ANNUAL REPORT 20
21
CONTENTS
2
STRATEGIC
RE
PORT AT A
G
LANCEStrategic Highlights
F
ramework a
ndTORM at a
G
lanceLetter from and CEO
t
he C
hairman Review
i
nThe Produc
t
Tanker Market in
Market Drivers
an
d O
utlookBUSINESS MODEL STRATEGIC
A
ND CH
OICES Value in Transportation
C
hain O
ilOu
r
Strategic C
hoicesLeading Product Tanke
r
OwnerThe TORM
F
leetSolid
C
apital S
tructureGreener With Ambition
F
uture Z
ero C
arbon E
missionOptimizing
P
erformance N
owLong
Te
rm D
ecarbonizationSuperior
Operating
P
latformIntegration
of
Se
cond-
Hand
V
esselsOUR RESPONSIBILITY
Responsibility
R
eportStakeholde
r
Engagement and M
ateriality
Health Safety and Security
Environmental
E
ffortsPeople
Huma
n
Rights
a
nd B
usiness
Ethics
Community
Responsible
P
rocurementSASB Index
a
n
d
Responsibility D
ata
REVIEW &
R
ISKFinancial Review
Risk
M
anagement TORM
ANNUAL
R
EPORT 2
021
GOVERNANCE
GOVERNANCE INTRODUCTION
Chairman’s Introduction
GOVERNANCE STRUCTURE
TORM’s Governance Structure
Board of Directors
Board and Comm
ittee Meeting Attendance
Board Activities
COMMITTEE REPORTS
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
OTHER
Investor Information
Engagement and Decision Making
Directors’ Report
Statement of Directors’ Responsibilities
Safe Habor Statement
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in E
quity
Consolidated Cash Flow Statement
Notes Consolidated
PARENT COMPANY FINANCIAL STATEMENTS
Parent Company
Balance Sheet
Changes in Equity
Notes to Parent Company Financial
Statements
OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM
CONTENTS
Contents
TORM
S
trategy
18
Responsibility
Report
32
Corporate
Governance
70
Income
Statement
114
TORM
ANNUAL
R
EPORT 2
021 KEY
F
IGURES 3
TCE EARNINGS (USD/DAY)
NET
PROFIT/LOSS (USDM)
ADJUSTED ROIC (%)
DIVIDEND/SHARE (USD)
INCOME STATEMENT (USDM)
Revenue
Time charter equivalent earnings (TCE)
⁾
Gross profit
⁾
EBITDA
⁾
Operating profit(loss) (EBIT)
Financial items
-
-
-
-
Profit(loss) before tax
-
Net profit(loss) for the year
-
Net profit(loss) ex non
- -
recurrent items
⁾
-
BALANCE SHEET AND CASH FLOW (USDM)
Non
-
current assets
Total assets
Equity
Total liabilities
Invested capital
⁾
Net interest
-
bearing debt
⁾
Net Asset Value
(NAV) (USDm)
⁾
Cash and cash equivalents incl restricted
cash
Free cash flow
-
-
-
KEY FINANCIAL FIGURES
⁾
Gross margins
Gross profit
EBITDA
Operating profit(loss) (EBIT)
Return on Equity (RoE)
Return on Invested Capital (RoIC)
Adjusted RoIC
Equity ratio
TCE per day (USD)
OPEX per day (USD)
Loan
-
to
-value (LTV) ratio
SHARE
-
RELATED KEY FIGURES
⁾
Basic earnings(loss) per share (USD)
-
Diluted earnings(loss) per share (USD)
-
Dividend per share (USD)
Net Asset Value per share (NAVshare)
⁾
Stock price in DKK (per share of USD )
⁾
Number of shares (mill)
⁾
⁾
Number of shares weighted average (mill)
⁾
⁾
For a definition of the calculated key figures (the APMs) please refer to the glossary on pages -
⁾
Based on broker valuations as of December ex charter commitments
⁾
End of period
⁾
Excluding treasury shares 13,703
19,800
16,526
12,982
14,621
0
5,000
10,000
15,000
20,000
25,000
2021 2020
2019 2018 2017
-
42
88
166
-
35
2
-100
-50
0
50
100
150
200
2021 2020
2019 2018 2017
0.2
9.3
5.2
0.3
2.4
0
2
4
6
8
10
2021 2020
2019 2018 2017
0.00
0.85
0.10
0.00
0.02
0
0.2
0.4
0.6
0.8
1
2021 2020
2019 2018 2017
KEY FIGURES
Key Figures
TORM
ANNUAL AT
R
EPORT 2
021 A
LANCE G
4
DIGITAL FOUNDATION
S
TRATEGIC FRAMEWORK
OUR BUSINESS MODEL
Leading product tanker owner
Green future with a zero emission ambition
Financial flexibility
and fleet growth
Spot exposure
Ambitious and ongoing
decarbonization
Zero CO2 emissions
TORM’s solid capital structure and
our solid liquidity position support
selective and efficient fleet growth,
while returning value to
our
shareholders.
TORM has scale in all
major
product
tanker
vessel classes
and is actively
managing the spot market exposure
through charter agreements, FFAs,
and fleet composition.
Imminent CO
2
reductions for
reaching 2030 industry target
already in 2
025.
Long
-
term industry collaborations
supporting our pledge of zero
carbon emissions from operating
our fleet in 2050.
Read more
on
page
18
Read more
on
page
19
Read more
on
page
20
-
25Read more
on
page
26
-
27HOW WE DO IT
Superior operating platform (One TORM)
Integrated operations
Optimal vessel positioning
Safe technical
management
Efficiency supported by
digitalization
Commercial, technical, sale &
purchase, and support divisions
work towards common goals in a
network
-
based organization with
easy internal access supporting
efficient data
-
based decision making
TORM uses
advanced data
-driven
modelling and commercial
experience to assess customers’
needs and provide for optimal
vessel positioning supporting
superior performance.
The highest safety standards are the
cornerstones in our in
-
house
technical
operations. This is
obtained through continued training
and development of our +3,000
seafarers.
A transparent and data driven
platform with focus on optimizing
processes and advanced modelling
for supporting efficient commercial
and technical operations.
Read more
on
page
Read more on page 2828
-
30
-
Read more on page 2830
-
Read more on page 2830
-
30
At a Glance
OUR
STRATEGY
The reference product tanker company.
Safely l
eading the way with environmentally responsible results
.
TORM
A
NNUAL REPORT 2021
AT A GLANCE
5
STRATEGIC HIGHLIGHTS
LEADING
PRODUCT
TAKNER OWNER
GREEN FUTURE WITH A
ZERO EMISSION AMBITION
SUPERIOR OPERATING
PLATFORM
85
Vessels in all major
product tanker ves
s
el
classes
Largest fleet since 1889
as per the date of this report
37.6%
AER reduction
compared to IMO
baseline
(2008)
USD
30.4%
Gross profit
margin
0%
ROIC
In a
highly challeng
ed
market
Zero
Carbon Shipping
Ambition in 2050
TORM
signed up for
-Mærsk Mc
Kinney Møller
Center for Zero Carbon Shipping
4
OUT
OF
4
Quarters
in 2021
we outperformed our
peers in our largest
vessel class
MR
52.3
%
N
et LTV
Additional capacity available for fleet growth
0.
37
Accidents per one million
exposure hours LTAF
(
L
ost Time Accidents Frequency)
USD
210
m
Available liquidity
Including
undrawn facilities and restricted cash
TORM
ANNUAL REPORT 2021
TORM
ANNUAL REPORT 2021
Despite a year with challenging
markets,
TORM once again
demonstrated its superior platform
by
commercially
out
performing peers
in
the MR
vessel class
in all four
quarters of 2021
.
Further
, TORM
managed to expand its fleet to the
largest in the history of the company,
while keeping a strong focus on
imminent
CO
2
reductions and long
-term decarbonization collaborations.
Christopher H. Boehringer,
Chairman of the Board
2021
H
IGHLIGHTS 8
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
8
In 2021
,
the
product tanker market show
ed
low
demand for product tanker services
due to COVID
-
19
which inevitabl
y
the industry’s earningaffect
ed
s
.
SU
PERIOR
O
PLATFORMPERATING
Running a fully integrated One TORM platform is a very
deliberate strategic choice made by TORM.
We
continuously benchmark
our
performance against
peers to make sure that our
business model is
always
optimized
. Once again,
we are pleased that 2021
was
also a year where TORM demonstrate
d
outstanding
commercial performance while keeping a steady hand
on operations in challenging markets.
P
REP
ARATIONS FOR A GREENER FUTURE
The Board of Directors ha
s
a strong focus on TORM’s exposure to environmental, social
,
and governmental
risk
s
and opportunities. In 2021
,
the Board of Directors identified a number of indicators
which
could change
the fundamentals of the product tanker market.
-
40
%CO
2
reduction target by 20
25 To prepar
e
for the future
,
the Board of Directors has
been working with various topics together with TORM’s
Management
. Focus has been on long
-
term challenges such as future fuels and next generation
tanker
vessels,
but also on more near
-
term potential challenges, such as the access to capital markets. Investors and banks
are becoming more
selective,
and they require a high level of
transparency
and that companies are prepared to meet relevant industry ESG requirements.
We
are ry confident that TORM is in a good position,
ve
and therefore
,
we have decided to accelerate our environmental efforts and have set a target to deliver
on IMO
’s
CO
2
reduction target
by 2025
– instead of
2030
(
AER reduction compared to IMO baseline
(2008)
. Further, we will actively participat
e
in the strongest coalitions to
achieve our ambition of no
emissions
from operating our fleet
by
2050. TORM is determined to take responsibility
for
and
create a
greener future.
LE
ADING
P
RODUCT
TANKER
OWNER
Despite operating in a challenging market in 2021,
TORM managed to increase
its
fleet to the largest in TORM’s history. Th
e Team Tanker transaction
wa
s
financed partly through issuance of new shares,
contributing to our enance of a robust capital
maint
structure
.
The access to capital markets is
diverse, as
attractive terms have been obtained in both the bank
and leasing markets.
TORM is
prepared for the opportunities aris to come
ing
the yearsin
.
100%
Outperformance of
all
peers on
Adjusted Return on Invested Capital
(ROIC)
In 2021
,
TORM’s
integrated
platform delivered strong
results
in a challenged market. Once
again,
we have shown the ability to perform amongst the strongest
in
the product tanker market
,
and
we believe
that TORM is we
ll positioned to deliver market leading value to its
shareholders also in the coming years.
Ch
ristopher H. Boehringer, Chairman of the Board
Jacob Meldgaard, Executive Director
LETTER FROM THE CHAIRMAN AND CEO
TORM IS ON
TRACK ON ALL STRATEGIC AMBITIONS
202
1 Highlights
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
9
2021 IN
REVIEW
January
March
May
June
TRIBUTE TO THE
PHILIPPINES
TORM took delivery of a second
-
hand MR product tanker vessel, and
to pay tribute to our Philippine
seafarers, the vessel was named
TORM
Philippines.
EIGHT VESSELS WITH
CHEMICAL CAPABILITIES
ADDED
TORM purchased eight 2007
-
2012
built MR product tanker vessels
from Team Tankers in a combined
cash and share based transaction.
Six of the vessels
provided TORM
with enhanced trading flexibili
ty
through chemical trading
capabilities.
Read more
on page
30
TORM SEAFARERS GOT
THEIR FIRST VACCINES
TORM seafarers were among the
first to receive COVID
-
19 vaccines onboard vessels calling ports in
the US.
THREE MODERN LR2
VESSELS ADDED
TORM took delivery of the first of
three 2015
-
built scrubber
-fitted
LR2 vessels from Okeanis.
The transaction supported our
strategy to increase exposure in
the LR2
vessel class
.
Read more on page 30
Full Year
Full Year
Full Year
YET ANOTHER YEAR
OUTPERFORMING PEERS
2021 was a year in which TORM once again
demonstrated superior commercial performance.
In all quarters, we outperformed our peers on TCE
in TORM’s largest
vessel class
, the
vessel class
.
Read more
on page
55
LARGEST FLEET IN TORM HISTORY
Despite challenging markets TORM managed to
add
eleven
newbuilding second
-hand
and one
vessels to the fleet during 2021 preparing TORM
for recovering markets with the largest fleet in
TORM’s history.
DIVERSIFIED FUNDING OBTAINED
TORM raised a total of USD
549
m
in
financing
and refinancing
transactions
in a combination of
bank
and sale and leaseback financing.
Throughout the year, we demonstrated that we
have access to attractive funding in various
markets.
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
10
[Te
xt]
2021 IN REVIEW
October
November
December
December
WELL AT
TORM – OUR
WELLNESS PROGRAM
Our wellness program promoting
and encouraging physical and
mental wellbeing celebrated its first
anniversary.
Read more
on page
42
FLETTNER ROTORS
Through our joint venture with ME
Production and GSI, we have
de
cided to test the potential of
modern Flettner Rotors
–
to be
installed on TORM Houston and
TORM Helene
–
with expected
energy savings of
5-7
%.
Read more
on page
25
LR2 NEWBUILDING
DELIVERED
The scrubber
-
fitted newbuilding TORM Helene was delivered and is
ready to be fitted with two
Flettner Rotors. In 2021, a total of
USD
320m
was invested in
fixed
assets
.
Read more
on page
30
TORM JOINED MÆRSK
MC-
KINNEY MØLLER
CENTER FOR ZERO CARBON
SHIPPING
TORM became a mission
ambassador in efforts to achieve
zero carbon emissions from
operating our fleet in 2050.
Read more
on page
26
Full Year
Full Year
CO
2
REDUCTION
Already in 2025, TORM aims to reach IMO’s 2030
target of reducing emissions by 40%, and we will
be even more ambitious for 2030. In 2021, we
managed to reduce our
Annual
Efficiency
Ratio (AER) 37.6%
by
compared to
the IMO baseline
(
20
). 08
Read more
on page
22
-
27
VACCINATION DRIVES
Thanks to the extraordinary and very
professional efforts of our crew members, we
managed to vaccinate more than 1,100 seafarers
against COVID
-
19 in harbors around the world
supporting our efforts to secure
optimal
operations.
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
11
2021
P
RODUCT
TANKER
MARKET
2021 continued to see generally weak market
conditions, affected by temporary disruptions on the
global oil demand recovery path, a weak crude tanker
market
,
and continued oil stock draws which were
aggravated by supply tightness.
OIL
DEMAND RECOVERY
DESPITE COVID
-
19
OUTBREAKS
At the start of 2021, increasing COVID
-
19 cases led to new countermeasures in Europe in particular,
temporarily derailing global oil demand recovery. This
was further aggravated by the OPEC+ decision to
postpone scheduled production increases and leave
output quotas unchanged for the first four months of
the year. In addition, Saudi Arabia voluntarily cut its
production by an additional 1m b/d in February
-
April
2021, worsening the woes of the crude tanker market.
In the second quarter of 2021, the emergence of the
more transmissible Delta virus variant, which was first
identified
in India and spread quickly to the rest of the
world, led to new lockdowns in several Asian countries
where vaccination rates remained low. This resulted in
Southeast Asian clean product imports dropping by
approximately
20% quarter
on-
-
quarter (and year
on-
-
year) in the third quarter of 2021, to a multi
-
year low level.
At th
e same time, successful rollouts of vaccination
programs in Europe and the US allowed countries in
the West to keep economies open despite increasing
COVID
-
19 cases, resulting in significant improvements
in demand for road transportation fuels. For example,
US gasoline consumption climbed to pre
-
COVID
-
19
seasonal levels by the end of 2021, up from a
-
13% level a year before. Towards the end of the year, the
emergence of the even more transmissible Omicron
virus variant led a few countries to r
e-
introduce some restrictions, however, the impact was assessed to
remain relatively muted, with the main effect estimated
to be on jet fuel demand. By the end of the year, global
oil demand was assessed for the first time since the
COVID
-
19 outbreak in early 2020, to have touched the
100m b/d mark, the average level of 2019 global oil
demand.
THE PRODUCT TANKER MARKET
IN 2021
The stock draws which prevailed throughout 2021 kept product tanker freight rates depressed, despite improving underlying oil
demand and
positive developments on the tonnage supply side. Looking ahead, the product tanker market is supported by positive demand trends and limited
supply growth.
GLOBAL OIL DEMAND
Source:
WoodMackenzie
TANKER FREIGHT RATES IN
2021
Source:
Clarksons
80
85
90
95
100
105
2019
1q20 4q20 1q21 4q21
2q20
3q202q21
3q21Index (2019=100)
0
5,000
10,000
15,000
20,000
25,000
30,000
Jan Jul Aug
Feb
AprMar
May
JunSep Oct Nov
Dec
LR2 Ras Tanura - Chiba
LR1 Ras Tanura - Chiba
MR Average
Average
TCE in USD/day
/
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
12
OIL SUPPLY
LIMITED BY OPEC+ QUOTAS AND
DISRUPTIONS
On the oil supply side, the year was characterized by
several disturbances. Especially the US Gulf
experienced several extensive supply disruptions in
2021, resulting in (temporarily) lower product exports
from the US at the same time as imports increased.
In February 2021, extremely cold weather in Texas led
to around 5m b/d of US Gulf Coast refinery capacity
taken offline at its peak. Consequently, US Gulf exports
dropped by 22% in February
-
March 2021 compared to
January 2021. However, this also led to an
almost 40%
month
-
on-
month surge in US imports in March 2021, as
affected refineries returned online only gradually.
Higher need for imports supported especially the
transatlantic trade, but also led to increased flows from
Asia to cater for lost output in the US and the general
West market. This supported especially the largest
product tankers, with LR2 benchmarks reaching levels
above USD/day 20,000 by the end of the first quarter
of 2021. Further, the week
-
long blockage of the Suez Canal in March 2021 sent a number of vessels around
the Cape of Good Hope, although the impact on the
market was short
-
lived.
In May 2021, the Colonial pipeline was shut for six days
as a result of a cyber
-
attack, which caused a temporary spike in MR rates and helped to keep product flows to
the US East Coast at elevated levels. Flows from
Europe to the US East Coast averaged 600 kb/d in the
second quarter of 2021, up 24% from the seasonal level
in 2018
-
2019.
In late August 2021, the US Gulf was hit by Hurricane
Ida, which sent almost 3m b/d of US Gulf refinery
capacity offline at its peak. This interrupted product
flows onto the pipeline systems which supply the US
East Coast, aggravating the already low product stock
situation in the Atlantic market and pulling in more
barrels from East of Suez. On the other hand, refinery
outages led to lower US Gulf product exports in
September
-
October 2021. However, in the two final
months of 2021, US Gulf product exports experienced a
strong recovery, supported by strong import demand
into Latin Amer
ica.
In addition to supply disruptions in the US, China’s
clean product exports declined significantly in the
second half of the year, on reduced runs at smaller
independent refineries, as the country attempted to
curb emissions. Also, increasing power outages at the
start of the fourth quarter of 2021 further curbed
refinery output at some refineries, keeping a lid on
export increases.
THE PRODUCT TANKER MARKET
IN 2021
US GULF CLEAN PETROLEUM PRODUCT EXPORTS
Source:
Kpler
LONG HAUL CLEAN PETROLEUM PRODUCT TRADE
FLOWS
Source: Kpler
0.5
1.0
1.5
2.0
2.5
3.0
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Feb-21
Mar-21
Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Exports
Exports, 4wk MA
M b
/d
0
500
1,000
1,500
2,000
2,500
East to West West to East
‘000 b
/d
TORM
ANNUA
L REPORT 2021
2021 HIGHLIGHTS
13
NEGATIVE SPILL
-
OVER FROM THE WEAK CRUDE
TANKER MARKET
The crude tanker market remained weak throughout
the year, as the slow return of OPEC+ crude oil
production was not enough to support the market.
OPEC crude oil exports remained almost
3m
b/d below
the levels seen in 2019. This was aggravated by
Hurricane
Ida, which knocked off
0.3m
b/d of US crude
exports in September 2021. Consequently, market
cannibalization from newbuilt crude tankers was at an
elevated level for most of 2021
.
OIL STOCK DRAWDOWNS TO BELOW PRE
-
COVID
LEVELS
The fact that OPEC+ production has been returning
only gradually
and there have been interruptions to the
US crude and product supply, at the same time as
global oil demand has continued to improve towards
pre
-
COVID-
19 levels, resulted in a situation where crude
and product stocks continued to draw even after the
COVID
-
19 led excess stock levels had been cleared by
mid
-
year 2021.
By the end of the year, combined clean product stocks
in the US, the Amsterdam
-
Rotterdam
Antwerp (ARA) -
area and Singapore had dropped to
a
level
7%
below the pre
-
COVID-
19 seasonal average level. This posed a
strong headwind for the general tanker market, as
demand was supplied by local inventories instead of
seaborne imports. The coordinated Strategic
Petroleum Reserve (SPR) release by the US and some
other countries towards the end of the year targeted at
the tight supply situation marginally alleviated the
market tightness, but the general stock draws
throughout the year limited the need for vessel
demand.
THE PRODUCT TANKER MARKET
IN 2021
CLEAN
PETROLEUM PRODUCT STOCKS AT MAIN
TRADING HUBS
Source:
EIA, Reuters
-10%
-5%
0%
5%
10%
15%
20%
Percentage vs 2015
-
2019 average
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
14
OUT
LOOK
To support the assessment of TORM, information on
covered days,
interest
bearing bank debt, the one-
-
year
time charter (T/C) market and EBITDA sensitivity to
freight rates
are
included in the Quarterly reporting of TORM.
Th
e most important factors affecting TORM’s earnings
in 202
2
are expected to be:•
Con
tinued COVID
-
19 restrictions and associatedlockdowns lowering oil demand and causing
operational obstacles
•
Speed and efficiency of COVID
-
19 vaccines rollout
•
Global economic growth and consumption of
refined oil products
•
Refinery closures and maintenance
•
Bunker price
developments
•
Oil trading activity and developments in ton
-
mile
trends
•
Fleet growth and newbuilding ordering activity
•
The impact of the war in Ukraine on the global
economy
One
-
off market
-
shaping events such as strikes,
embargoes, political instability, weather conditions etc.
In this section
,
we explain the market outlook,
and the market drivers,
which
may affect TORM’s financial
performance
,
are explained in more detail
.
TONNAGE SUPPLY
In 2021, the global product tanker fleet grew by 2.2
% in
terms of capacity
(
1.5% in terms of number of the
number of vessels), down from 2.7% in 2020.The
slower fleet growth was mainly driven by increased
scrapping activity. However, the effective fleet growth
turned out higher as the LR2s migration back to clean
trade, which started in the second quarter of 2
020,
continued for most of 2021. Consequently, the share of
LR2s trading in the dirty market declined from
45%
at
the end of 2020 to
41%
at the end of 2021. Th
e number of newbuilding orders placed in 2021 w
as
105 vessels, slightly above the levels seen in the
previous three years. The MR vessels accounted for the
majority of orders with 69 units contracted, while the
number of LR2 vessels ordered was 21. No new orders
for LR1s were placed. At the end of 2021, the existing
order book for deliveries in 2022
-
2024 totaled 202 units (corresponding to a record low 6.6% of the
existing fleet, in terms of capacity), including 44 LR2
vessels, one LR1 vessel, 117 MR vessels and 40 handy
-
size vessels.
Du
e to the record high ordering activity in the
container vessels segment, ordering of product tankers
with delivery before 2024 has become more difficult.
This will limit the fleet growth in 2022
-
2023 even further, in addition to already record low order book
ratio. Given the uncertainty around the requirements
for vessel propulsion systems in the future,
TORM
expects the newbuilding ordering activity to remain
relatively limited in the next couple of years.
Around 3.6m dwt of product tanker capacity was
recycled in 2021, corresponding to approximately 2.0%
of the fleet capacity as at the end of 2020
.
MARKET DRIVERS AND OUTLO
OK
GLOBAL PRODUCT TANKER FLEET AND ORDER BOOK
As of 31 December 2021
Fleet
*
Delivered
in
Scrapped in
Fleet
Order book
for
-
-
Order book
as of end
-
fleet
LR
384
28
9
403
44
11%
LR
378
2
4
376
1
0%
MR
1,764
80
36
1,808
117
6%
Handysize
786
11
22
775
40
5%
Total
3,312
121
71
3,362
202
6%
*
Number differs from Annual report since TORM changed data provider from IHS Fairplay to Clarksons in
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
15
This was the highest level in 11 years, driven by
increased scrap prices and weak freight markets.
TORM estimates that approximately 4% of the existing
capacity of the global fleet will be phased out or
recycled during 2022
-
these vessels reach the 2024, as
typical scrapping age of 25 years or above. With a
historically low order book and newbuilding ordering
activity expected to be limited in the coming years,
TORM expects the net product tanker fleet capacity to
grow by a compound annual rate of approximately 2%
during 2022
-
2024.
~2%
Expected fleet growth 2022
-
2024
(CAGR)
TONNAGE DEMAND
Despite the temporary flare
-
ups of new virus variants, global oil demand improved during 2021, growing 5.4m
b/d (IEA December 2021). For 2022, a further growth
of 3.3m b/d is expected, to a pe
-
COVID
19 level of -
99.5m b/d (IEA December 2021). The impact of
any
potential new measures to halt the spread of the virus
is expected to be more muted, as vaccination rates
have increased. Consequently, demand for
petrochemical feedstocks and road transport fuels is
expected to continue its robust growth, while demand
for jet fuel is not expected to reach pre
-
COVID
-
19
levels in 2022 yet.
On the supply side, OPEC+ continues to unwind its
production cuts in 2022, and crude output in the US,
Canada and Brazil is expected to see a strong growth
as well. This together with increasing refinery runs is
alleviating the tightness on the oil market, and supply
growth is expected to exceed further improvements in
demand in 2022. Not only does this mean that stock
draws are not a headwind to the tanker market
anymore, but the fact that stocks
are
below normal levels also indicates a need to rebuild stocks, giving an
additional boost to the product tanker demand.
As a result of the COVID
-
19 pandemic, several refineries mainly in oil net importing regions had
announced closures in 2
020. The same trend continued
in 2021, and consequently
2.
7m
b/d of refining capacity
mainly in Europe, Australasia, Southeast Asia, US West
Coast and South Africa has been permanently shut
down
or is scheduled to cease operations during the
next couple of
years
. In addition,another
1.
of 1
m b/d
capacity
could potentially close down. At the same
time, approximately
4.
b/d of new refining capacity 4m
is scheduled to come online during
2021
. New -
2023capacity is mainly situated in the Middle East
and China
–
the regions which are already today large exporters
of oil products.
Both these developments are positive for trade flows
and ton
-
mile in the post-
COVID
19 world. Only a few -
projects are less positive for trade, most notably the
large
-
scale Dangote refinery in Nigeria
exact , which
start date is
,
nevertheless
still uncertain,
.
~4%
Expected ton
-
mile growth 2022
-2024
(CAGR)
Subsequently, TORM expects the product tanker ton
-
mile demand on main trade routes to grow by a
compound annual rate of around
4%
during 2022
-2024, driven by recovery in global oil demand from
COVID
-
19 and refinery dislocation induced by recent
refinery closure announcements. Generally, positive
trends on the product tanker demand side combined
with limited tonnage supply growth support a positive
freight market development in the next three
-
year
period, although market volatility is expected.
The
invasion by
ofRussia
Ukraine and the consequent
sanctions on Russia increased
uncertainty on the
general energy market, sending the price of crude oil to
the highest since 2008 in early March 2022.
The initial
sanctions were not targeting the oil trade, however
,
the
uncertainty and potential for re
-
routing of trade flows sent the crude tanker freight rates in the European
market to the highest since Spring 2020, followed by
an increase in the product tanker rates. Due to the
continuous development and complexity of the
situation, the impact on the tanker markets going
forward is unce
rtain
and volatile
.
MAR
KET DRIVERS AND OUTLOOK
TORM
ANNUAL REPORT 2021
2021 HIGHLIGHTS
16
T
he COVID
-19 pandemic
and the Russian invasion of
Ukraine
continues to severely impact the global oil
market and the product tanker industry leading to
material uncertainties and lack of visibility related to
the global demand for transportation of refined oil
products
.
Accordingly, the development in the TCE
rates going forward is highly uncertain.
For 202
2
, TORM
expects
higher rates than 2021 (2021: USD 13,703/day)
a
nd to return to a net profit be
fore
tax (
202
1: loss of USD 4
1
m)
.
TORM expects to maintain a low cost base
in line with
a
normalized profit before tax (PBT) break
-even TCE
rate
in FY
2022
of approximately USD/day 15,000
The .
b
elow table
illustrates
the PBT sensitivity per
each
increase in TCE of USD 1,000/day assuming
21,
120
open
days in 2022.
As of 2
0
March 2022, TORM had covered 34.3%
of the earning days in 2022 at USD/day
17,
497
.
Assuming an unchanged TCE rate of
17,
497
USD
/day
for the rest of 2022 and a rate
sensitiv of
i
ty +/-
1,000 USD/day,
profit before
tax excluding non
-
recurrent
items
would amount to USD
53-
all other 96
m assuming
things equal
.
FINANCIAL
OUTLOOK
FOR 2022
PROFIT BEFORE TAX
1
SENSITIVITY TO USD 1,000 / DAY TCE RATE INCREASE (ASSUMING ALL OTHER
THINGS EQUAL)
H
H
FY
Earning days
Open days
Coverage Ratio
PBT
effect
USD
m
USD m
USD
m
1
Profit before tax excluding non-recurrent items such as profit from sale of vessels, impairment losses and reversals on tangible assets, expense of capitalized bank fees at refinancing and change in provisions.
DISCLAIMER ON FINANCIAL
OUTLOOK
The purpose of this Financial Outlook for 2022 is to
comply with reporting requirements for Companies
listed in Denmark. Actual results may vary
,
and this
information may not be accurate or appropriate for
other purposes. Information about our financial outlook
for 2022, including the various assumptions und
erlying
it, is forward
-
looking and should be read in conjunction
with the Safe Harbor Statements on page 112
,
and the
related disclosure and information about various
economic, competitive, and regulatory assumptions,
factors, and risks that may cause our
actual future
financial and operating results to differ materially from
what we currently expect.
The information included this Financial Outlook for 2022
is preliminary
,
unaudited and based on
estimates and
information available to us at this time. TORM
has not
finalized its financial statements for the periods
presented. During the course of the financial statement
closing process, TORM may identify items that would
require it to make adjustments, which may be material
to the information provided
in thi
s 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 2022.
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
17
Th
e global oil industry covers a range of activities and
processes which contribute to the transformation of
primary petroleum resources into usable end
products for industrial and private customers.
The
value chain begins with the identification and
subsequent exploration of productive petroleum fields.
The unrefined crude oil is transported from the
production area to refinery facilities by crude oil
ta
nkers, pipelines, road, and rail.
TO
RM is primarily involved in the transportation of
refined oil products from the refineries to the
onshore
distributors, that transports refined oil products to the
end user. In addition to clean products, TORM uses
some
of its vessels for the transportation of residual
fuels from the refineries as well as crude oil directly
from the production field to the refinery. These fuel
types are commonly referred to as dirty petroleum
products, as extensive cleaning of the vessel’s cargo
tanks is required before a vessel can transport clean
products again. In 202
1
of TORM’s turnover was ,
98.6%
generated from clean products transportation.
TO
RM’s integrated operating platform with in
-
house
technical and commercial management enhances the
response to customer demands and allows TORM to
generate value for stakeholders as well as for the
Company.
The long
-
term success of TORM
is dependent on TORM’s ability to provide safe and reliable
transportation services. In addition to the items
explicitly stated in the financial statements, the long
-
term success of
TORM
further builds on the intellectual property of the workforce at TORM and the
relationship and cooperation with external stakeholders
such as oil traders, state
-
owned oil companies, oil majors, financial institutions, shipyards, brokers, and
governmental agencies.
THE
V
ALUE CHAIN IN OIL TRANSPORTATION
Our
Business model and strategic choices
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
18
TO
RM’s strategy consists of three key elements:
Le
ading product tanker
owner
TORM is one of the largest and most experienced
product tanker owners in the world and is active in all
key product tanker
vessel classes
.
TORM primarily employs its fleet in the spot market
and with a solid capital structure, TORM has the
strength
and ambition to be at the forefront of the
product tanker industry also in the years to come
.
Read more
on page
s 19 –
21
Greener future with a zero emission ambition
TORM embraces its responsibility to reduce its
environmental footprint by minimizing impact from
exhaust gas emissions.
TORM is actively pursuing an ambitious
emission
reduction target of minimum
40% by 2025 and
minimum
45% by 2030 and zero emission
s
by
2050
.
Read more
on pages
22
–
27Su
perior operating platform
All essential business proficiencies are integrated in
TORM’s
digital in
-
house technical and commercial
platform called One TORM. The integrated nature of
TORM’s operating platform ensures alignment of
corporate targets and
ha
s second to none market responsiveness.
Read more
on pages
28
–
31
OUR
STRATEGIC CHOICES
LEADING PRODUCT TANKER OWNER
GREENER FUTURE
WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL REPORT
2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
19
TORM is an international
ly
leading product tanker
company and one of the largest owners of product
tankers in the world.
ACTIVE MANAGEMENT OF SPOT MARKET
EXPOSURE
TORM primarily employs its
fleet of more than 80
vessels in the spot market. Going into 2022, TORM ha
d
significant operational leverage and
for positioning
TORM
to benefit from improved market conditions.
With its presence in all large product tanker
vessel
classes
, TORM is well
positioned to meet its customers’
transport and storage requirements. TORM’s modern
and well
-
fleet with maintained
the of the
m
ajorityvessels being scrubber
-
fitted
further provides TORM
and its customers with enhanced flexibility as well as
reduced
fuel costs.
normalized TORM’s
PBT
reakb
-
evenrate
is approximately USD 15,000 per day.
While TORM
mainly
operates
in the spot market, TORM
also enters into
medium and
long
-term contracts when
levels are assessed attractive. Such contracts provide
more cash flow certainty for TORM and include i)
charter contracts on which a specific vessel is
chartered out to a customer for a longer period, ii)
contracts of affreightment (CoA)
which involve several
consecutive cargoes with a customer at agreed freight
rate
levels and iii) forward freight agreements (FFA)
which are financial instruments hedging the forward
price for freight for a defined period.
Through a combination of various employment and
coverage options as well as active fleet management,
TORM aims to benefit from movements in freight rates
to capitalize on market highs and minimize market
exposure to when freight rates are low.
For more information on the financial effect of TORM
’s
Spot market exposure please refer to the Financial
Outlook on page 15.
SELECTIVE FLEET GROWTH
TORM
seeks to selectively grow its fleet and to serve
as a consolidator in the product tanker segment if the
right opportunities arise at attractive values
. TORM
continuously assesses opportunities to optimize its
fleet by acquiring attractive high
-
specification second-
hand product tankers or selectively pursuing
newbuilding programs with high
-
quality shipyards.
In this way,
TORM
serves as a consolidator while at the same time optimizing its invested capital to enable the
highest possible ROIC. TORM’s scalable business
platform is a supportive and required enabler for
being a
l
eading
product
t
anker
o
wner
.
In
addition to taking de
livery of one MR vessel early in
January
2021, TORM acquired 11 second
-
hand vessels
covering
eight MR product tankers
, six of which ha
ve
chemical trading capabilities
,
and three
-scrubber
fitted
LR2 vessels. In addition, TORM took delivery of one LR2
newbuilding in 2021 and
has
taken delivery of the last
LR2 newbuilding
during the first quarter of 2022.
From time to time, TORM will also sell vessels
which
no
longer fit with
our
commercial strategy, or if the price point is deemed attractive. In 2021, TORM sold
one
older
vessel
(TORM Carina)
.
SOLID CAPITAL STRUCTURE
TORM’s solid capital structure balances the spot
-
based
employment profile with low leverage, a strong
liquidity pos
ition and limited off
-
balance sheet charter-
in commitments.
With a continuous focus on a solid capital structure
,
we
maintain our ability to act on desired investment
opportunities, facilitating the potential for future strong
return on invested capital.
Read more about TORM’s capital structure
on page 21
LEADING PRODUCT TANKER OWNER
LEADING PRODUCT TANKER OWNER
GREENER FUTURE
WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
NET L
OAN
-TO-V
ALUE
Source: TORM
56%
53%
46%
51%
52%
0%
20%
40%
60%
80%
100%
2017 2018 2019
2020 2021
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
20
THE T
ORM
FLEET
as of
23
March 2022
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO
EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
LR2
Long Range 2 vessels are the largest vessels in
TORM’s fleet. They are typically employed on long
trade routes, including naphtha transportation from
the Middle East to the Far East and diesel from the
eastern hemisphere into the Atlantic. 1
5
LR2 vessels
are currently on the water. Since December 2020
,
two newbuildings
and
three second
-
hand vessels
have been delivered to TORM.
LR1
Long Range 1 vessels are typically employed on the
sam
e routes as LR2 vessels, but they also have the
flexibility to cover trades and routes
which
are
traditionally dominated
by the smaller MR vessels.
A typical LR1 trade could be diesel or jet fuel from
the Middle East to Europe. Nine LR1 vessel are
currently on the water.
MR
Medium Range vessels are often referred to as the
“workhorses” of the product tanker fleet. They
cover more trade routes and, compared to the
larger LR vessels, this vessel type has the flexibility
to enter into more ports and cover shorter and
coastal tra
des. A typical trade for MR vessels would
be gasoline from Europe to the US East Coast.
59 MR vessels are currently on the water.
Since
December 2020
,
nine second
-hand vessels have
been delivered to TORM and one older vessel has
been sold.
Handysize
Handysize vessels are the smallest vessels in
TORM’s fleet. They are involved in more varied and
typically shorter and coastal trade routes. Typical
trade
s for a Handysize vessel include transportation
of various clean petroleum products within Europe
and in the Mediterranean. Two Handysize
vessels
are currently on the water
.
15
Vessels
90
-115,0
00 dwt
9
Vessels
72
-
75,0
00 dwt
59
Vessels
45
-50,0
00 dwt
2
Vessels
35
-
37,0
00 dwt
FLEET COMPOSITION
TORM is present in all large vessel classes in
the product tanker market with specific focus
on the LR2, LR1 and MR vessel classes as these
offer the greatest synergies.
TORM’s fleet has increased from 73 vessels in
December 2020 to
85
vessels on the water in March
202
2.
During 2021
,
TORM utilized the market
downturn to increase the fleet at attractive
price points, driven by a
selective
approach to fleet renewal through disposal of older
tonnage and acquisition of modern second
-
hand vessels. Further
,
TORM added two LR2
newbuildings ordered in 20
20
to the fleet. After the year
-
end
,
TORM sold
TORM Emilie
and TORM Tevere are expected to be
which
delivered to the buyer
s
in
the
first half of
2022.
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
21
To support our spot
-
based employment profile, we
maintain a solid capital s
tructure with low leverage, a
strong liquidity position
,
and limited off
-
balance sheet
commitments.
Th
e solid capital structure provides us with increased
financial flexibility
which
enable
s TORM to purchase
newbuildings and
second
-
hand vessels
independe
nt of
underlying product tanker
market strength.
TORM
currently ha
s
no remaining newbuilding
CAPEX
commitments
.
Th
e
purchases
made in 2021
have been fund
ed
by
a mix
of traditional bank debt
, issuance of shares
and sale and
lease
back
structure
s. This illustrates TORMs
strong
access to financing.
Secured
bank financing remains the
preferred source of debt funding for TORM
with the
leases providing for supplementary financing.
The
new
leasing agreements are all long
-
term with maturity in
20
29
or l
ater and include purchase options
during and
at
the end of the contract period enhancing TORMs options
in disrupted market scenarios.
TO
RM has maintained a conservative capital structure
over many years, and monitor
s
capital structure related
risks such as liquidity risk, net and gross LTV risks
as well
as
debt maturity ratios
.
Liquidity risk is assessed on both short
term and medium
term. TORM’s liquidity position is stressed with all
relevant risk parameters, such as TCE rates, interest rate
risk
,
and FFA liquidity risk. TORM is constantly focused
on being resistant to periods of liquidity draws if any of
these risks should persist. A catalogue of liquidity
enhancing initiatives is maintained to be able to pursue
opportunities and
have solutions to potential adverse
market
development.
LT
V risk is monitored to ensure that TORM stays in
control of the relative debt level. Vessel values and cash
levels are stress tested to ensure that TORM can
withstand longer perio
ds of declining vessel values or
stressed TCE rates.
TO
RM monitor
s
the future debt repayment profile to make sure cash generation and future available cash is
aligned with upcoming debt liabilities.
Th
ese risks are securing TORM’s ability to maintain a s
olid
capital structure, providing us with the ongoing ability to
pursue growth and fleet maintenance opportunities.
O
ver
a number of years
, TORM has
grown the fleet as
well as
maintained a very stable average age
of
the fleet
.
IMPORTANT PILLARS OF TORM
’S CAPITAL
STRUCTURE
SOLID
CAPITAL STRUCTURE
LEADING PRODUCT TANKER OWNER
GREENER FUTURE
WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
22
We
strive to utilize
our market position and strength
to lead the product t
anker industry into a more
environmentally friendly future and to develop
innovative solutions for a greener future.
It is a key priority for TORM to contribute to
combatting the accelerating global climate change and
to minimizing pollution of the seas and the atmosphere.
Thus, TORM has strong focus on reducing 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
bel
ieves that both the
decarbonizationand the
ESG agendas will be integral and determining elements
f
or
the future of the product tanker business. At the
same time, TORM acknowledge
s
that oil and refined oil products are essential resources
,
and we want to distribute refined oil products as
CO
2
efficient
ly
as
possible with current
ly accessible
means
.
OPTI
MIZING PERFORMANCE
NOW
In our
efforts to obtain commercially viable
environmentally friendly results
,
we have established a
new position as Head of Commercial Decarbonization,
a role that together with our Head of Technical
Decarbonization pivotal
will be
in exploring
and
developing
business
opportunities with our customers,
brokers, and industry stakeholders, so we
can
utilize
the power of our integrated platform to reinforce our
position as a leading product tanker owner. In 201
8,
TORM formed a successful
partnership
to develop and produce scrubbers with a scrubber producer,
supporting our
scrubber investments, thereby
demonstrating an ability to source environmentally
important assets while controlling cost
. As an
important effort to create
adjacencies
for TORM, we have decided to expand this cooperation
by engaging
in
test
ing
modern Flettner Rotors
–
to be installed on TORM Houston and TORM Helene
.
We expect 5-
7%
energy
and CO
2
reductions from the Flettner Rotors
. TORM maintains focus on
the
optimization and
improvement of
our
existing fleet
on and
enhanc
ing
the
efficiency of
our existing
fleet
by
applying a broad set
of operational and technical improvements.
LONG
-
TERM INDUSTRY COLLABORATION
A
lternative fuels in shipping will be required on a global
scale
to reach the ambitious 2050 targets set by IMO.
TORM influences the development through broad
industry cooperation, latest by
joining
the Mæ
rsk
McKinney M
ø
ller Institute for Zero
-Carbon Shipping as
a Mission
Ambassador
. TORM monitors the
development of new fuels and associated technologies
,
and TORM wa
nts to be part of shaping the
development and employing new technolog
ies
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
reduction by 2025
– instead of
in
2030
-
compared to 2008 using IMO’s defined methodolog
y,
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.
To support these
goal
s
anagement , TORM’s
Mhas
specific
KPIs
on
achieving this trajectory
,
and the impact on the trajectory is included as
decision
-
making criteria
for instance when
assessing fleet renewal options.
Decarbonizing shipping
GREENER FUTURE
WITH ZERO EMISSION AMBITION
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL
AND STRATEGIC CHOICES
23
The three main components of TORM
’s
performance
optimization are
v
oyage
o
ptimization, b
ehavioraloptimization, echnology
and
ti
mprovements. All
threeare designed to help reduce fuel consumption
and
support
s
TORM’s su
perior commercial performance.
Th
at TORM’s performance optimization efforts work
,
is
demonstrated by TORM’s strong
CO
2
emission
performance. CO
2
emissions are reduced every
day for
the benefit of the environment end of 2021
. As
at the,
TORM ha
d
obtained a
Annual Efficiency Ratio (AER)
reduction of
37.6% compared to IMO’s baseline (
2008),
and TORM is hence well ahead of IMO’s CO
2
reduction
trajectory
.
Not on
ly will the short and medium
-
term optimization
s
be beneficial to TORM in the
future
. It will also prepare TORM for
a
potential carbon tax
being imposed
on
shipping companies, as they will increase fuel
costs
.
Further, TORM will benefit when
transition
to new ing
fuel types in the long run, because TORM expect
s
new
fuel types to be more expensi
ve when being phased in.
Hence
,
highly optimized fuel consumption will be
central going forward
.
OPTI
MIZING PERFORMANCE NOW
DIGITIZED PLATFORM SUPPORT
S OPTIMIZATION
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR
OPERATING PLATFORM
CONNECTED VESSELS AND CONNECTED MACHINERY
Through the programs “Connected Vessels” and “Connected Machinery”,
TORM will accelerate the performance optimization components
with improved best practice sharing and centralized
IOT
and advisory applications
making it possible for TORM to take
fuel efficiency to the next level.
VOYAGE OPTIMIZATION
M
any factors
are
involved in
setting the ideal speed, and
TORM works closely with its
stakeholders to ensure the
optimal speed and route
s
of its vessels. To support this, TORM
utilizes predictive quantitative
modelling and multiple data
source
s for real time surveillance
and recommendations.
BEHAVIOURAL OPTIMIZATION
Measures to achieve operational
savings, enhanced energy
management onboard
,
and rigid
anti
-
fouling monitoring.
TECHNOLOGY IMPROVEMENT
TORM applies a range of new
and updated technologies to
enhance the fuel efficiency of its
current fleet. In the long term,
TORM is also engaged in
developing the next generation
vessel
designs and technologies
together with selected partners.
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
24
OPTIMIZING PERFORMANCE NOW
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFO
RM
WHAT GOT US HERE…
WHAT WILL TAKE US THERE…
Cultural change on
-
and offshore
Zealous hull
maintenance
AI based
route
optimization
Flettner Rotors
Fleet renewal
Digital solutions for
route optimization
Already in 2025 TORM
expects to reach IMO’s
2030 target of 40% CO
2
reduction compared to
IMO’s baseline (
2008
)
Connected vessels
and machinery
Continuous training
Optimized
machinery
… and much more
Residual heat
recovery
… and much more
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
25
In our efforts to reach
our
ambitious emission reduction targets, TORM has invested in Flettner Rotors for the
two newest of our LR2 vessels
.
Th
e assets are purchased from the joint venture,
which
TORM has together with ME Production and GSI
shipyard
.
If T
ORM is successful in operating the Flettner Rotors
and obtains the antic
ipated CO
2
and fuel savings, they
will be considered as a means for TORM to support a
greener future.
During
S
pring 2022
,
the onshore test installation w
ill be
commenced in Frederikshavn, Denmark
.
Sub
sequently a
ctual full
size testing is expected to be -
commence
d and s
ubject to successful testing, the
final
installation is expected later in , whereafter
2022
operating data from the two LR vessels will be
analy
z
ed.
Roto
r sails can be installed on all the main vessel types,
which
TORM operat
es
and
will have
slightly more
benefit
on larger vessels (LR2) as the voyages for these
vessels have more ideal wind conditions
.
