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Annual Report 2022
TORM PLC
OFFICE 105, 20 ST DUNSTAN’S HILL
LONDON, EC3R 8HL, UNITED KINGDOM
COMPANY: 09818726
TORM ANNUAL REPORT 2022
CONTENTS
2
At a glance
TORM at a glance
4
Letter from the Chairman and the CEO
6
2022 in review
7
Business model and strategic choices
The value chain in oil transportation
9
Strategic framework and highlights
10
Leading product tanker owner
12
The versatile TORM fleet
13
Positioned to capitalize on a strong market
14
Greener future with zero emissions
15
Optimizing performance now
16
Long-term decarbonization
17
Superior operating platform
18
Fuel efficiency initiatives
19
Integrated digital foundation
20
Our responsibility
Responsibility report
22
Enhancements in 2022
24
TORM’s ESG targets
27
Stakeholder engagement and materiality
28
Environment
30
Social
34
Governance
39
SASB index and responsibility data
43
Review and risk
Market review
51
Market drivers and outlook
53
Financial outlook and coverage 2023
56
TORM fleet development
58
Financial review 2022
60
Risk management
70
Governance introduction
Governance at TORM
79
Chairman’s introduction
80
Governance structure
TORM’s governance structure
83
Board of Directors
84
Board and Committee meeting attendance
85
Leadership, governance, and engagement
86
Board activities 2022
87
Committee reports
Audit Committee report
89
Risk Committee report
95
Nomination Committee report
97
Remuneration Committee report
100
Other
Investor information
111
Engagement and decision making
115
Directors’ report
118
Statement of Directors’ responsibilities
121
Safe habor statement
123
Consolidated financial statements
Consolidated income statement
125
Consolidated statement of comprehensive income
125
Consolidated balance sheet
126
Consolidated statement of changes in equity
127
Consolidated cash flow statement
129
Notes to the consolidated financial statements
130
Parent company financial statements
Management review for TORM plc
176
Income statement
177
Statement of comprehensive income
177
Company balance sheet
178
Company statement of changes in equity
179
Cash flow statement
180
Notes to parent company financial statements
181
Other
Independent auditor’s report
187
TORM fleet overview
193
Glossary and alternative performance measures
196
Contents
TORM
strategy
11
Responsibility
report
22
Corporate
governance
79
Financial
statements
125
Contents
Strategic Report
Governance
Financial statements
TORM ANNUAL REPORT 2022
KEY FIGURES
3
2022
2021
2020
2019
2018
Income statement (USDm)
Revenue
1,443
620
747
693
635
Time charter equivalent earnings (TCE) ¹
⁾
⁵
⁾
982
379
520
425
352
Gross profit ¹
⁾
782
188
341
252
169
EBITDA ¹
⁾
743
137
272
202
121
Operating profit (EBIT)
601
1
139
206
3
Financial items
-45
-42
-49
-39
-36
Profit/(loss) before tax
557
-41
90
167
-33
Net profit/(loss) for the year
563
-42
88
166
-35
Net profit/(loss) ex. non-recurrent items¹
⁾
548
-36
122
51
-31
Balance sheet and cash flow (USDm)
Non-current assets
1,874
1,968
1,755
1,788
1,445
Total assets
2,614
2,331
1,999
2,004
1,714
Equity
1,504
1,052
1,017
1,008
847
Total liabilities
1,111
1,279
981
996
867
Invested capital ¹
⁾
2,142
2,011
1,720
1,786
1,469
Net interest-bearing debt ¹
⁾
650
972
713
786
627
Net Asset Value (NAV) (USDm) ²
⁾
2,330
1,047
902
1,016
856
Cash and cash equivalents, incl. restricted
cash
324
172
136
72
127
Investment in tangible fixed assets
119
320
173
384
202
Free cash flow
513
-243
116
-152
-105
2022
2021
2020
2019
2018
Key financial figures ¹
⁾
Gross margins:
Gross profit
54.2%
30.4%
45.6%
36.4%
26.6%
EBITDA
51.5%
22.1%
36.4%
29.2%
19.1%
Operating profit (EBIT)
41.6%
0.2%
18.6%
29.7%
0.5%
Return on Equity (RoE)
44.0%
-4.1%
8.7%
17.9%
-4.3%
Return on Invested Capital (RoIC)
29.2%
0.01%
7.8%
12.6%
0.1%
Adjusted RoIC
28.1%
0.2%
9.3%
5.2%
0.3%
Equity ratio
57.5%
45.1%
50.9%
50.3%
49.4%
TCE per day (USD) ⁵
⁾
34,154
13,703
19,800
16,526
12,982
OPEX per day (USD) ⁵
⁾
6,825
6,633
6,398
6,371
6,389
Loan-to-value (LTV) ratio ⁵
⁾
24.9%
52.3%
50.8%
46.1%
52.9%
Share-related key figures
¹
⁾
Basic earnings/(loss) per share (USD)
6.92
-0.54
1.19
2.24
-0.48
Diluted earnings/(loss) per share (USD)
6.80
-0.54
1.19
2.24
-0.48
Declared dividend per share (USD)
4.63
-
0.85
0.10
-
Declared dividend (USDm)
378.7
-
63.2
7.4
-
Dividend paid per share (USD)
2.04
-
0.95
-
-
Net Asset Value per share (NAV/share) ²
⁾
28.5
13.0
12.1
13.6
11.6
Stock price in DKK (per share of USD 0.01)³
⁾
198.4
51.7
45.0
74.5
43.9
Number of shares (m) ³
⁾
⁴
⁾
81.8
80.7
74.4
74.4
73.9
Number of shares, weighted average (m) ⁴
⁾
81.3
78.1
74.3
74.0
73.1
¹
⁾
For a definition of the calculated key figures (the APMs), please refer to the glossary on pages 196-202.
²
⁾
Based on broker valuations as of 31 December 2022, excluding charter commitments.
³
⁾
End of period.
⁴
⁾
Excluding treasury shares.
⁵
⁾
For Tanker segment
Key figures
Key figures
TCE earnings (USD/Day)
EBIT (USDm)
Adjusted RoIC (%)
Dividend/share (USD)
34,154
13,703
19,800
16,526
12,982
0
10,000
20,000
30,000
40,000
2022
2021
2020
2019
2018
601
1
139
206
3
0
200
400
600
800
2022
2021
2020
2019
2018
28.1
0.2
9.3
5.2
0.3
0
10
20
30
2022
2021
2020
2019
2018
4.6
0
0.85
0.10
0
0
1
2
3
4
5
2022
2021
2020
2019
2018
TORM ANNUAL REPORT 2022
AT A GLANCE
4
TORM ANNUAL REPORT 2022
AT A GLANCE
4
At a glance
We all have an obligation to do our utmost to reduce CO
2
emissions. TORM is pushing fast forward in our environmental
efforts and will reduce our carbon intensity by 40% compared
to the IMO baseline by 2025 – ahead of IMO’s 2030 target.
13
15
60
As of 16 March 2023.
TORM ANNUAL REPORT 2022
AT A GLANCE
5
CHRISTOPHER H. BOEHRINGER,
CHAIRMAN OF THE BOARD
“2022 was a year where the geopolitical
landscape was changed dramatically,
and we were all confronted by the
tragic Russian invasion of and subsequent
war in Ukraine. Since the beginning, TORM
decided to cease activity with Russian
cargos and Russian harbors completely,”
says Christopher H. Boehringer.
The war meant that Europe had to import
refined oil from further away, and together
with supportive fundamentals, such as
close-down of refineries in distant regions
of the world as well as the limited number of
new vessels coming to the market, this
increased the imbalance between supply
and demand. Consequently, a constant high
utilization of the world fleet led to record
high product tanker rates and the strongest
result on record for TORM,” says Jacob
Meldgaard.
JACOB MELDGAARD
CEO/EXECUTIVE DIRECTOR
TORM ANNUAL REPORT 2022
AT A GLANCE
6
The One TORM platform
The tragic situation in Ukraine and the changing trading
patterns stemming from refinery closures combined with
limited fleet growth increased the utilization of the global
product tanker fleet to very high levels. This resulted in high
and volatile freight rates and the highest yearly earnings on
record for TORM with a net profit of USD 563m.
28.1%
Adjusted Return on Invested Capital
(ROIC)
We believe the integrated One TORM platform is what
enables us to invest in and operate vessels obtaining one of
the highest return on investments amongst our peers in the
product tanker industry. In 2022, TORM obtained a Return
on Invested Capital of 28.1%.
Distribution Policy
In May 2022, TORM’s Board of Directors decided to
change the Distribution Policy for the benefit of our
shareholders. We introduced a transparent model where
the quarterly cash generation is shared with our investors,
either in the form of dividends or share buy-back. This
means that we distribute cash in excess of a threshold that
is based on the number of vessels in our fleet, the net
proceeds from vessel sales and purchases, and restricted
cash. We believe this is a prudent and transparent way of
sharing the cash generated with our owners.
4.63
Dividend per share
All in all, based on our cash generation in the fourth quarter
of 2022, TORM will pay out record high dividends of USD
2.59 (approximately DKK 18) per share, which brings the
dividend per share based on the full year 2022 cash
generation up to USD 4.63 (approximately DKK 33).
Preparations for the future
TORM has for many years had decarbonization and
reducing fuel consumption as a core strategic focus.
Hence, we find us well prepared for both the introduction by
IMO of the EEXI and CII certification from the beginning of
2023 and further the increasing focus from our financiers
and investors to reduce emissions. By being diligent in our
efforts to find the next energy efficiency improvement, we
will be part of driving a change in our industry. We also
expect our customers to increase their focus in the years to
come, which is why we have prepared TORM’s organization
both commercially and technically to exploit the
opportunities both directly and in partnerships.
Christopher H. Boehringer, Chairman of the Board
Jacob Meldgaard, Executive Director
Letter from the Chairman and the CEO
In 2022, the world economy and the product tanker markets were significantly
impacted by the changes in the geopolitical landscape. At the beginning of Russia’s war
against Ukraine, TORM decided to stop transporting Russian products, and in the
following months new trading patterns started to take shape. The One TORM platform
proved to be ready for the changes that occurred, and at the same time TORM was
diligently preparing for the changes we will see in the years to come.
TORM ANNUAL REPORT 2022
AT A GLANCE
7
2022 in review
January
January
May
July
Pushing fast forward
on climate
Since 2015, TORM has accelerated its
work to improve energy efficiency and
in January 2022, we announced an
ambitious 2030 climate target to
reduce our carbon intensity by 45%
compared to the IMO baseline (2008).
Read more on page 15
Increasing efficiency of the
fleet
As we entered into 2022, TORM took
delivery of the LR2 vessel, TORM
Houston, equipped with energy-saving
technology such as pre-shrouded
vanes, hub vortex absorbed fins, and
ability for Flettner rotors.
Distributions to shareholders
TORM's new Distribution Policy was
introduced, which incorporates a
stronger alignment between cash
generation and shareholder
distributions.
Read more on page 114
Strategic fleet adjustment
The last remaining vessel in the
Handysize vessel class was sold, in line
with our long-term strategic priority to
move towards larger vessels.
Read more on pages 13 & 58
Full year
Empowering decarbonization
To deliver on its ambitious climate targets, TORM
enhanced its organizational structure by creating
dedicated teams for both the technical and the
commercial decarbonization work – ensuring high focus
and empowerment to take action.
Read more on page 23
TORM ANNUAL REPORT 2022
AT A GLANCE
8
2022 in review
August
September & November
December
December
Scrubber commitment
increased
With the successful installation of
more than 50 scrubbers, enabled
through our company ME Production,
TORM announced further installations
that together with already planned
installations will bring the total number
of scrubbers to 68.
Reconnecting sea and shore
Once safe to do so following the
pandemic, TORM reinstated face-to-
face annual officer seminars. Nurturing
this close relationship between sea
and shore colleagues contributes
heavily to the unique value that TORM
provides through our integrated One
TORM platform.
Read more on page 34
Supporting quality education
since 2007
Both in India and the Philippines, we
have supported hundreds of children
from poorer backgrounds by providing
education scholarships.
Read more on page 38
Climate innovation
Another green pilot project was
initiated as an air lubrication system
was installed on TORM Hermia with
expected energy savings of
approximately 5% per vessel.
Read more on page 33
August
December
Strengthening environment-related
innovation
Building on the existing strong partnership, TORM
acquired a 75% ownership stake in ME Production to
support TORM's climate goals through environmental
innovation.
Read more on pages 31-32
Record high dividend
In Q3 2022, TORM delivered the best quarterly result
on record, and the highest quarterly distribution of
USD 119m was paid out to our shareholders in
December. Based on Q4 2022, TORM will pay a
dividend of around USD 212m.
Read more on page 14
TORM ANNUAL REPORT 2022
BUSINESS MODEL AND STRATEGIC CHOICES
9
The value chain of the global oil industry 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, roads, and rail.
TORM is primarily involved in the transportation of refined
oil products from the refineries to the onshore distributors
who transport refined oil products to the end users. Refined
oil products (or clean products) are mainly used in the road
transportation sector (gasoline, diesel), in the aviation
sector (jet fuel), and as a feedstock to the petrochemical
industry (naphtha).
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, and extensive cleaning of
the vessel’s cargo tanks is required before a vessel can
transport clean products following transportation of dirty
cargo. In 2022, 98.6% of TORM’s turnover was generated
from clean products transportation.
The transportation patterns of both refined and unrefined
products are subject to constant change; however, the
different products may be affected differently. As an
example, closedowns of refineries in oil-importing regions
mean that these regions will require less transportation of
unrefined oil, while it, at the same time, will require more
transportation of refined oil.
Hence, short and long-term changes will impact the value
chain of the global oil industry, and vessel operators should
be ready to adapt to the changes.
The value chain in oil transportation
The global oil industry covers a range of activities and processes that contribute to the
transformation of primary petroleum resources into usable end products for industrial
and private customers.
Business model and strategic choices
Strategic highlights
TORM ANNUAL REPORT 2022
BUSINESS MODEL AND STRATEGIC CHOICES
10
Leading product
tanker owner
Green future with
zero emissions
Superior operating
platform
88
Vessels in all major product
tanker vessel classes
Including acquired vessels as of 16 March 2023
37.1%
AER reduction compared
to IMO baseline (2008)
USDm
563
Net profit
28.1%
Adjusted RoIC
ZERO
Carbon Shipping in 2050
TORM signed up for Mærsk Mc-Kinney Møller
Center for Zero Carbon Shipping
USD
34,154
TCE/day
Across all vessel classes
24.9%
Net LTV
Additional capacity available for fleet growth
0.42
Accidents per one million
exposure hours LTAF
(Lost Time Accidents Frequency)
USDm
379
Dividends paid based on 2022 earnings
Including dividends to be paid in April 2023
Strategic framework
TORM ANNUAL REPORT 2022
BUSINESS MODEL AND STRATEGIC CHOICES
11
OUR
VISION
OUR STRATEGIC
CHOICES
OUR WAY OF
WORKING
The reference company in the
transportation industry
Our dedicated team strives to be
the reference company, servicing
our customers via our integrated
business model – safely, reliably,
and environmentally responsible.
Leading product tanker owner
>
Financial flexibility and fleet optimization
>
Spot exposure
>
Integrated operations
Green future with zero emissions
>
Ambitious and ongoing energy optimization
>
Zero CO
2
emissions by 2050
Superior operating platform
>
Commercial management
>
Optimal vessel positioning
>
Safe technical management
>
An integrated digital foundation leveraging
operational performance
>
Integrated decarbonization efforts
Pages 12-20
Pages 12-17
Pages 18-20
TORM ANNUAL REPORT 2022
BUSINESS MODEL AND STRATEGIC CHOICES
12
Active management of spot market exposure
We primarily employ our fleet of 88 vessels in the spot
market. Throughout 2022, TORM has utilized its position to
benefit from increasing market conditions. Going into
2023, TORM is thus ready to continue to benefit from the
strong market conditions, where seven LR1 vessels were
added to our fleet during January 2023.
With our presence in all large product tanker vessel classes,
TORM is well positioned to meet our 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 our customers
with enhanced flexibility to fulfill different cargo
requirements as well as reduced fuel costs. TORM’s
normalized PBT break-even rate is approximately USD/day
15,000.
While TORM mainly operates in the spot market, TORM also
enters into medium and long-term contracts when levels
are assessed to be 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 cargos 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.
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 have lower market exposure
when freight rates are low.
Read more on the operational leverage of TORM’s
spot market exposure in the Financial outlook on
page 56
Fleet growth and optimization
TORM seeks to selectively grow its fleet and to serve as a
consolidator in the product tanker segment if the right
opportunities arise. TORM continuously assesses
opportunities to optimize our fleet by acquiring attractive
high-specification second-hand product tankers or
selectively pursuing newbuilding programs with high-quality
shipyards. Further, TORM seeks to optimize the trading
optionality of the fleet through enhanced cargo optionality
covering chemical trading options.
During 2022, TORM decided to sell the remaining two Handy-
size vessels in the fleet. Further three older LR2 vessels, one
LR1 vessel and two older MR vessels were sold. TORM has on
the other hand purchased one modern scrubber-fitted LR2
vessel during 2022.
Positioned to capitalize on the strong market
Going into 2023, TORM owned a fleet of 78 vessels, of which
56 were scrubber-fitted. During the first quarter of 2023,
TORM purchased seven LR1 vessels and 3 MR increasing the
fleet to 88 vessels. With an almost entirely spot-exposed
fleet, TORM is well positioned to capitalize on the elevated
product tanker market. In a continued strong market, TORM
will have increased focus on maintaining vessels in the fleet
for an extended period. In this way, TORM will optimize its
invested capital to enable the highest possible RoIC. TORM’s
scalable business platform provides strategic flexibility as
attractive investment or divestment opportunities arise and is
a supportive and required enabler for being a leading product
tanker owner.
In May 2022, TORM introduced a new quarterly
Distribution Policy to allow for increased alignment
between cash generation and shareholder distribution. With
a prudent and solid capital structure approach, TORM has
already based on cash generation from the second and the
third quarter of 2022 paid out dividends to our
shareholders, and TORM expects to pay out a total of USD
379m in dividends related to 2022 earnings.
Read more about TORM’s capital structure
on page 14
Leading product tanker owner
TORM is an internationally leading product tanker company and one of the largest
owners of product tankers in the world.
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The versatile TORM fleet
TORM is present in all larger vessel classes in the product tanker market providing
enhanced offering to our customers and synergies across vessel classes. Within the
MR vessel class, certain vessels have increased trading flexibility within chemical
cargos.
13
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
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.
60
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.
The numbers are as of 16 March 2023, including
ordered but not delivered second-hand vessels.
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TORM has generated a profit before tax in all quarters of
2022, increasing from USD 11m in the first quarter to USD
222m in the fourth quarter. In the same period, average
rates have increased from USD/day 16,743 to USD/day
47,520. Going into 2023, TORM has covered 89% of the
first quarter at USD/day 43,002. Combining the strong
market fundamentals with a low and stable cost base,
TORM expects an EBITDA for the full year 2023 in the
range of USD 750m - USD 1,100m.
With an interest rate coverage of 81% at 1.4% excluding
margin untill 2027, taking the refinancing into account,
TORM is only to a very limited degree exposed to the
fluctations in the interest rate markets.
New Distribution Policy
In May 2022, TORM adjusted its Distribution Policy to allow
for quarterly distributions above a fixed threshold cash level
as of the quarterly balance sheet day. The new policy
combined with TORM’s solid capital structure has enabled
TORM to make dividend payments to our shareholders in
the second and third quarters of 2022. Combined with the
dividend of USD 212m related to the fourth quarter, the
total dividend for 2022 will be USD 379m.
Positioned to capitalize on a
strong market
A
s the product tanker market has improved during 2022, TORM has capitalized on a strong
market and generated strong financial results over the year.
Strong markets provide significant cashflow generation
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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
a strong focus on reducing CO
2
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 for societies, and therefore we want to
distribute refined oil products as CO
2
-efficiently as possible
with accessible means.
Optimizing performance now
TORM maintains its 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. These efforts
include small investments on vessels with short payback
time and also large investments with an expected more
substantial impact such as air lubrication systems and
Flettner rotors. Further, digital solutions such as IOT on
vessels and route optimization algorithms are being utilized.
To ensure a successful implementation of these efforts,
TORM focuses on seafarers’ training and behavioral
changes for crew on board the vessels.
To obtain commercially viable and environmentally friendly
results, TORM deepens its knowledge through external
collaboration. This includes the acquisition of the Danish
marine equipment manufacturer ME Production, which will
support a faster implementation of our emission reduction
ambitions.
Long-term industry collaboration
Alternative fuels will be required on a global scale to reach
the 2050 targets set by the IMO. 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%
CO
2
intensity reduction by 2025 compared to 2008 using
IMO’s defined methodology and a 45% CO
2
reduction by
2030. For the long term, TORM has an ambition to have
zero CO
2
emissions from operating our fleet in 2050.
Further to support these goals, TORM’s Management and
organization has specific performance measures on
achieving these targets.
Greener future with zero
emissions
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.
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TORM categorizes potential investments to reduce the CO
2
emissions from our vessels into two different categories.
Short term and known technologies
One category is small investments with a short payback
time where the technology is usually known and proven. An
example of this is our investment in ultrasound on
propellers. Ultrasound is a promising method to fight
biofouling which can prevent surface algae and can ensure
smoother, energy-saving sailing.
Long term and test pilot projects
The other category is investments with a longer payback
period, which are also typically large investments and where
the technology is more unproven for tanker vessels. The
typical process for this category is for TORM to do a test
pilot project to verify if the technology is successful and will
deliver the expected CO
2
emission reduction. If successful,
a roll out of the technology to more vessels is conducted.
Examples of this include Flettner rotors and air lubrication
systems.
During 2022, TORM also made an in-depth assessment of
the likelihood of reaching our 2025 and 2030 CO
2
intensity
reduction targets. The assessment showed that both the
2025 and 2030 CO
2
emission reduction targets can be
reached with the energy reduction initiatives and
investment projects currently included in our budget and
long-term planning.
Optimizing performance now
Energy transition towards 2030
TORM is continuously working to improve the fuel efficiency of our vessels. In 2022,
several concrete steps towards reaching TORM´s 2025 and 2030 CO
2
intensity
reduction targets were taken.
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Active industry collaboration
To achieve our ambitious 2050 environmental target of
zero CO
2
emissions from operating our fleet, TORM is
actively involved in various industry collaborations
supporting this journey. These collaborations are important,
as the ambitious target cannot be met by single entities
alone but requires joint efforts across the shipping industry.
The collaborations include TORM’s active engagement with
participation in Danish Shipping through which TORM aims
to impact the decision-making in the IMO in relation to
ongoing discussions on the implementation of CO
2
-related
regulations.
Preparing for new propulsion systems
Over the past years, the shipping industry has increasingly
worked on the future of maritime fuels and solutions for
zero emission shipping. Some technical solutions are
already in place, including methanol engines, while others
are in the process of being developed and approved for
commercial operation, including ammonia-fueled engines.
TORM is enthusiastic about this development and expects
that the future fuels for ocean-going vessels will be covered
by a mix of different technologies.
With methanol being the only viable solution currently,
TORM has special focus on this both from a commercial
perspective, where a number of our vessels are in the
process of being upgraded to transport this cargo, and also
from a technical perspective, where TORM believes that
vessels with methanol engines could be a commercial
solution for product tankers within a few years.
A significant obstacle for all future propulsion solutions
remains to be fuel availability. However, we expect that
such obstacles will be reduced over time as production
achieves larger scale, and as the supply chain for such fuels
is further developed.
Long-term decarbonization
Industry collaboration and new fuels
Fuels
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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 further provides our
customers with better accountability and insights 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 access to
stakeholders supporting efficient decision-making.
Commercial management
TORM’s commercial team is responsible for the
employment and operation of our fleet and has
continuously demonstrated superior performance
compared to peers and market benchmarks. One of the key
elements for the commercial team to succeed is the ability
to ensure an 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 our 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. A key focus area for the technical
management and a corporate KPI is to ensure that TORM’s
fleet is tradable with our customers, thereby supporting
commercial performance. The team also has extensive
experience in vessel design and construction and provides
essential knowledge for TORM to execute newbuilding
programs. In addition to the office staff, TORM has more
than 3,300 seafarers employed.
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 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. This includes
supporting TORM’s commercial operations with an
analytical model developed by the advanced analytics and
applied AI function.
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.
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TORM is well positioned to successfully install and
implement fuel efficiency equipment on board vessels
through the integrated operating platform.
TORM has full control of the usage, full transparency of the
impact of the technology, and receives full economic
benefit from the installed equipment. This is opposed to
other sharing arrangements such as pool structures.
Control of both the technical and commercial management
also allows TORM to make full use of the equipment in the
commercial decision-making.
As fuel efficiency becomes increasingly complex, crew
training in systems and equipment becomes increasingly
important. This includes implementation of voyage
optimization guidelines and knowledge of how the impact of
devices such as Flettner rotors and air lubrication systems
should be operated. In addition, general energy and power
management forms part of the daily work on board the
vessels.
TORM conducts continuous training of the crew from the
TORM crew pool. TORM is therefore able to ensure that
crews with the right competences are matched to ensure
optimal use of the fuel efficiency equipment.
Fuel efficiency initiatives
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Infrastructure and governance
TORM’s digital development is anchored in a solid and
robust data governance structure. This supports data
transparency and fast decision-making across the
organization. The solid structure ensures that data is
captured, cleansed, documented, controlled, and governed
in all our processes including financially anchored
processes such as financial reporting, SOX compliance, and
ESG reporting, and also in more commercial processes such
as route planning and energy optimization on our vessels.
To harvest the benefits of new technologies and
digitalization opportunities, we have found that it has
become increasingly important to monitor trends and
technologies and prioritize what to explore. To prioritize our
digital initiatives, discuss ideas, and develop business
cases, we have established a cross-organizational
Digitalization Committee.
Internet of Things
To support optimal maintenance and operations of our
vessels, we capture relevant voyage and energy data across
our fleet. During 2022, this has been accelerated through
installations of a wide range of sensors and technologies to
create fully connected vessels. The project will enable our
on- and offshore staff to monitor all relevant performance
measures on each vessel and guide them in decision-
making.
Artificial Intelligence
The use of sophisticated artificial intelligence modelling,
e.g. deep learning methodology, has increased in the
shipping industry in recent years. For many years, TORM
has implemented AI models into our processes and
operations to support decision-making.
Two examples of this are i) our use of algorithms to predict
the optimal routing of a vessel before departing from its
origin port until arrival at the destination port, and ii) the
newest generation of our vessel positioning tool which can
predict how to optimally deploy our fleet across the global
basins.
Integrated digital foundation
To be at the forefront of technological and digital developments is a key competitive
advantage in our industry. It has been an embedded element of TORM´s strategy to
monitor and implement new technologies supporting our reference company vision.
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OUR RESPONSIBILITY
22
We constantly push ourselves to remain relevant and
competitive in the eyes of our investors, customers,
employees, financiers, and other key stakeholders. We do
this by deeply integrating sustainable business practices in
our commercial strategy to consider how we affect the
world around us, and how the world around us has an
impact on us.
TORM’s sustainability approach and actions are guided by a
range of both internal and external instruments. We
harness these to build an overarching approach to create a
more sustainable future, sustainability measures allowing
us to take decisions based on knowledge, and to provide
transparency to our stakeholders. This is done by
constantly challenging ourselves and the way we work.
Further, TORM does this by interacting and collaborating
with different peers and industry stakeholders.
Transparency and accountability are key to TORM’s way of
doing business, and these values play a central role in our
responsibility approach. The principles in the model to the
right illustrate some of the important elements of the way
we think sustainability. They are frequently reviewed and
validated considering our safety culture, how our leaders
shall operate, and not least our strategic choices.
This section (pages 22-49) of our report also constitutes
the Danish statutory reporting on corporate social
responsibility. Our business model, which is set out on page
12, forms an integral part of our statutory reporting.
Responsibility report
Responsible behavior and sustainability are embedded in the way we conduct business
in TORM. We are committed to protecting our employees, our assets, our environment,
and our society. We believe that a sustainable business also creates business value for
TORM.
Our responsibility
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Integrating sustainability into our strategy is a way to grow
and optimize our business for the future. TORM harnesses
respected guidelines such as the ESG (Environment, social,
government) structure, SASB (Sustainability Accounting
Standards Board) reporting, Scope 1, 2, & 3 emissions
reporting, and the UN SDGs (Sustainable Development
Goals) to operate in a responsible manner. A materiality
matrix guides the prioritization of our actions.
TORM was the first shipping company in Denmark to sign
the UN Global Compact. This, together with the UN
Sustainability Goals, is another way in which we commit to
an internationally recognized set of principles on health,
safety, labor rights, environment, and anti-corruption.
Enhancements in 2022
In 2022, TORM increased the transparency around our
emissions and the impact of our sustainability response on
our business by preparing a TCFD (Task Force on Climate-
Related Financial Disclosure) report and an analysis of our
Scope 3 emissions.
Governance driving sustainability
Organizing the Company to focus on sustainability is
essential. To empower the organization to reduce emissions
and achieve our ambitious environmental goals, new
organizational roles were created in 2022. This was to
establish a separate department of experts focused on
accelerating our green efforts.
As an additional governance measure, TORM has for
several years incorporated financial mechanisms to drive
ESG efforts whereby senior management and the rest of
the organization’s KPIs are directly linked to ESG targets to
ensure that TORM continues to prioritize sustainable
actions.
ESG-linked renumeration is available on page 99
Building a better future requires a joint effort. Therefore,
TORM has been a long-standing partner in many industry-
relevant collaborations. By working together, we can build
momentum, draw focus, and share best practices to make a
larger positive imprint on our world.
SASB Index and responsibility data are available on
page 43
Our responsibility
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Scope 3
Scope 3 refers to emissions which are a consequence of
TORM’s activities but occur from activities which are not
owned or controlled/operated by TORM. Scope 3 reporting
is an expansion in 2022 of the already reported Scope 1
and 2 emissions. This is to disclose the indirect emissions
from TORM’s activities.
Scope 3 reporting is an additional voluntary effort creating
awareness of our entire value chain enabling us to take
ownership beyond our direct business based on data. By
including entire value chains, we can understand the knock-
on effect of actions to reduce emissions.
For example, efforts to reduce Scope 1 emissions on board
our vessels, such as using less fuel to perform our routes,
will also positively impact our Scope 3 emissions as less
upstream fuel will be consumed. This increased
transparency also ripples down to our partners and
customers, empowering them with increased emissions
transparency in their value chains.
Enhancements in 2022
Scope 3: What does it consist of?
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TORM’s process on Scope 3
A two-phase process using the Green House Gas Protocol’s
15 categories for Scope 3 emissions was conducted. First,
we made a mapping of our value chain, and a screening of
all 15 categories was performed based on five criteria
which considered the number of emissions, the degree of
influence we have, associated risks, importance to our
stakeholders, and if the activity is performed in-house or
not. This resulted in the following five categories:
•
Category 1:
Purchased goods and services
•
Category 2:
Capital goods – vessels and modifications
•
Category 3:
Upstream fuel & energy-related activities
•
Category 6:
Business travel
•
Category 13:
Downstream leased assets – T/C out > 3
months
In the second phase, emission data for the five categories
was refined and categorized as either ‘primary/hybrid’ or
‘secondary’. ‘Primary/hybrid’ is data where we know the
actual quantities consumed combined with industry-
specific emission factors; however, these are only provided
by a few vendors. Where only one data point was available,
a hybrid calculation method was used, and average industry
emission factors were applied to the purchased quantities.
Where no primary data was available, spend-based
consumption data was used to assess Scope 3 emissions,
and this was categorized as ‘secondary data’.
Following this selection and data collection process, we
attained our 2021 and 2022 Scope 3 emissions data and
the split between primary/hybrid quantities and secondary
quantities. Positively, these consist of a high degree of
primary/hybrid data, providing us with a deeper degree of
transparency. The following discusses each category and
the mechanisms involved.
In 2022, category 2 accounts for most emissions, with
32% compared to 57% in 2021, and a category where 88%
of data is primary/hybrid data. For vessel acquisitions, we
have used a lightweight methodology as we are not able to
acquire the exact emissions data from the shipyards. As
this category reflects the emissions linked to vessel
purchases and modifications, this number can fluctuate
from year to year depending on TORM’s vessel purchases.
This was the case from 2021 to 2022 where the
investment in vessels was significantly lower.
The subsequent significant categories were 1, 3, and 13 –
purchased goods and services, upstream fuel and energy-
related activities, and downstream leased assets,
respectively. For category 1, we have lower data
transparency, however, we believe this will improve over
time due to the general focus on emissions which our
suppliers will experience. Category 3 includes upstream
emissions associated with the production and distribution
of the bunker fuel for our vessels. With our drive to reduce
our Scope 1 emissions by sailing more efficiently, we will
inevitably reduce our Scope 3 emissions. Category 13
reflects our commercial decision to focus on the spot
market which can fluctuate depending on our decisions to
employ the fleet in the spot or time charter market. These
emissions will fall in either Scope 1 (spot) or Scope 3 (time
charter) depending on the degree of operational control
that TORM holds at different times on different vessels. In
2022, we reduced the time charter ratio. The final
category, category 6, relates to TORM’s business travel,
including seafarers’ travel. Our seafarer workforce
contributes considerably to these emissions as traveling is
a necessary part of operating the vessels. Regardless, we
constantly implement best practices and improvements to
make the positioning of seafarers as efficient as possible.
We have also applied this logic to optimize our shore-based
business communication towards online platforms. This
focus was accelerated during the COVID-19 pandemic and
learnings have continued.
Enhancements in 2022
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Data types applied within each Scope 3 category
SOURCE: BASED ON TCO2E
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This Scope 3 process has provided us with a deeper
understanding of the indirect emissions and how we can
move between the different scopes. These improvements
also come from working with our partners and suppliers to
raise awareness and challenge them to provide their
emissions data. To maximize our efforts with this new
reporting feature, we engaged ESG expert consultants in
the entire process to work closely with TORM.
Next steps
With this increased visibility, TORM will continue to
understand the new scope and data and decrease the
amount of secondary data by encouraging suppliers to
provide the necessary information, thus turning it into
primary/hybrid data. Subsequently, we will use this data
and our increased understanding to adjust our ways of
working to positively impact Scope 3 emissions.
TCFD
Being relevant for tomorrow is just as important as being
relevant today. To ensure TORM’s position and relevance in
the future, we conducted a climate-related scenario
analysis in 2022 using the Task Force on Climate-related
Financial Disclosures (TCFD) guidelines. This was to assess
transitional and physical risks and opportunities and how
they might impact the resilience of our company strategy.
We believe in taking advantage of available tools to show
our stakeholders and potential investors how TORM is
prepared for the future. This also provides TORM with input
for focus areas to guide our strategy.
TORM’s process
We engaged an external consultancy and developed three
climate scenarios to assess TORM’s risks and
opportunities: Net Zero 2050 (1.5°C), Delayed Transition
(1.8°C), and Hot House World (+3°C).
These scenarios were supplemented by data and insights
relevant to upstream and midstream oil and gas activities
and the transport of refined oil products. They also took
into consideration TORM’s full value chain including
potential production of and demand for renewable energy
fuels and technologies.
The scenario analysis process involved senior
representatives from TORM’s organization and TORM’s
Board of Directors to fully analyze the consequences of the
risks and the opportunities ahead. The risks and
opportunities were assessed for financial materiality and
their potential impact on TORM’s business model and
strategy. Four financially material climate-related risks and
three financially material climate-related opportunities
were investigated.
The findings from the scenario analysis were incorporated
into TORM’s corporate strategy process to improve its
resilience. Further details are outlined in the risk section of
this report.
Enhancements in 2022
TCFD details are available on pages 75-77
The Task Force on Climate-related Financial Disclosures
(TCFD) framework
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TORM’s ESG targets
These targets ensure our collective focus on the same goals and encourage
transparency between management, employees, and stakeholders. TORM has
committed to the below ESG-linked targets to be relevant to investors, lenders,
customers, and other stakeholders. We will elaborate on these targets throughout this
report.
2030 Climate
target
TORM continues to work on
reducing our carbon intensity
from -37.1% in 2022 to
-45% by 2030 compared to
2008*.
* % reduction compared to the IMO’s
2008 base year using the CII reference
line using CO
2
g/dwt x nm.
2050 Climate
ambition
TORM is pursuing an
ambitious climate agenda,
whereby we will have zero CO
2
emissions from operating our
fleet by 2050.
2030 Safety
target
Safety is measured as a long-
time accident frequency per
million exposure hours.
In 2022, TORM’s safety
performance was 0.42, and
our target for 2030 is 0.30.
2030 Leadership
diversity target
We believe that diverse teams
led by diverse leaders deliver
better business performance,
and by 2030 at least 35% of
our leaders will be female.
-37.1%
-45%
2030
2022
ZERO
emission
0.42
0.30
2030
2022
21%
35%
2030
2022
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Stakeholder engagement
Working in close collaboration with our customers and
stakeholders is an immense focus for TORM and is key to
delivering our ambitious climate targets. Among other
things, 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. TORM
continued its work in the Mærsk Mc-Kinney Møller Centre
for Zero Carbon Shipping which we joined in 2021 as a
Mission Ambassador. Here we work with industry partners
and knowledge specialists to achieve zero carbon shipping
solutions by 2050. TORM is also an active member of
industry organizations such as Danish Shipping. These
efforts must ensure that TORM is part of the conversation
that is important to many of our stakeholders and society at
large.
Engagement and decision-making in TORM are
described on pages 115-117
Materiality
As part of our continued efforts to increase transparency in
our reporting, we included a materiality assessment in our
2021 responsibility reporting. This assessment has been
reviewed in 2022 and is still valid. It will be reviewed again
in 2023.
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 to identify and
prioritize the ESG issues which are most important to and
have the most impact on TORM and our key stakeholders.
We have defined our key stakeholders as customers,
lenders, investors, regulators, employees, suppliers,
community, and environment.
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.
Stakeholder engagement
and materiality
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Stakeholder engagement
and materiality
MATERIALITY MATRIX
MOST IMPORTANT ESG-RELATED TOPICS FOR TORM
(SCORING OF TOPICS IS RELATIVE TO EACH OTHER)
HIGHER
IMPORTANCE TO KEY
STAKEHOLDERS
LOWER
LOWER
IMPACT ON TORM
HIGHER
A.
LEGAL COMPLIANCE
C
B
E
G
F
A
H
D
B.
HEALTH AND SAFETY
C.
SECURITY
D.
ENVIRONMENTAL EFFORTS
E.
PEOPLE
F.
HUMAN RIGHTS AND BUSINESS ETHICS
G.
COMMUNITY
H.
RESPONSIBLE PROCUREMENT
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Environmental efforts on pages 30-33
Health and safety on page 34
Security on page 35
People on pages 36-37
Community on page 38
Legal compliance on page 39
Human rights and business ethics on pages 40-41
Responsible procurement on page 42
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TORM has dedicated resources, time, and
focus to minimize its sea and atmospheric
pollution. It also employs a broad range of
tools and means to achieve its ambitious
emissions reduction goals.
2022 fuel consumption and energy efficiency
TORM has relentlessly worked on the ambitious
environmental goal of reducing our carbon footprint by
deploying effective strategies and efficient technologies
across our value chain. This is done to reduce both our
carbon intensity, address how efficiently our vessels
transport its cargo, and the subsequent carbon emissions.
These ambitions support IMO’s Green House Gas Strategy
which envisages a reduction in carbon intensity of
international shipping of at least 40% by 2030.
Our decarbonization efforts in 2022 have enabled us to
reduce our carbon intensity, measured through the IMO
defined methodology using Annual Efficiency Ratio (AER),
by 37.1%. This reduction is compared to the IMO baseline
of 2008. We are on track to achieve our goal of a 40%
reduction in carbon intensity by 2025.
These decarbonization strategies and technologies also
produce commercial benefits and synergies, which our
closely connected and integrated One TORM platform
enables us to capture.
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. Daily engagement with the
vessels continues to create significant value to encourage
and support best practice behavior regarding energy
consumption. In addition, the efforts ensure that corrective
actions can be taken swiftly, if needed. The strategic
choices section elaborates on how this platform operates
and the synergies it produces.
Read more about our superior operating platform on
page 18
Vessel performance optimization and behavior
Over the years, TORM has gained a lot from information and
data sharing to improve learnings, both ashore and on board
our vessels. This concept has been taken further and
thereby contributed to our performance in 2022 as well.
TORM initiated the NEXUS project that considers all
processes influencing fuel efficiency, not only vessel engine
performance but also voyage planning, hull performance,
and much more. It aims to be a central tool providing
transparency through live data to the various stakeholders
and to improve decision-making. The Connected Machinery
project is one of the first elements which provides
automated vessel data and energy optimization guidance,
allowing the crew to proactively make the right decisions on
matters impacting fuel efficiency.
This has been tested on 18 vessels during 2022 and has
contributed learnings towards improving the tool. During
2023, it is expected that 40-60 vessels will have the tool
installed, and it is expected to be completed by 2024.
Technologies
In 2022, we continued our journey of improving the hull of
our vessels to make them glide easier through the water,
thereby requiring less power and producing less emissions.
One method to improve vessel hulls is applying a silicon
coating. Traditional hull coatings have higher roughness,
which requires more power to move the vessel through
water. Silicone-based coatings provide a very smooth and
low-friction surface with a higher resilience towards fouling
organisms sticking to the hull. TORM has increased the
number of vessels with this coating that has now been
applied to more than 50 vessels.
Environment
Environmental efforts
TORM believes in and supports the UN’s SDG 13 Climate Action as marine pollution
constitutes the largest environmental risk in the shipping industry.
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Before painting the hull, grit blasting the hull is very
important. This results in a reduction of roughness and a
much smoother surface, and thereby less water resistance.
This way both CO
2
and fuel consumption are reduced. For
example, the impact on our largest LR2 vessels is that we
can save up to 120 tons of CO
2
emissions per vessel every
single year.
120 tons
CO
2
emissions saved on an LR2 vessel when
grit-blasted prior to hull painting
Industry collaboration
To harness momentum and synergies, TORM continued to
be an active contributor in several industry collaborations.
This involves active participation in Danish Shipping
through which TORM aims to impact the decision-making in
IMO in relation to ongoing discussions on the
implementation of CO
2
-related regulations. This work also
continued in 2022 with the innovation partnership,
ShippingLab (a non-profit platform for maritime research),
for development and innovation with 30 partners from
across the maritime industry. TORM was actively involved in
two projects that were concluded in 2022.
Again in 2022, TORM supported and engaged in 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. We
continued our participation in the Getting to Zero Coalition,
a collaboration between the Global Maritime Forum and the
World Economic Forum.
People competencies
People have a considerable influence on how effective our
sustainability technology works. Therefore, equipping them
with the training and competencies to optimize relevant
technology is as important as the technology itself. To
achieve this, we train our crew to have the right skills.
To ensure key crews on board have the latest vision for
energy and fuel efficiency technologies, the annual junior
and senior officer seminars dedicate time to share, discuss,
and challenge upcoming technologies. This gives an
understanding of the processes and capabilities, but it also
provides insight into what the shore-based technical team
is working on.
To build competences for the decarbonization journey, we
also focus on the next round of officers. Prior to an officer
being promoted to Captain or Chief Engineer, the officer
attends a promotion assessment training which involves
two weeks in a TORM office where the officers get fully
acquainted with all departments with a specific focus on
the technical decarbonization work, tools, goals, and
upcoming innovations. Addressing behavior and the impact
on our performance is a key focus area.
In addition, our shore-based technical team provides an
approachable point of contact to virtually troubleshoot
problems by using their expert knowledge. Our seafarers
thereby have access to easy and timely assistance and can
quickly solve matters and secure optimal vessel
performance.
