM is hence well ahead of IMO’s CO2 reduction
trajectory.
Not only will the short and medium-term optimizations
be beneficial to TORM in the future. It will also prepare
TORM for a potential carbon tax being imposed on
shipping companies, as they will increase fuel costs.
Further, TORM will benefit when transitioning to new
fuel types in the long run, because TORM expects new
fuel types to be more expensive when being phased in.
Hence, highly optimized fuel consumption will be
central going forward.
CONNECTED VESSELS AND CONNECTED MACHINERY
Through the programs “Connected Vessels” and “Connected Machinery”,
TORM will accelerate the performance optimization components
with improved best practice sharing and centralized IOT
and advisory applications making it possible for TORM to take
fuel efficiency to the next level.
VOYAGE OPTIMIZATION
Many factors are involved in
setting the ideal speed, and
TORM works closely with its
stakeholders to ensure the
optimal speed and routes of its
vessels. To support this, TORM
utilizes predictive quantitative
modelling and multiple data
sources for real time surveillance
and recommendations.
BEHAVIOURAL OPTIMIZATION
Measures to achieve operational
savings, enhanced energy
management onboard, and rigid
anti-fouling monitoring.
TECHNOLOGY IMPROVEMENT
TORM applies a range of new
and updated technologies to
enhance the fuel efficiency of its
current fleet. In the long term,
TORM is also engaged in
developing the next generation
vessel designs and technologies
together with selected partners.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
23
OPTIMIZING PERFORMANCE NOW
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
WHAT GOT US HERE…
WHAT WILL TAKE US THERE…
Cultural change on-
and offshore
Zealous hull
maintenance
AI based route
optimization
Flettner Rotors
Fleet renewal
Digital solutions for
route optimization
Already in 2025 TORM
expects to reach IMO’s
2030 target of 40% CO2
reduction compared to
IMO’s baseline (2008)
Connected vessels
and machinery
Continuous training
Optimized
machinery
… and much more
Residual heat
recovery
… and much more
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
24
OPTIMIZING PERFORMANCE NOW
FLETTNER ROTORS
In our efforts to reach our ambitious emission reduction
targets, TORM has invested in Flettner Rotors for the
two newest of our LR2 vessels.
During Spring 2022, the onshore test installation will be
commenced in Frederikshavn, Denmark.
The assets are purchased from the joint venture, which
TORM has together with ME Production and GSI
shipyard.
If TORM is successful in operating the Flettner Rotors
and obtains the anticipated CO2 and fuel savings, they
will be considered as a means for TORM to support a
greener future.
Subsequently actual full-size testing is expected to be
commenced and subject to successful testing, the final
installation is expected later in 2022, whereafter
operating data from the two LR vessels will be
analyzed.
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
Rotor sails can be installed on all the main vessel types,
which TORM operates and will have slightly more
benefit on larger vessels (LR2) as the voyages for these
vessels have more ideal wind conditions.
TORM expects fuel savings of 5-7% compared to a
corresponding vessel without a rotor sail. The two
vessels are expected to reduce CO2 emissions by 2,000
– 3,000 mt CO2 per vessel.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
25
LONG-TERM DECARBONIZATION
INDUSTRY COLLABORATIONS
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
To achieve our ambitious 2050 environmental target of
zero CO2 emissions from operating our fleet, TORM is
actively involved in various industry collaborations
supporting this journey. The collaborations are
important, as the ambitious target cannot be met by
single entities alone but requires joint efforts across the
shipping industry.
JOINING MÆRSK MCKINNEY MØLLER CENTER FOR
ZERO CARBON SHIPPING
TORM announced its ambitious 2025 target in January
2022, and already towards the end of 2021, TORM
became a Mission Ambassador in the Mærsk McKinney
Møller Center for Zero Carbon Shipping to partner with
the institute and equally minded industry participants
on this important journey.
TORM will provide support to the Center’s work and
commit to the Center’s mission and vision of building a
significant cross-disciplinary driving force in the
decarbonization of the shipping industry.
DANISH SHIPPING
TORM is an active member of Danish Shipping, and
through Danish Shipping TORM aims to impact the
decision making in IMO on ongoing discussions of the
implementation of CO2 related regulations.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
26
LONG-TERM DECARBONIZATION
NEW FUELS
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
Over the past year, the shipping industry has shown
increased interest, and development work on the
future of maritime fuels and solutions for zero
emission shipping are starting to evolve.
TORM is enthusiastic about this development, however,
while it is the expectation that there will be technical
solutions in place to support most new fuels through
new propulsions systems, the path towards having
sufficient fuels available is more uncertain. To increase
the understanding of this important topic, TORM and
the Board of Directors organized a number of
dedicated sessions to discuss the issue. The sessions
covered deep dives on topics such as the Power-to-X
development to understand the sourcing of the new
fuels, the development of carbon capture solutions and
considerations on types of new fuels, the split in usage
and availability.
A key conclusion from the sessions was that the future
of maritime fuels will be more dispersed with zero
carbon emission solutions not coming from a single
new technology, but rather from a mix of several
solutions as the availability of new fuels will be scarce
and a key deciding factor. The Board of Directors will
maintain this as a strategic focus area, and TORM will
monitor the development of the new fuels and
associated technologies. However, currently it is the
belief that the solutions will not be commercially and
operationally viable for product tankers for the near
future.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
27
SUPERIOR OPERATING PLATFORM
TORM’s fleet is effectively managed on the in-house
integrated operating platform known as One TORM.
Operations are conducted jointly for the entire fleet
to reap synergies across vessel classes.
commercial team to succeed is the ability to ensure an
optimal position of the fleet in the global basins, where
differences in earnings can be significant over the span of
a year.
TECHNICAL MANAGEMENT
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-
efficient technical operation. Our technical management
also has extensive experience in vessel design and
construction and provides essential knowledge for TORM
to execute newbuilding programs. In addition to the
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. We believe that our integrated
business model creates a unique customer offering as it
provides our customers with better accountability and
insight into safety and vessel performance.
In line with the strategic focus on safety, the One TORM
platform features the One TORM Safety Culture program.
The purpose of the program is to continuously
strengthen TORM’s safety culture beyond mere
compliance, and it reflects the belief that profitability and
safety need to go hand in hand.
On the One TORM platform, the commercial, technical,
sale & purchase, and support divisions all work towards
common goals in a network-based organization with
easy internal access across the organization supporting
efficient decision making.
COMMERCIAL MANAGEMENT
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
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
office staff, more than 3,400 seafarers are employed by
TORM.
SALE & PURCHASE AND SUPPORT FUNCTIONS
TORM’s sale & purchase activities are conducted by an
in-house team. The sale & purchase team leverages
relationships with shipbrokers, shipyards, financial
institutions, and shipowners to ensure fleet renewal and
actively pursues lucrative opportunities in the second-
hand and newbuilding markets.
The support division is also 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.
For years, the support division has built a strong data
and digitalized business support function. By means of
advanced analytics and applied AI competences, this
function has created an analytical model to further
support TORM’s commercial performance.
OPERATIONS DURING COVID-19
During the entire COVID-19 pandemic, TORM has fully
maintained operations both at sea and ashore thanks
to the One TORM platform. The integrated operations
have eased the natural obstacles which TORM
encountered in connection with travel restrictions,
lockdowns, and supply chain challenges.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
28
SUPERIOR OPERATING PLATFORM
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
LAND-BASED EMPLOYEES
In line with relevant authorities, TORM had on several
occasions chosen to close some of its offices and
recommended that land-based employees work from
home during the pandemic.
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
of command.
SUPPLY CHAIN
With operations across the world and the requirement
to conduct maintenance on basically all locations,
TORM has been impacted by the emerging global
supply chain bottlenecks. One concrete example is the
increased cost in freight forwarding of materials and
equipment. However, TORM’s continued optimization
and cost focus has secured uninterrupted operations
with only a marginal increase in costs.
SEAFARERS
The COVID-19-imposed travel restrictions complicated
crew movements throughout the year. Despite this
TORM has throughout 2021 maintained a normalized
level of overdue employment among the crews
supported by TORM’s integrated platform and the on-
going coordination between the commercial and
technical departments which has enabled TORM to
conduct crew changes as opportunities arose during
the vessels’ commercial operations. However, the costs
associated with crew changes have been higher due to
increased travel expenses and imposed quarantine
costs.
+92%
Retention rate for senior and junior
officers during COVID-19
During the pandemic, TORM has further leveraged
from a solid base of loyal seafarers which has secured
continuity in our operations.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
29
SEAMLESS INTEGRATION OF NEW CAPACITY IN A
COVID-19 ENVIRONMENT
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
EIGHT MR VESSELS, SIX WITH INCREASED
CHEMICAL TRADING FLEXIBILITY
In March 2021, TORM purchased 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. Six of the vessels have
specialized cargo tank configurations and extended tank
segregations (IMO 2), allowing for enhanced trading
flexibility through chemical trading options.
TORM obtained debt financing covering the cash thereby
making the tranaction cash neutral.
The vessels have all been integrated into the One TORM
platform using a flexible approach towards transfer of
technical knowledge and crew. This has ensured a
seamless integration.
THREE MODERN LR2 VESSELS
TWO LR2 NEWBUILIDNG
In November 2021 and in January 2022, TORM took
delivery of the final two LR2 newbuildings in our
newbuilding program. The newbuildings are scrubber-
fitted and fuel-optimized.
The vessels were taken over in a period with significant
COVID-19 related restrictions in China and are now fully
integrated into the One-TORM platform.
The vessels are constructed with fuel-efficient design,
and during 2022 they are expected to have Flettner
Rotors installed which will reduce the fuel consumption
by 5-7% on these vessels.
In May 2021, TORM purchased three 2015-built scrubber-
fitted and fuel-efficient LR2 vessels from Okeanis Eco
Tankers Corp. for a total cash consideration of USD
120.8m.
Two of the vessels were financed with bank debt and one
through a sale and leaseback structure.
The vessels have all been integrated into the One TORM
platform and supplement our modern LR2 fleet well.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
30
INVESTMENT HIGHLIGHTS
SPOT OPERATING MODEL
Significant operating leverage
through spot orientation allowing
TORM to benefit from increases in
TCE rates.
SOLID CAPITAL
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 refinancing
needs.
SUPERIOR COMMERCIAL
PERFORMANCE
Advanced data driven platform with
in-house commercial and technical
management providing superior
earnings while maintaining a balanced
cost structure.
POSITIVE MARKET
FUNDAMENTALS
Low product stock levels, low global
fleet growth and refinery dislocation
are positive fundamentals for the
product tanker market in the near
and medium term.
AMBITIOUS AND ONGOING
CO2 REDUCTION
TORM is already well advanced in
meeting IMO’s emission targets and
has engaged in long-term
collaborations for decarbonization in
2050.
TRACK RECORD OF
EXCELLENT TIMING
TORM has maintained a well
diversified fleet and acquired vessels
at attractive price points as well as
sold vessels at market values.
TORM ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
31
RESPONSIBILITY REPORT
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Responsible behavior and sustainability are embedded in the way we conduct business in TORM. We are committed to protect and take care of
our employees, our assets, our environment, and our society. This is done by living up to the highest possible standards. We support the UN
Global Compact, the Sustainable Development Goals and are increasingly reporting on Environmental, Social and Governance data.
In 2009, TORM signed the UN Global Compact as the
first shipping company in Denmark. In this way, we
commit to an internationally recognized set of
principles regarding health, safety, labor rights,
environmental protection, and anti-corruption. As part
of this commitment, we submit our communication on
progress every year.
PRINCIPLES
Transparency and accountability are key to TORM’s
way of doing business, and these values play a central
role in our corporate social responsibility (CSR)
approach. Our approach to responsible behavior is
rooted in our Business Principles which have the
following five objectives:
COLLABORATION AND PARTNERSHIPS
TORM’s commitment to CSR is not limited to our own
business practices, as we believe real impact requires
industry collaboration. We cooperate with peers and
stakeholders to increase responsibility in the shipping
industry and the supply chain. Also, this is done to
mitigate protectionism and support progressive trade
agreements.
TORM strives to increase transparency and
accountability and to minimize corruption. We do this
as an active member of Danish Shipping and a number
of committees within that organization. This is also the
focus in the Maritime Anti-Corruption Network in which
TORM is a co-founder and member.
• Maintaining a good and safe workplace
• Reducing environmental impact
• Respecting people
• Doing business responsibly
•
Ensuring transparency
SUSTAINABLE DEVELOPMENT GOALS AND
TRANSPARENT ESG REPORTING
In 2021, we continued our support to the UN
Sustainable Development Goals (SDGs) and its targets
for 2030. To ensure ample contribution, we focus on
specifically SDG #4 Quality Education and SDG #13
Climate Action. These goals are closely linked to our
value chain, business practices, and company values.
Our support of the SDGs is seen as a natural
progression of our commitment to the UN Global
Compact.
This responsibility report documents the results of our
efforts within corporate social responsibility, as well as
environmental, social and governance aspects (ESG).
As part of our commitment to the UN Global Compact,
TORM submits its communication on progress (COP)
every year.
This year, TORM will use the Sustainability Accounting
Standards Board (SASB) reporting framework to
further increase our ESG reporting transparency. The
SASB framework is an ESG guidance framework which
sets standards for the disclosure of financially material
sustainability information.
Find our SASB Index and Responsibility data on
pages 48-52
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
32
Our Responsibility
CORPORATE SOCIAL RESPONSIBILITY
HIGHLIGHTS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM continues to play an active role in fostering and caring for the needs of
society, the environment, and communities at large. TORM believes that doing
business sustainably while contributing to society is not only about sharing
obligations, but also about sharing social responsibilities. Therefore, TORM on
the one hand continues to strive hard to combat carbon, sulfur, and other
emissions and on the other hand, stands committed to providing quality
education, as it is a matter of concern for TORM and its employees. TORM is
confident that with all brilliant minds, great hearts and dedicated stakeholders,
this milestone will definitely be achieved.
DIVERSITY
37% WOMEN
IN THE SHORE-BASED
WORKFORCE
22% WOMEN
IN LEADERSHIP
POSITIONS
74
SCHOLARS
SUPPORTED
BY TORM AND OUR EDUCATION
FOUNDATION
0.37
LOST TIME
ACCIDENT
FREQUENCY IN
2021
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
33
TORM’S ESG TARGETS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
34
STAKEHOLDER ENGAGEMENT AND MATERIALITY
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
STAKEHOLDER ENGAGEMENT
Working in close collaboration with our customers and
stakeholders has an immense focus for TORM and is
key to deliver on our ambitious climate targets. Among
others the stakeholder groups include employees,
community, suppliers, customers, investors, and
authorities.
Throughout the year, specialists across TORM interact
with these stakeholders to ensure an open dialogue.
This includes our ongoing dialogue with financial
institutions to ensure a high level of transparency in our
climate efforts – both ashore and at sea.
As a company, we work with a selection of
partnerships sharing the same values and goals as
TORM, e.g., we have joined the Mærsk Mckinney Møller
Center for Zero Carbon Shipping, where we will work
with industry partners and knowledge specialists to
achieve zero carbon shipping by 2050. In addition,
TORM is an active member of industry organizations
such as Danish Shipping.
You can learn more about how we engage with
stakeholders and decision-making in the section 172
statement.
Engagement and Decision-making in TORM on
pages 104 - 106
Find more details on the value chain in oil
transportation and TORM’s role
Value chain in oil transportation on page 16
MATERIALITY
As part of our continued efforts to increase
transparency in our reporting, this year we will include
a materiality assessment in our responsibility reporting.
In TORM, we have defined materiality as “social and
environmental topics with the largest impact
throughout our value chain”.
Materiality Assessment
TORM’s ESG materiality assessment is made to identify
and prioritize the ESG issues which are most important
to and have most impact on TORM and our key
stakeholders. We have defined our key stakeholders as
customers, lenders, investors, regulators, employees,
suppliers, and community & environment.
The impact which the various topics have on TORM
varies depending on the topic. As examples, legal
compliance can be the risk of breaching sanctions
which can impact TORM’s access to critical markets if
not complied with, whereas TORM’s ability to employ
diversified personnel will impact our decision-making
capabilities and potential for strong commercial
performance in the future. Another example is securing
quality education which impacts our ability to source
skilled crew for our vessels. Each score is evaluated
relative to each other as all the material topics are
important to TORM and our key stakeholders. The
material topics and the materiality matrix were
approved by the Board of Directors.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
35
STAKEHOLDER ENGAGEMENT AND MATERIALITY
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Health and safety on pages 37-39
Human rights and business ethics on page 44
Security on page 39
Community engagement on pages 45-46
LEGAL COMPLIANCE
TORM’s environmental efforts on page 40
Responsible procurement in TORM on page 47
Legal compliance is essential to TORM and to
People at sea and ashore on pages 41-43
MATERIALITY MATRIX
Most important ESG related topics for TORM (scoring of topics is relative to each other)
Higher
l
s
r
e
d
o
h
e
k
a
t
s
y
e
k
o
t
e
c
n
a
t
r
o
p
m
I
G
H
Lower
D
F
E
C
A
B
A Legal compliance
B Health and safety
C Security
D Environmental efforts
E People
F Human rights and business ethics
G Community
H Responsible procurement
Lower
Higher
Impact on TORM
our stakeholders. International transport of
refined oil products is a highly regulated area,
and full compliance with all applicable rules
and regulations at all times is a necessity for
operating successfully in this line of business.
TORM’s compliance with all applicable
sanctions requires constant focus, as any
violation may have a significant business
impact. The same applies to compliance with
applicable rules and regulations in relation to
(without limitation) health, safety and
environment, anti-bribery and corruption,
competition/anti-trust, as well as employment
and labor. Legal compliance is often closely
linked to other areas included in the
materiality matrix and is also separately
included. The Governance section on pages
71-111 describes TORM’s framework and
governance model, designed to ensure
TORM’s continued ability to operate
successfully.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
36
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
HEALTH, SAFETY, AND SECURITY
Around 90% of TORM’s workforce is employed at sea,
and therefore ensuring healthy, safe, and secure
working conditions for them is of crucial importance to
TORM’s business. Backing those efforts, TORM believes
that a healthy and supportive work environment adds a
lot to the employees’ wellbeing, productivity, and
performance level at work and also enhances the
company’s retention rate.
addition, we have been able to attend our new vessels
for timely takeover.
Overall, owing to the effectiveness of 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.
Respecting employees’ human rights is pivotal to
TORM, and all the policies supporting this are outlined
in TORM’s Business Principles. Similarly, our safety
policy is rooted in the rules and regulations issued by
the Danish Maritime Occupational Health Service.
INSPECTIONS AND AUDITS
In order to maintain our standards and exceed the
targets set by our 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 vessels, the first-rate tools and data collection
processes at TORM made it possible to create a robust
remote audit system.
The challenges continued during 2021 and the One
TORM platform has been able to successfully deliver on
all counts, including new takeovers and new deliveries.
Despite the ongoing pandemic, a few employees have
successfully managed to visit a number of TORM
vessels for audits, inspections and on-board training. In
SIRE INSPECTIONS
The main body responsible for managing the
overarching processes and requirements of the 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 spite of the challenges, TORM
vessels were able to achieve a significant number of
physical SIRE inspections enabling business
continuities and the flexibility to trade. The process
around taking delivery of newbuildings as well as
second-hand vessels was well executed ensuring
successful trading.
During 2022, OCIMF is expected to roll out the
completely revamped SIRE 2.0 inspection and
assessment regime for the product tanker industry.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
37
HEALTH, SAFETY, AND SECURITY
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
SAFETY DELTA
TORM 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 2021.
Since 2018, TORM has used a revised performance
appraisal program as a way to systematically enhance
work behaviour and leadership to ensure excellent
safety performance.
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 2021, TORM introduced a new induction framework
for its Senior Officers. The induction program focuses
on providing the Senior Officers with insights into
fundamental company culture, behaviour, safety
leadership and stakeholder management to ensure
excellent performance for newly hired Senior Officers.
A revised induction framework for Junior Officers was
introduced in 2020.
In 2021, TORM continued to promote the One TORM
Safety Culture – driving resilience program. In Q4 2021,
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 to support and
ensure that TORM’s safety culture is anchored across
the organization, ashore as well as on board the
vessels. These Virtual Senior Officers Conferences have
been continued in 2021 and a total of 171 Senior Officers
have attended the conference.
ONE TORM SAFETY CULTURE
In 2021, TORM continued the safety culture
program One TORM Safety Culture – driving
resilience. 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. During 2021, TORM welcomed a
number of new senior officers to the
company, and still maintained a high
completion rate of more than 80% for the
safety leadership course. The course includes
workshops for all Senior Officers and key
marine shore staff and focuses on how to be a
good leader when it comes to safety.
In 2021, TORM introduced a new tailormade
Safety Leadership program for Junior Officers,
which cover the mindsets, competencies, and
behaviors suited for the role. It utilizes a three-
phase learning process which provides the
participants with a better learning experience
and ensures a faster application of learnings in
their day-to-day work practices. This course
also serves as a supplement to the Safety
Leadership Course for Senior Officers.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
38
HEALTH, SAFETY, AND SECURITY
vessels and interact with seafarers, including
conducting training.
Near-miss reports provide TORM with an opportunity
to analyse conditions which 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 2021, TORM’s focus on near-miss incidents and the
quest for continuous improvements resulted in the
introduction of a new category of events called ‘Unsafe
act & unsafe condition’ to help identify near miss
events for the safety of our crews. The total near miss
reported for 2021 was 4,203 (2020: 5,991, 2019: 6,099)
and ‘Unsafe act & unsafe condition’ was 1,954.
LOST TIME ACCIDENT FREQUENCY AND NEAR-MISS
INCIDENTS
Lost Time Accident Frequency (LTAF) is a measure of
serious work-related personal injuries which 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 2021, TORM’s LTAF
measure considerably decreased to 0.37 (2020: 0.65).
Each injury has been investigated and corrective
measures have been taken as required. TORM’s
seafarers have done a commendable job by raising the
safety culture and substantially reduced injuries in 2021,
especially during the pandemic. Virtual town halls and
other online interactions introduced at the beginning of
the pandemic for TORM’s seafarers have been used to
a greater extent in 2021. During this time, whenever
possible, opportunities were taken to physically attend
LOST TIME ACCIDENT FREQUENCY (LTAF)
Source: TORM
0.96
1.2
1.0
0.8
0.6
0.4
0.2
0.0
0.65
0.67
0.65
0.47
0.42
0.37
2015
2016
2017
2018
2019
2020
2021
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
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 2021,
TORM experienced six incidents when thieves
or robbers came on board and four incidents
of stowaways found on board TORM’s vessels.
No persons were harmed during these
incidents.
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 remain fragile due to the
COVID-19 pandemic. TORM has adapted its
procedures to the changing threat levels
across the areas called at by TORM vessels.
TORM will continue to monitor the risk
situation and pre-empt hijacking and robbery
attempts by following security procedures
and industry guidelines.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
39
ENVIRONMENTAL EFFORTS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM supports SDG 13 Climate Action
as marine pollution constitutes the
largest environmental risk in the
shipping industry.
Investing in Flettner Rotors for the newest of our LR2
vessels, aimed at saving fuel consumption.
Greener Future – Long-term Industry collaboration
on page 22
optimize, and implement the changes needed to
accelerate our environmental efforts.
Therefore, it is important for TORM to minimize the sea
and atmospheric pollution.
Flettner Rotors on page 25
FUEL CONSUMPTION AND ENERGY EFFICIENCY
TORM has relentlessly worked on the ambitious
environmental goal of reducing carbon footprints by
deploying effective strategies and efficient
technologies across our value chain. To responsibly
add value to the industry emissions reduction plans,
TORM contributed through its involvement in industry
collaborations in innovation partnership, ShippingLab
(a non-profit platform for maritime research),
development, and innovation with 30 partners from
across the maritime industry to push the efforts further
at driving smart shipping for the future, such as:
Signing up for the Call to Action for Shipping
Decarbonization, which calls on the governments to
take decisive actions to achieve decarbonization of
international shipping by 2050.
Board Activities 2021 – Strategically important long-
term collaborations on pages 77-78
Joining the Mærsk McKinney Møller Institute for Zero
Carbon Shipping as a Mission Ambassador to research
ways to grow in a more operationally, commercially,
and sustainably viable way.
Despite the challenges of managing the fuels and
evaluating the propulsion performance, the One TORM
platform continues to have a solid and dedicated focus
on reducing fuel consumption.
FAST FORWARDING OUR ENVIRONMENTAL EFFORT
Over the years, TORM has geared up its environmental
efforts only to outperform its set targets. Further, we
all have an obligation to do our utmost to reduce CO2
emissions. Therefore, TORM is pushing fast forward in
our environmental efforts and will deliver a 40% CO2
reduction by 2025 – instead of by 2030.
The baseline for the target is in line with the definition
set forth by the International Maritime Organization,
IMO, which defined how this should be measured and
calculated. The accelerated target is possible thanks to
the power of the integrated One TORM platform,
where we control the whole value chain of our business
and operations.
For example, we have in-house technical management,
training, energy efficiency team, marine HR, operations,
and chartering, and through this, we can adjust,
To continue reducing our emissions towards 2025 and
onwards, we will focus on e.g., hull painting,
maintenance, connected machinery and connected
vessels, and continue the optimization journey of
onboard operations. As our long-term goal, we will be
working on subjects encompassing future fuels and
next-generation vessels.
TORM continuously focuses on energy efficiency
across the fleet. This serves the dual purpose of
minimizing the environmental impact and helps us
deliver market leading performance. By maintaining a
strong focus on energy efficiency in 2021, TORM has
achieved a 37.6% reduction in Annual Efficiency Ratio
(AER) compared to the IMO baseline (2008). Daily
engagement with the vessels continues to create
significant value to encourage and support best
practice behavior with regard to energy consumption.
In addition, the efforts ensure that corrective actions
can be taken swiftly, as needed.
In our continued endeavors to operate in an
environmentally friendly way, we strive to push our
horizons and believe that our actions will do the work.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
40
PEOPLE
People and culture play an essential part at TORM. It
defines our core and helps us grow and thrive, at sea
and ashore. The pandemic has challenged the way we
work and cooperate. But we have initiated strategic
and operational initiatives to drive high employee
engagement and improve the sense of belonging.
AT SEA
In 2021, TORM continued its strategy to employ
seafarers with different nationalities as we believe that
diversity on board is an important foundation for
cooperation, high performance, and a safe working
environment.
GEOGRAPHICAL DISTRIBUTION OF SEAFARERS IN %
Total number of seafarers at the end of 2021: 3,420
Croatia
Other
Denmark
2%
4%
5%
India
39%
51%
The Philippines
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Throughout the year, TORM’s main priority was to
relieve seafarers on time despite the heavy constraints
caused by the COVID-19 pandemic.
Further, the focus was to get all seafarers both at sea
and ashore vaccinated against COVID-19. TORM was
one of the first companies to use the US vaccination
program for vessels calling US ports and we followed
up in all countries who offered this service. In 2021, the
team managed to vaccinate more than 1,000 seafarers
on board and set up help to get vaccines for all
nationalities. Today, no seafarer joins a TORM vessel
without being vaccinated. In 2022, TORM will continue
the drive towards full vaccination, including booster
vaccination.
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 included both financial support, and most
importantly to ensure healthy wellbeing. Despite the
COVID-19 limitations, TORM continued its efforts to
strengthen the relationship between seafarers and the
shore-based organization. In 2021, this involved a
transition from physical meetings and gatherings to a
more virtual form which included seminars, trainings,
and general gatherings.
TORM maintains an ongoing focus on seafarer
commitment and engagement. In 2021, 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). The
Well at TORM program aimed at focusing on the
wellbeing of our seafarers by increasing engagement,
mental resilience, physical health and embracing
socialization among crew members, is successfully
running at par with our intent with more than half of
the total seafarers actively participating in it.
94%
Retention rate for senior officers
At the end of 2021, TORM employed a total of 3,420
seafarers of whom 92 were permanently employed,
with the remaining seafarers being on time-bound
contracts.
ASHORE
High Engagement
In 2021, we continued our bi-annual real time data
engagement survey which we introduced in 2019. More
than 90% of all shore-based employees responded to
the survey.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
41
PEOPLE
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
The outcome of the December 2021 survey was a score
of 8.4 out of ten showing a continuous high
engagement and satisfaction among our employees.
And this is the case across categories ranging from
engagement, freedom of opinion, management
support, work environment and safety.
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 positive
outcome of the survey was maintained from previous
years, and it positions TORM in the top quartile of
companies across all industries using the same
platform.
Our ambition of this engagement survey combined
with a high response rate is to help us improve, nurture
the culture needed to fulfil our ambitious strategy and
develop initiatives which matter to our employees.
Again in 2021, we included questions to understand
how our shore-based employees cope with the
pandemic and the precautionary measures we have
introduced to safeguard and support our employees.
The survey showed that the COVID-19 related
measures introduced were highly appreciated by our
employees.
Employee health and wellbeing
During 2021, we introduced an updated remote work
approach due to the experiences stemming from the
requirements to work remotely during the pandemic.
This allowed for more flexibility for the global team. By
the end of 2021, the retention rate for all shore-based
employees was 88%. That is an expected change
compared to previous years due to the effects of
employees worldwide rethinking what work mean to
them following the COVID-19 pandemic.
To strengthen and develop TORM’s position in this
area, continuous development of our organization,
culture and leadership is a key criterion for success. On
this background, we decided to implement leadership
training in our organization. One of the main purposes
was to enhance the feedback culture in TORM.
We are consistently focusing on employee health and
wellbeing. The term wellbeing embraces not only
physical, but also mental aspects of wellbeing.
Therefore, specific training in stress awareness was
initiated during the year. Through in-depth knowledge,
a common language and targeted tools, all employees
will be equipped with the necessary tools required to
spot and mitigate stress. We will continue introducing
this across offices in 2022.
Onboarding a new career
Our ability to recruit and retain highly qualified
employees for positions ashore and at sea is essential
to our business. That is why we have a strong focus on
the way we communicate with potential candidates,
how we recruit, and we how we onboard our new
employees. We want to enhance the understanding of
TORM and the One TORM culture.
At sea and ashore, thousands of colleagues worldwide
keep the TORM fleet moving. While we all share the
same goals and culture, everyone’s story is different.
TORM has developed a career site at torm.com which
portrays employees with different stories. And the site
describes our different career programs ashore and at
sea.
Overall, we aim to attract and retain the best qualified
employees by living the four values of the TORM
Leadership Philosophy and by ensuring that TORM’s
leaders motivate their employees.
At the end of 2021, the shore-based organization had
348 employees: 140 in Hellerup, 136 in Mumbai, two in
New Delhi, 39 in Manila, three in Cebu, 16 in Singapore,
11 in Houston, and one in London.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
42
PEOPLE
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
DIVERSITY
At TORM, we have an obligation to develop a strong
and diverse talent pool irrespective of gender, religion,
sexuality, nationality, ethnicity, or disabilities etc.
As stated in TORM’s Business Principles, we work
toward a diverse workforce in every aspect. We want
to have an inclusive environment which respects and
supports all our people and helps improve business
performance.
In our continued efforts to maintain a positive and
respectful work environment, we have completed
interactive sessions which have provided insights into
how we ensure to be aware and respectful in our daily
work. Also annually, we will follow up on these
initiatives and evaluate the results.
We believe that diverse teams led by diverse leaders
deliver better business performance, and offer equal
opportunities in recruitment, career development,
promotion, training and rewards for all employees.
In 2021, we continued to participate and drive the aim
of Danish Shipping’s taskforce for more women at Sea.
In this work group, we have incorporated 10
recommendations into processes and procedures as
best practice. The recommendations include setting
gender diversity targets, supporting women through
family friendly policies and rethinking the recruitment
process.
Gender distribution
We actively monitor the representation of females in
the workforce and in leadership positions. At the end of
2021, the proportion of female full-time employees in
the shore-based workforce was 37%, while women in
leadership positions, defined as having one or more
direct reports, constituted 22%. TORM has a target for
2030 of 35% women in leadership positions.
At the end of 2021, 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).
DATA ETHICS
TORM’s business model, The ONE TORM platform, uses
advanced analytics and digital solutions in which large
amounts of data are processed. TORM’s Data Ethics
Policy confirms TORM’s commitment to our defined
data ethic’s principles and it defines how we collect,
store and process data.
