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 2019

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 the Annual Report 2018 of TORM plc (the “Company”).

    Attached to this Report on Form 6-K as Exhibit 99.2 is a copy of the press release of the Company, dated March 12, 2019, announcing the Company’s results for the full-year 2018.


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 12, 2019
 
       
 
By:
/s/ Jacob Meldgaard
 
   
Jacob Meldgaard
 
   
Executive Director and Principal Executive Officer
 
       
       


Exhbit 99.1









CONTENTS



CHAIRMAN’S
STATEMENT
 
HIGHLIGHTS
 
PRODUCT TANKER
MARKET
 
CORPORATE
GOVERNANCE
 
FINANCIAL
STATEMENTS
5
 
9
 
22
 
54
 
90



 
Chairman’s Statement
5
Key Figures
7
Highlights
9
Outlook 2019
12
Statement by the Executive Director
15
Strategic Ambition and Business Model
17
Value Chain in Oil Transportation
21
The Product Tanker Market
22
IMO 2020 sulfur regulation
27
Key Performance Indicators
29
Corporate Social Responsibility
30
Risk Management
40
130 Years and looking ahead
44
Financial Review 2018
45
 
GOVERNANCE
 
Chairman’s Introduction
55
Audit Committee Report
61
Risk Committee Report
66
Nomination Committee Report
69
Remuneration Committee Report
71
Investor Information
81
Directors’ Report
84
Statement of Directors’ Responsibilities
88
 
FINANCIAL STATEMENTS
 
Consolidated Income Statement
91
Consolidated Statement of Comprehensive Income
91
Consolidated Balance Sheet
92
Consolidated Statement of Changes in Equity
93
Consolidated Cash Flow Statement
95
Notes to Consolidated Financial Statements
96
Parent Company 2018
130
Company Balance Sheet
131
Company Statement of Changes in Equity
132
Notes to Parent Financial Statements
133
Independent Auditor’s Report to the Members of TORM plc
137
TORM Fleet Overview
143
Glossary
146





















2














3
















4




CHAIRMAN’S STATEMENT






Following challenging market conditions for the majority of 2018, product tanker rates have rebounded significantly towards the end of the year, and positive dynamics continue to be present. In particular, the implementation of new restrictions on sulfur emissions is expected to positively impact the product tanker market by increasing demand for clean petroleum products. Looking ahead, I believe TORM will continue to derive significant benefit from the scale of its operations, the integrated One TORM platform and the strong company values developed over the past 130 years.

Christopher H. Boehringer, Chairman of the Board



 
The underlying product tanker market was challenging throughout most of 2018 but recovered significantly during the final months of the year and early 2019. TORM remains well-positioned to leverage the positive market development due to our spot-oriented chartering strategy, our continued strong operational performance and the preparations made ahead of the implementation of the new IMO 2020 sulfur regulation.

NEWBUILDING PROGRAM BEING EFFECTUATED
During 2018, TORM took delivery of four LR2 vessels from Guangzhou Shipyard International (“GSI”). As part of our ongoing efforts to modernize our fleet, we ordered an additional three MR vessels from GSI in 2018, bringing the total remaining newbuilding program to two LR1s and seven MRs that are expected to be delivered in 2019 and through the first quarter of 2020. The nine newbuildings have all been ordered with scrubbers installed and at attractive prices.

Maintaining a solid capital structure remains a key priority for TORM, and I am pleased that the newbuildings are all fully financed. In 2018, TORM completed an equity raise of USD 100m and secured debt financing and loan extension for a total of USD
 
203m, leveraging TORM’s strong relationship with debt financing providers.

STRONG OPERATIONAL PERFORMANCE IN A TOUGH PRODUCT TANKER MARKET
Throughout most of 2018, the product tanker market was challenging and reached a low point during the third quarter with MR benchmark freight rates reaching all-time historical low levels. Towards the end of the year, however, the market experienced a significant recovery with rates reaching levels not seen since 2015. As a testament to the One TORM platform, TORM has continued to deliver TCE earnings and cash flow at the top end of what comparable industry players delivered throughout the year and under difficult market conditions.

TORM’s medium to long-term outlook for the product tanker market remains positive. We believe that the reduction in the global limit for sulfur emissions from 3.5% to 0.5% and the accompanying shift in marine fuel consumption will lead to increased trade volumes of clean petroleum products, which will benefit the product tanker market. TORM currently expects the IMO 2020 sulfur regulation to lead to an incremental increase in product tanker trade during 2019 and 2020.
 
TORM IS WELL-PREPARED FOR IMO 2020
TORM has been proactively preparing for the new regulations limiting sulfur emissions and has thus far committed to order 21 scrubbers for the fleet with options to order an additional 18 scrubbers. TORM has also entered into a joint venture with the scrubber manufacturer ME Production and the Chinese yard GSI to manufacture scrubbers in China and deliver them to a range of maritime industry customers for both newbuildings and retrofitting. This comes at a time when demand for scrubbers is expected to increase significantly. This strategic move provides us with a substantial economic interest in a venture that has the potential to be a large-scale international scrubber manufacturer whilst at the same time securing the

























5


CHAIRMAN’S STATEMENT


 
availability of high-quality scrubbers for TORM’s fleet, a challenge to some owners as the 2020 deadline approaches.

US LISTING AND SARBANES-OXLEY REPORTING
On 11 December 2017, TORM plc was listed on Nasdaq in New York, thereby providing investors with the opportunity to trade their Class A common share via the Nasdaq platform in both Copenhagen and New York. Supporting this journey, and in compliance with US regulations, TORM has developed the Annual Report 2018 under the Sarbanes-Oxley (SOX) control requirements providing investors with additional comfort on the accuracy of TORM’s market disclosures. All future market disclosures will continue to be compliant with the SOX control regime.

On 12 February 2019, TORM plc’s USD 250m universal shelf registration statement on Form F-3 became effective with the Securities and Exchange Commission. This new registration statement is intended to provide TORM with flexibility to raise capital over the next three years, from the offering of common shares, debt or other traded securities, in one or more future offerings.

On 14 January 2019, TORM celebrated its 130-year anniversary, and I am confident that the Company will continue to leverage the organizational knowledge gained throughout its long-standing history within shipping and maintain a strong operational performance aided by the One TORM platform.
 
 

 
Mr. Christopher H. Boehringer, Chairman of the Board

 

     








6

KEY FIGURES


 
       
 
2018
2017
2016
       
INCOME STATEMENT (USDM)
     
Revenue
  635
  657
  680
Time charter equivalent earnings (TCE) ¹
  352
  397
  458
Gross profit ¹
169
  200
  242
EBITDA ¹
 121
158
  200
Operating profit/(loss) (EBIT)
  3
  40
-107
Financial items
  -36
  -36
  -35
Profit/(loss) before tax
  -33
  3
-142
Net profit/(loss) for the year
  -35
  2
-142
Net profit/(loss) for the year excluding impairment charges
  -35
  2
  43
       
BALANCE SHEET (USDM)
     
Non-current assets
 1,445
 1,385
 1,390
Total assets
  1,714
 1,647
  1,571
Equity
  847
791
781
Total liabilities
  867
  856
  790
Invested capital ¹
 1,469
 1,406
 1,388
Net interest-bearing debt ¹
  627
  620
  609
Cash and cash equivalents
127
134
  76
       
 
       
       
 
2018
2017
2016
KEY FINANCIAL FIGURES ¹
     
Gross margins:
     
 TCE
55.4%
60.4%
67.4%
 Gross profit
26.6%
30.4%
35.6%
 EBITDA
19.1%
24.0%
29.4%
 Operating profit/(loss)
0.5%
6.1%
-15.7%
Return on Equity (RoE)
-4.3%
0.3%
-16.2%
Return on Invested Capital (RoIC)
0.1%
2.8%
-7.2%
Adjusted Return on Invested Capital (Adjusted RoIC)
0.1%
2.4%
4.9%
Equity ratio
49.4%
48.0%
49.7%
       
SHARE-RELATED KEY FIGURES ¹
     
Basic earnings/(loss) per share (USD)
 -0.48
0.04
 -2.27
Diluted earnings/(loss) per share (USD)
 -0.48
0.04
 -2.27
Dividend per share (USD)
-
0.02
0.40
Net Asset Value per share (NAV/share) ²
  11.6
 12.8
  11.8
Stock price in DKK, end of period (per share of USD 0.01)
43.9
53.5
63.5
Number of shares (excluding treasury shares), end of period (million)
73.9
62.0
62.0
Number of shares (excluding treasury shares), weighted average (million)
 73.1
62.0
62.9
     
 
¹ For definition of the calculated key figures, please refer to the glossary on pages 147-151.
² Based on broker valuations as of 31 December 2018, excluding charter commitments.




























7





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, general market conditions, including fluctuations in charter hire rates and vessel values, changes in demand for “ton-miles” of oil carried by oil tankers and changes in demand for tanker vessel capacity, the effect of changes in OPEC’s petroleum production levels and worldwide oil consumption and storage, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled dry-docking, changes in TORM’s operating expenses, including bunker prices, dry-docking and insurance costs, changes in the regulation of shipping operations, including actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents, political events including “trade wars,” or acts 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 or updates to these forward-looking statements to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Please
see TORM’s filings with the U.S. Securities and Exchange Commission for a more complete discussion of certain of these and other risks and uncertainties.




8




Highlights
       
 
2018 RESULT
 
In 2018, TORM realized an EBITDA of USD 121m (2017: USD 158m). The 2018 profit before tax amounted to USD -33m (2017: USD 3m).
Despite negative results, TORM’s performance has been strong compared to industry peers. Return on Invested Capital (RoIC) was 0.1% (2017: 2.8%).
 
 
MARKET CONDITIONS
 
For the full year 2018, TORM achieved TCE rates of USD/day 12,982 (2017: USD/day 14,621).
The first half of 2018 continued a trend from 2017 with healthy consumer-driven demand for refined oil products offset by inventory drawdown. The drawdowns resulted in a loss of potential trade of 4% over the period. In the third quarter of 2018, freight rates reached historically low levels due to reduced trading volumes and continued cargo cannibalization by newbuilt crude tankers opting for clean cargos on their maiden voyage. Towards the end of 2018 and early 2019, the broader tanker markets experienced a significant recovery with freight rates reaching levels last seen in the winter period towards the end of 2015 and beginning of 2016.
 
 
VESSEL
TRANSACTIONS
 
During 2018, TORM took delivery of four LR2 newbuildings and executed newbuilding options for three MR vessels, bringing the current newbuilding program up to nine vessels.
In 2018, TORM executed newbuilding options for three MR vessels for a total commitment of USD 93m from Guangzhou Shipyard International1. This brings the total number of newbuilding deliveries in the 2017-2020 period up to 15 of which TORM took delivery of four LR2 vessels during 2018. The remaining newbuilding program covers two LR1 and seven MR vessels with expected deliveries in 2019 and the first quarter of 2020.
In 2018, TORM sold four older vessels (two MR vessels and two Handysize vessels) for a total consideration of USD 27m. Three of the vessels were delivered to their new owners in 2018, and one vessel was delivered in the first quarter of 2019. In the first quarter of 2019, TORM sold and delivered one older MR vessel.
As of 31 December 2018, TORM’s fleet consists of 72 owned vessels, three chartered vessels and nine vessels on order, including vessels for which a sale has been agreed,
 



1 Guangzhou Shipyard International Company Limited (GSI).




9



Highlights
       
 
CORPORATE
EVENTS
 
USD 100m Private Placement completed in 2018.
On 26 January 2018, TORM completed an equity raise of USD 100m. The new equity increased TORM’s ability to pursue attractively priced growth opportunities, including the ongoing newbuilding program.
 
 
IMO 2020 SULFUR
 
TORM has committed to install 21 scrubbers and entered into a joint venture to manufacture scrubbers and secure scrubber availability for TORM’s fleet.
In the fourth quarter of 2018, TORM established a joint venture with ME Production, a leading scrubber manufacturer, and Guangzhou Shipyard International, which is part of the China State Shipbuilding Corporation group. The joint venture, named ME Production China, will manufacture scrubbers in China and deliver them to a range of maritime industry customers for both newbuildings and retrofitting. TORM holds an ownership stake of 27.5% in the new joint venture. In connection with the establishment of the joint venture, TORM has ordered a number of scrubbers from ME Production China. With these orders, TORM has committed to install scrubbers on 21 vessels and signed a letter of intent for installations up to a total of 39 vessels, or approximately half of TORM’s fleet.
 
During 2018, TORM successfully conducted its first retrofit scrubber installation on the MR ice-class vessel TORM Lene. On 15 October 2018, TORM took delivery of the first newbuilding outfitted with a scrubber, the LR2 vessel TORM Hilde.
 
 
LIQUIDITY
 
As of 31 December 2018, TORM’s available liquidity was USD 406m and consisted of USD 127m in cash, USD 233m in undrawn credit facilities and USD 46m in undrawn credit facilities subject to documentation.
During 2018, TORM secured bank financing for five newbuildings, ensuring that the newbuilding program is fully financed. In addition, TORM has extended one credit facility with original maturity in 2019. As of 31 December 2018, the net interest-bearing debt1 amounted to USD 627m, and the net loan-to-value (LTV)3 ratio was estimated at 53%.



2 See Glossary on pages 148 for a definition of net interest-bearing debt.
3 See Glossary on pages 150 for a definition of loan-to-value.



10


Highlights
       
 
NAV AND EQUITY
 
Based on broker valuations, TORM’s NAV4 excluding charter commitments is estimated at USD 856m. This corresponds to a NAV/share of USD 11.6 or DKK 75.5.
As of 31 December 2018, TORM’s book equity amounted to USD 847m. This corresponds to a book equity/share of USD 11.5 or DKK 74.9.
 
 
VESSEL VALUES
 
Based on broker valuations, TORM’s fleet including newbuildings had a market value of USD 1,675m as of 31 December 2018.
 
 
ORDER BOOK AND
CAPEX
 
As of 31 December 2018, TORM’s order book stood at nine newbuildings, consisting of two LR1 and seven MR vessels, all to be delivered from Guangzhou Shipyard International.
These newbuildings are expected to be delivered in 2019 and throughout the first quarter of 2020. Outstanding CAPEX5 relating to the order book, including costs related to the installation of scrubbers, amounted to USD 281m as of 31 December 2018.
 
As of 31 December 2018, 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 1,442m as of 31 December 2018 excluding outstanding installments on the newbuildings of USD 258m.
 