ME Production acquisition
In 2022, TORM purchased an ownership stake of 75% in
ME Production (MEP), a Danish industrial company
specializing in developing and producing advanced and
green marine equipment. The new partnership is built on a
year-long collaboration between TORM and MEP with the
two companies working closely together, especially in
relation to TORM’s substantial exhaust gas cleaning
(scrubber) commitment.
This partnership supports TORM’s environmental goals
both now and going forward. With environmental innovation
we aim to be able to be in the forefront when it comes to
assets that will support us in minimizing the harm of the
environment and to the benefit of TORM in the longer term.
Environment
Environmental efforts
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Combining the experience and engineering resources at
MEP with the operational excellence at TORM will help
TORM in achieving its environmental targets by creating
energy optimization devices. One such technology is heat
pumps that use the vessels’ own waste heat to heat other
machinery, water, and other vessel parts.
In 2022, this technology has been tested on one vessel
with positive results. Benefiting from the pilot project, clear
improvements are visible to enhance this even further.
We expect this to be tested further with the potential roll
out across the fleet where more benefits can be reaped.
MEP technology and expertise in building such innovations
will be critical.
Decarbonization is a journey
Over the years, TORM has outperformed its set emissions
targets. Therefore, TORM is pushing fast forward on our
environmental efforts and will reduce our carbon intensity
by 40% 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.
Our people
Committing to these challenging targets requires support
from several aspects. One aspect is our people. Therefore,
investing in our people by enhancing their knowledge of new
and upcoming technologies is important for this long-term
journey to extract the value of new energy and fuel
solutions. TORM will thus strengthen and enhance our
superior operating platform to harness synergies allowing
us to optimize our vessels’ energy and fuel performance.
New fuels
Another aspect will be industry research on new fuel
sources for vessels.
Read more details about TORM’s investments to support
the goal of zero emissions under our strategic choice of
Greener Future.
Environment
Environmental efforts
Decarbonizing shipping
Long-term decarbonization on page 17
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Innovation and technology will be key
TORM maintains its focus on the optimization and
efficiency of our fleet by applying a broad set of operational
and technical improvements. These efforts include smaller
investments with short payback time and also larger
investments with an expected larger impact.
Variable frequency drives
An example of innovation is the use of variable frequency
drives (VFD) for cooling pumps on board vessels which can
reduce energy consumption. There are always cooling
systems on board vessels, and these are designed for the
extreme conditions that the vessels may experience.
However, as vessels do not constantly operate in these
extreme conditions, these systems can be managed more
efficiently. The VFDs control the cooling systems’ capacity
according to its situation and thus run the systems more
efficiently. For example, the VFDs can be used to optimize
the air conditioning on board which saves power and also
creates a more stable and comfortable temperature for the
crew on board. The VFD program is 95% completed across
our fleet.
Air lubrication system
During autumn 2022, we installed the first air lubrication
system on one of our LR2 vessels.
Air lubrication is a
system which blows out microscopic air bubbles at the
bottom of the vessel, creating a layer of air between the
vessel and the water. Air lubrication is expected to enable a
reduction in friction and in CO
2
emissions of approximately
5% per vessel. If the tests confirm the desired outcome, we
expect this technology to be rolled out on several vessels.
Route optimization
An accurate weather forecast is one of the most important
tools for a sailor. Optimizing a vessels’ voyage is essential
to any shipping company. And we always strive to do even
better - for our business and for the environment.
Therefore, TORM has further developed an in-house
algorithm model designed to optimize the voyages. This
continuously provides our captains and their crew with
updated routes, considering factors such as wind, waves,
freight markets, and bunker prices. This helps to ensure
that every journey is as safe and efficient as possible, while
keeping emissions as low as possible.
Environment
Environmental efforts
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Audits
TORM resumed physical audits on board in 2022, providing
an increased personal contact and engagement with our
crew. This enabled the timely takeover of our newly
acquired vessels. Because of the effectiveness of the One
TORM platform, audits, inspections, flag changes, etc.
have been completed successfully during the time of the
COVID-19 pandemic. This includes taking over vessels and
delivering vessels to new owners.
SIRE inspections
Inspections ascertain the health of our vessels, and TORM
uses SIRE inspections overseen by the OCIMF (Oil
Companies International Marine Forum). In 2022, OCIMF
initiated a revamped SIRE 2.0 inspection and assessment
regime for the tanker industry. In TORM, this has been
prioritized and will be in place prior during the first half of
2023.
Lost Time Accident Frequency
Lost Time Accident Frequency (LTAF) is a measure of
serious work-related personal injuries which result in more
than one day off work. LTAF is measured per million hours
of work. TORM’s LTAF measure in 2022 was 0.42 (2021:
0.37).
Once the pandemic subsided, we increased the number of
physical visits on board. TORM also conducted additional
activities such as physical seminars, virtual town halls, and
information-sharing sessions and deployed thorough review
and analysis of data such as “near-miss” for better insight.
A high number of near-miss reports indicate that the
organization proactively monitors and responds to risks.
Safety
Our safety policy is rooted in the regulations by the Danish
Maritime Occupational Health Service. In 2022, TORM
continued with its ‘One TORM Safety Culture – driving
resilience’ program which defines standards and
expectations for excellent performance. TORM also
continued the “Safety Delta” tool, continuous crew
evaluation, dialogue, reflection, and development. All
vessels have completed three Safety Delta cycles in 2022.
In 2022, we could resume physical onsite officer seminars
in Copenhagen and Mumbai, and another seminar was held
in the Philippines in January 2023. Shore and sea-based
colleagues came together to discuss and align on our
business strategy. A total of 160 senior officers attended
the conferences.
Officer safety training
TORM continued to conduct safety leadership courses for
senior officers on board. 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.
TORM increased the number of junior officer safety
trainings in 2022 which covers the mindsets,
competencies, and behaviors needed for safe operations.
This course serves as a supplement to the safety leadership
course for senior officers as junior officers should be
prepared for their future ambassador roles.
TORM took over eight Team Tanker vessels in 2021 and by
early 2022, all the crews had participated in the TORM
Safety Delta self-assessment program, and all senior
officers had been involved in the senior officer safety
training and officer seminars.
Social
Health and safety
The majority of our workforce are seafarers, and therefore healthy and safe conditions
on board our vessels are crucial.
Lost Time Accident Frequency (LTAF)
SOURCE: TORM
0.96
0.65
0.67
0.47
0.42
0.65
0.37
0.42
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2015
2016
2017
2018
2019
2020
2021
2022
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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 2022, TORM experienced three minor incidents. 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 main area of concern remains
the Gulf of Guinea. This is despite the fact that reported
incidents have dramatically decreased in comparison to
previous years. However, the root cause of piracy in the
region has not been eradicated, so piracy remains a threat.
TORM has adapted its procedures to the changing threat
levels across all areas called at by TORM vessels.
The security situation in certain areas is affected by
changes in geopolitical situations. TORM will continue
monitoring the situation globally and implement adequate
precautionary measures for risks identified.
.
Social
Security
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In 2022, TORM increased awareness of its zero-tolerance
towards harassment. Although not accepted, we must
ensure our people have the right tools to handle such
situations. An online training course, including reflection,
was rolled out to all seafarers and shore-based colleagues
to explain the different types of harassment, what to do if it
occurs, and what tools are available to support them.
At sea
Improving workplace and well-being
To nurture the close relationship between sea and shore-
based colleagues, we re-established the physical induction
of new seafarers and physical training in 2022 – taking the
best of both online and offline worlds.
The “Well at TORM” program, focuses on the well-being of
our seafarers by increasing engagement, mental resilience,
physical health, and embracing socialization among the
crew, has proven to be successful. More than half of our
seafarers are actively participating in this program.
The mealtime for our seafarers is not just important
sustenance and nutrition, it is also a time to socialize and
nurture the unique tightknit group on board. Therefore, in
2022, we changed the main global catering supplier to
ensure this time is even more enjoyable and healthy.
In 2022, TORM implemented a new Marine HR
management system to bring our seafarers and shore-
based organization closer in daily operations. This platform
provides more transparency of status, current and
upcoming contract planning, and wage details. The system
also facilitates a smoother travel expense process.
In 2022, we have worked to improve our crew engagement
survey. This survey allows us to gauge the temperature of
our seafarers to understand what support they need. The
results highlighted that our seafarers have a very positive
relationship with leadership and teams and have high job
satisfaction. Senior management is involved in evaluating
the results to gain attention and focus for actions. The
survey covers questions about their connection with the
Company, team and manager, their personal well-being,
and job satisfaction.
At the end of 2022, TORM employed 3,218 seafarers and
increased the retention rate for senior officers to 95%.
Thus, TORM demonstrated compliance with customer
requirements in ensuring the right level of experience
among senior officers per vessel across the fleet (the so-
called officer matrix compliance).
Ashore
In 2022, we continued our bi-annual real time data
engagement survey. 98% of all shore-based employees
responded to the November survey which resulted in an
engagement score of 8.4 out of ten. The overall positive
outcome of the survey was maintained from previous years
and positions TORM in the top quartile of companies across
all industries using the same platform
.
Our ambition is to
improve and nurture the culture needed to fulfill our
ambitious strategy and develop initiatives which matter to
our employees.
Employee health and well-being
During 2022, we formalized the remote work setup as a
post-COVID work practice. This derives from the 2021
employee engagement survey and the practices’ success
during the pandemic. We expect this opportunity to provide
more flexibility for a global team and their work/life balance.
We are consistently focusing on employee health and well-
being – physical and mental. Therefore, the stress
awareness training initiated in 2021 was rolled out across
all offices in 2022. Through in-depth knowledge, a common
language, and targeted tools, all employees are equipped
with the tools required to spot and mitigate stress.
Social
People
People and culture play an essential role in TORM, and it is important for TORM to
develop employees within their potential, which positively influences our employee
retention, talent acquisition, and brand value. The pandemic challenged the way we
work, but we have now adjusted to a post-pandemic world, and we use our learnings to
improve the way we work.
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Diversity
In TORM, it is our policy to work towards a diverse
workforce irrespective of gender, religion, sexuality,
nationality, ethnicity, or disabilities. A diverse workforce
provides a balance of voices and thought that inspires
innovation and creativity.
In 2022, 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.
Also in 2022, we piloted a system with our Danish female
seafarers to enhance their network by making use of
experienced women seafarers in other parts of our
organization and additional mentoring for the unique
lifestyle at sea. Learnings from this pilot project will build a
tool that can be used to support diversity.
Gender diversity
We actively monitor the representation of females in the
workforce and in leadership. At the end of 2022, the
proportion of female full-time employees in the shore-
based workforce was 35%, while women in leadership
positions constituted 21%. TORM has a target for 2030 of
35% women in leadership positions. At the end of 2022,
the Board of Directors consisted of four male members and
one female member elected at the Annual General Meeting.
Since 2020, the Board of Directors has fulfilled its target of
20% female Board members (1 out of 5).
This section also constitutes the Danish statutory reporting
on gender distribution in management.
Social
People
Diversity of permanent employees
Male
Female
Non-executive Directors of the Company
3
1
Executive Directors of the Company
1
Senior executives
3
-
Managers not listed above (managers with one or more direct reports)
135
21
Other permanent employees of the Group
174
108
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Geographical diversity of seafarers in %
TOTAL NUMBER OF SEAFARERS AT THE END OF 2022: 3,218
In 2022, we continued our strategy to employ seafarers
with different nationalities as we believe that diversity on
board is an important foundation for high performance,
while keeping focus on cooperation and a safe working
environment.
Europe 9.5%
India
subcontinent
40.6%
Southeast Asia
49.7%
Other 0.2%
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TORM is a long-standing supporter of
maritime education in India and in the
Philippines, and it is therefore natural for
TORM to support SDG 4 Quality
Education.
TORM believes that education is one of the best ways to
nurture future competences and build a strong pipeline for
the industry. Additionally, by contributing to society, TORM
builds a sense of trust and pride in our colleagues, resulting
in higher retention and positive brand recognition.
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 2022-2023, we supported:
•
38 scholars studying in various colleges and universities
•
24 apprentices (one female and 23 male) within
maritime courses
In addition to these students currently supported during
2022, 12 scholars graduated in 2022 with various degrees
in engineering, education, psychology, IT, multimedia arts,
and masters in business administration.
The TPEF also intensively invests in the Scholars
Development Program which focuses on self-awareness
and academic support, how to be an environmental warrior
outside the classroom, communication and public speaking,
gender sensitivity and equality, facilitation skills, and a
mini-retreat and reflection session with discussion focused
on developing emotional intelligence.
Another wing of the TPEF, the Social Development
Initiatives, works towards providing relief to better
surroundings during troubled times. In 2022, a provision of
130 sets of solar lamps and four sets of solar-powered
charging stations was given to an elementary school in the
island of Jagoliao, Getafe, Bohol. The school was ravaged
by super typhoon “Rai” in December 2021 causing a power
outage on the island. A total of 130 students, seven
teachers, and the community benefited from the project.
Education support in India
TORM India funds specific projects under selective social
causes, and since 2018 TORM India has worked closely
with three organizations to achieve the purpose:
•
SAMPARC – an organization taking care of
disadvantaged children across India
•
BAIF – an organization working towards upgrading and
providing rural infrastructure
•
Akshayshakti – an organization looking to improve the
lives of students, welfare, and abandoned children
In 2022, TORM supported the construction and furnishing
of one of the Zhilla parishad schools, state-run secondary
schools, in India.
TORM sponsors 33 students at SAMPARC and assists
them with their basic needs, including school equipment
and certain living expenses. With a focus on meeting the
hygiene needs of children at Bhaje, TORM sponsored a
toilet block construction in 2022. In keeping with the
annual tradition, a team from TORM India visited SAMPARC
Bhaje to celebrate Deepawali and distribute presents to all
the students.
TORM believes that better infrastructural support and more
extracurricular activities nurture a holistic education for
students. In April 2022, TORM sponsored the construction
of a new school at Nalasopara, Mumbai. To further support
education infrastructure, TORM has committed to adding
an additional floor to the school building.
Additionally, TORM has committed to constructing toilet
blocks and paver blocks in Dahanu, Maharashtra to assist
pre-nursery schools. Continuing our efforts to have a
positive impact on society, TORM is currently evaluating
several more projects in and around Mumbai, specifically
aimed at helping young girls.
Social
Community
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Legal compliance is essential to TORM and to 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 our industry.
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 labour. Legal compliance is often closely linked to other
areas included in the materiality matrix and is also
separately included.
The Governance section describes TORM’s framework and
governance model, designed to ensure TORM’s continued
ability to operate successfully.
Governance section on pages 79-123
Data Ethics Policy
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 ethics
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 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.
To ensure that TORM and our employees uphold these high
standards, clear instructions are available for how
employees should handle personal data. To ensure that
employees understand and are kept updated on TORM’s
obligations such as sanctions, they are annually asked to
confirm that they have read and will comply with the
Business Principles and associated policies.
Governance
Legal compliance
For TORM, good corporate governance represents the framework and guideline for
business management. The aim is to ensure that TORM is managed in a proper and an
orderly manner consistent with applicable legislation and codes. This complements our
commercial purpose to ensure we meet the high expectations of our investors,
customers, and other stakeholders.
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Business ethics
Transparency and accountability are key to TORM’s way of
doing business, and these values play a central role in our
corporate social responsibility approach. Our approach to
responsible behavior is rooted in our TORM Business
Principles which have the following five objectives:
•
Maintaining a good and safe workplace
•
Reducing environmental impact
•
Respecting people
•
Doing business responsibly
•
Ensuring transparency
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 third being compulsory e-
learning courses. TORM further complies with SOX
regulations according to which employees must complete
training and confirm adherence to the policies and
guidelines, ensuring 100% compliance. This training was
enhanced again in 2022 by MACN to ensure its relevance.
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
2022, TORM actively engaged at a MACN working forum
with 200+ members to continue sharing experiences, best
practices, and solutions to the current issues facing
companies.
In addition to its efforts within MACN, TORM continued to
strengthen its companywide anti-corruption policies in
2022 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. With
the reduced risk of COVID-19 in 2022, we had the
enhanced access to share and stress the importance of this
at the physical officer seminars held at key TORM offices.
The training targets new hires as well as existing employees
and must be repeated annually. TORM will continue these
efforts in 2023.
Since 2006, TORM’s Board of Directors has provided a
whistleblower facility with an independent lawyer as part of
the internal control system. In 2022, the whistleblower
facility received three notifications, which were
investigated and closed without any critique or
requirements for new measures.
Governance
Human rights and business ethics
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Human rights
With the TORM Leadership Philosophy, TORM’s Business
Principles, and the 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.
2009
TORM signed the UN Global Compact
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 is 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. To enforce and promote the
importance of human rights on how TORM performs
business at large projects such as newbuildings or yard
stays, TORM has a supervision team consisting of 4-6
TORM employees or externals representing TORM to
ensure work is carried out in line with TORM standards.
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. Zero claims or offenses have
been reported regarding human rights in 2022.
Governance
Human rights and business ethics
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Our supply chain is important to achieve our goals, and we
must ensure that our quality standards and responsibility
efforts are extended and improved throughout it. 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. This 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 sustainability. TORM also applies
its Business Principles when dealing with subcontractors
and suppliers. TORM's Business Principles emphasize 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 14001:2015, and in
accordance with the requirements of our certifications, we
constructed a supplier assessment questionnaire and
supporting process in 2021. In 2022, this assessment
process was rolled out, and initially it focuses on the
suppliers with the highest spend. This is to allocate
resources to the areas with the largest potential risks and
impacts.
The main purpose of the first supplier assessment is to
establish a baseline and understand the status of our
suppliers to facilitate a dialogue with them about how we
together can extend and improve the quality of
sustainability efforts. In some situations, there may be
areas where we will work with a particular supplier to align
with TORM requirements.
The questionnaire consists of a range of questions related
to their business within the following main categories:
•
Company information
•
Quality management
•
Performance
•
Training
•
Human rights and labor
•
Environment, health, and safety
•
Business ethics
•
Complain procedure
In 2022, TORM has individually followed up on each
questionnaire response to ensure their completeness.
TORM will, when possible, conduct site visits to audit the
categories in the questionnaire or conduct a remote audit.
This document can also be used as a guide for all TORM
suppliers to self-assess their compatibility with TORM
standards.
This is a live document and is constantly incorporating
improvements and adapting to the latest regulations. The
questionnaire and process will be further developed in
2023.
Anti-corruption and anti-bribery on page 40
Governance
Responsible procurement
Responsible behavior throughout the organization is central to TORM’s business,
management practices, and corporate culture.
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Topic
Accounting metric
Unit
2022
2021
Code
Greenhouse
Gas
Gross global Scope 1 emissions
Metric tons (t) CO₂e
1,363,076
1,081,027
TR-MT-110a.1
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
See pages
15-17, 19,
22-27, 30-33
See pages 22-
27, 34, 40 in
AR 21
TR-MT-110a.2
1) Total energy consumed
Gigajoules (GJ)
19,265
17,672
TR-MT-110a.3
2) Percentage heavy fuel oil
Percentage (%)
53
50
TR-MT-110a.3
3) Percentage renewable
Percentage (%)
0
0
TR-MT-110a.3
Average Energy Efficiency Design Index (EEDI) for new vessels
Grams of CO₂ per ton-
nautical mile
3
3
TR-MT-110a.4
Air quality
Air emissions of the following pollutants:
1) NO
ₓ
(excluding N₂O)
Metric tons (t)
n/a¹
⁾
n/a¹
⁾
TR-MT-120a.1
2) SO
ₓ
Metric tons (t)
1,785
1,533
TR-MT-120a.1
3) Particulate matter (PM10)
Metric tons (t)
n/a¹
⁾
n/a¹
⁾
TR-MT-120a.1
Ecological
impacts
Shipping duration in marine protected areas or areas of protected conservation status
Number of travel days
n/a¹
⁾
n/a¹
⁾
TR-MT-160a.1
Percentage of fleet implementing ballast water: 1) exchange
Percentage (%)
12
27
TR-MT-160a.2
Percentage of fleet implementing ballast water: 2) treatment
Percentage (%)
88
73
TR-MT-160a.2
Number of spills and releases to the environment 2)
Number
0
0
TR-MT-160a.3
Aggregate volume of spills and releases to the environment 3)
Cubic meters (m³)
0
0
TR-MT-160a.3
The emission figures in this report represent TORM’s findings to the best of our knowledge given today’s methodology used by TORM and aligned with current IMO methodology. TORM is continuously
committed to improving the methodology and advancing transparency in reporting as well as to following best industry practices on emissions reporting. In 2021, we allocated the emissions related to
T/C out to gross global Scope 1 emissions as we did not report on Scope 3. In 2022, we report on Scope 3 and have reallocated the part included in Scope 1 in 2021 to Scope 3 in 2021. SO
ₓ
emissions
for 2021 have been adjusted slightly due to updates to the methodology.
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 the 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.
SASB marine transportation
industry standard
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Topic
Accounting metric
Unit
2022
2021
Code
Employee
Health &
Safety
Lost Time Incident Rate (LTIR)¹
⁾
Rate
0.42
0.37
TR-MT-320a.1
Business
ethics
Number of calls at ports in countries that have the 20 lowest rankings in Transparency
International's Corruption Perception Index
Number
18
13
TR-MT-510a.1
Total amount of monetary losses as a result of legal proceedings associated with bribery
or corruption
USD
0
0
TR-MT-510a.2
Accident &
Safety
Management
Number of marine casualties²
⁾
Number
1
1
TR-MT-540a.1
Percentage classified as very serious²
⁾
Percentage (%)
0
0
TR-MT-540a.1
Number of Conditions of Class or Recommendations
Number
3
7
TR-MT-540a.2
Number of port state control: 1) deficiencies
Ratio³
0.71
0.55
TR-MT-540a.3
Number of port state control: 2) detentions
Ratio³
0.01
0.00
TR-MT-540a.3
Activity
metrics
Number of shipboard employees
Number
3,218
3,420
TR-MT-000.A
Total distance travelled by vessels
Nautical miles (nm)
4,568,294
4,398,088
TR-MT-000.B
Operating days
Days
29,610
28,717
TR-MT-000.C
Deadweight tonnage
Thousand deadweight tons
5,034
4,746
TR-MT-000.D
Number of vessels in total shipping fleet
Number
78
84
TR-MT-000.E
Number of vessel port calls
Number
2,428
2,514
TR-MT-000.F
Twenty-foot equivalent unit (TEU) capacity
TEU
n/a
n/a
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 the 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 the 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.
SASB marine transportation
industry standard
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Indicator
Unit
2022
2021
2020
Greenhouse gas (GHG) emissions
Direct GHG emissions (Scope 1)
Tons CO₂e
1,363,076
1,081,027
1,257,468
Indirect GHG emissions – owned (Scope 2)
Tons CO₂e
448
486
434
Indirect GHG emissions – not owned (Scope 3)
Tons CO₂e
607,961
1,238,479
Not calculated
Total GHG emissions ¹
⁾
Tons CO₂e
1,971,485
2,319,991
1,257,902
Energy consumption
Heavy fuel
Tons
252,012
216,610
170,907
Low-sulfur heavy fuel
Tons
136,329
126,371
174,836
Marine gas oil
Tons
84,086
88,978
80,865
Office consumption
Electricity consumption
kWh
659,476
514,461
445,093
Water consumption
m3
4,062
3,875
3,268
Greenhouse gas (GHG) emissions - Fleet
CO₂ emissions, AER – total fleet
g/dwtxnm
5.15
5.05
5.34
CO₂ emissions, AER – LR2
g/dwtxnm
3.68
3.72
4.10
CO₂ emissions, AER – LR1
g/dwtxnm
4.73
4.33
4.66
CO₂ emissions, AER – MR
g/dwtxnm
6.09
5.83
6.02
CO₂ emissions, AER – Handysize
g/dwtxnm
8.37
7.23
7.52
CO₂ emissions, EEOI – total fleet
g/cargoxnm
10.88
10.64
11.17
CO₂ emissions, EEOI – LR2
g/cargoxnm
8.13
8.67
8.07
CO₂ emissions, EEOI – LR1
g/cargoxnm
9.38
8.95
9.43
CO₂ emissions, EEOI – MR
g/cargoxnm
12.69
11.80
13.06
CO₂ emissions, EEOI – Handysize
g/cargoxnm
21.29
15.24
15.07
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 best industry practices on emissions reporting. In 2021, we allocated the emissions related to
T/C out to direct GHG emissions (Scope 1) as we did not report on Scope 3. In 2022, we report on Scope 3 and have reallocated the part included in Scope 1 in 2021 to Scope 3 in 2021.
¹
⁾
The total CO₂ emissions are significantly lower in 2020 compared to 2021 and 2022 because Scope 3 emissions have not been calculated for 2020.
Environmental indicators
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Indicator
Unit
2022
2021
2020
Further information
Our employees
Total number of seafarers
Headcount
3,218
3,420
3,023
Annual Report 2022
Total number of employees (shore-based)
Headcount
355
348
345
Annual Report 2022
Diversity – shore-based employees
Total women in leadership
%
21
22
21
Annual Report 2022
Gender with lowest representation (women)
%
35
37
36
Annual Report 2022
Diversity – seafarers
Total women in leadership
%
2
1
1
Annual Report 2022
Gender with lowest representation (women)
%
1
1
1
Annual Report 2022
Health & Safety
Fatalities
Headcount
0
0
0
Annual Report 2022
Lost Time Accident Frequency (LTAF)
Per million exposure hours
0.42
0.37
0.65
Annual Report 2022
Ethics
Sexual Harassment and/or Non-discrimination Policy
●
●
●
Business Principles
Equal and fair opportunity employer
●
●
●
Business Principles
Child and/or Forced Labor Policy
●
●
●
Business Principles
Child and/or Forced Labor Policy covers suppliers and vendors
●
●
●
Business Principles
Human Rights Policy
●
●
●
Business Principles
Human Rights Policy covers suppliers and vendors
●
●
●
Business Principles
Modern Slavery Policy
●
●
●
UK Modern Slavery Act
UN Global Compact Signatory
●
●
●
Responsibility Report
Recycling and Scrapping Policy
●
●
●
Yes
⚫
/ No
⚫
Social indicators
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Indicator
Unit
2022
2021
2020
Further information
Board of Directors
Members
Number
5
5
5
Annual Report 2022
Gender with lowest representation (women)
%
20
20
20
Annual Report 2022
Total nationalities
Number
5
5
5
Annual Report 2022
Independence
%
60
60
60
Annual Report 2022
Senior Management
Members
Number
4
4
4
Annual Report 2022
Gender with lowest representation (women)
%
0
0
0
Annual Report 2022
Total nationalities
Number
1
1
1
Annual Report 2022
Executive Management has their bonus linked to ESG performance
●
●
●
Annual Report 2022
Whistleblower function
Number of whistleblower notifications received through external system
3
1
3
Annual Report 2022
Number of whistleblower cases reviewed
3
1
3
Annual Report 2022
Ethics
Anti-corruption Policy
●
●
●
Business Principles
Anti-bribery Policy
●
●
●
Business Principles
Whistleblower Policy
●
●
●
Annual Report 2022
Articles of Association
●
●
●
Data Ethics Policy
●
●
●
Annual Report 2022
Code of Conduct Policy (Business Principles)
●
●
●
Business Principles
Yes
⚫
/ No
⚫
Governance indicators
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CO
2
emissions (equivalent ton)
The greenhouse gas emissions (GHG) reporting covers
Scope 1 (direct emissions from own production), Scope 2
(indirect emissions from the generation of purchased
energy) and Scope 3 (emissions indirectly affected but not
owned or controlled by TORM) of the Greenhouse Gas
Protocol.
TORM uses the operational control principle as our
organizational boundary when calculating our Scope 1,
Scope 2, and Scope 3 emissions. This has the following
implications:
•
Upstream emissions from fuel usage in Scope 1 and
Scope 2 are accounted for in Scope 3
•
Investments with operational control are accounted for
in Scope 1. The Marine Exhaust segment is not included
in 2022 but will be included from 2023
•
In line with our organizational boundary, we consider
vessels that are time-chartered out (T/C-out) for less
than three months as well as vessels which are time-
chartered in (T/C-in) for more than three months as
part of Scope 1
•
In line with our organizational boundary, we consider
vessels that are time-chartered out for more than three
months as well as vessels which are time-chartered in
for less than three months as part of Scope 3
Scope 1
CO
2
emissions have been calculated based on the
consumption of heavy fuel oil and marine gas oil according
to 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. The vast majority of TORM’s Scope
1 emissions are linked to vessel operations with our fleet.
Due to the very limited share, emissions from company cars
have not been included.
Scope 2
CO
2
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.
Scope 3
CO
2
emissions generated from activities not owned or
controlled by TORM, but that we indirectly affect in our
value chain. Scope 3 emissions are calculated using a
mixed approach where spent-based data as well as
supplier-specific and/or activity data are used, and where
the relevant emission factors are applied. We are using a
variety of data sources for these emission factors where
the key sources are DEFRA, WIOD, GLEC, and Ecoinvent.
AER/Carbon intensity (g/dwtxnm)
AER is a measure of efficiency using the total fuel
consumption, distance travelled, and deadweight. The
measure is defined as grams CO
2
emissions per
deadweight-ton-nautical mile. AER is affected by vessel
size, speed, duration of waiting time, and port stays.
EEOI (g/cargoxnm)
EEOI is a measure of efficiency using the total fuel
consumption, distance travelled, and cargo intake. The
measure is defined as grams CO
2
emissions per cargo-ton-
nautical mile. EEOI is affected by vessel size, speed, cargo
availability, duration of ballast voyages, waiting time, and
port stays.
SO
X
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.
Office electricity consumption (kWh)
Electricity consumed indirectly in operating activities at
TORM offices excluding the London and the Houston
offices.
Office water consumption (m
3
)
Water consumed indirectly in operating activities at the
TORM offices excluding the offices in London, Houston,
Mumbai, and New Delhi.
Definitions
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Spills
The definition of spills is based on ITOPF. We report the
total volume of spills as the estimated aggregate volume of
all spills. We do not net the amount of such material that
was subsequently recovered, evaporated, or otherwise lost
as required by SASB standard TR-MT-160a.3 -2.1.
Deadweight tonnage (based on SOLAS II-1A-Reg 2-
20)
Deadweight tonnage is the difference in tons 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 requirement that specific measures, repairs, request
for survey, etc. are to be carried out within a specified time
period in order to retain class.
LTAF or LTIF (based on OCIMF Marine Injury Reporting
Guidelines Section 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 Section 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 and that has
occurred directly in connection with the operation of 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
•
material damage to 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
•
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
•
damage that requires major repair or replacement of a
major component or components
•
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, 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
(VPs, GMs, 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.
Definitions
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TORM ANNUAL REPORT 2022
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50
TORM ANNUAL REPORT 2022
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51
The shift in trade patterns following Russia’s invasion of
Ukraine led the product tanker benchmarks to reach multi-
year highs, despite looming risks from the energy crisis in
Europe and worsening of the global economic situation.
Further support came from strong import demand,
especially in Latin America and also regions where refineries
had been closed recently, not only adding to ton-mile
demand but also contributing to increased ballast
distances.
Sanctions on Russia
Russia’s invasion of Ukraine on 24 February 2022 triggered
several oil market players to self-sanction Russian oil,
which was followed by more formal sanction packages
introduced by the US, the UK, and the EU. Given the high
importance of Russia as a source of the EU’s crude oil and
diesel imports, it was especially the EU ban on Russian oil
which played a major role, scheduled to come into full
effect on 05 December 2022 for the crude oil and on 05
February 2023 for refined oil products. The tightness in the
diesel market pushed refinery margins to new highs,
incentivizing refineries worldwide to maximize diesel output.
The deadline for the EU sanctions against Russian oil
products on 05 February 2023 has been one of the main
drivers behind strong freight rates in 2022. The EU
countries started to look for diesel from sources further
afield, such as the Middle East, India, the US, and even
China. At the same time, Russia also needed to redirect
some of the lost volume towards Turkey, the Middle East,
and North Africa. By the end of 2022, i.e. five weeks before
the EU ban on Russian oil products came into full effect,
Europe still imported 1 mb/d of refined oil products from
Russia. That was down from the peak of 1.3 mb/d in
February 2022 but on par with the 2021 average trade
volumes. The EU countries stopped importing Russian oil
products once the ban on Russia took effect on 05
February 2023. Nevertheless, in anticipation of trade
disruptions due to the oil embargo, European countries
increased their imports from the Middle East, Asia, and the
Atlantic basin by 25% in 2022, leading to a strong freight
rate environment which was not weakened even with lost
long-haul naphtha flows from Russia to OECD Asia.
Market review
The Russian invasion of Ukraine in 2022 and the consequent EU/G7 sanctions against
the Russian oil sector are set to reshape the global crude and oil product trade flows.
The subsequent lengthening of trade distances pushed the product tanker market into
freight rate levels not seen for years.
Review and risk
EU/UK clean petroleum product imports by source
SOURCE: KPLER
Tanker freight rates in 2022
SOURCE: CLARKSONS
500
700
900
1,100
1,300
1,500
1,700
1,900
2021
avg
Jan
´22
Feb
´22
Mar
´22
Apr
´22
May
´22
Jun
´22
Jul
´22
Aug
´22
Sep
´22
Oct
´22
Nov
´22
Dec
´22
K B/D
Russia
Other
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Jan
Feb Mar Apr
May Jun
Jul
Aug Sep Oct
Nov Dec
LR2 Ras Tanura - Chiba
LR1 Ras Tanura - Chiba
MR Average
AVERAGE TCE IN USD/DAY
Vessel delays in Latin America
Recovering oil demand in Latin America led to increased
fuel inflows to the region, exceeding the discharging
capacities. This led to temporary logistical floating storage
tying up vessels, especially during the second and third
quarters of the year.
Changes in the refinery landscape
In addition to the geopolitical tensions in Europe and the
consequent shifts in trade flows, changes in the refinery
landscape contributed to the strong freight rate
environment in 2022. The closure of two out of four
refineries in Australia at the end of 2021 and the sole
refinery in New Zealand in April 2022 led to a 22% increase
in the region’s fuel imports in 2022, not only adding to the
ton-mile demand but also contributing with longer ballast
distances. At the same time, permanent and temporary
refinery closures in South Africa increased the country’s
fuel imports by more than 20%.
China product export quotas
China’s product exports remained at low levels throughout
the year until new and high product export quotas were
released in the last quarter of 2022. This brought the level
of China’s refined product exports to an all-time high level
in the fourth quarter of 2022. Although most of the
Chinese exports remained within Asia, flows to Europe
reached record high levels, facilitating Europe’s shift away
from Russian diesel and contributing with a strong ton-mile
effect.
Active LR2 swing tonnage
While the product tanker market experienced elevated
rates across the vessel classes, the crude tanker market
saw more diverting trends. The market for the largest crude
tankers, the VLCC segment, remained weak during the first
three quarters of 2022. It was negatively influenced by
OPEC under-performance relative to its production targets
and started to pick up only at the end of the third quarter of
2022 in tandem with China’s increasing appetite for
imported crude oil. On the other hand, the Aframax and the
Suezmax crude tanker segments benefitted from Russia’s
attempts to redirect its crude exports away from close-by
Europe towards India and China. In addition, the release of
the US strategic crude stockpiles (SPR) mostly supported
the Suezmax tanker segment. The volatility between the
relative strength of the clean LR2 and the dirty Aframax
segments triggered a number of LR2 vessels to move into
dirty voyages immediately after the Russian invasion of
Ukraine, followed by a wave of LR2 clean-ups in mid-year
2022, and again a wave of moves into dirty voyages
towards the end of 2022. At the end of 2022, the LR2
fleet trading dirty had increased by a net of four vessels
compared to the end of 2021.
Market review
TORM ANNUAL REPORT 2022
REVIEW AND RISK
52
Australia/New Zealand/South Africa clean petroleum
product imports
SOURCE: KPLER
China clean petroleum product exports
SOURCE: KPLER
400
600
800
1,000
1,200
2019
2020
2021
2022
K B/D
0
200
400
600
800
1,000
1,200
1,400
1,600
2019
2020
2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
K B/D
TORM ANNUAL REPORT 2022
REVIEW AND RISK
53
In this section, we lay out TORM’s expectations for the
product tanker market in the next three years. The
development of the product tanker market is the most
important driver impacting
TORM’s financial performance for which an outlook
is further explained on page 56
Tonnage demand
Despite the weaker macroeconomic environment, growth in
oil demand in 2023 will be supported by China’s reopening
and the recovering international travel. The key demand
driver on the product tanker market, however, was and will
be the full implementation of the EU ban on Russian oil
products on 05 February 2023 and the corresponding need
to recalibrate the whole oil product trade ecosystem
towards longer trade distances. Even though some of this
effect already started in 2022 and in early 2023, the full
effect is expected to be seen once both the EU/UK fully
replace the volumes previously imported from Russia with
non-Russian sources, and Russia finds new buyers for their
oil products, previously exported to the EU/UK. The impact
of this trade recalibration will stay intact as long as the oil
embargo remains in place. Given the proximity of Europe
and Russia, the EU/UK will need to source more diesel from
regions further afield, while Russia will need to find new
markets for its diesel in regions further away. It remains to
be seen whether Russian diesel and other refined products
will be shipped to third countries under the G7 price cap
regime (allowing the EU/UK vessel insurance) or will utilize a
shadow fleet. Either way, according to TORM estimates, a
full recalibration of the diesel trade flows would add at least
7% to the ton-mile demand for product tankers.
In addition to sanctions against Russia, changes in the
refinery landscape – both recent and still to come – will
support the product tanker market. Since 2020, 2.5 mb/d
of refining capacity has been closed permanently, and a
further 0.6 mb/d is scheduled to be closed during 2023-
2024. Most of the affected capacity is in regions which are
already large importers of refined oil products, with
Australia, New Zealand, and South Africa as some of the
most prominent examples. Given the fact that oil demand in
these regions is still lagging the pre-COVID-19 levels, the
full effect of refinery closures is yet to be seen.
On the other hand, these refinery closures coincide with
around 4 mb/d of new capacity coming online mainly in the
Middle East, China, and India – regions which already today
are large exporters of oil products. Both these
developments are positive for trade flows and ton-mile in
the coming years, with only a few projects which are not
positive for trade, most notably the large-scale Dangote
refinery in Nigeria, which exact start date is, nevertheless,
still uncertain.
The third demand side driver on the market is the need to
replenish oil inventories. Since the summer of 2020,
product inventories in main trading hubs (e.g. the US Gulf
Coast, the US East Coast, Northwest Europe, and
Singapore) have declined as refinery production has lagged
the recovery in oil demand. This was especially the case for
diesel, where inventories in main trading hubs had fallen to
22% below normal seasonal levels by the beginning of the
fourth quarter of 2022 – the same magnitude as the
excess stocks seen in the early months of the COVID-19
pandemic. In spite of diesel inventories in main trading hubs
gaining towards the end of the year (at least partly due to
the EU countries building up stocks via increased imports
ahead of the EU ban on Russian oil products), they
nevertheless remained 14% below the seasonal norm in
December 2022.
Market drivers and outlook
The product tanker market continues to benefit from longer trade distances amid
sanctions against Russia, further supported by recent developments in the refinery
landscape and the need to replenish stockpiles. This is accompanied by an
unprecedented favorable tonnage supply side.
TORM ANNUAL REPORT 2022
REVIEW AND RISK
54
The need to replenish the stocks to at least pre-COVID-19
levels translates into higher fuel transportation needs. The
exact timing of this effect is, however, uncertain given the
current tight supply-demand situation for diesel.
Subsequently, TORM expects the product tanker ton-mile
demand on main trade routes to grow by a compound
annual rate of around 6% during 2023-2025. This is a pure
ton-mile effect not taking into account any potential
emerging inefficiencies in the market which can similarly
affect freight rates.
~6 %
Expected ton-mile growth during 2023-2025
(CAGR)
Tonnage supply
The positive outlook for the demand for product tankers in
the next three-year period coincides with the supply side
which is the most supportive seen for more than two
decades.
The product tanker fleet grew by 2.4% in terms of capacity
(2.2% in terms of number of vessels), down from a 2.3%
growth in 2021. Compared to the year before, both
deliveries and scrapping declined, the latter reflecting the
strength of the freight market in 2022. While 106 newbuilt
vessels entered the fleet, 31 older vessels were scrapped.
The effective fleet growth turned out slightly lower as a net
of four LR2 vessels had moved to the dirty trade by the end
of the year.
With record high newbuilding prices and limited shipyard
space, tanker ordering in 2022 remained very low, despite
a strong freight market. The general tanker ordering (crude
and product tankers) corresponded to around 1% of the
existing fleet, which was 4-5 times less than seen in recent
years. The low ordering level was in stark contrast to the
above 10% ordering activity seen in 2015 and 2008, the
years comparable with 2022 in terms of freight market
strength. The number of product tanker newbuilding orders
placed in 2022 was 69 vessels, with the MR vessels
accounting for the majority of orders (42 units), while the
number of LR2 vessels ordered was 17. No new orders for
LR1 vessels were placed.
Market drivers and outlook
TORM ANNUAL REPORT 2022
REVIEW AND RISK
55
Consequently, the order book-to-fleet ratio for product
tankers ended 2022 at a historically low level of 5%. This
was further supported by a similarly historically low 4% order
book-to-fleet ratio for crude tankers.
Due to the recent record high ordering activity in the
container vessel segment and shipyards currently targeting
the LNG segment, ordering of product tankers with delivery
before 2025 remains difficult. This will limit the fleet
growth in 2023-2025 even further, in addition to already
record low order book ratios. 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.
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 1% during 2023-
2025.
~1%
Expected fleet growth during 2023-2025
(CAGR)
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 not least due
to the geopolitical instability.
Market drivers and outlook
Global product tanker fleet and order book
As of 31 December 2022
Fleet
31.12.2021
Delivered in
2022
Scrapped in
2022
Fleet
31.12.2022
Order book for
2023-2025
2023-2025
Order book
as % of end-
2022 fleet
LR2
403
19
6
416
44
11%
LR1
377
0
1
376
1
0%
MR
1,809
68
14
1,863
97
5%
Handysize
776
19
10
785
29
4%
Total
3,365
106
31
3,440
171
5%
TORM ANNUAL REPORT 2022
REVIEW AND RISK
56
Financial outlook
To assess our financial performance, the number of
covered days, interest-bearing bank debt, the TCE market,
and EBITDA sensitivity to freight rates are included in our
periodic ongoing reporting.
The primary driver for our financial performance is the
product tanker market which is highly uncertain and
therefore expected to be highly volatile. We expect to
maintain relatively stable OPEX on a per vessel day basis,
however, with a slightly increasing trend compared to
recent historical levels. Administrative costs are also
expected to remain at historical levels. In 2022, we had an
EBITDA break-even TCE rate of approx. USD/day 8,000.
Our financial outlook is primarily based on the assumptions
described on the preceding pages, and the most important
macroeconomic factors affecting our TCE earnings in 2023
are expected to be:
•
The EU ban on imports and transportation of Russian
crude oil and oil products, and the G7 price gap vis-à-vis
imports of Russian oil by third countries
•
Global economic growth or recession, consumption of
refined oil products, and inflationary pressure
•
Location of closing and opening refineries and
temporary shutdowns due to maintenance
•
Oil price development
•
Oil trading activity and developments in ton-mile
•
Bunker price developments
•
Global fleet growth and newbuilding ordering activity
•
Potential difficulties of major business partners
•
One-off market-shaping events such as strikes,
embargoes, political instability, weather conditions, etc.
We have very low visibility on TCE rates that are not yet
fixed with our customers. Hence, these rates may be
significantly lower or significantly higher than our current
expectations.
For the full year 2023, TCE earnings are expected to be in
the range of USD 1,025 - USD 1,375m (2022: USD
981.5m), and EBITDA is expected to be in the range of
USD 750 – 1,100m (2022: USD 743m) based on the
current fleet size, including published acquisitions and
divestments of vessels. Please refer to page 202 for a
definition of TCE earnings.