TORM wants to maintain high ethical standards for the
protection of our data, and we want our handling of all
data to be beneficial and value-adding to our
customers, employees, business partners, authorities,
and other stakeholders.
Our treatment of data must be robust to prevent
against any unintended disclosure. TORM’s data
security measures include a variety of guidelines and
defined processes, as well as technical and human
controls.
TORM generally does not collect, store, or handle data
in relation to private customers or consumers. The data
which TORM collects, and stores is mainly commercial
data, relevant to the operation of our owned and
chartered vessels. Such commercial data includes
without limitation global trade flows, trading patterns,
cargo types, weather patterns, port data etc. and may
be generated internally or obtained from external
sources.
EMPLOYEE DIVERSITY
Permanently employed
Directors of the Company¹
Employees in other senior executive positions
⁾
Total management other than Directors of the Company (Managers with one or more direct reports)
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
138
176
317
1
-
19
103
122
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
43
HUMAN RIGHTS AND BUSINESS ETHICS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
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
TORM’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
TORM’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 TORM is
committed to acting professionally, fairly and with
integrity in all business dealings and relationships,
wherever TORM operates. TORM will uphold all laws
relevant to countering bribery and corruption in all the
jurisdictions in which TORM 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.
part of the internal control system. In 2021, the whistle-
blower facility received two notifications, both of which
were investigated and closed without any critique or
requirements for new measures.
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 which 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.
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 2021 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 2022.
Since 2006, TORM’s Board of Directors has provided a
whistle-blower facility with an independent lawyer as
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, we will continue to
promote human rights-related policies and processes.
The most material risk for human rights abuses are
related to TORM’s supply chain. 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 2021.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
44
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
The TPEF also provided support for the reconstruction
of the interior of a school which had been ravaged by
typhoons, and it played a crucial role in making
provision for water supply facilities, water dispensers,
and making building materials available to an
elementary school in the region.
Though faced with many challenges and limited
resources, our team made effective use of available
materials in a sustainable way. Provisions for solar-
based lamps for elementary school kids were made
available to ensure that their studies are not affected,
along with a one-unit solar panel for the school.
Apart from ensuring proper education facilitation in the
Philippines, TORM also formed its ‘Disaster Relief Team’
which is trained and active in case any unexpected
events occur. ‘TORM Care’ is a special kit made to
accommodate specific needs consisting of safety
blankets, grocery packs, drinking water, hygiene packs,
and COVID19 kits.
COMMUNITY
SUPPORTING QUALITY EDUCATION
TORM is a long-standing supporter of
maritime education in Denmark, India,
and the Philippines, and it is therefore
natural for TORM to support SDG 4
Quality Education.
This commitment shows TORM's connection to the
surrounding communities and how much of a positive
impact it has on the society at large where TORM
operates and where many of TORM’s employees come
from.
Adding to that, TORM firmly believes that by
supporting education in selected areas, we can nurture
future competencies and develop a strong pipeline for
the industry. TORM’s contribution towards the
betterment of society builds a sense of trust and pride
in our colleagues which reciprocates in the form of
higher retention and 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 the Copenhagen
Business School, the Copenhagen School of Marine
Engineering & Technology Management, and the
Nanyang Technological University Singapore. The
majority of TORM’s seafarers come from Indian or
Filipino nationality, and therefore TORM’s activities in
these areas educate the students about the shipping
industry. This enhances the potential pool of future
TORM employees and strengthens the overall skillset of
seafarers coming from these regions.
EDUCATION FOUNDATION IN THE PHILIPPINES
The TORM Philippines Education Foundation (TPEF) is
a foundation set up by TORM Philippines in 2007 to
support education in the Philippine community.
During the educational year 2021-2022 we supported
•
•
11 new scholars studying in school
41 scholars studying in various colleges and
universities
22 apprentices (one female and 21 male) with
maritime courses
•
• One scholar graduated in 2021 with a degree in BS
Marine Transportation
In lieu of the scholars’ learning program, the TPEF also
conducted monthly practical online talk sessions
organized to sustain the students’ capabilities,
knowledge, and awareness on various issues during the
pandemic under the Scholars Development Program
(SDP). Sessions were directed at developing positive
values and mindsets, self-image, and social and soft
skills through SDP. Through webinars under the Social
Development Initiative (SDI), the TPEF also worked on
more pressing issues such as mental health, wellness,
and community wellbeing in general.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
45
COMMUNITY
SUPPORTING QUALITY EDUCATION
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM firmly believes that enhanced infrastructural
support and better extra-curricular activities will help
nurture a wholistic upbringing for the students.
Earlier in 2021, TORM India pledged to construct three
classrooms at Nalasopara, Mumbai. Although delayed
due to the restrictions caused by COVID-19 pandemic,
this project is expected to be completed in early 2022.
In our continued endeavour to have a positive impact
on society, TORM is evaluating several more projects in
and around Mumbai, specifically directed towards girls.
EDUCATION FOUNDATION IN INDIA
In India, TORM funded specific projects under selective
social causes, and since 2018, TORM India has worked
closely with three organizations to achieve the
purpose, namely –
•
SAMPARC - an organization taking care of the
disadvantaged children across India
• BAIF - an organization working towards upgrading
and providing rural infrastructure
• Akshayshakti – an organization looking after
improving the lives of students, welfare and
abandoned children
Previously, TORM supported the construction of the ZP
Prathmik School in Zadgewadi in Kurkumbh, near Pune,
India. The school was constructed and furnished with
facilities with support from TORM.
Through SAMPARC, TORM sponsors 33 students
attending the school and assists them with their basic
needs, such as school equipment and specified living
expenses. The COVID-19 pandemic has restricted
movements in India, however, in November 2021, a
team from TORM India visited SAMPARC Bhaje to
celebrate the Deepawali Festival with the students and
distributed presents to all students. TORM also fulfilled
its promise of renovating a multipurpose town hall and
setting up of a library at Bhaje. Both facilities were
opened for use.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
46
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
The questions fall within the following main categories:
• Company information
• Quality management
•
•
• Human rights and labor
•
• Business ethics
Performance
Training
Environment, health, and safety
TORM will, when possible, conduct site visits to audit
the subjects stated in the self-assessment
questionnaire or as an option conduct a remote audit.
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
TORM’s legal standing and reputation.
RESPONSIBLE PROCUREMENT
Responsible behavior throughout the organization is
central to TORM’s business, management practices,
and corporate culture.
Our supply chain is important to achieve our goals, and
we want to ensure that our quality standards and
responsibility efforts are extended and improved
throughout the supply chain. We expect our suppliers
to comply with recognized international standards and
work to improve human rights, labor conditions, impact
on the environment, safety, corruption, and quality.
As a long-standing member of the UN Global Compact,
TORM remains committed to protecting its employees,
assets, reputation, and the environment by maintaining
the highest possible standards. Transparency and
accountability are central parts of TORM’s way of
doing business.
TORM signed the UN Global Compact in 2009 as the
first shipping company in Denmark to commit to the
internationally recognized set of principles regarding
health, safety, labor rights, environmental protection,
and anti-corruption. Being a signatory also means that
TORM reports on its social and environmental
performance on an annual basis to ensure progress and
accountability to stakeholders.
Because of TORM’s commitment to integrate
responsibility in all business practices, a revised set of
Business Principles has been introduced. The Business
Principles ensure alignment between our values, as
outlined in the TORM Leadership Philosophy, and the
Policies that ensure appropriate behavior, which cannot
be deviated from. This relationship applies to Policies
within all operations, including those related to CSR.
TORM also applies its Business Principles when dealing
with subcontractors and suppliers. TORM's Business
Principles place a particular emphasis on our
commitment to promote responsible business
principles in our supply chain. Therefore, TORM is
compliant with the UK Modern Slavery Act.
TORM is certified according to ISO 9001 and ISO 14401,
and in accordance with the requirements of our
certifications, we will start conducting periodic
assessments of our suppliers.
The main purpose of the first supplier assessment is to
establish a baseline and know the status at our
suppliers for us to engage in dialogue about how we
together can extend and quality, responsibility, and
sustainability efforts. In some situations, we may
identify areas where we feel that corrections are
required to continue as a supplier to TORM.
Our suppliers are asked to perform a self-assessment
questionnaire. It consists of a range of questions
related to your business, which you must fill out and
return to us to continue as a supplier to TORM.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
47
SASB MARINE TRANSPORTATION INDUSTRY
STANDARD
Topic
Accounting Metric
Unit
2021
Code
Greenhouse Gas
Gross global Scope 1 emissions
Metric tons (t) CO2-e
1,353,306
TR-MT-110a.1
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Discussion of long-term and short-term strategy or plan to manage Scope 1 emissions,
emissions reduction targets, and an analysis of performance against those targets
(1) Total energy consumed
(2) percentage heavy fuel oil
(3) percentage renewable
Average Energy Efficiency Design Index (EEDI) for new ships
Air Quality
(1) Nox (excluding N2O)
Air emissions of the following pollutants:
(2) SOX
(3) particulate matter (PM10)
Percentage (%)
Percentage (%)
Grams of CO2 per ton-
nautical mile
Metric tons (t)
Metric tons (t)
Metric tons (t)
See pages 22-
27, 34, 40
Gigajoules (GJ)
17,672
Ecological Impacts
Shipping duration in marine protected areas or areas of protected conservation status
Number of travel days
Percentage of fleet implementing ballast water: (1) exchange
Percentage of fleet implementing ballast water: (2) treatment
Number of spills and releases to the environment 2)
Aggregate volume of spills and releases to the environment 3)
Percentage (%)
Percentage (%)
Number
Cubic meters (M3)
50
0
3
n/a 1)
1,488
n/a 1)
n/a 1)
27
73
0
0
TR-MT-110a.2
TR-MT-110a.3
TR-MT-110a.3
TR-MT-110a.3
TR-MT-110a.4
TR-MT-120a.1
TR-MT-120a.1
TR-MT-120a.1
TR-MT-160a.1
TR-MT-160a.2
TR-MT-160a.2
TR-MT-160a.3
TR-MT-160a.3
1) Data unavailable. Assessment of feasibility of disclosure is ongoing.
2) Our definition of spills is based on ITOPF.
3) We report total volume of spills, as estimated aggregate volume of all spills as defined above. We do not do netting of the amount of such material that was subsequently recovered, evaporated, or otherwise lost as required by SASB standard
TR-MT-160a.3 -2.1.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
48
SASB MARINE TRANSPORTATION INDUSTRY
STANDARD
Topic
Accounting Metric
Employee Health & Safety
Lost time incident rate (LTIR) 1)
Unit
Rate
2021
0.37
Code
TR-MT-320a.1
Business Ethics
International's Corruption Perception Index
Number
13
TR-MT-510a.1
Number of calls at ports in countries that have the 20 lowest rankings in Transparency
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Total amount of monetary losses as a result of legal proceedings associated with bribery
or corruption
Accident &
Safety Management
Number of marine casualties 2)
Percentage classified as very serious 2)
Number of Conditions of Class or Recommendations
Number of port state control: (1) deficiencies
Number of port state control: (2) detentions
Activity Metrics
Number of shipboard employees
Total distance traveled by vessels
Operating days
Deadweight tonnage
Number of vessels in total shipping fleet
Number of vessel port calls
Twenty-foot equivalent unit (TEU) capacity
USD
Number
Percentage (%)
Number
Ratio 3)
Ratio 3)
0
1
0
7
0.55
0.00
Number
3,420
Nautical miles (nm)
4,398,088
Thousand deadweight tons
Days
Number
Number
TEU
28,717
4,746
84
2,514
n/a
TR-MT-510a.2
TR-MT-540a.1
TR-MT-540a.1
TR-MT-540a.2
TR-MT-540a.3
TR-MT-540a.3
TR-MT-000.A
TR-MT-000.B
TR-MT-000.C
TR-MT-000.D
TR-MT-000.E
TR-MT-000.F
TR-MT-000.G
1) Instead of LTIR, we report on LTAF (LTIF) which is an industry norm based on OCIMF guidelines on Injury reporting. The rate per one million man hours is the most common unit in respect of LTAF.
2) Our definition of Marine casualty is based on IMO Casualty Investigation Code Ch 2 -2.9 and very serious marine casualty is based on IMO Casualty Investigation Code Ch 2 -2.22.
3) We report number of port state control deficiencies and detentions as a ratio instead of a number. It is the industry norm to report port state control performance as a ratio as it provides important context to the metrics. The ratio is calculated
as the number of deficiencies (or detentions) divided by the total number of PSC inspections.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
49
ENVIRONMENTAL INDICATORS
Indicator
Greenhouse gas (GHG) emissions
Direct GHG emissions (scope 1)
Indirect GHG emissions (scope 2)
Total GHG emissions
Energy consumption
Heavy fuel
Low-sulfur heavy fuel
Marine Gas Oil
Office consumption
Electricity consumption
Water consumption
Greenhouse gas (GHG) emissions - Fleet
CO2 emissions, AER – total fleet
CO2 emissions, AER – LR2
CO2 emissions, AER – LR1
CO2 emissions, AER – MR
CO2 emissions, AER – Handy
CO2 emissions, EEOI – total fleet
CO2 emissions, EEOI – LR2
CO2 emissions, EEOI – LR1
CO2 emissions, EEOI – MR
CO2 emissions, EEOI – Handy
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Unit
2021
2020
2019
Ton CO2
1,353,306
1,335,896
1,302,390
Ton CO2
486
434
488
Ton CO2
1,353,792
1,336,330
1,302,878
Ton
Ton
Ton
kWh
M3
216,610
126,371
88,978
170,907
174,836
80,865
349,056
12,174
55,371
514,461
445,093
702,850
3,875
3,268
-
g/dwtxnm
g/dwtxnm
g/dwtxnm
g/dwtxnm
g/dwtxnm
g/cargoxnm
g/cargoxnm
g/cargoxnm
g/cargoxnm
g/cargoxnm
5.05
3.72
4.33
5.83
7.23
10.64
8.67
8.95
11.80
15.24
5.34
4.10
4.66
6.02
7.52
11.17
8.07
9.43
13.06
15.07
5.28
3.77
4.69
6.14
7.81
11.35
8.58
9.03
13.17
15.51
The emission figures in this report represent TORM’s findings to the best of our knowledge given today’s methodology used by TORM aligned with current IMO methodology.
TORM is continuously committed to improving the methodology and advancing transparency in reporting as well as to following industry best practices on emissions
reporting.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
50
SOCIAL INDICATORS
Indicator
Our employees
Total number of seafarers
Total number of employees (shore-based)
Diversity – shore-based employees
Total women in leadership
Gender with lowest representation (women)
Diversity – seafarers
Total women in leadership
Gender with lowest representation (women)
Health & Safety
Fatalities
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Unit
2021
2020
2019
Further information
Headcount
Headcount
3,420
348
3,023
345
3,050
341
%
%
Number
Number
Headcount
22
37
1
1
0
21
36
1
1
0
22
35
1
1
0
AR21
AR21
AR21
Lost-time accident frequency (LTAF)
Per million exposure hours
0.37
0.65
0.42
AR21
Ethics *
Sexual Harassment and/or Non-discrimination Policy
Equal and fair opportunity employer
Child and/or Forced Labor Policy
Child and/or Forced Labor Policy covers suppliers and vendors
Human Rights Policy
Human Rights Policy covers suppliers and vendors
Modern Slavery Policy
UN Global Compact Signatory
Recycling and Scrapping Policy
*Yes • | No •
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Business Principles
Business Principles
Business Principles
Business Principles
Business Principles
Business Principles
UK Modern Slavery Act
CSR
•
•
•
•
•
•
•
•
•
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
51
GOVERNANCE INDICATORS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
Indicator
Board of Directors
Members
Gender with lowest representation (women)
Total nationalities
Independence
Senior Management
Members
Gender with lowest representation (women)
Total nationalities
Ethics *
Anti-corruption Policy
Anti-bribery Policy
Whistleblower Policy
Articles of Association
Data Ethics Policy
Code of Conduct Policy (Business Principles)
*
*Yes • | No •
Unit
2021
2020
2019
Further information
Number
%
Number
%
Number
%
Number
5
20
5
80
4
0
1
•
•
•
•
•
•
5
20
5
80
4
0
1
•
•
•
•
•
•
5
0
4
80
4
0
1
•
•
•
•
•
•
AR 21
AR 21
AR 21
AR 21
AR 21
AR 21
AR 21
Business Principles
Business Principles
AR 21
AR 21
Business Principles
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
52
DEFINITIONS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
CO2 emissions (ton)
The 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.
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.
Office water consumption (m3)
Water consumed indirectly in operating activities at the
TORM offices excluding the London, Houston, Mumbai
and New Delhi offices. Data is not available for 2019.
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.
Spills
Definition of spills is based on ITOPF. We report total
volume of spills, as estimated aggregate volume of all
spills. We do not do netting of the amount of such
material that was subsequently recovered, evaporated,
or otherwise lost as required by SASB standard TR-MT-
160a.3 -2.1.
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
0.025% when using the exhaust gas cleaning system.
Energy consumption (GJ)
All fuel burned on board the vessels has been
converted into energy based on fuel oil analysis results.
Deadweight Tonnage (based on SOLAS II-1A-Reg 2-
20)
Deadweight tonnage is the difference in tonnes
between the displacement of a ship in water of a
specific gravity of 1.025 at the draught corresponding
to the assigned summer freeboard and the lightweight
of the ship.
COC (Based on IACS document Classification
societies Section B3 Classification surveys)
The requirements that specific measures, repairs,
request for survey, etc. are to be carried out within a
specified time period in order to retain class.
AER (g/dwtxnm)
AER is a measure of efficiency using the total fuel
consumption, distance travelled and deadweight. The
Office electricity consumption (kWh)
Electricity consumed indirectly in operational activities
at the TORM offices excluding the London and
Houston offices.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
53
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
DEFINITIONS
LTAF or LTIF (Based on OCIMF Marine Injury
Reporting Guidelines Sec 4)
The number of Lost Time Injuries per unit exposure
hours. Unit in respect of LTIF is one-million-man hours.
Lost Time Injuries are the sum of Fatalities, Permanent
Total Disabilities, Permanent Partial Disabilities and
Lost Workday Cases as based on OCIMF Marine Injury
Reporting Guidelines Sec 3.
Marine Casualty (Based on IMO Casualty Investigation
Code Ch 2 -2.9)
A marine casualty means an event, or a sequence of
events, that has resulted in any of the following which
has occurred directly in connection with the operations
of a ship:
•
•
•
• material damage to a ship
•
the death of, or serious injury to, a person
the loss of a person from a ship
the loss, presumed loss or abandonment of a ship
the stranding or disabling of a ship, or the
involvement of a ship in a collision
• material damage to marine infrastructure external
to a ship, that could seriously endanger the safety
of the ship, another ship, or an individual or
severe damage to the environment, or the
potential for severe damage to the environment,
brought about by the damage of a ship or ships
•
However, a marine casualty does not include a
deliberate act or omission, with the intention to cause
harm to the safety of a ship, an individual or the
environment.
Material Damage to ship (Based on IMO Casualty
Investigation Code Ch 2 -2.16)
A material damage in relation to a marine casualty
means:
•
damage that significantly affects the structural
integrity, performance or operational characteristics
of marine infrastructure or a ship; and
damage that requires major repair or replacement
of a major component or components; or
destruction of the marine infrastructure or ship.
•
•
Very serious marine casualty (Based on IMO Casualty
Investigation Code Ch 2 -2.22)
A very serious marine casualty means a marine
casualty involving the total loss of the ship or a death
or severe damage to the environment.
Permanent management positions (ex. Directors and
senior executives) – shore-based
Total Management other than directors of the
Company (VP's, GM's, Senior Managers and Managers
with one or more direct reports). The five Non-
Executive Directors are not included as employees of
the Group.
Permanent seafarer officers
Defined as officers living in Scandinavia.
TORM ANNUAL REPORT 2021
OUR RESPONSIBILITY
54
FINANCIAL REVIEW 2021
FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2021
TORM delivered industry leading results and continues to have a solid capital structure with a Net Loan-to-Value of 52%, USD 210m in available
liquidity including restricted cash, no major refinancings needed before 2026 and limited off-balance sheet commitments of USD 38m.
Kim Balle, CFO
FINANCIAL RESULTS
In 2021, TORM recorded a net loss of USD 42m
compared to a profit of USD 88m in 2020 resulting in
loss per share of USD -0.54 compared to earnings per
share (EPS) of USD 1.19 in 2020. When excluding non-
recurrent items in both 2021 and 2020, the net loss
reached USD -36m in 2021, a decrease of USD 158m
from a net profit of USD 122m in 2020. The lower result
in 2021 was mainly due to decreasing freight rates.
In 2021, operating profit decreased by USD 138m to
USD 1m, primarily reflecting the decrease in revenue.
In 2021, total revenue was USD 620m compared to
USD 747m in 2020, and TCE earnings decreased from
USD 520m to USD 379m, a total decrease of 27%. The
decrease in TCE earnings was primarily attributable to
a weaker freight market in 2021 compared to 2020. The
decrease was based on an approximately 31% lower
TCE per day and 5% more available earning days (1,398
days) in 2021 compared to 2020.
TORM ANNUAL REPORT 2021
REVIEW AND RISK
55
Review and risk
FINANCIAL REVIEW 2021
TORM’s total assets increased by USD 332m in 2021 to
USD 2,331m. The carrying amount of vessels,
capitalized dry-docking and prepayments on vessels
amounted to USD 1,950m compared to USD 1,734m in
2020. During the year, TORM sold two older vessels;
one MR delivered in 2021 and one LR1 scheduled to be
delivered in the first quarter of 2022.
In 2021, TORM acquired eight MR product tanker
vessels from TEAM Tankers Deep Sea Ltd and bought
three LR2 vessels.
In 2021, total equity increased by USD 35m to USD
1,052m from USD 1,017m in 2020. The increase in equity
was mainly due to a capital increase in connection with
the acquisition of vessels and a change in value of
hedging instruments partially offset by net loss for the
year. The market value adjustments on derivatives held
for hedge accounting had a positive effect on equity of
USD 17m, mainly related to the increasing market
values of TORM’s interest rate swaps. The Return on
Equity (RoE) decreased from 8.7% in 2020 to -4.1% in
2021, due to lower revenue.
TORM’s total liabilities increased by USD 298m to USD
1,279m in 2021 and borrowings increased by USD 293m
to USD 1,135m.
In 2021, invested capital increased by USD 291m to USD
2,011m as of 31 December 2021, mainly due to the
addition of vessels in 2021. In addition, Return on
Invested Capital (RoIC) decreased by 7.8 percentage
TORM ANNUAL REPORT 2021
points from 7.8% to 0.0%. Adjusted RoIC in 2021
reached 0.2%, a decrease of 9.1 percentage points from
2020.
In 2021, the Net Asset Value per share based on broker
value increased to USD 12.5 from USD 10.8 in 2020
mainly due to the increase of vessels in 2021.
KEY HIGHLIGHTS
USDm
Income Statement
Revenue
Time charter equivalent (TCE)
Gross profit
EBITDA
Operating profit/(loss) (EBIT)
Financial items
Net profit/(loss) for the year
Balance Sheet
Non-current assets
Total assets
Equity
Total liabilities
Key figures
Invested capital in USDm
Net Asset Value per share (NAV) (USD)
Return on Invested Capital (RoIC)
Adjusted RoIC
Return on Equity (RoE)
Basic earnings per share (EPS)
2021
2020
Change
620
379
188
137
1
-42
-42
1,968
2,331
1,052
1,279
2,011
12.5
0.0%
0.2%
-4.1%
-0.54
747
520
341
272
139
-49
88
1,755
1,999
1,017
981
1,720
10.8
-127
-141
-153
-135
-138
7
-130
213
332
35
298
291
1.7
7.8%
9.3%
-7.8%points
-9.1%points
8.7%
-12.8%points
1.19
-1.73
REVIEW AND RISK
56
FINANCIAL REVIEW 2021
LIQUIDITY AND CASH FLOW
Total cash and cash equivalents, including restricted
cash, amounted to USD 172m at the end of 2021,
resulting in a net increase in cash and cash equivalents,
including restricted cash, for the year of USD 36m
compared to 2020. Undrawn and committed credit
facilities amounted to USD 38m (2020: USD 132m;
2019: USD 173m). The undrawn and committed credit
facilities consisted of a USD 38m leasing facility with
BoComm Leasing.
and leased back for a total amount of USD 71m. At the
end of 2021, TORM sold and leased back nine MR
vessels for a total amount of USD 151m. The agreement
was made with CDBL leasing. TORM does not have any
material debt maturities until 2026, which supports
TORM’s financial flexibility.
As of 31 December 2021, TORM had CAPEX
commitments of USD 38.2m related to the outstanding
LR2 new building.
48m
Cash flow from operating activities
During 2021, TORM entered into a number of loan and
leasing agreements. In conjunction with the purchase
of eight vessels from Team Tankers, TORM agreed with
the bank syndicate to amend the existing agreement to
include five of the eight vessels financed by a USD 64m
revolving credit facility partly funded by equity/capital
increase. The remaining three vessels were financed by
HCOB through a USD 28m term facility.
Further, TORM agreed with Danish Ship Finance to
amend the existing facility to include additionally two
acquired LR2 vessels in the term facility agreement.
TORM took delivery of the two LR2 new buildings
TORM Helene and TORM Houston end of 2021 and
early 2022. The two vessels were financed through an
operational lease with BoComm for a total amount of
USD 76m.
BoComm also financed three other LR2 vessels. TORM
Kiara was acquired and financed for an amount of USD
32m and TORM Herdis and TORM Hellerup was sold
In 2021, net cash inflow from operating activities
decreased from USD 236m in 2020 to USD 48m due to
the lower freight rates combined with an increase in
working capital (bunkers, receivables, and payables).
Net cash outflow from investing activities amounted to
USD 291m in 2021 compared to USD 120m in 2020. The
cash outflow was used for tangible fixed assets,
primarily related to the new buildings and secondhand
vessels acquired.
Net cash inflow from financing activities amounted to
USD 298m in 2021 compared to a cash outflow of USD
83m in 2020. Repayment on borrowings amounted to
USD 254m in connection with scheduled repayments
and vessel sales during the year. Additional borrowings
generated a cash inflow of USD 549m.
-291m
Cash flow from
investing activities
298m
Cash flow from
financing activities
TORM ANNUAL REPORT 2021
REVIEW AND RISK
57
FINANCIAL REVIEW 2021
TANKER FLEET
Revenue in the tanker fleet decreased by 17% to USD
620m in 2021, down from USD 747m in 2020, and TCE
earnings decreased by 27% to USD 379m from USD
520m in 2020. The decrease in TCE earnings was
primarily due to a weaker product tanker freight
market in 2021 compared to 2020.
Global oil demand continued to improve towards the
pre-pandemic levels, however continued stock draws,
driven by OPEC+ oil production quota regime and
supply disruptions in the US, limited the oil product
trade and kept the product tanker freight rates
depressed. On the supply side, increased vessel
scrapping kept product tanker fleet growth in check.
For the LR2s, the average TCE rates decreased by 42%
from 2020 to 2021. The decreasing freight rates are
partly offset by an increase of 5% in available earning
days resulting in total TCE earnings in 2021 of USD 61m,
a decrease of USD 39m from 2020.
For the Handysize vessels, the TCE rates decreased by
28% in 2021 compared to 2020. With an increase in
available earning days of 9% in 2021 the total TCE
earnings for the Handysize vessels ended at USD 7m, a
decrease of USD 2m.
As of 20 March 2022, TORM had covered 34.3% of the
earning days in 2022 at USD/day 17,497.
The average TCE rates for the LR1s were 37% lower
than in 2020. The decreasing freight rates combined
with a decrease of 1% in available earning days resulted
in total TCE earnings of USD 46m, a decrease in
earnings of USD 29m from 2020.
In 2021, the available earning days of MR vessels
increased by 1,174 days, equaling an increase of 6%
compared to 2020. The TCE rates decreased by 26%,
resulting in total TCE earnings of USD 264m, a
decrease of USD 72m.
CHANGE IN TIME CHARTER EQUIVALENT EARNINGS IN THE TANKER FLEET
USDm
Time charter equivalent earnings 2020
Change in number of earning days
Change in freight rates
Other
Time charter equivalent earnings 2021
TORM ANNUAL REPORT 2021
Handysize
MR
LR1
LR2
Total
335.6
74.9
100.1
519.5
21.3
-0.5
4.9
26.5
-92.7
-27.2
-44.6
-167.2
8.9
0.8
-2.7
0.0
-0.3
7.0
263.9
-0.9
46.3
1.0
-0.2
61.4
378.6
REVIEW AND RISK
58
FINANCIAL REVIEW 2021
EARNINGS DATA
USDm
LR2 vessels
Available earning days
Spot rates ¹
TCE per earning day ²
⁾
LR1 vessels
⁾
Available earning days
Spot rates ¹
TCE per earning day ²
⁾
MR vessels
⁾
Available earning days
Spot rates ¹
TCE per earning day ²
⁾
Handysize vessels
⁾
Available earning days
Spot rates ¹
TCE per earning day ²
⁾
Total
⁾
Available earning days
Spot rates ¹
2020
% change
Full year
Q1
Q2
Q3
Q4
Full year
full year
2021
3,795
847
788
1,143
1,201
3,979
29,030
10,221
11,716
13,217
16,658
14,037
26,637
16,455
14,303
15,315
15,529
15,422
3,228
805
813
760
828
3,206
22,424
13,710
12,954
11,694
15,196
13,702
22,839
14,750
14,914
11,211
16,347
14,365
18,529
4,378
4,750
5,227
5,348
19,703
18,229
11,838
14,009
12,578
13,194
12,918
18,098
12,935
14,566
12,785
13,329
13,395
664
176
182
184
184
726
13,116
7,382
14,916
6,283
10,444
9,665
13,416
7,362
15,062
6,304
10,060
9,709
26,216
6,206
6,533
7,314
7,561
27,614
19,619
11,889
13,760
12,350
13,805
13,019
19,800
13,493
14,591
12,854
13,929
13,703
5%
-52%
-42%
-1%
-39%
-37%
6%
-29%
-26%
9%
-26%
-28%
5%
-34%
-31%
TCE per earning day ²
¹
²
⁾
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 2021
REVIEW AND RISK
59
FINANCIAL REVIEW 2021
OPERATION OF VESSELS
The development in operating expenses is
summarized in the table below. The table also
summarizes the operating data for TORM’s fleet of
owned and bareboat-chartered vessels.
Operating expenses (OPEX) for the fleet increased by
USD 13m to USD 191m in 2021 compared to USD 178m
in 2020, mainly due to an increasing number of
operating days. On a per-day-basis, OPEX increased
compared to 2020.
The total fleet of owned vessels had 1,103 off-hire and
dry-docking days, corresponding to 4% of the
CHANGE IN OPERATING EXPENSES
USDm
Operating expenses 2020
Change in operating days
Change in operating expenses per day
Operating expenses 2021
OPERATING DATA
USD/day
Handysize
MR
4.6
-0.1
0.1
124.2
4.7
5.7
4.6
134.6
LR1
20.9
-0.0
1.0
21.9
LR2
28.7
0.8
-0.1
Total
178.4
5.4
6.7
29.4
190.5
Handysize
MR
LR1
LR2
Total
Operating expenses per operating day in 2020
6,163
6,287
6,355
7,013
Operating expenses per operating day in 2021
6,300
6,566
6,660
6,992
Change in the operating expenses per operating day in %
2%
4%
5%
0%
6,398
6,633
4%
Operating days in 2021 ¹
Offhire
Dry-docking
⁾
Available earning days 2021
¹
Including bareboat charters.
⁾
TORM ANNUAL REPORT 2021
730
20,495
3,285
4,207
28,717
-4
-
-334
-458
-19
-60
-67
-161
-424
-679
726
19,703
3,206
3,979
27,614
operating days in 2021. This compares to 1,332 off-hire
days in 2020 or 5% of the number of operating days.
ADMINISTRATIVE EXPENSES AND OTHER
OPERATING EXPENSES
Total administrative expenses and other operating
expenses amounted to USD 52m in 2021 compared to
USD 70m in 2020. The decrease was mainly due to a
one-off provision covering an exposure related to
cargo claims of USD 18m in 2020.
