UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2018

Commission File Number 001-38294

TORM plc

Birchin Court, 20 Birchin Lane, London, EC3V 9DU, United Kingdom

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F [X]       Form 40-F [  ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [  ].

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [  ].

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.



INFORMATION CONTAINED IN THIS FORM 6-K REPORT


Attached to this Report on Form 6-K as Exhibit 99.1 is a copy of TORM plc's Annual Report 2017.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
TORM PLC
   
   
Dated: March 8, 2018
 
   
 
By:
/s/ Jacob Meldgaard
 
   
Jacob Meldgaard
   
Executive Director and Principal Executive Officer


Exhibit 99.1
 
 
 
 
 

 
CONTENTS
CHAIRMAN'S
STATEMENT
 
HIGHLIGHTS
2017
 
PRODUCT TANKER
MARKET
 
CORPORATE
GOVERNANCE
 
FINANCIAL
STATEMENTS
4
 
8
 
21
 
52
 
87
                 

STRATEGIC REPORT
   
GOVERNANCE
   
FINANCIAL STATEMENTS
 
               
               
Chairman's Statement
4
 
Chairman's Introduction
51
 
Consolidated Income Statement
87
Key Figures
6
 
Corporate Governance
52
 
Consolidated Statement of Comprehensive Income
87
Highlights
8
 
Audit Commitee Report
58
 
Consolidated Balance Sheet
88
Outlook 2018
11
 
Risk Committee Report
63
 
Consolidated Statement of Changes in Equity
89
Statement by the Executive Director
14
 
Nomination Committee Report
66
 
Consolidated Cash Flow Statement
91
Strategic Ambition and Business Model
16
 
Remuneration Committee Report
68
 
Notes to Consolidated Financial Statements
92
Value Chain in Oil Transportation
20
 
Investor Information
77
 
Parent Company 2017
128
The Product Tanker Market
21
 
Directors' Report
80
 
Company Balance Sheet
129
Key Performance Indicators
26
 
Statement of Directors' Responsibilities
84
 
Company Statement of Changes in Equity
130
US Listing
27
       
Notes to Parent Financial Statements
131
Corporate Social Responsibility
28
       
Independent Auditor's Report to the Members of TORM plc
135
Risk Management
37
       
TORM Fleet Overview
141
Financial Review 2017
41
       
Glossary
144
               

2

 

 
 

3

 
Chairman's Statement
 
 
In 2017, TORM continued to execute on its strategic objectives. I am pleased that we were able to grow the fleet through attractively priced vessel acquisitions, complete the US listing in December and finally, in January this year, we raised USD 100m in new equity for further growth.
Looking ahead, I have confidence in the strength and performance of the TORM platform. With an encouraging market outlook for product tankers, I look forward to reporting on our progress throughout 2018.
Christopher H. Boehringer, Chairman of the Board
 

In a year where product tanker rates were subdued for most of the year, I am pleased to report that TORM was able to execute on its strategic objectives. In December 2017, TORM reached an important milestone by completing the dual-listing on NASDAQ1 in the US. The dual-listing was one of the factors supporting TORM's successful equity capital raise in January 2018, a capital raise that further strengthens TORM's strategic and financial flexibility by securing additional capacity to pursue growth opportunities.
 
DUAL-LISTING COMPLETED
On 11 December 2017, TORM plc listed on NASDAQ in New York under the ticker "TRMD". The Board of Directors considers the completed dual-listing a key benefit for all stakeholders and a prerequisite to creating an attractive vehicle for investors looking for exposure to the product tanker industry. Initially, the dual-listing provides shareholders with the optionality of trading shares on both exchanges, and over time the increased exposure towards the US equity market is expected to improve trading liquidity.
 
Industry-leading PERFORMANCE in 2017
At the beginning of 2017, global clean petroleum product inventory levels were at all-time highs, which dampened transportation demand and kept product tanker freight rates under pressure throughout most of 2017. This is a natural part of the cycle, where we saw strong product tanker freight rates in 2015 through the first half of 2016 as inventory levels grew. Since then, demand has partly been met by local supply from either production or inventory.
 
I find it encouraging that the latest data points suggest that we are back at normalized inventory levels on a global scale. Furthermore, we have seen regional freight rate spikes over the course of 2017, which suggests that the product tanker market is more balanced and reacts as expected when local inventory levels are low.
 
Operating within the context of a difficult market, TORM nevertheless generated a strong cash flow from operations of USD 110m (2016: USD 171m) and remained profitable with a pre-tax profit of USD 3m (2016: USD -142m, or USD 43m when excluding impairments).
 
 
As a pure-play product tanker company, this performance can be attributed to TORM's integrated operating platform, a well-maintained fleet and a presence in all larger product tanker classes. With TCE earnings2 and cash flow at the top end of comparable industry players, I consider the 2017 results to be solid and to prove TORM's position as Reference Company in the product tanker industry.
 
Looking ahead, the supply growth looks manageable, and when considering that inventory levels are back at normalized levels, the fundamentals are in place for a sustained strengthening of the product tanker market.
 
SOLID CAPITAL STRUCTURE, ready for growth
Throughout 2017, TORM has maintained its strategic and financial flexibility. During the year, the Company undertook initiatives to grow and rejuvenate the fleet by acquiring a total of eight vessels (six MR resales and two LR1 newbuildings). Two of the MR vessels were delivered in 2017, the remaining four and the two LR1s are scheduled for delivery in 2019 through the first quarter of 2020.
 
         
__________
     
__________
1 NASDAQ Global Select Market
     
2 See Glossary on pages 144-149 for a definition of TCE earnings.
         

4


The USD 100m equity capital raise announced in January 2018 further strengthens the Company's capital position and gives TORM the financial strength to continue pursuing attractive investment opportunities in 2018.
 
The transaction is a testament to the One TORM platform and the value that both existing and new investors associate with the platform.
 
Christopher H. Boehringer, Chairman of the Board


5


KEY FIGURES
                     
       
Pro forma
         
Pro forma
 
2017
2016
2015
2015 ¹
   
2017
2016
2015
2015 ¹
           
KEY FINANCIAL FIGURES ²
       
INCOME STATEMENT (USDm)
         
Gross margins:
       
Revenue
  657
  680
  540
  854
 
 TCE
60.4%
67.4%
68.6%
68.1%
Time charter equivalent earnings (TCE) ²
  397
  458
371
  582
 
 Gross profit
30.4%
35.6%
43.6%
42.3%
Gross profit ²
  200
  242
  236
361
 
 EBITDA
24.0%
29.4%
38.9%
37.4%
EBITDA ²
158
  200
210
319
 
 Operating profit/(loss)
6.1%
-15.7%
26.5%
25.6%
Operating profit/(loss) (EBIT)
  40
-107
143
219
 
Return on Equity (RoE)
0.3%
-16.2%
17.4%
-
Financial items
  -36
  -35
-16
-31
 
Return on Invested Capital (RoIC)
2.8%
-7.2%
13.2%
14.1%
Profit/(loss) before tax
  3
-142
127
188
 
Adjusted Return on Invested Capital (RoIC)
2.4%
4.9%
13.2%
14.1%
Net profit/(loss) for the year
  2
-142
126
187
 
Equity ratio
48.0%
49.7%
52.3%
-
Net profit/(loss) for the year excluding impairment charges
  2
  43
126
187
           
           
SHARE-RELATED KEY FIGURES ²
       
BALANCE SHEET (USDm)
         
Basic earnings/(loss) per share (USD)
0.04
 -2.3
2.4
 -
Non-current assets
 1,385
 1,390
 1,579
 1,579
 
Diluted earnings/(loss) per share (USD)
0.04
 -2.3
2.4
 -
Total assets
 1,647
  1,571
 1,867
 1,867
 
Dividend per share (USD)
0.02
0.4
-
 -
Equity
791
781
  976
  976
 
Net Asset Value per share (NAV/share) ³
 12.8
  11.8
 18.4
 -
Total liabilities
  856
  790
891
891
 
Stock price in DKK, end of period (per share of USD 0.01)
53.5
63.5
97.5
 -
Invested capital ²
 1,406
 1,388
 1,588
 1,588
Net interest-bearing debt ²
  620
  609
613
613
           
Cash and cash equivalents
134
  76
168
168
 
Number of shares (excluding treasury shares), end of period (million)
62.0
62.0
63.8
 -
         
           
Number of shares (excluding treasury shares), average (million)
62.0
62.9
 51.7
 -
           
 
¹ Pro forma 2015 represents the financial information of the combined businesses of Former TORM A/S and Njord adjusted for non-recurring items. See page 93 for discussion of the "2015 Restructuring".
           
² For definition of the calculated key figures, please refer to the glossary on page 143-148.
           
³ Based on broker valuations as of 31 December 2017, excluding charter commitments.
             

6


SAFE HARBOR STATEMENTS AS TO THE FUTURE
 
Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and statements other than statements of historical facts. The words "believe," "anticipate," "intend," "estimate," "forecast," "project," "plan," "potential," "may," "should," "expect," "pending" and similar expressions generally identify forward-looking statements.
 
The forward-looking statements in this release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although the Company believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies that are difficult or impossible to predict and are beyond our control, the Company cannot guarantee that it will achieve or accomplish these expectations, beliefs or projections.
 
Important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of the world economy and currencies, changes in charter hire rates and vessel values, changes in demand for "ton-miles" of oil carried by oil tankers, the effect of changes in OPEC's petroleum production levels and worldwide oil consumption and storage, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled dry-docking, changes in TORM's operating expenses, including bunker prices, dry-docking and insurance costs, changes in the regulation of shipping operations, including requirements for double hull tankers or actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents, political events or acts by terrorists.
 
In light of these risks and uncertainties, you should not place undue reliance on forward-looking statements contained in this release because they are statements about events that are not certain to occur as described or at all. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.
 
Except to the extent required by applicable law or regulation, the Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events.
 

7


HIGHLIGHTS
 
2017 RESULT
In 2017, TORM realized an EBITDA of USD 158m (2016: USD 200m). The 2017 profit before tax amounted to USD 3m (2016: USD -142m).
TORM's performance in 2017 is satisfactory considering the market conditions and strong when comparing to peers. Return on Invested Capital (RoIC) was 2.8% (2016: -7.2%, or 4.9% when adjusting for impairments).
     
 
MARKET CONDITIONS
For the full year 2017, TORM achieved TCE rates of USD/day 14,621 (2016: USD/day 16,050).  Despite a healthy consumer-driven demand for refined oil products, the record high clean petroleum product inventory levels globally that were built up during 2015 and 2016 had a negative impact on the product tanker market in 2017. Inventory drawdown was an overriding theme in 2017, which naturally had a negative impact on product tanker demand. In fact, global Clean Petroleum Products (CPP) stocks decreased by a volume equivalent to a loss of potential trade of 4%
     
 
VESSEL
TRANSACTIONS
During 2017, TORM acquired six MR resale vessels and executed newbuilding options for two LR1 vessels for a total consideration of USD 259m.
Two of the MR resale vessels were delivered in the third quarter of 2017. TORM has bank financing in place for all eight vessels. TORM's order book stood at ten newbuildings: four LR2s, four MRs and two LR1s all from Guangzhou Shipyard International3 .
 
In addition to the vessel acquisitions, TORM has over the course of 2017 sold five older vessels (one MR vessel and four Handysize vessels). TORM also made three sale and leaseback transactions that are treated as financial leases although they have no purchase obligation attached.







__________
3 Guangzhou Shipyard International Company Limited (GSI).
8


HIGHLIGHTS - continued
 
CORPORATE
EVENTS
US listing completed in 2017.
On 11 December 2017, TORM achieved a milestone by listing its A-shares on NASDAQ in New York under the ticker TRMD. TORM's shares are now dual-listed in Copenhagen and New York, and the dual listing enables shareholders to move shares between the two exchanges. TORM believes that over time, a dual listing will attract further investor interest, which will strengthen the Company's strategic and financial flexibility.
 
USD 100m private placement completed in 2018.
On 26 January 2018, TORM completed an equity raise of USD 100m. The new equity strengthens TORM's ability to pursue attractively priced growth opportunities.
 
     
 
LIQUIDITY
As of 31 December 2017, TORM's available liquidity was USD 405m and consisted of USD 134m in cash and USD 271m in undrawn credit facilities.
As of 31 December 2017, net interest-bearing debt4 amounted to USD 620m.
 
As of 31 December 2017, TORM's net loan-to-value (LTV)5 ratio was 56%.
     
 
NAV AND EQUITY
Based on broker valuations, TORM's NAV6 excluding charter commitments is estimated at USD 796m. This corresponds to a NAV/share of USD 12.8 or DKK 79.7.
TORM's book equity amounted to USD 791m as of 31 December 2017. This corresponds to a book equity/share of USD 12.8 or DKK 79.2.



__________
See Glossary on pages 144-149 for a definition of net interest-bearing debt
See Glossary on pages 144-149 for a definition of loan-to-value.
See Glossary on pages 144-149 for a definition of NAV
9


HIGHLIGHTS - continued
 
VESSEL VALUES,
ORDER BOOK AND
CAPEX
Based on broker valuations, TORM's fleet including newbuildings had a market value of
USD 1,661m as of 31 December 2017.
As of 31 December 2017, TORM's order book stood at ten newbuildings: four LR2s, four MRs and two LR1s all from Guangzhou Shipyard International.
 
The LR2s are expected to be delivered in 2018 and the MRs and the LR1s in 2019 throughout the first quarter of 2020. Outstanding CAPEX7 relating to the order book and vessel purchases amounted to USD 307m.
 
As of 31 December 2017, TORM performed a review of the recoverable amount of its assets by assessing the recoverable amount for the most significant assets. Based on this review, Management concluded that the assets were not impaired as the value in use approximates the carrying value.
 
The book value of the fleet was USD 1,383m as of 31 December 2017 excluding outstanding installments on the newbuildings of USD 307m.
     
 
COVERAGE
As of 31 December 2017, 13% of the total earning days8 in 2018 were covered at USD/day 18,814.
 
As of 2 March 2018, 27% of the total earning days in 2018 were covered at USD/day 15,792.
     
 
DISTRIBUTOR
POLICY
TORM intends to distribute 25-50% of net income semi-annually.
For the first half of 2017, TORM distributed USD 1.2m in dividends.
For the second half of 2017, the Board of Directors proposes that no dividend be distributed.



__________
See Glossary on pages 144-149 for a definition of CAPEX
See Glossary on pages 144-149 for a definition of total earning days
10


OUTLOOK 2018
As of 31 December 2017, TORM had covered 3,698 earning days (13% of total earning days) for 2018 at an average rate of USD/day 18,814, which is above the available benchmarks.
As of the same date, the interest-bearing bank debt totaled USD 721m, and TORM had fixed 63% of the interest exposure for 2018.


OUTLOOK
Taking the economic and political uncertainty into account, TORM expects the supply and demand balance within the product tanker market to gradually improve. Going forward, TORM also expects increasing oil consumption and increased ton-mile effects of dislocation of refinery activity to have a positive impact on the demand for product tankers.
 
During 2018-2020, the product tanker ton-mile demand is estimated to grow by a compound annual rate of approximately 5% with an estimated net growth in tonnage supply of approximately 4%. Expectations are that the market balance will improve towards the end of the period supported by an increasing demand for transportation and lower fleet growth. Please see "The Product Tanker Market" section on pages 21-24.
 
In line with common practice in most UK companies and other major shipping companies, TORM does not provide guidance on earnings. To support the investors' assessment of TORM, information on covered days, interest-bearing bank debt, the one-year time charter (T/C) market and EBITDA sensitivity to freight rates is included in the Annual Report.
COVERAGE FOR 2018
As of 31 December 2017, TORM had covered 3,698 earning days (13% of total earning days) for 2018 at an average rate of USD/day 18,814, which is above the available benchmarks. This means that a change in freight rates of USD/day 1,000 would impact the full-year EBITDA by USD 24m.
 
As of 31 December 2017, the interest-bearing bank debt totaled USD 721m, and TORM had fixed 63% of the interest exposure for 2018. A change in interest rates of 25 basis points would impact the result before tax by USD 0.8m.
 
 
 
 
2018 EBITDA SENSITIVITY TO CHANGES IN FREIGHT RATES – AS OF 31 DECEMBER 2017
 
Change in freight rates (USD/day)
USDm
-2,000
-1,000
1,000
2,000
LR2
-6
-3
3
6
LR1
-5
-2
2
5
MR
-33
-16
16
33
Handysize
-5
-2
2
5
Total
-48
-24
24
48
         

11


OUTLOOK 2018 - continued
As of 2 March 2018, the one-year T/C market can be seen in
   
The table to the right, which corresponds to a weighted
ONE-YEAR TIME CHARTER MARKET
 
average  one-year T/C rate for TORM's vessels of USD/day
Source: Average of selected broker assessments.
 
13,570.
 
One-year T/C
   
rate as of 2
 
USD/day
March 2017
The most important factors affecting TORM's earnings in
LR2
14.950
2018 are:
LR1
12.925
 
MR
13.500
Global economic growth
Handysize
12.475
Consumption of refined oil products
Note: The time charter market has limited liquidity.
 
Developments in inventory levels of refined oil products
   
Oil trading activity and developments in ton-mile trends
   
Fleet growth, scrapping of vessels and delays to deliveries from the order boo
   
Bunker price developments
   
One-off market-shaping events such as strikes, embargoes, political instability, weather conditions, etc.
   

12


COVERED AND CHARTERED-IN DAYS IN TORM – DATA AS OF 31 DECEMBER 2017
         
                 
 
2018
2019
2020
         
Owned days
         
2018
2019
2020
LR2
3,431
3,961
4,010
 
Covered, %
     
LR1
2,510
2,476
2,546
 
LR2
28.0%
2.0%
-
MR
17,849
1,682
19,349
 
LR1
5.0%
-
-
Handysize
2,564
2,404
2,523
 
MR
12.0%
1.0%
-
Total
26,354
27,523
28,428
 
Handysize
5.0%
-
-
         
Total
13.0%
1.0%
-
                 
Charter-in and leaseback days at fixed rate
               
LR2
363
363
324
 
Covered days
     
LR1
-
-
-
 
LR2
1,157
84
-
MR
726
726
668
 
LR1
130
-
-
Handysize
-
-
   
MR
2,289
150
-
Total
1,089
1,089
992
 
Handysize
122
-
-
         
Total
3,698
234
-
                 
Charter-in days at floating rate
               
LR2
338
-
-
 
Coverage rates, USD/day
     
LR1
-
-
-
 
LR2
23,222
24,338
-
MR
-
-
-
 
LR1
15,744
-
-
Handysize
-
-
-
 
MR
17,021
17,412
-
Total
338
-
-
 
Handysize
13,949
-
-
         
Total
18,814
19,900
-
         
Fair value of freight rate contracts that are mark-to-market in the income statement:
     
Total physical days
       
Contracts not included above: USD 0.8m
     
LR2
4,133
4,324
4,334
 
Contracts included above: USD -0.4m
     
LR1
2,510
2,476
2,546
         
MR
18,576
19,408
20,018
         
Handysize
2,564
2,404
2,523
 
Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries. T/C-in days at
Total
27,783
26,612
29,421
 
fixed rate do not include effects from profit split arrangements. T/C-in days at floating rate determine rates at the entry of each
         
quarter, and then TORM will receive approx. 10% profit/loss compared to this rate.
                 

13


STATEMENT BY THE EXECUTIVE DIRECTOR
TORM's continued focus on optimizing the operational performance supports the ambition to be the Reference Company in the product tanker industry.
 
In 2017, TORM's product tanker fleet realized average TCE earnings of USD/day 14,621. Product tanker freight rates remained at subdued levels for most of 2017. Despite the sluggish market, each quarter had its own regional freight rate spike mostly driven by demand for clean petroleum products in the western markets.
 
One example of these regional spikes was in the second half of 2017 when Hurricane Harvey's arrival on the US Gulf Coast caused a spike in the transatlantic freight rate, however, the spike proved temporary.
More importantly, the transatlantic spike was followed by a significant increase in transpacific voyages from Asia to the US West Coast. The strengthening in the transpacific market proved more robust than the initial transatlantic spike and carried a positive momentum into the fourth quarter.
 
The One TORM approach with in-house commercial and technical management ensures flexibility to optimize performance and has proven its strength by ensuring the right trade-off between maximizing TCE and minimizing cost. In 2017, TORM generated an EBITDA of USD 158m and a RoIC of 2.8%.
 
The integrated nature of TORM's business model provides transparency and additional alignment of management and shareholder interests, which mitigates the potential for actual
 
or perceived conflicts of interest with related parties and allows for close control over operating expenses.
 
The Company's capital structure supports the operational performance by ensuring sufficient financial and strategic flexibility to allow for spot employment. The balance sheet strength combined with TORM's access to funding at competitive terms provides a competitive advantage when pursuing vessel acquisitions.
 
During 2017, TORM continued its efforts to rejuvenate and expand the fleet by acquiring a total of eight vessels: six MR resale vessels and two LR1 newbuildings. Two of the MR resale vessels were delivered in 2017, the remaining vessels are scheduled for delivery in 2019 and 2020. At the end of 2017, TORM's owned fleet numbers 72 product tankers on the water, five vessels on bareboat charters and ten newbuildings to be delivered in 2018, 2019 and 2020.
 
The TORM fleet covers all key product tanker classes, and TORM's distribution is roughly in line with the global product tanker fleet. In general, global customers have transportation requirements that move between vessel classes, and TORM is well-positioned to meet these demands.
Over the past several quarters, TORM's commercial performance has consistently been among the best in its peer group both in terms of total TCE/day and in terms of Return on Invested Capital. TORM believes that this performance is a result of the One TORM approach with the full value chain being managed in-house.
Jacob Meldgaard, Executive Director

14


STATEMENT BY THE EXECUTIVE DIRECTOR - continued
Safety is part of TORM's strategic focus and an integral part of the ambition of becoming the Reference Company within the product tanker industry. As part of this strategic focus, TORM wants to take safety culture, performance and quality to a higher level and to ensure a common understanding of safety across the organization. This will be accomplished through a companywide safety program called One TORM Safety Culture – driving resilience and involves all employees both ashore and at sea.
 
The Strategic Report on pages 4-49 has been prepared in accordance with the requirements of the Companies Act 2006 and is approved and signed on behalf of the Board of Directors.
   