TO
RM expects
f
% compared to a uel savings of
5-7corresponding vessel without a rotor sail
.
The two vessels are expected to reduce CO
2
emissions by
2,000
–
3,000 mt CO
2
per vessel.
OPTIMIZING PERFORMANCE NOW
FLETTNER ROTORS
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
26
To
achieve our ambitious 2050 environmental target of
zero CO
2
emissions fr
om operating
our
fleet, TORM is actively involved in
various
industry collaborations supporting this journey. The collaborations are
important, as the ambitious target cannot be met by
single entities
alone
but requires
joint efforts across the shipping
in
dustry.
JOINING
MÆRSK MCKINNEY MØLLER CENTER FOR
ZERO CARBON SHIPPING
TORM announced
its ambitious
2025
target in
January
202
2,
alreadyand
towards the end of 2021, TORM
became a Mission
Ambassador
in the Mæ
rsk McKinney Mø
ller Center for Zero Carbon Shipping to partner with
the institute and equal
ly
minded industry participants on this important journey.
TORM will provide support to the Center’s work and
commit to the Center’s mission and vision of building a
significant cross
-
disciplinary driving f
orce in the
decarbonization of the
shipping
industry.
DANISH SHIPPING
TORM is an active member of Danish Shipping
, and
t
hrough Danish Shipping
TORM
aims to impact the
decision making in IMO
o
n ongoing discussions o
f the
implementation of CO
2
related regulations.
LONG
-
ATIONTERM DECARBONI
ZINDUSTRY COLLABORATIONS
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
27
Over the past year
,
the shipping industry has shown
increased interest, and
development work on the
future of maritime fuels and solutions for zero
emission shipping are starting to evolve.
TORM is enthusiastic about this development, however,
while it is the expectation that there will be technical
solutions in place to support most new fuels through
new propulsions systems, the path towards having
sufficient fuel
s
available is more uncertain. To increase
the understanding of this important topic, TORM and
the Board of Directors organized a number of
dedicated sessions to discus
s the issue. The sessions
covered deep dives on topics such as the Power
-
to
-X
development to understand the sourcing of the new
fuels, the development of carbon capture solutions and
considerations on types of new fuels, the split in usage
and availability
.
A key conclusion from the sessions was that the future
of maritime fuels will be more dispersed with zero
carbon emission solutions not coming from a single
new technology, but rather from a mix of several
solutions as the availability of new fuels will be scar
ce
and a key deciding factor. The Board of Directors will
maintain this
as a
, and TORM will strategic focus
area
monitor the development of the new fuels and
associated technologies. However, currently it is the
belief that the solutions
will
not
be
commercially and
operationally
viable for product tankers
for the near
future
.
LONG
-
ATIONTERM DECARBONI
ZNEW FUELS
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANN
UAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
28
TORM’s fleet is effectively managed on the in
-
house
integrated operating platform known as One TORM.
Operations are conduct
ed
jointly
for the entire fleet
to reap synergies across vessel classes.
Th
e 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
our integrated believe that
business model create
s
a unique customer offering
as it
provides
our customers with better accountability and
insight into safety and vessel performance.
In l
ine with the s
trategic focus on safety, the One TORM
platform features
the
One TORM Safety Culture
program.
The purpose of the program is to continuously
strengthen TORM’s safety culture beyond mere
compliance, and it reflects the belief that profitability and
safety
need to go hand
in
hand
.
On
the One TORM platform
,
the commercial, technical,
sale
&
purchase
,
and support divisions
all
work towards
common goals in a network
-
based organization with
easy internal access across the organization supporting
efficient decis
ion making.
COMMERCIAL
MANAGEMENT
TORM’s commercial team is responsible for employment
and operation of our fleet and has continuously
demonstrated superior performance compared to peers
and market benchmarks. One of the key elements for the
commercial t
eam to succeed is the ability to ensure an
optimal position of the fleet in the global basins, where
differences in earnings can be significant
over the span of
a year.
TECHNICAL MANAGEMENT
TORM’s fleet is managed by its in
-
house technical
management. Th
e department is responsible for
maintaining the high quality of our vessels and the
delivery of an environmentally friendly, safe, and cost
-
efficient technical operation. Our technical management
also has extensive experience in vessel design and
construct
ion and provides essential knowledge for TORM
to execute newbuilding programs.
In addition to
the
office staff, more than
3,
4
00
seafarers are employed
by
TORM
.
SAL
E & 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 pursue
s
lucrative opportunities in the second
-hand and newbuilding markets.
Th
e support division is also an
integral part of TORM’s
day
-
to
-day operations and provides optimized
business practices, reporting and payment processes,
proactive business partnering, stringent risk
management, liquidity, and funding management etc.
For years, the support division has built a strong data
and digitalized business support function. By means of
advanced analytics and applied AI competences, this
function has created an analytical model to further
support TORM’s commercial performance.
OPERATIONS DURING COVID
-
19
During the
entire COVID
-19 pandemic, TORM has fully
maintained operations both at sea and ashore thanks
to the One TORM platform. The integrated operations
have eased the natural obstacles
which
TORM
encountered in connection with travel restrictions,
lockdowns, and supply chain challenges.
SUPERIOR OPERATING PLATFORM
LEADING PRODUCT TANKER OWNER
GREENER FUTURE
WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
29
SEA
FARERS
The COVID
-
imposed travel restrictions complicated 19
-crew movements throughout the year. Despite this
TORM has
throughout 2021 maintained a normalized
level of overdue employment among the crew
s
supported by TORM’s integrated platform and the on
-
going coordination between the commercial and
technical departments which has enabled TORM to
conduct crew changes as opp
ortunities ar
o
se during the vessels’ commercial operations. However, the costs
associated with crew changes have been high
er
due to increased travel expenses and imposed quarantine
costs.
+92%
Retention rate for s
enior and junior
officers
during COVID-
19D
uring the pandemic, TORM has further leveraged
from a solid base of
loyal seafare
r
s which has secured
continuity in
our operations.
LAND
-
BASED EMPLOYEES
In line with relevant authorities, TORM ha
d
on several occasions chosen to close some of its offices
and
recommended
that land
-
based employees work from home
during the pandemic
.
TO
RM has been able to conduct its business almost
unaffected of these measures due to the integrated
nature of its operating platform ensuring cohesive lines
of command.
SUPPL
Y
CHAIN
With operations across the world and the requirement
to conduct maintenance on basically all locations,
TORM has been impacted by the emerging global
supply chain bottlenecks. One concrete example is the
increased cost in freight forwarding of materials and
equipment. However, TORM
’
s continued optimization and cost focus ha
s
secured uninterrupted operations
with only a marginal increase in costs.
SUPERIOR OPERATING PLATFORM
LEADING PRODUCT TANKER OWNER
GREENER FUTURE
WITH ZERO EMISSION AMBITION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL REPORT 2021
OUR BUSINESS MODEL AND STRATEGIC CHOICES
30
EIGHT MR VESSELS
, SIX
WITH
INCREASED
CHEMICAL
TRADING FLEXIBILITY
In March 2021, TORM purchased eight 2007
-
2012 built MR product tanker vessels from TEAM Tankers Deep Sea
Ltd. for a total cas
h consideration of USD 82.5m and the
issuance of 5.97 million shares. Six of the vessels have
specialized cargo tank configurations and extended tank
segregations (IMO 2), allowing for enhanced trading
flexibility through chemical trading options.
TORM ob
tained debt financing covering the cash
thereby
making the tranaction cash neutral.
The vessels have all been integrated
into
the One TORM
platform using a flexible approach towards transfer of
technical knowledge
and crew
. This
has ensure
d
a
se
a
mles
s integration.
THREE MODERN
LR2
VESSELS
In May
2021, TORM purchased three
2015
-
built scrubber
-fitted and
fuel
-
efficient LR2 vessels
from
Okeanis Eco
Tankers Corp. for a total cash consideration of USD
120.8m
.
Two of the vessels were financed with bank debt and one
through a sale
and
leaseback structure.
The vessels
have all been integrated
into
the One TOR
M
platform and supplement our modern LR2 fleet well.
TWO LR2
NEWBUILIDNG
In November 2021 and in January 2022, TORM took
delivery of the final two LR2 newbuildings in our
newbuilding program
. The newbuildings are
scrubber
-
fitted and fuel
-
optimized
.
The vessels
were
taken over in a period with significant
COVID now
-
19 related restrictions
arein China
and
fully
integrated into the One
-
TORM platform.The vessels are constructed with fuel
-
efficient design,
and
during
2022they
are expected to have
Flettner
Rotor
s
installed
which
will reduce the fuel consumption
by
5-7%
on these vessels.
SE
A
MLESS INTEGRATION
OF NEW CAPACITY IN A
COVID
-
1 9 ENVIRONMENT
LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSION AMBIT
ION
SUPERIOR OPERATING PLATFORM
TORM
ANNUAL
R
EPORT 2
021 31
1
INVESTMENT HIGHLIGHTS
SPOT OPERATING MODEL
Significant operating leverage
through spot orientation allowing
TORM to benefit from
increases in
TCE rates
.
SOLID CAPITAL
STRUCTURE
Conservative balance sheet and a
strong liquidity position provide room
for potential growth while
maintaining break
-
even rates at low
levels and no near
-
term
refinancing
needs
.
SUPERIOR COMMERCIAL
PERFORMANCE
Advanced data driven platform with
in
-
ho
use commercial and technical
management
provid
ingsuperior
earnings while maintaining a balanced
cost structure
.
POSITIVE MARKET
FUNDAMENTALS
Low product stock levels, low global
fleet growth and refinery dislocation
are positive fundamentals for the
product tanker market in
the
near
and medium term
.
AMBITIOUS AND ONGOING
CO
2
REDUCTION
TORM is already well advanced in
meeting IMO’s
emission targets and
has engaged in long
-
term
collaborations for decarbonization in
2050.
TRACK RECORD OF
EXCELLENT TIMING
TORM has maintained a well
diversified fleet
a
nd acquired
vesselsat
attractive points
p
rice a
s w
ell
a
ssol
d
vessels
at
market v
alues.
OUR STRATEGIC
BU
SINESS M
ODEL A
ND C
HOICES 
TORM
ANNUAL REPORT 2021
OUR RESPO
NSIBILITY
32
In 2
009, TORM signed the UN Global Compact as the
first shipping comp
any in Denmark
. In this way
,
we
commit to
an
internationally recognized set of principles regarding health, safety, labor rights,
environmental protection
,
and anti
-corruption.
As part of this commitment, we submit our communication on
progress every year.
PRI
NCIPLES
Transparency and accountability are key to
TORM’s
way of doing business, and these values play a cen
tral
role in
our
corporate social responsibility (CSR) approach.
Our
approach to responsible behavior is
rooted in
our
Business Principles which have the following five objectives:
•
Maintaining a good and safe workplace
•
Reducing environmental impact
•
Respecting people
•
Doing business responsibly
•
Ensuring transparency
CO
LLABORATION AND PARTNERSHIPS
TORM’s commitment to CSR is not limited to our own
business practices, as we believe real impact requires
industry collaboration. We cooperate with peers and
stakeholders to increase responsibility in the shipping
industry and the supply chain. Also, this is done to
mitigate protectionism and support progressive trade
agreements
.
TO
RM strives to increase transparency and
accountability and to minimi
ze corruption. We do this
as
an active member of Danish Shipping and a number
of committees within that organization
. This is also the
focus in in which
the Maritime Anti
-Corruption Network
TORM is a co
-
founder and member.
S
US
TAINABLE DEVELOPMENT GOALS AND
TRANSPARENT
ESG
REPORTING
In 2021, we continued our support to the UN
Sustainable Development Goals (SDGs) and its targets
for 2030.
To
ensure ample contribution, we focus on specifically SDG #4 Quality Education and SDG
#13
Climate Action. These goals are closely linked to our
value chain, business practices, and company values.
Our support of the SDGs is seen as a natural
progression of our commitment to the UN Global
Compact.
Thi
s
responsibility
report documents the results of our
efforts within corporate social responsibility, as well as
environmental, social and governance aspects (ESG)
.
As part of our commitment to the UN Global Compact,
TORM submits its communication on progress (COP)
every year.
Th
is year, TORM will use the Sustainability Accounting
Standards Board (SASB) reporting framework to
further increase our ESG reporting transparency. Th
e
SASB
framework is an ESG guidance framework
which
set
s
standards for the disclosure of financially material
susta
inability information
.
Find our SASB Index and Responsibility data on
page
s
48
-52
RESPONSIBILITY
REPORT
Responsible behavior
and sustainability are embedded in the way
we conduct
business in TORM. We are
committed to
protect
and
take care of
our employees,
our
assets
, our environment, and our society. This is done the highest possible standards. We support the UN
by
living up toGlobal Compact, the Sustainable Development Goals and are increasingly report
ing on Environmental, Social and Governance data.
Our Responsibility
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
33
CORPORATE SOCIAL RESPONSIBILITY
HIGHLIGHTS
TORM continues to
play
an active role
in
fostering
and caring
for the needs of
society
,
the environment,
and communities at large
.
TORM believes that doing business sustainably while contributing to society is not only about sharing
obligations, but also about sharing social responsibilities.
The
refore, TORM
on
the
one hand
continues to strive hard to combat carbon, sulfur, and other
emissions and
on the other hand,
stands committed to
providing
quality
education, as
it
is a matter of concern for TORM and its employees. TORM is
confident that with all brilliant minds
, great hearts
and
dedicated stakeholders,
this milestone will definitely be achieved.
DIVERSITY
37%
WOMEN
IN THE SHORE
-
BASED
WORKFORCE
22%
WOMEN
IN LEADERSHIP
POSITIONS
74
SCHOLARS
SUPPORTED
BY TORM AND OUR EDUCATION
FOUNDATION
0.37
LOST TIME
ACCIDENT
FREQUENCY IN
2021
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
35
STAKEHOLDER ENGAGEMENT
Working in close collaboration with our customers and
stakeholders has an immense focus for TORM
and is
key t
o
deliver on our ambitious climate
targets.
Amo
ng
others t
he
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
financia
l
institutions to
ensure
a high level of
transparen
cy in
our climate efforts
–
both ashore and at sea.
As a company
,
we
work with a selection of
partner
ships
sharing the same values and goals as
TORM, e.g
.,
we have joined the
Mærsk
Mckinney
Mø
ller
C
enter for
Zero
Carbon
Shipping
, where we will work
with industry partners and knowledge specialists to
achieve zero carbon shipping by 2050. In addition,
TORM
is
an
active
member of
industry organizationssuch as Danish Shipping
.
You can learn more about how we engage with
stakeholders and
decision
-
making in the section 172
statement.
Engagement and De
cision
-
making in TORM on
page
s
104
- 106
Find m
ore details on the value chain in oil
transportation and TORM’s role
Value chain in oil transportation on page
16
MATERIALITY
As part of our continued efforts to increase
transparency in our reporting, this year we will include
a materiality assessment in our responsibility reporting.
In TORM, we have defined materiality as “social and
environmental topics with the largest impa
ct
throughout our value chain”.
Materiality Assessment
TORM
’s ESG materiality assessment is made to identify
and prioritize
the
most important ESG issues
arewhich
to
and have most impact on TORM and our key
stakeholders.
We
have
defined our key stakeholders as
customers, lenders, investors, regulators, employees,
suppliers, and community & environment.
The impact which the various topics have on TORM
varies depending on the topic. As examples, legal
compliance can be th
e
risk of breaching sanctions
which can impact TORM’s access to critical markets if
not complied with, whereas TORM’s ability to employ
diversified personnel will impact our decision
-
making
capabilities and potential for strong commercial
performance in the future. Another example is securing
quality education which impacts our ability to source
skilled crew for our vessels. Each score is evaluated
relative to each other as all the material topics are
important to TORM and our key stakeholders. T
he
material topics and the
materiality matrix were
approved by the Board of Directors.
STAKEHOLDE
R
ENGAGEMENT AND MATERIALITY
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
36
H
ealth and safety on pages 37
-39
S
ecurity on page 39
TORM’s environmental efforts on page 40
People at sea and ashore on page
s
41
-
43Human rights and business ethics on page 44
Community engagement on pages 45
-
46
Responsible procurement in TORM on page 47
STAKEHOLDE
R ENGAGEMENT AND MATERIALITY
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
MATERIALITY MATRIX
Importance to key stakeholders
Higher
Lower
Lower
Higher
Impact on TORM
D
B
F
C
G
Most important
ESG related topics
for TORM
(
scoring of topics is relative to each other
)
H
A
E
A
Legal compliance
B
Health and safety
C
Security
D
Environmental
eorts
E
People
F
Human rights
and
business ethics
G
Community
H
Responsible procurement
LEGAL COMPLIANCE
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 this line of business.
TORM’s
compliance with all applicable
sanctions requires constant focus, as any
violatio
n 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
an
d labor. Legal compliance is often closely
linked to other areas included in the
materiality matrix and is also separately
included. The Governance section on pages
71-
11
1 describes
TORM’s
framework and
governance model, designed to ensure
TORM’s
continued
ability to operate
successfully.
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
37
Around 90% of TORM’s workforce is employed at sea,
and therefore ensuring healthy, safe, and secure
working conditions for them is of crucial importance to
TORM’s business. Backing those efforts, TORM believes
that a healthy and supportive work environment adds a
lot to the employees
’
wellbeing, productivity, and performance level at work and also enhances the
company’s retention rate.
Respecti
ng employees’ human rights is pivotal to
TORM
, and all the policies supporting this are outlined
in TORM’s Business Principles. Similarly
,
our
safety
policy is rooted in the rules and regulations issued by
the Danish Maritime Occupational Health Service.
INSPECTIONS AND AUDITS
In order to maintain
our
standards and exceed the targets set by
our
customers despite the COVID-
19
pandemic, TORM developed a robust remote audit
scheme at the beginning of 2020. With travel
restrictions significantly reducing the possibilities of
visiting vessels
,
the first
-rate tools and data collection
processes at TORM made it possible to create a robust
remote audit system.
The challenges continued during 2021 and the One
TORM platform has been able to successfully deliver on
all counts
,
including new takeovers and new deliveries.
Despite the ongoing pandemic,
a
few
employees have successfully managed to visit a number of TORM
vessels
for
audits, inspections and on
-board training. In
addition
,
we have been able to attend our new vessels
for timely
takeover.
Overall, owing to
the
effectiveness of the One TORM platform, the interaction with all stakeholders, internal
as well as external, has shown that audits, inspections,
change of flag etc. are achievable and successful
despite the pandemic.
SIRE INSPECTIONS
The main body responsible for managing the
overarching processes and requirements of the vessel
inspections is OCIMF (Oil Companies International
Marine Forum). In 2020, due to the travel restrictions
caused by the COVID
-
19 pandemic, new avenues like remot
e documentation review and inspection were
introduced by OCMIF. The challenges experienced in
connection with physical SIRE (Ship Inspection Report
Program) arrangements were mitigated by close co
-
operation among internal stakeholders as well as
among oil majors. In spite of the challenges, TORM
vessels were able to achieve
a
significant number of
physical SIRE inspections enabling business
continuit
ies
and the flexibility to trade. The process
around taking delivery of n
ew
buildings as well as
second
-
hand v
essels
was well executed ensuring
successful trading.
During 2022, OCIMF is expected to roll out the
completely revamped SIRE 2.0 inspection and
assessment regime for the product tanker industry
.
HEALTH
,
SAFETY, AND SECURITY
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
38
SAFETY DELTA
TORM also continued with the Safety Delta tool, which
was launched in 2018 and used across the fleet to track
and monitor the safety culture on board the individual
vessels. The safe
ty delta concept supports processes
and activities and helps to build and maintain a
proactive safety culture based on continuous crew
evaluation, dialogue, reflection, and development. All
vessels have been scheduled to complete three Safety
Delta cycles
in 2021.
Since 2018, TORM has used a revised performance
appraisal program as a way to systematically enhance
work behaviour and leadership to ensure excellent
safety performance.
Through the One TORM Safety Culture
–
driving
resilience program,
TORM has defined standards and
expectations for excellent performance. A key element
of leadership is to evaluate employee performance with
a view to managing the development and motivating
employees to develop. TORM believes this will facilitate
the best possible means for developing performance as
an individual and as a company.
In 2021, TORM introduced a new induction framework
for its Senior Officers. The induction program focuses
on providing the Senior Officers with insights into
fundamental
company culture, behaviour, safety
leadership and stakeholder management to ensure
excellent performance for newly hired Senior Officers.
A revised induction framework for Junior Officers was
introduced in 2020.
In 2021, TORM continued to promote the One
TORM
Safety Culture
–
driving resilience program. In Q4
2021,
we launched our new Virtual Senior Officers
Conference program. The content of the Virtual Senior
Officers concept is focused on
s
afety
culture,
m
ental h
ealth,
work
culture, and
social
culture
to support and
ensure that TORM’s safety culture is anchored across
the organization, ashore as well as on board the
vessels. These Virtual Senior Officers Conferences have
been continued in 2021 and a total of 17
1
Senior Officers have attended the
confere
nce
.
HEALTH, SAFETY, AND SECURITY
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
ONE TORM SAFETY CULTURE
In
2021
, TORM continued the safety culture
program One TORM Safety Culture
–
driving
resilience. The purpose of the program is to
continuously strengthen TORM’s safety
culture beyond compliance.
TORM continued to conduct Safety
Leadership courses for Senior Officers on
board.
During 2021
,
TORM welcomed a
number of new senior officers to the
company, and still maintained a high
completion rate of more than 80% for the
safety leadership course
.
The course includes
workshops for all Senior Officers and key
mar
ine shore staff and focuses on how to be a
good leader when it comes to safety.
In 2021, TORM introduced a new tailormade
Safety Leadership
program
for Junior Officers, which cover the mindsets, competencies, and
behaviors suited
for
the role. It utilizes a three-
phase learning process
which
provides the participants with a better learning experience
and ensures
a
faster application of learnings in their day
-
to
day work practices. This course -
also serves as a supplement to the Safety
Leadership Course for Senior Officers.
TORM
ANNUAL REPORT 2021
OUR RESPONSIB
ILITY
39
LOST TIME ACCIDENT FREQUENCY AND NEAR
-
MISS
INCIDENTS
Lost Time Accident Frequency (LTAF) is a
measure of
serious work
-
related personal injuries which
result in more than one day off work per million hours of work.
The definition of LTAF follows the standard practice
among shipping companies. During 2021, TORM’s LTAF
measure considerably decreased to 0.37 (2020: 0.65).
Each injury has been investigated and corrective
measures have been taken as required. TORM’s
seafarers have done a commendable job by raising the
safety culture and substantially reduced injur
ies
in 2021,
especially during the pandemic.
V
irtual town halls and other online interactions introduced at the beginning of
the pandemic for TORM’s seafarers have been used to
a greater extent in 2021. During this time, whenever
possible, opportunities were taken to physically attend
vessels and interact with seafarers
,
including
conducting training
.
Near
-
miss reports provide TORM with an opportunity
to analyse conditions
which
might lead to accidents and ultimately prevent potential future accidents. A
high number of near
-
miss reports indicate that the organization proactively monitors and responds to
risks.
In 2021, TORM’s focus on near
-
miss incidents and the
quest for continuous improvement
s
resulted in the
introduction of a new category of event
s
called ‘Unsafe a
ct &
unsafe
condition’
to help identify near miss
events for the safety of our crew
s
. The total near miss reported for 2021 was 4
,203
(2020: 5,
991, 2019: 6,099)
and
‘Unsafe act & unsafe condition’ was 1
,954
. HEALTH
,
SAFETY,
AND SECURITY
LOST TIME ACCIDENT FREQUENCY (LTAF)
Source: TORM
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
0.96
0.65
0.67
0.47
0.42
0.65
0.37
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2015 2016 2017 2018 2019
2020 2021
SECURITY
TORM’s response to piracy is founded on the
Best Management Practice, which is the
industry guideline for companies and vessels
sailing in areas with increased risk. In 2021,
TORM experienced six incid
ents when thieves
or robbers came on board and four incidents
of stowaways found on board
TORM’s
vessels.
No persons were harmed during these
incidents.
Throughout the year, the security situation
and developments in the various risk areas
have been monitored closely, and actions
have been taken to safeguard TORM’s
seafarers and vessels. The security situation in
some regions remain fragile due to the
COVID
-
19 pandemic. TORM has adapted its
procedures to the changing threat levels
across the areas called a
t by TORM vessels.
TORM will continue to monitor the risk
situation and pre
-
empt hijacking and robbery attempts by following security procedures
and industry guidelines.
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
40
TORM supports SDG 13 Climate Action
as marine pollution constitutes the
largest environmental risk in the
shipping industry.
Therefore, it is important for TORM to minimize the sea
and atmospheric pollution.
FUEL
C
FFICIENCYONSUMPTION AND
ENERGY
ETORM has relentlessly worked on the ambitious
environmental goal of reducing carbon footprints by
deploying effective strategies and
efficient
technologies across our value chain. To responsibly
add value to the industry emissions reduction plans,
TORM contributed through its involvement in industry
collaborations in innovation partnership, ShippingLab
(a non
-
profit platform for maritime research),
development, and innovation with 30 partners from
across the maritime industry to push the efforts further
at driving smart shipping for the future
,
such as
:
Signing up for the Call to Action for Shipping
Decarbonization, which calls on the
governments to
take decisive actions to achieve decarbonization of
international shipping by 2050.
Board Acti
vities 2021
–
Strategically important long
-
term collaborations on page
s
77
-78
Joining the Mærsk McKinney Møller Institute for Zero
Carbon Shipping as a Mission Ambassador to research
ways to grow in a more operationally, commercially,
and sustainably viable way.
Greener Future
–
Long
-
term Industry collaboration
on page
22
Investing in Flettner Rotors for the newest of our LR2
vessels, aimed at saving fuel consumption.
Flettner Rotors on page 2
5
Despite
the challenges of managing the fuels and
evaluating the propulsion performance, the One TORM
platform continue
s
to have a solid
and dedicatedfocus
on reducing fuel consumption.
FAST FORWARDING OUR ENVIRONMENTAL EFFORT
Over the years
,
TORM has geared up its environmental efforts only to outperform its set targets. Further, we
all have an obligation to do our utmost to reduce CO
2
emissions. Therefore
,
TORM is pushing fast forward in our environmental efforts and will deliver a 40% CO
2
r
eduction by 2025
– instead of
by
2030.
The baseline for the target is in line with the definition
set forth by the International Maritime Organization,
IMO, which defined how this should be measured and
calculated. The accelerated target is possible thanks to
the power of the integrated One TORM platform,
where we control the whole value chain of our business
and operations.
For example, we have in
-
house technical management, training, energy efficiency team, marine HR, operations,
and chartering, and thr
ough this, we can adjust,
optimize, and implement the changes needed to
accelerate our environmental efforts.
To continue reducing our emissions towards 2025 and
onwards, we will focus on e.g.
,
hull painting
,
maintenance
, connected machinery and connected
vessels,
and continue the optimization journey of
onboard operations. As our long
-
term goal,
we
will be
working on subjects encompassing future fuels and
next
-
generation vessels.
TORM continuously focuses on energy efficiency
across the fleet. This serves the dual purpose of
minimizing the environmental impact and helps us
deliver market leading performance. By maintaining a
strong focus on energy efficiency in 2021, TORM has
achieved a 37.6
%
reduction
in Annual Efficiency Ratio
(AER)
compared to
the IMO
baseline (2008
)
. Daily
engagement with the vessels continues to create
significant value to encourage and support best
practice behavior with regard to energy consumption.
In addition, the efforts ensure that corrective actions
can be taken swiftly, as nee
ded.
In our continued endeavors to operate in an
environmentally friendly way, we strive to push our
horizons and believe that our actions will do the work.
ENVIRONMENTAL EFFORTS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
41
People and culture play an essential part at TORM. It
defines our core and helps us grow and thrive, at sea
and ashore. The pandemic has challenged the way
we
work and cooperate. But we have initiated strategic
and operational initiatives to drive high emp
loyee
engagement and improve the sense of belonging.
AT SEA
In 2021, TORM continued its strategy to employ
seafarers with different nationalities as
we
believe that
diversity on board is an important foundation for
cooperation, high performance, and a safe working
environment.
Throughout the year, TORM’s main priority was to
relieve seafarers on time despite the heavy constraints
caused by the COVID
-
19 pandemic.
Further, the focus was to get all seafarers both at sea
and ashore vaccinated
against COVID
-
19
. TORM was
one of the first companies to use the US vaccin
ation
program for vessels calling US ports and we followed
up in all countries who offered this service. In 2021
, the
team managed to vaccinate more than 1
,
000 seafarers on board and set up help to get vaccines for all
nationalities. Today
,
no seafarer joins a TORM vessel without being vaccinated. In 2022
,
TORM will continue
the drive towards full vaccination, including booster
vaccination.
During these times, focus was on supporting both
staff
on board as well as our seafarers at home and their
relatives, with all aspects of such unprecedented times.
This included both financial
support
, and most
importantly to ensure healthy wellbeing. Despite the
COVID
-
19 limitations, TORM continued its efforts to
strengthen the relationship between seafarers and the
shore
-
based organization. In 2021, this involved a
transition from physical meetings and gatherings to a
more virtual form which included seminars, trainings,
and general gatherings.
TORM ma
intains an ongoing focus on seafarer
commitment and engagement. In 2021, the retention
rate for Senior Officers remained above 90%, and
TORM demonstrated 100% compliance with customer
requirements when it comes to ensuring the right level
of experience among Senior Officers per vessel across
the fleet (the so
-
called officer matrix compliance). The Well at TORM program aimed at focusing on the
wellbeing of our seafarers by increasing engagement,
mental resilience, physical health and embracing
socialization
among crew members, is successfully
running at par with our intent with more than half of
the total seafarers actively participating in it.
94%
Retention rate for senior officers
At the end of 2021, TORM employed a total of 3,420
seafarers of whom 9
2
were
permanently employed, with the remaining seafarers being on time
-
bound
contracts.
ASHORE
High Engagement
In 2021, we continued our bi
-
annual real time data
engagement survey which we introduced in 2019. More
than 90% of all shore
-
based employees responded to th
e
survey.PEOPLE
GEOGRAPHICAL DISTRIBUTION OF SEAFARERS IN %
Total number of seafarers at the end of 2021:
3,420
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
51
%
39
%
5%
4%
2%
India
Other
Croatia
Denmark
The Philippines
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
42
The outcome of the December 2021
survey
was a score of 8.4
out of ten
show
ing
a continuous high
engagement and satisfaction among our employees.
And this is the case across categories ranging from
engagement, freedom of opinion, management
support, work environment and safety.
The high scores were evenly spread across divisions
an
d locations which is a testament to the strength of
the unified One TORM approach. The overall positive
outcome of the survey was maintained from previous
years, and it positions TORM in the top quartile of
companies across all industries using the same
pl
atform.
Our ambition of this engagement survey combined
with a high response rate is to help us improve, nurture
the culture needed to fulfil our ambitious strategy and
develop initiatives
which
matter to our employees.
Again in 2021, we included questions to understand
how our shore
-
based employees cope with the pandemic and the precautionary measures we have
introduced to safeguard and support our employees.
The survey showed that the
COVID
19 related -
measures introduced were highly appreciated by our
employees.
Employee health and wellbeing
During 2021, we introduced an updated remote work
approach due to the experiences stemming from the
requirements to work remotely during the pandemic.
This allowed for more flexibility for the global team.
By
the end of 2021, the retention rate for all shore
-
based
employees was 88%. That is an expected change
compared to previous years due to the effects of
employees worldwide rethinking what work mean to
them following the COVID
-
19 pandemic.
T
o strengthen and
develop TORM’s position
in this
area
, continuous development of our organization,
culture and leadership is a key criterion for success. On
this background
,
we decided to implement leadership training in our organization. One of the main purposes
was to enhance the feedback culture in
TORM
.
We are consistently focusing on employee health and
wellbeing. The term wellbeing embraces not only
physical, but also mental aspects of wellbeing.
Therefore, specific training in stress awareness was
initiated during the year. Through in
-
depth knowledge, a common language and targeted tools, all employees
will be equipped with the necessary tools required to
spot
and mitigate stress. We will continue introducing
this across offices in 2022.
Onboarding a new career
Ou
r ability to recruit and retain highly qualified
employees for positions ashore and at sea is essential
to our business. That
i
s why we have a strong focus on the way we communicate with potential candidates,
how we recruit, and we how we onboard our new
e
mployees. We want to enhance the understanding of
TORM and the One TORM culture.
At sea and ashore, thousands of colleagues worldwide
keep the TORM fleet moving. While we all share the
same goals and culture, everyone’s story is different.
T
ORM
ha
s develo
ped a career site at torm.com
which
portrays employees with different stories. And the site
describes our different career programs ashore and at
sea.
Overall, we aim to attract and retain the best qualified
employees by living the four values of the TORM
Leadership Philosophy and by ensuring that
TORM’s
leaders motivate their employees.
At the end of 2021, the shore
-
based organization had
348 136
employees:
140 in H
ellerup, in Mumbai,
two
in
New Delhi,
39
in Manila,
three
in Cebu,
16
in Singapore,
11
in Houston, and
one
in London.
PEOPLE
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
43
DIVERSITY
At TORM
,
we have an obligation to develop a strong
and diverse talent pool irrespective of gender, religion,
sexuality, nationality, ethnicity, or disabilities etc.
As stated in TORM’s Business Principles, we work
toward a diverse workforce in every aspect. We wa
nt
to have an inclusive environment
which
respects and supports all our people and helps improve business
performance.
In our continued effort
s
to maintain a positive and respectful work environment, we have completed
interactive sessions have provi
which
ded insight
s
in
to
how we ensure to be aware and respectful in our daily
work. Also annually, we will follow
up on these
initiatives and evaluate the results.
We believe that diverse teams led by diverse leaders
deliver better business performance, and offer equal
opportunities
in recruitment, career development,
promotion, training and rewards for all employees.
In 2021, we continued to participate and drive the aim
of Danish Shipping’s
t
askforce for more women at Sea
.
In this work group
,
we have incorporated 10 recommendations into processes and procedures as
best practice. The recommendations include setting
gender diversity targets, supporting women through
family
friendly policies and rethinking the recruitment
process.
Gender distribution
We actively monitor the representation of females in
the workforce and in leadership positions. At the end of
2021, the proportion of female full
-
time employees in the shore
-
based workforce was 37%, while women in leadership positions, defined as having one or more
direct reports, constituted 22%. TORM has a target for
2030 of 35% women in leadership positions
.
At the end of 2021, the Board of Directors consisted of
four male members and one female member elected at
the Annual General Meeting. In 2020, the Board of
Directors fulfilled its target of 20% female Board
members (1 out of 5).
DATA ETHICS
TORM’s business model, The ONE TORM platform, uses
advanced analytics and digital solutions in which large
amounts of data are processed. TORM’s Data Ethics
Policy confirms TORM’s commitment to our defined
data ethic’s principles and it defines how we collect,
store and process data.
TORM wants to maintain high ethical standards for the
protection of our data, and we want our handling of all
data to be beneficial and value
-
adding to our customers, employees, business partners, authorities,
and other stakeholders.
Our treatment of data must be robust to prevent
against any unintended disclosure. TORM’s data
security measures include a variety of guidelines and
defined processes, as well as technical and human
controls.
TORM generally does not collect, store, or handle data
in relation to private customers or consumers. The data
which TORM collects, and stores is mainly commercial
data, relevant to the operation of our owned and
chartered vessels. Such commercial data inc
ludes
without limitation global trade flows, trading patterns,
cargo types, weather patterns, port data etc. and may
be generated internally or obtained from external
sources.
PEOPLE
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILI
TY DATA
EMPLOYEE
DIVERSITY
Permanently employed
Male
Female
Directors of the Company
⁾
Employees in other senior executive positions
Total management other than Directors of the Company
(Managers with one or more direct reports)
Other permanent employees of the Group
Total permanent employees of the Group
⁾
The five Non
-Executive Directors are not included as employees of the Group
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
44
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
co
sts 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 p
rofessionally, fairly and with
integrity in all business dealings and relationships,
wherever
TORM
operates. TORM will uphold all laws
relevant to countering bribery and corruption in all the
jurisdictions in which
TORM
operates.
TORM has three elements which it leverages to
continue a high level of transparency and
accountability of its anti
-
corruption and anti-
bribery
policy. One being strict employee guidelines and
processes to prevent and manage anti
-
corruption and anti
-
bribery, the second being specific reporting
processes, and the last being compulsory e
-
learning
courses. TORM further complies with SOX regulations
according to which employees must confirm adherence
to the policies and guidelines, as well as training
completion, ensuring 100% compliance. No further
corrective action has been required.
Since 2011 when TORM co
-
founded the Maritime Anti
-Corruption Network (MACN), TORM has been taking a
joint stand with the industry against the request for
facilitation payments
which
exists in many parts of the
world where TORM conducts business. Best practice is
shared between members of the network, and
members align their approach to minimizing facilitation
payments.
MACN seeks support from government bodies and
international organizations to eliminate the root causes
of corruption. TORM is committed to addressing
corrupt business practices among stakeholders by
supporting this cross
-
sector approach.
In addition to its efforts within MACN, TORM continued
to strengthen its companywide anti
-
corruption policies
in 2021 to mitigate the risk of bribery and corruption.
TORM has continued its anti
-
corruption training program, which includes mandatory anti
-
corruption
courses for all shore
-
based staff and all officers on
board TORM’s vessels. The training targets new hires as
well as existing employees and must be repeated
annually. TORM will continue these efforts in 202
2
.
Since 2006, TORM’s Board of Directors has provided a
whistle
-
blower facility with an independent lawyer as
part of the internal control system. In 202
1
, the whistle-
blower facility received two notifications, both of which
were investigated and closed without any critique or
requirements for new measures.
HUMAN RIGHTS
With the TORM Leadership Philosophy, TORM’s
Business Principles and com
mitment to the UN Global
Compact, TORM is committed to respecting human
rights as outlined in the United Nations Guiding
P
rinciples on Business and Human Rights.
TORM recognizes that implementing the necessary
policies and respective processes to be in line with the
requirements of the UN Global Principles is part of an
ongoing effort. Going forward,
we
will continue to promote human rights
-
related policies and processes. The most material risk for human rights abuses are
related to TORM’s supply chain.
TORM complies with
the International Labor Organization’s Maritime Labor
Convention, an international set of standards on labor
conditions at sea, which was ratified by 30 countries in
2012. All vessels under TORM’s technical management
are audited and certified as required under the
Maritime Labor Convention of 2006. TORM respects
employees’ right to associate freely, to join
–
or not to join
–
unions and to bargain collectively. TORM offers
equal opportunities for its employees as stated in
TORM’s Busines
s Principles. No claims or offenses have
been reported regarding human rights in 2021.
HUMAN RIGHTS
AND BUSINESS ETHICS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
45
TORM is a long
-
standing supporter of maritime education in Denmark, India
,
and the Philippines, and it is therefore
natural for
TORM
to support SDG 4
Quality Education.
This commitment shows TORM's connection to the
surrounding communities and how much of a positive
impact it has on the society at large where TOR
M
operates and where many of TORM’s
employees come
from.
Adding to that, TORM firmly believes that
by
supporting education selected
in
areas, we can nurture
future
competencies and develop a strong pipeline for
the industry. contribution towards th
TORM’s
e
betterment of society builds a sense of trust
and pride
in our colleagues
which
reciprocates
the formin
of
higher retention and positive brand recognition.
TORM is therefore dedicated to supporting SDG 4
Quality Education and cooperates with several
educational institutions and universities internationally.
In Denmark and Singapore, the efforts include offering
internships and
trainee
and student assistant
positions
at
TORM’s offices to students from
the
Copenhagen
Business School, the Copenhagen School of Marine
Engineering & Technology Management
,
and the Nanyang Technological University Singapore. The
majority of TORM’s seafarers come from Indian or
Filip
ino nationality, and the
refore
TORM’s
activities in
these areas educate the students about
the
shipping
industry
.
This enhances
the potential pool of
future
TORM employees and strengthen
s
the overall skillset of seafarers
coming from
these regions.
EDUCAT
ION FOUNDATION
IN THE
PHILIPPINES
T
he
TORM Philippines Education Foundation (TPEF)
is
a
foundation set
up by
TORM Philippines
in 2007 to
support
education in the Philippine community.
During the
educational year 2021
-
2022
we supported
•
11
n
ew
scholars studying in school
•
41
scholars studying in various colleges and
universities
•
22 apprentices (
one
f
emale and 21
male
) with
maritime courses
•
One scholar graduate
d
in 2021 with a degree in BS
Marine Transportation
In lieu of the scholars
’
learning program, the TPEF alsoconducted monthly practical online talk sessions
organized to sustain the
students
’
iescapabilit
,
knowledge, and awareness on various issues
during
the
pandemic under the Scholars Development Program
(SDP). Sessions were directed at developing positive
values and mindset
s
, self
-image,
and
social and soft
skills through SDP.
Through webinars
under the Social Development Initiative (SDI), the TPEF
also
worked on more pressing issues such as
m
ental
health
, wellness,
and
community wellbeing in general.
The TPEF also
provided
support for the reconstructi
on
of
the interior of a school
which had been
ravaged by
typhoons
, and it
played a crucial role in maki
ng
provision for
water supply facilities, water dispensers,
and making building materials available to an
elementary school in the region.
Though faced with many challenges and limited
resources, our team made effective use of available
material
s
in a sus
tainable way. Provisions for solar
-
based lamps for elementary school kids were made
available to ensure
that
their studies are not affected, along with
a
one
-
unit solar panel for the school.
Apart from ensuring proper education facilitation in the
Philipp
ines, TORM also formed its ‘Disaster Relief Team’
which is trained and active in case any
unexpected
events occur. ‘TORM Care’ is a special kit
made
to
accommodate
specific needs consisting of safety
blankets, grocery packs, drinking water, hygiene pack
s,
and COVID
19
kit
s. COMMUNITY
SUPPORTING
UALITY EDUCATION
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILIT
Y 46
EDUCATION FOUNDATION IN INDIA
In India, TORM funded specific projects under selective
social causes, and since 2018, TORM India has
worked
closely with three organizations to achieve the
purpose, namely
–
•
SAMPARC
-
an organization taking care of the
disad
vantaged children across India
•
BAIF
-
an organization working towards upgrading
and providing rural infrastructure
•
Akshayshakti
–
an organization looking after
improving the lives of students,
welfare
and
abandoned children
Previously, TORM supported the construction of the ZP
Prathmik School in Zadgewadi in Kurkumbh, near Pune,
India. The school was constructed and furnished with
facilities with support from TORM.
Through SAMPARC, TORM sponsor
s
33 students attending the school and assists them with their basic
needs, such as school equipment and
specified
living
expenses. The
COVID
pandemic has restricted -
19
movements in India, however
,
in November 2021, a team from TORM India visited SAMPARC Bhaje to
celebrate the Deepawali Festival with the students an
d
distributed presents
to
all students. TORM also fulfilled
its promise of renovating
a
multipurpose town hall and setting up of a library at Bhaje. Both facilities were
opened for use.
TORM firmly believes that enhanced infrastructural
support and bette
r extra
curricular activities w-
ill
help
nurture a wholistic upbringing for the students.
Earlier
in 2021
, TORM India pledged to construct three
classrooms at Nalasopara, Mumbai.
Although delayed
due to the restrictions caused by COVID
-
19 pandemic,
th
is p
roject is expected to be completed in early 2022.
In our
continued endeavour to have
a
positive impact on society, TORM is evaluating
several more
projects in and around Mumbai, specifically directed towards girls.
COMMUNITY
SUPPORTING UALITY EDUCATION
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
47
Responsible behavior throughout the organization is
central to TORM’s business, management practices,
and
corporate culture.
Our supply chain is important to achieve our goals, and
we want to ensure that our quality standards and
responsibility efforts are extended and improved
throughout the supply chain. We expect our suppliers
to comply with recognized international standards and
work to improve human rights, labor conditions, impact
on the environment, safety, corruption, and quality.
As a long
-
standing member of the UN Global Compact, TORM remains committed to protecting its employees,
assets, reputatio
n, 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
i
nternationally recognized set of principles regarding
health, safety, labor rights, environmental protection,
and anti
-
corruption. Being a signatory also means that
TORM reports on its social and environmental
performance on an annual basis to ensure progr
ess and
accountability to stakeholders.
Because of TORM’s commitment to integrate
responsibility in all business practices, a revised set of
Business Principles has been introduced. The Business
Principles ensure alignment between our values, as
outlined
in the TORM Leadership Philosophy, and the
Policies that ensure appropriate behavior, which cannot
be deviated from. This relationship applies to Policies
within all operations, including those related to CSR.
TORM also applies its Business Principles wh
en dealing
with subcontractors and suppliers. TORM's Business
Principles place a particular emphasis on our
commitment to promote responsible business
principles in our supply chain. Therefore, TORM is
compliant with the UK Modern Slavery Act.
TORM is ce
rtified according to ISO 9001 and ISO 14401,
and in accordance with the requirements of our
certifications, we will start conducting periodic
assessments of our suppliers.
The main purpose of the first supplier assessment is to
establish a baseline and know the status at our
suppliers for us to engage in dialogue about how we
together can extend and quality, responsibility, and
sustainability efforts
. I
n some situations,
we may
identify areas where we feel that corrections are
required to continue as a supplier to TORM.
Our suppliers are asked to perform a self
-
assessment
questionnaire. It consists of a range of questions
related to your business, which you must fill out and
return to us to continue as a supplier to TORM.
The questions fall within the following main ca
tegories:
•
Company information
•
Quality management
•
Performance
•
Training
•
Human rights and labor
•
Environment, health, and safety
•
Business ethics
TORM will, when possible, conduct site visit
s
to audit
the subjects stated in the
self
-
assessment
questionnaire or as an option conduct a remote audit.
ANTI
-C
ORRUPTION AND
NTIA
-B
RIBERY
Corruption and bribery impede global trade and can
restrict non
-
corrupt companies’ access to markets. In this way, corruption and bribery have a negati
ve
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.