FINANCIAL INCOME AND EXPENSES
Net financial expenses in 2021 were USD 42m
compared to USD 49m in 2020. The decrease was
primarily driven by lower interest compared to 2020
and the larger senior facilities refinancing combined
with costs related to said refinancing.
TAX
Tax for the year amounted to an expense of USD 0.4m
of income tax and 0.9m of tonnage tax compared to
an expense of USD 0.5m of income tax and 0.9m of
tonnage tax in 2020.
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.
REVIEW AND RISK
60
FINANCIAL REVIEW 2021
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 tanker fleet.
When assessing the fair value less costs to sell,
Management includes 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 is 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 2021, Management tested the
carrying amount of its fleet for impairment within
three CGUs, being the Main Fleet (LR2/LR1 and MR
vessels) and the two Handysize vessels.
In 2021, the recoverable amount of the Main Fleet and
the Handysize 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 exceeds the carrying amount.
• Assets within the Handy vessels were not
impaired as the value in use was in line with the
carrying amount.
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:
The assessment of the value in use of the Main Fleet
and the Handysize vessels was based on the present
value of the expected future cash flows. The freight
rate estimates in the period 2022-2024 are based on
the Company’s business plans. Beyond 2024, 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.
TORM 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 TORM’s tankers. TORM’s focus is on
maintaining a high-quality fleet, and TORM actively
manages the deployment of the fleet between spot
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 which 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 TORM 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 2021
REVIEW AND RISK
61
ACQUISITIONS AND CAPITAL EXPENDITURE
As of 31 December 2021, TORM had one LR2
newbuilding under construction which was delivered 5
January 2022. The value of the prepayments included
in the total asset value amounts to USD 12m compared
to USD 12m in 2020.
RETURNS TO SHAREHOLDERS
The Board of Directors has decided to recommend
that no dividends be paid for 2021.
FINANCIAL REVIEW 2021
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 which
is less predictable but may enable TORM 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 favorable market
conditions.
Available earning days
Available earning days are the total number of days in
a period when a vessel is ready and available to
perform a voyage, meaning 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
which 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. TORM 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.
TORM ANNUAL REPORT 2021
REVIEW AND RISK
62
FINANCIAL REVIEW 2021
GOING CONCERN
As of 31 December 2021, TORM’s available liquidity
including undrawn and committed facilities was USD
210m, including a total cash position of USD 172m
(including restricted cash of USD 27m). TORM’s net
interest-bearing debt was USD 972m, and the net
debt loan-to-value ratio was 52.3%. Further
information on TORM’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 21 to the financial statements.
The principal risks and uncertainties facing TORM are
set out on pages 65-69 and details on the liquidity and
capital resources are described in Note 2.
TORM 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 our 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 related effect on the oil demand and supply
balance. TORM’s base case assumes the oil markets to
reach a pre-covid level during the second half of 2022
with freight rates and vessel values materializing
above 2021 levels. In the base case, TORM has
sufficient liquidity and headroom above all the
covenant limits. TORM also pays special attention to
the significantly increased geopolitical risk following
Russia’s invasion of Ukraine in February 2022 and the
associated effects on the product tanker market.
market. The immediate impact is that the uncertainty
and potential for re-routing of trade flows has sent the
tanker freight rates in the European markets upwards.
The financial impact going forward is uncertain, but
TORM currently expects that the possible effects are
covered within the below sensitivity calculations.
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
TORM as set out on pages 65-69 and include different
distressed outlooks for the product tanker market. In a
low case scenario, Management has assumed freight
rates which on average are approximately 25% below
those in the base case and a related decline in vessel
values. In the low case scenario, there remains
sufficient headroom on liquidity and covenants. In a
stress case scenario, Management has further stressed
the freight rates to the lowest rolling four quarter
average since 2000. In the stress case scenario,
certain actions will be required to maintain covenant
compliance. Such actions are assessed to be
achievable also in a stress case scenario and could
include elements such as sale of older vessels.
The Board of Directors has considered TORM’s cash
flow forecasts and the expected compliance with
TORM’s financial covenants for the period until 31
March 2023. TORM’s cash flow forecast and expected
covenant compliance are based on the business plan
approved by the Board of Directors. 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, TORM will be able to continue the
operational existence and comply with its financial
covenants for the period until 31 March 2023.
Accordingly, TORM 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 TORM
will continue in operation and meet its liabilities as
they fall due for the three-year period ending 31
December 2024. This period has been selected for the
following reasons:
• A period of three years is generally in line with the
forecast horizon for external equity analysts
covering the shipping sector
TORM will have paid its commitments relating to
its remaining newbuilding and will as of 31
December 2024 not have any currently known
off-balance sheet liabilities
The current key uncertainty in the product tanker
market relating to the rebound of the global oil
market is expected to be determined by the
development of the COVID-19 pandemic and is
expected to be resolved within the three-year
horizon
•
•
TORM ANNUAL REPORT 2021
REVIEW AND RISK
63
FINANCIAL REVIEW 2021
• Within the three-year horizon, there is reasonable
certainty related to the impact from climate
changes and additional regulatory requirement
related thereto
The assessment of the Board of Directors has been
made with reference to TORM’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 TORM, which in addition
also covers the outlook related to COVID-19 and
climate change developments
• Development of the fleet
• Operating and administrative expenses
• Capital expenditures covering newbuildings and
maintenance of the existing fleet including
installation 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 TORM’s
impairment test, 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 two 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 has 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’s 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.
In addition, TORM has considered the significantly
increased geopolitical risk following Russia’s invasion
of Ukraine in February 2022 and the associated effects
on the product tanker market. The immediate impact
is that the uncertainty and potential for re-routing of
trade flows has sent the tanker freight rates in the
European markets upwards. The financial impact
going forward is uncertain, but TORM currently
expects that the possible effects are covered by the
performed stress test and sensitivity analysis over the
three-year period.
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 long-
term prospects of TORM beyond the three-year
forecast viability horizon. In doing so, the Board of
Directors has taken the long-term risks and
opportunities for TORM discussed elsewhere in the
strategic report and the potential impact of economic
volatility, climate change agenda, 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 TORM’s operational platform into
account, the Board of Directors believes that TORM is
well positioned both to respond to these risks and to
take advantage of any positive market developments
for a period beyond the three-year forecast horizon.
On behalf of TORM plc
Kim Balle
Chief Financial Officer
TORM A/S
23 March 2022
TORM ANNUAL REPORT 2021
REVIEW AND RISK
64
RISK MANAGEMENT
In order for TORM to remain a sustainable business, we must anticipate and adapt to our ever-changing environment and be ready to seize the
opportunities this brings. We face a diverse set of risks and managing these systematically is key in order for us to create and protect value over
the short, medium and long term.
RISK MANAGEMENT FRAMEWORK
We acknowledge that TORM faces a range of risks in
doing business and that our success depends on
identifying, balancing, and deciding on how best to
manage and mitigate these risks. TORM believes that a
strong risk management framework is vital to protect
TORM.
On an annual basis, we conduct an Enterprise Risk
Management process, during which the critical risks
that are facing TORM 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 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 the risk
management is in place, so risks are mitigated to the
extent desired.
TORM’S CURRENT RISK PROFILE
The Board of Directors and the Senior Management
Team have carried out a robust assessment, under the
Corporate Governance Code, of the principal and
emerging risks facing the TORM, including those that
would threaten its business model, future
performance, solvency or liquidity and reputation.
All risks are repeated from last year, albeit with slight
adjustments.
A detailed description of each of the top risks is
available on pages 68-69. The focus below is the
development in the risks.
In 2021, TORM experienced continued volatility in the
product tanker market caused by the COVID-19
pandemic. TORM’s market risk exposure remains high,
and we are exposed to potentially adverse market
conditions, including the impact on freight rates and
vessel values. Because TORM’s fleet has increased to
approximately 84 vessels, exposure to adverse
development in freight rates increased slightly. Market
risks associated with unexpected changes in vessel
values have a significant impact on the value of TORM.
During 2021, TORM expanded its fleet and therefore
the gross risk related to unexpected declines in values
also increased. However, TORM removed part of the
vessel value risk through operating sale and leaseback
financing structures. Consequently, the risk is deemed
to be at the same level as last year.
The Oil Companies International Marine Forum
(OCIMF) is overhauling its Ship Inspection Report
Program (SIRE) by introducing a more comprehensive
inspection process from Q4 2022. The new program,
SIRE 2.0, will facilitate a risk-based approach to
TORM ANNUAL REPORT 2021
REVIEW AND RISK
65
RISK MANAGEMENT
assessing the safety and quality of a vessel and its
crew on an ongoing basis, but will require a “change in
mindset” from the industry, OCIMF has warned. This
may negatively impact observation levels. TORM
allocates resources to implement the new standards
and is well prepared for the more comprehensive
requirements. Oil major approval risk is at a low level
due to continued focus and efficient controls and is
expected to be reduced once fully implemented.
IT and cyber security is the risk relating to 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 loss of customer
data and the impact of business interruption, loss of
reputation can be a cause for financial loss for
businesses after an 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 impact to be limited due
to its business model and current mitigating activities.
TORM’s financial gearing, liquidity buffer, and break-
even level have been maintained at an acceptable
level. However, because of TORM’s larger fleet, the
liquidity exposure and thus the risk has increased
slightly. Likelihood of sustained low freight rates is
considered to be a lower due to more positive market
fundamentals with low oil inventories and demand
expected to return.
Read more about mandates and sensitivity analysis
of the various risks on page 148-151
EMERGING RISKS – CLIMATE
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.
Like other ship operators TORM is subject to the
impact of climate change on its business model. 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 scenarios, the consequences are
potentially severe, with society likely to face
transformational change.
TOP RISK HEAT MAP
TORM TOP RISKS WITHIN THE COMING 12 MONTHS – POST-MITIGATION ACTIVITIES:
2020
2021
Unchanged
s
e
c
n
e
u
q
e
s
n
o
C
Worst
case
Major
Moderate
Minor
Min.
effect
A
A
B
F
I
I
E
J
D
D
G
H
H
A Tanker freight rates
B Bunker price
C
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 2021
REVIEW AND RISK
66
RISK MANAGEMENT
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.
TORMs emerging risks are in essence viewed as
directly related to climate change. TORM considers
the main long-term risks to be:
Technology of vessels
Requirements from society and regulation to operate
vessels using cleaner technologies pose a transition
risk to TORM and other vessel owners as existing
vessels may become obsolete earlier than initially
expected or even render vessels redundant. Older
vessels are considered particularly vulnerable.
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 long term, this
will most likely have a negative impact on the tanker
markets. When 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.
TORM believes that the demand for oil and oil-related
products will phase out over a longer period, which
leaves TORM with time to adjust its business. To
monitor the risk, TORM reports to the Risk Committee
on the development of “disruption indicators”, which
functions as a warning sign as to whether the strategy
needs to be reconsidered. Indicators are adjusted
when appropriate. During 2021, disruption indicators
became a reoccurring agenda point at all Risk
Committee meetings.
Due to magnitude of the risk, TORM has, through
Board Master Classes, sought to acquire more clarity
on the obstacles and timing of the fuel propulsion
transition. TORMs perception is that there seems to a
number of obstacles that needs to be overcome in
order for the fuel transition to occur, these are:
1. The maritime industry is complex, global, and
decentralized
2. Current cost gap between conventional fossil
fuels and alternative fuels are high, leaving few
financial incentives to make the switch
3. And even if, ship-owners wanted to switch, the
supply-chains of alternative fuels are not yet
ready for global distribution to accelerate the
transition.
TORM believes the right path in the short to medium
term is to focus on improving fuel efficiency using
existing technologies. Through collaborations and
partnerships, TORM will continue to participate in the
long-term development to decarbonize the shipping
industry.
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 initiatives, such
as the EU Taxonomy, may result in a reduced ability
for vessel owners to obtain equity or debt financing. It
may also affect pricing, due to a potential reallocation
of funds within the banks and investors available to
shipping. Equity investors, subject to environmental
regimes such as SFDR, are selective and are
increasingly seeking green investments and banks
have adopted the “Poseidon Principles” to ensure that
lenders disclose and confront climate change. Not
only will this impact TORM’s ability to fund
investments, but it will also impact smaller shipowners,
who have historically bought of TORM’s older vessels.
Navigating these new complex issues may turn out to
be an opportunity for TORM. By setting ambitious
emission targets, TORM seeks to position itself with an
attractive profile for banks and investors.
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 2021
REVIEW AND RISK
67
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
Unexpected value
depreciation of vessels,
the most exposed
vessels are older
vessels due to new
legislation driven by
the climate change
agenda
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
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.
Decline with 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.
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 2021
REVIEW AND RISK
68
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
severe external threat 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.
Continuous focus on capacity to
detect and react on cyber-attacks.
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 2021
REVIEW AND RISK
69
GOVERNANCE
GOVERNANCE
GOVERNANCE INTRODUCTION
Chairman’s Introduction
GOVERNANCE STRUCTURE
TORM’s Governance Structure
Board of Directors
Board and Committee Meeting Attendance
Board Activities
COMMITTEE REPORTS
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
OTHER
Investor Information
Engagement and Decision Making
Directors’ Report
Statement of Directors’ Responsibilities
Safe Habor Statement
71
73
75
76
77
79
85
87
89
100
104
107
110
112
TORM ANNUAL REPORT 2021
TORM ANNUAL REPORT 2021
REVIEW AND RISK
GOVERNANCE
70
70
CHAIRMAN’S INTRODUCTION
Board leadership
The Board continues to focus on promoting the long-
term sustainable success of TORM, having regard to
wider stakeholder interests. This includes contributing
to the wider needs of society.
In 2021, there were no changes to the Board of
Directors, however, TORM said goodbye to Torben
Janholt, a Board observer and former Director. The
membership of the Board is drawn from a diverse mix
of nationalities, gender, and backgrounds which bring
the relevant skills and knowledge to provide a positive
contribution to the Board.
TORM’s performance as outlined in this Annual Report,
demonstrates the success of this focus by the Board
and our Chief Executive Officer, Jacob Meldgaard. With
the Chief Executive’s leadership and the Senior
Management Team fully supported by the Directors, I
am confident that TORM’s Board of Directors is well
placed to lead the successful growth of TORM going
forward.
Shareholders
The relationship with our shareholders is of
fundamental importance. Despite the pandemic, TORM
has ensured consistent communication and
development through continued quarterly reporting,
stock exchange announcements and analyst and
industry investor meetings. With the restrictions
imposed by the pandemic, TORM has also organized
and conducted conference calls and investor
presentations through the use of digital platforms.
TORM believes that its transparent company structure
and corporate governance principles enhance the
attractiveness of its shares.
Employees
TORM uses every opportunity to ensure that all our
seafarers have the opportunity to be vaccinated. In
various ports in the US and Europe, TORM has
successfully conducted vaccination drives for our
vessels and has vaccinated more than 1,000 crew
members. In 2021, during the pandemic, TORM
introduced the “Well at TORM” program aimed at
focusing on the wellbeing of our seafarers.
Read more about TORM's People on page 41
Customers
The relationship with our customers continues to be
strong. TORM’s modern and well-maintained fleet with
majority of the vessels being scrubber-fitted further
provides TORM and its customers with enhanced
flexibility as well as reduced fuel costs.
Suppliers
Throughout 2021 and the continued pandemic, the
maintenance of strong, reliable supply chains has been
essential. We continue to create jointly valuable
relationships with our suppliers by encouraging best
practice, and we expect that our suppliers comply with
recognized international standards and work to
improve human rights, labor conditions, impact on the
environment, safety, corruption, and quality.
CHAIRMAN’S STATEMENT
Throughout 2021 as in 2020, the challenges of COVID-
19 have once again proven the reliability of the One
TORM platform. I am pleased that TORM as an
organization has been able to adjust operationally,
socially, and managerially to the demands of the
pandemic. In these circumstances, the quality of
leadership, the strength of board membership, and the
value of our relationships with employees, customers,
suppliers, and local communities demonstrate their
importance.
As Chairman, I am pleased to confirm that also in 2021
TORM responded strongly to all challenges through the
One TORM platform and the deliverance of strong
corporate governance. In the following paragraphs, I
have tried to provide some deeper insight into our
performance.
TORM ANNUAL REPORT 2021
GOVERNANCE INTRODUCTION
71
Governance Introduction
CHAIRMAN’S INTRODUCTION
Community
As a company, we have a history of supporting the
communities in which we work and the needs of the
people we serve.
Read more about TORM's connection to the
surrounding communities on pages 45-46
Sustainability
Environmental, Social and Governance have become a
major focus area for the Board and was discussed
widely throughout 2021. I am pleased that as TORM
announced in January 2022, TORM became a Missions
Ambassador of the Maersk McKinney Møller Center for
Zero Carbon Shipping and continues to be an active
member of Danish Shipping, with the aim to impact the
decision making in IMO on the ongoing discussions on
the implementation of CO2 related regulations.
Together with TORM’s Management, the Board has
been working with masterclass sessions encompassing
subjects such as future fuels and next generation LR2
vessels, but also on more near-term potential
challenges, such as the access to capital markets. As a
company, TORM considers it a priority to deliver
measurable and reportable performance in all key
areas.
Following a thorough review, TORM has set a target to
reduce its relative CO2 emissions by 45% by 2030
compared to IMO’s 2008 baseline and be climate
neutral from operating our fleet by 2050. To support
this ambitious target, TORM’s management will be
measured on achieving it.
Read more about TORMs ESG journey from page 32
The year ahead
In the year ahead, the Board will among other topics
again focus on ESG, where TORM will investigate the
potential of green business adjacencies that can co-
create long-term value and optionality for TORM. The
focus will also be on advanced analytics and applied AI
competences as well as disruptive indicators, such as
oil demand, mobility, biofuels consumption and their
effect on peak oil demand.
Read more about TORMs focus on adjacent business
on page 22
Christopher H. Boehringer
Chairman of the Board
TORM ANNUAL REPORT 2021
GOVERNANCE INTRODUCTION
72
TORM’S GOVERNANCE STRUCTURE
The Board of Directors
Chaired by 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 Board of Directors include establishing policies for
strategy, accounting, organization, finance, and the appointment of executive officers. The Board of Directors governs TORM 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 of Directors, sets
the agenda, and promotes a culture
of open debate between Executive
and Non-Executive Directors.
Meets regularly 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.
Meets with each Non-Executive
Director on an annual basis to
appraise the performance of the
Chairman.
Committed to contributing
constructively, challenge and help
develop proposals on strategy.
Responsible for the day-to-day
management of TORM, and
responsible for TORM’s operational
development, results, and internal
development.
Implements the strategies and
overall decisions approved by the
Board of Directors.
Three types. Employee-elected,
providing a communication
platform between the employees
and the Board of Directors. 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 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 TORM.
Chaired by 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
Chaired by Christopher H. Boehringer
Meets a minimum of twice 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 regarding any changes.
Considers succession planning for Directors,
the Chief Executive Officer, and others.
Chaired by Christopher H. Boehringer
Meets a minimum of twice a year.
Assists the Board of Directors in reviewing
Management’s performance and
remuneration as well as TORM’s general
remuneration policies
Read more about the role and
activities of the Audit Committee on
pages 79-80
Read more about the role and
activities of the Risk Committee on
page 85
Read more about the role and
activities of the Nomination
Committee on pages 87-88
Read more about the role and
activities of the Remuneration
Committee on pages 89-90
Senior Management Team
Consists of the following employees of TORM A/S (in addition to the Executive Director, Jacob Meldgaard): Kim Balle (Chief Financial Officer – CFO), Lars Christensen (Senior Vice President and
Head of Projects) and 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 2021
GOVERNANCE STRUCTURE
73
Governance structure
TORM’S GOVERNANCE STRUCTURE
MANAGEMENT STRUCTURE AND DELEGATION OF
AUTHORITY
TORM’s Board of Directors sets TORM’s strategy 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 16-30. The Board of Directors has delegated the
day-to-day management of the business to Executive
Director Jacob Meldgaard. This includes TORM’s
operational development and responsibility for
implementing the strategy 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 executed 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 TORM’s interests 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 TORM’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 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.
COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE
In respect of the year ended 31 December 2021, TORM
Plc was subject to the UK Corporate Governance Code
(available from www.frc.org.uk). TORM has considered
the individual provisions and is compliant with 39 out
of 41 provisions. The non-compliance with provisions 18
and 32 is because of business decisions taken after
careful consideration by the Board of Directors. No
plan is currently in place to attain compliance with the
below recommendations. In depth details on the non-
compliance can be found on pages 87 and 89.
Composition, succession, and evaluation
Appointments and succession planning P. 88-89
P. 76, 88
Skills, experience, and knowledge
P. 76
Length of service
P. 89
Evaluation
P. 43, 89
Diversity
P. 88
Non-compliance
Audit, risk and internal control
Committee
Integrity of financial statements
Fair, balanced, and understandable
Internal controls and risk management
External auditor
Principal and emerging risks
P. 80-85
P. 112, 167
P. 83
P. 84
P. 84
P. 66-70
TORM Corporate Governance Statement on
www.torm.com/investors/governance
Remuneration
Policies and practices
Independent judgement and discretion
Non-compliance
Alignment with purpose, values and
long-term strategy
P. 90-100
P. 93
P. 90
P. 91, 93
Board Leadership and Company Purpose
Long-term value and sustainability
Culture
Shareholder engagement
Other stakeholder engagement
Conflicts of interest
P. 78
P. 37, 47
P. 35, 105
P. 35, 105
P. 28, 88
Division of Responsibilities
Role of the Chairman
Division of responsibilities
Non-Executive Directors
Independence
P. 74
P. 74
P. 74
P. 53, 88
TORM ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
74
BOARD OF DIRECTORS
Christopher H Boehringer
Non-Executive Director and
Chairman of TORM’s
Board of Directors
Nationality: Canadian
First elected: 2015
Employment: Managing Director and
Head of Europe, Oaktree Capital
Management (International) Limited
Skills and experience: Shipping,
strategy, capital investment, M&A.
Goldman Sachs, FI Travel
Corporation, Warburg Dillon
Read/SG Warburg, and LTU GmbH &
Co
External appointments:
Utmost Group, Marco Capital
Holdings Limited and Oaktree Capital
Management (International) Limited
David Neil Weinstein
Senior Independent Director and
Deputy Chairman of TORM’s Board
of Directors
Nationality: American
Appointed: 2015, continues until
removed by the B-shareholder
Employment: Senior Investment
Banking, Governance and
Reorganization Specialist
Skills and experience: Strategy, capital,
M&A, risk oversight, extensive public
company and corporate governance
experience, US listings (i.a. Seadrill Ltd,
Stone Energy Corp, and Deep Ocean
Group) and as Managing Director of
Calyon Securities Inc, BNP Paribas,
Bank of Boston and Chase Securities
Inc. Global Business
External appointments: N/A
Göran Trapp
Non-Executive Director
Annette Malm Justad
Non-Executive Director
Jacob B Meldgaard
Executive Director and
Chief Executive Officer
Nationality: Swedish
First elected: 2015
Nationality: Norwegian
First elected: 2020
Nationality: Danish
First elected: 2015
Employment: Board member
Employment: Board member
Skills and experience: Shipping,
strategy, customers, capital, finance.
Morgan Stanley crude oil trader,
Head of Oil Products Trading Europe
& Asia, Global Head of Oil Trading
and Head of Commodities EMEA.
Business development and oil trading
at Equinor. Founding director of
energy advisory boutique Energex
External appointments: Board
member of Energex Partners Ltd.
Skills and experience: Shipping,
strategy, customers, capital, finance.
More than 25 years of executive
experience from shipping and
industry including CEO of Oslo listed
Eitzen Maritime Services ASA from
2006-2010. The last 10 years as
independent consultant and non-
executive board member
External appointments: Partner at
Recore Norway AS. Chair of the
Board of Directors of Store Norske
Spitsbergen Kulkompani AS,
American Shipping Company ASA,
Småkraft AS and Norske tog AS.
Board member of Awilco LNG ASA,
PowerCell Sweden AB and
RECSilicon ASA
Employment: Chief Executive Officer
of TORM plc since 01 April 2010
Skills & experience: Shipping,
customers, strategy, capital, M&A,
US listing. Previously served as
Executive Vice President of
Dampskibsselskabet NORDEN A/S
and held a number of management
positions in J. Lauritzen A/S and A.
P. Møller-Maersk
External appointments: Chairman of
the Board of Danish Shipping and
Grant Compass A/S and Board
member of Danish Ship Finance,
SYFOGLOMAD Ltd, and the TORM
Foundation
Committees:
C
C
Committees:
Committees:
C
C
Committees:
Committees: None
Audit:
Risk:
Nomination:
Remuneration:
Chairman:
C
TORM ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
75
BOARD AND COMMITTEE MEETING ATTENDANCE
Audit
Risk
Nomination
Remuneration
Board
Committee
Committee
Committee
Committee
Meetings held in 2021 1)
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
Göran Trapp
Board Observers
Christian Gorrissen
Jeffrey S. Stein
Rasmus J. Skaun Hoffmann
C
C
C
C
C
10
10
10
10
10
10
10
10
10
5
3
5
5
5
3
3
3
2
2
2
2
7
7
7
7
1) Please note that all Board and Committee meetings in 2021 were held virtually due to the COVID-19 pandemic
Board of Directors:
Audit:
Risk:
Nomination:
`
Remuneration:
Chairman:
C
TORM ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
76
BOARD ACTIVITIES 2021
The Board of Directors’ activities are focused around
TORM’s strategic ambitions and a transparent
governance framework. The topics below set out the
key areas of focus for the Board during 2021.
TORM’s governance structure is described on pages
73-74
Learn more about the activities of the Committees
on page 79-99
LEADING PRODUCT TANKER OWNER
In continuation of the past years’ fleet renewal and fleet
growth, TORM’s Management and Board of Directors
have been involved in a number of vessel acquisitions.
The purpose is to maintain the position as a leading
product tanker owner with a modern fleet capable of
utilizing the commercial opportunities in the market.
Acquisition of eight MR vessels
During 2021, TORM acquired eight MR vessels of which
six of them were with extended tank segregation (IMO
2) making them capable of chemical trading. Although
product tanker activity is the main purpose of these
vessels, it may become convenient that the vessels
have more capabilities going forward. The transaction
was closed on a partly cash and partly share basis.
Acquisition of three LR2 vessels
Three 2015-built scrubber-fitted LR2 vessels were
acquired in June 2021 to support TORM’s ambition to
increase long haul optimized vessels. Refinery closures
in many regions is likely to increase the need for these
larger vessels making them a good fit for TORM’s
future strong commercial performance.
Financing
The main part of the funding for these additional
vessels acquisitions was made as bank financing,
however, during 2021, TORM engaged in a number of
sale and operating leaseback arrangements both as
part of strengthening the liquidity position to prepare
for fleet growth opportunities, but also as part of de-
risking the balance sheet for the longer term. TORM
has a strong focus on the long-term risk of asset
values, so operational leasing of assets is a means to
reduce this risk with an acceptable increase in financial
expenses.
Changes in oil markets due to COVID-19 lockdowns
As a consequence of the product stock building we
saw in 2020, the Board of Directors has had an
increased focus on the market development. The
downward pressure on freight rates increased the need
for companies to be robust. The Board of Directors has
been updated on the capital structure and liquidity
position of TORM and as a precautionary measure, it
has at any given time a catalogue of liquidity enhancing
initiatives, should that ever be required.
During 2021, TORM supplemented the physical trading
in the tanker market with trading FFAs (Forward
Freight Agreements) in the paper markets. The Board
of Directors has been in close dialogue with TORM on
the benefits and risks related to these transactions.
GREEN FUTURE WITH A ZERO EMISSION AMBITION
Throughout the year, ESG has been high on the agenda
of the Board of Directors and TORM’s first dedicated
ESG report was released in March 2021. Since then, the
Board of Directors has been working with ESG related
risks and solutions in many ways.
Deep dive on ESG
ESG experts from banks and investors were invited to
share their knowledge on how investors and lenders
will change their approach to allocating capital to
companies. There is an increasing focus on the green
transition, and for TORM to remain attractive as a debt
and equity funding target, it is important to be leading,
when it comes to reducing emissions here and now and
engaging in collaborations for a long-term zero
emission business model.
Disruption Indicator model
The Risk Committee has significantly intensified the
work with disruption indicators. Certain indicators, such
as oil demand, mobility, Electric Vehicle uptake and
biofuel consumption etc., will be monitored and
measured against targets set by for instance IEA. If the
indicators suggest a more aggressive development
towards peak oil, the Board of Directors may consider
additional analysis to be made to assess whether it will
impact the assumptions underlying TORM’s strategy.
TORM ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
77
BOARD ACTIVITIES 2021
Board Masterclasses
It is the priority of the Board of Directors to keep
knowledgeable of the development of new fuels and
the implications to TORM. During the year, a number of
sessions were set up to educate the Board on themes
such as Power-to-X, future renewable energy capacity,
carbon capture, different fuel types, and regulatory
considerations. These masterclasses have been an
important way for the Board to understand the risks
and opportunities which lie ahead and will be used in
the future strategic work.
Meeting industry requirements
Regardless of the fuel which TORM will transport in the
future, it is important that TORM is a leader in reducing
emissions today. That companies like TORM follow
industry requirements is a ticket to play in the capital
markets, since investors and lenders will become more
and more selective, when allocating capital. After the
end of 2021, TORM announced that the IMO 2030 goal
of reducing emission by 40% will be reached already in
2025, underlining that TORM has already accomplished
a lot on fuel optimization and reducing CO2 emissions.
Strategically important long-term collaborations
Industry collaborations are the cornerstone of the long-
term sustainability of the shipping industry. During
2021, the Board of Directors has together with
Management assessed the initiatives which would be
right for TORM to participate in for getting influence
and insight. Already being a member of the Getting to
Zero Coalition, TORM naturally signed up to the Call to
Action for Shipping Decarbonization to urge
governments to: 1) Commit to decarbonizing
international shipping by 2050. 2) Support industrial
scale zero emission shipping projects through national
action. 3) Deliver policy measures which will make zero
emission shipping the default choice by 2030.
At the end of 2021, TORM took another step on the
strategically important path of decarbonizing by
signing up to the Mærsk McKinney Møller center for
zero carbon shipping. Being a Mission Ambassador,
TORM underlines the dedication to find solutions for a
greener future.
SUPERIOR OPERATING PLATFORM
With COVID-19 still having a significant say in the
global agenda, it is inevitable that it will be a part of
companies’ operational challenges. It sets high
requirements for performance of the commercial and
technical departments, and maximum visibility of the
entire value chain is very important.
Vaccination of seafarers
Throughout the pandemic, the Board of Directors has
been informed about the situation and the measures
taken by TORM to mitigate risks and challenging
scenarios. It is clear to the Board of Directors that
having all business-critical functions in-house is a great
benefit in a world with different and constantly
changing restrictions. As examples, crew change and
vaccination of seafarers are simply easier to optimize
with your commercial activities when you are in full
control of both commercial and technical management.
AI initiative
In TORM’s efforts to run a reference product tanker
platform, TORM consolidated the ongoing AI projects
into a uniform organizational set-up during 2021. TORM
is working on several AI initiatives, where two of them
are the vessel positioning project and route
optimization project. To ensure world class solutions,
TORM has teamed up with a deep subject matter
external advisory board consisting of specific AI
experts. The purpose is to maintain a leading position
in the prediction of which global basins to deploy our
vessels in and to strengthen TORM’s voyage
optimization algorithm modelling by creating an in-
house domain for detailed valuable data that will end
up in fuel savings, CO2 emission reductions and
superior commercial performance. The Board of
Directors sees the initiative as a natural next step for
TORM to remain the reference company when it comes
to commercial performance.
TORM ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
78
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
AT A GLANCE
Chairman
Göran Trapp
Members
Annette Malm Justad
David Weinstein
Composition
The Audit Committee is composed solely of
independent Non
Executive Directors.
‑
Meetings
The Audit Committee had five scheduled meetings
in 2021. Attendance by members at Committee
meetings can be seen on page 76.