     
     
     
Jacob Meldgaard, Executive Director
   

15


STRATEGIC AMBITION AND BUSINESS MODEL
TORM offers a strong operating platform illustrated by TORM's superior RoIC margins and higher MR TCE earnings compared to peers.
Strong industry relationships enabling fleet renewal at attractive prices.
USD 100m in new equity capital and up to USD 300m in new debt capital since January 2017, which supports TORM's solid capital structure.

PURE-PLAY PRODUCT TANKER OWNER AND OPERATOR
TORM is a leading product tanker company with an owned fleet of 73 vessels on the water, five vessels on charter-in and eight newbuildings as of 6 March 2018. TORM is active within all larger product tanker classes (LR2, LR1, MR and Handysize). This supports TORM in meeting customer demands, as global customers have transportation requirements that move between vessel classes. TORM is a pure-play product tanker company and is well-positioned to take advantage of the promising long-term supply-and-demand fundamentals in this segment by utilizing its extensive experience and expertise as a product tanker operator.
 
TORM's chartering strategy is to employ the fleet primarily in the spot market, where the Company is able to optimize earnings from voyage to voyage. TORM may seek to employ some of its vessels on longer-term time charter-out contracts if customer needs and expected returns make it attractive. Due to its own scale, TORM will only enter into long-term charter-in commitments if these are deemed profitable on a case-by-case assessment.
The Company believes that ownership of vessels combined with TORM's integrated platform provides essential control giving more flexibility and earning power. Short-term charter-
in agreements (less than 12 months) are considered and evaluated as an active part of the spot-oriented market approach.
 
SELECTIVE FLEET GROWTH
TORM may selectively grow its product tanker fleet and serve as a consolidator in the product tanker segment if the right opportunities arise. TORM's sale and purchase activities are conducted by an in-house team leveraging relationships with shipbrokers, shipyards, financial institutions and shipowners.
 
TORM is continuously following the market for attractive opportunities to acquire high-specification second-hand product tankers that will be franchise enhancing and financially accretive. TORM also selectively pursues attractive newbuilding programs with high-quality shipyards, where newbuilding contracts provide higher expected return, or where the second-hand market has insufficient liquidity in vessels that meet customer requirements. In 2017, TORM has acquired eight new vessels at attractive price points below the market benchmarks.
TORM's in-house technical management has significant experience in newbuilding projects from design to delivery.
As of 6 March 2018, TORM's current newbuilding program consists of two LR2 vessels, two LR1 vessels and four MR vessels. The vessels are expected to be delivered in the period between the second quarter of 2018 and the first quarter of 2020. In addition, TORM has since January 2017 taken delivery of two LR2 newbuildings and two MR newbuildings. The specific acquisition criteria for newbuildings or second-hand vessels include:
 
Price point attractiveness
Complementarity to the current fleet
Vessel quality level and origin (quality yard)
Operational characteristics incl. Main engine design, bunker consumption and cargo intake
 
TORM will from time to time sell vessels that no longer fit the commercial strategy, or if the price point is deemed attractive. During 2017, TORM sold five older vessels.

16



17


STRATEGIC AMBITION AND BUSINESS MODEL - continued
SOLID CAPITAL STRUCTURE
TORM has a solid capital structure with long-dated debt maturities (2020 and beyond), a strong liquidity position and limited off-balance sheet liabilities. The Company has an attractive debt profile with favorable interest rates, amortization schedules and covenants.
 
The solid capital structure supports TORM's spot employment strategy and enhances financial and strategic flexibility. In addition, the balance sheet strength gives a competitive advantage when pursuing vessel acquisitions, as counterparties prefer well-capitalized companies. TORM plans to finance its business and fleet growth with a combination of operating cash flows, cash-on-hand as well as financing from lenders and the capital markets. During 2017, TORM has secured four new loan facilities, covering approximately USD 300m, and extended an existing facility of USD 74m. In addition, TORM has financed three older vessels under sale and leaseback structures without purchase obligations. This, together with the USD 100m equity capital raise in January 2018, illustrates the Company's ability to source capital and supports TORM's strategic and financial flexibility.
 
To support the capital structure, TORM works towards improving the liquidity in the Company's share to attract a broader investor base. TORM is continuously marketing the share towards investors via investor roadshow activities, conference participation and panel discussions. TORM also believes that the recent US listing and the USD 100m equity raise will increase the liquidity in the share over time.
ONE TORM – STRONG INTEGRATED
OPERATING PLATFORM
TORM's fleet is managed cost-efficiently and effectively by the in-house commercial and technical management team, which has an industry reputation for strong commercial performance, safety and operational expertise. Within the One TORM platform, TORM's employees ensure the high quality of the fleet that is essential for acceptance by our customers under their strict vetting criteria. TORM believes that the largest customers prefer the integrated operating model, as it provides them with better accountability and insight into safety and vessel performance.
 
The integrated nature of TORM's operating platform provides transparency and additional alignment of management and shareholder interests, which mitigates the potential for actual or perceived conflicts of interest with related parties. In addition, it allows for closer control over operating expenses.
 
TORM's diverse fleet of well-maintained product tankers gives the Company the necessary critical mass to reap scale advantages both commercially and in terms of cost-efficiency compared to smaller product tanker owners.
The Company's Management believes that the combination of well-maintained vessels, the presence in all product tanker classes and the integrated operating platform provides the commercial management team with enhanced flexibility and responsiveness to customer demands. As a result, TORM has consistently delivered MR TCE earnings and cash flows above industry average.
 
TORM's integrated model includes a strategic focus on safety performance. To enhance this focus, TORM introduced a new safety culture program in 2016 called One TORM Safety Culture – driving resilience. The program has been further rolled out during 2017, and safety has been integrated into TORM's Leadership Philosophy together with the remaining three values, Performance, Relations and Personal Leadership. This illustrates TORM's belief that profitability and safety should be viewed together.
 
TORM has identified a number of strategic KPIs that the Company believes are vital for the fulfillment of the strategic ambition. These strategic KPIs are described on page 26.

18


 

19


VALUE CHAIN IN OIL TRANSPORTATION
The global oil industry includes a range of activities and processes which contribute to the transformation of primary petroleum resources into usable end products for industrial and private customers.
 
The value chain begins with the identification and subsequent exploration of productive petroleum fields. The unrefined crude oil is transported from the production area to refinery facilities by crude oil tankers, pipelines, road and rail.
 
TORM is primarily involved in the transportation of refined oil products from the refineries to the end user. In addition to clean products, TORM uses some of its vessels for 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 2017, 94% of TORM's turnover was generated from clean products transportation.
 
 
TORM's integrated operating platform with in-house technical and commercial management enhances responsiveness to customers' demands and allows TORM to generate value for stakeholders as well as for the Company.
 
The long-term success of the Company is dependent on TORM's ability to provide safe and reliable transportation services. In addition to the items explicitly stated in the financial statements, the long
term success of the Company further builds on the intellectual property of the workforce at TORM and the relationship and cooperation with external stakeholders such as oil traders, state-owned oil companies, oil majors, financial institutions, shipyards, brokers and governmental agencies.
 
TORM values the relationship with its key stakeholders and aims at conducting business for the benefit of the Company's shareholders and other stakeholders.
 
The interaction with key stakeholders is described on pages 16-18 under "Strategic Ambition and Business Model". For more information on broader value generation and TORM's Corporate Social Responsibility (CSR) policy, please see pages 28-36.
     
 

 
20


THE PRODUCT TANKER MARKET
In 2017, high inventory levels globally led to softening product tanker freight rates.
Looking ahead, demand is expected to gradually outplace supply.

2017 MARKET
Despite a healthy consumer-driven demand for refined oil products, the record high clean petroleum product inventory levels globally that were built up during 2015 and the first part of 2016 had a negative impact on the product tanker market in 2017.
 
During the majority of 2017, the general product tanker freight market was challenged, as local production and stocks could satisfy demand for clean petroleum products in most of the world. Global clean petroleum product stocks decreased by a volume equivalent to a loss of potential trade of 4%. Despite the overall inventory drawdown trend, every quarter had its own regional spike in freight rates showing that the market for product tankers improved instantly when inventory levels retracted locally.
 
During the first half of 2017, product tanker freight rates remained at weak levels, similar to the fourth quarter of 2016. The exception was two freight rate spikes in March and June, primarily driven by increased demand for clean petroleum products in the western markets.
 
The second half of 2017 started out soft until late August where freight rates for transatlantic MR cargos spiked sharply following Hurricane Harvey's arrival on the US Gulf
Coast. However, the spike proved temporary and lasted approximately one week.
 
More importantly, the transatlantic spike was followed by a significant increase in transpacific voyages. The strengthening in the transpacific market proved more robust than the initial transatlantic spike and carried a positive momentum into the fourth quarter.
 
 
Despite positive demand for LR vessels, the overall
freight market for larger vessels in the second half of
2017 was negatively impacted by an increased supply of product tanker and crude tanker newbuildings.
 
At the end of 2017, indications that global inventory levels were back at normalized levels were positive for product tankers. The strengthened freight rates seen in the fourth quarter could indicate that the potential for arbitrage-driven trades has improved.
 
     

21


THE PRODUCT TANKER MARKET - continued
 
Asset prices on second-hand product tankers were relatively flat during 2017 but saw an increase towards the end of the year (source: Clarksons). The end-of-year increase in asset prices was mainly driven by a combination of improved freight rates, a relatively low supply of vessels for sale and a shrinking order book. The value of TORM's fleet measured by broker values decreased by 2% during 2017 (when excluding vessels acquired and sold during 2017).
 
In 2017, TORM achieved a gross profit of USD 200m (2016: USD 242m) primarily due to lower freight rates. See note 3 on page 104 for further details on results. TORM's product tanker fleet realized TCE earnings of USD/day 14,621, down 9% year on year, with the LR2 class at USD/day 16,304, the LR1 class at USD/day 13,771, the MR class at USD/day 14,850 and the Handysize class at USD/day 12,239.
 
During the third quarter of 2017, TORM took delivery of two MR resale vessels from Hyundai Mipo. At the end of 2017, TORM's order book stood at ten vessels, all contracted at Guangzhou Shipyard International, and consisted of four LR2 newbuildings with expected delivery within the first three quarters of 2018, four MR resale vessels for expected delivery in 2019 and two LR1 vessels for expected delivery in 2019 and the first quarter of 2020.
 
At the end of 2017, TORM operated a fleet of 77 vessels on the water of which 72 are fully owned and five are either leasebacks or chartered-in.
SUPPLY OUTLOOK
In 2017, the global product tanker fleet grew by 4.6% in terms of capacity and 3.6% in terms of number of vessels.
This was a markedly lower growth rate than in 2016 and due to fewer deliveries of MR vessels as well as an increase in scrapping of vessels in all segments. The LR1 and LR2 segments saw continued high vessel deliveries; deliveries of LR1 vessels were the highest since 2011, whereas LR2 deliveries were at the same level as in 2016. The growth ranged from 2.1% for the Handysize segment to 9.2% for LR2 segment. 2018 is expected to see a global fleet growth of 4.0% with the LR2 and LR1 segments leading the growth.
 
The number of newbuilding orders placed in 2017 increased from the very low level seen in 2016, but it was nevertheless the fifth lowest new order intake since year 2000. A total of 70 product tankers were ordered in 2017 compared to 28 in 2016. The MR class accounted for the majority of orders with 51 units contracted. At the end of 2017, the existing order book for deliveries for 2018-2019 totaled 254 units, including 44 LR2 vessels, 25 LR1 vessels, 143 MR vessels and 42
 
 
 
Handysize vessels.
 
TORM anticipates limited ordering of new product tankers with delivery before the end of 2019. The Company expects ordering activity in 2018 to increase slightly from the level seen in 2017 but to remain below the long-term average.
 
In 2017, only 70% of the deliveries scheduled for the year actually materialized. TORM also expects to see some slippage in 2018.
ORDER BOOK
         
As of 31 December 2017
         
             
             
           
Order book as
 
Fleet
Delivered in
Scrapped in
Fleet
Order book for
% of end-2017
 
31.12.2016
2017
2017
31.12.2017
2018-2020
fleet
LR2
315
35
6
344
46
13%
LR1
339
18
2
355
26
7%
MR
1,572
61
15
1,616
159
10%
Handysize
703
29
13
719
46
8%
Total
2,929
143
36
3,036
277
9%

 
22


THE PRODUCT TANKER MARKET - continued
Around 1.9m dwt of product tanker capacity was recycled in 2017, corresponding to approximately 1.2% of the fleet capacity as of January 2017. This was an increase from 2016, when 0.8m dwt was scrapped, and corresponds to the highest scrapping level since 2013. TORM estimates that approximately 2% of the existing capacity of the global fleet will be phased out or scrapped during 2018-2020. During 2018-2020, the net product tanker fleet capacity is estimated to grow by a compound annual rate of approximately 4%.
 
DEMAND OUTLOOK
The global oil demand grew by 1.6 mb/d (1.6%) in 2017, well above the initial forecast and up from the 1.3 mb/d (1.4%) demand in 2016 (source: IEA OMR February 2018). Support from stronger global industrial activity offset the negative impact of an increase in oil prices of approximately 20% (Brent benchmark increased from USD 56/bbl by end-2016 to USD 66/bbl by end-2017).
 
The main oil demand growth drivers remained Asia and Europe. Opposite to 2016, where gasoline dominated the additional demand, growth was more evenly split between oil products in 2017. Stronger industrial activity increased demand for diesel, and higher demand from the petrochemical industry boosted naphtha consumption, while gasoline demand growth lessened due to diminished effect of lower prices. In 2018, global oil demand is projected to grow at a slightly slower pace given the expectations for higher oil prices. Nevertheless, the growth pace remains robust at 1.4 mb/d (1.3%), supported by solid underlying economic fundamentals (source: IEA OMR February 2018).
Stronger-than-expected demand growth and a high level of unexpected refinery outages resulted in firmer refinery margins in 2017. In the US, annual average benchmark margins even exceeded the record high levels seen in 2015. This was supported by supply shortages resulting from Hurricane Harvey and an ample supply of domestic crude. High margins resulted in high refinery utilization, but as global refinery capacity additions in 2017 were relatively scarce and the level of refinery outages high, global refinery runs increased less than demand, by an estimated 0.9 mb/d in 2017 (source: WoodMackenzie December 2017).
 
With global product demand growing faster than refinery runs, demand was increasingly supplied from inventories. Following a product stock build-up through 2015 and 2016, there was a steep product stock draw in 2017, equivalent to a loss of potential demand for seaborne transportation of 4%, which kept several traditional arbitrage trades closed for most of the year. By November 2017, global stockpiles of clean petroleum products had fallen back to historical norms. Tighter markets mean that further improvements in oil demand should lead to greater arbitrage opportunities and to a stronger extent translate into demand for product tankers.
 
Despite a favorable price ratio between naphtha and liquid petroleum gas and subsequently a strong demand for naphtha in the Asian petrochemical sector, higher long-haul naphtha flows from West to East did not materialize. Instead, higher demand was to a greater extent supplied by local production as well as increased imports from the Middle East. According to preliminary estimates, product tanker demand increased by around 3% in 2017.
 
In the short term, TORM expects the product tanker market to be supported by solid demand fundamentals, greater arbitrage opportunities and lower fleet growth in 2018. Yet, the market remains negatively impacted by spill-over effects from the crude market, which continues to be characterized by OPEC crude production cuts and relatively high crude tanker fleet growth in 2018.
 
In the medium and long term, additional global refining capacity coming online will put renewed pressure on older and less competitive European refiners. According to International Energy Agency (IEA) estimates, the net global refinery capacity is projected to grow by around 2.8 mb/d during 2018-2020 (IEA 2017). The majority of the refinery capacity additions continue to come from Asia, accompanied by a new wave of refineries coming online in the Middle East from 2019 onwards. TORM expects this to reinforce the role of the Middle East as a new major clean product exporter, with middle distillates going to the West and light distillates to the East.
 

23


THE PRODUCT TANKER MARKET - continued
Fundamentally strong oil demand in developing Asia will continue to support seaborne trade, and the region is forecast to become reliant on imported gasoline. The global shift in marine fuel specifications towards cleaner fuels in 2020 could lead to new long-haul trade flows. Consequently, the product tanker ton-mile demand on main trade routes is estimated to grow by a compound annual rate of around 5% during 2018-2020.
 
For further details on factors most likely to change this outlook in either a negative or a positive direction, please see "Outlook" section on page 11.

24



25


KEY PERFORMANCE INDICATORS
TORM assesses the Company's performance across a wide range of measures and indicators against strategic targets.
TORM reviews the metrics and tests the relevance of these KPIs to the strategy on an ongoing basis.

MR TCE Earnings
USD/day
   
Lost Time Accident Frequency (LTAF)
   
Adjusted Return on Invested Capital (RoIC)
   
Fuel Efficiency Improvements
2017:          14,850
2016:          15,462
   
2017:          0.67
2016:          0.65
   
2017:          2.4%
2016:          4.9%
   
2017:          5.2%
2016:          3.6%
In 2017, TORM's commercial performance has consistently been among the best in its peer group. This can be accredited to the Company's well-maintained fleet and the integrated operating platform.
 
This combination provides TORM's commercial management team with the flexibility and responsiveness to meet customer demands, thereby enabling TORM to outperform available earning benchmarks.
 
In 2017, TORM achieved MR TCE earnings of USD/day 14,850 down from USD/day 15,462 in 2016 driven by inventory drawdown.
   
In line with the Company's strategic focus on safety performance, TORM introduced its new safety program, One TORM Safety Culture – driving resilience in 2016. The implementation has been ongoing during 2017 and will continue in 2018.
 
LTAF is an indicator of serious work-related personal injuries that result in more than one day off work per million work hours. The definition of LTAF follows standard practice among shipping companies.
 
During 2017, TORM had an LTAF of 0.67 compared to 0.65 in 2016.
   
Adjusted RoIC illustrates TORM's ability to generate shareholder value from the capital invested in TORM. It is defined as the net operating profit after tax (excluding impairment charges) divided by the invested capital over the same period (excluding impairment charges).
 
In 2017, TORM achieved a RoIC of 2.4% compared to 4.9% in 2016. The decrease in RoIC from 2016 to 2017 is driven by lower freight rates
 
This KPI reflects that although the average age of TORM's fleet is approximately 11 years, TORM is still able to generate a very attractive RoIC compared to its peers.
   
Fuel efficiency improvement illustrates TORM's continued strong focus on reducing fuel consumption and the efforts made in this area.
 
In 2016, TORM improved its fuel efficiency by 3.6% compared to a 2015 baseline figure. In 2017, TORM has continued its efforts and achieved further improvements bringing the fuel efficiency to 5.2% compared to the 2015 baseline.

26


US LISTING
 
On 11 December 2017, TORM's Class A common shares were listed on NASDAQ in New York under the ticker TRMD. Consequently, TORM's shares are now dual-listed via the NASDAQ platform in both Copenhagen and New York.

The purpose of a dual listing is to provide TORM's investors with the opportunity to trade their Class A common shares on a USD-denominated exchange and to improve the liquidity in the TORM share. TORM believes that over time a dual listing will attract further investor interest and provide stronger visibility towards an international investor community, which will strengthen TORM's strategic and financial flexibility.

The dual listing enables shareholders to move shares between the two exchanges.

Further information is available on TORM's website under https://investors.torm.com/shareholders/share-transfer or by contacting Investor Relations at ir@torm.com.
 
 
 
 
 
 

27


CORPORATE SOCIAL RESPONSIBILITY
New safety program One TORM Safety Culture – driving resilience implemented across the offices and the fleet.
New branch office opened in New Delhi to further strengthen ties to TORM's seafarers in this region.
TORM has reduced its fuel consumption by 5.2% since 2015.

REPORTING PRINCIPLES AND TRANSPARENCY
As a long-standing member of the UN Global Compact, TORM remains committed to protecting its employees, assets, reputation and the environment by maintaining the highest possible standards.
 
Transparency and accountability are central parts of TORM's way of doing business. Thus, these values play a central role in the Company's CSR approach.
 
TORM signed the UN Global Compact in 2009 as the
first shipping company in Denmark to commit to the internationally recognized set of principles regarding health, safety, labor rights, environmental protection and anti-corruption.
 
Being a signatory also means that TORM reports on its social and environmental performance on an annual basis to ensure progress and accountability to stakeholders.
 
TORM's approach to responsible behavior and CSR is further rooted in the Company's Business Principles and has the following five objectives:
 
 
RESPONSIBILITY
TORM's CSR commitment is not limited to the Company's own business practices, as real impact often requires industry collaboration. Thus, TORM cooperates with peers and stakeholders in a number of areas to increase responsibility in the shipping industry and the supply chain. As a member of Danish Shipping's CSR work group and as co-founder and member of the Maritime Anti-Corruption Network, TORM strives to increase transparency and accountability and to minimize corruption.
Comply with statutory rules and regulations to ensure that all employees are able to execute their work under safe, healthy and proper working conditions
Strive to eliminate all known risks that may result in accidents, injuries, illness, damage to property or to the environment
Integrate sustainability into TORM's business operations
Avoid any form of corruption or bribery
Make TORM's CSR performance transparent to all stakeholders
 
For further information on TORM's Business Principles, please visit: http://www.torm.com/uploads/media_items/torm-business-priciples.original.pdf.

28


CORPORATE SOCIAL RESPONSIBILITY - continued
INSPECTIONS AND AUDITS
In order to maintain Company standards and exceed the targets set by its customers, TORM has enhanced the vetting preparations and increased the number of internal audits on its vessels carried out by Safety Quality and Environment (SQE) officers. On average, each vessel is subject to ten inspections a year. Inspections are carried out by customers, terminals, internal auditors, ports and classification societies. TORM is committed to meeting and outperforming the ever-increasing standards set both internally and by its customers.
 
ENVIRONMENT AND CLIMATE PERFORMANCE
Within the shipping industry, marine pollution constitutes the largest environmental risk. It is therefore a key priority for TORM to avoid pollution of the seas and the atmosphere.
 
In 2017, TORM experienced zero oil spills larger than one barrel, but did experience one small oil spill overboard of less than one barrel. The incident was investigated and procedures revised where required.
 
Throughout 2017, TORM continued to have a strong and dedicated focus on reducing fuel consumption, and the efforts made within this area have generated a positive result.
As in previous years, TORM's Operational Performance team shares the performance of each vessel with the respective vessel managers and vessels on a monthly basis.
 
A new initiative was introduced during 2017 with the purpose of engaging the vessels on a daily basis to encourage best practice behavior with regard to power consumption and thereby fuel consumption. The initiative ensures that corrective action can be taken swiftly if needed.
 