R
ESPONSIBLE
PROCUREMENT
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
48
Topic
Accounting Metric
Unit
Code
Greenhouse Gas
Gross global
Scope emissions
Metric tons (t) CO
-e
TR
-MT
-a
Discussion of long
-
term and short
-term strategy or plan to manage Scope emissions
emissions reduction targets and an analysis of performance against those targets
See pages
-
TR
-MT
-a
() Total energy consumed
Gigajoules (GJ)
TR
-MT
-a
() percentage heavy fuel oil
Percentage ()
TR
-MT
-a
() percentage renewable
Percentage ()
TR
-MT
-a
Average Energy
Efficiency Design Index (EEDI) for new ships
Grams of CO per ton
-
nautical mile
TR
-MT
-a
Air uality
Air emissions of the following pollutants
() Nox (excluding NO)
Metric tons (t)
na
)
TR
-MT
-a
() SOX
Metric tons (t)
TR
-MT
-a
() particulate matter (PM)
Metric tons (t)
na
)
TR
-MT
-a
Ecological Impacts
Shipping duration in marine protected areas or areas of protected conservation status
Number of travel days
na
)
TR
-MT
-a
Percentage of fleet implementing ballast water () exchange
Percentage ()
TR
-MT
-a
Percentage of fleet implementing ballast water () treatment
Percentage ()
TR
-MT
-a
Number of spills and releases to the environment
)
Number
TR
-MT
-a
Aggregate volume of spills and releases to the environment
)
Cubic meters (M)
TR
-MT
-a
) Data unavailable Assessment of feasibility of disclosure is ongoing
) Our definition of spills is based on ITOPF
) We report total volume of spills as estimated aggregate volume of all spills as defined above We do not do netting of the amount of such material that was subsequently recovered evaporated or otherwise lost as required by SASB standard
TR
-
MT
-a - SASB MARINE TRANSPORTATION INDUSTRY
STANDARD
INTRODUCTION AND HIGHLIGHTS
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SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
49
Topic
Accounting Metric
Unit
Code
Employee Health & Safety
Lost time incident rate (LTIR)
)
Rate
TR
-MT
-a
Business Ethics
Number of calls at ports in countries that have the lowest rankings in Transparency
Internationals Corruption Perception Index
Number
TR
-
MT
-a
Total amount of monetary losses as a result of legal proceedings associated with bribery
or corruption
USD
TR
-
MT
-a
Accident &
Safety Management
Number of marine casualties
)
Number
TR
-MT
-a
Percentage classified as very serious
)
Percentage ()
TR
-MT
-a
Number of Conditions of Class or Recommendations
Number
TR
-MT
-a
Number of port state
control () deficiencies
Ratio
)
TR
-MT
-a
Number of port state control () detentions
Ratio
)
TR
-MT
-a
Activity Metrics
Number of shipboard employees
Number
TR
-MT
-A
Total distance
traveled by vessels Nautical miles (nm)
B
TR
-MT
-Operating days
Days
TR
-MT
-C
Deadweight tonnage
Thousand deadweight tons
TR
-MT
-D
Number of vessels in total shipping fleet
Number
TR
-MT
-E
Number of vessel port calls
Number
TR
-MT
-F
Twenty
-
foot equivalent unit (TEU) capacity
TEU TR
na
-
MT
-G
) 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
) Our definition of Marine casualty is based on IMO Casualty Investigation Code Ch - and very serious marine casualty is based on IMO Casualty Investigation Code Ch -
) We report number of port state control deficiencies and detentions as a ratio instead of a number It is the industry norm
to report port state control performance as a ratio as it provides important context to the metrics The ratio is calculated
as the number of deficiencies (or detentions) divided by the total number of PSC inspections
SASB MARINE TRANSPORTATION INDUSTRY
STANDARD
INTRODUCTION AND HIGHLIGHTS
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OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
50
Indicator
Unit
Greenhouse gas (GHG) emissions
Direct GHG emissions (scope )
Ton CO
Indirect GHG emissions (scope )
Ton CO
Total GHG emissions
Ton CO
Energy consumption
Heavy fuel
Ton
Low
-
sulfur heavy fuel
Ton
Marine Gas
Oil
Ton
Office consumption
Electricity consumption
kWh
Water consumption
M
-
Greenhouse gas (GHG) emissions
-
Fleet
CO
emissions AER
–
total fleet
gdwtxnm
CO
emissions AER
–
LR
gdwtxnm
CO
emissions AER
–
LR
gdwtxnm
CO
emissions AER
–
MR
gdwtxnm
CO
emissions AER
–
Handy
gdwtxnm
CO
emissions EEOI
–
total fleet
gcargoxnm
CO
emissions EEOI
–
LR
gcargoxnm
CO
emissions EEOI
–
LR
gcargoxnm
CO
emissions EEOI
–
MR
gcargoxnm
CO
emissions EEOI
–
Handy
gcargoxnm
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 i
n reporting as well as to following industry best practices on emissions
reporting.
ENVIRONMENT
AL INDICATORS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIB
ILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
51
Indicator
Unit
Further information
Our employees
Total number of seafarers
Headcount
Total number of employees (shore
-
based)
Headcount
AR
Diversity
–
shore
-
based employees
Total women in leadership
AR
Gender with lowest representation (women)
AR
Diversity
–
seafarers
Total
women in leadership
Number
Gender with lowest representation (women)
Number
Health & Safety
Fatalities
Headcount
Lost
-
time accident frequency (LTAF)
Per million exposure hours
AR
Ethics *
Sexual Harassment andor Non
-
discrimination Policy
• • •
Business Principles
Equal and fair opportunity employer
• • •
Business Principles
Child andor Forced Labor Policy
• • •
Business Principles
Child andor 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
• • •
CSR
Recycling and Scrapping
Policy
• •
•
*Yes
•
| No
•
SOCIAL
INDICATORS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
52
Indicator
Unit
Further information
Board of Directors
Members
Number
AR
Gender with
lowest representation (women)
AR
Total nationalities
Number
AR
Independence
AR
Senior Management
Members
Number
AR
Gender with lowest
representation (women)
AR
Total nationalities
Number
AR
Ethics *
Anti
-
corruption Policy
• • •
Business Principles
Anti
-
bribery Policy
• • •
Business Principles
Whistleblower Policy
• • •
AR
Articles of Association
• • •
Data Ethics Policy
•
• •
AR
Code of Conduct Policy (Business Principles)
• • •
Business Principles
*
*Yes
•
| No
•
GOVERNANCE INDICATORS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
OUR RESPONSIBILITY
53
CO
2
emissions (ton)
The greenhouse gas emissions (GHG) reporting covers
scope 1 (direct emissions from own production) and
scope 2 (emissions from own production but others’
emissions) of the Greenhouse Gas Protocol except for
the activities listed below.
Environmental data applies to owned vessels with its
re
spective shares of ownership. Bareboat
-
in vessels are
included while T/C
-
in vessels are excluded. Similarly,
vessels on bareboat
-
out contracts are excluded while vessels on all other employments are included.
Scope 1
CO
2
emissions have been calculated based on the
consumption of heavy fuel oil and marine gas oil
according on IMO’s conversion factor for emission per
ton. Emissions are calculated for each single vessel and
then consolidated. Numbers under the scope 1 data
sheet have been collected on board the vessels or at
the offices. The collection is based on actual usage or
disposals.
Scope 2
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.
AER (g/dwtxnm)
AER
is a measure of efficiency using the total fuel
consumption, distance travelled and deadweight. The
measure is defined as grams CO2 emissions per
deadweight
-
ton
-nautical mile. AER is affected by
vessel size, speed, duration of waiting time and port
stays.
EEOI (g/cargoxnm)
EEOI is a measure of efficiency using the total fuel
consumption, distance travelled and cargo intake. The
measure is defined as grams CO2 emissions per cargo
-
ton
-
nautical mile. EEOI is affected by vessel size, speed,
cargo availability
, duration of ballast voyages, waiting
time and port stays.
SO
X
emissions (ton)
SOx emissions are calculated based on average sul
f
ur
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
-
ur fuel found that sul
fthe sul
f
ur emissions are reduced to an average of 0.025% when using the exhaust gas cleaning system.
Energy consumption (
G
J)
All fuel burned on board the vessels has been
converted into energy based on fuel oil analysis results.
Office electricity consumption (kWh)
Electricity consumed indirectly in operational activities
at the TORM offices excluding the London and
Houston of
fices.
Office water consumption (m
3
)
Water consumed indirectly in
operating
activities at the TORM offices excluding
the
London, Houston, Mumbai
and New Delhi offices. Data is not available for 2019.
Spills
D
efinition of spills is based on ITOPF.
We
report total
volume of spills, as estimated aggregate volume of all
spills. We do not do netting of the amount of such
material that was subsequently recovered, evaporated,
or otherwise lost as required by SASB standard TR
-
MT
-160a.3
-
2.1.
Deadweight Tonna
ge (
b
ased on SOLAS II
-1A
-Reg 2
-20)
Deadweight tonnage is the difference in tonnes
between the displacement of a ship in water of a
specific gravity of 1.025 at the draught corresponding
to the assigned summer freeboard and the lightweight
of the ship.
COC (Based on IACS document Classification
societies Section B3 Classification surveys)
The requirements that specific measures, repairs,
request for survey, etc. are to be carried out within a
specified time period in order to retain class.
DEFINITIONS
INTRODUCTION AND HIGHLIGHTS
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OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANN
UAL REPORT 2021
OUR RESPONSIBILITY
54
LTAF or LTIF (Based on OCIMF Marine Injury
Reporting Guidelines Sec 4)
T
he 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 on OCIMF Marine Injury
as based
Reporting Guidelines Sec 3
.
Marine Casualty (Based on IMO Casualty Investigation
Code Ch 2
-
2.9)
A marine casualty means an event, or a sequence of
events,
that has resulted in any of the following which
has occurred directly in connection with the operations
of a ship:
•
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
i
nvolvement of a ship in a collision
•
material damage to marine infrastructure external
to a ship, that could seriously endanger the safety
of the ship, another ship
,
or an individual or
•
severe damage to the environment, or the
potential for severe damage to the environment,
brought about by the damage of a ship or ships
However, a marine casualty does not include a
deliberate act or omission, with the intention to cause
harm to the safety of a ship, an individual or the
environment.
Material Damage to ship (Based on IMO Casualty
Investigation Code Ch 2
-
2.16)
A material damage in relation to a marine casualty
means:
•
damage that
significantly affects the structural
integrity, performance or operational characteristics
of marine infrastructure or a ship; and
•
damage that requires major repair or replacement
of a major component or components; or
•
d
estruction of the marine infrastructure or ship.
Very serious marine c
asualty (Based on IMO Casualty
Investigation Code Ch 2
-
2.22)
A very serious marine casualty means a marine
casualty involving the total loss of the ship or a death
or severe damage to the environment.
Permanent management positions (ex. Directors and
sen
ior executives)
–
shore
-
based
Total Management other than directors of the
Company (VP's, GM's, Senior Managers and Managers
with
one or more direct reports). The five Non
-
Executive Directors are not included as employees of
the Group
.
Permanent
seafarer officers
Defined as
officers living in Scandinavia
.
DEFINITIONS
INTRODUCTION AND HIGHLIGHTS
OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
55
F
INANCIAL
RESULTS
In 202
1
, TORM
recorded
a net loss
of USD 42
m
compared to a profit of
USD
resulting in 88
m in 20
20
loss per
per share of USD
0.54-
compared to
earningsshare (EPS) of USD
1.
19
in 20
20
. When excluding
non
-
recurrent items in both 202
1
and 20
, 20
the net loss
reached USD
-
36
m in 202
1, a
decrease
of USD 158
m
from result
a net profit of
USD 122
The lowerm in 20
20.
in 202
1
was mainly due to dec
reasing freight rates.
In 202
1,
operating profit decreased
by USD 138
m
to
USD
1m,
primarily
reflecting the decrease
in revenue.
In 20
21
, total revenue was USD 6
compared to 20
m USD
747
m in 20
20
,
and TCE earnings
de
creased from
USD
520
m to USD
The 379m
, a total de
crease of 27
%.
decrease
in TCE earnings was primarily attributable to
a
weaker
freight market in 20
The 21
compared to 2020
.
decrease
was
based on
approximately an
31
lower %
TCE per day and
5%
available earning daymore
s (
1,398
days)
in 20
21
compared to 20
. 20
FINANCIAL REVIEW
20
21
FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 20
21
TORM
delivered industry leading results and a Net Loan
continues to have a
solid capital structure with-
to
-Value of 52%, USD 2
10
m in available
liquidity
including restricted cash
s , no
major refinancing
needed
before 2026
and limited off
-balance sheet commitments
of USD 38m
.
Kim Balle, CFO
Review
and
r
isk
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
56
TORM’s total assets
increased
by USD 332
in 202m
1
to
USD
2,331
m
. The carrying
amount
of vessels,
capitalized dry
-
prepayments on vessels docking and
amounted to USD 1,
950
compared to USD 1,7m
34
m in
2020
.
During the year, TORM sold
two older vessel
s;
one
MR
delivered in 2021 and one scheduled to be
LR1
delivered in
the
first quarter of 2022. In 2021, MR product tanker
TORM
acquired eightvessels from TEAM Tankers Deep Sea Ltd
and
bought
three LR2 vessels
.
In 202
1
, total equity increased by USD 35
to USD m
1,052
m
from USD 1,0 in equity
17
The increasem in 20
20
.
was mainly due to
a
capital increasein connection with
the
acquisition of vessels
and
a
change in value of
hedging
instruments
partially
offset by net loss for the
year.
The market value adjustments on derivatives held
for hedge accounting had a
positive
effect on equity of USD
17
m
, mainly r
elated to the
in
creasing market values of TORM’s interest rate swaps. The Return on
Equity (RoE) decreased from 8.7% in 2020 to
-
4.1
% in
202
1
, due to lower revenue
.
TORM’s total liabilities
increased
by USD
298
to USD m
1,279
m i
n 202
1 and
borrowings increased
by USD
m 293
to USD
1
,135
m. In 20
21
, invested capital increased
by USD 291
to USD m
2,011
m
as of 31 December 20
the21
due to ,
mainly
addition
of vessels in 202
1.
In addition, Return on Invested Capital (RoIC)
de
creased by 7.8
percentage
points from
7.8
% to 0.0
Adjusted RoIC in 202%.
1
reached 0.2 of
%
crease, a
de
9.1
percentage points from
2020
.
In 20
21
he Net Asset Value per share based on broker , t
value increased
to USD
12.5
from USD 10.8
in 20
20
mainly due to
the increase
of vessels in 2021.
FINANCIAL REVIEW 20
21
KEY HIGHLIGHTS
USDm
Change
Income Statement
Revenue
-
Time charter equivalent (TCE)
-
Gross profit
-
EBITDA
-
Operating profit(loss) (EBIT)
Financial items
Net
profit(loss) for the year - -
Balance Sheet
Non
-
current assets
Total assets
Equity
Total liabilities
Key figures
Invested capital in USDm
Net Asset Value per share (NAV) (USD)
Return on Invested Capital (RoIC)
points
Adjusted RoIC
points
Return on Equity (RoE)
points
Basic earnings per share (EPS)
-
-
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
57
LIQUIDITY AND CASH FLOW
Total cash and cash equivalents, including restricted
cash, amounted to USD
172
at the end of 202m
1
,
resulting in a net
increase
in cash and cash equivalents,
including restricted cash, for the year of USD
36
m
compared to 20
20
ndrawn and committed credit. U
facilities amounted to USD 38m (2020: USD 132m;
2019: USD 173m). The undrawn and committed credit
facilities consisted of a USD 38m leasing facility with
BoComm Leasing
.
During 2021
,
TORM entered into a number of loan and
leasing agreements. In conjunction with the purchase
of eight vessels from Team Tankers
,
TORM agreed with the bank syndicate to amend the existing agreement to
include five of the eight vessels financed by a USD 64m
revolving credit facility partly funded by equity/capital
increase
. The remaining three vessels w
erefinanced by
HCOB through a USD 28m term facility.
Further
,
TORM agreed with Danish Ship Finance to
amend the existing facility to include additionally tw
o
acquired LR2 vessels in the term facility agreement.
TORM took delivery of the two LR2 new
buildings
TORM Helene and TORM Houston end of 2021 and
early 2022. The two vessels were financed through
an
operational lease with BoComm for a total amount of
USD
76m.
BoComm also financed three other LR2
vessels
. TORM
Kiara was acquired and financed for an amount of USD
32m and TORM Herdis and TORM Hellerup was sold
and leased back for a total amount of USD 71m. At the
end of 2021
,
TORM sold and leased back nine
MR
vessels for a total amount of USD 151m. The agreement
was made with CDBL leasing.
T
ORM does not have any
material debt maturities until 2026, which supports
TORM’s
financial flexibility.
As of 31 December 202
1
, TORM had CAPEX
commitments of USD
38.2
related to the outstanding m
LR2 new building
.
In 20
21
et cash inflow from operat, n
ing activities
decreased
from USD
236
to USD m in 20
20
48
m due to the lower
freight rates combined with
an
increase in working capital (
bunkers
, receivables
,
and payables
). Net cash outflow from investing activities amounted to
USD
2
91
m in 202
1
compared to USD
120
m in 20
20. The
cash outflow was used
for
tangible fixed assets, primarily related to the new
buildings
and secondhand
vessels acquired
.
Net cash
in
from financing activities amounted to flow
USD
298
m
in 20
21
compared to a cash
outflowof USD
83
m in 20
20
. Repayment on
borrowings
amounted to USD
254
m
in connection
with
scheduled
repayments
and vessel sale
s
during the year. Additional borrowings
generated a inflow of USD
cash
54
9
m.
48
m
Cash flow from
operating activities
-291m
Cash flow from
investing activities
298m
Cash flow from
financing activities
FINANCIAL REVIEW 20
21
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
58
TANKER
F
LEET
Revenue in the
t
anker creased
to USD f
leetde
by
% 17
620
m
in 20
2021
,
down
from USD
747m
in 20
,
and TCE
earnings
de
creasedby 27
% to USD
379
from USD m
520
m in 20
20
. The
decrease
in
TCE earnings was
primarily due to
a
weaker
product tanker freight market
in 20
21
compared to 20
20
.
Global oil demand continued to improve towards
the
pre
-
pandemic levels, however continued stock draws,
driven by OPEC+ oil production quota regime and
supply disruptions in the US, limited
the
oil product trade
and
kept the product tanker freight rates
depressed. On the supply side, increased vessel
sc
rapping kept product tanker fleet growth in check.
For the LR2s, the average TCE rates
de
creased by 42
%
from
2020
to 2021
The .
de
creasing freight rates
are partly offset by a
n
crease of in
5
% in available earning
days resulting in total
TCE
earnings
of USD in
2021
61m,
a decrease of USD
39
from 2020m
.
The average
TCE
rates for the
LR1s
were 37
lower%
than in 20
20
.
deThe
creas
ing freight rates combined
with a
de
crease of
% in available earning days resulted 1
in
total TCE earnings of USD 46m,
a
crease in de
earnings of USD
29
m from 2020
.
In 20
21
,
the available earning days
of MR vessels
increased by
1,174
days,
equaling
an increase of
6%
compared to 20
20
. The TCE rates de
cre
ased by
26
%,
resulting in total
TCE
earnings of USD 264
m, a
de
crease of USD
72
m.
For the Handysize vessels, the TCE rates decreased by
28
%
20in 202
1 compared to 20
.
With an increase
in
available earning days of 9% in 20
21
the total
TCE
earnings for the Handysize vessels ended at USD
7
m, a
decrease of USD
2
m.
As of 20 March 2022, TORM had covered 34.3% of the
earning days in 2022 at USD/day
17,497.
FINANCIAL REVIEW 20
21
CHANGE IN
TIME CHARTER EQUIVALENT EARNINGS IN THE TANKER FLEET
USDm
Handysize
MR
LR
LR
Total
Time charter equivalent earnings
Change in number of earning days
-
Change in freight
rates
-
-
-
-
-
Other - -
-
Time charter equivalent earnings
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
59
EARNINGS DATA
FINANCIAL REVIEW 2021
USDm
Full year
Full year
change
full year
LR vessels
Available earning days
Spot rates
⁾
-
TCE per earning day
⁾
-
LR vessels
Available earning days
-
Spot rates
⁾
-
TCE per earning day
⁾
-
MR vessels
Available earning days
Spot rates
⁾
-
TCE per earning day
⁾
-
Handysize vessels
Available earning days
Spot rates
⁾
-
TCE per earning day
⁾
-
Total
Available earning days
Spot rates
⁾
-
TCE per earning day
⁾
-
⁾
Spot rate Time Charter Equivalent Earnings for all charters with less than six months’ duration Gross freight income less bunker commissions and port expenses
⁾
TCE Time Charter Equivalent Earnings Gross freight income less bunker commissions and port expenses 
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
60
OPERATION OF VESSELS
The development in operating expenses is
summarized in the table
below
. The table also summarizes the operating data for
TORM’s
fleet of
owned and bareboat
-
chartered vessels.
Operating expenses (OPEX) for the fleet
increased
by
USD
13m
to USD
191
in 202m
1
compared to USD 17
8m
in 20
20
, mainly due to an increasing
number
of
operating days. On a per
-
day
-basis, OPEX
increased
compared to 20
20
.
The total fleet of owned vessels had
1,103
off
hire and -
dry
-
docking days, corresponding to
4
% of the operati
ng days in 20
21.
This compares
to 1,
off332
-
hire days in
2020
or
5
% of the number of operating days.
ADMINISTRATIVE EXPENSES AND OTHER
OPERATING
EXPENSES
Total administrative expenses and other operating
expenses amounted to USD
52m
in 20
21 compared to
USD
70
The m
in 20
20
.
de
crease was mainly due to
a
one
-
off provision covering an exposure related to
cargo claims of USD 18m
in 2020
. FINANCIAL INCOME AND
EXPENSES
Net financial expenses in 20
21
were USD 42
m
compared to USD
49
The decrease was m in 20
20
.
primarily driven by lower interest compared to 2020
and the larger senior facilities refinancing combined
with costs related to said refinancing.
TAX
Tax fo
r the year amounted to an expense of USD
0.4
m of income tax and 0.9m of tonnage tax compared to
an expense of USD
0.5
of income tax and 0.9m of m
tonnage tax
in 20
20
.
T
he Group has elected to participate in the Danish
tonnage tax scheme
. T
he participation is binding until
31 December 2024. The Group expects to participate
in the tonnage tax scheme after the binding period
and, as a minimum, to maintain an investing and
activity level equivalent to that at the time of entering
the tonnage tax scheme.
FINANCIAL REVIEW 20
21
CHANGE IN OPERATING
EXPENSES
USDm
Handysize
MR
LR
LR
Total
Operating expenses
Change in operating days - -
Change in operating expenses per day -
Operating expenses
OPERATING DATA
USDday
Handysize
MR
LR
LR
Total
Operating expenses per operating day in
Operating expenses per operating day in
Change in the operating expenses per operating day in
Operating days in
⁾
Offhire - - - -
-
Dry
- - - - -
docking
-
Available earning days
⁾
Including bareboat charters
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
61
ASSESSMENT OF IMPAIRMENT OF ASSETS
Management has followed the usual practice of
performing
a
review of impairment indicators every
quarter and presenting the outcome to the Audit
Committee. The Audit Committee evaluates
the
impairment indicator assessment and prepares a
recommendation to the Board of Directors. The
recoverable amount of the assets is calculated by
assessing the fair value less costs to sell and the value
in use of the
t
anker
f
leet.When assessing the fair value less costs to sell,
Management include
s
a review of market values calculated as the average of two internationally
recognized shipbrokers’ valuations. The shipbrokers’
primary input is deadweight tonnage, yard
,
and age of the vessel. The assessment of the value in use
i
s based
on the net present value of the expected future cash
flows. The key assumptions are related to future
developments in freight rates, operating expenses and
to the weighted average cost of
capital (WACC)
applied as discounting factor in the calculations.
As of 31 December 202
1
, Management tested the carrying amount of its fleet for impairment within
three
CGUs, being the Main Fleet (LR2/LR1 and MR
vessels) and the two Handysize vessels.
In 202
1
, the recoverable amount of the Main Fleet and
the Handy
size
vessels was based on its value in use.
Based on this review, Management concluded that:
•
Assets within the Main Fleet were not impaired as
the value in use exceeds the carrying amount.
•
Assets
within
the Handy vessels were not
impaired as the value in use was in line with the
carrying amount.
The assessment of the value in use of the Main Fleet
and the Handy
size
vessels was based on the present
value of the expected future cash flows. The frei
ght
rate estimates in the period 202
2-
202
are based on 4
the Company’s business plans. Beyond 202
4
, the freight rates are based on the Company’s 10
-
year
historical average rates adjusted for the anticipated
beneficial impact of scrubber installations.
The impairment testing is sensitive to changes in the
key assumptions applied. Note 8 provides additional
details of the impairment assessment as well as
sensitivity analysis in respect of freight and discount
rates.
TORM
will continue to monitor developments on a
quarterly basis for indications of impairment.
P
RIMARY
FACTORS AFFECTING RE
SULTS OF
OPERATIONS
TORM generates revenue by charging customers for
the transportation of refined oil products and crude
oil, using
TORM’s
tanker
s
. T
ORM’sfocus is on
maintaining a high
-
quality fleet, and TORM actively
manages the deployment of the fleet between spot
market voyage charters, which generally last from
several days to several weeks, and time charters.
TORM believes that the important measures for
analyzing trends in the results of its operations of
tanker
s
consist of the following:
Time char
ter equivalent (TCE) earnings per available
earning
day
TCE earnings per available earning day is defined as
revenue less voyage expenses divided by the number
of available earning days. Voyage expenses primarily
consist of port and bunker expenses
which
are unique to a particular voyage, which would otherwise be paid
by a charterer under a time charter, as well as
commissions, freight
,
and bunker derivatives. TORM believes that presenting revenue net of voyage
expenses neutralizes the variability created by unique
costs associated with particular voyages or the
deployment of vessels on the spot market and
facilitates comparisons between periods on a
consistent basis. Under time charter contracts, the
charterer pays the voyage expenses, while under
vo
yage 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 base
s
its financial
decisions on expected TCE rates rather than expected
revenue. The analysis of revenue is therefore primarily
based on developments in TCE earnings.
FINANCIAL REVIEW 20
21
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
62
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
volati
le and fluctuate on a seasonal and year
-
to
-year basis. Fluctuations derive
from imbalances in the availability of cargos for
shipment and the number of vessels available at any
given time to transport these cargos. Vessels
operating in the spot market generate revenue
which
is less predictable but may enable
TORM
to capture increased profit margins during periods of
improvements in tanker
freight rates
.
Time charter rates
A time charter is generally a contract to charter a
vessel for a fixed period of time at a set daily or
monthly rate. Under time charters, the charterer pays
voyage expenses such as port, canal
,
and bunker
costs. Vessels operating on time charters provide
more predictable cash flows but can yield lower profit
margins than vessels operating in the spot market
during periods characterized by
favorable
market
conditions.
Available
earning days
Available earning days are the total number of days in
a period when a vessel is ready and available to
perform a voyage, meaning
that
the vessel is not off-
hire or in dry
-
dock. For the owned vessels, this is calculated by taking operating days and subtracting
off
-
hire days and days in dry
-
dock. For the chartered
-in vessels, no such calculation is required, because
charter hire is only paid on earning days and not for
off
-
hire days or days in dry
-
dock
. Operating
days
Operating days are the total number of available days
in a period with respect to the owned vessels, before
deducting unavailable days due to off
-
hire days and
days in dry
-
dock. Operating days is a measurement
which
is only applicable to the owned vessels, not to
the time chartered
-
in vessels.Operating
expenses
per operating day
Operating expenses per operating day are defined as
crew wages and related costs, the costs of spares and
consumable stores, expenses relating to repairs and
maintenance (excludin
g capitalized dry
-
docking),
the
cost of insurance and other expenses on a per
-
operating
-
day basis. Operating expenses are only paid
for owned vessels. T
ORM
does not pay such costs for the time chartered
-
in vessels, as they are paid by the vessel owner and instead factored into the charter hire
cost.
ACQUISITIONS
A
ND
CAPITAL
EXPENDITURE
As of 31 December 20
21
, TORM
had
one
LR
2 newbuilding
under construction which was delivered
5
January 2022.
The value of the prepayments included
in the total asset value amounts to USD
12
m compared to USD
12
m in 20
20.
RETURNS
T
O S
HAREHOLDERSThe Board of Directors has decided to recommend
that no dividends be paid for 2021.
FINANCIAL REVIEW 20
21
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
63
GOING
CONCERN
As of 31 December
202
1
, TORM’s available liquidity
including undrawn
and committed facilities was USD
210
m, including a
total
cash position of USD
172
m (including restricted cash
of USD
27m
).
TORM’s net
interest
-
bearing debt was USD
et 972
and the nm,
debt loan
-
to
value ratio was -
52.
3
%.
Further
information on
TORM’s
objectives and policies for managing its capital, its financial risk management
objectives and its exposure to credit and liquidity risk
can be found in
N
ote
21
to the financial statement
s.
The principal risks and uncertainties facing
TORM
are
set out on pages
65
and details on the -
69liquidity and
capital resources are described in
N
ote
2.
TORM
monitors its funding position throughout the
year to ensure that it has access to sufficient funds to
meet its forecast cash requirements, including
newbuilding and loan commitments, and to monitor
compliance with the financial covenants in
our loan
facil
ities, details of which are available in
N
ote
to the 2
financial statements. A key element for TORM’s
financial performance in the going concern period
relates
to the development of the COVID
-
19 pandemic
and
related effect on
the
oil demand and supply
bala
nce.
TORM’s
base case
assumes
the oil markets to
reach a pre during the second half of
-
covid level2022
with
freight rates
materializing and
vessel values
above 2021 levels. In the
b
ase case, TORM
has
sufficient liquidity and headroom above
all
the
covenant limits. TORM also pays special attention to
the significantly increased geopolitical risk following
Russia’s invasion of Ukraine in February 2022 and the
associated effects on the product tanker mark
et.
market. The immediate impact is that the uncertainty
and potential for re
-
routing of trade flows has sent the tanker freight rates in the European markets upwards.
The financial impact going forward is uncertain, but
TORM currently expects that the possible effects are
covered within the below sensitivity calculations.
TORM performs sensitivity calculations to reflect
downside scenarios including, but not limited to,
future freight rates and vessel valuations in order to
identify risks to future liquidity and covenant
compliance and to enable Management to take
corrective actions, if required. The downside scenarios
cover the principal risks and uncertainties facing
TORM
as set out on pages
-65
69
and include different
distressed outlooks
for the product tanker market. In a
low case scenario
,
Management has assumed freight rates which on average are approximately 25% below
those in the base case and a related decline in vessel
values. In the low case scenario, there remains
sufficient headroom on liquidity and covenants. In a
stress case scenario, Management has further stressed
the freight rates to the lowest rolling four quarter
average since 2000. In the stress case scenario,
certain
actions will be required to maintain covenant
compliance
. Such action
s
are assessed to be
achievable
also in a stress case scenario and could
include elements such as sale
of
older vessels.
The Board of Directors has considered
TORM’s
cash
flow forecasts
and the expected compliance with
TORM’s
financial covenants for
the
period
3until
1
March 202
3
cash flow forecast and expected . TORM’s
covenant compliance
are
based on the business plan
approved by the Board of Directors
.
Based on this review, the Board of Directors has a reasonable
expectation
that taking reasonably possible
changes
in trading performance and vessel valuations
into
account
,
TORM
will be able to continue
the
operational existence and comply with its financial
covenants for the period until 31 March 2023.
Accordingly,
TORM
continues to adopt the going
concern
basis
in preparing its financial statements
.
LONG
-
TERM VIABILITY STATEMENT
In accordance with provision 31 of the UK Corporate
Governance Code, the Board of Directors confirms
that they have a reasonable expectation that
TORM
will continue in operation and meet its liabilities as
they fall due for the three
-
year period ending 31 December 202
4
This period has been selected for the .
following reasons:
•
A period of three years is generally in line with the
forecast horizon for external equity analysts
covering the shipping sector
•
TORM will have paid its commitments relating to
its
remaining newbuilding and will as of 31
December 2024 not have any currently known
off
-
balance sheet liabilities
•
The current key uncertainty in the product tanker
market relating to the rebound of the global oil
market is expected to be determined by the
d
evelopment of the COVID
-19 pandemic and is
expected to be resolved within the three
-
year
horizon
FINANCIAL REVIEW 20
21
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
64
•
Within the three
-
year horizon
, there is reasonable
certainty related to the impact from climate
changes and additional regulatory requir
ement
related
t
heretoThe 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
-s
upply picture in the product tanker
sector including the expected vessel values and
freight rates achieved by TORM, which in addition
also covers the outlook related to COVID
-
19 and
climate change developments
•
Development of the fleet
•
Operating and adminis
trative expenses
•
Capital expenditures covering newbuildings and
maintenance of the existing fleet including
installation
of scrubbers and Ballast Water
Treatment Systems
•
Changes in interest rates
The expected financial performance and cash flows
are based
on the same underlying assumptions as
used in TORM’s general financial planning. These
assumptions are consistent with those used in
TORM’s
impairment test
, further details of which are provided
in
N
ote
8 to the financial statements. Vessel values
used in forecasting compliance with financial
covenants are based on the latest market valuations
from two
independent, recognized shipbrokers. The
expected outlook has then been subject to a stress
test and sensitivity analysis over the three
-
year period, using
a conservative outlook for the product tanker
sector with sensitivities including freight rates and
vessel values. Management has assumed that low case
and stress case freight rate assumptions as per the
going concern assessment continue throughout the
via
bility period and has further sensitized the vessel
values downward over the period to reflect a
continued downturn. In the base and low case
scenario
,
sufficient liquidity and headroom on all
covenants are maintained. In the stress case scenario
,
Management’s
actions will be required to maintain
compliance with covenants
,
and should the product
tanker market (in terms of either freight rates or vessel
values) materialize significantly below TORM’s
expectations for a prolonged period, there is a risk of
a covenant breach after the going concern period,
which would require mitigating actions, including cost
savings, sale of vessels or increased leverage which
are considered within
Management’s
control and achievable. Management would also consider
obt
aining appropriate waivers and although they
would be confident of obtaining them these are not
within
Management’s control
.
In addition
,
has consideredTORM
the significantly
increased geopolitical risk following Russia’s invasion
of Ukraine in February 2022 and the associated effects
on the product tanker market. The i
mmediate impact
is that the uncertainty and potential for re
-
routing of trade flows
has
sent the tanker freight rates in the European markets upwards.
The financial impact
going forward is uncertain, but TORM currently
expects that the possible effects are covered by the
performed stress test and sensitivity analysis over the
three
-
year period
.
The Board of Directors monitors if TORM is moving
towards a covenant breach in order to incorpor
ate
any mitigating actions in due course
on an ongoing
basis. Based on the sensitivity analysis, the Board of
Directors does not currently expect that TORM will
breach its financial covenants or experience a liquidity
shortfall over the three
-
year forecast
period.
The Board of Directors has also considered the long
-
term prospects of TORM beyond the three
-
year
forecast viability horizon. In doing so, the Board of
Directors has taken the long
-
term risks and opportunities for TORM discussed elsewhere in
the
strategic report and the potential impact of economic
volatility, climate change agenda, new regulations,
technological disruption and general changes in the
utilization of energy sources into consideration. Based
on this assessment and taking the current capital
structure and TORM’s operational platform into
account, the Board of Directors believes that TORM is
well positioned both to respond to these risks and to
take advantage of any positive market developments
for a period beyond the three
-
year forecast horizon.
On behalf of TORM plc
Kim Balle
Chief Financial Officer
TORM A/S
23
March 202
2 FINANCIAL REVIEW 2021
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
65
RISK
M
ANAGEMENT
FRAMEWORK
We
acknowledge that
TORM
faces a range of risks in doing business and that
our on
success
depends
identifying, balancing
,
and
decid
ing
on
how best to
manage and mit
igate the
se risks
TORM believes that a .
strong risk management framework is vital to protect
TORM
.
On an annual basis,
we
conduct an Enterprise Risk
Management process, during which the critical risks
that are
facing
are identified, assessedTORM
,
and
di
scussed by TORM
’
s Senior Management Team and
subsequently approved by the Risk Committee.
TORM
’
s
risk
assessment
proces
s The objective is
for
TORM and its shareholders to beadequately rewarded for accepting risk, and that the
governance structure tailored to oversee
the risk
management is in place
, so risks are mitigated to the
extent desired.
TORM’
S
CURRENT RISK PROFILE
The Board of Directors and the Senior Management
Tea
m have carried out a robust assessment, under the
Corporate
Governance Code, of the principal and
emerging risks facing the
TORM
, including those that would threaten its business model, future
performance, solvency or liquidity and reputation.
All
risks are repeated from last year, albeit with slight
adjustments.
A detailed description of each of the top risks is
available on page
s
68
-
69
.
The focus b
elow
is the
development in the
risk
s.
In 2021, volatility in the
TORM
experienced continuedproduc
t tanker market caused by the COVID
-
19
pandemic
. TORM’s market risk exposure remains high,
and we are exposed to potentially adverse market
conditions
,
including
the
and impact on freight rates
vessel values. Because TORM’s fleet has increased to
approxima
tely 8
4
vessels, exposure to adverse development in freight rates increased slightly.
Market
risk
s
associated with unexpected changes in vessel
values have a significant impact on the value of TORM.
During 2021, TORM expanded its fleet and therefore
the gross risk related to unexpected declines in values
also increased. However, TORM removed part of the
vessel value risk through operating sale and leaseback
financing structures. Consequently, the risk is deemed
to be at the same level as last year.
The Oil Companies International Marine Forum
(OCIMF) is overhauling its Ship Inspection Report
Program (SIRE) by introducing a more comprehensive
inspection process from Q
4
The new program,2022.
SIRE 2.0, will facilitate a risk
-
based approach toRISK
M
ANAGEMENT
In order for TORM to remain a sustainable business, we must anticipate and adapt to our
ever
-
changing environment
and be ready to seize the
opportunities this brings
.
We face a diverse set of risks and m
anaging
these
systematically is key in order for us to create and protect value over
the short, medium and long term
.
Risk types
Risk assessment is made of the
potential financial, reputational and
compliance impact of individual risks.
Risks are assessed as to whether they
are of a Short
-
term, Recurring or Long
-term (Emerging Risks) nature.
Risk appetite
The Senior Management Team and the
Risk Committee decide on TORM’s risk
appetite for principal risk exposures.
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
66
assessing the safety and quality of a vessel and its
crew on an ongoing basis, but will require a “change
in
mindset” from
the
industry, OCIMF has warned. This
may
negatively impact observation levels.
TORM
allocat
e
s
nresources to implement
the
ew standards
and is well prepared for the more comprehensive
requirement
s. O
il major approval at a low level
risk is
due to continued focus and efficient controls
and is
expected to be reduced once fully implemented
.
IT and cyber security is the risk
rela
ting tosystem
unavailability and data loss due to cyber
-
attack.
Increasing interconnectivity and “commercialization”
of cyber
-
crime are driving a higher frequency and severity of incidents. In addition to loss of customer
data and the impact of business interruption, loss of
reputation can be a cause
for
financial loss for
businesses after a
n
incident. The cyber risk continues to be acknowledged by TORM as a business risk and
not only an IT risk. Mitigating activities include
business continuity plans and
assessment of critical
systems. TORM considers the impact to be limited due
to its business model and current mitigating activities.
TORM
’
s financial gearing, liquidity buffer
,
and break
-
even level have been maintained at an acceptable
level.
However, because of TORM
the ’
s larger fleet,
liquidity exposure and thus
the
risk has increased slightly. Likelihood of sustained low freight rates is
considered to be
a
lower
due to more positive market
fundamentals with low oil in
ventories and demand
expected to return.
Read more about mandates and sensitivity analysis
of the various risks on page 14
8-1
51
EMERGING RISKS
–
CLIMATE
As part of the Enterprise Risk Management process,
long
-
term (emerging) risks are reported to the Risk
Committee, facilitating a discussion and evaluation of
mitigating activities to reduce the uncertainty.
Like other ship operators TORM is subject to the
impact of climate change on its business model. it is
difficult to predict the longer
-
term future given the wide range of potential outcomes associated with the
many variables and varying emissions pathways.
At the more extreme scenarios, the consequences are
potentially severe, with society likely to face
transformational change.
RISK
MANAGEMENT
TOP RISK HEAT MAP
TORM TOP RISKS WITHIN THE COMING
12
MONTHS
–
POST
-
MITIGATION ACTIVITIES
:
Consequences
Worst
case
Major
Moderate
Minor
Min
.
eect
Rare
Unlikely Possible Likely
Frequent
Likelihood
2020
2021
Unchanged
C
B
E
G
F
J
I
H
D
A
H
D
A
I
A
Tanker freight rates
B
Bunker price
C
Asset management risk
D
Oil major approval
E
Severe vessel accident
F
Maritime safety threats
G
Legal compliance
H
IT and cyber security
I
Liquidity risk
J
Terms and sources of funding
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
67
This makes climate change
and the risk faced by
TORM broad in nature. Climate change is likely to have
far
-
reaching consequences for
TORM in the long term
and to impact several areas of core business activities.
TORMs emerging risk
s
are in essence viewed as directly related to climate change. TORM considers
the main long
-
term risks to be: Peak oil demand
Industry
-
changing risks such
as the substitution of oil
for other energy sources
and technological changes
have the possibility to alter the landscape of the
markets that
TORM serves and as such radically
change transportation patterns. In the long term, this
will
most
likely have a n
egative impact on the tanker
markets. When
oil demand will peak is highly
uncertain. According to several prominent oil market
observers,
such as
the International Energy Agency
and WoodMackenzie, there is little reason to believe
that once it does peak, o
il demand will fall sharply.
TORM believes that the demand for oil and oil
-
related
products will phase out over a longer period, which
leaves TORM with time to adjust its business.
To
monitor the risk
,
TORM reports
to the
Risk Committee on the development
of “disruption indicators”
, which
functions
as a
warning sign
as to whether
the strategy
needs to be reconsidered
.
Indicators are adjusted when appropriate
.
During 2021
,
disruption indicator
s
became a reoccurring agenda point at
all
Risk
C
ommittee meeting
s. Technology of vessels
R
equirements from society
and
regulation
to operate
vessels using cleaner technologies pose a transition
risk to TORM and other vessel owners as existing
vessels may
become obsolete earlier than initially
expected
or even render vessels redundant.
Older vessels are considered particularly vulnerable.
Due to magnitude of the risk
,
, through TORM
has
Board Master Classes, sought to
acquir
more clarity e
on
the obstacles
fuel propulsion and timing
of the transition
.
TORMs perception is that there seems to a
number of
obstacles
that needs to be overcome in order for the fuel transition to occur, these are:
1.
The maritime industry is complex, global
,
and
decentr
alized
2.
Current cost gap between conventional fossil
fuels and alternative fuels are high
,
leaving few financial incentives to make the switch
3.
And even if, ship
-
owners wanted to
switch
, the
supply
-
chains of alternative fuels
are
not yet
ready for global distribution to accelerate the
transition.
TORM believes the right path in the short to medium
term is to focus on
improving fuel efficiency
using
existing technologies
.
Through
collaborations and partnerships, TORM will continue to participate in the
long
-
term development to decarbonize the shipping
industry.
Insufficient access to financing
The challenges of new regulation, such as the IMO
2020 sulfur regulation, IMO’s commitment to a 50%
reduction of CO
2
emissions and
other initiatives, such
as the EU Taxonomy
,
may result in a reduced abilityfor vessel owners to obtain equity or debt financing. It
may
also
affect pricing
, due to a potential reallocation
of
funds with
in the
ba
nks and investors available to
shipping. Equity investors, subject to environmental
regimes such as SFDR, are selective and are
increasingly seeking green investments
and
banks
have adopted the “Poseidon Principles” to ensure that
lenders disclose and confront climate change.
N
ot
only
will this impact
TORM
’
s ability to fund
investments, but
it
smaller shipowners, will
impact also
who have historically
bought
of TORM
’s older
. vessels
Navigating these new complex issues may turn out to
be an opportunity for TORM
.
By setting ambitious
emission targets
,
TORM seeks to position itselfwith an
attractive profile for
banks and
investors.
As TORM’s emerging risks develop and become more
tangible to the industry, they may impact several of
the top risks outlined in the top risk heat map. In
particular
,
reduction or acceleration of peak oil
demand could impact the risk related to freight rates.
The technology of vessels could impact the risk
related to asset management
as vessel values may
decline, and the trend
towards
TORM’s stakeholder becoming increasingly affected by climate change
may increase the risk of insufficient access to
financing.
RISK MANAGEMENT
TORM
ANNUAL REPORT 2021
REVIEW
AND RISK
68
RISK MANAGEMENT
Description of t
op
r
isks
Industry or market
-
Operational risksrelated risks
Tanker
freight rate
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 that are
not covered by
corresponding freight
rate increases
Unexpected
value
depreciation
of vessels,
the most exposed
vessels are older
vessels due to new
legislation driven by
the
climate change
agenda
A sudden and
unexpected breach in
quality requirements of
a single vessel or
continuous decrease in
quality across the fleet
A severe vessel
accident such as an
environmental disaster
or material damage or
personal
injury
.
A m
aritime 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 bear the
full effect of price
increases.
Decline with
TORMs
net asset value
, which
can lead to a
requirement fr
om
banks to provide
additional security
.
TORM is also exposed
to cyclical asset prices
and contracted at too
high prices
.
The risk of a partial
ban of the TORM
tanker fleet by one or
more oil majors.
TORM’s involvement in
an environmental
disaster will da
mage
the Company’s
reputation and impair
the
tradability with oil
majors.
Events such as piracy
and terrorism could result
in kidnapping of or injury
to seafarers or vessel
damage.
Mitigating
activities
TORM’s spot
-
oriented
strategy limits
possible
mitigation. Time
charter
-
outs and FFA
coverage are
considered when terms
and pricing are deemed
attractive.
In general, TORM does
not hedge future
bunker expenses.
In
case
freight income is
fixed
,
TORM hedges
future bunker
exposures
With
a conserv
ative
capital structure, focus
on loan
-
to
-
value and
close
view of the
market TORM
maintains flexibility
and an ability to act on
the asset market
TORM’s integrated
platform with in
-
house
safety, technical and
operational staff
secures continued
focus on qu
ality and
high vetting standards
Disaster recovery
plans for emergency
situations are in place.
Ongoing safety
resilience program to
enhance safety culture,
including officers being
trained as “safety
ambassadors”.
TORM’s Trading
Restrictions Committee
ha
s oversight of security
threa
t
s and decides how
best to avoid and
mitigate the risk. TORM
follows all industry best
practices and ha
s
pro
ce
dures in case of an
incident.
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
69
RISK MANAGEMENT
Description of top risks
Compliance risks
Financial risks
Legal compliance
IT and cyber security
Liquidity risk
Terms and sources
of funding
Risk
Legal or policy non
-
compliance or
ethical misconduct. The risk consist
s
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.
I
nability to obtain equity or debt
financing on attractive terms due to
a narrower range of ba
nks and
investors being willing to support
the shipping industry with the usual
funding structures.
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 maneuverability.
Inability to grow the business or
maintain the current average fleet
age. TORM’s lon
g-
term profitability
will be negatively impacted.
Mitigating
activities
Compliance and awareness training
is mandatory for all employees.
I
n
connection with
sanctions
, a
know
-your
-
customer screening system is
implemented.
Business continuity plans
imp
lemented covering the entire
group. Plan includes assessment
and contingency of critical systems
in case of business interruption
.
Continuous focus on capacity to
detect and react on cyber
-
attacks.
