Annual Report (ESEF) • Mar 23, 2022
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Download Source FileTorm PLC 213800VL1H1ABVM1ZF63 2021-01-01 2021-12-31 213800VL1H1ABVM1ZF63 2020-01-01 2020-12-31 213800VL1H1ABVM1ZF63 2019-01-01 2019-12-31 213800VL1H1ABVM1ZF63 2021-12-31 213800VL1H1ABVM1ZF63 2020-12-31 213800VL1H1ABVM1ZF63 2018-12-31 213800VL1H1ABVM1ZF63 2019-12-31 213800VL1H1ABVM1ZF63 2019-01-01 2019-12-31 ifrs-full:IssuedCapitalMember 213800VL1H1ABVM1ZF63 2019-01-01 2019-12-31 ifrs-full:SharePremiumMember 213800VL1H1ABVM1ZF63 2019-01-01 2019-12-31 ifrs-full:TreasurySharesMember 213800VL1H1ABVM1ZF63 2019-01-01 2019-12-31 ifrs-full:ReserveOfCashFlowHedgesMember 213800VL1H1ABVM1ZF63 2019-01-01 2019-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800VL1H1ABVM1ZF63 2019-01-01 2019-12-31 ifrs-full:RetainedEarningsMember 213800VL1H1ABVM1ZF63 2020-01-01 2020-12-31 ifrs-full:IssuedCapitalMember 213800VL1H1ABVM1ZF63 2020-01-01 2020-12-31 ifrs-full:SharePremiumMember 213800VL1H1ABVM1ZF63 2020-01-01 2020-12-31 ifrs-full:TreasurySharesMember 213800VL1H1ABVM1ZF63 2020-01-01 2020-12-31 ifrs-full:ReserveOfCashFlowHedgesMember 213800VL1H1ABVM1ZF63 2020-01-01 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800VL1H1ABVM1ZF63 2020-01-01 2020-12-31 ifrs-full:RetainedEarningsMember 213800VL1H1ABVM1ZF63 2021-01-01 2021-12-31 ifrs-full:IssuedCapitalMember 213800VL1H1ABVM1ZF63 2021-01-01 2021-12-31 ifrs-full:SharePremiumMember 213800VL1H1ABVM1ZF63 2021-01-01 2021-12-31 ifrs-full:TreasurySharesMember 213800VL1H1ABVM1ZF63 2021-01-01 2021-12-31 ifrs-full:ReserveOfCashFlowHedgesMember 213800VL1H1ABVM1ZF63 2021-01-01 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800VL1H1ABVM1ZF63 2021-01-01 2021-12-31 ifrs-full:RetainedEarningsMember 213800VL1H1ABVM1ZF63 2018-12-31 ifrs-full:IssuedCapitalMember 213800VL1H1ABVM1ZF63 2018-12-31 ifrs-full:SharePremiumMember 213800VL1H1ABVM1ZF63 2018-12-31 ifrs-full:TreasurySharesMember 213800VL1H1ABVM1ZF63 2018-12-31 ifrs-full:ReserveOfCashFlowHedgesMember 213800VL1H1ABVM1ZF63 2018-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800VL1H1ABVM1ZF63 2018-12-31 ifrs-full:RetainedEarningsMember 213800VL1H1ABVM1ZF63 2019-12-31 ifrs-full:IssuedCapitalMember 213800VL1H1ABVM1ZF63 2019-12-31 ifrs-full:SharePremiumMember 213800VL1H1ABVM1ZF63 2019-12-31 ifrs-full:TreasurySharesMember 213800VL1H1ABVM1ZF63 2019-12-31 ifrs-full:ReserveOfCashFlowHedgesMember 213800VL1H1ABVM1ZF63 2019-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800VL1H1ABVM1ZF63 2019-12-31 ifrs-full:RetainedEarningsMember 213800VL1H1ABVM1ZF63 2020-12-31 ifrs-full:IssuedCapitalMember 213800VL1H1ABVM1ZF63 2020-12-31 ifrs-full:SharePremiumMember 213800VL1H1ABVM1ZF63 2020-12-31 ifrs-full:TreasurySharesMember 213800VL1H1ABVM1ZF63 2020-12-31 ifrs-full:ReserveOfCashFlowHedgesMember 213800VL1H1ABVM1ZF63 2020-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800VL1H1ABVM1ZF63 2020-12-31 ifrs-full:RetainedEarningsMember 213800VL1H1ABVM1ZF63 2021-12-31 ifrs-full:IssuedCapitalMember 213800VL1H1ABVM1ZF63 2021-12-31 ifrs-full:SharePremiumMember 213800VL1H1ABVM1ZF63 2021-12-31 ifrs-full:TreasurySharesMember 213800VL1H1ABVM1ZF63 2021-12-31 ifrs-full:ReserveOfCashFlowHedgesMember 213800VL1H1ABVM1ZF63 2021-12-31 ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember 213800VL1H1ABVM1ZF63 2021-12-31 ifrs-full:RetainedEarningsMember iso4217:USD iso4217:USD xbrli:shares ANNUAL RE PORT 20 2 1 CONTENTS 2 STRATEGIC RE PORT AT A G LANC E Strategic F ramework a n d Highlights TORM at a G lance Letter from t he C hairman an d CEO i n Rev iew The Produc t Tanker Market in Market Drivers an d O utlook BUSIN ESS MODEL A ND STRATEGIC CH OICE S Value C hain in O il Trans portation Ou r Strategic C hoices Leading Product Tank e r Owner The TO RM F lee t Solid C apital S tructure Gree ner F ut ure Wit h Z er o C arbo n E mis sio n Ambit ion Optim izing P er forman ce N ow Lo ng Te rm D e c arb oni z ati on Superior Operating P latform In te gr at ion of Se c on d - Hand V essels OUR RESPON SIBILIT Y Respo nsi bilit y R epo rt Stakeholde r Engagement and M ateriality Health Safety and Security Environmental E fforts Peopl e Huma n Right s a nd B usin ess Eth ics Commun ity Re sp on sib le P roc u rem en t SASB I ndex a n d Re spo nsi bility D ata REVIEW & R ISK Financ ial Rev iew Risk M anagement TORM ANNUAL R EPORT 2 021 GOVERNANC E GOVE RNA NCE I NTR ODU CTI ON Chairman’s Introduction GOVERNANC E STRUCTUR E TOR M’s Go verna nce Str ucture Board of Directors Board and Comm ittee Meet ing A ttenda nce Board Activities COMMITT EE REPORT S Audit Com mittee Re port Risk Co mmittee R eport Nomination Committee Report Remun eration Co mmitt ee Repor t OT HER Investor Information Engagem ent and Decisio n Making Directors’ Report Statement of Directors’ Res ponsibilities Safe Habor Statement FINANCI AL STATEMENTS CON SOLIDAT ED FINANC IAL STATEM ENTS Consolidated Income Statem ent Consolidated Statement o f Comprehensive Income Consolidated Balance Sheet Consolidated Statement o f Changes in E quity Consolidated Cash Flow State ment Notes Consolid ated PARE NT COMPA NY FINANC IAL STA TEM ENTS Parent Company Balance Sheet Chang es in Equi ty Notes to Parent Co mpany Financial Statements OT HER Independent Auditor’s Report TORM Fl eet Overv iew Glossary and APM CONTEN TS Contents TORM S trategy 18 Responsibilit y Report 32 Corporate Governance 70 Income Statem ent 114 TORM ANNUAL R EPORT 2 021 KEY F IGURES 3 TCE EAR NIN GS (US D/DAY ) NET PROFI T/LOSS (USD M) ADJUST ED RO IC (% ) DIVID END/S HAR E (USD) INCOME STATE MENT (US DM) Rev enue Time charter equivalent earn ings (TCE) ⁾ Gross profit ⁾ EBITDA ⁾ Operating profit(loss) (EBIT) Financ ial ite ms - - - - - Profit(loss) before tax - - Net profi t(loss) for the year - - Net profi t(loss) ex n on - recurrent items ⁾ - - BALANC E SH EET A ND CAS H FL OW (US DM) Non - current assets Total assets Equity Total liabilities Invested capital ⁾ Net interes t - bear ing d ebt ⁾ Net Asse t Value (NA V) ( US Dm) ⁾ Cash and cash eq uivalents incl restricted cash Free cash flow - - - - KEY FINANCIAL FIG URES ⁾ Gross margins Gross profit EBITDA Operating profit(loss) (EBIT) Re tu rn on Eq uit y (R o E) - - Return on Invested Capital (RoIC) Adjusted RoIC Equity ratio TCE per day (USD) OPEX per day (USD) Loan - to - valu e (LT V) ra tio SHAR E - RELATED KEY FIG URES ⁾ Basic earnings(loss) per share (USD) - - Diluted earnings(loss) per s hare (USD) - - Dividen d per sha re (USD) - - Net Asset Value per s hare (NAVshare) ⁾ Stock pr ice i n DKK ( per sh are of USD ) ⁾ Number of sha res ( mill) ⁾ ⁾ Number of shares w eighted average (mill) ⁾ ⁾ For a definition of the calculated key figures (the APMs) please refer to the glossary on pages - ⁾ Based on broker valuations as of December ex charter commitments ⁾ End of period ⁾ Excluding treasury shares 13,703 19,800 16,526 12,982 14,621 0 5,000 10,000 15,0 00 20, 000 25,0 00 2021 2020 2019 2018 2017 - 42 88 166 - 35 2 -100 -50 0 50 100 150 200 2021 2020 2019 2018 2017 0.2 9.3 5.2 0.3 2.4 0 2 4 6 8 10 2021 2020 2019 20 18 2017 0.00 0.85 0.10 0.00 0.02 0 0.2 0.4 0.6 0.8 1 2021 2020 2019 20 18 2017 KEY FI G URES Key Figures TORM ANNUAL R EPORT 2 021 AT A G LANCE 4 DIGIT AL FOUND ATIO N S TRAT EGIC FRAM EWO RK OUR BUSI NESS M ODEL Leading pro duct tank er own er Green fu ture with a zero em issio n ambitio n Financial flexibility and fleet growth Spot expo sure Ambi tious a nd o ngoi ng dec arboni zati on Zero CO2 emissi ons TORM’s solid capi tal struc ture a nd our solid l iquidity pos ition sup port selective and efficient fleet growth, while returning value to our shareholder s. TORM has scale in all major product tanker vessel classes and is act ively managing t he spo t market e xposure through ch arter ag reemen ts, F FAs, and fleet compositi on. Imminent CO 2 reduc tions fo r reaching 2030 in dustry targ et already in 2 025. Long - term ind ustry co llaborat ions supporting our pledge of zero carbon emissio ns from operating our f leet in 2050. Read m ore on page 18 Read m ore on page 19 Read m ore on page 20 - 25 Read m ore on page 26 - 27 HOW WE D O IT Superior op erati ng platfo rm (One TOR M) Integ rate d ope ratio ns Opti mal v esse l po sitio ning Safe techni cal managem ent Efficiency s upported by digitalization Commer cial, t echnical , sale & purchase, and support divisions work to wards co mmon goals in a network - based organ izat ion wit h easy internal access supporting efficient data - based decision makin g TORM uses advanced dat a - driv en modell ing and co mmercial experience to assess cust omers’ needs and provide for optimal vessel positioning supportin g superior p erforma nce. The highes t saf ety stand ards are the cornerstones in our in - house technical o perations. This is obtained through continued tr aining and developme nt of our +3,000 seafarers. A tran sparent and data dri ven platfo rm with focu s on op timiz ing processes and advanced modelling for supportin g efficient commercial and technical operations. Read m ore on page 28 - 30 Read m ore on page 28 - 30 Read m ore on page 28 - 30 Read more on page 28 - 30 At a Glan ce OUR STRATEGY The refer enc e produc t tank er compan y. Safely l eading the wa y wi th environ mental ly respon sible res ults . TORM A NNUAL REP ORT 2021 AT A GLANCE 5 STRATEGIC HIG HLIGHTS LEADING PRODUCT TAKNER OWNER GREEN FUTURE WITH A ZERO EMISSION AMBITION SUPERIOR OPERATING PLATFORM 85 Vessels in all major prod uct ta nke r ves s el classes Largest fleet since 1889 as per th e date of th is repo rt 37.6% AER r educt ion compared to IMO baseline (2008) USD 30.4% Gross profit margin 0% ROIC In a highly challeng ed market Zero Carbo n Shipp ing Ambiti on in 2050 TORM signe d up for Mærsk Mc - Kinney Møller Center f or Zero Ca rbon Sh ipping 4 OUT OF 4 Quarte rs in 2021 we out perform ed our peers in o ur larg est vessel class MR 52.3 % N et LTV Additi onal ca pacity availa ble f or fleet g rowt h 0. 37 Accidents per one million expo sure ho urs LTA F ( L ost Time Accidents Fr equency) USD 210 m Available liquidity Including undrawn faciliti es and restricted cash TORM ANNUAL REPORT 2021 AT A GLANCE 6 TORM ANNUAL REP ORT 2021 AT A GLANCE 6 TORM ANNUAL REPORT 2021 TORM AN NUAL REPORT 2021 Despite a y ear with challengin g markets, TORM on ce agai n demonst rated its superio r platform by commerc ially out performing peers in the MR vessel class in all four quarters o f 2021 . F urthe r , TOR M managed to expand its fleet to the largest in the history of the co mpany, while keeping a stro ng focus on imminent CO 2 red uct ions and l ong - term decarb onization collaboration s. Christopher H. Boehringer, Chairma n of the B oard 2021 H IGHLIGHTS 8 TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 8 In 2021 , the product ta nker market s how ed low demand for product tanker services due to COVID - 19 which ine vitabl y affect ed the industry’s ea rning s . SU PERIOR O PERATING PL ATFORM Runni ng a f ully in tegrated On e TORM p latform is a very delib erate strat egic choic e made b y TORM. We contin uousl y benc hmar k our performan ce ag ainst peers to ma ke sur e that ou r b usiness model i s always optimi zed . Onc e agai n, we are p leased th at 202 1 was also a year wh ere TORM demonstra te d outsta ndi ng commerc ial p erforman ce while k eepin g a stead y han d on opera tions i n cha llengin g markets. P REP ARATION S FOR A GRE ENER FU TURE The Board of Di rectors ha s a stron g foc us on TO RM’s exposure to en vironmen tal, soci al , and governmen tal risk s an d opportu ni ties. In 2 021 , the Boa rd of Di rector s iden tified a number of indic ators which cou ld cha nge the fu ndamen tals of the produ ct ta nker ma rket. - 40 % CO 2 reduction target by 20 25 To prepar e for th e futu re , the Board of Di rectors ha s been work ing with va rious topics together with TORM’s Manag ement . F ocus ha s been on long - term chal lenges such as futu re fu els and n ext genera tion ta nker vess els, but a lso on more n ear - term poten tial c hall enges, suc h as the a ccess to c api tal ma rkets. Inves tors a nd b anks are becom ing more selec tive , and th ey requ ire a h igh level of transp arenc y and th at compa nies a re prepared to meet relevan t indu stry E SG requi rements. We are ve ry c onfi dent th at TORM is in a good p osition , and therefore , we h ave dec ided to acc elerate our environ mental efforts a nd h ave set a ta rget t o deli ver on IMO ’s CO 2 redu ction target by 2025 – instead of 2030 ( AER reduc tion c ompared to IM O basel ine (2008 ) . Furth er, we wil l ac tively partic ipat e in the strongest coal ition s to ach ieve our ambi tion of no emissions from opera ting ou r fleet by 2050. TORM is determin ed to ta ke resp onsib ili ty for and create a greener fu ture. LE ADING P RODUCT T ANKER O WNER Despi te operatin g in a cha lleng ing mark et in 2 021, TORM man aged to inc rease its f leet to the la rgest in TORM’s hi story. Th e Team Ta nk er transa ction wa s financ ed pa rtly th rough is suanc e of new sh ares, contri butin g to our mai nt enanc e of a robu st ca pital structu re . The ac cess to c apita l mark ets is di verse , as attrac tive terms h ave be en o btain ed in b oth the b ank and leasing markets. TORM is prep ared for the opportun iti es aris ing in the years to c ome . 100% Outperformance of all p eers on Adjusted Return on Inv ested Capital (ROIC) In 2021 , TORM’s integ rated pl atf orm deli ver ed str ong results i n a c hall enged mark et. Once again, we h ave shown the abi lity to p erform amon gst the str ongest in the produ ct ta nker ma rket , and we bel ieve that T ORM is we ll p osition ed to del iver market l eadi ng va lue to its shareh olders a lso in the com ing y ears. Ch ristoph er H. Boehri nger, C ha irman of the Board Jacob Meldga ard, E xecutive D irector LETT ER FROM THE C HAI RM AN A ND C EO TORM IS ON TRAC K ON ALL ST RAT EGIC AM BITIO NS 202 1 Highligh ts TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 9 2021 IN REVIEW January March May June TRIBUTE TO THE PHILI PPIN ES TORM took delivery of a second - hand MR prod uct tank er ves sel, and to pay trib ute to o ur Philip pine seafarers, the vessel was named TORM Philippine s. EIGHT VESSE LS WITH CHEM ICAL CA PABIL ITIE S ADDED TORM pu rchased e ight 2007 - 2012 built MR product ta nker ve ssels from Team Tankers i n a combine d cash and s hare base d transa ction. Six of the ve ssels provided TORM with en hanced tra ding f lexib ili ty through c hemical tra ding capabil ities. Read more on page 30 TORM SEAF ARERS GOT THEIR FIRST VAC CINES TORM seafarers were among the first to re ceive CO VID - 1 9 vaccines onboard ves sels ca lling port s in the U S. THREE MODERN L R2 VESSELS AD DED TORM took deliver y of the f irst of three 2015 - built scr ubber - fitte d LR2 v essels fr om Okeani s. The trans action supp orted o ur strategy to increas e exposur e in the LR2 vessel class . Read more on page 3 0 Full Yea r Full Yea r Full Yea r YET ANOTHER Y EAR OUTPERF ORMING PEERS 2021 was a year in which TORM once again demons trated super ior com mercia l performan ce. In all quar ters, we outp erfor med our pee rs on TCE in T ORM’s larg est vessel c lass , the vessel c lass . Read more on page 55 LARGES T FLEET IN TORM HIS TORY Despite c hallen ging m arkets TO RM manag ed to add eleven sec ond - hand and on e newbu ilding vessels to the flee t during 20 21 prepari ng TORM for reco vering m arkets w ith the larg est fl eet in TORM’s h istor y. DIVERSIF IED FUNDI NG OBTAINED TORM rais ed a tota l of USD 549 m in financing and refina ncing tra nsact ions in a combination of bank and sale and leaseback financing. Througho ut the year, we demo nstrated t hat we have ac cess to att ractive fun ding in var ious market s. TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 10 [Te xt] 2021 IN REVIEW October Novemb er December December WELL AT TORM – OUR WELLNESS PROGRAM Our wellnes s program promoting and enco uraging phy sical an d mental wel lbeing celeb rated its first annivers ary. Read more on page 42 FLETTNER R OTORS Through o ur joint ve nture wi th ME Product ion and GSI, we have de cided to t est the po tentia l of modern Fl ettner Roto rs – to be installe d on TORM H ouston and TORM Helene – with expected energy sa vings of 5-7 %. Read more on page 25 LR2 NEWBUIL DING DELIVE RED The scrubber - fitt ed newbuilding TORM Helene was delivered and is ready to b e fitted with two Flettner R otors . In 2021, a tota l of USD 3 20m was inves ted in fixed assets . Read more on page 30 TORM JOINED MÆ RSK MC- KINNEY MØLL ER CENTER FOR ZERO CARBON SHIPPING TORM be came a mi ssion ambassador in efforts to achieve zero carbo n emissio ns from operati ng our flee t in 2050. Read more on page 26 Full Yea r Full Yea r CO 2 REDU CTIO N Already in 2025 , TORM aim s to reac h IMO’s 2030 target of reduci ng emiss ions b y 40%, an d we will be even more ambitious for 2030. In 2021, we manage d to reduce our Annu al Efficiency Ra tio (AER) by 37.6% compared to th e IMO ba seline ( 20 08 ). Read more on page 22 - 27 VACCINATI ON DRIVES Thanks to t he extrao rdinary and very professional efforts of our crew members, we managed to vaccinate more than 1,100 seafarers agains t COVID - 1 9 in harbors around the world supporti ng our effo rts to sec ure optima l operations. TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 11 2021 P RODUCT TANKER MAR KET 2021 c ontinu ed to see gen era lly weak ma rket cond itions, a ffec ted by temp orary di srupti ons on the globa l oil demand rec overy pa th, a w eak cru de tank er market , an d con tinued oil stoc k draw s which w ere aggra vated by suppl y tightness. OIL DEMAND RE COVERY DE SPITE COVID - 19 OUTBREA KS At the star t of 202 1, in creasi ng C OVID - 19 cases led to new cou ntermea sures in Eu rope in pa rticul ar, temporari ly dera ili ng glob al oil d emand recovery. Th is was fu rther ag grava ted by the OPE C+ dec ision to postpon e sched uled producti on inc reases an d lea ve outpu t quota s uncha nged for th e first f our m onths of the yea r. In ad dition , Saud i Arabi a volun taril y cut i ts produc tion by an add itiona l 1m b/d in Febru ary - April 2021, w orsenin g the woes of the cru de tan ker mark et. In the sec ond q uarter of 2021 , the em ergenc e of the more tran smissi ble D elta vi rus varia nt, whi ch wa s first iden tified i n India and sp read qui ckly to the r est of the world, l ed to n ew lock downs i n severa l Asia n coun tries where vac ci nation ra tes rema ined low. Thi s resul ted in Southea st Asia n cl ean produc t imports d roppin g by approxi mately 20% qua rter - on - quarter (a nd y ear - on - year) in th e third quarter of 2 021 , to a mul ti - yea r low level. At th e same ti me, su cces sful rol louts of vacc inati on programs in E urope a nd th e US allowed coun tries in the West to keep ec onomi es open despi te inc reasin g COVID - 1 9 cases, resu ltin g in signif icant im provements in d emand for roa d tran sporta tion f uels. F or exampl e, US gasol ine c onsu mption cl imbed to pr e - COVID - 19 seasona l level s by th e end of 2021, u p from a - 13% l evel a year b efore. T owards the en d of th e year, th e emergenc e of the even mo re tran smissi ble Omi cron virus va rian t led a few coun tries to r e- introdu ce some restric tions , however, the im pac t was as sessed to remain relati vely mu ted, with the ma in ef fect esti mated to be on jet fu el dema nd. By the end of the y ear, glob al oil dem and w as assessed for th e first ti me si nce th e COVID - 1 9 outb reak in ea rly 2020, t o ha ve touch ed the 100m b/ d mark , the avera ge lev el of 201 9 gl obal oi l demand. THE PRODU CT TANK ER MARKET IN 2021 The stock dra ws whic h prevail ed throug hout 202 1 kept produ ct tanker freight r ates depres sed, despi te improv ing under lying oil demand a nd positive devel opment s on the to nnage supply side. Loo king ahead , the pr oduct tanker market is support ed by positiv e dem and trends an d limited supply growth . GLOBAL OIL DEMAND Source: Woo dMack enzie TANKER FREIGHT RATES IN 2021 Source: Clarksons 80 85 90 95 100 105 2019 1q20 2q20 3q20 4q20 1q21 2q21 3q21 4q21 Index (2019=100) 0 5,000 10,000 15,0 00 20, 000 25,0 00 30,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec LR2 Ra s Tanur a - Chiba LR1 R as Ta nura - Ch iba MR Av erag e Average TCE in USD/day / TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 12 OIL SU PPLY LIMITED B Y OPEC + QUO TAS A ND DISRUP TIO NS On the oi l sup ply side, the ye ar wa s cha racterized by several distu rbanc es. Espec iall y the US G ulf experienc ed sev eral ex tensive su ppl y di sruptions in 2021, resu ltin g in (temporari ly) lower prod uct exp orts from the U S at th e same time a s imports in creased. In Feb ruary 2021, extrem ely c old wea ther in Texas l ed to aroun d 5m b/ d of U S Gulf Coast refi nery c apac ity taken offlin e at its p eak. C onsequ ently , US Gu lf exports dropped by 22% i n February - March 2021 c ompared to Janua ry 2021 . However, this a lso led to an a lmost 40% month - on - month surge in US imp orts in M arch 2021, a s aff ected refi neries retu rned o nl ine onl y gradu ally. High er need f or imports su pp orted esp ecia lly the transa tlan tic trade, b ut al so led to i ncrea sed fl ows from Asia to c ater for lost outpu t in th e US an d the gen eral West marke t. Thi s supp orted esp ecia lly th e larg est produc t tan kers, with LR2 b enchma rks reac hing levels above USD /da y 20,000 by the en d of the f irst qu arter of 2021 . Furth er, the we ek - lon g bl ockage of the Suez Canal in Ma rch 2021 sent a nu mber of vess els a round the Ca pe of Good Hope, al thou gh th e impact on the market wa s short - lived. In Ma y 2021 , the Col onial pipelin e was shu t for si x days as a resu lt of a cyb er - attack , whi ch cau sed a tempora ry spik e in M R rates an d hel ped to keep produc t flow s to the US E ast Coas t at el evated levels. F lows from Europ e to the US East C oast a veraged 6 00 kb/ d in the second qua rter of 2021 , up 2 4% from th e season al l evel in 2 018 - 2019 . In la te Augu st 2021 , the US Gu lf was hit b y Hurric ane Ida, wh ich sen t almos t 3m b/d of US Gu lf ref inery cap acity off line at i ts peak . Th is in terrupted p roduc t flows on to the pi peli ne syste ms whi ch su pply th e US East C oast, ag gravati ng th e already low prod uct stoc k situa tion in the Atla ntic m arket and pulli ng in more barrels f rom Ea st of Su ez. On the other han d, refi nery outag es led to low er US Gul f produc t exports i n Septembe r - October 2021. H owever , in th e two fin al months of 2021 , US Gu lf prod uct exp orts expe rienc ed a strong rec overy, s upport ed b y strong import d emand into L atin Amer ica . In ad dition to supp ly dis ruptions in th e US, Ch ina’s clea n produc t exports d ecli ned sig nifica ntly i n the second half of the y ear, on re duc ed runs a t small er ind ependent ref ineri es, as th e cou ntry a ttempted t o curb emission s. Also, inc reasing p ower outag es at the start of the fou rth qu arter of 2021 furth er curb ed refin ery outp ut at some refin eries, ke epin g a l id on export i ncrea ses. THE PRODU CT TANK ER MARKET IN 2021 US GU LF CLEAN PETROLE UM PRODU CT EX PORTS Source: Kple r LONG HAU L CLEA N PETROLEUM PROD UCT TRAD E FLOWS Source: Kpler 0.5 1.0 1.5 2.0 2.5 3.0 Jan- 20 Feb-20 Mar-2 0 Apr-20 May-2 0 Jun-20 Jul- 20 Aug-2 0 Sep-20 Oct-20 Nov-20 Dec-20 Jan- 21 Feb-21 Mar-2 1 Apr-21 May-2 1 Jun-21 Jul- 21 Aug-2 1 Sep-21 Oct-21 Nov-21 Dec-21 Expor ts Exp orts , 4wk M A M b /d 0 500 1,00 0 1,50 0 2,000 2,50 0 East to West West t o East ‘000 b /d TORM ANNUA L REPORT 2 021 2021 HI GHLI GH TS 13 NEGA TIVE SPI LL - OVER FR OM T HE WEAK C RUDE TANKER MARKET The cru de tan ker mark et remai ned wea k throu ghout the yea r, as the slow r eturn o f OPE C+ cru de oil produc tion was not en ough to su pport th e marke t. OPEC c rude oi l exports remai ned a lmost 3m b/d below the level s seen in 201 9. Th is was a ggra vated by Hurri cane Ida, whi ch kno cke d off 0.3m b/d of US c rud e exports i n Septe mber 2021 . Con sequ ently , market cann ibaliza tion f rom newbui lt crud e tank ers was at a n elevated l evel for most of 20 21 . OIL STOCK DRAWD OWNS TO BEL OW PRE - COVID LEVELS The fa ct tha t OPEC+ producti on ha s been retu rning only grad ually and there h ave been i nterru ption s to the US cru de and produc t supply, a t the same time as globa l oil demand ha s con tinued to imp rove towa rds pre - COVID - 19 l evels, resul ted i n a s itua tion where c rude and product stoc ks c ontinu ed to draw e ven a fter the COVID - 1 9 led excess stock lev els ha d been c leared by mid - yea r 2021. By the en d of th e year, c ombi ned c lean prod uct stoc ks in th e US, the Am sterda m - Rotte rdam - An twerp (A RA) area an d Sin gapore h ad dropped to a level 7% below the pre - COVID - 19 seasona l average l evel. T his p osed a strong h eadwi nd f or the general tank er market, a s deman d was su pplied by local inven tories in stead of seaborn e imports . The c oordi nated Stra tegic Petroleu m Reserv e (SPR) relea se by th e US and some other cou ntries tow ards the en d of th e year ta rgeted a t the tig ht sup ply s ituation margin ally allevia ted the market ti ghtn ess, but th e gen eral stoc k dra ws throug hout th e year l imited the need for vessel demand. THE PRODU CT TANK ER MARKET IN 2021 CLEAN PETROLE UM PRODU CT STOCKS A T MAI N TRADING HUBS Source: EIA, Reuters -10% -5% 0% 5% 10% 15% 20% Percentage vs 2015 - 2019 ave rage TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 14 OUT LOOK To supp ort the a ssessmen t of TORM, in formati on on covered da ys, in terest - b earin g ban k debt, the one - y ear time ch arter (T/ C) market and EBITD A sensi tivity to freigh t rates are in cluded in the Qu arterly reporti ng of TORM. Th e most impo rtant f actors affec ting TORM ’s earn ing s in 2 02 2 are expec ted to be: • Con tinued C OVID - 19 res tricti ons an d assoc iated lock downs l owerin g oil dema nd a nd causin g operation al ob stacl es • Speed and effici ency of COVID - 1 9 vacc ines roll out • G lobal economic growth and consu mption of refin ed oil p roduc ts • Ref inery closu res and mainten ance • Bu nker p rice dev elopmen ts • Oi l tradi ng ac tivity and devel opments i n ton - mile trends • F leet growth and newbu ilding orderi ng a ctivi ty • Th e impa ct of th e war in Ukrain e on th e globa l economy One - off ma rket - shap ing events suc h as strik es, embargoes, politi cal insta bili ty, weather c ondi tions etc . In thi s secti on , we expl ain the market outlook , and th e market dri vers, which may affe ct TOR M’s financial performa nce , are e xpla ined in more deta il . TONNAG E SUPPL Y In 2021 , the gl obal produc t tanker f leet grew b y 2.2 % in terms of c apa city ( 1 .5% in terms of nu mber of th e numb er of vessels ), down from 2.7% in 202 0.The slower fl eet grow th was ma in ly d riven by increa sed scrap ping ac tivity . However, the ef fectiv e fleet gr owth turned out hi gher as th e LR2s mi grati on back to clea n trade, wh ich started i n the se con d quarter of 2 020, conti nued f or most of 2 021. Conseq uentl y, the sh are of LR2s tra din g in the d irty ma rket dec lin ed from 45% at the end of 2020 t o 41% at th e end of 2021. Th e numb er of newb uild ing orders p lac ed in 2021 w as 105 vess els, sli ghtl y ab ove the level s seen in th e previou s three y ears. The MR vess els a ccoun ted for th e majori ty of orders with 69 uni ts con tracted, whil e the numb er of LR2 vessels o rdered w as 21. N o new o rders for LR1 s were pl aced . At the end of 2021, th e existin g order book for del iveri es in 2 022 - 202 4 totaled 202 units ( correspon din g to a rec ord low 6 .6% of the existin g fl eet, in term s of ca pac ity), i ncludin g 44 L R2 vessels, one L R1 vessel, 11 7 MR vess els and 4 0 hand y - size vessels. Du e to the reco rd hi gh ord ering acti vity in th e conta iner vess els segmen t, o rdering of produ ct ta nkers with d elivery before 202 4 has b ecome mo re dif fic ult. This w ill limit th e fleet growt h i n 2022 - 2023 even furth er, in a ddi tion to alrea dy record l ow ord er book ratio. G iven th e unc ertain ty aroun d the req uiremen ts for vessel propu lsion system s in th e fu ture, TORM expects th e newbu ild ing orderi ng a ctivi ty to remai n relati vely li mited i n th e next cou ple of years. Aroun d 3.6m d wt of produ ct ta nker c apaci ty was recyc led in 2 021, c orrespond ing to a pproxi mately 2.0% of the f leet ca paci ty as a t the end of 2020 . MARK ET DRI VERS AND OUTLO OK GLOBAL PRODUCT T ANKER FLEET A ND ORDE R BOOK As of 31 D ecemb er 2021 Fleet * Deli vere d in Scrapped in Fleet Order book for - - Order book as of en d - flee t LR 384 28 9 403 44 11% LR 378 2 4 376 1 0% MR 1,764 80 36 1,808 117 6% Ha nd ysi ze 786 11 22 775 40 5% Total 3,312 121 71 3,362 202 6% * Number differs from Annual report since T ORM changed data provider from IHS Fairplay t o Clarksons in TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 15 This w as the h ighest l evel in 11 yea rs, driven by inc reased sc rap pric es and weak frei ght ma rkets. TORM estim ates th at app roxim ately 4 % of th e existin g cap acity of the gl obal fl eet will be phas ed out or recyc led duri ng 2 022 - 2024, as these vessels reach the typica l scra pping a ge of 25 years or a bove. Wi th a histori call y low ord er book a nd n ewbuild ing orderi ng acti vity expec ted to be l imite d in the com ing yea rs, TORM expec ts th e net pr oduc t tank er fleet ca paci ty to grow by a comp ound annual rate of app roximatel y 2% during 2022 - 2024 . ~2% Expect ed flee t growth 20 22 - 20 24 (CAG R) TONNAGE DEMAND Despi te the temp orary f lare - u ps of n ew virus varian ts, global oil dema nd improved durin g 2021, growing 5.4 m b/d ( IEA Dec ember 2021 ). For 202 2, a fu rther gr owth of 3.3m b/ d is exp ected , to a p e - COVID - 1 9 level of 99.5 m b/d (IE A Decemb er 2021) . The i mpac t of any potenti al n ew measures to ha lt the sp read of th e viru s is expec ted to be m ore mu ted , as vac cina tion ra tes have i ncreased . Conseq uentl y, dema nd for petroch emica l feeds tocks a nd road tra nsport f uels i s expected t o con tinu e its robu st growth , whil e deman d for jet f uel i s not exp ected t o reac h pre - C OVID - 19 levels i n 2022 yet. On the su ppl y sid e, OPEC+ con tin ues to un wind i ts produc tion cuts in 2022, an d crude ou tput in the US, Canad a and B razil i s expected to see a s trong growth as well . Thi s together with i ncreasi ng ref inery ru ns is all eviating the tig htness on the oi l mark et, and supply growth i s expect ed to exc eed f urther i mprovemen ts in deman d in 202 2. Not onl y does th is mean that s tock draws a re not a h eadwi nd to th e tank er market any more, but th e fac t that stoc ks are bel ow norma l levels a lso in dica tes a need t o rebui ld stoc ks, gi vin g an addi tional boost to th e prod uct ta nker d emand . As a resu lt of th e COVID - 19 pan demic, s everal refin eries mai nly in oil net importin g regi ons ha d anno unced clo sure s in 2 020. The same tren d con tinu ed in 2021 , and co nseq uent ly 2. 7m b/d of refi ning capaci ty mainl y in E urope, Au strala sia, South east Asi a, US W est Coast a nd Sou th Afri ca ha s been perman entl y shu t down or i s sched uled to cease opera tions d urin g the next cou ple of years . In addi tion, a nother 1. 1 m b/d of capacity could p otentia lly c lose down. A t the sa me time, ap proximatel y 4. 4m b/ d of n ew refin ing c apacity is sch eduled to come onl ine d uring 2021 - 2023 . New cap acity is ma inly situa ted in the Mi ddl e East a nd Chi na – the regi ons wh ich a re alread y today larg e exporters of oil produc ts. Both these d evelop ments are p ositive f or t rade fl ows and ton - mile i n the p ost - COVID - 1 9 world . Onl y a few projec ts are les s positi ve for trade, m ost nota bly the large - s cal e Dangote refi nery in Ni geria , which exact start date i s , neve rthel ess , sti ll un certai n . ~4% Expected ton - mile growth 2022 - 2024 (CAGR) Subseq uentl y, TORM exp ects the p roduc t tank er ton - mile d emand on main trade routes to grow by a compou nd ann ual rate of arou nd 4% during 2022 - 2024, dri ven by recove ry in globa l oil demand f rom COVID - 1 9 and refin ery disloca tion i nduced b y recen t refin ery cl osure an nouncemen ts. Gen erall y, positi ve trends on the prod uct ta nker d emand s ide com bined with l imited tonnag e supp ly growth s upport a positi ve freigh t mark et developmen t i n the n ext three - y ear period, a lthou gh m arket vola tili ty is exp ected. The inva sion by Ru ssia of Ukrai ne an d the c onsequen t sancti ons on Russ ia incr ease d uncertai nty on the general energy market, s endin g the p rice of crud e oil to the hi ghest si nce 2008 in ea rly M arch 202 2. The init ial sanc tions were n ot targ eting th e oil tra de, how ever , th e uncerta inty and poten tial for re - routi ng of trade fl ows sent the c rude ta nker f reigh t rates in the Eu ropean market to the hi ghest si nc e Sprin g 2020, f ollowed by an in crease i n the p roduc t tanker rates. Due t o the conti nuous d evelopmen t and c omplexi ty of th e situa tion, th e impac t on the t an ker markets going forward is un ce rtain and vola tile . MAR KET DRIV ERS AND OU TLOO K TORM ANNUAL REPORT 2021 2021 HIGH LI GHTS 16 T he COVID - 19 pandemic a nd the Russ ian invas ion o f Ukrai ne conti nues to sev erely impact th e glob al oi l market a nd th e produc t tanker i ndu stry lea ding to materia l unc ertain ties an d lack of visib ility rel ated to the gl obal d emand f or transporta tion of ref ined oi l produc ts . Acc ordingl y, the devel opment i n the TC E rates goin g forw ard is h igh ly uncerta in. For 202 2 , TORM expec ts high er rates than 2021 ( 2021 : USD 13 ,703 /day) a nd to retu rn to a net pr ofi t be fore tax ( 2 02 1: l oss of USD 4 1 m) . TORM expec ts to mai nta in a low cost bas e in line wit h a normal ized prof it bef ore tax ( PBT) brea k - even TC E rate in FY 202 2 of approxi mately USD /day 15,000 . The b elow tab le il lustra tes the PBT sensiti vity p er each inc rease in TCE of U SD 1,000 /day a ssumin g 21, 120 open days in 2022. As of 2 0 Ma rch 2 022, TORM had covered 34.3% of the earni ng day s in 2022 at USD/d ay 17, 497 . Ass uming an u ncha nged T CE rat e of 17, 497 USD / day for the r est of 2022 an d a ra te sensiti v i ty of +/ - 1,000 USD/day, profi t before tax exclud ing no n - recurrent items woul d amou nt to USD 53- 96 m assumin g all oth er thin gs equal . FINANC IAL O UTLOOK FOR 2022 PROFIT BE FORE TA X 1 SENSITIVITY T O USD 1,000 / DA Y TCE RATE INCREAS E (ASSUMING ALL OTH ER THINGS EQUAL) H H FY Earning days Ope n days Covera ge Ratio PBT effect USD m USD m USD m 1 Profit before tax excluding non-recurrent items such as profit from sale of vessels, impairment losses and reversals on tangible assets, expense of capitalized bank fees at refinancing and change in provisions. DISCLAIMER ON FINANCIAL OUTLOOK The pur pose of this Fin ancial Ou tlook for 2022 is t o comply w ith re portin g requi rement s for C ompan ies listed in Denma rk. A ctual results may v ary , and this informat ion may not be accura te or ap propri ate for other purp oses. I nformat ion abou t our f inancial outlo ok for 2022 , including the various assump tions und erlyin g it, is fo rward - looking and should be read in conjunctio n with th e Safe Harbo r Statem ents on pa ge 112 , and the relat ed disclosur e and informatio n about various economic, compe titive, an d regu latory assumpti ons, factors , an d ris ks th at ma y cau se o ur actu al future financi al an d ope ratin g res ults to di ffer m ate rially from what we curren