In addition, increased focus was placed on the improvement of hull condition for vessels with a relatively long time to the next scheduled dry-docking. In total, five vessels were taken out of service for a short four-to-five-day docking during which hull coating repairs were carried out.
 
In 2016, TORM improved its fuel efficiency by 3.6% compared to a 2015 baseline figure. In 2017, TORM has continued its efforts and achieved further improvements bringing the fuel efficiency to 5.2% compared to the 2015 baseline. The target for 2018 is to improve fuel efficiency by further 1.5%.
 

29


CORPORATE SOCIAL RESPONSIBILITY - continued
 
GREEN HOUSE GAS EMISSIONS DATA
 


 
2017
2016
2015
VESSEL EMISSIONS AND INDICATORS
     
Number of vessels in operation at the end of the year (in technical management)
74
 76
 72
Number of vessel months (one vessel one year equals 12 vessel months)
914
910
813
Usage of oil and the generated CO2 emissions
     
Used heavy fuel oil (ton)
236,505
 308,467
 343,785
Used low sulfur heavy fuel oil (ton)
0
0
9,579
Used marine gas oil (ton)
45,470
56,549
50,704
Generated CO2 emission from vessels (ton)
882,253
  1,141,862
1,262,933
NOx (ton)
20,800
 26,992
30,227
SOx (ton)
11,728
  15,289
 17,477
Distance sailed in nautical miles
3,207,147
  3,279,977
3,214,973
Average cargo on board (ton)
34,721
37,433
39,117
Ton-km
207,597,070,516
  251,946,149,526
 263,691,358,733
CO2 emission in grams per ton-km (one ton of cargo transported one km)
 4.3 g/ton-km
 4.5 g/ton-km
 4.8 g/ton-km
OFFICE EMISSIONS AND INDICATORS
     
Electricity, heating and other office-related activities
     
Electricity used in kWh in all office locations
849,644
  924,951
1,099,823
District heating in Gj
1,293
  1,619
1,340
Generated CO2 emission in ton from office location
524
  562
 646
Number of office employees at the end of the year
296
  277
271
CO2 emission per employee (ton)
  1.8
2.0
2.4
FLIGHT EMISSIONS AND INDICATORS
     
Air mileage in kilometers
76,832,985
77,284,100
 68,523,791
Number of travels
12,354
 13,056
  12,725
CO2 emissions in ton
6,650
  6,750
  6,069
       
       

30


CORPORATE SOCIAL RESPONSIBILITY - continued
REPORTING SCOPE
Environmental and social data is based on all vessels under TORM's technical management (vessels for which TORM holds the Document of Compliance). Having the technical management of a vessel implies having control over the vessel in terms of environmental performance and crew. As of 1 January 2018, TORM had 74 vessels under technical management compared to 76 vessels as of 1 January 2017.
 
Office emissions are included from TORM's offices in Copenhagen, Mumbai, Singapore, Manila and Houston. TORM's offices in New Delhi and Cebu are not included as they have started tracking in 2018. Emissions from TORM's office in London is not included as data is currently unavailable. Emissions from air travel are included for all office staff and crew. Data from vessels is collected according to a specific reporting routine, mainly on a monthly basis but for certain data with less frequency. Other environmental data is collected on an annual basis. Safety data is based on reporting made to TORM's Safety, Quality and Environmental Department whenever an incident occurs.
 
REPORTING GUIDELINES
The 2017 greenhouse gas emissions (GHG) reporting covers scope 1 (direct emissions from own production), scope 2 (emissions from own production but others' emissions) of the Greenhouse Gas Protocol except for the activities listed below and selected scope 3 (others' production and emissions services) activities.
emissions using IMO's factors for heavy fuel oil and marine gas oil. SOx and NOx emissions are calculated using the third IMO GHG Study from 2014. 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
 
HEALTH, SAFETY AND SECURITY
Approximately 90% of TORM's employees work at sea, and providing healthy, safe and secure working conditions for them is an essential part of the business. Respecting employees' human rights is pivotal to the Company. TORM's policies are outlined in TORM's Business Principles and the commitment to the UN Global Compact. The Company's safety policy is rooted in the rules and regulations issued by the Danish Maritime Occupational Health Service.
Scope 2
Emissions from heating (district heating) in the Copenhagen and US offices are calculated using Danish and World Resources Institute emission factors.
 
Scope 3
Emissions from air travel are provided by TORM's travel agent.
 
Other principles
2017 greenhouse gas emissions are calculated for vessels in technical management (vessels for which TORM holds the Document of Compliance) in TORM, amounting to a total of 914 vessel months of operation.
 
Ton-km is calculated by use of actual cargo multiplied by the distance with actual cargo; thus, a ballast voyage will give 0 (zero) in ton-km. CO2 emission per ton-km is the full CO2 emissions on board all vessels divided by the ton-km for all voyages; thus, it includes emissions from ballast voyages, electricity production, inerting, cargo operations, etc.
Scope 1
Consumption of bunker oil has been calculated to CO2
   

31


CORPORATE SOCIAL RESPONSIBILITY - continued
ONE TORM SAFETY CULTURE
In line with the Company's strategic focus on safety performance, TORM continued its focus on the safety culture program called One TORM Safety Culture – driving resilience in 2017.
 
In April 2017, a kick-off campaign for all employees at sea and ashore was launched. The campaign included workshops where employees were introduced to TORM's new safety philosophy and five best-practice behavior principles, the Five Safety I's: Insight, Innovation, Influence, Intervention and Integration. See figure: Five Safety I's.
 
The One TORM Safety Culture - driving resilience program is focused on continuously strengthening TORM's safety culture beyond compliance – the way we think about and act towards safety, including how we interact with each other across the organization. Thus, during 2017, safety was integrated as the fourth value in TORM's overall leadership philosophy.
 
In June 2017, a comprehensive safety training program was implemented for all staff. Depending on their role, employees ashore participated in Basic Safety Behavior or Advanced Safety Behavior courses.
 
For Senior Officers on board TORM's vessels, Safety Leadership courses were introduced with the intention of training the top four officers on board each vessel. These two-and-a-half-day workshops focus on how to be a good leader when it comes to safety and how to positively influence and support colleagues on TORM's journey to be
 
the Reference Company within safety. Safety Leadership courses are mandatory for all Senior Officers and key marine shore staff.
 
In 2017, nine Safety Leadership courses have been conducted with a total of 175 attending officers. The program will continue in 2018 with new activities to ensure that the safety program is fully anchored across the organization.
 
LOST TIME ACCIDENT FREQUENCY AND NEAR-MISS
Lost Time Accident Frequency (LTAF) is an indicator of serious work-related personal injuries that result in more than one day off work per million hours of work. The definition of LTAF follows standard practice among shipping companies. During 2017, TORM had an LTAF of 0.67 (2016: 0.65). There has been a slight increase in the LTAF from 2016. Each injury has been investigated and corrective measures taken as required.
 
Near-miss reports provide TORM with an opportunity to analyze conditions that might lead to accidents and ultimately prevent accidents. A high number of near-miss reports indicate that the organization is aware of the risks and responds to them. In 2017, TORM exceeded the target of 6.0 near-miss reports per month per vessel on average by reaching 6.7 (2016: 6.7) due to continued focus on this area.
 
FIVE SAFETY I's.
 
SECURITY
TORM's response to piracy is founded in the Best Management Practice 4. In 2017, TORM experienced one robbery, four attempts to board our vessels by suspected thieves and four cases of stowaways found on board the Company's vessels. Throughout the year, the security situation and developments in the various risk areas have been monitored closely and actions

32


CORPORATE SOCIAL RESPONSIBILITY - continued
 
 
have been taken to safeguard TORM's seafarers and vessels. The Company will continue to monitor the risk situation and pre-empt hijacking and robbery attempts by following security procedures and industry guidelines.
 
EMPLOYEES
Employees are the core and most valuable asset of TORM. The Company continues to grow and thrive due to the efforts and dedication of its staff both at sea and on land.
 
AT SEA
In 2017, TORM continued its focus on increasing commitment and engagement among seafarers. At year-end, TORM's retention rate for Senior Officers was above 90%, and for the third year in a row TORM could demonstrate 100% compliance with customer requirements (the so-called officer matrix compliance).
 
 
In 2017, TORM continued its focus on activities to further improve cooperation between seafarers and the shore-based organization. For this purpose, the Company conducted seminars for its senior and junior officers as well as cadets, providing opportunities to interact with colleagues from the shore organization and share best practice regarding operation of TORM's vessels.
 
Throughout the year, TORM also continued its efforts to allow seafarers to join the same vessel whenever possible. The Company employs seafarers from several countries, and it is TORM's experience that having more than one nationality of seafarers on board the same vessel will help
 
build a professional, resilient and safe working environment.
 
As part of the Company's continued focus on the promotion process, TORM introduced promotion logs and individual development plans in 2017. Furthermore, a new bonus program for seafarers was implemented during the year.
In September 2017, TORM opened a branch office in Aero City, a prime business location in New Delhi, India. Thus, TORM expanded its presence in the important Indian crewing market and is now also able to provide closer proximity to seafarers from this location. Among other things, this means reduced domestic traveling for seafarers from this region and smooth sign-on and sign-off procedures.
 
 

 
33


CORPORATE SOCIAL RESPONSIBILITY - continued
At the end of 2017, TORM had 153 permanently employed seafarers, the remaining 2,909 seafarers are on time-bound contracts.
 
In 2018, TORM will continue its focus on retention and development plans, on-time relief and back-to-back rotation on senior positions.
 
ASHORE
TORM's annual employee motivation and satisfaction survey is of great importance to the Company. The increased positive results for 2017 prove that TORM continues to have dedicated and motivated staff.
 
In 2017, 96% of all shore-based employees worldwide participated in the voluntary survey, which in itself can be viewed as a testament to employee commitment. The outcome of the survey showed improvements in all areas, notably with regard to categories covering engagement, reputation, loyalty and satisfaction.
 
TORM aims to attract and retain the best employees by living the TORM Leadership Philosophy values and by ensuring that the Company's leaders invest in their employees. Through the One TORM platform, the Company strives to continuously develop the employees' abilities to do what they do best.
 
At the end of 2017, the shore-based organization had 296 full-time employees: 127 in Hellerup, 109 in Mumbai, two in New Delhi, 36 in Manila, two in Cebu, 14 in Singapore, five in Houston and one at the Company's office in London.
GENDER DIVERSITY
TORM has an obligation to its customers, shareholders, employees and other stakeholders to develop the Company's talent pool irrespective of attributes such as gender, religion, sexuality, nationality, ethnicity or disabilities. As stated in TORM's Business Principles under "Respecting People", the Company does not accept discrimination with respect to any of the above. TORM works towards a diverse workplace, in which everyone is included and respected, and in which well-being at work is regarded as a shared responsibility.
 
For further information on TORM's Business Principles, please visit: http://www.torm.com/uploads/media_items/torm-business-priciples.original.pdf.
In 2017, the Company monitored the employee population and discussed how to increase gender diversity, particularly within leadership positions. In 2018, the Company will continue to focus its diversity efforts on encouraging and developing female talent.
 
In terms of gender diversity globally, females constitute 33% of all permanently employed employees as of December 2017. Females constitute 34.7% of land-based employees (defined as non-managerial individual performers), 16.4% of middle management and 4.8% of top management (Vice Presidents and above).
 
Females constitute 5.2% of all permanently employed seafarers, all of which are officers.
 
With the enforcement of the Company's Leadership Philosophy and the planned sustained investments in diversity-enhancing measures, the Company is seeking to increase diversity.
EMPLOYEE GENDER DIVERSITY
   
Permanantly employed, sea and shore
   
 
Male
Female
Directors of the Company1)
5
-
Employees in other senior executive positions
3
-
Directors of subsidiary companies not included above
-
-
Total top management other than directors of the Company (VPs)
16
1
Other employees of the group
318
110
Total employees of the group
338
111
1)  The four Non-Executive Directors are not included as employees of the Group.
   

34


CORPORATE SOCIAL RESPONSIBILITY - continued
SOCIAL MATTERS
TORM is a long-standing supporter of maritime education in India and the Philippines. This commitment reflects the Company's ties to local communities and leads to positive effects on TORM's core business and on the needs of the societies in which TORM operates.
 
In 2017, 18 students supported by the TORM Philippines Education Foundation graduated. For the school year 2017/2018, the Foundation supports 72 scholars across the Philippines. By June 2018, it is expected that the scholarship program will support an additional 19 new students. Apart from maritime and general education, the program also includes training courses for teachers and a four-year training program for scholars. Furthermore, the program encompasses the distribution of IT equipment and school kits for students in rural schools.
 
In India, TORM supported the building of the ZP Prathmik School in Zadgewadi near Kurkumbh, Pune, which was opened in 2017. With donations from the Company, the school was constructed and the facilities were furnished.
 
The school enables the students to raise their level of education and increase their chances for better economic conditions for themselves and their families. Furthermore, the personal pride of the students as scholarship recipients of a well-acknowledged foundation is raised. The benefits also include professional and well-educated potential employees for TORM.
ANTI-CORRUPTION AND ANTI-BRIBERY
Corruption and bribery impede global trade and can restrict non-corrupt companies' access to international markets. In this way, corruption and bribery have a negative impact on economic and social development. For TORM, the risk of corruption does not only mean increased costs. Corruption also exposes TORM's seafarers to safety and security risks and poses a potential risk to the Company's legal standing and reputation.
 
TORM does not accept corrupt business practices and as part of its compliance program, TORM has a policy on anti-bribery and anti-corruption, which supports the Company's Business Principles.
 
It is TORM's policy to conduct all business in an honest and ethical manner. TORM has a "zero tolerance" approach to bribery and corruption, and the Company is committed to acting professionally, fairly and with integrity in all business dealings and relationships, wherever the Company operates. TORM will uphold all laws relevant to countering bribery and corruption in all the jurisdictions in which the Company operates.
 
To continue a high level of transparency and accountability, due diligence, monitoring and control as well as training of TORM's staff are central parts of implementing the anti-corruption and anti-bribery policy.
 
In 2011, TORM co-founded the Maritime Anti-Corruption Network (MACN) to take a joint stand within the industry towards the request for facilitation payments, which exist in
many parts of the world where TORM conducts business. Within the network, best practices are shared and members align their approach to minimizing facilitation payments.
 
The network 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 2017 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 not only targets new hires, but must be repeated once a year by all the mentioned employees. TORM will continue these efforts in 2018.

35


CORPORATE SOCIAL RESPONSIBILITY - continued
Since 2006, TORM's Board of Directors has provided for a whistleblower facility with an independent lawyer as part of the internal control system. In 2017, the whistleblower facility received zero notifications.
 
HUMAN RIGHTS
With the TORM Leadership Philosophy, TORM's Business Principles and commitment to the United Nations Global Compact, TORM is committed to respecting internationally recognized human rights as outlined in the United Nations Guiding Principles on Business and Human Rights (UNGPs).
 
TORM recognizes that implementing the necessary policies and respective processes to be in line with the requirements of the UN Global Principles is part of an ongoing effort. Going forward, TORM will continue to promote its human rights-related policies and processes.
 
TORM complies with the International Labor Organization's Maritime Labor Convention, an international set of standards on labor conditions at sea, which were ratified by 30 countries in 2012. All vessels under TORM's technical management were audited and certified as required under the Maritime Labor Convention of 2006 when it took effect in August 2013. TORM respects employees' right to associate freely, to join – or not join – unions and to bargain collectively. TORM offers equal opportunities for our employees as stated in TORM's Business Principles.
No claims or offenses have been reported regarding human rights in 2017.
This section constitutes TORM's CSR reporting according to the requirements of UK law. Read more about TORM and our CSR efforts at http://www.torm.com/csr-at-torm.
 
As part of the Company's commitment to the UN Global Compact, TORM submits its communication on progress every year. Please visit www.unglobalcompact.org to see the reports.
 

36


RISK MANAGEMENT
Prolonged periods of subdued freight rates and volatile vessel values remain a risk for TORM.
A solid capital structure ensures that TORM is well-positioned to pursue opportunities and face down-side risks.
Uncertainty persists around 2020 sulfur emission regulation compliance, including the investment opportunity to install scrubbers.

RISK MANAGEMENT FRAMEWORK
Risk management is an integrated part of doing business in TORM. By taking balanced risks, TORM strives to foster high awareness and internal controls geared towards aligning risk appetite while providing transparency in the Company's operations.
 
On an annual basis, TORM conducts an Enterprise Risk Management process, during which the key risks facing the Company are identified, assessed, addressed and reported at different levels of the organization. TORM's anchored risk management framework is vital to protect the Company and to achieve its strategic ambition. The objective remains that TORM and its shareholders are adequately rewarded for accepting risk, and that the governance is tailored to oversee this. TORM's risk management framework seeks to provide reasonable assurance that business objectives can be achieved and obligations to customers, shareholders and employees are met.
 
Risks are defined as all events or developments that could significantly reduce TORM's ability to sustain the long-term value of the Company and to meet expectations of investors and lenders.
TORM's risk management approach emphasizes management accountability and oversight. Risks identified
through the Company's risk management processes are prioritized based on probability and severity. Identified risks are discussed, and responsibility is assigned to the Senior Management Team member most suited to manage the risk. Assigned owners are required to continually monitor the risk, implement mitigating actions and evaluate and report on risks for which they bear responsibility. TORM's Management and the Risk Committee discuss and decide on TORM's risk tolerance for the most significant risks.
 
MAIN RISKS ASSOCIATED WITH TORM'S ACTIVITIES
TORM's overall risk tolerance and inherited exposure to risks are divided into four main categories as detailed below:
 
LONG-TERM STRATEGIC RISKS ("RISK-SEEKING")
Industry-changing risks such as the substitution of oil for other energy sources and technological changes. Radical changes in transportation patterns have the possibility to alter the landscape of the markets that TORM serves.
Furthermore, electrification and automation of personal and commercial transportation will likely lead to a decline in the demand for oil; however, a decline in oil demand is not necessarily equal to a drop in demand for product tankers. The main driver in the product tanker market is the regional imbalances of oil-based products driven by the global refinery landscape.
 
INDUSTRY AND MARKET-RELATED RISKS ("RISK-SEEKING")
TORM's business is sensitive to changes in market-related risks such as changes in the global economic situation, changes in product tanker freight rates and changes in bunker prices. It remains a cornerstone of the Company's strategy to actively pursue this type of risk by taking positions to benefit from fluctuations in freight rates.

37


RISK MANAGEMENT - continued
OPERATIONAL AND COMPLIANCE RISKS ("RISK-AVERSE")
Adequate management of operational and compliance risks within TORM's risk tolerance limits is a prerequisite for TORM to succeed as a tanker owner and operator.
 
TORM aims to maintain its position as a quality operator with high focus on operating vessels in a safe and reliable manner. TORM constantly focuses on reducing potentially severe risks with respect to environment, health, safety and compliance, and this is achieved by a strong integrated platform, where cross-functional collaboration ensures that rigorous procedures and standardized controls are maintained to the highest quality.
Cyber risk
Digital infrastructure and cyber security are two of the Company's focus areas. The operation of our business
processes depends on reliable IT systems. A breach or failure of our digital infrastructure due to intentional actions such as attacks on our cyber security could disrupt our operations. This could damage our operations, result in additional operational costs and have reputational consequences. To mitigate the risk of cyber attacks, TORM continuously monitors and implements key security procedures and behaviors aimed at preventing recurrence.
 
Reporting risk
TORM's dual listing in New York and Copenhagen requires compliance with both locations' reporting requirements and therefore exposes the Company to reporting risk in terms of incorrect or incomplete financial reporting. The Company is in the process of implementing a COSO 2013 control framework that will help to mitigate risks identified.
 
FINANCIAL RISKS ("MODERATELY RISK-AVERSE/RISK NEUTRAL")
Management believes that a prudent approach to financial risks benefits the Company the most. TORM's global presence means that its financial position is exposed to a number of risk factors including interest rate, foreign exchange, credit and liquidity risks.
 
 
     
GENERAL RISKS ASSOCIATED WITH TORM'S ACTIVITIES
 
 
LONG-TERM STRATEGIC RISKS
INDUSTRY AND MARKET-RELATE D RISKS
OPERATIONAL AND COMPLIANCE RISKS
FINANCIAL RISKS
          Political risk
          Substitution for oil
          Technological changes
          Freight rate fluctuations
          Bunker price fluctuations
          Sales and purchase price fluctuations
          Safe operation of vessels
          Compliance with relevant maritime regimes
          Compliance with environmental regulations
          Availability of experienced seafarers and staff
          Vessel utilization
          Terrorism and piracy
          Stability of IT systems and cyber attacks
          Insurance coverage
          Reporting risk
          Funding risk
          Liquidity risk
          Currency risk
          Derivatives risk
          Counterparty risk

38


RISK MANAGEMENT - continued
TORM'S CURRENT RISK PROFILE
Throughout 2017, TORM saw continued volatility in the product tanker market. With a low coverage ratio going into 2018, the Company is exposed to potentially adverse market conditions; consequently market risk remains high. However, TORM is financially solid and well-positioned to pursue opportunities.
 
 
The Directors of TORM confirm that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten the Company's business model, future performance, solvency or liquidity.
 
       
In addition to freight rates, TORM also faces market risks in its vessel sale and purchase activities. The likelihood of this risk is considered to be lower today due to TORM's proven ability to execute in the second-hand and newbuilding markets.
 
Risks within the Company's immediate sphere of control, including compliance with quality and environmental requirements, have remained stable at a low level due to a strong continuous focus, an integrated platform and efficient controls.
 
Some uncertainty persists on compliance with the 2020 sulfur emission regulation and the inherent investment opportunity of installing scrubbers on vessels versus using a low-sulfur fuel alternative.
 
TORM's top risks and changes compared to 2016 are depicted on the right. For a more in-depth description of the various risks and TORM's risk management as well as sensitivity analyses, please see note 20 on pages 118-121. TORM assesses the Company's risks on a continuous basis.
   
 
 
 

39

 

 
 

40



FINANCIAL REVIEW 2017


FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2017


 
 
 
 
Mr. Christian Søgaard-Christensen
Chief Financial Officer, TORM A/S
 
 
In a year where the market conditions for product tankers proved to be difficult, I am satisfied that TORM realized a positive net result of USD 2m, corresponding to a RoIC of 2.8%. Our cost-efficient platform is one of the key reasons behind TORM being profitable. In addition, our financial flexibility has enabled us to act on commercial opportunities in 2017.
 