Conservative financial leverage
guided by
short
-
and long
-term cash
flow forecasting with stress
-
testing
of critical assumptions. Constantly
maintaining a tangible catalogue of
available liquidity enhancing
initiatives
TORM has a conservative capital
structure profile and has access to
multiple fun
ding sources. TORM has
no larger debt repayments until
2026
TORM
ANNUAL REPORT 2021
REVIEW AND RISK
70
TORM
ANNUAL REPORT 2021
GOVERNANCE
70
GOVERNANCE
GOVERNANCE INTRODUCTION
Chairman’s Introduction
GOVERNANCE STRUCTURE
TORM’s Governance Structure
Board of Directors
Board and Committee Meeting Attendance
Board Activities
COMMITTEE REPORTS
Audit Committee Report
Risk Committee Report
Nomination Committee Report
Remuneration Committee Report
OTHER
Investor Information
Engagement and Decision Making
Directors’ Report
Statement of Directors’ Responsibilities
Safe Habor Statement
GOVERNANCE
TORM
ANNUAL REPORT 2021
GOVERNANCE INTRODUCTION
71
C
HAIRMAN
’S STATEMENT
Throughout 2021 as in 2020, the challenges of COVID
-
19 have once again prove
n
the reliability of the One TORM platform. I am pleased that TORM as an
organization has been able to adjust operationally,
socially, and managerially to the demands of the
pandemic. In these circumstances, the
quality of
leadership, the strength of board membership, and the
value of our relationships with employees, customers,
suppliers, and local communities demonstrate their
importance.
As Chairman, I am pleased to confirm that
also
in 2021
TORM
responded strongly to
all
challenges
through the
One TORM platform and the deliverance of strong
corporate governance. In the following paragraphs
,
I
have tried to provide some deeper insight into
our
performance.
Board
leadership
The Board continues to focus on promoting the long
-
term sustainable success of
TORM
, having regard to wider stakeholder interests. This includes contributing
to the wider needs of society.
In there were
2021
, no changes to the Board of
Directors, however, TORM sa
id
goodbye to Torben Janholt, a Board observer and former Director. The
membership of the Board is drawn from a diverse mix
of nationalities, gender
,
and backgrounds
which
bring
the relevant skills and knowledge to provide a positive
contribution to the Board.
T
ORM’s
Aperformance as outlined in this
nnual
R
eport,
demonstrates the success of this focus by the Board
and our Chief Executive
Officer
, Jacob Meldgaard. With
the Chief Executive’s leadership and the
S
enior
M
anagement
Team fully supported by the Directors, I
am confident that TORM’s Board of Directors is well
placed to lead the successful growth of
TORM
going
forward.
Shareholders
The relationship with our shareholder
s is of
fundamental importance
.
Despite the pandemic, TORM has ensured consistent communication and
development through continued quarterly reporting,
stock exchange announcements and analyst and
industry investor meetings. With the restrictions
imposed by
the pandemic, TORM has also organized
and conducted conference calls and investor
presentations through the use of digital platforms.
TORM believes that its transparent company structure
and corporate governance principles enhance the
attractiveness of it
s shares.
Employees
TORM us
es
every opportunity to
ensure that all our
seafarers have the opportunity to be
vaccinated. In
various ports in the US and Europe, TORM has
successfully conducted vaccination drives for our
vessels and has vaccinated more than
1,000 crew
members.
In 2021,
during the pandemic,
TORM
introduced the
“
Well at TORM”
program aimed at focusi
ng on the wellbeing of our seafarers
.
Read more about TORM's
People
on page
41 Customers
The relationship
with our customers continues to be
strong.
TORM’s modern and well
-
maintained fleet with m
ajority
of the vessels being scrubber
-fitted further
provides TORM and its customers with enhanced
flexibility as well as reduced fuel costs.
Suppliers
Throughout 2021 and the continued pandemic, the
maintenance
of strong, reliable supply chains has been
essential. We continue to create jointly valuable
relationships with our suppliers by encouraging best
practice
,
and
we expect that our suppliers comply
with
recognized international standards and work to
improve human rights, labor conditions, impact on the
environment, safety, corruption, and
quality
.
CHAIRMAN’S
INTRODUCTION
Governance Introduction
TORM
ANNUAL REPORT 2021
GOVERNANCE INTRODUCTION
72
Community
As a
c
ompany, we have a history of supporting the
communities in which we work and the needs of
the
people we serve.
Read more a
bout TORM's connection to the
surrounding communities
on page
s 45-46
Sustainability
Environmental, Social and Governance ha
ve
become a major
focus area for the Board and was discussed
widely throughout 2021. I am pleased that
as TORM
announced
in
Januar
y 2022
,
TORM became a Missions
Ambassador of the
Ma
erskMcKinney M
ø
ller Center for
Zero Carbon Shipping and continues to be an active
member of
Danish Shipping,
with the aim to impact the
decision making in IMO on the ongoing discussions on
the implementation of CO
2
related regulations
. T
ogether with TORM’s Management, the Board ha
s been working with masterclass sessions
encompassing
subjects
such as
future fuels and next generation LR2
vessels, but also on more near
-
term potential challenges, such as the access to capital markets.
As a
company
,
TORM consider
s it a priority to deliver
measurable and reportable performance in all key
areas
.
Following a thorough review
, TORM
has
set a target to
reduce its relative CO
2
emissions by 4
5% by 2030
compared to IMO’s 2008 baseline and be climate
neutral
from operating our fleet
by 2050.
To support th
is ambitious
target
, TORM
’s
will bemanagement
measured on achieving
it.
Read more about TORMs ESG journey from page 3
2
The year ahead
In the year ahead, the Board will among other topics
again
focus on
ESG
, where TORM will investigate the
potential of green business adjacencies that can co
-
create long
-
term value and optionality for TORM
. The focus will also be on
a
dvanced analytics and applied AI
competences
a
s well as
disruptive indicators, such as
oil demand, mobility, biofuels co
nsumption and
their
effect on peak oil demand.
Read more about TORMs focus on adjacent business
on page
22
Christopher H. Boehringer
Chairman of the Board
CHAIR
MAN’S INTRODUCTION
TORM
ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
73
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 r
egularly 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
N
on
-Executive Director are given
due consideration
.
Available to both
N
on
-Executive
D
irectors and shareholders if they
have concerns
.
M
ee
Nts with each
on
-Executive
Director
on an annual basis
to
appraise the performance
of the
Chair
man
.
Non
-
Executive Directors
Committed to contribut
ing
constructively
,
challenge and help
develop proposals on strategy
.
Executive Directors
Responsible for the
day
-
to-
day
management of
TORM
,
and
r
esponsible 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
,
p
roviding
a
communication
platform between the employees
and the Board of Directors
. Minority
Board Observer appointed by the B
Shareholder
and Board Member
elected.
All observers are entitled to
attend and speak at Board
meetings.
Aud
it 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.
Read more about the role and
activities of the
Audit Committee
on
page
s 79
-
80
Risk Committee
Chaired by Göran Trapp
Meets a minimum of
three
times
a year
.
R
esponsible for supervisory oversight and
monitors responsibilities with respect to
internal controls and risk management
Read mo
re
about the role and
activities of the Risk Committee on
page
85
Nomination Committee
Chaired by Christopher
H.
Boehringer
Meets a minimum of tw
ice
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 oth
ers.
Read more
about the role and
activities of the Nomination
Committee on page
s 87-
88
Remuneration Committee
Chaired by C
hristopher
H.
Boehringer
Meets a minimum of tw
ice
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 Remuneration
Committee on page
s
89
-90
Senior Management Team
Consists of the following employees
of
TORM A/S (in addition to the Executive Director
,
Jacob Meldgaard
): Kim Balle (Chief Financial Officer
–
CFO), Lars Christensen (Senior Vice President and
Head of Projects) and Jesper S. Jensen (Senior Vice President and Head of Technical Division). The Senior Management Team holds weekly meetings. Assists the Executive Director in the day
-
to
-day management
of the business.
TORM’S
G
TRUCTUREOVERNANCE
SGovernance
s
tructure
TORM
ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
74
M
ANAGEMENT STRUCTURE AND DELEGATION OF
AUTHORITY
TORM’s Board
of Directors
sets
TORM’s
strategy and
ensures that Management operates the business in
accordance with this strategy. Details of the strategy
and purpose are set out in the strategic report on
pages
16
-30
. The Board of Directors has delegated the
day
-
to
-day management of the business to Executive
Director Jacob Meldgaard. This includes
TORM’
s
operational development and responsibility for
implementing the strateg
y
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 appr
ovals 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.
C
OMPLIANCE
WITH THE UK CORPORATE
GOVERNANCE CODE
In
respect of the year ended 31 December 2021
,
TORM
Plc was subject to the UK Corporate Gove
rnance
Code
(available from www.frc.org.uk). TORM has considered
the individual provisions and is compliant with 39 out
of 41 provisions. The non
-
compliance with provisions 18 and 32
is
because of business decisions taken after
careful consideration by the Board of Directors.
No
plan is currently in place to attain compliance with the
below recommendations. In depth details on the non
-
compliance can be found on pages 87 and 89.
TORM Corporate Governance Statement on
www.torm.com/investors/governance
Board Leadership and Company Purpose
Long
-
term value and sustainability
P.
78
Culture
P.
37,
47Shareholder engagement
P. 35,
10
5
Other stakeholder engagement
P. 35,
10
5
Conflicts of interest
P.
28,
88Division of
Responsibilities
Role of the Chairman
P. 74
Division of responsibilities
P. 74
Non
-
Executive Directors
P. 74
Independence
P. 53, 88
Composition,
succession,
and evaluation
Appointments and succession planning
P.
88
-89
Skills,
experience,
and knowledge
P. 76, 88
Length of service
P. 76
Evaluation
P. 89
Diversity
P. 43, 89
Non
-
compliance
P. 88
Audit, risk and
i
nternal control
Committee
P.
80
-85
Integrity of financial statements
P.
112, 167
Fair, balanced
,
and understandable
P. 83
Internal controls and risk management
P. 84
External auditor
P. 84
Principal and emerging risks
P.
66
-70
Remuneration
Policies and practices
P.
90
-100
Independent judgement and discretion
P. 93
Non
-
compliance
P.
90
Alignment with purpose, values and
long
-
term strategy
P. 9
1
, 9
3 TORM’S GOVERNANCE STRUCTURE
TORM
ANNUAL REPORT 2021
GOVERN
ANCE STRUCTURE
75
Christopher H Boehringer
Non
-
Executive Director and
Chairman of TORM’s
Board of Directors
David Neil Weinstein
Senior Independent Director and
Deputy Chairman of TORM’s Board
of Directors
Göran Trapp
Non
-
Executive Director
Annette Malm Justad
Non
-
Executive Director
Jacob B Meld
gaard
Executive Director and
Chief Executive Officer
Nationality:
Canadian
Nationality:
American
Nationality:
Swedish
Nationality:
Norwegian
Nationality:
Danish
First e
lected
:
2015Appointed
:
2015
, continues until
removed by the
B-
shareholder
First e
lected
:
2015
First e
lected
:
2020
First e
lected:
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 plc 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,
M&A,
risk oversight, extensive public
company and corporate governance
experience,
US listings
(
i.a.
Seadrill Ltd,
Stone Energy Corp,
and
Deep Ocean
Group
)
and as M
anaging
D
irector
of
Calyon Securities Inc, BNP Paribas,
Bank of Boston and Chase Securities
Inc.
Global Business
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 tradi
ng
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 & experience:
Shipping,
customers, strategy, capital, M&A,
US listing. Previously served as
Executive Vice President of
Dampskibsselskabet NORDEN
A/S
and held a number of management
positions in J. Lauritzen A/S and A.
P. Møller
-
Maersk
External appointments:
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,
PowerCell Sweden AB and
RECSilicon ASA
External appointme
nts:
Chairman of
the Board of Danish Shipping and
Grant Compass A/S
and Board
member of Danish Ship Finance,
SYFOGLOMAD Ltd, and the TORM
Foundation
Committees:
Committees:
Committees:
Committees:
Committees:
None
Audit:
Risk:
Nomination:
Remuneration:
Chairman:
BOARD OF DIRECTORS
C
C
C
C
C
TORM
ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
76
BOARD
AND
COMMITTEE MEETING ATTENDANCE
Board
Audit
Committee
Risk
Committee
Nomination
Committee
Remuneration
Committee
Meetings held in 2021
1)
1 0 5 3 2 7
Chairman of the Board
Christopher Boehringer
Senior Independent Non
-
Executive Director
David N Weinstein
Executive Director
Jacob Meldgaard
Non
-
Executive Independent Directors
Annette Malm Justad
Göran Trapp
Board Observers
Christian Gorrissen
Jeffrey S Stein
Rasmus J Skaun Hoffmann
)
Please note that all Board and Committee meetings in were held virtually due to the COVID
-
pandemic
Board of Directors:
Audit:
Risk:
Nomination: Remuneration: Chairman:
C
C
C
C
C
`
TORM
ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
77
The Board
of Directors
’
activities are focused around TORM’s strategic
a
mbitions and a transparent governance framework. The t
opics
below set out the key areas of focus for the
B
oard during 2021.
TORM’s governance structure is described on pages
73-74
Learn more about the activities of the Committe
e
s
on page
79
-99
LEADING PRODUCT TANKER OWNER
In continuation of the past years’ fleet renewal and fleet
growth
,
TORM’s
Management and Board of Directors
have
been involved in a number of vessel acquisitions.
The purpose is to maintain the position as
a leading
product tanker owner with a modern fleet capable of
utilizing the commercial opportunities in the market.
Acquisition
of eight MR vessels
During 2021
,
TORM acquired eight MR vessels of which
six of them were with extended tank segregation (IMO
2) making them capable of chemical trading.
Although
product tanker activity is the main purpose of these
vessels, it may become convenient that the vessels
have
more capabilities going forward. The transaction
was closed on a part
ly
cash and part
ly
share basis.
Acquisition
of three LR2 vessels
Three 2015
-
built scrubber-
fitted LR2 vessels were acquired in June
2021
to support TORM’s ambition to
increase long haul optimized vessels. Refinery closures
in many regions is likely to increase the need for these
larger vessels making them a good fit for TORM’s
future strong commercial performance
.
Financing
The
main part of the
orfunding f
these additional
vessel
s
was acquis
s ition
made as
bank financing,
however
,
during 2021
, TORM engaged in a number of
sale and operating leaseback arrangements
both
as
part of strengthening the liquidity position to prepare
for fleet growth opportunities, but also
as part
of de-
risking the balance sheet for the longer term. T
ORM
has a strong focus on the long
-
term risk of asset values, so operational leasing of assets is a means to
reduc
e
this risk with an acceptable increase in financial
expenses.
Changes in oil markets due to
COVID
-
19 lockdowns
As a consequence of the product stock building we
saw in 2020, the Board of Directors has had an
increased focus on the market development. The
downward pressure on freight rates increased the need
for companies to be robust. The Board of Directors has
been updated on the capital structure and liquidity
position of TORM and as a precautionary measure
,
it
has at any given time a catalogue of
liquidity enhancing
initiatives
, should that ever be
required. During 2021
,
TORM
supplemented
the physical trading
in the tanker market with trading
FFAs
(Forward
Freight Agreements) in the paper markets. The Board
of Directors has been in close dialogue with
TORM on
the benefits and risks related to these transactions.
GREEN FUTURE W
ITH A ZERO EMISSION AMBITION
T
hroughout the year
, ESG has
been high on the agenda
of the Board of Directors and TORM’s first dedicated
ESG report was released in March 2021. Since then, the
Board of Directors ha
s
been working with ESG related risks and sol
utions in many ways.
Deep dive on ESG
ESG experts from banks and investors were invited to
share their knowledge on how investors and lenders
will change their approach to allocating capital to
companies. There is an increasing focus on the green
transiti
on, and for TORM to remain attractive as a debt
and equity funding target, it is important to be leading,
when it comes to reducing emissions here and now and
engaging in collaborations for
a
long
term zero -
emission business model.
Disruption
Indicator
mo
del
T
he Risk Committee
s ha
significantly
intensified the
work with disruption indicators. Certain indicators, such
as oil demand,
mobility
,
Electric Vehicle uptake and
biofuel consumption etc., will be monitored and
measured against targets set by for instance IEA. If the
indicators suggest a more aggressive development
towards peak oil, the Board of Directors may consider
additional analysis to be made to assess whethe
r it will
impact the assumptions underlying TORM’s strategy.
BOARD
ACTIVITIES 2021
TORM
ANNUAL REPORT 2021
GOVERNANCE STRUCTURE
78
Board
Masterclasses
It is the priority of the Board of Directors to keep
knowledgeable of
the
development of new fuels and the implications to TORM. During the year
, a
mber of nu
sessions were set up to educate the Board on themes
such as Power
-
to
-X, future renewable energy capacity,
carbon capture, different fuel types
,
and regulatory considerations. These masterclasses have been an
important way for the Board to understand the risks
and opportunities
which
lie ahead and will
be used in
the future
strategic work.
Meeting
industry requirements
Regardless of the fuel
which
TORM will transport in the
future, it is important that TORM is a leader in reducing
emission
s
today.
That companies like TORM f
ollow industry requirements is a ticket to play in the capital
markets,
since
investors and lenders will become more
and more selective, when
allocating capital.
After the
end of 2021
,
TORM announced that the IMO 2030 goal of reducing emission by 40% will be reached already in
2025,
underlining
that TORM has already
accomplished
a lot on fuel optimization and reducing CO
2
emissions.
Strategically
important long
-
term collaborations
I
ndustry collaborations are the cornerstone of the long
-term sustainability of the shipping industry.
During
2021
,
the Board of Directors has together with
M
anagement assessed
the
initiatives
which would be
right for TORM to participate in for getting influence
and insight. Already being a member of the Getting to
Zero Coalition
,
TORM naturally signed up to the Call to Action for Shipping Decarbonization to urge
governments to: 1) Commit to decarbonizing
international shipping by 2050. 2) Support industrial
scale zero emission shipping projects through national
action. 3) Deliver policy measures
which
will make zero emission shipping the default choice by 2030.
At the end of 2021
,
TORM took another step on the strategically important path of decarbonizing by
signing up to
the Mærsk McKinne
y Møller center for
zero carbon shipping. Being a Mission Ambassador
,
TORM underlines the dedication to find solutions for a
greener future.
SUPERIOR
O
LATFORMPERATING
PWith COVID
-
19 still having a significant say in the
g
lobal agenda, i
t is inevitable that it will be a part of
companies
’
operational challenges
.
It sets high
requirement
s
for performance of the c
ommercial and
technical
departments, and maximum visibility of the
entire value chain is very important.
Vaccination of seafare
rs
T
hroughout the pandemic, the Board of Directors ha
s been informed about the situation and
the measures
taken
by
TORM to mitigate risks and challenging
scenarios. It is clear to the Board of Directors
that
h
aving all business
-critical functions in
-house
is a great
benefit in a world with different and constant
ly
changing restrictions. As examples, crew change and
vaccination of seafarers
are
simply easier to optimize with your commercial activities
when
you are in full
control of both commercial and technical management.
AI initiative
In TORM’s efforts to run a reference product tanker
platform
,
TORM consolidated the ongoing AI projects
into a uniform organizational set
-
up during 2021. TORM
is working on several AI initiatives, where two of them
ar
e the vessel positioning project and route
optimization project.
T
o ensure world class solutions,
TORM has teamed up with a deep subject matter
external advisory board consisting of specific AI
experts. The purpose is to maintain a leading position
in
the prediction of
which global basins to deploy our
vessels
in
and to strengthen TORM’s voyage
optimization algorithm modelling by creating an in
-
house domain for detailed valuable data that will end
up in fuel savings, CO
2
emission reductions and
superior commercial performance. The Board of
Directors sees the initiative as a natural next step for
TORM to remain the reference company when it comes
to commercial performance.
BOARD ACTIVITIES 2021
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
79
AT A GLANCE
Chairman
Göran Trapp
Members
Annette Malm Justad
David Weinstein
Composition
The
Audit
Committee is composed solely of
independent Non
‑
Executive Directors.Meetings
The
Audit
Committee had five scheduled meetings
in 2021. Attendance by members at Committee
meetings can be seen on
page
76
. 2021 highlights
•
Q
uarterly assessment of the impairment
indicator test of the vessels in the fleet
•
G
oing concern assessment
and viability
statements
CHAIRMAN’S STATEMENT
This report provides an overview of how the
Audit
Committee
operates, an insight into the
Audit Committee’s activities and its role in monitoring and
reviewing the integrity and quality of
TO
RM’s
financial
statements, the
effectiveness of internal controls
,
and
related processes.
THE
ROLE
OF THE AUDIT
COMMITTEE
Read more about the Audit Committee’s area of
responsibility on page
73
Terms of Reference for the Audit Committee on
www.torm.com/investors/governance
AUDIT
C
OMMITTEE MEMBERS
T
he Board is satisfied that the Audit Committee meets
the independence requirements and any applicable
laws, regulations and listing requirements, including the
UK Corporate Governance Code.
The Audit
Committee has deep knowledge and
significant business
experience in financial reporting,
risk management, internal control, and strategic
management. This combined knowledge and
experience enables us to perform our duties properly.
In addition, the Board of Directors believes that the
members of the
Audit Com
mittee have the relevant shipping sector knowledge. In the
opinion
of the Boardof Directors, the Chairman of the Audit Committee,
Göran Trapp
,
meets the requirement of bring
ing
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
.
T
he Chief Financial Officer of TORM A/S, the Head of
Group Reporting, Compliance and Tax of TORM A/S
together with senior representatives of
TORM’s
independent auditor
s
are invited to attend all or parts
of the meetings by invitation as appropriate.
BUSSINESS UPDATES
•
Quarterly overview of the product tanker market
conditions and its impact on the quarterly results
•
Regular operation updates on matters arising due
to the COVID
-
19 pandemic and roll out of staff vaccinations
•
Delivery of the eight MR product tanker vessels
acquired and
successful in
stall
ation of scrubbers
on 52 of our vessels till the date of this report
,
with another
four
installations scheduled to be completed by the end of 2022. In addition, one
scrubber is scheduled to be installed in the first
quarter of 2023. Upon completion, 5
7 vessels will
be fitted with scrubbers, with the remaining
vessels continuing to use compliant fuels with
0.5% sulfur content.
•
Review of the sale and leaseback transactions
for
the vessels
AUDIT COMMITTEE REPORT
Committee Report
s
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
80
PRINCIPAL ACTIVITIES IN FOCUS
Financial reporting
•
Key elements of the Quarterly Reports and Annual
Report and the estimates and judgements included
in TORM’s financial disclosures
•
The appropriateness of Management’s and the
external auditor’s analysis and
conclusions on
judgmental accounting matters
•
An assessment of whether the Annual Report,
taken as a whole, is fair, balanced, and
understandable and whether our US annual report
on Form 20
-
F complies with relevant US regulations with focus on clarity of disclosures,
compliance with relevant legal and financial
reporting standards and application of appropriate
accounting policies and judgements
•
The going concern assessment and adoption of the
going concern basis in preparing the Annual
Report and financial statements
•
The external auditor’s reports on its audit of the
financial statements, and reports from
Management, the internal auditors, and the
external auditor on the effectiveness of our system
of internal controls and our internal control o
ver
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 litigatio
ns, claims, and investigations
from tax authorities
•
Compliance review of the UK corporate
governance recommendations
•
The appropriateness of the Enterprise Risk
Management Report representing critical risk
factors, its ownership and governance
,
and
alignmen
t with the Risk Committee
•
Concerns raised through the whistleblowing
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 extern
al
auditor’s audit plan
•
Reviewing reports from the external auditor over
key audit and accounting matters, and business
processes internal controls and IT systems.
•
Agreeing the audit and non
-
audit fees of the
external auditor during the year, including the
objectivity and independence of the external
auditor
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
81
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
M
t are reasonable and anagemen
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
anagement’s M
assessment of
the
basis for preparing
TORM’s
financial
statements on a go
ing concern basis. This included
reviewing and challenging
M
anagement’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
preparat
ion of the quarterly reports and year
end -
financial statements continued to be appropriate, with
no material uncertainties. The going concern statement
is set out in the Directors’ report on page
107
. For further information see Note
1
to
the financial
statements.
IMPAIRMENT REVIEW OF VESSELS
The
impairment review of
TORM’s
vessels
is a key
recurring risk due to its significance in the context of
TORM’s
net asset value.
The
Audit
Committee received
and considered a paper from
M
anagement covering the judgements made in respect of the impairment
testing of the carrying amount
of
TORM’s vessels in the fleet within three
cash
-
generating unit
s (
CGU
)
s, being
the Main Fleet (LR2/LR1 and MR vessels) and the two
Handysize vessels.
This issue was discussed and reviewed with
Management and the independent auditors, and the
Audit Committee challenged judgements and sought
clarification where necessary. ote 8 to
As explained in
Nthe financial statements, it was concluded not to
conduct
any impairments on each of the CGU
supported by the DCF value for the
Main Fleet
and the two
Handy
size vessels
.
To determine whether a CGU is impaired, Management
assesses whether there are any indicators for
impairment or reversal of impairment of the vessels in
the CGUs. If such indicators exist, the future discounted
net cash flow deriving from the CGUs must be
estimated. These estimates are based on several
assumptions including future freight rates, estimated
operating expenses, weighted average cost
of capital
(WACC) and level of inflation.
Management has assessed that TORM has
three
CGUs
within its single reporting segment
–
The Tanker Segment
–
the largest of which is its Main Fleet
(comprising LR1/LR2 and MR vessels). The Main Fleet is
a single c
ash generating unit because the vessels in the
Main Fleet are largely interchangeable and the cash
flows generated by them are interdependent. These
vessels are operated collectively as a combined internal
pool, employed principally in the spot market and
actively managed to meet the needs of our customers
in that market, particularly regarding the location of
vessels meeting required specifications and the price of
transport rather than vessel type. Given the technical
specifications and capacity of vessels, the Main Fleet is
relatively homogenous with a very high degree of
interoperability.
The
MR
vessels acquired in
with 2021
chemical trading capabilit
ies are
operated as
other all
product tanker vessel
s
and thus included in the Main
Fleet.
The other groups of CGUs outside the Main Fleet
comprise the two Handysize vessels (which are
typically used for shorter and coastal trade routes and
more frequent port calls, including for transportation of
various clean petroleum products within Europe and in
the Mediterranean).
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM
ANNUAL REPORT 2021
COMMI
TTEE REPORTS
82
Management prepared a detailed impairment test for
the Audit Committee setting out the key assumptions
for the CGUs. The Audit Committee challenged these
assumptions and judgements to ensure that all material
factors were included. Further, the Audit Committee
discussed the sensitivity analysis and other disclosures
in the Annu
al Report. The Audit Committee noted that
the freight rates in the years 202
2-
202
are consistent 4
with the long
-
term planning assumptions used by TORM
and
includes the impact from climate changes
and climate agenda on the global oil demand. Further,
the Audit Committee discussed with Management the
freight rates beyond 202
4
are based on TORM’s which
10
-
year historical average spot rates adjusted for
estimated scrubber premiums consistent with last year.
The Audit Committee was satisfied with the freight
rat
es applied.
The Audit Committee reviewed the key parameters in
the standard Weighted Average Costs of Capital model
and was satisfied that the rates used to discount future
cash flows appropriately reflected current market
assessments of the time
,
value of money,
and the risk associated with the CGUs concerned.
The Audit Committee was satisfied that future cash
flows related to operating expenses appropriately
reflected current market assessments. The Audit
Committee was satisfied that the most
material
assumptions on which the impairment assessment is
based are appropriate.
For further description, please refer to
N
ote
8
the to
financial statements
.
REVENUE RECOGNITION
The revenue recognition policy was discussed and
agreed to have no changes. Revenue is recognized
upon delivery of services in accordance with the terms
and
conditions of the charter parties and is made
based on
“
load to discharge”
, and demurrage is recognized with up to 95% until actual realization.
Accordingly, no
revenue
is recognized for the days
incurred during a vessel’s positioning voyage to a load
port.
DEPRECIATION POLICY AND RESIDUAL VALUE OF
VESSELS
The
Audit
Committee noted and agreed that the
accounting policy of depreciating vessels
over years
25
was appropr
iate and in line with TORM’s peers. The
residual value was calculated based on two elements:
scrap values that were reviewed on a yearly basis and
cost of voyage to the scrapping place. Management
recommended
to gradually phase
-
in the green
scrapping pric
es in the calculation as the market
matures.
It was agreed by the
Audit
Committee that TORM would incorporate the green recycling prices in the
calculation of residual values by applying
an average of
green scrapping and conventional scrapping
and still
us
ing
a three
-year average to limit volatility in the
residual values.
FAIR, BALANCED, AND UNDERSTANDABLE
ASSESSMENT
At the request of the Board of Directors,
the
Audit
Committee undertook an assessment of this Annual
Report to ensure that, taken as a who
le, it is fair,
balanced, an
understandable
and that it provides the
information necessary for shareholders to assess
TORM’s position and performance, business model and
strategy
.
The
Audit
Committee received an early draft of the
Annual Report to review its proposed content and the
structural changes from the Committees Report prior
year and to undertake a review of the reporting for the
year, following which the Committee members
provided
their individual and collective feedback. In
addition, in accordance with its terms of reference, the
Committee (alongside the Board of Directors) took an
active part in reviewing TORM’s quarterly reports and
considered TORM’s other public disclosures.
The processes described above allowed the Committee
to provide assurance to the Board to assist it in making
the statement required of it under the UK Corporate
Governance Code, which is set out
on
page
. 74
EFFE
C
TIVENESS
In 202
1
, the Audit Committee carried out a detailed self
-
assessment by way of
a
questionnaire and
discussions facilitated by the Head of Group Reporting
,
Compliance and Tax. Based on the self
-
assessment, no material concerns arose.
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
83
I
NTERNAL AUDIT
The Audit Committee assesses the need for an internal
audit function on an annual basis and makes a
recommendation to the Board of Directors. The Audit
Committee was satisfied that based on
TORM’s
size,
complexity and its internal control environment,
TORM
can defer the establishment of an internal audit
function but must revisit the decision in 2022.
Further, the Audit Committee supported the use of an
external audit firm to review selected areas when
required or requested by the Audit Committee and/or
TORM’s Management. In the absence of an internal
audit function, internal assurance is achieved through
the work of Group Internal Control and Price
Waterhouse Coopers
’
testing of the internal controls. This has not affected the work of the external audit.
The
Audit
Committee is satisfied that the internal audit
arrangements
continue to provide effective assurance
o
f 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
.
IN
TERNAL CONTROLS AND
RISK MANAGEMENT
The
Audit
Committee has the primary responsibility for
the oversight of
TORMs’
system of internal control, including the risk management framework, the
compliance framework,
and the work of the
nternal i
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
65-69.
The Board of Directors fulfils its responsibility
regarding effectiveness of the risk management and
Internal Controls over Financial Reporting (ICFR)
through the Audit Committee. As a result of the US
listing on Nasdaq in
New York
in 2017, TORM was
required to become compliant with the Sarbanes
-
Oxley
Act (SOX) resulting in increased regulatory
requirements. Therefore, Management has, together
with the Audit Committee, focused on ensuring that
the ICFR meet all relevant requirements.
The ICFR are based on the Internal Control
–
Integrated
Framework 2013 issued by the Committee of
Sponsoring Organizations of the Treadway
Commission (COSO), which ensures
the
enabling of
best practice and
a
strong control environment. The oversight by the Audit Committee includes the
recurring reporting, including management oversight
and the outcome of management testing.
Having monitored
TORM’s
risk management and internal controls, and the effectiveness of the material
controls, the
Audit
Committee has not identified any significant failings and weaknesses in
TORM’s
internal
control structure during the year.
TORM
are an
"emerging growth company", as defined in the JOBS
Act, and
we
are not required to comply with the
auditor attestation requirements of Section 404
(b)
of
Sarbanes
-
Oxley for up to five years. We are now in the
fi
nal year in the five
-
year period.
EX
TERNAL
AUDITOR
The
Audit
Committee has primary responsibility for
overseeing the relationship with the external auditor,
Ernst & Young LLP (‘EY’).
This includes making the recommendation on the
appointment, reappointment, and removal of the
external auditor, assessing their independence on an
ongoing basis
,
approving the statutory audit fee, the scope of the statutory audit
,
and the appointment of the lead audit engagement partner. Lloyd Brown has
held this role since the appointment of EY in
2020
.
During the year
,
EY reported to the
Audit Committee
on their independence from . The
TORM
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
Committ
ee has recommended to the Board of Directors
the re
-
appointment of the external
a
uditors for the 2022 financial year
,
and the Board of Directors will be
proposing the re
-
appointment of EY at the upcoming
AGM.
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COMMITTEE REPORTS
84
Effectiveness of the external audit process
The
Audit
Committee reviewed the quality of the
external audit throughout the year and considered the
performance of EY by undertaking an annual review of
the performance of the independent auditors by a
combination of discussions with Management, the
quality of written deliverables to the Audit Committee
,
and the quality of dialogue and insights provided
during Audit Committee meetings. The findings of the
survey were considered by the
Audit Committee
,
and
it
agreed that the audit process, independence
,
and
quality of the external audit were satisfactory.
Based on these reviews, the
Audit Committee
concluded that there had been appropriate focus and
challenge by EY on the primary areas of the audit
,
and
that EY had applied robust challenge and
skepticism
throughout the audit.
Auditor independence and objectivity
In its assessment of the independence of the auditor,
and in accordance with the standard on independence,
the
Audit
Committee receiv
ed
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
law
s and regulations.
The
Audit
Committee maintains a policy an
d has pro
-
cedures in place for the pre
-
approval of all audit ser-
vices, audit
-
related services and other services under
-taken by the external auditor. The principal purpose of
this policy is to ensure that the independence and the
objectivity of the external auditor is not impaired.
The
policies
include restrictions on the types of services
which the independent auditor can provide, in line with
the Ethical Standard published by the UK Financial
Reporting Council (FRC). Details of the services
which
the independent auditors cannot be engaged to
perform were provided to the Audit Committee at the
November 202 A copy of
1
Audit Committee meeting.t
he policy can be made be available on request.
Audit and non
-
audit fees Full disclosure of the audit and non
-
t fees paid audi
during 202
1
can be found in
N
ote 4 to the financial
statements.
Audit fees:
USD 0.
8m
Non
-
audit fees:
USD 0.2m
The independent auditors may be contracted to
perform certain non
-
audit activities. The Audit Committee believes
that
this can be performed without compromising the auditors’ independence and
objectivity. The Audit Committee will allocate the non
-
audit work after considering
TORM’s
policy on the provision of non
-
audit services by TORM’s
auditors.
A
copy
of the pre
-
approval procedures can be made
available on request.
Fees relating to the provision of non
-
audit services by EY amounted to USD 0.
2
m corresponding to 27
% of the total cost and related primarily to
requested
additional of certain internal controls and the legacy
tax service immaterial to the Group. The Audit
Committee considered that such services were most
efficiently provided by the external auditors, as much
of the information used in performing such work was
derived from audited financial information.
To
maintain
the external auditors’ independence and objectivity, the
external auditors did not make any decisions on behalf
of Management.
Whistleblow
er
TORM’s w
histleblower
p
olicy, which supports the
groupwide Business Principles, is monitored by the
Audit Committee.
Read
more about
TORM’s whistleblower policy here:
www.torm.com/investors/governanc
e/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 a
s 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 Co
mmittee
Göran Trapp
Chairman of the Audit Committee
23 March 2022
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85
AT A GLANCE
Chairman
Göran Trapp
Members
Annette Malm Justad
David Weinstein
Christopher Boehringer resign
ed
in January 2021Composition
The
Risk
Committee is composed solely of
independent Non
‑
Executive Directors.
Meetings
The
Risk
Committee had three scheduled meetings
in 202
1
. Attendance by members at Committee meetings can be seen on
page
76
.
202
1
highlights
•
Risk
m
anagement review of TORM’s policies
on
i
nsurance, IT,
f
inancial
instruments, its
and
financial policy
•
Revie
w
of TORM’s capital structure risk
•
Review of TORM’s
governance on maritime
safety threats
•
Review and approval of
e
nterprise
r
isk
m
anagement report
CHAIRMAN’S
S
TATEMENTIn 20
21
, the Risk Committee had special focus on
liquidity and financing activity to mitigate
TORM
’
s risk
in relation to
the
ongoing COVID-
19 pandemic
.
A
special focus area
w
as
the
risks related to interest rate
derivatives trading where the target hedge level was
updated
. Another focus area was
the risks related to
customer credit risk
with
particular focus on ensuring
an efficient and accurate credit risk policy
.
TH
E R
OLE OF THE
R
ISK
COMMITTEE
Read more about the
Risk
Committee’s area of responsibility on page 73
Terms of Reference for the Risk Committee on
www.torm.com/investors/governance
A
CTIVITIES DURING THE YEAR
At each meeting, the Risk Committee follows up on key
risk indicators to ensure alignment of risk tolerance and
actual risk level. These measures include the risks
described in the Risk Management section and
monitoring of the compliance with internal mandates
,
such as FFA derivatives level, refinance risk, interest
rate hedge level, credit risk and Time charter position
.
Further,
a
liquidi
ty forecast is presented at each
risk committee meeting
.
Spe
cial focus areas covered in 202
1
were:
Pr
olonged
COVID
-
19
The prolonged COVID
-
19 pandemic has had a
significant impact on society as well as on
shipping,
including product tankers. During 202
1,
the market for refined products continued to be impacted by
lockdowns
and restrictions around the world resulting
in lower demand for refined products
. This has
led
to a subdued
tanker market with rates below break
-even
for
periods during the
year.At every meeting
, t
he Risk Committee review
s liquidity forecast
s
which includes
scenario and stress testing of
the market
to ensure that
a
sufficient liquidity position is in place
.
Moreover, the
Risk
C
ommittee r
’eviewed TORM
s
main
liquidity risk
drivers confirming
that
all relevant drivers were already
part of the existing risk management framework.
Forward Freight Agreements (FFAs) and Liquidity
Risk
D
uring 2020, TORM hedged part of its
future earning
days using FFAs.
These FFAs matured during the
first
half of 2021
,
and
,
consequently
,
TORM had a liquidity
risk associated with the FFA position. To account for a
potential increase in liquidity risk, liq
uidity stress tests
are periodically reviewed together with TORM’s
liquidity forecast
,
and more frequent reporting has been implemented.
Fin
ancial Policy
The Risk Committee approved to increase
maximum
interest hedge level up to 100%
to
ensure stability in
the
future cash flow by protecting variability in interest
costs.
Cy
ber security
The Risk Committee reviewed TORMs
c
yber
s
ecurity p
rogram
established to enhance and mature TORM
cyber security even further over the coming years
.
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COMMITTEE REPORTS
86
Customer
Credit
R
iskDuring 2021
,
the Risk Committee approved an updated
customer
credit risk policy.
TORM has a well
-
functioning customer credit approval process, where all
customers are reviewed prior to commercial charters.
TORM has revisited and subsequently refined the credit
methodology to ensure consistency, efficiency
,
and
high
-
quality risk assessment. Adjustments to
the
methodology was to include more focus on industry
and country risk, predefined financial ratios and pre
-
set
criteria for parent and government support.
Sanctions
The Risk Committee
reviewed
TORM’s compliance set-
up, designed to avoid that TORM engag
es with
sanctioned
counterparties thereby
violating sanctions.
Maritime safety threats
The Risk Committee reviewed the measures taken by
TORM to assess, manage
,
and mitigate future attacks.
Cap
ital structure risks
The Risk Committee reviewed risk considerations
related to
TORM’s
capital structure,
including
l
iquidity
position, loan
-
to
Distribution Policy, off-
value, TORM’s
-
balance sheet liabilities, terms and sources of funding
vessel
investments
,
and fleet employment strategy.
Review policies
The Risk Committee reviewed TORM’s IT Policy,
Financial Policy, FFA and Bunker Policy
,
and
Credit
Risk Policy. These policies outline core activities and
risks
,
and the measures that TORM has taken to
mitigate these risks.
Enterprise risk management
The Risk Committee reviewed the key risks faced by
TORM and the underlying drivers of those exp
osures.
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 p
lanned
risk
-
mitigating activities. TORM’s annual Enterprise Risk
Management Report was approved at the Board of
Directors meeting in Q1 202
2
. TORM’s annual risk
assessment is presented in detail in the “Risk
Management” section on pages
65
-
69.
APPROVAL
O
n behalf of the Risk Committee
Göran Trapp
Chairman of the Risk Committee
23 March 2022
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COMMITTEE REPORT
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COMMITTEE REPORTS
87
C
HAI
RMAN’S STATEMENT
In
2021,
no changes
were made
to the Nomination
C
ommittee members or Board of Directors,
and
the
key areas
focus
of the Nomination Committee ha
ve
been the Nasdaq
b
oard diversity rules, g
overnance,
succession planning
,
and employee engagement
T
HE ROLE OF THE NOMINATION COMMITTEE
Read more about the
Nomination
Committee’s area of responsibility on page 73
Terms of Reference for the Nomination Committee
on www.torm.com/investors/governance
C
OMPLIANCE WITH THE CODE
The Nomination
C
ommittee compli
with the UK es
Corporate Governance Code except for provision 18.
The Corporate Governance Code states that all
directors should be subject to annual re
-
election,
however, TORM’s B
-
Director is not appointed for a specified term but will continue until removed by the
B-
shareholder. T
ORM
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 shareholder
s,
can replace the B
-
Director at any time. The remaining Directors of TORM are elected on a bi
-
annual basis as defined in
TORM’s
Articles of
Association. The Board has discussed whether to
change to annual re
-
election of the remaining
Directors, however, to ensure continuity in the Board of
Directors, it has been decided to continue with a bi
-
annual election for now. All TORM’s Non
-
Executive
Directors will submit themselves for re
-
election at the 2022 AGM.
The Nomination
Committee reviewed the
independen
ce of all Non
-
Executive Directors pursuant to the Code. Except for the Chairman, the
Nomination
Committee is composed solely of independent
Non
‑
Executive Directors and they continue to make
independent contributions and effectively challenge
M
anagement.
T
he Executive Directors’ service contracts and the
Non
-
Executive Directors’
t
erms and c
onditions of appointment are available for inspection at our
registered office and will be available on display at the
2022 AGM.
E
FFECTIVENESS
During the year, the
Nomination
Committee reviewed the independence, time commitment and potential
conflicts of interests of the Non
-
executive Directors and concluded that each continued to demonstrate
challenge and independent judgement and to
devote
sufficient time to discharging their duties
.
NOMINATION COMMITTEE REPORT
AT A GLANCE
Chairman
Christopher
H.
BoehringerMembers
Annette Malm Justad
David
Weinstein
Composition
Except for the Chairman, the
Nomination
Committee is composed solely of independent
Non
‑
Executive Directors
Meetings
The Nomination
Committee had two scheduled
meetings in 2021. Attendance by members at
c
ommittee meetings can be seen on page
76
.
FOCUS AREA
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
16%
46%
8%
30%
Succession Planning
Diversity
Employee population Governance
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
88
B
OARD EVALUATION
In accordance with the UK Corporate Governance
Code, TOR
M conducts an annual internal evaluation of
the
Board. The outcome of this review led to the Board
requesting further deep dives on ESG, and
themes such
as Power
-
to
X, future renewable energy capacity, -
carbon capture, different fuel types and regulatory
co
nsiderations
.
Read more about the what the Board did this year in
detail on page
77
-
78E
MPLOYEE ENGAGEMENT
Throughout the year
,
the
Nomination C
ommittee receives updates on key elements of the people
strategy which provide insight into a variety of areas
,
including culture, diversity and inclusion, succession
planning, future capabilities
,
and colleague
engagement. The Nomination
Committee reviewed the
results of the 202
1
Employment Engagement Survey. It
was pleasing to note the result is among the top 25
of
the companies across all industries utilizing the Peakon
platform.
Good scores were also obtained with regards
to questions specifically related to sexual harassment
.
The Nomination Committee
is
pleased that the Board
wishes to further strengthen TORM’s efforts to have an
entirely harassment free environment
,
and through
various initiatives we will continue to emphasize our
zero tolerance stand on this subject.
D
IVERSITY
The Nomination
Committee continued to review
TORM’s progress against its gender diversity targets
for both female Board members and women in the
shore Committee
-
based workforce. The
Nominationtook time to review the SEC approved Nasdaq
b
oard
diversity rules introduced i
n 2021. These
requir
e
Nasdaq
-
listed companies with five or fewer directors
to
meet the diversity objective by having at least one
diverse director. The
Nomination Committee
is
pleased that TORM
,
having
already
understood the importance
of diversity
in the
workplace, met this requirement in
2020.
Read about TORM’s
diversity
Targets on page
34 The
B
oard of
D
irectors’ diversity matrix can be found below
Board Di
versity Matrix
Country of Principle
Executive Offices
United Kingdom
Foreign private issuer
Yes
Disclosure prohibited
under home law
No
Total number of Directors
Gender Identity
Female
Male
Non
-
Binary
Not
disclosed
Directors
-
-
Underrepresented
i
ndividual
in
h
ome
country
j
urisdiction
None
LGBT
Not known
Did
n
ot
disclose
d
emographic
b
ackground
S
UCCESSION PLANNING
Succession planning continues to be a priority for the
Nomination Committee
,
and throughout the year the
Nomination
Committee focused on the succession
pipeline for senior management
, which
is essential to
ensure a continuous level of quality in management. It
further aids TORM in avoiding instability by mitigating
the risks which may be associated with unforeseen
events, such as the departure of a key individual, as
well as promoting diversity and inclusion
.
R
ETENTION RATE
At
the end of 2021, the
-retention
rate for all shorebased employees was 8
8%
, which is still as satisfactory
level.
In 2020 and 2019 the retention rate was
92
%.
Read more about our employee health and wellbeing
on page
s
37
-39
APPROVAL
On behalf of the Nomination Committee
Christopher H. Boehringer
Chairma
n of
the Nominations Committee
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E REPORT
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COMMITTEE REPORT
S 89
AT A GLANCE
Chairman
Christopher
H.
BoehringerMembers
Annette Malm Justad
David Weinstein
Composition
Except for the Chairman, the
Remuneration
Committee is composed solely of independent
Non
‑
Executive Directors
Meetings
The Remuneration
Committee had two scheduled
and five extraordinary meetings in 2021.
Attendance by members at
c
ommittee meetings can be seen on pa
ge
76
FOCUS AREA
S
CHAIRMAN'S
S
TATEMENTTh
e
Renumeration
Committee
report describes the
activities of the
R
emuneration
ommittee for the C
period
0
1 January 2021 to 31 December 2021. It sets out
remuneration details for the executive and non
-
executive directors . It has been prepared in
in TORM
accordance with
S
chedule 8 of the
Large and
Medium
-S
ized
Companies and
Groups (
Accounts and
R
eports)
R
egulations 2008 as amended (the "
Regulations").
The report is split into two main areas:
•
Chairman’s s
tatement
•
A
nnual
report on
remuneration
The
R
emuneration P
olicy, approved by the
shareholders at the
A
nnual
General
eeting (M
AGM)
on
14
April 2021, took effect from the date of that meeti
ng.
As of the date of this
A
nnual
R
eport, TORM plc is in
compliance with the requirements of this
R
emuneration
P
olicy.
Find TORM’s Remuneration Policy on
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 C
ompanies
A
ct 2006 requires that auditors report to the shareholders
on certain parts of the
D
irectors'
R
emuneration R
eport and stat
e whether, in their opinion, those parts of the
report have been properly prepared in accordance with
the
r
egulations. The parts of the annual report on
remuneration subject to audit are indicated in th
e
report. The statement by the
C
hairman of the R
emuneration
Committee
is
not subject to audit.