As of 12 March 2023, TORM had covered 31% of the
2023 full-year earning days at USD/day 42,759. Hence,
69% of the 2023 full-year earning days are subject to
change.
As 20,647 earning days in 2023 are unfixed as of 12
March 2023, a change in freight rates of USD/day 1,000
will – all other things being equal – impact the EBITDA by
USD 20.6m.
Also as of 12 March 2023, 89% of the Q1 2023 earning
days was covered at USD/day 43,002. For the individual
segments, the Q1 2023 coverage was 90% at USD/day
65,950 for LR2, 86% at USD/day 44,135 for LR1 and
89% at USD/day 37,730 for MR.
Financial outlook 2023
Disclaimer on financial outlook
The purpose of this Financial Outlook for 2023 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 2023, including
the various assumptions underlying it, is forward-looking
and should be read in conjunction with the Safe Harbor
Statements on page 123, 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 in this Financial Outlook for 2023
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 financial outlook
for 2023.
TORM ANNUAL REPORT 2022
REVIEW AND RISK
57
2023
2024
2025
Total physical days
LR2
4,527
4,671
4,659
LR1
4,805
5,366
5,316
MR
20,694
21,602
21,453
Total
30,026
31,640
31,428
Covered days
LR2
1,043
-
-
LR1
2,108
65
-
MR
6,229
333
-
Total
9,379
398
-
2023
2024
2025
Covered, %
LR2
23
-
-
LR1
44
1
-
MR
30
2
-
Total
31
1
-
Coverage rates, USD/day
LR2
65,801
-
-
LR1
45,106
46,108
-
MR
38,109
40,011
-
Total
42,759
41,010
-
Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries.
Coverage 2023-2025
Total physical and covered days in TORM as of 12 March 2023
TORM ANNUAL REPORT 2022
REVIEW AND RISK
58
As of the end of December 2022, TORM had 78 vessels in
the LR2, LR1 and MR vessel classes. In January 2023,
TORM purchased seven LR1 vessels built in 2011-2013
that will be financed by sale and leaseback.
As of the date of this report, two of these vessels were
delivered, and the rest of the vessels are expected to be
delivered before the end of April 2023.
In March 2023, TORM purchased three 2013-built MR
vessels that are expected to be financed partly with shares
and partly with mortgage loans. The vessels are expected to
be delivered during the second quarter of 2023.
TORM expects to refinance two leased MR vessels with
bank financing in the second quarter of 2023.
TORM fleet development
Expected development in the fleet of owned and leased vessel as of 16 March 2023
Fleet development
Q4
2022
Changes
Q1
2023
Changes
Q2
2023
Changes
Q3
2023
Changes
Q4
2023
Owned vessels
LR2
7
-
7
-
7
-
7
-
7
LR1
8
-
8
-
8
-
8
-
8
MR
40
-
40
5
45
-
45
-
45
Total
55
-
55
5
60
-
60
-
60
Leased vessels
LR2
6
-
6
-
6
-
6
-
6
LR1
-
4
4
3
7
-
7
-
7
MR
17
-
17
-2
15
-
15
-
15
Total
23
4
27
1
28
-
28
-
28
Total fleet
78
4
82
6
88
-
88
-
88
TORM ANNUAL REPORT 2022
REVIEW AND RISK
59
TORM ANNUAL REPORT 2022
REVIEW AND RISK
59
TORM ANNUAL REPORT 2022
REVIEW AND RISK
60
Financial review 2022
Financial review for the year ended 31 December 2022
We delivered a record high TCE of USD 982m and a net profit of USD 563m, which is slightly better than our estimate from the Q3
2022 outlook. Our capital structure is currently very conservative with a Net Loan-to-Value of 25%, USD 416m in available liquidity
including restricted cash, no major refinancing need before 2026, and limited off-balance sheet commitments of USD 18m. In
March 2022, we obtained a USD 433m commitment for refinancing existing facilities, thereby extending maturities to 2028 and
with an option to extend to 2029. Further, we secured a USD 123m commitment for financing additional second-hand vessels.
Kim Balle, CFO
Key highlights
USDm
2022
2021
Change
Income statement
Revenue
1,443
620
823
Time charter equivalent (TCE)
982
379
603
Gross profit
782
188
594
EBITDA
743
137
606
Operating profit (EBIT)
601
1
600
Financial items
-45
-42
-3
Net profit/(loss) for the year
563
-42
605
Balance sheet
Non-current assets
1,874
1,968
-94
Total assets
2,614
2,331
283
Equity
1,504
1,052
452
Total liabilities
1,111
1,279
-168
Key figures
Invested capital in USDm
2,142
2,011
131
Net Asset Value per share (NAV) (USD)
28.5
13.0
15.5
Return on Invested Capital (RoIC)
29.2%
0.0%
29.2% points
Adjusted RoIC
28.1%
0.2%
27.9% points
Return on Equity (RoE)
44.0%
-4.1%
48.1% points
Basic earnings per share (EPS)
6.92
-0.54
7.46
TORM ANNUAL REPORT 2022
REVIEW AND RISK
61
TCE
In 2022, total revenue increased by USD 823m to USD
1,443m, corresponding to a 133% increase of which
revenue in the tanker fleet increased by USD 820m. The
significant increase in the revenue can primarily be
attributed to the higher freight rates.
Higher freight rates were driven by a strong product tanker
market supported by the trade recalibration caused by the
sanctions and the self-sanctioning of Russian product
exports as a consequence of the Russian invasion of
Ukraine. In particular, we saw a significant increase in the
average TCE rate/day across all vessel classes with an
overall increase of 149% from USD/day 13,703 in 2021 to
USD/day 34,154 in 2022. Similarly, the TCE earnings
increased by 159% to USD 981m in 2022, which is partly
due to an increased amount of earning days.
In 2022, port expenses, bunkers, commissions, and other
cost of goods sold were USD 459m compared to USD
241m in 2021. The increase is primarily driven by
increased bunker consumption at substantially higher
bunker prices compared to previous periods.
Financial review 2022
Change in time charter equivalent earnings in the tanker fleet
USDm
Handysize
MR
LR1
LR2
Total
Time charter equivalent earnings 2021
7.0
263.9
46.3
61.4
378.6
Change in number of earning days
-4.4
15.5
-7.4
14.6
18.3
Change in freight rates
0.9
404.7
60.6
119.2
585.4
Other
-
-0.5
-0.1
-0.2
-0.8
Time charter equivalent earnings 2022
3.5
683.6
99.4
195.0
981.5
TORM ANNUAL REPORT 2022
REVIEW AND RISK
62
Earnings data
2022
USDm
2021
Full year
Q1
Q2
Q3
Q4
Full year
% change
Full year
LR2 vessels
Available earning days
3,979
1,340
1,306
1,184
1,096
4,926
24%
Spot rates ¹
⁾
14,037
17,220
39,027
52,595
64,485
44,137
214%
TCE per earning day ²
⁾
15,422
18,432
30,741
55,532
58,889
39,612
157%
LR1 vessels
Available earning days
3,206
694
691
685
620
2,690
-16%
Spot rates ¹
⁾
13,702
20,201
36,535
51,089
50,287
38,881
184%
TCE per earning day ²
⁾
14,365
16,424
33,269
51,102
48,067
36,879
157%
MR vessels
Available earning days
19,703
5,254
5,309
5,161
5,138
20,862
6%
Spot rates ¹
⁾
12,918
16,525
34,115
43,284
47,876
35,014
171%
TCE per earning day ²
⁾
13,395
16,462
29,174
40,968
45,029
32,795
145%
Handysize vessels
Available earning days
726
180
92
6
-
278
-62%
Spot rates ¹
⁾
9,665
13,391
12,602
12,505
-
12,917
34%
TCE per earning day ²
⁾
9,709
13,614
12,196
6,397
-
12,995
34%
Total
Available earning days
27,614
7,468
7,398
7,036
6,854
28,756
4%
Spot rates ¹
⁾
13,019
16,884
34,844
45,646
50,818
36,641
181%
TCE per earning day ²
⁾
13,703
16,743
29,622
44,376
47,520
34,154
149%
¹
⁾
Spot rate = Time Charter Equivalent Earnings for all charters with less than six months’ duration = Gross freight income less bunker, commissions, and port expenses.
²
⁾
TCE = Time Charter Equivalent Earnings = Gross freight income less bunker, commissions, and port expenses.
Financial review 2022
TORM ANNUAL REPORT 2022
REVIEW AND RISK
63
Liquidity and cash flow
TORM´s liquidity position by the end of 2022 was USD
416m including restricted cash of USD 3m and undrawn
credit facilities of USD 93m.
In the beginning of 2022, TORM finalized the refinancing of
nine specific MR vessels. The refinancing was initiated in
late 2021 by executing sale and leaseback transactions.
TORM also took delivery of the LR2 newbuilding, TORM
Houston, financed in a sale and leaseback transaction.
During 2022, TORM entered into one additional new sale
and leaseback agreement to finance the purchase of the
second-hand LR2 vessel, TORM Hannah. Further, TORM
repaid debt on two revolving credit facilities and therefore
has undrawn and committed credit facilities amounting to
USD 92.6m at the end of 2022.
In March 2023, TORM obtained commitment for USD
433m bank refinancing at attractive terms, thereby
extending our debt maturities until 2028 and with the
possibility to extend to 2029. We further secured a USD
123m commitment for financing additional second-hand
vessels.
With this refinancing, TORM has a flexible capital structure,
a prudent liquidity strategy, and further available funding
capacity.
As of 31 December 2022, TORM had CAPEX commitments
of USD 18.4m related to scrubber installations and Flettner
rotors.
502m
Net cash inflow from operating activities
Net cash inflow from operating activities was USD 502m
(2021, USD 48m). The increase was primarily driven by an
increase in TCE compared to 2021, offset by a related
increase in working capital.
11m
Net cash inflow from investing activities
Net cash flow from investing activities was USD 11m
(2021, USD -291m). This was the result of the divestment
of eight older vessels in 2022, of which seven were sold
during 2022 and one in 2021, offset by the purchase of
one newbuilding and one newer second-hand vessel.
338m
Net cash outflow from financing activities
Net cash flow from financing activities was USD -338m
(2021, USD 298m). The decrease was primarily driven by
ordinary loan installments, a decrease in the proceeds from
borrowings by 452m due to reduced vessel purchase
activities, and dividends paid during the year related to Q2
and Q3 2022 of 167m (2021, USD nil).
Distribution
A dividend of USD 2.59 per share has been approved by the
Board of Directors for the quarter ended 31 December
2022, in total USD 212m. The distribution is in line with
TORM’s Distribution Policy with a cash position of USD
323.8m, working capital facilities of USD 92.6m,
restricted cash of USD 3.3m, earmarked proceeds of USD
58.4m, and a cash position related to Marine Exhaust
Technology A/S of USD 2.4m. Cash reservation per vessel
is USD 1.8m for 78 vessels, USD 140.4m in total.
Financial review 2022
TORM ANNUAL REPORT 2022
REVIEW AND RISK
64
Operation of vessels
The development in operating expenses (OPEX) is
summarized in the table on this page. The table also
summarizes the operating data for TORM’s fleet (including
both owned vessels and vessels financed via bareboat
charters in sale and leaseback arrangements).
OPEX for the fleet increased by USD 11m to USD 202m in
2022 compared to USD 191m in 2021. This was due to an
increasing number of operating days and operating
expenses per day. Higher global inflation in 2022 was one
of the main drivers behind the increase in repair and
maintenance costs and crew wages impacting operating
expenses per day.
The total fleet of owned vessels had 854 off-hire and dry-
docking days, corresponding to 3% of the operating days in
2022. This compares to 1,103 off-hire days in 2021 or 4%
of the number of operating days.
Financial review 2022
Change in operating expenses
USDm
Handysize
MR
LR1
LR2
Total
Operating expenses 2021
4.6
134.6
21.9
29.4
190.5
Change in operating days
-2.8
4.7
-1.8
6.2
6.3
Change in operating expenses per day
-0.0
4.7
0.4
0.3
5.3
Operating expenses 2022
1.8
144.1
20.4
35.9
202.1
Operating data
USD/day
Handysize
MR
LR1
LR2
Total
Operating expenses per operating day in 2021
6,300
6,566
6,660
6,992
6,633
Operating expenses per operating day in 2022
6,133
6,788
6,781
7,045
6,825
Change in the operating expenses per operating day in %
-3%
3%
2%
1%
3%
Operating days in 2022 ¹
⁾
290
21,216
3,011
5,093
29,610
Off-hire
-12
-123
-95
-55
-285
Dry-docking
-
-231
-226
-112
-569
Available earning days 2022
278
20,862
2,690
4,926
28,756
¹
⁾
Including bareboat charters.
TORM ANNUAL REPORT 2022
REVIEW AND RISK
65
Assets
TORM’s total assets increased by USD 283m to USD
2,614m in 2022. The increase was primarily driven by an
increase in trade receivables of USD 176m due to a
substantial increase in TCE in Q3 and Q4 2022 and an
increase in cash position of USD 152m, which can be
attributed to higher freight rates and earnings. The
movement is partly offset by a decrease in the carrying
value of vessels. During the year, TORM sold seven vessels.
All vessels sold in 2022 and one vessel sold in 2021 were
delivered to the new owners.
As of 31 December 2022, the carrying amount of vessels,
capitalized dry-docking, and prepayments on vessels
amounted to USD 1,856m compared to USD 1,950m at
the end of 2021. The decrease was due to the divestment
of seven vessels of USD 78m as well as depreciations of
USD 134m and an impairment of USD 3m offset by
investment in two vessels and capitalized dry-docking of
USD 120m. Based on broker valuations, TORM’s fleet had
a market value of USD 2,650m as of 31 December 2022,
43% above the carrying value.
Assessment of impairment of assets
Management has followed the usual practice of performing
a review of impairment indicators for Q1 to Q3 2022 and
presented the outcome to the Audit Committee. The Audit
Committee evaluates the impairment indicator assessment
and prepares a recommendation to the Board of Directors
on whether to conduct an impairment test of the carrying
value of the fleet. In Q1 to Q3 2022, no indicators of
impairment existed, and thus no recommendations to test
the value of the fleet were made to the Board of Directors.
As in previous years, the carrying amount at the end of the
year was tested using either fair value less cost of disposal
or the future discounted net cash flow deriving from the
Main Fleet CGU. In 2022, Management based the
recoverable amount on the fair value less cost of disposal.
When assessing the fair value less cost of disposal,
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 fair
value is based on the assumption that the vessels are in
good and seaworthy condition and with prompt, charter-
free delivery. The fair value less cost of disposal of the
vessels is determined to be within level 3 of the fair value
hierarchy. Based on this review, Management concluded
that as of 31 December 2022 assets within the Main Fleet
CGU were not impaired as fair value less cost of disposal
exceeded the carrying amount by USD 784m. Please refer
to note 10 for additional details of the impairment
assessment. For the newly acquired MET business, the
year-end impairment test did not identify any impairments.
Equity
In 2022, total equity increased by USD 452m to USD
1,504m. The increase was primarily driven by an increase in
retained profit of USD 563m due to increased freight rates
and earnings partially offset by dividend payments of USD
167m. Additionally, the hedging reserve, largely stemming
from unrealized gains on interest derivatives of USD 57m in
2022, has increased by USD 43m from 2021 because of
increasing interest rates. During 2022, 5-year USD swaps
increased from approximately 1.35% at the end of 2021 to
approximately 4.02% at the end of 2022. On average,
TORM has fixed 92.7% of its interest rate exposure over
the coming three years and 87.7% over the coming five
years. 94.6% of the debt level as per the end of 2022 was
hedged.
Tax
Tax for the year amounted to an expense of USD 0.5m of
income tax and USD 1m of tonnage tax compared to an
expense of USD 0.4m of income tax and 0.9m of tonnage
tax in 2021. In addition, deferred tax adjustments of USD
7.3m were recognized compared to USD 0.0m in 2021.
TORM has elected to participate in the Danish tonnage tax
scheme since 2001. 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 investment and activity level
equivalent to that at the time of entering into the tonnage
tax scheme.
Financial review 2022
TORM ANNUAL REPORT 2022
REVIEW AND RISK
66
Primary factors affecting the 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 high tradability, and TORM actively
manages the deployment of the fleet between spot market
voyage charters, which generally last from several days to
several weeks, and time charters.
TORM believes that the important measures for analyzing
trends in the results of its operations of tankers consist of
the following:
Time charter equivalent (TCE) earnings
per available earning day
TCE earnings per available earning day is defined as revenue
less voyage expenses divided by the number of available
earning days. Voyage expenses primarily consist of port and
bunker expenses which are unique to a particular voyage,
and 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.
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 a year-to-year basis. Fluctuations derive from
imbalances in the availability of cargo 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 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 and leased 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.
Financial review 2022
TORM ANNUAL REPORT 2022
REVIEW AND RISK
67
Going concern
As of 31 December 2022, TORM’s available liquidity
including undrawn and committed facilities was USD
416m, including a total cash position of USD 324m
(including cash held for dividend payment). TORM’s net
interest-bearing debt was USD 663m, and the net debt
loan-to-value ratio was 25% (Tanker segment only and
before dividend payment). 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 24 to the financial
statements.
The principal risks and uncertainties facing TORM
are set out on pages 70-74
TORM monitors its funding position throughout the year to
ensure that we have access to sufficient funds to meet the
forecasted cash requirements, including potential
newbuildings, purchase of secondhand vessels 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 increased geopolitical risk
following Russia’s invasion of Ukraine in February 2022 and
the associated effects on the product tanker market. The
changed geopolitical situation has so far been positive for
the product tanker market, and TORM’s base case assumes
that this positive sentiment related to freight rates and
vessel values will continue throughout 2023. In the base
case, TORM has sufficient liquidity and headroom above all
the covenant limits.
TORM performs sensitivity calculations to reflect downside
scenarios including, but not limited to, future freight rates
and vessel valuations in order to identify risks to future
liquidity and covenant compliance and to enable
Management to take corrective actions, if required. The
downside scenarios cover the principal risks and
uncertainties facing TORM as set out on pages 70-74 and
include different distressed outlooks for the product tanker
market. In a stress case scenario, Management has
stressed freight rates to the lowest rolling four-quarter
average since 2000 on a per vessel class basis and a
decline in vessel values. In such scenario, TORM maintains
sufficient headroom on liquidity and covenants.
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 2024.
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 2024.
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 2025.
This period has been selected for the following reasons:
•
The general volatility and uncertainty in the product
tanker market leads to a significant increase in the
degree of judgement and uncertainty beyond a three-
year period
•
Three years are generally in line with the forecast
horizon for external equity analysts covering the
shipping sector
•
TORM will not have any outstanding CAPEX
commitments related to currently known projects
•
TORM will have passed the first CO
2
reduction target
milestone covering a 40% emission intensity reduction
in 2025 compared to the 2008 level
Financial review 2022
TORM ANNUAL REPORT 2022
REVIEW AND RISK
68
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 also covers the outlook
related to the geopolitical situation 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 fuel efficiency equipment
•
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. The operating and
administrative cost levels are on similar levels as TORM’s
historical performance, and freight rates are assumed to
remain at strong and profitable levels, however, with a
decreasing trend from 2024 onwards. 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 a 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 conducted a low
case scenario and a stress case to assess the long-term
viability. In a low case with freight rates slightly above the
lowest rolling four-quarter average since 2000 on a per
vessel class basis and a related decline in vessel values,
TORM maintains sufficient headroom on liquidity and
covenants throughout the viability period. TORM’s freight
rate assumptions as per the going concern assessment
continue throughout the viability period and have further
sensitized the vessel values downward over the period to
reflect a continued downturn. 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. In such a scenario, Management
would also consider obtaining appropriate waivers, and
although Management would be confident of obtaining
such waivers, this is not within Management’s control.
The Board of Directors monitors if TORM is moving towards
a covenant breach in order to incorporate any mitigating
actions in due course on an ongoing basis. Based on the
sensitivity analysis, the Board of Directors does not
currently expect that TORM will breach its financial
covenants or experience a liquidity shortfall over the three-
year forecast period.
The Board of Directors has also considered the 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, 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
16 March 2023
Financial review 2022
TORM ANNUAL REPORT 2022
REVIEW AND RISK
69
TORM ANNUAL REPORT 2022
69
“
We must anticipate and adapt to our ever-changing
environment and mitigate risks as well as seize the
opportunities this brings.
TORM ANNUAL REPORT 2022
REVIEW AND RISK
70
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, TORM conducts an Enterprise Risk
Management (ERM) process, during which the critical risks
facing TORM are identified, assessed, and discussed by
TORM’s Senior Management Team and subsequently
approved by the Risk Committee.
The objective is for TORM and its shareholders to be
adequately rewarded for any desired risk tolerance level,
and that the governance structure tailored to oversee the
risk management activities is in place, so that risks are
mitigated to the extent desired.
Governance
TORM’s risk management approach emphasizes
management’s accountability and oversight. Identified risk
responsibility is assigned to the Senior Management Team
member most suited to managing the risk, who is required
to continually monitor the risk, implement and maintain
mitigating actions, evaluate and report.
If the consequence of a risk exceeds the agreed risk
tolerance, Management is required to assess if
implementation of additional mitigating controls is possible
and necessary until the desired risk level is achieved.
TORM’s risk management framework acknowledges that
unforeseen or “black swan events” occur in the maritime
industry. Therefore, TORM accepts these types of risks and
will have a plan or will diligently develop a plan in case such
events materialize. The ability to react and navigate an
unpredictable future is managed in close collaboration
between Management and the Risk Committee via agreed
predefined accepted risk tolerance levels, which will be
reported on at regular meetings or, if needed,
extraordinarily.
Risk assessment process
TORM’s risk identification process stipulates that the risk
department conducts risk interviews with heads of
departments and senior management on an annual basis to
identify principal and emerging risks. Identified risks are
prioritized, challenged, and approved by the Senior
Management Team as risk owners. This also includes the
assessment of availability and effectiveness of mitigating
actions taken to avoid or reduce the impact or occurrence
of the underlying risks.
The risks are reassessed on a quarterly basis, and if specific
events occur, it may require a reassessment. The identified
risks in TORM are divided into top risks and risks on TORM’s
watch list.
TORM’s risk appetite and main risk exposure
The Senior Management Team and the Risk Committee
discuss and decide on TORM’s risk appetite and risk
tolerance to principal and emerging risk exposures. TORM’s
risk appetite and inherited exposure risks are divided into
five main categories and emerging risks:
•
Industry and market risks
•
Operational risks
•
Compliance and IT risks
•
Financial risks
•
Emerging risks
TORM’s general risk appetite per group of risk
categories:
Industry and market risks
TORM accepts taking risks, where the expected return
outweighs the evaluated risk exposure.
Operational, compliance and IT risks
TORM is risk adverse regarding operational, compliance and
IT risks. In essence, TORM will seek to mitigate any such
risks to a meaningful minimum level.
Risk management
In our efforts to be a sustainable company, we must anticipate and adapt to our ever-
changing environment and mitigate risks as well as seize the opportunities this brings.
We face a diverse set of risks, and managing these systematically is key for us to
create and protect value over the short, medium, and long term.
TORM ANNUAL REPORT 2022
REVIEW AND RISK
71
Financial risks
TORM is risk adverse regarding financial risks. In essence,
TORM will seek to mitigate any such risks to a meaningful
minimum level.
TORM’s top risks measured on likelihood and consequence
are listed below and displayed on the heat map.
Emerging risks
Emerging risks are described in detail in our TCFD
section on pages 75-77
Development compared to last year
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 TORM, including risks that would threaten our
business model, future performance, solvency or liquidity,
and reputation.
A detailed description of each of the top risks is
available on pages 73-74
The focus below is the development in the risks.
Industry and market risks
TORM’s market risk exposure remains high, and we are
exposed to potentially adverse market conditions. The risk
likelihood is deemed to have decreased despite a potential
recession due to current market fundamentals which
include mitigating factors.
1.
Ton-mile growth reflecting changing trade patterns
related to refinery dislocation and extra distance for
European imports/Russian exports
2.
Congestion remains elevated tying up capacity
3.
Complex sanction regime has created further
“inefficiencies” across the shipping industry
The Russian invasion of Ukraine has brought energy
security to the forefront as energy prices remain near
record high. Moreover, disruption of current trading
patterns creates uncertainty about ton-mile and oil
demand. This adds uncertainty about the path to a zero-
carbon future and makes it more difficult to make
investment decisions, which seems to impact the tanker
vessel order books, which again limits the supply of new
vessels.
Risk management
TOP RISK HEAT MAP
TORM TOP RISKS WITHIN THE COMING  MONTHS
POST-MITIGATION ACTIVITIES
CONSEQUENCES
WORST CASE
MAJOR
MODERATE
MINOR
MIN. EFFECT
RARE
UNLIKELY
POSSIBLE
LIKELY
FREQUENT
LIKELIHOOD


UNCHANGED
C
B
E
G
F
J
I
H
A
H
D
I
A
C
A.
TANKER FREIGHT RATES
B.
BUNKER PRICE
C.
ASSET MANAGEMENT
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 REMOVED
L.
INFLATIONARY PRESSURE
B
F
G
L
TORM ANNUAL REPORT 2022
REVIEW AND RISK
72
Operational risks
Oil major approval risk is considered at a low level due to
continuous focus and efficient controls.
TORM’s involvement in an environmental disaster would
damage TORM’s reputation, but financially it is considered
highly unlikely that a vessel accident with severe oil
pollution will not be covered by insurance.
Events such as piracy and terrorism could result in
kidnapping of or injury to seafarers or vessel damage. The
likelihood has decreased slightly, and the East African
region has been removed as an “area of unrest”.
Compliance and IT security risks
Due to the Russian invasion of Ukraine, sanctions are set to
increase although the likelihood of violating sanctions is
deemed minor and manageable due to TORM’s current
setup involving training of personnel and different digital
and automized sanction screening systems.
IT and cyber-security is the risk of system unavailability and
data loss due to cyber-attacks. Oil and gas and associated
infrastructure industries are expected to be targeted by e.g.
Russia. TORM assesses that the risk of cyber-activism has
increased from “possible” to “likely”, which is in line with
the Danish Centre for Cyber Security’s increase of the risk
level related to cyber-activism from low to medium in 2022
and subsequently from medium to high in early 2023. The
likelihood of Russian cyber-attacks is increasing as the
Ukraine conflict evolves into an extended war of attrition.
Critical government and private sector networks as well as
infrastructure across the globe are vulnerable to hacking
and spying.
Financial risks
TORM’s financial gearing, liquidity buffer, and break-even
levels have been maintained at an acceptable level.
Considering the high value generation and current
mitigation activities, the breach of covenants is considered
unlikely.
TORM has removed Terms and Sources of Funding as a top
risk. Banks and leasing companies have a strong appetite
for funding product tanker companies, and adequate
access to capital is no longer considered a short-term risk
but included as a long-term risk in the TCFD section.
Read more about mandates and sensitivity analysis
of the various risks from page 164
Inflationary pressure has been added as a top risk. Various
consumer price indexes reached +10% year-on-year in
September 2022, and TORM may be vulnerable to price
and salary increases. In strong tanker markets, TORM is
typically able to push most of the increased costs on to the
customers via higher freight rates, whereas in tighter
markets it may be more difficult to pass on the increased
costs.
TORM’s risk appetite
The Senior Management Team and the Risk Committee
decide on TORM’s risk appetite and risk tolerance to
principal risk exposures.
Risk appetite conclusion
In TORM’s 2022 risk assessment, it has been concluded
that there is alignment between risk appetite and net
severity for TORM’s top risks. Severe vessel accidents are
deemed outside the risk appetite; however, this is the same
methodology used in previous years’ enterprise risk
management evaluation. TORM accepts that risks cannot
be fully mitigated due to the nature of risks.
More details on the risks, mitigations, and strategies
in our TCFD disclosure:
www.torm.com/investors/reports-and-
presentations/financial-reports/
Risk management
TORM ANNUAL REPORT 2022
REVIEW AND RISK
73
Industry and market risks
Operational risks
Tanker
freight rates
Bunker price
Asset management
Oil major approval
Severe
vessel accident
Maritime
safety threats
Risk
Sustained low tanker freight
rates or inability to predict
and respond timely and
accurately to freight rate
developments.
Unexpected bunker price
increases 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.
Potential
impact
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
temporarily bear the full
effect of price increases.
A decline in TORM’s net
asset value, which can lead
to a requirement from
banks to provide additional
security. TORM is also
exposed to cyclical asset
prices and assets
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 TORM’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.
Mitigating
activities
TORM’s spot-oriented
strategy limits possible
mitigation. Unleveraging is
considered when terms and
pricing are deemed
attractive hereunder with
time charter-outs and FFA
coverage.
In general, TORM does not
hedge future bunker
expenses. In case freight
income is fixed, TORM
does hedge future bunker
exposures.
With a conservative capital
structure, focus on
conservative loan-to-value
and a close view of the
market, TORM maintains
flexibility and an ability to
act in the asset market.
TORM’s integrated
platform with in-house
safety and technical and
operational staff secures
continued focus on quality
and high vetting standards.
Disaster recovery plans for
emergency situations are
in place as well as an
ongoing safety resilience
program to enhance safety
culture, including officers
being trained as “safety
ambassadors”.
TORM’s internal 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 place in case of an incident.
Risk management
Description of top risks
TORM ANNUAL REPORT 2022
REVIEW AND RISK
74
Compliance and IT security risks
Financial risks
Legal compliance
IT and cyber-security
Liquidity risk
Inflationary pressure
Risk
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.
Risks related to cost inflation, supply chain
bottlenecks and increase in interest rates.
Among other things, TORM’s expenses
are vulnerable to price increases related to
salaries and other OPEX.
Potential
impact
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 manoeuvrability.
Disruptions in the supply chain or sudden
inflation in key materials could result in
project delays and budget overruns.
Mitigating
activities
Compliance and awareness training is
mandatory for all employees. In connection
with sanctions, a know-your-customer
screening system has been implemented.
Business continuity plans have been
implemented covering the entire group.
The plans include assessment and
contingency of critical systems in case of
business interruption. Continuous focus
on capacity to detect and react on cyber-
attacks. Moreover, we have a cyber-risk
security development program ongoing
that has run throughout 2022 and will
continue for two years, thereby lifting our
risk maturity significantly.
Conservative financial leverage guided by
short and long-term cash flow forecasting
with stress-testing of critical assumptions.
Constantly maintaining sufficient cash
buffers and a tangible catalogue of
available liquidity-enhancing initiatives in
alignment with our Distribution Policy.
To mitigate the risk of increasing interest
rates, TORM hedged more than 89% of its
5-year interest exposure. Short-term
mitigation of increasing crew expenses is
done by paying our seafarers’ salaries in
USD. This means that the seafarers’
purchasing power has often increased in
line with inflation.
L
Risk management
Description of top risks
TORM ANNUAL REPORT 2022
REVIEW AND RISK
75
In 2022, TORM conducted a climate-related scenario
analysis using the Task Force on Climate-related Financial
Disclosures (TCFD) guidelines to assess transition and
physical risks and opportunities, and how they might impact
the resilience of our company strategy.
To complete our TCFD analysis, we developed three
bespoke climate scenarios. The scenarios were based on
publicly available scenarios published in 2021 by the
International Energy Agency, the Network for Greening the
Financial System, and the IPCC Sixth Assessment Report.
The scenarios were supplemented by data and insights
relevant to upstream and midstream oil and gas, and the
transport of refined oil products. The scenarios are:
•
1.5 C Net Zero 2050
•
1.8 C Delayed Transition
•
3-4 C Hot House World
Governance
The Risk Committee has oversight of climate-related risks
and opportunities through its responsibility for the
governance of TORM’s enterprise risks, which includes
climate-related risks and opportunities.
The Senior Management Team has the overall management
responsibility for climate-related risks and opportunities in
TORM.
We are committed to achieving zero CO
2
emissions by
2050. TORM is actively involved in various industry
collaborations supporting this journey. These collaborations
are important, as the ambitious target cannot be met by
single entities alone but requires joint efforts across the
shipping industry.
Climate-related risk analysis and TCFD
Climate change is likely to have consequences for TORM in the long term and will
impact several areas of the core business activities. TORM’s emerging risks are in
essence viewed as directly related to climate change.
Climate-related risk scenarios
1.5°C
Net Zero 2050
Orderly transition
1.8°C
Delayed Transition
Disorderly transition
3-4°C
Hot House World
Worst case scenario
•
An ambitious scenario that limits
global warming to 1.5°C through
stringent climate policies and
innovation
, reaching net zero CO₂
emissions around 2050
•
The world continues with
“business as
usual”, and emissions rise until 2030
•
This
scenario
relies only on
government policies that have already
been introduced or announced, such
as the EU’s Fit for 55
•
Some advanced economies
decarbonize faster and reach net zero
CO₂ emissions by 2045
•
By 2030, governments and societies
finally take action
to avoid
catastrophic global warming
•
Emissions grow until 2080, leading to
about
3°C of warming and severe
physical risks
•
Assumes that ambitious climate
policies are introduced immediately
with low policy variation between
regions and strong international
cooperation to achieve net-zero CO₂
emissions worldwide
•
But at this point,
aggressive climate
action is required
to limit global
warming to 1.8°C
•
This includes irreversible changes
such as
higher sea level rise and
extreme temperatures
•
Governments work to ensure an
orderly transition across the
energy sector
•
This results in a
disorderly transition
in which the transition to a low-
carbon economy occurs in an
unexpected and chaotic way
•
Conflict and humanitarian crises
are
exacerbated, and some areas of the
world become uninhabitable zones
High and immediate transition risk
Relatively low physical risk
Delayed and very high transition risk
Medium physical risk
Low transition risk
High physical risk
TORM ANNUAL REPORT 2022
REVIEW AND RISK
76
Process
The process to undertake the scenario analysis included a
workshop with senior representatives from Finance,
Investor Relations, Risk, Strategy, Market Research, and
the Operations and Technical departments to consider the
three scenarios and identify climate-related risks and
opportunities. The risks and opportunities were then
assessed for financial materiality and their potential impact
on TORM’s business model and strategy. This process aims
at improving TORM’s corporate strategy’s resilience.
The findings from the scenario analysis were presented to
TORM’s Senior Management Team and the Risk
Committee. The climate-related risks identified through the
scenario analysis exercise will be incorporated into TORM’s
annual Enterprise Risk Management setup going forward.
Risks and opportunities
TORM undertook an assessment of the transition and
physical climate-related risks and opportunities which it
faces until 2050. The assessment was based on three
climate scenarios, which were combined with short,
medium, and long terms as being 2025, 2030, and 2050,
respectively.
The scenarios took TORM’s full value chain into
consideration, including upstream oil and gas production,
refining, and downstream customer demand. The scenarios
also examined production and demand for renewable
energy fuels and technologies, including biofuels, hydrogen,
ammonia, and carbon capture utilization and storage.
Climate-related risk analysis and TCFD
Climate-related risks
All potential financially material climate-related risks are transition risks, none are physical risks.
Risk severity in scenarios
#
Type
Climate-related risks
Main impact(s)
1.5 °C
1.8 °C
3-4 °C
Strategic actions to mitigate risks
Risk
1
Market risk
Declining demand for oil and gas
Demand for oil products would decline significantly in
the Net Zero 2050 scenario (91 mb/d in 2020 to 24
mb/d in 2050) with peak oil demand in 2019, and in
2030 in the Delayed Transition scenario, mainly due to
the electrification of transport.
Decreased
demand/revenue
Decreased
asset value
High
High
(delayed)
None
✓
Revenue diversification
into transport of renewable fuel types (see opportunity 1)
✓
Monitoring of a number of “disruption indicators”
✓
Decarbonizing the fleet faster than required by the IMO
to ensure competitiveness in a
declining market
✓
Strong opportunity for higher asset utilization
due to vessel supply shortage
(see opportunity 3)
✓
Apply
modest financial gearing
and
operate in a lease structure
to remove asset value risk
Risk
2
Reputation
Higher cost of capital and reduced access to capital
Withdrawal of banks from the sector and a more limited
pool of investors over time, resulting in more expensive
debt/equity financing.
Reduced access to
and higher cost of
capital
Inability to grow the
business or maintain
the current average
fleet age
High
High
(delayed)
None
✓
Revenue diversification
into transport of renewable fuel types (see opportunity 1)
✓
Maintaining a conservative capital structure profile
and having access to multiple funding
sources
✓
Decarbonizing the fleet faster than required by the IMO
to remain investable as transition
company
Risk
3
Emerging
regulation
Carbon price regulations
The EU has announced plans to include shipping in the
Emissions Trading System (ETS). Other nations, such
as the United States, are expected to introduce similar
schemes over time.
Increased operating
cost (bunker and
carbon tax)
Decreased asset value
(if not decarbonized)
High
High
(delayed)
None
✓
Decarbonizing the fleet faster than required by the IMO
to ensure competitiveness in a
declining market
✓
Carbon tax will be incorporated into the market rate
and thus lead to exposure only if
emissions from TORM vessels are higher than the “average vessel” of competitors
Risk
4
Technology
Decarbonization of vessels
In the Net Zero 2050 and the Delayed Transition
scenarios, decarbonization of TORM’s fleet will be
required to meet customer and regulatory
requirements.
The diversity of alternative fuels and technologies
increase the risk of selecting the wrong technology.
Increased CAPEX to
decarbonize the fleet
Stranded assets due to
selecting a wrong
technology
Increased operating
cost (alternative fuels)
High
High
(delayed)
None
✓
Decarbonizing the fleet faster than required by the IMO
to ensure competitiveness in a
declining market
✓
Focus on using known solutions to decarbonize the
fleet
and delaying investments until fuel
technologies are derisked and adopted at industry level
✓
Participating in industry decarbonization groups
, such as the Mærsk McKinney Møller Center
for Zero Carbon Shipping as a Mission Ambassador
TORM ANNUAL REPORT 2022
REVIEW AND RISK
77
The scenario analysis identified four financially material
climate-related risks:
•
Risk 1:
Declining demand for oil and gas
•
Risk 2:
Higher cost of capital and reduced access
to capital
•
Risk 3:
Carbon price regulations
•
Risk 4:
Decarbonization of vessels
The scenario analysis also identified three financially
material climate-related opportunities:
•
Opportunity 1: Diversification into transport of low-
carbon and renewable fuels
•
Opportunity 2: Market volatility due to weather and
refinery consolidation
•
Opportunity 3: Higher asset utilization due to vessel
supply shortage
A detailed description can be found in the table below.
We have decided not to include financial materiality or
metrics as this is deemed too uncertain.
More details on the risks, mitigations, and strategies
in our TCFD disclosure:
www.torm.com/investors/reports-and-
presentations/financial-reports/
Climate-related risk analysis and TCFD
Climate-related opportunities
Opportunity in scenarios
#
Type
Climate-related opportunities
Main impact(s)
1.5 °C
1.8 °C
3-4 °C
Strategic actions to mitigate risks
1
Market
Diversification into low-carbon fuels
Demand for transport of low-carbon fuels will increase
under the Net Zero 2050 and the Delayed Transition
scenarios. This includes biofuels, green methanol, liquid
hydrogen, and hydrogen-based fuels such as ammonia
There are significant similarities between the business
model, customer segments and vessel operations for
transporting these new products and TORM’s existing
business
Opportunity to
diversify revenue into
these new and growing
markets. In particular,
64% of TORM’s fleet is
already able to carry
biofuels
(
)
✓
Pursuing opportunities within the biofuel
market to build a market position with the existing
assets and capabilities
✓
Upgrading a number of the current vessels to carry methanol
, which will make us a large player
in the segment
✓
Investigating the opportunity to enter into the hydrogen and ammonia segments
– this would
require new and different types of assets
✓
Monitoring of a number of “disruption indicators
2
Market
Market volatility due to extreme weather
Across all three scenarios, the frequency and intensity
of extreme weather such as tropical cyclones and
storm surges will increase as compared to a world
without climate change
This will lead to more frequent disruption to refinery
production, resulting in a higher frequency of market
volatility
Opportunity to
improve TORM’s
forecasting of these
events and position
our vessels to take
advantage of the
supply and demand
imbalances that occur
during periods of
market volatility
✓
Investments in vessel positioning tools, optimum voyage and BI setup
✓
Predictive analytics and AI
to better forecast these extreme events and have our vessels
positioned to take advantage of this
3
Market
Higher utilization due to supply shortage
Across all three scenarios, it is expected that
investments in newbuildings will be limited due to
reduced access to capital, uncertainty relating to the
transition of shipping to new fuel types, and uncertainty
relating to future demand for oil products
Except for the 1.5C Net Zero 2050 scenario, it is,
however, expected that the demand for oil products will
remain high in the medium term
Opportunity for higher
asset utilization of the
existing fleet due to
supply/demand
imbalance in the short
to medium term
(
)
✓
Monitoring of a number of “disruption indicators”
to assess the likelihood of the opportunity
materializing
✓
Remain exposed to the oil and liquids segment in the medium term
to capture the opportunity
whilst diversifying revenue in the longer term
Governance
Governance introduction
Governance at TORM
79
Chairman’s introduction
80
Governance structure
TORM’s governance structure
83
Board of Directors
84
Board and Committee meeting attendance
85
Board activities
87
Committee reports
Audit Committee report
89
Risk Committee report
95
Nomination Committee report
97
Remuneration Committee report
100
Other
Investor information
111
Engagement and decision making
115
Directors’ report
118
Statement of Directors’ responsibilities
121
Safe habor statement
123
TORM ANNUAL REPORT 2022
GOVERNANCE
78
TORM ANNUAL REPORT 2022
GOVERNANCE
79
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 97 and 100
This section constitutes the statutory reporting on
corporate governance.
Management structure and delegation
of authority
TORM’s Board of Directors approves 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 4-77.
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
.
Governance at TORM
In respect of the year ended 31 December 2022, TORM plc was subject to
the UK Corporate Governance Code available from www.frc.org.uk.
Governance
Board Leadership and Company Purpose
Long-term value and sustainability culture
P. 22
Shareholder engagement
P. 115
Other stakeholder engagement
P. 115
Conflicts of interest
P. 97
Divisions of Responsibilities
Role of the Chairman
P. 83
Divisions of responsibilities
P. 79
Non-Executive Directors
P. 83
Independence
P. 47
Composition, succession, and evaluation
Appointments and succession planning
P. 97
Skills, experience, and knowledge
P. 84
Length of service
P. 84
Evaluation
P. 98
Diversity
P. 98
Non-compliance
P. 79
Audit, risk, and internal control
Committee
P. 89
Integrity of financial statements
P.187
Fair, balanced, and understandable
P. 187
Internal controls and risk management
P. 92
External auditor
P. 93
Principal and emerging risks
P. 95
Remuneration
Independent judgement and discretion
P. 99
Non-compliance
P. 100
Alignment with purpose, values, and long-term
strategy
P. 104
TORM ANNUAL REPORT 2022
CHAIRMAN’S INTRODUCTION
80
Chairman’s statement
On behalf of the Board, I am pleased to introduce the
corporate governance report for 2022. This continues to
be the Board’s principal method of reporting to
shareholders on our application of the principles of good
corporate governance.
Strong governance is essential for
the effective delivery of our
strategy
This creates value for all our stakeholders and the ongoing
development and sustainability of our business.
Throughout the year, the Board continued to meet in
person and via virtual conference and was able to deliver on
its strategic commitments. The Board met 15 times this
year with nine ad hoc meetings in addition to the Board’s six
scheduled meetings (see page 85).
Read more about TORM’s Board and Committees on
page 83
Board evaluation
This year’s evaluation was undertaken internally, involving a
review of the Board and its principal Committees that
covered a wide range of topics. It is a well-established
process and an important opportunity to test that the
Board is well placed to provide constructive challenge to
management. The outcome of this review led to the Board
requesting further deep dives on cyber-security,
understanding AI, alternative fuels, the electricity grid being
able to support the electric vehicle increase, and
geopolitical risks.
Changes to the Board
In 2022, there were no changes to the Board of Directors.