Christian Søgaard-Christensen, CFO
 
FINANCIAL RESULTS
 
In 2017, TORM achieved a net profit of USD 2m resulting in basic earnings per share (EPS) of USD 0.04 in 2017
 
 
compared with negative USD 2.3 in 2016. The 2016 EPS included an impairment loss of USD 185m. If this impairment is excluded, TORM achieved a net profit of USD 43m. The lower result in 2017 was mainly due to a reduction in freight rates following a subdued freight market for product tankers.
 
In 2017, the operating profit increased by USD 147m to USD 40m. This increase was also primarily due to the USD 185m impairment charge in 2016.
 
 
EBITDA for 2017 was USD 158m, which is in line with the EBITDA range of USD 155-160m as announced on 22 January 2018.
 
In 2017, total revenue was USD 657m compared to USD 680m in 2016, and TCE earnings decreased from USD 458m to USD 397m. The decrease in TCE earnings was primarily attributable to a softer freight market in 2017 compared to 2016. In addition, TORM had approximately 5% fewer available earning days in 2017 compared to 2016 due to vessel sales.

41


FINANCIAL REVIEW 2017 - continued


TORM's total assets increased by USD 76m in 2017 to USD 1,647m, of which the carrying amount of vessels, capitalized dry-docking and prepayments on vessels amounted to USD 1,383m compared to USD 1,388m in 2016.
 
There was an increase in current assets of USD 80m, to USD 261m in 2017, especially related to the cash and cash equivalents. Most cash was invested in installments and CAPEX and used to pay out outstanding loan facilities.
 
In 2017, total equity increased by USD 10m to USD 791m from USD 781m in 2016. The increase is primarily related to the result for the year and to the market value adjustments on derivatives held for hedge accounting. The year also includes a paid dividend of USD 1m. The Return on Equity (RoE) increased from -16.2% to 0.3% where 2016 was negatively affected by the impairment charge.
 
In 2017, TORM's total liabilities increased by USD 66m to USD 856m from USD 790m in 2016. This was primarily attributable to an increase of mortgage and bank debt related to the newbuildings delivered in 2017 and to the financial leases regarding the sale and leaseback of three vessels in 2017.
 
In 2017, the Net Asset Value per share based on broker values increased to USD 12.8 from USD 11.8 in 2016 mainly due to increasing vessel prices.


HIGHLIGHTS
 
USDm
2017
2016
Change
 
         
Income Statement
       
Revenue
657
680
 -23
 
Time charter equivalent (TCE)
397
458
  -61
 
Gross profit
200
242
 -42
 
EBITDA
 158
200
 -42
 
Operating profit/(loss) (EBIT)
40
  -107
 147
 
Financial items
 -36
 -35
  -1
 
Net profit/(loss) for the year
2
  -142
 144
 
Net profit/(loss) for the year excluding impairment charges
2
43
  -41
 
         
Balance Sheet
       
Non-current assets
1,385
1,390
 -5
 
Total assets
1,647
 1,571
76
 
Equity
 791
 781
 10
 
Total liabilities
856
790
66
 

42


FINANCIAL REVIEW 2017 - continued


LIQUIDITY AND CASH FLOW
 
In 2017, invested capital increased by USD 18m to USD 1,406m as of 31 December 2017. In addition, Return on Invested Capital (RoIC) increased by 10%-points from -7.2% to 2.8%.
 
As of 31 December 2017, TORM had undrawn credit facilities totaling USD 271m, consisting of a USD 75m Working Capital Facility, a USD 115m facility financing the Company's LR2 newbuildings and a USD 81m facility financing the MR resale vessels under construction.
 
As of 31 December 2017, TORM had CAPEX commitments of USD 307m, related to the LR2 and LR1 newbuildings as well as the four MR resale vessels under construction. Following the balance sheet date, TORM had signed a term sheet with ABN AMRO providing up to USD 50m of new financing with five-year maturity against collateral in the two LR1 newbuildings. The financing agreement will at the latest mature on 31 December 2024. The main conditions of the agreement are in line with the Company's existing loan agreements.
 
Total cash and cash equivalents amounted to USD 134m at the end of 2017, resulting in a net increase in cash and cash equivalents for the year of USD 58m compared to 2016.
 
In 2017, net cash inflow from operations decreased from USD 171m in 2016 to USD 110m due to the lower freight rates and an increase in port expenses, bunkers and commissions. Net cash outflow from investing activities amounted to USD 114m in 2017. The cash was used on tangible fixed assets, primarily related to the two acquired and delivered MR vessels (TORM Supreme and TORM Sovereign), prepayments in relation to the LR2 newbuildings to be delivered in 2018 and capitalized dry-docking, offset by sale of vessels during 2017. In 2016, the net cash outflow from investments was USD 119m.
 
Net cash inflow from financing activities amounted to USD 62m in 2017, compared to a cash outflow of USD 144m in 2016. Repayment on mortgage debt, bank loans and financial leases amounted to USD 142m primarily in connection with ordinary repayments and with vessel sale
 
during the year. Additional borrowings generated a cash inflow of USD 206m relating to the new Term Facility Agreement II, the ING facility and to the three sale and lease back agreements entered during the 2017. TORM paid out USD 1m in dividends to its shareholders during 2017.


 

  KEY HIGHLIGHTS       
   
2017
2016
Change
 
Key figures
     
 
Invested capital in USDm
1,406
1,388
 18
 
Net Asset Value per share (NAV)
12.8
 11.8
  1.0
 
Return on Invested Capital (RoIC)
2.8%
-7.2%
 10.0%-points
 
Return on Equity (RoE)
0.3%
-16.2%
 16.5%-points
 
Basic earnings per share (EPS)
  0.04
  -2.3
  2.3

43


FINANCIAL REVIEW 2017 - continued


TANKER FLEET
Revenue in the tanker fleet decreased by 3.3% to USD 657.0m in 2017 from USD 680.1m in 2016, and TCE earnings decreased by 13.3% to USD 397.1m in 2017 from USD 458.3m in 2016. The decrease in TCE earnings was primarily due to a subdued product tanker freight market in 2017 compared to 2016. During most of 2017, demand for transportation of clean petroleum products was negatively impacted by high inventory levels globally. As the year progressed, inventory levels came down in terms of demand. The global clean petroleum stocks have decreased by a volume equivalent to a loss of potential trade of 5%.
 
 
In the LR2 fleet, the average spot freight rates decreased by 31% between 2017 and 2016, resulting in a decrease in earnings of USD 16.4m. The available earning days in the LR2 fleet decreased by 2% in 2017 compared to 2016 resulting in a decrease in TCE by USD 1.5m.
 
The average spot freight rates in the LR1 fleet were 24% lower than in 2016, resulting in a decrease in the TCE of USD 12.5m. The available earning days in the LR1 fleet decreased by 3%. In total, earnings decreased by USD 13.8m.
 
In 2017, the available earning days in the MR fleet decreased by 664 days equaling a decrease of 4% compared with 2016. The spot freight rates decreased by 5%, resulting in total earnings of USD 267.2m, a decrease of USD 21.2m.
 
In the Handysize fleet, the average spot freight rates were 5% lower in 2017 compared to 2016, resulting in a decrease in earnings of USD 0.8m. There was a decrease in available earning days of 15% in 2017 due to vessel sales, resulting in a decrease of earnings of USD 7.3m.

CHANGE IN TIME CHARTER EQUIVALENT EARNINGS IN THE TANKER FLEET

             
USDM
HANDYSIZE
MR
LR1
LR2
UN-ALLOCATED
TOTAL
TIME CHARTER EQUIVALENT EARNINGS 2016
48.0
288.4
48.0
73.6
0.3
458.3
CHANGE IN NUMBER OF EARNING DAYS
 -7.3
  -10.3
  -1.4
  -1.5
-
 -20.5
CHANGE IN FREIGHT RATES
 -0.8
-11.0
  -12.5
  -16.4
-
 -40.7
OTHER
-
 0.1
 0.1
 0.1
 -0.3
0.0
TIME CHARTER EQUIVALENT EARNINGS 2017
39.9
267.2
34.2
55.8
-
 397.1

UNALLOCATED EARNINGS COMPRISE FAIR VALUE ADJUSTMENT OF FREIGHT AND BUNKER DERIVATIVES THAT ARE NOT DESIGNATED AS HEDGES AND GAINS AND LOSSES ON FREIGHT AND BUNKER DERIVATIVES THAT ARE NOT ENTERED INTO FOR HEDGING PURPOSES.

44


EARNINGS DATA
   
2017
 
USDm
2016
Full year
Q1
Q2
Q3
Q4
Full year
% change full year
               
LR2 vessels
             
Available earning days
3,490
  826
  889
  833
871
 3,419
-2%
  Owned
2,828
  637
  634
  594
  596
 2,461
-13%
  T/C
  662
189
  254
  240
  275
  958
45%
Spot rates ¹
  19,172
 13,425
 12,487
9,886
 15,726
  13,158
-31%
TCE per earning day ²
  21,106
  15,913
 16,338
 14,772
  18,106
 16,304
-23%
LR1 vessels
             
Available earning days
2,557
  600
619
  630
  634
2,483
-3%
  Owned
2,557
  600
619
  630
  634
2,483
-3%
  T/C
-
-
-
-
-
-
-
Spot rates ¹
  18,371
  15,751
  11,502
11,981
  16,145
  13,881
-24%
TCE per earning day ²
 18,800
  15,612
  10,941
  11,960
 16,593
  13,771
-27%
MR vessels
             
Available earning days
 18,659
4,623
 4,412
4,430
4,530
 17,995
-4%
  Owned
 17,949
4,497
4,324
4,388
4,353
  17,561
-2%
  T/C
710
126
  88
  42
177
  432
-39%
Spot rates ¹
 15,447
15,117
 14,066
 14,364
 14,794
 14,604
-5%
TCE per earning day ²
 15,462
 15,490
 14,098
 14,827
 14,952
 14,850
-4%
Handysize vessels
             
Available earning days
3,850
  955
  798
  776
  734
3,263
-15%
  Owned
3,850
  955
  798
  776
  734
3,263
-15%
  T/C
-
-
-
-
-
-
-
Spot rates ¹
 12,633
  13,313
11,418
11,810
 10,494
 12,020
-5%
TCE per earning day ²
 12,490
 13,389
  11,886
  12,501
 10,849
 12,239
-2%
Total
             
Available earning days
28,555
7,004
 6,718
6,669
6,769
 27,160
-5%
  Owned
 27,184
6,689
6,375
6,388
 6,317
25,770
-5%
  T/C
 1,372
315
  342
281
  452
 1,390
1%
Spot rates ¹
 15,598
 14,804
 13,350
 13,405
 14,508
 14,058
-10%
TCE per earning day ²
 16,050
 15,264
  13,841
 14,290
 15,067
  14,621
-9%

¹ Spot rate = Time Charter Equivalent Earnings for all charters with less than six months' duration = Gross freight income less bunker, commissions and port expenses.
² TCE = Time Charter Equivalent Earnings = Gross freight income less bunker, commissions and port expenses.

45



FINANCIAL REVIEW 2017 - continued

OPERATION OF VESSELS
In 2017, the charter hire cost in the tanker fleet decreased by USD 13.0m to USD 8.5m compared to USD 21.5m in 2016. The decrease in the tanker fleet was caused by lower charter rates and the redelivery of two vessels in the beginning of 2017.
 
The development in operating expenses is summarized in the table below. The table also summarizes the operating data for the Company's fleet of owned and bareboat-chartered vessels.
 
Operating expenses (OPEX) for the fleet decreased by USD
 
6.8m to USD 188.4m in 2017 compared to USD 195.2m in 2016, mainly due to a decrease in the number of operating days of 5%. On a per-day-basis, OPEX decreased by 1% in 2017.
 
The total fleet of owned vessels had 914 off-hire and dry-docking days, corresponding to 3% of the operating days in 2017. This compares to 911 off-hire days in 2016, or 3% of the number of operating days.
         
       
ADMINISTRATIVE EXPENSES AND OTHER OPERATING INCOME
CHANGE IN OPERATING EXPENSES
   
USDm
Handysize
MR
LR1
LR2
Total
 
Total administrative expenses and other operating
Operating expenses 2016
25.8
 120.0
 18.7
30.7
 195.2
 
expenses amounted to USD 45.4m in 2017,
Change in operating days
 -3.6
  -0.1
  -0.1
  -0.1
 -3.9
 
compared with USD 41.7m in 2016.
Change in operating expenses per day
0.4
 -0.4
-
 -2.9
 -2.9
 
The increase was mainly due to an increasing
Other
  -0.1
-
-
 0.1
0.0
 
number of employees.
Operating expenses 2017
22.5
  119.5
 18.6
27.8
 188.4
   
             
FINANCIAL INCOME AND EXPENSES
OPERATING DATA
           
Net financial expenses in 2017 were USD 36.3m
             
compared to USD 34.5m in 2016,
USD/day
Handysize
MR
LR1
LR2
Total
 
corresponding to an increase of USD 1.8m.
Operating expenses per operating day in 2016
6,386
6,459
7,294
8,411
 6,771
 
The increase was mainly due to an increase
Operating expenses per operating day in 2017
6,508
6,435
7,286
7,608
6,673
 
in interest-bearing debt and to a rise
Change in the operating expenses per operating day in %
2%
-
-
-10%
-1%
 
in the interest rate level.
Operating days in 20171)
3,459
 18,566
2,555
3,650
28,230
   
- Off hire
  64
106
  28
16
214
 
TAX
- Dry-docking
132
  366
  43
159
  700
 
Tax for the year amounted to an expense
+/- Bareboat contracts in/out
-
  -532
-
-1,014
  -1,546
 
of USD 0.8m compared to an expense
+ Vessels chartered-in
-
  432
-
  958
 1,390
 
of USD 0.8m in 2016. The tax for 2017
Available earning days 2017
3,263
 17,994
2,483
 3,419
 27,160
 
comprises the current tax expense for the year of
             
USD 1.0m and a minor adjustment of
1) Including bareboat charters.             
tax related to previous years.
               

46


FINANCIAL REVIEW 2017 - continued


ASSESSMENT OF IMPAIRMENT OF ASSETS
 
Management has followed the usual practice of performing a review of impairment indicators every quarter and presenting the outcome to the Audit Committee. The Audit Committee evaluates the impairment indicator assessment and prepares a recommendation to the Board of Directors. The recoverable amount of the assets is calculated by assessing the fair value less costs to sell and the value in use of the significant assets within the tanker fleet.
 
When assessing the fair value less costs to sell, Management included a review of market values calculated as the average of two internationally recognized shipbrokers' valuations. The shipbrokers' primary input is deadweight tonnage, yard and age of the vessel. The assessment of the value in use was based on the net present value of the expected future cash flows. The key assumptions are related to future developments in freight rates, operating expenses and to the weighted average cost of capital (WACC) applied as discounting factor in the calculations.
 
As of 31 December 2017, Management performed a review of the recoverable amount of the assets by calculating the recoverable amount (being higher of fair value less costs to sell and value in use) of the significant assets including goodwill within the tanker fleet. As of 31 December 2017, the recoverable amount of the Tanker Segment was based on the value in use. Based on this review, Management concluded that the value in use of the assets within the Tanker Segment was materially equivalent to the carrying amount.
 
 
The assessment of the value in use of the Tanker Segment was based on the present value of the expected future cash flows. The freight rate estimates in the period 2018-2020 are based on the Company's business plans. Beyond 2021, the freight rates are based on the Company's 10-year historical average rates, amended to reduce strong rates in 2008 and also adjusted for inflation. Please refer to note 8 for further details.
 
The Company will continue to monitor developments on a quarterly basis for indications of impairment.
 
PRIMARY FACTORS AFFECTING RESULTS OF OPERATIONS
 
TORM generates revenue by charging customers for the transportation of refined oil products and crude oil, using the Company's tanker vessels. The Company's focus is on maintaining a high quality fleet, and TORM actively manages the deployment of the fleet between spot market voyage charters, which generally last from several days to several weeks, and time charters.
 
TORM believes that the important measures for analyzing trends in the results of its operations of tanker vessels consist of the following:
 
·        Time charter equivalent (TCE) earnings per available earning day. TCE earnings per available earning day is defined as revenue less voyage expenses divided by the number of available earning days. Voyage expenses primarily consist of port and bunker expenses that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions, freight and bunker derivatives. TORM believes that presenting revenue net of voyage expenses neutralizes the variability created by unique costs associated with particular voyages or the deployment of vessels on the spot market and facilitates comparisons between periods on a consistent basis. Under time charter contracts, the charterer pays the voyage expenses, while under voyage charter contracts the shipowner pays these expenses. A charterer has the choice of entering into a time charter (which may be a one-trip time charter) or a voyage charter. TORM is neutral as to the charterer's choice, because the Company will primarily base its financial decisions on expected TCE rates rather than on expected revenue. The analysis of revenue is therefore primarily based on developments in TCE earnings.

47


FINANCIAL REVIEW 2017 - continued

·
Spot charter rates. A spot market voyage charter is
   
hire is only paid on earning days and not for off-hire
   
asset value amounts to USD 88.4m compared to
 
generally a contract to carry a specific cargo from a load
   
days or days in dry-dock.
   
USD 44.0m in 2016.
 
port to a discharge port for an agreed freight rate per ton
           
 
of cargo or a specified total amount. Under spot market
 
·
Operating days. Operating days are the total number
   
RETURNS TO SHAREHOLDERS
 
voyage charters, TORM pays voyage expenses such as
   
of available days in a period with respect to the
   
Analysis of dividends
 
port, canal and bunker costs. Spot charter rates are
   
owned vessels, before deducting unavailable days due
   
On 12 September 2017, TORM distributed a
 
volatile and fluctuate on a seasonal and year-to-year
   
to off-hire days and days in dry-dock. Operating days
   
dividend payment of USD 1.2m, equivalent
 
basis. Fluctuations derive from imbalances in the
   
is a measurement that is only applicable to the owned
   
to USD/share 0.02, as reported on 16 August
 
availability of cargos for shipment and the number of
   
vessels, not to the time chartered-in vessels.
   
2017 in the second quarter release. The Board of
 
vessels available at any given time to transport these
         
Directors proposes that no dividend be declared
 
cargos. Vessels operating in the spot market generate
 
·
Operating expenses per operating day. Operating
   
for the second half of 2017.
 
revenue that is less predictable but may enable the
   
expenses per operating day are defined as crew wages
     
 
Company to capture increased profit margins during
   
and related costs, the costs of spares and consumable
   
GOING CONCERN
 
periods of improvements in tanker rates.
   
stores, expenses relating to repairs and maintenance
   
As of 31 December 2017, TORM's cash position
       
(excluding capitalized dry-docking), the cost of
   
was USD 134m, TORM's net debt was USD
·
Time charter rates. A time charter is generally a contract
   
insurance and other expenses on a per operating day
   
620m (of which USD 271m was undrawn) and
 
to charter a vessel for a fixed period of time at a set daily
   
basis. Operating expenses are only paid for owned
   
the net interest-bearing debt loan-to-value ratio
 
or monthly rate. Under time charters, the charterer pays
   
vessels. The Company does not pay such costs for the
   
was 55.8%. In January 2018 the Group's
 
voyage expenses such as port, canal and bunker costs.
   
time chartered-in vessels, as they are paid by the
   
financial position was further strengthened via
 
Vessels operating on time charters provide more
   
vessel owner and instead factored into the charter hire
   
an equity raise of USD 100m. Further
 
predictable cash flows but can yield lower profit margins
   
cost for such chartered-in vessels.
   
information on the Group's objectives and
 
than vessels operating in the spot market during periods
         
policies for managing its capital, its financial
 
characterized by favorable market conditions.
         
risk management objectives and its exposure to
             
credit and liquidity risk can be found in note 20
·
Available earning days. Available earning days are the
 
ACQUISITIONS AND CAPITAL EXPENDITURE
   
to the financial statements.
 
total number of days in a period when a vessel is ready
 
As of 31 December 2017, TORM had a total of ten
     
 
and available to perform a voyage, meaning the vessel is
 
vessels under construction: Four LR2 newbuildings,
   
The Group monitors its funding position
 
not off-hire or in dry-dock. For the owned vessels, this is
 
two LR1 newbuildings and four MR resale vessels.
   
throughout the year to ensure that it has access
 
calculated by taking operating days and subtracting off-
 
The LR2s are expected to be delivered between the
   
to sufficient funds to meet its forecast cash
 
hire days and days in dry-dock. For the chartered-in
 
first and the second quarter of 2018, the LR1s are
   
requirements, including newbuilding and loan
 
vessels, no such calculation is required, because charter
 
expected to be delivered between the fourth quarter of
   
commitments, and to monitor compliance with
     
2019 and the first quarter of 2020 and finally the MRs
   
the financial covenants within its loan facilities,
     
are expected to be delivered in 2019. The value of the
   
details of which are in note 2 to the financial
     
prepayments included in the total
   
statements. Sensitivity calculations are run to
           
reflect different scenarios including, but not
           
limited to, future freight rates and vessel
           
valuations in order to identify


48


FINANCIAL REVIEW 2017 - continued


risks to future liquidity and covenant compliance and to
 
The assessment of the Board of Directors has been made
   
third-year period. If this occurs, mitigating
enable Management to take corrective actions, if required.
 
with reference to the Group's current financial position
   
actions or appropriate waivers regarding the
The Board of Directors has considered the Group's cash
 
and prospects. The assessment of financial performance
   
Company's financial covenants would be
flow forecasts and the expected compliance with the
 
and cash flows is primarily dependent on the
   
required, and the Board of Directors has, in
Company's financial covenants for a period of not less
 
expectations to:
   
making their statement in relation to long-term
than 12 months from the date of approval of these financial
         
viability, an expectation that
statements. Based on this review, the Board of Directors
 
·
Demand-supply picture in the product tanker sector
   
TORM would avoid a breach in such a scenario.
has a reasonable expectation that, taking into account
   
including the expected vessel values and freight rates
   
On behalf of TORM plc
reasonably possible changes in trading performance and
   
achieved by the Group
     
vessel valuations, the Group will be able to continue in
 
·
Development of the fleet
   
operational existence and comply with its financial
 
·
Operational expenditures
   
covenants for the foreseeable future. Accordingly, the
 
·
Capital expenditures covering newbuildings and
   
Group continues to adopt the going concern basis in
   
maintenance of the existing fleet
   
preparing its financial statements.
 