THE ROLE
OF THE
R
EMUNERATION
C
OMMITTEE
Read more about the Remuneration Committee’s
area of responsibility on page
73
F
ind the
Terms of Reference for the Remuneration
Committee on www.torm
.com/investors/governance
COMPLIANCE WITH THE CODE
The
R
emuneration C
ommittee is in full compliance with
the UK
C
orporation
ode except for G
overnance C
provision 32. The
said
ode states that the C
B
oard of
Directors shall establish a remuneration committee
of
independent non
-
executive directors, with a minimum membership of three. In addition, the
C
hairman of the B
oard
of Directors
can only be a member if he
is
independent on appointment, and he cannot chair the
Remuneration Committee. T
ORM's
of thC
hairman
e
Board of Directors
,
Christopher
Boehringer, has H.
been appointed as chairman of
TORM’s R
emuneration
C
ommittee. However, given his association with the
controlling shareholder and the alignment of interest
regarding remuneration, the
B
oard
of Directorsconsiders it appropriate for
Christopher Boehringer
H.
to chair the Remuneration C
ommittee.
80%
7%
4%
3%
3%
3%
One TORM KPIs
CEO Remuneration
LTIP
New Bonus Structure
Governance Board Remuneration
REMUNERATION COMMITTEE REPORT
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ANNUAL REPORT 2021
COMMITTEE REPORTS
90
MEETINGS
The
C
hairman and the
E
xecutive
Director attend
the
meetings of the
R
emuneration
ommittee except for C
matters relating to their own remuneration. The
H
ead
of
G
roup H
uman
R
esources attends all meetings and
other members of
M
anagement may attend when necessary.
ACTIVITIES DURING 2021
KPIs and new bonus structure
In 2021, a large proportion of the
Remuneration
C
ommittee’s time was used discussing TORM’s
proposed new bonus structure
.
new structureThe
will
better align TORM’s financial performance with bonus
pay
-
outs to
employees.
Our intention is to do this by
using selected key KPIs. The
Remuneration Committee
will be able to use its judgement in evaluating non
-
financial performance, including the executives’
commitment to
s
afety and
quality, CO
2
footprint,
diversity and inclusion, as well as overall leadership
contributions
when setting future performance bonus
levels.
Succession and the wider workforce
In addition, the
Remuneration
Committee engaged in discussion
s
surrounding the wider workforce
remuneration, succession pipeline, and incentives,
ensuring that as a
c
ompany
, TORM
creates
an
environment where our most talented employees are
being
recognized
and given greater responsibilities.
Stress Awareness
We were pleased that we continue to promote mental
health awareness
programs across
TORM
, which this
year included our new
s
tress
wareness program, a
educating our management and cascading relevant
information to all employees. Stress mitigation is an
ongoing and essential part of TORM's values.
Work from
home
Throughout the COVID
-
19 pandemic, we have supported our employees in working home, where
possible, and
in doing so, recognized this as an
opportunity to further increase flexible work in the
future. The perception of the remote work concept has
changed wit
h regards to operational performance, job
satisfaction and work
-
life balance. Going forward,
remote work will continue to form part of the way daily
operations are performed in TORM providing more
flexibility than has previously been available.
Annual rem
uneration policy reviews
The
R
emuneration C
ommittee reviewed the
remuneration policy. Their conclusion was that no
amendments to the remuneration policy were required
at this time.
APPROVAL
On behalf of the Remuneration Committee
Christopher H. Boehringe
r
Chairman
of the Remuneration Committee
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
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COMMITTEE REPORTS
91
REMUNERATION COMMITTEE REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
STATEMENT OF VOTING AT THE AGM
Shareholder voting on the resolutions to approve the
a
nnual remuneration report put to the 2021 AGM and the Directors’ remuneration policy put to the
2021 AGM w
ere
as follows:
Annual remuneration report
Votes for
Votes against
Total votes
Abstentions
Directors remuneration policy
Votes for
Votes against
Total votes
Abstentions
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
92
EXECUTIVE DIRECTOR’S AND CHIEF EXECUTIVE
OFFICER’S
REMUNERATION
Single total figure of remuneration
The table
below
21 remuneration for sets out the 2020
-
Jacob Meldgaard in his roles as Executive Director of
TORM plc and Chief Executive Officer (CEO) of TORM
A/S, a subsidiary of TORM plc
.
Total remuneration for
the financial year
Adj
FIXED PAY ()
Base Salary
-
Taxable
benefits
-
Pension
- - -
Total fixed remuneration
-
VARIABLE PAY ()
- - -
Annual performance bonus
-
Total variable pay
-
SINGLE TOTAL FIGURE
OF
REMUNERATION
()
-
Change in remuneration
of colleagues and
Directors
change from to
Salary
Benefits
Bonus
Employee entire group
Chief Executive Officer
Base
s
alaryThe base salary is discussed and agreed with the
Chairman of the Board and the Remuneration
Committee once a year
.
The CEO’s base salary was
reviewed on 24 February 2021 to determine the
appropriate salary for the coming year. Base salary as
of
0
1 January 2020: DKK 7.0m. Base salary as of
0
1
January 2021: DKK 7.28m
(USD 1
.
16m)
. In addition the
CEO receives Euro
70
t (USD 82t) for his role as Executive Director
.
The
CEO’s base salary was reviewed on 07
March 2022
to determine the appropriate salary for 2022. The base
salary as of 01 January 2022 has been
determined at
DKK 7.39m
,
the
adjustment of the salary will take effe
ct on
0
1 January 2022
.
Taxable benefits
TORM
can place a car costing no more than DKK 1m at
the CEO’s disposal. However, the CEO has instead
accepted an amount of DKK 23t per month, covering
the running and maintenance expenses associated with
a private vehicle. For 2021, the amount of DKK 276t
(USD 4
4
t) has been included in the single figure
amount.
Other benefits provided directly include two
newspapers, a mobile phone which may be used for
both business and private purposes, a PC at the CEO’s
disposal
at his home address which may be used for
both business and private purposes, including
internet
access
and call charges.
No changes in allowances and
benefits are expected for 2022.
Performance bonus 2020
As discussed in the 2020 Annual
R
eport, at the time of
issue the CEO’s bonus figure had yet to be agreed and
instead the 2020
Annual Report included an estimate
of DKK 8.4m (USD 1
.
26m), equating to 120% of his base
salary. After final agreement by the Remu
neration
Committee, the CEO’s bonus figure was set at DKK
7
.0
m (USD 1
.14m), equating to 100% of his base salary.
Performance bonus 2021
The Remuneration Committee has provided the CEO
with a performance cash bonus for the financial year
2021 in the following ranges and based on the following
parameters:
•
The fulfilment of specific performance metrics set
by
TORM
(up to 70% of the CEO’s base salary).
These include but are not limited to, RoIC, cost
structure, highest safety standards and
environmental footpr
int
•
Up to 50% of the CEO’s base salary based on the
sole discretion of
TORM’s
Board of DirectorsIn aggregate, the maximum achievable cash
bonus for the financial year 2021 for the CEO is
equal to 120% of the CEO’s base salary in the
financial year 2021. T
he specific metrics and
calculation methodology for each of the
parameters have been determined by the Board
of Directors
.
Based on the aforesaid methodology,
the CEO’s performance cash bonus for 2021 was
determined to be a total of 100% (60% on
parameter
1 and 40% on parameter 2) of the 2021
fixed annual salary of DKK 7.28m, resulting in an
amount of DKK 7.28m (USD 1
.
16m
). REMUNERATION COMMITTEE
REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
93
L
ONG
-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.
L
ONG
-TERM INCENTIVE PROGRAM
– RESTRICTED
SHARE UNITS GRANTED TO THE CHIEF EXECUTIVE
OFFICER
In accordance with its Remuneration Policy, TORM has
granted the CEO a number of Restricted Share Units
(RSUs), which were communicated in company
announcement no. 2
dated 18 January 2016,
announcement no. 10 dated 25 April 2018 and
announcement no. 7 dated 18 March 2021. There are no
performance conditions associated with this grant of
RSUs.
The original RSUs granted to the CEO in 2016
amounted to 1,276,725 and vested over a five
-
year
period, with one fifth of the grant amount vesting at
each anniversary during the five
-
year period. The exercise price for the 2016 RSUs was DKK 96.3. As of 1
January 2017, one fifth of the original grant, amounting
to 255,345, vested with an exercise period ending 31
December 2017. None of these RSUs were exercised.
As of
0
1 January 2018, one fifth of the original grant, amounting to 255,345, vested with an exercise period
ending 31 December 2018. None of these RSUs were
exercised.
As
detailed in announcement no. 10 issued on 25 April
2018, the CEO was granted a total of 766,035 RSUs
with effect as of
0
1 January 2018, which will vest in equal instalments over the next three years. The RSU
grant corresponds to the unvested portion (60%)
of
the CEO’s original five
-
year grant from 2016. It has been agreed that the CEO will not exercise the original
RSUs. The exercise price for each RSU is DKK 53.7,
corresponding to the average price of TORM shares
during 90 calendar days preceding the appro
val at
TORM plc’s AGM on 12 April 2018 plus a 15% premium.
Vested RSUs may be exercised for a period of 360
days from each vesting date. As of
0
1 January 2019,
one fifth of the grant, amounting to 255,345, vested
with an exercise period ending 31 December
2019.
These RSUs amounting to one third of the re
-
grant
issued on 25 April 2018 were exercised. In November
2019, 255,345 RSUs were exercised by Executive
Director Jacob Meldgaard. The total value of the RSU
allocation is calculated based on the Black
-
Sch
oles
model and is included in the overall cost estimate for
TORM’s
Long
-Term Incentive Program (LTIP) (cf.
company announcements dated 18 January 2016,
1
8
March 20
21
and 25 April 2018).
The value of the 2018 grant, USD 0.9m, is estimated
taking into account that as part of the grant the CEO
will not exercise the unvested portion of the 2016
grant. The valuation is based on the Black
-
Scholes
model with an exercise price of DKK/share 53.7, a
market value of one TORM A
-
share of DKK 49.5 (the closing price per
A-
share at the time of allocation and assuming 100% vesting).
The single figure remuneration table for the CEO does
not include any amounts in relation to the RSU awards
since, as of the date each tranche vested,
TORM’s
share
price was less than the exercise price.
As detailed in announcement no.
7
issued on 18 March
2021, the CEO was granted a total of 255,200 RSUs
with effect as of
0
1 January 2022, which will vest in
equal instalments over the next three years. The
exercise price for each RSU is DKK 53.5, corresponding
to the average price of TORM shares in the 90
calendar
days preceding the publication of TORM plc’s 2020
Annual Report plus a 15% premium. Vested RSUs may
be exercised for a period of 360 days from each
vesting date
REMUNERATION COMMITTEE
REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
94
REMUNERATION COMMITTEE
REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
LONG
-
TERM INCENTIVE PROGRAM
–
RESTRICTED SHARE UNITS GRANTED TO THE EXECUTIVE DIRECTOR AND EMPLOYEES
Year
Grant of RSUs
Grant of RSUs to Ex.Dir
Vesting Period in years
Vesting Period in years to Ex.Dir
Beginning
01
-Jan-17
01
-Jan-
18
01
-Jan-
19
01
-Jan-
20
01
-Jan-
21
01
-Jan-
22
Exercise period from vesting
Six months
and
months for
ExDir
Six months
days
after each
vesting date
days
after each
vesting date
days
after each
vesting date
days
after each
vesting date
Exercise Price
kr
kr
kr
kr
kr
kr
Reduced due to dividend payment
kr kr
kr
Black
-
Scholes model, the theoretical market value
USD m
USD m
USD m
USD m
USD m
USD m
Total RSU's expired unexercised
-
RSUs exercised within 2019
-
-
-
-
-
RSUs
exercised within 2020
-
-
- -
RSUs exercised within 2021
-
-
- -
Total RSU's exercised by grant year
-
-
- -
RSU's outstanding as at 31 December 2021
-
-
-
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
95
LTIP element of Jacob Meldgaard’ s remuneration package
Grant Date
April
March
RSU LTIP grant
⁾
Exercise price per share
DKK DKK
RSU grant value assuming
vesting
USD m
USD m
E
ND OF SERVICE GRATUITY
T
ORM
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.
P
OST
-SERVICE SALARY
If the CEO dies during his
such post
-
service salary will only be paid until the date
on which the employment would have terminated as a
result of termination of the Service Agreement.
T
OTAL PENSION ENTITLEMENTS
The Directors of TORM plc are not entitle
d to any
pension contributions from
TORM
. In addition, Denmark
-
based Executive Director Jacob Meldgaard,
in his role as CEO of TORM A/S, is not entitled to any
pension contributions.
TAXABLE BENEFITS
In general, members of the Board of
Directors of
TORM
p
lc do not receive any additional benefits.
P
AYMENTS FOR LOSS OF OFFICE
No payments for loss of office have been made in 2021.
O
UTSIDE APPOINTMENTS
The Executive Director is entitled to retain the fees
earned from non
-
executive appointments outside TORM
.
Jacob Meldgaard was appointed as a Non
-Executive Director of Danish Ship Finance A/S for
which he received DKK 350,000 and as a Non
-
Executive Director of SYFOGLOMAD Limited for which
he received EUR 5,000 for his services. Jacob
Meldgaard is also Chairman
of Grant Compass A/S for
which he receives no fee but has been granted
warrants
ANNUA
L BONUSES AND LTIPS
T
ORM’s
Remuneration Policy stipulates that the Non
-Executive Directors’ remuneration cannot include
participation in share or warrant programs. The Non
-
Executive Directors of TORM plc do not receive any
part of their remuneration from
TORM
in shares or warrants.
The remuneration for the Non
Executive -
Directors is determined by the Board of Directors
subject to limits in
TORM’s
Articles of Association. During 2021, none of the Non
-
Executive Directors received any part of their remuneration in shares or
warrants.
REMUNERATION COMMITTEE
REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
96
E
XECUTIVE DIRECTOR’S INTEREST IN THE SHARES
OF TORM
The table to the right summarizes the total interests of
the Executive Director in shares of TORM plc as of 31
December 2021. During the period 01 January to 31
December no
gains
were
the Executive made by
Director
on the exercise of share options
.
No changes
took place in the
Executive Director
s interests ’
between 31 December 2021 and
23
March 2022.
D
IRECTORS’ INTEREST IN THE SHARES OF TORM
The table to the right summarizes the total interests of
the Directors in shares of TORM plc as of 31 December
2021. No changes took place in the Directors’ interests
between 31 December 2021 and
23
March 2022.
REMUNERATION TABLE NON
-
EXECUTIVE
DIRECTORS
The table to the right
summarizes
the remuneration
paid to the Non
-
Executive Directors of TORM
in 2021.
The
fees shown include any additional fees paid in
respect of chairmanships of committees or other roles
such as Senior Independent Director. Board Observer
fees are not shown in this report, however
,
the fees payable can be found in the Remuneration Policy.
REMUNERATION COMMITTEE
REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
DIRECTORS’ INTERESTS IN THE SHARES OF THE COMPANY (AUDITED)
Jacob Meldgaard’s Restricted Share Units
Awarded
Vested not
exercised
Agreed not to
exercise
Exercised
Unvested
- - -
- -
-
-
- -
- -
2021 STATEMENT OF DIRECTORS' SHARE HOLDING AND SHARE INTEREST
Ordinary
Shares as at
Jan
Ordinary
Shares as at
Dec
Changes from
Dec
to Mar
Ordinary
Shares as at
Mar
Christopher H Boehringer
-
David Weinstein
-
Göran Trapp
-
Annette Justad
Jacob Meldgaard
-
2021 REMUNERATION TABLE NON
-
EXECUTIVE DIRECTORS
USD '000
Base fee
Committee fees
Total
DIRECTOR
Christopher H
Boehringer
David Weinstein
Göran Trapp
Annette Justad
- -
TORM
ANNUAL REP
ORT 2021
COMMITTEE REPORTS
97
ASSESSING PAY AND PERFORMANCE
In the we summarize the Chief
table
to the right,s
Executive
Officer
’s
single figure remuneration over the
past six years, as well as how our variable pay plans
have paid out in relation to the maximum opportunity.
This can be compared to TORM’s performance since
the listing of TORM plc, measured by total shareholder
return, compared with the average of a selection of
TORM’s
main peers in the industry and with the
performance of the Danish stock index
OMX
. The OMX
index is a market cap weighted index of all stocks
listed on Nasdaq in Copenhagen. The total
shareholder return is calculated in USD
.
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 PEER AND THE OMX INDEX
FINANCIAL YEAR REMUNERATION FOR CHIEF EXECUTIVE OFFICER
72
71
51
62
56
58
96
106
108
112
134
177
0
20
40
60
80
100
120
140
160
180
200
2016 2017 2018 2019
2020 2021
Peer Average
TORM
OMX
67% 60%
45%
117%
100% 100%
1,473
1,626
1,531
2,208
2,307
2,449
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
Annual bonus (% earned of base salary)
Total remuneration USD '000
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
98
ANNU
AL PERCENTAGE CHANGE IN DIRECTORS’
REMUNERATION
The table to the right shows the percentage change
over the year ended 31 December 2020 to the year
ended 31 December 2021 in respect of di
rectors’
remuneration and average employee remuneration.
A
s
required by legislation, 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
RELATIVE IMPORTANCE OF SPEND ON PAY
Expenditure USDm
Dividends paid
- Purchase of outstanding treasury shares in TORM AS
Purchasedisposals of treasury shares
- Executive Directors remuneration
Total
Staff costs
Retained earnings
CHANGE IN
REMUNERATION OF
COLLEAGUES AND DIRECTORS’
Salary or fees change
Benefits change
Bonus change
to
to
to
to
to
to
Chief Executive Officer
Mr Christopher H Boehringer
NA
NA
NA
NA
Mr David Weinstein
NA
NA
NA
NA
Mr Göran Trapp
NA
NA
NA
NA
Ms Annette Justad
NA
NA
NA
NA
Colleagues entire
group
-
3
5
1
4
⁾
The comparative figures used to determine the change take into consideration the CEOs salary and benefits
⁾
Other benefits provided relate directly to company car benefit
⁾
change in DKK for salary and Executive Directors fees is taxable benefits is and annual bonus is
⁾
Due to Christopher H Boehringer and David Weinstein changing roles on the Risk Committee the fees change in EUR are - and respectively
⁾
Due to Annette Justad completing her first full year the Fees change in EUR is 
TORM
ANNUAL REPORT 2021
COMMITTEE REPORTS
99
REMUNERATION POLICY
The TORM plc Remuneration Policy approved at the
20 April
2021 AGM remained unchanged during 2021.
In accordance with the UK Corporate Governance
Code, TORM’s Remuneration Policy and practices are
designed to support the business strategy and
promote
TORM’s
long-
term sustainable success. The
Remuneration Committee will continue to consider the
appropriateness of the Remuneration Policy annually
to ensure that it continues to align with the business
strategy. At this point, there is no intention to revise
the Remuneration Policy more often than every third
year, unless required due to changes to regulations or
legislation.
Find TORM’s Remuneration Policy on
Find TORM’s
Remuneration Policy on
www.torm.com/investors/governance
2022
RE
MUNERATION
The
Remuneration Policy agreed at the 20 April 2022
AGM
will be implemented for the 2022 financial year
.
There are no foreseen changes to the policy.
A
daptation 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 inf
ormation on remuneration paid to the
Board of Directors and Executive Management.
A
PPROVAL
O
n behalf
of the Remuneration Committee
Christopher H. Boehringer
Chairman of the Remuneration Committee
23
March 2022
REMUNERATION COMMITTEE
REPORT
AUDIT COMMITTEE REPORT
RISK COMMITTEE REPORT
NOMINATION COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
TORM OTHER
ANNUAL REPORT 2021
100
SHARE INFORMATION
Exchanges
Nasdaq CPH and NY
ISIN (CPH)
GBBZCNK
CUSIP (NY)
G
Tickers
TRMD A and TRMD
Year high (TRMD A)
DKK
(
May
)
Year low (TRMD A)
DKK
(
Jan
)
Number of A shares (end
)
Number of treasury share
s
F
INANCIAL CALENDAR 2022
20
April 202
2, Annual General Meeting
11
May 202
2
, First quarter 202
2 results
17
August 202
2, First half 202
2 results
09
November 202
results2
, Nine months 2022
I
NVESTOR RELATIONS CONTACT
Andreas Abildgaard
-
Hein
Group Treasury and IR
Phone: +45 3917
9339
Email:
Jomkwan Palitwanon
Investor Relations
Phone: +45 3917
9
331
Email:
A
NALYST
COVERAGE
Danske Bank
Håvard Sjursen Lie
Phone:
+47 40 47 4443
Email:
hvli@danskebank.com
Clarksons
Frode Mørkedal
Phone:
+47 22 01 63 27
Email:
frode.morkedal@clarksons.com
Evercore ISI
Jonathan B. Chappell
Phone: +1 212
-
497
-0827
Email:
jonathan.chappell@evercoreisi.com
Fearnley Securities
Peder Nicolai Jarlsby
Phone:
+47 22 93 64 71
Email:
pn.jarlsby@fearnleys.com
Kepler Cheuvreux
Anders Redigh Karlsen
Phone:
+47 23 13 9068
Email:
arkarlsen@keplercheuvreux.com
Skandinaviska Enskilda Banken AB
Ulrik Bak
Phone: +45 3328 3314
Email:
ulrik.bak@seb.dk
COMMUNICATION
T
O
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
present
ations, investor meetings and conference calls.
Investor meetings are primarily held in Copenhagen
and in the major European and US financial centers.
In 202
1
, TORM issued a total of
32
announcements
to
the stock exchange. These announcements are
availab
le in English versions
at
https://www.torm.com/investors/announcements
T
hree
week
s prior to the publication of quarterly and
annual financial statements, communication is limited
to issues of a general nature, and in that period
no
individual investor meetings are held.
SHARE
PRICE PERFORMANCE
In 202
1
, TORM had an average of
78,560,048
A-
shares outstanding. The average daily trading volume
on Nasdaq in Copenhagen has been approximately
2
12
t shares
and approximately
t 90
shares
on Nasdaq
in New York. During
202
, the share price 1
increased
from
DKK
to 45
.3
DKK
51
.7
on Nasdaq in Copenhagen
and from
USD
7.
to USD 3
8.0
onNasdaq in New York.
Throughout 202
1
, TORM has been part of the MidCap
segment on Nasdaq in Copenhagen. 2021 share price
development is available at
www.torm.com/investors/share
.
INVESTOR INFORMATION
Other
TORM OTHER
ANNUAL REPORT 2021
101
CHANGES
T
APITALO
THE
SHARE
CAs of 31 December
20
total share 20
, TORM
plc’s
capital was
USD
748,559.31
consisting of
74,855,929
A-
shares of USD 0.01
each,
B-one
share and
C-one
share both of USD 0.01
.
During
2021
,
TORM has increased its share capital by
6,377,340
A-
shares as a result of
409,427
number of
Restricted Share Units
being
exercised
and issuance of
5,9
67,913
shares to Team Tankers Deep Sea Ltd. in
exchange for
8
MR vessels acquisition.
SHARE
C
APITAL
As of 31 December 2021
,
TORM’s share capital amount
ed to USD
812,332.71
divided into
81,233,269
A-
shares of USD 0.01 each, one B
-
share of USD 0.01 and one C
-
e of USD 0.01. A total of shar
81,233,269
votes
are attached to the A
-
shares. Only the A-
shares are admitted to trading and official listing on Nasdaq in
Copenhagen and Nasdaq in New York.
A
s of 31 December 2021, as treasury
TORM holds
493,371
shares.
Each A
-
share carries
one
vote on all resolutions
proposed at the General Meetings of the Company
except for the election or removal of the B
-
Director.
Until the Threshold Date (the first time at which OCM
Njord Holdings S.à r.l. Oaktree and its affiliates
cease
to beneficially own at least one third of the issued
shares), the sole B
-
share has one
vote at the General Meeting and special administrative rights, including
the right to appoint the Deputy Chairman of the Board
of Directors. After the Threshold Date, all Directors
can be appointed or removed by passing an ordinary
resolution. The B
-
shareholder also has the right to appoint one
Board Observer. Pursuant to the Articles
of Association, no more than
one
share can be B-
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 releva
nt action or (ii) (a) in case of a supermajority
action, if the B
-
Director did not approve such action or attend the relevant Board meeting, such action is
approved by a shareholder resolution approved by at
least
86%
of the votes capable of being cast on
such
supermajority action or (ii) (b) in case of a Reserved
Matter action, if the B
-
Director did not approve such action or attend the relevant Board meeting, such
action is approved by a shareholder resolution
approved by at least 70% of the votes capable
of
being cast on such Reserved Matter action.
Until the Threshold Date, the sole TORM C
-
share has 350,000,000
votes at the General Meeting in respect
of certain Specified Matters only, including the
election of members to the Board of Directors of
TORM
(including the Chairman, but excluding the B
-
Director) and certain amendments to the Articles of
Association. The sole C
-
shareholder, OCM Njord Holdings S.à r.l. (“Oaktree”), must continue to hold the
C-
share as long as it or its affiliates beneficially own at
least one third of the issued shares (“Threshold Date”).
Accordingly, Oaktree may continue to operate as the
Company’s controlling shareholder, even if Oaktree
does not own a majority of the A
-
shares. Pursuant to the Articles of Association, no more t
han 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
registratio
n statement filed with the U.S. Securities
and Exchange Commission or an exemption from the
registration requirements of the United States
Securities Act of 1933 as amended. There are no
specific restrictions on the size of a holding of the A
-
shares nor the transfer of the A
-
shares (except for the Restricted Shares as detailed above), which are both
governed by the general provisions of the Articles of
Association and prevailing legislation.
The B
-
share can only be transferred to (i) another trustee (it is currently held by SFM Trustee Limited on
behalf of the minority
INVESTOR INFORMATION
TORM OTHER
ANNUAL REPORT 2021
102
The C
-
share is held by Oaktree and can only be transferred (i) to one of Oaktree’s affiliates or (ii) to
the Company if the C
-
share is redeemed or (iii) any person who has acquired 100% of the issued A
-
shares.
The C
-
share cannot be encumbered. Further details on the transferability, please see the
in the Articles of Association on
www.torm.com/investors/governance
The B
-
share and the C-
share do not have any rights to receive dividends or other distributions which the
Company decides to pay.
The Company must redeem
the B
-
share and the C-
share at the same time as soon as possible after the Threshold Date for USD 0.01
each. Once redeemed, the B
-
share and the C-
share
must be cancelled, and no
further B
-shares or C
-shares can be issued by the Company.
Pursuant to TORM’s Articles of Association and
authorities granted at TORM plc’s AGM on 15 March
2016 (2016 AGM) and updated authorities granted at
TORM plc’s AGM on 14 April 2020, the Board of
D
irectors was granted authority to allot shares or
rights relating to shares for cash free from pre
-
emption up to an aggregate nominal amount of USD
5,073,293
comprising:
•
Up to an aggregate nominal amount of USD
686,142
in connection with the Exchange Offer (of
which
USD 622,988.48
nominal value was issued
(62,298,846 A
-
shares, one B
-share and one C
- share)) during the period ended 31 December
2016. As the Exchange Offer has been completed,
no further shares will be issued under this
authority
•
Up to an aggregate nominal amount of USD
1,372,283
which can be offered in connection with
any proposed initial public offering of equity
securities on certain US stock exchanges, of which
none was issued from 1 January 2020 to 31
D
ecember 2021, leaving a current authority to
issue up to
137,228,300
A-
shares
•
Up to an aggregate nominal amount of USD
2,477,026 in general equity issues including
warrants, convertible debt and general equity
with the issue being at fair value as determin
ed by
the Board of Directors, of which none was issued
from 1 January 2020 to 31 December 2021, leaving
a current authority to issue up to 247,702,600 A
-
shares.
•
Up to an aggregate nominal amount of USD
777,625 to Directors, officers or employees of the
Com
pany or any of its subsidiaries.
SHARE PREEMPTION GRANT
Authority
Date
Value
Granted
April
USD
Utilized
May
USD
Utilized
March
USD
Remaining
USD
Further, the Board of Directors received authorization
at the 2020 AGM to make market purchases up to a
maximum of 7,476,065 A
-
shares within a certain price
range.
SHARE REPURCHASE GRANT
Granted
April
Repurchase period
January to
December
Remaining
Approx of TORMs
share capital excluding
treasury shares
All of the above authorities to issue and purchase
shares expire on 14 April 2025.
Details of TORM’s employee share schemes and any
rights attached to the shares under these schemes are
set out on pages
89
of the Directors’ -
99
Remuneration Report.
The U.K. Takeover Code, issued and administered by
the U.K. Takeover Panel, applies to the Company
SHAREHOLDERS
As of 31 December 20
21
, TORM had approximately 10
,
787
registered shareholders representing
approximately
85
%
of the share capital.
In
2020
,
TORM has been subject to UK Disclosure
Guidance and Transparency Rules
under which
INVESTOR INFORMATION
TORM OTHER
ANNUAL REPORT 2021
103
shareholders
have a 3% ownership notification
requirement. From 1 January 2021, as a consequence
of Brexit, TORM has changed
its
home member state in relation EU’s Prospectus Regulation and
Transparency Directive to Denmark. This implies that
shareholders now have a 5% ownership notification
requirement. Based on notifications
received
during
2020 and 2021 to date OCM Njord Holdings S.à r.l.
(Oaktree) is the only shareholder with
more than
5%
of the share capital of the share capital
holding
% 66
.
As of 31 December 20
21
, TORM’s treasury shares represented approximately
0.
of the total share 6%
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 20
21
, the members of the Board of Directors held a total of
297,135
shares, equivalent to a total market capitalization of
DKK
15,361,880
or USD
2,341,322
. The Board of Directors and certain
employees are limited to trading shares during a four
-
week period after the publication of financial report
.
TORM’s Transfer Agent is Computershare Inc, Dept
CH 19228, Palatine, IL 60055, USA.
DISTRIBUTION
POLICY
TORM intends to distribute
25
-
50%
of net income on a semi
-
annual
basis. The Distribution Policy will be
reviewed periodically, carefully considering TORM’s
capital structure, strategic developments, future
obligations, market trends and shareholder
interests.
TORM generates a net loss of USD 42.1m during 2021.
In line with the Distribution Policy, the Board of
Directors ha
s
decided not to recommend any distributions for 202
1.
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 202
1
,
2,
372,887
RSUs were
outstanding with
1,046,510
exercised during being
202
1.
The specific terms for the RSU’s are further
described in the Remuneration Committee Report on
page
s
89
-
99
. 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
incen
tivizing 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/
INVESTO
R INFORMATION
TORM OTHER
ANNUAL REPORT 2021
104
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 con
tinuous focus
on the leveraging on the integrated One TORM platform, TORM’s
capital structure and TORMs ESG agenda in support for short term
and long term RoIC generation with the aim of maximizing the
long
-
term value for TORM’s shareholders.
TORM issued 3
2
stock exchange announcements during 2021. The
COVID
-
19 pandemic challenged the possibility to conduct physical
meetings with investors and instead TORM organized several conference
calls and presentations via digital platforms with investors through e.g.
analysts. Further, TORM was represented on a number of industry panels.
In connection with the development of TORM’s updated ESG reporting,
equity analysts and investors have been consulted about their
requirements for the reporting of 2021.
TORM is active
ly communicating initiatives that are affecting leverage
and liquidity and are continuously confirming TORM’s focus on the One
TORM platform through quarterly and annual presentations.
EMPLOYEES
TORM’s employees are fundamental to
enable the Company to do business, and
their continued engagement is an integral
part of the decision
-
making across the
organization. The Board supports an open
dialogue between the Board and the
workforce.
The Board oversees the mechanisms we have in place to help
ensure that employees can raise any matters of concern, how such
matters are considered and, whe
n necessary, investigated,
through the whistleblower facility.
Two employee
-
elected representatives attended all Board
meetings as observers, The current observers include one office
-
based employee and one sea
-
based employee. Observers are
Since 2006, TORM’s Board of Directors has provided a whistleblower
facility with an independent lawyer as part of the internal control
system. Read more on page 44
The observers on TORM’s Board al
low TORM’s employees to have a
direct line of questioning to and receive feedback from the Board.
Full details of attendance can be found on page
76.
ENGAGEMENT AND DECISION
-
MAKING
The following information comprises our section 172 statement, setting out how, in performing their duties over the course of
the year, Directors
have had regard to the matters set out in section 172(1) (a
-
f) of the UK Companies Act 2006.
We have integrat
ed 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 consid
er, in
good faith,
would be most likely to promote the success of the
TORM
for the benefit of its members as a whole during the year ended 31 December 2021
TORM OTHER
ANNUAL REPORT 2021
105
Why?
Why is it important to engage
How?
How did Management and Directors engage?
Outcomes and actions
What was the impact of the engagement?
TORM regards
responsible behavior as a
central part of the Company, our business
and the mindset of our people.
permitted to participate but are not permitted to formally vote on
matters submitted to a vote.
The Board receives and follows up on the Employee Engagement
Survey performed twice a year.
Throughout the COVID
-
19 pandemic, the Company has ensured
that every employee is p
rovided with the required equipment to
work safely from home when required.
In 2021, w
e continued our bi
-
annual real time data engagement
survey which we introduced in 2019. More than 90% of all shore
-
based employees responded to this survey. Read about TORMs
engagement survey on page
41-
42
Throughout t
he COVID
-
19 pandemic, we have supported our
employees to work from home, where possible, and recognized this
as an opportunity to further increase flexible working in the future.
Going forward, remote work will continue to form part of the way
daily operat
ions are performed in TORM providing more flexibility
than has previously been available. Read more about our people on
page
41-
42
SUPPLIERS & CUSTOMERS
Managing the relationship with suppliers
and customers is an integral part of the way
TORM conducts
its
business. The COVID
-19
pandemic highlighted the importance of
maintaining a dialogue as well as a good
relationship with both suppliers and
customers.
At the beginning of the COVID
-
19 pandemic, TORM reviewed the
supplier chain to search for critical vendors, ensuring that a
dialogue took place to pre
-
empt any unforeseen problems that
might occur.
Beyond national and international regulation, TORM’s larg
est
customers have their own compliance criteria that TORM and
other product tanker operators have to comply with.
Ensuring quality in everything TORM does, is part of the one
TORM KPI Framework. Within this framework, the Board includes
a Tradability KPI ensuring that TORM vessels are available to meet
our customers’ demands.
TORM encourages feedback from its customers and suppliers.
The Board’s pre
-
emptive actions enabled TORM to ensure smooth
continuation of operations throughout 2021.
TORM has a high
degree of approval by oil majors and regularly receives
feedback from our customers. TORM utilizes this feedback in solving
future logistical demands, understanding our customers’ difficulties and
requirements and to help resolve issues each time they are
encountered.
Read about more detail on how TORM meets customers’
requirements
on page
37
-39
TORM’s modern and
well
-
maintained fleet with most of the vessels being
scrubber
-
fitted further provides TORM and its customers with enhanced
flexibility as well as reduced fuel costs.
2021 proved to be
another
challenging
year
, particularly on supply chain
availability and
options.
Despite this
TORM’s supplier relationships and
regional approach
,
meant that no off hire was suffered by our fleet due to
unavailability of critical spares.
LENDERS
Strong relationships with our banks,
financial institutions and
investors supports
the Company’s ability to be financially
flexible.
TORM maintains an ongoing dialogue with several funding
providers. TORM is engaged with lenders and potential lenders for
being able to fund vessel acquisitions.
TORM is also in dialogue
with leasing providers for operational
lease funding of vessel acquisitions and for sale and leaseback
transactions in order to mitigate stranded asset risk.
TORM entered into several financing agreements to finance numerous 2
nd
hand vessel acquisitions to allow the Company to continue the fleet
renewal program.
Several of the acquisitions and some of the sale and leaseback
transactions entered into during 2021 were structured as operational
leases securing TORM’s option to rede
liver the asset to the lessor at the
end of the lease.
TORM OTHER
ANNUAL REPORT 2021
106
Why?
Why is it important to engage
How?
How did Management and Directors engage?
Outcomes and actions
What was the impact of the engagement?
TORM is engaged with funding providers in order to understand
ESG risks related to financing in order to be an attractive and
transparent borrower.
REGULATORS
As a company incorporated in the UK and
listed on Nasdaq both in Copenhagen and
New York, the Company must ensure that
the high standards required by the local
regulatory bodies are
met.
Through close dialogue with Management, its committees and
through its compliance systems, the Board ensures that the
Company remains up to date with the latest regulatory changes.
Examples of matters discussed this year by the Board or the
committees
include:
•
IMO regulations on CO
2
emissions
•
Danish Shipping and the Charter for more women in shipping
•
Mæ
rsk McKinney M
øller Center for Zero Carbon Shipping
•
The Modern Slavery Act
TORM’s Business Principles, ensure th
at TORM is always in
compliance with legislation and lives up to the commitment to
responsible business practices. See pages
32,
44,
47
TORM’s Corporate Social Responsibility Statement and Corporate
Governance statement www.torm.com/about
TORM’s Modern Slavery Act Statement
www.modernslaveryregistry.org
Read about more TORM’s participation in the Danish Shipping on
pages.
35
,4
3,72
and th
e Centre for Zero Carbon Shipping see page
s
27
,3
5,40
COMMUNITY &
ENVIRONMENT
TORM remains committed to taking an
active role in caring for communities and
our environment. It is not just our shared
duty, but our shared responsibility.
Therefore, TORM continues the work to
combat carbon, sulfur and other emissions
and remains committed to enabling quality
education, as this is a matter of concern for
TORM and its employees. We believe that
by having all involved stakeholders working
toge
ther 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 includ
e our education foundation, our commitment to
the UN SDGs 4 and 13 and our climate engagement supporting
initiatives.
TORM
has set a target to reduce its relative CO
2
emissions by 45%
by 2030 compared to 2008 and be climate neutral by 2050.
For information on how TORM Phi
lippines
and TORM India’s
Education Foundation ha
ve
been uplifting and supporting the
educational development actions in the community see page
s 45-46
.
To see how TORM is actively involved in various industry
collaborations supporting our ambitious journey to achieve our 2050
environmental target of zero CO2 emissions from our operating fleet
see pages
27
,3
5,40
.
To support TORMs ambitious CO
2
target TORM management will be
measured on achieving it. You can read m
ore about TORMs ESG
journey
from page
32
.
TORM OTHER
ANNUAL REPORT 2021
107
The Directors are pleased to present the Annual Report
on the affairs of the TORM Group for 2021, including
the financial statements and the auditor’s report.
Other disclosure requirements, which form part of the
Directors’ Report, are included in other sections of this
Annual Report. Details on information incorporated by
reference are generally set out under the relevant
topics in the Directors’ Report.
TORM’s section 172 statement can be found on
pages
104
-
106.
RESPONSIBILITY STATEMENT
As required under
UK
-
adopted
International
Accounting Standards a statement made by the Board
regarding the preparation of the financial statements
.
TORM’s responsibility
statement can be found on
page
s
11
0-111
. GOING CONCERN
TORM’s going concern statement can be found on
page
63.
C
ORPORATE GOVERNANCE STATEMENT
The
Corporate Governance Statement setting out how
the Company complies with the Code, and which
includes a description of the main features of our
internal control and risk management arrangements in
relation to the financial reporting process
.
Find TORMs Corporate Governance Statement
www.torm.com/investors/governance
A description of the composition and operation of
the Board and its Committees is set out on pag
es
73
-
76.
Find the UK Corporate Governance Code
www.frc.org.uk
OTHER INFORMATION INCLUDED IN THE STRATEGIC
REPORT
The “Strategic Report” set out on pages
16
-
30
provides
a review of TORM’s operations in 2021 and the
potential future developments of those operations.
Details on greenhouse gas emissions are included in
the “Strategic Report” on page
16
, and details on -
30
TORM’s general policy relating to recruitment, training,
career development and disabled employees are
included on page
43
.
Information on ho
w the Directors have had regard to
the need to foster the Company’s business
relationship with suppliers, customers, and other
stakeholders is set out on pages
104
-
106.
DIRECTORS AND THEIR INTERESTS
The Directors of the Company who served during
the financial year 2021 and up to the date of signing
the financial statements can be found on page
75
.
The
rules relating to the appointment and
replacement of Directors and Directors’ powers can
be found on TORMs Articles of Ass
ociation
.
Details of Directors’ interests in the Company’s is set
out on pages
96.
INDEMNIFICATION OF DIRECTORS AND INSURANCE
TORM has not granted any indemnity for the benefit of
the Directors but has a general Directors’ and Officers’
Liability Insurance and a Public Offering of Securities
Insurance covering the Prospectus and the Exchange
Offer documentation related to the Corporate
Reorganization.
REQUIREMENTS OF THE LISTING RULES
TORM plc is listed on Nasdaq in Copenhagen and
Nasdaq in New York. The only listing rule requirement
regarding the content of the Annual Report is that
TORM’s Annual Report must comply with the
provisions of the
UK Companies Act, including
provisions for EEA
-
listed companies.With effect from 1 January 2021, TORM plc elected
Denmark as its Home State under the Transparency
Directive rules, due to the implications of Brexit.
Accordingly, TORM plc has complied wit
h the
guidelines laid down in the Public Statement from The
European Securities and Markets Authority (ESMA32
-
61
-
1156) concerning the application of transparency
requirements by UK issuers with securities admitted to
trading on regulated markets in the EU under Article 4
of the Transparency Directive, to ensure compliance
and transparency in this annual report.
SHARE CAPITAL
More information on TORM’s share capital can be
found on page 101
.
DIVIDENDS
In line with the Company’s Distribution Policy, the
Board of Directors has decided to recommend that no
dividends be paid for 2021
.
D
IRECTORS
’ R
EPORTTORM OTHER
ANNUAL REPORT 2021
108
SUSTAINABILITY
Information about the Company’s approach to
sustainability risks and opportunities is set out on
pages
32
-
54
. Also included on these pages are details
of our greenhouse gas emissions.
FINANCIAL RISK MANAGEMENT
The Company uses financial instruments to manage
risks related to freight rates, bunker fuels, interest rates
and foreign exchange. For further information on the
use of financial instruments, please refer to
N
ote
22
to the financial statements. Details on financial risks are
provided in
N
ote
the financial statements21
to .
ANNUAL GENERAL MEETING
TORM’s next Annual General Meeting (AGM) will be
held on 20 April 2022. The notice of the AGM, including
the complete proposals, will be available on TORM’s
website,
www.torm.com
prior to the meeting.
RETIREMENT, REAPPOINTMENT AND APPOINTMENT
OF DIRECTORS
In line with the Company’s Articles of Association on
file at Companies House, each Director, apart from the
B-
Director, must retire at the end of the second AGM
after his or her appointment or last reappointment
unless he or she has been reappointed at that AGM.
The Company’s Directors were re
-
elected at the 2020 Annual General Meeting and will therefore be due to
retire in 2022. The terms and conditions of the
appointment of Non
-
Executive Directors are set out in the Company's Memorandum of Terms and Conditions
which, in
accordance with the UK Companies Act
2006, Chapter 5, Section 228, is available for inspection
from the Company Secretary.
SHARE CAPITAL
Information about the Company’s share capital is set
out
in Investor information on pages
101-
103.
R
ESEARCH AND
DEVELOPMENT
The Company continues to focus on optimization,
but does not allocate specific costs to research and
development.
GROUP POLICY COMPLIANCE
TORM has implemented a comprehensive compliance
program to ensure that the Company remains in
compliance
with rules and regulations related to our
business activities worldwide. As part of this
compliance program, all employees are required to
document that they are aware of and have received all
training required in relation to each compliance area.
COMPAN
Y BRANCHES
The TORM Group has offices in Denmark, India, the
Philippines, Singapore, the UK and the USA. Further
details on the Company's global presence are set out
on page
6
.
POLITICAL DONATIONS
No political donations were made during 2021.
SIGNIFICANT SHAREHOLDINGS
Details on significant shareholdings are set out in the
“Investor Information” section on page
101
-
103.
CONTROLLING SHAREHOLDER
TORM’s controlling shareholder, Oaktree, owns TORM
plc’s sole C
-
share, which carries 350,000,000 votes at the General Meeting in respect of Specified Matters,
including election of members to the Board of
Directors of TORM plc (including the Chairman, but
excluding the Deputy Chairman) and certain
amendments to the Articles of Association.
RECENT DEVELO
PMENTS AND POST
-
BALANCE
SHEET EVENTS
Details of important events affecting TORM which have
occurred since the end of the financial year disclosed in
N
ote
2 to
the financial statements.
INDEPENDENT AUDITORS
Each person who is a Director at the date of approval
of the Annual Report confirms t
hat:
•
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.
DIRECTORS’ REPORT
TORM OTHER
ANNUAL REPORT 2021
109
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the
U
K Companies Act 2006.
STATEMENT BY THE DIRECTORS IN PERFORMANCE
OF THEIR STATUTORY DUTIES IN ACCORDANCE
WITH SECTION 172(1) OF THE UK COMPANIES ACT
2006
TORM’s Engagement and Decision making can be
found on pages
104
-
106.
Approval
On behalf of the Board of Directors
Christopher H. Boehringer
Chairman of the Board of Directors
23 March 2022
DIRECTORS’ REPORT
TORM OTHER
ANNUAL REPORT 2021
110
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable United Kingdom law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year. Under that
law, the Directors are required to prepare the group
financial st
atements in accordance with
UK
-
adopted
International
Accounting
Standards (
UK
adopted IAS-
)
and have elected to prepare the parent company
financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounti
ng Standards and applicable
law), including Financial Reporting Standard 101
“Reduced Disclosure Framework” (FRS 101). Under
company law, the Directors must not approve the
financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Group and the Company and of the profit or loss of the
Group and the Company for that period.
In preparing these financial statements, the Directors
are required to:
•
Select suitable accounting policies in accordance
with IAS
8 Accounting Policies, Changes in
Accounting Estimates and Errors and then apply
them consistently
•
Make judgements and accounting estimates that
are reasonable and prudent
•
Present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information
•
Provide additional disclosures when compliance
with the specific requirements in
UK
adopted IAS-
(or in respect of the parent company financial
statements, FRS 101) is insufficient to enable users
to understand the impact of particular
transactions, other events and conditions on the
entity's financial position and financial performance
•
In respect of the group financial statements, state
whether
UK
adopted IAS-
have been followed,
subject to any material departures disclosed and
explained in the financial statements
•
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
S
TATEMENT
OF
DIRECTORS
R’
ESPONSIBILITIES
TORM OTHER
ANNUAL REPORT 2021
111
The
D
irectors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the
C
and the Group’s ompany’s
transactions
and disclose with reasonable accuracy at any time the
financial position of the
C
ompany and
the Group and
en
able them to ensure that the company and the group
financial statements comply with the Companies Act
2006.