tly e xpect. The inf orm ati on inc lude d this Finan cia l Out loo k for 2 022 is prel imin ary , unaudite d and based on estim ates and inform at ion ava ilab le to us at th is t im e. T ORM h as n ot finalize d its fin anci al sta tement s fo r th e per iods prese nted. During the course of the fina ncial statement closin g pro cess, TOR M may iden tify i tems that w ould require it to make a djustmen ts, which may be mate rial to the inform ation prov ided in th i s section. As mentione d above, th e provide d informa tion cons titu tes forward - look ing s tat eme nts and is sub ject to r isks an d uncert ainties, including poss ible adjustme nts to the financial ou tlook for 202 2. TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 17 Th e global oil in dustry cov ers a ran ge of act iviti es and process es which contri bute t o the tran sformati on of primary pe troleum res ources into usable e nd product s for in dustrial and p rivate customers. The value chain b egins w ith t he ide ntific atio n and subseq uent exp loration of prod ucti ve petroleu m fiel ds. The un refined crud e oil i s transp orted from the produc tion area to refi nery f acil ities b y crude oi l ta nk ers, pipel ines , road, an d rai l. TO RM is p rimari ly in volved in th e trans portation of refin ed oil p roduc ts from th e refin eries to th e onsh ore distri butors, th at tra nsports r efin ed oil produc ts to the end u ser. In ad diti on to cl ean produ cts, TORM uses some of i ts vessel s for th e tr ansp ortation of resid ual fuel s from the ref ineri es as w ell a s crud e oil d irectl y from the p roduc tion f ield to the ref inery . These fu el types are c ommonl y refer red to a s dirty petrol eum produc ts, as ext ensiv e clean ing of the vessel’ s ca rgo tank s is requ ired bef ore a vess el ca n tran sport cl ean produc ts aga in. In 2 02 1 , 98 .6% of TOR M’s turn over wa s generated from cl ean p roducts tra nspor tation . TO RM’s in tegrated operati ng p latf orm with in - hou se techn ical and commerc ial managemen t enh ances the response to cu stomer dema nds a nd a llows TORM to generate v alu e for sta kehol ders as wel l as f or the Company. The lon g - term suc cess of TORM i s depen dent on TORM’s ab ili ty to provi de saf e an d relia ble transp ortation services. In a dditi on to the i tems explic itly sta ted in the fi nancial statemen ts, the l ong - term su ccess of TORM fu rther bu ild s on the i ntell ectual property of the w orkforc e at TORM an d the relati onshi p and c ooperati on with extern al sta kehol ders such as oil tra ders, sta te - own ed oil compa nies, oi l majors, f ina ncial institu tions, sh ipya rds, brokers, an d governmen tal a genci es. THE V AL UE CH AIN IN O IL TRAN SPORT ATION Our Business model and strat egic choices TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 18 TO RM’s s trategy consis ts of three key e lements: Le ading pr oduct t anker owner TORM is on e of th e larges t a nd most exp erien ced produc t tan ker owners i n the w orld an d is a ctive i n all key prod uct ta nker vessel c lasses . TORM pri maril y empl oys its f leet in the spot market and with a sol id c apital structure, TO RM h as the strength and ambiti on to be a t the foref ront of the produc t tan ker indu stry al so in th e years to c ome . Read more on page s 19 – 21 Greene r future with a zero emiss ion amb ition TORM embra ces its respon sib ili ty to redu ce its environ mental footpri nt by mini mizing impact from exhaust ga s emissions. TORM is active ly pursuing an amb itious e missi on reduc tion ta rget of mi nimu m 40% by 2025 and minimum 45% by 2 030 and zero emission s by 2050 . Read more on pages 22 – 27 Su perior operating plat form All essen tial busin ess profi cienc ies are i ntegra ted in TORM’s digital in - house techni cal and commerc ial platf orm ca lled One TORM . Th e integ rated n ature of TORM’s ope ratin g pl atform en sures al ignmen t of corpora te targets and ha s se con d to non e market responsi veness. Read more on pages 28 – 31 OUR STR ATEGIC CHOICES LEADING PRODUCT TAN KER OWNER GREENER FUTURE WITH ZERO EMISSION AMBITI ON SUPERIOR OPERATING PLATFORM TORM ANNUAL REPORT 2021 OUR BUSINESS MODEL AN D STRATEGIC C HOICES 19 TORM i s an inter national ly leading pr odu ct tanker company and one of t he lar gest own ers of pr oduct tankers in the world . ACTIV E MANA GEMENT OF S POT MAR KET EXPOSU RE TORM p rimarily e mploys its fleet of more tha n 80 vessels in the sp ot mark et. G oin g into 202 2, TORM h a d sign ificant op eration al lev erage an d for posi tioni ng TORM to benef it from imp roved ma rket con diti ons. With i ts presenc e in all la rge produ ct tan ker vessel classes , TORM is w ell positio ned to m eet its cus tomers’ transp ort and storage requirem ents. TOR M’s mod ern and well - main ta ined fleet with the m aj ority of th e vessels b eing scru bber - fitted further p rovides T ORM and its customers with enhan ced f lexibil ity as wel l as reduc ed fuel costs. TO RM’s norma lized PBT b r eak - even rate is ap proxima tely USD 15, 000 per d ay. While TO RM mainly operates i n the sp ot market , TORM also en ters into m edium and long - term con tracts w hen levels a re assess ed attra ctiv e. Suc h c ontracts provi de more cash flow certai nty f or TORM an d inc lude i) cha rter contra cts on which a speci fic vessel is cha rtered out to a cu stomer f or a lon ger period , ii) contra cts of a ffrei ghtment ( CoA) which invol ve several consec uti ve cargoes with a customer at agreed freigh t rate lev els an d iii) forward freig ht ag reements (F FA) which are fin ancial instrum ents hedgi ng th e forward pric e for freig ht for a defi ned peri od. Throug h a comb inati on of variou s empl oyment a nd coverag e options as wel l as a ctive f leet man agemen t, TORM ai ms to benef it from movemen ts i n frei ght ra tes to cap itali ze on ma rket hi ghs and minimi ze market exposure to when freigh t rat es are low . For more i nf ormation on the f inanc ial eff ect of TORM ’s Spot mark et exp osure pl ease ref er to th e Fi nanc ial Outlook on pa ge 15. SELECT IVE FL EET GRO WTH TORM seeks to selec tively grow its fl eet an d to serve as a c onsoli dator in the prod uc t tank er segment i f the righ t opportun ities arise at a ttrac tive val ues . TORM conti nuously assesses oppor tuni ties to opti mize its fleet by acq uiring a ttracti ve high - specif ication second - hand p roduc t tankers or sele ctivel y purs uing newbuilding pro grams with high - quality shipy ards. In this way, TORM serves as a consoli dator while at the same ti me optimizing its in vested capital to enab le the highest possible ROIC. TORM’s scalable business platform is a supportive and required enabler f or bei ng a l eading p rod uct t anker o wner . In addition to taking de liver y of one MR ves sel ear ly in Ja nu ary 2021, TOR M acq uired 11 seco nd - hand vessels covering eight MR produc t tank ers , six of which ha ve chemic al tra ding ca pabiliti es , and three sc ru bb er - fitted LR2 vessels. In addition, TORM took delivery of on e LR2 newbuilding in 2 021 and has take n de liver y of t he last LR2 ne wb uild ing during the first quarter of 2 022. From t ime to time , TOR M wil l also se ll vesse ls which no longer fit with ou r commercial strategy, or if the price point is deemed attractive. In 2021, TORM sold one older vessel (TOR M Carina ) . SOLID CAPITA L STRUCT URE TORM’s sol id c apita l struc ture bal ances th e spot - based employ ment prof ile wi th low l everage, a stron g liquid ity pos ition and l imited off - bala nce sheet c harter - in c ommitmen ts. With a c onti nuous focus o n a so lid capit al st ructur e , we main tain ou r abili ty to ac t on desired i nvestm ent opportun iti es, fac ilitatin g the p otentia l for fu ture str ong return on inv ested cap ital . Read more about TORM ’s capital stru cture on page 21 LEADI NG PROD UCT TAN KER O WN ER LEADING PRODUCT TANKER OWNER GREENER FUTURE WITH ZERO EMISSION AMBITI ON SUPERIOR OPERATING PLATFORM NET L OAN -TO-V ALUE Source: TORM 56% 53% 46% 51% 52% 0% 20% 40% 60% 80% 100% 2017 2018 2019 2020 2021 TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 20 THE T ORM FLE ET as of 23 March 2022 LEADING PRODUCT TANKER OWNER GREENER FUTURE WIT H ZERO EMISSION AMBITION SUPERIOR OPERATING PLATFORM LR2 Long Range 2 vessels are t he largest ves sels in TORM’s fleet. They a re typically employed on long trade routes, includi ng naphtha transportation from the Middle East to the Far East and d iesel from the eastern hemisphere into the Atlan tic. 1 5 LR2 vessels are currently on the w ater. Since December 2020 , two newbuildings and t hree second - hand ves sels have been delivered to TORM. LR1 Long Range 1 vessels are ty pically employed on the sam e routes as LR2 vessels, but they also have t he flexibility to cover trades and routes which are tra di ti ona ll y d omin a ted by t he smaller MR ve ssels. A typical LR1 trade could be diesel or j et fuel from the Middle East to Eu rope. Nine LR1 vessel are currently on the water. MR Medium Range vessels are o ften referred to as t he “workhorses” of the product tanker f leet. They cover more trade routes an d, compared to the larger LR ves sels, this ve ssel type has the flexib ility to enter into more ports and cov er shorter and coa s tal tra des. A typical trad e for MR vessels would be gasoline from Europe to the US Eas t Coast. 59 MR vessels are currently on the water. Sinc e December 2020 , nine second - hand vessels have been delivered to T ORM and one older vessel has bee n sold. Handysize Handysize ve ssels are the smallest vess els in TORM’s fleet. They a re involved in more vari ed and typically shorter and coastal trade routes. Typical trade s for a Handysize vessel include transportation of various clean petroleum p roducts within Europe and in the Mediterranean. Two Handysize vessels are currently on the w ater . 15 Vessels 90 -115,0 00 dwt 9 Vessels 72 - 75 ,0 00 d wt 59 Vessels 45 -50,0 00 d wt 2 Vessels 35 - 37 ,0 00 dwt FLEET COMPOSITION TORM is p resent in all larg e vessel cl asses i n the produ ct ta nker ma rket with speci fic f ocus on the L R2, LR1 and MR vessel c las ses as these offer th e great est syn ergies. TORM’s fl eet has inc reased from 73 vess els in Decemb er 2020 to 85 vessels on the wate r in March 202 2. During 2021 , TORM utilized the mark et downtu rn to in crea se the fl eet at at tracti ve pric e points , driven by a sel ective a pproac h to fleet ren ewal th rough disp osal of older tonna ge and a cqui sition of modern sec ond - hand v essels. Fu rther , TORM added two LR2 newbu ilding s ordered i n 20 20 to th e fleet. After the y ear - en d , TORM sol d TORM Emilie and TORM Tevere w hich are expec ted to be deliv ered to th e buyer s in the first half of 2022. TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 21 To supp ort our spot - based e mploy ment pr ofile, w e maint ain a solid c apital s tru cture with lo w leverag e, a strong liquidity p osition , and lim ited off - b alance sheet commitme nts. Th e solid capital structu re provides us with increased finan cial fle xib ility which enab le s TORM to purchase newbuilding s and sec o nd - hand vessels indep ende nt of underlying product tanker market strength. TORM currently ha s no rem aini ng ne wbui ldi ng CA PEX commitments . Th e p urc hase s m ade in 2021 have been fund ed by a mix of traditional bank debt , issuance of shares and sa le an d lease bac k structure s . This illus trates TORMs strong access to fina ncing. Secured bank financ ing remain s th e preferred sourc e of debt funding for TORM wit h t he lea ses pr ovidin g fo r supp lemen tary financin g. Th e new leasing agreements are all l ong - term with maturity in 20 29 or l ate r and i ncl ude p urchas e op tio ns duri ng and at the end of the contract period enh ancing TORMs op tions in disrupted mark et scenarios. TO RM ha s maintained a conservati ve capital structure over many years, and monitor s capital structure rela ted risks such as liquidity risk, net and gross LTV r isks as we ll as debt maturity ratios . Liquidity ri sk is assessed on both short term and medi um ter m. TOR M’s liq uid ity pos itio n is s tres sed w ith a ll relevant risk parameters, s uch as TCE rates, interest ra te risk , a nd F FA liqu idit y ris k. TO RM is co nst antly foc used on being resistan t to periods of liquidity draws if any of these risks shoul d persist. A catalogue of liquidity enhancing ini tiatives is maintained to be a ble to pursue opportuniti es and have solu tions to potential advers e market development. LT V risk is monitored to ensure tha t TORM stays in control of the relative deb t level. Vessel valu es and cash levels are stress tested to ensure that TORM can withstand longer peri o ds of declining vessel values or stressed TCE rates. TO RM monitor s the future debt repayment profile to make s ure cas h gene ratio n an d futur e avai lable cash is alig ned wit h upcom ing debt liabil ities. Th ese risks are securing TORM’s abili ty to maintain a s oli d capital struc ture, providing us with the ong oing ability to pursue g rowth and fleet main tenance opportuni ties. O ver a number of years , TORM h as grown the fl eet as well as maintained a very stable a verage age of the fleet . IMPORTANT PILLARS OF TORM ’S CAPITAL STRUCTU RE SOLID CAPITAL S TRUCT URE LEADING PRODUCT TANKER OWNER GREENER FUTURE WITH ZERO EMISSION AMBITI ON SUPERIOR OPERATING PLATFORM TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 22 We strive to u tilize our market posit ion an d stren gth to lead th e product t anker industry in to a more environmen tally friend ly future a nd to d evelop innovative solutio ns for a g reener future. It is a k ey priori ty fo r TORM t o contri bute to comba tting the acc elerating globa l cli mate chan ge and to mini mizing poll ution of the seas an d the atmos pher e. Thus, TOR M has st rong fo cus o n red ucing CO 2 emission s. Thi s is ac hi eved through a comm itted foc us on opti mal perf orman ce in the short a nd med ium term and industry c olla borati on in the lon g term su pportin g sustai nabl e soluti ons . TORM bel i eves th at both th e deca rboni zation and th e ESG a gendas wi ll b e integral and determin ing el ements f or the fu ture of th e prod uct ta nker b usiness. A t the same time, TORM a ckn owledge s tha t oil a nd refi ned oi l produc ts are ess entia l resour ces , an d we wa nt to distri bute refi ned oi l prod ucts as CO 2 effic ient ly as possib le with curren t ly acces sible means . OPTI M IZING PERF ORMANCE NOW In our eff orts to obtain commerc ial ly via ble environ mental ly f riend ly resu lts , we ha ve estab lish ed a new posi tion a s Head of Commerc ial Decarbon izati on, a role th at tog ether with our Head of Techn ical Deca rbonizati on will be pivotal in explori ng and developi ng bu siness opportu niti es with ou r cu stomers, brokers, and indus try stakehol ders, s o we can utili ze the power of our i ntegra ted p latform to rein force ou r positi on as a leadin g produc t tank er owner. In 201 8 , TORM formed a suc cessf ul partn ership to develop a nd produc e scru bbers wi th a sc rubber prod ucer, supp orting ou r scrubb er investmen ts, th ereby demonstra ting an a bility to source en viron mental ly importa nt assets wh il e contr olli ng cost . As a n importa nt eff ort to crea te ad jac encies for T ORM, we have d ecided to expan d thi s coopera tion by engaging in test ing modern F lettner R otors – to b e in stal led on TORM Hou ston an d TORM Helene . We expect 5 - 7% energy and CO 2 reducti ons from th e Flettn er Rot ors . TOR M mainta ins fo cus on the optimization and improvemen t of our exi sting fleet and on enha nc ing the efficie ncy of our existin g fleet by applying a broad set of operati onal and technic al improvem ents. LONG - TE RM INDUST RY COLLABORAT ION A lterna tive fu els in shipp ing will be requ ired on a glob al scale to reac h th e ambi tious 2 050 targets set by IMO. TORM in fluenc es the devel opmen t throu gh broa d indu stry coopera tion, latest by joining the M æ rsk McKinne y M ø ller Institu te for Zero - Carbon Shipping as a Missio n Ambassador . TOR M mon itors the developm ent of n ew fuel s and associ ated tec hnol ogies , and TORM wa n ts to be part of sh aping the developm ent an d employ ing new techn olog i es and altern ative f uels wh enever c ommercia lly and operation all y viab le . 