·
Interest rate
   
           
LONG-TERM VIABILITY STATEMENT
       
In accordance with provision C.2.2 of the UK Corporate
 
The expected financial performance and cash flows
   
Governance Code, the Board of Directors confirms that
 
utilise assumptions which are consistent with those used
   
they have a reasonable expectation that the Group will
 
in the Group's impairment calculations, further details of
   
Christian Søgaard-Christensen
continue in operation and meet its liabilities as they fall
 
which are provided in note 8 to the financial statements.
   
Chief Financial Officer, TORM A/S
due for the three-year period ended 31 December 2020.
 
Vessel values used in forecasting compliance with
   
8 March 2018
This period has been selected for the following reasons:
 
financial covenants are based on the latest market
     
   
valuations from leading, independent and internationally
     
·
The general volatility and uncertainty in the product
 
recognised shipbrokers. These base case forecasts have
     
 
tanker market leads to a significant increase in the degree
 
then been subjected to a stress test and sensitivity
     
 
of judgement and uncertainty beyond a three-year period
 
analysis over the three-year period, using a conservative
     
·
Three years is generally in line with the forecast
 
outlook for the product tanker sector, with sensitivities
     
 
horizon for external equity analysts covering the
 
including freight rates and vessel values. Further details
     
 
shipping sector
 
on TORM's principal risks and uncertainties are set out
     
·
TORM will have paid its commitments relating to the
 
on pages 39-40.
     
 
Company's ten newbuildings and will as of 31
         
 
December 2020 not have any currently known
 
Based on the sensitivity analysis outlined above, the
     
 
off-balance sheet liabilities
 
Board of Directors does not currently expect that TORM
     
     
will breach its financial covenants or experience a
     
     
liquidity shortfall over the three-year forecast period.
     
     
However, should the product tanker market (in terms of
     
     
either freight rates or vessel values) materialize
     
     
significantly below TORM's expectations, there is a risk of a covenant breach in the second half of the
     

49






50



CHAIRMAN'S INTRODUCTION

 
 
 
 
 
Mr. Christopher H. Boehringer, Chairman of TORM's Board of Directors
 
For TORM, good Corporate Governance represents the framework and guidelines for business management and aims to ensure that the Company is managed in a proper and orderly manner, consistent with applicable laws and regulations.
 
It is important for the Board of Directors that TORM maintains a transparent governance structure and operational set-up with all elements of the operating platform integrated under the One TORM strategy. The Board of Directors believes this is in the best interests of all key stakeholders and will support TORM as the Reference Company in the product tanker industry.
 
 
A primary focus for the Board of Directors in 2017 has been the US listing on NASDAQ in New York, which was completed in December 2017. Apart from this, the Board of Directors was carefully overseeing the ongoing day-to-day business of TORM plc.
 
The US listing was the logical next step following the Corporate Reorganization in 2016. The purpose of the listing has been to enhance the marketability of the TORM Group and to attract a broader and more diversified international investor base. To support a US listing, it has been important for the Board of Directors to ensure that the appropriate internal controls are in place to live up to the requirements of the US environment.
 
For further details on the US listing, please see page 27 of the "Strategic Report".
 
In accordance with UK legislation, TORM has a one-tier management system in place. This implies that Executive Director Jacob Meldgaard serves on TORM plc's Board of Directors and as the Chief Executive Officer of TORM A/S – the main subsidiary within the TORM Group.
 
TORM plc follows the UK Corporate Governance Code. The Company complies with 51 out of 55 provisions.
 
 
TORM's key minority shareholder protection rights imply that TORM's Minority Director maintains approval rights over Reserved Matters such as related party transactions, larger
 
business acquisitions and the issuance of certain share, warrant or convertible debt instruments.
 
TORM has a distribution policy with the intention to distribute 25-50% of net income semi-annually via dividends or share repurchases. The Board of Directors believes that this policy strikes a balance between retaining financial and strategic flexibility and allowing shareholders to benefit directly from TORM's positive financial results.
 
For the first half of 2017, TORM distributed a total of USD 1.2m through dividend payments to its shareholders. The Board of Directors proposes that no dividend be declared for the second half of 2017.

51


CORPORATE GOVERNANCE

THE BOARD OF DIRECTORS
 
The Board of Directors is entrusted with the overall responsibility for the Company. The duties of the Directors include establishing policies for strategy, accounting, organization and finance and the appointment of executive officers. The Board of Directors governs the Company in accordance with the limits prescribed by the Articles of Association or by any special resolution of the shareholders. The Board of Directors is also overall responsible for the Company's internal controls and risk assessment. This is described in further detail in the "Risk Management" section of the "Strategic Report" and in the "Audit and Risk Committee Reports".
 
Mr. Göran Trapp as Non-Executive Director and Mr. Jacob Meldgaard as Executive Director. In addition, TORM plc has three Board Observers who attend all Board meetings. The Board Observers are Mr. Kari Millum Gardarnar (employee--elected in TORM A/S until 30 June 2017), Mr. Lars Bjørn Rasmussen (employee-elected in TORM A/S from 1 July 2017), Mr. Rasmus J. Skaun Hoffmann (employee-elected in TORM A/S) and Mr. Jeffrey S. Stein (Deputy Minority Director).
 
The Directors were all elected at TORM plc's Annual General Meeting on 15 March 2016. Mr. Christopher H. Boehringer, Mr. Torben Janholt
   
   
and Mr. Göran Trapp were all elected for a
   
The Board of Directors has six prescheduled meetings
 
two-year period until 2018. The Board of
   
on an annual basis held in connection with the
 
Directors conducted a self-evaluation in 2017
   
quarterly result announcements, the approval of the
 
and will do so again in 2018.
   
annual budget and the Annual General Meeting. The
       
actual meeting frequency is in general higher, as
 
COMPOSITION OF THE BOARD OF DIRECTORS
extraordinary meetings are held to account for specific
 
Members and attendance at meetings held during 2017
matters. In 2017, the Board of Directors had 11
     
meetings. The extraordinary meetings primarily
 
Board of Directors
Meetings attended/held
focused on the capital raise completed in January 2018
 
Mr. Christopher H. Boehringer (Chairman)
 10/11
and the US listing.
 
Mr. David Weinstein (Deputy-Chairman)
 9/11
   
Mr. Göran Trapp
 11/11
In accordance with UK company legislation, TORM
 
Mr. Torben Janholt
 11/11
has a one-tier management structure.
 
Mr. Jacob Meldgaard (Executive Director)
 10/11
   
David Weinstein, Göran Trapp and Torben Janholt are considered Independent Directors.
The Board of Directors of TORM plc consists of Mr.
     
Christopher H. Boehringer as Chairman and Non-
     
Executive Director, Mr. David N. Weinstein as
     
Deputy Chairman, Senior Independent Director,
     
Minority Director and Non-Executive Director,
     
Mr. Torben Janholt as Non-Executive Director,
     
       

52


CORPORATE GOVERNANCE - continued


BOARD COMMITTEES
The Board of Directors has established four committees for which formal Terms of Reference have been approved by the Board of Directors and can be found on TORM's website.
 
The Audit Committee assists the Board of Directors in supervising and enhancing financial reporting, internal controls and auditing processes.
 
The Risk Committee is responsible for supervisory oversight and monitors responsibilities with respect to internal controls and risk management.
 
The Remuneration Committee assists the Board of Directors in reviewing Management's performance and remuneration as well as the Company's general remuneration policies.
 
The Nomination Committee is responsible for maintaining and developing a number of governance procedures and evaluation processes in relation to the Board of Directors.
 
Further details on the work in the four committees can be found in the individual committee reports.
 
 
MANAGEMENT STRUCTURE AND DELEGATION OF AUTHORITY
The Board of Directors has delegated the day-to-day management of the business to the Executive Director, Mr. Jacob Meldgaard. This includes the Company's operational
 
development and responsibility for implementing the strategies and overall decisions approved by the Board of Directors. The Executive Director also serves as Chief Executive Officer in the Group's largest subsidiary, TORM A/S.
 
Transactions of an unusual nature or of major importance may only be effected by the Executive Director based on a special authorization granted by the Board of Directors. If certain transactions cannot await approval of the Board of Directors due to their urgency, the Executive Director shall, taking into consideration the interests of the Company to the extent possible, obtain the approval of the Chairman and ensure that the Board of Directors is subsequently informed. Any transaction shall always be subject to the authorizations stated in the Company's Articles of Association, including any required approvals by the Minority Director.
 
The Executive Director is assisted by the Senior Management Team in the day-to-day management of the business. The Senior Management Team consists of the following employees in TORM A/S (in addition to the Executive Director): Mr. Christian Søgaard-Christensen (Chief Financial Officer), Mr. Lars Christensen (Senior Vice President and Head of Projects) and Mr. Jesper S. Jensen (Senior Vice President and Head of Technical Division). The Senior Management Team holds weekly meetings. Mr. Christian Søgaard-Christensen generally attends the Board meetings.
 
The Senior Management Team members are individually responsible for further authority delegation within the
 
organization. TORM maintains an overview of mandates and authorities for different levels within the organization.
 
 
SHAREHOLDER COMMUNICATION
To ensure consistent communication to all investors, quarterly and annual financial statements and other stock exchange announcements are the main channels of communication. In 2017, TORM maintained regular capital market contact through analyst and industry presentations, investor meetings and conference calls. Roadshows are primarily held in Copenhagen and in the major European and US financial centers.

53


CORPORATE GOVERNANCE - continued


SELECTED MINORITY PROTECTION PROVISIONS IN TORM'S ARTICLES OF ASSOCIATION
 
TORM's central corporate governance provisions aim to ensure appropriate minority shareholder protection. The key provisions include:
 
·  The appointment of a Minority Trustee who shall hold a B-share giving the Minority Trustee the right to appoint a Minority Director, namely the Deputy Chairman of the Board. The Minority Director has approval rights over Reserved Matters such as related party transactions, larger business acquisitions and the issuance of certain share, warrant or convertible debt instruments
·  The appointment of a Board Observer and alternates for the Minority Director
 
The B-share has no other rights than the right to elect one member of the Board of Directors and one Board Observer in TORM. The Minority Trustee will exercise this voting right on behalf of all A-shareholders other than Oaktree Capital Management (Oaktree) and its affiliates. Further, a single redeemable and non-transferable C-share has been issued to Oaktree in order to give Oaktree sufficient voting rights to elect all Board members other than the Minority Director (and employee representatives) and to vote for amendments to TORM's Articles of Association with the exception of certain minority protection rights. The C-share has no voting rights on any other matters.
 
Both the B-share and the C-share will be redeemed by TORM upon a reduction in Oaktree's shareholding below 1/3 of the issued and outstanding shares in TORM.
 
The Articles of Association are available on TORM's website www.torm.com/about-torm.
 
CORPORATE GOVERNANCE CODE
In terms of Corporate Governance, TORM follows the UK Corporate Governance Code as issued by the Financial Reporting Council in April 2016. The Code sets out principles to apply and provisions which operate on a "comply or explain" basis.
 
TORM has considered the individual provisions and is compliant with 51 out of 55 provisions. TORM is not in compliance with the provisions outlined below because of business decisions taken based on careful consideration by the Board of Directors. Based on the explanations provided below, no plan is currently in place to attain compliance with the below recommendations, with the exception of provision C.3.1:
 
·    Non-Executive Directors should be appointed for a specified term (provision B.2.3): and no longer than a three-year term (provision B.7.1). The B-Director is not appointed for a specified term but will continue until removed by the B-shareholder. The Company believes that continuity in the B-Director role is important, as this Director serves as a representative for the minority shareholders. The B-shareholder, who represents the minority shareholders, can replace the B-Director at any time.
 
·    The Audit Committee should consist of independent Directors (provision C.3.1). The Chairman of the Board
 
of Directors, Mr. Boehringer, was not considered independent at the time of his appointment or on an ongoing basis. In addition to the UK Corporate Governance Code, NASDAQ in New York York requires that the Audit Committee of a US-listed company is comprised entirely of Directors who the Board of Directors has determined to be independent. Pursuant to phase-in periods for newly listed companies allowed under the rules of NASDAQ in New York, the Company is required to have a fully independent Audit Committee within one year from the date of the listing in New York. As a result, Christopher H. Boehringer will resign from the Audit Committee prior to the expiration of the one-year phase-in period.

54


CORPORATE GOVERNANCE - continued


TORM does not believe that the reliance on such one-year phase-in period would materially adversely affect the ability of the Audit Committee to act independently and to satisfy the other requirements of Rule 10A-3. The Board of Directors has determined that Mr. Göran Trapp, who serves as Chairman of the Audit Committee, qualifies as an "Audit Committee financial expert" and that he is "independent" in accordance with SEC rules and the principles of the UK Corporate Governance Code.
 
·      The Remuneration Committee should consist of independent Directors and the Chairman of the Board of Directors should not chair the Committee (provision D.2.1). The Chairman of the Board of Directors, Mr. Boehringer, is Chairman of the Remuneration Committee. Mr. Boehringer was not considered independent at the time of his appointment or on an ongoing basis. The Company believes that, given the Company's controlling shareholder structure and the alignment of interests with regard to remuner-ation, it is appropriate for Mr. Boehringer to chair the Remuneration Committee.
 
An overview of TORM's position on the individual provisions is available on TORM's website www.torm.com/about-torm.
 
       

55


BOARD OF DIRECTORS


         
         
CHRISTOPHER H. BOEHRINGER
Non-Executive Director and Chairman of TORM's Board of Directors.
 
Born: 01-01-1971.
Nationality: Canadian.
Employment: Managing Director, Oaktree Capital Management, L. P.
Education: BA degree in Economics from Harvard University and an MBA from INSEAD in France, where he graduated with Distinction and was the recipient of the INSEAD Canadian Foundation Scholarship.
 
Mr. Boehringer is Chairman of TORM's Nomination Committee and the Remuneration Committee and a member of the Audit Committee and the Risk Committee.
 
Prior to joining Oaktree in March 2006, Mr. Boehringer worked at Goldman Sachs, FI Travel Corporation, Warburg Dillon Read/SG Warburg and LTU GmbH & Co.
 
Other Board directorships: Principal Home Loans Holdings Limited, Oaktree Capital Management (UK) LLP, Life Company Consolidation Group Limited, Amber GP (London) Limited, Eolia Renovables de Inversiones, S.C.R., S.A.
 
 
DAVID NEIL WEINSTEIN
Senior Independent Director and Deputy Chairman of TORM's Board of Directors.

Born: 22-08-1959.
Nationality: US citizen.
Employment: Senior Investment Banking, Governance and Reorganization Specialist.
Education: Brandeis University, BA Economics and
Columbia University School of Law, Juris Doctor.

Mr. Weinstein is a member of TORM's Nomination Committee and Remuneration Committee.

Mr. Weinstein has had a number of Board leadership positions in inter alia Horizon Lines, Inc., Interstate Bakeries Corporation, Pioneer Companies, Inc. and York Research Corporation and has served as Managing Director of Calyon Securities Inc., BNP Paribas, Bank of Boston and Chase Securities Inc.

Other Board directorships: Chairman of The Oneida Group, Board member of Seadrill Ltd., Stone Energy Corporation and TRU Taj LLC.
 
 
GÖRAN TRAPP
Non-Executive Director.

Born: 31-01-1962.
Nationality: Swedish.
Employment: Board member.
Education: Stockholm School of Economics,
MSc Economics and Business Administration (Majoring in Finance, 1983-1987).

Mr. Trapp is Chairman of TORM's Audit Committee and Risk Committee.

Mr. Trapp was with Morgan Stanley from 1992 to 2013 where he started as crude oil trader, then became Head of Oil Products Trading Europe & Asia, Global Head of Oil Trading and Head of Commodities EMEA. Prior to joining Morgan Stanley, Mr. Trapp was crude oil trader at Statoil.

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

56


BOARD OF DIRECTORS


         
         
TORBEN JANHOLT
Non-Executive Director.

Born: 11-10-1946.
Nationality: Danish.
Employment: CEO of Pioneer Marine Inc., Pioneer Marine Hellas S.A. and Just Water ApS.
Education: IESE, Barcelona (2012/2008), Harvard, Copenhagen (Board of Directors Program) (2011), IMD, Lausanne (2010/2007/2003/2000/1999), CEDEP/INSEAD Management School, Fontainebleau (1990), Niels Brock Business College, Copenhagen (Certificate in Business Administration, 1974).

Mr. Janholt is a member of TORM's Audit Committee, Risk Committee and Remuneration Committee.

Mr. Janholt has been the CEO and President for J. Lauritzen A/S from 1998 to 2013 and Chairman of the Danish Shipowners' Association from 2005 to 2009 and holds a number of management duties/directorships.

Other Board directorships: Chairman of Otto Suenson & Co. A/S, Board member of Pioneer Marine Inc. Singapore, Pioneer Marine Hellas S.A., A/S United Shipping & Trading Company, Bunker Holding A/S, Uni-Chartering A/S, Uni-Tankers A/S.
 
JACOB MELDGAARD
Executive Director.

Born: 24-06-1968.
Nationality: Danish.
Education: Copenhagen Business School, Denmark (Bachelor's degree in International Trade) and Wharton Business School and Harvard Business School, USA (Advanced Management Program).

Jacob Meldgaard has been Chief Executive Officer since 1 April 2010. Before this, Mr. Meldgaard served as Executive Vice President of Dampskibsselskabet NORDEN A/S and held a number of management positions in J. Lauritzen A/S and A. P. Møller-Mærsk.

Other Board directorships: Board member of Danish Ship Finance, SYFOGLOMAD Ltd., Danish Shipping and The TORM Foundation.
   

57


AUDIT COMMITTEE REPORT



 
Mr. Göran Trapp
Chairman of TORM's Audit Committee

CHAIRMAN'S STATEMENT
Dear Shareholder
 
The Company applies the requirements of the UK Corporate Governance Code (April 2016) for TORM plc's year ended 31 December 2017.
 
In discharging its duties, the Audit Committee seeks to balance independent oversight of the matters within its remit with providing support and guidance to management.
 
Senior Independent Director David Weinstein attended seven meetings in his capacity as Deputy Board Chairman either in person or by telephone.
 
The Board is satisfied that the Audit Committee meets the independence requirements established and applicable laws, regulations and listing requirements, including the UK Corporate Governance Code. At least one Audit Committee member has, in the judgement of the Board, recent and relevant financial experience in order to have the ability to make an independent assessment of the appropriateness of the Company's financial statements and internal controls as well as the planning and execution of the external audit.
 
Further, members of the Audit Committee have the necessary qualifications and competences relevant to the shipping sector. The Chairman of the Audit Committee, Mr. Göran Trapp, possesses the necessary qualifications to fulfill the requirements. The Audit Committee also has access to the financial expertise of the Group and its independent auditors and can seek further professional advice at the Company's expense, if required.
       
The Audit Committee is pleased to present its report for 2017.
 
COMPOSITION OF THE AUDIT COMMITTEE
 
   
Members and attendance at meetings held during 2017
 
The purpose of this report is to describe how the Audit
 
Committee members
Meetings attended/held
Committee has carried out its responsibilities during the
 
Mr. Göran Trapp (Chairman)
 7/7
year. In overview, the role of the Audit Committee is to
 
Mr. Christopher H. Boehringer
 7/7
monitor and review: the integrity of the Company's
 
Mr. Torben Janholt
 6/7
financial statements, internal control and risk
 
Senior Independent Director David Weinstein attended seven meetings in his capacity as Deputy Board Chairman either in person or by telephone.
management, audit and risk programs, business conduct
     
and ethics, "whistleblowing" and the appointment of the
     
independent auditor.
     

58


AUDIT COMMITTEE REPORT - continued


NASDAQ in New York requires that the Audit Committee of a US-listed company is comprised entirely of Directors who the Board of Directors has determined to be independent. This term is defined under Rule 10A-3 promulgated under the Exchange Act and under the rules of NASDAQ in New York. Christopher H. Boehringer, a current member of the Audit Committee, is not considered independent.
 
Pursuant to phase-in periods for newly listed companies allowed under the rules of NASDAQ in New York, the Company is required to have a fully independent Audit Committee within one year from the date of the listing in New York. As a result, Christopher H. Boehringer will resign from the Audit Committee prior to the expiration of the one-year phase-in period.
 
TORM does not believe that the reliance on such exemption would materially adversely affect the ability of the Audit Committee to act independently and to satisfy the other requirements of Rule 10A-3. The Board of Directors has determined that Mr. Göran Trapp, who serves as Chairman of the Audit Committee, qualifies as an "Audit Committee financial expert" and that he is "independent" in accordance with SEC rules.
 
SUMMARY OF THE ROLE OF THE AUDIT
COMMITTEE
The purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibilities relating to the oversight of the quality and integrity of the accounting, auditing, financial reporting and risk management of the Company and such other duties as may from time to time be
 
assigned to the Audit Committee by the Board and are required by the rules and regulations of the UK Corporate Governance Code or any securities exchange on which the Company's securities are traded.
 
The Audit Committee's function is one of oversight only and does not relieve the Board of Directors of its responsibilities for preparing financial statements that accurately and fairly present the Company's financial results and condition, nor the auditors of their responsibilities relating to the audit or review of financial statements. The Audit Committee shall oversee the accounting, financial reporting, risk management processes and the audits of the Company's financial statements. It also provides advice to the Board on whether the Annual Report as a whole is fair, balanced and understandable. The Audit Committee shall oversee and control the qualifications, independence and performance of the appointed independent auditors.
 
The formal role of the Audit Committee is set out in its Terms of Reference, which are available at http://www.torm.com/uploads/media_items/terms-of-reference-audit-committee.original.pdf.
 
MEETINGS
The Audit Committee meets at least four times a year, and the Chief Financial Officer of TORM A/S, the Head of Group Finance at TORM A/S as well as the Company's independent auditor will normally attend these meetings. During 2017, the Committee met seven times. Mr. Göran Trapp and Mr. Christopher H. Boehringer attended all
 
meetings held in 2017 in person or by telephone. Mr. Torben Janholt attended six meetings.
 
FINANCIAL REPORTING AND SIGNIFICANT FINANCIAL JUDGEMENTS
The Audit Committee considered the issues summarized below as significant in the context of the 2017 financial statements. These issues were discussed and reviewed with Management and the independent auditors, and the Audit Committee challenged judgements and sought clarification where necessary.
 
Impairment considerations
As explained in note 8 to the financial statements on page 109-110, it was concluded that neither an additional impairment nor a reversal of the 2016 impairment was necessary, as the value in use was materially equivalent to the carrying amount.
         