They are also responsible for safeguarding the
assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
Under applicable law and regulations, the directors are
also responsible for preparing a strategic report,
directors’ report, directors’ remuneration report and
corporate governance statement that comply with that
law and those regulations. The Directors are
responsible for the maintenance and integrity of the
corporate and financial information included on the
Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of
financ
ial 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, 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 Re
port,
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 t
hey 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
This responsibility statement was approved by the
B
oard of
Directors on
23
March 202
2 and is signed on
its behalf by:
Jacob Meldgaard
Executive Director
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
TORM OTHER
ANNUAL REPORT 2021
112
SAFE HARBOR STATEMENTS
AS TO THE FUTURE
Matters discussed in this release may constitute
forward looking statements. The Private Securities
Litigation Reform Act of 1995 provides safe harbor
protections for forward
-
looking statements in order to encourage companies to provide prospective
informa
tion 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
i
n 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 identi
fy 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 cont
ingencies 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,
general market conditions, including fluctuations in
charter hire rates and vessel values, the duration and
severity of the ongoing COVID
-
19 pandemic, including
its impact on the demand for petroleum products and
the seaborne transportation of these and the ability to
change crew and operate a vessel with COVID
-
19
infected crew, the operations of our customers and our
business in general, the failure of our contract
counterparties to meet their obligations, changes in
demand for “ton
-
miles” of oil carried by oil tankers and changes in demand for tanker vessel capacity, the
effect of changes in OPEC’s petroleum production
levels and worldwide oil consumption and storage,
changes in demand that may affect attitudes of time
charterers to scheduled and unscheduled dry
-
docking,
changes in TORM’s operating expenses, including
bunker prices, dry
-
docking and ins
urance costs,
changes in the regulation of shipping operations,
including actions taken by regulatory authorities
including but not limited to CO2 tariffs or trade tariffs ,
potential liability from pending
or future litigation, domestic and international political
conditions, potential disruption of shipping routes due
to accidents, weather, political events including “trade
wars”,
the geopolitical crisis related to Russia and
Ukraine
, or acts of terrorism.
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
ob
ligation to update any forward
-
looking statements as a result of developments occurring after the date of
this communication.
TORM
ANNUAL REPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS
113
FINANCIAL STATEMENTS
202
1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Changes in Equity
Consolidated Cash Flow Statement
Notes Consolidated
PARENT COMPANY FINANCIAL STATEMENTS
Parent Company
Balance Sheet
Changes in Equity
Notes to Parent Company Financial Statements
OTHER
Independent Auditor’s Report
TORM Fleet Overview
Glossary and APM
FINANCIAL
STATEMENTS
Consolidated financial statements
TORM
ANNUAL REPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS
114
CONSOLIDATED I
NCOME STATEMENT
1 JANUARY
-
31 DECEMBER
USD
Note
2021
2020
2019
Revenue
Port expenses bunkers and commissions
-240,937 -227,924 -267,739
Operating expenses
3 -190,471
Profit from sale of vessels
-178,376
-172,983
Administrative expenses
-51,542 -50,773
-47,724
Other operating
expenses
-19,185 -2,911
Share of profit(loss) from joint ventures
-104 -242 -422
Impairment losses and reversal of impairment on
tangible assets
-4,645 -11,096 114,004
Depreciation
6,7
-130,851
-121,922 -110,124
Operating profit/(loss) (EBIT)
Financial income
Financial expenses
-42,382 -49,914 -41,881
Profit/(loss) before tax
-40,745 89,529 166,806
Tax
-1,344 -1,415 -784
Net profit/(loss) for the year
-42,089 88,114 166,022
EARNINGS PER SHARE
Basic earnings(loss) per share (USD)
-0.54 1.19 2.24
Diluted
earnings(loss) per share (USD)
-0.54 1.19 2.24
CONSOLIDATED STATEMENT OF
C
OMPREHENSIVE
INCOME
1 JANUARY
-
31 DECEMBER
USD
2021
2020
2019
Net profit/(loss) for the year
-42,089 88,114 166,022
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
Fair value adjustment on hedging instruments
-209
-15,790 -13,289
Fair value adjustment on hedging instruments transferred
to income statement
Items that may not
be reclassified to profit or loss:
Remeasurements of net pension and other post
-
retirement
benefit liability or asset
-8 103 -82
Other comprehensive income/(loss) after tax ¹
⁾
-8,811 -11,661
Total
comprehensive income/(loss) for the year
-25,184 79,303 154,361
⁾
No income tax was incurred relating to other comprehensive income(loss) items 
TORM
ANNUAL REPORT 20
21
CONSOLIDATED FINANCIAL STATEMENTS115
CONSOLIDATED BALANCE SHEET
A
S OF
31 DECEMBER
USD
Note
2021
2020
ASSETS
NON
-
CURRENT ASSETS
Tangible fixed assets
Land and buildings
Vessels and capitalized dry
-
docking
6,7,8,17 1,937,791 1,722,465
Prepayments on vessels
Other plant and operating equipment
Total tangible fixed assets
Financial assets
Investments in joint ventures
Loan receivables
Deferred tax asset
Other investments
Total financial assets
Total non
-
current assets
CURRENT ASSETS
Bunkers
Freight
receivables
Other receivables
Prepayments
Cash and cash equivalents including restricted cash
Current assets
Assets held for sale
Total current assets
TOTAL ASSETS
USD
Note
2021
2020
EQUITY AND LIABILITIES
EQUITY
Common shares
Share premium
Treasury shares
-4,235
-4,235
Hedging reserves
-20,681
Translation reserves
-3,559
Retained profit
Total equity
LIABILITIES
NON
-
CURRENT LIABILITIES
Non
-
current tax liability related to held over gains
Borrowings
Total non
-
current liabilities
CURRENT
LIABILITIES
Borrowings
Trade payables
Current tax liabilities
Other liabilities
Provisions
Total current liabilities
Total liabilities
TOTAL EQUITY AND LIABILITIES
TORM
ANNUAL REPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS
116
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY
-
31 DECEMBER
USD '000
Common
shares
Share
premium
Treasury
shares ¹
⁾
Hedging
reserves
Translation
reserves
Retained
profit
Total
Equity as of 1 January 2019 742 97,092
-2,887
-96
Comprehensive income/loss for the year:
Net profit/(loss) for the year
Other comprehensive income/(loss) for the year²
⁾
-12,005 426
-82
-11,661
Total comprehensive income/(loss) for the year
-12,005
Capital increase
Share
-
based compensation
Total
changes in equity 2019
-12,005
Equity as of 31 December 2019
-2,887
-11,751
Comprehensive income/loss for the year:
Net profit/(loss) for the year
Other comprehensive income/(loss) for the year ²
⁾
-8,930
-8,811
Total comprehensive
income/(loss) for the year
-8,930
Capital increase
Transaction costs of capital increase
-32
Acquisition of treasury shares
-1,348 -
-1,348
Share
-
based compensation
Dividend paid
-32
-70,611
-70,611
Total changes in equity 2020
-1,348
-8,930
Equity as of 31 December 2020
-4,235
-20,681
TORM
ANNUAL REPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS
117
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY
-
31 DECEMBER
USD
Common
shares
Share
premium
Treasury
shares ¹
⁾
Hedging
reserves
Translation
reserves
Retained
profit
Total
Equity as of January
-4,235
-Comprehensive income/(loss) for the year:
Net profit(loss) for the year
-42,089
Other comprehensive income(loss) for the year
⁾ - -
-209
-8
-42,089
Total comprehensive income/(loss) for the year
-209
-42,097
-25,184
Capital increase
⁾
Transaction costs of capital increase
Share
-
based compensation
-285
Dividend paid
-285
Total changes in equity 2021
-209
-39,780
Equity as of 31 December 2021
-4,235
-3,559
⁾
Please refer to note for further information on treasury shares
⁾
Please refer to Consolidated Statement of Comprehensive Income
⁾
Please refer to note for further information on capital increases during the year 
TORM
ANNUAL REPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS
118
USD
Note
2021
2020
2019
CASH FLOW FROM OPERATING ACTIVITIES
Net profit(loss) for the year
-42,089 88,114 166,022
Reversals
Profit from sale of vessels
-1,180
Depreciation
-1,069
Impairment losses and reversal of impairment
losses on tangible assets
-114,004
Share of profit(loss) from joint ventures
Financial income
-241
-536
Financial expenses
-2,796
Tax expenses
Other non
-
cash movements
Dividends received from joint ventures
Interest received and realized exchange gains
Interest paid and realized exchange losses
-41,046
-52,905 -45,283
Income taxes paid
-1,379
-252 -216
Change in bunkers receivables and payables
etc
-48,489 15,909 11,858
Net cash flow from operating activities
USD
Note
2021
2020
2019
CASH FLOW FROM INVESTING ACTIVITIES
Investment in tangible fixed assets
⁾
-319,787
-173,050
-384,349
Investments in joint ventures
-275
Sale of tangible fixed assets
Change in restricted cash
-30,414
Net cash flow from investing activities
-290,593
-119,802
-322,823
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds borrowings
5, 16 548,817 734,346 261,830
Repayment borrowings
16
-253,420
-746,475
-169,177
Dividend paid
-70,611
Capital
increase
⁾
Transaction costs share issue
-285
-32
Purchasedisposal of treasury shares
Change in restricted cash
-1,348
Net cash flow from financing activities
-83,332
Net cash flow from operating, investing and
financing activities
-67,241
Cash and cash equivalents as of January
Cash and
cash equivalents as of 31 December
Restricted cash as of December
Cash and cash equivalents, including
restricted cash as of 31 December
⁾
In share capital was increased by USD m including a USD m non-cash share issue in relation to
acquisition of eight vessels Please refer to Note for further reference
CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY
-
31 DECEMBER
TORM
ANNUAL REPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS
119
N
ote
–
Accounting Policies Critical Accounting Estimates and Judgements
Note
–
Liquidity Capital Resources and Subsequent Events
Note
–
Staff Costs
Note
–
Rem
uneration to Auditors Appointed at the Parent Company’s Annual General Meeting
Note
–
Loan Receivables
Note
–
Tangible Fixed Assets
Note
–
Leasing
Note
–
Impairment Testing
Note
–
Non
Current Assets-
Note
–
Financial Items
Note
–
Freight Receivables
No
te
–
Other Receivables
Note
–
Tax
Note
–
Common Shares and Treasury Shares
Note
–
Other Liabilities
Note
-
Effective Interest Rate Outstanding Borrowings
Note
–
Collateral Security for Borrowings
Note
–
Guarantee Commitments and Contingent Liabilities
Note
–
Contractual
Rights and Obligations
Note
–
Derivative Financial Instruments
Note
–
Risks Associated with TORM’s Activities
Note
–
Financial Instruments
Note
–
Related Party Transactions
Note
–
Assets Held for Sale and Non
-Current Assets Sold Durin
g the Year
Note
–
Cash Flows
Note
–
Entities in the Group
Note
-
Provisions
Note
–
Earnings per Share and Dividend per Share
Note
–
Cash and Cash Equivalents Including Restricted Cash
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
TORM
ANNUAL REPORT 202
1 CONSOLIDATED FINANCIAL STATEMENTS
1 120
N
OTE
1 – ACCOUNTING
POLICIES
C,
RITICAL
A
CCOUNTING
ESTIMATES AND
J
UDGEMENTS
OVERVIEW OF BUSINESS
TORM plc
is a public company limited by shares and is incorporated in England and Wales . Its registered
number is 09818726 and its registere
d address is Birchin Court, 20 Birchin Lane, London
“
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 exchange
s N
asdaq
in
Copenhagen, Denmark
, and on N
asdaq in
New York, United States.
BASIS OF PREPARATION
The consolidated financial statements of the Group have been prepared in accordance with
UK
-
adopted
International
Accounting
Standards (“
UK
-
adopted IAS
”). The consolidated financial
statements are also prepared in accordance with International Financial Re
porting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”)
and
IFRS as
adopted by the EU
,
as applied to financial periods beginning on or after
1
January 2021.
The consolidated financial statements have been
prepared on a going concern basis and under
the historical cost convention except where fair value accounting is specifically required by
IFRS.
the
presentation currency in the
preparation of the consolidated financial statements.
GOING CONCERN
As of 31 December 2021 , TORM’s available liquidity including undrawn and committed facilities
was USD 210m, including a total cash position of USD 172m (including restricted cash of USD
2
7m). TORM’s net interest
-
bearing debt was USD 972m, and the net debt loan
-
to
value ratio -
was 52.3%. Further information on TORM’s objectives and policies for managing its capital, its
financial risk management objectives and its exposure to credit and liqu
idity risk can be found in
N
ote
21
to the financial statements. The principal risks and uncertainties facing TORM are set out
on pages
65
-
69and details on
the liquidity and capital resources
are described in
N
ote 2.
NOTE 1
–
continued
TORM
monitors its funding position throughout the year to ensure that
it has
access to
sufficient funds to meet
our
forecast cash requirements, including newbuilding and loan
commitments, and to monitor compliance with the financial covenants in
its
loan facil
ities,
details of which are available in
N
ote 2 to the financial statements. A key element for TORM’s
financial performance in the going concern period relates to the development of the COVID
-
19
pandemic and related effect on the oil demand and supply bala
nce.
TORM’s base case assumes
the oil markets to reach pre freight rates
-
2022 withCOVID
-19
level
s during the second half of
and
vessel values
materializing above 2021 levels.
In the base case, TORM has sufficient liquidity
and headroom above all the covenant limits.
TORM
also pays
special attention to
the
significantly
increased
geopolitical risk following Russia’s invasion of Ukraine in February 2022
and
the associated effect
s on the product tanker market
.
The immediate impact is that the uncertainty and potential for re
-
routing of trade flows has sent the tanker freight rates in the European markets upwards
. T
he financial
impact
going forward
is
uncertain, but TORM currently
expects that the possible effects are covered
within
the below sensitivity calculations.
TORM performs sensitivity calculations to reflect downside scenarios including, but not limited
to, future freight rates and vessel valuations in order to identify ri
sks to future liquidity and
covenant compliance and to enable Management to take corrective actions, if required. The
downside scenarios cover the principal risks and uncertainties facing
TORM
as set out on pages
65
-
69and include different distressed
outl
ooks
for the product tanker market. In a low case
scenario
, Management has assumed freight rates
which
on average are approximately 25%
below those in the base case and a
related
decline in vessel values. In the low case scenario,
there remains sufficient headroom on liquidity and covenants. In a stress case scenario
,
Management has
further stressed the freight rates to the lowest rolling four quarter average
since 2000.
In the stress case scenario, certain actions will be required
to maintain covenant
compliance. Such actions are assessed to be achievable also in a stress case scenario and could
include elements such as
the
sale of older vessels
.
The Board of Directors has considered
TORM’s
cash flow forecasts and the expected
com
pliance with
TORM’s
financial covenants for
the period until
3
1 March 202
3.
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 rea
sonable
expectation that taking reasonably possible changes in trading performance and vessel
valuations
into account
,
TORM
will be able to continue
the
operational existence and comply
with its financial covenants for
the
period
until 31 March 2023.
Accor
dingly,
TORM
continues to
adopt the going concern basis in preparing its financial statements.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 121
NOTE 1
-
continued
ADOPTION OF NEW OR AMENDED IFRS
STANDARDS
TORM has implemented the following standard
s
and amendments
issued by the IASB and
adopted by the
UK
in the consolidated financial statements for 20
21:
•
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
amendments
Interest rate Benchmark Reform
–
Phase 2
•
IFRS 4
amendment
Extension of the Temporary exemption from Applying
IFRS 9
•
IFRS 16
amendment
Covid
-
19
-related Rent Concessions beyond 30 June 2021
It is assessed that application of these effective on
0
1 January 202
1
has not had any material impact on the consolidated financial statements in 202
1.
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 y
et come into effect:
•
Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS
37 Provisions, Contingent Liabilities and Contingent Assets
(
all mandatory
0
1 Jan
uary 2022
)
•
Annual Improvements 2018
-2020
(01 Jan
uary
2022
) •
Amendmen
ts to IAS 1 Presentation of Financial Statements: Classification of Liabilities as
Current or Non
-
current (
0
1 Jan
uary 2023)
•
IFRS 17 Insurance Contracts (
0
1 Jan
uary
2023)
•
IAS 12 amendments
Deferred Tax related to Assets and liabilities arising from a
Single
Transaction
(0
1 Jan
uary
2023)
•
IAS 8 amendments
Definition of Accounting Estimates
(0
1 Jan
uary
2023)
•
IAS 1
and IFRS Practice Statement 2
amendments
Disclosure of Accounting Policies
(0
1
Jan
uary 2023)
•
IFRS 10 and IAS 28 (amendments)
Sale or Contributi
on 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.
NOTE 1
-
continued
ACCOUNTING POLICIES
The Group’s general accounting policies
are described below. In addition to this,
specific
accounting policies are described
in each of the
individual notes to the consolidated financial
statements as outlined
in the following notes:
•
Staff costs
•
Loan receivables
•
Tangible fixed assets
•
Leasing
•
Impairment
•
Financial items
•
Freight receivables
•
Other receivables
•
Tax
•
Other liabilities
•
Borrowings
•
Derivative financial instruments
•
Provisions
•
Earnings per share
Consolidation principles
The consolidated financial statements comprise the financial statements of the Parent Company,
TORM plc and entities controlled by the Company and its subsidiaries. Control is achieved when
the Company has all the following:
•
Power over the investee
•
Exposure, or rights, to variable returns from its involvement with the investee
•
The ability to use its power over the investee to affect the amounts of the investor’s returns
T
ORM
reassess whether it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 122
NOTE 1
-
continued
When the Company has less than a majority of the voting rights of an inve
stee, 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 mad
e, including voting pattern at previous shareholders’ meetings
Entities in which the Group exercises significant but not controlling influence are regarded as
associated companies and are accounted for using the equity method.
Companies which are
managed jointly by agreement with one or more companies and therefore
are subject to joint control (joint ventures) are accounted for using the equity method.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and
en
ds 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 Com
pany 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.
NOTE 1
-
continued
Foreign currencies
The functional currency of all significant entities, including subsidiaries and associated
companies, is United States
D
ollars (USD), because th
e 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. Transac
tions 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 th
e disposal of an entity, the cumulative
amount of the exchange differences recognized in the separate component of equity relating to
that entity is transferred to the income statement as part of the gain or loss on disposal.
Segment information
The segme
ntation is based on the Group’s internal management and reporting structure. The
Group only has one operating segment which is the sole reportable segment, the Tanker
Segment, for which the services provided primarily comprise transportation of refined oil
products such as gasoline, jet fuel
,
and naphtha.
The Group has only one geographical segment, because the Company considers the global
market as a whole and as the individual vessels are not limited to specific parts of the world.
Further, the
internal management reporting does not provide such information. Consequently, it
is not possible to provide geographical segment information on revenue from external
customers or non
-
current segment assets.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 123
NOTE 1
-
continued
I
NCOME STATEMENT
Revenue
I
ncome 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. Revenue is
recognized when or as performance obligations are satisfied by transferring services to the
customer, i.e.
,
over time
,
provided that the stage of completion can be measured reliably.
Revenue is measured a
s
the consideration the Group expects to be entitled to.
Freight revenue, including charter hire and demurrage (and related voyage costs) are
recognized in the income s
tatement 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
comple
ted at the reporting date
, because the Company has an enforceable right to payment for
performance completed to date.
Cross
-
over voyages
For cross
-
over voyages (voyages in progress at the end of a reporting period), the uncertainty
and the dependence on
estimates are greater than for finalized voyages. The Company
recognizes a percentage of the estimated revenue for the voyage equal to the percentage of
the estimated duration of the voyage completed at the balance sheet date. The estimate of
revenue is ba
sed 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 t
he 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.
NOTE 1
–
continued
The claim will often be met by counterclaims due to differences in the interpretation of the
agreement compared to the actual circumstances of the additional time used. Based on
previous experience, 95% of the demurrage claim submitted is recognized as dem
urrage
revenue upon initial recognition. The Company receives the demurrage payment upon reaching
final agreement on the amount, which on average is approximately 100 days after the original
demurrage claim was submitted. Any adjustments to the final agreement are recognized as
demurrage revenue.
Port expenses, bunkers
,
and commissions
Port expenses, bunker fuel consumption
,
and commissions are recognized as incurred. To the
extent 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 and write
-
down for losses on freight receivables
are included in this line.
Operating expenses
Operating exp
enses, 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 exp
ensed as incurred.
Other operating expenses
Other operating expenses primarily comprise management fees paid to commercial and
technical managers for managing the fleet and profits and losses deriving from the disposal of
fixed assets other than
vessels.
Depreciation and impairment losses and reversals of impairment losses
Depreciation and impairment losses comprise depreciation of tangible fixed assets for the year
as well as the write
-
down of the value of assets by the amount by which the carrying amount of
the asset exceeds its recoverable amount. In the event of indication of impairment, the carrying
amount is assessed, and the value of the asset is written down to its recoverable amount equal
to the higher of value in use based on net present value of future earnings from the assets and
its fair value less costs to sell.
Subsequent reversal of impairment losses
is
recognized if the recoverable amount exceeds the
carrying amount to the extent that the carrying amount does not exceed the carryi
ng amount
without any historic impairment losses.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 124
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 ex
pired 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 par
ties 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 o
f the profit or loss in the
joint venture. When TORM’s share of losses in a joint venture exceeds the investment in the joint
venture, TORM discontinues recognizing its share of further losses. Additional losses are
recognized only to the extent that TORM has incurred legal or constructive obligations or made
payments on behalf of the joint venture.
Bunkers
Bunkers and lube oil are stated at the lower of cost and net realizable value. Cost is determined
using the FIFO method and includes expenditure incurred in acquiring the bunkers and lube oil
and cost of delivery less discounts.
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 direc
tly in equity.
Dividend
Interim dividends are recognized as a liability at the time of declaration. Any year
-
end dividend
is recogni
z
ed as a liability at the date of approval at the AGM.
Trade payables
Trade payables are recognized at the fair value of the item purchased and are subsequently
measured at amortized cost.
NOTE 1
-
continued
CASH FLOW STATEMENT
The cash flow statement shows how income and changes in the balance sheet items affect cash
and cash equivalent, i.e.
,
how cash is generated or used in the period. The cash flow statement is presented in accordance with the indirect method commencing with “Net profit/(loss) for the
year”.
Cash flow from operating activities converts income statement items from the accrual basis of
accounting to cash basis. Starting with “Net profit/(loss) for the year”, non
-
cash items are
reversed,
and actual payments included. Further, the change in working capital is taken into
account.
Cash flow from investing activities comprises the cash used or received in th
e purchase and sale
of tangible fixed assets and financial assets as well as cash from business combinations.
Cash flow from financing activities comprises changes in the cash used or received in
borrowings (amount of new borrowings and repayments), purchases or sales of treasury shares
and dividend paid to shareholders.
Cash and cash equivalents including restricted cash
comprise cash
and short
-term bank
deposits with an original maturity of three months or less
.
The carrying amount of these assets
is approximately equal to their fair value. Cash and cash equivalent
s
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 a
s security for
initial margin calls
and
negative marke
t
values o
n
derivatives
as well as a
s
ale
and
leaseback transaction prepayment to
be released upon deliver
y 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 acc
ounting
estimate is considered critical if the estimate requires Management to make assumptions about
matters subject to significant uncertainty, if different estimates could reasonably have been
used, or if changes in the estimate that would have a material impact on the Company’s financial
position or results of operations are reasonably likely to occur from period to period.
Management believes that the accounting estimates applied are appropriate and the resulting
balances are reasonable. However, actua
l results could differ from the original estimates
requiring adjustments to these balances in future periods.
Management also makes various accounting judgements in the preparation of the consolidated
financial statements
which
can affect the amounts recognized
.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 125
NOTE 1
-
continued
Judgements
Management has assessed that TORM has
three
CGUs within its single rep
ortable segment
–
the
product tanker segment
–
the largest of which is its Main Fleet (comprising LR1/LR2 and MR
vessels). The Main Fleet is considered to be a single cash generating unit because the vessels in
the Main Fleet are largely interchangeable an
d 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 regardi
ng the location of vessels meeting required specifications and the
price of transport rather than vessel
class
. Given the technical specifications and capacity of vessels, the Main Fleet is relatively homogenous with a very high degree of interoperability.
All
vessels in the Main Fleet
can
handle multiple sizes of cargoes and sail all seas and oceans, over
both shorter and long distances. The Main Fleet is monitored and managed on an aggregated
level as one pool, i.e.
,
each vessel or vessel class does not g
enerate cash inflows
which
are
largely independent of those from other vessels or vessel classes.
The
vessels acquired inMR
2021
with
chemical trading capability
areoperated as
all
other product tanker vessel
s and thus
included in the Main Fleet CGU.
The other groups of CGUs outside the Main Fleet comprise the two Handysize vessels (which
are typically used for shorter and coastal trade routes and more frequent port calls, including for
transportation of various clean petroleum products within Europe and in the Mediterranean).
ESTIMATES
Carrying amounts of vessels
The Company evaluates the carrying amounts of the vessels (including newbuildings) to
determine if events have occurred
which
would require a modifi
cation of their carrying amounts.
The recoverable
number
of vessels is reviewed based on events and changes in circumstances
which
would indicate that the carrying amount of the assets might not be recoverable. In
assessing the recoverability of the vessel
s, the Company reviews certain indicators of potential
impairment or indication
which
past impairment losses should be reversed such as reported sale
and purchase prices, market demand and general market conditions.
Further, market valuations from leadin
g, 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 a
n 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 indicat
ors 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
expenditur
e including dry
-
docking costs and discount rates. For more information on key
assumptions and related sensitivities, please refer to
N
ote 8.
NOTE 1
-
continued
All
these factors have been historically volatile
, especially the freight rates
. The
carrying
amounts of TORM’s vessels may not represent their fair market value at any point in time
,
as
market prices of second
-
hand vessels to a certain degree tend to fluctuate with changes in
freight
rates and the cost of newbuildings. However, if the est
imated future cash flow or related
assumptions in the future experience change, an impairment write
-
down
or reversal
of
impairment
may be required.
NOTE
2 – L
IQUIDITY
C,
APITAL
RESOURCES AND
SUBSEQUENT
E
VENTS
LIQUIDITY AND CAPITAL RESOURCES
As of 31
December 20
21
, TORM’s cash
and cash equivalents including restricted cash
totaled
USD
172
m
(20
20
: USD
136
m
;
9201
: USD
72
m)
, and undrawn and committed
credit facilities
amounted to USD
38
: USD m (20
13220
: USD
m
;
9201
173
m)
. The undrawn
and committed
credit
facilities consisted of
a USD
38m
leasing facility
with
BoComm Leasing.
TORM had
one
newbuilding
(2020
:
two
: ; 201
9
four
)
to be delivered
in
early
2022.
The total outstanding CAPEX
related to the newbuilding was USD
38
m
(2020
m: USD
86
;
9201
: USD
51
m) and is mainly
financed by the
committed
BoComm Leasing
facilities
of USD
38
m.
TORM has a Syndicated Facilities Agreement which includes
a USD
177
m Term Facility
Agreement
, a USD 57m Revolving Credit Facility
and
a drawn USD 45m Working Capital Facility
with maturity in 2026.
In 2021
,
TORM repaid
USD 83m
debt on eight MR vessels
on
the
Term
Facility
Agreement and
refinanced the vessels
with
a sale and leaseback agreement
.
In addition
to the Syndicated Facilities, T
ORM has a USD
222
m Term Facility Agreement with Danish Ship
Finance with maturity in 2027. Further, TORM has a USD
59
m Term Facility Agreement
and
a
USD
26
m Term Facility Agreement
both
with maturity in 2025, and a USD 25m Term Facility
Agreement with maturity in 2026
with Hamburg Commercial Bank
. TORM also has a Term
Facility Agreement
with China Export
-
Import Bank of USD
45
m with maturity in 2030 and with
KfW
-
IPEX Bank of USD 4
1m with maturity in 2032.
The f
acility with China Export
-
Import Bank
was
partially repaid in 2021
,
and TORM refinanced two vessel
s with
a sale and leaseback
agreement with Bo
C
omm Leasing.
As of 31 December 202
1
, the scheduled minimum payments
on mortgage debt and bank loans in 202
2
were
USD
151
m.
TORM has lease
debt
of a total USD 77
m with various Japanese leasing providers
, lease
debt
of
a total
USD
197m
with
CBo
omm
Leasing
and of
USD 151m
with China Development Bank
Financial Leasing. The leas
ing
facilities with
Bo
C
omm Leasing consist
of
a
USD 52m
leasing
facility
expiring in 2025, a US
D
7m
leasing
facility to finance scrubber and ballast water
treatment systems expiring in 2024 and a leasing facility of USD 100m for financing three LR2
vessels. Two of the three LR2 vessels were refinanced from the loan facility with China Export
-
Import Bank and one of them was acquired by TORM in 2021.
Further, TORM has a leasing
facility with Bo
C
omm Leasing of USD 38m for the newbuilding LR2 vessel delivered in 2021 and
a
committed leasing facility
t
o finance the
remaining
newbuilding on order
. As of 31 December
202
1
, the scheduled
minimum
payments on lease agreements in 202
2
wer
e USD
37
m.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 126
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 ra
tio (minimum level)
During 202
1
and 201, 20
20
9
, TORM did not have any covenant breaches.
S
UBSEQUENT EVENTS
On 05 January 2022, TORM took delivery of the LR2 newbuilding vessel TORM Houston and
subsequently sold the vessel to new owners in a sale and leaseback financing transaction
which
included purchase options for TORM.
On 06 January 2022, the MR vessel TORM Astrid was delivered upon completion of a sale and
leaseback financing transaction
which
included purchase options for TORM.
On 15 February 2022
,
the Handysize vessel TORM Tevere was sold to new owners with expected
delivery during the first half of 2022.
The geopolitical risk increased significantly following Russia’s invasion of Ukraine in February
2022. The sanctions imposed on Russia by the We
stern nations increased uncertainty on the
general energy market, sending the price of crude oil to the highest level since 2014. The initial
sanctions were not targeting the oil trade, however
,
the uncertainty and potential for re
-
routing
of trade flows s
ent the crude tanker freight rates in the European markets upwards. Due to the
continuous development and complexity of the situation, the impact on the tanker markets
going forward is uncertain. Considering our current customer base, main suppliers and fi
nancial
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
. NOTE
3 –
STAFF
C
OSTS
EMPLOYEE INFORMATION
The majority of the staff on vessels
are
not employed by TORM. Staff costs included in
operating expenses relate to the
106
seafarers
employed under Danish contract
20 (
20
: 1
09
,
201
9
: 1
08
).
The average number of employees is
calculated as a full
-
time equivalent (FTE).
The Executive
Director
is, in the event of termination by the Company, entitled to a severance
payment of up to 12 months' salary.
USDm
Total staff costs
Staff costs included in
operating expenses
Staff costs included in administrative expenses
Total
Staff costs comprise the following
Wages and salaries
Share
-
based
compensation
Pension costs
Other social security costs
Other staff costs
Total
Average number of permanent employees
Seafarers
Land
-
based
Total
The m
ajority of s
eafarers on
vessels are on
short
-term contracts
. The number of seafarers on
short
-
term contracts
in 202
1
was
on average
1,
449
(20
920
: 1,
474
, 201
:
’ 1,5
10). Total
seafarers
costs
in 202
1 was USD
is 75.9m
(2020
.5: USD
80
m, 201
9: USD
79.5m)
, which
included in
“Operating expenses”.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 127
NOTE
3
-
continued
USD
Non
-
Executive Board and Committee Remuneration
short term
Christopher H Boehringer
David Weinstein
Göran Trapp
Torben Janholt
Annette Justad
Total
Executive Management
USD
Salary
Taxable
benefits
Annual
perfor
-
mance
bonus
Total
Executive Management Remuneration
Jacob Meldgaard
TORM AS
⁾
TORM plc
⁾
TORM AS
⁾
TORM AS adjustment
⁾
-
TORM plc
⁾
TORM AS
⁾
TORM plc
⁾
⁾
Paid by legal entity as noted As discussed in
the 2020
Annual
R
eport, at the time of issue the CEO’s bonus figure had yet to
be agreed and instead the Annual Report
2020
included an estimate of DKK 8.4m (USD 1
.
262m),
equating to 120% of his base salary. After final agreement by the Rem
uneration Committee, the
CEO’s bonus figure was set at DKK 7,000 (USD 1,137m), equating to 100% of his base salary.
Key
management personnel
consist
s
of the Boar
d
of Directors and the Executive Director.
Senior Management Team
The aggregate
d
compensation paid by the Group to the three
(
2020
:
3)
other members of the
Senior Management Team
in 202
1 (excluding
Jacob
Meldgaard) was USD
2
.2m
(2020
2:
USD
.1m
201
9
: USD
1.7m), which includes an aggregate of
USD
0.1m
(
20
20
: USD
0.1m,
201
9
: USD
0.1m
)
allocated for pensions
(defined contribution plans)
for these individuals.
NOTE
3
-
continued
LTIP element of Jacob Meldgaards remuneration package
Grant Date
-
Apr
--
Mar
-
RSU LTIP grant
⁾
Exercise price per
share
DKK
DKK
RSU grant value assuming vesting
USD m
USD m
⁾
LTIP award is fixed by the Board of Directors and was communicated via company announcement no of April and announcement no dated March therefore there is no minimum or maximum for and
TORM operates
an
based compensation plan. The fair value of the equity
-
settled, share
-
employee services received in exchange for the grant of shares is recognized as expense and
allocated over the vesting period. Employment in TORM throughout the period is in most cases
a
prerequisite for upholding the full vesting right
s in the RSU program. For good leavers subject
to the Danish Stock Options Act, the RSUs will vest in accordance with the vesting schedule, bu
t
for all other leavers, all unvested RSU’s shall be immediately forfeited for no consideration
.
Options are granted under the plan for no consideration and carry
no dividend or voting rights.
In accordance with its Remuneration Policy, TORM has granted th
e CEO a number of Restricted
Share Units (RSUs), which were communicated in company announcement no. 2 dated 18
January 2016,
company
announcement no. 10 dated 25 April 2018
,
and
company
announcement
no. 7 dated 18 March 2021. There are no performance cond
itions associated with th
e
grant of
RSUs.
The original RSUs granted to the CEO in 2016 amounted to 1,276,725 and vested over a five
-
year
period, with one fifth of the grant amount vesting at each anniversary during
the five
-year
period. The exercise pric
e for the 2016
RSUs was DKK 96.3. As of
0
1 January 2017, one fifth of
the original grant, amounting to 255,345, vested with an exercise period ending 31 December
2017. None of these RSUs were exercised. As of
0
1 January 2018, one fifth of the original gran
t,
amounting to 255,345, vested with an exercise period ending 31 December 2018. None of these
RSUs were exercised.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 128
NOTE 3
-
continued
As detailed in
company
announcement no. 10 issued on 25 April 2018, the CEO was granted a
total of 766,035 RSUs with effect as of
0
1 January 2018, which will vest in equal instalments over
the next three years. The RSU grant corresponds to the unvested portion (60%) of the CEO
’s
original five
-
year grant from 2016. It has been agreed that the CEO will not exercise the original
RSUs. The exercise price for each RSU is DKK 53.7, corresponding to the average price of TORM
shares during 90 calendar days preceding the approval at TORM
plc
’
s AGM on 12 April 2018 plus
a 15% premium.
Vested RSUs may be exercised for a period of 360 days from each vesting date. As of
0
1
January 2019, one fifth of the grant, amounting to 255,345, vested with an exercise period
ending 31 December 2019. Thes
e RSUs amounting to one third of the re
-
grant issued on 25 April
2018 were exercised. In November 2019, 255,345 RSUs were exercised by Executive Director
Jacob Meldgaard. The total value of the RSU allocation is calculated based on the Black
-
Scholes
model
and is included in the overall cost estimate for the Company
’
Term Incentive s Long
-Program (LTIP) (cf. company announcements dated 18 January 2016, 8 March 2016 and 25 April
2018).
The value of the 2018 grant, USD 0.9m, is estimated taking into account that as part of the grant
the CEO
will not exercise the unvested portion of the 2016 grant. The valuation is based on the
Black
-
Scholes model with an exercise price of DKK/share 53.7, a market value of one TORM A
-
share of DKK 49.5 (the closing price per A
-
sh
are at the time of allocation and assuming 100%
vesting).
The single figure remuneration table for the CEO does not include any amounts in relation to the
RSU awards since, as of the date each tranche vested, the Company
’
s share price was less than
the exercise price. As detailed in
company
announcement no.
7
issued on 18 March 2021, the
CEO was granted a total of 255,200 RSUs with effect as of
0
1 January 2022, which will vest in equal instalments over the next three years. The exercise price for each RSU
is DKK 53.5,
corresponding to the average price of TORM shares in the 90 calendar days preceding the
publication of TORM plc
’
s 2020 Annual Report plus a 15% premium. Vested RSUs may be
exercised for a period of 360 days from each vesting date
NOTE 3
- c
ontinued
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 ()
Outstanding as of January
Granted during the period
Exercised during the period
- -
Expired during the period
-
-
Forfeited during the period
Outstanding as of December
Exercisable as of December
In 2019, the Board agreed to grant a total of 1,001,100 RSUs to other management. The vesting
period of the program is three years for key employees. The exercise price is set to DKK
49
.7.
The exercise period is 12 months after the vesting date
.
alue of the options granted in The fair v
2019 was determined using the Black
-
Scholes model and is not material. The average remaining
contractual life for the restricted shares as per 31 December 2019 is 1.
5
years.
In 2020, the Board agreed to grant a total of
1,047,389 RSUs to other management. The vesting
period of the program is three years for key employees. The exercise price is set to DKK 69.9.
The exercise period is 12 months after the vesting date. The fair value of the options granted in
2020 was determ
ined using the Black
-
Scholes model and is not material. The average remaining
contractual life for the restricted shares as per 31 December 2020 is 1.5 years.
In 2021, the Board agreed to grant a total of
1.355,121
RSUs to other management. The vesting
period of the program is three years for key employees. The exercise price is set to DKK 53.5.
The exercise period is 12 months after the vesting date. The fair value of the options granted in
2021 was determined using the Black
-
Scholes model and is not material. The average remaining
contractual life for the restricted shares as per 31 December 202
1
is 1.5 years.
ACCOUNTING POLICIES
Employee benefits
Wages, salaries, social security contributions, holiday and sick le
ave, bonuses and other
monetary and non
-
monetary benefits are recognized in the year in which the employees render
the associated services. Please also refer to the accounting policy for share
-
based payment.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 129
NOTE 3
-
continued
Pension plans
The Group ha
s entered into defined contribution plans only. Pension costs related to defined
contribution plans are recorded in the income statement in the year to which they relate.
Share
-
based payments
The Group makes equity
-
settled share
based payments to certain -
employees, which are
measured at fair value at the date of grant and expensed on a straight
-
line basis over the
vesting period, based on the Group’s estimate of shares
which
will eventually vest. The fair value
of the share schemes is calculated using the
Black
Scholes model at the grant date.-
NOTE
4 –
REMUNERATION TO
UDITORS A
A
PPOINTED AT THE
PARENT
C
OMPANY’S
ANNUAL
GENERAL
MEETING
USDm
Audit fees
Fees payable to the Companys auditor for the audit of the
Companys annual
accounts
Audit of the Companys subsidiaries pursuant to legislation
Total audit fees
Non
-
audit fees
Audit
-
related services
Tax services
Total
non
-
audit fees
Total
Under SEC regulations, the remuneration of the auditor of USD
1.0
m (
720
20
: USD 0.
m,
9: 201
USD
0.
7
m) is required to be presented as follows:
A
udit USD
0.8m (
9: 2020
: USD 0.6m,
201
USD
0.
6m)
, Audit
-
related USD 0.1m (2019: other audit related
services USD 0.1m)
and
tax services
USD
0.1
m (
2020
:
tax
related services
USD 0.
1m).
EY w
as
appointed as
the
Group’s auditors for the year ended 31. December 2020. Accordingly,
comparative figures in the table above for the year ended 31 December 2019
is
in respect of
remuneration
paid to the Group’s previous auditor
,
Deloitte
. Our Audit
Committee pre
-
approves all audit, audit
-
related and non
-
audit services not prohibited by law to be performed by our independent auditors and associated fees prior to the
engagement of the independent auditor with respect to such services.
NOTE 5
–
LOAN
R
ECEIVABLES
USDm
Loan receivables
Cost
Balance as of January
-
Additions during the year
Balance as of December
Expected credit loss
Balance as of
January -
Additions during the year
Balance as of December
Carrying amount as of December
These loans were issued
as part of
sale
and
lease
back
s transaction
in 2019
for
two MR vessels
. The
loans
will
mature in 202
6
interest rate applicableand ha
an ve
,
fixed at 1% per annum.
Expected credit loss is recognized based on the 12
-
month expected credit losses.
ACCOUNTING POLICIES
Loan
receivables
Loan receivables are initially recognized on the balance sheet as fair value less transaction costs.
Subsequent to initial recognition, loan receivables are measured at amortized cost. Amortized
cost is defined as the amount initially recognize
d reduced by principal repayments and
allowances for the expected credit loss (ECL).
TORM C
ANNUAL REPORT 2021
ONSOLIDATED FINANCIAL STATEMENTS
1 130
NOTE 6
–
TANGIBLE
FIXED
ASSETS
USDm
Land and buildings
Cost
Balance as of January
Exchange rate
adjustment
-
-
-
Additions
Disposals
-
-
-
Balance as of December
Depreciation
Balance as of January
-
Disposals
-
-
-
Depreciation for the year
Balance as of December
Carrying amount as of December
NOTE 6
-
continued
USDm
Vessels and capitalized dry
-
docking
Cost
Balance as of
January
Additions
Disposals
Transferred from prepayments
Transferred to assets held for sale
- -
Balance as of December
Depreciation
Balance as of January
Disposals
Depreciation for the year
Transferred to assets held for sale
Balance as of December
Impairment
Balance as of January
Impairment losses on tangible fixed assets
Reversal of impairment
⁾ - - -
Transferred to assets held for sale
- -
Balance as of December
Carrying amount as of December
⁾
For additional information regarding impairment considerations please refer to Note Included in the carrying amount for “Vessels and capitalized dry
-
docking” are capitalized dry
-
docking costs in the amount of USD 65.9m (2020: USD 66.1m, 2019: USD 60
.7m).
Included in the
carrying amount of “Vessels and capitalized drydocking”
are
vessels on
short
term
time charter leases (as lessor)
in the amount of
mUSD 247.6m
(2020:
201.1
, 2019:
75.9m)
. Please refer to
N
for expected redelivery of the vesselsote
19
.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 131
NOTE 6
-
continued
USDm
Prepayments on vessels
Cost
Balance as of January
Additions
Transferred to vessels
Balance as of December
Carrying amount as of December
During the year borrowing costs of USD
0.6
m (2020: 0.0m, 2019: 0.0m) have been
capitalized
.
The capitalization rate was
3.7
% (2020: 0.0%, 2019:
0.0%)
USDm
Other plant and operating equipment
Cost
Balance as of January
Exchange rate adjustment
Additions
Disposals
-
Balance as of
December
Depreciation
Balance as of January
Exchange rate adjustment
Disposals
-
Depreciation for the year
Balance as of December
Carrying amount as of December
For information o
n
assets
provided
as collateral security, please refer to
N
ote
17. Please refer to
N
ote
8 for information on impairment testing.
The depreciation expense related to
“
Other plant and operating equipment
”
of USD
2.4m relates
to
“
Administrative expense
” (2020
2m:
USD
1.,
9201
: USD 1.
0m).
Depreciation and impairment
losses on tangible fixed assets
on
“Vessels and capitalized dry
-docking
” relate to operating
expenses.
NOTE 6
-
continued
ACCOUNTING POLICIES
Vessels
Vessels consist of owned vessels and leased vessels. The accounting policy for leased vessels is
specified under “Leases”. Owned
vessels are measured at cost less accumulated depreciation
and accumulated impairment losses. Cost comprises acquisition cost and costs directly related
to the acquisition up until the time when the asset is ready for use, including interest expenses
incur
red 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 li
fe
, which TORM estimates to be 25 years.
TORM
considers
that a 25
-
year depreciable life is
appropriate and
consistent with what is used by other
shipowners with comparable tonnage. Depreciation is based on cost less the estimated residual
value. Residual value is estimated as the lightweigh
t tonnage of each vessel multiplied by scrap
value per ton. The useful life and the residual value of the vessels are reviewed at least at each
financial year
-
end based on market conditions, regulatory requirements
,
and
TORM’s
business
plans.
T
ORM
also ev
aluates 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 ever
y 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 dr
y-
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 refurb
ished at the next dry
-
docking.
Depreciation
t
hereof is carried over the period until the next dry
-
docking. For newbuildings, the
initial dry
-
docking asset is estimated based on the expected costs related to the first
-
coming
dry
-
docking, which again is base
d on experience and past history of similar vessels. For second
-
hand vessels, a dry
-
docking asset is also segregated and capitalized separately, taking into
account the normal docking intervals of the vessels.
At subsequent dry
-
dockings, the costs
comprise the actual costs incurred at the dry
-
docking
yard. Dry
-
docking costs may include the cost of hiring crews to carry out replacements and
repairs, the cost of parts and materials used, the cost of travel, lodging and supervision of
Company personnel
as well as the cost of hiring third
-party personnel to oversee a dry
-
docking.
Dry
-
docking activities include, but are not limited to, the inspection, service on turbocharger,
replacement of shaft seals, service on boiler, replacement of hull anodes, apply
ing of anti
-
fouling
and hull paint, steel repairs as well as refurbishment and replacement of other parts of the
vessel.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 132
NOTE 6
-
continued
Prepayments on vessels
Prepayments consist of prepayments related to newbuilding contracts for vessels not yet
del
ivered 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
–5 years
The depreciation commences when the asset is available for use, i.e.
,
when it is in the location
and condition necessary for it to be capable of operating in the manner intended by
Management. For a right
-
of
epreciation commences at the commencement date of -
use asset, d
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
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 sh
ould 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 lo
sses on tangible and intangible assets”.
NOTE
7 –
LEASING
TORM leases office buildings
,
some vehicles
,
and other administrative equipment. With the
exception of short
-
term leases and leases of low
-
value assets, each lease is reflected on the
balance sheet as a right
-
of
-use asset
with
a
corresponding
lease liability. The right
-
of
-use assets
are included in the financial statement line item
in which
the corresponding unde
rlying assets
would be presented if they were owned. Please refer to
N
ote 6.
As of 31 December 202
1
, TORM had recognized the following right
-of
-use assets:
USDm
Land and
buildings
Other plant
and operating
equipment
Cost
Balance as
of January
Exchange rate adjustments
Additions
Disposals
Balance as of December
Depreciation
Balance as of January
Disposals
Depreciation for the year
Balance as of December
Carrying amount as of December
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 133
NOTE 7
-
continued
USDm
Vessels and
capitalized
dry
-docking
Land and
buildings
Other plant
and
operating
equipment
Cost
Balance as of January
Additions
Disposals
- -
Balance as of December
-
Depreciation
Balance as of January
Disposals
Depreciation for the year
Balance as of December
-
Carrying amount as of December
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.
NOTE 7
-
continued
USDm
Vessels and
capitalized
dry
-docking
Land and
buildings
Other plant
and
operating
equipment
Cost
Balance as of January
Additions
Disposals
Balance as of December
Depreciation
Balance as of January
- -
Disposals
Depreciation for the year
Balance as of December
Carrying amount as of December
The table below describes the nature of the Group’s leasing activities by type of right
-
of
-use asset
recognized on 31 December 2021
the
balance sheetas of
:
Land and
buildings
Other plant
and operating
equipment
No of
right
-
of
-use assets leased
Range of remaining term
years
years
Average remaining lease term
years
years
No of leases with extension options
No of leases with options to purchase
No of leases with
termination options
Lease liabilities
regarding right
-of
-use assets
are included
on the
balance sheet
under
“Borrowings”
.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 134
NOTE 7
-
continued
USDm
Maturity analysis
-
contractual undiscounted
cash flow
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities as of
December
Lease liabilities included under
“Borrowings”
as of December
Non
-
current
Current
Extension and termination options are included in several leases in order to optimize operational
flexibility in terms of managing contracts. The lease term determined by TORM is the non
-
cancellable period of a lease, together with any extension/termination options if these are/are
not reasonably certain to be exercised.