The membership of the Board is drawn from a diverse mix of
nationalities, gender, and backgrounds which brings the
relevant skills and knowledge to provide a positive
contribution to the Board.
Board leadership
Organizing the Company to focus on sustainability is
essential. To empower the organization to reduce emissions
and achieve our ambitious environmental goals, new
organizational roles were created in 2022.
Chairman’s introduction
Chairman’s introduction
Key deliverables
Distribution
A new, more transparent Distribution Policy with the
purpose of distributing all cash generated over a certain
minimum threshold per vessel to our investors. Further
details can be found on page 87.
ESG
Established a separate department focused on execution of
our ambitious ESG reporting, working in close cooperation
with our commercial and technical decarbonization teams.
Management has been given specific KPIs directly linked to
ESG, ensuring that leadership prioritizes sustainable
actions. Further details can be found on page 27.
Board deep dives requested in 2023
As a result of the 2022 Board evaluation, deep dives on
cyber-security, the use of AI in TORM, methanol as a fuel,
the electricity grid, and geopolitical risks were requested.
Employee Engagement Survey
Bi-annual engagement survey. 98% response resulting in
an engagement score of 8.4 out of 10, positioning TORM in
the top quartile of companies across all industries using the
same platform
.
Further details can be found on page 36.
TORM ANNUAL REPORT 2022
CHAIRMAN’S INTRODUCTION
81
This was to establish a separate department of experts
focused on accelerating our green efforts. TORM’s
management has been given specific KPIs directly linked to
ESG targets and efforts to support TORM’s strategic focus
on sustainable performance.
Shareholders
TORM introduced a new quarterly Distribution Policy during
2022 to allow for increased alignment between cash
generation and shareholder distribution. With a prudent and
solid capital structure approach, TORM has started to pay
out quarterly dividends to our shareholder in Q2 2022, and
TORM expects to pay out a total of USD 379m in dividends
related to 2022.
Employees
Our ambition is to improve and nurture the culture needed
to fulfill our ambitious strategy and develop initiatives which
matter to our employees. Through in-depth knowledge, a
common language, and targeted tools, all employees are
equipped with the tools required to spot and mitigate
stress.
Read more about TORM's people on page 36
Customers
The relationship with our customers continues to be strong.
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.
Suppliers
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. TORM also applies its Business
Principles when dealing with subcontractors and suppliers.
Community
TORM has a history of supporting the communities in which
we work and the needs of the people we serve. The TORM
Philippines Education Foundation is a great example of this.
The foundation was set up by TORM Philippines in 2007 to
support education in the Philippine community. During the
educational year 2021-2022, TORM was pleased to
continue to provide support.
Read more about TORM's connection to the
surrounding communities on page 38
Sustainability
In 2022, TORM added two elements to increase the
transparency around our emissions and the impact of our
sustainability response on our business. These are the Task
Force on Climate-Related Financial Disclosure and the
report on Scope 3 emissions.
Read more about TORM's sustainability efforts on
page 22
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.
Read more about TORM’s ESG journey on pages 22-
47
Chairman’s introduction
TORM ANNUAL REPORT 2022
CHAIRMAN’S INTRODUCTION
82
The year ahead
In the year ahead, the Board will, among other topics,
continue the focus on ensuring that TORM sets
strategically relevant ESG targets. The focus will continue
to be on applied AI competences and cyber-security, and
due to increased interest from customers, we will look
further into methanol as a fuel. We will continue our work
on analyzing peak oil projections, utilizing our disruption
indicator modelling. Our partnership with macroeconomics
advisors will provide valuable insight in navigating the
intersection of global markets, geopolitics, and policy. In
doing so, we aim to mitigate emerging risks and act in due
time.
Read more about TORM’s forward focus on page 15
I look forward to connecting with you at our Annual General
Meeting in April 2023 and updating you at that time on our
progress. Thank you for your continued support.
Christopher H. Boehringer
Chairman of the Board
Chairman’s introduction
TORM ANNUAL REPORT 2022
GOVERNANCE STRUCTURE
83
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
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.
Senior Independent Director
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.
Non-Executive Directors
Committed to contributing
constructively to challenge and help
develop proposals on strategy.
Executive Director
Responsible for the day-to-day
management of TORM and for TORM’s
operational development, results, and
internal development.
Implements the strategies and overall
decisions approved by the Board of
Directors.
Board Observers
Three types. Employee-elected
Observers, providing a communication
platform between the employees and
the Board of Directors. Minority Board
Observer appointed by the B-
shareholder and Board member-elected
Observers. All Observers are entitled to
attend and speak at Board meetings.
Audit 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.
Risk Committee
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.
Nomination Committee
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.
Remuneration Committee
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 page 89
Read more about the role and activities
of the Risk Committee on page 95
Read more about the role and activities
of the Nomination Committee on
page 97
Read more about the role and activities
of the Remuneration Committee on page
100
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 and assists the Executive Director in the day-to-day management of the business.
TORM’s governance structure
Governance structure
TORM ANNUAL REPORT 2022
GOVERNANCE STRUCTURE
84
Christopher H. Boehringer
Non-Executive Director and Chairman of
TORM’s Board of Directors
David N. Weinstein
Senior Independent Director and Deputy
Chairman of TORM’s Board of Directors
Göran Trapp
Non-Executive Director
Annette Malm Justad
Non-Executive Director
Jacob Meldgaard
Executive Director and
Chief Executive Officer
Nationality
: Canadian
Nationality
: American
Nationality
: Swedish
Nationality
: Norwegian
Nationality
: Danish
First elected: 2015
Appointed: 2015, continues until
removed by the B-shareholder
First elected: 2015
First elected: 2020
First elected: 2015
Employment
: Managing Director and Head
of Europe, Oaktree Capital Management
(International) Limited
Employment
: Senior Investment Banking,
Governance, and Reorganization
Specialist
Employment
: Board member
Employment
: Board member
Employment
: Chief Executive Officer of
TORM since 01 April 2010
Skills and experience
: Shipping, strategy,
capital investment, M&A. Goldman
Sachs, FI Travel Corporation, Warburg
Dillon Read/SG Warburg, and LTU GmbH
& Co
Skills and experience
: Strategy, capital
markets and finance, risk management
and oversight, extensive public company
and corporate governance experience,
global business, US Listings (i.e. Seadrill
Limited, Stone Energy Corp, and Deep
Ocean Group) and as Managing Director
of Calyon Securities Inc, BNP Paribas,
Bank of Boston and Chase Securities Inc.
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
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
Skills and 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. Moller - Maersk
External appointments:
Utmost Group, Marco Capital Holdings
Limited and Oaktree Capital Management
(International) Limited
External appointments: N/A
External appointments
: Board member of
Energex Partners Ltd.
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 and PowerCell Sweden AB
External appointments
: Chairman of the
Board of Danish Shipping and Grant
Compass A/S and Board member of
International Chamber of Shipping,
Danish Ship Finance, SYFOGLOMAD Ltd,
and the TORM Foundation
Committees:
Committees:
Committees:
Committees:
Committees: None
Audit:
Risk:
Nomination:
Remuneration:
Chairman:
Board of Directors
C
C
C
C
C
C
TORM ANNUAL REPORT 2022
GOVERNANCE STRUCTURE
85
Board
Audit
Committee
Risk
Committee
Nomination
Committee
Remuneration
Committee
Meetings held in 2022
15
6
3
2
3
Chairman of the Board
Christopher H. Boehringer
14
2
3
Senior Independent Non-Executive Director
David N. Weinstein
15
6
3
2
3
Executive Director
Jacob Meldgaard
15
Non-Executive Independent Directors
Annette Malm Justad
14
6
3
2
3
Göran Trapp
14
6
3
Board Observers
Christian Gorrissen
14
Jeffrey S. Stein
7
Rasmus J. Skaun Hoffmann
14
Board of Directors:
Audit:
Risk:
Nomination:
Remuneration:
Chairman:
Board and committee meeting attendance
C
C
C
C
C
C
Board evaluation
According to the recommendations of the UK
Corporate Governance Code 2018, the Board is to
review and assess its performance annually. Whilst the
Committee keeps the composition of the Board under
regular review, the annual review of Board effectiveness
provides an opportunity for reflection on how we can
continue to enhance the profile of the Board.
As TORM is not a company listed in the UK, we are not
required to have an external evaluation under the UK
Corporate Governance Code. Instead, TORM has
undertaken an internal evaluation involving a detailed and
thorough review of the Board and its principal Committees
that covered a wide range of topics. This year, additional
questions were included in the Board self-evaluation, which
focused on whether the shift to virtual meetings during the
pandemic had a negative impact on Board culture, whether
the Board is sufficiently informed on the AI projects that
TORM is working on, and whether the Board has access to
the views of the workforce that provides meaningful
information and data that the Board can use when
considering the impact of the strategic decisions on
employees.
What the Board did in 2022 is described on pages
87-88
Leadership, governance, and engagement
TORM ANNUAL REPORT 2022
GOVERNANCE STRUCTURE
86
Gender diversity
Ethnicity
Tenure
Independence
4
1
Male
Female
Other
5
White
Ethnically diverse
Other
1
4
0-3 years
4-6 years
7-10 years
3
1
1
Independent
Executive
Non-
Independent
TORM ANNUAL REPORT 2022
GOVERNANCE STRUCTURE
87
In 2022, TORM’s Board of Directors worked with
strategically important areas with particular focus on risks
and opportunities in both the short and the long run. The
governance structure is set for this and is ongoingly
developed to be contemporary.
TORM’s governance structure is described on page
83
Learn more about the activities of the Committees
on pages 89-110
Strategy update
TORM runs a strategic update on a yearly basis. The topics
below are to some extent a reflection of the work, which
the Board of Directors has conducted prior to the strategic
work. The result of the strategic work is presented in the
strategic report of this Annual Report.
Distribution Policy
In May 2022, TORM announced a new, transparent
Distribution Policy with the purpose of distributing all cash
generated over a certain minimum threshold per vessel to
our investors. With this new policy, TORM’s investors get
distributions that are highly reflecting the cash earnings in
the product tanker market.
Geopolitical updates
The development in the geopolitical landscape means that
global companies potentially face new risks. TORM has
partnered up with macroeconomics advisors to gain better
strategic insights to navigate the intersection of global
markets, geopolitics, and policy. By doing so, TORM aims to
be as knowledgeable as possible to be able to mitigate
emerging risks and act in due time.
Dubai office
A large and increasing part of the world’s refinery capacity
will be running in the Middle East in the future. In the fall of
2022, TORM therefore decided to be present in Dubai,
closer to our customers. The office will be our ninth office
when opening in 2023.
Disruption indicator model
Transportation of refined oil is expected to decline at some
point in the future when electrification of passenger and
other vehicles accelerates. For TORM to be able to act in
due time, we work with several indicators for when peak oil
can be expected. Although peak oil is not the same as peak
in ton-miles, we also use acknowledged reports from
renowned organizations in our understanding of peak oil
projections.
Carbon capture and CO
2
transportation
As part of TORM’s work with adjacent business areas, an
analysis was made to strengthen our understanding of the
carbon capture market, in particular the post-consumption
absorption. Carbon capture is one of the key technology
areas to achieve climate goals. TORM has no concrete
plans to enter the carbon capture market but will, along
with other technologies, continue to assess the carbon
capture market.
ME Production
In 2018, TORM joined forces with ME Production China
(“MEP”) to produce scrubbers for TORM’s vessels to
reduce sulfur emissions. In the third quarter of 2022,
TORM agreed to increase the stake by acquiring 75% of ME
Technology in Denmark, which owns MEP, thereby
strengthening the combination of the experience and
engineering resources at MEP with the operational
excellence at TORM, helping us in achieving our
environmental targets, where we have decided to push fast
forward to deliver a 40% CO
2
reduction by 2025 and 45%
by 2030 compared to 2008.
ESG oversight
Environmental, social and governance risks and
opportunities are recurringly on the agenda for the Board of
Directors meetings. These risks and opportunities have
many shapes and forms, however, measuring and reporting
are becoming still more focused and aligned, helping TORM
to set strategically relevant targets related to ESG. In
2022, TORM made the first Scope 3 calculations and TCFD
assessments, and more ESG reporting disclosures will come
in the near future. TORM’s Audit Committee will have
oversight of the reporting as it advances into more
advanced stages involving limited and reasonable
assurance, and TORM’s Risk Committee will work with the
risks, such as disruption indicators, CO
2
tax, and more.
Board activities 2022
TORM ANNUAL REPORT 2022
GOVERNANCE STRUCTURE
88
Methanol trades
TORM expects that the demand for seaborne
transportation of methanol will increase over the coming
years, driven by the expansion of power-to-x facilities,
producing green hydrogen-based fuels including methanol,
and the ordering and ongoing construction of vessels using
methanol-based propulsion systems. TORM is currently not
conducting methanol trades but does experience some
interest from customers. TORM has several vessels which
could be prepared for methanol trading and will continue to
analyze the potential in that market.
Cyber-security
One of the themes which is more and more frequently on
the agenda for the Board of Directors and the Risk
Committee meetings is cyber-security. In our Enterprise
Risk Management framework, we assess that the likelihood
of this risk materializing is still increasing. Reasons for this
are many, but Russia’s invasion of Ukraine means that the
risk that TORM will be subject to a cyber-attack has
increased. Further, as shipping in general and TORM’s
business model in particular are becoming more digital, it is
important for TORM to have defenses in place to prevent
cyber-attacks and to have contingency plans in place, if
they do occur. Although TORM has a high level of cyber-
security, we see a constant need to improve our defense as
risks increase, and for that reason a detailed cyber-risk
maturity project was initiated during 2022 and will continue
in the coming years.
Maintain experienced tonnage
With the new ton-mile demands of the product tanker
market and the limited order book for the years to come, it
is reasonable to assume that there will be a need in the
market for a higher number of older vessels than previously.
Consequently, TORM is ready to operate and maintain our
vessels for a longer period, if required.
Board activities 2022
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
89
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 83
Terms of Reference for the Audit Committee are
available at www.torm.com/investors/governance
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 of 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 Group
Financial Controlling & Internal Controls together with
senior representatives of TORM’s independent auditors are
invited to attend all or part of the meetings by invitation as
appropriate.
Updates related to financial reporting
•
Quarterly overview of the product tanker market
conditions and its impact on the quarterly results
•
Russia’s invasion of Ukraine and geopolitical instability
•
Net divestment of seven vessels
•
Acquisition of Marine Exhaust Technology A/S, a
Danish industrial company specializing in developing
and producing advanced and green marine equipment
Audit Committee report
Committee reports
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
At a glance
Chairman
Göran Trapp
Members
Annette Malm Justad
David N. Weinstein
Composition
The Audit Committee is composed solely of Independent
Non
‑
Executive Directors.
Meetings
The Audit Committee had six scheduled meetings in 2022. The
members’ attendance at the Committee meetings can be seen on
page 85.
2022 highlights
•
The first fully integrated audit was performed on the Annual
Report 2022 in compliance with section 404(b) of the
Sarbanes-Oxley Act
•
Quarterly assessment of the impairment indicator test of the
vessels in the fleet
•
Going concern assessment and viability statement
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
90
Principal activities in focus
Financial reporting
•
Key elements of the Quarterly Reports and the Annual
Report as well as the estimates and judgements
included in TORM’s financial disclosures
•
The appropriateness of Management’s and the external
auditor’s analysis and conclusions on judgemental
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
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
Risk and compliance
•
Reports from Group Legal on the status of significant
litigations, claims, and investigations from tax
authorities
•
Compliance review of the UK Corporate Governance
Code 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 whistleblower function
process and its remediations
External audit
•
Monitoring the effectiveness and quality of the external
audit process through examination and review of the
coverage provided by the external auditor’s audit plan
•
Reviewing reports from the external auditor on key audit
and accounting matters, 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
Audit Committee report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
91
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.
Please refer to Note 1 to the financial statements.
The going concern statement is set out in the
Financial Review page 67
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 impairment testing
of the carrying amount of TORM’s vessels in the fleet within
the single cash-generating unit (CGU) comprised of the
Main Fleet of LR2, LR1 and MR vessels.
The carrying amount was tested using the fair value less
cost of disposal for the CGU. Supported by the fair value
less cost of disposal, the Audit Committee concluded not to
conduct any impairments on the CGU as the fair value less
cost of disposal showed a significant headroom of 42%
compared to the carrying amount. Please refer to Note 10
to the financial statements.
Management prepared an analysis of the potential impact
of climate change and how different drivers might have
implications on the impairment assessment. Among the
drivers were the fleet age, TORM’s short and long-term
climate targets, and the risk of stranded assets. Together
with Management, the Audit Committee discussed the
different drivers and their impact on the value of the fleet.
While the potential impact of the drivers can have a
material impact on the value of the fleet, the Audit
Committee agreed that currently they only pose potential
risks but risks that Management should be mindful of when
evaluating different investment options. The Audit
Committee will continue to monitor the development
closely.
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
reviewed on a yearly basis and cost of voyage to the
scrapping place. In 2021, the Audit Committee agreed to
the recommendation from Management to gradually phase-
in the green recycling prices in the calculation of residual
values by applying an equal weighted average of green
recycling and conventional recycling prices, while still using
a three-year average to limit volatility in the residual values.
In continuation of the decision made in 2021, it was agreed
by the Audit Committee in 2022 that TORM should further
increase the weight of green recycling prices from 50% to
60% compared to conventional recycling prices as the
market continued to mature.
Audit Committee report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
92
Effectiveness of the Audit Committee
In 2022, the Audit Committee carried out a detailed self-
assessment by way of a questionnaire and discussions
facilitated by the Head of Group Financial Controlling &
Internal Controls. Based on the self-assessment, no
material concerns arose.
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 2023.
In the absence of an internal audit function, internal
assurance is achieved through the work of Group Internal
Control and PwC’s testing of the internal controls. To the
extent possible, external audit relied on control tests
performed by PwC.
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 TORM’s system of internal control, including
the risk management framework, the compliance
framework, and the work of the internal control function.
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 70-77
The Board of Directors fulfills its responsibility regarding
effectiveness of the risk management and Internal Controls
over Financial Reporting (ICFR) through the Audit
Committee. As a result of the US listing on Nasdaq in 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.
Due to the size of the company, TORM has since the listing
in 2017 been exempt from an external auditor attestation
under Section 404(b) of SOX. The exemption can be
applied for a maximum of five years after the listing, and as
a result, 2022 was the first year that TORM was required to
have controls audited by its external auditor to comply with
Section 404(b) of SOX. To ensure TORM meets its target
of SOX compliance, the Audit Committee continuously
monitors the status of the ICFR. This oversight by the Audit
Committee includes recurring reporting, including
management oversight, the outcome of management
testing, and the status of auditor testing. The Audit
Committee ensures that Management sufficiently
addresses deficiencies when they become present.
Having monitored TORM’s ICFR, the Audit Committee has
not identified any material weaknesses in TORM’s ICFR
through either management testing or external audit.
Audit Committee report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
93
ESG
At the request of the Board of Directors in 2021, the Board
of Directors and members of the Audit Committee
participated again in 2022 in a deep dive covering the ESG
area. The deep dive was facilitated by experts from PwC.
The purpose was to further understand how to effectively
set up Board oversight, a good governance structure
including roles and responsibilities, how ESG data is
collected, and how to report on ESG measures including the
alignment towards the financial reporting. In addition to the
deep dive, the Audit Committee has on several occasions
throughout the year received updates by Management on
the development of regulatory requirements and how
Management is planning to and progressing in the
implementation of these requirements. The Audit
Committee will continue to monitor the development within
the ESG area including the implementation by
Management.
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, or 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 reappointment of the external
auditors for the 2023 financial year, and the Board of
Directors will be proposing the reappointment of EY at the
upcoming AGM.
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 auditor 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.
The Audit Committee maintains a policy and has
procedures in place for the pre-approval of all audit
services, audit-related services and other services
undertaken by the external auditor. The principal purpose of
this policy is to ensure that the independence and the
objectivity of the external auditor are 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 2022 Audit
Committee meeting. A copy of the policy can be made
available on request.
Audit Committee report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
94
Audit and non-audit fees
Full disclosure of the audit and non-audit fees paid during
2022 can be found in Note 6 to the financial statements.
Audit fees:
USD 1.0m
Non-audit fees:
USD 0.4m
The independent auditor may be contracted to perform
certain non-audit activities. The Audit Committee believes
that this can be performed without compromising the
auditor’s 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.
Fees relating to the provision of non-audit services by EY
amounted to USD 0.4m corresponding to 40% of the total
audit fees. The Audit Committee considered that the
services provided were most efficiently provided by the
external auditor. To maintain the external auditor’s
independence and objectivity, the external auditor 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
16 March 2023
Audit Committee report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
95
Chairman’s statement
This report provides an overview of how the Risk Committee
operates, an insight into the Risk Committee’s activities,
and its role in monitoring and reviewing the integrity and
quality of TORM’s companywide risk management.
The role of the Risk Committee
Read more about the Risk Committee’s area of
responsibility on page 83
Terms of Reference for the Risk Committee are
available at www.torm.com/investors/governance
Risk Committee Members
The Risk Committee shall at any time consist of at least two
independent members of the Board of Directors, each of
whom shall meet the independence requirements and have
sufficient qualifications within risk management and capital
market knowledge to have the ability to make an
independent assessment of the appropriateness of TORM’s
risk management and control environment as well as the
planning and execution of the risk management policies and
funding activities.
Meetings
The Risk Committee meets no less than three times a year.
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 on
pages 70-77 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.
Cyber-security
Cyber-security is a recurring agenda item at each meeting.
The Risk Committee reviews TORM’s cyber-security
program established to enhance and mature TORM’s cyber-
security even further over the coming years.
Customer credit risk
During 2022, 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.
The credit rating levels have been updated, and the ratings
define a maximum number of active voyages and nominal
amount per customer instead of only a nominal outstanding
amount.
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.
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 N. Weinstein
Composition
The Risk Committee is composed solely of Independent
Non
‑
Executive Directors.
Meetings
The Risk Committee had three scheduled meetings in 2022. The
members’ attendance at the Committee meetings can be seen on
page 85.
2022 highlights
•
Risk management review of TORM’s policies on insurance, IT,
financial instruments, and its Financial Policy
•
Review of TORM’s capital structure risk
•
Intensified focus on IT security risk and oil demand disruption
•
Review and approval of the Enterprise Risk Management
report
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
96
SOFR amendment to loan and derivative contracts
TORM needs to amend all existing interest rate swaps and
floating-rate-based leasing and loan agreements to replace
US LIBOR interest rates with SOFR interest rates because
of changes in regulation. The Risk Committee has reviewed
the amendment plan.
Liquidity governance
The Risk Committee approved TORM’s liquidity risk and net
loan-to-value risk methodologies. TORM works with break-
even levels to ensure sufficient liquidity is available for the
next 12 months. Furthermore, TORM ensures that financial
gearing related to loan agreements can manage periods of
low profitability and declining vessel values.
Financial Policy
The Risk Committee approved that TORM may, in addition
to the current policy, perform foreign exchange hedging of
the coming 13 to 36 months. Prior to the approval, only
hedges up to 12 months were approved.
Maritime safety threats
The Risk Committee reviewed the measures taken by TORM
to assess, manage, and mitigate future safety threats.
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
which TORM has taken to mitigate these risks.
ESG reporting/TFCD
In 2022, TORM conducted a climate-related scenario
analysis using the Task Force on Climate-related Financial
Disclosures (TCFD) guidelines to assess transition and
physical risks and opportunities and how they might impact
the resilience of TORM’s strategy. The findings from the
scenario analysis were presented and discussed with the
Risk Committee. The climate-related risks identified
through the scenario analysis exercise have been
incorporated into TORM’s annual Enterprise Risk
Management process and will become part of the recurring
items discussed at the Risk Committee meetings.
Enterprise Risk Management
The Risk Committee reviewed the key risks faced by TORM
and the underlying drivers of these 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 2023.
Read more about TORM’s annual risk assessment
on pages 70-77
Approval
On behalf of the Risk Committee
Göran Trapp
Chairman of the Risk Committee
16 March 2023
Risk Committee report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
97
Chairman’s statement
In 2022, no changes were made to the Nomination
Committee, and the key focus areas of the Nomination
Committee have been governance, succession planning,
and employee engagement.
The role of the Nomination Committee
Read more about the Nomination Committee’s area
of responsibility on page 83
Terms of Reference for the Nomination Committee
at www.torm.com/investors/governance
Compliance with the code
The Nomination Committee complies with the UK
Corporate Governance Code except for provision 18. This
provision 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.
At the 2021 Annual General Meeting, a decision was made
to update TORM’s Articles of Association to move from bi-
annual re-election to annual re-election of the remaining
Directors. All TORM’s Non-Executive Directors will submit
themselves for re-election at the 2023 AGM.
The Nomination Committee reviewed the independence of
all Non-Executive Directors pursuant to the UK Corporate
Governance Code. Except for the Chairman, the
Nomination Committee is composed solely of Independent
Non
‑
Executive Directors, and they continue to make
independent contributions to 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 2023 Annual General
Meeting.
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 they each continued to demonstrate challenge and
independent judgement and to devote sufficient time to
discharging their duties.
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 N. 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
2022.The members’ attendance at committee meetings can be
seen on page 85.
Focus area
11%
11%
11%
67%
Succession planning
Diversity
Employee population
Governance
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
98
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 cyber-security, TORM’s use of AI,
methanol as a fuel, the electricity grid being able to support
the electric vehicle increase, and geopolitical risks.
Read more about what the Board did this year on
pages 87- 88
Employee engagement
Throughout the year, the Nomination Committee received
updates on key elements of the people strategy, which
provides insight into a variety of areas, including culture,
diversity and inclusion, succession planning, future
capabilities, and colleague engagement.
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.
Read about TORM’s diversity targets from page 37
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 key individuals, as well as promoting diversity
and inclusion.
Retention rate
At the end of 2022, the retention rate for all shore-based
employees was 90%, which is still at a satisfactory level. In
2021 and 2020, the retention rate was 88% and 92%,
respectively.
Read more about our employee health and
well-being on page 36
Approval
On behalf of the Nomination Committee
Christopher H. Boehringer
Chairman of the Nomination Committee
16 March 2023
Nomination Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Board diversity matrix
Country of principle Executive Offices
United Kingdom
Foreign private issuer
Yes
Disclosure prohibited under home law
No
Total number of Directors
5
Gender identity
Female
Male
Non-Binary
Not disclosed
Directors
1
4
-
-
Underrepresented individual in home country jurisdiction
None
LGBTQ+
Not known
Did not disclose demographic background
5
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
99
Total remuneration 2022
of the CEO
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
99
Annual performance bonus KPI outcomes
For 2022, the Remuneration Committee established a KPI bonus scorecard
across four areas. These were: Contribution Margin, Carbon Footprint, Safety
and Quality and Administrative Cost to a maximum bonus potential of 70%
against which 7% was attained.
2022 annual bonus
7%
50%
57%
Formulaic outcome
percentage of
maximum 70%
Committee
discretion maximum
50%
Final outcome
percentage of
maximum 120%
Total remuneration 2022
Annual performance bonus discretionary
The Remuneration Committee reviews the CEO incentive award prior to payment
using judgement to ensure that the final assessment of performance is fair and
appropriate. If circumstances warrant it, the Remuneration Committee may
adjust the final payment.
Despite a backdrop where the geopolitical landscape was changed dramatically,
and where we were all confronted by the tragic Russian invasion of and
subsequent war in Ukraine, the One TORM platform proved to be ready for the
changes that occurred, leading to the strongest result on record for TORM with a
Adjusted Return on Invested Capital of 28.1% and expected dividend payouts
related to 2022 earnings of USD 379m. Taking this into consideration, the
Remuneration Committee decided to award the CEO the full 50% available at its
discretion.
Long-term incentive plan
Awarded in 2022
Restricted Share Units
255,200
Exercise price per share
DKK 58.00
Vesting over three years
2023 - 2025
Grant value
USD 0.5m
64%
34%
2%
2022: USD 1,744m
2021: USD 2,448m
Base salary
Benefits
Annual
performance
bonus
50%
7%
Committee discretion (50%)
One TORM KPIs (70%)
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
100
Chairman's statement
The Renumeration Committee report describes the
activities of the Remuneration Committee for the period 01
January 2022 to 31 December 2022. 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.
Find TORM’s Remuneration Policy at
www.torm.com/investors/governance
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 the auditor’s 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 83
Find the Terms of Reference for the Remuneration
Committee at www.torm.com/investors/governance
Compliance with the code
The Remuneration Committee is in full compliance with the
UK Corporate Governance Code except for provision 32.
This provision 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.
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 N. Weinstein
Composition
Except for the Chairman, the Remuneration Committee is
composed solely of Independent Non
‑
Executive Directors.
Meetings
The Remuneration Committee had two scheduled meetings in
2022. The members’ attendance at committee meetings can be
seen on page 85.
Focus area
37%
3%
22%
5%
10%
23%
One TORM KPIs
CEO remuneration
LTIP
Employee remuneration
Governance
Board remuneration
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
101
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 attended some meetings, and
other members of Management may attend when
necessary.
Activities during 2022
KPIs
As detailed in the Annual Report 2021, a new KPI structure
which better aligns TORM’s performance with bonus
payouts to employees was instigated in 2022. In
accordance with the UK Corporate Governance Code, the
Remuneration Committee reviewed the proposed KPI
catalogue, from which employees would be able to select,
to ensure that remuneration is aligned to Company purpose
and values and is clearly linked to the successful delivery of
the Company’s long-term strategy.
Extraordinary bonus
In December, the Remuneration Committee unanimously
agreed that an extraordinary general bonus should be paid
out to our employees in lieu of the strong financial results
for the Company and also taking into account the general
increase in cost-of-living pressures brought about by the
current geopolitical climate. Senior management and
executives who are part of the long-term incentive
programme were excluded from the payment.
Succession and the wider workforce
In addition, the Remuneration Committee engaged in
discussions surrounding the wider workforce remuneration
and incentives to ensure that, as a company, TORM creates
an environment where our most talented employees are
recognized and given greater responsibilities.
Annual Remuneration Policy review
The Remuneration Committee reviewed the Remuneration
Policy. The conclusion was that no amendments to the
Remuneration Policy were required at this time. The
Remuneration Policy was approved at the 14 April 2021
AGM. 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.
Approval
On behalf of the Remuneration Committee
Christopher H. Boehringer
Chairman of the Remuneration Committee
16 March 2023
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
102
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Remuneration at a glance
Executive Director’s and Chief Executive Officer’s remuneration
Fixed pay
Base salary
Effective 01 January 2022
Chief Executive DKK 7.39m
Effective 01 January 2023
Chief Executive DKK 7.72m
Executive Director salary
Euro 70,000
Euro 70,000
Benefits
DKK 276,000, covering the running and maintenance expenses associated with
a private vehicle
DKK 276,000, covering the running and maintenance expenses associated with a
private vehicle
Pension
Not entitled to any pension
Not entitled to any pension
Annual bonus
Short-term incentive
Opportunity (% of salary):
Maximum: 120% of the base salary in the financial year 2022
Opportunity (% of salary):
Maximum: 120% of the base salary in the financial year 2023
Long-term incentive
Long-term incentive
Granted a total of 255,200 RSUs with effect as of 01 January 2022, which will
vest in equal installments over the next three years. The exercise price for each
RSU is DKK 53.5
Granted a total of 255,200 RSUs with effect as of 01 January 2023, which will
vest in equal installments over the next three years. The exercise price for each
RSU is DKK 58.0
Statement of voting at the AGM
Shareholder voting on the resolutions to approve the annual Remuneration Report put to the 2022 AGM and the Directors’ Remuneration Policy put to the 2021 AGM were as follows:
Votes for
%
Votes against
%
Total votes
Abstentions
Annual Remuneration Report
47,924,209
59.2
1,897,025
3.8
49,821,234
1,033
Directors' Remuneration Policy
48,123,828
63.9
3,018,434
4.0
51,142,262
952
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
103
Executive Director’s and Chief Executive
Officer’s remuneration
Single total figure of remuneration
The table to the right sets out the 2021-22 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.
Base salary
The base salary is discussed and agreed with the Chairman
of the Board of Directors and the Remuneration Committee
once a year. Base salary as of 01 January 2022: DKK
7.39m (USD 1,040m). In addition, the CEO receives Euro
70,000 (USD 72,000) for his role as Executive Director.
The CEO’s base salary was reviewed on 07 February 2023
to determine the appropriate salary for 2023. The base
salary as of 01 January 2023 was determined at DKK
7.72m, and the adjustment of the salary will take effect as
of 01 January 2023.
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 23,000 per month, covering the running
and maintenance expenses associated with a private
vehicle. For 2022, the amount of DKK 276,000 (USD
39,000) was 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 2023.
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Total remuneration for the financial year 2022
2022
2021
Fixed pay
(USD'000)
Fixed pay
(USD'000)
Base salary
1,112.0
1,243.4
Taxable benefits
38.8
44.0
Pension
-
-
Total fixed remuneration
1,150.8
1,287.4
Variable pay (USD'000)
Annual performance bonus
592.8
1,161.3
Total variable pay
592.8
1,161.3
Single total figure of remuneration (USD'000)
1,743.6
2,448.7
Change in remuneration of colleagues and Directors
% change from 2021 to 2022
Salary
Benefits
Bonus
Employee entire group
4.6%
0.0%
-1.9%
Chief Executive Officer
-10.6%
-11.8%
-49.0%
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
104
Performance bonus 2022
The Remuneration Committee has provided the CEO with a
performance cash bonus for the financial year 2022 in the
following range and based on the following parameters:
•
The fulfillment 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 2022 for the CEO is equal to 120% of the
CEO’s base salary in the financial year 2022. 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 2022 was determined to be a
total of 57% (7% on parameter 1 and 50% on parameter 2)
of the 2022 fixed annual salary of DKK 7.39m, resulting in
an amount of DKK 4,212m (USD 0.59m).
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.
The original RSUs granted to the CEO in 2016 vested in
equal amounts over a five-year period. Subsequent awards
vest in equal amounts over three years.
Vested RSUs may be exercised for a period of 360 days
from each vesting date. Details of the CEO’s awards and
interests in Restricted Share Units are set out on page 106.
The single figure remuneration table for the CEO does not
include any amounts in relation to the RSU awards since
2016, and there are no performance conditions associated
with the grant of RSUs.
As detailed in announcement no. 7 issued on 18 March
2021, the CEO was granted a total of 255,200 RSUs
which will vest in equal amounts over the next three years.
The first amount can be exercised from 01 January 2022.
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
Annual Report 2022 plus a 15% premium. Vested RSUs
may be exercised for a period of 360 days from each
vesting date.
As detailed in announcement no. 9 issued on 23 March
2022, the CEO was granted a total of 255,200 RSUs
which will vest in equal amounts over the next three years.
The first amount can be exercised from 01 January 2023.
The exercise price for each RSU is DKK 58, corresponding
to the average price of TORM shares in the 90 calendar
days preceding the publication of TORM plc’s Q4 2021
release plus a 15% premium. Vested RSUs may be
exercised for a period of 360 days from each vesting date.
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
105
Long-Term Incentive Program – Restricted Share Units granted to the Executive Director
Year
2016
2017
2018
2019
2020
2021
2022
Grant of RSUs excluding the Executive Director
723,069
866,620
944,470
1,001,054
1,047,389
1,099,921
1,137,770
Grant of RSUs to the Executive Director
1,276,725
-
766,035
-
-
255,200
255,200
Vesting period in years
3
3
3
3
3
3
3
Vesting period in years to the Executive Director
5
3
3
3
Beginning
01/01/2017
01/01/2018
01/01/2019
01/01/2020
01/01/2021
01/01/2022
01/01/2023
Exercise period from vesting
Six months
and 12 months
for the
Executive
Director
Six months
360 days
after each
vesting date
360 days
after each
vesting date
360 days
after each
vesting date
360 days
after each
vesting date
360 days
after each
vesting date
Exercise price
DKK 96.30
DKK 96.30
DKK 53.70
DKK 49.70
DKK 69.90
DKK 53.50
DKK 58.00
Reduced due to dividend payment
DKK 0.00
DKK 0.00
DKK 47.40
DKK 28.2
DKK 49.1
DKK 38.3
DKK42.8
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
USD 2.7m
Total RSUs expired unexercised
1,999,794
866,620
1,050,383
305,576
409,376
124,062
69,117
RSUs exercised within 2019
-
-
529,402
-
-
-
-
RSUs exercised within 2020
-
-
12,405
95,276
-
-
-
RSUs exercised within 2021
-
-
118,315
291,112
-
-
-
RSUs exercised within 2022
-
-
-
309,090
334,961
433,979
-
Total RSUs exercised by grant year
-
-
660,122
695,478
334,961
433,979
-
RSUs outstanding as of 31 December 2022
-
-
-
1
303,052
797,080
1,323,853
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
106
LTIP element of Jacob Meldgaard’s remuneration
package 2022
Grant date
18 March
2021
23 March
2022
RSU LTIP grant
255,200
255,200
Original exercise price
per share
DKK
53.50
DKK
58.00
RSU grant value
assuming 100% vesting
USD 0.6m
USD 0.5m
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 employment, TORM will pay to the
widow or any of his children below the age of 18 the fixed
salary including non-salary benefits for the current month
and a post-service salary for three months equal to the
fixed salary. However, such post-service salary will only be
paid until the date on which the employment would have
terminated because 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 contribution.
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 2022.
The Company does not consider making payments for loss
of office to Non-Executive Directors. For Executive
Directors, a termination notice cannot exceed 24 months.
Termination by the Executive Director must be subject to a
minimum of six months’ written notice. Any severance pay
cannot exceed an amount corresponding to the
remuneration paid for the preceding two years. The
Remuneration Committee will maintain a discretionary
approach to the treatment of leavers given that the facts
and circumstances of each case are unique. In an exit
situation, the Remuneration Committee will consider the
individual circumstances, any mitigating factors that may
be relevant, the appropriate statutory and contractual
position, and the requirements of the business for speed of
change.
Outside appointments
The Executive Director is entitled to retain the fees earned
from non-executive appointments outside TORM. Jacob
Meldgaard was appointed Non-Executive Director of Danish
Ship Finance A/S for which he received DKK 350,000 and
Non-Executive Director of SYFOGLOMAD Limited for which
he received EUR 5,000 for his services. Jacob Meldgaard is
also Chairman of the Board 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 2022, none of the
Non-Executive Directors received any part of their
remuneration in shares or warrants.
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
107
The Executive Director’s interests 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 2022. During the period 01 January to 31
December 2022, 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 2022 and 16 March 2023.
The 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 2022.
No changes took place in the Directors’ interests between
31 December 2022 and 16 March 2023.
Remuneration for Non-Executive Directors
The table to the right summarizes the remuneration paid to
the Non-Executive Directors of TORM in 2022. The fees
payable can be found in the Remuneration Policy and are
paid in Euros. The decrease in fees in USD is in relation to
exchange rates. The fees in Euros remain unchanged year
on year. 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.
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Executive Director’s interests in the shares of the Company (audited)
Jacob Meldgaard's Restricted Share Units
Awarded
Vested not
exercised
Agreed not to
exercise
Exercised
Unvested
2016
1,276,725
-
-
-
1,276,725
2017
-
255,345
-
-
1,021,380
2018
766,035
255,345
766,035
-
766,035
2019
-
-
255,345
510,690
2020
-
255,345
-
-
255,345
2021
255,200
255,345
-
-
255,200
2022
255,200
-
-
85,066
425,334
2022 statement of Directors' shareholding and share interests
Director
Ordinary
shares as of
01 Jan 2022
Ordinary
shares as of
31 Dec 2022
Changes from
31 Dec 2022
to 11 Mar
2023
Ordinary
shares as of
11 Mar 2023
Christopher H. Boehringer
21,204
21,204
-
21,204
David N. Weinstein
5,000
5,000
-
5,000
Göran Trapp
12,820
12,820
-
12,820
Annette Malm Justad
2,700
2,700
-
2,700
Jacob Meldgaard
255,411
340,477
-
340,477
The above table shows the total number of share interests of each Director.
2022 remuneration table Non-Executive Directors
USD '000
Base fee
Committee fee
Total
Director
2022
2021
2020
2022
2021
2020
2022
2021
2020
Christopher H. Boehringer
157
176
171
52
60
85
210
235
256
David N. Weinstein
104
117
114
104
116
86
207
234
200
Göran Trapp
52
59
57
104
117
114
155
176
171
Annette Malm Justad
52
59
57
104
117
82
155
176
139
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
108
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,
and 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 to 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.
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
6-year historical performance. TORM plc vs peers
and the OMX index
Financial year remuneration for the Chief Executive
Officer
72
71
51
62
56
58
129
96
106
108
112
134
177
176
0
20
40
60
80
100
120
140
160
180
200
2016
2017
2018
2019
2020
2021
2022
Peer average
TORM
OMX
67%
60%
45%
117%
100%
100%
57%
1,473
1,626
1,531
2,208
2,307
2,449
1,744
0%
20%
40%
60%
80%
100%
120%
140%
0
500
1,000
1,500
2,000
2,500
3,000
2016
2017
2018
2019
2020
2021
2022
Annual bonus (% earned of base salary)
Total remuneration USD '000
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
109
Annual percentage change in Directors’
remuneration
The table to the right shows the percentage change over
the year ended 31 December 2021 to the year ended 31
December 2022 in respect of the Directors’ remuneration
and average employee remuneration. As required by
legislation, the Directors’ remuneration is compared to the
employees of TORM plc on a full-time equivalent basis.
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.
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Change in remuneration of colleagues and Directors’
Salary or fees % change
Benefits % change
Bonus % change
2021 to
2022
2020 to
2021
2021 to
2022
2020 to
2021
2021 to
2022
2020 to
2021
Chief Executive Officer
-10.6%
10.1%
-11.8%
7.4%
-49.0%
2.1%
Christopher H. Boehringer
-10.9%
-8.1%
N/A
N/A
N/A
N/A
David N. Weinstein
-11.4%
16.8%
N/A
N/A
N/A
N/A
Göran Trapp
-11.7%
2.9%
N/A
N/A
N/A
N/A
Annette Malm Justad
-11.7%
26.5%
N/A
N/A
N/A
N/A
Colleagues entire group
4.6%
3.5%
0.0%
0.0%
-1.9%
1.4%
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 Director’s fees is 1.5%, taxable benefits is 0.0% and annual bonus is -42.1%.
% change in Euro for Non-Executive Director fees is 0%. Fees have remained unchanged.
Relative importance of spend on pay
Expenditure USDm
2022
2021
2020
2019
Dividends paid
166.7
-
70.6
-
Purchase of outstanding treasury shares in TORM A/S
-
-
-
-
Purchase/disposals of treasury shares
-
-
1.3
-
Executive Director’s remuneration
1.7
2.4
2.3
2.2
Total
168.4
2.4
74.2
2.2
Staff costs
49.7
52.1
50.7
45.8
Retained earnings
1,290.4
899.5
939.2
920.0
TORM ANNUAL REPORT 2022
COMMITTEE REPORTS
110
Remuneration Policy
The TORM plc Remuneration Policy approved at the 20
April 2021 AGM remained unchanged during 2022. 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 at
www.torm.com/investors/governance/
2023 remuneration
The Remuneration Policy approved at the 14 April 2021
AGM will be implemented for the financial year 2023. 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
16 March 2023
Remuneration Committee
report
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
Share information
Exchanges
Nasdaq CPH and NY
ISIN (CPH)
GB00BZ3CNK81
CUSIP (NY)
G89479102
Tickers
TRMD A and TRMD
Year high (TRMD A)
DKK 225.00 (03 Nov.)
Year low (TRMD A)
DKK 42.78 (24 Jan.)