2021 highlights
• Quarterly assessment of the impairment
indicator test of the vessels in the fleet
• Going concern assessment and viability
statements
CHAIRMAN’S STATEMENT
This report provides an overview of how the Audit
Committee operates, an insight into the Audit
Committee’s activities and its role in monitoring and
reviewing the integrity and quality of TORM’s financial
statements, the effectiveness of internal controls, and
related processes.
THE ROLE OF THE AUDIT COMMITTEE
Read more about the Audit Committee’s area of
responsibility on page 73
Terms of Reference for the Audit Committee on
www.torm.com/investors/governance
Group Reporting, Compliance and Tax of TORM A/S
together with senior representatives of TORM’s
independent auditors are invited to attend all or parts
of the meetings by invitation as appropriate.
BUSSINESS UPDATES
• Quarterly overview of the product tanker market
conditions and its impact on the quarterly results
• Regular operation updates on matters arising due
to the COVID-19 pandemic and roll out of staff
vaccinations
• Delivery of the eight MR product tanker vessels
acquired and successful installation of scrubbers
on 52 of our vessels till the date of this report,
with another four installations scheduled to be
completed by the end of 2022. In addition, one
scrubber is scheduled to be installed in the first
quarter of 2023. Upon completion, 57 vessels will
be fitted with scrubbers, with the remaining
vessels continuing to use compliant fuels with
0.5% sulfur content.
• Review of the sale and leaseback transactions for
the vessels
AUDIT COMMITTEE MEMBERS
The Board is satisfied that the Audit Committee meets
the independence requirements and any applicable
laws, regulations and listing requirements, including the
UK Corporate Governance Code.
The Audit Committee has deep knowledge and
significant business experience in financial reporting,
risk management, internal control, and strategic
management. This combined knowledge and
experience enables us to perform our duties properly.
In addition, the Board of Directors believes that the
members of the Audit Committee have the relevant
shipping sector knowledge. In the opinion of the Board
of Directors, the Chairman of the Audit Committee,
Göran Trapp, meets the requirement of bringing recent
financial experience to the Audit Committee.
The Audit Committee also has access to the financial
expertise in TORM and its independent auditors and
can seek further professional advice at TORM’s
expense, if required.
MEETINGS
The Audit Committee meets at least four times a year.
The Chief Financial Officer of TORM A/S, the Head of
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
79
Committee Reports
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Risk and compliance
• Reports from Group Legal on the status of
External audit
• Monitoring the effectiveness and quality of the
significant litigations, claims, and investigations
from tax authorities
• Compliance review of the UK corporate
•
governance recommendations
The appropriateness of the Enterprise Risk
Management Report representing critical risk
factors, its ownership and governance, and
alignment with the Risk Committee
• Concerns raised through the whistleblowing
process and its remediations
external audit process through examination and
review of the coverage provided by the external
auditor’s audit plan
• Reviewing reports from the external auditor over
key audit and accounting matters, and business
processes internal controls and IT systems.
• Agreeing the audit and non-audit fees of the
external auditor during the year, including the
objectivity and independence of the external
auditor
PRINCIPAL ACTIVITIES IN FOCUS
Financial reporting
• Key elements of the Quarterly Reports and Annual
Report and the estimates and judgements included
in TORM’s financial disclosures
The appropriateness of Management’s and the
external auditor’s analysis and conclusions on
judgmental accounting matters
•
• An assessment of whether the Annual Report,
taken as a whole, is fair, balanced, and
understandable and whether our US annual report
on Form 20-F complies with relevant US
regulations with focus on clarity of disclosures,
compliance with relevant legal and financial
reporting standards and application of appropriate
accounting policies and judgements
The going concern assessment and adoption of the
going concern basis in preparing the Annual
Report and financial statements
The external auditor’s reports on its audit of the
financial statements, and reports from
Management, the internal auditors, and the
external auditor on the effectiveness of our system
of internal controls and our internal control over
financial reporting
•
•
• Compliance with applicable provisions of the
Sarbanes-Oxley Act
• A quarterly assessment of the impairment indicator
test of the vessels in the fleet
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
80
AUDIT COMMITTEE REPORT
SIGNIFICANT REPORTING ISSUES
In the financial statements, there are several areas
requiring the exercise of judgement by Management.
The Audit Committee’s role is to assess whether the
judgements made by Management are reasonable and
appropriate. To assist in this evaluation, the CFO
presents an accounting paper to the Audit Committee
once a year, setting out the key financial reporting
judgements. The main areas of judgement considered
by the Audit Committee in the preparation of the
financial statements are as follows:
GOING CONCERN
The Audit Committee reviewed Management’s
assessment of the basis for preparing TORM’s financial
statements on a going concern basis. This included
reviewing and challenging Management’s forecast and
the underlying base and low case sensitivity
calculations along with its assumptions. The Audit
Committee also considered TORM’s available liquidity
including undrawn and committed facilities along with
any liquidity enhancing projects and projections for the
financial covenants within TORM’s borrowing facilities.
Based on this, the Audit Committee confirmed that the
application of the going concern basis for the
preparation of the quarterly reports and year-end
financial statements continued to be appropriate, with
no material uncertainties. The going concern statement
is set out in the Directors’ report on page 107. For
further information see Note 1 to the financial
statements.
IMPAIRMENT REVIEW OF VESSELS
The impairment review of TORM’s vessels is a key
recurring risk due to its significance in the context of
TORM’s net asset value. The Audit Committee received
and considered a paper from Management covering
the judgements made in respect of the impairment
testing of the carrying amount of TORM’s vessels in the
fleet within three cash-generating units (CGU)s, 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. As explained in Note 8 to
the financial statements, it was concluded not to
conduct any impairments on each of the CGU
supported by the DCF value for the Main Fleet and the
two Handysize vessels.
To determine whether a 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 several
assumptions including future freight rates, estimated
operating expenses, weighted average cost of capital
(WACC) and level of inflation.
Management has assessed that TORM has three CGUs
within its single reporting segment – The Tanker
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Segment – the largest of which is its Main Fleet
(comprising LR1/LR2 and MR vessels). The Main Fleet is
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 capacity of vessels, the Main Fleet is
relatively homogenous with a very high degree of
interoperability. The MR vessels acquired in 2021 with
chemical trading capabilities are operated as all other
product tanker vessels and thus included in the Main
Fleet.
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).
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
81
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
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 other disclosures
in the Annual Report. The Audit Committee noted that
the freight rates in the years 2022-2024 are consistent
with the long-term planning assumptions used by
TORM and includes the impact from climate changes
and climate agenda on the global oil demand. Further,
the Audit Committee discussed with Management the
freight rates beyond 2024 which are based on TORM’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.
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 to the
financial statements.
REVENUE RECOGNITION
The revenue recognition policy was discussed and
agreed to have no changes. Revenue is recognized
upon delivery of services in accordance with the terms
and conditions of the charter parties and is made
based on “load to discharge”, and demurrage is
recognized with up to 95% until actual realization.
Accordingly, no revenue is recognized for the days
incurred during a vessel’s positioning voyage to a load
port.
DEPRECIATION POLICY AND RESIDUAL VALUE OF
VESSELS
The Audit Committee noted and agreed that the
accounting policy of depreciating vessels over 25 years
was appropriate and in line with TORM’s peers. The
residual value was calculated based on two elements:
scrap values that were reviewed on a yearly basis and
cost of voyage to the scrapping place. Management
recommended to gradually phase-in the green
scrapping prices in the calculation as the market
matures.
FAIR, BALANCED, AND UNDERSTANDABLE
ASSESSMENT
At the request of the Board of Directors, the Audit
Committee undertook an assessment of this Annual
Report to ensure that, taken as a whole, it is fair,
balanced, an understandable and that it provides the
information necessary for shareholders to assess
TORM’s position and performance, business model and
strategy.
The Audit Committee received an early draft of the
Annual Report to review its proposed content and the
structural changes from the Committees Report prior
year and to undertake a review of the reporting for the
year, following which the Committee members
provided their individual and collective feedback. In
addition, in accordance with its terms of reference, the
Committee (alongside the Board of Directors) took an
active part in reviewing TORM’s quarterly reports and
considered TORM’s other public disclosures.
The processes described above allowed the Committee
to provide assurance to the Board to assist it in making
the statement required of it under the UK Corporate
Governance Code, which is set out on page 74.
It was agreed by the Audit Committee that TORM
would incorporate the green recycling prices in the
calculation of residual values by applying an average of
green scrapping and conventional scrapping and still
using a three-year average to limit volatility in the
residual values.
EFFECTIVENESS
In 2021, 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.
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
82
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
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 TORM’s size,
complexity and its internal control environment, TORM
can defer the establishment of an internal audit
function but must revisit the decision in 2022.
The Audit Committee regularly discusses the principles
for risk assessment and risk management related to the
financial reporting and reviews TORM’s significant risks,
including fraud, and their impact on financial reporting,
including stress testing, when relevant.
Read more about principal risks and uncertainties on
pages 65-69.
significant failings and weaknesses in TORM’s internal
control structure during the year. TORM are an
"emerging growth company", as defined in the JOBS
Act, and we are not required to comply with the
auditor attestation requirements of Section 404(b) of
Sarbanes-Oxley for up to five years. We are now in the
final year in the five-year period.
Further, the Audit Committee supported the use of an
external audit firm to review selected areas when
required 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 Group Internal Control and Price
Waterhouse Coopers’ testing of the internal controls.
This has not affected the work of the external audit.
The Audit Committee is satisfied that the internal audit
arrangements continue to provide effective assurance
of TORM’s risk and controls environment. Throughout
the year, the Audit Committee monitored the
effectiveness of TORM’s risk management and internal
control systems, including material financial,
operational and compliance controls
.
INTERNAL CONTROLS AND RISK MANAGEMENT
The Audit Committee has the primary responsibility for
the oversight of TORMs’ system of internal control,
including the risk management framework, the
compliance framework, and the work of the internal
control function.
The Board of Directors fulfils 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 New York 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 the enabling of
best practice and a strong control environment. The
oversight by the Audit Committee includes the
recurring reporting, including management oversight
and the outcome of management testing.
Having monitored TORM’s risk management and
internal controls, and the effectiveness of the material
controls, the Audit Committee has not identified any
EXTERNAL AUDITOR
The Audit Committee has primary responsibility for
overseeing the relationship with the external auditor,
Ernst & Young LLP (‘EY’).
This includes making the recommendation on the
appointment, reappointment, and removal of the
external auditor, assessing their independence on an
ongoing basis, approving the statutory audit fee, the
scope of the statutory audit, and the appointment of
the lead audit engagement partner. Lloyd Brown has
held this role since the appointment of EY in 2020.
During the year, EY reported to the Audit Committee
on their independence from TORM. The Audit
Committee and the Board of Directors are satisfied
that EY has adequate policies and safeguards in place
to ensure that auditor objectivity and independence
are maintained. The Audit Committee has
recommended to the Board of Directors the re-
appointment of the external auditors for the 2022
financial year, and the Board of Directors will be
proposing the re-appointment of EY at the upcoming
AGM.
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
83
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Effectiveness of the external audit process
The Audit Committee reviewed the quality of the
external audit throughout the year and considered the
performance of EY by undertaking an annual review of
the performance of the independent auditors by a
combination of discussions with Management, the
quality of written deliverables to the Audit Committee,
and the quality of dialogue and insights provided
during Audit Committee meetings. The findings of the
survey were considered by the Audit Committee, and it
agreed that the audit process, independence, and
quality of the external audit were satisfactory.
Based on these reviews, the Audit Committee
concluded that there had been appropriate focus and
challenge by EY on the primary areas of the audit, and
that EY had applied robust challenge and skepticism
throughout the audit.
Auditor independence and objectivity
In its assessment of the independence of the auditor,
and in accordance with the standard on independence,
the Audit Committee received details of all
relationships between TORM and EY which may have a
bearing on their independence and received
confirmation from EY that it is independent of TORM in
accordance with applicable laws and regulations.
objectivity of the external auditor is not impaired. The
policies 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 which
the independent auditors cannot be engaged to
perform were provided to the Audit Committee at the
November 2021 Audit Committee meeting. A copy of
the policy can be made be available on request.
Audit and non-audit fees
Full disclosure of the audit and non-audit fees paid
during 2021 can be found in Note 4 to the financial
statements.
Audit fees:
Non-audit fees:
USD 0.8m
USD 0.2m
The independent auditors may be contracted to
perform certain non-audit activities. The Audit
Committee believes that this can be performed without
compromising the auditors’ independence and
objectivity. The Audit Committee will allocate the non-
audit work after considering TORM’s policy on the
provision of non-audit services by TORM’s auditors. A
copy of the pre-approval procedures can be made
available on request.
The Audit Committee maintains a policy and has pro-
cedures in place for the pre-approval of all audit ser-
vices, audit-related services and other services under-
taken by the external auditor. The principal purpose of
this policy is to ensure that the independence and the
Fees relating to the provision of non-audit services by
EY amounted to USD 0.2m corresponding to 27% of
the total cost and related primarily to requested
additional of certain internal controls and the 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. To maintain
the external auditors’ independence and objectivity, the
external auditors did not make any decisions on behalf
of Management.
Whistleblower
TORM’s whistleblower policy, which supports the
groupwide Business Principles, is monitored by the
Audit Committee.
Read more about TORM’s whistleblower policy here:
www.torm.com/investors/governance/whistleblower
The Audit Committee received reports providing
details of matters reported through TORM’s
international, confidential telephone reporting lines and
secure e-mail reporting facility, which is operated 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 to 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.
APPROVAL
On behalf of the Audit Committee
Göran Trapp
Chairman of the Audit Committee
23 March 2022
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
84
RISK COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
AT A GLANCE
Chairman
Göran Trapp
Members
Annette Malm Justad
David Weinstein
Christopher Boehringer resigned in January 2021
Composition
The Risk Committee is composed solely of
independent Non
Executive Directors.
‑
Meetings
The Risk Committee had three scheduled meetings
in 2021. Attendance by members at Committee
meetings can be seen on page 76.
2021 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 governance on maritime
•
safety threats
Review and approval of enterprise risk
management report
CHAIRMAN’S STATEMENT
In 2021, the Risk Committee had special focus on
liquidity and financing activity to mitigate TORM’s risk
in relation to the ongoing COVID-19 pandemic. A
special focus area was the risks related to interest rate
derivatives trading where the target hedge level was
updated. Another focus area was the risks related to
customer credit risk with particular focus on ensuring
an efficient and accurate credit risk policy.
THE ROLE OF THE RISK COMMITTEE
Read more about the Risk Committee’s area of
responsibility on page 73
Terms of Reference for the Risk Committee on
www.torm.com/investors/governance
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,
such as FFA derivatives level, refinance risk, interest
rate hedge level, credit risk and Time charter position.
Further, a liquidity forecast is presented at each risk
committee meeting.
Special focus areas covered in 2021 were:
Prolonged COVID-19
The prolonged COVID-19 pandemic has had a
significant impact on society as well as on shipping,
including product tankers. During 2021, the market for
refined products continued to be impacted by
lockdowns and restrictions around the world resulting
in lower demand for refined products. This has led to a
subdued tanker market with rates below break-even
for periods during the year. At every meeting, the Risk
Committee reviews liquidity forecasts which includes
scenario and stress testing of the market to ensure that
a sufficient liquidity position is in place. Moreover, the
Risk Committee reviewed TORM’s main liquidity risk
drivers confirming that all relevant drivers were already
part of the existing risk management framework.
Forward Freight Agreements (FFAs) and Liquidity
Risk
During 2020, TORM hedged part of its future earning
days using FFAs. These FFAs matured during the first
half of 2021, and, consequently, TORM had a liquidity
risk associated with the FFA position. 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.
Financial Policy
The Risk Committee approved to increase maximum
interest hedge level up to 100% to ensure stability in
the future cash flow by protecting variability in interest
costs.
Cyber security
The Risk Committee reviewed TORMs cyber security
program established to enhance and mature TORM
cyber security even further over the coming years.
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
85
RISK COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Customer Credit Risk
During 2021, the Risk Committee approved an updated
customer credit risk policy. TORM has a well-
functioning customer credit approval process, where all
customers are reviewed prior to commercial charters.
TORM has revisited and subsequently refined the credit
methodology to ensure consistency, efficiency, and
high-quality risk assessment. Adjustments to the
methodology was to include more focus on industry
and country risk, predefined financial ratios and pre-set
criteria for parent and government support.
Sanctions
The Risk Committee reviewed TORM’s compliance set-
up, designed to avoid that TORM engages with
sanctioned counterparties thereby violating sanctions.
Maritime safety threats
The Risk Committee reviewed the measures taken by
TORM to assess, manage, and mitigate future attacks.
Capital structure risks
The Risk Committee reviewed risk considerations
related to TORM’s capital structure, including liquidity
position, loan-to-value, TORM’s 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, and Credit
Risk Policy. These policies outline core activities and
risks, and the measures that TORM has taken to
mitigate these risks.
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 TORM’s
risk profile based on these discussions. Further, 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 2022. TORM’s annual risk
assessment is presented in detail in the “Risk
Management” section on pages 65-69.
APPROVAL
On behalf of the Risk Committee
Göran Trapp
Chairman of the Risk Committee
23 March 2022
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
86
NOMINATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
AT A GLANCE
Chairman
Christopher H. Boehringer
Members
Annette Malm Justad
David Weinstein
Composition
Except for the Chairman, the Nomination
Committee is composed solely of independent
Non
Executive Directors
‑
Meetings
The Nomination Committee had two scheduled
meetings in 2021. Attendance by members at
committee meetings can be seen on page 76.
FOCUS AREA
30%
8%
16%
46%
Succession Planning
Diversity
Employee population
Governance
CHAIRMAN’S STATEMENT
In 2021, no changes were made to the Nomination
Committee members or Board of Directors, and the
key focus areas of the Nomination Committee have
been the Nasdaq board diversity rules, governance,
succession planning, and employee engagement
THE ROLE OF THE NOMINATION COMMITTEE
Read more about the Nomination Committee’s area
of responsibility on page 73
Terms of Reference for the Nomination Committee
on www.torm.com/investors/governance
COMPLIANCE WITH THE CODE
The Nomination Committee complies with the UK
Corporate Governance Code except for 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. TORM 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.
The remaining Directors of TORM are elected on a bi-
annual basis as defined in TORM’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. All TORM’s Non-Executive
Directors will submit themselves for re-election at the
2022 AGM.
The Nomination Committee reviewed the
independence of all Non-Executive Directors pursuant
to the Code. Except for the Chairman, the Nomination
Committee is composed solely of independent
Non
Executive Directors and they continue to make
independent contributions and effectively challenge
Management.
‑
The Executive Directors’ service contracts and the
Non-Executive Directors’ terms and conditions of
appointment are available for inspection at our
registered office and will be available on display at the
2022 AGM.
EFFECTIVENESS
During the year, the Nomination Committee reviewed
the independence, time commitment and potential
conflicts of interests of the Non-executive Directors
and concluded that each continued to demonstrate
challenge and independent judgement and to devote
sufficient time to discharging their duties.
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
87
NOMINATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
BOARD EVALUATION
In accordance with the UK Corporate Governance
Code, TORM conducts an annual internal evaluation of
the Board. The outcome of this review led to the Board
requesting further deep dives on ESG, and themes such
as Power-to-X, future renewable energy capacity,
carbon capture, different fuel types and regulatory
considerations.
Read more about the what the Board did this year in
detail on page 77-78
EMPLOYEE ENGAGEMENT
Throughout the year, the Nomination Committee
receives updates on key elements of the people
strategy which provide insight into a variety of areas,
including culture, diversity and inclusion, succession
planning, future capabilities, and colleague
engagement. The Nomination Committee reviewed the
results of the 2021 Employment Engagement Survey. It
was pleasing to note the result is among the top 25 of
the companies across all industries utilizing the Peakon
platform. Good scores were also obtained with regards
to questions specifically related to sexual harassment.
The Nomination Committee is pleased that the Board
wishes to further strengthen TORM’s efforts to have an
entirely harassment free environment, and through
various initiatives we will continue to emphasize our
zero tolerance stand on this subject.
DIVERSITY
The Nomination Committee continued to review
TORM’s progress against its gender diversity targets
for both female Board members and women in the
shore-based workforce. The Nomination Committee
took time to review the SEC approved Nasdaq board
diversity rules introduced in 2021. These require
Nasdaq-listed companies with five or fewer directors to
meet the diversity objective by having at least one
diverse director. The Nomination Committee is pleased
that TORM, having already understood the importance
of diversity in the workplace, met this requirement in
2020.
Read about TORM’s diversity Targets on page 34
The Board of Directors’ diversity matrix can be found
below
Board Diversity Matrix
Country of Principle
Executive Offices
Foreign private issuer
Disclosure prohibited
under home law
Total number of Directors
United Kingdom
Yes
No
5
Gender Identity
Female Male Non-
Not
Directors
1
4
-
-
Binary
disclosed
Underrepresented individual
in home country jurisdiction
LGBTQ+
Did not disclose
None
Not known
demographic background
5
SUCCESSION PLANNING
Succession planning continues to be a priority for the
Nomination Committee, and throughout the year the
Nomination Committee focused on the succession
pipeline for senior management, which is essential to
ensure a continuous level of quality in management. It
further aids TORM in avoiding instability by mitigating
the risks which may be associated with unforeseen
events, such as the departure of a key individual, as
well as promoting diversity and inclusion.
RETENTION RATE
At the end of 2021, the retention rate for all shore-
based employees was 88%, which is still as satisfactory
level. In 2020 and 2019 the retention rate was 92%.
Read more about our employee health and wellbeing
on pages 37-39
APPROVAL
On behalf of the Nomination Committee
Christopher H. Boehringer
Chairman of the Nominations Committee
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
88
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
AT A GLANCE
Chairman
Christopher H. Boehringer
Members
Annette Malm Justad
David Weinstein
Composition
Except for the Chairman, the Remuneration
Committee is composed solely of independent
Non
Executive Directors
‑
Meetings
The Remuneration Committee had two scheduled
and five extraordinary meetings in 2021.
Attendance by members at committee meetings
can be seen on page 76
FOCUS AREAS
3%3% 3%
4%
7%
CHAIRMAN'S STATEMENT
The Renumeration Committee report describes the
activities of the Remuneration Committee for the
period 01 January 2021 to 31 December 2021. It sets out
remuneration details for the executive and non-
executive directors in TORM. 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 two main areas:
• Chairman’s statement
• Annual report on remuneration
The Remuneration Policy, approved by the
shareholders at the Annual General Meeting (AGM) on
14 April 2021, 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.
80%
Find TORM’s Remuneration Policy on
www.torm.com/investors/governance
One TORM KPIs
LTIP
Governance
CEO Remuneration
New Bonus Structure
Board Remuneration
The annual report on remuneration provides details on
remuneration in the period and additional information
required by the regulations. The UK 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 subject to audit are indicated in the
report. The statement by the Chairman of the
Remuneration Committee is not subject to audit.
THE ROLE OF THE REMUNERATION COMMITTEE
Read more about the Remuneration Committee’s
area of responsibility on page 73
Find the Terms of Reference for the Remuneration
Committee on www.torm.com/investors/governance
COMPLIANCE WITH THE CODE
The Remuneration Committee is in full compliance with
the UK Corporation Governance Code except for
provision 32. The said Code states that the Board of
Directors shall establish a remuneration committee of
independent non-executive directors, with a minimum
membership of three. In addition, the Chairman of the
Board of Directors can only be a member if he is
independent on appointment, and he cannot chair the
Remuneration Committee. TORM's Chairman of the
Board of Directors, Christopher H. Boehringer, has
been appointed as chairman of TORM’s Remuneration
Committee. However, given his association with the
controlling shareholder and the alignment of interest
regarding remuneration, the Board of Directors
considers it appropriate for Christopher H. Boehringer
to chair the Remuneration Committee.
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
89
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
MEETINGS
The Chairman and the Executive Director attend the
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.
Stress Awareness
We were pleased that we continue to promote mental
health awareness programs across TORM, which this
year included our new stress awareness program,
educating our management and cascading relevant
information to all employees. Stress mitigation is an
ongoing and essential part of TORM's values.
APPROVAL
On behalf of the Remuneration Committee
Christopher H. Boehringer
Chairman of the Remuneration Committee
ACTIVITIES DURING 2021
KPIs and new bonus structure
In 2021, a large proportion of the Remuneration
Committee’s time was used discussing TORM’s
proposed new bonus structure. The new structure will
better align TORM’s financial performance with bonus
pay-outs to employees. Our intention is to do this by
using selected key KPIs. The Remuneration Committee
will be able to use its judgement in evaluating non-
financial performance, including the executives’
commitment to safety and quality, CO2 footprint,
diversity and inclusion, as well as overall leadership
contributions when setting future performance bonus
levels.
Succession and the wider workforce
In addition, the Remuneration Committee engaged in
discussions surrounding the wider workforce
remuneration, succession pipeline, and incentives,
ensuring that as a company, TORM creates an
environment where our most talented employees are
being recognized and given greater responsibilities.
Work from home
Throughout the COVID-19 pandemic, we have
supported our employees in working home, where
possible, and in doing so, recognized this as an
opportunity to further increase flexible work in the
future. The perception of the remote work concept has
changed with regards to operational performance, job
satisfaction and work-life balance. Going forward,
remote work will continue to form part of the way daily
operations are performed in TORM providing more
flexibility than has previously been available.
Annual remuneration policy reviews
The Remuneration Committee reviewed the
remuneration policy. Their conclusion was that no
amendments to the remuneration policy were required
at this time.
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
90
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
STATEMENT OF VOTING AT THE AGM
Shareholder voting on the resolutions to approve the annual remuneration report put to the 2021 AGM and the Directors’ remuneration policy put to the 2021 AGM were as follows:
Annual remuneration report
Votes for
%
Votes against
51,080,487
67.8
61,811
Directors' remuneration policy
Votes for
%
Votes against
48,123,828
63.9
3,018,434
%
0.1
%
4
Total votes
Abstentions
51,142,298
916
Total votes
Abstentions
51,142,262
952
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
91
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
EXECUTIVE DIRECTOR’S AND CHIEF EXECUTIVE
OFFICER’S REMUNERATION
Single total figure of remuneration
The table below sets out the 2020-21 remuneration for
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.
Total remuneration for
the 2021 financial year
2021 2020 Adj.
2020
FIXED PAY ($'000)
Base Salary
Taxable benefits
Pension
Total fixed remuneration
VARIABLE PAY ($'000)
1,243.4
44.0
-
1,287.4
-
-
-
-
-
-
1,129.0
41.0
-
1,170.0
-
Annual performance bonus
1,161.3
-124.5
1,262.0
Total variable pay
1,161.3
-124.5
1,262.0
SINGLE TOTAL FIGURE
OF REMUNERATION
($'000)
2,448.7
-124.5
2,432.0
Change in remuneration
of colleagues and
Directors
% change from 2020 to 2021
Salary Benefits
Bonus
Employee entire group
Chief Executive Officer
0.0%
10.1%
0.0%
7.4%
0.0%
2.1%
Base salary
The base salary is discussed and agreed with the
Chairman of the Board and the Remuneration
Committee once a year. The CEO’s base salary was
reviewed on 24 February 2021 to determine the
appropriate salary for the coming year. Base salary as
of 01 January 2020: DKK 7.0m. Base salary as of 01
January 2021: DKK 7.28m (USD 1.16m). In addition the
CEO receives Euro 70t (USD 82t) for his role as
Executive Director.
The CEO’s base salary was reviewed on 07 March 2022
to determine the appropriate salary for 2022. The base
salary as of 01 January 2022 has been determined at
DKK 7.39m, the adjustment of the salary will take effect
on 01 January 2022.
Taxable benefits
TORM 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 2021, the amount of DKK 276t
(USD 44t) 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 internet
access and call charges. No changes in allowances and
benefits are expected for 2022.
Performance bonus 2020
As discussed in the 2020 Annual Report, at the time of
issue the CEO’s bonus figure had yet to be agreed and
instead the 2020 Annual Report included an estimate
of DKK 8.4m (USD 1.26m), equating to 120% of his base
salary. After final agreement by the Remuneration
Committee, the CEO’s bonus figure was set at DKK
7.0m (USD 1.14m), equating to 100% of his base salary.
Performance bonus 2021
The Remuneration Committee has provided the CEO
with a performance cash bonus for the financial year
2021 in the following ranges and based on the following
parameters:
•
The fulfilment of specific performance metrics set
by TORM (up to 70% of the CEO’s base salary).
These include but are not limited to, RoIC, cost
structure, highest safety standards and
environmental footprint
• Up to 50% of the CEO’s base salary based on the
sole discretion of TORM’s Board of Directors
In aggregate, the maximum achievable cash
bonus for the financial year 2021 for the CEO is
equal to 120% of the CEO’s base salary in the
financial year 2021. The specific metrics and
calculation methodology for each of the
parameters have been determined by the Board
of Directors. Based on the aforesaid methodology,
the CEO’s performance cash bonus for 2021 was
determined to be a total of 100% (60% on
parameter 1 and 40% on parameter 2) of the 2021
fixed annual salary of DKK 7.28m, resulting in an
amount of DKK 7.28m (USD 1.16m).
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
92
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
LONG-TERM INCENTIVE PROGRAM – RESTRICTED
SHARE UNITS GRANTED TO THE CEO
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
which have not expired without exercise.
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 were communicated in company
announcement no. 2 dated 18 January 2016,
announcement no. 10 dated 25 April 2018 and
announcement no. 7 dated 18 March 2021. 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 01 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 01 January 2018, which will vest in
equal instalments 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 01 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 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
TORM’s Long-Term Incentive Program (LTIP) (cf.
company announcements dated 18 January 2016, 18
March 2021 and 25 April 2018).
The value of the 2018 grant, USD 0.9m, is estimated
taking into account that as part of the grant the CEO
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, TORM’s share
price was less than the exercise price.
As detailed in announcement no. 7 issued on 18 March
2021, the CEO was granted a total of 255,200 RSUs
with effect as of 01 January 2022, which will vest in
equal instalments over the next three years. The
exercise price for each RSU is DKK 53.5, corresponding
to the average price of TORM shares in the 90 calendar
days preceding the publication of TORM plc’s 2020
Annual Report plus a 15% premium. Vested RSUs may
be exercised for a period of 360 days from each
vesting date
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
93
REMUNERATION COMMITTEE REPORT
LONG-TERM INCENTIVE PROGRAM – RESTRICTED SHARE UNITS GRANTED TO THE EXECUTIVE DIRECTOR AND EMPLOYEES
Year
2016
2017
2018
2019
2020
2021
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Grant of RSUs
Grant of RSUs to Ex.Dir
Vesting Period in years
Vesting Period in years to Ex.Dir
Beginning
Exercise period from vesting
Exercise Price
Reduced due to dividend payment
723,075
866,617
944,468
1,001,050
1,047,389
1,099,919
1,276,725
766,035
255,200
3
5
3
3
3
3
3
3
01-Jan-17
01-Jan-18
01-Jan-19
01-Jan-20
01-Jan-21
01-Jan-22
Six months
Six months
360 days
360 days
360 days
360 days
and 12
months for
Ex.Dir
after each
after each
after each
after each
vesting date
vesting date
vesting date
vesting date
96.30 kr.
96.30 kr.
53.70 kr.
47.40 kr.
49.70 kr.
43.40 kr.
69.90 kr.
64.30 kr.
53.50 kr.
Black-Scholes model, the theoretical market value
USD 5.0m
USD 1.0m
USD 2.3m
USD 1.7m
USD 1.3m
USD 3.0m
Total RSU's expired unexercised
RSUs exercised within 2019
RSUs exercised within 2020
RSUs exercised within 2021
Total RSU's exercised by grant year
RSU's outstanding as at 31 December 2021
1,999,800
866,617
1,050,383
295,159
349,130
-
-
-
-
-
-
-
-
-
-
529,402
-
12,405
95,276
118,315
291,112
660,122
386,388
-
-
-
-
-
319,507
698,259
1,355,121
-
-
-
-
-
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
94
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
LTIP element of Jacob Meldgaard’ s remuneration package
2021
Grant Date
25 April
18 March
2018
2021
RSU LTIP grant¹
766,035
255,200
Exercise price per share
⁾
RSU grant value assuming
DKK 53.7
DKK 53.5
100% vesting
USD 0.9m
USD 0.6m
END OF SERVICE GRATUITY
TORM 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.