Lease payments not recognized as a liability
T
ORM
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 l
ow value assets. Payments made under such leases
are expensed on a straight
-
relating to payments not line basis.
The expense
s recognized as a
lease liability
are
insignificant.
Cash outflow for leases
The total
cash
outflow for leases
amounts to
USD
2.8m (2020:
2.
3m
, 2019: 2.9m
). NOTE 7
-
continued
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 leas-
e 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 lan
d 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 adju
sted 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
-
use assets are depreciated and written down under the same of
-acco
unting 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 me
asured at amortized cost using the effective interest
method, where the lease liabilities are remeasured when there is a change in future lease
payments.
L
eases to charter out vessels are classified as operating leases as the leases are short term in
nat
ure and usually less than
one
year. Chartered out vessels are presented as part of Vessels
and capitalized dry
-
docking. Please refer to
N
ote 6. The lease income is recognized in the
income statement on a straight
-
line basis over the lease term.
Following a sale transaction, for agreements to immediately charter
-
in the related vessels (sale
and leaseback) but for which TORM maintains substantially all the risks and rewards incidental
to economic ownership
including repurchase options at lower value that the initial sales price
,
the proceeds received are presented as a financial liability in “Borrowings”. No gain or loss is
recorded, and the asset remains recognized on the balance sheet.
TORM
ANNUAL REPORT 2021
CO
1 NSOLIDATED FINANCIAL STATEMENTS
135
N
OTE 8
– IMPAIRMENT
TESTING
As of 31 December
202
1 and 2020
, Management tested the carrying amount of its fleet for
impairment within CGUs, being the Main Fleet and the two
h
andysize vessels. Each CGU sits
within a single reportable segment
–
the Tanker Segment
–
and comprises the following groups
of vessels:
Mai
n Fleet
:
Comprising TORM’s LR1/LR2 and MR vessels, the Main Fleet is operated collectively
as a combined internal pool, employed principally in the spot market and actively managed to
meet the needs of our customers in that market, particularly regarding the locat
ion of vessels
meeting required specifications. All vessels in the Main Fleet
are able to
handle multiple sizes of refined oil cargoes and sail all seas and oceans, over both shorter and long distances. Given the
technical specifications and capacity of ve
ssels, 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 a
ll
other product tanker vessels.
Handysize:
Comprisin
g two product tankers with a cargo carrying capacity of 35,000
–
37,000
dwt, these smaller vessels are typically used in shorter and coastal trade routes, including for
transportation of various clean petroleum products within Europe and in the Mediterranean
.
In both years, the recoverable amount of the CGUs was based on their value in use. The results
of impairment testing are summarized as follows
:
Impairment
losses
and
(
reversals
)
Discount rate
applied
Recoverable
amount
Excess values
(value in use over
carrying
amount)
202
1
2020
202
1
2020
202
1
2020
2021
2020
CGU
USDm
USDm
%
%
USDm
USDm
USDm
USDm
Main Fleet
-
-
6.7
7.0
2,276
1,7
47
2
69
8
Handysize
-
5.5
6.7
7.0
26
27
0
0
Total
-
5.5
2,
302
1,
774
2
69
8
Based on this
review, Management concluded that
as of 31 December 202
1 • Assets within the Main Fleet were not impaired as the value in use was
higher than
the
carrying amount
• The two
h
andy
size
vessels were
not
impaired as the value in use was
in line with
the carrying
amount on a vessel
-
by
-vessel basis
Impairments recognized during 2021
of
USD 4.6m
(2020: USD 5.6m)
as set out in
N
ote 6 relate
to
the
disposal of
i
ndividual vessels during the year.
T
he
impairment test is sensitive to reasonably possible
changes in key assumptions. These
sensitivities are set out on the next page.
NOTE 8
-
continued
KEY ASSUMPTIONS USED IN THE DETERMINATION OF VALUE IN USE
The assessment of the value in use of each CG
U was based on the net present value of the
expected future cash flows. The freight rate estimates in the period 202
2-
202
4 are based on
TORM’s
business plans.
Beyond 202
4, the freight rates are based on TORM’s 10
-
year historical
average rates, adjusted for
expected inflation of 2%
in line with US Federal Reserve and ECB
target over the medium term
. T
believes that the approach used for longORM
-
term rates
appropriately reflects the cyclical nature of the shipping industry and is the most reliable
estimate fo
r periods beyond those included in its
three
-
year business plan.
T
ORM’s
business plans for 202
2-202
4 and beyond also include
the anticipated benefit arising
from the installation of scrubbers on certain of the Group’s vessels (the “scrubber premium”),
ba
sed on current market differentials between the cost of heavy and low sulphur fuel oil.
As part of determining fair value, the impact from climate changes and the climate agenda on
the global oil demand, emission regulations and operating
expenses, etc., ha
ve
been considered
with 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 from
climate
changes have been anticipated in impairment testing
our current fleet. We continue to monitor
the development closely and are working on more specific plans for our ambition to have zero
CO
2
emissions from operating our fleet by 20
50
, which may impact our impairment testing in
the future.
The discount rate
used in the value in use calculation is based on a Weighted Average Cost of
Capital (WACC) of
6.7
% as of 31 December 202
1
(2020
0: 7.
%, 201
9:
7.5%). WACC is calculated
by using a standard WACC model in which cost of equity, cost of debt and capital structu
re are
the key parameters.
As of 31 December 20
21
, the 10
-year historical average spot freight rates
used in the value in use
calculation
are as follows:
•
LR2
: USD/day
19,111
(2020
8,: USD/day 1
884
9, 201
: USD/day
,17
986
) •
LR1
,: USD/day
17
856
(20
7,20
:
USD/day 1
443
, 201
9
: USD/day 1
7,060
) •
MR
,: USD/day
16
044
(2020
6,: USD/day 1
076
9, 201
: USD/day 15
) ,802
•
Handysize
,: USD/day
13
208
(2020
9: USD/day 13,
435
, 201
: USD/day 13,
) 601
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 136
NOTE
8
-
continued
Operating expenses and administrative expenses are
estimated based on TORM's business plans
for the period 202
2-
, operating expenses are adjusted for 202
4. Beyond 202
42
% inflation (20
20
:
2%) and administrative expenses are adjusted for
2
% inflation (20
20
: 2%)
in line with US Federal
Reserve and ECB target
over the medium term.
The product tankers are expected to generate normal income for 25 years from delivery from
the shipyard. Given the current age profile of the tanker fleet, the average remaining life would
be approximately
14
years
(2020
: approximate
ly 15 years).
The estimated
residual
value of
the
vessels
is
based on TORM’s green recycling policy
.
T
he impairment test
is sensitive to
reasonably possible
changes in the key assumptions
, which
may result in future impairments. These
are related to the future development in freight rates,
the WACC applied as discounting factor in the calculations,
and
the development in operating
expenses. All other things being equal, the sensitivities to the value in use have been assessed as
follows:
•
An increase/decrease in the tanker freight rates of USD/day 1
,000
would result in an
increase/decrease in the value in use of USD
285
m and USD
6
m for the Main Fleet and the
two
h
vesselsandy
size
,
respectiv
ely
• An
in
/crease
decrease in WACC of 1.0% would result in an increase
/decrease
in the value in
use of
approx.
USD
-148
167
2m and USD
m for the Main Fleet and the two
h
andy
size
vessels
, respectively
•
An increase/decrease in operating expenses of 10.0% would result in a decrease/increase in
the value in use of USD
201
m and USD
4
m for the Main Fleet and the two
h
andy
size
vessels
,
respectively
As outlined above, the impairment test has been prepared on the basis that the Company will
continue to operate its vessels as a fleet in the current set
-
up.
The fair value based on broker values for vessels in the Main Fleet including the order book and
chartered
-
in vessels was USD
1,892
m (2020
1: USD
,577
72m)
, whic
h is USD
m
below
the carrying
amount
(2020
: which
was
USD
245
m
below
the carrying amount)
. The fair value based on
broker values for the Handy vessels was
21
m
20(20
:
USD
22m)
, which is USD
3
m
below the
carrying amount
(20
20
: which
was
USD
10
m
below
the carrying amount).
ACCOUNTING POLICIES
Impairment of assets
Non
-
current assets are reviewed at the reporting date to determine any indication of
impairment including a significant decline in either the assets’ market value, increase to market
rates of return or in the cash flows expected to be generated by the fleet. If impairment
indicator(s) exists, an impairment test on a cash
-
generating unit (CGU) level will be performed.
A cash
-
generating unit is determined as the smallest group of assets that generates
independent cash inflows. An asset/CGU is impaired if the
recoverable amount is below the
carrying amount.
NOTE 8
-
continued
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 expec
ted to be
derived from a cash generating unit (CGU), utilizing a pre
-
tax discount rate that reflects current market estimates of the time value of money and the risks specific to the unit for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount is less than the
carrying amount of the cash generating unit, the carrying amount is reduced to the recoverable
amount.
The impairment loss is recognized immediately in the income statement. Where an impairment
loss subsequently
reverses, the carrying amount of the cash generating unit is increased to the
revised estimate of the recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined, had no impairment loss
been
recognized in prior years.
The Management in TORM has assessed that TORM has three CGUs, being the Main Fleet and
the two
h
andysize vessels.
For the purpose of assessing impairment, assets and time charter and bareboat contracts are
grouped at the lowest levels at which impairment is monitored for internal management
purposes.
NOTE 9
– N
ON
-CURRENT
ASSETS
The Company’s n
on
-
current assets
are
domiciled in the following countries:
USDm
UK
Denmark
Singapore
Other
Not allocated
Non
-
current assets
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 137
NOTE
10
–
FINANCIAL
ITEMS
USDm
Financial income
Interest income from cash and cash equivalents including
restricted cash
⁾
Exchange rate adjustments including gain from forward
exchange rate contracts - -
Total
Financial expenses
Interest expenses on borrowings
⁾
Financial expenses arising from lease liabilities regarding
right
-
of
-use assets
Exchange rate adjustments including loss from forward
exchange rate contracts
Commitment fee
Amortization of interest rate swaps
Ineffectiveness on interest rate swaps
- -
Other financial
expenses
Total
Total financial items
- -
⁾
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 acco
unting
taking into account the effective interest rate. Dividends from other investments are recognized
when the right to receive payment has been decided, which is typically when the dividend has
been declared and can be received without conditions.
NOTE 1
0
-
continued
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 l
osses from other equity investments and securities, unrealized losses from
securities and other financial expenses including payments under interest rate hedge
instruments. Interest is recognized in accordance with the accrual basis of accounting taking
in
to account the effective interest rate.
NOTE
11 –
FREIGHT
R
ECEIVABLES
USDm
Analysis as of December of freight receivables
Gross freight receivables
Not due
Due days
Due between and days
Due days
Total gross
Allowance for expected credit loss
Total net
M
anagement makes allowance for
expected
credit loss
based on the simplified approach to
provide for expected credit losses, which permits the use of the lifetime expected loss provision
for all trade receivables.
Expected credit loss for receivables overdue
more than 180 days is
25%
-
100%, depending on
the
category
of the receivable
. Expected credit loss for receivables
overdue more than one year is 100%.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 138
NOTE 1
1
-
continued
Movements in provisions for impairment of freight receivables during the year are
as follows:
USDm
Allowance for expected credit loss
Balance as of January
Adjustment to prior years
Provisions for the year
Provisions reversed during the year
Balance as of December
Allowance for expected credit loss of freight receivables ha
s
been recognized in the income
statement under “Port expenses, bunkers and commissions”.
Allowance for expected credit loss of freight receivables is calculated using an ageing factor as
well as specific customer knowledge and is based on a
provision matrix on days past due.
All allowance for expected credit loss relates to receivables
d
ue > 180 days.
ACCOUNTING POLICIES
Receivables
Outstanding freight receivables and other receivables
which
are expected to be realized within 12 months from
the balance sheet date are classified as “Freight receivables” or “Other
receivables” and presented as current assets.
Receivables are at initial recognition measured at their transaction price less allowance for
expected credit losses over the lifetime of the receivable and are subsequently measured at
amortized cost adjusted for changes in expected credit losses. Derivative financial instruments
included in other receivables are measured at fair value.
Expected credit losses
Expected credit losses at initial recognition are determined using an ageing factor as well as a
specific customer knowledge, such as customers’ ability to pay, considering historical
information about payment patterns, credit risks, customer concentrations, customer
creditworthines
s 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 recover
ing the
carrying amount, the receivable is written off in part or entirely.
NOTE 1
2 –
OTHER
R
ECEIVABLES
USDm
Partners and commercial managements
Derivative financial instruments
Escrow accounts
-
Other
Balance as of December
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
N
ote 2
2 for further information on fair value hierarchies.
NOTE 1
3 –
TAX
USDm
Tax for the year
Current tax for the year
Adjustments related to previous years
Adjustment of deferred tax
- -
Income tax charge for the year
Tonnage tax charge for the year
Total
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
202
4. The Group expects to participate in the tonnage tax scheme after the binding period and, a
s
a
minimum, to maintain an investing and activity level equivalent to
that at
the time of entering
the tonnage tax scheme.
Under the Danish tonnage tax scheme, income and expenses from shipping activities
are not
subject to direct taxation
,
and accordingly
,
an effective rate reconciliation has not been
provided
,
as it would not provide any meaningful information. Instead, the taxable income is
calculated from:
•
The net tonnage of the vessels used to generate the income from shipping activities
•
A rate applicable to the specific net tonnage of the vessel based on a
sliding scale
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 139
NOTE 1
3
-
continued
Corporate income tax is primarily levied on the Group’s non
-
vessel related activities outside
Denmark. The effective tax rate of the Group is 3.3% (2020: 1.6%, 2019: 0.5%). No deferred tax is
recognized related to assets and liabilities, including vessels,
which are subject to tonnage
taxation. Deferred tax in relation to entities outside the tonnage tax regime
amount
s
to USD
0.7m
.
USDm
Non
-
current tax liability related to held over gains
Balance as of December
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.
ACCOUNTING POLICIES
Tax
Tax expenses comprise the expected income tax charge for the year in accordance with IAS 12
as well as
tonnage tax related to the Group’s vessels for the year. The income tax charge for the
year includes adjustments relating to previous years and the change in deferred tax for the year.
However, income tax relating to items in other comprehensive income is
recognized directly in
the statement of other comprehensive income.
Deferred tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Deferred tax is calculated at the income tax rates
which
ar
e 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.
NOTE 1
3
-
continued
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
enac
ted 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 1
4 –
COMMON
S
HARES
AND
TREASURY
S
HARESCommon shares
Nominal
value per
share (USD)
Number of
shares
Number of
shares
Number of
shares
A
-
shares
B
-
shares
C
-
shares
Total
During the year
,
the
share capital was increased by
6,377,340
A-
shares with a nominal value of
USD 64k
. The total amount including share premium amounted to
USD 57.9m
.
USD 55.0m was
a
non
-
cash increase
in conjunction with the acquisition of
the
eight Team Tanker vessels
,
and USD
2.9m was
contributed in cash in connection with
exercise of Restricted Share Units.
The
A-
shares are listed on N
asdaq
in
Copenhagen and N
asdaq
in
New
York and are publicly
available for trading. Each A
-
share carries one vote at the
Annual
General
M
eeting and gives the
shareholder
s
right to dividends, liquidation proceeds
, or other distributions. The A
-
shares carr
y
no other rights or obligations.
The B
-
share has one vote at the
Annual G
eneral
M
eeting, 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
-shar
e has the right to elect one
member to the Board of Directors (being the Deputy Chairman), up to three alternates as well
as one Board Observer. The B
-
share cannot be transferred or pledged, except for a transfer to a replacement trustee.
TORM CON
ANNUAL REPORT 2021
SOLIDATED FINANCIAL STATEMENTS
1
140
NOTE 1
4 -
continued
The C
-
share represents 350,000,000 votes at the
Annual G
eneral
M
eeting 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 amen
dments 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 f
rom 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 an
y Board member disputing such notice or with at least 2/3
of the Board members confirming such notice
,
and (iii) both of the B-
share and the C
-share are
redeemed at the same time.
Restricted Share Units
Key management participate
s
in an LTIP program
, whic
h gives the right to buy TORM shares at
a predefined share price. Please refer to
N
ote
3. Treasury shares
Number of shares ()
Balance as of January
Additions
Cancellations
Disposals
Balance as of December
Nominal value USD
Balance as of January
Additions
Cancellations
Disposals
Balance as of
December
NOTE 1
4 -
continued
Treasury shares
-
continued
Percentage of share capital
Balance as of January
Additions
-
-
Cancellations
-
-
-
Disposals
-
-
-
Dilution due to capital increases
-
Balance as of December
The total consideration
during the year
for the treasury shares was USD
0.0
m (
2020
: USD
1.4
m,
201
9
:
USD
0.0
m). A
s of
31 December 20
21
, the Company's holding of treasury shares
represented
493
,
371shares (
4932020
:
,3
71 shares, 201
9: 312,871 shares
) of USD 0.01 each at a
total nominal value of USD 0.0m (
20
20
: USD 0.0m, 201
9
: USD 0.0m
) and a market value of USD
3.9m (
20
7m20
: USD
3.
, 201
9:
mUSD
3.5
).
NOTE 1
5 –
OTHER
L
IABILITIES
USDm
Accrued operating expenses
Accrued interest
Wages and social expenses
Derivative financial instruments
Other
Balance as of
December
T
he carrying amount is a reasonable approximation of fair value due to the short
-
term nature of
the
payable
.
Please refer to
N
ote 2
2 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 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 141
As of 31 December 202
1
,
m USD
45
had been
drawn
on the USD 45m Working Capital
Term
Facility and USD
38
.0m
is
undrawn on the BoComm Facility.
Please refer to
N
ote 2 for further information on the Company’s liquidity and capital resources
and
N
ote
s 21 and 2
2
for further information on interest rate swaps and financial risks.
NOTE 1
6 -
EFFECTIVE INTEREST RATE, OUTSTANDING
BORROWINGS
USDm
Fixed
floating
Maturity
Effective
interest
⁾
Carrying
value
⁾
Maturity
Effective
interest
⁾
Carrying
value
⁾
Maturity
Effective
interest
⁾
Carrying
value
⁾
BORROWINGS
DSF Facility (USD)
Floating
TFA Facility (USD)
Floating
DSF Facility (USD)
Floating
DSF Facility (USD)
Floating
TFA Facility
(USD)
Floating
ING (USD)
Floating
ABN AMRO (USD)
Floating
DSF Facility (USD)
Floating
CEXIM (USD)
Floating
Term Facility
Floating
- - -
DSF Facility
Floating
HCOB Facility
Floating
HCOB Facility
Floating
KFW Facility
Floating
BoComm (USD)
⁾
Floating
BoComm (USD)
⁾
Floating
BoComm scrubber (USD)
⁾
Floating
BoComm (USD)
⁾
Floating
CDBL
⁾
Fixed
Springliner (USD)
⁾
Fixed
Eifuku (USD)
⁾
Floating
Showa (USD)
⁾
Floating
Sale
and
leaseback transaction prepayment
NA
Weighted average effective interest rate
Carrying value
Hereof non
-
current
⁾
Hereof current
⁾
⁾
Effective interest rate includes deferred and amortized bank fees
⁾
Because of the floating interest rate the carrying value of the Groups borrowings is approximately equal to the fair value The carrying value is excluding capitalized bank fees of USD m ( USD m USD m) recognized in the balance sh
eet as well as lease liabilities
of USD m ( USD m USD m) regarding right-of-use assets recognized under Land and buildings and Other plant and equipment
⁾
Split between current and non-current is based on terms in effect on Decem
ber without consideration to the refinancing taking place in
⁾
Lease debt recognised under sale and
leaseback arrangement with repurchase options 
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 142
NOTE 1
6
-
continued
The following table summarizes the reconciliation of liabilities ari
sing from financing activities:
Cash
Non
-
cash
USDm
Opening
balance
as of
January
Bor
-
rowings
Repay
-
ments
Other
chan
-
ges
End
balance
as of
December
Borrowings
Total
-
-
Cash
Non
-cash
USDm
Opening
balance
as of
January
Bor
-
rowings
Repay
-
ments
Other
chan
-
ges
End
balance
as of
December
Borrowings
- -
Total
-
-
ACCOUNTING POLICIES
Borrowings consist of mortgage debt, bank loans
,
and lease liabilities.
Borrowings are initially measured at fair value less transaction costs. Mortgage debt and bank
loans are
subsequently measured at amortized cost. This means that the difference between the
net proceeds at the time of borrowing and the nominal amount of the loan is recognized in the
income statement as a financial expense over the term of the loan applying the effective interest
method.
When terms of existing financial liabilities are renegotiated, or other changes regarding the
effective interest rate occur, TORM performs a test to evaluate whether the new terms are
substantially different from the original t
erms. 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 1
7 –
ECURITY FOR COLLATERAL
SBORROWIN
GS
The total carrying amount for vessels
which
have been provided as security amounts to USD
1,
928
m as of
31 December 20
21 (
2020
m): USD 1,
711
, including transferred ownership under sale
and leaseback arrangements
,
where the vessels are not derecognized
and
where vessels are
provided as security for leas
e
debt
.
Please refer to
N
ote 1 for further information.
NOTE 1
8 –
GUARANTEE
C
OMMITMENTS AND
C
ONTINGENT
LIABILITIES
The guarantee commitments of the Group
are less than USD
0.1
m (
20
20
: USD 0
.
1m
) and relate
to guarantee commitments to Danish Ship
ping
Finance
.
The Group is involved in
certain
other
legal proceedings and disputes. It is Management's
opinion that the outcome of these proceedings and disputes will
not have any material impact
on the Group's financial position, results of operations
,
and cash flows
.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 143
NOTE 1
9 –
CONTRACTUAL
R
IGHTS AND
BLIGATIONSO
TORM has various contractual obligations and commercial commitments to make future payments
,
including lease obligations, purchase commitments, interest payments
,
and repayment of
mortgage debt and bank loans.
The fo
llowing table summarizes the Group's contractual obligations as of 31 December 202
1.
USDm
Thereafter
Total
Borrowings
⁾
⁾
Interest payments related to scheduled interest fixing
Estimated variable interest payments
⁾ - - - -
Newbuilding
instalments
- - - - -
⁾
Committed scrubber installations
Trade payables and other obligations
Total
The following table
summarizes the Groups contractual obligations as of December
USDm
Thereafter
Total
Borrowings
⁾
Interest payments related to scheduled interest fixing
Estimated variable interest payments
⁾
Newbuilding
instalments
⁾
-
-
-
-
Committed scrubber installations
-
-
-
-
-
Trade payables and other obligations
Total
⁾
The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD m ( USD m) which are amortized over the term of the loans Borrowing costs capitalized during the year
amount to USD m ( USD m)
⁾
The contractual obligations relating to lease liabilities arising from land and buildings and other plant and operating equipment amount to USD m ( USD m)
⁾
Variable interest payments are estimated based on the forward rates for each interest period including hedging instruments
⁾
As of December TORM had one contracted newbuilding to be delivered during ( two) Commitments regarding newb
are in excess of the prepayments included in note uilding instalments
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 144
NOTE 1
9
-
continued
TORM has contractual rights to receive future payments as lessor of vessels on time charter and bareboat charter
The following table summarizes the Groups contractual rights as of December
USDm
Thereafter
Total
Contractual rights
-
as lessor
Charter hire income for
vessels
⁾
-
-
-
-
-
Total
-
-
-
-
-
The following table summarizes the Groups contractual rights as of December
USDm
Thereafter
Total
Contractual rights
-
as lessor
Charter hire income for vessels
⁾
-
-
-
-
Total
-
-
-
-
⁾
Charter hire income for vessels on time charter is recognized under Revenue During the year revenue from time charter amounted to USD m ( m) The average period until redelivery of the vessels for the period ended December year ( year)
TORM CONS
ANNUAL REPORT 2021
OLIDATED FINANCIAL STATEMENTS
1
145
NOTE
20
–
DERIVATIVE F
INANCIAL
INSTRUMENTS
Please refer to
N
ote
22 for further information on fair value hierarchies.
USDm
Fair value of derivatives
Derivative financial instruments regarding freight and bunkers
Forward freight agreements
-
fair value through profit and loss -
Bunker swaps
-
fair value through profit and loss
Bunker swaps
-
hedge accounting
Derivative financial instruments regarding interest and currency
exchange rate
Forward exchange contracts
- -
hedge accounting
Interest rate swaps
- - -
hedge accounting
Fair value of derivatives as of
December - -
Derivative
financial instruments
are presented on the balance sheet:
as below
USDm
Financial
assets
Financial
liabilities
Offsetting financial assets and financial liabilities
Gross
amount -
Offsetting amount
Net amount presented in the statement of financial position
-
USDm
Financial
assets
Financial
liabilities
Offsetting financial assets and financial
liabilities
Gross amount
Offsetting amount
Net amount presented in the statement of financial position
-
Derivative financial instrument
s
assets are set off with derivative financial instruments liabilities
where the counterparty is identical.
NOTE
20
–
continued
Hedging of risks with derivative financial instruments are made with a ratio of 1:1. Sources of
ineffectiveness are mainly derived from differences in timing and credit risk adjustments. Any
ineffective portions of the cash flow hedges are recognized in th
e 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 t
he income statement.
A
t year
-end 20
21 and 20
20
, TORM held
the following derivative financial instruments
designated
as hedge accounting
:
Hedge accounting
Expected maturity
Notional
value
Unit
After
Forward exchange
contracts
(USDDKK)
⁾
DKKm
Interest rate swaps
⁾
USDm
Bunker swaps
⁾
- -
MT
⁾
The average hedge of USDDKK currency was
⁾
The average interest rate was plus margin
⁾
The average price of the hedging instruments was USD Hedge accounting
Expected maturity
Notional
value
Unit
After
Forward exchange contracts
(USDDKK)
⁾ - -
DKKm
Interest rate swaps
⁾
USDm
Bunker swaps
⁾
- -
MT
⁾
The average hedge of USDDKK currency was
⁾
The average interest rate was plus margin
⁾
The average price of the hedging instruments was USD 
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 146
NOTE
20
-
continued
Interest rate swaps with a fair value of USD
2.2
m (net loss)
applying
the USD LIBOR settings
are
designated as hedge accounting relationships to fix a part of TORM's interest payments during
the period 202
2-
20
m (2027
with a notional value of USD
.7768
20
: U
SD
757.5
m, 201
9
: USD
5
97
.8m).
The derivatives are not under central clearing but are settled on a bilateral basis with the
counterparties. All contracts are settled in a net amount per counterparty, and therefore the net
value per counterparty is
presented in the financial statement.
Cash collateral of USD
3.7
m (20
.820
: USD
43
m) has been provided
as
security for the
agreements relating to derivat
iv
e financial instruments, which do
es
not meet the offsetting
criteria in IAS 32, but
which
can be offs
et against the net amount of the derivative asset and
derivative liability in case of default and insolvency or bankruptcy in accordance with associated
collateral arrangements.
TORM did not enter into any enforceable netting arrangements.
Further detail
s o
derivative financial instruments are provided in n
N
ote
s 21 and 2
2. Forward freight agreements
(FFAs)
of USD
0.4
m (net gain) have been recognized in the
income statement in 20
21
m). FFAs are used to mitigate (20
1.920
: USD
m, 201
9: USD
0.4
fluctuations in the freight rates of vessels with a duration of 0
–
24
months. The FFAs are not
designated for hedge accounting.
Bunker swap agreements of USD
12
) have been recognized in the income .0
m (net
gain
statement in 20
21
.1m). Bunker swaps with a duration similar to (20
920
: USD
2.9
m, 201
: USD
-0the 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 wit
h a fair value of USD
1.6
m (net
loss
) are designated as hedge
accounting relationships to hedge a part of TORM's payments in 20
22
regarding administrative
and operating expenses denominated in DKK with a notional value of DKK
274
.0
m (20
20
: DKK
2
31
9.5m, 201
: DKK
.5222
m).
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 147
NOTE
20
-
continued
The table below shows realized amounts as well as fair value adjustments regarding deriv
ative financial instruments recognized in the income statements and equity in 202
1
, 20
20
and 201
9. Income statement
Other comprehensive
income
Equity
USDm
Revenue
Port
expenses
bunkers and
commissions
Financial
items
Operating
expenses
Administra
-
tive expenses
Transfer
to income
statement
Fair value
adjust
-
ment
Hedging
reserves as of
December
Forward freight agreements
Bunker swaps
Forward exchange contracts
Interest rate swaps
Total
-
-
-
Forward freight agreements
Bunker swaps
Forward exchange contracts
Interest rate swaps
- -
Total
-
-
-
-
Forward freight agreements
Bunker swaps
- - - -
Forward exchange
contracts - - - - - - -
Interest rate swaps
- - -
- -
Total
-
-
-
-
-
The hedging reserves as of 31 December of the derivatives used for cash
flow hedge is equal to the entire fair value of the hedge instruments as no ineffectiveness has been
identified and the reserve includes open hedge instruments, only.
Please refer to note 2
1
for further information on commercial and financial risks.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 148
NOTE
20
-
continued
ACCOUNTING POLICIES
Derivative financial instruments and hedge accounting
Derivative financial instruments, primarily forward currency exchange contracts, forward freight
ag
reements, 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 accou
nting 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 dire
ctly 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
recog
nized 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. Chang
es in fair
value of these derivate financial instruments are therefore recognized in the income statement
under “Financial income” or “Financial expenses” for interest rate swaps with cap features, under
“Revenue” for forward freight agreements and under “
Port expenses, bunkers and commissions”
for forward bunker contracts.
NOTE
21 –
RISKS
ASSOCIATED WITH TORM’S
ACTIVITIES
TORM’s overall risk tolerance and inherited exposure to risks is divided into four main
categories
:
• L
ong
-term strategic risks
• I
ndustry and market
-related risks
• O
perational and compliance risks
• F
inancial risks
The risks described
below
under each of the four categories are considered to be among the
most significant risks for TORM within each category.
L
ONG
-TERM STRATEGIC RISKS
I
ndustry
-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 st
rategic risks to ensure the earliest possible mitigation of potential risks and develop
the
necessary capabilities to exploit opportunities created by the same risks.
I
NDUSTRY AND MARKET
-RELATED RISKS
Industry and market
-
related risk factors relate to cha
nges 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
T
ORM’s
income is
primarily
generated from voyages carried out by its fleet of vessels. As such,
TORM is exposed to the considerable volatility
which
characterizes freight rates
for
such
voyages.
It is
TORM’s
strategy to seek a certain exposure to this risk, as volatility also repr
esents 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 aim
s
the sensitivity to the volato
e reduc
tility of such specific freight rates by
actively seeking the optimal geographical positioning of the fleet and by optimizing the service
s
offered to customers. Please refer to
N
ote
8 for details on impairment testing.
Tanker freight income is to a certain extent covered against general fluctuations through the use
of physical contracts such as cargo contracts and time charter agreements with durations of 6
-
36 months. In addition, TORM uses derivative financial instruments such as forward freight
agreement
s (FFAs) with coverage of typically 0
-
24 months forward, based on market
expectations and in accordance with
TORM’s
risk management policies.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 149
NOTE
21
-
continued
During
20
21, 31.5
% (2020
.4:
14
%;
9201
:
9.5
%) of earning
27,614days
equal to
deriving from the
Company’s tankers w
ere
hedged
in this way. Physical time charter contracts accounted for
35.7
% (
20
.920
:
41
%;
9201
: 59
.3%) of overall hedging. In 20
21, the Company sold FFAs with a
notional contract value of USD
44.2
m (
20
920
201: USD
165.0m;
: USD
.934
m) and bought FFAs
with a notional contract value of USD
110.3
m (
2020
: USD
5
2.
7
22m;
9201
: USD
.5
m). The total
notional contract volume sold in 20
21
metric tons (was
2,410,000
2020
:
8,
799
,00
0 metric tons;
201
9
:
1,585
,19
0 metric tons)
,
and the total notional volume bought was
5,962,000
metric tons
(
20
2,20
:
714
,000
metric tons
9;
201
: 1,
21295
,000 metric tons). At the end of 20
, the coverage
of
available earning days
for 20
22 was
9.9
% through time charters, current spot voyages, cargo
cont
racts and FFAs
(
2020
2:
8.
1%;
201
9
:
8.6%).
No FFA had maturity beyond 20
22.
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 change
s
in profit before tax based on the expected number of earning days for the coming financial year:
Sensitivity to changes in freight rates
USDm
Decrease in freight rates of USDday
Changes in profitloss before tax for the following year
Changes in equity for the following year
-
Sales and purchase price fluctuations
As an owner of vessels, TORM is exposed to risk associated with changes in the value of the
vessels, which can vary considerably during their useful lives. As of 31 December 20
21
, the
carrying value of the fleet was USD
1,937.8
m (
20
.520
722:
USD
1,m;
9201
: USD
1,674
.8m). Based
on broker valuations, TORM’
s fleet excluding undelivered newbuildings had a market value of
USD
1,869.5
USD m
as of 31 December 20
21 (
2020
:
1,
475
m; .8
201
9
: USD 1,
632
.6
m).
NOTE
21
-
continued
Bunker price fluctuations
The cost of fuel oil consumed by the vessels, known in the
industry as bunker
s
, accounted for
56.4
%
62.3(
2020
:
%;
201
: 9
61.1%
)
21 of the total voyage costs in 20
and is by far the biggest single
cost related to a voyage.
TORM is exposed to fluctuations in bunker prices
which
are not reflected in the freight rates
achieved by
TORM
. To reduce this exposure, TORM hedges part of its bunker requirements with
oil derivatives
in its entirety for all risks
.
Bunker trade is subject to specific risk policies and guidelines approved by the Risk Committee
including
trading limits, stop
-
loss, stop
-gain and stop
-
at
-
zero policies, segregation of duties and
other internal control procedures.
In 20
21,
42.1
(%
20
20
201:
14
.6
%; 9
:
6.5%) of TORM’s bunker
purchase
was hedged through bunker
hedging contracts. At the end of 20
21
equal to , TORM had covered
4.1
%
17,270
metric tons (
20
920
: 15
201.6%;
: 2.
6%) of its bunker requirements for 20
22 using hedging instruments
at an
average price of No bunker derivatives had maturity beyond 20
USD
531
.
22.
Total bunker
exposure is estimated to be approximately
426,261
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 change
s
in expenditure based on the
expected
bunker consumption in the spot market
:
Sensitivity to changes in the bunker price
USDm
Increase in the bunker prices of per ton
Changes in profitloss before tax for the following year
Changes in equity for the following year
O
PERATIONAL AND COMPLIANCE RISKS
Operational risks are risks associated with the ongoing operations of the business and include
risks such as
the
safe operation of vessels,
the
availability of experienced seafarers and staff,
terrorism, piracy as well as insurance and counterparty risk.
TORM CONSO
ANNUAL REPORT 2021
LIDATED FINANCIAL STATEMENTS
1
150
NOTE
21
-
continued
Insurance coverage
In the course of the fleet’s operation, various casualties, accidents and other incidents may occur
which
may result in financial losses for TORM. For example, national and international rules,
regulations and conve
ntions
could
mean that
TORM
may incur substantial liabilities if
a vessel is
involved in an oil spill or emission of other environmentally hazardous agents.
In order to reduce the exposure to these risks, the fleet is insured against such risks to the
ext
ent possible. The total insurance program comprises a broad cover of risks in relation to the
operation of vessels and transportation of cargo, including personal injury, environmental
damage and pollution, cargo damage, third
-
party casualty and liability,
hull and machinery
damage, total loss
,
and war. All TORM’s owned vessels are insured for an amount corresponding to their market value plus a margin to cover any fluctuations. Liability risks are covered in line
with international standards. It is TORM’s policy to cooperate with financially sound international
insurance companies with a credit rating of BBB or better, presently some 14
-
16 companies,
along with two P&I clubs, to diversify risk. The P&I clubs are member
s
of the internationally
recognized col
laboration, 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 20
21
, the aggregate insured
value of hull and machinery and interest for TORM’s owned vessels amounted to US
D
2.1
bn
(
20
920
:
USD
1.bn;
9201
: USD 1.
8bn
).
Counterparty risk
Counterparty risk is an ever
-
present challenge demanding close monitoring to manage and decide on actions to minimize possible losses. The maximum counterparty risk associated is
equal to
the values recognized in the balance sheet. A consequential effect of the counterparty
risk is loss of income in future periods, e.g.
,
counterparties not being able to fulfil their
responsibilities under a time charter, a contract of affreightment or an option. The main risk is
the difference between the fixed rates under a time charter or a contract of affreightment and
the market rates prevailing upon default
. T
his characterizes the method for ident
ifyi
ng
the
market value of a derivative instruments.
T
OR
M 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.
T
ORM’s
counterparty risks are primarily
associated with:
• R
eceivables, cash and cash equivalents
, including restricted cash
• C
ontracts of affreightment with a positive fair value
• D
erivative financial instruments and commodity instruments with
a
positive fair value
In all material aspects,
TORM’s
customers are domiciled outside the UK and are spread all over the world with only a few countries contributing significantly to
TORM’s
revenue. In 2021
,
Switzerland and Mexico contributed with 23% and 16%
,
respectively
, of
TORM’s
revenue. In
2020
,
Switzerland, the
United States and Mexico contributed with 24%, 12%, and 11%
,
respectively
,
of
TORM’s
revenue. Revenue is allocated to countries based on the customer’s
ultimate parent domicile
.
NOTE 21
-
continued
Receivables, c
ash and cash equivalents
, including restricted cash
The majority of TORM’s customers are companies operat
ing
in the oil industry. It is assessed
that these companies are, to a great extent, subject to the same risk factors as those identified
for TORM.
A major part of
TORM’s
freight revenues stems from a small group of customers.
In 20
21, o
ne
customer accounted
for
15%
of
TORM’s
freight revenues
(
2020
: one accounted for more than
10%;
201
9:
one
customer
accounted for
more than
10%
).
The concentration of earnings on a few
customers requires extra attention to credit risk. TORM has a credit policy under which
cont
inued 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 u
sually paid prior to
the cargo’s discharge, or, alternatively, a suitable bank guarantee is placed in lieu thereof.
As a consequence of the payment patterns mentioned above,
TORM’s
receivables primarily
consist of receivables from voyages in progress at year
-
end and outstanding demurrage. For
the past five years,
TORM
has not experienced any significant losses in respect of charter
payments or any other freight agreements. With regard to the collection of
original
demurrage
claimed
,
TORM’s
average stands at
(97
%
20
6.920
: 9
%;
9201
:
98.7%), which is considered to be
satisfactory given the differences in interpretation of events. In
20
21
, demurrage represented
18
% (
: 20
20
17
%; .3
201
: 139
.1%
) of the total freight revenues. refer to
Please
N
ote 1 for more details
on recognition of demurrage claim
s
into revenue.
Excess liquidity is placed on deposit accounts with major banks with strong and acceptable
credit ratings or invested in
secure papers such as American or Danish government bonds. Cash
is invested with the aim of getting the highest possible yield while maintaining a low
counterparty risk and adequate liquidity reserves for possible investment opportunities or to
withstand a sudden drop in freight rates.
Derivative financial instruments and commodity instruments
In 20
21
% (20,
100
20
: 100.0%; 201
9
: 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 deri
vatives were done with investment grade
counterparties.
FINANCIAL RISKS
Financial risks relate to
TORM’s
financial position, financing and cash flows generated by the
business, including foreign exchange risk and interest rate risk. T
ORM’s
liquidity and capital
resources are described in
N
ote 2.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 151
NOTE
21
-
continued
Foreign exchange risk
TORM uses USD as
its functional currency because the majority of the Company’s transactions
are denominated in USD. The foreign exchange risk is thereby limited to cash flows not
denominated in USD. The primary risk relates to transactions denominated in DKK, EUR and
SGD a
nd relates to administrative and operating expenses.
The part of
TORM’s
expenses denominated in currencies other than USD accounts for
approximately
86
%
(
2020
80.9:
%;
9201
:
83.2%) for administrative expenses and approximately
21.3
%
(
20
3.820
: 2
%;
9201
: 2
0.1%) for operating expenses. TORM’s
expected
administrative and
operating expenses in DKK and EUR
for
m, whereof 20
22 are
approximately
DKK
390
70.3
%
(
20
6.120
: 6
%;
9201
: 6
3.0%) are hedged through FX forward contracts. All FX forward contract
s
ha
ve
maturity
within 20
22,
and TORM
’
s average hedge USD
/DKK currency rate is
. 6.27
FX
exposure
is
hedged in its entirety for all risks.
TORM assumes identical currency risks arising from exposures in DKK and EUR.
Sensitivity to changes in the USD/DKK and USD/EUR exchange rate
All things being equal, a change in the USD/DKK and USD/EUR exchange rate of 10% would
result in a change in prof
it
/loss
before tax and equity as follows:
USDm
Effect of a increase of DKK and EUR
Changes in profitloss before tax for the following year
Changes in equity for the following year
NOTE 2
1
-
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 1
6
for additional information on borrowings.
At the end of 202
1, TORM ha
d fixed
784.9
% (20
20
: 6
.6%; 201
9:
.661
%) of the debt
with interest rate swaps and fixed rate leasing
debt
corresponding to an amount of USD
953
m.
USD
772
m
of this amount
is hedged at an interest rate of
1.
38
% plus margin with interest rate
swaps with maturity in the period 202
2-
202
7.
Most of
TORM’s debt and interest hedging
is
based on USD LIBOR
which is set to expire by 30
June 2023.
TORM is significantly exposed to the ICE US LIBOR reform as all financing and
associated interest hedging contracts are denominated in USD. TORM has been in
dialog with
majority lenders and aligned expectations on how the amendment process should be
implemented. To ensure a smooth transition, TORM will amen
d
legacy financing and hedging
contracts during 2022 and early 2023. TORM expects
c
ompounded SOFR in arre
ars to become
the market standard. TORM expects no effect on the hedging relationship as lenders and
hedging providers are
largely
the same banks. TORM is confident that all financing and hedging
contracts are transitioned to SOFR before the final deadline
of
30 June
2023.
As of
31 December 2021
, 75.1
% of the debt with a nominal value of USD
704
m relates to the period after 30 June 2023.
As of
31 December 2021
,
74.9
% of the interest hedging with a
nominal value of USD
578
m relates to the period after 30 Ju
ne 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
Effect of a
-
point
increase in interest rates
Changes in profitloss before tax for the following year
Changes in equity for the following year
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 20
21,
TORM’s loan portfolio was spread across
eleven
different banks.
As of 31 December 20
21,
TORM maintains a liquidity reserve of USD
172
m
in cash
and cash
e
quivalents
,
including restricted cash
combined with USD
38
m in undrawn
and committed
credit facilities. Cash is only placed in banks with a high credit rating.
For further information on
contractual obligations, including a maturity analysis, please refer
to
N
ote 1
9. 
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 152
NOTE 2
2 –
FINANCIAL
I
NSTRUMENTSCategories of financial assets and liabilities (USDm)
Observable
input
(level )
Financial
instruments
measured at
fair value
Financial
instruments
measured at
amortized
cost
Total carrying
value
Financial assets
Loan receivables
⁾ - -
Freight receivables
⁾
-
-
Other receivables
Cash and cash equivalents including
restricted cash
⁾ -
-
Total
Financial liabilities
Borrowings
⁾
⁾
-
-
Trade payables
⁾ -
-
Other liabilities
⁾
Total
Financial assets
Loan receivables
⁾ -
-
Freight receivables
⁾
-
-
Other receivables
Cash and cash equivalents including restricted cash
⁾
-
-
Total
Financial liabilities
Borrowings
⁾ -
⁾ -
Trade
payables
⁾ -
-
Other liabilities
⁾
Total
⁾
Due to the short maturity the carrying value is considered to be an appropriate expression of the fair value
⁾
See note
⁾
Derivative financial instruments are presented within the balance sheet line other receivables and other liabilities
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 153
NOTE 2
2
-
continued
F
AIR 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
l
evels 1 to 3 based on the
degree to which the fair value is obser
v
able
. • L
evel 2 fair value measurem
ents are those derived from input other than quoted prices
included within
l
evel 1
vwhich
are obser
able for the asset or liability, either directly (as
prices) or indirectly (derived from prices)
M
ETHODS AND ASSUMPTIONS IN DETERMING FAIR VALUE OF FINANCIA
L INSTRUMENTS
Derivative part of other receivables and other payables
The fair value of derivatives in other rece
i
vables and other payables is measured using accepted
valuation methods with input variables such as yield curves, forward curves,
spreads
,
etc.
and
compared to financial counterparties to ensure acceptable valuations.
The valuation methods
discount the future fixed and estimated cash flows and valuation of any option elements.
NOTE 2
3 –
RELATED
PARTY
T
RANSACTIONS
TORM’s
ultimate controlling party is Oaktree Capital Group, LLC, a limited liability company
incorporated in the USA.
The immediate controlling shareholder is Njord Luxco.
Shareholders' contribution and dividends paid are disclosed in the consolidated statement
of
changes in equity.
Dividends
to related parties
are
paid out on the basis of the
related parties’
ownership of
share
s
.
The remuneration of key
management
personnel, which consists of the Board of Directors and
the
Executive Director, is disclosed in
n
ote
3. During 20
21
, TORMdid
transactions with its joint venture producing scrubbers for the TORM
fleet
amount
ing
to
USD
1.4m in total
(20
1120
:
.7
m)
. The
joint venture will continue to assist
TORM in installing scrubbers in 202
2.
NOTE
24
– A
SSETS
HELD FOR
ONS
ALE AND
N-C
URRENT A
OLD SSETS
SD
URING
THE Y
EAR
During 2021, TORM sold
two
vessel
s. One vessel was delivered to
the new owners
in May
2021
,
and one wa
s held for sale as
of
31 December 2021
,
and
expected
deliver
y is
during
the
first
half
of 2022
.
The sale
s resulted in an impairment loss on tangible assets of USD
m. 4.6
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
tangib
le assets of USD 5.
5
m. No assets were held for sale as of
31 December 2020.
During 2019, TORM
sold eight vessels, of which seven were delivered to the new owners during
2019, and one vessel was delivered in Q1 2020 (presented as “assets held
for
sale” as of 31
December 2019). The sales resulted in a profit from sale of vessels of USD 1.
2
m and impa
irment
losses on tangible assets of USD 6.0m.