2030 TARGET A ND 205 0 AMB ITION To qua ntify th e green a mbiti ons , TORM h as set th e goal to a ccel erate our c lima te target and d eliver a t least a 40% CO 2 reducti on by 2025 – in stead of in 2030 - compared to 2008 u sing IMO’s def ined methodol og y, and a 45% CO 2 reducti on by 2 030. For th e long term , TORM ha s an a mbition to have zero C O 2 emissions from opera ting ou r fleet in 2050. T o supp ort these goal s , TORM ’s M ana gement ha s specif ic KPIs on achi eving this trajec tory , an d the i mpac t on the trajec tory is i nclu ded as d ecision - makin g criteri a for insta nce when assessin g fleet ren ewal op tions. Decarbonizin g shipping GREE NER F UTUR E WITH Z ERO EM ISSION A MBITION LEADING PRODUCT TAN KER OWNER GREENE R F UTUR E W ITH ZER O EMIS SI ON A MBIT ION SUPERIOR OPERATING PLATFORM TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STRATEGIC C HOICES 23 The three ma in c ompon ents of TORM ’s perf ormanc e optimi zation are v oyag e o ptimi zation , b ehavi oral optimi zation , and t echnolog y i mprovements . All three are desig ned to h elp red uce f uel c onsumpti on an d supp ort s TORM’s su peri or com mercia l perform anc e. Th at TORM’s p erform anc e optimi zation efforts work , is demonstra ted by TOR M’s st ron g CO 2 emission performa nce. C O 2 emission s are red uced every day for the ben efit of the envi ronme nt . As at th e end of 2021 , TORM ha d obtain ed a Annua l Effic ienc y Ratio (AER ) reduc tion of 37.6% com pared to IM O’s ba selin e ( 2008 ), and TORM is h ence wel l ahead of IMO’s C O 2 redu ction trajec tory . Not on ly wi ll th e short an d medi um - term opti mizati on s be benef icia l to TORM i n th e futu re . It will also p repare TORM for a pot enti al c arbon tax being impose d on ship ping comp anies, a s they wi ll in crease f uel c osts . Furth er, TORM wi ll b enefi t when tra nsi tion ing to new fuel types i n the l ong run , becau se TORM expec t s new fuel types to be m ore exp ensi ve w hen being phase d in. Hence , highly o ptimize d fuel consumpt ion w ill be centra l goi ng forward . OPTI MIZI NG PERFORMA NCE NOW DIGITIZED PLAT FORM S UPPORT S OPTIM IZATION LEADING PRODUCT TAN KER OWNER GREENE R F UTUR E W ITH ZER O EMIS SI ON A MBIT ION SUPERIOR OPE RATIN G PL ATF ORM CONNECTED VESSELS AND CONNECTED MACHINERY Throug h the p rograms “C onn ected Vessel s” an d “Con nected Ma chin ery”, TORM wi ll acc elerate th e perf ormanc e optimi zation componen ts with i mproved b est prac tice shari ng an d central ized IOT and advis ory appli cations maki ng it pos sible f or TORM t o tak e fuel effici ency to th e next lev el. VOYAGE OPTIMIZ ATION M any f actors are involved in setting the id eal speed , and TORM works closel y with its stakeh olders to ensure th e optima l speed a nd rou te s of its vessels. To su pport thi s, TORM util izes pred icti ve quanti tative mode lling and m ultiple data source s f or rea l time su rveil lanc e and recommend ation s. BEHAVI OURAL OPTIM IZATION Measu res to ach ieve opera tion al savin gs, enh anced en ergy mana gement on board , and rigid anti - fouling moni toring. TECHNOL OGY I MPROVEMENT TORM ap plies a ran ge of new and updated tec hnol ogies to enhan ce the f uel ef ficiency of its curren t fleet. In the lon g te rm, TORM is also e ngaged in developi ng th e next gen erati on vessel desi gns a nd tec hnologies together with s elected p artners. TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 24 OPTIMIZING PER FORMANC E NOW LEADING PRODUCT TAN KER OWNER GREENE R F UTUR E W ITH ZER O EMIS SI ON A MBIT ION SUPERIOR OPERATING PLATFO RM WHAT GOT US HERE… WHAT WILL TAKE U S THERE… Cultur al chang e on - and o ffsho re Zealous hull maintenance AI based route optimization Flett ner Ro tors Fleet re newa l Digital solutions for route optimization Already in 2025 TORM expects t o reach IMO’s 2030 ta rget of 40% CO 2 reduction compared t o IMO’s bas eline ( 2 008 ) Conne cted vessel s and machinery Conti nuo us trai ning Optimized machi nery … and much more Residual heat reco very … and much more TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 25 In our ef forts to reac h our am bitiou s emissi on redu ction targets, TORM h as in vested i n Fl ettner Roto rs for th e two newes t of our L R2 v essel s . Th e assets ar e purc has ed from th e join t venture, which TORM ha s together w ith M E Produ ction and GSI shi pya rd . If T ORM is su cc essful in opera ting th e Fl ettner Rotors and obtains th e anti c ipa ted CO 2 and fu el savi ngs, they will be con sidered as a means for TORM to su pport a greener fu ture. Duri ng S pring 20 22 , the onsh ore tes t insta lla tion w ill be commen ced in Frederik shavn, D enmark . Sub sequen tly a ctual full - s ize testin g is exp ected to be comm ence d an d s ubj ect to succ essfu l testin g, the final insta llation is expec ted la ter in 2022 , whereaf ter operatin g da ta from th e two L R vessels wi ll be an aly z ed. Roto r sail s can be in stalled on all the main vessel typ es, whi ch TORM op erat es and will have slig htly more benef it on la rger vess els (L R2) a s the voya ges for th ese vessels h ave mor e idea l win d cond ition s . TO RM expec ts f uel savi ngs of 5-7 % compa red to a correspon din g vessel wi thou t a rotor sail . The two vessels ar e expec ted t o redu ce CO 2 emissions by 2,000 – 3,000 mt C O 2 per vessel. OPTIMIZING PER FORMANC E NOW FLETT NER RO TO RS LEADING PRODUCT TAN KER OWNER GREENE R F UTUR E W ITH ZER O EMIS SI ON A MBIT ION SUPERIOR OPERATING PLATFORM TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 26 To achi eve our am bitiou s 2050 en vironm ental target of zero CO 2 emissions fr om ope ratin g our fl eet, TORM is acti vely in volved in vari ous indu stry col labora tions supp orting th is j ourney. Th e coll aboration s are importa nt, as th e ambi tious t arget c ann ot be met by sing le enti ties al one but req uire s join t efforts ac ross the shipping in dustry. JOININ G MÆRSK MCKIN NEY MØLLER CE NTER FOR ZERO CARBON SH IPPING TOR M announ ced its ambitiou s 2025 target in January 202 2, and al ready towards the end of 2021 , TORM beca me a Mi ssion A mbas sado r in th e M æ rsk M cKinn ey Mø ller Cen ter for Ze ro Carb on Sh ippi ng to partn er with the in stitute a nd eq ual ly minded i ndustry parti cipan ts on thi s importa nt jou rney. TORM wi ll provi de sup port to th e Center ’s work and commit to th e Cen ter’s m ission and vision of build ing a signi fica nt cro ss - dis ciplinar y driving f orce in the deca rboniza tion of th e shipping industry . DANI SH SHIPPI NG TORM is a n ac tive memb er of D anish Shippin g , an d t hro ugh Dan ish Shi pping TORM aims to impa ct the decisio n makin g in IMO o n ongoing discu ssions o f the impl ementati on of C O 2 related reg ula tions. LONG - T ERM DEC ARBO NI Z ATION INDUST RY CO LLABO RATIO NS LEADING PRODUCT TAN KER OWNER GREENE R F UTUR E W ITH ZER O EMIS SI ON A MBIT ION SUPERIOR OPERATING PLATFORM TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 27 Over the pas t year , the shipping industry has shown increas ed interes t, and devel opment wor k on the future o f maritime fu els and solutions for zero emissi on shippi ng are st arting t o evolve . TORM is en thu siasti c abou t this d evelopmen t, howeve r, whil e it is th e expecta tion th at there w ill be tec hnic al soluti ons in plac e to supp ort most new fuel s throug h new prop ulsi ons sys tems, th e path tow ards h avin g suffi cient fuel s available is more u nc ertain . To inc rease the un derstan ding of thi s important top ic, TO RM an d the Board of Di rectors org ani zed a n umber of dedic ated sessi ons to di scu s s the issue. Th e sessions covered de ep di ves on t opic s such as th e Power - to - X developm ent to u ndersta nd th e sourc ing of the n ew fuel s, the devel opment of car bon c apture sol ution s and consi derati ons on ty pes of n ew fu els, the sp lit i n usa ge and ava ilabilit y . A key c onclu sion from th e sessi ons wa s that th e futu re of mari time fu els wi ll be more d ispersed with z ero carb on emissi on sol ution s not comin g from a sing le new tech nol ogy, but ra ther from a mix of severa l soluti ons as th e avai labi lity of n ew fu els will be scar ce and a key d eciding factor. Th e Board of Direc tors wi ll mainta in this as a strategic focus area , and TORM w ill monitor th e devel opment of th e new fu els an d associ ated tec hnol ogies. H owever, c urrentl y it i s the belief that th e solu tions will not be commerci all y and operation all y viabl e for produ ct ta nkers f or the nea r futu re . LONG - T ERM DEC ARBO NI Z ATION NEW FUELS LEADING PRODUCT TAN KER OWNER GREENE R F UTUR E W ITH ZER O EMIS SI ON A MBIT ION SUPERIOR OPERATING PLATFORM TORM ANN UAL REPORT 2021 OUR BUSINESS MODEL AN D STRATEGIC C HOICES 28 TORM’s fleet is ef fectively manag ed on the in - hous e integr ated oper ating platfor m known as One TOR M. Operat ions are conduct ed jointly for the entire fleet to reap synergies across vesse l classes. Th e integrated nature of TORM’s op erating platform provides transparency and clear alignment of managemen t and shareholder in terests, which mitigates the potential for actual or perceived c onflicts of interest with related parti es. We believe that our integrated business model create s a unique c ustomer offering as it provides our customers with better accountabili ty and insight in to safety and vessel performance. In l ine wit h the s trategic focus on safety, the One TORM platform f eatures th e One TORM Safety Culture program. The purpos e of the program is to continuously strengthen T ORM’s safety cul ture beyond mere compliance, and i t reflects the belief tha t profitability and safet y need to go hand in hand . On the One TORM platform , the commercial, technical , sale & pu rch as e , and s upport div isions all wor k towa rds co mm on g oal s in a n et wo rk - based organization with easy interna l acc ess across the organi zation supporting effi cient d ecis ion m ak ing. COMME RCIAL MANAGEMENT TORM’s commercial team is responsible f or employment and ope rat ion of o ur fleet and has co ntinuo us ly demonstrated sup erior performance compared to p eers and mark et benchmarks. One of th e key elements for the commercial t eam to succeed is the ability to ensu re an optimal posi tion of the fleet in the global basins, where differ ences in earnings can be significant over th e span of a year . TECHNICAL MANAGEMENT TORM’ s flee t is manag ed b y its in - ho use t ec hni cal manag emen t. Th e d epartment is res ponsible f or mai ntai ni ng the hi gh q ualit y o f our v ess els and the deliv ery o f an e nviro nme ntally frie ndly, safe , and cost - effici ent technical opera tion. Our technical m anagement also has exten sive experi ence in vessel design and construct ion and provid es essential kn owledge for TORM to execut e newbuilding pr ograms. In additi on to the office staff , more than 3, 4 00 s eafarers a re employed by TORM . SAL E & PURCHA SE AND SUPPORT F UNCTI ONS TORM’s sale & pur chas e activities are conducted by an in - hous e team. The sale & purchase team leverages relat ions hips with s hipbr oker s, s hipyar ds, fina ncia l inst it utio ns, and s hipo wne rs t o e nsure fle et r ene wal and activ ely purs ue s lucrative opportunities in the second - hand and n ewbuilding markets. Th e support d ivision i s also an integra l pa rt of TORM’s day - to - day operation s and provid es opti mized busin ess prac tices, rep ortin g and p ayment p rocesses, proac tive bu siness p artneri ng, strin gent ri sk mana gement, l iqui dity, an d funding m anagemen t etc. For yea rs, the s upport d ivisi on ha s buil t a strong data and digita lized bu siness su pport fu ncti on. By means of advanc ed ana lytics and ap plied AI comp etenc es, thi s func tion ha s created an ana lytic al model to f urth er supp ort TORM’s com merci al p erforman ce. OPERATI ONS DURI NG COVID - 19 During the entire COVID - 19 pandemic, TORM has ful ly main tained op eration s both a t sea an d ash ore than ks to the On e TORM p latform . The i ntegra ted operati ons have ea sed the n atura l obsta cles which TORM encoun tered in conn ection w ith tra vel restri ction s, lockdo wns, and s upply c hain challe nges. SUPER IO R OP ERA TING P LAT FORM LEADING PRODUCT TAN KER OWNER GREENER FUTURE WITH ZERO EMISSION AMBITI ON SUPERIOR OPERA TING PLA TFORM TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 29 SEA FARERS The COVID - 19 - imposed tra vel res tricti ons comp lic ated crew movem ents th roug hout the y ear. Desp ite th is TORM ha s throug hout 2 021 main tained a norma lized level of overdu e employ ment a mong th e crew s supp orted by TORM ’s in tegra ted pla tform an d the on - goin g coordin ation between th e commerc ial and techn ical dep artments w hich h as ena bled TOR M to cond uct cre w change s as o pp ortuniti es ar o se duri ng the vess els’ comm erci al opera tions . However, th e c osts associ ated wi th crew chan ges have been hig h er du e to inc reased tra vel expens es an d imp osed qua rantin e costs. +92% Retentio n rate f or s enior and junior officer s during COVID- 19 D uring the pan demic , TORM h as fu rther levera ged from a sol id ba se of loyal seafare r s which has s ecure d contin uity i n our operati ons. LAND - BASED EM PLOY EES In li ne with relevan t au thorities, T ORM h a d on several occa sions ch osen to c lose som e of its offi ces and recommen ded tha t lan d - based empl oyees w ork from home du ring the pand emic . TO RM ha s been a ble to c ondu ct its b usiness a lmost unaf fected of these mea sures d ue to th e in tegrated natu re of its op eratin g pla tform ens urin g coh esive lin es of comma nd. SUPPL Y CHAIN With op eration s across th e worl d an d the requ iremen t to cond uct ma intenan ce on ba sically all loc ation s, TORM ha s been i mpac ted by the eme rgin g gl obal supp ly chain bottlen ecks. On e conc rete exa mple is the inc reased c ost in f reight f orwardi ng of m aterial s and equi pment. How ever, TORM ’ s con tinued optimi zation and cos t focus ha s secured unin terrupted op erati ons with on ly a marginal increa se in c osts. SUPER IO R OP ERA TING P LAT FORM LEADING PRODUCT TAN KER OWNER GREENER FUTURE WITH ZERO EMISSION AMBITI ON SUPERIOR OPERA TING PLA TFORM TORM ANNUAL REPORT 2021 OUR BUSINESS M ODEL AND STR ATEGIC CHOICES 30 EIGHT MR VESS ELS , SIX WITH INCREASED CHEM ICAL TRADIN G FLEX IBILIT Y In March 2021, TO RM purchased eight 2007 - 2012 built MR produc t tanker vessel s from TEAM Tankers Deep S ea Ltd. f or a total cas h cons ide rat ion o f US D 82. 5m a nd t he issuance of 5.97 million shares. Six of the vessel s have specializ ed cargo tank c onfigurations and exten ded tank segrega tions (IMO 2), all owing for enhanced tradi ng flex ibilit y thro ugh chemi cal tr adi ng opt ions. TORM ob tained deb t financing cov ering the cash thereb y mak ing the tra nact io n cash ne utr al. The vessels ha ve all been in tegrated in to th e On e T ORM platform using a fl exible approach towards transfer of technical knowledge and crew . This has e ns ure d a se a mles s in teg ra ti on . THREE MODERN LR2 VE SSELS In May 2021, TORM purcha sed three 2015 - built scrubb er - fitted an d fue l - efficient LR2 vessels from O keanis E co Tankers C orp. for a total c ash consid eration of USD 12 0.8 m . Two of th e vessels were financ ed with bank deb t and one through a sale and leaseback struc ture. The vessels have all been integrated in to the One TOR M platform an d supplemen t our modern LR2 fl eet well. TWO LR2 N EWBU ILIDNG In Novembe r 2021 and in Janu ary 202 2, TORM took deliv ery of the f in al two L R2 newb uildin gs in ou r newbuilding pro gram . The newb uil dings are sc rubb er - fitted a nd fu el - opti mized . The vessels wer e taken over i n a period w ith si gnific ant COVID - 1 9 rela ted restric tions i n Chi na and are now fully integ rated in to the On e - TORM p latf orm. The vess els are c onstruc ted w ith f uel - eff icient d esign , and duri ng 2022 they are expec ted to ha ve Flettn er Rotor s installed which will reduc e the fu el consu mption by 5-7% on these ves sels. SE A MLESS INTEGRATIO N OF NEW C APACITY IN A COVID - 1 9 ENVIRONM ENT LEADING PRODUCT TAN KER OWNER GREENER FUTURE WIT H ZERO E MISSION AMBIT ION SUPERIOR OPERA TING PLA TFORM TORM ANNUAL R EPORT 2 021 31 1 INVESTMENT HI GHLIGHT S SPOT OPE RATING MODEL Significant operating leverage through sp ot orienta tion all owing TORM to ben efit from inc rea ses in TCE rates . SOLID CAPITAL STRUCTURE Conser vative bal ance sh eet and a strong l iqui dity po sitio n provi de roo m for poten tial grow th while maintainin g break - eve n rates at low levels and no near - te rm r ef i nan ci ng needs . SUPERIOR COMMERCIAL PERFORMA NCE Advance d data driven platform with in - ho use commerci al and technical manageme nt prov id i ng superior earni ngs while maintaining a bal anced cost stru cture . POSI TIVE MAR KET FUNDAM ENT ALS Low produ ct stock levels, low globa l fleet growth and r efinery di slocation are posit ive fun damen tals for the pr oduc t tanke r ma rket i n t he near and m edium t erm . AMBITIOUS AND ONGOING CO 2 REDUCTION TORM i s alr eady w ell ad vanced in meetin g IMO’ s emissi on ta rget s and has en gaged in lon g - ter m collabora tions for d ecarbonizat ion in 2050. TRACK RECORD OF EXCELL ENT TIMI NG TORM ha s maintained a w ell diversi fied fl eet a nd a cquir e d vess els at attracti ve p rice poi nts a s w ell a s sol d vessel s a t market v alues. OUR BU SINESS M ODEL A ND STRATEGIC C HOICES TORM ANNUAL R EPORT 2021 OUR RE SPO NSIBILITY 32 In 2 009, TORM s igned the UN G loba l Compac t as th e first sh ipp ing com p any in De nmark . In this way , we commit to an interna tiona lly recogn ized set of prin ciples reg ardi ng heal th, safety , lab or rights , environ mental protecti on , and anti - corruption . As part of thi s commi tment, we submi t our com muni cation on progress every y ear. PRI NCIPLE S Transp arency and acc ountabil ity a re key to TORM’s way of doing b usine ss, and the se value s play a cen tral role in our corp orate soc ial responsi bil ity (CSR) approa ch. Our ap proach to respon sibl e behav ior is rooted i n our Bu siness Princ iples wh ich ha ve the foll owing f ive objec tives: • M aintain ing a g ood an d safe work plac e • Reducing enviro nment al imp act • Resp ectin g peopl e • D oing business respon sibl y • Ensuring t ransp are ncy CO LLABORATION AND PARTNERSHIPS TORM’s c ommitment to CSR is not l imited to ou r own busin ess prac tices, a s we beli eve real impa ct requ ires indu stry col laborati on. We coop erate w ith peers an d stakeh olders to i ncrea se resp onsi bility in th e shipp ing indu stry an d the su pply ch ain. Also, th is is done to mitig ate protecti onis m and support p rogressiv e tra de agreemen ts . TO RM strive s to i ncrea se tran sparen cy and acco untabi lity a nd to minimi ze corrup tion. We d o thi s as an act ive m embe r of Da nish S hipping a nd a num ber of commi ttees wi thin that org aniza tion . Th is is al so the focus i n the Mari time An ti - Corrupti on Network in which TORM is a co - fou nder and member. S US TAINABLE DEVELOPMENT GOALS AND TRANSPARENT ESG REPORTI NG In 2021 , we con