 
 
COVERAGE
 
As of 31 December 2018, 10% of the total earning days6 in 2019 were covered at USD/day 17,306.
As of 5 March 2019, 24% of the total earning days in 2019 were covered at USD/day 18,193.
 
 
DISTRIBUTION
POLICY
 
TORM intends to distribute 25-50% of net income semi-annually.
For the first half of 2018, TORM did not distribute dividends, and for the second half of 2018 the Board of Directors also proposes that no dividend be distributed.



4 See Glossary on pages 146-151 for a definition of NAV.
5 See Glossary on pages 146-151 for a definition of CAPEX.
6 See Glossary on pages 146-151 for a definition of earning days.




11

OUTLOOK 2019

As of 31 December 2018, TORM had covered 2,695 earning days (10% of the total earning days) for 2019 at an average rate of USD/day 17,306.
As of the same date, the interest-bearing bank debt totaled USD 729m, and TORM had fixed 66% of the interest exposure for 2019.


 
OUTLOOK
Taking economic and political uncertainty into account, TORM expects the supply and demand balance within the product tanker market to gradually improve. TORM also expects increasing oil consumption and the ton-mile effect of continued dislocation of refinery activity from consumption to have a positive impact on the demand for product tankers.

Within the period 2019-2021, product tanker ton-mile demand is estimated to grow at a compound annual rate of approximately 5% compared to an estimated net growth in tonnage supply of approximately 3%. Expectations are that the market will improve throughout this period, supported by an increasing demand for transportation. In particular, the reduction in the global limit for sulfur emissions from 3.5% to 0.5% and the accompanying shift in marine fuel consumption is expected to lead to increased trade with clean petroleum products. Please see "The Product Tanker Market" section on pages 22-26.

In line with common practice for 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 are included in the Annual Report.


COVERAGE FOR 2019
As of 31 December 2018, TORM had covered 2,695 earning days (10% of the total earning days) for 2019 at an average rate of USD/day 17,306, which is above the available benchmarks. This means that a change in freight rates of USD/day 1,000 for the duration of 2019 would impact the full-year EBITDA by USD 25m.

As of 5 March 2019, 24% of the total earning days in 2019 were covered at USD/day 18,193.

As of 31 December 2018, the interest-bearing bank debt totaled USD 729m, and TORM had fixed 66% of the interest exposure for 2019. A change in interest rates of 25 basis points for the duration of 2019 would impact the result before tax by USD 0.6m.


2019 EBITDA SENSITIVITY TO CHANGES IN FREIGHT RATES - AS OF 31 DECEMBER 2018
 
Change in freight rates (USD/day)
USDm
-5,000
-2,500
-1,000
1,000
2,500
5,000
LR2
-15
  -8
  -3
  3
  8
15
LR1
-12
  -6
  -2
  2
  6
12
MR
  -87
  -44
-17
17
  44
  87
Handysize
  -8
  -4
  -2
  2
  4
  8
Total
-123
-61
  -25
  25
61
123
             


12


OUTLOOK 2019



As of 5 March 2019, the one-year T/C market, shown in the table to the right, corresponds to a weighted average one-year T/C rate for TORM’s vessels of USD/day 14,522.
The most important factors affecting TORM’s earnings in 2019 are expected to be:


·
Global economic growth
·
Consumption of refined oil products
·
Developments in inventory levels of refined oil products
·
Oil trading activity and developments in ton-mile trends
·
Fleet growth, recycling of vessels and delays to deliveries from the order book
·
Bunker price developments
·
One-off market-shaping events such as strikes, embargoes, political instability, weather conditions, etc.

 

 


ONE-YEAR TIME CHARTER MARKET
 
Source: Average of selected broker assessments.
 
USD/day
One-year T/C rate as of 5 March 2019
LR2
19,650
LR1
14,425
MR
13,525
Handysize
12,969
Note: The time charter market has limited liquidity.


















13



COVERED AND CHARTERED-IN DAYS IN TORM
– AS OF 31 DECEMBER 2018


 

 
2019
2020
2021
Owned days
     
LR2
  3,865
  3,962
  3,934
LR1
  2,506
  3,242
3,271
MR
17,999
19,478
19,677
Handysize
1,789
1,795
 1,815
Total
26,159
  28,477
  28,697
       



 
2019
2020
2021
Chartered-in and leaseback days at fixed rate
     
LR2
363
324
363
LR1
  -
  -
  -
MR
726
668
726
Handysize
  -
  -
  -
Total
1,089
992
1,089
       



 
2019
2020
2021
Total physical days
     
LR2
  4,228
  4,286
  4,297
LR1
  2,506
  3,242
3,271
MR
18,725
20,146
  20,403
Handysize
1,789
1,795
 1,815
Total
  27,248
  29,470
  29,786
       


 

 
2019
2020
2021
Covered, %
     
LR2
28%
16%
1%
LR1
6%
0%
0%
MR
7%
0%
0%
Handysize
5%
0%
0%
Total
10%
2%
0%
       


 
2019
2020
2021
Covered days
     
LR2
 1,192
694
55
LR1
 147
  -
  -
MR
1,263
  -
  -
Handysize
93
  -
  -
Total
  2,695
694
55
       

 
2019
2020
2021
Coverage rates, USD/day
     
LR2
15,985
16,225
15,098
LR1
22,721
  -
  -
MR
 17,821
  -
  -
Handysize
18,657
  -
  -
Total
17,306
16,225
15,098

Total
Fair value of freight rate contracts that are mark-to-market in the income statement (USDm):
  Contracts not included above: USD -1.2m
  Contracts included above: USD 0.5m
 
Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries.





























14

STATEMENT BY THE EXECUTIVE DIRECTOR



 

In 2018, TORM’s results were impacted by a challenging product tanker market. TORM generated a small positive profit before tax for the first five months of 2018, but as the market reached a low point during the third quarter with MR benchmark freight rates reaching all-time historical low levels, TORM’s earnings turned negative. The last two months of 2018 have provided a significant recovery for the broader tanker market supporting TORM’s earnings. For the full-year 2018, TORM’s product tanker fleet realized average Time Charter Equivalent (TCE) earnings of USD/day 12,982.

The first half of 2018 continued a trend from 2017 that saw healthy consumer-driven demand for refined oil products offset by inventory drawdown. The drawdowns resulted in a loss of potential trade of 4% over the period. In the third quarter of 2018, freight rates reached historically low levels due to reduced trading volumes and continued cargo cannibalization by newbuilt crude tankers opting for clean cargos on their maiden voyage. Towards
 
the end of 2018 and early 2019, the broader tanker markets have experienced a significant recovery with freight rates reaching levels last seen in the winter period towards the end of 2015 and beginning of 2016.

Throughout 2018, TORM has continued to focus on optimizing our operational performance to further pursue our goal of serving as the Reference Company in the product tanker industry. To that end, TORM has reduced the expenditure related to the operation of the vessels (OPEX) through a continued focus on optimization and planning of the vessels’ repair and maintenance schedules. This has been achieved, while remaining very competitive on a TCE level through focus on the geographical positioning of the vessels.

The strong relative operational performance is supported by the ongoing development of the One TORM platform. The One TORM platform leverages TORM’s integrated in-house commercial and technical management to ensure a flexible business approach that optimizes performance while maintaining a proper trade-off between maximizing TCE and minimizing cost. Further, the integrated nature of TORM's business model provides transparency and additional alignment of management and shareholder interests, thereby mitigating the potential for actual or perceived conflicts of interest with related parties, and it allows for close control over operating expenses.



I am pleased that TORM’s commercial performance over the past year has continuously been among the best within its peer group. I am further convinced that the demand effects of the IMO 2020 sulfur regulation combined with our strategic steps ahead of the implementation date on 1 January 2020 will prove beneficial for TORM. To prepare our fleet, we have established a new joint venture with a leading scrubber manufacturer and a shipyard, committed to install scrubbers on a large number of vessels, and conducted pilot installations on two vessels. With these steps and the delivery of our newbuildings in 2018 and over the coming year, TORM is well-prepared to continue its strong commercial performance.
Mr. Jacob Meldgaard, Executive Director
 


15

STATEMENT BY THE EXECUTIVE DIRECTOR




Preparing for the IMO 2020 sulfur regulation, TORM has committed to order 21 scrubbers and signed a letter of intent to order an additional 18 scrubbers. To reduce the uncertainty related to the delivery and installation of scrubbers, TORM established a joint venture with the scrubber manufacturer ME Production and the Chinese yard Guangzhou Shipyard International.

To further ensure readiness for the IMO 2020 sulfur regulation, TORM has successfully conducted its first retrofit scrubber installation on the MR ice-class vessel TORM Lene. In addition, TORM took delivery of its first newbuilding outfitted with a scrubber, the LR2 vessel TORM Hilde, in 2018. These two vessels are expected to provide valuable operational insight in advance of the remaining scrubber installations planned for 2019 and the first half of 2020.

Given the projected market improvements in connection with the implementation of the IMO 2020 sulfur regulation and TORM’s proactive preparations ahead of the implementation date, it is expected that the regulatory changes will be beneficial for TORM.
 
In line with the Company’s strategic focus on safety performance, TORM continued to promote the safety culture program One TORM Safety Culture – driving resilience in 2018. The purpose of the program is to continuously strengthen TORM’s safety culture beyond mere compliance.

In 2009, TORM signed the UN Global Compact as the first shipping company in Denmark to commit to the internationally recognized set of principles regarding health, safety, labor rights, environmental protection and anti-corruption. In 2018, TORM decided to extend its support to the UN Sustainable Development Goals (SDGs) and assessed how best to contribute to their achievement by 2030. TORM has decided to focus on SDG no. 4 Quality Education and on SDG no. 13 Climate Action, as these directly link to the Company’s current CSR activities. These two areas are not only material to the Company and its stakeholders, the efforts and initiatives also make good business sense to TORM. As such, TORM sees its commitment to contributing to and reporting on the SDGs as a natural progression of its commitment to the UN Global Compact.
The Strategic Report on pages 5-53 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.





Mr. Jacob Meldgaard, Executive Director




16

STRATEGIC AMBITION AND BUSINESS MODEL


TORM’s focus on operational improvement and integration is illustrated by TORM’s higher MR TCE earnings when compared to peers.
Good industry relationships and a strong capital structure drive fleet renewal and upgrades with a fully funded newbuilding program.
TORM’s proactive actions prior to the upcoming IMO 2020 sulfur regulation include significant scrubber investments and the establishment of a scrubber joint venture with a leading scrubber manufacturer and a shipyard.


 
PURE-PLAY PRODUCT TANKER OWNER
AND OPERATOR
TORM is a leading product tanker company with an owned fleet of 70 vessels on the water, three vessels on charter-in and nine newbuildings as of 12 March 2019. TORM is active within all larger product tanker segments (LR2, LR1, MR and Handysize). This enables TORM to meet customer demand, as global customers have transportation requirements across various vessel classes. TORM is a pure-play product tanker company well-positioned to take advantage of the promising long-term market supply-and-demand fundamentals by utilizing its extensive experience and expertise as a product tanker operator. In particular, the reduction in the global limit for sulfur emissions from 3.5% to 0.5% and the accompanying shift in marine fuel consumption are expected to lead to increased trade with clean petroleum products.

TORM’s chartering strategy is to employ the fleet primarily in the spot market, where the Company can 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 are compelling. Due to the large scale of TORM’s fleet, TORM will only enter into long-term charter-in commitments on a case-by-case assessment and only to the extent they are likely to result in profit.
 
The Company believes that ownership of vessels combined with TORM’s integrated platform provides a level of control that is essential for ensuring the maximum amount of flexibility and earning power. At the same time, short-term charter-in agreements (less than 12 months) are consistently evaluated on an opportunistic basis as part of TORM’s active spot-oriented market approach.

SELECTIVE FLEET RENEWAL AND 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 that leverages relationships with shipbrokers, shipyards, financial institutions and shipowners.

TORM is continuously assessing opportunities to optimize asset management through acquiring attractive high-specification second-hand product tankers that will be franchise enhancing and financially accretive. TORM also selectively pursues newbuilding programs with high-quality shipyards when newbuilding contracts provide higher expected return, or if the second-hand market has insufficient supply of vessels that meet TORM’s customer requirements. In 2018, TORM acquired three new vessels at attractive price points below the market benchmarks.

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 including 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 2018, TORM sold four older vessels.

TORM’s in-house technical management has significant experience in newbuilding projects from design to delivery. As of 12 March 2019, TORM’s newbuilding program consists of two LR1 and seven MR vessels. The vessels are expected to be delivered in the period between the second quarter of 2019 and the first quarter of 2020. In addition, TORM has taken delivery of four LR2 newbuildings since January 2018.























17








18

STRATEGIC AMBITION AND BUSINESS MODEL


 
SOLID CAPITAL STRUCTURE
TORM has a solid capital structure with a strong liquidity position, a fully funded newbuilding program, no near-term debt maturities and no off-balance sheet charter-in commitments. The Company has an attractive debt profile with favorable interest rates, amortization schedules and covenants.

TORM’s capital structure supports a spot employment strategy and also enhances the Company’s financial and strategic flexibility. In addition, balance sheet strength creates 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 2018, TORM secured new loan facilities and loan extension with Danish Ship Finance, ABN AMRO and KfW of approximately USD 203m and raised equity capital of USD 100m through a Private Placement. Secured bank financing remains the preferred source of debt funding for TORM, but recent alternative structures reflect TORM’s broad access to various sources of competitive financing.

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. In addition, TORM listed its share on Nasdaq in New York in 2017, thereby providing access to a broader base of potential investors. Finally, on 12 February 2019 TORM plc’s USD 250m universal shelf registration on Form F-3 became effective with the Securities and Exchange Commission.
 
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 required by our customers under their strict vetting criteria. TORM believes that the world’s largest customers prefer an 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 large diverse fleet of well-maintained product tankers gives the Company the advantages of scale 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, a presence in all product tanker classes and an 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. In line with the Company’s strategic focus on safety performance, TORM continued to promote the safety culture
 
program One TORM Safety Culture – driving resilience in 2018. The purpose of the program is to continuously strengthen TORM’s safety culture beyond mere compliance. This reflects TORM’s belief that profitability and safety are not mutually exclusive.

TORM’s integrated platform and commercial and technical knowledge also enabled the Company to pursue a scrubber joint venture in advance of the upcoming IMO 2020 sulfur regulation, which represents a unique business opportunity and may provide TORM with an additional revenue stream.