         

59


AUDIT COMMITTEE REPORT - continued


In order to determine whether a cash-generating unit (CGU) is impaired, management assesses whether there are any indicators for impairment of the vessels in the Tanker Segment. If such indicators exist, the future discounted net cash flow deriving from the CGU must be estimated. These estimates are based on a number of assumptions including future freight rates, estimated operating expenses, weighted average cost of capital (WACC) and level of inflation.
 
In view of the softening product tanker market, Management prepared a detailed impairment test for the Audit Committee setting out the key assumptions for the CGU. The Audit Committee challenged these assumptions and judgements to ensure that all material factors were included.
 
The Audit Committee noted in particular that the freight rates in the years 2018-2020 are consistent with the long-term planning assumptions used by the Company.
 
The Audit Committee discussed with Management the adjustments made to the 10-year historical average spot rates, as TORM's own historical spot rates were applied, instead of historical rates from Clarksons as had been applied in previous years. The Audit Committee reviewed the arguments for the change in historical spot rates as well as calculations and assumptions made to ensure the accuracy and the completeness of the adjustments.
 
The Audit Committee was satisfied that the rates used to discount future cash flows appropriately reflected current market assessments of the time value of money and the risk associated with the CGU concerned.
 
The Audit Committee was satisfied that future cash flows related to operating expenses in the Tanker fleet appropriately reflected current market assessments.
 
The Audit Committee was satisfied that the most material assumptions on which the impairment assessment is based are appropriate.
 
For further description please refer to note 8 in the Financial Statements on page 109-110.
 
US listing
The Audit Committee discussed TORM plc's plan to file a registration statement with the U.S. Securities and Exchange Commission in connection with its direct share listing on NASDAQ in New York. The purpose of a dual listing was to provide the Company's investors with the ability to trade their Class A common shares on a USD-denominated exchange and to improve the liquidity in TORM's Class A common shares over time.
 
The Company believes that a dual listing would attract further investor interest and provide stronger visibility towards an international investor community, which will strengthen TORM's strategic and financial flexibility. No new TORM securities were issued in connection with the direct share listing on NASDAQ in New York.
 
The Audit Committee discussed the need to complete a Form 20-F following the US listing. In order to facilitate this, it was decided to prepare the UK Annual Report as the main document and a 20-F document with cross-references to the Annual Report. Preparing the 20-F in this manner did, however, mean that certain non-GAAP figures such as TCE, gross profit and EBITDA would not be allowed to be included in the financial statements. The omitted non-GAAP figures could, however, be included
 
in the front section of the Annual Report. The Company successfully completed the listing on 11 December 2017.
 
Selection of finance system
The Audit Committee supported the recommendation to find a new finance and accounting system, but stressed the importance of using a standard system that could be updated regularly. A detailed presentation was made to the Audit Committee explaining the differences in content, functionality and investment cost of the two alternative systems: MS Dynamics NAV 2017 and MS Dynamics 365 AX. The Audit Committee was also informed about the Company's reasons for selecting MS Dynamics NAV 2017.
 
The Audit Committee reviewed this information and asked relevant questions related to price, functionality, dimensions, modifications, updates, supplier security and scalability. The Audit Committee considered the selection of a new finance and accounting system, and based on this discussion the Audit Committee authorized the Company to proceed with the project.
 
Effectiveness
In 2017, the Audit Committee carried out a detailed self-assessment. Based on the self-assessment, no material concerns arose.
 
Independent audit
During the year, Deloitte undertook the independent audit and certain non-audit work. They provided the Audit

60


Committee with information and recommendations on the financial statements and internal controls.
In May 2017, the Audit Committee reviewed and approved the terms, areas of responsibility and scope of the 2017 audit as set out in the independent auditors' engagement letter. During the year, Deloitte provided the Audit Committee with recommendations and updates regarding audit-related services on subjects such as regulatory and statutory reporting, Audit Committee training, etc. The independent auditors are expected to perform the audit according to relevant auditing standards. The Independent Audit Plan was approved in August 2017 and has been successfully completed at the date of this report.
 
AUDITOR APPOINTMENT AND TENDERING
In 2016, TORM plc, which was newly incorporated, became the holding company of the Group, and Deloitte LLP (UK) has been its independent auditors since then, with David Paterson being the statutory auditor since that date. Prior to that, Deloitte Statsautoriseret Revisionspartnerselskab (Denmark) had been the independent auditors of TORM A/S (now a subsidiary of TORM plc). From a Group perspective, Deloitte Denmark was elected in April 2003 replacing Arthur Andersen, and there has not been an audit tender since that date.
 
TORM plc will undertake a tender and rotation of the independent audit appointment at the latest after completion of the 2020 audit.
 
Auditor effectiveness
The Audit Committee conducts an annual review of the performance of the independent auditors by a combination of discussions with Management, the quality of written deliverables to the Audit Committee and the quality of dialogue and insights provided during Audit Committee meetings. The Audit Committee concluded that the effectiveness of the independent auditors has not been
 
impaired in any way, and accordingly they will be proposed for reappointment at the forthcoming Annual General Meeting.
 
Auditor independence and objectivity
The Company has policies and procedures in place to ensure that the independence and objectivity of the independent auditor is not impaired. These include restrictions on the types of services which the independent auditor can provide, in line with Ethical Standards on Integrity, Objectivity and Independence published by the UK Financial Reporting Council (FRC). Details of the services that the independent auditors cannot be engaged to perform were provided to the Audit Committee in the February 2017 Audit Committee meeting documentation. The policy regarding pre-approval of audit and non-audit fees will be available on request.
 
Audit and non-audit fees
Full disclosure of the audit and non-audit fees paid during 2017 can be found in note 5 to the consolidated financial statements.
 
Audit fees:          USD 0.6m
Non-audit fees:   USD 0.4m
 
The independent auditors may be contracted to perform certain non-audit activities. The Audit Committee believes this can be performed without compromising the auditor's independence and objectivity. The Audit Committee will allocate the non-audit work after considering the Company's policy on the provision of non-audit services by the Company's auditors. Copies of the pre-approval procedures are available on request.
 
Fees relating to the provision of non-audit services by Deloitte amounted to USD 0.4m and related primarily to advisory services related to the US listing (USD 0.3m) and quarterly reviews (USD 0.1m). The Audit Committee considered that such services were most efficiently provided by the external auditors, as much of the information used in performing such work was derived from audited financial information. In order to maintain the external auditors' independence and objectivity, the external auditors did not make any decisions on behalf of Management.
 
 
 
 
 
 

61


AUDIT COMMITTEE REPORT - continued


Internal audit
The Audit Committee assesses the need for an internal audit function on an annual basis and makes a recommendation to the Board of Directors. The Audit Committee was satisfied that based on the Company's size, complexity and its internal control environment, the Company can defer the establishment of an internal audit function but has to revisit the decision in 2018. Further, the Audit Committee supported the use of an audit firm to review selected areas when needed or requested by the Audit Committee and/or TORM Management.
 
RISK MANAGEMENT AND INTERNAL CONTROLS
Risk management
The Audit Committee regularly discusses the principles for risk assessment and risk management related to the financial reporting and reviews the Company's significant risks, including fraud, and their impact on the financial reporting including stress testing, when relevant. During 2017, the Audit Committee was given a presentation by the risk management team.
 
The principal risks and uncertainties are outlined in the "Risk Management" section of the "Strategic Report" on pages 37-40.
 
Internal controls
The Board of Directors fulfills its responsibility in regard to effectiveness of the risk management and internal controls over financial reporting through the Audit Committee. The oversight is conducted through review of reports covering all aspects of the framework from planning, test of operational
 
 
 
effectiveness and adequacy of the internal control environment. An in-depth review of specific risks is performed when changes in the internal or external environment make it relevant.
 
In line with the planned dual listing on the NASDAQ stock exchange in the USA (see page 27), the Audit Committee has increased focus on the future compliance requirements. These efforts are expected to continue throughout 2018.
 
Full details of how the business implements its enterprise risk management on a Group basis are set out in the "Risk Management" section of the "Strategic Report" on pages 37-40.
 
Whistleblowing
The Group's whistleblower policy, which supports the Group-wide Business Principles, is monitored by the Audit Committee. A copy of the Group's Business Principles is available on TORM plc's website http://www.torm.com/uploads/media_items/torm-business-priciples.original.pdf. The Audit Committee received reports providing details of matters reported through the Group's international, confidential telephone reporting lines and secure e-mail reporting facility, which is operated on its behalf by an independent third party, Holst, Advokater. All matters reported are investigated by Holst, Advokater and, where appropriate, reported to the Audit Committee together with details of any corrective action taken. The Audit Committee also received reports at each Audit Committee meeting providing details of any fraud losses during the quarter.
 
Approval
On behalf of the Audit Committee
 
 
 
Mr. Göran Trapp
Chairman of the Audit Committee
8 March 2018

62


RISK COMMITTEE REPORT


 
 
Mr. Göran Trapp
Chairman of TORM's Risk Committee

CHAIRMAN'S STATEMENT
Dear Shareholder
 
In 2017, the Risk Committee had focus on understanding risks related to disruptive technologies and their impact on the clean product trade and transportation. The electric vehicle could be on the verge of transforming road transportation and thereby affecting global fuel demand. Furthermore, the Risk Committee focused on the risks related to derivatives trading and financial risks as well as risks related to strategic decisions around the Company's capital structure.
 
The Risk Committee seeks to balance independent oversight of matters within the scope of the Risk Committee with providing support and guidance to Management. The Risk Committee is confident that the Committee, supported by members of TORM A/S Management, has carried out its duties effectively and to a high standard in 2017.
 
 
 
MEETINGS
The Risk Committee normally meets no less than four times a year. In 2017, the Committee decided to reduce the frequency to three meetings a year from 2018 onwards. The Risk Committee is confident that three annual meetings enable the Committee to effectively carry out its responsibilities. The appropriateness of the frequency will be evaluated annually. TORM's annual Enterprise Risk Management Report is approved at the Board of Directors meeting in Q1 2018.
 
Senior Independent Director David Weinstein attended all Risk Committee meetings in 2017. Ordinarily, the Executive Director, the Chief Financial Officer of TORM A/S and TORM A/S' Head of Group Treasury attend the Risk Committee meetings.
       
The Risk Committee is pleased to present its report for 2017.
 
COMPOSITION OF THE RISK COMMITTEE
 
   
Members and attendance at meetings held during 2017
 
The Risk Committee is delegated by the Board of
 
Committee members
Meetings attended/held
Directors to oversee TORM's risk management and to
 
Mr. Göran Trapp (Chairman)
 4/4
advise the Board on risk-related matters. The Risk
 
Mr. Christopher H. Boehringer
 4/4
Committee is also responsible for endorsing TORM's
 
Mr. Torben Janholt
 3/4
risk policies for Board approval and assessing quality
   
and effectiveness of the companywide risk management
     
program.
     
       
The Risk Committee's Terms of Reference are available at: http://www.torm.com/uploads/media_items/terms-of-reference-risk-committee.original.pdf.
     
       
       
       

63


RISK COMMITTEE REPORT - continued


MEMBERSHIP
The Risk Committee assesses that the committee members have sufficient qualifications within risk management and capital market knowledge and abilities to make an independent assessment of risks that are applied consistently throughout the organization, appropriateness of the Company's risk management and control environment as well as the planning and execution of the risk management policies and funding activities. The Risk Committee has access to the financial and risk management competencies within the TORM Group and its external advisors. The Risk Committee is also authorized to seek further external advice at the Company's expense, if required.
 
SUMMARY OF THE ROLE OF THE COMMITTEE
The purpose of the Risk Committee is to assist the Board of Directors in fulfilling its responsibilities in relation to the oversight of the quality and effectiveness of the Company's risk management program.
 
This is an ongoing process of refinement and embedding of risk management best practice throughout the organization. The risk management framework builds on clear policies and procedures that are applied consistently throughout the organization.
 
The Risk Committee oversees the risk management processes and reporting of the Company and discusses relevant risk management policies, capital structure targets and planned funding initiatives. The Risk Committee is responsible for providing recommendations to the Board of Directors with respect to these targets and initiatives.
 
 
ACTIVITIES DURING THE YEAR
At each meeting, the Risk Committee follows up on key risk indicators to ensure alignment between risk tolerance, actual risk level and business objectives. These measures include: Monitoring of credit lines, monitoring of compliance with internal mandates and exposure to financial derivatives.
 
SELECTED RISKS REVIEWED DURING 2017
TORM safety culture
The Risk Committee reviewed the global One TORM safety culture program aimed to enhance the overall safety performance for employees, the environment, customers and maintain a high safety awareness throughout TORM.
 
Disruptive technology risk
The Risk Committee investigated the potential impact on trade within the refined products sector due to a reduction caused by the uptake of electric vehicle technologies in public and commercial transportation and autonomous vehicles over a long-term horizon.
 
Review of TORM's governance principles and policies related to IT and insurances
The Risk Committee reviewed TORM's IT Policy and governance set-up as well as TORM's Insurance Policy. The policies outline major issues at risk and what measures TORM takes to mitigate these risks.
 
Cyber Risk
The Risk Committee reviewed TORM's preparedness and resilience in case of a breach or failure of the Company's
 
digital infrastructure due to intentional actions such as attacks on the Company's cyber security. TORM has held internal workshops to identify critical systems, establish business continuity plans and emergency plans in case of cyber incidents.
 
Financial risk management and review of Financial Policy
TORM uses financial derivatives to manage market risks and to optimize earnings. In addition, the Company uses derivatives to hedge exposures related to interest rate and foreign exchange risks.
 
The Risk Committee reviewed TORM's exposures, the relevant tolerance levels and appropriate hedging instruments and subsequently approved the Financial Policy that clearly outlines mandates.
 
Liquidity risk and counterparty risk
The Risk Committee reviewed the Company's liquidity forecast model and the underlying key assumptions as well as TORM's forecasted liquidity position and

64


RISK COMMITTEE REPORT - continued


compliance with financial covenants on borrowing facilities over the coming 12 months. The Risk Committee performed an in-depth review of counterparty risk related to TORM's customers.
 
Capital structure risks
The Risk Committee reviewed risk considerations related to the Company's capital structure including: Liquidity position, loan-to-value, Distribution Policy, off-balance sheet liabilities, terms and sources of funding, vessel investments and fleet employment strategy.
 
Enterprise risk management
The Risk Committee reviewed the key risks faced by TORM and the underlying drivers of those exposures. The alignment of actual risk and desired risk was discussed, and the Risk Committee approved the Company's risk profile based on these discussions. Furthermore, the Risk Committee reviewed the assigned management accountability, which highlights current and planned risk mitigating activities.
 
Approval
On behalf of the Risk Committee
 
 
 
Mr. Göran Trapp
Chairman of the Risk Committee
8 March 2018
 
 
   

65


NOMINATION COMMITTEE REPORT


 
Mr. Christopher H. Boehringer
Chairman of TORM's Nomination Committee
 
CHAIRMAN'S STATEMENT
Dear Shareholder
 
The Nomination Committee is pleased to present its
report for 2017.
 
SUMMARY OF THE ROLE OF THE NOMINATION COMMITTEE
 
·     Identify individuals qualified to become members of the Board of Directors and recommend to the Board of Directors nominees for election as members of the Board of Directors
·     Maintain oversight of the operation and effectiveness of the Board of Directors and the corporate governance and management of the Company
·      Evaluate the balance of skills, experience and knowledge of the Board of Directors
·      Establish the process for conducting the review of the performance of the CEO of the Company
·      Review and approve appointments and succession planning for the Senior Management team
·     Monitor compliance with such principles and policies
 
The Nomination Committee's Terms of Reference are available at http://www.torm.com/uploads/media_items/terms-of-reference-nomination-committee.original.pdf
 
COMMITTEE DISCUSSIONS IN 2017
 
Assessment of effectiveness of the Board of Directors According to the recommendations of the UK Corporate Governance Code, the Board is to review and assess its performance annually. The review focused on Board accountability and composition, the Board's role in setting strategy, risk management and succession planning and the effectiveness of the Board committees. The Nomination Committee discussed the results of the internally-run evaluation of both the Board and the Chairman.
       
The purpose of this report is to describe how the
 
COMPOSITION OF THE NOMINATION COMMITTEE
 
Nomination Committee has carried out its
 
Members and attendance at meetings held during 2017
 
responsibilities during the year.
 
Committee members
Meetings attended/held
   
Mr. Christopher H. Boehringer (Chairman)
1/1
   
Mr. Torben Janholt
1/1
   
Mr. David Weinstein
1/1
     

66


NOMINATION COMMITTEE REPORT - continued


Future Board representatives
Based on the governance self-assessment survey originating from the previous Board of Directors meeting, it had been decided that the Nomination Committee would consider the independence and diversity theme arising from the US listing.
 
The Nomination Committee discussed that according to NASDAQ in New York requirements, the Audit Committee of a US-listed company must consist entirely of Directors who the Board of Directors has determined to be independent. According to Rule 10A-3 promulgated under the Exchange Act and under the rules of NASDAQ in New York, Christopher Boehringer, a current member of the Company's Audit Committee, is not considered independent. Pursuant to phase-in periods for newly listed companies allowed under the rules of NASDAQ in New York, the Company is required to have a fully independent Audit Committee within one year from the date of the Company's listing on NASDAQ in New York. As a result, Christopher Boehringer will be required to resign from the Company's Audit Committee prior to the expiration of the one-year phase-in period.
 
With respect to governance codes and Company ambitions, the Nomination Committee discussed how to increase gender diversity, particularly within leadership positions.
 
Succession planning
The Nomination Committee received a presentation covering potential successors (temporary and permanent solutions). The presentation covered 23 key roles on Senior Vice President, Vice President and General Manager level with
 
 
impact on the One TORM strategy and/or critical to the TORM business. In addition, eight key employees (below Vice President level) have been identified. All suggested successors were internal candidates.
 
All candidates were distributed in three categories:
 
·          A temporary solution (interim and with short notice)
·          Candidates ready for permanent succession in 0-1 years
·          Candidates ready for permanent succession in 1-2 years.
 
 
The development of successors is supported by various activities ranging from MBA studies, development of management and leadership skills, 360 degree evaluations and various courses.
 
Approval
On behalf of the Nomination Committee
 
 
Mr. Christopher H. Boehringer
Chairman of the Nomination Committee
8 March 2018
 
 
 
 

67


RENUMERATION COMMITTEE REPORT


 
 
 
Mr. Christopher H. Boehringer
Chairman of TORM's Renumeration Committee
 
STATEMENT BY THE CHAIRMAN OF THE RENUMERATION COMMITTEE
 
Dear Shareholder
 
On behalf of the Remuneration Committee, the
Directors' Remuneration Report is presented in the
 
Company. It has been prepared in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in August 2013 (the "Regulations").
 
The report is split into two main areas:
·          The statement by the chair of the Remuneration Committee
·          The annual report on remuneration
 
The Remuneration Policy, approved by the shareholders at the Annual General Meeting (AGM) on 4 April 2017, took effect from the date of that meeting. As at the date of this Annual Report, TORM plc is in compliance with the requirements of this Remuneration Policy. The annual report on remuneration provides details on remuneration in the period and additional information required by the Regulations.
 
At the 12 April 2018 AGM, a revised Remuneration Policy may be proposed for shareholder approval. The changes
 
could encompass amendments to the LTIP.
 
The Companies Act 2006 requires the auditors to report to the shareholders on certain parts of the Directors' Remuneration Report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the Regulations. The parts of the Annual Report on remuneration that are subject to audit are indicated in that report. The statement by the Chairman of the Remuneration Committee and the policy report itself are not subject to audit.
following section for the year ended 31 December 2017.
     
   
COMPOSITION OF THE RENUMERATION COMMITTEE
 
This report is on the activities of the Remuneration
 
Members and attendance at meetings held during 2017
 
Committee for the period 1 January 2017 to 31 December
 
Committee members
Meetings attended/held
2017. It sets out the Remuneration Policy and remuneration
 
Mr. Christopher H. Boehringer (Chairman)
2/2
details for the Executive and Non-Executive Directors of the
 
Mr. David Weinstein
2/2
   
Mr. Torben Janholt
2/2
     
     
     
     

68


RENUMERATION COMMITTEE REPORT - continued


The Remuneration Committee assists the Board of Directors in its responsibilities in relation to remuneration. The main role of the Company's Remuneration Committee remains to ensure that the remuneration arrangements for the Executive Director and Senior Management offer appropriate incentives to enhance the Company's performance.
 
The Remuneration Committee's responsibilities include:
·      Setting the strategy, structure and levels of remuneration of the Company's Directors, Executive Director and Senior Management
·      Ensuring compliance with policies while adhering to legislative regulations
·      Aligning the financial interests of the Executive Director and other management employees with the achievement of the Company's objectives
 
The overall remuneration structure comprises:
·      Base salary, benefits and allowances, set at a level appropriate to the sector and markets in which the Company operates
·      An annual bonus, based on measures of annual financial and strategic performance
·      A-share-based long-term incentive plan, based on growth in the share price
 
This Remuneration Report includes:
·      The Company's remuneration policy, including guidelines for incentive pay for the Board of Directors and Executive Management
 
 
 
·     The responsibilities of the Remuneration Committee reflected in the Terms of Reference for the Remuneration Committee
·      The members of the Remuneration Committee
·      Shareholder voting at the AGM
·      The remuneration of the Board of Directors
·      The remuneration of the CEO
 
The Remuneration Committee assessed the Executive Director's performance against long-term and short-term targets. The Remuneration Committee has assessed the Executive Director's contribution against his personal performance measures. As a result, the performance bonus was calculated at 50% of the yearly salary for the objective-based contributions in 2016. Further, in relation to achievements relating to the TORM Leadership Philosophy (TLP), an additional 17% was awarded. Throughout this past year, the Remuneration Committee maintained the link between pay and performance and will continue to do so.
 
The Remuneration Committee continues to monitor developments in corporate governance and remuneration and, where considered appropriate based on the best interests of TORM plc and its shareholders, the Remuneration Committee would propose to adopt the developments.
 
The Remuneration Committee has taken the opportunity to update the Company's remuneration policy (as approved at the 2017 AGM). This was performed in order to bring the policy in line with the Company's 20-F filing related to its US listing.
 
 
 
 
During the year, the Remuneration Committee received advice and/or services from the Head of Group HR and the Executive Director together with other senior group employees and independent advisor CWT as necessary.
 