tinu ed our sup port to th e UN Sustai nable D evelopm ent Goal s (SDG s) and i ts targets for 2030. To ensu re ampl e contri buti on, we f ocus on specifi cally SD G #4 Qua lity Educ ation a nd SDG #13 Cli mate Acti on. Th ese goals are cl osely l ink ed to our value chain, busi ness practic es, and com pany va lues. Our sup port of th e SDG s is seen as a n atura l progressi on of our comm itmen t to th e UN Gl obal Compa ct. Thi s responsi bili ty report doc umen ts the resul ts of our efforts wi thin corpora te soc ial responsi bility , as well as environ mental , soci al and governan ce asp ects (E SG) . As part of our com mitmen t to th e UN Gl obal C ompac t, TORM su bmits i ts commu nicati on on progress ( COP) every year . Th is yea r, TORM wi ll u se the Susta inab ility Acc oun ting Stand ards Board (SASB) reporti ng f ramework to furth er inc rease our E SG reporti ng tra nspa rency . Th e SASB framewo rk i s an E SG guida nce fra mework which set s stan dards f or the di sclosu re of fi nanci ally material susta in ability informa tion . Find our SASB Index and Responsibility data on page s 48 - 52 RESPON SIBILITY REP ORT Responsibl e behavior and sustai nability are embedde d in the wa y we co ndu ct busi ness in TO RM. We ar e committed to p rotect and take ca re o f our employee s, our asse ts , our environme nt, and our society. This is don e by liv ing up to t he highest po ssible stand ards. We su pport t he UN Global Com pact, the S ustainable D evelopme nt G oals and are in creasingly report ing on Envir onment al, Social and Governa nce data. Our Re sponsib ility INTRODUCTION AND HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 33 CORPO RATE S OCIAL RESP ONSI BILITY HIGHLIGHTS TORM con tinu es to play an ac tive role in fos terin g and car ing for th e needs of society , the environ ment, a nd c ommuniti es at la rge . TORM b elieves th at doi ng busin ess sustai nabl y whil e contrib uting to soc iety i s not o nly about sh aring oblig ation s, but al so abou t sharin g soci al respon sibil ities. The refore, T ORM on the one hand continu es to st rive ha rd to comb at carb on, sulfu r, and other emissions a nd on the oth er han d, stan ds commi tted to providing qualit y educat ion, as it is a matter of c onc ern for TORM and its empl oyees. TOR M is confi dent th at with all bri lliant mi nds , great h earts and d edicated stakehol ders, this mi leston e will defini tely be ac hi eved. DIVERSITY 37% WOMEN IN THE SH ORE - BAS ED WORKFOR CE 22% WOMEN IN LEADERS HIP POSITIONS 74 SCHOLAR S SUPPORTED BY T ORM A ND OUR ED UCAT ION FOUNDATION 0.37 LOST TIME ACCIDENT FREQUENCY IN 2021 INTRODUCTION AND HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 34 TORM’S ESG T ARGET S INTRODUCTION AND HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 35 STAKEHO LDER EN GAGE MENT Workin g in close col labora tion wi th our c ustomers a nd stakeh olders h as an immense foc us f or TORM an d is key t o del iver on our am bitiou s climate targets . Amo ng others t he stakeh older grou ps include employees, commu nity , sup pliers, c ustom ers, in vestors, a nd auth orities. Throug hout th e year, sp ecial ists across TORM interac t with th ese stakeh olders t o ensu re an op en di alogue . This in clude s our ongoin g dialog ue with financ ia l insti tution s to ensu re a hig h level o f t ransp aren cy in our cli mate efforts – both a shore and at se a. As a comp any , we work with a sel ection of partn er ships sh aring th e same va lues a nd goa ls as TORM, e.g ., we h ave join ed the M æ rsk M ckinne y Mø ller C enter for Z e ro C arbon S hipping , where w e will work with i ndustry partn ers and knowled ge speci alists to achi eve zero ca rbon sh ipp ing by 205 0. In ad dition , TORM is an active memb er of i ndustry organi zation s such a s Danis h Shipp ing . You c an learn more abou t how we en gage w ith stakeh olders a nd decisio n - making in the sec tion 1 72 statement. Engageme nt and De ci sion - making in TORM on page s 104 - 106 Find m ore detai ls on th e valu e cha in in oil transp ortation and TORM’s r ole Value chain in oil transporta tion on page 16 MATERIALITY As part of our con tin ued eff orts to i ncrea se transp arenc y in ou r reportin g, thi s year we wi ll i nclu de a materi ali ty assessmen t in ou r respon sibil ity rep orting . In TORM, we have d efin ed ma terial ity as “ socia l and environ mental topic s with the largest i mpa c t throug hout ou r valu e chain ”. Materia lity Assess ment TORM ’s ESG materia lity assessmen t is mad e to iden tify and prioriti ze the ESG issues wh ich a re most importa nt to and h ave most i mpac t on TORM a nd ou r key stakeh olders. We h ave defi ned our key stakeh olders a s custom ers, lend ers, in vestors , regul ators, employees , supp liers, an d commu nity & en vironmen t. The imp act whi ch the v ariou s topic s have on TORM varies d ependi ng on the topi c. As exa mples, l egal compl iance c an be th e risk o f breachi ng sa nctio ns which can i mpact TORM ’s acces s to criti cal markets i f not comp lied with, w hereas TORM ’s abi lity to employ diversi fied p ersonnel wil l impac t our dec ision - ma kin g cap abilities and p otentia l for strong commerci al performa nce i n the f uture. A nother exa mple i s sec urin g quali ty educ ation which i mpacts ou r abi lity to s ource skil led c rew for our vess els. E ac h score is evalu ated relati ve to eac h other a s all the m aterial topic s are importa nt to TORM an d our key stakeh olders. T h e materia l topic s an d the ma teriali ty matri x were approved by th e Board of D irec tors. STAKEH OLD E R ENG AGEMENT AND MATE RIALITY INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBIL ITY FRAMEWO RK OUR PRIORITIES AND RESULTS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 36 H ealth and safety o n pages 3 7 - 39 S ecurity on page 39 TORM’s e nviron mental e fforts on page 40 Peopl e at sea an d ashore on page s 41 - 43 Human rights and bus iness ethics on page 44 Communit y engageme nt on pages 45 - 46 Responsible procurement in TORM on page 47 STAKEH OLD E R ENG AGEMEN T AND MATE RIAL ITY INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBIL ITY FRAMEWO RK OUR PRIORITIES AND RESULTS SASB INDEX AN D RESPONSIBILITY DATA MA TERI AL ITY MA TR IX Importance to ke y stakeholders High er L ow e r L ow e r High er Impact on TORM D B F C G Most im portant ES G re l ate d top ic s f o r TO R M ( sc oring of t op ics is rel ati ve t o each ot her ) H A E A Legal comp liance B Healt h an d s afe ty C Security D En vir o nmenta l eorts E Peop le F Hum an ri ghts and business ethics G Commun it y H Responsi ble procurement LEGAL COMPLIANCE Legal compli ance i s essenti al to TORM a nd to our stak ehold ers. Intern ation al tra nsport of refin ed oil p roduc ts is a h ighly regu lated a rea, and ful l complia nce wit h all appl icable rules and regulati ons at a ll ti mes is a n ecessi ty for operatin g su ccessfu lly in th is lin e of bu siness. TORM’s compliance with al l applicab le sancti ons requir es co nstant focus, as any violat io n may hav e a signifi cant busi ness impa ct. The sa me app lies to c ompli ance with appli cable ru les an d regul ations i n relati on to (with out lim itation) heal th, safety and environ ment, a nti - bri bery a nd corru ption , competi tion/ anti - tru st, as we ll a s employ ment an d labor. L egal complian ce is often closel y linked to other areas in cl uded in the materia lity m atrix an d is a lso sepa rately incl uded. The G overna nce sec tion on pag es 71- 11 1 describ es TORM’s fram ework a nd governa nce mod el, desi gned to ensu re TORM’s continue d abili ty to operate succes sfull y. TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 37 Aroun d 90% of TORM’s w orkforc e is empl oyed at sea , and therefore en surin g hea lthy, sa fe, an d secu re workin g cond ition s for them i s of cru cial importa nce to TORM’s bu sin ess. Back ing those efforts, TORM b elieves that a heal thy and supporti ve work en viron ment ad ds a lot to th e employ ees ’ wel lbei ng, prod ucti vity, and performa nce l evel at work and also en hanc es the compa ny’s reten tion ra te. Respecti ng emp loyees’ h uman rights i s pivota l to TORM , an d al l the pol icies sup portin g thi s are outl ined in TORM’ s Busine ss Pr inciples . Similar ly , our safety policy is root ed in th e rul es and regula tions iss ued by the Da nish M aritime Oc cupa tional H ealth Servi ce. INSPECTIONS AND AUDITS In order to main tain our stand ards an d exceed the targets s et by ou r custom ers d espite th e COVID - 19 pan demic, TORM developed a rob ust rem ote au dit scheme a t the beg inn ing of 2020. With tra vel restric tions sign ificantl y reduci ng the p ossibi liti es of visitin g vessels , the fi rst - rate tools a nd da ta col lecti on processes a t TORM made it possi ble to c reate a robust remote au dit sy stem. The ch allen ges con tinued duri ng 2 021 and the One TORM pl atform h as been able to s ucc essfull y deliver on all co unts , inclu ding new takeove rs and new del iveries. Despi te the ong oing pandemi c, a few emp loyees h ave succ essful ly manag ed to visi t a nu mber of TORM vessels for audi ts, insp ections a nd on - board tra ining . In addi tion , we ha ve been a ble to atten d our n ew vessel s for timel y takeov er. Overall , owing to the ef fecti veness of the On e TORM platf orm, the i nterac tion wi th all stakeh olders, i nterna l as well as extern al, h as sh own th at au dits, ins pection s, change of fl ag et c. are achiev able and succe ssf ul despite th e pan demic . SIRE I NSPECT IONS The mai n bod y respon sibl e for manag ing th e overarch ing processes a nd req uiremen ts of the v essel insp ection s is OCIMF (Oil Compan ies Intern ation al Mari ne Foru m). In 202 0, due to th e travel rest ricti ons cau sed by th e COVID - 19 pandemi c, new a venu es lik e remot e doc umen tation review a nd in specti on were introd uced by OCMIF . The cha lleng es experien ced in conn ection w ith phy sical SIR E (Sh ip Insp ection Report Program) arran gements wer e miti gated b y cl ose co - operation amon g in ternal stakehold ers as well as among oil ma jors. In sp ite of the c hallen ges, TORM vessels w ere ab le to ac hieve a signi fica nt numbe r of physi cal S IRE ins pectio ns en abli ng busine ss contin uit ies and the fl exibi lity to trad e. The pr ocess aroun d takin g delivery of n ew buildin gs as well a s second - hand v essels was we ll exec uted en surin g succes sful t radi ng. Durin g 2022 , OCIMF is expected to roll ou t th e compl etely reva mped SI RE 2.0 i nspec tion a nd assessmen t regi me for th e prod uct ta nker i ndustry . HEALTH , SAFE TY , AND S ECURI TY INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 38 SAFETY DEL TA TORM al so con tinued w ith the Saf ety Del ta tool , whi ch was la unched in 2 018 and u sed across th e flee t to trac k and monitor th e safety cul ture on boa rd the i ndiv idual vessels. The sa fe ty del ta con cept su pports proc esses and act ivit ies and helps to buil d and m ainta in a proac tive saf ety cu lture b ased on c onti nuous c rew evalu ation , dialogu e, reflec tion, a nd d evelopmen t. All vessels h ave been sch edul ed to complet e thre e Safety Delta cycl es in 2021. Sinc e 2018, TORM ha s used a revi sed p erforman ce appraisa l progr am as a way to syste matically enh ance work beh aviou r and leadershi p to ensu re exc ellen t safety performan ce. Throug h the On e TORM Sa fety Cu ltu re – driving resili ence prog ram, TORM has defined standards and expectati ons f or excel lent perf orman ce. A key element of lea dershi p is to eval uate e mploy ee performa nce w ith a view to ma nag ing the devel opment a nd moti vatin g employ ees to dev elop. TO RM believ es this wi ll f acilita te the best p ossib le mean s for d evelopi ng perf orman ce as an indivi dual and as a company. In 2021 , TORM i ntrodu ced a n ew in ducti on framework for its S enior Of fic ers. The i ndu ction p rogram foc uses on provi din g the Sen ior Off icers with insi ghts i nto fund amental c ompany cultu re, behaviou r, saf ety leadersh ip an d stak eholder m ana gement to en sure excell ent perform anc e for ne wly h ired Sen ior Off icers. A revised i ndu ction framew ork for Jun ior Off icers w as introd uced in 2020. In 2021 , TORM c ontin ued to p romote the On e TORM Safety C ultu re – drivin g resil ience p rogram. In Q4 2021, we lau nched our new Virtua l Senior Of fic ers Conf erence p rogram. Th e conten t of the V irtua l Seni or Offi cers conc ept is f ocused on s afety c ulture, m enta l h ealth , w ork c ultu re, and s ocia l c ultu re to supp ort and ensure th at TORM ’s safety cu ltu re is anch ored ac ross the orga niza tion, a shore as wel l as on board the vessels . These V irtua l Seni or Off icers C onferen ces h ave been c ontinu ed in 2021 an d a total of 17 1 Senior Of fic ers have a ttended th e con fere nce . HEALTH , SA FETY, AND SEC URITY INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA ONE TORM SAFETY CULTURE In 2021 , TORM con tinu ed the safety cu lture program On e TORM Sa fety Cul ture – driving resili ence. Th e purp ose of th e progra m is to conti nuously strength en TORM ’s safety cul ture beyon d comp liance. TORM con tinu ed to con duc t Safety Leaders hip c ourses for Senior Of fic ers on board. Du ring 2021 , TORM wel comed a numb er of new senior of fic ers to the company, and stil l maintaine d a high compl etion ra te of more th a n 80% for the safety leadersh ip c ourse . The cour se incl udes workshop s for al l Seni or Offi cers an d key mar ine sh ore staf f an d focuses on how t o be a good lea der when it c omes to s afety. In 2021 , TORM i ntrodu ced a n ew tai lormad e Safety L eadersh ip p rogram for J uni or Offi cers, which cover th e mind sets, co mpetenc ies, an d beha viors sui ted for the r ole. It util izes a th ree - pha se learn ing proc ess whi ch provi des the partic ipan ts with a better lea rnin g experien ce and ensures a f aster ap plica tion of l earni ngs in their d ay - to - da y work p ractic es. This c ourse also serv es as a s uppl ement to the Sa fety Leaders hip C ourse f or Senior Offi cers. TORM AN NUAL REPORT 2021 OUR R ESPON SIB ILITY 39 LOST TIME ACCIDENT FREQUENCY AND NEAR - MI SS INCI DENT S Lost Time A cci dent F requenc y (LTAF) is a mea sure of serious w ork - rel ated pers onal in juries which result in more tha n on e day of f work p er mill ion h ours of work. The def ini tion of L TAF fol lows the sta ndard prac tice among shipp ing com panie s. Dur ing 20 21, TO RM’s LTAF measure c onsi derabl y dec reased to 0.37 (2020: 0.65) . Each injury h as been investig ated an d correc tive measures h ave been taken as requ ired. TO RM’s seafa rers have d one a c ommen dabl e job by raisin g the safe ty cult ure and subst antia lly re duced i njur ies in 2021, especi ally d uring the pand emic. V i rtual town h alls and other onl ine i nterac tions introduc ed at th e begi nning of the pa ndemi c for TORM’s s ea farers h ave been u sed to a greater exten t in 2 021. Du ring th is tim e, whenever possib le, opportu niti es were taken to phy sical ly attend vessels an d in teract w ith sea farers , includi ng cond ucting t rain ing . Near - miss reports provid e TORM w ith a n opportu nity to ana lyse c ondition s wh ich mi ght lea d to ac ciden ts and ultimatel y preven t potenti al f uture ac cidents . A high number of n ear - mi ss reports i ndi cate th at the organ ization proac tively mon itors an d respon ds to risks. In 2021 , TORM’s f ocus on nea r - miss incide nts and the quest f or conti nuou s imp rovement s resu lted i n the introd ucti on of a n ew categ ory of even t s cal led ‘U nsafe a ct & u nsafe c onditi on’ to help identi fy nea r miss events for the sa fety of our c rew s . Th e total near mi ss reported f or 2021 was 4 ,203 ( 2020: 5 , 991, 2019: 6,099 ) and ‘Unsafe a ct & un safe cond ition ’ was 1 ,9 54 . HEALTH , SAFE TY , AND SEC URI TY LOST TIME ACC IDENT FR EQUEN CY (LTA F) Source: TORM INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA 0.96 0.65 0.67 0.47 0.42 0.65 0.37 0.0 0.2 0.4 0.6 0.8 1.0 1.2 2015 2016 20 17 20 18 2019 2020 2021 SECURITY TORM’s r esponse t o pira cy i s foun ded on the Best Man agemen t Practi ce, wh ich i s the indu stry gu idelin e for comp anies a nd vessel s sail ing in a reas with inc reased risk . In 202 1, TORM e xperie nced six incid ents when thieves or robb ers came on board a nd f our inc iden ts of stowaw ays fou nd on board TORM ’s vessels. No person s were h armed d urin g these inci dents. Throug hout th e year, th e sec urity situa tion and developmen ts in the vari ous risk areas have b een moni tored cl osely, and action s have b een taken to saf eguard TORM’s seafa rers and vessels. T he se cu rity si tuation in some regi ons rema in f ragil e due to th e COVID - 19 pandemi c. TORM has adapt ed its procedu res to th e cha nging th reat level s across th e areas c all ed a t by TORM vessels. TORM wi ll c ontinu e to monitor th e ris k situa tion an d pre - empt h ijac king an d robbery attempts b y foll owin g secu rity proced ures and ind ustr y guide lines . TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 40 TORM sup ports SD G 13 Cl imate Acti on as marine pollutio n constitu tes the larges t environmen tal risk in the shipp ing industry. Therefore , it is i mpor tant f or TORM to m ini mize the s ea and atmosph eric p ollution. FUEL C ONSUMPTION AND E NERGY E FFICI ENCY TORM ha s relentl essly worked on the a mbiti ous environ mental goal of redu cing ca rbon footpri nts by deploy ing ef fecti ve strategie s an d effic ient techn ologi es across ou r val ue cha in. To respon sibl y add va lue to the i ndu stry emiss ions red ucti on pl ans, TORM con tribu ted throu gh i ts involv ement in indu stry coll aboration s in in novati on partn