TORM has identified a number of strategic Key Performance Indicators (“KPIs”) that the Company believes are vital for the fulfillment of its strategic goals. These strategic KPIs are described on page 29.















19


THE TORM FLEET

as of 12 March 2019











20

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
 
2018, 93% 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. TORM has supported the UN Global Compact since 2009, and is committed to supporting the UN Sustainable Development Goals.

The interaction with key stakeholders is described on pages 17-19 under “Strategic Ambition and Business Model”. For more information on broader value generation and TORM’s Corporate Social Responsibility (CSR) policy, please see pages 30-39.





















21

THE PRODUCT TANKER MARKET

2018 MARKET

The market worsened throughout the first three quarters of the year. Nevertheless, the year ended with a significant recovery.
Looking ahead, the product tanker market is supported by positive demand developments and limited supply growth.



 
2018 MARKET
The majority of 2018 was challenging for the product tanker segment, although the year ended with a significant recovery across the broader tanker market.

During the first half of the year, product tanker freight rates remained at a level similar to the rates seen in the same period in 2017. The year started out with healthy trading volumes. Exports from the US Gulf showed particularly strong growth, supported by increasing demand from Mexico and South America. Nevertheless, the positive impact of higher trading volumes was offset by shorter trading distances, partly as a result of the continued stock draw in some of the key importing regions.

In addition, an increasing number of newbuilt crude tankers opted for a clean cargo on their maiden voyage, reducing demand for product tankers in the East. Crude cannibalization intensified in the second quarter, driven by a depressed crude tanker market.

In the third quarter, product tanker freight rates declined further, and some of the benchmarks reached historically low levels, as higher oil prices and weaker currencies in several emerging market economies weighed negatively on oil demand and reduced trading volumes. Crude cannibalization continued at a high level in the third quarter. On top of the pressure from crude tankers, a
 
backwardated oil price structure favoured shorter hauls throughout the first three quarters of the year.

From the middle of the fourth quarter, product tanker freight rates started to pick up and reached levels not seen since the end of 2015 and beginning of 2016.

Key interregional product arbitrage spreads, which had been closed for most of the year, widened and lifted demand for product tankers. Both the price spreads for gasoline and naphtha between


 
West and East as well as spreads for diesel and jet fuel between East and West became supportive for product flows.

Product prices also turned from backwardation into contango, incentivizing trades of products. In addition, a stronger crude tanker market led to lower
























22





THE PRODUCT TANKER MARKET



 
market cannibalization and encouraged a significant number of LR2s to shift from the clean market to the dirty market, effectively reducing tonnage supply.

Asset prices on second-hand product tankers remained relatively flat during 2018 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 5% during 2018 (when excluding vessels acquired and sold during 2018).

In 2018, TORM achieved a gross profit of USD 169m (2017: USD 200m) with the reduction from 2017 driven by lower freight rates. TORM’s product tanker fleet realized TCE earnings of USD/day 12,982, down 11% year on year, with the LR2 class at USD/day 15,425, the LR1 class at USD/day 12,982, the MR class at USD/day 12,847 and the Handysize class at USD/day 9,970.

During 2018, TORM took delivery of four LR2 vessels from GSI with the last of the four vessels being equipped with a scrubber. During 2018, TORM ordered an additional three MR vessels from GSI, thereby bringing the total newbuilding program to nine vessels covering seven MR and two LR1 vessels. The newbuildings are expected to be delivered through 2019 and the first quarter of 2020.
At the end of 2018, TORM operated a fleet of 75 vessels on the water of which 72 are fully owned and three are financial leaseback.
 
MARKET OUTLOOK
For the 2019-2021 period, product tanker ton-mile demand is estimated to grow at a compound annual rate of approximately 5% compared to an estimated net growth in tonnage supply of approximately 3%. Compared to the average 2018 market, it is expected that the market will improve throughout this period, supported by an increasing demand for transportation. In particular, the reduction in the global limit for sulfur emissions from 3.5% to 0.5% and the accompanying shift in marine fuel consumption are expected to lead to increased trade with clean petroleum products.

TONNAGE SUPPLY
In 2018, the global product tanker fleet grew by 2.4% in terms of capacity and 1.8% in terms of number of vessels. This marked the lowest growth rate in more than 20 years. All segments saw slower fleet growth than in recent years, as deliveries slowed while recycling picked up. The LR1 and LR2 fleet growth dropped by 50% compared to 2017, as vessel deliveries slowed. In the MR segment,

 
vessel deliveries remained at similar levels as in 2017, but an increase in recycling activity led to slower fleet growth. Fleet growth ranged from -0.8% for the Handysize segment to 4.3% for the LR2 segment. 2019 is expected to see a global fleet growth of 4.3% with the LR2 and MR segments leading the growth. However, effective tonnage supply growth  is likely to be reduced somewhat due to increased off-hire time in connection with tank cleaning and scrubber retrofitting as the fleet is being prepared for the IMO 2020 sulfur regulation.























 
ORDER BOOK
As of 31 December 2018
           
 
Fleet 31.12.2017
Delivered in 2018
Recycled in 2018
Fleet 31.12.2018
Order book for 2019-2021
Order book as % of end-2018 fleet
LR2
348
 19
4
363
44
12%
LR1
357
 12
3
366
 18
5%
MR
  1,611
57
 21
1,647
 172
10%
Handysize
726
 15
 21
720
35
5%
Total
  3,042
 103
49
  3,096
269
9%
             








23





THE PRODUCT TANKER MARKET


 
The 74 product tanker newbuilding orders placed in 2018 remained relatively unchanged compared to 2017 and thus significantly lower than the ten-year average level of 116. The MR class accounted for most orders with 61 units contracted. At the end of 2018, the existing order book for deliveries in 2019-2021 totaled 269 units, including 44 LR2 vessels, 18 LR1 vessels, 172 MR vessels and 35 Handysize vessels.

TORM anticipates limited ordering of new product tankers with delivery before the end of 2020. The Company expects ordering activity in 2019 to remain at a similar level as in 2018 but to increase in 2020 as a result of improved freight market conditions.

In 2018, only 66% of the deliveries scheduled for the year actually materialized. TORM also expects to see some slippage in 2019.

Around 2.2m dwt of product tanker capacity was recycled in 2018, corresponding to approximately 1.4% of the fleet capacity as of January 2018. This was an increase from 2017, when 1.9m dwt were recycled and marked the highest level of recycling since 2012. TORM estimates that approximately 2% of the existing capacity of the global fleet will be phased out or recycled during 2019-2021. During 2019-2021, net product tanker fleet capacity is estimated to grow by a compound annual rate of approximately 3%.

TONNAGE DEMAND
The global oil demand started 2018 with strong momentum before decelerating as the year progressed, as the impact of increasing oil prices was amplified by weakening currencies in several emerging market economies. The result was a global oil demand growth of 1.3 mb/d (1.3%) for the full year, down from a growth of 1.5 mb/d (1.6%) in 2017 (source: IEA OMR January 2019). Growth nevertheless remained higher than the historical average of around 1.2 mb/d. Looking at individual products, the
 
demand for light distillates including gasoline experienced the largest decrease in growth, while diesel demand was supported by generally robust economic activity, particularly in North America. Brent benchmark crude oil increased throughout the first nine months of 2018, climbing to around USD 80/bbl by the end of the third quarter. In the fourth quarter, the trend in the oil price reversed, and Brent dropped to below USD 60/bbl, supporting an increase in oil demand towards the end of the year.

In 2019, global oil demand is projected to grow at a slightly faster pace of 1.4 mb/d (1.4%), as the impact of weaker economic activity is expected to be offset by lower oil prices (source: IEA OMR January 2019).

During the first half of 2018, global clean petroleum product inventory drawdowns continued, with the volume of stock draws being equivalent to a loss of potential trade of 4% over the period. After falling below 5-year average levels in the second quarter, global product stocks started to build again in the third quarter as oil product demand slowed. At the same time, 2018 saw 1.0 mb/d of net new refinery capacity coming online globally. Several of these new projects were configured to maximize gasoline output, which together with the lightening of the global crude supply led to an increase in global gasoline output and subsequently a build-up in stockpiles. Diesel inventories remained tight globally throughout the first three quarters of the year but normalized in some key exporting areas in the second half of the year, opening up several arbitrage spreads that had been closed throughout most of the year.

Refinery margins hovered around 5-year averages until the third quarter when higher crude oil prices and weak demand for gasoline caused some of the refining margin benchmarks to drop to levels not seen since 2014. Margins recovered, however, with crude oil prices returning to around USD/bbl 60 towards the end of the year.
 
Over the next three years, TORM expects positive underlying developments in the product tanker market, although volatility is expected. In 2019, a net of 2.6 mb/d of new refining capacity will be added globally with several new refineries coming online in Asia and the Middle East (source: IEA OMR January 2019). TORM expects this to reinforce the role of the Middle East as a key clean product exporter, contributing positively to product tanker ton-mile demand in the coming years. On the negative side, OPEC’s decision to cut crude production, agreed upon at the end of 2018, might potentially have a dampening effect on the crude tanker market in 2019, which may spill over to the product tanker market as well.






























24





THE PRODUCT TANKER MARKET



 
In the medium and longer term, the tightening of marine bunker sulfur rules from 1 January 2020 and the accompanying shift in the type of compliant fuels (so-called IMO 2020) are expected to lead to increased interregional and intraregional trade with clean petroleum products, which will support the product tanker market. TORM currently expects the IMO 2020 sulfur regulation to lead to an incremental increase of around 5% in product tanker trade in 2020. Also crude tankers are expected to gain from IMO 2020 due to increased refinery runs and the need to store excess high-sulfur fuel oil. The effects of IMO 2020 are likely to start emerging from the second half of 2019.

Fuel efficiency gains in the transportation sector, increasing gasoline supply in the Middle East and new refining capacity coming online in West Africa will especially have a negative impact on the European market, where refineries will face increased difficulties in finding markets for their excess gasoline and may need to cut runs. On a global scale, this will nevertheless be offset by increased tonnage demand created by IMO 2020 and refinery dislocation. Consequently, TORM expects the product tanker ton-mile demand on main trade routes to grow by a compound annual rate of around 5% during 2019-2021.

For further details on factors most likely to change this outlook in either a negative or a positive direction, please see “Outlook” section on pages 12-14.
 
 




















































25








26

IMO 2020 SULFUR REGULATION



 
REGULATION
In October 2016, IMO’s Marine Environment Protection Committee (MEPC) announced that as of 1 January 2020, the global limit for sulfur emissions from fuel oil used on board vessels operating outside designated emission control areas will be reduced from 3.5% to 0.5%. This will significantly reduce the amount of sulfur oxides emanating from vessels and should have major health and environmental benefits for the world.

There are two relevant methods for TORM vessels to comply with the new sulfur regulation: 1) Install an exhaust gas cleaning system, also known as a “scrubber”, which is designed to remove sulfur oxides from a vessel’s engine and boiler exhaust gases, or 2) use so-called compliant fuel with a sulfur content level below 0.5%.

TORM IMO 2020 SULFUR LIMIT PREPARATIONS
TORM has been preparing for the upcoming sulfur regulation since 2016, when the first internal sulfur compliance working team was established. To date, the work has resulted in 21 committed scrubber installations, two pilot scrubber installations and a scrubber joint venture.

Committed scrubber installations
In 2018, TORM committed to install 21 scrubbers on both newbuildings and second-hand vessels. These scrubbers will be installed on selected LR2, LR1 and MR vessels based on business case and technical and commercial considerations. Further, TORM has signed a letter of intent for another 18 scrubbers with the new joint venture, ME Production China. With these orders, TORM will potentially install scrubbers on up to 39 vessels or approximately half of the fleet.
 
Scrubber pilot projects
Thus far, two scrubber pilot projects have been established. One scrubber has been installed on the LR2 newbuilding TORM Hilde in order to trial the scrubber installation process and operation on a newbuilding. To better understand the same process for a retrofit vessel, TORM has also installed a scrubber on the MR vessel TORM Lene.

Both installations have provided valuable information in advance of the installation and operation of further scrubbers on a significant part of the remaining fleet later in 2019 and early 2020.

Scrubber joint venture
In the latter half of 2018, there was a significant industry push towards scrubber adoption, and many shipping companies announced planned scrubber installations. As a result, yard and scrubber production capacity ahead of 1 January 2020 has been absorbed. In order to secure the availability of scrubbers and to forge a closer relationship with the China State Shipbuilding Corporation (CSSC) yard group, TORM established a joint venture in 2018 with Guangzhou Shipyard International, which is part of the CSSC group, and ME Production, a leading scrubber manufacturer.
 
The joint venture, ME Production China, will manufacture scrubbers in China and deliver them to a range of maritime industry customers for both newbuildings and retrofitting. TORM holds an ownership stake of 27.5% in the new joint venture.

The main benefits to TORM include supporting availability of capacity and priority at the shipyard for scrubber installations as well as securing scrubber production slots. In addition, if the joint venture proves successful, TORM will generate an additional revenue stream.

Production of the scrubbers by ME Production China commenced in November 2018, and TORM has ordered 16 scrubbers from the joint venture.






























27




IMO 2020 SULFUR REGULATION



 
EXHAUST GAS CLEANING SYSTEM IN BRIEF
An exhaust gas cleaning system, often referred to as a scrubber, removes sulfur dioxide (SO2) from the vessel's exhaust gas.

The scrubber washes the exhaust gas stream by forcing it into contact with seawater. In this process, the SOx is first dissolved and ionized, then oxidized into sulphates.

Sulphates are a natural part of both seawater and aquatic organisms, which means they are harmless to the environment.

To ensure that there is no adverse impact on the environment, both exhaust gas and the discharge water from the scrubber are continuously monitored on board.

The results are stored in a tamper-free format, enabling authorities to board the vessel and verify that the scrubber has been operating within the regulations.

The vessel's exhaust gas is measured for compliance with regard to SO2/CO2 ratio, while the discharge water is measured for PH, PAH and turbidity.



 









































28

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
2018: 12,847
2017: 14,850
2016: 15,462
In 2018, TORM’s commercial performance has consistently been among the best within 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 2018, TORM achieved MR TCE earnings of USD/day 12,847, down from USD/day 14,850 in 2017 due to the general market development.
 
Lost Time Accident Frequency (LTAF)
 
2018: 0.47
2017: 0.67
 
In line with the Company’s strategic focus on safety performance, TORM continued to promote the safety culture program One TORM Safety Culture – driving resilience 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 2018, TORM had an improvement of LTAF to 0.47 compared to 0.67 in 2017.
 