Number of A-shares (end
2022)
82,311,299
Number of treasury shares
493,371
Financial calendar 2023
13 April 2023, Annual General Meeting
11 May 2023, First quarter 2023 results
17 August 2023, First half 2023 results
09 November 2023, Nine months 2023 results
Investor relations contact
Andreas Abildgaard-Hein
Vice President, External Reporting and IR
Phone: +45 3917 9339
Jomkwan Palitwanon
Investor Relations
Phone: +45 3917 9331
Analyst coverage
ABG Sundal Collier
Petter Haugen
Phone: +47 22 01 61 39
Clarksons
Frode Mørkedal
Phone: +47 22 01 63 27
Danske Bank
Håvard Sjursen Lie
Phone: +47 40 47 44 43
Evercore ISI
Jonathan B. Chappell
Phone: +1 212 497 0827
Fearnley Securities
Øystein Vaagen
Phone: +47 22 93 63 97
Kepler Cheuvreux
Anders Redigh Karlsen
Phone: +47 23 13 90 68
Pareto Securities
Eirik Haavaldsen
Phone: +45 24 13 21 20
Skandinaviska Enskilda Banken AB
Ulrik Bak
Phone: +45 31 25 60 33
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,
US and Asian financial centers.
In 2022, TORM issued a total of 33 announcements to the
stock exchange.
Find all announcements in English at
https://www.torm.com/investors/announcements
Three weeks prior to the publication of quarterly and annual
financial statements, communication with investors is
limited to issues of a general nature, and in that period no
individual investor meetings are held.
Investor information
Other
TORM ANNUAL REPORT 2022
OTHER
111
Share price performance
In 2022, TORM had an average of 81,804,130 A- shares
outstanding. The average daily trading volume on Nasdaq in
Copenhagen has been approximately 305,000 shares and
approximately 314,000 shares on Nasdaq in New York.
During 2022, the share price increased from DKK 51.7 to
DKK 198.4 on Nasdaq in Copenhagen and from USD 7.96
to USD 29.2 on Nasdaq in New York. Throughout 2022,
TORM has been part of the Mid Cap segment on Nasdaq in
Copenhagen. As of 02 January 2023, TORM became part
of the Large Cap segment on Nasdaq in Copenhagen.
The 2022 share price development is available at
www.torm.com/investors/share
Changes to the share capital
As of 31 December 2021, TORM plc’s total share
capital was USD 812,332.71 consisting of 81,233,269 A-
shares of USD 0.01 each, one B-share and one C-share
both of USD 0.01.
During 2022, TORM has increased its share capital by
1,078,030 A-shares as a result of the same number of
Restricted Share Units being exercised.
Share capital
As of 31 December 2022, TORM’s share capital amounted
to USD 823,113.01 divided into 82,311,299 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 82,311,299 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 2022, 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 Meetings 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 Meetings 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, 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.
Investor information
TORM ANNUAL REPORT 2022
OTHER
112
The B-share can only be transferred to (i) another trustee (it
is currently held by SFM Trustee Limited on behalf of the
minority shareholders), or (ii) the Company if the B-share is
redeemed or (iii) any person who has acquired 100% of the
issued A-shares. The B-share cannot be encumbered.
The C-share is held by Oaktree and can only be transferred
(i) to one of Oaktree’s affiliates or (ii) to the Company if the
C-share is redeemed or (iii) any person who has acquired
100% of the issued A-shares. The C-share cannot be
encumbered.
For further details on the transferability, please see
the Articles of Association at
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 01
January 2020 to 31 December 2022, 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 01 January 2020 to 31
December 2022, 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
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.
All the above authorities to issue and purchase shares
expire on 14 April 2025.
Details of TORM’s CEO’s share scheme and any rights
attached to the shares under this scheme is set out in the
Directors’ Remuneration report.
The U.K. Takeover Code, issued and administered by the
U.K. Takeover Panel, applies to the Company.
Investor information
TORM ANNUAL REPORT 2022
OTHER
113
Share pre-emption grant
Share repurchase grant
Authority
Date
Value
Granted
14 April 2020
USD 777,625
Utilized
15 May 2020
USD 10,474
Utilized
18 March 2021
USD 13,551
Utilized
23 March 2022
USD 13,930
Remaining
USD 739,670
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
Shareholders
As of 31 December 2022, TORM had approximately
12,003 registered shareholders representing
approximately 87% of the share capital.
In 2020, TORM has been subject to UK Disclosure
Guidance and Transparency Rules under which
shareholders have a 3% ownership notification
requirement. From 01 January 2021, because of Brexit,
TORM has changed its home member state in relation to
the 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 2022 and 2023 to date, OCM Njord
Holdings S.à r.l. (Oaktree) is the only shareholder with more
than 5% of the share capital holding 65% of the share
capital.
As of 31 December 2022, 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 2022, the members of the Board of Directors
held a total of 382,201 shares, equivalent to a total market
capitalization of DKK 75,828,678 or USD 10,875,861.
The Board of Directors and certain employees are limited to
trading shares during a four-week period after the
publication of the financial report.
TORM’s Transfer Agent is Computershare Inc, P.O. Box
43006, Providence RI, 02940-3078, USA.
Distribution Policy
TORM intends to distribute on a quarterly basis excess
liquidity above a fixed threshold cash level as of the balance
sheet date. For each quarter, the threshold cash level will
be determined as the product of cash requirement per
vessel and the number of owned and leased vessels in
TORM’s fleet as of the balance sheet day. Excess liquidity is
determined as TORM’s readily available liquidity less the
threshold cash level. The readily available liquidity is defined
as i) TORM’s cash balance at the last day of the quarter
preceding the relevant distribution date excluding
restricted cash, plus ii) undrawn amounts on TORM’s
working capital facilities, minus iii) proceeds received from
vessel sales, or additional proceeds from vessel refinancing,
or securities offerings in the past 12 months earmarked for
share repurchases, debt prepayment, vessel acquisitions,
or general corporate purposes.
The cash requirement per vessel is fixed at:
•
USD 1.5m for 30 June 2022
•
USD 1.8m for 30 September 2022 onwards
In line with the Distribution Policy effective from the second
quarter of 2022, the Board of Directors has decided to
recommend a distribution of USD 212m for the fourth
quarter of 2022.
Dual listing and trading
TORM’s A-shares are listed on Nasdaq in Copenhagen
under the ticker TRMD-A and on Nasdaq in New York under
the ticker TRMD. TORM’s A-shares can move freely
between the two Nasdaq exchanges.
Warrants and Restricted Share Units
As of 31 December 2022, 2,423,986 RSUs were
outstanding with 1,078,030 being exercised during 2022.
The specific terms for the RSUs are described on
pages 100-110
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/
Investor information
TORM ANNUAL REPORT 2022
OTHER
114
TORM ANNUAL REPORT 2022
OTHER
115
Engagement and decision-making
The following information forms 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 TORM for the benefit of its members as a whole during
the year ended 31 December 2022.
Why?
Why is it important to engage?
How?
How did Management and Directors engage?
Outcomes and actions
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’s management and the Directors have a continuous focus on
unleveraging the integrated One TORM platform, TORM’s capital
structure, TORM’s ESG agenda, and the product tanker market
fundamentals in support for short-term and long-term RoIC generation
with the aim of maximizing the long-term value for TORM’s shareholders.
TORM issued 33 stock exchange announcements during 2022. After the
lockdowns related to the COVID-19 pandemic were stopped, it was again possible
to conduct physical meetings with investors. TORM did, however, still organize
several conference calls and presentations via digital platforms with investors
through e.g. analysts. Further, TORM was represented on a number of industry
panels.
In connection with the development of TORM’s updated ESG reporting, equity
analysts, investors, and ESG consultants have been consulted about their
requirements for the 2022 reporting. TORM has included TCFD and Scope 3
reporting for the first time in the 2022 Responsibility report.
TORM is actively communicating initiatives that are affecting leverage and
liquidity, and we 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 of
Directors supports an open dialogue between the
Board and the workforce.
TORM regards responsible behavior as a central
part of the Company, our business, and the
mindset of our people.
The Board of Directors 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, how they are investigated
through the whistleblower facility.
Two employee-elected representatives attended all Board meetings as
Observers. The current Observers include one office-based employee and
one sea-based employee. Observers are permitted to participate but are
not permitted to formally vote on matters submitted to a vote.
The Board of Directors receives and follows up on the Employee
Engagement Survey performed twice a year.
Since 006, 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 40
The Observers on TORM’s Board of Directors allow TORM’s
employees to have a direct line of questioning to and receiving
feedback from the Board. Full details of attendance can be found on
page 85
In 2022, we continued our bi-annual real-time data engagement
survey, which we introduced in 2019. More than 98% of all land-
based employees responded to this survey. Read about TORM’s
engagement survey on page 36
TORM ANNUAL REPORT 2022
OTHER
116
Engagement and decision-making
Why?
Why is it important to engage?
How?
How did Management and Directors engage?
Outcomes and actions
What was the impact of the engagement?
Suppliers and Customers
Managing the relationship with suppliers and
customers is an integral part of the way TORM
conducts its business.
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 of Directors includes a
Tradability KPI ensuring that TORM vessels are available to meet our
customers’ demands.
TORM encourages feedback from its customers and suppliers.
The Board of Directors’ pre-emptive actions enabled TORM to ensure a smooth
continuation of operations throughout 2022.
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 more about how TORM meets customers’ requirements on
pages 12 and 36
In 2022, TORM made a supplier assessment to establish a baseline and
understand the status of our suppliers to facilitate a dialogue with them about
how we together can extend and improve the quality of sustainability efforts.
The after-effects of COVID-19 combined with the war in Ukraine led the global
supply chains to be under immense pressure throughout the year. TORM’s supply
chain proved successful in maintaining more than reasonable cost levels against
this ever-increasing tide of rising costs.
Lenders
Strong relationships with our banks, financial
institutions, and investors support 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 is also in dialogue with leasing providers for operational lease
funding of vessel acquisitions and for sale and leaseback transactions with
buy-back options and no obligations to mitigate stranded asset risk.
TORM is engaged with funding providers to understand ESG risks related
to financing in order to be an attractive and transparent borrower.
In 2022, TORM entered into one new leasing agreement to finance a second-hand
vessel. The sale and leaseback transaction is structured as an operational lease
securing TORM’s option to redeliver the asset to the lessor at the end of the lease.
TORM ANNUAL REPORT 2022
OTHER
117
Engagement and decision-making
Why?
Why is it important to engage?
How?
How did Management and Directors engage?
Outcomes and actions
What was the impact of the engagement?
Regulators
As a company incorporated in the UK and listed
on Nasdaq in both 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, the committees and through
the compliance systems, the Board of Directors ensures that the
Company remains up to date with the latest regulatory changes. Examples
of matters discussed this year by the Board of Directors or the
committees include:
•
IMO regulations on CO2 emissions
•
Danish Shipping and the Charter for More Women in Shipping
•
Mærsk McKinney Møller Center for Zero Carbon Shipping as a Mission Ambassador
•
ESG reporting requirements
•
Sanctions compliance
•
TORM’s Business Principles ensure that TORM is always in
compliance with legislation and lives up to the commitment to
responsible business practices. See page 40
TORM’s Corporate Governance statement is available at
www.torm.com/about
TORM’s Modern Slavery Act Statement is available at
www.torm.com/responsibility
Read more about TORM’s participation in Danish Shipping on pages
17 and 31 and the Centre for Zero Carbon Shipping on
pages 28
Community and 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 is improving its ESG reporting to improve insight into TORM’s
environmental impact and to enable enhancement opportunities in the
future.
For information on how the TORM Philippines and the TORM India’s
Education Foundations have been uplifting and supporting the
educational development actions in the community, see page 38
To see how TORM is actively involved in various industry
collaborations supporting our ambitious journey to achieve our 2050
environmental target of zero CO
2
emissions from our operating fleet,
see pages 30-33
To support TORM’s ambitious CO
2
target, TORM’s Management will
be measured on achieving it. You can read more about TORM’s ESG
journey on pages 22-49
TORM ANNUAL REPORT 2022
OTHER
118
The Directors are pleased to present the Annual Report on
the affairs of the TORM Group for 2022, 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 115-117
Responsibility statement
A responsibility statement made by the Board of Directors
regarding the preparation of the financial statements is
required under UK-adopted International Accounting
Standards.
TORM’s responsibility statement can be found on
page 121
Going concern
TORM’s going concern statement can be found on
page 67
Corporate governance statement
The corporate governance statement sets out how the
Company complies with the UK Corporate Governance
Code 2018 and includes a description of the main features
of our internal control and risk management arrangements
in relation to the financial reporting process.
Find TORM’s corporate governance statement at
www.torm.com/investors/governance
A description of the composition and operation of
the Board of Directors and its Committees can be
found on page 85
Other information included in the strategic
report
The strategic report on pages 4-69 provides a review of
TORM’s operations in 2022 and the potential future
developments of those operations. Details on greenhouse
gas emissions are included in the strategic report from page
31, and details on TORM’s general policy relating to
recruitment, training, career development, and disabled
employees are included on page 38.
Information on the Directors’ regard for the need to
foster the Company’s business relationship with
suppliers, customers, and other stakeholders is set
out on pages 116-118
Directors and their interests
Information on the Directors of the Company who
served during the financial year 2022 and up to the
date of signing the financial statements can be
found on page 85
The rules relating to the appointment and the
replacement of Directors and the Directors’ powers
can be found in TORM’s Articles of Association at
www.torm.com/investors/governance
Details of Directors’ interests in the Company is set
out on page 107
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 01 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 112
Directors’ report
TORM ANNUAL REPORT 2022
OTHER
119
Dividends
In line with the Company’s Distribution Policy, the Board of
Directors has decided that USD 212m will be distributed as
dividends for the fourth quarter of 2022. The dividends will
be paid 05 April 2022. Combined with the dividends paid in
September and November 2022, TORM has paid a total
amount of USD 379m in dividends for the fiscal year 2022.
Sustainability
Information about the Company’s approach to
sustainability risks and opportunities is set out from page
71. Also included on these pages are details on 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 23 to the
financial statements. Details on financial risks are provided
in the Risk management section on pages 70-74.
Annual General Meeting
TORM’s next Annual General Meeting (AGM) will be held on
13 April 2023. The notice of the AGM, including the
complete proposals, will be available on TORM’s website,
www.torm.com, prior to the meeting and will be available
for inspection from the Company Secretary, Elemental
CoSec.
Articles of Association
As per section 21 of the Companies Act 2006, TORM may
only amend its Articles of Association by special resolution.
TORM's Articles of Association are available at
https://www.torm.com/investors/governance
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 from office at the first annual general
meeting after their appointment. The Company’s Directors
were re-elected at the 2022 Annual General Meeting and
will therefore be due to retire in 2023. 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, Elemental CoSec.
Payment for loss of office
TORM’s policy in regard to payments for loss of office can
be found in the Remuneration Policy.
TORM’s Remuneration Policy is available at
https://www.torm.com/investors/governance
Research and development
The Company continues to focus on optimization of assets
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 US. Further details
on the Company's global presence are set out on page 171.
Political donations
No political donations were made during 2022.
Significant shareholdings
Details on significant shareholdings are set out in the
Investor information on page 112.
Controlling shareholder
TORM’s controlling shareholder, Oaktree, owns TORM plc’s
sole C-share, which carries 350,000,000 votes at the
General Meetings 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.
Directors’ report
TORM ANNUAL REPORT 2022
OTHER
120
Recent developments and post-balance sheet
events
Details of important events affecting TORM which have
occurred since the end of the financial year are disclosed in
Note 2 to the financial statements.
Independent auditor
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
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 115-117
Approval
On behalf of the Board of Directors
Christopher H. Boehringer
Chairman of the Board of Directors
16 March 2023
Directors’ report
TORM ANNUAL REPORT 2022
OTHER
121
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable United Kingdom laws and regulations as well as
additional requirements for listed companies in accordance
with the Danish Financial Statements Act.
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) as well as
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 01 January 2022 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.
Due to the Company having shares listed on a regulated
market in Denmark, the Annual Report and financial
statements are furthermore prepared in accordance with
the additional requirements of the Danish Financial
Statements Act applicable to listed companies (reporting
class D).
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 as well as
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 01 January 2022
(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 as well as 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 01 January 2022 have
been followed, subject to any material departures
disclosed and explained in the financial statements
•
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
Statement of Directors’ responsibilities
TORM ANNUAL REPORT 2022
OTHER
122
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 as well as additional
disclosure requirements for listed companies in accordance
with the Danish Financial Statements Act. They are also
responsible for safeguarding the assets of the Group and
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable laws 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 including additional disclosure requirements for
listed companies in accordance with the Danish Financial
Statements Act. 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:
•
The consolidated financial statements, prepared in
accordance with the Companies Act 2006 and UK-
adopted International Accounting Standards as well as
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 01
January 2022, and the parent company financial
statements, prepared in accordance with United
Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable
law), 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
Further, the Annual Report for the financial year 01 January
- 31 December 2022 with the file
213800VL1H1ABVM1ZF63-2022-12-31-en.zip is
prepared, in all material respects, in compliance with the
ESEF Regulation (the European Single Electronic Format
Regulation).
This responsibility statement was approved by the Board of
Directors on 16 March 2023 and is signed on its behalf by:
Jacob Meldgaard
Executive Director
Statement of Directors’ Responsibilities
Safe harbor statement
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.
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 including
central bank policies intention to combat overall inflation
and rising interest rates, inflationary pressure, the general
domestic and international political conditions or events,
including “trade wars” and the conflict between Russia and
Ukraine, the highly cyclical natures of our business causing
fluctuations in charter hire rates and vessel values caused
by changes in supply vessels and constructions of
newbuildings and changes in “ton-mile” demand caused by
changes in worldwide OPEC petroleum production,
consumption and storage, the duration and severity of the
ongoing COVID-19 pandemic, including its impact on the
demand for petroleum products and the seaborne
transportation of clean products, the operations of our
customers including, losses of large customers, failures of
our contract counterparties to meet their obligations and
changes in their credit risks, the operations of our business
including availability of skilled crew members, labor
disruptions, our ability to attract and retain employees,
adequacy of insurance coverage, arrests of our vessels,
disruption of shipping routes due to adverse weather,
accidents and political events, the length and number of
off-hire periods our ability to complete vessel transactions
as planned,
the changes in governmental rules and
regulations including changes to US trade policies,
applicable regulations related to bribery, our limitations
under incorporation under the laws of England and Wales,
the new environmental regulations and increasing scrutiny
towards our ESG policies, the potential for technological
innovation to reduce vessel value and charter income, the
interruption or failure of our information technology and
communication system including cyber-attacks, the
increased cost of capital or limited access to funding due to
EU taxonomy and the potential liability from
future
litigation and future costs due to environmental damage
and vessel collision, the potential conflicts of interest
involving our board of directors and senior management .
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 2022
OTHER
123
Financial
statements
Consolidated financial statements
Consolidated income statement
125
Consolidated statement of comprehensive income
125
Consolidated balance sheet
126
Consolidated statement of changes in equity
127
Consolidated cash flow statement
129
Notes to the consolidated financial statements
130
Parent company financial statements
Management review for TORM plc
176
Income statement
177
Statement of comprehensive income
177
Company balance sheet
178
Company statement of changes in equity
179
Cash flow statement
180
Notes to parent company financial statements
181
Other
Independent auditor’s report
187
TORM fleet overview
193
Glossary and alternative performance measures
196
TORM ANNUAL REPORT 2022
FINANCIAL STATEMENTS
124
 
 
TORM ANNUAL REPORT 2022
CONSOLIDATED FINANCIAL STATEMENTS
125
Consolidated income statement
01 January-31 December
USD '000
Note
2022
2021
2020
Revenue
3, 4
1,443,351
619,532
747,356
Port expenses, bunkers, commissions, and
other cost of goods and services sold
-459,468
-240,937
-227,924
Operating expenses
5
-202,098
-190,471
-178,376
Profit from sale of vessels
27
10,165
-
1,069
Administrative expenses
5, 6
-55,005
-51,542
-50,773
Other operating income and expenses
5,992
414
-19,185
Share of profit/(loss) from joint ventures
152
-104
-242
Impairment losses on tangible assets
8, 10, 27
-2,647
-4,645
-11,096
Depreciation and amortization
7,8,9
-139,023
-130,851
-121,922
Operating profit (EBIT)
601,419
1,396
138,907
Financial income
12
4,037
241
536
Financial expenses
12
-48,793
-42,382
-49,914
Profit/(loss) before tax
556,663
-40,745
89,529
Tax
16
5,911
-1,344
-1,415
Net profit/(loss) for the year
562,574
-42,089
88,114
Net profit/(loss) for the year attributable to:
TORM plc shareholders
562,754
-42,089
88,114
Non-controlling interest
-180
-
-
Net profit/(loss) for the year
562,574
-42,089
88,114
Earnings per share for TORM plc
shareholders
Basic earnings/(loss) per share (USD)
31
6.92
-0.54
1.19
Diluted earnings/(loss) per share (USD)
31
6.80
-0.54
1.19
Consolidated statement
of comprehensive income
01 January-31 December
USD '000
2022
2021
2020
Net profit/(loss) for the year
562,574
-42,089
88,114
Other comprehensive income/(loss):
Items that may be reclassified to profit or loss:
Exchange rate adjustment arising from translation of
entities using a functional currency different from USD
-531
-209
16
Reclassification of exchange rate adjustments on
disposal of joint venture
51
-
-
Fair value adjustment on hedging instruments
54,851
8,455
-15,790
Fair value adjustment on hedging instruments
transferred to income statement
1,739
8,667
6,860
Tax on items that may be reclassified to profit or loss
-13,162
-
-
Items that may not be reclassified to profit or loss:
Remeasurements of net pension and other post-
retirement benefit liability or asset
-
-8
103
Other comprehensive income/(loss) after tax
42,948
16,905
-8,811
Total comprehensive income/(loss) for the year
605,522
-25,184
79,303
Total comprehensive income/(loss) for the year
attributable to:
TORM plc shareholders
605,607
-25,184
79,303
Non-controlling interest
-85
-
-
Total comprehensive income/(loss) for the year
605,522
-25,184
79,303
Consolidated financial statements
 
 
 
 
 
 
 
 
 
 
TORM ANNUAL REPORT 2022
CONSOLIDATED FINANCIAL STATEMENTS
126
Consolidated balance sheet
As of 31 December
USD '000
Note
2022
2021
2020
ASSETS
NON-CURRENT ASSETS
Intangible assets
Goodwill
7,10,33
1,835
-
-
Other intangible assets
7
1,941
-
-
Total intangible assets
3,776
-
-
Tangible fixed assets
Land and buildings
8,9
3,814
4,824
7,098
Vessels and capitalized dry-docking
8,9,10,20
1,855,903
1,937,791
1,722,465
Prepayments on vessels
8
-
11,996
12,024
Other plant and operating equipment
8
5,573
6,327
6,847
Total tangible fixed assets
1,865,290
1,960,938
1,748,434
Financial assets
Investments in joint ventures
76
1,473
1,588
Loan receivables
11
4,570
4,617
4,617
Deferred tax asset
16
555
651
344
Other investments
197
1
1
Total financial assets
5,398
6,742
6,550
Total non-current assets
3
1,874,464
1,967,680
1,754,984
CURRENT ASSETS
Inventories
72,033
48,812
22,459
Trade receivables
13
259,479
83,968
58,574
Other receivables
14
74,026
39,966
24,881
Prepayments
15
10,371
5,624
2,181
Cash and cash equivalents incl. restricted
cash
32
323,803
171,733
135,564
Current assets
739,712
350,103
243,659
Assets held for sale
27
-
13,216
-
Total current assets
739,712
363,319
243,659
TOTAL ASSETS
2,614,176
2,330,999
1,998,643
USD '000
Note
2022
2021
2020
EQUITY AND LIABILITIES
EQUITY
Common shares
17
823
812
748
Share premium
167,531
159,558
102,044
Treasury shares
17
-4,235
-4,235
-4,235
Hedging reserves
39,870
-3,559
-20,681
Translation reserves
-439
137
346
Retained profit
1,297,774
899,467
939,247
Equity attributable to TORM plc
shareholders
1,501,324
1,052,180
1,017,469
Non-controlling interest
33
2,350
-
-
Total equity
1,503,674
1,052,180
1,017,469
LIABILITIES
NON-CURRENT LIABILITIES
Non-current tax liability related to held-
over gains
16
45,176
45,176
44,923
Deferred tax liability
16
6,082
-
-
Borrowings
9,19,20,22
849,818
926,450
739,543
Other non-current liabilities
18
3,038
-
-
Total non-current liabilities
904,114
971,626
784,466
CURRENT LIABILITIES
Borrowings
9,19,20,22
117,107
208,951
102,858
Trade payables
22
48,502
35,332
14,350
Current tax liabilities
1,953
929
1,418
Other liabilities
18,22
31,141
43,681
59,782
Provisions
30
6,800
18,300
18,300
Deferred income
885
-
-
Total current liabilities
206,388
307,193
196,708
Total liabilities
1,110,502
1,278,819
981,174
TOTAL EQUITY AND LIABILITIES
2,614,176
2,330,999
1,998,643
 
 
 
 
TORM ANNUAL REPORT 2022
CONSOLIDATED FINANCIAL STATEMENTS
127
Consolidated statement of changes in equity
01 January-31 December
USD '000
Common
shares
Share premium
Treasury
shares ¹
⁾
Hedging
reserves
Translation
reserves
Retained profit
Equity
attributable to
shareholders
of TORM plc
Non-
controlling
interest
Total
Equity as of 01 January 2020
747
101,289
-2,887
-11,751
330
919,959
1,007,687
-
1,007,687
Comprehensive income/loss for the year:
Net profit/(loss) for the year
-
-
-
-
-
88,114
88,114
-
88,114
Other comprehensive income/(loss) for the year²
⁾
-
-
-
-8,930
16
103
-8,811
-
-8,811
Total comprehensive income/(loss) for the year
-
-
-
-8,930
16
88,217
79,303
-
79,303
Capital increase
1
787
-
-
-
-
788
-
788
Transaction costs of capital increase
-
-32
-
-
-
-
-32
-
-32
Acquisition of treasury shares
-
-
-1,348
-
-
-
-1,348
-
-1,348
Share-based compensation
-
-
-
-
-
1,682
1,682
-
1,682
Dividend paid
-
-
-
-
-
-70,611
-70,611
-
-70,611
Total changes in equity 2020
1
755
-1,348
-8,930
16
19,288
9,782
-
9,782
Equity as of 31 December 2020
748
102,044
-4,235
-20,681
346
939,247
1,017,469
-
1,017,469
Comprehensive income/loss for the year:
Net profit/(loss) for the year
-
-
-
-
-
-42,089
-42,089
-
-42,089
Other comprehensive income/(loss) for the year ²
⁾
-
-
-
17,122
-209
-8
16,905
-
16,905
Total comprehensive income/(loss) for the year
-
-
-
17,122
-209
-42,097
-25,184
-
-25,184
Capital increase ³
⁾
64
57,799
-
-
-
-
57,863
-
57,863
Transaction costs of capital increase
-
-285
-
-
-
-
-285
-
-285
Share-based compensation
-
-
-
-
-
2,317
2,317
-
2,317
Total changes in equity 2021
64
57,514
-
17,122
-209
-39,780
34,711
-
34,711
Equity as of 31 December 2021
812
159,558
-4,235
-3,559
137
899,467
1,052,180
-
1,052,180
 
 
 
TORM ANNUAL REPORT 2022
CONSOLIDATED FINANCIAL STATEMENTS
128
Consolidated statement of changes in equity
01 January-31 December
USD '000
Common
shares
Share premium
Treasury
shares ¹
⁾
Hedging
reserves
Translation
reserves
Retained profit
Equity
attributable to
shareholders
of TORM plc
Non-
controlling
interest
Total
Equity as of 01 January 2022
812
159,558
-4,235
-3,559
137
899,467
1,052,180
-
1,052,180
Comprehensive income/(loss) for the year:
Net profit/(loss) for the year
-
-
-
-
-
562,754
562,754
-180
562,574
Other comprehensive income/(loss) for the year ²
⁾
-
-
-
56,591
-576
-
56,015
95
56,110
Tax on other comprehensive income
-
-
-
-13,162
-
-
-13,162
-
-13,162
Total comprehensive income/(loss) for the year
-
-
-
43,429
-576
562,754
605,607
-85
605,522
Capital increase ³
⁾
11
8,004
-
-
-
-
8,015
-
8,015
Transaction costs of capital increase
-
-31
-
-
-
-
-31
-
-31
Share-based compensation
-
-
-
-
-
2,211
2,211
-
2,211
Dividend paid
-
-
-
-
-
-166,658
-166,658
-
-166,658
Total changes in equity 2022
11
7,973
-
43,429
-576
398,307
449,144
-85
449,059
Non-controlling interest arising on acquisition
-
-
-
-
-
-
-
2,435
2,435
Equity as of 31 December 2022
823
167,531
-4,235
39,870
-439
1,297,774
1,501,324
2,350
1,503,674
¹
⁾
Please refer to note 17 for further information on treasury shares.
²
⁾
Please refer to "Consolidated Statement of Comprehensive Income".
³
⁾
Please refer to note 17 for further information on capital increases during the year.
 
 
 
TORM ANNUAL REPORT 2022
CONSOLIDATED FINANCIAL STATEMENTS
129
Consolidated cash flow statement
01 January-31 December
USD '000
Note
2022
2021
2020
Cash flow from operating activities
Net profit/(loss) for the year
562,574
-42,089
88,114
Reversals:
Profit from sale of vessels
-10,165
-
-1,069
Depreciation and amortization
7.8
139,023
130,851
121,922
Impairment losses on tangible assets
7, 10, 27
2,647
4,645
11,096
Share of profit/(loss) from joint ventures
-152
104
242
Financial income
12
-4,037
-241
-536
Financial expenses
12
48,793
42,382
49,914
Tax expenses
16
-5,911
1,344
1,415
Other non-cash movements
28
-3,691
1,350
1,093
Dividends received from joint ventures
-
275
275
Interest received and realized exchange
gains
4,037
241
583
Interest paid and realized exchange losses
-49,631
-41,046
-52,905
Income taxes paid
-658
-1,379
-252
Change in inventories, receivables and
payables, etc.
28
-180,915
-48,489
15,909
Net cash flow from operating activities
501,914
47,948
235,801
USD '000
Note
2022
2021
2020
Cash flow from investing activities
Investment in tangible fixed assets ¹
⁾
-119,344
-319,787
-173,050
Investment in intangible fixed assets
-618
-
-
Acquisition of subsidiaries, net of cash
acquired
33
1,070
-
-
Sale of tangible fixed assets
27
106,623
10,033
83,662
Change in restricted cash
23,542
19,161
-30,414
Net cash flow from investing activities
11,273
-290,593
-119,802
Cash flow from financing activities
Proceeds, borrowings
11, 19
96,254
548,817
734,346
Repayment, borrowings
19
-275,155
-253,420
-746,475
Dividend paid
-166,658
-
-70,611
Capital increase ¹
⁾
17
8,015
2,863
788
Transaction costs share issue
-31
-285
-32
Purchase/disposal of treasury shares
-
-
-1,348
Net cash flow from financing activities
-337,575
297,975
-83,332
Net cash flow from operating, investing, and
financing activities
175,612
55,330
32,667
Cash and cash equivalents as of 01 January
144,844
89,514
56,847
Cash and cash equivalents as of
31 December
320,456
144,844
89,514
Restricted cash as of 31 December
32
3,347
26,889
46,050
Cash and cash equivalents, including
restricted cash as of 31 December
323,803
171,733
135,564
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 17 for further reference.
 
 
TORM ANNUAL REPORT 2022
CONSOLIDATED FINANCIAL STATEMENTS
130
`
Notes to the
consolidated financial statements
Note 1 – Accounting policies, critical accounting estimates and judgements
131
Note 2 – Liquidity, capital resources, and subsequent events
135
Note 3 – Segment
137
Note 4 – Revenue from contracts with customers
140
Note 5 – Staff costs
141
Note 6 – Remuneration to auditors appointed at the parent company’s annual
general meeting
144
Note 7 – Intangible assets
144
Note 8 – Tangible fixed assets
145
Note 9 – Leasing
148
Note 10 – Impairment testing
150
Note 11 – Loan receivables
152
Note 12 – Financial items
153
Note 13 – Trade receivables
153
Note 14 – Other receivables
154
Note 15 – Prepayments
154
Note 16 – Tax
154
Note 17 – Common shares and treasury shares
155
Note 18 – Other liabilities
156
Note 19 - Effective interest rate, outstanding borrowings
157
Note 20 – Collateral security for borrowings
158
Note 21 – Guarantee commitments and contingent liabilities
158
Note 22 – Contractual obligations and rights
159
Note 23 – Derivative financial instruments
161
Note 24 – Risks associated with TORM’s activities
164
Note 25 – Financial instruments
168
Note 26 – Related party transactions
169
Note 27 – Assets held for sale and non-current assets sold during the year
170
Note 28 – Cash flows
170
Note 29 – Entities in the group
170
Note 30 - Provisions
172
Note 31 – Earnings per share and dividend per share
172
Note 32 – Cash and cash equivalents, including restricted cash
173
Note 33 – Business combination
173
TORM ANNUAL REPORT 2022
NOTES TO THE FINANCIAL STATEMENTS
130
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
131
NOTE 1 – ACCOUNTING POLICIES, CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Overview of business
TORM plc is a shipping company that primarily owns and operates a fleet of product tankers and is
engaged in the marine exhaust industry. 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 Office 105, 20 St Dunstan’s Hill, London, EC3R 8HL, United Kingdom. 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, the 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 01 January 2022 and additional disclosure
requirements for listed companies in accordance with the Danish Financial Statements Act.
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 2022, TORM’s available liquidity including undrawn and committed facilities
was USD 416m, including a total cash position of USD 324m (including cash held for dividend
payment). TORM’s net interest-bearing debt was USD 663m, and the net debt loan-to-value ratio
was 25% (Tanker segment only and before dividend payment). 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 24 to the financial statements. The
principal risks and uncertainties facing TORM are set out on pages 70-74.
TORM monitors its funding position throughout the year to ensure that we have access to
sufficient funds to meet the forecasted cash requirements, including potential newbuildings,
purchase of second-hand vessels 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 increased geopolitical risk following Russia’s invasion of Ukraine in February 2022 and the
associated effects on the product tanker market. The changed geopolitical situation has so far
been positive for the product tanker market, and TORM’s base case assumes that this positive
sentiment related to freight rates and vessel values will continue throughout 2023. In the base
case, TORM has sufficient liquidity and headroom above all the covenant limits.
NOTE 1
- continued
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 70-74 and
include different distressed outlooks for the product tanker market. In a stress case scenario,
Management has stressed freight rates to the lowest rolling four-quarter average since 2000 on a
per vessel class basis and a decline in vessel values. In such scenario, TORM maintains sufficient
headroom on liquidity and covenants.
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 2024. 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 2024. Accordingly, TORM continues to adopt the going concern basis in preparing
its financial statements.
Notes to the consolidated financial statements
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
132
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 2022:
•
Annual Improvements 2018-2020
•
Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37
Provisions, Contingent Liabilities and Contingent Assets
It is assessed that application of these effective on 01 January 2022 has not had any material
impact on the consolidated financial statements in 2022.
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:
•
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)
•
Amendments to IAS 1 Presentation of Financial Statements (01 January 2024)
•
Amendments to IFRS 16
Lease Liability in a Sale and Leaseback
(01 January 2024)
•
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:
•
Segment reporting
•
Revenue from contracts with customers
•
Staff costs
•
Intangible assets
•
Tangible fixed assets
NOTE 1
- continued
•
Leasing
•
Impairment
•
Loan receivables
•
Financial items
•
Trade receivables
•
Tax
•
Other liabilities
•
Borrowings
•
Derivative financial instruments
•
Provisions
•
Earnings per share
•
Business combinations
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 reassesses whether it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above.
When the Company has less than a majority of the voting rights of an investee, it has power over
the investee when the voting rights are sufficient to give it the practical ability to direct the relevant
activities unilaterally. The Company considers all facts and circumstances in assessing whether or
not the Company’s voting rights in an investee are sufficient to give it power, including:
•
The size of the Company’s holding of voting rights relative to the size and dispersion of holdings
of the other vote holders
•
Potential voting rights held by the Company, other vote holders, or other parties
•
Rights arising from other contractual arrangements
•
Any additional facts and circumstances 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.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
133
NOTE 1
- continued
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.
NOTE 1
- continued
Income statement
Port expenses, bunkers, and commissions and other costs of goods and services sold
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.
Gains and losses on forward bunker contracts, forward freight agreements (FFA) as well as write-
down for losses on trade 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 and income
Other operating expenses primarily comprise management fees paid to commercial and technical
managers for managing the fleet, profits and losses deriving from the disposal of fixed assets other
than vessels as well as claims and disputes provisions.
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 historical impairment losses.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
134
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.
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.
Inventories
Inventories consist of bunkers, lube oil and other inventories and are stated at the lower of cost in
accordance with the FIFO-principle and net realizable value. Cost of bunkers and lube oil includes
expenditure incurred in acquiring bunkers and lube oil including delivery costs less discounts. The
cost of other inventories consists of raw materials and components based on direct costs, direct
payroll costs and a proportionate share of indirect production costs. Indirect production costs
include the proportionate share of capacity costs directly relating hereto, which are allocated on
the basis of the normal capacity of the production facility.
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.
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.
Other non-current liabilities
Other non-current liabilities consist of long-term employee-related liabilities related to the frozen
Danish holiday funds in connection with the transition to the new Danish Holiday Act. TORM has
elected to keep the holiday funds until the employees, covered at the transition date, reach the age
of retirement. The liability is remeasured annually based on an index rate published by the Holiday
Allowance fund.
NOTE 1
- continued
Trade payables
Trade payables are recognized at the fair value of the item purchased and are subsequently
measured at amortized cost.
Deferred income
Deferred income relates to amounts received from customers in advance of the related
performance obligations being satisfied.
Cash flow statement
The cash flow statement shows how income and changes in the balance sheet items affect cash
and cash equivalent, i.e. how cash is generated or used in the period. The cash flow statement is
presented in accordance with the indirect method commencing with “Net profit/(loss) for the
year”.
Cash flow from operating activities converts income statement items from the accrual basis of
accounting to cash basis. Starting with “Net profit/(loss) for the year”, non-cash items are
reversed, and actual payments are 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, 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.
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.
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
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
135
NOTE 1
- continued
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.
Judgements
Management has assessed that TORM has two cash-generating units (CGUs), being the Main Fleet
and the Marine Exhaust cash-generating units. The Main Fleet is comprised of TORM’s LR1, LR2
and MR vessels, which 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 cargo 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.
In addition, the activities within the Marine Exhaust segment represent a single CGU because cash
inflows are generated independent of the cash inflows from the Main Fleet from serving the existing
external customer base of the Marine Exhaust segment.
In 2021 and 2020, CGUs outside the Main Fleet in the Tanker segment comprised the two
Handysize vessels, which are typically used for shorter and coastal trade routes and more frequent
port calls. The Handysize vessels were both disposed of during 2022.
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 or changes in circumstances which
would indicate that the carrying amount of its vessels might not be recoverable. In assessing the
recoverability of the vessels, the Company reviews certain indicators of potential impairment or
indication of any past impairment losses that should be reversed such as reported sale and
purchase prices, market demand and general market conditions.
NOTE 1
- continued
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 10.
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 2022, TORM’s cash and cash equivalents including restricted cash totaled
USD 324m (2021: USD 172m, 2020: USD 136m), and undrawn and committed credit facilities
amounted to USD 93m (2021: 38m, 2020: USD 132m). The undrawn and committed credit
facilities consisted of
two revolving credit facilities as part of a syndicate loan agreement. TORM
had no newbuildings on order as of December 2022 (2021: one, 2020: two).
TORM has a Syndicated Facilities Agreement which includes a USD 144m Term Facility
Agreement, an undrawn USD 48m Revolving Credit Facility and an undrawn USD 45m Working
Capital Facility with maturity in 2026. The undrawn facilities were utilized in 2021 and repaid by
TORM in 2022. In addition to the Syndicated Facilities, TORM has a USD 202m Term Facility
Agreement with Danish Ship Finance with maturity in 2027. Further, TORM has a USD 31m Term
Facility Agreement and a USD 11m Term Facility Agreement both with maturity in 2025, and a
USD 21m 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 41m with maturity in
2030 and with KfW-IPEX Bank of USD 38m with maturity in 2032. As of 31 December 2022, the
scheduled minimum payments on mortgage debt and bank loans in 2023 were USD 73m.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
136
NOTE 2
- continued
TORM has lease debt of a total of USD 70m with various Japanese leasing providers expiring in
2026, lease debt of a total of USD 211m with BoComm Leasing which consists of a lease facility
of USD 46m expiring in 2025, a USD 4m lease facility to finance scrubber and ballast water
treatment systems expiring in 2024, a lease facility of USD 91m to finance three second-hand LR2
vessels expiring in 2029 and a facility of USD 71m to finance the two newbuilt LR2 vessels
delivered in late 2021 and early 2022, with expiry in 2031. Further,
TORM has a lease facility of a
total of USD 160m with China Development Bank Financial Leasing with expiry in 2029 and 2032
and a lease facility of USD 37m with China Merchant Bank Financial Leasing with expiry in 2033.
As of 31 December 2022, the scheduled minimum payments on lease agreements in 2022 were
USD 43m.
TORM manages its capital structure for the Group as a whole in order to support our spot-based
vessel employment profile. This is done through a conservative leverage, a strong liquidity position
and limited off-balance sheet commitments. TORM ongoingly stress tests the capital structure and
liquidity position as well as prepares cash forecasts to make sure the capital structure remains
robust to potential risks. Besides the liquidity position, the main considerations are loan-to-value
ratio, distribution policy, CAPEX commitments, off-balance sheet liabilities, terms and sources of
funding vessel investments, hedging of financial market risks and fleet employment strategy,
hereunder entering into FFA contracts.
In the second quarter of 2022, TORM introduced a new Distribution Policy where we intend to
distribute on a quarterly basis excess liquidity above a fixed threshold cash level as of the balance
sheet date. For each quarter, the threshold cash level will be determined as the product of cash
requirement per vessel and the number of owned and leased vessels in TORM’s fleet as of the
balance sheet date. Excess liquidity is determined as TORM’s readily available liquidity less the
threshold cash level. The readily available liquidity is defined as i) TORM’s cash balance at the last
day of the quarter preceding the relevant distribution date excluding restricted cash, plus ii)
undrawn amounts on TORM’s working capital facilities, minus iii) proceeds received from vessel
sales, or additional proceeds from vessel refinancing, or securities offerings in the past 12 months
earmarked for share repurchases, debt prepayment, vessel acquisitions, or general corporate
purposes.
The cash requirement per vessel is fixed at:
•
USD 1.5m for 30 June 2022
•
USD 1.8m for 30 September 2022 onwards
NOTE 2
- continued
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)
During 2022, 2021 and 2020, TORM did not have any covenant breaches, and Management has
assessed that a covenant breach in the near future is remote.
Subsequent events
On 25 January 2023, TORM entered into an agreement to acquire three LR1 vessels which
together with another agreement that TORM entered into earlier in January 2023 resulted in TORM
purchasing a total of seven 2011-2013 built LR1 vessels for an aggregate cash consideration of
USD 233.0m. All vessels are expected to be delivered no later than 30 April 2023 and are
expected to be financed by sale and leaseback agreements with a Chinese financial institution.
In March 2023, TORM entered into an agreement to purchase three 2013-built MR eco product
tanker vessels for a total cash consideration of USD 48.5m and the issuance of 1.42 million
shares. The vessels are expected to be delivered no later than 31 May 2023. The cash element of
the transaction is expected to be financed through traditional bank financing and in connection
with each of the three deliveries, TORM will issue one third of the total share issuance,
corresponding to 50% of the total consideration. The transactions will increase TORM's total fleet
to 88 vessels on a fully delivered basis.