ership , Ship pingLab (a non - profi t pla tform for ma ritime re searc h), developm ent, an d in novati on with 30 p artners f rom across th e mariti me in dustry to push the eff orts furth er at driv ing s mart shi pping for the f uture , such as : Sign ing up f or the Ca ll to Ac tion f or Ship ping Decar boniz atio n, whi ch calls on the governments to take dec isiv e action s to ac hieve dec arboni zation of intern ation al shipp ing by 2050. Board Ac ti vitie s 2021 – Strateg ically impo rtant long - term co llabor ations on page s 77 - 78 Join ing the M ærsk Mc Kinney Møl ler Insti tute for Zero Carbon Shi pping as a Miss ion Ambassa dor to res earch ways to g row in a more ope ra tiona lly, c ommercia lly, and sustai nably vi able way. Greener Future – Long - term Indu stry colla boration on page 22 Investin g in Flettner Ro tors f or the n ewest of ou r LR2 vessels , aimed at savi ng fu el cons umpti on. Flettner Rotors on page 2 5 Despi te the challeng es o f manag ing the f uels and evalu ating th e propu lsion performan ce, the On e TORM platf orm con tinue s to ha ve a solid and ded icated f ocus on re ducing f uel co nsum ption. FAST F ORWARDING OU R ENVIRONM ENTAL EFF ORT Over the y ears , TORM has g eared up i ts environ menta l efforts on ly to outperf orm its set ta rgets. F urth er, we all have an ob ligati on to do o ur u tmost to r educ e CO 2 emission s. Theref ore , TORM is p ush ing fa st forward in our envi ronmen tal eff orts an d wil l deli ver a 40% CO 2 r educti on by 2025 – in stead of by 2030. The ba selin e for the ta rget i s in line wi th th e defini tion set forth by th e Interna tiona l Ma ritime Org ani zation, IMO, wh ich defined how this shoul d be mea sured an d calc ulated. Th e acc elerated target is possibl e than ks to the power of the i ntegra ted On e TORM pl atform, where we c ontrol the wh ole va lue ch ain of our bu siness and operation s. For examp le, we h ave in - house t echni cal ma nagemen t, train ing, en ergy eff icien cy team, ma rine H R, operation s, and charterin g, and thr ough t his, we can adj ust, optimi ze, and impl ement the c hang es needed to acc elerate ou r environ mental ef forts. To conti nu e reducin g our emi ssion s towards 2 025 an d onward s, we wil l foc us on e. g. , hull pa inting , mainte nan ce , connec ted mach inery a nd conn ected vessels, an d con tinue th e optimi zation journey of onboa rd operati ons. As our lon g - term goa l , we will be workin g on su bjects en compassi ng fu ture fu els and next - gen eration vessel s. TOR M contin uously focus es o n ener gy effici enc y across th e fleet. Thi s serves the d ual purpose of minimiz ing t he env ironm enta l impa ct and he lps us deliv er market lea din g perfor man ce. By m aintain ing a strong f ocus on energy effi ciency in 2021 , TORM ha s achi eved a 37. 6 % redu ction in Annua l Effi cien cy Ratio (AER) compa red to the IMO basel ine ( 2008 ) . Daily enga gement wi th the vess els c ontinu es to creat e sign ificant va lue to en cou rage and support b est prac tice beha vior with regard to energy consu mption . In ad dition , the ef forts ensu re that c orrective ac tions can be taken swiftl y, as n ee ded. In our c ontinu ed end eavors to op erate i n an environ mental ly fri endly w ay, we stri ve to pu sh ou r horizon s and beli eve that ou r acti ons wi ll do the w ork. ENVIRO N MENT AL EFFO RTS INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 41 People an d cu lture pl ay an es sentia l part a t TORM. I t defin es our c ore and help s us grow an d thri ve, at sea and ashore. The p andem ic has chall enged th e way we work an d coop erate. But w e h ave in itiated stra tegic and operation al in itiativ es to dri ve hig h emp l oyee enga gement an d improve th e sen se of b elong ing . AT SEA In 2021 , TORM c ontin ued i ts strategy t o employ seafa rers with d iff erent na tiona lities a s we believe th at diversi ty on b oard is a n imp ortant f oun dation f or cooperati on, h igh performa nce, an d a saf e workin g environ ment. Throug hout th e year, TO RM’s m ain priority was to relieve s eafa rers on ti me des pite the h eavy c onstra ints cau sed by th e COVID - 19 p andemi c. Furth er, the foc us wa s to get a ll sea farers b oth at sea and ashore vac cinated agains t COVI D - 19 . TORM wa s one of th e first c ompan ies to use the U S vac cin a tion program f or vessel s c allin g US ports a nd w e follow ed up in all cou ntries who off ered thi s service. In 2021 , the team man aged to v acc inate more than 1 , 000 seafa rers on boa rd and set up h elp to g et vacc ines f or all nati onaliti es. Today , no seaf arer join s a TORM vessel withou t bein g vacci nated. In 2022 , TOR M will conti nue the dri ve toward s ful l vacc ination , incl uding b ooster vacc inatio n. Durin g these ti mes, focu s was on sup porting both staff on boa rd as wel l as ou r seafa rers at h ome and their relati ves, with a ll a spects of su ch unp receden ted times. This in clude d bot h fina ncial s upp ort , and most importa ntly to ensure h ealth y well being . Despi te the COVID - 1 9 limi tation s, TORM c ontinu ed its ef forts to strength en the rel ation ship between s eafarers a nd th e shore - ba sed organ izati on. In 2021, th is in volved a transi tion f rom phy sical meeting s and ga thering s to a more virtu al f orm whi ch inc luded semin ars, tra ini ngs, and general gatheri ngs. TORM ma i ntain s an on going foc us on seafarer commitm ent an d engag ement. In 2 021, th e retenti on rate for Senior Of fic ers rema ined a bove 90% , an d TORM demon strat ed 100% c ompli ance w ith cu stomer requi rements wh en it c omes to en surin g the ri ght l evel of experien ce am ong Sen ior Of fic ers per vessel acros s the fl eet (the so - c all ed off icer matrix c ompl ian ce). Th e Well a t TORM prog ram ai med a t focu sing on the wellb eing of our sea farers by inc reasing engagemen t, ment al re silience , phys ical he alt h and e mbraci ng socializ atio n amon g crew memb ers, is succ essfull y runni ng at pa r with our in tent with more tha n hal f of the total seaf arers ac tively partic ipati ng in it. 94% Rete ntion r ate for sen ior officer s At the end of 202 1, TORM empl oyed a total of 3,420 seafa rers of whom 9 2 were p erman ently employed , with th e remain ing sea farers bein g on ti me - bound contra cts. ASHORE High Engagement In 2021 , we con tinu ed our b i - annu al real ti me data enga gement su rvey whi ch we in troduc ed in 2 019. More than 90% of a ll sh ore - based empl oyees resp onded to th e survey. PEOPLE GEOG RAPHIC AL DISTRIBU TI ON OF SE AFA RERS I N % Total number of seafarers at t he end of 2 021: 3,4 20 INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA 51 % 39 % 5 % 4% 2% In d ia O t h er Croa ti a Den m ar k T h e Ph ilip p in es TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 42 The outc ome of th e Decemb er 2021 survey wa s a s core of 8.4 out of ten sh ow ing a co ntinuo us hig h enga gement an d sati sfacti on among ou r employ ees. And th is is the ca se across c ategori es ran ging from enga gement, f reedom of opin ion, ma nagemen t supp ort, work en viron ment an d saf ety. The hi gh scores w ere even ly sp read ac ross di vision s an d locati ons whi ch is a testam ent to the stren gth of the un ified One TORM a pproac h. Th e overall positi ve outcome of the su rvey wa s ma intain ed from p revious years, a nd i t position s TORM in the top qu artil e of compa nies ac ross all indu stries usi ng th e same pl atform. Our amb ition of thi s engagem ent survey combi ned with a high response ra te is t o hel p us i mprove, nu rture the cu lture n eeded to f ulf il our am bitiou s strategy and develop i niti atives w hich matter to our employ ees. Again in 202 1, we inc luded question s to und erstand how ou r shore - bas ed emplo yees cop e with the pan demic and the prec auti onary meas ures we ha ve introd uced to safegu ard an d support ou r employ ees. The surv ey showed that th e COVID - 19 rel ated measures i ntrodu ced w ere high ly ap preciated by our employ ees. Employe e health and wellbeing Durin g 2021 , we in troduc ed an up dated remote w ork approa ch du e to the exp erien ces stemmi ng f rom the requi rements to w ork rem otel y durin g the p andemic . This a llowed for more fl exibi lity for the gl obal team. By the end of 2021 , the reten tio n rate f or all s hore - based employ ees was 88 %. Tha t is an expected chan ge compa red to prev ious y ears d ue to the ef fects of employ ees world wide reth ink ing wh at work m ean to them fol lowin g the C OVID - 19 pandemic. T o streng then a nd devel op TORM’ s positi on in this area , c ontin uous devel opmen t of ou r organi zation , cul ture and leadersh ip is a key c riterion for suc cess. On this b ackgrou nd , we deci ded to i mplemen t leaders hip train ing in our orga nizati on. One of th e main purp oses was to enh an ce the f eedback cultu re in TORM . We are con sisten tly foc usi ng on employ ee heal th an d wellb eing . The term wel lbein g embra ces not on ly phy sical, bu t also men tal a spects of wel lbei ng. Therefore , speci fic traini ng in stre ss awaren ess wa s ini tiated du ring th e year. Th roug h in - d epth know ledge, a common lang uage an d targeted to ols, al l empl oyees will be equ ipped wi th the n ecessary tool s requ ired to spot and mitig ate stress . We w ill continu e introd ucing this a cross off ices in 202 2. Onboardi ng a new career Ou r ab ility to recru it an d retain highl y quali fied employ ees for p osition s ashore a nd a t sea is es senti al to our bu siness. That i s wh y we h ave a str ong f ocus on the way we commu nica te with p otentia l can didates, how we rec ruit, a nd we h ow we on board our new e mployees. W e wan t to enh anc e the understa ndi ng of TORM an d the On e TORM c ulture. At sea an d ash ore, thou sand s of col leagu es world wide keep the T ORM fl eet movin g. Wh ile we a ll sh are the same goa ls an d cul ture, every one’s sto ry is d ifferen t. T ORM ha s develo ped a career si te at t orm.com which portrays em ployee s with dif ferent stori es. An d the si te descri bes our d ifferen t caree r progra ms ash ore an d at sea. Overall , we aim t o attrac t and retain the best q ual ified employ ees by li ving the fou r valu es of th e TORM Leaders hip Ph ilosoph y and by ensuri ng tha t TORM’s leaders m otivat e their employ ees. At the end of 202 1, the shore - b ased organ izati on ha d 348 employ ees: 140 in H ell erup , 136 in Mumbai, two in New Del hi, 39 in Manil a, three in Cebu, 16 in Singapore, 11 in Hou ston, a nd one in Lon don. PEOPLE INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 43 DIVER SITY At TORM , we h ave an obli gation to d evelop a s trong and diverse tal ent pool irresp ective of gend er, reli gion , sexual ity, n ationa lity, ethnicity , or disa bil ities etc . As stated i n TORM ’s Bu siness Pri nc iples, w e work toward a diverse workforc e in every asp ect. W e wa nt to have a n in clusi ve envi ronment wh ich resp ects an d supp orts all our peopl e and helps i mprove bus iness performa nce. In our c ontinu ed eff ort s to ma intai n a pos itive an d respectf ul work environ ment, we ha ve compl eted intera ctive sessi ons which have provi ded insight s in to how we en sure to b e aware a nd respec tfu l in ou r daily work . Also a nnually, we will follo w up on th ese ini tiatives a nd eval uate the re sul ts. We beli eve tha t diverse teams led by diverse l eader s deliv er better bu sin ess perfo rmanc e, and offer eq ual opportun iti es in rec ruitmen t, career d evelopm ent, promotion , trai ning and rewa rds for al l empl oyees. In 2021 , we con tinu ed to pa rticipa te and drive th e aim of Dan ish Shi pping ’s t askforce for m ore women at Sea . In thi s work grou p , we ha ve in corpora ted 10 recommen dation s in to processes a nd proc edures a s best prac tic e. The recomm enda tions i nclud e setting gender d iversity target s, sup portin g women throug h family friendly p olicies a nd rethi nking th e recru itment process. Gender di stri bution We acti vely mon itor the r epr esentati on of f emales i n the workf orce an d in lead ership position s. At th e end of 2021, th e propor tion of femal e ful l - time emp loyees i n the shore - b ased wo rkforc e wa s 37%, w hil e women i n leadersh ip p osition s, defi ned as h aving one or more direc t reports, c onstitu ted 22 %. TOR M ha s a target f or 2030 of 35% women in leadershi p posi tions . At the end of 202 1, the Board of Di rectors con sisted of four ma le members a nd on e fem ale member elected at the An nual G eneral M eeting . In 2020, the Boa rd of Direc tors ful fill ed its targ et of 2 0% fema le Board members (1 out of 5). DATA ETHICS TORM’s busi ness model, The ONE TORM p latform, uses advanc ed ana lytics and di gital sol ution s in wh ich larg e amoun ts of da ta are proc essed . TORM’s Data Ethic s Polic y conf irms TORM’ s commitm ent to ou r defi ned data eth ic’ s princ iples an d it defi nes how we coll ect, store an d proc ess data . TORM wan ts to mai ntai n high eth ic al standa rds for th e protecti on of ou r data, a nd w e want ou r han dling of all data to b e benef ici al and value - addi ng to ou r custom ers, empl oyees, b usiness partners , au thoriti es, and other stak eholders . Our treatm ent of d ata mu st b e robust t o preven t again st any uninten ded disc losure. T ORM’s da ta securi ty measu res in clude a variety of gui delines a nd define d pro cess es, as wel l as techni cal and huma n control s. TORM gen erall y does n ot coll ect, store, or ha ndl e data in rel ation to priva te custom ers or c onsu mers. Th e data which TORM c ollects, a nd stores i s ma inl y commerci al data, rel evant to the op erati on of our own ed and cha rtered vessel s. Suc h comm ercia l data inc lud es withou t lim itation g lobal tra de fl ows, tra ding pattern s, carg o types, wea ther patt ern s, port d ata etc . and may be genera ted in ternal ly or obta ined from ext ernal sources. PEOPLE INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILI T Y DATA EMPLOYEE DIVERSITY Perma nent ly emplo yed Male Female Directors of the Com pany ⁾ Employ ees i n other s enior exec utive positio ns - Total management ot her than Directors of the Company (Managers with one or more direct rep orts) Other perman ent e mployees of t he Grou p Total perma nent empl oyees of t he Group ⁾ The fiv e Non - Executive Dir ectors ar e not included as employees o f the Group TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 44 ANTI - CORRUPTI ON AND ANTI - BRIBERY Corrup tion a nd brib ery imped e globa l trad e and can restric t non - corrup t compan ies’ acc ess to mark ets. In this wa y, c orruption and b ribery ha ve a neg ative impa ct on ec onomic a nd soci al d evelopmen t. For TORM, th e risk of c orru ption does not m ean i nc reased co sts alone. C orrupti on al so expose s TORM’s seafa rers to safety and s ecuri ty risk s and poses a poten tial risk to TORM’s lega l stan ding and repu tation . TORM does n ot ac cept c orrupt b usin ess pra ctices, a nd as part of its c ompli anc e program TO RM ha s a poli cy on an ti - bribery and anti - c orruption , which supp orts TORM’s Busin ess Princ iples. It is TO RM’s pol icy to cond uct all b usiness i n an honest and ethical manner. TORM has a “zero tole ran ce” approa ch to bri bery an d corru ption , and TORM is committed to ac tin g p rofess ionally, fair ly and w ith integ rity in all bu siness d ealings a nd rel ation ships, wherever TORM operat es. TORM w ill uphold a ll laws relevan t to cou nteri ng bri bery and corrupti on in all th e jurisd ictio ns in w hich TORM operates. TORM ha s three elem ents w hi ch it l everages to conti nue a h igh l evel of tran sparen cy and acc ountabili ty of i ts anti - corrup tion an d anti - b ribery policy . One bei ng stri ct empl oyee gu idel ines a nd processes to prev ent an d man age an ti - corrup tion an d anti - bribery, th e second bein g spec ific rep orting processes , an d the la st bein g compu lsory e - l earnin g courses. TORM fu rther com pl ies with SOX regul ation s acc ording to w hich employ ees must conf irm ad herenc e to the pol ici es and guidel ines, as wel l as tra ini ng compl etion, en suri ng 100% comp lia nce. No fu rther correcti ve acti on ha s been re qui red. Since 2011 whe n TO RM co - founded th e Mariti me Anti - Corrup tion Network (M ACN), TORM has b een taki ng a join t stand with th e indu stry again st the requ est fo r facilitat ion payme nts which exi sts in ma ny p arts of th e world wh ere TORM cond ucts bu sines s. Best prac tice i s shared between memb ers of th e network, and members al ign their a pproach to mini mizin g facil itation paym ents. MACN seeks sup port from g overnmen t bodi es and intern ation al organ ization s to elimi nate th e root c auses of corru ption . TORM is committed to ad dressin g corrup t busi ness pra ctices a mong sta kehol ders by supp orting th is c ross - sector ap proach . In ad dition to its eff orts with in M ACN, TORM con tinued to streng then i ts comp any wide anti - corru ption policies in 2 021 to miti gate th e risk of bri bery an d corru ption . TORM ha s con tinued i ts an ti - corrupti on trai ning program, whic h incl udes man datory a nti - corruption courses f or all shore - based staff and all o fficers on board TOR M’s vess els. Th e tr aini ng targ ets new h ires as well a s existin g empl oyees a nd mu st be repea ted annu ally. T ORM will contin ue these ef forts in 202 2 . Sinc e 2006, TORM ’s Board of Direc tors has provided a whistle - blower f acil ity wi th an indep enden t lawyer as part of th e in ternal control system. In 202 1 , the whi stle - blower f aci lity recei ved two notif ication s, both of whic h were inves tiga ted an d closed w ithou t any critiq ue or requi rements for n