POST-SERVICE SALARY
If the CEO dies during his
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.
TOTAL PENSION ENTITLEMENTS
The Directors of TORM plc are not entitled to any
pension contributions from TORM. In addition,
Denmark-based Executive Director Jacob Meldgaard,
in his role as CEO of TORM A/S, is not entitled to any
pension contributions.
TAXABLE BENEFITS
In general, members of the Board of Directors of TORM
plc do not receive any additional benefits.
PAYMENTS FOR LOSS OF OFFICE
No payments for loss of office have been made in 2021.
OUTSIDE APPOINTMENTS
The Executive Director is entitled to retain the fees
earned from non-executive appointments outside
TORM. 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. Jacob
Meldgaard is also Chairman of Grant Compass A/S for
which he receives no fee but has been granted
warrants
ANNUAL BONUSES AND LTIPS
TORM’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 TORM in shares or
warrants. The remuneration for the Non-Executive
Directors is determined by the Board of Directors
subject to limits in TORM’s Articles of Association.
During 2021, none of the Non-Executive Directors
received any part of their remuneration in shares or
warrants.
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
95
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
EXECUTIVE DIRECTOR’S INTEREST IN THE SHARES
OF TORM
The table to the right summarizes the total interests of
the Executive Director in shares of TORM plc as of 31
December 2021. During the period 01 January to 31
December no gains were made by the Executive
Director on the exercise of share options. No changes
took place in the Executive Director’s interests
between 31 December 2021 and 23 March 2022.
DIRECTORS’ INTEREST IN THE SHARES OF TORM
The table to the right summarizes the total interests of
the Directors in shares of TORM plc as of 31 December
2021. No changes took place in the Directors’ interests
between 31 December 2021 and 23 March 2022.
REMUNERATION TABLE NON-EXECUTIVE
DIRECTORS
The table to the right summarizes the remuneration
paid to the Non-Executive Directors of TORM in 2021.
The 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.
DIRECTORS’ INTERESTS IN THE SHARES OF THE COMPANY (AUDITED)
Vested not
Agreed not to
Jacob Meldgaard’s Restricted Share Units
Awarded
exercised
exercise
Exercised
Unvested
2016
2017
2018
2019
2020
2021
1,276,725
-
-
766,035
255,345
255,345
-
-
766,035
-
-
-
1,276,725
1,021,380
766,035
-
-
255,200
255,345
255,345
-
-
-
255,345
510,690
-
-
255,345
255,200
2021 STATEMENT OF DIRECTORS' SHARE HOLDING AND SHARE INTEREST
Christopher H. Boehringer
David Weinstein
Göran Trapp
Annette Justad
Jacob Meldgaard
Changes from
Ordinary
Ordinary
31 Dec 2021
Ordinary
Shares as at 1
Shares as at
to 11 Mar
Shares as at
Jan 2021
31 Dec 2021
2022
11 Mar 2022
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
2021 REMUNERATION TABLE NON-EXECUTIVE DIRECTORS
USD '000
Base fee
Committee fees
Total
DIRECTOR
2021
2020
2019
2021
2020
2019
2021
2020
2019
Christopher H. Boehringer
176
171
168
60
117
114
113
116
85
86
84
85
235
234
256
200
59
59
57
57
57
117
114
113
176
171
-
117
82
-
176
139
David Weinstein
Göran Trapp
Annette Justad
252
198
170
-
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
96
REMUNERATION COMMITTEE REPORT
Information provided in the following part of the Annual Report on remuneration is not subject to audit
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
ASSESSING PAY AND PERFORMANCE
In the tables to the right, we summarize the Chief
Executive Officer’s single figure remuneration over the
past six years, as well as how our variable pay plans
have paid out in relation to the maximum opportunity.
This can be compared to TORM’s performance since
the listing of TORM plc, measured by total shareholder
return, compared with the average of a selection of
TORM’s main peers in the industry and with the
performance of the Danish stock index OMX. The OMX
index is a market cap weighted index of all stocks
listed on Nasdaq in Copenhagen. The total
shareholder return is calculated in USD.
6-YEAR HISTORICAL PERFORMANCE. TORM PLC VS PEER AND THE OMX INDEX
200
180
160
140
120
100
80
60
40
20
0
96
72
106
71
2016
2017
Peer Average
TORM
108
51
2018
OMX
112
62
134
56
177
58
2019
2020
2021
FINANCIAL YEAR REMUNERATION FOR CHIEF EXECUTIVE OFFICER
3,000
2,500
2,000
1,500
1,000
500
0
1,473
1,626
1,531
2,208
2,307
2,449
67%
2016
60%
2017
45%
2018
117%
2019
100%
2020
100%
2021
Annual bonus (% earned of base salary)
Total remuneration USD '000
140%
120%
100%
80%
60%
40%
20%
0%
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
97
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
ANNUAL PERCENTAGE CHANGE IN DIRECTORS’
REMUNERATION
The table to the right shows the percentage change
over the year ended 31 December 2020 to the year
ended 31 December 2021 in respect of directors’
remuneration and average employee remuneration. As
required by legislation, directors’ remuneration is
compared to the employees of TORM plc on a full-
time equivalent basis.
CHANGE IN REMUNERATION OF
COLLEAGUES AND DIRECTORS’
Chief Executive Officer
Mr. Christopher H. Boehringer
Mr. David Weinstein
Mr. Göran Trapp
Ms. Annette Justad
Colleagues entire group
Salary or fees % change Benefits % change
Bonus % change
2020 to
2019 to
2020 to
2019 to
2020 to
2019 to
2021
2020
2021
2020
2021
2020
10.1%
-8.1%
16.8%
2.9%
8.3%
1.6%
1.0%
1.0%
26.5%
-47.4%
3.5%
4.6%
7.4%
N/A
N/A
N/A
N/A
0.0%
2.3%
N/A
N/A
N/A
N/A
0.0%
2.1%
N/A
N/A
N/A
N/A
1.4%
12.1%
N/A
N/A
N/A
N/A
23.4%
¹
²
³
³
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 4%, taxable benefits is 0% and annual bonus is 4%.
⁾
Due to Christopher H Boehringer and David Weinstein changing roles on the Risk Committee, the fees % change in EUR are -11% and 14.3% respectively.
⁾
Due to Annette Justad completing her first full year the Fees % change in EUR is 24.1%.
⁾
⁾
RELATIVE IMPORTANCE OF SPEND ON PAY
The table to the right shows the actual expenditure of
TORM on employee pay and distributions to
shareholders compared to the retained earnings of
TORM.
RELATIVE IMPORTANCE OF SPEND ON PAY
Expenditure USDm
Dividends paid
Purchase of outstanding treasury shares in TORM A/S
Purchase/disposals of treasury shares
Executive Directors remuneration
Total
Staff costs
Retained earnings
2021
-
-
-
2.4
2.4
52.1
2020
70.6
-
1.3
2.3
74.2
50.7
2019
-
-
-
2.2
2.2
45.8
899.5
939.2
920.0
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
98
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
REMUNERATION POLICY
The TORM plc Remuneration Policy approved at the
20 April 2021 AGM remained unchanged during 2021.
In accordance with the UK Corporate Governance
Code, TORM’s Remuneration Policy and practices are
designed to support the business strategy and
promote TORM’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.
Find TORM’s Remuneration Policy on Find TORM’s
Remuneration Policy on
www.torm.com/investors/governance
2022 REMUNERATION
The Remuneration Policy agreed at the 20 April 2022
AGM will be implemented for the 2022 financial year.
There are no foreseen changes to the policy.
Adaptation 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
TORM’s annual reports for all financial years and will
contain information on remuneration paid to the
Board of Directors and Executive Management.
APPROVAL
On behalf of the Remuneration Committee
Christopher H. Boehringer
Chairman of the Remuneration Committee
23 March 2022
TORM ANNUAL REPORT 2021
COMMITTEE REPORTS
99
INVESTOR INFORMATION
SHARE INFORMATION
Exchanges
ISIN (CPH)
CUSIP (NY)
Tickers
Year high (TRMD A)
Year low (TRMD A)
Number of A shares (end 2021)
Number of treasury shares
Nasdaq CPH and NY
GB00BZ3CNK81
G89479102
TRMD A and TRMD
DKK 60.75 (10 May)
DKK 43.45 (29 Jan.)
81,233,269
493,371
FINANCIAL CALENDAR 2022
20 April 2022, Annual General Meeting
11 May 2022, First quarter 2022 results
17 August 2022, First half 2022 results
09 November 2022, Nine months 2022 results
INVESTOR RELATIONS CONTACT
Andreas Abildgaard-Hein
Group Treasury and IR
Phone: +45 3917 9339
Email: ir@torm.com
Jomkwan Palitwanon
Investor Relations
Phone: +45 3917 9331
Email: ir@torm.com
ANALYST COVERAGE
Danske Bank
Håvard Sjursen Lie
Phone: +47 40 47 4443
Email: hvli@danskebank.com
Clarksons
Frode Mørkedal
Phone: +47 22 01 63 27
Email: frode.morkedal@clarksons.com
Evercore ISI
Jonathan B. Chappell
Phone: +1 212-497-0827
Email: jonathan.chappell@evercoreisi.com
Fearnley Securities
Peder Nicolai Jarlsby
Phone: +47 22 93 64 71
Email: pn.jarlsby@fearnleys.com
Kepler Cheuvreux
Anders Redigh Karlsen
Phone: +47 23 13 9068
Email: arkarlsen@keplercheuvreux.com
Skandinaviska Enskilda Banken AB
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 2021, TORM issued a total of 32 announcements to
the stock exchange. These announcements are
available in English versions at
https://www.torm.com/investors/announcements
Three weeks prior to the publication of quarterly and
annual financial statements, communication is limited
to issues of a general nature, and in that period no
individual investor meetings are held.
SHARE PRICE PERFORMANCE
In 2021, TORM had an average of 78,560,048 A-
shares outstanding. The average daily trading volume
on Nasdaq in Copenhagen has been approximately
212t shares and approximately 90t shares on Nasdaq
in New York. During 2021, the share price increased
from DKK 45.3 to DKK 51.7 on Nasdaq in Copenhagen
and from USD 7.3 to USD 8.0 on Nasdaq in New York.
Throughout 2021, TORM has been part of the MidCap
segment on Nasdaq in Copenhagen. 2021 share price
development is available at
www.torm.com/investors/share.
TORM ANNUAL REPORT 2021
OTHER
100
Other
INVESTOR INFORMATION
CHANGES TO THE SHARE CAPITAL
As of 31 December 2020, TORM plc’s total share
capital was USD 748,559.31 consisting of 74,855,929
A-shares of USD 0.01 each, one B-share and one C-
share both of USD 0.01.
During 2021, TORM has increased its share capital by
6,377,340 A-shares as a result of 409,427 number of
Restricted Share Units being exercised and issuance of
5,967,913 shares to Team Tankers Deep Sea Ltd. in
exchange for 8 MR vessels acquisition.
SHARE CAPITAL
As of 31 December 2021, TORM’s share capital
amounted to USD 812,332.71 divided into 81,233,269 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 81,233,269 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. As of 31
December 2021, TORM holds 493,371 as treasury
shares.
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.
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.
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
TORM ANNUAL REPORT 2021
OTHER
101
INVESTOR INFORMATION
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.
Further details on the transferability, please see the
in the Articles of Association on
www.torm.com/investors/governance
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
• 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 2021, 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 2021, 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.
SHARE PREEMPTION GRANT
Authority
Date
Value
Granted
14 April 2020
USD 777,625
Utilized
Utilized
Remaining
15 May 2020
USD 10,474
18 March 2021
USD 13,551
USD 753,600
Further, 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.
SHARE REPURCHASE GRANT
Granted
14 April 2020
7,476,065
Repurchase period
1 January to 31
December
180,500
Remaining
Approx. 10% of TORM's
share capital excluding
treasury shares
7,295,565
All of the above authorities to issue and purchase
shares expire on 14 April 2025.
Details of TORM’s employee share schemes and any
rights attached to the shares under these schemes are
set out on pages 89-99 of the Directors’
Remuneration Report.
The U.K. Takeover Code, issued and administered by
the U.K. Takeover Panel, applies to the Company
SHAREHOLDERS
As of 31 December 2021, TORM had approximately
10,787 registered shareholders representing
approximately 85% of the share capital.
In 2020, TORM has been subject to UK Disclosure
Guidance and Transparency Rules under which
TORM ANNUAL REPORT 2021
OTHER
102
INVESTOR INFORMATION
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 66% of the share capital.
As of 31 December 2021, TORM’s treasury shares
represented approximately 0.6% 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.
At the end of 2021, the members of the Board of
Directors held a total of 297,135 shares, equivalent to a
total market capitalization of DKK 15,361,880 or USD
2,341,322. 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.
WARRANTS AND RESTRICTED SHARE UNITS
As of 31 December 2021, 2,372,887 RSUs were
outstanding with 1,046,510 being exercised during
2021. The specific terms for the RSU’s are further
described in the Remuneration Committee Report on
pages 89-99.
TORM generates a net loss of USD 42.1m during 2021.
In line with the Distribution Policy, the Board of
Directors has decided not to recommend any
distributions for 2021.
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.
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.
For further information about investor relations,
please visit www.torm.com/investors/
TORM ANNUAL REPORT 2021
OTHER
103
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 TORM for the benefit of its members as a whole during the year ended 31 December 2021
Why?
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
markets’ valuation of TORM shares and
future access to capital in the equity
markets.
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 32 stock exchange announcements during 2021. 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.
TORM’s management and the Directors have a continuous focus
on the leveraging on the integrated One TORM platform, TORM’s
capital structure and TORMs ESG agenda in support for short term
and long term RoIC generation with the aim of maximizing the
long-term value for TORM’s shareholders.
In connection with the development of TORM’s updated ESG reporting,
equity analysts and investors have been consulted about their
requirements for the reporting of 2021.
TORM is actively communicating initiatives that are affecting leverage
and liquidity and are continuously confirming TORM’s focus on the One
TORM platform through quarterly and annual presentations.
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.
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
Since 2006, TORM’s Board of Directors has provided a whistleblower
facility with an independent lawyer as part of the internal control
system. Read more on page 44
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 76.
TORM ANNUAL REPORT 2021
OTHER
104
Why?
How?
Outcomes and actions
Why is it important to engage
How did Management and Directors engage?
What was the impact of the engagement?
TORM regards responsible behavior as a
central part of the Company, our business
and the mindset of our people.
permitted to participate but are not permitted to formally vote on
matters submitted to a vote.
The Board receives and follows up on the Employee Engagement
Survey performed twice a year.
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.
SUPPLIERS & CUSTOMERS
Managing the relationship with suppliers
and customers is an integral part of the way
TORM conducts its business. The COVID-19
pandemic highlighted the importance of
maintaining a dialogue as well as a good
relationship with both suppliers and
customers.
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.
TORM encourages feedback from its customers and suppliers.
In 2021, we continued our bi-annual real time data engagement
survey which we introduced in 2019. More than 90% of all shore-
based employees responded to this survey. Read about TORMs
engagement survey on page 41-42
Throughout the COVID-19 pandemic, we have supported our
employees to work from home, where possible, and recognized this
as an opportunity to further increase flexible working in the future.
Going forward, remote work will continue to form part of the way
daily operations are performed in TORM providing more flexibility
than has previously been available. Read more about our people on
page 41-42
The Board’s pre-emptive actions enabled TORM to ensure smooth
continuation of operations throughout 2021.
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.
Read about more detail on how TORM meets customers’
requirements on page 37-39
TORM’s modern and well-maintained fleet with most of the vessels being
scrubber-fitted further provides TORM and its customers with enhanced
flexibility as well as reduced fuel costs.
2021 proved to be another challenging year, particularly on supply chain
availability and options. Despite this TORM’s supplier relationships and
regional approach, meant that no off hire was suffered by our fleet due to
unavailability of critical spares.
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. TORM is engaged with lenders and potential lenders for
being able to fund vessel acquisitions.
TORM entered into several financing agreements to finance numerous 2nd
hand vessel acquisitions to allow the Company to continue the fleet
renewal program.
TORM is also in dialogue with leasing providers for operational
lease funding of vessel acquisitions and for sale and leaseback
transactions in order to mitigate stranded asset risk.
Several of the acquisitions and some of the sale and leaseback
transactions entered into during 2021 were structured as operational
leases securing TORM’s option to redeliver the asset to the lessor at the
end of the lease.
TORM ANNUAL REPORT 2021
OTHER
105
Why?
How?
Outcomes and actions
Why is it important to engage
How did Management and Directors engage?
What was the impact of the engagement?
TORM is engaged with funding providers in order to understand
ESG risks related to financing in order to be an attractive and
transparent borrower.
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:
TORM’s Business Principles, ensure that TORM is always in
compliance with legislation and lives up to the commitment to
responsible business practices. See pages 32,44, 47
TORM’s Corporate Social Responsibility Statement and Corporate
Governance statement www.torm.com/about
•
•
IMO regulations on CO2 emissions
Danish Shipping and the Charter for more women in shipping
• Mærsk McKinney Møller Center for Zero Carbon Shipping
•
The Modern Slavery Act
TORM’s Modern Slavery Act Statement
www.modernslaveryregistry.org
Read about more TORM’s participation in the Danish Shipping on
pages. 35,43,72 and the Centre for Zero Carbon Shipping see pages
27,35,40
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.
TORM has set a target to reduce its relative CO2 emissions by 45%
by 2030 compared to 2008 and be climate neutral by 2050.
For information on how TORM Philippines and TORM India’s
Education Foundation have been uplifting and supporting the
educational development actions in the community see pages 45-46.
To see how TORM is actively involved in various industry
collaborations supporting our ambitious journey to achieve our 2050
environmental target of zero CO2 emissions from our operating fleet
see pages 27,35,40.
To support TORMs ambitious CO2 target TORM management will be
measured on achieving it. You can read more about TORMs ESG
journey from page 32.
TORM ANNUAL REPORT 2021
OTHER
106
DIRECTORS’ REPORT
The Directors are pleased to present the Annual Report
on the affairs of the TORM Group for 2021, including
the financial statements and the auditor’s report.
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.
TORM’s section 172 statement can be found on
pages 104-106.
RESPONSIBILITY STATEMENT
As required under UK-adopted International
Accounting Standards a statement made by the Board
regarding the preparation of the financial statements.
TORM’s responsibility statement can be found on
pages 110-111.
GOING CONCERN
TORM’s going concern statement can be found on
page 63.
CORPORATE GOVERNANCE STATEMENT
The Corporate Governance Statement setting out how
the Company complies with the Code, and which
includes a description of the main features of our
internal control and risk management arrangements in
relation to the financial reporting process.
Find TORMs Corporate Governance Statement
www.torm.com/investors/governance
A description of the composition and operation of
the Board and its Committees is set out on pages
73-76.
Find the UK Corporate Governance Code
www.frc.org.uk
OTHER INFORMATION INCLUDED IN THE STRATEGIC
REPORT
The “Strategic Report” set out on pages 16-30 provides
a review of TORM’s operations in 2021 and the
potential future developments of those operations.
Details on greenhouse gas emissions are included in
the “Strategic Report” on page 16-30, and details on
TORM’s general policy relating to recruitment, training,
career development and disabled employees are
included on page 43.
Information on how the Directors have had regard to
the need to foster the Company’s business
relationship with suppliers, customers, and other
stakeholders is set out on pages 104-106.
DIRECTORS AND THEIR INTERESTS
The Directors of the Company who served during
the financial year 2021 and up to the date of signing
the financial statements can be found on page 75.
The rules relating to the appointment and
replacement of Directors and Directors’ powers can
be found on TORMs Articles of Association.
Details of Directors’ interests in the Company’s is set
out on pages 96.
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.
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.
With effect from 1 January 2021, TORM plc elected
Denmark as its Home State under the Transparency
Directive rules, due to the implications of Brexit.
Accordingly, TORM plc has complied with the
guidelines laid down in the Public Statement from The
European Securities and Markets Authority (ESMA32-
61-1156) concerning the application of transparency
requirements by UK issuers with securities admitted to
trading on regulated markets in the EU under Article 4
of the Transparency Directive, to ensure compliance
and transparency in this annual report.
SHARE CAPITAL
More information on TORM’s share capital can be
found on page 101.
DIVIDENDS
In line with the Company’s Distribution Policy, the
Board of Directors has decided to recommend that no
dividends be paid for 2021.
TORM ANNUAL REPORT 2021
OTHER
107
DIRECTORS’ REPORT
SUSTAINABILITY
Information about the Company’s approach to
sustainability risks and opportunities is set out on
pages 32-54. Also included on these pages are details
of our greenhouse gas emissions.
FINANCIAL RISK MANAGEMENT
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 22 to
the financial statements. Details on financial risks are
provided in Note 21 to the financial statements.
ANNUAL GENERAL MEETING
TORM’s next Annual General Meeting (AGM) will be
held on 20 April 2022. The notice of the AGM, including
the complete proposals, will be available on TORM’s
website, www.torm.com prior to the meeting.
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.
SIGNIFICANT SHAREHOLDINGS
Details on significant shareholdings are set out in the
“Investor Information” section on page 101-103.
SHARE CAPITAL
Information about the Company’s share capital is set
out in Investor information on pages 101-103.
RESEARCH AND DEVELOPMENT
The Company continues to focus on optimization,
but does not allocate specific costs to research and
development.
GROUP POLICY COMPLIANCE
TORM has implemented a comprehensive compliance
program to ensure that the Company remains in
compliance with rules and regulations related to our
business activities worldwide. As part of this
compliance program, all employees are required to
document that they are aware of and have received all
training required in relation to each compliance area.
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 6.
POLITICAL DONATIONS
No political donations were made during 2021.
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.
RECENT DEVELOPMENTS AND POST-BALANCE
SHEET EVENTS
Details of important events affecting TORM which have
occurred since the end of the financial year disclosed in
Note 2 to the financial statements.
INDEPENDENT AUDITORS
Each person who is a Director at the date of approval
of the Annual Report confirms that:
• As far as the Director is aware, there is no relevant
•
audit information of which the Company’s
independent auditor is unaware.
The Director has taken all reasonable steps that he
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.
TORM ANNUAL REPORT 2021
OTHER
108
DIRECTORS’ REPORT
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the
UK Companies Act 2006.
STATEMENT BY THE DIRECTORS IN PERFORMANCE
OF THEIR STATUTORY DUTIES IN ACCORDANCE
WITH SECTION 172(1) OF THE UK COMPANIES ACT
2006
TORM’s Engagement and Decision making can be
found on pages 104-106.
Approval
On behalf of the Board of Directors
Christopher H. Boehringer
Chairman of the Board of Directors
23 March 2022
TORM ANNUAL REPORT 2021
OTHER
109
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.
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 UK-adopted
International Accounting Standards (UK-adopted IAS)
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.
In preparing these financial statements, the Directors
are required to:
•
Select suitable accounting policies in accordance
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 UK-adopted IAS
(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 UK-adopted IAS have been followed,
subject to any material departures disclosed and
explained in the financial statements
TORM ANNUAL REPORT 2021
OTHER
110
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 23 March 2022 and is signed on
its behalf by:
Jacob Meldgaard
Executive Director
•
•
•
The consolidated financial statements, prepared in
accordance with the Companies Act 2006 and UK-
adopted International Accounting Standards, 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
TORM ANNUAL REPORT 2021
OTHER
111
SAFE HARBOR STATEMENTS
AS TO THE FUTURE
Matters discussed in this release may constitute
forward looking statements. The Private Securities
Litigation Reform Act of 1995 provides safe harbor
protections for forward-looking statements in order to
encourage companies to provide prospective
information about their business. 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 other statements, which
are other than statements of historical facts. The
Company desires to take advantage of the safe harbor
provisions of the Private Securities Litigation Reform
Act of 1995 and is including this cautionary statement
in connection with this safe harbor legislation. Words
such as, but not limited to, “believe”, “anticipate”,
“intend”, “estimate”, “forecast”, “project”, “plan”,
“potential”, “may”, “should”, “expect”, “pending” and
similar expressions or phrases may identify forward-
looking statements.
The forward-looking statements in this release are
based upon various assumptions, many of which are, in
turn, based upon further assumptions, including
without limitation, management’s examination of
historical operating trends, data contained in our
records and other data available from third parties.
Although the Company believes that these
assumptions were reasonable when made, because
these assumptions are inherently subject to significant
uncertainties and contingencies that are difficult or
impossible to predict and are beyond our control, the
Company cannot guarantee that it will achieve or
accomplish these expectations, beliefs or projections.
or future litigation, domestic and international political
conditions, potential disruption of shipping routes due
to accidents, weather, political events including “trade
wars”, the geopolitical crisis related to Russia and
Ukraine, or acts of terrorism.
Important factors that, in our view, could cause actual
results to differ materially from those discussed in the
forward-looking statements include, but are not limited
to, 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 and the ability to
change crew and operate a vessel with COVID-19
infected crew, the operations of our customers and our
business in general, the failure of our contract
counterparties to meet their obligations, 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
including but not limited to CO2 tariffs or trade tariffs ,
potential liability from pending
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. The
information set forth herein speaks only as of the date
hereof, and the Company disclaims any intention or
obligation to update any forward-looking statements
as a result of developments occurring after the date of
this communication.
TORM ANNUAL REPORT 2021
OTHER
112
FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS 2021
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 2021
Balance Sheet
Changes in Equity
Notes to Parent Company Financial Statements
OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM
114
114
115
116
118
119
157
158
159
160
164
170
173
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
113
Consolidated financial statements
Operating expenses
Profit from sale of vessels
Administrative expenses
Other operating expenses
CONSOLIDATED INCOME STATEMENT
1 JANUARY-31 DECEMBER
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
1 JANUARY-31 DECEMBER
USD '000
Revenue
Note
2021
2020
2019
USD '000
619,532
747,356
692,610
Net profit/(loss) for the year
2021
2020
2019
-42,089
88,114
166,022
Port expenses, bunkers and commissions
-240,937
-227,924
-267,739
3 -190,471
-178,376
-172,983
Other comprehensive income/(loss):
24
0
1,069
1,180
Items that may be reclassified to profit or loss:
3, 4
-51,542
-50,773
-47,724
Exchange rate adjustment arising from translation of
414
-19,185
-2,911
entities using a functional currency different from USD
-209
16
426
Share of profit/(loss) from joint ventures
-104
-242
-422
Fair value adjustment on hedging instruments
8,455
-15,790
-13,289
Impairment losses and reversal of impairment on
Fair value adjustment on hedging instruments transferred
tangible assets
Depreciation
6, 8, 24
-4,645
-11,096
114,004
to income statement
8,667
6,860
1,284
6,7 -130,851
-121,922
-110,124
Items that may not be reclassified to profit or loss:
Operating profit/(loss) (EBIT)
1,396
138,907
205,891
Remeasurements of net pension and other post-retirement
Financial income
Financial expenses
10
10
241
536
2,796
-42,382
-49,914
-41,881
benefit liability or asset
-8
103
-82
Other comprehensive income/(loss) after tax ¹
16,905
-8,811
-11,661
Profit/(loss) before tax
-40,745
89,529
166,806
Tax
13
-1,344
-1,415
-784
Net profit/(loss) for the year
-42,089
88,114
166,022
EARNINGS PER SHARE
Basic earnings/(loss) per share (USD)
Diluted earnings/(loss) per share (USD)
28
28
-0.54
-0.54
1.19
1.19
2.24
2.24
Total comprehensive income/(loss) for the year
⁾
-25,184
79,303
154,361
¹
No income tax was incurred relating to other comprehensive income/(loss) items.
⁾
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
114
Note
2021
2020
USD '000
Note
2021
2020
CONSOLIDATED BALANCE SHEET
AS OF 31 DECEMBER
Vessels and capitalized dry-docking
6,7,8,17 1,937,791 1,722,465
6,7
4,824
7,098
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
11,996
12,024
Hedging reserves
6,327
6,847
Translation reserves
1,960,938 1,748,434
Retained profit
Total equity
1,473
1,588
LIABILITIES
5
4,617
4,617
NON-CURRENT LIABILITIES
9 1,967,680 1,754,984
CURRENT LIABILITIES
48,812
22,459
11
12
83,968
58,574
39,966
24,881
5,624
2,181
Borrowings
Trade payables
Current tax liabilities
Other liabilities
Provisions
Total current liabilities
Cash and cash equivalents, including restricted cash
29 171,733
135,564
Current assets
Assets held for sale
Total current assets
TOTAL ASSETS
350,103
243,659
Total liabilities
24
13,216
-
TOTAL EQUITY AND LIABILITIES
363,319
243,659
2,330,999 1,998,643
14
812
748
159,558
102,044
14
-4,235
-4,235
-3,559
-20,681
137
346
899,467
939,247
1,052,180 1,017,469
7,16,17,19
208,951
102,858
19
35,332
14,350
929
1,418
15,19
43,681
59,782
27
18,300
18,300
307,193
196,708
1,278,819
981,174
2,330,999 1,998,643
651
1
344
1
6,742
6,550
Non-current tax liability related to held over gains
13
45,176
44,923
Borrowings
Total non-current liabilities
7,16,17,19 926,450
739,543
971,626
784,466
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
115
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY-31 DECEMBER
USD '000
Equity as of 1 January 2019
Comprehensive income/loss for the year:
Net profit/(loss) for the year
Other comprehensive income/(loss) for the year²
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 ²
Total comprehensive income/(loss) for the year
⁾
Capital increase
Transaction costs of capital increase
Acquisition of treasury shares
Share-based compensation
Dividend paid
Total changes in equity 2020
Equity as of 31 December 2020
Common
Share
Treasury
Hedging
Translation
Retained
shares
premium
shares ¹
reserves
reserves
profit
Total
742
97,092
-2,887
⁾
254
-96
752,106
847,211
-
-
-
5
-
5
-
-
-
4,197
-
4,197
-
-
-
-
-
-
-
-12,005
-12,005
-
-
-
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
-
-
-
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
-70,611
788
-32
-1,348
1,682
-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 2021
CONSOLIDATED FINANCIAL STATEMENTS
116
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY-31 DECEMBER
USD '000
Equity as of 1 January 2021
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 ³
Transaction costs of capital increase
⁾
Share-based compensation
Dividend paid
Total changes in equity 2021
Equity as of 31 December 2021
¹
²
³
Please refer to note 14 for further information on treasury shares.
Please refer to "Consolidated Statement of Comprehensive Income".
⁾
Please refer to note 14 for further information on capital increases during the year.
⁾
⁾
Common
Share
Treasury
Hedging
Translation
Retained
shares
premium
shares ¹
reserves
reserves
profit
Total
748
102,044
-4,235
⁾
-20,681
346
939,247
1,017,469
-
-
-
-
-
-
64
57,799
-
-
-
-285
-
-
64
57,514
-
-
-
-
-
-
-
-
-
17,122
17,122
-
-
-
-
-
-42,089
-42,089
16,905
-8
-42,097
-25,184
-
-
2,317
-
57,863
-285
2,317
-
-209
-209
-
-
-
-
17,122
-209
-39,780
34,711
812
159,558
-4,235
-3,559
137
899,467
1,052,180
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
117
CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY-31 DECEMBER
USD '000
Note
2021
2020
2019
USD '000
Note
2021
2020
2019
CASH FLOW FROM OPERATING ACTIVITIES
CASH FLOW FROM INVESTING ACTIVITIES
Net profit/(loss) for the year
-42,089
88,114
166,022
Investment in tangible fixed assets ¹
-319,787
-173,050
-384,349
Reversals:
Profit from sale of vessels
Depreciation
-
-1,069
-1,180
6 130,851
121,922
110,124
Investments in joint ventures
Sale of tangible fixed assets
⁾
Change in restricted cash
-
-
-275
24
10,033
83,662
61,801
19,161
-30,414
-
Impairment losses and reversal of impairment
Net cash flow from investing activities
-290,593 -119,802
-322,823
losses on tangible assets
6, 8, 24
4,645
11,096 -114,004
Share of profit/(loss) from joint ventures
Financial income
Financial expenses
Tax expenses
Other non-cash movements
Dividends received from joint ventures
Interest received and realized exchange gains
10
10
13
25
104
-241
242
422
-536
-2,796
42,382
49,914
41,881
1,344
1,415
1,350
1,093
275
241
275
583
784
925
19
2,535
Interest paid and realized exchange losses
-41,046
-52,905
-45,283
Income taxes paid
-1,379
-252
-216
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds, borrowings
Repayment, borrowings
Dividend paid
Capital increase ¹
Transaction costs share issue
⁾
Purchase/disposal of treasury shares
Change in restricted cash
5, 16
548,817
734,346
261,830
16 -253,420
-746,475 -169,177
-
-70,611
788
-32
-1,348
14
2,863
-285
-
-
-
4,202
-
-
-
-12,364
Net cash flow from financing activities
297,975
-83,332
84,491
Change in bunkers, receivables and payables,
Net cash flow from operating, investing and
etc.