NOTE 2
5 –
CASH
FLOWS
USDm
Reversal of other non
-
cash movements
Exchange rate adjustments
- -
Share
-
based payments
Fair value
adjustments on derivative financial instruments - - -
Other adjustments
Total
USDm
Change in bunkers receivables and payables
Change in bunkers
Change in receivables
-
Change in prepayments
Change in trade payables and other liabilities
-
Other changes
Adjusted for fair value changes of derivative
financial instruments
Total
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 154
Entity
Country
TORM plc
United Kingdom
Investments in subsidiaries
⁾
Entity
Country
Ownership
⁾
TORM AS
Denmark
DK Vessel HoldCo GP ApS
⁾
Denmark
DK Vessel HoldCo KS
⁾
Denmark
OCM Singapore Njord Holdings Alice Pte Ltd
⁾
Singapore
OCM Singapore Njord Holdings Almena Pte Ltd
Singapore
OCM Singapore Njord
Holdings Hardrada Pte Ltd
Singapore
OCM Singapore Njord Holdings StMichaelis Pte Ltd
Singapore
OCM Singapore Njord Holdings St Gabriel Pte Ltd
Singapore
OCM Singapore Njord Holdings Agnete Pte Ltd
Singapore
OCM
Singapore Njord Holdings Alexandra Pte Ltd
⁾
Singapore
OMI Holding Ltd
Mauritius
TORM Crewing Service Ltd
Bermuda
TORM Shipping India Private Limited
⁾
India
TORM Singapore Pte Ltd
Singapore
TORM USA LLC
USA
VesselCo KS
⁾
Denmark
VesselCo KS
⁾
Denmark
VesselCo KS
⁾
Denmark
VesselCo KS
⁾
Denmark
VesselCo Pte Ltd
⁾
Singapore
VesselCo Pte Ltd
⁾
Singapore
VesselCo Pte Ltd
Singapore
VesselCo Pte Ltd
Singapore
VesselCo Pte Ltd
Singapore
VesselCo Pte Ltd
Singapore
VesselCo Pte Ltd
Singapore
TORM SHIPPING (PHILS) INC
Philippines
Investments in subsidiaries
⁾
-
continued
Entity
Country
Ownership
⁾
VesselCo A ApS
⁾
Denmark
VesselCo C ApS
⁾
Denmark
VesselCo E ApS
⁾
Denmark
VesselCo F ApS
⁾
Denmark
⁾
Entities dissolved in the financial year ended December
⁾
Entities dissolved in the financial year ended December
⁾
Entities with different reporting periods TORM Shipping India have a
financial
reporting period that runs from April to March as required by Indian governments laws and legislations
⁾
For all subsidiaries ownership and voting rights are the same except for
TORM SHIPPING (PHILS) INC where voting rights are
⁾
All subsidiaries are consolidated in full
Interest in legal entities included as joint ventures
Entity (USDm)
Country
Control
Profit and
loss
from
continuing
operations
Other
compre
-
hensive
income
Total
compre
-
hensive
income
Long Range AS
Denmark
LR Management KS
Denmark
Marine Exhaust
Technology Ltd
Hong Kong
NOTE 2
6 –
ENTITIES IN THE
GROUP
TORM CONSOL
ANNUAL REPORT 2021
IDATED FINANCIAL STATEMENTS
1
155
NOTE 2
6
-
continued
The table below shows the registered addresses for the companies mentioned above:
Denmark
India
Philippines
Singapore
Tuborg Havnevej
nd Floor
th Floor
Battery Road
-
DK
-
Hellerup
Leela Business Park
Salcedo
Towers
Singapore
Denmark
Andheri
-
Kurla Road
HV dela Costa Street
Singapore
Andheri (E)
Salcedo Village
Mumbai
Makati City
India
Philippines
United Kingdom
USA
Marshall Islands
Mauritius
Birchin Court
Suite
co The Trust
co Temple Corporate
Birchin Lane
City West
Company of
Services
London ECV DU
Boulevard
Marshall Islands Inc
Temple Court
United Kingdom
Houston Texas
PO Box
Labourdonnais Street
USA
Reston VA
-
Port Louis
USA
Mauritius
Bermuda
Gibraltar
Hong Kong
co Estera Services
Line Wall Road
Room A F
(Bermuda Limited)
GX AA
China Overseas Bldg
Canons Court
Gibraltar
Hennessy Road
Victoria Street
Wanchai
PO Box
Hong Kong
Hamilton HM GX
Bermuda
NOTE 2
7 -
PROVISIONS
Since
2020
, t
he Group
has
been
involved in two cargo claims, both relating to one customer
having issued indemnities to TORM for
the
safe discharge of cargoes, and not being able to
honor those indemnity obligations. Both cases involved irregular activities by the customer in
relation
to the handling of
the
bills of lading. Legal action has been initiated by the Group in the
UK and in India against the customer and a number of individual owners and management
representatives. The Group has
recognized
provisions in the total amount of US
D
m relating 18
.3
to the two claims.
The proceedings are ongoing and therefore the provisions recognized are
subject to uncertainty related to both timing and amount.
NOTE 2
7
-
continued
ACCOUNTING POLICIES
Provisions are recognized when the Group has a legal or constructive obligation as a result of
past events, and when it is probable that this will lead to an outflow of resources
which
can be
reliably estimated. Provisions are measured at the estimated liability expected to arise, taking
into account the time value of money.
NOTE 2
8 –
EARNINGS PER
SHARE
AND
D
IVIDEND PER
S
HARE
EARNINGS PER SHARE
Net profit(loss) for the year (USDm)
-
Million shares
Weighted average number of shares
Weighted average number of treasury shares
Weighted average number of shares outstanding
Dilutive effect of outstanding share options
Weighted average number of shares outstanding incl
dilutive effect of share options
Basic
earnings(loss) per share (USD) -
Diluted earnings(loss) per share (USD)
-
When calculating diluted earnings per share for 20
20
,
RSU
s have been omitted as they are out-
of
-
not the
-money and thus
anti
SU-
dilutive, but the R
s may potentially dilute earnings per share
in the future.
Please refer to
N
ote
3 for information
on
the RSU
share options.
ACCOUNTING POLICIES
Basic earnings per shar
e
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
t
reasury 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 outstandi
ng for the
effects of all potentially dilutive shares. Such potentially dilutive common shares are excluded
when the effect of including them would be to increase earnings per share or reduce a loss per
share.
TORM
ANNUAL REPORT 2021
CONSOLIDATED FINANCIAL STATEMENTS
1 156
NOTE 2
8
-
continued
DIVIDEND PER SHARE
Dividend for the year (USDm)
Number of shares end of period (million)
Dividend per share
-
The Board of Directors has decided
not
to recommend a
ny
dividend
s relating
to the
second half
of
202
1.
NOTE 2
9 – C
ASH
AND
C
QUIVALENTSASH
E,
I
NCLUDING
R
ESTRICTED
CASH
Cash at banks and on hand
Cash and cash equivalents
Cash provided as security for initial margin calls and negative
market values on derivatives etc
⁾
Sale
-
and
-leaseback transaction prepayment to be released
upon
delivery of the vessel
⁾
Restricted cash
Cash and cash equivalents including restricted cash
⁾
The counterparties have an obligation to return any excess cash provided as security to the Group upon settlement or early termination of the contracts
⁾
Prepayment released on January 
TORM
ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
1 158
COMPANY
BALANCE
SHEET
AS OF
31 DECEMBER
USD
Note
ASSETS
NON
-
CURRENT ASSETS
Tangible fixed assets
Land and buildings
Other plant and operating equipment
Total tangible fixed
assets
Financial assets
Investments in subsidiaries
Loan receivables
Loans to subsidiaries
-
Total financial assets
Total non
-
current assets
CURRENT ASSETS
Loans to subsidiaries
Other receivables
Prepayments
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Note: The profit/(loss) for the financial year dealt with in the financial statements of the
Company is
USD
,36
996
k (20
20
: USD
-1
5,516
k).
USD
Note
EUITY AND LIABILITIES
EUITY
Common shares
Treasury shares
-
-
Hedging reserves
-
-
Share premium
Retained profit(loss)
Total equity
LIABILITIES
NON
-
CURRENT LIABILITIES
Borrowings
Total non
-
current liabilities
CURRENT LIABILITIES
Borrowings
Trade
payables
Payables to subsidiaries
Other liabilities
Total current liabilities
Total liabilities
TOTAL EUITY AND
LIABILITIES
The
financial statements of TORM plc, company number 09818726, have been approved by the
Board of Directors and signed on their behalf by:
Jacob Meldgaard
Executive Director
23
March 202
2
Parent company financial statement
202
1
TORM
ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
1 159
COMPANY STATEMENT OF CHANGES IN EQUITY
USD
Common
shares
Treasury
shares
Hedging
reserves
Share
premium
Retained
profit
Total
EUITY
Equity as of January - -
Comprehensive income for the year
Net profit(loss) for the
year
-
-
-
-
-
-
Other comprehensive income(loss) for the year
-
-
-
-
-
-
Total comprehensive income(loss) for the year
-
-
-
-
-
-
Capital
increase
-
-
-
Capital decrease - - - -
-
Transaction costs capital decrease
-
-
-
-
-
-
Share
-
based compensation
-
-
-
-
Acquisition treasury shares cost - - - - -
-
Dividend paid - - - - -
-
Total changes in equity
-
-
-
-
Equity as of December
-
-
Comprehensive income(loss) for the year
Net profit(loss) for the year - - - -
Other comprehensive income(loss) for the year - -
- -
Total comprehensive income(loss) for the year
-
-
-
Capital increase - - -
Capital decrease - - - - -
-
Transaction costs capital increase - - - - -
-
Share
- - - - -
based compensation
Acquisition treasury shares cost - - - - -
-
Dividend paid - - - - -
-
Total changes in equity - -
Equity as of December
-
-
TORM
ANNUAL REPORT PARENT COMPANY FINANCIAL STATEMENT 2021
2021
160
Note
–
Accounting Policies
– Supplementary for the Parent Company
Note
–
ProfitLoss and Total Comprehensive Income for the Year
Note
–
Borrowings
Note
–
Staff Costs
Note
–
Financial Assets
Note
–
Loan Receivables
Note
–
Other Liabilities
Note
–
Impairment Testing
Note
–
Collateral Security for Mortgage Debt and Bank Loans
Note
–
Guarantee Commitments and Contingent Liabilities
Note
–
Related Party Transactions
NOTES TO PARENT
COMPAN
Y
FINANCIAL STATEMENTS
TORM
ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
161
NOTE 1
–
ACCOUNTING
P
OLICIES
– SUPPLEMENTARY FOR THE
P
ARENT
C
OMPANY
BASIS OF PREPARATION
TORM plc is a public company limited by shares and is incorporated in England and Wales. Its
registered number is 09818726 and its registered address is Birchin Court, 20 Birchin Lane,
London, EC3V 9DU.
The
C
ompany meets the definition of a qualifying enti
ty 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 Standar
ds and applicable law), including
Financial Reporting Standard 101 Reduced Disclosure Framework.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions
available under that standard in relation to accounting standards issued
but not yet effective or
implemented, share
-
based payment information, financial instruments, capital management,
presentation of comparative information in respect of certain assets, presentation of a cashflow
statement and certain related party transact
ions.
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
serv
ices received was determined)
•
IFRS 7 “Financial Instruments: Disclosures”
•
Paragraph 91 to 99 of IFRS 13, “Fair value measurement” (disclosure of valuation techniques
and inputs used for fair value measurement of assets and liabilities)
•
Paragraph 38 of IAS 1 “Presentation of financial statements” comparative information
requirements
in respect of paragraph 79(a)(iv) of IAS 1
•
The following paragraphs of IAS 1 “Presentation of financial
statements”
•
10(d) (statement of cash flows)
•
16 (statement of compliance wi
th all IFRS)
•
38A (requirement for minimum of two primary statements, including cash flow
statements)
•
111 (cash flow statement information)
•
134
-136 (capital management disclosures)
•
IAS 7 “Statement of cash flows”
•
Paragraph 30 and 31 of IAS 8 “Accounting pol
icies, 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
N
ote 1
to
the Group consolidated
financial statements
.
NOTE 1
-
continued
Where required, the equivalent dis
closures are given in the Group's consolidated financial
statements. Key sources of estimation uncertainty disclosure are provided in the accounting
policies and in relevant notes to the Group consolidated financial statements as applicable.
Details of t
he
C
ompany's share
-
based payment schemes are provided in
N
ote
3 to
the Group
consolidated financial statements.
ACCOUNTING POLICIES
In supplement to the accounting policies provided in
N
ote 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 recog
nized and
measured in the financial statements of the Parent
C
ompany 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 v
entures is recognized in
“Financial income”.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In supplement to the
critical accounting estimates and judgements provided in
N
ote 1
to
the
Group consolidated
financial statements
, the following
is
considered
a
si
gnificant accounting
estimate used in the
p
reparation 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
N
ote 8
to
the Group consolidated
financial statements.
TORM
ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
162
NOTE 2
–
PROFIT/
LOSS AND
TOTAL
C
OMPREHENSIVE
I
NCOME FOR THE
YEAR
As permitted by section 408 of the Companies Act 2006, the statement of comprehensive
income of the Company is not presented as part of these financial statements.
NOTE 3
–
BORROWINGS
As of 31 December
202
1
2020, t
he
Company
.9m (had
borrowed USD
611
: USD
563
.8m,
20
19
:
USD
24
USD 0.
1m)
. The
loan proceeds
were
5.3m
lower
(20
5.920
: USD
m,
9201
: USD 3.
0m)
due
to borrowing
fees. The fee
s
are
amortized over the loan period
s
.
1In
202
, t
he Company
had
interest expenses
of USD
.6m (16
2020
: USD
16
.5m
,
9201
: USD
9.4m) regarding th
ese loan
facilities
.
As of 31 December
202
1
, the Company had finance
lease liabilities of
nil
(
2020
0.1m, : USD
201
9:
USD 2
1.9m)
.
In 20
21, the Company
had interest expense
s of
USD
nil
(
2020
1.1m: USD
,
20
19
: USD
2.
0
m) regarding financial leases.
NOTE 4
–
STAFF
COSTS
USD
Total staff costs
Staff costs included in administrative expenses
Total staff costs
Average number of permanent employees
Employee information
The average number of employees is calculated as a full
-
time equivalent (FTE)
.
NOTE
5 –
FINANCIAL
ASSETS
USD
Investments in subsidiaries
Cost
Balance as of January
Capital decreases in subsidiaries
Capital increases related to share
-
based payments
Balance as of December
Impairment
Balance as of January
Impairment (reversal)losses for the year
Balance as of December
Carrying amount as of December
NOTE
6 –
LOAN
RECEIVABLES
USD
Loan receivables
Cost
Balance as of January
Additions during the year
Balance as of December
Expected credit loss
Balance as of January
Additions during the year
Balance as of December
Carrying amount as of December
TORM
ANNUAL REPORT 2021
PARENT COMPANY FINANCIAL STATEMENT 2021
163
NOTE
7 –
OTHER L
IABILITIES
USD
Derivative financial instruments
Other
Balance as of December
NOTE
8 –
IMPAIRMENT
TESTING
As of 31 December 20
21
, Management performed an impairment test of
investments in
subsidiaries. The subsidiaries of TORM plc are the formal owners of the TORM vessels and
operate in the product tanker market.
As of 31 December 20
21
, the recoverable amount of the
investments in subsidiaries
was based
on the value in use
.
Based on this test, Management concluded that
no
reversal of
impairment charge was needed
(2020: a reversal of impairment charge of USD 1.4m)
.
The assessment of the value in use of the
subsidiar
ies
was based on the present value of the
expected future cash flows
, w
hich is primarily influenced by the cash flows of the vessels owned
by each subsidiary
.
Please refer to
N
ote
8 to
the
Group
consolidated financial statements for further
information
in
respect of the value in use of
t
hese vessels
. NOTE
9 –
COLLATERAL
SECURITY FOR
ORTGAGE M
D
EBT AND
BANK
LOANS
The vessels owned by subsidiaries of the
C
ompany
which
have been provided as security for
TORM’s
debt amount
ed
to USD
,873k 611
as of 31 December 202
1 (20
,20
: USD
563
821
k).
NOTE
10 –
GUARANTEE
COMMITMENTS AND
C
ONTINGENT
LIABILITIES
T
ORM
is guarantor for
a
loan amounting to USD 86m established in the subsidiaries TORM A/S
and VesselCo 9 Pte. Ltd.
As part of
sale and leaseback transactions made by a subsidiary
,
TORM
issued a guarantee to
the third party in relation to future lease payments to be made by the subsidiary, which are
expected to total approximately USD
386
m.
NOTE
11 –
RELATED
P
ARTY
TRANSACTIONS
T
ORM’s
ultimate controlling party is Oaktree Capital Group, LLC
,
a limited liability company
incorporated in the USA. The immediate controlling shareholder is
OCM Njord Holdings S.à.r.l.
(
Njord Luxco
).
The Company has received dividends from subsidiaries
amounting to USD
44
.3
m (
20
20
: USD
0.1m
,
9201
:
7.6USD
m)
. The Company has income in the form of
interests
from its subsidiar
ies
of
.7m (USD
12
2020
U:
SD
16
.2m
: ,
9201
USD
8.8m)
, relating to loans to subsidiaries
.
The Company has income in
the
form of bareboat hire from its subsidiary TORM A/S of USD
32
.1m (
20
70.3m20
: USD
,
9201
: USD
53
.0m). The Company has paid bareboat hire to its subsidiaries in the amount of USD
31
.7m (
2020
: USD
66.
2m,
201
9
: USD
47.2m). There have been no or limited transactions with related parties during the financial year other
than the
transactions
disclosed
above
. 
TORM EPORT
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S R
164
OPINION
In our opinion:
•
TORM plc’s group financial statements and parent
company financial statements (the “financial
statements”) give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31
December 2021 and of the group’s loss for the year then
ended;
•
the group financial statements have been properly
prepared in accordance with UK adopted international
accounting standards;
•
the parent company financial statements have been
properly prepared in accordance with
United Kingdom
Generally Accepted Accounting Practice;
and
•
the financial statements have been prepared in
accordance with t
he 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 th
e EU, as applied to financial periods
beginning on or after 1 January 2021.
•
Xx
The financial reporting framework that has been applied in
the preparation of the group financial statements is
applicable law and UK adopted international accounting
standards. The group financial statements are also prepared
in accordance with Internati
onal Financial Reporting
Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”) and IFRS as adopted by the EU, as
applied to financial periods beginning on or after 1 January
2021. The financial reporting framework that has
been
applied in the preparation of the parent company financial
statements is applicable law and United Kingdom Accounting
Standards, including FRS 101 “Reduced Disclosure
Framework” (United Kingdom Generally Accepted
Accounting Practice).
BASIS FOR OPINI
ON
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 entitie
s, 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.
CON
CLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate. Our
evaluation of the directors’
assessment of the group and
parent company’s ability to continue to adopt the going
concern basis of accounting included carrying out the
following procedures:
•
We
confirmed our understanding of management’s going
concern assessment process and also engage
d with
management early to ensure key factors were considered
in their assessment, including the evaluation of any
operational and economic impacts of COVID
-
19 as well asRussia’s invasion of Ukraine on the group;
Independent
a
uditor’s report
INDEPENDENT
AU
DITOR’S REPORT T
O T
HE MEMBERS OF T
ORM P
LC REPORT OF THE FINANCIAL
O
N THE AUDIT ST
ATEMENTSWe have audited the financial statements of TORM plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 Dece
mber 2021 which comprise:
GROUP
PARENT COMPANY
Consolidated balance sheet as at December
Balance sheet as at December
Consolidated income statement for the year then ended
Statement of changes in equity for the year then ended
Consolidated statement of comprehensive income for the
year then ended
Statement of cash flows for the year then ended
Consolidated statement of changes in equity for the year
then ended
Related notes to to the financial statements including a
summ
ary of significant accounting policies
Consolidated statement of cash flows for the year then ended
Related notes to to the financial statements including a
summary of significant accounting policies
TORM
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
165
•
We obtained management’s board approved forecast
cash flows and covenant calculation covering the period
of assessment from the date of signing to 31 March 2023.
As part of
this assessment, in addition to the base case
scenario, the group has modelled a low case and stress
case scenarios in their cash forecasts and covenant
calculations in order to incorporate unexpected changes
to the forecasted liquidity and covenant compli
ance of
the group. We considered management’s stress case
scenario as the management’s reverse stress test;
•
We assessed the reasonableness of the cashflow forecast
by analysing management’s historical forecasting
accuracy;
•
We evaluated the key assumptions
and sensitivities
identified underpinning the group’s assessment by
challenging how these compare with external
benchmarks, historical performance adjusted for inflation,
the lowest rolling 4
-
quarter averages since 2000, as well
as performance in the perio
d 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 ri
sks and uncertainties of the group;
•
We have evaluated the reverse stress test (stress case
scenario) and considered whether the combination of
factors (notably significantly reduced freight rates and
vessel values) is a plausible outcome or remote based
up
on the historical performance, external benchmarks,
and performance and conditions in the period post year
end;
•
We tested the clerical accuracy and logical integrity of
the model used to prepare the group’s going concern
assessment;
•
We considered whether
the group’s forecasts in the going
concern assessment were consistent with other forecasts
used by the group in its accounting estimates, including
impairment testing of the carrying value of vessels;
•
Our analysis also considered the mitigating actions suc
h
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 throug
h the going concern period, and reviewed
their underlying terms, including covenants, by
examination of executed documentation;
•
We have considered factors, such as freight rates and
vessel values, in the period immediately after the going
concern period by
comparing them to the external
benchmarks.
We considered whether management’s disclosures in the
financial statements sufficiently and appropriately reflect the
going concern assessment and outcomes. The group is
forecast to be profitable and generate positive operating
cashflows throughout the going concern period in base case
scenario, low case scenario and stress case scenario (reverse
stress test) modelled. Under the stress case scenario, the
cash covenant will breach with USD 24m liquidity shortfall
.
This scenario is considered as highly unlikely and remote by
management. Furthermore, in the stress case scenario,
Management has identified mitigating actions such as sale
and leaseback or sale of older vessels, which, whilst not fully
in their control,
based on past experience and general market
activity, are deemed reasonable and achievable.
We considered management’s assessment over the impact of
Russia’s invasion of Ukraine, including geo
-
political
consequences, on the going concern assessment and
outcomes. Management have observed that the immediate
impact is that the uncertainty and potential for re
-
routing of
trade flows has sent the tanker freight rates in the European
markets upwards. The financial impact going forward is
uncertain, but TORM cu
rrently expects that the possible
effects are covered by the performed stress test and
sensitivity analysis
for a period to 31 March 2023
.
Based on the work we have performed, we have not
identified any material uncertainties relating to events or
conditi
ons that, individually or collectively, may cast
significant doubt on the group and parent company’s ability
to continue as a going concern for a period to 31 March 2023.
Our responsibilities and the responsibilities of the directors
with respect to
going concern are described in the relevant
sections of this report. However, because not all future
events or conditions can be predicted, this statement is not a
guarantee as to the group’s ability to continue as a going
concern.
OVERVIEW OF OUR AUDIT
APPROACH
Audit scope
We performed an audit of the complete
financial information of the Group.
Key audit matter
Carrying value of vessels
Materiality
Overall group materiality of $10m which
represents 4% of group total assets.
.
AN OVERVIEW OF THE SCOPE OF THE PARENT COMPANY
AND GROUP AUDITS
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope for each company within the group. Ta
ken 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 f
unction 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 au
dit 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.
INDEPENDENT AUDITOR’S REPORT TO THE MEM
BERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
-
continued
TORM
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
166
During the course of the audit, the UK senior members,
including the Senior Statutory Auditor, supervised the
members of the audit team who
are based in Copenhagen,
Denmark. Due to travel restrictions and UK government’s
recommendation to work from home, the audit planning
procedures performed by UK audit team members were
performed remotely. We held regular meetings with
management and the D
enmark based audit team via video
calls to direct and supervise the audit and the UK team
continued to access client documentation and document our
work in the shared electronic work file. The UK senior
members also visited the Copenhagen operations during
the
year end phase of the audit.
Climate change
There has been increasing interest from stakeholders as to
how climate change will impact the group. The group has
determined that the most significant future impacts from
climate change on its operations
will be from peak oil
demand, technology of vessels, insufficient access to
financing and estimated freight rates. These are explained on
pages 66
-
68 in the Risk Management section, which form
part of the “Other information,” rather than the audited
financ
ial statements. Our procedures on these disclosures
therefore consisted solely of considering whether they are
materially inconsistent with the financial statements or our
knowledge obtained in the course of the audit or otherwise
appear to be materially misstated.
As explained in Emerging Risk
–
Climate within Risk
Management and Note 8 to the consolidated group financial
statements, governmental and societal responses to climate
change risks are still developing, and are interdependent
upon each other,
and consequently financial statements
cannot capture all possible future outcomes as these are not
yet known. The degree of certainty of these changes may
also mean that they cannot be taken into account when
determining asset and liability valuations a
nd the timing of
future cash flows under the requirements of UK adopted
international accounting standards and IFRS issued IASB as
adopted by the EU as applied to financial periods beginning
on or after 1 January 2021.
Our audit effort in considering cli
mate change was focused
on ensuring that the effects of material climate risks disclosed
on pages 66
-
68 have been appropriately reflected in the
carrying value of vessels and associated disclosures where
values are determined through modelling future cash
flows,
being estimated freight rates, capitalised expenditures and
external loan interest. Details of our procedures and findings
on carrying value of vessels are included in our key audit
matters below. We also challenged the Directors’
considerations
of climate change in their assessment of going
concern and viability and associated disclosures.
Whilst the group have stated its commitment to the
aspirations of the Paris Agreement to achieve net zero
emissions by 2050 and have set the goal to accelera
te the
climate target at a 40% CO2 reduction by 2025 compared to
2008 using IMO’s defined methodology and 45% CO2
reduction by 2030, the group is currently unable to
determine the full future economic impact on their business
model, operational plans and customers to achieve this and
therefore as set out above the potential impacts are not fully
incorporated in these financial statements.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significanc
e 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
ov
erall 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 pro
vide a separate opinion on these matters.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
-
continued
TORM
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
167
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
-
continued
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 2021 totalled $2,302m (2020:
$1,774m).
Refer to the Audit Committee Report (page 79);
Accounting policies (page 125,131 and 132); and Note
8 of the Consolidated Financial Statements (page
13
5)
The carrying values of vessels are reviewed
quarterly by management for indicators of
impairment. If impairment indicators exist, an
impairment test is carried out where the future
discounted net cash flow deriving from the cash
generating units (CGUs)
must be estimated. These
estimates are based on a number of assumptions
principally future freight rates and weighted average
cost of capital (WACC).
As of 31 December 2021, Management tested the
carrying amount of its fleet for impairment within 3
CGUs
, being the Main Fleet (LR2/LR1 and MR
vessels) and the 2 Handysize vessels.
There is a risk that CGUs are not correctly classified
and that the testing is not performed at the
appropriate level, which may mask impairments that
would otherwise arise.
Aud
iting the group's impairment assessment is
complex due to significant judgements involved in
the high estimation uncertainty in forecasting the
undiscounted cashflows of the CGUs. These
significant assumptions are forward looking and
subject to future econ
omic and market conditions.
We performed a walkthrough of the group’s impairment process to gain an understanding of
the process and assessed the design effectiveness of the controls.
We challenged management’s CGU determination by evaluating their
analysis in respect of
the smallest group of assets that generate largely independent cash inflows. This considered
management’s view of the homogenous nature and joint operation of the LR1, LR2 and MR
vessels, including the 2021 acquired chemical trading
capability MR vessels operated as all the
other product tanker vessels, thereby forming a single CGU (the Main Fleet) and that the two
Handysize vessels were each the lowest level at which independent cash flows are identified.
We inspected evidence to su
pport the explanations and rationale supporting the joint
operation of the LR1, LR2 and MR vessels (the Main Fleet).
We obtained management’s impairment model containing the value in use calculations and
tested the clerical accuracy of the model.
We chal
lenged the key assumptions by comparing them with publicly available market
information, our knowledge of the group and industry and the group’s most recent business
plan.
We analysed the assumptions and estimates made by management in their impairment
a
ssessment for the past three years against the actual outcomes to assess the robustness and
accuracy of management’s forecasting process.
We involved our internal valuation specialists to independently assess the appropriateness of
the discount rate (WACC
) applied to the value
-
use calculation. This included assessing in
-management’s methodology and preparing our own independent point estimate to check
management’s rate fell within an acceptable range.
We reviewed management’s sensitivities on the group’s
value
-
in
-
use calculation incorporating
reasonable possible changes in key assumptions including in respect of freight rates, the
discount rate and operating costs. We have ensured the fact that reasonable possible
changes in key assumptions may lead to im
pairment has been disclosed and have checked
the impact of reasonably possible changes in key assumptions is correctly calculated and
disclosed.
At the conclusion of the above procedures we stood back and considered all evidence
gathered to reassess and c
onfirm our conclusions remained appropriate.
We assessed the appropriateness of disclosures provided, including the impact from climate
changes, in the financial statements in accordance with IAS 36.
Based on our audit procedures performed, we
concur wit
h management’s conclusion on
impairment of vessels at 31 December 2021,
including:
•
That the determination of CGUs is highly
judgemental, but is supported by
management’s assessment;
•
No impairment recognised for the main fleet
due to headroom between the va
lue in use
and carrying value, however the impairment
tests are sensitive to reasonably possible
changes in key assumptions;
•
No impairment or reversal of impairment
regarding the handy size vessels. The
headroom is limited and therefore sensitive
to change
s in assumptions;
•
The impairment of USD 4.6m recognised in
2021 relates to vessels classified as held for
sale prior to disposal;
•
The determined discount rate is within the
range determined by our internal valuation
specialist;
•
The freight rates assumed a
nd applied have
been benchmarked to external sources and
assessed as reasonable;
•
The historical freight rates applied have
been tied to historical data;
•
Other assumptions have been verified to
supporting documentation.
We consider the
disclosures in the financial
statements to be sufficient and appropriate and
in compliance with accounting standards.
TORM
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
168
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 proc
edures.
We determined materiality for the group to be $10million
(2020: $10 million), which is 4% (2020: 5%) of the group ‘s
total assets. We believe that the key users of the group’s
financial statements are primarily focused on the group’s
assets, prim
arily the vessel value. In addition, we also
considered that total assets be the most stable and consistent
benchmark in a period of significant freight rate volatility.
We determined materiality for the Parent Company to be $8.4
million (2020: $8.5 mil
lion), which is 5% (2020: 5%) of total
assets as the Parent Company principally holds investments in
subsidiaries and does not trade externally.
During the course of our audit, we reassessed initial materiality
and no change has been made to the material
ity level
reflecting the insignificant movement in the carrying value of
vessels between the time we set initial materiality and 31
December 2021.
Performance materiality
The application of materiality at the individual account or
balance level. It is s
et 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 e
nvironment, our
judgement was that performance materiality was 50% (2020:
50%) of our planning materiality, namely $5m (2020: $5m).
Our objective in adopting this approach is to confirm that total
detected and undetected audit differences do not exceed ou
r
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 diffe
rences in excess of $0.5m
(2020: $0.5m), which is set at 5% of planning materiality, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quan
titative 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
exp
licitly 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 statemen
ts 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
miss
tatement 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 i
n 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
cou
rse 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’ remunera
tion 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
- co
ntinued
TORM
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
169
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 110, the directors are responsible for
the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal contr
ol 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 g
roup 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
m
aterial 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 dete
ct 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 th
ese 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 lin
e 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 adop
ted
international accounting standards, IFRS as issued by the
IASB and adopted by the EU as applied to financial periods
beginning on or after 1 January 2021, FRS 101, the
Companies Act 2006 and Corporate Governance Code,
the Danish and UK tax legislation
as well as IMO 2020
Sulphur Regulation.
•
We understood how TORM plc is complying with those
frameworks by making inquiries of management and
identifying the policies and procedures regarding
compliance with law and regulations. We also identified
those members of management who have the primary
responsibilities for ensuring compliance with law and
regulations, and for reporting any known instance of non
-
compliance to those charged with governance. We
corroborated our enquiries through our review of
board
minutes, discussion with the Audit Committee and any
correspondence received from regulatory bodies.
•
We assessed the susceptibility of the group’s financial
statements to material misstatement, including how fraud
might occur by meeting with managem
ent 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 an
d 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 pro
vide reasonable assurance that the
financial statements were free from material misstatements
arising from fraud.
•
Based on this understanding we designed our audit
procedures to identify non
-
compliance with such laws and
regulations. Our procedures involved
:
•
inquiries of members of senior management, and when
appropriate, those charged with governance regarding
their knowledge of any non
-
compliance or potential
non
-
compliance with laws and regulations that could
affect the financial statements;
•
review of minutes of meeting of those charged with
governances;
•
obtaining and reading correspondence from legal and
regulatory bodies;
•
obtaining electronic confirmations from the group’s
banking provider to verifying the existence of cash
balances and completeness of l
oan and borrowings;
•
journal entry testing, with a focus on manual journals
and journals indicating large or unusual transactions
based on our understanding of the business
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at
https://www.frc.org.uk/auditorsresponsibilities
. This
description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the company’s members those matters
we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we
do not accept or assume responsibility to anyone other than
the company and the company’s members as a body, for our
audit work, for this report, or for the
opinions we have formed.
Lloyd Brown (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
,
23
March 2022
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TORM PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
-
continued
TORM
ANNUAL REPORT 2021
IND
EPENDENT AUDITOR’S REPORT
170
TORM FLEET O
VERVIEW
AS OF 31 DECEMBER 20
21
Vessel type
Vessel class
Vessel
DWT
Built
Ownership
Carrying value (USDm)
Tanker
LR
TORM GUDRUN
Tanker
LR
TORM HELLERUP
Tanker
LR
TORM HELENE
Tanker
LR
TORM
HERMIA
Tanker
LR
TORM HERDIS
Tanker
LR
TORM HILDE
Tanker
LR
TORM INGEBORG
⁾
Tanker
LR
TORM KIARA
Tanker
LR
TORM KIRSTEN
Tanker
LR
TORM KRISTINA
Tanker
LR
TORM MAREN
⁾
Tanker
LR
TORM MARINA
⁾
Tanker
LR
TORM MATHILDE
⁾
Tanker
LR
TORM VALBORG
⁾
Tanker
LR
TORM EMILIE
⁾
⁾
Tanker
LR
TORM ESTRID
⁾
Tanker
LR
TORM ISMINI
⁾
Tanker
LR
TORM SARA
⁾
Tanker
LR
TORM SIGNE
⁾
Tanker
LR
TORM SOFIA
⁾
Tanker
LR
TORM VENTURE
⁾
Tanker
LR
TORM ELISE
Tanker
LR
TORM ELIZABETH
Tanker
MR
TORM
ADVENTURER
Tanker
MR
TORM AGNES
⁾
Tanker
MR
TORM AGNETE
⁾
Tanker
MR
TORM ALEXANDRA
⁾
Tanker
MR
TORM ALICE
⁾
Tanker
MR
TORM ALLEGRO
TORM
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
171
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 20
21 -
continued
Vessel type
Vessel class
Vessel
DWT
Built
Ownership
Carrying value (USDm)
Tanker
MR
TORM ALMENA
⁾
Tanker
MR
TORM AMALIE
⁾
Tanker
MR
TORM AMORINA
Tanker
MR
TORM ANABEL
⁾
Tanker
MR
TORM ARAWA
⁾
Tanker
MR
TORM ASLAUG
⁾
Tanker
MR
TORM ASTRID
⁾
Tanker
MR
TORM ATLANTIC
⁾
Tanker
MR
TORM AUSTRALIA
⁾
Tanker
MR
TORM CAVATINA
Tanker
MR
TORM CORRIDO
⁾
Tanker
MR
TORM DISCOVERER
Tanker
MR
TORM ERIC
⁾
Tanker
MR
TORM FREYA
⁾
Tanker
MR
TORM HARDRADA
Tanker
MR
TORM HELVIG
⁾
Tanker
MR
TORM HORIZON
⁾
Tanker
MR
TORM INDIA
⁾
Tanker
MR
TORM KANSAS
⁾
Tanker
MR
TORM LAURA
⁾
Tanker
MR
TORM LEADER
Tanker
MR
TORM LENE
⁾
Tanker
MR
TORM LILLY
⁾
Tanker
MR
TORM LOKE
⁾
Tanker
MR
TORM LOTTE
⁾
Tanker
MR
TORM LOUISE
⁾
TORM
ANNUAL REPORT 2021
INDEPENDENT AUDITOR’S REPORT
172
TORM FLEET OVERVIEW
AS OF 31 DECEMBER 20
21 –
continued
Vessel type
Vessel class
Vessel
DWT
Built
Ownership
Carrying value (USDm)
Tanker
MR
TORM PHILIPPINES
⁾
Tanker
MR
TORM PLATTE
⁾
Tanker
MR
TORM RAGNHILD
⁾
Tanker
MR
TORM REPUBLICAN
⁾
Tanker
MR
TORM RESILIENCE
⁾
Tanker
MR
TORM SINGAPORE
⁾
Tanker
MR
TORM SOLUTION
Tanker
MR
TORM SOVEREIGN
Tanker
MR
TORM SPLENDID
Tanker
MR
TORM STELLAR
Tanker
MR
TORM STRENGTH
Tanker
MR
TORM STRONG
Tanker
MR
TORM SUBLIME
Tanker
MR
TORM SUCCESS
Tanker
MR
TORM SUPREME
Tanker
MR
TORM THAMES
⁾
Tanker
MR
TORM THOR
⁾
Tanker
MR
TORM THUNDER
⁾
Tanker
MR
TORM THYRA
⁾
Tanker
MR
TORM TIMOTHY
⁾
Tanker
MR
TORM TITAN
Tanker
MR
TORM TORINO
Tanker
MR
TORM
TROILUS
Tanker
MR
TORM VOYAGER
Tanker
Handysize
TORM GYDA
⁾
Tanker
Handysize
TORM TEVERE
⁾
⁾
Indicates that the vessels are assets held
-for
-sale
⁾
Indicates vessels for which TORM believes that as of December the basic charter-free market value is lower than the vessels carrying amount 
TORM
ANNUAL REPORT 2021
GLOSSARY
173
GLOSSARY
Available e
arning 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
l
easeback
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:
I
ndependent organization, which
ensures through verification of design, construction, building
process and operation of vessels that the vessels at all times
meet a long list of requirements to seaworthiness, etc. If the
vessels do not meet these requiremen
ts, insuring and
mortgaging the vessel will typically not be possible.
COA:
Contract of Affreightment. A contract that involves a
number of consecutive
cargo
s at previously agreed freight
rates.
Coating:
The internal coatings applied to the tanks of a
pr
oduct 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 d
ays:
A measure of fixed operating days.
Demurrage:
A charge against the charterer of a vessel for
delaying the vessel beyond the allowed free time. The
demurrage rate will typically be at a level equal to the earnings
in USD/day for the voyage.
DKK:
Danish kroner.
Dwt:
Deadweight ton. The cargo carrying capacity of a vessel.
EBIT/Operating profit/(loss):
Earnings Before Interest
and Tax.
Earning days:
A measure of operating days available for
generating earnings.
ESG:
Environmental, Social, and Governance.
FFA:
Forward
f
reight
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 Fina
ncial 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
carg
o 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 a
re 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 pa
y 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 Globa
l 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 2021
GLOSSARY
174
GLOSSARY
KEY FINANCIAL FIGURES
TCE %
=
TCE
Revenue
TCE per day
=
TCE
Available earning days
Gross profit %
=
Gross profit
Revenue
EBITDA %
=
EBITDA
Revenue
Operating profit/(loss) %
=
Operating profit/(loss) (EBIT)
Revenue
Return on Equity (RoE) %
=
Net profit/(loss) for the year
Average e
q
uity
Return on Invested Capital
(RoiC) %
=
Operating profit/(loss) 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 (USD)
=
Net profit/(loss) for the year
Average number of shares less average number of treasury shares
TORM
ANNUAL REPORT 2021
GLOSSARY
175
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
Net profit
/(loss) for the year
excluding
non
-recurrent items
:
Net profit excluding impairment is
net profit less impairment
and reversals of impairment
generated from impairment testing
during the year (Please refer to Note
8)
.
TORM
reports
n
et profit excluding impa
irment because
we believe it provides additional meaningful information to investors regarding the operational
performance excluding f
luctuations 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
Reconciliation to net profit(loss) for the year
Net profit(loss) for the year
Profit from sale of vessels
Impairment losses and reversals on tangible assets
Expense of capitalized bank fees at refinancing
-
Termination of finance leases
Provisions
Net profit(loss) for the year exnon
-
recurrent items
-
Time Charter Equivalent (TCE) earnings:
TORM defines TCE earnings, a performance measure,
as revenue after port expenses, bunkers and commissions incl. freight and bunker derivatives.
The Company reports TCE earnings because we believe it provides additional meaningful
information to investors
in relation to revenue, the most directly comparable IFRS measure. TCE
earnings is a standard shipping industry performance measure used primarily to compare
period
-
to
-period changes in a shipping company’s performance irrespective of changes in the
mix of
charter types (i.e.
, spot charters, time charters and bareboat charters) under which the
vessels may be employed between the periods. Below is presented a reconciliation from
r
evenue to TCE earnings:
USDm
Reconciliation to revenue
Revenue
Port expenses bunkers and commissions
- -
TCE earnings
Gross profit:
TORM defines
Gross profit
, , a performance measure
as
revenue less
port expenses,
bunkers and commissions,
charter hire and operating expenses. T
ORM
reports Gross profit
because we believe it provides additional meaningful information to investors, as Gross profit
measures the net earnings from shipping activities. Gross
profit is calculated as follows:
USDm
Reconciliation to revenue
Revenue
Port expenses bunkers and commissions
- -
Operating expenses
- -
Gross profit
TORM
ANNUAL REPORT 2021
GLOSSARY
176
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
–
continued
EBITDA:
TORM defines EBITDA as earnings before financial income and expenses, depreciation,
impairment, amortization
,
and taxes. The computation of EBITDA refers to financial income and expenses which
TORM
deems to be equivalent to “interest” for purposes of pres
enting 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 financ
ial 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 E
BITDA 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 structure
s,
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 not be directly comparable. The following table reconciles
EBITDA to net profit/(loss), the most directly comparable IFRS financial measure, for the
periods presented:
USDm
Reconciliation to net profit(loss)
Net profit(loss) for the year
Tax
Financial expenses
Financial
income -
- -
Depreciation
Impairment (reversal)losses on tangible assets
EBITDA
Return on Invested Capital (RoIC):
TORM defines RoIC as earnings before interest and tax
(EBIT)
less tax
,
divided by the
average invested capital for the period.
Invested capital is defined
below.
RoIC expresses the returns generated on capital invested in
TORM
. The progression of RoIC is
used by TORM to measure progress against our longer
-
term value creation goals outlined to investors. RoIC
is calculated as follows:
USDm
Operating profit(loss) (EBIT)
Tax
EBIT less Tax
Invested capital opening balance
Invested capital ending balance
Average invested capital for the year
Return on Invested Capital (RoIC)
TORM
ANNUAL REPORT 2021
GLOSSARY
177
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
–
continued
Adjusted Return on Invested Capital (Adjusted RoIC):
TORM defines
Adjusted
RoIC as earnings
before interest and tax (EBIT)
less
tax
and impairment
losses and reversals
, divided by the
average invested capital
less average impairment
for the period. Invested capital is defined
below.
The Adjusted
RoIC expresses the returns gener
ated on capital invested in
TORM
adjusted for
impacts related to the impairment of the fleet
. The progression of RoIC is used by TORM to
measure progress against our longer
-
term value creation goals outlined to investors.
Adjusted
RoIC is calculated as fol
lows:
USDm
EBIT less Tax
Profit from sale of vessels
Impairment losses and reversals on tangible assets
Provisions
EBIT less tax and impairment
Average invested capital
⁾
Average impairment
⁾
Average invested capital less average impairment
Adjusted RoIC
⁾
Average invested capital is calculated as the average of the opening and closing balance of invested capital
⁾
Average impairment is calculated as the average of the opening and closing balances of impairment charges on
vessels and goodwill in
the balance sheet
Invested capital:
TORM defines invested capital as the sum of intangible assets, tangible fixed
assets, investments in joint ventures´, deferred tax assets, bunkers, accounts receivables, assets
held
-
for
-sale (when applicable), non
-
current tax liability related to held over
gains, trade
payables, current tax liabilities and deferred income. Invested capital measures the net
investment used to achieve
TORM’s ORM
operating profit. T
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
Tangible and intangible fixed assets
Investments in joint ventures
Deferred tax asset
-
Bunkers
Accounts receivables
⁾
Assets held
- -
for
-sale
Non
- -
current tax
liability related to held over gains
-
-
Trade payables
⁾ -
- -
Provisions
Current tax liabilities
-
Invested capital
⁾
Accounts receivables
Freight receivables Other receivables and Prepayments include
⁾
Trade payables include
Trade payables and Other liabilities 
TORM
ANNUAL RE
PORT 2021
GLOSSARY
178
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
-
continued
Net interest
-
bearing debt:
Net interest
-
bearing
-debt is defined as borrowings (current and non
current) less loans receivables and cash and cash equivalents, including restricted cash. Net
interest
-
bearing debt depicts the net capital resources, which cause net interest expenditure
and interest rate risk and which, together with equity, are used to finance
TORM’s
investments.
As such, TORM believes that net interest
-
bearing debt is a relevant measure which Management
uses to measure the overall development of the use of financing, other than equity. Such
measure may not be comparable to similarly titled measures of other companies. Net interest
-
bearing debt is calculated as follows:
USDm
Borrowings
Loans receivables
- -
Cash and cash
equivalents including restricted cash - -
-
Net interest
-
bearing debt
Net
Loan
-
to
-value (LTV):
TORM defines Loan
-to
-value (LTV) ratio as
v
essel 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 l
oan facilities.
USDm
Vessel values including newbuildings (broker values)
Total (value)
Borrowings
-
Hereof debt
regarding Land and buildings & Other plant
and operating equipment - - -
Committed CAPEX on newbuildings
Loans receivables
- -
Cash and cash equivalents including restricted cash
-
Total (loan)
Net Loan
-
to
-value (LTV) ratio
Net Asset Value per share (NAV/share):
TORM believes that the NAV/share is a relevant
measure
which
M
anagement 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 calcu
lated using broker values of vessels and excluding charter
commitments. NAV/share is calculated as follows:
USDm
Net Asset Value per share
Total vessel values including newbuildings (broker values)
Committed CAPEX on newbuildings
-
Land and buildings
Other plant and operating equipment
Investments in joint ventures
Loans receivables
Deferred tax
assets
-
Bunkers
Freight receivables
Other receivables
Prepayments
Cash position
Borrowings
- -
Trade payables
Other liabilities
- -
Current tax liabilities
-
Provisions
Total Net Asset Value (NAV)
Total number of shares excluding treasury shares (million)
Total Net Asset Value per share (NAVshare) (USD)
TORM
ANNUAL REPORT 2021
GLOSSARY
179
GLOSSARY
ALTERNATIVE PERFORMANCE MEASURES
-
continued
Liquidity:
TORM defines liquidity as available cash, comprising cash and cash equivalents,
including restricted cash, as well as undrawn and committed credit facilities.
TORM finds the APM important as the liquidity expresses TORM’s financial position,
ability to
meet current liabilities and cash buffer. Further, it expresses TORM’s ability to act and invest
when possibilities occur.
USDm
Cash and cash equivalents including restricted cash
Undrawn credit
facilities and committed facilities incl sale
& leaseback financing transactions
Liquidity