ew mea sures. HUMAN RIGHTS With th e TORM L eadersh ip Phi losophy , TORM’s Busine ss P rincip les and com mitmen t to th e UN Glob al Compa ct, TORM i s commi tted to r especti ng h uman righ ts as outl ined in the Un ited Nati ons G uiding P rincip les on Busi ness a nd Huma n Right s. TORM recog nizes th at im plemen ting the nec essary polici es and respecti ve proce sses to b e in lin e with the requi rements of th e UN G loba l Prin cipl es is pa rt of an ongoi ng eff ort. Goin g forw ard, we will conti nue to promote h uma n rights - rel ated p olicies and p rocesses. The most materia l risk for hu man ri ghts a buses are related to TORM’s sup ply cha in. TORM complie s with the Intern ation al L abor Org anizati on’s M aritim e Labor Conven tion, a n intern ation al set of sta nda rds on l abor cond itions a t sea, whi ch was ratif ied by 30 coun tries in 2012. A ll vessel s und er TORM ’s techn ical manag ement are au dited a nd certi fied a s requi red under th e Mari time La bor Con vention of 2006. TORM respec ts employ ees’ rig ht to assoc iate freely , to joi n – or n ot to join – unions and to b argai n coll ectiv ely. TORM offers equa l opportu nities f or its e mpl oyees as sta ted i n TORM’s Busin es s Princ ipl es. No cl aims or of fenses h ave been repor ted r egardi ng huma n righ ts in 202 1. HUMAN RIGHTS AND BUSINE SS ET HICS INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 45 TORM i s a long - stan ding su pporter of maritime edu cation in Denmark, In dia , and the Philippines , and it is th erefore natural f or TORM to support SDG 4 Quality Ed ucatio n. This c ommitmen t shows TO RM's c onn ection to the surroun ding communi ties and how mu ch of a positi ve impa ct it has on the soc iety at la rge where TO R M operates and where man y of TORM’s e mpl oyees come from. Addi ng to that, T ORM fi rmly bel ieves th at by supp orting ed ucati on in selected area s, we c an nu rture futu re competen cies a nd d evelop a strong pipel in e for the in dustry . TORM’s con tribu tion towa rds th e bettermen t of s ociety b uil ds a sense of trus t and pride in ou r coll eagues which reciprocates in the f orm of high er retenti on an d posi tive bran d recog niti on. TORM is th erefo re dedic ated to su pportin g SDG 4 Qual ity Educ ation a nd coopera tes with several educ ational institu tion s and universi ties in ternati onal ly. In Den mark an d Sin gapore, th e efforts i nc lude off ering inter nships and trainee and stu dent a ssistan t positi ons at TORM’s offi ces to studen ts from the C open hag en Busin ess Sch ool, the C openha gen Sc hool of Marin e Engin eerin g & Techn ology Ma nagemen t , and th e Nanya ng Tech nologica l University Sing apore. Th e majori ty of TORM ’s sea farers come from Indi an or Filip ino nationa lity , and the ref ore TORM’s activities in these area s edu cate th e studen ts abou t the shipping indu stry . This e nhance s the potenti al p ool of fu ture TORM empl oyees an d stren gthen s the overa ll sk ill set of seafa rers comin g from th ese regi ons. EDUCA T ION F OUNDATION IN T HE P HILIPPI NES T he TORM Ph ili ppines E ducation F ounda tion (TPE F) is a founda tion set up by TORM Phili ppines in 2007 to supp ort educa tion in the Phi lippin e commu nity. During the education al year 202 1 - 2022 we supported • 11 n ew scho lars study ing in s chool • 41 sc hola rs study ing in various c olleges a nd universi ties • 2 2 app rentic es ( one f em ale and 21 m ale ) wit h mariti me cours es • On e sch olar gra duate d in 2021 wi th a d egree in B S Mari ne Tran sportati on In li eu of th e sch olars ’ learn ing progra m, the T PEF a lso condu cted mon thly pra ctica l onli ne tal k session s organ ized to su stain the stud ents ’ capabilit ies , knowl edge, a nd awaren ess on variou s issu es duri ng the pan demic und er the Sch olars D evelopm ent Prog ram (SDP) . Session s were di recte d at devel opin g positi ve values a nd mindset s , sel f - ima ge, and soci al and soft skil ls throu gh SDP. Th rough webi nars und er the Soci al Develop ment Ini tiati ve (SDI) , the TPE F al so worked on more pressing issues su ch as m ental h ealth , w ellness, and communi ty wellb eing in general . The TPEF also p rovided support f or the r econ structi on of the in terior of a sc hool which had b een r avaged by typh oons , an d it play ed a c rucial rol e in m aki ng provisi on for water sup ply f acili ties, water d ispen sers, and makin g build ing mate rials available to an elementa ry sch ool in the regi on. Thoug h faced wit h many ch alle nges an d limit ed resources, our t eam mad e effec tive use of avai lab le materia l s in a sus tainable way. Provision s for s olar - based l amps f or elementa ry s chool kids were made avai lable to en sure tha t their studi es are not a ffec ted, along wit h a one - unit sol ar pan el f or the sch ool. Apart f rom ensuri ng p roper ed uca tion faci litati on in th e Philipp ines, TORM also f orme d its ‘D isaster R elief Team’ which is tra ined a nd activ e in case any u nexpec ted events oc cu r. ‘TORM Ca re’ is a spec ial ki t made to acc ommodate spec ific needs con sisti ng of s afety blank ets, grocery pac ks, dri nking wa ter, hyg iene p ack s, and COVID 19 kit s. COMMUNITY SUPPORTING UALITY ED UCATION INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILIT Y 46 EDUC ATION FO UNDA TION IN INDIA In Ind ia, TORM fund ed spec ific proj ects un der selec tive socia l cause s, and since 2018, TO RM India ha s worked closel y with three orga niza tions to ac hieve th e purpos e, namel y – • SAM PARC - an organ izati on taking care of the disad v antaged children across Ind ia • BA IF - an org ani zation working towards u pgrad ing and providin g rura l infra structure • Akshayshakti – an orga niza tion looki ng af ter improvi ng th e lives of studen ts, welf are and aband oned ch ildren Previousl y, TORM support ed the con struc tion of the ZP Prathmi k Sch ool in Zadgewad i in Kurkumbh , nea r Pune, India. The s chool w as cons tr ucted a nd fur nished with facil ities w ith sup port from T ORM. Throug h SAM PARC, TORM sponsor s 33 studen ts attend ing th e school and a ssists them wi th th eir basi c need s, such a s schoo l equ ipm ent and specified living expenses. The CO VID - 19 pand emic h as restri cted movements in In dia , however , in November 2021, a team from TORM In dia v isited SA MPARC Bh aje to celeb rate the D eepawal i Fes tival w ith th e studen ts an d distri buted p resents t o all stude nts. T ORM also fulfilled its promi se of ren ovatin g a mul tipurpos e town ha ll a nd setting up of a lib rary a t Bhaje. Both fac iliti es were opened f or use. TORM fi rmly b elieves th at enh anced infra structu ral supp ort and b ette r extra - c urricul ar ac tiviti es w ill help nurtu re a wh olistic upbrin ging for th e studen ts. Earl ier in 2021 , TORM In dia pledg ed to con struc t three classro oms at Nalasopara , Mumbai. Although del ayed due to th e rest ricti ons cau sed by C OVID - 1 9 pa ndem ic , th is p roj ect is exp ected to be c ompleted in ea rly 202 2. In our c ontinu ed endea vour to ha ve a positi ve impa ct on soci ety, TORM is eva lua ting severa l more proj ects in and around Mu mbai, sp ecif ically directed towa rds gi rls. COMMUNITY SUPPORTING U ALITY EDUC ATION INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 47 Respon sible be havior t hrough out the or ganizat ion is central to TORM’s busine ss, managem ent practi ces, and cor porate cu lture. Our sup ply chain is i mportant to ach ieve ou r goals, a nd we wan t to ensu re that ou r qu ality stand ards and responsi bil ity eff orts are e xtend ed and i mproved throug hout th e supp ly cha in. We expect ou r sup pliers to compl y with recogn ized i nternati onal standard s and work to i mprove h uman righ ts, labor c onditi ons, i mpact on the en vironm ent, saf ety, c orrupti on, an d qua lity . As a lon g - stan ding member of th e UN Gl obal C ompact, TORM remai ns c ommitted t o protec ting its empl oyees, assets, reputati o n, and the enviro nment by mai ntai ning the hi ghest p ossibl e stand ards. Tran sparenc y and acc ountabili ty are c entral parts of TO RM’s way of doing bu siness. TORM sig ned th e UN Gl obal Compact i n 2009 as the first sh ipp ing com pany in Denmark to commit to the i ntern ation ally rec ognized s et of prin cipl es regardi ng heal th, saf ety, la bor righ ts, envi ronmenta l protec tion, and ant i - corruption . Bein g a sign atory a lso mean s that TORM repor ts on its soci al a nd en vironmen tal performa nce on an an nual basis to ens ure progr e ss and acc ountabili ty to stak eholder s. Becau se of TORM ’s commi tment to i ntegra te responsi bil ity in a ll bu siness pra ctic es, a revised set of Busin ess Prin ciples has b een in troduc ed. The Bu siness Princ iples en sure al ign ment between ou r valu es, as outli ned in th e TORM L eadersh ip Ph ilosophy , and th e Polic ies tha t ensure a ppropri ate beh avior, w hic h cann ot be devia ted from. Thi s relati onsh ip appl ies to Pol ici es within all operation s, inc luding th ose rela ted to C SR. TORM also ap plies i ts Business Princ iples wh en dea ling with s ubcontra ctors an d su ppliers. TORM 's Busi ness Princ iples pl ace a partic ular emph asis on our commitm ent to pr omote r espon sibl e busin ess prin ciples i n ou r supply chain. Therefo re, TORM is compl iant wi th the U K Modern Sl avery Ac t. TORM is c e rtifi ed acc ording to ISO 9001 and ISO 14401, and in accord ance wi th th e requiremen ts of ou r certif ica tions, we wi ll sta rt con ductin g period ic assessmen ts of ou r supp liers. The mai n purp ose of the f irst su ppl ier assessm ent is t o establi sh a baselin e and know the statu s at ou r supp liers for us to eng age in dia logue ab out h ow we together can extend a nd qual ity, resp onsib ility , and sustai nabi lity eff orts . I n so me situ ation s , we may iden tify area s where we feel that c orrection s are requi red to con tinu e as a su pplier to TO RM. Our sup pli ers are ask ed to perf orm a s elf - assessmen t questi onnai re. It consi sts of a ran ge of qu estions related to you r busi ness, wh ich y ou must fi ll ou t and return to u s to c ontin ue as a supp lier to TORM . The qu estions f all within th e foll owing ma in ca tegories: • C ompan y inf ormation • Qu ali ty managemen t • Perf ormanc e • Training • H uman ri ghts a nd lab or • E nviron ment, h ealth, a nd sa fety • Bu siness ethi cs TORM w ill, when po ssible , condu ct sit e visit s to aud it the sub jects sta ted in the self - assessment questi onnai re or as an option cond uct a remote aud it. ANTI -C ORRUPTI ON AND A NTI -B RIBERY Corrup tion a nd brib ery imped e globa l trad e and can restric t non - corrup t compan ies’ acc ess to mark ets. In this w ay, c orruption and b ribery ha ve a neg ati ve impa ct on ec onomic a nd soci al d evelopmen t. For TORM, th e risk of c orru ption does not m ean i nc reased costs al one. Corru ption also expose s TORM’s seafa rers to safety and s ecuri ty risk s and poses a poten tial risk to TORM’s lega l stan ding and repu tation . R ESPONSI BLE P R OCUR EMEN T INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES A ND RESUL TS SASB INDEX AN D RESPONSIBILITY DATA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 48 Top ic Accountin g Metric Unit Code Greenhouse Gas Gross global Scope emissi ons Me tri c ton s (t) CO - e TR - MT - a Discussion of long - te rm an d sh ort - term strategy or plan to m anage Scope e missions emissions reduction targets a nd an analysis of performanc e against those targets See pages - TR - MT - a () T otal ener gy consumed Gigajoules (G J) TR - MT - a () perce ntage h eavy fuel oil Percent age ( ) TR - MT - a () perce ntage re newab le Percent age ( ) TR - MT - a Avera ge Ener gy Effi ciency D esig n Index ( EEDI) for n ew shi ps Grams of CO per ton - nautic al mile TR - MT - a Air uality Air emis sions of the fol lowi ng poll utants () Nox (exclu ding NO ) Me tri c ton s (t) n a ) TR - MT - a () SOX Me tri c ton s (t) TR - MT - a () particulate matter (PM ) Metri c ton s ( t) n a ) TR - MT - a Ecological Impacts Shipping duration in marin e protected areas or areas of protected conservat ion status Number of travel days n a ) TR - MT - a Percenta ge of fleet implem enti ng balla st wat er () excha nge Percent age ( ) TR - MT - a Percenta ge of fleet implem enti ng balla st wat er () t reat ment Percent age ( ) TR - MT - a Number of spi lls an d releas es to the e nviron ment ) Numbe r TR - MT - a Aggr egate volu me of s pills and r elea ses to t he e nviro nme nt ) Cubic m eters (M) TR - MT - a ) Data unavailable Assessment of feasibility of disclosure is ongoing ) Our definition of spills is based on ITOPF ) We report total volume of spills as estimated aggregate volume of all spills as defined above We do not do netting of the amount of such material that was subsequently recovered evaporated or otherwise lost as required by SASB standard TR - MT -a - SASB M ARIN E TRAN SPORTATI ON I NDUST RY STANDA RD INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDE X AN D RE SPON SIB ILI TY DA TA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 49 Top ic Accountin g Metric Unit Code Employee Health & Safet y Lost time incident rate (LTIR) ) Ra te TR - MT - a Busin ess Ethic s Number of calls at ports in countries that have th e lowest rankings i n Transparency Internationals Corruption Perception Index Numbe r TR - MT - a Total amount of mo netary losses as a result of lega l proceedings associated w ith bribery or corruption USD TR - MT - a Accident & Safety Manageme nt Number of mar ine cas ualti es ) Numbe r TR - MT - a Percentage classified as very s erious ) Percent age ( ) TR - MT - a Number of Conditions of Class or Recommendations Numbe r TR - MT - a Number of port state co ntrol () defici encies Ra tio ) TR - MT - a Number of port state co ntrol () detentions Ra tio ) TR - MT - a Activity Me trics Num ber o f shi pboa rd e mplo yees Numbe r TR - MT - A Total distance tra veled by vessel s Nautic al miles (nm) TR - MT - B Operating days Days TR - MT - C Deadweight tonnage Thousand deadweight tons TR - MT - D Number of vess els in total shipp ing fl eet Nu mber TR - MT - E Number of vessel port calls Numbe r TR - MT - F Twe n ty - foot equivalent unit (TEU) capacity TEU na TR - MT - G ) Instead of LTIR we report on LTAF (LTIF) which is an industry norm based on OCIMF guidelines on Injury reporting The rate per one million man hours is the most common unit in respect of LTAF ) Our definition of Marine casualty is based on IMO Casualty Investigation Code Ch - and very serious marine casualty is based on IMO Casualty Investigation Code Ch - ) We report number of port state control deficiencies and detentions as a ratio instead of a number It is the industry norm to report port state control performance as a ratio as it provides important context to the metrics The ratio is calculated as the number of deficiencies (or detentions) divided by the total number of PSC inspections SASB M ARIN E TRAN SPORTATI ON I NDUST RY STANDA RD INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDE X AN D RE SPON SIB ILI TY DA TA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 50 Indicator Unit Green house ga s (GHG ) emis sion s Direct GH G emissions (scope ) Ton CO Indirect GHG emissions (scope ) Ton CO Tota l GHG e miss ions Ton CO Energy cons umption Heavy fu el Ton Low - sulfur hea vy fuel Ton Marine Gas Oil Ton Office consu mption Electr icity cons umpt ion kWh Water consumption M - Green house ga s (GHG ) emis sion s - Fleet CO emi ssions AER – total fleet gdw txnm CO emiss ions AER – LR gdw txnm CO emiss ions AER – LR gdw txnm CO emiss ions AER – MR gdw txnm CO emiss ions AER – Hand y gdw txnm CO emi ssions EEOI – total fleet gca rgox nm CO emiss ions EE OI – LR gca rgox nm CO emiss ions EE OI – LR gca rgox nm CO emiss ions EE OI – MR gca rgox nm CO emiss ions EE OI – Hand y gca rgox nm The emiss ion f igu res in th is report represen t TORM ’s fin ding s to the bes t of our k nowl edge gi ven toda y’s method olog y used by TORM align ed with c urrent IM O methodol ogy . TORM is c onti nuousl y committed to imp roving the me thodol ogy an d advanc ing tra nsparenc y i n reporti ng as well a s to foll owing indu stry best pr ac tices on emissi ons reportin g. ENVIRO N MENT AL INDIC ATO RS INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB IN DEX AND RESPON SIB IL ITY DA TA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 51 Indicator Unit Further information Our emp loye es Total number of seafarers He ad cou nt Total numbe r of employees (shore - base d) He ad cou nt AR Diversity – shore - base d empl oyees Total women in lea dership AR Gender with lowest repres entati on (wo men) AR Diversity – seafarers Total wom en in le ad e rsh ip Numbe r Gender with lowest repres entati on (wo men) Numbe r Health & Safety Fatalities He ad cou nt Lost - time accident freq uency (LTAF) Per million exposure hours AR Ethics * Sexual Harassment an dor Non - discr imi natio n Policy • • • Busine ss Principles Equal and fair opportunity employer • • • Busine ss Principles Child andor Forced Labor Policy • • • Busine ss Principles Child andor Forced Labor Policy covers suppliers and vendors • • • Busine ss Principles Huma n Rights Polic y • • • Busine ss Principles Huma n Rig hts Po licy c overs sup pliers and ven dors • • • Busine ss Principles Moder n Sla very Po lic y • • • UK M ode rn Sl av er y A c t UN Global Compact S ignatory • • • CSR Recycl ing and Scr apping Polic y • • • Yes • | N o • SOCIAL I NDICATORS INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDE X AN D RE SPON SIB ILI TY DA TA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 52 Indicator Unit Further information Board of Di rectors Memb ers Numbe r AR Ge nde r w ith lowest representation (wo men) AR