25
-48,489
15,909
11,858
financing activities
55,330
32,667
-67,241
Net cash flow from operating activities
47,948
235,801
171,091
Cash and cash equivalents as of 1 January
89,514
56,847
124,088
Cash and cash equivalents as of 31 December
144,844
89,514
56,847
Restricted cash as of 31 December
29
26,889
46,050
15,636
Cash and cash equivalents, including
restricted cash as of 31 December
171,733
135,564
72,483
¹
In 2021 share capital was increased by USD 57.9m including a USD 55.0m non-cash share issue in relation to
acquisition of eight vessels. Please refer to Note 14 for further reference.
⁾
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
118
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 – Non-Current Assets
Note 10 – Financial Items
Note 11 – Freight Receivables
Note 12 – Other Receivables
Note 13 – Tax
Note 14 – Common Shares and Treasury Shares
Note 15 – Other Liabilities
Note 16 - Effective Interest Rate, Outstanding Borrowings
Note 17 – Collateral Security for Borrowings
Note 18 – Guarantee Commitments and Contingent Liabilities
Note 19 – Contractual Rights and Obligations
Note 20 – Derivative Financial Instruments
Note 21 – Risks Associated with TORM’s Activities
Note 22 – Financial Instruments
Note 23 – Related Party Transactions
Note 24 – Assets Held for Sale and Non-Current Assets Sold During the Year
Note 25 – Cash Flows
Note 26 – Entities in the Group
Note 27 - Provisions
Note 28 – Earnings per Share and Dividend per Share
Note 29 – Cash and Cash Equivalents, Including Restricted Cash
120
125
126
129
129
130
132
135
136
137
137
138
138
139
140
141
142
142
143
145
148
152
153
153
153
154
155
155
156
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
119
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 include TORM A/S and
its consolidated subsidiaries.
TORM plc is listed on the stock exchanges 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 UK-
adopted International Accounting Standards (“UK-adopted IAS”). The consolidated financial
statements are also prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and IFRS as
adopted by the EU, as applied to financial periods beginning on or after 1 January 2021.
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
As of 31 December 2021, TORM’s available liquidity including undrawn and committed facilities
was USD 210m, including a total cash position of USD 172m (including restricted cash of USD
27m). TORM’s net interest-bearing debt was USD 972m, and the net debt loan-to-value ratio
was 52.3%. Further information on TORM’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 21 to the financial statements. The principal risks and uncertainties facing TORM are set out
on pages 65-69 and details on the liquidity and capital resources are described in Note 2.
TORM monitors its funding position throughout the year to ensure that it has access to
sufficient funds to meet our 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 related effect on the oil demand and supply balance. TORM’s base case assumes
the oil markets to reach pre-COVID-19 levels during the second half of 2022 with freight rates
and vessel values materializing above 2021 levels. In the base case, TORM has sufficient liquidity
and headroom above all the covenant limits. TORM also pays special attention to the
significantly increased geopolitical risk following Russia’s invasion of Ukraine in February 2022
and the associated effects on the product tanker market. The immediate impact is that the
uncertainty and potential for re-routing of trade flows has sent the tanker freight rates in the
European markets upwards. The financial impact going forward is uncertain, but TORM currently
expects that the possible effects are covered within the below sensitivity calculations.
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 TORM as set out on pages
65-69 and include different distressed outlooks for the product tanker market. In a low case
scenario, Management has assumed freight rates which on average are approximately 25%
below those in the base case and a related decline in vessel values. In the low case scenario,
there remains sufficient headroom on liquidity and covenants. In a stress case scenario,
Management has further stressed the freight rates to the lowest rolling four quarter average
since 2000. In the stress case scenario, certain actions will be required to maintain covenant
compliance. Such actions are assessed to be achievable also in a stress case scenario and could
include elements such as the sale of older vessels.
The Board of Directors has considered TORM’s cash flow forecasts and the expected
compliance with TORM’s financial covenants for the period until 31 March 2023. TORM’s cash
flow forecast and expected covenant compliance are based on the business plan approved by
the Board of Directors. 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, TORM will be able to continue the operational existence and comply
with its financial covenants for the period until 31 March 2023. Accordingly, TORM continues to
adopt the going concern basis in preparing its financial statements.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
120
NOTE 1 - continued
NOTE 1 - continued
ADOPTION OF NEW OR AMENDED IFRS STANDARDS
TORM has implemented the following standards and amendments issued by the IASB and
adopted by the UK in the consolidated financial statements for 2021:
•
•
•
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 amendments Interest rate Benchmark Reform –
Phase 2
IFRS 4 amendment Extension of the Temporary exemption from Applying IFRS 9
IFRS 16 amendment Covid-19-related Rent Concessions beyond 30 June 2021
It is assessed that application of these effective on 01 January 2021 has not had any material
impact on the consolidated financial statements in 2021.
ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
IASB has issued a number of new or amended accounting standards (IFRS) and interpretations
(IFRIC) which have not yet come into effect:
• Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS
37 Provisions, Contingent Liabilities and Contingent Assets (all mandatory 01 January 2022)
• Annual Improvements 2018-2020 (01 January 2022)
• Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as
•
•
•
•
•
Current or Non-current (01 January 2023)
IFRS 17 Insurance Contracts (01 January 2023)
IAS 12 amendments Deferred Tax related to Assets and liabilities arising from a Single
Transaction (01 January 2023)
IAS 8 amendments Definition of Accounting Estimates (01 January 2023)
IAS 1 and IFRS Practice Statement 2 amendments Disclosure of Accounting Policies (01
January 2023)
IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture issued in September 2014 (deferred indefinitely)
TORM has assessed the accounting standards and interpretations not yet adopted and does not
expect the new standards to have any material impact on neither TORM’s figures nor the
disclosures.
ACCOUNTING POLICIES
The Group’s general accounting policies are described below. In addition to this, specific
accounting policies are described in each of the individual notes to the consolidated financial
statements as outlined in the following notes:
• Staff costs
• Loan receivables
• Tangible fixed assets
• Leasing
Impairment
•
• Financial items
• Freight receivables
• Other receivables
• Tax
• Other liabilities
• Borrowings
• Derivative financial instruments
• Provisions
• Earnings per share
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
TORM 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
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
121
NOTE 1 - continued
NOTE 1 - continued
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 which 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.
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.
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.
Further, 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 2021
CONSOLIDATED FINANCIAL STATEMENTS1
122
NOTE 1 - continued
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
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.
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 as the consideration the Group expects to be entitled to.
Port expenses, bunkers, and commissions
Port expenses, bunker fuel consumption, and commissions are recognized as incurred. To the
extent that 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.
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, because the Company has an enforceable right to payment for
performance completed to 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.
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.
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.
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 is 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 2021
CONSOLIDATED FINANCIAL STATEMENTS1
123
NOTE 1 - continued
NOTE 1 - continued
BALANCE SHEET
Financial assets
Financial assets are initially recognized on 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.
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”.
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.
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.
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.
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.
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.
The restricted cash balance relates to cash provided as security for initial margin calls and
negative market values on derivatives as well as a sale and leaseback transaction prepayment to
be released upon delivery of the vessel.
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.
Trade payables
Trade payables are recognized at the fair value of the item purchased and are subsequently
measured at amortized cost.
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 which can affect the amounts recognized.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
124
NOTE 1 - continued
NOTE 1 - continued
the
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 can 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 which are
largely independent of those from other vessels or vessel classes. The MR vessels acquired in
2021 with chemical trading capability are operated as all other product tanker vessels and thus
included in the Main Fleet CGU.
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 which would require a modification of their carrying amounts.
The recoverable number of vessels is reviewed based on events and changes in circumstances
which 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 which past impairment losses should be reversed such as reported sale
and purchase prices, market demand and general market conditions.
Further, market valuations from leading, independent, and internationally recognized
shipbrokers are obtained on 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.
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.
NOTE 2 – LIQUIDITY, CAPITAL RESOURCES AND SUBSEQUENT EVENTS
LIQUIDITY AND CAPITAL RESOURCES
As of 31 December 2021, TORM’s cash and cash equivalents including restricted cash totaled
USD 172m (2020: USD 136m; 2019: USD 72m), and undrawn and committed credit facilities
amounted to USD 38m (2020: USD 132m; 2019: USD 173m). The undrawn and committed credit
facilities consisted of a USD 38m leasing facility with BoComm Leasing. TORM had one
newbuilding (2020: two; 2019: four) to be delivered in early 2022. The total outstanding CAPEX
related to the newbuilding was USD 38m (2020: USD 86m; 2019: USD 51m) and is mainly
financed by the committed BoComm Leasing facilities of USD 38m.
TORM has a Syndicated Facilities Agreement which includes a USD 177m Term Facility
Agreement, a USD 57m Revolving Credit Facility and a drawn USD 45m Working Capital Facility
with maturity in 2026. In 2021, TORM repaid USD 83m debt on eight MR vessels on the Term
Facility Agreement and refinanced the vessels with a sale and leaseback agreement. In addition
to the Syndicated Facilities, TORM has a USD 222m Term Facility Agreement with Danish Ship
Finance with maturity in 2027. Further, TORM has a USD 59m Term Facility Agreement and a
USD 26m Term Facility Agreement both with maturity in 2025, and a USD 25m Term Facility
Agreement with maturity in 2026 with Hamburg Commercial Bank. TORM also has a Term
Facility Agreement with China Export-Import Bank of USD 45m with maturity in 2030 and with
KfW-IPEX Bank of USD 41m with maturity in 2032. The facility with China Export-Import Bank
was partially repaid in 2021, and TORM refinanced two vessels with a sale and leaseback
agreement with BoComm Leasing. As of 31 December 2021, the scheduled minimum payments
on mortgage debt and bank loans in 2022 were USD 151m.
TORM has lease debt of a total USD 77m with various Japanese leasing providers, lease debt of
a total USD 197m with BoComm Leasing and of USD 151m with China Development Bank
Financial Leasing. The leasing facilities with BoComm Leasing consist of a USD 52m leasing
facility expiring in 2025, a USD 7m leasing facility to finance scrubber and ballast water
treatment systems expiring in 2024 and a leasing facility of USD 100m for financing three LR2
vessels. Two of the three LR2 vessels were refinanced from the loan facility with China Export-
Import Bank and one of them was acquired by TORM in 2021. Further, TORM has a leasing
facility with BoComm Leasing of USD 38m for the newbuilding LR2 vessel delivered in 2021 and
a committed leasing facility to finance the remaining newbuilding on order. As of 31 December
2021, the scheduled minimum payments on lease agreements in 2022 were USD 37m.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
125
NOTE 2 - continued
NOTE 3 – STAFF COSTS
TORM’s 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)
EMPLOYEE INFORMATION
The majority of the staff on vessels are not employed by TORM. Staff costs included in
operating expenses relate to the 106 seafarers employed under Danish contract (2020: 109,
2019: 108).
During 2021, 2020 and 2019, TORM did not have any covenant breaches.
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.
SUBSEQUENT EVENTS
On 05 January 2022, TORM took delivery of the LR2 newbuilding vessel TORM Houston and
subsequently sold the vessel to new owners in a sale and leaseback financing transaction which
included purchase options for TORM.
On 06 January 2022, the MR vessel TORM Astrid was delivered upon completion of a sale and
leaseback financing transaction which included purchase options for TORM.
USDm
Total staff costs
Staff costs included in operating expenses
Staff costs included in administrative expenses
On 15 February 2022, the Handysize vessel TORM Tevere was sold to new owners with expected
delivery during the first half of 2022.
Total
The geopolitical risk increased significantly following Russia’s invasion of Ukraine in February
2022. The sanctions imposed on Russia by the Western nations increased uncertainty on the
general energy market, sending the price of crude oil to the highest level since 2014. The initial
sanctions were not targeting the oil trade, however, the uncertainty and potential for re-routing
of trade flows sent the crude tanker freight rates in the European markets upwards. Due to the
continuous development and complexity of the situation, the impact on the tanker markets
going forward is uncertain. Considering our current customer base, main suppliers and financial
counterparties as well as covenants in our loan facilities, we do not expect any direct impact on
our operations although we expect increased volatility in freight rates, bunker cost, foreign
exchange rates, and vessel values.
Staff costs comprise the following
Wages and salaries
Share-based compensation
Pension costs
Other social security costs
Other staff costs
Total
Average number of permanent employees
Seafarers
Land-based
Total
2021
2020
2019
9.7
42.4
52.1
9.2
41.5
50.7
42.1
42.3
2.3
3.6
1.3
2.8
1.7
3.3
1.3
2.1
8.1
37.7
45.8
37.2
1.9
3.5
0.9
2.3
52.1
50.7
45.8
106
341
447
109
332
441
108
313
421
The majority of seafarers on vessels are on short-term contracts. The number of seafarers on
short-term contracts in 2021 was on average 1,449 (2020: 1,474, 2019: 1,510). Total seafarers’
costs in 2021 was USD 75.9m (2020: USD 80.5m, 2019: USD 79.5m), which is included in
“Operating expenses”.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
126
NOTE 3 - continued
USD '000
Non-Executive Board and Committee Remuneration,
short term
Christopher H. Boehringer
David Weinstein
Göran Trapp
Torben Janholt
Annette Justad
Total
Executive Management
Jacob Meldgaard
2019, TORM A/S¹
2019, TORM plc¹
⁾
2020, TORM A/S¹
⁾
2020, TORM A/S adjustment¹
⁾
2020, TORM plc¹
2021, TORM A/S¹
⁾
2021, TORM plc¹
⁾
¹
Paid by legal entity as noted.
⁾
⁾
NOTE 3 - continued
2021
2020
2019
LTIP element of Jacob Meldgaard's remuneration package 2021:
235
234
176
-
176
821
256
200
172
89
139
856
252
198
170
170
-
790
Annual
perfor-
Taxable
mance
Grant Date
RSU LTIP grant¹
Exercise price per share
⁾
RSU grant value assuming 100% vesting
25-Apr-18 18-Mar-21
766,035
255,200
DKK 53.7 DKK 53.5
USD 0.9m USD 0.6m
¹
LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 10 of 25 April
2018 and announcement no. 7 dated 18 March 2021, therefore there is no minimum or maximum for 2018 and 2021.
⁾
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 were communicated in company announcement no. 2 dated 18
January 2016, company announcement no. 10 dated 25 April 2018, and company announcement
no. 7 dated 18 March 2021. There are no performance conditions associated with the grant of
RSUs.
962
79
41
1,126
2,129
-
-
1,052
41
1,262
-
77
1,161
82
-
-
-125
-
44
1,161
-
-
79
2,355
-125
77
2,366
82
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 01 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 01 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.
USD '000
Salary
benefits
bonus
Total
Executive Management Remuneration
⁾
As discussed in the 2020 Annual Report, at the time of issue the CEO’s bonus figure had yet to
be agreed and instead the Annual Report 2020 included an estimate of DKK 8.4m (USD 1.262m),
equating to 120% of his base salary. After final agreement by the Remuneration Committee, the
CEO’s bonus figure was set at DKK 7,000 (USD 1,137m), equating to 100% of his base salary. Key
management personnel consists of the Board of Directors and the Executive Director.
Senior Management Team
The aggregated compensation paid by the Group to the three (2020: 3) other members of the
Senior Management Team in 2021 (excluding Jacob Meldgaard) was USD 2.2m (2020: USD 2.1m
2019: USD 1.7m), which includes an aggregate of USD 0.1m (2020: USD 0.1m, 2019: USD 0.1m)
allocated for pensions (defined contribution plans) for these individuals.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
127
NOTE 3 - continued
NOTE 3 - continued
As detailed in company announcement no. 10 issued on 25 April 2018, the CEO was granted a
total of 766,035 RSUs with effect as of 01 January 2018, which will vest in equal instalments 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 01
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
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).
The value of the 2018 grant, USD 0.9m, is estimated taking into account that as part of the grant
the CEO 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. As detailed in company announcement no. 7 issued on 18 March 2021, the
CEO was granted a total of 255,200 RSUs with effect as of 01 January 2022, which will vest in
equal instalments over the next three years. The exercise price for each RSU is DKK 53.5,
corresponding to the average price of TORM shares in the 90 calendar days preceding the
publication of TORM plc’s 2020 Annual Report plus a 15% premium. Vested RSUs may be
exercised for a period of 360 days from each vesting date
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.
The program comprises the following number of shares in TORM plc:
Number of shares (1,000)
2021
2020
2019
Outstanding as of 1 January
Granted during the period
Exercised during the period
Expired during the period
Forfeited during the period
2,187.5
2,228.3
2,719.1
1,355.1
1,047.4
1,001.1
-409.4
-107.7
-529.4
-760.3
-980.5
-785.3
-
-
-177.2
Outstanding as of 31 December
2,372.9
2,187.5
2,228.3
Exercisable as of 31 December
-
-
-
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.
In 2021, the Board agreed to grant a total of 1.355,121 RSUs to other management. The vesting
period of the program is three years for key employees. The exercise price is set to DKK 53.5.
The exercise period is 12 months after the vesting date. The fair value of the options granted in
2021 was determined using the Black-Scholes model and is not material. The average remaining
contractual life for the restricted shares as per 31 December 2021 is 1.5 years.
ACCOUNTING POLICIES
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.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
128
NOTE 3 - continued
NOTE 5 – LOAN RECEIVABLES
Pension plans
The Group has entered into defined contribution plans only. Pension costs related to defined
contribution plans are recorded in the income statement in the year to which they relate.
Share-based 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 which will eventually vest. The fair value
of the share schemes is calculated using the Black-Scholes model at the grant date.
NOTE 4 – REMUNERATION TO AUDITORS APPOINTED AT THE PARENT
COMPANY’S ANNUAL GENERAL MEETING
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
USDm
Audit fees
2021
2020
2019
Balance as of 31 December
2021
2020
2019
4.7
-
4.7
0.1
-
0.1
4.7
-
4.7
0.1
-
0.1
-
4.7
4.7
-
0.1
0.1
Fees payable to the Company's auditor for the audit of the
Carrying amount as of 31 December
4.6
4.6
4.6
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
Total
0.5
0.3
0.8
0.1
0.1
0.2
0.4
0.2
0.6
0.0
0.1
0.1
0.4
0.2
0.6
0.1
-
0.1
1.0
0.7
0.7
These loans were issued as part of sale and lease back transactions in 2019 for two MR vessels.
The loans will 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.
ACCOUNTING POLICIES
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).
Under SEC regulations, the remuneration of the auditor of USD 1.0m (2020: USD 0.7m, 2019:
USD 0.7m) is required to be presented as follows: Audit USD 0.8m (2020: USD 0.6m, 2019: USD
0.6m), Audit-related USD 0.1m (2019: other audit related services USD 0.1m) and tax services
USD 0.1m (2020: tax related services USD 0.1m).
EY was appointed as the Group’s auditors for the year ended 31. December 2020. Accordingly,
comparative figures in the table above for the year ended 31 December 2019 is 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 2021
CONSOLIDATED FINANCIAL STATEMENTS1
129
NOTE 6 – TANGIBLE FIXED ASSETS
NOTE 6 - continued
USDm
Land and buildings
Cost:
Balance as of 1 January
Exchange rate adjustment
Additions
Disposals
Balance as of 31 December
Depreciation:
Balance as of 1 January
Disposals
Depreciation for the year
Balance as of 31 December
2021
2020
2019
USDm
2021
2020
2019
11.7
10.4
-0.1
0.1
-0.8
-
1.3
-
9.9
-
0.5
-
Vessels and capitalized dry-docking
Cost:
Balance as of 1 January
Additions
Disposals
Transferred from prepayments
10.9
11.7
10.4
Transferred to assets held for sale
2,160.1
2,064.2
1,886.3
290.3
102.5
-40.9
-29.8
81.3
-25.6
78.6
148.1
252.3
-44.8
-124.9
-130.1
Balance as of 31 December
2,443.3
2,160.1
2,064.2
4.6
-0.8
2.3
6.1
2.3
-
2.3
4.6
-
-
2.3
2.3
Depreciation:
Balance as of 1 January
Disposals
Depreciation for the year
Carrying amount as of 31 December
4.8
7.1
8.1
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
406.2
-40.9
360.6
-29.8
327.6
-25.6
126.2
118.4
106.5
-16.5
-43.0
-47.9
475.0
406.2
360.6
31.4
4.6
-
-5.5
30.5
28.8
11.1
162.1
6.0
-
-120.0
-8.5
-19.3
31.4
28.8
Carrying amount as of 31 December
1,937.8
1,722.5
1,674.8
¹
For additional information regarding impairment considerations, please refer to Note 8.
⁾
Included in the carrying amount for “Vessels and capitalized dry-docking” are capitalized dry-
docking costs in the amount of USD 65.9m (2020: USD 66.1m, 2019: USD 60.7m).
Included in the carrying amount of “Vessels and capitalized drydocking” are vessels on short
term time charter leases (as lessor) in the amount of USD 247.6m (2020: 201.1m, 2019: 75.9m).
Please refer to Note 19 for expected redelivery of the vessels.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
130
NOTE 6 - continued
USDm
Prepayments on vessels
Cost:
Balance as of 1 January
Additions
Transferred to vessels
Balance as of 31 December
2021
2020
2019
12.0
78.6
95.0
45.5
65.1
301.8
-78.6
-148.1
-252.3
12.0
12.0
95.0
Carrying amount as of 31 December
12.0
12.0
95.0
During the year borrowing costs of USD 0.6m (2020: 0.0m, 2019: 0.0m) have been capitalized.
The capitalization rate was 3.7% (2020: 0.0%, 2019: 0.0%)
NOTE 6 - continued
ACCOUNTING POLICIES
Vessels
Vessels consist of owned vessels and leased vessels. The accounting policy for leased vessels is
specified under “Leases”. 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 life, which TORM estimates to be 25 years. TORM considers
that a 25-year depreciable life is appropriate and 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 TORM’s business
plans.
USDm
2021
2020
2019
Other plant and operating equipment
TORM also evaluates the carrying amounts to determine if events have occurred which indicate
impairment and would require a modification of the carrying amounts at the reporting date.
Prepayment on vessels is measured at costs incurred.
Cost:
Balance as of 1 January
Exchange rate adjustment
Additions
Disposals
Balance as of 31 December
Depreciation:
Balance as of 1 January
Exchange rate adjustment
Disposals
Depreciation for the year
Balance as of 31 December
Carrying amount as of 31 December
7.6
-0.1
1.9
-0.1
9.3
0.8
-0.1
-0.1
2.4
3.0
6.3
8.1
-
3.8
-4.3
7.6
3.8
-
-4.2
1.2
0.8
6.8
6.1
-
2.2
-0.2
8.1
2.8
-
-
1.0
3.8
4.3
For information on assets provided as collateral security, please refer to Note 17. Please refer to
Note 8 for information on impairment testing.
The depreciation expense related to “Other plant and operating equipment” of USD 2.4m relates
to “Administrative expense” (2020: USD 1.2m, 2019: USD 1.0m). Depreciation and impairment
losses on tangible fixed assets on “Vessels and capitalized dry-docking” relate to operating
expenses.
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 thereof 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.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
131
NOTE 6 - continued
NOTE 7 – LEASING
Prepayments on vessels
Prepayments consist of prepayments related to newbuilding contracts for vessels not yet
delivered and include the share of borrowing costs 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”.
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 2021, TORM had recognized the following right-of-use assets:
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
USDm
Cost:
Balance as of 1 January
Exchange rate adjustments
Additions
Disposals
Balance as of 31 December
Depreciation:
Balance as of 1 January
Disposals
Depreciation for the year
Balance as of 31 December
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.
Carrying amount as of 31 December
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 which are
usual and customary for sales of such assets, and when its sale is highly probable. Management
must be committed to the sale, which should be expected to qualify for recognition as a
completed sale within one year from the date of classification.
Assets held for sale mainly refer to vessels being sold and are measured at the lower of their
previous carrying amount and fair value less costs to sell. Gains are recognized on delivery to
the new owners in the income statement in the item “Profit from sale of vessels”. Anticipated
losses are recognized at the time when the asset is classified as held-for-sale in the item
“Impairment losses on tangible and intangible assets”.
Other plant
Land and
and operating
buildings
equipment
11.7
-0.1
0.1
-0.8
10.9
4.6
-0.8
2.3
6.1
4.8
0.6
-
0.2
-0.1
0.7
0.4
-0.1
0.2
0.5
0.2
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
132
NOTE 7 - continued
NOTE 7 - continued
USDm
Cost:
Balance as of 1 January 2020
Additions
Disposals
Balance as of 31 December 2020
Depreciation:
Balance as of 1 January 2019
Disposals
Depreciation for the year
Balance as of 31 December 2020
Carrying amount as of 31 December 2020
Vessels and
Other plant
and
capitalized
Land and
operating
dry-docking
buildings
equipment
USDm
Vessels and
Other plant
and
capitalized
Land 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
0.0
Additions
-0.0
Disposals
0.6
Balance as of 31 December 2019
Depreciation:
0.2
Balance as of 1 January 2019
0.0
Disposals
0.2
Depreciation for the year
0.4
Balance as of 31 December 2019
0.2
Carrying amount as of 31 December 2019
43.3
1.8
-2.7
42.4
13.4
-2.7
4.8
15.5
26.9
9.9
0.5
-
10.4
-
-
2.3
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.
The table below describes the nature of the Group’s leasing activities by type of right-of-use asset
recognized on the balance sheet as of 31 December 2021:
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
Other plant
Land and
and operating
buildings
equipment
12
14
0-6 years
0-3 years
1.6 years
1.4 years
7
-
7
13
-
14
Lease liabilities regarding right-of-use assets are included on the balance sheet under
“Borrowings”.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
133
NOTE 7 - continued
NOTE 7 - continued
USDm
2021
2020
2019
Maturity analysis - contractual undiscounted
cash flow
Less than one year
One to five years
More than five years
2.8
3.0
0.1
2.8
5.9
0.1
7.5
27.6
0.1
Total undiscounted lease liabilities as of 31
December
5.9
8.8
35.2
Lease liabilities included under “Borrowings”
as of 31 December
Non-current
Current
5.6
3.7
1.9
8.3
6.2
2.1
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.
Lease payments not recognized as a liability
TORM 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.
Cash outflow for leases
The total cash outflow for leases amounts to USD 2.8m (2020: 2.3m, 2019: 2.9m).
ACCOUNTING POLICIES
TORM assesses whether a contract is or contains a lease at inception of the contract and
recognizes right-of-use assets and corresponding lease liabilities at the lease commencement
date, except for short-term leases and leases of low value. For these leases, TORM recognizes
the lease payments as an operating expense on a straight-line basis over the term of the lease.
Agreements to charter in vessels and to lease land and buildings and other plant and operating
equipment for which TORM substantially has the control are recognized on the balance sheet as
right-of-use assets and initially measured 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.
Leases to charter out vessels are classified as operating leases as the leases are short term in
nature and usually less than one year. Chartered out vessels are presented as part of Vessels
and capitalized dry-docking. Please refer to Note 6. The lease income is recognized in the
income statement on a straight-line basis over the lease term.
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 including repurchase options at lower value that the initial sales price,
the proceeds received are presented as a financial liability in “Borrowings”. No gain or loss is
recorded, and the asset remains recognized on the balance sheet.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
134
NOTE 8 – IMPAIRMENT TESTING
NOTE 8 - continued
As of 31 December 2021 and 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
of vessels:
and comprises the following groups
–
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. The main fleet includes the 2021 acquired MR vessels with
chemical trading capability, which are operated as all other product tanker vessels.
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.
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 and
(reversals)
2021
USDm
-
-
-
2020
USDm
-
5.5
5.5
Discount rate
applied
Recoverable
amount
2021
%
6.7
6.7
2020
%
7.0
7.0
2021
USDm
2,276
26
2,302
2020
USDm
1,747
27
1,774
Excess values
(value in use over
carrying amount)
2020
USDm
8
0
8
2021
USDm
269
0
269
CGU
Main Fleet
Handysize
Total
Based on this review, Management concluded that as of 31 December 2021
• Assets within the Main Fleet were not impaired as the value in use was higher than the
carrying amount
• The two handysize vessels were not impaired as the value in use was in line with the carrying
amount on a vessel-by-vessel basis
Impairments recognized during 2021 of USD 4.6m (2020: USD 5.6m) as set out in Note 6 relate
to the disposal of individual vessels during the year.
The impairment test is sensitive to reasonably possible changes in key assumptions. These
sensitivities are set out on the next page.
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 2022-2024 are based on
TORM’s business plans. Beyond 2024, the freight rates are based on TORM’s 10-year historical
average rates, adjusted for expected inflation of 2% in line with US Federal Reserve and ECB
target over the medium term. TORM 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.
TORM’s business plans for 2022-2024 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.
As part of determining fair value, the impact from climate changes and the climate agenda on
the global oil demand, emission regulations and operating expenses, etc., have been considered
with focus on the short to medium term implications and our commitment to reduce CO2
emissions by 40% by 2025 and 45% by 2030. However, no adverse impact from climate
changes have been anticipated in impairment testing our current fleet. We continue to monitor
the development closely and are working on more specific plans for our ambition to have zero
CO2 emissions from operating our fleet by 2050, which may impact our impairment testing in
the future.
The discount rate used in the value in use calculation is based on a Weighted Average Cost of
Capital (WACC) of 6.7% as of 31 December 2021 (2020: 7.0%, 2019: 7.5%). 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 2021, the 10-year historical average spot freight rates used in the value in use
calculation are as follows:
• LR2: USD/day 19,111 (2020: USD/day 18,884, 2019: USD/day 17,986)
• LR1: USD/day 17,856 (2020: USD/day 17,443, 2019: USD/day 17,060)
• MR: USD/day 16,044 (2020: USD/day 16,076, 2019: USD/day 15,802)
• Handysize: USD/day 13,208 (2020: USD/day 13,435, 2019: USD/day 13,601)
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
135
NOTE 8 - continued
NOTE 8 - continued
Operating expenses and administrative expenses are estimated based on TORM's business plans
for the period 2022-2024. Beyond 2024, operating expenses are adjusted for 2% inflation (2020:
2%) and administrative expenses are adjusted for 2% inflation (2020: 2%) in line with US Federal
Reserve and ECB target over the medium term.
The product tankers are expected to generate normal income for 25 years from delivery from
the shipyard. Given the current age profile of the tanker fleet, the average remaining life would
be approximately 14 years (2020: approximately 15 years). The estimated residual value of the
vessels is based on TORM’s green recycling policy.
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, and 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 285m and USD 6m for the Main Fleet and the
two handysize vessels, respectively
• An increase/decrease in WACC of 1.0% would result in an increase/decrease in the value in
use of approx. USD 148-167m and USD 2m for the Main Fleet and the two handysize vessels,
respectively
• An increase/decrease in operating expenses of 10.0% would result in a decrease/increase in
the value in use of USD 201m and USD 4m for the Main Fleet and the two handysize 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 1,892m (2020: USD 1,577m), which is USD 72m below the carrying
amount (2020: which was USD 245m below the carrying amount). The fair value based on
broker values for the Handy vessels was 21m (2020: USD 22m), which is USD 3m below the
carrying amount (2020: which was USD 10m below the carrying amount).
ACCOUNTING POLICIES
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.
NOTE 9 – NON-CURRENT ASSETS
The Company’s non-current assets are domiciled in the following countries:
USDm
UK
Denmark
Singapore
Other
Not allocated
Non-current assets
2021
2020
4.7
4.7
1,442.9
1,199.9
516.7
2.7
0.7
546.3
3.7
0.4
1,967.7
1,755.0
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
136
NOTE 10 – FINANCIAL ITEMS
NOTE 10 - continued
USDm
Financial income
2021
2020
2019
Interest income from cash and cash equivalents, including
restricted cash ¹
0.2
0.5
2.5
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.