Return on Invested Capital (RoIC)
2018: 0.1%
2017: 2.8%
 
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 2018, TORM achieved a RoIC of 0.1% compared to 2.8% in 2017. The decrease in RoIC from 2017 to 2018 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 Improvements
 
2018: 6.9%
2017: 5.2%
 
 
Fuel efficiency improvement illustrates TORM's continued strong focus on reducing fuel consumption and the efforts made in this area.
 
In 2017, TORM improved fuel efficiency by 5.2% compared to a 2015 baseline figure. In 2018, TORM has continued its efforts and achieved further improvements bringing the fuel efficiency to 6.9% compared to the 2015 baseline.
 
 
























29

CORPORATE SOCIAL RESPONSIBILITY


TORM extends its support to the UN Global Compact to also include the UN Sustainable Development Goals.
In preparation for the IMO 2020 Sulfur Directive, TORM joins the Clean Shipping Alliance 2020.
TORM has improved fuel efficiency by 6.9% since 2015.



 
REPORTING PRINCIPLES AND TRANSPARENCY
Transparency and accountability are central parts of TORM’s way of doing business, and these values play a central role in the Company’s corporate social responsibility (CSR) approach.

In 2009, TORM signed the UN Global Compact as the first shipping company in Denmark to commit to the internationally recognized set of principles regarding health, safety, labor rights, environmental protection and anti-corruption.

TORM remains committed to protecting its employees, assets, reputation and the environment by maintaining the highest possible standards.


After a comprehensive review of the shipping industry, TORM's value chain and business practices, the Company decided in the beginning of 2018 to extend its support to the UN Sustainable Development Goals (SDGs) and assessed how best to contribute to their achievement by 2030. TORM sees this support as a natural progression of its commitment to the UN Global Compact.

Going forward, TORM will focus on specific SDGs, which are linked to the Company’s current CSR activities and are material to TORM and its stakeholders. At the same time, the activities and efforts

 
made within these areas also make good business sense for the Company. The two goals which TORM will primarily focus on are SDG no. 4 Quality Education and no. 13 Climate Action.

TORM is a long-standing supporter of maritime education in Denmark, India and the Philippines, and it is therefore natural for the Company to support SDG no. 4 Quality Education. Through the initiatives in the TORM Philippines Education Foundation and through different initiatives in India, TORM continues to work towards better opportunities for quality education in these regions, where many of the Company’s seafarers come from. See more about how TORM supports SDG no. 4 Quality Education in the section about Social Matters on page 31.

Marine pollution constitutes the largest environmental risk in shipping and, as a Reference Company in the industry, TORM is dedicated to supporting the goal for climate action. Thus, TORM has a strong focus on reducing fuel consumption and CO2 emissions as this is not only good for the environment but also for TORM’s business. Read more about TORM-specific initiatives in this area in the section about Environment and Climate Performance on page 32.

BUSINESS PRINCIPLES
TORM’s approach to responsible behavior is further rooted in the Company’s Business Principles and has the following five
 
objectives:

·
Comply with statutory rules and regulations to ensure that all employees can 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.





























30

CORPORATE SOCIAL RESPONSIBILITY



 
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 to increase responsibility in the shipping industry and the supply chain, and to mitigate protectionism and support progressive trade agreements. This is performed via TORM’s cooperation with Danish Shipping and companies all over the world to support global trade and economic growth.

As 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.

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 10 inspections per year. Inspections are carried out by customers, terminals, internal auditors, ports and classification societies. TORM is committed to meeting the ever-increasing standards set both internally and by its customers. In 2018, TORM increased its focus on on-board training conducted by the SQE officers.
 
SOCIAL MATTERS
TORM is a long-standing supporter of maritime education. This commitment reflects the Company’s ties to local communities and has a positive effect on the needs of the societies in which TORM operates. In addition, TORM believes that supporting education has positive effects on its core business in terms of developing the pipeline of competences in the industry and in terms of higher employee retention and a positive brand recognition.

The majority of TORM’s seafaring staff are of Indian or Filipino nationality, and the Company’s activities in this area are thus supporting potential future TORM employees and strengthening the overall competence level among seafarers in these regions.

In 2018, 21 students supported by the TORM Philippines Education Foundation graduated. For the school year 2018/2019, the Foundation supports 51 scholars across the Philippines. Apart from maritime and general education, the program includes training courses for teachers and a four-year training program for scholars. In addition, the program encompasses the distribution of IT equipment and school kits for students in rural schools.

 
TORM has supported the building of the ZP Prathmik School in Zadgewadi near Kurkumbh, Pune, in India. The school was constructed and the facilities furnished with donations from the Company. In 2018, TORM continued its support for the school and is currently sponsoring 36 students attending the school.

In 2018, TORM joined hands with the 'Akshaya Shakti Welfare Association', a non-governmental organization, working to promote education across 350 schools in the Wada district in India.

As part of TORM’s support to the Wada district, the Company funded the construction of an additional toilet and bathing block for the female students of 'Swami Vivekananda School Girls' hostel'. The school has a total of about 1,200 students and only one toilet block. The addition of eight extra toilets will greatly improve the infrastructure and encourage more girls to attend school. In addition, TORM supported the 'V Promote Education' project with the distribution of 100,000 notebooks to nearly 350 schools in 2018.



























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CORPORATE SOCIAL RESPONSIBILITY



 
ENVIRONMENT AND CLIMATE PERFORMANCE


TORM supports SDG no. 13 Climate Action, as marine pollution constitutes the largest environmental risk within the shipping industry. It is therefore a key priority for TORM to avoid pollution of the seas and the atmosphere.

In 2018, TORM joined the Clean Shipping Alliance 2020 (CSA 2020) as one of its founding members along with other industry leaders to support the scheduled implementation and enforcement of the IMO requirement for a 0.5% global sulfur limit in fuel oil as of 1 January 2020. The purpose of this alliance is to support information and knowledge sharing about exhaust gas cleaning systems.

CSA 2020 members believe that exhaust gas cleaning systems will make a substantial difference to the ports and ocean environments in which they operate. This will also promote global environmental progress, especially the goal of reducing the health impact of airborne sources, which is at the heart of the IMO 2020 sulfur regulation.

Throughout 2018, TORM continued to have a strong and dedicated focus on reducing fuel consumption. The efforts made within this area 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.

In 2018, TORM continued and further expanded an initiative introduced in 2017 to engage the vessels on a daily basis to encourage best practice behavior with regard to power and fuel consumption. The efforts in this area ensure that corrective actions can be taken swiftly, when needed.

TORM also implemented a new system used for generating emission data from vessels taking carried cargo into account. This is part of the Company’s continued efforts to improve data quality and transparency in order to minimize CO2 emissions. The new reporting scheme is in line with regulatory requirements for EU Monitoring, Reporting, Verification (MRV) reporting and for IMO Data Collection System (DCS).

In addition to the tasks initially in scope, fuel consumption for cargo operations has become a focus area that will be further developed during 2019.

In 2019, TORM will put additional focus on energy-efficient voyage execution by including weather conditions and timing of arrival in a more holistic evaluation.
 
Investing in and implementing well-proven technologies will allow TORM to concentrate its efforts on achieving the potential that lies outside the boundaries of behavioral activities, such as frequency-controlled cooling water pumps and automating energy-heavy equipment.

TORM continues to focus on continuously improving the hull condition of its vessels. During 2018, seven vessels were taken out of service between scheduled dry-dockings for short four-to-six-day dockings. During these dockings, the hull coatings were renewed, resulting in significant fuel consumption reductions.

TORM maintains a constant focus on fuel efficiency across the fleet. This serves the dual purpose of minimizing environmental impact and making good business sense. By maintaining the strong focus on fuel consumption reductions in 2018, TORM achieved fuel efficiency improvements of 6.9% compared to the 2015 baseline. The target for 2019 is to improve fuel efficiency by another 1.0%.

Efforts to reduce the Company’s carbon footprint also cover emissions from air travel by the shore organization. TORM strives to minimize this by using available technologies such as video conferencing to the extent possible, e.g. in connection with meetings across the Company’s eight offices.






























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CORPORATE SOCIAL RESPONSIBILITY


GREEN HOUSE GAS EMISSIONS DATA

 
2018
2017
2016
 
VESSEL EMISSIONS AND INDICATORS*
       
Number of vessels in operation at the end of the year (in technical management)
76
74
76
 
Number of vessel months (one vessel one year equals 12 vessel months)
931
914
910
 
Usage of oil and the generated CO2 emissions
       
Used heavy fuel oil (ton)
359,357
236,505
308,467
 
Used low-sulfur heavy fuel oil (ton)
152
0
0
 
Used marine gas oil (ton)
58.453
45,470
56,549
 
Generated CO2 emissions from vessels (ton)
1,306,909
882,253
1,141,862
 
NOx (ton)
31,091
20,800
26,992
 
SOx (ton)
17,799
11,728
15,289
 
Distance sailed (nautical miles)
4,101,929
3,207,147
3,279,977
 
Average cargo on board (ton)
36,613
34,721
37,433
 
         
Cargo transport work (ton-km)
  204,801,864,788
207,597,070,516
251,946,149,526
 
CO2 emissions in grams per ton-km (one ton of cargo transported one km)
6.4 g/ton-km
4.3 g/ton-km
4.5 g/ton-km
 
OFFICE EMISSIONS AND INDICATORS (ELECTRICITY AND HEATING)
       
Electricity used in office locations (kWh)
823,844
849,644
924,951
 
District heating (Gj)
1,326
1,293
1,619
 
Generated CO2 emissions from office locations (ton)
525
524
562
 
Number of office employees at the end of the year
309
296
277
 
CO2 emissions per employee (ton)
1.7
1.8
2.0
 
FLIGHT EMISSIONS AND INDICATORS
       
Air mileage (km)
80,192,490
76,832,985
77,284,100
 
Number of travels
13,401
12,354
13,056
 
CO2 emissions (ton)
6,486
6,650
6,750
 
         
* Vessel emissions data for 2018 reflect that TORM has changed its data collection system to be in line with EU MRV and IMO DCS specifications.



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CORPORATE SOCIAL RESPONSIBILITY



 
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 2019, TORM had 76 vessels under technical management compared to 74 vessels as of 1 January 2018. The three vessels not in technical management are thus not included in this data set.

Office emissions are included from TORM’s offices in Copenhagen, Mumbai, New Delhi, Singapore, Manila, Cebu and Houston. Emissions from TORM’s office in London are 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 2018 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 aspects of scope 3 (others' production and emissions services) activities.

·
Scope 1
Consumption of bunker oil has been calculated to CO2 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.
·
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
2018 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 931 vessel months of operation.
 
Cargo transport work (ton-km) is calculated using the 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.

HEALTH, SAFETY AND SECURITY
Approximately 90% of TORM’s employees work at sea, and providing healthy, safe and secure working conditions for them is an essential part of TORM’s business. In addition, it is TORM’s belief that a safe and secure working environment supports the overall performance level and employee retention. Respecting employees’ human rights is pivotal to the Company. TORM's policies 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.



























34

CORPORATE SOCIAL RESPONSIBILITY


 
ONE TORM SAFETY CULTURE
In line with the Company’s strategic focus on safety performance, TORM continued the safety culture program One TORM Safety Culture – driving resilience in 2018. The purpose of the program is to continuously strengthen TORM’s safety culture beyond compliance.

In 2018, TORM continued conducting Safety Leadership courses for Senior Officers on board the Company’s vessels. A total of 14 courses were conducted, including five in India, five in the Philippines, two in Denmark and two in Croatia with a total of 274 officers attending in 2018. In total, 464 officers have completed the course since it was introduced in 2017. Safety Leadership courses are mandatory, two-and-a-half-day workshops for all Senior Officers and key marine shore staff. The focus of these courses is on how to be a good leader when it comes to safety and how to positively influence and support colleagues on TORM’s journey to be the Reference Company in the product tanker market.

SAFETY DELTA
In June 2018, TORM launched the Safety Delta, which is a tool used across the fleet to track and monitor the safety culture on board the individual vessels. The Safety Delta concept supports processes and activities and helps to build and maintain a proactive safety culture based on continuous crew evaluation, dialogue, reflection and development.
 
PERFORMANCE EVALUATION
In 2018, TORM launched a revised performance development concept for its seafarers. The new concept is TORM’s way of systematically enhancing work behavior and leadership to ensure excellent performance. Through the One TORM Safety Culture – driving resilience program, TORM has defined standards and expectations for excellent performance. A key element in leadership is to evaluate employees’ performance with a view to manage development and motivate employees to develop. TORM believes this will facilitate the best possible means for developing performance as an individual and as a company.

TORM will continue promoting the One TORM Safety Culture – driving resilience program in 2019. Focus will be on supporting and
 
ensuring that TORM’s safety culture is anchored across the organization, ashore as well as on board the vessels.

In 2019, TORM will introduce a new induction framework for its seafarers. The purpose is to ensure that new employees at sea are introduced to the safety culture in TORM as soon as possible when joining the Company.
















35

CORPORATE SOCIAL RESPONSIBILITY



 
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 2018, TORM had an improvement LTAF of 0.47 (2017: 0.67), which is a decrease compared to 2017.

Each injury has been investigated and corrective measures have been taken as required.

Near-miss reports provide TORM with an opportunity to analyze conditions that might lead to accidents and ultimately prevent potential future accidents. A high number of near-miss reports indicate that the organization is proactively monitoring and responding to risks. In 2018, TORM exceeded the target of 6.0 near-miss reports per month per vessel on average by reaching 7.1 (2017: 6.7) due to continued focus on this area.

SECURITY
TORM’s response to piracy is founded on the Best Management Practice, which is the industry guideline for companies and vessels sailing in areas with increased risk. In 2018, TORM experienced four situations where thieves came on board and two 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 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
The employees constitute the true quality of TORM and are the Company’s most valuable assets. TORM continues to grow and thrive due to the efforts and dedication of its staff both at sea and ashore.

AT SEA
In 2018, TORM continued its strategy to employ seafarers with different nationalities, as the Company believes that diversity on board is an important foundation for cooperation, high performance and a safe working environment.

Throughout the year, TORM continued its efforts to relieve seafarers on time and to build strong teams that rotate back to the





 
same vessels whenever possible. This will reinforce vessel-specific knowledge and the foundation for a safe working environment.