In March 2023, TORM obtained commitment for refinancing of USD 433m bank and leasing
agreements into two new bank facilities, thereby extending debt maturities until 2028, with a
possibility to extend most of the debt expiration to 2029. Further, TORM has obtained
commitment for financing additional second-hand vessels for up to USD 123m with the same
expiration terms. Closing of the agreements is subject to documentation and is expected during the
second quarter of 2023.
The geopolitical risk increased significantly following Russia’s invasion of Ukraine in February
2022. The sanctions imposed on Russia by certain 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 rerouting 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, not least due to the implementation by the EU and other nations of oil import
and oil price cap sanctions that were imposed on Russian oil on 05 February 2023. 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.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
137
NOTE 3 – SEGMENT
Segment reporting - consolidated income statement
USDm
2022
Tanker
segment
Marine
Exhaust
segment
Intersegment
elimination
Total
Revenue
1,440.4
5.9
-2.9
1,443.4
Port expenses, bunkers, and commissions
-458.9
-
-
-458.9
Other cost of goods and services sold
-
-3.0
2.4
-0.6
Operating expenses
-202.1
-
-
-202.1
Profit from sale of vessels
10.2
-
-
10.2
Administrative expenses
-52.4
-2.6
-
-55.0
Other operating income and expenses
5.8
-
-
5.8
Share of profit/(loss) from joint ventures
0.2
-
-
0.2
Impairment losses and reversal of impairment on tangible assets
-2.6
-
-
-2.6
Depreciation and amortization
-138.7
-0.3
-
-139.0
Operating profit (EBIT)
601.9
-
-0.5
601.4
Financial income
4.0
0.1
-
4.1
Financial expenses
-48.7
-0.1
-
-48.8
Profit before tax
557.2
-
-0.5
556.7
Tax
5.9
-
-
5.9
Net profit for the year
563.1
-
-0.5
562.6
Prior to the acquisition of Marine Exhaust Technology A/S (MET) on 01 September 2022, TORM had only one reportable segment, the Tanker segment. Accordingly, comparative segmental information
is not provided.
The eliminations above represent revenue and other costs of goods and services sold from the installation of scrubbers performed by the Marine Exhaust entities on tanker vessels within the Tanker
segment. All revenue from the Tanker segment is derived from external customers.
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 2022, Switzerland and
Mexico contributed with 15.30% (USD 220.9m) and 12.35% (USD 178.2m) respectively of TORM’s revenue. In 2021, Switzerland and Mexico contributed with 23.16% (USD 143.5m) and 16.0% (USD
96.6m) respectively of TORM’s revenue. In 2020, Switzerland, the United States and Mexico contributed with 24.69% (USD 184.5m), 11.87% (USD 88.7m), and 10.73% (USD 80.2m) respectively of
TORM’s revenue. Revenue is allocated to countries based on the customer’s ultimate parent domicile.
A major part of TORM’s revenues stems from a small group of customers. In 2022, one customer accounted for 12% of TORM’s revenue in the Tanker segment (2021: one accounted for 15% in the
Tanker segment; 2020: one customer accounted for more than 10% in the Tanker segment).
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
138
NOTE 3
– continued
Segment reporting - consolidated balance sheet
USDm
2022
Tanker
segment
Marine
Exhaust
segment
Intersegment
elimination
Total
ASSETS
NON-CURRENT ASSETS
Intangible assets
Goodwill
-
1.8
-
1.8
Other intangible assets
0.7
1.3
-
2.0
Total intangible assets
0.7
3.1
-
3.8
Tangible fixed assets
Land and buildings
2.8
1.0
-
3.8
Vessels and capitalized dry-docking
1,863.4
-
-7.5
1,855.9
Other plant and operating equipment
4.1
1.5
-
5.6
Total tangible fixed assets
1,870.3
2.5
-7.5
1,865.3
Financial assets
Investments in joint ventures
0.1
-
-
0.1
Loan receivables
4.6
-
-
4.6
Deferred tax asset
0.5
-
-
0.5
Other investments
0.2
-
-
0.2
Total financial assets
5.4
-
-
5.4
Total non-current assets
1,876.4
5.6
-7.5
1,874.5
CURRENT ASSETS
Inventories
61.1
11.0
-0.1
72.0
Trade receivables
255.7
4.2
-0.4
259.5
Other receivables
72.7
1.3
-
74.0
Prepayments
9.7
0.7
-
10.4
Cash and cash equivalents incl. restricted cash
321.4
2.4
-
323.8
Total current assets
720.6
19.6
-0.5
739.7
TOTAL ASSETS
2,597.0
25.2
-8.0
2,614.2
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
139
NOTE 3
– continued
Segment reporting - consolidated balance sheet
USDm
2022
Tanker
segment
Marine
Exhaust
segment
Intersegment
elimination
Total
EQUITY AND LIABILITIES
Total equity
1,498.0
6.2
-0.5
1,503.7
LIABILITIES
NON-CURRENT LIABILITIES
Non-current tax liability related to held-over gains
45.2
-
-
45.2
Deferred tax liability
5.8
0.3
-
6.1
Borrowings
844.6
5.2
-
849.8
Other non-current liabilities
2.2
0.8
-
3.0
Total non-current liabilities
897.8
6.3
-
904.1
CURRENT LIABILITIES
Borrowings
115.7
1.3
-
117.1
Trade payables
46.4
3.5
-1.4
48.5
Current tax liabilities
1.6
0.4
-
2.0
Other liabilities
31.0
0.3
-0.2
31.1
Provisions
6.5
0.3
-
6.8
Deferred income
-
6.8
-5.9
0.9
Total current liabilities
201.2
12.7
-7.5
206.4
Total liabilities
1,099.0
19.0
-7.5
1,110.5
TOTAL EQUITY AND LIABILITIES
2,597.0
25.2
-8.0
2,614.2
Non-current asset additions during the year:
Goodwill
-
1.8
-
1.8
Other intangible assets
0.6
1.2
-
1.8
Land and buildings
0.3
1.1
-
1.4
Vessels and capitalized dry-docking
84.7
-
-7.5
77.2
Prepayments on vessels
43.1
-
-
43.1
Other plant and operating equipment
0.8
1.6
-
2.4
Total non-current asset additions
129.5
5.7
-7.5
127.7
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
140
NOTE 3 -
continued
The Company’s non-current assets are based on domicile of the legal entity ownership in the
following countries:
USDm
2022
2021
2020
UK
0.1
-
0.1
Denmark
1,389.7
1,442.9
1,199.9
Singapore
475.0
516.7
546.3
Other countries
4.5
2.9
3.7
Non-current assets
1,869.3
1,962.5
1,750.0
Accounting policies
The segmentation is based on the Group’s internal management and reporting structure. The
Group has two operating segments, the Tanker segment, for which the services provided primarily
comprise transportation of refined oil products such as gasoline, jet fuel, and naphtha, and the
Marine Exhaust segment for which the services provided primarily comprise developing and
producing advanced and green marine equipment.
Transactions between the segments are based on market-related prices and are eliminated at
Group level.
TORM considers the global product tanker market as a whole, and as the individual vessels are not
limited to specific parts of the world, the Group has only one geographical segment for the Tanker
segment. Further, the internal management reporting does not provide geographical information
for either the Tanker segment or the Marine Exhaust segment. Consequently, geographical
segment information on revenue from external customers or non-current segment assets for the
Tanker segment or the Marine Exhaust segment is not provided.
NOTE 4 – REVENUE FROM CONTRACTS WITH CUSTOMERS
USDm
2022
2021
2020
Disaggregation of revenue
Transportation of refined oil products
1,440.4
619.5
747.4
Scrubbers and related services
1.2
-
-
Welding and mounting
1.1
-
-
Others
0.7
-
-
Total revenue
1,443.4
619.5
747.4
Tanker segment
1,440.4
619.5
747.4
Marine Exhaust segment
5.9
-
-
Intersegment elimination
-2.9
-
-
Total revenue
1,443.4
619.5
747.4
USDm
2022
2021
2020
Customer contract balances
Trade receivables
259.5
84.0
58.6
Customer contract assets¹
⁾
3.0
2.0
-
Customer contract liabilities²
⁾
-0.9
-
-
Total
261.6
86.0
58.6
¹
⁾
Recognized in prepayments.
²
⁾
Recognized in deferred income.
Refer to Note 13 for further information on trade receivables. Customer contract assets primarily
relate to prepaid voyage expenses until the cargo load date. During the year, USD 2.0m was
recognized relating to customer contracts entered in 2022 (2021: USD 1.4m relating to 2020,
2020: USD 2.6m relating to 2019). Customer contract liabilities primarily relate to prepayments
received by customers in connection with scrubber installations. The acquisition of Marine
Exhaust Technology A/S resulted in an increase in customer contract liabilities of USD 4.3m.
Accounting policies
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
Revenue comprises freight, charter hire, and demurrage revenue from the vessels as well as
Marine Exhaust revenue. Revenue is recognized when or as performance obligations are satisfied
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
141
NOTE 4 -
continued
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 that the Group expects to be
entitled to. 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 customer receives the benefit during the voyage as it is provided.
Cross-over voyages
For cross-over voyages (voyages in progress at the end of a reporting period), the uncertainty and
the dependence on estimates are greater than for finalized voyages. The Company recognizes a
percentage of the estimated revenue for the voyage equal to the percentage of the estimated
duration of the voyage completed at the balance sheet date. The estimate of revenue is based on
the expected duration and destination of the voyage.
When recognizing revenue, there is a risk that the actual number of days it takes to complete the
voyage will differ from the estimate. The contract for a single voyage may state several alternative
destination ports. The destination port may change during the voyage, and the rate may vary
depending on the destination port. Changes to the estimated duration of the voyage as well as
changing destinations and weather conditions will affect the voyage expenses.
Demurrage revenue
Freight contracts contain conditions regarding the amount of time available for loading and
discharging of the vessel. If these conditions are breached, TORM is compensated for the
additional time incurred in the form of demurrage revenue. Demurrage revenue is recognized in
accordance with the terms and conditions of the charter parties. Upon completion of the voyage,
the Company assesses the time spent in port, and a demurrage claim based on the relevant
contractual conditions is submitted to the charterers. 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. For cross-over voyages, an estimate of
incurred demurrage is recognized at the balance sheet date.
The Company receives the demurrage payment upon reaching final agreement on the amount,
which could be up to approximately 100 days after the original demurrage claim was submitted.
Any adjustments to the final agreement are recognized as demurrage revenue.
Marine Exhaust revenue
Some of the Group’s contracts with customers relate to the sale of marine exhaust equipment
with installation services. Customers obtain control of the marine exhaust equipment with
installation services when the goods are delivered to the customer, they have completed
commissioning and delivery has been accepted by the customers. When without installation
services, customers obtain control of the marine exhaust equipment when the goods are delivered
to and have been accepted by the customers.
NOTE 4
-
continued
Revenue is thus recognized upon the customers obtaining control. There is generally only one
performance obligation related hereto.
A warranty provision is recognized for expected repair costs related to warranty claims for sold
marine exhaust equipment within the standard warranty period of one year. These provisions are
recognized when the equipment is sold and are based on historical experience. The warranty
provision estimates are updated annually.
NOTE 5 – STAFF COSTS
Employee information
Staff costs included in operating expenses relate to the 100 seafarers employed under Danish
contracts (2021: 106, 2020:109).
The average number of employees is calculated as a full-time equivalent (FTE).
The Executive Director is, in the event of termination by the Company, entitled to a severance
payment of up to 12 months' salary.
USDm
2022
2021
2020
Total staff costs
Staff costs included in operating expenses
7.7
9.7
9.2
Staff costs included in administrative expenses
42.0
42.4
41.5
Total
49.7
52.1
50.7
Staff costs comprise the following
Wages and salaries
38.8
42.1
42.3
Share-based compensation
2.9
2.3
1.7
Pension costs
3.3
3.6
3.3
Other social security costs
1.5
1.3
1.3
Other staff costs
3.2
2.8
2.1
Total
49.7
52.1
50.7
Average number of permanent employees
Seafarers
100
106
109
Land-based
386
341
332
Total
486
447
441
The majority of seafarers on vessels are on short-term contracts. The number of seafarers on
short-term contracts in 2022 was on average 1,565 (2021: 1,449, 2020: 1,474). Total
seafarers’ costs in 2022 were USD 76.3m (2021: USD 75.9m, 2020: USD 80.5m), which is
included in “Operating expenses”.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
142
NOTE 5
-
continued
USD '000
2022
2021
2020
Non-Executive Board and Committee remuneration, short
term
Christopher H. Boehringer
210
235
256
David N. Weinstein
207
234
200
Göran Trapp
155
176
172
Torben Janholt
-
-
89
Annette Malm Justad
155
176
139
Total
727
821
856
Executive Management
USD '000
Salary
Taxable
benefits
Annual
perform-
ance
bonus
Total
Executive Management remuneration
Jacob Meldgaard
2020, TORM A/S¹
⁾
1,052
41
1,262
2,355
2020, TORM A/S adjustment¹
⁾
-
-
-125
-125
2020, TORM plc¹
⁾
77
-
-
77
2021, TORM A/S¹
⁾
1,161
44
1,161
2,366
2021, TORM plc¹
⁾
82
-
-
82
2022, TORM A/S¹
⁾
1,040
39
593
1,672
2022, TORM plc¹
⁾
72
-
-
72
¹
⁾
Paid by legal entity as noted.
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 the CEO’s base salary. After final agreement with the Remuneration
Committee, the CEO’s bonus figure was set at DKK 7.0m (USD 1.1m), equating to 100% of his
base salary.
Key management personnel consist of the Board of Directors and the Executive Director. Total
compensation to key management personnel expensed during the year as detailed in this note
amounts to USD 2.5m (2021: USD 3.3m, 2020: USD 3.2m).
NOTE 5
-
continued
Senior Management Team
The aggregated compensation paid by the Group to the three (2021: 3) other members of
the Senior Management Team in 2022 (excluding CEO Jacob Meldgaard) was USD 2.1m
(2021: USD 2.2m, 2020: USD 2.1m), which includes an aggregate of USD 0.1m (2021: USD
0.1m, 2020: USD 0.1m) allocated for pensions (defined contribution plans) for these individuals.
LTIP element of CEO Jacob Meldgaard's remuneration package 2022:
Grant date
25-Apr-18
18-Mar-21
23-Mar-22
RSU LTIP grant¹
⁾
766,035
255,200
255,200
Exercise price per share
DKK 53.7
DKK 53.5
DKK 58.0
RSU grant value assuming 100% vesting
USD 0.9m
USD 0.6m
USD 0.5m
¹
⁾
LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 10 of 25
April 2018, announcement no. 7 dated 18 March 2021, and announcement no.9 dated 23 March 2022,
therefore there is no minimum or maximum for 2018, 2021 and 2022.
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 an 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 RSUs 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). There are no performance conditions associated with this grant of RSUs.
Refer to Long-Term Incentive Program – restricted share units granted to the executive director
on page 104 for further information. The original RSUs granted to the CEO in 2016 vested in
equal installments over a five-year period. Subsequent awards vest in equal installments over
three years.
Vested RSUs may be exercised for a period of 360 days from each vesting date. Details of the
CEO’s awards and interests in Restricted Share Units are set out on page 106.
The single figure remuneration table for the CEO does not include any amounts in relation to the
RSU awards as there are no performance conditions associated with this grant of RSUs.
As detailed in announcement no. 7 issued on 18 March 2021, the CEO was granted a total of
255,200 RSUs which will vest in equal amounts over the next three years. The first amount can be
exercised from 01 January 2022. 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 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
143
NOTE 5
–
continued
As detailed in announcement no. 9 issued on 23 March 2022, the CEO was granted a total of
255,200 RSUs which will vest in equal amounts over the next three years. The first amount can be
exercised from 01 January 2023. The exercise price for each RSU is DKK 58, corresponding to the
average price of TORM shares in the 90 calendar days preceding the publication of TORM plc’s
2021 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)
2022
2021
2020
Outstanding as of 01 January
2,372.9
2,187.5
2,228.3
Granted during the period
1,393.0
1,355.1
1,047.4
Exercised during the period
-1,078.0
-409.4
-107.7
Expired/forfeited during the period
-263.8
-760.3
-980.5
Outstanding as of 31 December
2,424.0
2,372.9
2,187.5
Exercisable as of 31 December
-
-
-
In 2020, the Board of Directors 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 at
DKK 69.9. The exercise period is 360 days from each 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 of 31 December 2020 is 1.5 years.
In 2021, the Board of Directors 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 at
DKK 53.5. The exercise period is 360 days from each 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 of 31 December 2021 is 1.5 years.
In 2022, the Board of Directors agreed to grant a total of 1,137,770 RSUs to other management.
The vesting period of the program is three years for key employees. The exercise price is set at
DKK 58.0. The exercise period is 360 days from each vesting date. The fair value of the options
granted in 2022 was determined using the Black-Scholes model and is not material. The average
remaining contractual life for the restricted shares as of 31 December 2022 is 1.5 years.
NOTE 5
–
continued
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.
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.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
144
NOTE 6 – REMUNERATION TO AUDITORS APPOINTED AT THE PARENT COMPANY’S ANNUAL
GENERAL MEETING
The remuneration of the auditor is required to be presented as follows:
USDm
2022
2021
2020
Audit fees
Fees paid to the Company's auditor for the audit of the
Company's annual accounts
0.9
0.5
0.4
Audit of the Company's subsidiaries pursuant to
legislation
0.1
0.3
0.2
Total audit fees
1.0
0.8
0.6
Non-audit fees
Audit-related services
0.2
0.1
0.0
Tax services
-
0.1
0.1
Others
0.2
-
-
Total non-audit fees
0.4
0.2
0.1
Total
1.4
1.0
0.7
Under SEC regulations, the remuneration of the auditor of USD 1.4m (2021: USD 1.0m, 2020:
USD 0.7m) is required to be presented as follows: Audit USD 1.4m (2021: USD 0.8m, 2020: USD
0.6m), audit-related USD 0.0m (2021: other audit related services USD 0.1m, 2020: USD 0.0m)
and tax services USD 0.0m (2021: tax related services USD 0.1m, 2020: USD 0.1m).
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.
NOTE 7 – INTANGIBLE ASSETS
USDm
2022
2021
2020
Goodwill
Cost:
Balance as of 01 January
11.4
11.4
11.4
Additions from business combinations
1.8
-
-
Balance as of 31 December
13.2
11.4
11.4
Impairment:
Balance as of 01 January
11.4
11.4
11.4
Impairment losses
-
-
-
Balance as of 31 December
11.4
11.4
11.4
Carrying amount
1.8
-
-
The opening balance on goodwill cost and impairment relates to the reverse acquisition of TORM A/S in 2015,
which was impaired in 2016. The goodwill addition during the year of USD 1.8m relates to the acquisition of
Marine Exhaust Technology A/S, which is allocated to the Marine Exhaust cash-generating unit. Please refer to
note 33 for further reference on acquisition and note 10 for further reference on impairment testing.
USDm
2022
2021
2020
Other intangible assets
Cost:
Balance as of 01 January
-
-
-
Exchange rate adjustments
0.2
-
-
Additions
0.6
-
-
Additions from business combinations
1.2
-
-
Transfer from other items
0.3
-
-
Balance as of 31 December
2.3
-
-
Amortization:
Balance as of 01 January
-
-
-
Amortization for the year
0.3
-
-
Transfer from other items
0.1
-
-
Balance as of 31 December
0.4
-
-
Carrying amount
1.9
-
-
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
145
NOTE 7
-
continued
Accounting policies
Goodwill
Goodwill is measured as the excess of the cost of the business combination over the fair value of
the acquired assets, liabilities, and contingent liabilities and is recognized as an asset under
intangible assets. For each business combination, TORM elects whether to measure the non-
controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s
identifiable net assets. Acquisition-related costs are expensed as incurred and included in
administrative expenses. Goodwill is not amortized as it is considered to have an indefinite useful
life, but the recoverable amount of goodwill is assessed annually. For impairment testing purposes,
goodwill is on initial recognition allocated to the cash generating unit expected to benefit from the
synergies of the combination. If the recoverable amount of the cash generating unit is less than
the carrying amount of the unit, the impairment loss is first allocated to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on
the basis of the carrying amount of each asset in the unit. An impairment loss for goodwill is not
reversed in a subsequent period.
Other intangible assets
Other intangible assets consist of software as well as scrubber test facility development costs and
customer list acquired in connection with the Marine Exhaust Technology A/S acquisition. Other
intangible assets are measured at cost less accumulated amortization and impairment losses.
Other intangible assets are considered as having finite useful lives and are amortized on a straight-
line basis over:
•
Software: 3 years
•
Scrubber test facility: 2 years
•
Customer list: 7 years
NOTE 8 – TANGIBLE FIXED ASSETS
USDm
2022
2021
2020
Land and buildings
Cost:
Balance as of 01 January
10.9
11.7
10.4
Exchange rate adjustment
-0.3
-0.1
-
Additions
0.3
0.1
1.3
Additions from business combinations
1.1
-
-
Disposals
-
-0.8
-
Balance as of 31 December
12.0
10.9
11.7
Depreciation:
Balance as of 01 January
6.1
4.6
2.3
Exchange rate adjustment
-0.2
-
-
Disposals
-
-0.8
-
Depreciation for the year
2.3
2.3
2.3
Balance as of 31 December
8.2
6.1
4.6
Carrying amount as of 31 December
3.8
4.8
7.1
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
146
NOTE 8 -
continued
USDm
2022
2021
2020
Vessels and capitalized dry-docking
Cost:
Balance as of 01 January
2,443.3
2,160.1
2,064.2
Additions
77.2
290.3
102.5
Disposals
-14.2
-40.9
-29.8
Transferred from prepayments
55.1
78.6
148.1
Transferred to assets held for sale
-140.2
-44.8
-124.9
Balance as of 31 December
2,421.2
2,443.3
2,160.1
Depreciation:
Balance as of 01 January
475.0
406.2
360.6
Disposals
-14.2
-40.9
-29.8
Depreciation for the year
133.7
126.2
118.4
Transferred to assets held for sale
-50.7
-16.5
-43.0
Balance as of 31 December
543.8
475.0
406.2
Impairment:
Balance as of 01 January
30.5
31.4
28.8
Impairment losses on tangible fixed assets¹
⁾
2.7
4.6
11.1
Transferred to assets held for sale
-11.7
-5.5
-8.5
Balance as of 31 December
21.5
30.5
31.4
Carrying amount as of 31 December
1,855.9
1,937.8
1,722.5
¹
⁾
For additional information regarding impairment considerations, please refer to Note 10.
Included in the carrying amount for “Vessels and capitalized dry-docking” are capitalized dry-
docking costs in the amount of USD 50.1m (2021: USD 65.9m, 2020: USD 66.1m).
Included in the carrying amount for “Vessels and capitalized dry-docking” are vessels on short-
term time charter leases (as lessor) in the amount of USD 13.7m (2021: 398.8m, 2020:
488.2m). Please refer to Note 22 for expected redelivery of the vessels.
NOTE 8 -
continued
USDm
2022
2021
2020
Prepayments on vessels
Cost:
Balance as of 01 January
12.0
12.0
95.0
Additions
43.1
78.6
65.1
Transferred to vessels
-55.1
-78.6
-148.1
Balance as of 31 December
-
12.0
12.0
Carrying amount as of 31 December
-
12.0
12.0
During the year, borrowing costs of USD nil (2021: 0.6m, 2020: nil) have been capitalized. The
capitalization rate in 2021 was 3.7% and in 2020: 0.0%.
USDm
2022
2021
2020
Other plant and operating equipment
Cost:
Balance as of 01 January
9.3
7.6
8.1
Exchange rate adjustment
-0.2
-0.1
-
Additions
0.8
1.9
3.8
Additions from business combinations
1.6
-
-
Disposals
-0.7
-0.1
-4.3
Transfers
-0.3
-
-
Balance as of 31 December
10.5
9.3
7.6
Depreciation:
Balance as of 01 January
3.0
0.8
3.8
Exchange rate adjustment
-0.2
-0.1
-
Disposals
-0.6
-0.1
-4.2
Depreciation for the year
2.8
2.4
1.2
Transfers
-0.1
-
-
Balance as of 31 December
4.9
3.0
0.8
Carrying amount as of 31 December
5.6
6.3
6.8
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
147
NOTE 8 -
continued
For information on assets provided as collateral security, please refer to Note 20. Please refer to
Note 10 for information on impairment testing.
The depreciation expense related to “Other plant and operating equipment” of USD 2.8m relates
to “Administrative expense” (2021: USD 2.4m, 2020: USD 1.2m). Depreciation and impairment
losses on tangible fixed assets on “Vessels and capitalized dry-docking” relate to operating
expenses.
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. Costs comprise acquisition costs 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 for newbuildings. 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 costs less the estimated residual
value. Residual value is estimated as the lightweight tonnage of each vessel multiplied by the 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.
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.
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 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.
NOTE 8 -
continued
At subsequent dry-dockings, the costs comprise the actual costs incurred at the dry-docking yard.
Dry-docking costs may include the cost of hiring crews to carry out replacements and repairs, the
cost of parts and materials used, the cost of travel, lodging and supervision of Company personnel
as well as the cost of hiring third-party personnel to oversee a dry-docking. Dry-docking activities
include, but are not limited to, the inspection, service on turbocharger, replacement of shaft seals,
service on boiler, replacement of hull anodes, applying of anti-fouling and hull paint, steel repairs
as well as refurbishment and replacement of other parts of the vessel.
Prepayments on vessels
Prepayments consist of prepayments related to newbuilding contracts for vessels not yet
delivered and include the share of borrowing costs directly attributable to the acquisition of the
underlying vessel. When a vessel is delivered, the prepaid amount is reallocated to the financial
statement line “Vessels and capitalized dry-docking”.
Land and buildings and other plant and operating equipment
Land and buildings and other plant and operating equipment consist of leaseholds regarding office
buildings, leasehold improvements, company cars, IT equipment, and software and is measured at
historical cost less accumulated depreciation and any impairment loss. Any subsequent cost is
included in the asset’s carrying amount or recognized as a separate asset only when it is probable
that future economic benefits are associated with the item and the cost of the item can be
measured reliably. Depreciation is based on the straight-line method over the estimated useful life
of the assets. The current estimates are:
•
Land and buildings
•
Office buildings: Over the shorter of the remaining leasing term and the estimated useful
life
•
Leasehold improvements: Over the shorter of the remaining leasing term and the
estimated useful life
•
Other plant and operating equipment
•
Company cars: Over the lease term, typically 3 years
•
IT equipment: 3–5 years
•
Software: 3–5 years
•
Other equipment 3–15 years
The depreciation commences when the asset is available for use, i.e. when it is in the location and
condition necessary for it to be capable of operating in the manner intended by Management. For a
right-of-use asset, depreciation commences at the commencement date of the lease.
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
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
148
NOTE 8
- continued
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”.
NOTE 9 – LEASING
TORM leases office buildings, some vehicles, and other administrative equipment. Except for 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 8.
As of 31 December 2022, TORM had recognized the following right-of-use assets:
USDm
Land and
buildings
Other plant
and
operating
equipment
Cost:
Balance as of 01 January 2022
10.9
0.7
Exchange rate adjustments
-0.3
-
Additions
0.3
0.1
Additions from business combinations
1.1
0.9
Disposals
-
-0.4
Balance as of 31 December 2022
12.0
1.3
Depreciation:
Balance as of 01 January 2022
6.1
0.5
Exchange rate adjustment
-0.2
-
Disposals
-
-0.3
Depreciation for the year
2.3
0.2
Balance as of 31 December 2022
8.2
0.4
Carrying amount as of 31 December 2022
3.8
0.9
NOTE 9 -
continued
USDm
Land and
buildings
Other plant
and
operating
equipment
Cost:
Balance as of 01 January 2021
11.7
0.6
Exchange rate adjustments
-0.1
-
Additions
0.1
0.2
Disposals
-0.8
-0.1
Balance as of 31 December 2021
10.9
0.7
Depreciation:
Balance as of 01 January 2021
4.6
0.4
Disposals
-0.8
-0.1
Depreciation for the year
2.3
0.2
Balance as of 31 December 2021
6.1
0.5
Carrying amount as of 31 December 2021
4.8
0.2
USDm
Vessels and
capitalized
dry-
docking
Land and
buildings
Other plant
and
operating
equipment
Cost:
Balance as of 01 January 2020
42.4
10.4
0.6
Additions
-
1.3
-
Disposals
-42.4
-
-
Balance as of 31 December 2020
-
11.7
0.6
Depreciation:
Balance as of 01 January 2020
15.5
2.3
0.2
Disposals
-17.1
-
-
Depreciation for the year
1.6
2.3
0.2
Balance as of 31 December 2020
-
4.6
0.4
Carrying amount as of 31 December 2020
-
7.1
0.2
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
149
NOTE 9
-
continued
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
of.
The table below describes the nature of the Group’s leasing activities by type of right-of-use assets
recognized on the balance sheet as of 31 December 2022:
Land and
buildings
Other plant
and
operating
equipment
No. of right-of-use assets leased
16
20
Range of remaining term
0 - 6 years
0 - 4 years
Average remaining lease term
1.8 years
1.8 years
No. of leases with extension options
12
9
No. of leases with options to purchase
-
1
No. of leases with termination options
10
13
Lease liabilities regarding right-of-use assets are included on the balance sheet under
“Borrowings”.
USDm
2022
2021
2020
Maturity analysis - contractual undiscounted cash flow
Less than one year
2.7
2.8
2.8
One to five years
2.6
3.0
5.9
More than five years
-
0.1
0.1
Total undiscounted lease liabilities as of 31 December
5.3
5.9
8.8
Lease liabilities included under “Borrowings” as of 31
December
5.0
5.6
8.3
Non-current
2.5
3.7
6.2
Current
2.5
1.9
2.1
Extension and termination options are included in several leases in order to optimize operational
flexibility in terms of managing contracts. The lease term determined by TORM is the non-
cancellable period of a lease, together with any extension/termination options if these are/are not
reasonably certain to be exercised.
NOTE 9 –
continued
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 2.7m (2021: USD 2.8m, 2020: UDS 2.3m).
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 under Vessels and capitalized dry-docking.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
150
NOTE 10 – IMPAIRMENT TESTING
Following the acquisition of Marine Exhaust Technology A/S and the 2022 disposal of the two
remaining Handysize vessels, the Management of TORM has assessed that TORM has two CGUs
being the Main Fleet and the Marine Exhaust cash-generating unit.
As of 31 December 2022, Management tested the carrying amount of the Main Fleet and the
Marine Exhaust investment for impairment as further set out below.
Tanker segment
31 December 2022
As of 31 December 2022, the assessment of the recoverable amount of the Main Fleet is based
on the fair value less cost of disposal of the vessels. The Main Fleet is comprised of TORM’s LR1,
LR2 and MR vessels, which 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. All vessels in
the Main Fleet can handle multiple sizes of refined oil cargos and sail all seas and oceans, over both
short and long distances. Given the technical specifications and capacity of the 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.
The recoverable amount of the Main Fleet as of 31 December 2022 amounts to USD 2,647m,
and is based on the market approach which considers the valuations from two internationally
acknowledged shipbrokers with appropriate qualifications and recent experience in the valuation
of vessels. The shipbrokers’ primary input is deadweight tonnage, yard, and age of the vessel. The
fair value assumes that the vessels are in good and seaworthy condition and with prompt, charter-
free delivery. The fair value less costs of disposal of the vessels is determined to be within Level 3
of the fair value hierarchy.
We have assessed the impact from climate changes and the potential adverse impact on vessel
values, however, no specific adjustments in this respect have been reflected in the impairment
testing of the Main Fleet given the recoverable amount has been based on the fair value less costs
of disposal. Further discussion can be found in the Audit Committee Report, page 91 and TCFD,
pages 75-77. We continue to monitor the development closely, and we continuously work on
more specific plans for our ambition to have zero CO
2
emissions from operating our fleet by 2050,
which may impact our impairment testing in the future.
NOTE 10 -
continued
Based on this review, Management concluded that as of 31 December 2022 assets within the
Main Fleet were not impaired as fair value less costs of disposal exceeded the carrying amount by
USD 784m.
Impairments recognized during 2022 of USD 2.7m (2021: USD 4.6m) as set out in Note 8 relate
to the disposal of individual vessels during the year. The recoverable amount of the vessels was
based on fair value less costs of disposal, which amounted to USD 31.8m. The fair value was
based on sales price less transaction costs (fair value hierarchy level 2).
31 December 2021 and 31 December 2020
As of 31 December 2021and 2020, the assessment of the recoverable amount of the Tanker
Fleet was based on the value in use for the Main Fleet and Handysize CGUs. The results of
impairment testing were summarized as follows:
Impairment losses
and (reversals)
Discount rate
applied
Recoverable
amount
Excess values
(value in use over
carrying amount)
2021
2020
2021
2020
2021
2020
2021
2020
CGU
USDm
USDm
%
%
USDm
USDm
USDm
USDm
Main Fleet
-
-
6.7
7.0
2,276
1,747
269
8
Handysize ¹
⁾
-
5.5
6.7
7.0
26
27
-
-
Total
-
5.5
2,302
1,774
269
8
¹
⁾
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 transportation of various clean petroleum
products within Europe and in the Mediterranean.
The impairment test was sensitive to reasonably possible changes in key assumptions.
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 was based on
TORM’s business plans. Beyond 2024, the freight rates was 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 believed that the approach used for long-term rates
appropriately reflected the cyclical nature of the shipping industry and was 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 included the anticipated benefit arising
from the installation of scrubbers on certain of the Group’s vessels (the “scrubber premium”). This
is based on current market differentials between the cost of heavy and low-sulphur fuel oil.
As part of determining fair value, the impact of climate changes and the climate agenda on the
global oil demand, emission regulations, and operating expenses, etc. was considered with
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
151
NOTE 10 -
continued
focus on the short to medium term implications and our commitment to reduce CO
2
emissions by
40% by 2025 and 45% by 2030. However, no adverse impact of climate changes was 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 CO
2
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 was based on a Weighted Average Cost of
Capital (WACC) of 6.7% as of 31 December 2021 (2020: 7.0%, 2019: 7.5%). WACC was
calculated by using a standard WACC model in which cost of equity, cost of debt and capital
structure were the key parameters.
As of 31 December 2021, the 10-year historical average spot freight rates used in the value in
use calculation were 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)
Operating expenses and administrative expenses were estimated based on TORM's business plans
for the period 2022-2024. Beyond 2024, operating expenses were adjusted for 2% inflation
(2020: 2%), and administrative expenses were adjusted for 2% inflation (2020: 2%) in line with
US Federal Reserve and ECB target over the medium term.
The product tankers were 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 was based on TORM’s green recycling policy.
The impairment test was sensitive to reasonably possible changes in the key assumptions, which
may result in future impairments. These were 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
NOTE 10 -
continued
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 setup.
The fair value based on broker values for vessels in the Main Fleet including the order book and
leased 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 Handysize vessels was 21m (2020: USD 22m), which is USD 3m below the carrying
amount (2020: which was USD 10m below the carrying amount).
Marine exhaust segment
31 December 2022
As of 31 December 2022, the assessment of the recoverable amount of the Marine Exhaust cash-
generating unit is based on value in use. The result of the impairment test showed an excess value
of USD 3.2m compared to the carrying amount. No impairment of goodwill was recognized as of
31 December 2022.
Key assumptions used in the determination of value in use
The value in use is calculated based on future cash flows using a five-year budget period from
2023-2027. The future cash flows are based on the budget for 2023, assuming no growth in
sales. Cost of goods sold is calculated using the gross margins from the 2023 budget. The gross
margins are assumed to be constant in the budget period. Operating costs are based on the 2023
budget and are being inflated in the forecast period with the assumed inflation rates of 2-3% p.a.
Cash levels are assumed constant in the forecast period, investments in non-current assets are
USD 0.3m in 2023 and zero afterwards, and lastly, leasing liabilities are assumed constant. The
terminal value extending beyond 2027 are based on a continuation of beforementioned
parameters.
The discount rate used in the value in use calculation was based on a Weighted Average Cost of
Capital (WACC) of 10.8% as of 31 December 2022 (2021: n/a). The WACC was calculated by
using a standard WACC model in which cost of equity, cost of debt and capital structure were the
key parameters.
The impairment test was sensitive to reasonably possible changes in the key assumptions, which
may result in future impairments. These were related to the future development in sales across all
revenue segments. All other things being equal, the sensitivities to the value in use have been
assessed as follows:
•
An increase/decrease in the total sales of 10.0% would result 2023 and onwards an
increase/decrease in the value in use of USD 3.8m.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
152
NOTE 10 -
continued
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 in market rates of return,
or in the cash flows expected to be generated by the fleet. At least annually, or if impairment
indicator(s) exists, an impairment test on a CGU level will be performed. A CGU 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 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 CGU is increased to the revised estimate of
the recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined, had no impairment loss been recognized in prior years.
For the purpose of assessing impairment, assets, time charter and bareboat contracts are grouped
at the lowest levels at which impairment is monitored for internal management purposes.
NOTE 11 – LOAN RECEIVABLES
USDm
2022
2021
2020
Loan receivables
Cost:
Balance as of 01 January
4.7
4.7
4.7
Balance as of 31 December
4.7
4.7
4.7
Expected credit loss:
Balance as of 01 January
0.1
0.1
0.1
Balance as of 31 December
0.1
0.1
0.1
Carrying amount as of 31 December
4.6
4.6
4.6
The 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.
After 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).
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
153
NOTE 12 – FINANCIAL ITEMS
USDm
2022
2021
2020
Financial income
Interest income from cash and cash equivalents,
including restricted cash ¹
⁾
4.0
0.2
0.5
Total
4.0
0.2
0.5
Financial expenses
Interest expenses on borrowings ¹
⁾
48.5
40.0
45.6
Financial expenses arising from lease liabilities regarding
right-of-use assets
0.2
0.3
1.5
Exchange rate adjustments, including loss from forward
exchange rate contracts
0.5
0.5
1.0
Commitment fee
0.6
1.1
1.5
Amortization of interest rate swaps
2.4
1.4
-
Ineffectiveness on interest rate swaps
-3.6
-1.2
-
Other financial expenses
0.2
0.3
0.3
Total
48.8
42.4
49.9
Total financial items
-44.8
-42.2
-49.4
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
considering the effective interest rate. Dividends from other investments are recognized when the
right to receive payment has been decided, which is typically when the dividend has been declared
and can be received without conditions.
Financial expenses
Financial expenses comprise interest expenses, financing costs of leases liabilities, realized and
unrealized exchange rate losses relating to transactions in currencies other than the functional
currency, realized losses from other equity investments and securities, unrealized losses from
securities, and other financial expenses including payments under interest rate hedge
instruments. Interest is recognized in accordance with the accrual basis of accounting considering
the effective interest rate.
NOTE 13 – TRADE RECEIVABLES
USDm
2022
2021
2020
Analysis as of 31 December of trade receivables:
Gross trade receivables:
Not due
122.3
43.4
17.9
Due < 30 days
52.1
17.9
10.8
Due between 30 and 180 days
76.8
23.2
23.7
Due > 180 days
14.2
2.6
12.0
Total gross
265.4
87.1
64.4
Allowance for expected credit loss
5.9
3.1
5.8
Total net
259.5
84.0
58.6
Management makes allowance for expected credit loss based on “the simplified approach”
according to IFRS 9 to provide for expected credit losses, which permits the use of the lifetime
expected loss provision for all trade receivables. Expected credit loss for receivables overdue more
than 180 days is 25%-100%, depending on the category of the receivable. Expected credit loss
for receivables overdue more than one year is 100%.
Movements in provisions for impairment of freight receivables during the year are as follows:
USDm
2022
2021
2020
Allowance for expected credit loss
Balance as of 01 January
3.1
5.8
3.7
Provisions for the year
3.4
0.7
3.1
Provisions reversed during the year
-0.6
-3.4
-1.0
Balance as of 31 December
5.9
3.1
5.8
Allowance for expected credit loss of trade receivables has been recognized in the income
statement under “Port expenses, bunkers, commissions, and other costs of goods sold”.
Allowance for expected credit loss of trade receivables is calculated using an ageing factor as well
as specific customer knowledge and is based on a provision matrix on days past due.
All allowance for expected credit loss relates to receivables due > 180 days.
Accounting policies
Receivables
Outstanding trade receivables and other receivables which are expected to be realized within 12
months from the balance sheet date are classified as “Trade receivables” or “Other receivables”
and presented as current assets.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
154
NOTE 13 -
continued
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 are, at initial recognition, 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.
NOTE 14 – OTHER RECEIVABLES
USDm
2022
2021
2020
Derivative financial instruments
55.3
8.3
4.5
Escrow accounts
14.9
27.4
14.9
Other
3.8
4.3
5.5
Balance as of 31 December
74.0
40.0
24.9
No significant other receivables are past due or credit impaired.
The carrying amount is a reasonable approximation of fair value due to the short-term nature of
the receivables. Please refer to Note 25 for further information on fair value hierarchies.
NOTE 15 – PREPAYMENTS
USDm
2022
2021
2020
Prepaid insurance payments
-
0.8
0.7
Prepaid bareboat hire
3.0
0.4
0.3
Prepaid customer contract assets
3.0
2.0
-
Other prepayments
4.0
2.4
1.2
Balance as of 31 December
10.0
5.6
2.2
NOTE 16 – TAX
USDm
2022
2021
2020
Tax for the year
Current tax for the year
0.5
0.6
0.4
Adjustments related to previous years
-0.1
-0.1
0.1
Adjustment of deferred tax
-7.3
-0.1
-
Income tax charge for the year
-6.9
0.4
0.5
Tonnage tax charge for the year
1.0
0.9
0.9
Total
-5.9
1.3
1.4
Adjustment of deferred tax of USD 7.3m for the year ended 31 December 2022 primarily consists
of the recognition of deferred tax assets for unused tax credits for charges subject to the
corporate interest restriction and for carried forward losses, which now qualify for recognition as a
result of the deferred tax liability related to the unrealized gain on interest swaps.
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 investment 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 vessels based on a sliding scale
Corporate income tax is primarily levied on the Group’s non-vessel-related activities. The effective
tax rate of the Group is -1% (2021: 3.3%, 2020 1.6%). Net deferred tax liability in relation to
entities outside the tonnage tax regime amounts to USD 5.5m.
USDm
2022
2021
2020
Deferred tax recognised in the balance sheet
Deferred tax asset
0.6
0.7
0.3
Deferred tax liabilities
-6.1
-
-
Deferred tax, net as of 31 December
-5.5
0.6
0.3
Balance as of 01 January
0.6
0.3
-
Deferred tax for the year
7.3
0.1
-
Deferred tax relating to changes in equity
-13.2
-
-
Additions from business combinations
-0.3
-
-
Other changes
0.1
0.3
0.3
Balance as of 31 December
-5.5
0.7
0.3
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
155
NOTE 16 –
continued
The deferred tax asset is derived from prior-year losses and can only be utilized on taxable income
arising from the same trade as when the tax losses were incurred. The tax value of tax loss carry
forwards is included in deferred tax assets to the extent that these are expected to be utilized in
future taxable income.
As per December 2022, there are unused tax credits of USD 2.2m (2021: USD 13.5m) relating to
prior year losses, as the utilization of these losses may not be used to offset taxable profit due to a
high degree of uncertainty of future taxable profits.
The deferred tax liability is derived from temporary differences between the accounting and tax
values of derivative financial instruments of USD 13.2m and intangible assets of USD 0.3m.
USDm
2022
2021
2020
Non-current tax liability related to held-over gains
Balance as of 31 December
45.2
45.2
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.
The Group operates in a wide variety of jurisdictions, in some of which the tax law is subject to
varying interpretations and potentially inconsistent enforcement. As a result, there can be
practical uncertainties in applying tax legislation to the Group's activities. Whilst the Group
considers that it operates in accordance with applicable tax law, there are potential tax exposures
in respect of its operations, the impact of which cannot be reliably estimated but could be
material.
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.
NOTE 16 –
continued
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.