Exchange rate adjustments, including gain from forward
⁾
exchange rate contracts
Total
Financial expenses
-
0.2
-
0.5
0.3
2.8
NOTE 11 – FREIGHT RECEIVABLES
USDm
2021
2020
2019
Interest expenses on borrowings ¹
40.0
45.6
36.9
Analysis as of 31 December of freight receivables:
Financial expenses arising from lease liabilities regarding
⁾
right-of-use assets
0.3
1.5
2.4
Exchange rate adjustments, including loss from forward
exchange rate contracts
Commitment fee
Amortization of interest rate swaps
Ineffectiveness on interest rate swaps
Other financial expenses
Total
0.5
1.1
1.4
-1.2
0.3
42.4
1.0
1.5
-
-
0.3
49.9
0.2
1.9
-
-
0.5
41.9
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
43.4
17.9
23.2
2.6
87.1
3.1
84.0
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
Total financial items
-42.2
-49.4
-39.1
¹
Interest for financial assets and liabilities not at fair value through profit and loss.
⁾
ACCOUNTING POLICIES
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.
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%.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
137
NOTE 11 - continued
NOTE 12 – OTHER RECEIVABLES
Movements in provisions for impairment of freight receivables during the year are as follows:
USDm
USDm
2021
2020
2019
Allowance for expected credit loss
Balance as of 1 January
Adjustment to prior years
Provisions for the year
Provisions reversed during the year
Balance as of 31 December
5.8
-
0.7
-3.4
3.1
3.7
-
3.1
-1.0
5.8
1.7
1.5
2.4
-1.9
3.7
Allowance for expected credit loss of freight receivables has 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 specific customer knowledge and is based on a provision matrix on days past due.
USDm
All allowance for expected credit loss relates to receivables due > 180 days.
ACCOUNTING POLICIES
Receivables
Outstanding freight receivables and other receivables which 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.
Partners and commercial managements
Derivative financial instruments
Escrow accounts
Other
Balance as of 31 December
2021
2020
2019
-
8.3
27.4
4.3
40.0
-
4.5
14.9
5.5
24.9
1.9
0.5
-
3.8
6.2
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 22 for further information on fair value hierarchies.
NOTE 13 – TAX
Tax for the year
Current tax for the year
Adjustments related to previous years
Adjustment of deferred tax
Income tax charge for the year
Tonnage tax charge for the year
Total
2021
2020
2019
0.6
-0.1
-0.1
0.4
0.9
1.3
0.4
0.1
-
0.5
0.9
1.4
0.9
-0.4
-
0.5
0.3
0.8
The majority of the Group's taxable income is located in Denmark, and therefore the majority of
the tax base is subject to Danish tax legislation. As such, the Group has elected to participate in
the Danish tonnage tax scheme; the participation is binding until 31 December 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
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
138
NOTE 13 - continued
NOTE 13 - continued
Corporate income tax is primarily levied on the Group’s non-vessel related activities outside
Denmark. The effective tax rate of the Group is 3.3% (2020: 1.6%, 2019: 0.5%). No deferred tax is
recognized related to assets and liabilities, including vessels, which are subject to tonnage
taxation. Deferred tax in relation to entities outside the tonnage tax regime amounts to USD
0.7m.
USDm
2021
2020
2019
Non-current tax liability related to held over gains
Balance as of 31 December
45.2
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 which 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.
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.
NOTE 14 – COMMON SHARES AND TREASURY SHARES
Common shares
2021
2020
2019
A-shares
B-shares
C-shares
Total
Nominal
value per
Number of
Number of
Number of
share (USD)
shares
shares
shares
0.01
81,233,269
74,855,929
74,748,248
0.01
0.01
1
1
1
1
1
1
81,233,271
74,855,931
74,748,250
ACCOUNTING POLICIES
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.
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 which are expected to apply in the
period when the liability is settled or the asset is realized, based on the laws which 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 recognized related to assets and liabilities, including vessels, which are subject to tonnage
tax.
During the year, the share capital was increased by 6,377,340 A-shares with a nominal value of
USD 64k. The total amount including share premium amounted to USD 57.9m. USD 55.0m was a
non-cash increase in conjunction with the acquisition of the eight Team Tanker vessels, and USD
2.9m was contributed in cash in connection with exercise of Restricted Share Units.
The A-shares are listed on Nasdaq in Copenhagen and Nasdaq in New York and are publicly
available for trading. Each A-share carries one vote at the Annual General Meeting and gives the
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 Annual General Meeting, has no pre-emption rights in relation
to any issue of new shares of other classes, and carries no right to receive dividends, liquidation
proceeds, or other distributions from TORM. The holder of the B-share has the right to elect one
member to the Board of Directors (being the Deputy Chairman), up to three alternates as well
as one Board Observer. The B-share cannot be transferred or pledged, except for a transfer to a
replacement trustee.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
139
NOTE 14 - continued
The C-share represents 350,000,000 votes at the Annual 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.
Restricted Share Units
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
2021
2020
2019
493.4
312.9
312.9
-
-
-
180.5
-
-
-
-
-
Balance as of 31 December
493.4
493.4
312.9
NOTE 14 - continued
Treasury shares - continued
Percentage of share capital
Balance as of 1 January
Additions
Cancellations
Disposals
Dilution, due to capital increases
Balance as of 31 December
2021
2020
2019
0.7%
-
-
-
-0.1%
0.6%
0.4%
0.2%
-
-
0.1%
0.7%
0.4%
-
-
-
0.0%
0.4%
The total consideration during the year for the treasury shares was USD 0.0m (2020: USD 1.4m,
2019: USD 0.0m). As of 31 December 2021, the Company's holding of treasury shares
represented 493,371 shares (2020: 493,371 shares, 2019: 312,871 shares) of USD 0.01 each at a
total nominal value of USD 0.0m (2020: USD 0.0m, 2019: USD 0.0m) and a market value of USD
3.9m (2020: USD 3.7m, 2019: USD 3.5m).
NOTE 15 – OTHER LIABILITIES
USDm
Accrued operating expenses
Accrued interest
Wages and social expenses
Derivative financial instruments
Other
Balance as of 31 December
2021
11.8
2.3
15.1
11.3
3.2
43.7
2020
14.3
3.1
16.4
24.7
0.9
59.4
2021
2020
2019
The carrying amount is a reasonable approximation of fair value due to the short-term nature of
the payable. Please refer to Note 22 for further information on fair value hierarchies.
Nominal value USD '000
Balance as of 1 January
Additions
Cancellations
Disposals
4.9
-
-
-
3.1
1.8
-
-
3.1
-
-
-
Balance as of 31 December
4.9
4.9
3.1
ACCOUNTING POLICIES
Other liabilities are generally measured at amortized cost. Derivative financial instruments
included in other liabilities are measured at fair value.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
140
NOTE 16 - EFFECTIVE INTEREST RATE, OUTSTANDING BORROWINGS
As of 31 December 2021, USD 45m had been drawn on the USD 45m Working Capital Term
Facility and USD 38.0m is undrawn on the BoComm Facility.
Please refer to Note 2 for further information on the Company’s liquidity and capital resources
and Notes 21 and 22 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
BoComm 1 (USD)⁴
BoComm 2 (USD)⁴
⁾
BoComm scrubber (USD)⁴
⁾
BoComm 3 (USD)⁴
CDBL⁴
⁾
⁾
Springliner (USD)⁴
⁾
Eifuku (USD)⁴
⁾
Showa (USD)⁴
⁾
Sale and leaseback transaction prepayment
⁾
Weighted average effective interest rate
Carrying value
Hereof non-current ³
Hereof current ³
⁾
Fixed/
floating Maturity
2021
Effective
interest¹
Carrying
value²
Maturity
2020
Effective
interest¹
Carrying
value²
Maturity
2019
Effective
interest¹
Carrying
value²
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Floating
Fixed
Fixed
Floating
Floating
N/A
-
-
-
-
-
-
-
-
2030
2026
2027
2025
2026
2032
2025
2031
2024
2029
2029
2026
2026
2024
2022
-
-
-
-
-
-
-
-
2030
2026
2027
2025
2025
2032
2025
-
-
-
-
2026
2026
2024
-
⁾
-
-
-
-
-
-
-
-
4.0%
3.8%
3.6%
5.1%
4.5%
4.1%
4.9%
4.9%
5.0%
4.9%
5.8%
4.8%
4.3%
4.1%
⁾
-
-
-
-
-
-
-
-
44.9
279.4
221.9
85.3
25.4
40.9
51.7
37.8
7.5
99.5
150.8
33.4
22.4
20.9
-
21.0
4.4%
1,142.8
933.6
209.2
⁾
-
-
-
-
-
-
-
-
3.2%
3.0%
2.9%
4.3%
3.9%
3.3%
4.1%
-
-
-
-
4.8%
3.9%
3.3%
-
3.4%
⁾
-
-
-
-
-
-
-
-
96.4
299.1
150.3
81.2
33.3
44.0
57.8
-
-
-
-
36.0
24.1
23.0
-
845.2
742.6
102.6
2021
2021
2021
2022
2022
2024
2024
2026
2030
-
-
-
-
-
⁾
4.7%
5.1%
4.7%
4.7%
5.1%
4.1%
4.2%
4.4%
4.4%
-
-
-
-
-
⁾
50.0
237.3
48.2
21.8
75.2
35.5
21.1
86.5
104.0
-
-
-
-
-
2025
5.5%
63.9
-
-
-
-
2026
2026
2024
-
-
-
-
-
5.5%
5.3%
5.1%
-
4.9%
-
-
-
-
60.3
25.7
25.2
-
854.7
756.0
98.7
⁾
¹
²
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 of USD 13.0m (2020: USD 10.9m, 2019: USD 8.0m) recognized in
⁾
the balance sheet as well as lease liabilities of USD 5.6m (2020: USD 8.3m, 2019: USD 6.8m) 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 on 31 December, without consideration to the refinancing taking place in 2020.
Lease debt recognised under sale and leaseback arrangement with repurchase options.
⁾
TORM ANNUAL REPORT 2021
⁾
CONSOLIDATED FINANCIAL STATEMENTS1
³
⁴
141
NOTE 16 - continued
The following table summarizes the reconciliation of liabilities arising from financing activities:
NOTE 17 – COLLATERAL SECURITY FOR BORROWINGS
Cash
Non-cash
End
balance
The total carrying amount for vessels which have been provided as security amounts to USD
1,928m as of 31 December 2021 (2020: USD 1,711m), including transferred ownership under sale
and leaseback arrangements, where the vessels are not derecognized and where vessels are
provided as security for lease debt.
Other
as of 31
Please refer to Note 1 for further information.
Opening
balance
as of 1
January
Bor-
Repay-
chan-
December
2021
rowings
ments
ges
2021
842.4
548.8
-253.4
-2.4
1,135.4
842.4
548.8
-253.4
-2.4
1,135.4
NOTE 18 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
The guarantee commitments of the Group are less than USD 0.1m (2020: USD 0.1m) and relate
to guarantee commitments to Danish Shipping Finance.
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.
Cash
Non-cash
Opening
balance
as of 1
End
balance
Other
as of 31
January
Bor-
Repay-
chan-
December
2020
rowings
ments
ges
2020
855.4
734.3
-746.5
-0.8
842.4
855.4
734.3
-746.5
-0.8
842.4
USDm
Borrowings
Total
USDm
Borrowings
Total
ACCOUNTING POLICIES
Borrowings consist of mortgage debt, bank loans, and lease liabilities.
Borrowings are initially measured at fair value less transaction costs. Mortgage debt and bank
loans are subsequently measured at amortized cost. This means that the difference between the
net proceeds at the time of borrowing and the nominal amount of the loan is recognized in the
income statement as a financial expense over the term of the loan applying the effective interest
method.
When terms of existing financial liabilities are renegotiated, or other changes regarding the
effective interest rate occur, TORM performs a test to evaluate whether the new terms are
substantially different from the original terms. If the new terms are substantially different from
the original terms, TORM accounts for the change as an extinguishment of the original financial
liability and the recognition of a new financial liability.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
142
NOTE 19 – 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 2021.
USDm
Borrowings ¹
²
Interest payments related to scheduled interest fixing
⁾
⁾
Estimated variable interest payments ³
Newbuilding instalments ⁴
⁾
Committed scrubber installations
⁾
Trade payables and other obligations
Total
2022
211.7
43.4
-0.3
39.9
8.1
62.5
2023
129.9
38.6
-0.8
-
0.5
-
2024
2025
2026
Thereafter
Total
139.3
134.2
33.0
-0.7
-
-
-
25.4
-0.1
-
-
-
181.4
17.8
0.2
-
-
-
351.9
1,148.4
35.3
2.8
-
-
-
193.5
1.1
39.9
8.6
62.5
365.3
168.2
171.6
159.5
199.4
390.0
1,454.0
The following table summarizes the Group's contractual obligations as of 31 December 2020.
USDm
Borrowings ²
Interest payments related to scheduled interest fixing
⁾
Estimated variable interest payments ³
Newbuilding instalments ⁴
⁾
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
315.3
12.4
1.4
-
-
-
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
⁴
The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 13.0m (2020: USD 10.9m), which are amortized over the term of the loans. Borrowing costs capitalized during the year
amount to USD 5.8m (2020: USD 7.5m).
⁾
The contractual obligations relating to lease liabilities arising from land and buildings and other plant and operating equipment amount to USD 5.9m (2020: USD 8.3m).
Variable interest payments are estimated based on the forward rates for each interest period including hedging instruments.
⁾
As of 31 December 2021, TORM had one contracted newbuilding to be delivered during 2022 (2020: two). Commitments regarding newbuilding instalments are in excess of the prepayments included in note 6.
⁾
⁾
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
143
NOTE 19 - continued
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 2021.
USDm
Contractual rights - as lessor:
Charter hire income for vessels ⁵
Total
⁾
2022
2023
2024
2025
2026
Thereafter
Total
15.8
15.8
-
-
-
-
-
-
-
-
-
-
15.8
15.8
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 is recognized under "Revenue". During the year, revenue from time charter amounted to USD 52.5m (2020: 33.8m). The average period until redelivery of the vessels for the period ended 31
December 2021 0.3 year (2020: 1.0 year).
⁾
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
144
NOTE 20 – DERIVATIVE FINANCIAL INSTRUMENTS
NOTE 20 – continued
Please refer to Note 22 for further information on fair value hierarchies.
USDm
Fair value of derivatives:
Derivative financial instruments regarding freight and bunkers:
Forward freight agreements - fair value through profit and loss
Bunker swaps - fair value through profit and loss
Bunker swaps - hedge accounting
Derivative financial instruments regarding interest and currency
exchange rate:
Forward exchange contracts - hedge accounting
Interest rate swaps - hedge accounting
Fair value of derivatives as of 31 December
2021
2020
0.4
0.2
0.1
-3.2
3.7
0.8
-1.6
-2.2
-3.1
2.0
-23.5
-20.2
Derivative financial instruments are presented as below on the balance sheet:
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 transferred upon realization
from the equity hedging reserve into the income statement.
At year-end 2021 and 2020, TORM held the following derivative financial instruments designated
as hedge accounting:
Hedge accounting
Expected maturity
2021
value
Unit
2022
2023
Notional
After
2023
Forward exchange contracts
(USD/DKK) ¹
Interest rate swaps ²
⁾
Bunker swaps ³
⁾
274.0
DKKm
274.0
-
-
768.7
USDm
130.9
136.9
500.9
9,920
MT
9,920
-
-
USDm
2021
Offsetting financial assets and financial liabilities:
Gross amount
Offsetting amount
Net amount presented in the statement of financial position
USDm
2020
Offsetting financial assets and financial liabilities:
Gross amount
Offsetting amount
Net amount presented in the statement of financial position
Financial
Financial
assets
liabilities
¹
²
²
⁾
The average hedge of USD/DKK currency was 6.3.
The average interest rate was 1.38 plus margin.
⁾
The average price of the hedging instruments was USD 642.4.
⁾
⁾
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.
⁾
⁾
7.7
-10.8
-
-
7.7
-10.8
Financial
Financial
assets
liabilities
9.9
-5.4
4.5
-30.1
5.4
-24.7
Derivative financial instruments assets are set off with derivative financial instruments liabilities
where the counterparty is identical.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
145
NOTE 20 - continued
Interest rate swaps with a fair value of USD 2.2m (net loss) applying the USD LIBOR settings are
designated as hedge accounting relationships to fix a part of TORM's interest payments during
the period 2022-2027 with a notional value of USD 768.7m (2020: USD 757.5m, 2019: USD
597.8m).
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 3.7m (2020: USD 43.8m) has been provided as security for the
agreements relating to derivative financial instruments, which does not meet the offsetting
criteria in IAS 32, but which 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 Notes 21 and 22.
Forward freight agreements (FFAs) of USD 0.4m (net gain) have been recognized in the
income statement in 2021 (2020: USD 1.9m, 2019: USD 0.4m). 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 12.0m (net gain) have been recognized in the income
statement in 2021 (2020: USD 2.9m, 2019: USD -0.1m). 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 1.6m (net loss) are designated as hedge
accounting relationships to hedge a part of TORM's payments in 2022 regarding administrative
and operating expenses denominated in DKK with a notional value of DKK 274.0m (2020: DKK
231.5m, 2019: DKK 222.5m).
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
146
NOTE 20 - 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 2021, 2020 and 2019.
USDm
2021
Forward freight agreements
Bunker swaps
Forward exchange contracts
Interest rate swaps
Total
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
Income statement
income
Equity
Other comprehensive
Port
expenses,
Transfer
Fair value
Hedging
bunkers and
Financial
Operating
Administra-
to income
adjust-
reserves as of
Revenue
commissions
items
expenses
tive expenses
statement
ment
31 December
-
-
-
-
-
1.9
-
-
-
0.4
12.0
-
-
12.4
-
2.9
-
-
1.9
2.9
0.4
-
-
-
-
-0.1
-
-
0.4
-0.1
-
-
-
-10.8
-10.8
-
-
-
-5.7
-5.7
-
-
-
2.1
2.1
-
-
0.1
-
0.1
-
-
-0.1
-
-0.1
-
-
-2.0
-
-2.0
-
-
0.1
-
0.1
-
-
0.1
-
0.1
-
-
-1.5
-
-1.5
-
-2.8
-0.2
11.7
8.7
-
1.2
-
5.7
6.9
-0.5
0.4
3.5
-2.1
-
2.1
-3.4
9.8
8.5
-
-0.1
2.4
-18.1
-15.8
-
0.5
-2.1
-11.8
1.3
-13.4
-
0.1
-1.6
-2.1
-3.6
-
0.8
2.0
-23.5
-20.7
-
-0.3
-0.4
-11.1
-11.8
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 reserve includes open hedge instruments, only.
Please refer to note 21 for further information on commercial and financial risks.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
147
NOTE 20 - continued
NOTE 21 – RISKS ASSOCIATED WITH TORM’S ACTIVITIES
ACCOUNTING POLICIES
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.
Changes in the fair value of derivative financial instruments 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 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.
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 the 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 which Management cannot control such as freight rates
and vessel and bunker prices.
Freight rate fluctuations
TORM’s income is primarily generated from voyages carried out by its fleet of vessels. As such,
TORM is exposed to the considerable volatility which characterizes freight rates for such
voyages.
It is TORM’s strategy to seek a certain exposure to this risk, as volatility also represents an
opportunity because earnings have historically 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 aims to reduce 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 TORM’s risk management policies.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
148
NOTE 21 - continued
NOTE 21 - continued
During 2021, 31.5% (2020: 14.4%; 2019: 9.5%) of earning days equal to 27,614 deriving from the
Company’s tankers were hedged in this way. Physical time charter contracts accounted for
35.7% (2020: 41.9%; 2019: 59.3%) of overall hedging. In 2021, the Company sold FFAs with a
notional contract value of USD 44.2m (2020: USD 165.0m; 2019: USD 34.9m) and bought FFAs
with a notional contract value of USD 110.3m (2020: USD 52.7m; 2019: USD 22.5m). The total
notional contract volume sold in 2021 was 2,410,000 metric tons (2020: 8,799,000 metric tons;
2019: 1,585,190 metric tons), and the total notional volume bought was 5,962,000 metric tons
(2020: 2,714,000 metric tons; 2019: 1,295,000 metric tons). At the end of 2021, the coverage of
available earning days for 2022 was 9.9% through time charters, current spot voyages, cargo
contracts and FFAs (2020: 28.1%; 2019: 8.6%). No FFA had maturity beyond 2022.
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:
Bunker price fluctuations
The cost of fuel oil consumed by the vessels, known in the industry as bunkers, accounted for
56.4% (2020: 62.3%; 2019: 61.1%) of the total voyage costs in 2021 and is by far the biggest single
cost related to a voyage.
TORM is exposed to fluctuations in bunker prices which are not reflected in the freight rates
achieved by TORM. 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 2021, 42.1% (2020: 14.6%; 2019: 6.5%) of TORM’s bunker purchase was hedged through bunker
hedging contracts. At the end of 2021, TORM had covered 4.1% equal to 17,270 metric tons
(2020: 15.6%; 2019: 2.6%) of its bunker requirements for 2022 using hedging instruments at an
average price of USD 531. No bunker derivatives had maturity beyond 2022. Total bunker
exposure is estimated to be approximately 426,261 metric tons.
Sensitivity to changes in freight rates
USDm
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
2022
2021
2020
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:
-27.2
-27.2
-18.8
-18.8
-25.4
-25.4
Sensitivity to changes in the bunker price
USDm
2022
2021
2020
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 2021, the
carrying value of the fleet was USD 1,937.8m (2020: USD 1,722.5m; 2019: USD 1,674.8m). Based
on broker valuations, TORM’s fleet excluding undelivered newbuildings had a market value of
USD 1,869.5m as of 31 December 2021 (2020: USD 1,475.8m; 2019: USD 1,632.6m).
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
-22.6
-22.6
-22.0
-19.8
-22.0
-19.8
OPERATIONAL AND COMPLIANCE RISKS
Operational risks are risks associated with the ongoing operations of the business and include
risks such as the safe operation of vessels, the availability of experienced seafarers and staff,
terrorism, piracy as well as insurance and counterparty risk.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
149
NOTE 21 - continued
NOTE 21 - continued
Insurance coverage
In the course of the fleet’s operation, various casualties, accidents and other incidents may occur
which may result in financial losses for TORM. For example, national and international rules,
regulations and conventions could mean that TORM may incur substantial liabilities if a vessel is
involved in an oil spill or emission of other environmentally hazardous agents.
Receivables, cash and cash equivalents, including restricted cash
The majority of TORM’s customers are companies operating 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.
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 members of the internationally
recognized collaboration, International Group of P&I clubs, and TORM’s vessels are each insured
for the maximum amount available in the P&I system. At the end of 2021, the aggregate insured
value of hull and machinery and interest for TORM’s owned vessels amounted to USD 2.1bn
(2020: USD 1.9bn; 2019: USD 1.8bn).
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 fulfil 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.
TORM 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.
TORM’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 a positive fair value
In all material aspects, TORM’s customers are domiciled outside the UK and are spread all over
the world with only a few countries contributing significantly to TORM’s revenue. In 2021,
Switzerland and Mexico contributed with 23% and 16%, respectively, of TORM’s revenue. In
2020, Switzerland, the United States and Mexico contributed with 24%, 12%, and 11%,
respectively, of TORM’s revenue. Revenue is allocated to countries based on the customer’s
ultimate parent domicile.
A major part of TORM’s freight revenues stems from a small group of customers. In 2021, one
customer accounted for 15% of TORM’s freight revenues (2020: one accounted for more than
10%; 2019: one customer accounted for more than 10%). 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, TORM’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, TORM’s receivables primarily
consist of receivables from voyages in progress at year-end and outstanding demurrage. For
the past five years, TORM 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, TORM’s average stands at 97% (2020: 96.9%; 2019: 98.7%), which is considered to be
satisfactory given the differences in interpretation of events. In 2021, demurrage represented
18% (2020: 17.3%; 2019: 13.1%) of the total freight revenues. Please refer to Note 1 for more details
on recognition of demurrage claims 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 2021, 100% (2020: 100.0%; 2019: 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 TORM’s financial position, financing and cash flows generated by the
business, including foreign exchange risk and interest rate risk. TORM’s liquidity and capital
resources are described in Note 2.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
150
NOTE 21 - continued
NOTE 21 - continued
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 TORM’s expenses denominated in currencies other than USD accounts for
approximately 86% (2020: 80.9%; 2019: 83.2%) for administrative expenses and approximately
21.3% (2020: 23.8%; 2019: 20.1%) for operating expenses. TORM’s expected administrative and
operating expenses in DKK and EUR for 2022 are approximately DKK 390m, whereof 70.3%
(2020: 66.1%; 2019: 63.0%) are hedged through FX forward contracts. All FX forward contracts
have maturity within 2022, and TORM’s average hedge USD/DKK currency rate is 6.27. 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
2022
2021
2020
Interest rate risk
TORM’s interest rate risk generally relates to interest-bearing borrowings. All TORM’s loans for
financing vessels are denominated in USD. Please refer to Note 16 for additional information on
borrowings. At the end of 2021, TORM had fixed 84.9% (2020: 67.6%; 2019: 61.6%) of the debt
with interest rate swaps and fixed rate leasing debt corresponding to an amount of USD 953m.
USD 772m of this amount is hedged at an interest rate of 1.38% plus margin with interest rate
swaps with maturity in the period 2022-2027.
Most of TORM’s debt and interest hedging is based on USD LIBOR which is set to expire by 30
June 2023. TORM is significantly exposed to the ICE US LIBOR reform as all financing and
associated interest hedging contracts are denominated in USD. TORM has been in dialog with
majority lenders and aligned expectations on how the amendment process should be
implemented. To ensure a smooth transition, TORM will amend legacy financing and hedging
contracts during 2022 and early 2023. TORM expects compounded SOFR in arrears to become
the market standard. TORM expects no effect on the hedging relationship as lenders and
hedging providers are largely the same banks. TORM is confident that all financing and hedging
contracts are transitioned to SOFR before the final deadline of 30 June 2023.
As of 31 December 2021, 75.1% of the debt with a nominal value of USD 704m relates to the
period after 30 June 2023. As of 31 December 2021, 74.9% of the interest hedging with a
nominal value of USD 578m relates to the period after 30 June 2023.
Effect of a 10% increase of DKK and EUR:
Changes in profit/loss before tax for the following year
Changes in equity for the following year
-1.8
-1.8
-2.2
-2.2
-2.0
-2.0
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
2022
2021
2020
Effect of a 1%-point increase in interest rates:
Changes in profit/loss before tax for the following year
Changes in equity for the following year
-2.1
19.9
-3.7
11.3
-3.0
7.9
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 2021,
TORM’s loan portfolio was spread across eleven different banks.
As of 31 December 2021, TORM maintains a liquidity reserve of USD 172m in cash and cash
equivalents, including restricted cash combined with USD 38m 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 19.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
151
NOTE 22 – FINANCIAL INSTRUMENTS
Categories of financial assets and liabilities (USDm):
2021:
Financial assets
Loan receivables
Freight receivables
Other receivables
Cash and cash equivalents, including restricted cash
Total
Financial liabilities
Borrowings
Trade payables
Other liabilities
Total
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
¹
²
³
Due to the short maturity, the carrying value is considered to be an appropriate expression of the fair value.
See note 16.
⁾
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
-
-
8.3
-
8.3
-
-
11.2
11.2
-
-
4.5
-
4.5
-
-
24.7
24.7
-
-
8.3
-
8.3
-
-
11.2
11.2
-
-
4.5
-
4.5
-
-
24.7
24.7
4.6
84.0
31.7
171.7
292.0
4.6
84.0
40.0
171.7
300.3
1,135.3
1,135.3
35.3
32.5
35.3
43.7
1,203.1
1,214.3
4.6
58.6
20.4
135.6
219.2
842.4
14.4
35.1
4.6
58.6
24.9
135.6
223.7
842.4
14.4
59.8
891.9
916.6
⁾
¹
¹
⁾
⁾
¹
⁾
¹
²
¹
⁾
¹
⁾
⁾
¹
¹
⁾
⁾
¹
⁾
⁾
¹
²
¹
⁾
¹
⁾
⁾
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
152
NOTE 22 - 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 which are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices)
METHODS AND ASSUMPTIONS IN DETERMING 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 – RELATED PARTY TRANSACTIONS
TORM’s ultimate controlling party is Oaktree Capital Group, LLC, a limited liability company
incorporated in the USA. The immediate controlling shareholder is Njord Luxco.
Shareholders' contribution and dividends paid are disclosed in the consolidated statement of
changes in equity. Dividends to related parties are paid out on the basis of the related parties’
ownership of shares.
The remuneration of key management personnel, which consists of the Board of Directors and
the Executive Director, is disclosed in note 3.
During 2021, TORM did transactions with its joint venture producing scrubbers for the TORM
fleet amounting to USD 1.4m in total (2020: 11.7m). The joint venture will continue to assist
TORM in installing scrubbers in 2022.
NOTE 24 – ASSETS HELD FOR SALE AND NON-CURRENT ASSETS SOLD DURING
THE YEAR
During 2021, TORM sold two vessels. One vessel was delivered to the new owners in May 2021,
and one was held for sale as of 31 December 2021, and expected delivery is during the first half
of 2022. The sales resulted in an impairment loss on tangible assets of USD 4.6m. The fair value
of the asset held for sale of USD 13.2m is comprised of sales price less expected transaction
costs (fair value hierarchy level 2).
During 2020, TORM sold eight vessels all of which were delivered to the new owners during
2020. 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 of 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.
NOTE 25 – CASH FLOWS
USDm
Reversal of other non-cash movements:
Exchange rate adjustments
Share-based payments
2021
2020
2019
-0.7
-0.2
-0.9
2.3
1.7
1.9
Fair value adjustments on derivative financial instruments
-0.2
-
-
Other adjustments
Total
USDm
Change in bunkers, receivables and payables:
Change in bunkers
Change in receivables
Change in prepayments
Change in trade payables and other liabilities
Other changes
-
-0.4
-0.1
1.4
1.1
0.9
2021
2020
2019
-26.9
12.4
-40.5
12.5
-3.5
1.3
5.1
-2.5
-0.7
4.9
-20.3
22.8
1.3
18.9
-0.8
Adjusted for fair value changes of derivative financial instruments
16.2
-8.9
-12.0
Total
-48.5
15.9
11.9
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
153
Country
Investments in subsidiaries ⁵
- continued:
United Kingdom
Entity
⁾
VesselCo A ApS ¹
VesselCo C ApS ¹
⁾
VesselCo E ApS ¹
⁾
VesselCo F ApS ¹
⁾
Country
Denmark
Denmark
Denmark
Denmark
Ownership ⁵
100%
⁾
100%
100%
100%
¹
²
³
⁴
⁵
⁾
Entities dissolved in the financial year ended 31 December 2020.
Entities dissolved in the financial year ended 31 December 2021.
⁾
Entities with different reporting periods: TORM Shipping India have a financial reporting period that runs from 01
⁾
April to 31 March as required by Indian government's 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.
⁾
Interest in legal entities included as joint ventures:
2021
Profit and
Other
Total
loss from
compre-
compre-
continuing
Entity (USDm)
Country
% Control
operations
Long Range 2 A/S
Denmark
LR2 Management K/S Denmark
50%
50%
Marine Exhaust
Technology Ltd.
Hong Kong
28%
-
-
0.0
hensive
income
hensive
income
-
-
-
-
-
0.0
NOTE 26 – ENTITIES IN THE GROUP
Entity
TORM plc
Investments in subsidiaries ⁵
:
Entity
TORM A/S
DK Vessel HoldCo GP ApS ²
DK Vessel HoldCo K/S ²
⁾
⁾
OCM Singapore Njord Holdings Alice, Pte. Ltd ²
⁾
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 ²
OMI Holding Ltd.
TORM Crewing Service Ltd.
TORM Shipping India Private Limited ³
TORM Singapore Pte. Ltd.