TORM also continued its efforts to strengthen the relations between seafarers and the shore-based organization. This included seminars and other opportunities where colleagues can share best practices regarding the operation of TORM’s vessels.



















36



CORPORATE SOCIAL RESPONSIBILITY



 
As part of TORM’s continued focus on the promotion process for its employees, seafarers completed the so-called ‘promotion assessment training’ prior to being promoted to the highest ranks on board the Company’s vessels in 2018. As part of this training, officers visit one of TORM’s offices for an introduction and training with key stakeholders.

TORM maintains an ongoing focus on seafarer commitment and engagement. At year-end 2018, the retention rate for Senior Officers was above 90%, and TORM demonstrated 100% compliance with customer requirements when it comes to ensuring the right level of experience among Senior Officers per vessel across the fleet (the so-called officer matrix compliance).

In 2019, TORM will continue its focus on a safe working environment for its seagoing employees. In recognition that life at sea can be challenging, TORM has introduced a support line available for seafarers and their relatives ashore 24 hours a day/365 days a year.

At the end of 2018, TORM employed a total of 3,118 seafarers of which 138 were permanently employed, with the remaining seafarers on time-bound contracts.
 
ASHORE
The TORM employee motivation and satisfaction survey is conducted after the third quarter every year and is important to the Company. In 2018, 93% of all shore-based employees responded to the annual survey.

During 2018, an additional short employee engagement survey was launched following each of the first and second quarters with a view to identify focus areas on a more frequent basis.

The outcome of all 2018 surveys repeated the high-level result of the 2017 engagement survey with regard to all measured categories, ranging from employee motivation and loyalty to satisfaction with immediate superior, welfare, safety and work environment. The continued high scores were evenly spread across countries and divisions, which is a testament to the strength of the unified One TORM approach. By the end of 2018, the retention rate for shore-based employees was above 90%.
 
TORM aims to attract and retain the best employees by exemplifying the four values in the TORM Leadership Philosophy and by ensuring that the Company’s leaders motivate 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 2018, the shore-based organization had 309 employees: 129 in Hellerup, 116 in Mumbai, 3 in New Delhi, 37 in Manila, 2 in Cebu, 14 in Singapore, 7 in Houston and 1 at the Company’s office in London.





TORM Leadership Philosophy with the four values.





































37




CORPORATE SOCIAL RESPONSIBILITY



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.

TORM aims at a gender diverse workforce and an inclusive environment that respects and supports all of our people and helps improve our business performance.

TORM’s gender diversity approach focuses on talent attraction, promotion and retention. The Company’s leaders aim at assuming accountability for continuous progress. TORM believes that gender diverse teams, led by gender diverse leaders, deliver better business performance. The Company provides equal opportunity in recruitment, career development, promotion, training and rewards for all employees.

TORM actively monitors the representation of women in the workforce and in leadership positions. At the end of 2018, the proportion of women in the shore-based workforce was 32%, while females in leadership positions, defined as having one or more direct reports, constituted 19%.

 
By 2020, the Company aims at having 35% women in the shore-based workforce in line with industry average, and with 25% women in leadership positions.

At the end of 2018, the Board of Directors consisted of five male members elected at the Annual General Meeting.

In 2020, the Board of Directors has set a target of 20% female board members elected at the Annual General Meeting (1 out of 5) or 17% provided that the Board of Directors is extended with one additional member (1 out of 6).
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 mean increased costs alone. Corruption also exposes TORM’s seafarers to safety and security risks and poses a potential risk to the Company’s legal standing and reputation.
 
TORM does not accept corrupt business practices and as part of its compliance program, TORM has a policy on anti-bribery and anti-corruption, which supports the Company’s Business Principles.

It is TORM’s policy to conduct all business in an honest and ethical manner. TORM has a “zero tolerance”
















EMPLOYEE GENDER DIVERSITY
   
Permanently employed
   
 
Male
Female
Directors of the Company¹
5
  -
Employees in other senior executive positions
3
  -
Total management other than directors of the Company (VPs, GMs, Marine Officers)
 168
 8
Other permanent employees of the Group
 171
 96
Total permanent employees of the Group
343
104
¹The four Non-Executive Directors are not included as employees of the Group.



38




CORPORATE SOCIAL RESPONSIBILITY


 
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 that exists in many parts of the world where TORM conducts business. Best practices are shared between members of the network, and members align their approach to minimizing facilitation payments.

The MACN seeks support from government bodies and international organizations to eliminate the root causes of corruption. TORM is committed to addressing corrupt business practices among stakeholders by supporting this cross-sector approach.

In addition to its efforts within MACN, TORM continued to strengthen its companywide anti-corruption policies
 
in 2018 to mitigate the risk of bribery and corruption. TORM has continued its anti-corruption training program, which includes mandatory anti-corruption courses for all shore-based staff and all officers on board TORM’s vessels. The training targets new hires as well as existing employees and must be repeated annually. TORM will continue these efforts in 2019.

Since 2006, TORM’s Board of Directors has provided a whistleblower facility with an independent lawyer as part of the internal control system. In 2018, the whistleblower facility received three notifications, which were investigated and closed without any critique or requirements for new measures.

HUMAN RIGHTS
With the TORM Leadership Philosophy, TORM’s Business Principles and commitment to the UN Global Compact, TORM is committed to respecting internationally recognized human rights as outlined in the United Nations Guiding Principles on Business and Human Rights.

TORM recognizes that implementing the necessary policies and respective processes to be in line with the requirements of the UN Global Principles is part of an ongoing effort. Going forward, TORM will continue to promote its human rights-related policies and processes.
 
TORM complies with the International Labor Organization’s Maritime Labor Convention, an international set of standards on labor conditions at sea, which was ratified by 30 countries in 2012. All vessels under TORM’s technical management 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 its employees as stated in TORM’s Business Principles.

No claims or offenses have been reported regarding human rights in 2018.

This section constitutes TORM’s CSR reporting according to the requirements of UK law. Read more about TORM and the 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.





















39



RISK MANAGEMENT

Freight rates and vessel value volatility remain a risk for TORM.
The cyclical nature of the industry can pressure capital structure, if not managed, and harm TORM’s ability to withstand periods of low profitability.
Uncertainty persists around 2020 sulfur emission regulation compliance.


 
RISK MANAGEMENT FRAMEWORK
TORM acknowledges that the Company faces a range of risks in doing business, and that the Company’s success depends on identifying, balancing and mitigating these risks as early as possible. TORM believes that a strong risk management framework is vital to protect the Company and to ensure that the Company is well-positioned in key markets. Risk management is an integrated part of doing business in TORM. It enables insight and transparency into the risks facing the Company and provides a common risk language, making it simpler to communicate and take decisions.

On an annual basis, TORM conducts an Enterprise Risk Management process, during which the critical risks facing the Company are identified, assessed and discussed by TORM’s Senior Management Team and subsequently approved by the Risk Committee. In between the annual Enterprise Risk Management processes, TORM conducts an assessment of the identified critical risks to reconfirm and iterate TORM’s view on the risks.

The objective is that TORM and its shareholders are adequately rewarded for accepting risk, and that the governance structure tailored to oversee risk management is in place. This is to ensure that risks related to core and non-core activities are mitigated to the extent possible. TORM’s risk management framework seeks to provide reasonable assurance that business objectives can be
 
achieved and obligations towards customers, shareholders and employees can be met.

RISK MEASURE
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.

Risks are assessed based on a two-dimensional heat map rating system that estimates the consequence of a risk based on financials or reputation and the likelihood of that risk materializing.

GOVERNANCE
TORM’s risk management approach emphasizes Management accountability and oversight. 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 risk, implement mitigating actions and evaluate and report on risks for which they bear responsibility.

If the consequence of a risk exceeds the agreed risk tolerance, Management is required to assess if implementation of additional mitigation controls is necessary until the desired risk level is achieved.
 
TORM’S MAIN RISK EXPOSURE AND TOLERENCE
The Senior Management Team and the Risk Committee discuss and decide on TORM’s risk tolerance to the Company’s main exposures. TORM’s overall risk tolerance and inherited exposure to risks is divided into four main categories, detailed below:

LONG-TERM STRATEGIC RISKS (“RISK-SEEKING”)
TORM aspires to be a sustainable company, which requires a long-term perspective on value creation. In the context of risk management, it means taking an active role in addressing risks related to long-term value creation. Risks and opportunities beyond the immediate strategy window are monitored by TORM’s Senior Management Team and incorporated in corporate strategic planning. Industry-changing risks such as the substitution of oil for other energy sources






















40

RISK MANAGEMENT


 
and technological changes have the possibility to alter the landscape of the markets that TORM serves and radically change transportation patterns. These risks are considered to have a relatively high potential impact but are considered as long-term risks.

INDUSTRY AND MARKET-RELATED RISKS
(“RISK-TOLERANT”)
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.

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. 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.
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.
 
TORM’S CURRENT RISK ROFILE
The Risk Committee and the Senior Management Team of TORM confirm that they have carried out a robust assessment of the principal risks facing the Company.

All risks are repeated from 2017, albeit with slight changes. TORM’s Top Risks are depicted in the heat map on page 42. When quantifying the risks, the measure is near-term effects, typically related to a 12 to 24-month horizon.

Throughout 2018, TORM saw continued volatility in the product tanker market. With a low coverage ratio going into 2019, the Company is exposed to potentially adverse market conditions; consequently, the market risk related to freight rates and bunker prices remains high.

The cyclical nature of TORM’s industry may pressure the capital structure, if not managed, and harm TORM’s ability to withstand periods of low profitability. TORM has strong focus on leverage levels and the liquidity reserve. Likelihood increases slightly, as capital expenditure related to newbuildings for 2019 are higher compared to 2018.

TORM is exposed to cyclical asset prices, and consequently the market risk remains high within vessel sale and purchase activities. This risk is closely related to freight rate risk and capital structure risk. The likelihood of subdued freight rates is considered slightly higher today due to the freight rate volatility seen during 2018. The consequence 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 technical costs and legal compliance, have remained stable at a low level due to strong continuous focus, an integrated platform and efficient controls. The risk of not meeting quality requirements from oil majors is deemed to increase slightly due to the introduction of a new vetting regime at the end
of 2018.

The risk of a severe vessel accident such as an environmental disaster or material and personal damage is deemed to be at the same level as last year.




























41

RISK MANAGEMENT


 
Uncertainty persists on compliance with the IMO 2020 sulfur regulation and the inherent investment opportunity of installing scrubbers on vessels versus using a low-sulfur fuel alternative.

For a more in-depth description of mandates and sensitivity analysis of the various risks, please see note 19 on pages 121-124.

Please see table on page 43 for a description of each of the risks in the heat map.
 












































42






43








44

FINANCIAL REVIEW 2018

FINANCIAL REVIEW FOR THE YEAR ENDED 31 DECEMBER 2018



 

Mr. Christian Søgaard-Christensen
Chief Financial Officer, TORM A/S

 
TORM’s continued improvements and cost containment enabled us to withstand a challenging product tanker market in 2018, and at the same time, to secure additional debt and equity financing for investments. We also achieved compliance with the US Sarbanes-Oxley Act in 2018, thereby enhancing our corporate governance.
Christian Søgaard-Christensen, CFO

 
FINANCIAL RESULTS
In 2018, TORM activities resulted in a net loss of USD 35m resulting in a loss per share (EPS) of USD 0.48 in 2018 compared with a positive EPS of USD 0.04 in 2017. The lower result in 2018 was mainly due to a reduction in freight rates following a subdued freight market for product tankers.

In 2018, the operating profit decreased by USD 37m to USD 3m. This decrease was also primarily due to the lower freight rates.

In 2018, total revenue was USD 635m compared to USD 657m in 2017, and TCE earnings decreased from USD 397m to USD 352m. The decrease in TCE earnings was primarily attributable to a softer freight market in 2018 compared to 2017. In 2018, TORM had approximately the same amount of available earning days compared to 2017.























45

FINANCIAL REVIEW 2018



 
TORM’s total assets increased by USD 67m in 2018 to USD 1,714m, of which the carrying amount of vessels, capitalized dry-docking and prepayments on vessels amounted to USD 1,442m compared to USD 1,383m
in 2017. During the year, TORM took delivery of four LR2 vessels and sold two older Handysize vessels and two older MR vessels as a part of the ongoing renewal of the tanker fleet. Furthermore the two chartered-in vessels TORM Marie and TORM Margrethe were redelivered during the year.
 
In 2018, total equity increased by USD 56m to USD 847m from USD 791m in 2017. The increase is primarily related to the Private Placement in January 2018 where TORM raised USD 100m in new Class A common shares. The negative result for the year had an offsetting effect on the equity. The market value adjustments on derivatives held for hedge accounting also had a negative effect on the equity of USD 7m. The Return on Equity (RoE) decreased from 0.3% in 2017 to -4.3% in 2018.

In 2018, TORM’s total liabilities increased by USD 11m

 
to USD 867m. In 2018, the mortgage debt and bank debt related to the vessels were kept at the same level as in 2017 due to scheduled repayments and drawdowns on loan agreements and new loan facilities following the delivery of the newbuildings delivered in 2018.

In 2018, invested capital increased by USD 63m to USD 1,469m as of 31 December 2018. In addition, Return on Invested Capital (RoIC) decreased by 2.7%-points from 2.8% to 0.1%.

In 2018, the Net Asset Value per share based on broker values decreased to USD 11.6 from USD 12.8 in 2017 mainly due to decreasing vessel prices.










KEY HIGHLIGHTS

USDm
2018
2017
Change
       
Income Statement
     
Revenue
635
657
 -22
Time charter equivalent (TCE)
352
397
 -45
Gross profit
 169
200
 -31
EBITDA
  121
 158
 -37
Operating profit/(loss) (EBIT)
3
40
 -37
Financial items
 -36
 -36
  -
Net profit/(loss) for the year
 -35
2
 -37
       
Balance Sheet
     
Non-current assets
1,445
1,385
60
Total assets
 1,714
1,647
67
Equity
847
 791
56
Total liabilities
867
856
 11
       


46

FINANCIAL REVIEW 2018




 
LIQUIDITY AND CASH FLOW
Total cash and cash equivalents amounted to USD 127m at the end of 2018, resulting in a net decrease in cash and cash equivalents for the year of USD 7m compared to 2017.

As of 31 December 2018, TORM had undrawn credit facilities totalling USD 279m, consisting of a USD 75m Working Capital Facility, a USD 70m facility financing the Company’s LR1 newbuildings and one MR newbuilding, a USD 88m facility financing the MR vessels under construction, and a USD 46m facility subject to documentation.