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 17 – COMMON SHARES AND TREASURY SHARES
Common shares
2022
2021
2020
Nominal value
per share
(USD)
Number of
shares
Number of
shares
Number of
shares
A-shares
0.01
82,311,299
81,233,269
74,855,929
B-shares
0.01
1
1
1
C-shares
0.01
1
1
1
Total
82,311,301
81,233,271
74,855,931
During the year, the share capital was increased by 1,078,030 A-shares with a nominal value of
USD 10,780.30 in connection with exercises of Restricted Share Units leading to a total cash
contribution of USD 8.0m.
During 2021, the share capital was increased by 6,377,340 A-shares with a nominal value of
USD 63,773.40. 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 exercises of Restricted Share
Units.
During 2020, the share capital was increased by 107,681 A-shares with a nominal value of USD
1,076.81 in connection with exercises of Restricted Share Units leading to a total cash
contribution of USD 0.8m.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
156
NOTE 17 -
continued
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 General Meetings and gives the
shareholders the right to dividends, liquidation proceeds, or other distributions. The A-shares carry
no other rights or obligations. The B-share has one vote at the General Meetings, has no pre-
emption rights in relation to any issue of new shares of other classes, and carries no right to
receive dividends, liquidation proceeds, or other distributions from TORM.
The holder of the B-share has the right to elect one member to the Board of Directors (being the
Deputy Chairman), up to three alternates as well as one Board Observer. The B-share cannot be
transferred or pledged, except for a transfer to a replacement trustee.
The C-share represents 350,000,000 votes at the General Meetings 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.
Treasury shares
2022
2021
2020
Number of shares ('000)
Balance as of 01 January
493.4
493.4
312.9
Additions
-
-
180.5
Balance as of 31 December
493.4
493.4
493.4
2022
2021
2020
Nominal value USD '000
Balance as of 01 January
4.9
4.9
3.1
Additions
-
-
1.8
Balance as of 31 December
4.9
4.9
4.9
NOTE 17 –
continued
Treasury shares - continued
2022
2021
2020
Percentage of share capital
Balance as of 01 January
0.6%
0.7%
0.4%
Additions
-
-
0.2%
Dilution due to capital increases
-
-0.1%
0.1%
Balance as of 31 December
0.6%
0.6%
0.7%
The total consideration during the year for the treasury shares was USD 0.0m (2021: USD 0.0m,
2020: USD 1.3m). As of 31 December 2022, the Company's holding of treasury shares
represented 493,371 shares (2021: 493,371 shares, 2020: 493,371 shares) of USD 0.01 each
at a total nominal value of USD 0.0m (2021: USD 0.0m, 2020: USD 0.0m) and a market value of
USD 14.0m (2021: USD 3.9m, 2020: USD 3.7m).
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.
NOTE 18 – OTHER LIABILITIES
USDm
2022
2021
2020
Accrued operating expenses
12.0
11.8
14.3
Accrued interest
3.6
2.3
3.1
Wages and social expenses
15.0
15.1
16.8
Derivative financial instruments
1.9
11.3
24.7
Other
1.6
3.2
0.9
Balance as of 31 December
34.1
43.7
59.8
Hereof non-current
3.0
-
-
Hereof current
31.1
43.7
59.8
T
he carrying amount is a reasonable approximation of fair value due to the short-term nature of
the payable. Please refer to Note 25 for further information on fair value hierarchies.
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 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
157
NOTE 19 - EFFECTIVE INTEREST RATE, OUTSTANDING BORROWINGS
As of 31 December 2022, TORM had an undrawn USD 45m Working Capital Facility and an
undrawn USD 47m Revolving Credit Facility as part of the Term Facility.
Please refer to Note 2 for further information on the Company’s liquidity and capital resources as
well as to Note 2 Subsequent events for commitment obtained for refinancing existing facilities
and Notes 23 and 24 for further information on interest rate swaps and financial risks.
2022
2021
2020
USDm
Fixed/
floating
Maturity
Effective
interest¹
⁾
Carrying
value²
⁾
Maturity
Effective
interest¹
⁾
Carrying
value²
⁾
Maturity
Effective
interest¹
⁾
Carrying
value²
⁾
Borrowings
CEXIM (USD)
Floating
2030
7.0%
41.1
2030
4.0%
44.9
2030
3.2%
96.4
Term Facility
Floating
2026
7.6%
143.8
2026
3.8%
279.4
2026
3.0%
299.1
DSF Facility
Floating
2027
6.7%
201.8
2027
3.6%
221.9
2027
2.9%
150.3
HCOB Facility
Floating
2025
9.9%
42.4
2025
5.1%
85.3
2025
4.3%
81.2
HCOB Facility 2
Floating
2026
8.3%
21.1
2026
4.5%
25.4
2025
3.9%
33.3
KFW Facility
Floating
2032
7.1%
37.9
2032
4.1%
40.9
2032
3.3%
44.0
BoComm 1 (USD)³
⁾
Floating
2025
8.7%
49.4
2025
4.9%
59.2
2025
4.1%
57.8
BoComm 2 (USD)³
⁾
Floating
2031
7.4%
71.3
2031
4.9%
37.8
-
-
-
BoComm 3 (USD)³
⁾
Floating
2029
7.8%
90.9
2029
4.9%
99.5
-
-
-
CDBL³
⁾
Fixed
2029
5.8%
160.8
2029
5.8%
150.8
-
-
-
Springliner (USD)³
⁾
Fixed
2026
4.8%
30.7
2026
4.8%
33.4
2026
4.8%
36.0
Eifuku (USD)³
⁾
Floating
2026
7.9%
20.9
2026
4.3%
22.4
2026
3.9%
24.1
Showa (USD)³
⁾
Floating
2024
8.6%
18.7
2024
4.1%
20.9
2024
3.3%
23.0
CMBFL³
⁾
Fixed
2033
4.9%
37.3
-
-
-
-
-
-
Other credit facilities
Fixed
2026
3.1%
4.9
-
-
-
-
-
-
Sale and leaseback transaction prepayment
N/A
-
-
-
2022
-
21.0
-
-
-
Weighted average effective interest rate⁴
⁾
7.1%
4.4%
3.4%
Total borrowings
973.0
1,142.8
845.2
Borrowing costs included (amortised costs)
-11.1
-13.0
-10.9
Right-of-use lease liabilities
5.0
5.7
8.1
Total
966.9
1,135.5
842.4
Hereof non-current
849.8
926.5
739.5
Hereof current
117.1
209.0
102.9
¹
⁾
Effective interest rate includes deferred and amortized bank fees.
²
⁾
Because of the floating interest rate, the carrying value of the Group's borrowings is approximately equal to the fair value except for fixed rate borrowings, where the fair value amounts to USD 223.5m (compared to a total carrying
value as of 31 December 2022 of USD 233.7m)
³
⁾
Lease debt recognized under sale and leaseback arrangement with repurchase options (accounted for as finance transactions).
⁴
⁾
Please refer to note 23 for average interest rate including hedges
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
158
NOTE 19 -
continued
The following table summarizes the reconciliation of liabilities arising from financing activities:
Cash movements
Non-cash movements
USDm
Opening
balance
as of
01 January
2022
Borrowings
Repay-
ments
Business
combin-
ations
Other
changes
End
balance as
of 31
December
2022
Borrowings
1,135.4
96.3
-275.2
7.9
2.5
966.9
Total
1,135.4
96.3
-275.2
7.9
2.5
966.9
Cash movements
Non-cash movements
USDm
Opening
balance
as of
01 January
2021
Borrowings
Repay-
ments
Business
combin-
ations
Other
changes
End
balance as
of 31
December
2021
Borrowings
842.4
548.8
-253.4
-2.4
1,135.4
Total
842.4
548.8
-253.4
-
-2.4
1,135.4
Cash movements
Non-cash movements
USDm
Opening
balance
as of
01 January
2020
Borrowings
Repay-
ments
Business
combin-
ations
Other
changes
End
balance as
of 31
December
2020
Borrowings
855.4
734.3
-746.5
0.8
842.4
Total
855.4
734.3
-746.5
-
0.8
842.4
NOTE 19 -
continued
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.
NOTE 20 – COLLATERAL SECURITY FOR BORROWINGS
The total carrying amount for vessels which have been provided as security for borrowings
amounts to USD 1,856m as of 31 December 2022 (2021: USD 1,928m, 2020: USD 1,711m),
including transferred ownership under sale and leaseback arrangements accounted for as
financing transactions, where the vessels are not derecognized and where vessels are provided as
security for lease debt.
Please refer to Note 1 for further information.
NOTE 21 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
The guarantee commitments of the Group are less than USD 0.1m (2021: USD 0.1m, 2020: USD
0.1m) and relate to guarantee commitments to Danish Shipping.
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.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
159
NOTE 22 – CONTRACTUAL OBLIGATIONS AND RIGHTS
The following table summarizes the Group's contractual obligations as of 31 December 2022.
USDm
2023
2024
2025
2026
2027
Thereafter
Total
Borrowings ¹
⁾
119.8
130.0
127.2
185.9
161.7
253.4
978.0
Interest payments related to scheduled interest fixing
34.8
30.6
24.7
18.0
14.1
22.1
144.3
Estimated variable interest payments ²
⁾
3.3
1.6
2.5
2.2
5.5
11.1
26.2
Newbuilding installments ³
⁾
-
-
-
-
-
-
-
Committed scrubber installations
17.3
1.1
-
-
-
-
18.4
Trade payables and other obligations
81.6
-
-
-
-
2.5
84.1
Total
256.8
163.3
154.4
206.1
181.3
289.1
1,251.0
The following table summarizes the Group's contractual obligations as of 31 December 2021.
USDm
2022
2023
2024
2025
2026
Thereafter
Total
Borrowings ¹
⁾
211.7
129.9
139.3
134.2
181.4
351.9
1,148.4
Interest payments related to scheduled interest fixing
43.4
38.6
33.0
25.4
17.8
35.3
193.5
Estimated variable interest payments ²
⁾
-0.3
-0.8
-0.7
-0.1
0.2
2.8
1.1
Newbuilding installments ³
⁾
39.9
-
-
-
-
-
39.9
Committed scrubber installations
8.1
0.5
-
-
-
-
8.6
Trade payables and other obligations
62.5
-
-
-
-
-
62.5
Total
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
2021
2022
2023
2024
2025
Thereafter
Total
Borrowings ¹
⁾
101.8
101.9
102.1
114.4
106.9
315.3
842.4
Interest payments related to scheduled interest fixing
32.3
25.3
21.1
17.6
12.4
12.4
121.1
Estimated variable interest payments ²
⁾
0.2
0.4
0.6
0.9
1.4
6.1
9.6
Newbuilding installments ³
⁾
62.5
38.1
-
-
-
-
100.6
Committed scrubber installations
4.9
-
-
-
-
-
4.9
Trade payables and other obligations
42.7
-
-
-
-
-
42.7
Total
244.4
165.7
123.8
132.9
120.7
333.8
1,121.3
¹
⁾
The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 11.1m (2021: USD 13.0m. 2020: USD10.9m), which are amortized over the term of the loans. Borrowing costs
capitalized during the year amount to USD 0.7m (2021: USD 5.8m, 2020: USD 7.5m).
²
⁾
Variable interest payments are estimated based on the forward rates for each interest period including hedging instruments.
³
⁾
As of 31 December 2022, TORM had zero contracted newbuildings (2021: one, 2020: two). Commitments regarding newbuilding installments are in excess of the prepayments included in note 8.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
160
NOTE 22 -
continued
TORM has contractual rights to receive future payments as lessor of vessels on time charter and bareboat charter to customers.
The following table summarizes the Group's contractual rights as of 31 December 2022.
USDm
2023
2024
2025
2026
2027
Thereafter
Total
Contractual rights - as lessor:
Charter hire income for vessels ⁴
⁾
2.1
-
-
-
-
-
2.1
Total
2.1
-
-
-
-
-
2.1
The following table summarizes the Group's contractual rights as of 31 December 2021.
USDm
2022
2023
2024
2025
2026
Thereafter
Total
Contractual rights - as lessor:
Charter hire income for vessels ⁴
⁾
21.6
-
-
-
-
-
21.6
Total
21.6
-
-
-
-
-
21.6
The following table summarizes the Group's contractual rights as of 31 December 2020.
USDm
2021
2022
2023
2024
2025
Thereafter
Total
Contractual rights - as lessor:
Charter hire income for vessels ⁴
⁾
39.1
2.3
-
-
-
-
41.4
Total
39.1
2.3
-
-
-
-
41.4
⁴
⁾
Charter hire income for vessels on time charter is recognized under "Revenue". During the years, revenue from time charter amounted to USD 64.7m (2021: 90.7m, 2020: USD 86.2m).
The average period until redelivery of the vessels for the period ended 31 December 2022 was 0.4 years (2021: 0.3 years, 2020: 0.4 years).
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
161
NOTE 23 – DERIVATIVE FINANCIAL INSTRUMENTS
Please refer to Note 25 for further information on fair value hierarchies.
USDm
2022
2021
2020
Fair value of derivatives:
Derivative financial instruments regarding freight and
bunkers:
Forward freight agreements — fair value through profit
and loss
-
0.4
-3.2
Bunker swaps — fair value through profit and loss
-
0.2
3.7
Bunker swaps — hedge accounting
-
0.1
0.8
Derivative financial instruments regarding interest and
currency exchange rate:
Forward exchange contracts — hedge accounting
0.4
-1.6
2.0
Interest rate swaps — hedge accounting
53.7
-2.2
-23.5
Fair value of derivatives as of 31 December
54.1
-3.1
-20.2
Derivative financial instruments are presented as below on the balance sheet:
USDm
Financial
assets
Financial
liabilities
2022
Offsetting financial assets and financial liabilities:
Gross amount
54.5
-0.4
Offsetting amount
-
-
Net amount presented in the statement of financial position
54.5
-0.4
USDm
Financial
assets
Financial
liabilities
2021
Offsetting financial assets and financial liabilities:
Gross amount
7.7
-10.8
Offsetting amount
-
-
Net amount presented in the statement of financial position
7.7
-10.8
NOTE 23 –
continued
USDm
Financial
assets
Financial
liabilities
2020
Offsetting financial assets and financial liabilities:
Gross amount
9.9
-30.1
Offsetting amount
-5.4
5.4
Net amount presented in the statement of financial position
4.5
-24.7
Derivative financial instruments assets are offset against derivative financial instruments liabilities
where the counterparty is identical.
Hedging of risks with derivative financial instruments is 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 2022, 2021, and 2020, TORM held the following derivative financial instruments
designated as hedge accounting:
2022
Notional
value
Unit
2023
2024
After
2024
Forward exchange contracts
(USD/DKK) ¹
⁾
280.3
DKKm
280.3
-
-
Interest rate swaps ²
⁾
687.2
USDm
136.9
51.6
498.7
¹
⁾
The average hedge of USD/DKK currency was 6.9.
²
⁾
The average interest rate was 1.37 p.a. plus margin.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
162
NOTE 23 –
continued
Hedge accounting
Expected maturity
2021
Notional
value
Unit
2022
2023
After
2023
Forward exchange contracts
(USD/DKK) ¹
⁾
274.0
DKKm
274.0
-
-
Interest rate swaps ²
⁾
768.7
USDm
130.9
136.9
500.9
Bunker swaps ³
⁾
9,920.0
MT
9,920.0
-
-
¹
⁾
The average hedge of USD/DKK currency was 6.3.
²
⁾
The average interest rate was 1.38 p.a. plus margin.
²
⁾
The average price of the hedging instruments was USD 642.4.
Hedge accounting
Expected maturity
2020
Notional
value
Unit
2021
2022
After
2022
Forward exchange contracts
(USD/DKK) ¹
⁾
231.5
DKKm
231.5
-
-
Interest rate swaps ²
⁾
757.5
USDm
318.0
84.0
355.5
Bunker swaps ³
⁾
19,783.0
MT
19,783.0
-
-
¹
⁾
The average hedge of USD/DKK currency was 6.4.
²
⁾
The average interest rate was 2.11 p.a. plus margin.
²
⁾
The average price of the hedging instruments was USD 326.9.
Interest rate swaps with a fair value of USD 53.7m (net gain) applying the USD LIBOR settings are
designated as hedge accounting relationships to fix a part of TORM's interest payments during the
period 2023-2028 with a notional value of USD 687.2m (2021: USD 768.7m, 2020: USD
757.5m).
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 1.4m (2021: 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.
NOTE 23 –
continued
TORM did not enter into any enforceable netting arrangements.
Further details on derivative financial instruments are provided in Notes 24 and 25.
Forward freight agreements (FFAs) of USD 33.3m (net loss) have been recognized in the income
statement in 2022 (2021: USD 0.4m, 2020: USD 1.9m). 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 13.8m (net gain) have been recognized in the income statement
in 2022 (2021: USD 12.0m, 2020: USD 2.9m). Bunker swaps with a duration similar to the
period hedged are used to reduce the exposure to fluctuations in bunker prices for fixed voyages.
Bunker swap agreements are designated as hedge accounting when appropriate.
Forward exchange contracts with a fair value of USD 0.4m (net gain) are designated as hedge
accounting relationships to hedge a part of TORM's payments in 2023 regarding administrative
and operating expenses denominated in DKK with a notional value of DKK 280.3m (2021: DKK
274.0m, 2020: DKK 231.5m).
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
163
NOTE 23 -
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 2022, 2021 and 2020.
Income statement
Other comprehensive income
Equity
USDm
Revenue
Port
expenses,
bunkers,
and
commis-
sions
Financial
items
Operating
expenses
Adminis-
trative
expenses
Transfer to
income
statement
Fair value
adjustment
Hedging
reserves as of
31 December
2022
Forward freight agreements
-
-33.3
-
-
-
-
-
-
Bunker swaps
-
13.8
-
-
-
-3.3
3.3
-
Forward exchange contracts
-
-
-
-2.4
-2.3
4.6
-2.7
0.4
Interest rate swaps
-
-
3.2
-
-
0.4
54.3
52.6
Total
-
-19.5
3.2
-2.4
-2.3
1.7
54.9
53.0
2021
Forward freight agreements
-
0.4
-
-
-
-
-
-
Bunker swaps
-
12.0
-
-
-
-2.8
2.1
0.1
Forward exchange contracts
-
-
-
0.1
0.1
-0.2
-3.4
-1.6
Interest rate swaps
-
-
-10.8
-
-
11.7
9.8
-2.1
Total
-
12.4
-10.8
0.1
0.1
8.7
8.5
-3.6
2020
Forward freight agreements
1.9
-
-
-
-
-
-
-
Bunker swaps
-
2.9
-
-
-
1.2
-0.1
0.8
Forward exchange contracts
-
-
-
-0.1
0.1
-
2.4
2.0
Interest rate swaps
-
-
-5.7
-
-
5.7
-18.1
-23.5
Total
1.9
2.9
-5.7
-0.1
0.1
6.9
-15.8
-20.7
The hedging reserves as of 31 December relates to derivatives used for cash flow hedge for open hedge instruments, only. Certain interest rate swaps include portions of ineffectiveness.
The ineffectiveness is recognized in "Financial expenses" in the income statement. Please refer to note 23 for a full overview of the fair value of hedge instruments.
Please refer to note 21 for further information on commercial and financial risks.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
164
NOTE 23 -
continued
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 and under “Port
expenses, bunkers and commissions” for forward freight agreements and forward bunker
contracts.
NOTE 24 – RISKS ASSOCIATED WITH TORM’S ACTIVITIES
TORM’s overall risk tolerance and inherited exposure to risks is divided into five main categories:
•
Emerging risks
•
Industry and market risks
•
Operational risks
•
Compliance and IT risks
•
Financial risks
The risks described below under each of the five categories are considered to be among the most
significant and quantifiable risks for TORM.
Emerging 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.
Please refer to the Risk Management section under Climate-related risk analysis and TCFD on
pages 75-77 for a detailed description of emerging risks.
Industry and market 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 using the Company’s 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 10 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 ahead, based on market expectations
and in accordance with TORM’s risk management policies.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
165
NOTE 24 -
continued
During 2022, 12.8% (2021: 31.5%, 2020: 14.4%) of the 28,756 earning days deriving from
operating the Company’s product tankers were hedged in this way. Physical time charter
contracts accounted for 46.1% (2021: 35.7%, 2020: 41.9%) of overall hedging. In 2022, the
Company sold FFAs with a notional contract value of USD 58.3m (2021: USD 44.2m, 2020: USD
165.0m) and bought FFAs with a notional contract value of USD 92.3m (2021: USD 110.3m,
2020: USD 52.7m). The total notional contract volume sold in 2022 was 2,310,000 metric tons
(2021: 2,410,000 metric tons; 2020: 8,799,000 metric tons), and the total notional volume
bought was 2,592,000 metric tons (2021: 5,962,000 metric tons, 2020: 2,714,000 metric
tons). At the end of 2022, the coverage of available earning days for 2023 was 3.7% through time
charters, current spot voyages and cargo contracts (2021: 9.9%, 2020: 28.1%).
FFA trade and other freight-related derivatives are subject to specific policies and guidelines
approved by the Risk Committee, including trading limits, stop-loss policies, segregation of duties,
and other internal control procedures.
All things being equal and to the extent the Company’s vessels have not already been chartered
out at fixed rates, a freight rate change of USD/day 1,000 would lead to the following changes in
profit before tax based on the expected number of earning days for the coming financial year:
Sensitivity to changes in freight rates
USDm
2023
2022
2021
Decrease in freight rates of USD/day 1,000:
Changes in profit/loss before tax for the following year
-26.5
-27.2
-18.8
Changes in equity for the following year
-26.5
-27.2
-18.8
Sales and purchase price fluctuations
As an owner of vessels, TORM is exposed to risks associated with changes in the value of the
vessels, which can vary considerably during their useful lives. As of 31 December 2022, the
carrying value of the fleet was USD 1,856m (2021: USD 1,937.8m, 2020: USD 1,722.5m).
Based on broker valuations, TORM’s fleet had a market value of USD 2,650.3m as of 31
December 2022 (2021: USD 1,869.5m, 2020: USD 1,475.8m).
NOTE 24 -
continued
Bunker price fluctuations
The cost of fuel oil consumed by the vessels, known in the industry as bunkers, accounted for
61.3% (2021: 56.4%, 2020: 62.3%) of the total voyage costs in 2022 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 the bunker exposure with oil product
instruments to the extent bunker element in the freight rates achieved is considered fixed.
Bunker trade is subject to specific risk policies and guidelines approved by the Risk Committee
including trading limits, stop-loss, stop-gain and stop-at-zero policies, segregation of duties and
other internal control procedures.
TORM only hedges bunker exposure whenever the freight is fixed beyond one month. In 2022,
15.2% (2021: 42.1%, 2020: 14.6%) of TORM’s total bunker purchase was hedged through
bunker hedging contracts. At the end of 2022, TORM had covered 0% (2021: 4.1%, 2020:
15.6%) of its bunker requirements for 2023. The total bunker exposure is estimated to be
approximately 398,021 metric tons.
All things being equal, a price change of 10% per ton of bunker oil (without subsequent changes in
freight rates) would lead to the following changes in expenditure based on the expected bunker
consumption in the spot market:
Sensitivity to changes in the bunker price
USDm
2023
2022
2021
Increase in the bunker prices of 10% per ton:
Changes in profit/loss before tax for the following year
-22.1
-22.6
-22.0
Changes in equity for the following year
-22.1
-22.6
-22.0
Operational 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 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
166
NOTE 24 -
continued
Insurance coverage
During 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.
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 2022, the aggregate insured value of hull and machinery and interest
for TORM’s owned vessels amounted to USD 2.8bn (2021: USD 2.1bn, 2020: USD 1.9bn).
Counterparty risk
Counterparty risk is an ever-present challenge demanding close monitoring to manage and decide
on actions to minimize possible losses. The maximum counterparty risk associated is equal to the
values recognized in the balance sheet. A consequential effect of the counterparty risk is loss of
income in future periods, e.g. counterparties not being able to fulfill their responsibilities under a
time charter, a contract of affreightment, or an option. The main risk is the difference between the
fixed rates under a time charter or a contract of affreightment and the market rates prevailing
upon default. This characterizes the method for identifying the market value of a derivative
instrument.
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
NOTE 24 -
continued
Receivables, cash, and cash equivalents, including restricted cash
The majority of TORM’s customers are companies operating in the oil industry. It has been
assessed that these companies are, to a great extent, subject to the same risk factors as those
identified for TORM.
A major part of TORM’s freight revenues stem from a small group of customers. In 2022, one
customer accounted for 12% of TORM’s freight revenues (2021: one accounted for 15%, 2020:
one 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.
Because 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 claims, TORM’s
average stands at 98.6% (2021: 97.0%, 2020: 96.9%), which is considered to be satisfactory
given the differences in interpretation of events. In 2022, demurrage represented 14% (2021:
18.0%, 2020: 17.3%) 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 having adequate liquidity reserves for possible investment opportunities or to withstand a
sudden drop in freight rates.
Derivative financial instruments and commodity instruments
In 2022, 100% (2021: 100.0%, 2020: 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 entered into 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 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
167
NOTE 24 -
continued
Foreign exchange risk
TORM uses USD as its functional currency because most 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 81.4% (2021: 86.0%, 2020: 80.9%) for administrative expenses and
approximately 19.8% (2021: 21.3%, 2020: 23.8%) for operating expenses. TORM’s expected
administrative and operating expenses in DKK and EUR for 2023 are approximately DKK 406.7m,
whereof 68.9% (2021: 70.3%, 2020: 66.1%) are hedged through FX forward contracts. All FX
forward contracts have maturity within 2023, and TORM’s average hedge USD/DKK currency
rate is 6.93. 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 the USD/EUR exchange rates of 10% would
result in a change in profit/loss before tax and equity as follows:
USDm
2023
2022
2021
Effect of a 10% increase of DKK and EUR:
Changes in profit/loss before tax for the following year
-1.8
-1.8
-2.2
Changes in equity for the following year
-1.8
-1.8
-2.2
NOTE 24 -
continued
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 19 for additional information on
borrowings. At the end of 2022, TORM had fixed 94.6% (2021: 84.9%, 2020: 67.6%) of the debt
then outstanding with interest rate swaps and fixed rate leasing debt corresponding to an amount
of USD 916m. USD 687m of this amount is hedged at an interest rate of 1.37% plus margin with
interest rate swaps with maturity in the period 2023-2028.
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 has amended 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 on 30 June 2023.
As of 31 December 2022, 93.3% of the debt with a nominal value of USD 689.5m relates to the
period after 30 June 2023. As of 31 December 2022, 90.8% of the interest hedging with a
nominal value of USD 624m relates to the period after 30 June 2023.
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
2023
2022
2021
Effect of a 1%-point increase in interest rates:
Changes in profit/loss before tax for the following year
-0.7
-2.1
-3.7
Changes in equity for the following year
16.3
19.9
11.3
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
2022, TORM’s loan portfolio was spread across eleven different banks.
As of 31 December 2022, TORM maintains a liquidity reserve of USD 323.8m in cash and cash
equivalents, including restricted cash, combined with USD 92.6m in undrawn and committed
credit facilities. Cash is only placed in banks with an investment grade rating. For further
information on contractual obligations, including a maturity analysis, please refer to Note 22.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
168
NOTE 25 – FINANCIAL INSTRUMENTS
Categories of financial assets and liabilities (USDm):
Observable input
(level 2)
Financial instruments
measured at fair value
Financial instruments
measured at amortized cost
Total carrying value
2022
Financial assets
Loan receivables¹
⁾
-
-
4.6
4.6
Trade receivables¹
⁾
-
-
259.5
259.5
Other receivables
55.3
55.3
18.7
74.0
Cash and cash equivalents, including restricted cash¹
⁾
-
-
323.8
323.8
Total
55.3
55.3
606.6
661.9
Financial liabilities
Borrowings¹
⁾
²
⁾
-
-
966.9
966.9
Other non-current liabilities
3.0
3.0
Trade payables¹
⁾
-
-
48.5
48.5
Other liabilities¹
⁾
1.9
1.9
29.2
31.1
Total
1.9
1.9
1,047.6
1,049.5
2021
Financial assets
Loan receivables¹
⁾
-
-
4.6
4.6
Trade receivables¹
⁾
-
-
84.0
84.0
Other receivables
8.3
8.3
31.7
40.0
Cash and cash equivalents, including restricted cash¹
⁾
-
-
171.7
171.7
Total
8.3
8.3
292.0
300.3
Financial liabilities
Borrowings¹
⁾
²
⁾
-
-
1,135.3
1,135.3
Trade payables¹
⁾
-
-
35.3
35.3
Other liabilities¹
⁾
11.2
11.2
32.5
43.7
Total
11.2
11.2
1,203.1
1,214.3
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
169
NOTE 25 -
continued
Categories of financial assets and liabilities (USDm):
Observable
input
(level 2)
Financial instruments
measured at fair value
Financial instruments
measured at amortized cost
Total carrying value
2020
Financial assets
Loan receivables¹
⁾
-
-
4.6
4.6
Trade receivables¹
⁾
-
-
58.6
58.6
Other receivables
4.5
4.5
20.4
24.9
Cash and cash equivalents, including restricted cash¹
⁾
-
-
135.6
135.6
Total
4.5
4.5
219.2
223.7
Financial liabilities
Borrowings¹
⁾
²
⁾
-
-
842.4
842.4
Trade payables¹
⁾
-
-
14.4
14.4
Other liabilities¹
⁾
24.7
24.7
35.1
59.8
Total
24.7
24.7
891.9
916.6
¹
⁾
Due to the short maturity, the carrying value is considered to be an appropriate expression of the fair value.
²
⁾
See note 20.
³
⁾
Derivative financial instruments are presented in the balance sheet line "Other receivables" and "Other liabilities".
NOTE 25 -
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 in level 1 which are observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices)
Methods and assumptions in determining fair value of financial instruments
Derivative part of other receivables and other liabilities
The fair value of derivatives in other receivables and other liabilities 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 26 – 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 OCM Njord Holdings S.á.r.l.
(Njord Luxco).
Shareholders' contribution and dividends paid are disclosed in the consolidated statement of
changes in equity. Dividends to related parties are paid out based on 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 5.
On 01 September 2022, TORM purchased 75% of the shares in Marine Exhaust Technology A/S,
thereby obtaining a controlling interest in its joint venture entity Marine Exhaust Technology (Hong
Kong) Ltd. Until 01 September 2022, TORM’s transactions with its joint venture entity producing
scrubbers for the TORM fleet covered CAPEX of USD 5.6m in total.
During 2021, TORM effected transactions with its joint venture producing scrubbers for the
TORM fleet amounting to USD 1.4m in total (2020: 11.7m).
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
170
NOTE 27 – ASSETS HELD FOR SALE AND NON-CURRENT ASSETS SOLD DURING THE YEAR
During 2022, TORM sold seven vessels. All the vessels sold in 2022 and one vessel sold in 2021
were delivered to the new owners. The sales resulted in an impairment loss of USD 2.6m and a
profit of USD 10.2m which are recognized in the income statement for 2022.
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.
NOTE 28 – CASH FLOWS
USDm
2022
2021
2020
Reversal of other non-cash movements:
Exchange rate adjustments
-0.3
-0.7
-0.2
Share-based payments
2.2
2.3
1.7
Fair value adjustments on derivative financial instruments
0.6
-0.2
-
Reversal of provisions adjustments
-6.3
-
-
Other adjustments
0.1
-
-0.4
Total
-3.7
1.4
1.1
USDm
2022
2021
2020
Change in inventories, receivables, and payables:
Change in inventories
-21.8
-26.9
13.2
Change in receivables
-158.1
-37.5
14.9
Change in prepayments
-5.7
-3.5
1.3
Change in trade payables and other liabilities
4.7
19.4
-13.5
Total
-180.9
-48.5
15.9
NOTE 29 – ENTITIES IN THE GROUP
Entity
Country
TORM plc
United
Kingdom
Investments in subsidiaries ⁶
⁾
:
Entity
Country
Ownership
⁵
⁾
TORM A/S
Denmark
100%
DK Vessel HoldCo GP ApS ²
⁾
Denmark
100%
DK Vessel HoldCo K/S ²
⁾
Denmark
100%
OCM Singapore Njord Holdings Alice, Pte. Ltd ²
⁾
Singapore
100%
OCM Singapore Njord Holdings Almena, Pte. Ltd ³
⁾
Singapore
100%
OCM Singapore Njord Holdings Hardrada, Pte. Ltd
Singapore
100%
OCM Singapore Njord Holdings St.Michaelis Pte. Ltd ³
⁾
Singapore
100%
OCM Singapore Njord Holdings St. Gabriel Pte. Ltd ³
⁾
Singapore
100%
OCM Singapore Njord Holdings Agnete, Pte. Ltd ³
⁾
Singapore
100%
OCM Singapore Njord Holdings Alexandra, Pte. Ltd ²
⁾
Singapore
100%
OMI Holding Ltd.³
⁾
Mauritius
100%
TORM Crewing Service Ltd.³
⁾
Bermuda
100%
TORM Shipping India Private Limited ⁴
⁾
India
100%
TORM Singapore Pte. Ltd.
Singapore
100%
TORM USA LLC
USA
100%
VesselCo 1 K/S ¹
⁾
Denmark
100%
VesselCo 3 K/S ¹
⁾
Denmark
100%
VesselCo 5 K/S ¹
⁾
Denmark
100%
VesselCo 6 K/S ¹
⁾
Denmark
100%
VesselCo 6 Pte. Ltd. ²
⁾
Singapore
100%
VesselCo 7 Pte. Ltd. ¹
⁾
Singapore
100%
VesselCo 8 Pte. Ltd.³
⁾
Singapore
100%
VesselCo 9 Pte. Ltd.
Singapore
100%
VesselCo 10 Pte. Ltd.
Singapore
100%
VesselCo 11 Pte. Ltd.³
⁾
Singapore
100%
VesselCo 12 Pte. Ltd.
Singapore
100%
TORM SHIPPING (PHILS.), INC.
Philippines
25%
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
171
NOTE 29 -
continued
Investments in subsidiaries ⁶
⁾
- continued:
Entity
Country
Ownership
⁵
⁾
VesselCo A ApS ¹
⁾
Denmark
100%
VesselCo C ApS ¹
⁾
Denmark
100%
VesselCo E ApS ¹
⁾
Denmark
100%
VesselCo F ApS ¹
⁾
Denmark
100%
Marine Exhaust Technology A/S
Denmark
75%
ME Production A/S
Denmark
75%
Marine Exhaust Technology (Hong Kong) Ltd
China
59%
Suzhou ME Production Technology Co, Ltd.
China
75%
¹
⁾
Entities dissolved in the financial year ended 31 December 2020.
²
⁾
Entities dissolved in the financial year ended 31 December 2021.
³
⁾
Entities dissolved in the financial year ended 31 December 2022.
⁴
⁾
Entities with different reporting periods: TORM Shipping India has a Financial reporting period that runs from 1
April to 31 March as required by the Indian government's laws and legislations.
⁵
⁾
For all subsidiaries, ownership and voting rights are the same except for TORM SHIPPING (PHILS.), INC where
voting rights are 100%.
⁶
⁾
All subsidiaries are consolidated in full.
Interest in legal entities included as joint ventures:
2022
Entity (USDm)
Country
% Control
Profit and
loss from
continuing
operations
Other
compre-
hensive
income
Total
compre-
hensive
income
Long Range 2 A/S
Denmark
50%
-
-
-
LR2 Management K/S
Denmark
50%
-
-
-
Marine Exhaust Technology
Ltd.¹
⁾
Hong Kong
28%
-0.1
-
-0.1
¹
⁾
TORM obtained control over the entity on 01 September following the acquisition of Marine Exhaust Technology
A/S. The amounts above represents the period until TORM obtains control.
NOTE 29 –
continued
The table below shows the registered addresses for the companies mentioned above:
Denmark
India
Philippines
Tuborg Havnevej 18
2nd Floor
7th Floor
2900 Hellerup
Leela Business Park
Salcedo Towers, 169
Denmark
Andheri-Kurla Road
HV dela Costa Street
Andheri (E)
Salcedo Village,
Mumbai 400059
Makati City
India
Philippines 1227
Singapore
United Kingdom
USA
6 Battery Road #27-02
Office 105
Suite 1625
Singapore 049909
20 St Dunstan's Hill
2500 City West
Singapore
London, EC3R 8HL
Boulevard
United Kingdom
77042, Houston , Texas
USA
Denmark
China
Hong Kong
Sandholm 7
208 Longward Road
Room 3, 10/F
9900 Frederikshavn
Zhapu Town Ping Hu
Yue Xiu Building
Denmark
Jiaxing City
160-174 Lockhart Road
Zhejiang Provice
Wanchai
China
Hong Kong
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
172
NOTE 30 - PROVISIONS
USDm
2022
2021
2020
Cargo claim provisions
6.5
18.3
18.3
Warranty provisions
0.3
-
-
Balance as of 31 December
6.8
18.3
18.3
In 2020, TORM was involved in cargo claims relating to a customer having granted indemnities for
discharge of cargos, but not being able to honor those obligations. The cases involved irregular
activities committed by the customer. Legal action was initiated by TORM in the UK and in India
against the customer and related individuals. TORM has previously recognized provisions of USD
18.3m in relation to the claims.
During 2022, TORM settled one claim and reassessed its provisions for the remaining part of the
case complex. TORM has reversed provisions amounting to USD 6.3m, and the total amount as of
31 December 2022 relating to the case complex is USD 6.5m. Legal proceedings are still ongoing,
and therefore the provisions recognized are subject to uncertainty in relation to both timing and
amount.
Warranty provisions relate to sold marine exhaust equipment.
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, considering the
time value of money.
NOTE 31 – EARNINGS PER SHARE AND DIVIDEND PER SHARE
2022
2021
2020
Earnings per share
Net profit/(loss) for the year attributable to TORM plc
shareholders (USDm)
562.8
-42.1
88.1
Million shares
Weighted average number of shares
81.8
78.6
74.8
Weighted average number of treasury shares
-0.5
-0.5
-0.5
Weighted average number of shares outstanding
81.3
78.1
74.3
Dilutive effect of outstanding share options
1.5
0.3
-
Weighted average number of shares outstanding incl.
dilutive effect of share options
82.8
78.4
74.3
Basic earnings/(loss) per share (USD)
6.92
-0.54
1.19
Diluted earnings/(loss) per share (USD)
6.80
-0.54
1.19
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 5 for information on the RSUs.
2022
2021
2020
Dividend per share
Declared dividend per share (USD)
4.63
-
0.85
Declared dividend for the year (USDm)
378.7
-
63.2
Dividend paid during the year (USDm)
166.7
-
70.6
Number of shares, end of period (million)
82.3
81.2
74.9
Number of treasury shares, end of period (million)
-0.5
-0.5
-0.5
Number of shares outstanding, end of period (million)
81.8
80.7
74.4
Dividend paid per share
2.04
-
0.95
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
173
NOTE 31 -
continued
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.
NOTE 32 – CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED CASH
2022
2021
2020
Cash at banks and on hand
320.5
144.8
89.5
Cash and cash equivalents
320.5
144.8
89.5
Cash provided as security for initial margin calls and
negative market values on derivatives, etc.¹
⁾
3.3
5.9
46.1
Sale and leaseback transaction prepayment to be
released upon delivery of the vessel²
⁾
-
21.0
-
Restricted cash
3.3
26.9
46.1
Cash and cash equivalents, including restricted cash
323.8
171.7
135.6
¹
⁾
The counterparties have an obligation to return any excess cash provided as security to the Group upon
settlement or early termination of the contracts.
²
⁾
Prepayment released on 06 January 2022.
NOTE 33 – BUSINESS COMBINATION
On 01 September 2022, TORM acquired an ownership stake of 75% of Marine Exhaust
Technology A/S (MET), a Danish industrial company specialized in developing and producing
advanced and green marine equipment for a cash consideration of USD 2.0m. TORM acquired
MET because the entity has gained strong expertise in developing and producing components for
the maritime industry, including scrubbers for the shipping industry. As part of the transaction,
TORM also obtained control over the joint venture entity Marine Exhaust Technology (Hong Kong)
Ltd in which TORM previously held a 27.5% interest.
TORM has elected to measure the non-controlling interest in the acquiree at fair value.
The fair value of the non-controlling interest in MET has been assessed based on the EBITDA
multiples method using estimated 2023 financials based on expected scrubber orders. The value
includes an adjustment based on development costs to account for potential future income from
the sales of Flettner rotors. Based on the enterprise value estimate, the equity value is calculated
through a standard adjustment for net interest-bearing debt.
The previously held interest in Marine Exhaust Technology (Hong Kong) Ltd was remeasured at fair
value as part of the transaction leading to a gain of USD 0.3m recognized in the share of
profit/loss from joint ventures in the consolidated income statement.
The acquired assets include contractual receivables of USD 5.7m of which USD 0.3m were
considered to be uncollectible at the day of the acquisition.
Transaction costs in connection with the acquisition amounted to less than USD 0.1m and are
recognized as administration expenses.
The goodwill of USD 1.8m represents the value of expected synergies arising from the acquisition
and is allocated entirely to the Marine Exhaust segment. The goodwill recognized is not expected
to be deductible for tax purposes.
Revenue and profit for the period generated by the acquired entity amounted to USD 5.9m and
0.0m, respectively, and have been recognized in the consolidated income statement since the
acquisition. Had the acquisition taken place on 01 January 2022, the revenue and profit for the
Group for 2022 would have been USD 1,455.9m and USD 561.9m, respectively.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
174
NOTE 33 -
continued
The following table summarizes the fair values of the assets acquired and the liabilities assumed on
01 September 2022:
01 September
USDm
2022
Intangible
assets
1.2
Tangible fixed assets
2.5
Inventories
6.4
Trade receivables
1.6
Other receivables
3.8
Prepayments
1.5
Cash and cash equivalents
3.0
Borrowings
-7.9
Deferred tax liabilities
-0.3
Provisions
-0.4
Other non-current liabilities
-0.8
Trade payables
-1.5
Other liabilities
-0.3
Deferred income
-4.3
Current tax liabilities
-0.3
Net identifiable assets acquired
4.2
Goodwill
1.8
Total net assets acquired
6.0
Of which fair value of non-controlling interest
-2.4
Total purchase consideration
3.6
Cash consideration
2.0
Fair value of previously held interests
1.6
Total purchase consideration
3.6
Cash acquired
3.0
Cash consideration
-2.0
Acquisition of subsidiaries, net of cash acquired
1.0
NOTE 33 -
continued
Accounting policies
Newly acquired or formed entities are recognized in the consolidated financial statements from
the date of acquisition or formation. The date of acquisition is the date on which control over the
entity is effectively transferred.
Business combinations are accounted for by applying the purchase method, whereby the acquired
entities’ identifiable assets, liabilities, and contingent liabilities are measured at fair value at the
acquisition date. The tax effect of the revaluation activities is also considered.
When a business combination agreement provides for an adjustment to the cost of the
combination contingent on future events, the amount of that adjustment is included in the cost of
the combination if the event is probable and the adjustment can be measured reliably. Costs of
issuing debt or equity instruments in connection with a business combination are accounted for
together with the debt or equity issuance. All other costs associated with the acquisition are
expensed in the income statement.
The excess of the cost of the business combination over the fair value of the acquired assets,
liabilities, and contingent liabilities is recognized as goodwill under intangible assets and is tested
for impairment at least once a year. Upon acquisition, goodwill is allocated to the cash generating
units that subsequently form the basis for the impairment test. If the fair value of the acquired
assets, liabilities, and contingent liabilities exceeds the cost of the business combination, the
identification of assets and liabilities and the processes of measuring the fair value of the assets
and liabilities and the cost of the business combination are reassessed. If the fair value of the
business combination continues to exceed the cost, the resulting gain is recognized in the income
statement.