⁾
⁾
TORM USA LLC
VesselCo 1 K/S ¹
VesselCo 3 K/S ¹
VesselCo 5 K/S ¹
VesselCo 6 K/S ¹
⁾
⁾
⁾
VesselCo 6 Pte. Ltd. ²
⁾
VesselCo 7 Pte. Ltd. ¹
VesselCo 8 Pte. Ltd.
VesselCo 9 Pte. Ltd.
⁾
⁾
VesselCo 10 Pte. Ltd.
VesselCo 11 Pte. Ltd.
VesselCo 12 Pte. Ltd.
TORM SHIPPING (PHILS.), INC.
Country
Denmark
Denmark
Denmark
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Mauritius
Bermuda
India
Singapore
USA
Denmark
Denmark
Denmark
Denmark
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Philippines
Ownership ⁴
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%
25%
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
154
NOTE 26 - continued
NOTE 27 - continued
The table below shows the registered addresses for the companies mentioned above:
Denmark
India
Tuborg Havnevej 18
2nd Floor
Philippines
7th Floor
Singapore
6 Battery Road #27-02
DK-2900 Hellerup
Leela Business Park
Salcedo Towers, 169
Singapore 049909
Denmark
Andheri-Kurla Road
HV dela Costa Street Singapore
Andheri (E)
Salcedo Village,
Mumbai 400059
Makati City
India
Philippines 1227
ACCOUNTING POLICIES
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 which can be
reliably estimated. Provisions are measured at the estimated liability expected to arise, taking
into account the time value of money.
NOTE 28 – EARNINGS PER SHARE AND DIVIDEND PER SHARE
EARNINGS PER SHARE
2021
2020
2019
United Kingdom
USA
Marshall Islands
Mauritius
Birchin Court
Suite 1630
c/o The Trust
c/o Temple Corporate
Net profit/(loss) for the year (USDm)
-42.1
88.1
166.0
20 Birchin Lane
2500 City West
Company of
Services
Million shares
London, EC3V 9DU
Boulevard
Marshall Islands, Inc.
Temple Court 2,
Weighted average number of shares
United Kingdom
77042, Houston, Texas P.O. Box 2095
Labourdonnais Street
Weighted average number of treasury shares
USA
Reston VA 20195-0095 Port Louis
USA
Mauritius
Weighted average number of shares outstanding
Dilutive effect of outstanding share options
78.6
-0.5
78.1
0.3
74.8
-0.5
74.3
-
74.3
-0.3
74.0
0.0
Bermuda
Gibraltar
Hong Kong
Weighted average number of shares outstanding incl.
c/o Estera Services
57/63 Line Wall Road Room A, 7/F
dilutive effect of share options
78.4
74.3
74.0
(Bermuda Limited)
GX11 1AA
China Overseas Bldg.
Canon's Court
Gibraltar
139 Hennessy Road
22 Victoria Street
PO Box 1624
Hamilton HM GX
Bermuda
NOTE 27 - PROVISIONS
Wanchai
Hong Kong
Since 2020, the Group has been involved in two cargo claims, both relating to one customer
having issued indemnities to TORM for the 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 the 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.
Basic earnings/(loss) per share (USD)
-0.54
1.19
2.24
Diluted earnings/(loss) per share (USD)
-0.54
1.19
2.24
When calculating diluted earnings per share for 2020, 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.
ACCOUNTING POLICIES
Basic earnings per share are 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 are 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.
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
155
NOTE 28 - continued
DIVIDEND PER SHARE
Dividend for the year (USDm)
Number of shares, end of period (million)
Dividend per share
2021
2020
2019
-
-
-
63.2
74.9
0.85
7.4
74.7
0.10
The Board of Directors has decided not to recommend any dividends relating to the second half
of 2021.
NOTE 29 – CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED CASH
Cash at banks and on hand
Cash and cash equivalents
2021
2020
2019
144.8
89.5
56.8
144.8
89.5
56.8
Cash provided as security for initial margin calls and negative
market values on derivatives etc.¹
5.9
46.1
15.7
Sale-and-leaseback transaction prepayment to be released
⁾
upon delivery of the vessel²
Restricted cash
⁾
21.0
-
-
26.9
46.1
15.7
Cash and cash equivalents, including restricted cash
171.7
135.6
72.5
¹
²
The counterparties have an obligation to return any excess cash provided as security to the Group upon settlement
or early termination of the contracts.
⁾
Prepayment released on 6 January, 2022
⁾
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
156
PARENT COMPANY 2021
TORM ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS1
157
COMPANY BALANCE SHEET
AS OF 31 DECEMBER
USD '000
ASSETS
NON-CURRENT ASSETS
Tangible fixed assets
Land and buildings
Other plant and operating equipment
Total tangible fixed assets
Financial assets
Investments in subsidiaries
Loan receivables
Loans to subsidiaries
Total financial assets
Total non-current assets
CURRENT ASSETS
Loans to subsidiaries
Other receivables
Prepayments
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Note
2021
2020
USD '000
Note
2021
2020
33
3
36
72
7
79
EQUITY AND LIABILITIES
EQUITY
Common shares
Treasury shares
Hedging reserves
Share premium
Retained profit/(loss)
Total equity
5 937,589 1,031,005
6
4,617
4,617
LIABILITIES
803,712
-
1,745,918 1,035,622
1,745,954 1,035,701
NON-CURRENT LIABILITIES
Borrowings
Total non-current liabilities
139,854
552,939
6,843
374
207
254
2,622
72,409
149,693
625,809
1,895,647 1,661,510
CURRENT LIABILITIES
Borrowings
Trade payables
Payables to subsidiaries
Other liabilities
Total current liabilities
Total liabilities
812
748
-4,235
-4,235
-2,024
-21,489
69,821
12,307
2 1,077,410 1,038,097
1,141,784 1,025,428
3 463,459
479,709
463,459
479,709
3 143,135
78,337
256
203
135,825
54,440
7
11,188
23,393
290,404
156,373
753,863
636,082
Note: The profit/(loss) for the financial year dealt with in the financial statements of the
Company is USD 36,996k (2020: USD -15,516k).
TOTAL EQUITY AND LIABILITIES
1,895,647 1,661,510
The financial statements of TORM plc, company number 09818726, have been approved by the
Board of Directors and signed on their behalf by:
Jacob Meldgaard
Executive Director
23 March 2022
TORM ANNUAL REPORT 2021
Parent company financial statement 2021
PARENT COMPANY FINANCIAL STATEMENT 20211
158
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 2020
747
-2,887
-10,902
911,552
222,543
1,121,053
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
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
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 increase
Share-based compensation
Acquisition treasury shares, cost
Dividend paid
Total changes in equity 2021
Equity as of 31 December 2021
-
-
-
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
-
-
-
64
-
-
-
-
-
64
-
-
-
-
-
-
-
-
-
-
-
19,465
19,465
-
-
-
-
-
-
-
-
-
-
57,799
-
-285
-
-
-
36,996
36,996
-
36,996
-
-
-
2,317
-
-
19,465
56,461
57,863
-
-285
2,317
-
-
57,514
2,317
59,895
812
-4,235
-2,024
69,821
1,077,410
1,141,784
TORM ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 20211
159
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 – Financial Assets
Note 6 – Loan Receivables
Note 7 – Other Liabilities
Note 8 – Impairment Testing
Note 9 – Collateral Security for Mortgage Debt and Bank Loans
Note 10 – Guarantee Commitments and Contingent Liabilities
Note 11 – Related Party Transactions
161
162
162
162
162
162
163
163
163
163
163
TORM ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
160
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 advantage 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)
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 to the Group consolidated
financial statements.
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 to the Group
consolidated financial statements.
ACCOUNTING POLICIES
In supplement to the accounting policies provided in Note 1 to the Group consolidated financial
statements, 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 to the
Group consolidated financial statements, 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 which 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 to the Group consolidated financial statements.
TORM ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
161
NOTE 2 – PROFIT/LOSS AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR
As permitted by section 408 of the Companies Act 2006, the statement of comprehensive
income of the Company is not presented as part of these financial statements.
NOTE 3 – BORROWINGS
As of 31 December 2021, the Company had borrowed USD 611.9m (2020: USD 563.8m, 2019:
USD 240.1m). The loan proceeds were USD 5.3m lower (2020: USD 5.9m, 2019: USD 3.0m) due
to borrowing fees. The fees are amortized over the loan periods. In 2021, the Company had
interest expenses of USD 16.6m (2020: USD 16.5m, 2019: USD 9.4m) regarding these loan
facilities.
As of 31 December 2021, the Company had finance lease liabilities of nil (2020: USD 0.1m, 2019:
USD 21.9m). In 2021, the Company had interest expenses of USD nil (2020: USD 1.1m, 2019: USD
2.0m) regarding financial leases.
NOTE 5 – FINANCIAL ASSETS
USD'000
Investments in subsidiaries
Cost:
Balance as of 1 January
Capital decreases in subsidiaries
Capital increases related to share-based payments
2021
2020
1,173,105 1,205,059
-95,733
-33,635
2,317
1,681
Balance as of 31 December
1,079,689
1,173,105
Impairment:
Balance as of 1 January
Impairment (reversal)/losses for the year
Balance as of 31 December
Carrying amount as of 31 December
NOTE 4 – STAFF COSTS
USD'000
Total staff costs
2021
2020
NOTE 6 – LOAN RECEIVABLES
Staff costs included in administrative expenses
Total staff costs
1,332
1,332
1,348
1,348
USD '000
Loan receivables
Average number of permanent employees
1
1
Employee information
The average number of employees is calculated as a full-time equivalent (FTE).
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
142,100
143,500
-
-1,400
142,100
142,100
937,589 1,031,005
2021
2020
4,711
4,711
-
-
4,711
4,711
94
-
94
94
-
94
Carrying amount as of 31 December
4,617
4,617
TORM ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
162
NOTE 7 – OTHER LIABILITIES
NOTE 11 – RELATED PARTY TRANSACTIONS
USD '000
Derivative financial instruments
Other
Balance as of 31 December
NOTE 8 – IMPAIRMENT TESTING
2021
2020
9,037
21,489
2,151
1,904
11,188
23,393
TORM’s ultimate controlling party is Oaktree Capital Group, LLC, a limited liability company
incorporated in the USA. The immediate controlling shareholder is OCM Njord Holdings S.à.r.l.
(Njord Luxco).
The Company has received dividends from subsidiaries amounting to USD 44.3m (2020: USD
0.1m, 2019: USD 7.6m).
The Company has income in the form of interests from its subsidiaries of USD 12.7m (2020: USD
16.2m, 2019: USD 8.8m), relating to loans to subsidiaries.
As of 31 December 2021, Management performed an impairment test of investments in
subsidiaries. The subsidiaries of TORM plc are the formal owners of the TORM vessels and
operate in the product tanker market.
The Company has income in the form of bareboat hire from its subsidiary TORM A/S of USD
32.1m (2020: USD 70.3m, 2019: USD 53.0m).
The Company has paid bareboat hire to its subsidiaries in the amount of USD 31.7m (2020: USD
66.2m, 2019: USD 47.2m).
There have been no or limited transactions with related parties during the financial year other
than the transactions disclosed above.
As of 31 December 2021, the recoverable amount of the investments in subsidiaries was based
on the value in use.
Based on this test, Management concluded that no reversal of impairment charge was needed
(2020: a reversal of impairment charge of USD 1.4m).
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 to the Group consolidated financial statements for further information in
respect of the value in use of these vessels.
NOTE 9 – COLLATERAL SECURITY FOR MORTGAGE DEBT AND BANK LOANS
The vessels owned by subsidiaries of the Company which have been provided as security for
TORM’s debt amounted to USD 611,873k as of 31 December 2021 (2020: USD 563,821k).
NOTE 10 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
TORM is guarantor for a loan amounting to USD 86m established in the subsidiaries TORM A/S
and VesselCo 9 Pte. Ltd.
As part of sale and leaseback transactions made by a subsidiary, TORM 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 386m.
TORM ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
163
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 2021 and of the group’s loss for the year then
ended;
the group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
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.
The group financial statements are also prepared in
accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”) and IFRS as
adopted by the EU, as applied to financial periods
beginning on or after 1 January 2021.
•
•
•
•
We have audited the financial statements of TORM plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 December 2021 which comprise:
GROUP
PARENT COMPANY
Consolidated balance sheet as at 31 December 2021
Balance sheet as at 31 December 2021
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
year then ended
Consolidated statement of changes in equity for the year
then ended
Consolidated statement of cash flows for the year then ended
Related notes 1 to 29 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 UK adopted international accounting
standards. The group financial statements are also prepared
in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) and IFRS as adopted by the EU, as
applied to financial periods beginning on or after 1 January
2021. 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
Related notes 1 to 11 to the financial statements including a
summary of significant accounting policies
the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed 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 of any
operational and economic impacts of COVID-19 as well as
Russia’s invasion of Ukraine on the group;
TORM ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
164
Independent auditor’s report
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - continued
• We obtained management’s board approved forecast
cash flows and covenant calculation covering the period
of assessment from the date of signing to 31 March 2023.
As part of this assessment, in addition to the base case
scenario, the group has modelled a low case and stress
case scenarios in their cash forecasts and covenant
calculations in order to incorporate unexpected changes
to the forecasted liquidity and covenant compliance of
the group. We considered management’s stress case
scenario as the management’s reverse stress test;
• We assessed the reasonableness of the cashflow forecast
by analysing management’s historical forecasting
accuracy;
• We evaluated the key assumptions and sensitivities
identified underpinning the group’s assessment by
challenging how these compare with external
benchmarks, historical performance adjusted for inflation,
the lowest rolling 4-quarter averages since 2000, as well
as performance in the period post year end;
• We have evaluated the key assumptions underpinning the
group’s base case, low case and stress case scenario by
challenging the appropriateness of the low case and
stress case scenarios modelled and how these compared
with the principal risks and uncertainties of the group;
• We have evaluated the reverse stress test (stress case
scenario) and considered whether the combination of
factors (notably significantly reduced freight rates and
vessel values) is a plausible outcome or remote based
upon the historical performance, external benchmarks,
and performance and conditions in the period post year
end;
• 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 such
as sale of older vessels 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 have considered factors, such as freight rates and
vessel values, in the period immediately after the going
concern period by comparing them to the external
benchmarks.
We considered whether management’s disclosures in the
financial statements sufficiently and appropriately reflect the
going concern assessment and outcomes. The group is
forecast to be profitable and generate positive operating
cashflows throughout the going concern period in base case
scenario, low case scenario and stress case scenario (reverse
stress test) modelled. Under the stress case scenario, the
cash covenant will breach with USD 24m liquidity shortfall.
This scenario is considered as highly unlikely and remote by
management. Furthermore, in the stress case scenario,
Management has identified mitigating actions such as sale
and leaseback or sale of older vessels, which, whilst not fully
in their control, based on past experience and general market
activity, are deemed reasonable and achievable.
We considered management’s assessment over the impact of
Russia’s invasion of Ukraine, including geo-political
consequences, on the going concern assessment and
outcomes. Management have observed that the immediate
impact is that the uncertainty and potential for re-routing of
trade flows has sent the tanker freight rates in the European
markets upwards. The financial impact going forward is
uncertain, but TORM currently expects that the possible
effects are covered by the performed stress test and
sensitivity analysis for a period to 31 March 2023.
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 a period to 31 March 2023.
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 4% 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
In assessing the risk of material misstatement to the group
financial statements, 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.
TORM ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
165
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS - continued
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. Due to travel restrictions and UK government’s
recommendation to work from home, the audit planning
procedures performed by UK audit team members were
performed 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. The UK senior
members also visited the Copenhagen operations during the
year end phase of the audit.
Climate change
There has been increasing interest from stakeholders as to
how climate change will impact the group. The group has
determined that the most significant future impacts from
climate change on its operations will be from peak oil
demand, technology of vessels, insufficient access to
financing and estimated freight rates. These are explained on
pages 66-68 in the Risk Management section, which form
part of the “Other information,” rather than the audited
financial statements. Our procedures on these disclosures
therefore consisted solely of considering whether they are
materially inconsistent with the financial statements or our
knowledge obtained in the course of the audit or otherwise
appear to be materially misstated.
As explained in Emerging Risk – Climate within Risk
Management and Note 8 to the consolidated group financial
statements, governmental and societal responses to climate
change risks are still developing, and are interdependent
upon each other, and consequently financial statements
cannot capture all possible future outcomes as these are not
yet known. The degree of certainty of these changes may
also mean that they cannot be taken into account when
determining asset and liability valuations and the timing of
future cash flows under the requirements of UK adopted
international accounting standards and IFRS issued IASB as
adopted by the EU as applied to financial periods beginning
on or after 1 January 2021.
Our audit effort in considering climate change was focused
on ensuring that the effects of material climate risks disclosed
on pages 66-68 have been appropriately reflected in the
carrying value of vessels and associated disclosures where
values are determined through modelling future cash flows,
being estimated freight rates, capitalised expenditures and
external loan interest. Details of our procedures and findings
on carrying value of vessels are included in our key audit
matters below. We also challenged the Directors’
considerations of climate change in their assessment of going
concern and viability and associated disclosures.
Whilst the group have stated its commitment to the
aspirations of the Paris Agreement to achieve net zero
emissions by 2050 and have set the goal to accelerate the
climate target at a 40% CO2 reduction by 2025 compared to
2008 using IMO’s defined methodology and 45% CO2
reduction by 2030, the group is currently unable to
determine the full future economic impact on their business
model, operational plans and customers to achieve this and
therefore as set out above the potential impacts are not fully
incorporated in these financial statements.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, 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 2021
INDEPENDENT AUDITOR’S REPORT
166
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 the group’s vessels carried as at
31 December 2021 totalled $2,302m (2020:
$1,774m).
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.
Refer to the Audit Committee Report (page 79);
Accounting policies (page 125,131 and 132); and Note
8 of the Consolidated Financial Statements (page
135)
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 2021, 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 is
complex due to significant judgements involved in
the high 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 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, including the 2021 acquired chemical trading capability MR vessels operated as all the
other product tanker vessels, thereby forming a single CGU (the Main Fleet) and that the two
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 past three years against the actual outcomes 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
reasonable possible changes in key assumptions including in respect of freight rates, the
discount rate and operating costs. We have ensured the fact that reasonable possible
changes in key assumptions may lead to impairment 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, including the impact from climate
changes, 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 2021,
including:
• That the determination of CGUs is highly
judgemental, but is supported by
management’s assessment;
• No impairment recognised for the main fleet
due to headroom between the value in use
and carrying value, however the impairment
tests are sensitive to reasonably possible
changes in key assumptions;
• No impairment or reversal of impairment
regarding the handy size vessels. The
headroom is limited and therefore sensitive
to changes in assumptions;
• The impairment of USD 4.6m recognised in
2021 relates to vessels classified as held for
sale prior to disposal;
• 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;
• The historical freight rates applied have
been tied to historical data;
• Other assumptions have been verified to
supporting documentation.
We consider the disclosures in the financial
statements to be sufficient and appropriate and
in compliance with accounting standards.
TORM ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
167
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.
50%) of our planning materiality, namely $5m (2020: $5m).
Our objective in adopting this approach is to confirm that total
detected and undetected audit differences do not exceed our
materiality for the financial statements as a whole.
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 $10million
(2020: $10 million), which is 4% (2020: 5%) of the group ‘s
total assets. We believe 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.
We determined materiality for the Parent Company to be $8.4
million (2020: $8.5 million), which is 5% (2020: 5%) of total
assets as the Parent Company principally holds investments in
subsidiaries and does not trade externally.
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 2021.
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.
On the basis of our risk assessments, together with our
assessment of the group’s overall control environment, our
judgement was that performance materiality was 50% (2020:
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
(2020: $0.5m), which is set at 5% of planning 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 this gives rise toa 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 2021
INDEPENDENT AUDITOR’S REPORT
168
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 110, 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 UK adopted
international accounting standards, IFRS as issued by the
IASB and adopted by the EU as applied to financial periods
beginning on or after 1 January 2021, 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:
•
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 minutes of meeting of those charged with
governances;
obtaining and reading correspondence from legal and
regulatory bodies;
obtaining electronic confirmations from the group’s
banking provider to verifying the existence of cash
balances and completeness of loan and borrowings;
journal entry testing, with a focus on manual journals
and journals indicating large or unusual transactions
based on our understanding of the business
•
•
•
•
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.
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, 23 March 2022
TORM ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
169
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2021
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
Tanker
Tanker
Tanker
LR2
LR2
LR2
LR2
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
TORM GUDRUN
TORM HELLERUP
TORM HELENE
TORM HERMIA
TORM HERDIS
TORM HILDE
TORM INGEBORG
TORM KIARA
TORM KIRSTEN
TORM KRISTINA
TORM MAREN
TORM MARINA
TORM MATHILDE
TORM VALBORG
TORM EMILIE ¹
TORM ESTRID
⁾
TORM ISMINI
TORM SARA
TORM SIGNE
TORM SOFIA
TORM VENTURE
TORM ELISE
TORM ELIZABETH
TORM ADVENTURER
TORM AGNES
TORM AGNETE
TORM ALEXANDRA
TORM ALICE
TORM ALLEGRO
DWT
99.965
114.000
114.000
114.000
114.000
114.000
99.999
114.445
114.445
114.323
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
46.042
49.999
49.999
49.999
49.999
46.184
Built
2000
2018
2021
2018
2018
2018
2003
2015
2015
2015
2008
2007
2008
2003
2004
2004
2004
2003
2005
2005
2007
2019
2019
2008
2011
2010
2010
2010
2009
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%
100%
100%
100%
10
46
51
44
45
47
15²
40
⁾
40
40
32²
31²
29²
15²
13²
15²
17²
14²
19²
20²
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
⁾
20²
⁾
38
⁾
38
14
21²
23²
23²
⁾
⁾
20²
⁾
19
⁾
TORM ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
170
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2021 - 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 ALMENA
TORM AMALIE
TORM AMORINA
TORM ANABEL
TORM ARAWA
TORM ASLAUG
TORM ASTRID
TORM ATLANTIC
TORM AUSTRALIA
TORM CAVATINA
TORM CORRIDO
TORM DISCOVERER
TORM ERIC
TORM FREYA
TORM HARDRADA
TORM HELVIG
TORM HORIZON
TORM INDIA
TORM KANSAS
TORM LAURA
TORM LEADER
TORM LENE
TORM LILLY
TORM LOKE
TORM LOTTE
TORM LOUISE
DWT
49.999
49.999
46.184
49.999
49.999
49.999
49.999
49.999
51.737
46.200
46.156
45.012
51.266
45.990
45.983
46.187
46.955
49.999
46.955
49.999
46.070
49.999
49.999
51.372
49.999
49.999
Built
2010
2011
2012
2012
2012
2010
2012
2010
2019
2010
2019
2008
2006
2003
2007
2005
2004
2010
2006
2008
2009
2008
2009
2007
2009
2009
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%
21²
21²
⁾
19
⁾
24²
24²
20²
25²
22²
⁾
⁾
⁾
⁾
22²
⁾
18
⁾
22²
16
⁾
13²
10²
⁾
11
⁾
16²
10²
19²
16²
⁾
⁾
⁾
19²
⁾
17
⁾
18²
21²
18²
20²
21²
⁾
⁾
⁾
⁾
⁾
TORM ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
171
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 2021 – 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
TORM PHILIPPINES
TORM PLATTE
TORM RAGNHILD
TORM REPUBLICAN
TORM RESILIENCE
TORM SINGAPORE
TORM SOLUTION
TORM SOVEREIGN
TORM SPLENDID
TORM STELLAR
TORM STRENGTH
TORM STRONG
TORM SUBLIME
TORM SUCCESS
TORM SUPREME
TORM THAMES
TORM THOR
TORM THUNDER
TORM THYRA
TORM TIMOTHY
TORM TITAN
TORM TORINO
TORM TROILUS
TORM VOYAGER
Handysize
TORM GYDA
Handysize
TORM TEVERE
¹
²
Indicates that the vessels are assets held-for-sale.
Indicates vessels for which TORM believes that, as of 31 December 2021, the basic charter-free market value is lower than the vessel's carrying amount.
⁾
⁾
DWT
49.999
46.959
46.187
46.955
49.999
51.737
49.999
49.999
49.999
49.999
49.999
49.999
49.999
49.999
49.999
47.036
49.842
49.842
45.950
49.842
49.842
49.842
49.842
45.916
36.207
37.383
Built
2010
2006
2005
2006
2005
2011
2019
2017
2020
2020
2019
2019
2019
2019
2019
2005
2015
2015
2003
2015
2016
2016
2016
2008
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%
100%
100%
100%
100%
100%
100%
18²
15²
16²
16²
14²
⁾
⁾
⁾
⁾
22²
⁾
31
⁾
27
31
31
31
31
31
31
28
16²
29²
30²
10²
⁾
⁾
⁾
29²
⁾
30
⁾
30
30
15
14²
10²
⁾
⁾
TORM ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
172
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.
T/C: Time charter: An agreement covering the chartering out
of a vessel to an end user for a defined period of time, where
the owner is responsible for crewing the vessel, but the
charterer must pay port costs and bunkers.
Technical management: An agreement to manage a vessel’s
technical operations and crew for the account and risk of the
shipowner.
Ton-mile: A unit of freight transportation equivalent to a ton of
freight moved one mile.
UN Global Compact: The United Nation’s social charter for
enterprises, etc.
Vetting: An audit of the safety and performance status of a
tanker vessel made by oil majors.
TORM ANNUAL REPORT 2021
GLOSSARY
173
Glossary
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 2021
GLOSSARY
174
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). TORM 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.
USDm
2021
2020
2019
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:
Reconciliation to net profit/(loss) for the year
Net profit/(loss) for the year
Profit from sale of vessels
Impairment losses and reversals on tangible assets
Expense of capitalized bank fees at refinancing
Termination of finance leases
Provisions
-42.1
-
4.6
1.1
-
-
88.1
-1.1
166.0
-1.2
USDm
Reconciliation to revenue
11.1
-114.0
Revenue
2021
2020
2019
619.5
747.4
692.6
2.8
2.7
18.5
-
-
-
Port expenses, bunkers and commissions
-240.9
-227.9
-267.7
TCE earnings
378.6
519.5
424.9
Net profit/(loss) for the year ex.non-recurrent items
-36.4
122.1
50.8
Gross profit: TORM defines Gross profit, a performance measure, as revenue less port expenses,
bunkers and commissions, charter hire and operating expenses. TORM reports Gross profit
because we believe it provides additional meaningful information to investors, as Gross profit
measures the net earnings from shipping activities. Gross profit is calculated as follows:
USDm
Reconciliation to revenue
Revenue
2021
2020
2019
619.5
747.4
692.6
Port expenses, bunkers and commissions
-240.9
-227.9
-267.7
Operating expenses
Gross profit
-190.5
-178.4
-173.0
188.1
341.1
251.9
TORM ANNUAL REPORT 2021
GLOSSARY
175
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 TORM 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.
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.
RoIC expresses the returns generated on capital invested in TORM. 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:
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 TORM’s financing
agreements. TORM believes that EBITDA assists Management and investors by increasing
comparability of TORM’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 which could be affected by various changing financing
methods and capital structures, and which may significantly affect profit/(loss) between
periods. Including EBITDA as a measure benefits investors in selecting between investment
alternatives.
USDm
Operating profit/(loss) (EBIT)
Tax
EBIT less Tax
Invested capital, opening balance
Invested capital, ending balance
2021
2020
2019
1.4
138.9
205.9
-1.3
-1.4
-0.8
0.1
137.5
205.1
1,719.7
1,786.0
1,469.4
2,011.3
1,719.7
1,786.0
Average invested capital for the year
1,865.5
1,752.7
1,627.7
Return on Invested Capital (RoIC)
0.0%
7.8%
12.6%
EBITDA excludes some, but not all, items which 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
2021
2020
2019
-42.1
88.1
166.0
1.3
42.4
-0.2
1.4
49.9
-0.5
0.8
41.9
-2.8
130.9
121.9
110.1
Impairment (reversal)/losses on tangible assets
4.6
11.1
-114.0
EBITDA
136.9
271.9
202.0
TORM ANNUAL REPORT 2021
GLOSSARY
176
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
– continued
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.
The Adjusted RoIC expresses the returns generated on capital invested in TORM 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
EBIT less Tax
Profit from sale of vessels
Impairment losses and reversals on tangible assets
Provisions
EBIT less tax and impairment
Average invested capital¹
Average impairment ²
⁾
Average invested capital less average impairment
⁾
2021
2020
2019
0.1
137.5
205.1
-
4.6
-
-1.1
-1.2
11.1
-114.0
18.5
-
4.7
166.0
89.9
1,865.5
1,752.9
1,627.7
42.3
41.5
98.2
1,907.8
1,794.2
1,725.9
Adjusted RoIC
0.2%
9.3%
5.2%
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.
⁾
Invested capital: TORM defines invested capital as the sum of intangible assets, tangible fixed
assets, investments in joint ventures´, deferred tax assets, 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 TORM’s operating profit. TORM 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:
USDm
2021
2020
2019
Tangible and intangible fixed assets
1,960.9
1,748.4
1,782.2
Investments in joint ventures
Deferred tax asset
Bunkers
Accounts receivables ¹
Assets held-for-sale
⁾
Non-current tax liability related to held over gains
Trade payables ²
Provisions
⁾
Current tax liabilities
1.5
0.7
48.8
129.6
13.2
-45.2
-79.0
-18.3
-0.9
1.6
0.3
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
Invested capital
¹
²
2,011.3
Accounts receivables include Freight receivables, Other receivables and Prepayments.
Trade payables include Trade payables and Other liabilities.
⁾
⁾
1,719.7
1,786.0
TORM ANNUAL REPORT 2021
GLOSSARY
177
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
- continued
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 TORM’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:
Net Asset Value per share (NAV/share): TORM believes that the NAV/share is a relevant
measure which 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
2021
2020
2019
2021
2020
2019
1,148.4
853.3
863.4
Total vessel values including newbuildings (broker values)
1,926.0
1,585.3
1,801.5
Committed CAPEX on newbuildings
-39.9
-100.6
-51.2
USDm
Borrowings
Loans receivables
-4.6
-4.6
-4.6
-72.5
Cash and cash equivalents, including restricted cash
-171.7
-135.6
Net interest-bearing debt
972.1
713.1
786.3
Net 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
2021
2020
2019
Vessel values including newbuildings (broker values)
1,926.0
1,585.3
1,801.5
Total (value)
Borrowings
1,926.0
1,585.3
1,801.5
1,148.4
853.3
863.4
- Hereof debt regarding Land and buildings & Other plant
and operating equipment
Committed CAPEX on newbuildings
Loans receivables
-5.6
39.9
-4.6
-8.3
100.6
-4.6
Cash and cash equivalents, including restricted cash
-171.7
-135.6
-6.8
51.2
-4.6
-72.5
Total (loan)
1,006.4
805.4
830.7
Net Loan-to-value (LTV) ratio
52.3%
50.8%
46.1%
Land and buildings
Other plant and operating equipment
Investments in joint ventures
Loans receivables
Deferred tax assets
Bunkers
Freight receivables
Other receivables
Prepayments
Cash position
Borrowings
Trade payables
Other liabilities
Current tax liabilities
Provisions
4.8
6.3
1.5
4.6
0.7
48.8
84.0
40.0
5.6
7.1
6.8
1.6
4.6
0.3
22.5
58.6
24.9
2.2
8.1
4.3
1.2
4.6
-
34.8
89.8
6.2
3.5
171.7
135.6
72.5
-1,148.4
-853.3
-863.4
-14.4
-47.1
-35.3
-43.7
-0.9
-59.8
-1.4
-18.3
-18.3
-47.3
-1.5
-
Total Net Asset Value (NAV)
1,007.5
801.7
1,016.0
Total number of shares excluding treasury shares (million)
80.7
74.4
74.4
Total Net Asset Value per share (NAV/share) (USD)
12.5
10.8
13.6
TORM ANNUAL REPORT 2021
GLOSSARY
178
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
- continued
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. Further, it expresses TORM’s ability to act and invest
when possibilities occur.
USDm
2021
2020
Cash and cash equivalents, including restricted cash
171.7
135.6
2019
72.5
Undrawn credit facilities and committed facilities incl. sale
& leaseback financing transactions
Liquidity
38.2
132.2
173.1
209.9
267.8
245.6
TORM ANNUAL REPORT 2021
GLOSSARY
179