As of 31 December 2018, TORM had CAPEX commitments of USD 258m related to the LR1 and MR newbuildings.
 
In 2018, net cash inflow from operations decreased from USD 110m in 2017 to USD 71m due to the lower freight rates and an increase in port expenses, bunkers and commissions.

Net cash outflow from investing activities amounted to USD 176m in 2018. The cash was used on tangible fixed assets, primarily related to the four delivered LR2 vessels (TORM Herdis, TORM Hermia, TORM Hellerup and TORM Hilde), prepayments in relation to the MR and LR1 newbuildings to be delivered in 2019 and early 2020 as well as capitalized dry-docking, partly offset by sale of vessels during 2018. In 2017, the net cash outflow from investments was USD 114m.
 
Net cash inflow from financing activities amounted to USD 96m in 2018, compared to a cash inflow of USD 63m in 2017. Repayment on mortgage debt, bank loans and financial leases amounted to USD 114m in connection with scheduled repayments and vessel sales during the year. Additional borrowings generated a cash inflow of USD 115m. The Private Placement in January 2018 contributed with USD 97m in net proceeds. TORM did not pay out any dividends during 2018.













KEY HIGHLIGHTS

2018
2017
Change
Key figures
     
Invested capital in USDm
1,469
1,406
63
Net Asset Value (NAV) per share
 11.6
12.8
-1.4
Return on Invested Capital (RoIC)
0.1%
2.8%
 -2.7%-points
Return on Equity (RoE)
-4.3%
0.3%
 -4.6%-points
Basic earnings per share (EPS)
  -0.48
  0.04
-0.52
       





47

FINANCIAL REVIEW 2018


 
TANKER FLEET
Revenue in the tanker fleet decreased by 3.3% to USD 635.4m in 2018 from USD 657.0m in 2017, and TCE earnings decreased by 11.3% to USD 352.3m in 2018 from USD 397.1m in 2017. The decrease in TCE earnings was primarily due to a subdued product tanker freight market in 2018 compared to 2017.

The first half of 2018 continued a trend from 2017 that saw healthy consumer-driven demand for refined oil products offset by inventory drawdown. The drawdowns resulted in a loss of potential trade of 4% over the period. In the third quarter of 2018, freight rates reached historically low levels due to reduced trading volumes and continued cargo cannibalization by newbuilt crude tankers opting for clean cargos on their maiden voyage. Towards the end of 2018 and
 
early 2019, the broader tanker markets have experienced a significant recovery with freight rates reaching levels last seen in the winter period towards the end of 2015 and beginning of 2016.

In the LR2 fleet, the average TCE rates decreased by 5% between 2018 and 2017, resulting in a decrease in earnings of USD 3.5m. The available earning days in the LR2 fleet increased by 18% in 2018 compared to 2017 due to the delivery of the four LR2 vessels during the year, resulting in an increase in TCE earnings of USD 9.9m.

The average TCE rates in the LR1 fleet were 6% lower than in 2017, resulting in a decrease in the TCE of USD 2.0m. The available earning days in the LR1 fleet were unchanged during the year.
 
In 2018, the available earning days in the MR fleet increased by 187 days, equaling an increase of 1% compared with 2017. The TCE rates decreased by 13%, resulting in total earnings of USD 233.6m, a decrease of USD 33.6m.

In the Handysize fleet, the TCE rates were 19% lower in 2018 compared to 2017, resulting in a decrease in earnings of USD 5.6m. There was a decrease in available earning days of 25% in 2018 due to vessel sales in 2017 and 2018, resulting in a decrease of earnings of USD 10.0m.













CHANGE IN TIME CHARTER EQUIVALENT EARNINGS IN THE TANKER FLEET
USDm
Handysize
MR
LR1
LR2
Total
Time charter equivalent earnings 2017
39.9
267.2
34.2
55.8
 397.1
Change in number of earning days
  -10.0
2.8
-
9.9
2.7
Change in freight rates
 -5.6
 -36.4
 -2.0
 -3.5
 -47.5
Time charter equivalent earnings 2018
24.3
233.6
32.2
62.2
352.3
           






48


Earnings data

   
2018
 
USDm
2017
Full year
Q1
Q2
Q3
Q4
Full year
% change full year
               
LR2 vessels
             
Available earning days
 3,419
  1,012
 1,089
917
 1,009
4,027
18%
  Owned
 2,461
  742
  847
  824
  920
3,333
35%
  T/C
  958
  270
  242
  93
  89
  694
-28%
Spot rates ¹
  13,158
11,714
  11,393
 12,930
 15,492
 12,893
-2%
TCE per earning day ²
 16,304
 15,026
  14,190
 15,420
  17,162
 15,425
-5%
LR1 vessels
             
Available earning days
2,483
  629
  628
  640
  587
2,484
0%
  Owned
2,483
  629
  628
  640
  587
2,484
0%
  T/C
-
-
-
-
-
-
-
Spot rates ¹
  13,881
 14,638
  11,805
  10,126
 15,403
 13,063
-6%
TCE per earning day ²
  13,771
 14,635
  11,403
  11,485
 14,534
 12,982
-6%
MR vessels
             
Available earning days
 17,995
4,492
4,624
4,502
4,564
  18,182
1%
  Owned
  17,561
 4,312
4,442
 4,318
4,389
  17,461
-1%
  T/C
  432
180
182
184
175
721
67%
Spot rates ¹
 14,604
 14,083
 12,272
9,569
 14,072
 12,689
-13%
TCE per earning day ²
 14,850
 14,320
 13,005
  10,051
 13,993
 12,847
-13%
Handysize vessels
             
Available earning days
3,263
  646
  637
  643
  524
2,450
-25%
  Owned
3,263
  646
  637
  643
  524
2,450
-25%
  T/C
-
-
-
-
-
-
-
Spot rates ¹
 12,020
  11,540
  11,708
7,070
9,497
9,939
-17%
TCE per earning day ²
 12,239
  11,905
  11,887
6,669
9,306
9,970
-19%
Total
             
Available earning days
 27,160
6,778
6,978
6,702
6,684
  27,141
0%
  Owned
25,768
6,329
6,554
6,425
6,420
25,726
0%
  T/C
 1,390
  450
  424
  277
  264
  1,415
2%
Spot rates ¹
 14,058
 13,770
  12,193
 9,919
  13,961
 12,479
-11%
TCE per earning day ²
  14,621
 14,225
 12,944
 10,598
  14,152
 12,982
-11%
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.



49

FINANCIAL REVIEW 2018



 
OPERATION OF VESSELS
In 2018, the charter hire cost in the tanker fleet decreased by USD 6.0m to USD 2.5m compared to USD 8.5m in 2017. The decrease in the charter hire cost was caused by the redelivery of two vessels in 2018.
 
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 8.0m to USD 180.4m in 2018 compared to USD 188.4m in 2017, mainly
 
due to a strong focus on reducing the OPEX. On a per-day-basis, OPEX decreased by 4% in 2018.

The total fleet of owned vessels had 1,046 off-hire and dry-docking days, corresponding to 4% of the operating days in 2018. This compares to 914 off-hire days in 2017, or 3% of the number of operating days.

ADMINISTRATIVE EXPENSES AND OTHER OPERATING EXPENSES
Total administrative expenses and other operating expenses amounted to USD 49.8m in 2018, compared with USD 45.4m in 2017. The increase was mainly due to an increasing number of employees and expenses related to redelivery of vessels.

FINANCIAL INCOME AND EXPENSES
Net financial expenses in 2018 were USD 36.0m compared to USD 36.3m in 2017. New mortgage debt and bank loans obtained during the year have replaced the repayments, causing both the level of mortgage debt and bank loans and the net financial expenses to be at the same level as in 2017.

TAX
Tax for the year amounted to an expense of USD 1.6m compared to an expense of USD 0.8m in 2017. The increase was mainly due to adjustments of deferred tax assets and tax on intra group dividends.






CHANGE IN OPERATING EXPENSES

USDm
Handysize
MR
LR1
LR2
Total
Operating expenses 2017
22.5
  119.5
 18.6
27.8
 188.4
Change in operating days
 -6.2
2.0
-
5.0
0.8
Change in operating expenses per day
 -0.8
  -1.7
  -1.3
 -5.0
 -8.8
Operating expenses 2018
 15.5
  119.8
 17.3
27.8
 180.4
           

OPERATING DATA

USD/day
Handysize
MR
LR1
LR2
Total
Operating expenses per operating day in 2017
6,508
6,435
7,286
7,608
6,673
Operating expenses per operating day in 2018
 6,201
6,344
6,787
6,462
6,389
Change in the operating expenses per operating day in %
-5%
 -1%
  -7%
-15%
-4%
           
Operating days in 2018 ¹
2,499
 18,879
2,555
4,308
 28,241
- Offhire
  20
159
15
  30
  224
- Dry-docking
  30
  529
  57
  206
  822
+/- Bareboat contracts in/out
-
  -730
-
  -739
  -1,469
+ Vessels chartered-in
-
721
-
  694
  1,415
Available earning days 2018
2,449
  18,182
2,483
4,028
  27,141
           
¹ Including bareboat charters.
         



50

FINANCIAL REVIEW 2018




 
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 2018, 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 2018, 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 2019-2021 are based on the Company’s business plans. Beyond 2021, the freight rates are based on the Company’s 10-year historical average rates. Please refer to Note 7 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 tankers. The Company’s focus is on maintaining a high quality fleet, and TORM actively manages the deployment of the fleet between spot market voyage charters, which generally last from several days to several weeks, and time charters.

TORM believes that the important measures for analyzing trends in the results of its operations of tankers consist of the following:

Time charter equivalent (TCE) earnings per available earning day
TCE earnings per available earning day is defined as revenue less voyage expenses divided by the number of available earning days. Voyage expenses primarily consist of port and bunker expenses that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions, freight and bunker derivatives. TORM believes that presenting revenue net of voyage expenses neutralizes the variability created by unique costs associated with particular voyages or the deployment of vessels on the spot market and facilitates comparisons between periods on a consistent basis. Under time charter contracts, the charterer pays the voyage expenses, while
 
under voyage charter contracts the shipowner pays these expenses. A charterer has the choice of entering 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 expected revenue. The analysis of revenue is therefore primarily based on developments in TCE earnings.

Spot charter rates
A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight rate per ton of cargo or a specified total amount. Under spot market voyage charters, TORM pays voyage expenses such as port, canal and bunker costs. Spot charter rates are volatile and fluctuate on a seasonal and year-to-year basis. Fluctuations derive from imbalances in the availability of cargos for shipment and the number of vessels available at any given time to transport these




























51

FINANCIAL REVIEW 2018


 
cargos. Vessels operating in the spot market generate revenue that is less predictable but may enable the Company to capture increased profit margins during periods of improvements in tanker rates.

Time charter rates
A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily or monthly rate. Under time charters, the charterer pays voyage expenses such as port, canal and bunker costs. Vessels operating on time charters provide more predictable cash flows but can yield lower profit margins than vessels operating in the spot market during periods characterized by favourable market conditions.

Available earning days
Available earning days are the total number of days in a period when a vessel is ready and available to perform a voyage, meaning the vessel is not off-hire or in dry-dock. For the owned vessels, this is calculated by taking operating days and subtracting off-hire days and days in dry-dock. For the chartered-in vessels, no such calculation is required, because charter hire is only paid on earning days and not for off-hire days or days in dry-dock.

Operating days
Operating days are the total number of available days in a period with respect to the owned vessels, before deducting unavailable days due to off-hire days and days in dry-dock. Operating days is a measurement that is only applicable to the owned vessels, not to the time chartered-in vessels.
 
Operating expenses per operating day
Operating expenses per operating day are defined as crew wages and related costs, the costs of spares and consumable stores, expenses relating to repairs and maintenance (excluding capitalized dry-docking), the cost of insurance and other expenses on a per-operating-day basis. Operating expenses are only paid for owned vessels. The Company does not pay such costs for the time chartered-in vessels, as they are paid by the vessel owner and instead factored into the charter hire cost.

ACQUISITIONS AND CAPITAL EXPENDITURE
As of 31 December 2018, TORM had a total of nine vessels under construction: two LR1 newbuildings and seven MR vessels. The LR1s are expected to be delivered in the fourth quarter of 2019, and the MRs are expected to be delivered in 2019 and in the first quarter of 2020. The value of the prepayments included in the total asset value amounts to USD 45.5m compared to USD 88.4m in 2017. The decrease is due to the delivery of the four LR2 vessels (TORM Herdis, TORM Hermia, TORM Hellerup and TORM Hilde) in 2018.

RETURNS TO SHAREHOLDERS
The Board of Directors proposes that no dividend be declared for 2018.

GOING CONCERN
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out on pages 45-51. As of 31 December 2018, TORM’s available liquidity including undrawn facilities was USD 406m, hereof a cash position of USD 127m. TORM’s net interest-bearing debt was USD 627m, and the net debt loan-to-value ratio was 53%. Further information on the
 
Group’s objectives and policies for managing its capital, its financial risk management objectives and its exposure to credit and liquidity risk can be found in Note 19 to the financial statements. The principal risks and uncertainties facing the Group are set out on pages 121-124.

The Group monitors its funding position throughout the year to ensure that it has access to sufficient funds to meet its forecast cash requirements, including newbuilding and loan commitments, and to monitor compliance with the financial covenants within its loan facilities, details of which are in Note 2 to the financial statements. Sensitivity calculations are run to reflect different scenarios including, but not limited to, future freight rates and vessel valuations, in order to identify risks to future liquidity and covenant compliance and to enable Management to take corrective actions, if required.
























52

FINANCIAL REVIEW 2018



 
The Board of Directors has considered the Group’s cash flow forecasts and the expected compliance with the Company’s financial covenants for a period of not less than 12 months from the date of approval of these financial statements. Based on this review, the Board of Directors has a reasonable expectation that, taking into account reasonably possible changes in trading performance and vessel valuations, the Group will be able to continue in operational existence and comply with its financial covenants for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing its financial statements.