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
175
Parent company 2022
Parent company financial statements
Management review for TORM plc
176
Income statement
177
Statement of comprehensive income
177
Company balance sheet
178
Company statement of changes in equity
179
Cash flow statement
180
Notes to parent company financial statements
181
TORM ANNUAL REPORT 2022
PARENT COMPANY 2022
175
TORM ANNUAL REPORT 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
176
Management review for TORM plc
The parent company activities include holding company activities for the TORM Group, treasury
activities as well as bareboat chartering activities.
In 2022, revenue amounted to USD 11.9m compared to USD 32.1m in 2021, primarily driven by
fewer vessels on bareboat charters to TORM A/S. The operating loss amounted to USD 4.6m
compared to an operating profit of USD 1.9m in 2021, which was impacted by reversals of
expected credit losses.
In 2022, a reversal of impairment of investment in subsidiaries amounting to USD 139.0m (2021:
nil) has been recognized as the recoverable amount exceeded the carrying amount of the
investments in subsidiaries. The primary driver of the impairment reversal is the improved
conditions in the product tanker market outlook for vessel owning subsidiaries.
Net financial income amounted to USD 33.6m compared to USD 35.1m in 2021, primarily
impacted by an increase in interest income from subsidiaries of USD 11.5m and a decrease in
dividends from subsidiaries of USD 22.2m as well as a decrease in borrowing interest of USD 8.1m
Net profit amounted to USD 175.3m compared to USD 37.0m in 2021.
Total assets decreased by USD 275.9m to USD 1,619.8m as of 31 December 2022, mainly
driven by a decrease in loans to subsidiaries of USD 324.5m partially offset by fair value gains on
interest rate swaps of USD 53.7m.
Total equity increased by USD 60.4m to USD 1,202.2m as of 31 December 2022, primarily
driven by a net profit of USD 175.3m and increased hedging reserves of USD 54.7m from
unrealized gains on interest derivatives partially offset by dividend payments of USD 166.7m.
During 2022, total borrowings decreased by USD 201.1m, to USD 405.5m primarily driven by
debt repayments in connection with vessel sales in subsidiaries.
TORM ANNUAL REPORT 2022
PARENT COMPANY FINANCIAL STATEMENTS
177
Income statement
01 January-31 December
USD '000
Note
2022
2021
Revenue
11,861
32,132
Charter hire
-11,715
-31,735
Administrative expenses
-4,737
-3,192
Other operating income and expenses
44
44
Expected credit loss
-47
4,660
Depreciation and amortization
-39
-43
Operating profit/(loss) (EBIT)
-4,633
1,866
Impairment reversal on investment in subsidiaries
5
138,984
-
Financial income
2
52,718
63,555
Financial expenses
2
-19,107
-28,425
Profit before tax
167,962
36,996
Tax
4
7,372
-
Net profit for the year
175,334
36,996
Statement of comprehensive income
01 January-31 December
USD '000
2022
2021
Net profit for the year
175,334
36,996
Other comprehensive income:
Items that may be reclassified to profit or loss:
Fair value adjustment on hedging instruments
54,259
10,306
Fair value adjustment on hedging instruments transferred to income
statement
412
9,159
Tax on items that may be reclassified to profit or loss
-13,162
-
Other comprehensive income after tax ¹
⁾
41,509
19,465
Total comprehensive income for the year
216,843
56,461
Parent company financial statements
TORM ANNUAL REPORT 2022
PARENT COMPANY FINANCIAL STATEMENTS
178
Company balance sheet
as of 31 December
USD '000
Note
2022
2021
Assets
Non-current assets
Tangible fixed assets
Land and buildings
102
33
Other plant and operating equipment
-
3
Total tangible fixed assets
102
36
Financial assets
Investments in subsidiaries
5
940,291
937,589
Loan receivables
6
4,570
4,617
Loans to subsidiaries
-
803,712
Total financial assets
944,861
1,745,918
Total non-current assets
944,963
1,745,954
Current assets
Loans to subsidiaries
619,049
139,854
Other receivables
7
53,702
6,843
Prepayments
371
374
Cash and cash equivalents
1,706
2,622
Total current assets
674,828
149,693
Total assets
1,619,791
1,895,647
USD '000
Note
2022
2021
EQUITY AND LIABILITIES
EQUITY
Common shares
823
812
Treasury shares
-4,235
-4,235
Hedging reserves
39,485
-2,024
Share premium
77,794
69,821
Retained profit
1,088,297
1,077,410
Total equity
1,202,164
1,141,784
LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax liability
4
5,790
-
Borrowings
8
340,602
463,459
Total non-current liabilities
346,392
463,459
CURRENT LIABILITIES
Borrowings
8
64,882
143,135
Trade payables
349
256
Payables to subsidiaries
2,993
135,825
Other liabilities
3,011
11,188
Total current liabilities
71,235
290,404
Total liabilities
417,627
753,863
TOTAL EQUITY AND LIABILITIES
1,619,791
1,895,647
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
16 March 2023
TORM ANNUAL REPORT 2022
PARENT COMPANY FINANCIAL STATEMENTS
179
Company statement of changes in equity
USD '000
Common
shares
Treasury
shares
Hedging
reserves
Share
premium
Retained
profit
Total
EQUITY
Equity as of 01 January 2021
748
-4,235
-21,489
12,307
1,038,097
1,025,428
Comprehensive income for the year:
Net profit for the year
-
-
-
-
36,996
36,996
Other comprehensive income for the year
-
-
19,465
-
-
19,465
Total comprehensive income for the year
-
-
19,465
-
36,996
56,461
Capital increase
64
-
-
57,799
-
57,863
Transaction costs capital decrease
-
-
-
-285
-
-285
Share-based compensation
-
-
-
-
2,317
2,317
Total changes in equity 2021
64
-
-
57,514
2,317
59,895
Equity as of 31 December 2021
812
-4,235
-2,024
69,821
1,077,410
1,141,784
Comprehensive income for the year:
Net profit for the year
-
-
-
-
175,334
175,334
Other comprehensive income for the year
-
-
54,671
-
-
54,671
Tax on other comprehensive income
-
-
-13,162
-
-
-13,162
Total comprehensive income for the year
-
-
41,509
-
175,334
216,843
Capital increase
11
-
-
8,004
-
8,015
Transaction costs capital increase
-
-
-
-31
-
-31
Share-based compensation
-
-
-
-
2,211
2,211
Dividend paid
-
-
-
-
-166,658
-166,658
Total changes in equity 2022
11
-
-
7,973
-164,447
-156,463
Equity as of 31 December 2022
823
-4,235
39,485
77,794
1,088,297
1,202,164
TORM ANNUAL REPORT 2022
PARENT COMPANY FINANCIAL STATEMENTS
180
Cash flow statement
USD '000
2022
2021
Cash flow from operating activities
Net profit for the year
175,334
36,996
Reversals:
Reversal of depreciation and impairment losses
39
43
Reversal of other non-cash movements
12,418
25,846
Impairment reversal on investment in subsidiaries
-138,984
-
Financial income
-52,718
-63,555
Financial expenses
19,107
28,425
Tax
-7,372
-
Interest received
-
17,750
Interest paid
-18,553
-27,384
Net exchange rate gains and losses
-717
-68
Repayments of intercompany trading balances
15,501
87,539
Change in inventories, receivables, and payables, etc.
356
281
Net cash flow from operating activities
4,411
105,871
USD '000
2022
2021
Cash flow from investing activities
Payments/repayments of loans to subsidiaries
356,093
-226,285
Net cash flow from investing activities
356,093
-226,285
Cash flow from financing activities
Borrowing, mortgage debt
20,000
224,048
Repayment/redemption, mortgage debt
-222,708
-176,000
Repayment/redemption, finance lease
-38
-43
Capital increase
8,015
2,863
Transaction costs capital increase
-31
-241
Dividends paid
-166,658
-
Net cash flow from financing activities
-361,420
50,627
Net cash flow from operating, investing, and financing activities
-916
-69,787
Cash and cash equivalents as of 01 January
2,622
72,409
Cash and cash equivalents as of 31 December
1,706
2,622
TORM ANNUAL REPORT 2022
PARENT COMPANY FINANCIAL STATEMENTS
181
Notes to parent company
financial statements
Note 1 – Accounting policies – supplementary for the parent company
182
Note 2 – Financial items
183
Note 3 – Staff costs
183
Note 4 –Tax
183
Note 5 – Financial assets
184
Note 6 – Loan receivables
184
Note 7 – Other receivables
185
Note 8 – Borrowings
185
Note 9 – Impairment testing
185
Note 10 – Collateral security for mortgage debt and bank loans
185
Note 11 – Guarantee commitments and contingent liabilities
185
Note 12 – Related party transactions
185
TORM ANNUAL REPORT 2022
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
181
TORM ANNUAL REPORT 2022
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
182
NOTE 1 – ACCOUNTING POLICIES – SUPPLEMENTARY FOR THE PARENT COMPANY
Basis of preparation
TORM plc is a public company limited by shares and incorporated in England and Wales. Its
registered number is 09818726, and its registered address is office 105, 20 St Dunstan’s Hill,
London, EC3R 8HL. 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 and additional disclosure
requirements for listed companies in accordance with the Danish Financial Statements Act.
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)
•
The following paragraphs of IAS 1 “Presentation of financial statements”
•
16 (statement of compliance with all IFRS)
•
134-136 (capital management disclosures)
•
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.
NOTE 1
- continued
Where required, the equivalent disclosures are given in the Group's consolidated financial
statements. Key sources of estimating 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 5 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
“Impairment reversal on investment in subsidiaries”.
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 10 to the Group consolidated financial statements.
Notes to parent company financial statements
TORM ANNUAL REPORT 2022
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
183
NOTE 2 – FINANCIAL ITEMS
USD '000
2022
2021
Financial income
Interest income from subsidiaries
30,582
19,115
Interest income from cash and cash equivalents, including restricted
cash
4
87
Dividends from subsidiaries
22,083
44,303
Other financial income
49
50
Total
52,718
63,555
Financial expenses
Interest expense to subsidiaries
-
135
Interest expenses on borrowings
-18,955
-27,075
Interest expense from right-of-use assets
-1
-2
Commitment fees
-622
-1,100
Amortization of interest rate swaps
-2,394
-1,382
Ineffectiveness on interest rate swaps
3,622
1,193
Exchange rate adjustments, including loss from forward exchange
rate contracts
-713
-71
Other financial expenses
-44
-123
Total
-19,107
-28,425
NOTE 3 – STAFF COSTS
USD'000
2022
2021
Total staff costs
Staff costs included in administrative expenses
1,180
1,332
Total staff costs
1,180
1,332
Average number of permanent employees
1
1
Employee information
The average number of employees is calculated as a full-time equivalent (FTE).
NOTE 4 –TAX
The major components of income tax for the years ended 31 December 2022 and 2021 are:
USD '000
2022
2021
Tax for the year
Tax losses for the year
-
-
Adjustment of deferred tax
-7,372
-
Total
-7,372
-
Adjustment of deferred tax of USD 7.4m for the year ended 31 December 2022 consists of the
recognition of deferred tax assets for unused tax credits for charges subject to the corporate
interest restriction and for carried forward losses, which now qualify for recognition as a result of
the deferred tax liability related to the unrealized gain on interest swaps.
Tax effects directly recognized in equity or other comprehensive income for the years ended 31
December 2022 and 2021 are:
USD '000
2022
2021
Deferred tax charged in the statement of Other Comprehensive
Income
Deferred tax related to items recognized in OCI during the year
13.162
-
Total
13.162
-
Tax recognized in equity or other comprehensive income relates to the unrealized fair value
adjustment on hedging instruments recognized directly in equity or other comprehensive income.
TORM ANNUAL REPORT 2022
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
184
NOTE 4 – CONTINUED
Reconciliation of tax charge
USD '000
2022
2021
Accounting profit before income tax
167,962
36,996
Adjustment of income
Reversal of impairment
-138,984
-4,660
Dividend distribution
-22,083
-44,303
Legal and professional fees
909
75
Other non-deductible expenses for tax purposes
48
71
Other non-taxable income
-
-43
Non-trade loan relationship
-
-20,581
Corporate interest restriction
-12,242
6,344
Capital allowances
-345
-421
Adjusted taxable loss
-4,735
-26,522
At effective UK income tax rate of 19% (2021: 19%)
-
-
Recognition of deferred tax asset from unused tax credits
7,372
-
Income tax reported in the Income Statement
7,372
-
Deferred tax liability
USD '000
2022
2021
Deferred tax liability
Balance as of 01 January
-
-
Deferred tax for the year
-7,372
-
Deferred tax from changes in equity
13,162
-
Total
5,790
-
As per December 2022 there are unused tax credits of USD 2.2m (2021: USD 13.5m) relating to
prior year losses, as the utilisation of these losses may not be used to offset taxable profit due to a
high degree of uncertainty of future taxable profits.
NOTE 5 – FINANCIAL ASSETS
USD'000
2022
2021
Investments in subsidiaries
Cost:
Balance as of 01 January
1,079,689
1,173,105
Adjustments to prior years
-3,116
-
Capital decreases in subsidiaries
-137,838
-95,733
Capital increases related to share-based payments
1,556
2,317
Balance as of 31 December
940,291
1,079,689
Impairment:
Balance as of 01 January
142,100
142,100
Adjustments to prior years
-3,116
-
Impairment (reversal)/losses for the year
-138,984
-
Balance as of 31 December
-
142,100
Carrying amount as of 31 December
940,291
937,589
Adjustments to prior years relate to reclassification due to immaterial deviations.
Please refer to note 9 for further reference on impairment reversal for the year.
NOTE 6 – LOAN RECEIVABLES
USD '000
2022
2021
Loan receivables
Cost:
Balance as of 01 January
4,711
4,711
Balance as of 31 December
4,711
4,711
Expected credit loss:
Balance as of 01 January
94
94
Additions during the year
47
-
Balance as of 31 December
141
94
Carrying amount as of 31 December
4,570
4,617
TORM ANNUAL REPORT 2022
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
185
NOTE 7 – OTHER RECEIVABLES
USD '000
2022
2021
Derivative financial instruments
53.686
6.824
Other
16
19
Balance as of 31 December
53.702
6.843
NOTE 8 – BORROWINGS
As of 31 December 2022, the Company had borrowed USD 409.2.m (2021: USD 611.9m). The
loan proceeds were USD 3.8m lower (2021: USD 5.3m) due to borrowing fees. The fees are
amortized over the loan periods. In 2022, the Company had interest expenses of USD 18.7m
(2021: USD 16.6m) regarding these loan facilities.
As of 31 December 2022, the Company had finance lease liabilities of 0.1m (2021: nil). In 2022,
the Company had interest expenses of USD 0.0m (2021: nil) regarding financial leases.
The development in borrowings during the year was caused by cash changes from new borrowings
of USD 20m (2021: 224.0m) and repayments of borrowings of USD 222.7m (2021: 176.0m) as
well as non-cash increases of USD 1.6m (2021: 0.5m).
NOTE 9 – IMPAIRMENT TESTING
As of 31 December 2022, Management performed an impairment test of investments in
subsidiaries. The subsidiaries of TORM plc are the formal owners of TORM’s vessels and operate in
the product tanker market.
As of 31 December 2022, the recoverable amount of the investments in subsidiaries was based
on the fair value less costs of disposal.
Based on this test, Management concluded that a full reversal of prior year’s impairment charges
of USD 133.5m was needed (2021: no reversal of impairment).
The assessment of the fair value less costs of disposal of the subsidiaries was based on the net
asset value of the subsidiaries where the key input is the broker valuation of vessels owned by the
subsidiaries. The broker valuations are an average of valuations from two internationally
acknowledged shipbrokers with appropriate qualifications and recent experience in the valuation
of vessels.
NOTE 9 – CONTINUED
Please refer to Note 10 to the Group consolidated financial statements for further information in
respect of the fair value less costs of disposal of these vessels.
NOTE 10 – 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 409.2m as of 31 December 2022 (2021: USD 611.9m).
NOTE 11 – GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES
TORM is guarantor for a loan amounting to USD 79m 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 480m.
NOTE 12 – 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 OCM Njord Holdings S.à.r.l.
(Njord Luxco).
The Company has received dividends from subsidiaries amounting to USD 22.1m (2021: USD
44.3m).
The Company has income in the form of interests from its subsidiaries of USD 30.6m (2021: USD
17.5m) relating to loans to subsidiaries.
The Company has income in the form of bareboat hire from its subsidiary TORM A/S of USD
11.9m (2021: USD 32.1m).
The Company has paid bareboat hire to its subsidiaries in the amount of USD 11.7m (2021: USD
31.7m).
There have been no or limited transactions with related parties during the financial year other than
the transactions disclosed above.
TORM ANNUAL REPORT 2022
186
TORM ANNUAL REPORT 2022
INDEPENDENT AUDITOR’S REPORT
187
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 2022 and
of the group’s profit 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 additional
disclosure requirements for listed companies in accordance
with the Danish Financial Statements Act;
•
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 2022 and additional disclosure
requirements for listed companies in accordance with the
Danish Financial Statements Act.
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
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 2022 and additional disclosure
requirements for listed companies in accordance with the
Danish Financial Statements Act. 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) and additional disclosure
requirements for listed companies in accordance with the
Danish Financial Statements Act.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in
the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the
group and parent company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as
applied to listed 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 assessed the design,
Independent auditor’s report to the members of TORM plc
Report on the audit of the financial statements
Independent auditor’s report
We have audited the financial statements of TORM plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31
December 2022 which comprise:
Group
Parent company
Consolidated balance sheet as at 31 December 2022
Balance sheet as at 31 December 2022
Consolidated income statement for the year then ended
Income statement for the year then ended
Consolidated statement of comprehensive income for the
year then ended
Statement of comprehensive income for the year then ended
Consolidated statement of changes in equity for the year then
ended
Statement of changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
Statement of cash flows for the year then ended
Related notes 1 to 33 to the financial statements, including a
summary of significant accounting policies
Related notes 1 to 12 to the financial statements including a
summary of significant accounting policies
TORM ANNUAL REPORT 2022
INDEPENDENT AUDITOR’S REPORT
188
implementation and operating effectiveness of related
controls and also engaged with management early to
ensure key factors were considered in their assessment.
•
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 2024. As
part of this assessment, the group has modelled a low case
and stress case scenario in their cash forecasts and
covenant calculations in order to incorporate unexpected
changes to the forecasted liquidity and covenant
compliance of the group.
•
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 compared with external benchmarks,
historical performance adjusted for inflation, the lowest
rolling 4-quarter average 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 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.
•
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
modelled. In each scenario TORM continues to meet its
covenants. The combination of factors to achieve a reverse
stress test position is considered to be remote.
We considered subsequent events, including the planned
refinancing in 2023 as well as committed vessels acquisitions
in 2023, and obtained management’s assessment over the
impact of these events. Management has assessed that the
subsequent events do not change the conclusion of
Management’s assessment.
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 2024.
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 $12m which
represents 0.5% of group total assets.
An overview of the scope of the parent 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.
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. 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. UK team members were also present in Copenhagen
during the year end phase of the audit.
Independent Auditor’s Report to the Members of TORM plc
Report on the audit of the financial statements
TORM ANNUAL REPORT 2022
INDEPENDENT AUDITOR’S REPORT
189
Climate change
Stakeholders are increasingly interested in 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 declining demand for oil and gas, higher
cost of capital and reduced access to capital, carbon price
regulations, and decarbonisation of vessels. These are
explained on pages 75-77 in the Climate-related risk analysis
and TCFD (Task Force for Climate related Financial
Disclosures). They have also explained their climate
commitments on pages 15 to 17 and 27. All of these
disclosures form part of the “Other information,” rather than
the audited financial statements. Our procedures on these
unaudited 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, in line with
our responsibilities on “Other information”.
In planning and performing our audit we assessed the potential
impacts of climate change on the group’s business and any
consequential material impact on its financial statements. The
group has explained in note 10 to the group financial
statements articulation of how climate change has been
reflected in vessels values, how they have reflected the impact
of climate changes and the climate changes agenda on the fair
value of vessels including how this aligns with its commitment
to the aspirations of the Paris Agreement to achieve net zero
emissions by 2050.Significant judgements and estimates
relating to climate change are included in note 10.
These
disclosures also explain where governmental and societal
responses to climate change risks are still developing, and
where the degree of certainty of these changes means that
they cannot be taken into account when determining asset
and liability valuations and 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 2022.
Our audit effort in considering the impact of climate change on
the financial statements was focused on evaluating
management’s assessment of the impact of climate risk,
physical and transition, their climate commitments, the effects
of material climate risks disclosed on pages 75 -77 and the
significant judgements and estimates disclosed in note 10 and
whether these have been appropriately reflected in the carrying
value of vessels and associated disclosure where fair value of
vessels may be negatively impact by climate changes and
climate agenda. Details of our procedures and findings on
carrying value of vessels are included in our key audit matter
below.
We also challenged the Directors’ considerations of climate
change risks in their assessment of going concern and viability
and associated disclosures.
Based on our work we have not identified the impact of climate
change on the financial statements to be a key audit matter or
to impact a key audit matter.
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.
Independent Auditor’s Report to the Members of TORM plc
Report on the audit of the financial statements
TORM ANNUAL REPORT 2022
INDEPENDENT AUDITOR’S REPORT
190
Independent Auditor’s Report to the Members of TORM plc
Report on the audit of the financial statements
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Carrying value of the group’s vessels carried as
at 31 December 2022 totalled $1,856m
(2021: $1,938m).
Refer to the Audit Committee Report (page 91); Accounting
policies (page 135, 147); and Note 10 of the Consolidated
Financial Statements (page 150-152)
The Company assesses impairment at each reporting date or
whenever events or changes in circumstances would
indicate that the carrying amounts of its vessels might not
be recoverable in accordance with IAS 36 Impairment of
Assets. If any indications of impairment exist, or at least
annually, the company prepares an impairment assessment
at the cash generating unit (CGU) level, which has been
determined as LR1, LR2 and MR vessels (the Main Fleet) as
they are operated collectively, are largely interchangeable
and the cash flows generated by them are interdependent
with other vessels. Impairment is recognised if the
recoverable amount, determined as the higher of value in
use and the fair value less cost of disposal, is less than the
carrying value of the corresponding CGU. The company
determined the recoverable amount to be the fair value less
cost of disposal, which was calculated as the average of two
valuations prepared by independent shipbrokers. Based on
the assessment, the company concluded that the carrying
value was recoverable as of December 31, 2022.
Auditing the Company’s vessel impairment assessment was
complex due to the significant judgement required by
management in determining the CGU and the degree of
subjectivity involved in determining the fair value of the
vessels using independent shipbroker valuations, which use
a combination of vessels specific inputs such as size, yard
and age of the vessels and assumptions based on market
data, including recent comparable vessel transactions.
We obtained an understanding, evaluated the design, and tested the operating effectiveness
of the controls over the company’s impairment assessment process, including controls over
the identification of CGUs and review of the vessels’ fair value.
We performed audit procedures on the impairment assessment that included, among others,
assessment of management’s CGU determination by evaluating their analysis in respect of the
smallest group of assets that generate largely independent cash flows.
We inspected evidence to assess the reasonableness of management’s determination of the
homogenous nature and joint operation of the Main Fleet.
We evaluated the recoverability of the carrying value of the vessels by comparing them to the
average fair value of two valuations prepared by independent shipbrokers.
We performed inquiries with the independent shipbrokers regarding the valuation methodology
applied and input data used and evaluated their competence, capabilities and objectivity.
We tested the input data used for the valuation of the vessels in the Main Fleet by comparing
vessel specific inputs with vessel records and supporting documentation as well as evidence
obtained in other areas of the audit.
We further performed a retrospective comparison of historical sales prices of vessels with the
independent broker valuations near the time of disposal and compared the valuations to recent
market data for comparable vessels.
At the conclusion of the above procedures we stood back and considered all evidence
gathered to reassess and confirm our conclusions remained appropriate.
We assessed the appropriateness of disclosures provided in notes 1 and 10, including the
impact from climate changes, in the consolidated financial statements in accordance with IAS
36.
Based on our audit procedures
performed, we concur with
management’s conclusion that the
carrying value of the group’s vessels was
recoverable as of 31 December 2022.
We consider the disclosures in the
financial statements to be sufficient and
appropriate and in compliance with
accounting standards.
TORM ANNUAL REPORT 2022
INDEPENDENT AUDITOR’S REPORT
191
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.
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 $12 million
(2021: $10 million), which is 0.5% (2021: 0.4%) 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 $7.4
million (2021: $8.4 million), which is 0.5% (2021: 0.5%) of
total asset, as the parent company principally holds
investments in subsidiaries and does not trade externally.
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% (2021:
50%) of our planning materiality, namely $6m (2021: $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.
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 $0.6m
(2021: $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.
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
material misstatement of the other information, we are required
to report that fact.
We have nothing to report in this regard.
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.
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
Independent Auditor’s Report to the Members of TORM plc
Report on the audit of the financial statements
TORM ANNUAL REPORT 2022
INDEPENDENT AUDITOR’S REPORT
192
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 122, 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 2022, FRS 101, the Companies Act
2006 and Corporate Governance Code, the Danish
Financial Statement Act, 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 as follow:
•
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
governance;
•
Obtaining and reading correspondence from legal and
regulatory bodies;
•
Obtaining confirmations from the group’s banking
provider to verifying the existence of cash balances and
completeness of loans 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 - 16 March 2023
Independent Auditor’s Report to the Members of TORM plc
Report on the audit of the financial statements
TORM ANNUAL REPORT 2022
TORM FLEET OVERVIEW
193
Vessel
type
Vessel
class
Vessel
DWT
Built
Ownership
Carrying value (USDm)
Tanker
LR2
TORM HANNAH
109,999
2016
100%
42
Tanker
LR2
TORM HELLERUP
114,000
2018
100%
44
Tanker
LR2
TORM HELENE
114,000
2021
100%
50
Tanker
LR2
TORM HERMIA
114,000
2018
100%
46
Tanker
LR2
TORM HERDIS
114,000
2018
100%
44
Tanker
LR2
TORM HILDE
114,000
2018
100%
45
Tanker
LR2
TORM HOUSTON
114,000
2022
100%
49
Tanker
LR2
TORM KIARA
114,445
2015
100%
38
Tanker
LR2
TORM KIRSTEN
114,445
2015
100%
38
Tanker
LR2
TORM KRISTINA
114,323
2015
100%
38
Tanker
LR2
TORM MAREN
109,672
2008
100%
29
Tanker
LR2
TORM MARINA
109,672
2007
100%
28
Tanker
LR2
TORM MATHILDE
109,672
2008
100%
28
Tanker
LR1
TORM ESTRID
74,999
2004
100%
14
Tanker
LR1
TORM ISMINI
74,999
2004
100%
17
Tanker
LR1
TORM SARA
72,718
2003
100%
12
Tanker
LR1
TORM SIGNE
72,718
2005
100%
18
Tanker
LR1
TORM SOFIA
72,660
2005
100%
18
Tanker
LR1
TORM VENTURE
73,700
2007
100%
23¹
⁾
Tanker
LR1
TORM ELISE
75,000
2019
100%
36
Tanker
LR1
TORM ELIZABETH
75,000
2019
100%
36
Tanker
MR
TORM ADVENTURER
46,042
2008
100%
16
Tanker
MR
TORM AGNES
49,999
2011
100%
19
Tanker
MR
TORM AGNETE
49,999
2010
100%
22
Tanker
MR
TORM ALEXANDRA
49,999
2010
100%
22
Tanker
MR
TORM ALICE
49,999
2010
100%
19
Tanker
MR
TORM ALLEGRO
46,184
2009
100%
20
TORM fleet overview
As of 31 December 2022
TORM fleet overview
TORM ANNUAL REPORT 2022
TORM FLEET OVERVIEW
194
Vessel
type
Vessel
class
Vessel
DWT
Built
Ownership
Carrying value (USDm)
Tanker
MR
TORM ALMENA
49,999
2010
100%
19
Tanker
MR
TORM AMALIE
49,999
2011
100%
19
Tanker
MR
TORM AMORINA
46,184
2012
100%
22
Tanker
MR
TORM ANABEL
49,999
2012
100%
22
Tanker
MR
TORM ARAWA
49,999
2012
100%
22
Tanker
MR
TORM ASLAUG
49,999
2010
100%
19
Tanker
MR
TORM ASTRID
49,999
2012
100%
23
Tanker
MR
TORM ATLANTIC
49,999
2010
100%
21
Tanker
MR
TORM AUSTRALIA
51,737
2019
100%
20
Tanker
MR
TORM CAVATINA
46,200
2010
100%
17
Tanker
MR
TORM CORRIDO
46,156
2019
100%
21
Tanker
MR
TORM DISCOVERER
45,012
2008
100%
15
Tanker
MR
TORM ERIC
51,266
2006
100%
12
Tanker
MR
TORM FREYA
45,990
2003
100%
9
Tanker
MR
TORM HARDRADA
45,983
2007
100%
13
Tanker
MR
TORM HELVIG
46,187
2005
100%
14
Tanker
MR
TORM INDIA
49,999
2010
100%
17
Tanker
MR
TORM KANSAS
46,955
2006
100%
14
Tanker
MR
TORM LAURA
49,999
2008
100%
18
Tanker
MR
TORM LEADER
46,070
2009
100%
15
Tanker
MR
TORM LENE
49,999
2008
100%
17
Tanker
MR
TORM LILLY
49,999
2009
100%
19
Tanker
MR
TORM LOKE
51,372
2007
100%
16
Tanker
MR
TORM LOTTE
49,999
2009
100%
19
Tanker
MR
TORM LOUISE
49,999
2009
100%
19
Tanker
MR
TORM MALAYSIA
51,737
2011
100%
21
Tanker
MR
TORM NEW ZEALAND
51,737
2011
100%
20
TORM fleet overview
As of 31 December 2022
TORM ANNUAL REPORT 2022
TORM FLEET OVERVIEW
195
Vessel
type
Vessel
class
Vessel
DWT
Built
Ownership
Carrying value (USDm)
Tanker
MR
TORM PHILIPPINES
49,999
2010
100%
17
Tanker
MR
TORM PLATTE
46,959
2006
100%
13
Tanker
MR
TORM RAGNHILD
46,187
2005
100%
14
Tanker
MR
TORM REPUBLICAN
46,955
2006
100%
14
Tanker
MR
TORM RESILIENCE
49,999
2005
100%
12
Tanker
MR
TORM SINGAPORE
51,737
2011
100%
21
Tanker
MR
TORM SOLUTION
49,999
2019
100%
30
Tanker
MR
TORM SOVEREIGN
49,999
2017
100%
28
Tanker
MR
TORM SPLENDID
49,999
2020
100%
30
Tanker
MR
TORM STELLAR
49,999
2020
100%
30
Tanker
MR
TORM STRENGTH
49,999
2019
100%
30
Tanker
MR
TORM STRONG
49,999
2019
100%
30
Tanker
MR
TORM SUBLIME
49,999
2019
100%
29
Tanker
MR
TORM SUCCESS
49,999
2019
100%
29
Tanker
MR
TORM SUPREME
49,999
2019
100%
26
Tanker
MR
TORM THAMES
47,036
2005
100%
14
Tanker
MR
TORM THOR
49,842
2015
100%
28
Tanker
MR
TORM THUNDER
49,842
2015
100%
28
Tanker
MR
TORM THYRA
45,950
2003
100%
9
Tanker
MR
TORM TIMOTHY
49,842
2015
100%
28
Tanker
MR
TORM TITAN
49,842
2016
100%
28
Tanker
MR
TORM TORINO
49,842
2016
100%
29
Tanker
MR
TORM TROILUS
49,842
2016
100%
29
Tanker
MR
TORM VOYAGER
45,916
2008
100%
14
¹
⁾
⁾
Indicates vessels for which TORM believes that, as of 31 December 2022, the basic charter-free market value is lower than the vessel's carrying amount.
TORM fleet overview
As of 31 December 2022
TORM ANNUAL REPORT 2022
GLOSSARY
196
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 that ensures
through verification of design, construction, building process,
and operation of vessels that the vessels at all times meet a long
list of requirements to seaworthiness, etc. If the vessels do not
meet these requirements, insuring and mortgaging the vessel will
typically not be possible.
COA:
Contract of Affreightment. A contract that involves a
number of consecutive cargos at previously agreed freight rates.
Coating:
The internal coatings applied to the tanks of a product
tanker enabling the vessel to load refined oil products.
Commercial management:
An agreement to manage a vessel’s
commercial operations for the account and risk of the
shipowner.
Coverage:
A measure of Covered days divided by Earning days.
Covered days:
A measure of fixed operating days.
Demurrage:
A charge against the charterer of a vessel for
delaying the vessel beyond the allowed free time. The demurrage
rate will typically be at a level equal to the earnings in USD/day
for the voyage.
DKK:
Danish kroner.
Dwt:
Deadweight ton. The cargo carrying capacity of a vessel.
EBIT/Operating profit:
Earnings Before Interest
and Tax.
Earning days:
A measure of operating days available for
generating earnings.
ESG:
Environment, Social, and Governance.
FFA:
Forward freight agreement. A financial derivative
instrument enabling freight to be hedged forward at a fixed price.
Handysize:
A specific class of product tankers with a cargo
carrying capacity of 20,000–40,000 dwt.
IAS:
International Accounting Standards.
IFRS:
International Financial Reporting Standards.
IMO:
International Maritime Organization.
KPI:
Key Performance Indicator. A measure of performance used
to define and evaluate how the Company is making progress
towards its long-term organizational goals.
Loan-to-value (LTV):
A measure of notional debt divided by
broker values of the encumbered vessels.
LR1:
Long Range 1. A specific class of product tankers with a
cargo carrying capacity of 60,000–80,000 dwt.
LR2:
Long Range 2. A specific class of product tankers with a
cargo carrying capacity of 80,000–110,000 dwt.
LTAF:
Lost Time Accident Frequency. Work-related personal
injuries that result in more than one day off work per million
hours of work.
MR:
Medium Range. A specific class of product tankers with a
cargo carrying capacity of 40,000–60,000 dwt.
MT:
Metric ton.
Oaktree:
Oaktree Capital Management, L.P.
Oil major:
One of the world’s largest publicly owned oil and gas
companies. Examples of oil majors are BP, Chevron, ExxonMobil,
Shell and Total.
OPEC:
Organization of the Petroleum Exporting Countries.
Owned days:
A measure of operating days available for generating
earnings from vessels that are owned by the Company.
P&I club:
Protection & Indemnity club.
Product tanker:
A vessel suitable for carrying clean petroleum
products such as gasoline, jet fuel, and naphtha.
Spot market:
Market in which vessels are contracted for a single
voyage for near-term delivery.
T/C:
Time charter:
An agreement covering the chartering out of a
vessel to an end user for a defined period of time where the
owner is responsible for crewing the vessel, but the charterer
must pay port costs and bunkers.
Technical management:
An agreement to manage a vessel’s
technical operations and crew for the account and risk of the
shipowner.
Ton-mile:
A unit of freight transportation equivalent to a ton of
freight moved one mile.
UN Global Compact:
The United Nation’s social charter for
enterprises, etc.
Vetting:
An audit of the safety and performance status of a
tanker vessel made by oil majors.
Glossary
TORM ANNUAL REPORT 2022
GLOSSARY
197
Glossary
Key financial figures
TCE per day
=
TCE excluding unrealized gains/losses on derivatives
Available earning days
Gross profit %
=
Gross profit
Revenue
EBITDA %
=
EBITDA
Revenue
Operating profit %
=
Operating profit (EBIT)
Revenue
Return on Equity (RoE) %
=
Net profit/(loss) for the year
Average equity
Return on Invested Capital
(RoiC) %
=
Operating profit less tax
Average invested capital
Equity ratio
=
Equity
Total assets
Earnings per share, EPS
=
Net profit/(loss) for the year
Average number of shares
Diluted earnings/(loss) per share, EPS
=
Net profit/(loss) for the year
Average number of shares less average number of treasury shares
TORM ANNUAL REPORT 2022
GLOSSARY
198
Glossary
Alternative Performance Measures
Group
Throughout the annual report, several alternative performance measures (APMs) are used. The
following APMs relate to the Group.
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 10). 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
2022
2021
2020
Reconciliation to net profit/(loss) for the year
Net profit/(loss) for the year
562.6
-42.1
88.1
Profit from sale of vessels
-10.2
-
-1.1
Impairment losses on tangible assets
2.6
4.6
11.1
Provisions
-6.3
-
18.5
Expense of capitalized bank fees at refinancing
-
1.1
2.8
Termination of finance leases
-
-
2.7
Step-up gain related to acquisition
-0.3
-
-
Net profit/(loss) for the year ex. non-recurrent items
548.4
-36.4
122.1
Gross profit:
TORM defines Gross profit, a performance measure, as revenue less port expenses,
bunkers and commissions, and other cost of goods sold, 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
2022
2021
2020
Reconciliation to revenue
Revenue
1,443.4
619.5
747.4
Port expenses, bunkers, commissions, and other cost of
goods and services sold
-459.5
-240.9
-227.9
Operating expenses
-202.1
-190.5
-178.4
Gross profit
781.8
188.1
341.1
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 long-term value creation goals outlined to
investors. RoIC is calculated as follows:
USDm
2022
2021
2020
Operating profit (EBIT)
601.4
1.4
138.9
Tax
5.9
-1.3
-1.4
EBIT less tax
607.3
0.1
137.5
Invested capital, opening balance
2,011.3
1,719.7
1,786.0
Invested capital, ending balance
2,142.3
2,011.3
1,719.7
Average invested capital for the year
2,076.8
1,865.5
1,752.9
Return on Invested Capital (RoIC)
29.2%
0.0%
7.8%
TORM ANNUAL REPORT 2022
GLOSSARY
199
Glossary
Alternative Performance Measures
Group
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 long-term value creation goals outlined to investors. Adjusted RoIC
is calculated as follows:
USDm
2022
2021
2020
EBIT less tax
607.3
0.1
137.5
Profit from sale of vessels
-10.2
-
-1.1
Impairment losses on tangible assets
2.6
4.6
11.1
Provisions
-6.3
-
18.5
Step-up gain related to acquisition
-0.3
-
-
EBIT adjusted
593.1
4.7
166.0
Average invested capital¹
⁾
2,076.8
1,865.5
1,752.9
Average impairment ²
⁾
37.4
42.3
41.5
Average invested capital adjusted for impairment
2,114.2
1,907.8
1,794.4
Adjusted RoIC
28.1%
0.2%
9.2%
¹
⁾
Average invested capital is calculated as the average of the opening and closing balance of invested capital.
²
⁾
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:
Invested capital as defined by TORM 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
2022
2021
2020
Tangible and intangible fixed assets
1,869.1
1,960.9
1,748.4
Investments in joint ventures
0.1
1.5
1.6
Deferred tax asset
0.6
0.7
0.3
Other investments
0.2
-
-
Inventories
72.0
48.8
22.5
Trade receivables ¹
⁾
343.9
129.6
85.6
Assets held for sale
-
13.2
-
Non-current tax liability related to held-over gains
-45.2
-45.2
-44.9
Deferred tax liability
-6.1
-
-
Other non-current liabilities
-3.0
-
-
Trade payables ²
⁾
-79.6
-79.0
-74.1
Current tax liabilities
-2.0
-0.9
-1.4
Provisions
-6.8
-18.3
-18.3
Deferred income
-0.9
-
-
Invested capital
2,142.3
2,011.3
1,719.7
¹
⁾
Trade receivables also include Other receivables and Prepayments.
²
⁾
Trade payables includes Trade payables and Other liabilities.
TORM ANNUAL REPORT 2022
GLOSSARY
200
Glossary
Alternative Performance Measures
Group
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.
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.
EBITDA excludes some, but not all, items which affect profit/(loss), and these measures may vary
among other companies and are therefore not directly comparable. The following table reconciles
EBITDA to net profit/(loss), the most directly comparable IFRS financial measure, for the periods
presented:
USDm
2022
2021
2020
Reconciliation to net profit/(loss)
Net profit/(loss) for the year
562.6
-42.1
88.1
Tax
-5.9
1.3
1.4
Financial expenses
48.8
42.4
49.9
Financial income
-4.0
-0.2
-0.5
Depreciation and amortization
139.0
130.9
121.9
Impairment losses on tangible assets
2.6
4.6
11.1
EBITDA
743.1
136.9
271.9
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:
USDm
2022
2021
2020
Borrowings ¹
⁾
978.0
1,148.4
853.3
Loan receivables
-4.6
-4.6
-4.6
Cash and cash equivalents incl. restricted cash
-323.8
-171.7
-135.6
Net interest-bearing debt
649.6
972.1
713.1
¹
⁾
Borrowings include long-term and short-term borrowings, excluding capitalized loan costs of USD 11.1m.
TORM ANNUAL REPORT 2022
GLOSSARY
201
Glossary
Alternative Performance Measures
Group
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
2022
2021
2020
Net Asset Value per share
Total vessel values including newbuildings (broker
values)
2,650.3
1,926.0
1,585.3
Committed Liability CAPEX
-18.4
-39.9
-100.6
Committed Investment CAPEX
18.4
39.9
100.6
Goodwill
1.8
-
-
Other intangible assets
1.9
-
-
Land and buildings
3.8
4.8
7.1
Other plant and operating equipment
5.6
6.3
6.8
Investments in joint ventures
0.1
1.5
1.6
Loan receivables
4.6
4.6
4.6
Deferred tax asset
0.6
0.7
0.3
Other investments
0.2
-
-
Inventories
72.0
48.8
22.5
Trade receivables
259.5
84.0
58.6
Other receivables
74.0
40.0
24.9
Prepayments
10.4
5.6
2.2
Cash and cash equivalents incl. restricted cash
323.8
171.7
135.6
Deferred tax liability
-6.1
-
-
Borrowings ¹
⁾
-978.0
-1,148.4
-853.3
Other non-current liabilities
-3.0
-
-
Trade payables
-48.5
-35.3
-14.4
Current tax liabilities
-2.0
-0.9
-1.4
Other liabilities
-31.1
-43.7
-59.8
Provisions
-6.8
-18.3
-18.3
Deferred income
-0.9
-
-
Total Net Asset Value (NAV)
2,332.2
1,047.4
902.3
Continued
USDm
2022
2021
2020
Non-controlling interest
2.4
-
-
Total Net Asset Value (NAV) excl. non-controlling interest
2,329.8
1,047.4
902.3
Total number of shares end of period excl. treasury
shares (million)
81.8
80.7
74.4
Total Net Asset Value per share (NAV/share) (USD)
28.5
13.0
12.1
¹
⁾
Borrowings include long-term and short-term borrowings, excluding capitalized loan costs of USD 11.1m.
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
2022
2021
2020
Cash and cash equivalents incl. restricted cash
323.8
171.7
135.6
Undrawn credit facilities and committed facilities incl.
sale and leaseback financing transactions
92.6
38.2
132.2
Liquidity
416.4
209.9
267.8
TORM ANNUAL REPORT 2022
GLOSSARY
202
Glossary
Alternative Performance Measures
Tanker segment
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. For this reason, we apply TCE earnings in our financial outlook on
page 56. Below is presented a reconciliation from revenue to TCE earnings:
USDm
2022
2021
2020
Reconciliation to revenue
Revenue
1,440.4
619.5
747.4
Port expenses, bunkers, and commissions
-458.9
-240.9
-227.9
TCE earnings
981.5
378.6
519.5
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
2022
2021
2020
Vessel values including newbuildings (broker values)
2,650.3
1,926.0
1,585.3
Total (value)
2,650.3
1,926.0
1,585.3
Borrowings
971.4
1,148.4
853.3
- Hereof debt regarding ”Land and buildings” and “Other
plant and operating equipment”
-3.2
-5.6
-8.3
Committed liability CAPEX
18.4
39.9
100.6
Loan receivables
-4.6
-4.6
-4.6
Cash and cash equivalents incl. restricted cash
-321.4
-171.7
-135.6
Total (loan)
660.6
1,006.4
805.4
Loan-to-value (LTV) ratio
24.9%
52.3%
50.8%