On behalf of the Remuneration Committee, I thank you for your continued support and trust that you find the Directors' Remuneration Report informative. I very much hope that we will receive your support at the 2018 AGM, and I will be available at the meeting to respond to your questions on any aspect of this report.
 
Finally, the Remuneration Committee has taken the opportunity to make some changes to the layout and design of the report, which we hope will make the Company's remuneration strategy and outcomes clearer.
 
 
Mr. Christopher H. Boehringer
Chairman of the Renumeration Committee
8 March 2018
 
 

69


RENUMERATION COMMITTEE REPORT - continued


ANNUAL REPORT ON REMUNERATION
The information provided in this part of the Directors' Remuneration Report is subject to audit.
 
Executive Director's remuneration table (showing single total figure of pay for the year)
 
The table sets out the 2016-17 remuneration for Jacob Meldgaard in his roles as Executive Director of TORM plc and CEO of TORM A/S, a subsidiary of TORM plc.
 
Base salary
The CEO's base salary was reviewed on the 15 March 2017
 
to determine the appropriate salary for the coming year. Base salary as of 1 January 2016: DKK 5.6m. Base Salary as of 1 January 2017: DKK 6.0m.
 
The base salary will be discussed and agreed with the Chairman of the Board once a year. The next discussion shall take place in February 2019. Unless otherwise agreed, any adjustment of the salary will take effect on 1 January 2019.
 
Taxable benefits
 The Company can place a car costing no more than DKK 1m
 
at the CEO's disposal; however, the CEO has instead accepted to receive an amount of DKK 23t per month, covering the running and maintenance expenses associated with a private vehicle. For 2017, the amount of DKK 276t (USD 42t) has been included within the single figure amount.
 
Other benefits provided directly include two newspapers, mobile phone which may be used for both business and private purposes, a PC at the CEO's disposal at his home address which may be used for both business and private purposes including ADSL and call charges.
 
For 2018, changes in allowances and benefits are not expected.
 


Jacob Meldgaard           
           
USD '000
Salary¹
Taxable benefits
Annual performance bonus²
Total
 
2016 restated
  873
  41
  559
1,473
 
2017³
1,004
 42
  580
1,626
 
           
 
Chief Executive Officer
 
Employees entire Group
 
USD '000
2017
2016
% change
% change
 
Salary and Directors Fees
1,004
  873
15%
-1%
 
Taxable benefits
 42
  41
3%
N/A
 
Annual bonus
  580
  559
4%
4%
 
Total
1,626
1,473
10.4%
 -
 

¹ The total salary of Jacob Meldgaard consists of both his salary as CEO of TORM A/S (USD 923t) and as Executive Director of TORM plc (USD 81t).
² The 2016 figures have been restated in order to include the figure for the annual bonus for 2016 as this was finalised and subsequently paid in 2017. No value was shown in the 2016 annual report. The total annual performance bonus of the Executive Director of TORM plc for 2016 arising in the period 1 January 2016 to 31 December 2016 was DKK 3.758.700 (USD 559t).

70


RENUMERATION COMMITTEE REPORT - continued


Performance bonus 2016
The Board of Directors provided the CEO with a performance cash bonus for the financial year 2016 in the following ranges and based upon the following parameters:
 
1.     The fulfillment of specific performance metrics set by the Company. The main components included: MR TCE/day performance, cost control and LTAF performance (up to 50% of the CEO's fixed annual salary)
2.     The weighted average P/NAV ratio of the Company's shares based on the closing share price on each trading day during the financial year 2016 (up to 50% of the CEO's fixed annual salary)
3.     Up to 20% of the CEO's fixed annual salary based on the sole discretion of the Company's Board of Directors
 
In aggregate, the maximum achievable cash bonus for the financial year 2016 for the CEO was equal to 120% of the CEO's fixed annual salary in 2016.
 
Based on the specific measure and calculation methodology for each of the above parameters, the CEO's performance cash bonus for 2016 was determined to be a total of 67% (50% on parameter 1 and 17% on parameter 3) of the 2016 fixed annual salary of DKK 5,610,000, resulting in an amount of DKK 3,758,700 (USD 559t).
 
 
 
Performance bonus 2017
The Board of Directors has provided the CEO with a performance cash bonus opportunity for the financial year 2017 in the following ranges and based upon the following parameters:
 
·     The fulfillment of specific performance metrics set by the Company (up to 50% of the CEO's base salary). The performance metrics are specified at the start of the performance period and are commercially sensitive. Further detail will be provided in the 2018 Annual Report once the 2017 award is finalized
·      TORM P/NAV ratio vs. peers, based on weighted average P/NAV ratio 2017 (up to 50% of the CEO's base salary)
·      Up to 20% of the CEO's base salary based on the sole discretion of the Company's Board of Directors.
 
In aggregate, the maximum achievable cash bonus for the financial year 2017 for the CEO is equal to 120% of the CEO's base salary in the financial year 2017. The specific metrics and calculation methodology for each of the above parameters have been determined by the Remuneration Committee.
 
 
 
 
 
Performance bonus 2018
The Remuneration Committee has provided the CEO with a performance cash bonus for the financial year 2018 in the following ranges and based upon the following parameters:
 
·     The fulfillment of specific performance metrics set by the Company (up to 50% of the CEO's base salary). The performance metrics are specified at the start of the performance period and are commercially sensitive
·     TORM P/NAV vs. peers, based on weighted average P/NAV ratio 2018 (up to 50% of the CEO's base salary)
·      Up to 20% of the CEO's base salary based on the sole discretion of the Company's Board of Directors
 
In aggregate, the maximum achievable cash bonus for the financial year 2018 for the CEO is equal to 120% of the CEO's base salary in the financial year 2018. The specific metrics and calculation methodology for each of the parameters have been determined by the Board of Directors.
 

71


RENUMERATION COMMITTEE REPORT - continued


Long-Term Incentive Plan – Restricted Share Units granted in 2016
 
TORM has in accordance with its Remuneration Policy granted the CEO a number of Restricted Share Units (RSUs) which was communicated in company announcement no. 2 dated 18 January 2016. There are no performance conditions associated with this grant of RSUs.
 
The RSUs granted to the CEO will vest over a five-year period, with one fifth of the grant amount vesting at each anniversary during the five-year period. As at 1 January 2017, one fifth of the grant amounting to 255,345 RSUs vested, and as at 31 December 2017 the exercise period relating to those vested RSUs expired. The total value of the RSU allocation is calculated based on the Black-Scholes model and is included in the overall cost estimate for the Company's Long-Term Incentive Program (LTIP) (cf. company announcements dated 18 January and 8 March 2016).
 
The total number of securities granted was 1,276,725 (assuming 100% vesting). No further grants were made to the CEO during 2017. As of 31 December 2017, 1,021,380 RSUs remain.
 
further adjusted in December 2017 to DKK 93.5 due to the dividend payment in September 2017.
 
End of service gratuity
The Company may terminate the CEO's Service Agreement with 12 months' notice to expire on the last day of a month. The CEO may terminate the Service Agreement with six months' written notice to expire on the last day of a month.
 
Post service salary
If the CEO dies during the employment, the Company shall pay to the widow or any of his children below the age of 18 the fixed salary including non-salary benefits for the current month and post-service salary for three months equal to the fixed salary. However, such post-service salary will only be paid until the date of which the employment would have terminated as a result of termination of the Service Agreement.
   
     
The value of the grant, USD 3.4m, is based on the
       
RSU grant value
Black- Scholes model with an exercise price
     
Exercise price per
assuming 100%
of DKK/share 96.3, a market value of one TORM
 
LTIP element of Jacob Meldgaard's remuneration package 2017
RSU LTIP grant¹
share²
vesting
A-share of DKK 84.05 (the closing price on
 
Jacob Meldgaard
1,276,273.0
 DKK 96.3
 USD 3.4m
15 January 2016 and assuming 100% vesting).
 
¹ LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 2 of 18 January 2016, therefore there is no minimum or maximum for 2017.
Subsequently, the exercise price was adjusted on 13
 
² Exercise price originally DKK 96.3. Subsequently adjusted on 13 December 2016 to DKK 93.6 due to the dividend payment in September 2016. Further adjusted in December 2017 to DKK 93.5 due to the dividend
December 2016 to DKK 93.6 due to the dividend
  payment in September 2017.     
payment in September 2016. The exercise price was
         
           
     

72


 

 
 
RENUMERATION COMMITTEE REPORT - continued


Remuneration table Non-Executive Directors. The information provided in this part of the Directors' Remuneration Report is subject to audit.
   
     
The 2017 remuneration table below sets out the
           
remuneration paid to the Non-Executive Directors
 
2017 Remuneration table Non-Executive Directors
of the Company in 2017. Fees shown include any
 
USD '000
Base fee
Committee fee
additional fees paid in respect of chairmanships of
 
Director
2017
2016
2017
2016
committees or other roles such as Senior Independent
 
Christopher H. Boehringer
174
158
 116
  79
Director.
 
David Weinstein
 116
105
  58
  26
   
Göran Trapp
  58
  53
 116
105
Annual bonuses and LTIPs
 
Torben Janholt
  58
  53
 116
  79
The Company's remuneration policy stipulates
   
               
that the Non-Executive Directors' remuneration
 
SUMMARY OF DIRECTORS'S INTEREST IN SHARES 1)
cannot include participation in share or warrant
             
programs. The Non-Executive Directors of TORM
       
Unvested
Vested
 
plc do not receive any part of their compensation
 
Director
 
Shares held
RSUs
RSUs
Total
from the Company in shares or warrants.
 
Christopher H. Boehringer
31-12-2016
  7,566
 -
 -
  7,566
The remuneration for the Non-Executive
   
31-12-2017
  7,566
 -
 -
  7,566
Directors is determined by the Board of Directors
 
David Weinstein
31-12-2016
 -
 -
 -
 -
subject to limits in the Company's Articles of
   
31-12-2017
 -
 -
 -
 -
Association. During 2017, none of the Non-Executive
 
Göran Trapp
31-12-2016
12,820
 -
 -
12,820
Directors received any part of their compensation in
   
31-12-2017
12,820
 -
 -
12,820
shares or warrants.
 
Torben Janholt
31-12-2016
26
 -
 -
26
     
31-12-2017
26
 -
 -
26
Total pension entitlements
 
Jacob Meldgaard
31-12-2016
66
 1,276,725
 -
1,276,791
The Directors of TORM plc do not receive any
   
31-12-2017
66
 1,021,380
255,345
1,276,791
pension from the Company. In addition, Denmark-
             
based Executive Director Jacob Meldgaard, in
 
1) The above table shows, in relation to each Director, the total number of share interests with and without performance conditions, the total number of RSUs with and without performance measures, those vested but unexercised and those exercised. It should be noted that Denmark-based Executive Director Jacob Meldgaard, in his role as CEO of TORM A/S, has RSUs which are listed in the above table.
his role as CEO of TORM A/S, does not receive any
 
pension.
 
               
               
               
 

 

73


RENUMERATION COMMITTEE REPORT - continued


Taxable benefits
 
PERFORMANCE GRAPH AND CEO REMUNERATION TABLE (USD '000)
As members of the Board of TORM plc, the Directors
 
Source: Bloomberg
do not receive any additional benefits.
   
Payments for loss of office
No payments for loss of office have been made in 2017.
 
STATEMENT OF DIRECTORS' SHAREHOLDING AND SHARE INTEREST
The figure below summarizes the total interests of the Directors in shares of TORM plc as of 31 December 2017. No changes took place in the interests of the Directors between 31 December 2017 and 8 March 2018.
 
The information provided in this part of the Annual Report on remuneration is not subject to audit.
 
 
The graph shows the Company's performance,
 
measured by total shareholder return, compared with
 
Jacob Meldgaard
2017
2016
the performance of the Danish stock index KAX. The
 
Total remuneration (single figure)
1,626
  1,473
KAX index is a market cap weighted index of all
 
Annual bonus (% of maximum)
60%
67%
stocks listed on Nasdaq Copenhagen. The total
 
LTIP (% of maximum)
0%
0%
shareholder return is calculated in USD.
   
   
CHANGE IN CHIEF EXECUTIVE OFFICER'S REMUNERATION COMPARED TO GROUP EMPLOYEES WORLDWIDE
The top table shows the total remuneration
 
2016 - 2017 in %
 
Salary¹ ²
Benefits³
Bonus⁴⁾
earned by the Executive Director over
 
Chief Executive Officer
USD ('000)
1,004
 42
  580
the same period, along with the proportion
   
% change
15%
3%
4%
of maximum bonus opportunity earned.
           
     
Average %
     
   
Employees entire Group
change
-1%   N/A  4%
             
             
   
¹ The comparative figures used to determine the % change take into consideration the CEO's salary and benefits.
² Measured in local currency.
³ Other benefits provided directly in 2016/17 relates to company car benefit.
     

74


RENUMERATION COMMITTEE REPORT - continued


Relative importance of spend on pay.
 
Implementation of Non-Executive Director Remuneration for 2018
The graph below shows the actual expenditure of the Group for employee pay and distributions to shareholders compared to the retained earnings of the Group.
 
The remuneration of the Non-Executive Directors for 2018 is subject to approval by ordinary resolution at the AGM of the Company to be held on 12 April 2018.
     


RELATIVE IMPORTANCE OF SPEND ON PAY

Expenditure USD '000
2017
2016
Dividends paid
1.2
  25.0
Purchase outstanding shares in TORM A/S
  -
19.2
Purchase/disposal of treasury shares
  -
  2.8
Total
1.2
  47.0
Staff costs
  43.8
  46.7
Retained earnings
  786.0
  783.0

The figure below shows the response to the 2017
Annual General Meeting (AGM) shareholder voting.


RESPONSE TO 2017 AGM SHAREHOLDER VOTING

Vote
For
Against
Abstain
Vote on 2017 Remuneration Report
42,282,772
  598,535
46
 In %
99.0%
1.0%
 -


 
 
 
75

REMUNERATION COMMITTEE REPORT - continued

Remuneration Policy
The TORM plc remuneration policy approved at the 2017 AGM remains unchanged. While the Remuneration Committee will consider the appropriateness of the remuneration policy annually to ensure it continues to align with the business strategy, there is no current intention to revise the policy more often than every third years, unless required due to changes to regulations or legislation.
 
Adoption and publication
The Board of Directors shall review the remuneration policy at least once a year. Any changes to the Remuneration Policy shall be adopted by the Board of Directors and approved by the shareholders at an AGM.
 
TORM's Remuneration Report will be included in the Company's annual reports for all financial years commencing with the financial year ended 31 December 2017 and will contain information on remuneration paid to the Board of Directors and Executive Management.
 
The remuneration policy is available at http://www.torm.com/uploads/media_items/torm-remuneration-policy-2017.original.pdf.
 
The Board of Directors has adopted the remuneration policy.
 
Statement of voting at General Meeting
The Remuneration Policy was approved at the 2017 AGM of the Company and will continue to be subject to a binding shareholder vote at least once every three years thereafter.
 
Terms of Reference for the Remuneration Committee of the Company
 
The Terms of Reference of the Remuneration Committee can be found at
http://www.torm.com/uploads/media_items/terms-of-reference-remuneration-committee.original.pdf.
 
Approval of TORM plc Remuneration Report for 2017
This report was approved by the Board of Directors on 8 March 2018 and signed on its behalf by:
 
 
Christopher H. Boehringer
Chairman of the Remuneration Committee
8 March 2018
 
 
   

76

INVESTOR INFORMATION



US listing on NASDAQ in New York completed in 2017.



COMMUNICATION TO INVESTORS
To ensure consistent communication to all investors, quarterly and annual financial statements and other stock exchange announcements are the main vehicles of communication. TORM maintains regular capital market contact through analyst and industry presentations, investor meetings and conference calls. Investor meetings are primarily held in Copenhagen and in the major European and US financial centers.
 
In 2017, TORM issued a total of 12 announcements to the stock exchange. These announcements are available in both Danish and English versions on www.torm.com/investors. Interested stakeholders can sign up for TORM's investor relations mailing list there.
 
For a three-week period prior to the publication of quarterly and annual financial statements, communication is limited to issues of a general nature, and no individual investor meetings are held.
 
 
CHANGES TO THE SHARE CAPITAL
There were no changes to TORM plc's share capital during 2017. As of 31 December 2017, TORM plc's total share capital was USD 622,988.48 consisting of 62,298,846 A-shares of USD 0.01 each, one B-share and one C-share both of USD 0.01.
 
Following the balance sheet date, on 26 January 2018, TORM completed a Private Placement for gross proceeds of USD 100m. The Private Placement resulted in an issuance of 11,920,000 new A-shares. As of 8 March 2018, TORM's total share capital is USD 742,188.48 consisting of 74,218,846 A-shares of USD 0.01 each, one B-share and one C-share both of USD 0.01.
 
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's distribution policy allows investors to benefit directly from the earnings generated in TORM, while at the same time enabling the Company to selectively invest in the fleet.
 
 
For the first six months of 2017, TORM distributed a total of USD 1.2m through dividends.
 
The Board of Directors proposes that no dividend be distributed for the second half of 2017.
 
TRADING
In 2017, TORM had 62,298,846 A-shares outstanding. The average daily trading volume on Nasdaq Copenhagen has been approximately 43t shares. During 2017, the share price declined from approximately DKK 63.5 to DKK 53.5. Throughout 2017, TORM has been part of the MidCap segment on NASDAQ Copenhagen.
 
DUAL Listing
In 2017, TORM completed a listing of the Company's A-shares on NASDAQ in New York. Following the US listing, TORM's A-shares can move freely between the two NASDAQ exchanges in Copenhagen and New York. TORM's A-shares are listed on NASDAQ Copenhagen and NASDAQ in New York under the tickers TRMD A and TRMD, respectively.

77


INVESTOR INFORMATION - continued


SHAREHOLDERS
As of 31 December 2017, TORM had approximately 8,100 registered shareholders representing 89% of the share capital.
 
In compliance with section 29 of the Danish Securities Trading Act, the following shareholders have reported to TORM that they own more than 5% and 50% of the share capital, respectively:
 
·          OCM Njord Holdings S.à r.l. (Oaktree) (>50%)
·          DW Partners, LP (>5%)
 
As of 31 December 2017, TORM's treasury shares represented approximately 0.5% of the total share capital. The C-share is held by Oaktree, and the B-share is held by the Minority Trustee, SFM Trustees Limited, on behalf of TORM's non-Oaktree shareholders. The B- and the C-share have certain voting rights.
 
At the end of 2017, the members of the Board of Directors held a total of 20,478 shares, equivalent to a total market capitalization of DKK 1,095,573 or USD 176,486. The Board of Directors and certain employees are limited to trading shares during a four-week period after the publication of financial reports.
 
TORM's Transfer Agent is Computershare Inc, Dept CH 19228, Palatine, IL 60055, United States of America.
 
 
WARRANTS AND RESTRICTED SHARE UNITS
As of 31 December 2017, 4,787,692 warrants were outstanding with each warrant being convertible into one A-share with a nominal value of USD 0.01 against payment of a subscription price in cash to TORM of DKK 96.3. The warrants can be exercised until 13 July 2020. The warrants are not publicly listed but can be transferred by submitting a warrant transfer notice to the Company. The warrant transfer notice is available at http://www.torm.com/uploads/media_items/warrant-transfer-notice-2016.original.docx.
 
Following the Private Placement and the issuance of 11,900,000 new Class A common shares, certain warrant terms were adjusted as of 6 March 2018. Following this adjustment, a total of 4,838,827 warrants were outstanding, each with an exercise price of DKK 95.24.
 
In accordance with TORM's Remuneration Policy, the Board of Directors has as part of the long-term incentive program granted certain employees Restricted Share Units (RSUs) in the form of restricted stock options. The RSUs aim at incentivizing the employees to seek to improve the performance of TORM and thereby the TORM share price for the mutual benefit of themselves and the shareholders of TORM. A total of 2,994,009 RSUs have been granted in 2016 and 2017. Subject to vesting, each RSU entitles the holder to acquire one TORM A-share. The RSUs will vest over a three-year period from the grant date with an exercise price for each TORM A-share of DKK 93.6.
 
 
Of the 2,994,009 RSUs granted, 1,276,725 were granted to the Executive Director. RSUs granted to the Executive Director vest over a five-year period with an exercise price for each TORM A-share of DKK 93.6.
 
Based on the Black-Scholes model, the theoretical market value of the RSU allocations in 2016 and 2017 was around the time of issuance calculated at USD 5.0m and USD 1.0m, respectively.
 
Net Asset value
TORM's net asset value (NAV) as of 31 December 2017 is estimated at USD 796m based on i) broker values of USD 1,661m, ii) outstanding debt of USD 754m, iii) outstanding newbuilding installments of USD 307m, iv) a cash position of USD 134m, v) other current assets of USD 123m and vi) current liabilities of USD 61m. Based on 61,985,975 outstanding A-shares, excluding treasury shares, as of 31 December 2017, this corresponds to a NAV/share of USD 12.8 or DKK 79.7.
 
For further information about investor relations, please visit www.torm.com/investors.
 
78


INVESTOR INFORMATION - continued


INVESTOR RELATIONS CONTACT
 
Christian Lintner, Senior Treasury and IR Manager
Group IR, Communication and Treasury
Phone: +45 3917 9335
Email: ir@torm.com
 
 
 
 
 
 
 
ANALYST COVERAGE
 
Carnegie Investment Bank
Marcus Bellander
Phone: +45 3288 0298
Email: marcus.bellander@carnegie.dk
 
Danske Bank
Finn Bjarke Pedersen
Phone: +45 4512 8036
Email: finpe@danskebank.dk
 
Handelsbanken
Dan Togo Jensen
Phone: +45 4679 1246
Email: dato01@handelsbanken.dk
 
Jyske Bank
Frans Høyer
Phone: +45 8989 7033
Email: frans.hoyer@jyskebank.dk
 
Nordea Markets
Jørgen V. Bruaset
Phone: +45 2185 8575
Email: jorgen.bruaset@nordea.com
 
SEB
Ole G. Stenhagen
Phone: +47 2100 8527
Email: ole.g.stenhagen@seb.no
 
   
FINANCIAL CALENDAR 2018
 
12 April 2018, Annual General Meeting
 
17 May 2018, First quarter 2018 results
 
16 August 2018, First half 2018 results
 
15 November 2018, Nine months 2018 results
 

79


DIRECTORS' REPORT


The Directors are pleased to present the Annual Report on the affairs of the TORM Group, including the financial statements and the auditor's report, for 2017. Details on the Directors' responsibilities are available in the Directors Responsibility Statement on page 84-85.
 