LONG-TERM VIABILITY STATEMENT
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Board of Directors confirms that they have a reasonable expectation that the Group will continue in operation and meet its liabilities as they fall due for the three-year period ended 31 December 2021. This period has been selected for the following reasons:
·
The general volatility and uncertainty in the product tanker market leads to a significant increase in the degree of judgement and uncertainty beyond a three-year period
·
Three years is generally in line with the forecast horizon for external equity analysts covering the shipping sector
·
TORM will have paid its commitments relating to the Company’s nine newbuildings and will as of 31 December 2021 not have any currently known off-balance sheet liabilities
·
TORM will within the period need to refinance the majority of its current outstanding debt facilities
The assessment of the Board of Directors has been made with reference to the Group’s current financial position and prospects. The assessment of financial performance and cash flows is primarily dependent on the expectations to:
 
·
Successful refinancing of debt with maturity payment of USD 283m in the second half of 2021
·
Demand-supply picture in the product tanker sector including the expected vessel values and freight rates achieved by the Group
·
Development of the fleet
·
Operational expenditure
·
Capital expenditure covering newbuildings and maintenance of the existing fleet including installation of scrubbers and ballast water management systems
·
Interest rates

The expected financial performance and cash flows are based on the same underlying assumptions as used in TORM’s general financial planning. These assumptions are consistent with those used in the Group’s impairment calculations. Further details are provided in Note 7 to the financial statements. Vessel values used in forecasting compliance with financial covenants are based on the latest market valuations from independent recognized shipbrokers. The expected outlook has been subject to a stress test and sensitivity analysis over the three-year period, using a conservative outlook for the product tanker sector with sensitivities including freight rates and vessel values. The Board of Directors has also considered the risks associated with the above-mentioned refinancing of the debt facilities that mature within the three-year period. Further details on TORM’s principal risks and uncertainties are set out on pages 121-124.

The Board of Directors monitors on an ongoing basis if TORM is moving towards a covenant breach in order to incorporate any mitigating actions in due course. Based on the sensitivity analysis, the Board of Directors does not currently expect that TORM will breach its financial covenants including 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 for a prolonged period, there is a risk of a covenant breach after the 12-month Going Concern period, which would require mitigating actions and appropriate waivers.


On behalf of TORM plc



Christian Søgaard-Christensen
Chief Financial Officer, TORM A/S
12 March 2019






























53







54

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.

ACHIEVEMENTS
Following the successful listing of TORM plc on Nasdaq in New York in December 2017, a primary focus for the Board of Directors has been to ensure compliance with the Sarbanes-Oxley Act. An Act to protect investors by improving the accuracy and reliability of corporate
 
reporting, to enhance financial disclosures and combat corporate and accounting fraud. To achieve the comprehensive requirements, TORM has throughout the year had a significant focus on the Internal Control over Financial Reporting across all levels in the organization and stressed the importance hereof. Controls in place to support the management certification have been subject to independent assessment and provided another dimension to the Board oversight.

Throughout 2018 TORM has tested the Company’s digital infrastructure resilience against potential breaches or failures through intentional actions such as attacks on the Company’s cyber security. In doing so TORM was able to increase awareness and establish business continuity and emergency plans to combat future cyber security threats. In line with the General Data Protection regulation which entered into force in May 2018, TORM increased its Cyber Awareness Training, enhancing the competences of all employees.

THE UK CORPORATE GOVERNANCE CODE
This year, TORM is reporting against the 2016 UK Corporate Governance Code (the Code) available at www.frc.org.uk. The Company complies with 52 out of 55 provisions.

DIVERSITY
TORM recognizes that it 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.
 
TORM’s largest shareholder, OCM Njord Holdings S.a.r.l. (Oaktree), holds 64.4% of TORM’s A-shares. However, 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 2018, TORM did not distribute any dividend payments to its shareholders. The Board of Directors further proposes that no dividend be declared for the second half of 2018. For further details on distributions to shareholders in 2018, please see the “Investor Information” section on pages 81-83.
































55

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, 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”.

The Board delegates day-to-day responsibility for running the Company to the Executive Director and passes certain responsibilities to various Board committees.

The Board of Directors has six prescheduled meetings on an annual basis held in connection with the quarterly result announcements, the approval of the annual budget and the Annual General Meeting. The actual meeting frequency is in general higher, as extraordinary meetings are held to account for specific matters. In 2018, the Board of Directors had 15 meetings.

TORM has a one-tier management system in place. This means that Executive Director Mr. 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



 
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 Independ-ent Director, Minority Director and Non-Executive Director, Mr. Torben Janholt as Non-Executive Director, Mr. Göran Trapp as Non-Executive Director and Mr. Jacob Meldgaard as Executive Director. In addition, TORM plc has three Board Observers who attend most of the Board meetings. The Board Observers are Mr. Lars Bjørn Rasmussen, Mr. Rasmus J. Skaun Hoffmann (both employee-elected in TORM A/S) and Mr. Jeffrey S. Stein (Deputy Minority Director).

In accordance with the Corporate Governance Code Provision C.3.1, the Directors, with the exception of the B-Director who is not appointed for a specified term but will continue until removed by the B-shareholder, all retired and were re-elected for a period of two years at TORM plc’s Annual General Meeting on 12 April 2018. Mr. Christopher H. Boehringer, Mr. Torben Janholt and Mr. Göran Trapp were all elected for a two-year period until 2020.

 
BOARD EVALUATION
In 2018, the Board of Directors conducted a self-evaluation. The evaluation 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 evaluation is in the form of a survey. In line with the Board of Directors’ focus in 2018, the evaluation was extended to cover cyber security, crisis management, gender diversity, succession planning
















COMPOSITION OF THE BOARD OF DIRECTORS
Members and attendance at meetings held during 2018

Board of Directors
Meetings attended/held
Mr. Christopher H. Boehringer (Chairman)
 14/15
Mr. David N. Weinstein (Deputy Chairman and Senior Independent Director)
 15/15
Mr. Göran Trapp
 15/15
Mr. Torben Janholt
 13/15
Mr. Jacob Meldgaard (Executive Director)
 15/15
Mr. David Weinstein, Mr. Göran Trapp and Mr. Torben Janholt are considered Independent Directors.


56

CORPORATE GOVERNANCE



 
and talent strategy. In addition to the formal Board evaluation, the Board Chairman met each Non- Executive Director individually during the year to discuss their contribution to the Board. The Board will continue to perform an evaluation on an annual basis.

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 by 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 by 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. In December 2018, Mr. Christian Søgaard-Christensen tendered his resignation as Chief Financial Officer (CFO) in TORM A/S; however, he will
 
continue his normal duties as CFO during a transition period and will continue to attend 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 2018, 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.
























57

CORPORATE GOVERNANCE


 
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
This year, TORM is reporting against the 2016 UK Corporate Governance Code (the Code) available at www.frc.org.uk. The Code sets out principles to apply and provisions which operate on a “comply or explain” basis. TORM’s Corporate Governance Statement is available at http://www.torm.com/about-torm. The following Corporate Governance Report, including the reports of the Audit, Risk, Nomination and Remuneration Committees, outlines how the Company has applied the Code’s principles and provisions.

TORM has considered the individual provisions and is compliant with 52 out of 55 provisions. TORM is not in compliance with the provisions outlined below because of business decisions taken after 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.

·
Provision B.2.3 and Provision B.7.1 – The Non-Executive Directors should be appointed for a specified term, and no longer than a three-year term. 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.
 
·
Provision D2.1 – The board should establish a remuneration committee of at least three independent non-executive directors. In addition, the company chairman may also be a member of, but not chair, the committee if he or she was considered independent on appointment as chairman. The Chairman, Mr. Boehringer, has been appointed as Chairman of the Remuneration Committee. However, given his association with the controlling shareholder and their alignment of interest with regard to remuneration, the Board believes it to be appropriate for Mr. Boehringer to chair that Committee.

From 2019, TORM will adopt the newly released
UK Corporate Governance Code which applies
to accounting periods beginning on or after
1 January 2019.

An overview of TORM’s position on the individual provisions is available on TORM’s website www.torm.com/about-torm.

























58

BOARD OF DIRECTORS


 

MR. 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 (Intl) Limited.
Education: BA degree in Economics from Harvard University, CFA Charterholder and an MBA from INSEAD in France, where he graduated with Distinction.

Mr. Boehringer is Chairman of TORM’s Nomination Committee and the Remuneration Committee and a member of the Risk Committee.

Prior to joining Oaktree in March 2006, Mr. Boehringer worked at Goldman Sachs, FITravel Corporation, Warburg Dillon Read/SG Warburg and LTU GmbH & Co.

Other Board directorships: Eolia Renovables de Inversiones and Life Company Consolidation Group Limited.


 

MR. 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 Audit Committee, Nomination Committee and Remuneration Committee.

Mr. Weinstein has had a number of Board leadership positions in inter alia Seadrill Ltd., The Oneida Group, Deep Ocean Group Holdings AS, 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: Pacific Drilling S.A.


 

MR. 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 and Energex Partners Ltd.




































59

BOARD OF DIRECTORS



 

MR. 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.

 

MR. JACOB MELDGAARD
Executive Director.

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

Mr. Jacob Meldgaard has been Chief Executive Officer since 1 April 2010. Before this, Mr. Meldgaard served as Executive Vice President at 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.

 



































60

AUDIT COMMITTEE REPORT








Mr. Göran Trapp
Chairman of TORM’s Audit Committee

CHAIRMAN’S STATEMENT
Dear Shareholder

The Audit Committee is pleased to present its report for 2018.

The purpose of this report is to describe how the Audit Committee has carried out its responsibilities during the year. Overall, the role of the Audit Committee is to monitor and review the integrity and quality of the Company’s financial statements, internal control and risk management, audit and risk programs, business conduct and ethics, "whistleblowing" and the appointment and findings of the independent auditor.

The Company applies the requirements of the UK Corporate Governance Code (April 2016) for TORM plc’s year ended 31 December 2018.


 
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.

The Board is satisfied that the Audit Committee meets the independence requirements established and applicable laws, regulations and listing requirements, including the UK Corporate Governance Code.  Members of the Audit Committee have the necessary qualifications and competences relevant to the shipping sector - please see the members’ biographies on pages 59-60. The Chairman of the Audit Committee, Mr. Göran Trapp, 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. The Audit Committee also has access to the financial expertise of the Group and its independent auditors and can seek further professional advice at the Company’s expense, if required.
 
Nasdaq in New York requires that the Audit Committee of a US-listed company is comprised entirely of Directors who the Board of Directors has determined to be independent. This term is defined under Rule 10A-3 promulgated under the Exchange Act and under the rules of Nasdaq in New York. Mr. Christopher H. Boehringer, a member of the Audit Committee, is not considered independent.

















COMPOSITION OF THE AUDIT COMMITTEE
Members and attendance at meetings held during 2018

Committee members
Meetings attended/held
Mr. Göran Trapp (Chairman)
 5/5
Mr. Christopher H. Boehringer (resigned 14 August 2018)
 3/5
Mr. David N. Weinstein (appointed 14 August 2018)
 2/5
Mr. Torben Janholt
 5/5
Senior Independent Director Mr. David N. Weinstein attended five meetings in total, three as an Observer and two as a member.
 
Company Chairman Mr. Christopher H. Boehringer attended five meetings in total, two as an Observer and three as a member.
 



61

AUDIT COMMITTEE REPORT




 
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, Mr. Christopher H. Boehringer resigned from the Audit Committee on 14 August 2018. The Deputy Chairman and Senior Independent Director Mr. David Weinstein, who has been deemed to meet the independence requirements, was appointed as new independent member of the Audit Committee.

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 by invitation. During 2018, the Committee met five times. Mr. Göran Trapp and Mr. Torben Janholt attended all meetings held in 2018 in person. Mr. Christopher H. Boehringer attended all meetings held in 2018 in person. Three were attended in his capacity as a Committee member and two as an Observer. Mr. David N. Weinstein attended all meetings held in 2018 in person or by telephone. Two were attended in his capacity as a Committee member and three as an Observer.

In 2018, the Audit Committee particularly discussed accounting policies and estimates, including the quarterly impairment indicator test of the vessels in the Tanker Segment, the quarterly going concern statement as well as the treatment and impact of the revised IFRS standards. Furthermore, the Audit Committee
 
discussed the internal control environment, the new finance system MS Dynamics NAV 2018 and business ethics compliance.

FINANCIAL REPORTING AND SIGNIFICANT FINANCIAL JUDGEMENTS
The principal matter of judgement considered as significant by the Audit Committee in relation to the 2018 financial statements was the impairment of the vessels in the Tanker Segment. This issue was discussed and reviewed with Management and the independent auditors, and the Audit Committee challenged judgements and sought clarification where necessary.

As explained in note 7 to the financial statements on pages 110-111, 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.
























62

AUDIT COMMITTEE REPORT


 
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 2019-2021 are consistent with the long-term planning assumptions used by the Company. Further, the Audit Committee discussed with Management on the freight rates beyond 2021 that are based on the Company’s 10-year historical average spot rates consistent with last year. The Audit Committee was satisfied with the freight rates applied.

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 7 in the
Financial Statements on pages 110-111.

Effectiveness
In 2018, the Audit Committee carried out a detailed self-assessment by way of questionnaire and discussions facilitated by the Head of Group Finance. Based on the self-assessment, no material concerns arose.

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. 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.

Due to UK transitional provisions, TORM plc will undertake a tender and rotation of the independent audit appointment at the latest after completion of the 2020 audit.

Independent audit
During the year, Deloitte undertook the independent audit and certain non-audit work. They provided the Audit Committee with information and recommendations on the financial statements and internal controls.
 
In May 2018, the Audit Committee reviewed and approved the terms, areas of responsibility and scope of the 2018 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 2018 and has been successfully completed at the date of this report.



























63

AUDIT COMMITTEE REPORT



 
Auditor quality assessment
The Audit Committee conducts an annual review of the performance of the independent auditors by a combination of discussions with Management, the quality of written deliverables to the Audit Committee and the quality of dialogue and insights provided during Audit Committee meetings. Having completed this review, the Audit Committee agreed that the audit process, independence and quality of the external audit were satisfactory, 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 the Ethical Standard published by the UK Financial Reporting Council (FRC). Details of the services that the independent auditors cannot be engaged to perform were provided to the Audit Committee in the November 2018 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 2018 can be found in note 4 to the consolidated financial statements.

Audit fees:                         USD 0.6m
Non-audit fees:                 USD 0.2m

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 0.1m corresponding to 17% and related primarily to the review of quarterly statements and the filing of Form F-3. The Audit Committee considered that such services were most efficiently provided by the external auditors, as much of the information used in performing such work was derived from audited financial information. In order to maintain the external auditors’ independence and objectivity, the external auditors did not make any decisions on behalf of Management.