Other disclosure requirements, which form part of the Directors' Report, are included in other sections of this Annual Report. Details on information incorporated by reference are generally set out under the relevant topics in the Directors' Report. For TORM's going concern statement and viability statement, please see the "Financial Review" section on pages 48-49. For details on any significant events after 31 December 2017, please refer to note 2 on page 103. Details on financial risks are provided in note 20 of the financial statements.
 
DIVIDENDS
The Board of Directors proposes that no dividend be distributed for the second half of 2017. TORM has distributed a total of USD 1.2m to shareholders in 2017 through dividends in September 2017. For further details on distributions to shareholders in 2017, please see the "Investor Information" section pages 77-79.
 
ANNUAL GENERAL MEETING
TORM's next Annual General Meeting will be held on 12 April 2018. The notice of the Annual General Meeting including the complete proposals will be available on TORM's website www.torm.com prior to the meeting.
 
 
DIRECTORS
Information on TORM's Board of Directors as of 8 March 2018 are available on pages 56-57.
 
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 Exchange Offer documentation related to the Corporate Reorganization.
 
SHARE CAPITAL
TORM's share capital as of 8 March 2018 amounts to a total nominal value of USD 742,188.48 divided into 74,218,846 A-shares of USD 0.01 each, one B-share of USD 0.01 and one C-share of USD 0.01. A total of 74,218,846 votes are attached to the A-shares. Only the A-shares are admitted to trading and official listing on NASDAQ Copenhagen and NASDAQ in New York.
 
Each A-share has one vote on all resolutions proposed at general meetings of the Company except for the election or removal of the B-Director. Until the Threshold Date, the sole B-share has one vote at the general meeting and special administrative rights, including the right to appoint the Deputy Chairman of the Board of Directors. After the Threshold Date, all Directors can be appointed or removed by passing an ordinary resolution. The B-shareholder also has the right to appoint one Board Observer. Pursuant to the Articles of Association, no more than one B-share can be issued by the Company.
 
 
The Company may only take certain material actions relating to supermajority matters and Reserved Matters (as specified in its Articles of Association) if either (i) the majority of the Directors (which must include the Chairman and the B-Director) approve the relevant action or (ii) (a) in case of a supermajority action, if the B-Director did not approve such action or attend the relevant Board meeting, such action is approved by a shareholder resolution approved by at least 86% of the votes capable of being cast on such supermajority action or (ii) (b) in the 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.
 

80


DIRECTORS' REPORT - continued


The Directors are pleased to present the Annual Report on the affairs of the TORM Group, including the financial statements and the auditor's report, for 2017. Details on the Directors' responsibilities are available in the Directors Responsibility Statement on page 84-85.
 
Other disclosure requirements, which form part of the Directors' Report, are included in other sections of this Annual Report. Details on information incorporated by reference are generally set out under the relevant topics in the Directors' Report. For TORM's going concern statement and viability statement, please see the "Financial Review" section on pages 48-49. For details on any significant events after 31 December 2017, please refer to note 2 on page 103. Details on financial risks are provided in note 20 of the financial statements.
 
DIVIDENDS
The Board of Directors proposes that no dividend be distributed for the second half of 2017. TORM has distributed a total of USD 1.2m to shareholders in 2017 through dividends in September 2017. For further details on distributions to shareholders in 2017, please see the "Investor Information" section pages 77-79.
 
ANNUAL GENERAL MEETING
TORM's next Annual General Meeting will be held on 12 April 2018. The notice of the Annual General Meeting including the complete proposals will be available on TORM's website www.torm.com prior to the meeting.
 
 
DIRECTORS
Information on TORM's Board of Directors as of 8 March 2018 are available on pages 56-57.
 
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 Exchange Offer documentation related to the Corporate Reorganization.
 
SHARE CAPITAL
TORM's share capital as of 8 March 2018 amounts to a total nominal value of USD 742,188.48 divided into 74,218,846 A-shares of USD 0.01 each, one B-share of USD 0.01 and one C-share of USD 0.01. A total of 74,218,846 votes are attached to the A-shares. Only the A-shares are admitted to trading and official listing on NASDAQ Copenhagen and NASDAQ in New York.
 
Each A-share has one vote on all resolutions proposed at general meetings of the Company except for the election or removal of the B-Director. Until the Threshold Date, the sole B-share has one vote at the general meeting and special administrative rights, including the right to appoint the Deputy Chairman of the Board of Directors. After the Threshold Date, all Directors can be appointed or removed by passing an ordinary resolution. The B-shareholder also has the right to appoint one Board Observer. Pursuant to the Articles of Association, no more than one B-share can be issued by the Company.
 
 
The Company may only take certain material actions relating to supermajority matters and Reserved Matters (as specified in its Articles of Association) if either (i) the majority of the Directors (which must include the Chairman and the B-Director) approve the relevant action or (ii) (a) in case of a supermajority action, if the B-Director did not approve such action or attend the relevant Board meeting, such action is approved by a shareholder resolution approved by at least 86% of the votes capable of being cast on such supermajority action or (ii) (b) in the 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.
 

81


DIRECTORS' REPORT - continued


Until the Threshold Date, the sole TORM C-share has 350,000,000 votes at the general meeting in respect of certain Specified Matters only, including election of members to the Board of Directors of TORM (including the Chairman, but excluding the B-Director) and certain amendments to the Articles of Association. The sole C-shareholder, OCM Njord Holdings S.à r.l. ("Oaktree"), shall continue to hold the C-share so long as it or its affiliates beneficially own at least one third of the issued shares ("Threshold Date"). Accordingly, Oaktree may continue to operate as the Company's controlling shareholder, even where it does not own a majority of the A-shares. Pursuant to the Articles of Association, no more than one C-share can be issued by the Company.
 
Further details and movements in the share capital during the year are shown in note 13 and described in the "Investor information" section on pages 77-79.
 
A number of the A-shares are issued subject to restrictions on transfer ("Restricted Shares") imposed by US securities laws. These Restricted Shares may only be transferred pursuant to an effective registration statement filed with the United States Securities Exchange Commission or an exemption from the registration requirements of the United States Securities Act of 1933 as amended. There are no specific restrictions on the size of a holding of the A-shares nor the transfer of the A-shares (except for the Restricted Shares as detailed above), which are both governed by the general provisions of the Articles of Association and prevailing legislation.
 
The B-share can only be transferred to (i) another trustee (it is currently held by SFM Trustee Limited on behalf of the minority shareholders), or (ii) the Company if the B-share is redeemed or (iii) any person who has acquired 100% of the issued A-shares. The B-share cannot be encumbered.
 
The C-share is held by Oaktree and can only be transferred (i) to one of Oaktree's affiliates or (ii) to the Company if the C-share is redeemed or (iii) any person who has acquired 100% of the issued A-shares. The C-Share cannot be encumbered. For further details on the transferability, please see the Articles of Association on TORM's website, http://www.torm.com/uploads/media_items/articles-of-association-15-march-2016.original.pdf.
 
The B-share and the C-share do not have any rights to receive dividends or other distributions which the Company decides to pay.
 
The Company must redeem the B-share and the C-share at the same time as soon as possible after the Threshold Date for USD 0.01 each. Once redeemed, the B-share and the C-share must be cancelled, and no further B-shares or C-shares can be issued by the Company.
 
Pursuant to TORM's Articles of Association and authorities passed at TORM plc's Annual General Meeting on 15 March 2016 (2016 AGM), the Board of Directors were granted authority to allot shares or rights relating to shares for cash free from pre-emption up to an aggregate nominal amount of USD 5,493,160 comprising:
 
·          Up to an aggregate nominal amount of USD 686,142 in connection with the Exchange Offer (of which USD 622,988.48 nominal value was issued (62,298,846 A-shares, one B-share and one C-share) during the period ended 31 December 2016. As the Exchange Offer has been completed, no further shares will be issued under this authority
 
·          Up to an aggregate nominal amount of USD 1,372,283 and which can be offered in connection with any proposed initial public offering of equity securities on certain US stock exchanges (of which zero was issued during the period ended 31 December 2017, leaving a current authority to issue up to 137,228,300 A-shares)
 
·          Up to an aggregate nominal amount of USD 2,596,226 in general equity issues including warrants, convertible debt and general equity with the issue being at fair value as determined by the Board of Directors (of which zero nominal value was used during the period ended 31 December 2017). Since the balance sheet date of 31 December 2017, a nominal value of USD 119,200 was used in connection with the Private Placement, leaving a current authority to issue up to 2,477,026 A-shares.


82


DIRECTORS' REPORT - continued


·      Up to an aggregate nominal amount of USD 838,509 to directors, officers or employees of the Company or any of its subsidiaries (of which USD 8,666 nominal value was used for the grant of restricted share units during the period ended 31 December 2017), leaving a current authority to issue up to 80,098,450 A-shares
 
Furthermore, the Board of Directors received authorization at the 2016 AGM to make market purchases up to a maximum of 6,861,413 A-shares within a certain pricing range. TORM has not repurchased any A-shares during the period ended 31 December 2017, leaving a current authority to purchase up to 6,548,542 A-shares or approximately 9% of TORM's share capital excluding treasury shares.
 
All the above share authorities expire on 14 March 2021. The Board of Directors will not be seeking any new authorities at the 2018 AGM.
 
Details of TORM's employee share schemes and any rights attaching to the shares under the employee share schemes are set out in note 4. Details of the warrants issued by TORM giving the right to buy A-shares are set out in the "Investor information" section on pages 77-79.
 
The U.K. Takeover Code, issued and administered by the U.K. Takeover Panel, applies to the Company.
 
POLITICAL DONATIONS
No political donations were made during 2017.
 
Financial instruments
The Company uses financial instruments to manage risks related to freight rates, bunker fuels, interest rates and foreign exchange. For further information on the use of financial instruments, please refer to Note 20 on pages 118-121.
 
research and development
The Company has a continuous focus on optimization
but does not allocate specific costs to research and development.
 
company branches
The TORM Group has offices in Denmark, India, the Philippines, Singapore, the UK and the US. Further details on the Company's global presence is set out on pages 123-125.
 
SIGNIFICANT SHAREHOLDINGS
Details on significant shareholdings are set out in the "Investor Information" section on pages 77-79.
 
CONTROLLING SHAREHOLDER
TORM's controlling shareholder, Oaktree, owns TORM plc's sole C-share, which carries 350,000,000 votes at the general meeting in respect of Specified Matters, including election of members to the Board of Directors of TORM plc (including the Chairman, but excluding the Deputy Chairman) and certain amendments to the Articles of Association.
 
OTHER INFORMATION INCLUDED IN THE STRATEGIC REPORT
The "Strategic Report" set out on pages 4-49 provides a review of TORM's operations in 2017 and the potential future developments on those operations. Details on greenhouse gas emissions are included in the "Strategic Report" on page 30, and details on TORM's general policy relating to recruitment, training, career development and disabled employees are included on pages 33-36.
 
REQUIREMENTS TO THE LISTING RULES
TORM plc is listed on Nasdaq Copenhagen and NASDAQ in New York. The only listing rule requirement regarding the content of the Annual Report is that TORM's Annual Report follows the requirements according to the UK Companies Act, including provisions for EEA-listed companies.
83


DIRECTORS' REPORT - continued



Independent AUDITORS
Each person who is a Director at the date of approval of the Annual Report confirms that:
 
·      As far as the Director is aware, there is no relevant audit information of which the Company's independent auditor is unaware
·      The Director has taken all reasonable steps that he/she ought to have taken as a Director in order to make him/herself aware of any relevant audit information and to establish that the Company's independent auditor is aware of that information
 
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
 
On 4 April 2017, Deloitte LLP was reappointed as auditors for TORM plc. Deloitte LLP has expressed willingness to continue in office as auditors, and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting on 12 April 2018.
 
 
Approval
On behalf of the Board of Directors
 
Christopher H. Boehringer
Chairman of the Board of Directors
8 March 2018
 
   
84


STATEMENT OF DIRECTORS' RESPONSIBILITIES



The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations.
 
Company law requires the Directors to prepare such financial statements for each financial year. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and Article 4 of the International Accounting Standards ("IAS") Regulation and have also chosen to prepare the parent company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. 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 Company and of the profit or loss of the Company for that period.
 
In preparing the parent company financial statements, the Directors are required to:
·      Select suitable accounting policies and then apply them consistently
·      Make judgements and accounting estimates that are reasonable and prudent
·      State whether Financial Reporting Standard 101 Reduced Disclosure Framework has 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
 
In preparing the Group financial statements, International Accounting Standard 1 - Presentation of Financial Statements - requires that Directors:
·      Properly select and apply accounting policies
·      Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information
·      Provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance
·      Make an assessment of the Company's and the Group's ability to continue as a going concern

85


STATEMENT OF DIRECTORS' RESPONSIBILITIES


The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
 
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
 
Directors' responsibility statement
We confirm that to the best of our knowledge:
 
·      The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole
·      The "Strategic Report" includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face
 
·      The Annual Report and financial statements, taken as a whole, are fair, balanced and uderstandable and provide  the information necessary for shareholders to assess the Company's position and performance, business model and strategy
 
This responsibility statement was approved by the Board of Directors on 8 March 2018 and is signed on its behalf by:
 
 
Jacob Meldgaard
Executive Director
8 March 2018
 
   
86



 
 
 

 
87


CONSOLIDATED INCOME STATEMENT
1 JANUARY-31 DECEMBER
 
 
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
1 January-31 December


USD '000
Note
2017
2016
2015
 
USD '000
2017
2016
2015
Revenue
 
 656,991
 680,143
540,404
 
Net profit/(loss) for the year
2,407
-142,491
125,983
Port expenses, bunkers and commissions
 
 -259,888
  -221,859
  -169,646
         
Charter hire
 
  -8,517
  -21,498
  -12,023
 
Other comprehensive income/(loss):
     
Operating expenses
4
  -188,374
  -195,249
  -122,867
         
Profit from sale of vessels
23
2,762
-
-
 
Items that may be reclassified to profit or loss:
     
Administrative expenses
4, 5
 -45,007
  -41,406
  -19,486
         
Other operating expenses
 
-418
  -304
 -6,299
 
Exchange rate adjustment arising from translation of entities using a functional currency different from USD
  360
  -240
160
Share of profit/(loss) from joint ventures
 
  3
176
  202
 
Fair value adjustment on hedging instruments
  9,181
 -2,675
 1,067
Impairment losses on tangible and intangible assets
6, 7, 8, 23
 -3,572
  -185,000
-
 
Fair value adjustment on hedging instruments transferred to income statement
 -2,262
 1,665
  333
Depreciation
7
 -114,451
-122,215
 -67,327
         
                   
Operating profit/(loss) (EBIT)
 
39,529
-107,212
 142,958
 
Other comprehensive income/(loss) after tax ¹
7,279
  -1,250
 1,560
                   
Financial income
9
4,255
 2,814
  992
 
Total comprehensive income/(loss) for the year
9,686
-143,741
 127,543
Financial expenses
9
  -40,601
 -37,333
  -16,926
         
                   
Profit/(loss) before tax
 
 3,184
 -141,731
 127,024
 
¹ No income tax was incurred relating to other comprehensive income/(loss) items.
 
                   
Tax
12
  -777
  -760
-1,041
       
                   
Net profit/(loss) for the year
 
2,407
-142,491
 125,983
       
                 
                 
EARNINGS PER SHARE
               
Basic earnings/(loss) per share (USD)
26
0.04
 -2.3
2.4
       
Diluted earnings/(loss) per share (USD)
26
0.04
 -2.3
2.4
       
88


CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER
USD '000
Note
2017
2016
 
USD '000
Note
2017
2016
ASSETS
       
EQUITY AND LIABILITIES
     
NON-CURRENT ASSETS
       
EQUITY
     
Tangible fixed assets
       
Common shares
13
  623
  623
Vessels and capitalized dry-docking
7,8,16
1,294,472
1,343,778
 
Treasury shares
13
 -2,887
 -2,887
Prepayments on vessels
7
88,378
44,036
 
Hedging reserves
 
7,309
  390
Other plant and operating equipment
7
 1,945
 1,836
 
Translation reserves
 
  280
  -80
Total tangible fixed assets
 
1,384,795
1,389,650
 
Retained profit
 
785,725
782,532
         
Total equity
 
 791,050
780,578
Financial assets
               
Investments in joint ventures
 
  324
  322
 
LIABILITIES
     
Other investments
 
  5
  4
 
NON-CURRENT LIABILITIES
     
Total financial assets
 
  329
  326
 
Deferred tax liability
12
44,906
44,967
         
Mortgage debt and bank loans
2,15,16,18
 629,198
 593,912
Total non-current assets
 
 1,385,124
1,389,976
 
Finance lease liabilities
18,23
25,294
-
         
Total non-current liabilities
 
699,398
638,879
CURRENT ASSETS
               
Bunkers
 
33,204
  31,616
 
CURRENT LIABILITIES
     
Freight receivables
10
  71,281
62,533
 
Mortgage debt and bank loans
2,15,16,18
 91,720
75,652
Other receivables
11
  11,787
 8,134
 
Finance lease liabilities
18,23
2,899
 13,624
Prepayments
 
4,422
3,024
 
Trade payables
18
 26,150
28,498
Cash and cash equivalents
 
 134,207
 75,971
 
Current tax liabilities
 
 1,393
  773
Current assets, excluding assets held-for-sale
 
 254,901
  181,278
 
Other liabilities
14,18
33,822
33,055
         
Deferred income
 
143
195
Assets held-for-sale
23
6,550
-
 
Total current liabilities
 
  156,127
  151,797
                 
Total current assets
 
  261,451
  181,278
 
Total liabilities
 
855,525
790,676
                 
TOTAL ASSETS
 
1,646,575
 1,571,254
 
TOTAL EQUITY AND LIABILITIES
 
1,646,575
 1,571,254
                 

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
8 March 2018
 

89


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
1 JANUARY-31 DECEMBER

USD '000
Common shares
Treasury shares ³
Hedging reserves
Translation reserves
Retained profit
Total
             
Balance as of 1 January 2015, as shown in the financial statements of TORM A/S
  87,986
  -
  -
  -
381,528
469,514
Effect as of 1 January 2015 of the Exchange Offer ¹
  -87,590
  -
  -
  -
  87,590
  -
Equity as of 1 January 2015
396
  -
  -
  -
 469,118
469,514
             
Comprehensive income/loss for the year:
           
Net profit/(loss) for the year
  -
  -
  -
  -
125,983
125,983
Other comprehensive income/(loss) for the year
  -
  -
1,400
 160
  -
1,560
Total comprehensive income/(loss) for the year
  -
  -
1,400
 160
125,983
127,543
             
Shareholders' contribution
  -
  -
  -
  -
14,040
14,040
Reverse acquisition of TORM A/S
242
  -
  -
  -
  367,536
  367,778
Transaction costs share issue
  -
  -
  -
  -
  -2,723
  -2,723
Acquisition treasury shares, cost
  -
  -176
  -
  -
  -
  -176
Total changes in equity 2015
242
  -176
1,400
 160
  504,836
  506,462
             
Equity as of 31 December 2015
638
  -176
1,400
 160
  973,954
  975,976
             
Comprehensive income/loss for the year:
           
Net profit/(loss) for the year
  -
  -
  -
  -
 -142,491
 -142,491
Other comprehensive income/(loss) for the year
  -
  -
 -1,010
 -240
  -
-1,250
Total comprehensive income/(loss) for the year
  -
  -
 -1,010
 -240
 -142,491
 -143,741
             
Corporate Reorganization TORM plc
  -
  -
  -
  -
  -6,564
  -6,564
Acquisition of outstanding shares in TORM A/S, cost ²
  -15
 176
  -
  -
-19,396
-19,235
Acquisition of treasury shares, cost
  -
  -2,887
  -
  -
  -
  -2,887
Share-based compensation
  -
  -
  -
  -
  2,029
  2,029
Dividend paid
  -
  -
  -
  -
  -25,000
  -25,000
Total changes in equity 2016
  -15
 -2,711
 -1,010
 -240
 -191,422
-195,398
             
Equity as of 31 December 2016
623
  -2,887
390
 -80
  782,532
  780,578
             
90


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - CONTINUED
1 JANUARY-31 DECEMBER

USD '000
Common shares
Treasury shares ³
Hedging reserves
Translation reserves
Retained profit
Total
             
Equity as of 1 January 2017
623
  -2,887
390
 -80
  782,532
  780,578
             
Comprehensive income/(loss) for the year:
           
Net profit/(loss) for the year
  -
  -
  -
  -
  2,407
  2,407
Other comprehensive income/(loss) for the year ⁴⁾
  -
  -
6,919
360
  -
  7,279
Total comprehensive income/(loss) for the year
  -
  -
6,919
360
  2,407
  9,686
             
Corporate Reorganization TORM plc
  -
  -
  -
  -
 146
 146
Share-based compensation
  -
  -
  -
  -
1,880
1,880
Dividend paid
  -
  -
  -
  -
-1,240
-1,240
Total changes in equity 2017
  -
  -
6,919
360
3,193
10,472
             
Equity as of 31 December 2017
623
  -2,887
  7,309
280
  785,725
791,050
             

¹ In connection with the Exchange Offer of 15 April 2016, the common shares were adjusted to reflect those of TORM plc. The adjustment with respect to the common shares reflects the change in currency of the shares changed from DKK to USD and the reduction in the nominal value of each share was reduced from DKK 15 each to USD 0.01 each.
² Relates to the squeeze-out of remaining minority shareholders in TORM A/S.
³ Please refer to note 13 for further information on treasury shares.
⁴⁾ Please refer to "Consolidated Statement of Comprehensive Income".

91


CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY-31 DECEMBER
USD '000
Note
2017
2016
2015
 
USD '000
Note
2017
2016
2015
CASH FLOW FROM OPERATING ACTIVITIES
         
CASH FLOW FROM INVESTING ACTIVITIES
       
Net profit/(loss) for the year
 
2,407
-142,491
 125,983
 
Investment in tangible fixed assets
 
 -145,112
-119,408
 -253,964
           
Cash from business combination
 
-
-
77,544
Adjustments:
         
Sale of tangible fixed assets
23
 31,382
-
 17,640
  Reversal of profit from sale of vessels
23
 -2,762
-
-
           
  Reversal of depreciation
7
114,451
  122,215
67,327
 
Net cash flow from investing activities
 
-113,730
-119,408
  -158,780
  Reversal of impairment loss on tangible and intangible assets
6, 7, 8
3,572
 185,000