Internal audit
The Audit Committee assesses the need for an internal audit function on an annual basis and makes a recommendation to the Board of Directors. The Audit Committee was satisfied that based on the Company’s size, complexity and its internal control environment, the Company can defer the establishment of an internal audit function but must revisit the decision in 2019.
 
Further, the Audit Committee supported the use of an audit firm to review selected areas when needed or requested by the Audit Committee and/or TORM’s Management.

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 2018, 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 40-43.





























64

AUDIT COMMITTEE REPORT



 
Internal controls
The Board of Directors fulfills its responsibility regarding effectiveness of the risk management and Internal Controls over Financial Reporting (ICFR) through the Audit Committee. As a result of the US listing on Nasdaq in 2017, TORM was required to become compliant with the Sarbanes-Oxley Act (SOX) as of the end of 2018, resulting in increased regulatory requirements. Therefore, Management has, together with the Audit Committee, focused on ensuring that the ICFR meet all relevant requirements.

The ICFR are based on the Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which ensures enabling of best practice and strong control environment. The oversight by the Audit Committee includes the recurring reporting, including management oversight and the outcome of management testing.

Full details of how the business implements its enterprise risk management on a Group basis are set out in the “Risk Management” section of the “Strategic Report” on pages 40-43.
 
Whistleblowing
The Group’s whistleblower policy, which supports the groupwide 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 reported to the Board of Directors as well as the Audit Committee together with details of any corrective actions taken. The Audit Committee also received reports at each Audit Committee meeting providing details of any fraud losses during the quarter.
 
Approval
On behalf of the Audit Committee




Mr. Göran Trapp
Chairman of the Audit Committee
12 March 2019























65

RISK COMMITTEE REPORT



Mr. Göran Trapp
Chairman of TORM’s Risk Committee

CHAIRMAN’S STATEMENT
Dear Shareholder

The Risk Committee is pleased to present its report for 2018.

The Risk Committee is delegated by the Board of Directors to oversee TORM’s risk management and to advise the Board on risk-related matters. The Risk Committee is also responsible for endorsing TORM’s 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-13-nov-2018.original.pdf



 
In 2018, the Risk Committee had focus on understanding risks related to digital infrastructure, IT security and business continuity. 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 behaviours aimed at preventing recurrence. Moreover, 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’s Senior Management, has carried out its duties effectively and to a high standard in 2018.
 
MEETINGS
The Risk Committee normally meets no less than three times a year. 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.

Senior Independent Director Mr. David N. Weinstein attended all Risk Committee meetings in 2018. 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.





















COMPOSITION OF THE RISK COMMITTEE
Members and attendance at meetings held during 2018

Committee members
Meetings attended/held
Mr. Göran Trapp (Chairman)
 3/3
Mr. Christopher H. Boehringer
 3/3
Mr. Torben Janholt
 3/3




66

RISK COMMITTEE REPORT


 
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 applied consistently throughout the organization, the 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 practice throughout the organization. The risk management framework builds on policies and procedures that are applied 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.

TORM safety on board vessel
The Risk Committee reviewed the status and next steps of 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
During 2018, the Risk Committee followed up on key indicators assessing the uptake of electric vehicle technologies in public and commercial transportation and autonomous vehicles. These technologies have over a long-term horizon the potential to impact demand and trading patterns within the refined products sector due to a reduction of transportation requirements.

Review 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. These policies outline core activities and risks within IT and insurance and what measures TORM has taken 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 identified critical systems, increased awareness and established business continuity plans and emergency plans in case of cyber incidents.

EU General Data Protection Regulation
The Risk Committee reviewed TORM’s preparations towards the implementation of the EU General Data Protection Regulation, which became effective in
May 2018.

Fuel availability following the IMO 2020
sulfur regulation
The Risk Committee received support from an independent research consultancy to assess the strategic risk related to scrubber installations. The consultancy presented the Risk Committee with a contrarian view on the attractiveness of having vessels with scrubbers.





























67


RISK COMMITTEE REPORT


 
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. During 2018, the Risk Committee reviewed and adjusted TORM’s interest rate hedging policy to ensure continued alignment with risk appetite.

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 monitored TORM’s current and forecasted liquidity position and compliance with financial covenants on borrowing facilities over the coming 12 months. The Risk Committee performed a 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. TORM’s annual Enterprise Risk Management Report was approved at the Board of Directors meeting in Q1 2019. TORM’s annual risk assessment is presented in detail in the “Risk Management” section.

 
Approval
On behalf of the Risk Committee


Mr. Göran Trapp
Chairman of the Risk Committee
12 March 2019



























68

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 2018.

The purpose of this report is to describe how the Nomination Committee has carried out its responsibilities during the year.
 
SUMMARY OF THE ROLE OF
THE NOMINATION COMMITTEE
It is the responsibility of the Nomination Committee to regularly review the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board of Directors and further to make recommendations to the Board of Directors with regard to any changes that may be deemed necessary. The Nomination Committee will also maintain an oversight of the operation and effectiveness of the Board of Directors and the corporate governance and management of the Company.

In addition, the Nomination Committee considers succession planning for Directors and the Chief Executive Officer in the course of its work, considering the challenges and opportunities facing the Company, and the skills and expertise needed on the Board of Directors in the future.

The Committee has set a target of 20% female representatives on the Board in 2020 or 17% provided that the Board of Directors is extended with one additional member.
 
The Nomination Committee also reviews the leadership needs of the organization, both Executive and Non-Executive, with a view to ensuring the continued ability of the organization to compete effectively in the marketplace.

The Nomination Committee also establishes the process for conducting the review of the performance of the Executive Director of the Company.

The Nomination Committee’s Terms of Reference are available at:
http://www.torm.com/uploads/media_items/terms-of-reference-nomination-committee.original.pdf



















COMPOSITION OF THE NOMINATION COMMITTEE
Members and attendance at meetings held during 2018

Committee members
Meetings attended/held
Mr. Christopher H. Boehringer (Chairman)
 1/1
Mr. Torben Janholt
 1/1
Mr. David N. Weinstein
 1/1




69

NOMINATION COMMITTEE REPORT



 
ACTIVITIES DURING THE YEAR
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 evaluation is in the form of a survey. In line with the Board of Directors’ focus in 2018, the evaluation was extended to cover cyber security, crisis management, gender diversity, succession planning and talent strategy. The Board will continue to perform an evaluation on an annual basis.

Board composition
According to Nasdaq New York requirements, the Audit Committee of a US-listed company has to consist entirely of non-independent Directors. Mr. Christopher Boehringer was not considered independent, and during 2018 he stepped down from the Audit Committee.
 
After considering various candidates, the Nomination Committee decided to recommend to the Board of Directors to appoint the Deputy Chairman, Mr. David Weinstein, who was deemed to meet the independence requirement and was willing to accept the appointment, as new independent member of the Audit Committee. The Board of Directors subsequently approved the appointment.

Review of the Terms of Reference
In accordance with its Terms of reference, the Nomination Committee reviewed and reassessed the Terms of Reference to include updated text in relation to the Financial Reporting Council, the revised UK Corporate Governance Code 2018 and guidance from The Institute of Chartered Secretaries and Administrators.

This updated version was recommended to the Board of Directors and subsequently approved.
 
Approval
On behalf of the Nomination Committee




Mr. Christopher H. Boehringer
Chairman of the Nomination Committee
12 March 2019


















70

REMUNERATION COMMITTEE REPORT




 

Mr. Christopher H. Boehringer
Chairman of TORM’s Remuneration Committee


STATEMENT BY THE CHAIRMAN OF THE REMUNERATION COMMITTEE

Dear Shareholder

On behalf of the Remuneration Committee, the Directors’ Remuneration Report is presented in
the following section for the year ended 31 December 2018.

This report is on the activities of the Remuneration Committee for the period 1 January 2018 to
31 December 2018. It sets out the remuneration details for the Executive and Non-Executive Directors of the Company. It has been prepared in accordance with Schedule 8 of the Large and

 
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in August 2013 (the “Regulations”).

The report is split into two main areas:
·
The statement by the Chairman of the Remuneration Committee
·
The annual report on remuneration See pages 79-85

The revised Remuneration Policy, approved by the shareholders at the Annual General Meeting (AGM) on 12 April 2018, took effect from the date of that meeting. As 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.

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.

SUMMARY OF THE ROLE OF THE REMUNERATION
COMMITTEE
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 Chief Executive Officer offer appropriate incentives to enhance the Company’s performance.





















COMPOSITION OF THE REMUNERATION COMMITTEE
Members and attendance at meetings held during 2018

Committee members
Meetings attended/held
Mr. Christopher H. Boehringer (Chairman)
 2/2
Mr. David N. Weinstein
 2/2
Mr. Torben Janholt
 2/2

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REMUNERATION COMMITTEE REPORT


 
The Remuneration Committee’s responsibilities include:
·
Setting the strategy, structure and levels of remuneration of the Company’s Directors and Chief Executive Officer
·
Ensuring compliance with policies while adhering to legislative regulations
·
Aligning the financial interests of the Chief Executive Officer 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 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 Chief Executive Officer

ACTIVITIES DURING 2018
Chief Executive Officer’s KPIs
The Committee held two meetings in 2018. During these meetings, the key elements discussed within the Remuneration Committee included a review of the Chief Executive Officer’s personal key performance indicators (KPIs) for 2018 to ensure
 
alignment with the Group strategy. There were also discussions related to the Chief Executive Officer’s performance in 2017 to adjudicate on bonus outcomes.

The Remuneration Committee assessed the Chief Executive Officer’s performance against long-term and short-term targets. The Remuneration Committee has assessed the Chief Executive Officer’s contribution against his personal performance measures. As a result, the performance bonus was calculated at 60% of the yearly salary for the objective-based contributions in 2017. Throughout this past year, the Remuneration Committee maintained the link between pay and performance and will continue to do so.

Remuneration Policy review
Ahead of the AGM held in April 2018 and in accordance with its Terms of Reference, the Remuneration Committee reviewed the Remuneration Policy. The Policy was recommended to the Board of Directors and subsequently approved at the AGM.
 
Terms of Reference review
Pursuant to its Terms of Reference, the Remuneration Committee reviewed its Terms of Reference. Changes were incorporated in relation to compliance with the revised UK Corporate Governance Code 2018 and to include updated model language from the Institute of Chartered Secretaries and Administrators. TORM follows the UK Corporate Governance Code as issued by the Financial Reporting Council. The Code sets out principles to apply and provisions which operate on a “comply or explain” basis. The revised Terms of Reference were recommended by the Remuneration Committee to the Board of Directors and subsequently approved.

Board of Directors Fees
The Remuneration Committee reviewed the Board and Committee fees in light of TORM’s recent listing on Nasdaq in New York. The Remuneration Committee was in agreement that the Board and Committee fees were in line with current trends and did not require adjustment.





























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REMUNERATION COMMITTEE REPORT


 
LTIP allocations
In February, the Remuneration Committee recommended to the Board of Directors that a change to the Company’s current Long-Term Incentive Plan (LTIP) be considered as the current LTIP had very limited retention effect within the Company. The changes recommended included adjusting the strike price to a more reasonable figure, calculated as the average of 90 days before the AGM on 12 April 2018 plus a 15% premium. Furthermore, the exercise period for any vested Restricted Share Units should be increased from 180 to 360 days. This recommendation was approved by the Board of Directors and subsequently at the AGM held 12 April 2018. In further discussions, the Remuneration Committee reviewed the recommended LTIP 2018 allocations per individual.
 
General discussion
The Remuneration Committee also discussed organization health including key metrics such as hires, retention and demography. Additionally, the 2018 Remuneration Committee Report was discussed and agreed ahead of publication.

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.

During the year, the Remuneration Committee received advice and/or services from the Head of Group HR and the Chief Executive Officer together with other senior group employees, 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 2019 AGM, and the Board will be available at the meeting to respond to your questions on any aspect of this report.


Mr. Christopher H. Boehringer
Chairman of the Remuneration Committee


















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REMUNERATION COMMITTEE REPORT




ANNUAL REPORT ON REMUNERATION
The information provided in the following part of the Directors' Remuneration Report is subject to audit.
 
Chief Executive Officer’s remuneration table (showing single total figure of pay for the year) The table sets out the 2016-18 remuneration for Mr. Jacob Meldgaard in his roles as Executive Director of TORM plc and Chief Executive Officer (CEO) of TORM A/S, a subsidiary of TORM plc.

 
Base salary
The CEO’s base salary was reviewed on the 7 February 2018 to determine the appropriate salary for the coming year. Base salary as of 1 January 2017: DKK 6.0m. Base salary as of 1 January 2018: DKK 6.2m.

The base salary will be discussed and agreed with the Chairman of the Board once a year. The next discussion shall take place in early 2019 by the Remuneration Committee. 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 2018, the amount of DKK 276t (USD 44t) 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 2019, changes in allowances and benefits are not expected.












MR. JACOB MELDGAARD

USD '000
Salary¹
Taxable benefits
Annual performance bonus²
Total
2016 restated
873
 41
559
  1,473
2017
1,004
42
580
  1,626
2018
1,063
44
425
1,531
         
 
Chief Executive Officer
 
Employees entire group
USD '000
2018
2017
% Change³
% change
Salary and Directors Fees
1,063
1,004
6%
4.1%
Taxable benefits
44
42
3%
0.0%
Annual bonus
425
580
-27%
-1.5%
Total
1,531
  1,626
-6%
 
¹ The total salary of Jacob Meldgaard consists of both his salary as CEO of TORM A/S (USD 983t) and as Executive Director of TORM plc (USD 80t).
² The total annual performance bonus of the Executive Director of TORM plc for 2018 arising in the period 1 January 2018 to 31 December 2018 was DKK 2,790,000 (USD 425t).
³ % Change in DKK for Salary and Directors Fees is 3%, Taxable Benefits is 0% and Annual Bonus is (-23%).



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REMUNERATION COMMITTEE REPORT



 
Performance bonus 2017
The Board of Directors provided the CEO with a performance cash bonus for the financial year 2017 in the following ranges and based upon the following parameters:

·
The fulfilment of specific performance metrics set by the Company (up to 50% of the CEO’s base salary)
·
TORM Price to Net Asset Value ratio versus peers based on a weighted average Price to Net Asset Value (up to 50% of the CEO’s base salary)
·
Up to 20% of the CEO’s fixed annual salary based on the sole discretion of the Company’s Board of Directors