Total nationalities Numbe r AR Indep en dence AR Senior M anagement Memb ers Numbe r AR Ge nde r wi th l ow es t representation (wom en) AR Total nationalities Numbe r AR Ethics * An ti - corruption Policy • • • Busine ss Principles An ti - briber y Polic y • • • Busine ss Principles Whist leblow er Po licy • • • AR Articles of Association • • • Data Ethics Policy • • • AR Code of Conduct Policy (Business Principles) • • • Busine ss Principles * Yes • | N o • GOVERNA NCE INDICA TORS INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDE X AN D RE SPON SIB ILI TY DA TA TORM AN NUAL REPORT 2021 OUR RESPONSIBILITY 53 CO 2 emissio ns (ton) The green house g as emiss ion s (GHG ) reportin g c overs scope 1 (direc t emissi ons fro m own p roduc tion) and scope 2 (emissi ons from own produc tion bu t others’ emission s) of the Green house G as Pro tocol exc ept f or the ac tiviti es listed below. Envi ronmen tal data appli es to owned ve ssels wi th its re specti ve sha res of own ersh ip. Bareb oat - in vessels are include d while T/C - in vessels are exc lud ed. Simi larly, vessels on bareb oat - out c ontrac ts are e xclu ded whil e vessels on al l other emp loym ents are i ncl uded . Scope 1 CO 2 emission s have b een ca lcula ted based on the consu mption of heavy fuel oil an d marin e gas oil acc ording on IMO’s c onversion fac tor for emi ssion p er ton. Emi ssion s are ca lcul ated for eac h sin gle vess el an d then c onsol idated. Nu mbers und er the scop e 1 data sheet ha ve been c ollec ted on b oard the v essels or at the off ices. Th e col lecti on is based on ac tual u sage or disposal s. Scope 2 CO 2 emission s genera ted in direc tly from operation al acti vities a t the TORM of fic es are ca lcul ated u sing Dani sh and W orld Resou rces Insti tute emi ssion f actors. Only offic es where da ta is a vail able are i nclu ded. AER (g/ dwtxnm) AER is a mea sure of ef fic iency u sing th e total fu el consu mption, d istanc e travel led a nd dea dweigh t. The measure i s defi ned a s grams C O2 emissi ons per deadweight - ton - nautical m ile. AER i s aff ected by vessel siz e, sp eed, du ration of wa iting time an d port stays. EEOI (g/ cargoxn m) EEOI i s a measu re of eff ici ency u sing th e total f uel consu mption, d istanc e travel led a nd carg o inta ke. The measure i s defi ned a s grams C O2 emissi ons per c argo - ton - na utical mile. E EOI is a ffected by vess el size, speed, cargo ava ilabilit y , du ration of b all ast voya ges, wai ting time an d port stay s. SO X emission s (ton) SOx emiss ions a re cal cula ted based on avera ge sul f ur conten t for the d iff erent fu el typ es. A compreh ensi ve study for TORM by a n ind ependent speci alist which compared the emi ssions from ves sels fitted w ith exh aust g as cl eaning sy stems (sc rubb ers) to emission s from v essels u sing low - sul f ur fuel found that the sul f ur emi ssions are reduc ed to an averag e of 0.025% w hen u sing th e exhau st gas c leani ng system. Energy consumption ( G J) All f uel bu rned on board th e vessels h as be en converted into en ergy ba sed on fu el oil analysi s results. Office electricity c onsumption (kWh) Elec tricity consumed indirec tly i n opera tional acti vities at the TORM offi ces excl udi ng the L ondon and Houston of fi ces. Office water cons umption (m 3 ) Water con sumed i ndi rectly in operatin g ac tivities a t the TOR M office s ex cluding the Lon don, Hou ston, M umbai and New Delhi offic es. Data is not ava ilab le for 2 019. Spills D efini tion of spill s is ba sed on ITOPF . We report tota l volume of spil ls, as esti mated agg regate volu me of a ll spil ls. We do n ot do net ting of the a moun t of suc h materia l tha t was sub sequentl y recover ed, ev aporated , or otherw ise los t as req uired by SASB sta nda rd TR - MT - 160a .3 - 2.1. Deadweight Tonna ge ( b ased on SOLAS I I - 1A - Re g 2 - 20) Dead weight ton nage i s the di fferen ce in tonnes between th e disp lac ement of a ship in water of a speci fic gra vity of 1.025 a t the dra ugh t correspon din g to the assi gned summer fr eeb oard an d the l ightwei ght of the sh ip. COC (Based on IAC S docum ent Cl assificat ion societies Sectio n B3 Classific ation s urveys) The requ irements th at spec ifi c mea sures, rep airs, request f or surv ey, etc . are t o be ca rried ou t withi n a speci fied ti me period in ord er to reta in c lass. DEFINITI ONS INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDE X AN D RE SPON SIB ILI TY DA TA TORM AN N UAL REPO RT 20 21 OUR RESPONSIBILITY 54 LTAF o r LTIF (Base d on OCIMF Marine Inju ry Reporting Guidelines Sec 4) T he nu mber of L ost Time Inju ries per u nit exp osure hours. U nit i n respec t of LTIF is on e - million - m an ho urs. Lost Time Inj uries a re the sum of Fata liti es, Perman ent Total D isabil ities, Perma nen t Parti al D isabili ties an d Lost Workd ay C ases as base d on OC IMF M arine In jury Reportin g Gu idelin es Sec 3 . Marine C asualt y (Based on IMO Casualty Investi gation Code Ch 2 - 2 .9 ) A marin e cas ualty mea ns an even t, or a sequ ence of events, th at ha s resul ted in any of the fol lowi ng whic h has oc curred d irectl y in connecti on with the opera tions of a ship: • th e death of, or se riou s inju ry to, a pers on • th e loss of a person from a sh ip • th e loss, pr esumed loss or a ba ndon ment of a sh ip • ma terial dama ge to a sh ip • th e strand ing or disa bling of a shi p, or the i nvol vement of a ship in a collision • ma terial dama ge to marin e infra struc ture extern al to a shi p, tha t coul d seriou sly end anger th e saf ety of the sh ip, a nother sh ip , or an indiv idual o r • seve re dama ge to th e enviro nmen t, or the potenti al for s evere dam age to th e en vironm ent, brough t abou t by th e damage of a ship or ship s However, a marin e cas ual ty does not in clu de a delib erate ac t or omis sion, wi th th e inten tion to c ause harm to th e safety of a ship , an in dividua l or the environ ment. Materi al Damage t o ship ( Based on IMO Casu alty Investi gation C ode Ch 2 - 2. 16 ) A materia l da mage in relati on to a mari ne ca sualty means: • damage that significan tly af fects the s tructu ral integ rity, perf ormanc e or op eration al c haracteri stics of mari ne in frastruc ture or a shi p; and • d amage th at requ ires maj or repa ir or r eplac ement of a ma jor comp onent or c ompon ents; or • d estru cti on of th e marin e inf rastructu re or shi p. Very seriou s marine c asualt y (B ased on IMO C asualty Investi gation C ode Ch 2 - 2.22) A very s erious ma rine c asua lty mean s a mari ne casua lty inv olvin g the total loss of the shi p or a dea th or sever e damag e to the en vi ronment. Perm anent man agement p osit ions (ex. Director s and sen ior exec utives) – shore - ba sed Total M anagemen t other than direc tors of the Compa ny (VP's, G M's, S enior M anagers a nd M anagers with on e or more di rect reports) . The fi ve Non - Execu tive Di rectors are n ot i nclu ded as em ployees of the Grou p . Permanent seafarer of ficers Defin ed as officer s livi ng in S candi navia . DEFINITI ONS INTRODUCTI ON AN D HIGHLI GHTS OUR RESPONSIBILITY FRAMEWORK OUR PRIORITIES AND RESULTS SASB INDE X AN D RE SPON SIB ILI TY DA TA TORM AN NUAL REPORT 2021 REVIEW AND RISK 55 F INANCIAL R ESULT S In 202 1 , TORM record ed a n et loss of USD 42 m compa red to a prof it of U SD 88 m in 20 20 resulting in loss per share of USD - 0.54 comp ared to earni ngs per share ( EPS) of USD 1. 19 in 20 20 . Whe n exclud ing non - recurren t items in both 202 1 and 20 20 , the net l oss reach ed USD - 36 m in 20 2 1 , a dec rease of U SD 158 m from a n et profit of USD 122 m in 20 20 . The low er resul t in 2 02 1 was ma inly du e to dec rea sing freight ra tes . In 202 1 , operating profi t decreas ed by USD 138 m to USD 1m, primarily reflec ting th e decrease i n revenu e. In 20 21 , tota l reven ue wa s USD 6 20 m compared to USD 747 m in 2 0 20 , and TCE earnings de crea sed from USD 520 m to USD 379m , a t otal de c rease of 27 %. Th e decreas e in TCE earn ings was pri maril y attri buta ble to a weaker frei ght ma rket in 20 21 comp ared to 2020 . The decreas e was based on an approxi mately 31 % lower TCE per d ay and 5% more availa ble earni ng day s ( 1,398 days) in 20 21 c ompared to 2 0 20 . FINAN CIAL REV IEW 20 2 1 FINANC IAL REV IEW FO R THE YEA R END ED 31 DEC EM BER 20 21 TORM delivered industry le ading results and conti nues to ha ve a solid capital structure with a Net Loan - to - Val ue of 52 %, USD 2 10 m in available liquidity incl udi ng rest ri cted cash , no major refinancing s needed b efore 2026 and limited off - balance sheet commitments of USD 3 8m . Kim Balle, CFO Review and r isk TORM AN NUAL REPORT 2021 REVIEW AND RISK 56 TORM’s t otal a ssets in creas ed by USD 332 m in 2 02 1 to USD 2,331 m . Th e carry ing amo unt of vessels, capita lized dry - docking and prepayments on vessel s amoun ted to USD 1, 950 m compa red to USD 1 ,7 34 m in 2020 . During the yea r, TORM sol d two ol der vessel s; one MR delivered in 2 021 an d one LR1 sc hedu led to be deliv ered in th e first q uarter of 2022 . In 2021 , TORM ac qui red eight M R produc t tan ker vessels fr om TEA M Tan kers D eep Sea L td and boug ht three LR2 vessels . In 202 1 , total equ ity i ncrea sed by USD 35 m to USD 1,052 m from USD 1,0 17 m i n 20 20 . The in creas e in equ ity was mai nly d ue to a cap ital inc rease in connect ion w ith the ac quisiti on of ves sels and a change i n value of hedging instruments partially offset by net l oss for the year. Th e market valu e adju stments on d erivati ves hel d for hed ge acc ounting had a p ositive ef fect on equi ty of USD 17 m , mainly r elated to th e in creasin g market valu es of TORM’ s intere st rate s waps. Th e Retu rn on Equity (RoE) decreased from 8.7% in 2020 to - 4.1 % in 202 1 , du e to lowe r reven ue . TORM’ s total l iabilitie s increased by USD 298 m to USD 1,279 m i n 202 1 an d borrowin gs in creased by USD 293 m to USD 1 ,1 35 m. In 20 21 , i nvested c api tal in creased by U SD 291 m to USD 2,011 m a s of 31 D ecember 20 21 , mainly due to the addi tion of vessels in 202 1. In a ddi tion, Retu rn on Invested C apita l (RoIC ) de crea sed by 7 .8 percen tage poin ts from 7.8 % to 0. 0 %. Adj usted RoIC in 2 02 1 reach ed 0.2 % , a de crease of 9 .1 perc entage p oints f rom 2020 . In 20 21 , t h e Net Ass et Val ue per sh are bas ed on brok er valu e increased to USD 12 .5 from USD 10.8 in 20 20 mainl y due to th e inc rease of vess els i n 202 1 . FINAN CIAL REV IEW 2 0 2 1 KEY HIGHLIGHTS USDm Change Inco me S tateme nt Rev enue - Time charter equivalent (T CE) - Gross profit - EBITDA - Operating profit(loss) (EBIT) - Financ ial ite ms - - Net profit(loss) f or the ye ar - - Balance Sheet Non - current assets Total assets Equity Total liabilities Key fig ures Invested capital in USDm Net Asset Value per s hare (NAV) (USD) Return on Invested Capital (RoIC) - p oi nt s Adjusted RoIC - p oi nt s Re tu rn on Eq uit y (R o E) - - po ints Basic earnings per share ( EPS) - - TORM AN NUAL REPORT 2021 REVIEW AND RISK 57 LIQU IDITY AND CASH F LOW Tot al cash a nd cas h equiva lent s, incl uding r est ricte d cash , amounted to USD 172 m at th e end of 202 1 , resulti ng in a net i ncrease in cash and c ash eq uivale nts, incl uding restri cted c ash, f or th e year of U SD 36 m compa red to 20 20 . U nd rawn an d commi tted cred it facil ities a mounted to U SD 38 m (202 0: USD 1 32m; 2019: USD 1 73m). The u ndrawn and committed c redit facilitie s consis ted o f a USD 3 8m leasing facilit y with BoComm Lea sin g . During 2021 , TORM entered i nto a n umb er of loan and leasi ng agreemen ts. In conj uncti on with the pu rchase of eigh t vessels f rom T eam T ankers , TORM agreed w ith the ba nk synd icate to a mend th e existi ng a greement to incl ude five of the eig ht vess els fi nanc ed by a USD 64m revolvin g cred it fac ility partly f unded b y equ ity/cap ital inc rease . The rem ain ing th ree vessels w e re financed by HCOB th rough a USD 2 8m term fa cili ty. Furth er , TORM agreed with Dan ish Shi p Fin ance to amend the existi ng f acili ty to incl ude a dditional ly tw o acqui red LR2 vessels in the t erm fac ili ty agreemen t. TORM took d elive ry of th e two L R2 new buildings TORM Hel ene an d TORM H ouston en d of 2 021 an d early 2 022. Th e two vess els were fin anc ed throu gh an operation al l ease wi th BoComm f or a tota l amou nt of USD 76 m. BoComm al so fin anced three other L R2 vessel s . TORM Kiara was ac quired a nd fina nced f or an am ount of USD 32m an d TORM H erdis an d TORM Hel lerup was sold and leased b ack for a total a moun t of USD 7 1m. At th e end of 2021 , TORM sold and le ased back nine MR vessels fo r a t otal am ount of USD 1 51m. Th e agreement was made with CDBL le asing . T ORM does n ot have a ny materia l debt ma turiti es un til 2026 , which supports TORM’s financial fle xibilit y. As of 31 D ecemb er 202 1 , TO RM h ad CAPEX commitm ents of USD 38.2 m related to the ou tstan ding LR2 new building . In 20 21 , n et cash infl ow from opera t ing activitie s decreas ed from USD 236 m in 20 20 to USD 48 m du e to the lower fr eigh t rates com bined with an increase in workin g c apital ( bun kers , rec eivabl es , and payables ). Net cash outf low from i nvest ing activi ties amou nted to USD 2 91 m in 202 1 compa red to USD 120 m in 20 20 . The cash outflow w as used for tan gibl e fixed a ssets, prima rily rel ated to th e new buildings and second hand vessels ac qui red . Net cash in flow from fi nanci ng acti vities a moun ted to USD 298 m in 20 21 com pared to a c ash ou tflow of USD 83 m in 20 20 . Repay ment on b orrowing s amoun ted to USD 254 m in conne ctio n with schedule d repayments and vessel sa le s duri ng th e year. Addi tiona l borrowi ngs generated a cash inflow of USD 54 9 m. 48 m Cash flow from operating activities -291m Cash flow from investing activi ties 298m Cash flow from financing activitie s FINAN CIAL REV IEW 2 0 2 1 TORM AN NUAL REPORT 2021 REVIEW AND RISK 58 TANKER F LEET Revenue i n th e t anker f l eet de creased by 17 % to USD 620 m in 20 21 , down from USD 747m in 20 20 , and TCE earni ngs de crea sed by 27 % to USD 379 m f rom USD 520 m in 20 20 . The de crea se in TCE earni ngs was prima rily du e to a weaker pr oduc t tank er freig ht market in 20 21 c ompared to 20 20 . Globa l oil d emand continu ed to improve t oward s the pre - pan demic l evels, how ever con tin ued stoc k draw s, driven by OPE C+ oil production quota regime a nd supp ly disru ption s in the U S, limi ted the oil produ ct trade and kept th e produ ct ta nker f reigh t rates depressed. On th e supp ly si de, inc reased vess el sc rapp ing kep t produ ct tanker fl eet growth in chec k. For the L R2s, the a verag e TCE rates de crea sed by 42 % from 2020 to 202 1 . The de creasi ng f reight rates a re partly offset b y a n in crea se of 5 % in available earning days res ulti ng in tota l TCE earning s in 202 1 of USD 61 m, a dec rease of USD 39 m from 2020 . The avera ge TCE ra tes for th e LR1s wer e 37 % lower than i n 20 20 . The de creas ing frei ght ra tes combi ned with a de crease of 1 % in a vailabl e earni ng day s resulted in total TCE earnin gs of U SD 46m , a de crease in earni ngs of USD 29 m from 20 20 . In 20 21 , the available earning day s of MR vessels inc reased by 1,17 4 days, equa ling an increa se of 6 % compa red to 20 20 . Th e TCE ra tes de cre ased by 26 %, resulti ng in total TCE earni ngs of USD 264 m, a de crease of U SD 72 m. For the H andy size vessel s, th e TCE ra tes decr eased by 28 % in 2 02 1 com pared to 20 20 . With an increa se in available earning d ays of 9% in 20 21 the total TC E earni ngs f or the Han dysize vessel s en ded at U SD 7 m, a decreas e of USD 2 m. As of 20 M arch 2022, T ORM ha d covered 34.3% of th e earni ng day s in 2022 at USD/d ay 17,497. FINAN CIAL REV IEW 2 0 2 1 CHANGE IN TIME CHA RTER EQUIVA LENT EA RNIN GS IN T HE TANK ER FLEET USDm Handy size MR LR LR Total Time charter equivalent earn ings Chan ge i n num ber o f ear ning day s - Change in frei ght rat es - - - - - Oth e r - - - Time c harter equiv alent earnings TORM ANNUAL R EPORT 2021 REVIEW AND RISK 59 EARNINGS DATA FINANCIAL REVIEW 2021 USDm Full year Full year c ha nge full year LR ves sels Availa ble ear ning days Spot rates ⁾ - TCE per earning day ⁾ - LR ves sels Availa ble ear ning days - Spot rates ⁾ - TCE per earning day ⁾ - MR vesse ls Availa ble ear ning days Spot rates ⁾ - TCE per earning day ⁾ - Handy size ve ssels Availa ble ear ning days Spot rates ⁾ - TCE per earning day ⁾ - Total Availa ble ear ning days Spot rates ⁾ - TCE per earning day ⁾ - ⁾ Spot rate Time Charter Equivalent Earnings for all charters with less than six months’ duration Gross freight income less bunker commissions and port expenses ⁾ TCE Time Charter Equivalent Earnings Gross freight income less bunker commissions and port expenses TORM ANNUAL R EPORT 2021 REVIEW AND RISK 60 OPERATI ON OF VESSE LS The devel opment i n opera ting exp enses is summa rized in the tab le bel ow . The tab le al so summa rizes the op erati ng data for TORM’s fleet of owned a nd b areboat - ch artered vess els . Operatin g expen ses (OPE X) for th e fleet inc reased by USD 13m to USD 191 m i n 202 1 comp ared to USD 17 8m in 20 20 , mainly due to a n increasi ng nu mber of operatin g da ys. On a per - day - basis, OPEX i nc reased compa red to 20 20 . The total fleet of owned vess els ha d 1,103 off - hire a nd dry - doc king days, corres pondi ng to 4 % of the operati n g days in 20 21. This compa res to 1, 332 off - h ire days in 2020 or 5 % of the numb er of ope ratin g day s. ADMINISTRATIVE EXPENSES AND OTHER OPERATI NG EXPE NSES Total a dmin istrati ve expense s and other opera ting expenses a mounted to USD 52m in 20 21 compa red to USD 70 m in 20 20 . The de crease wa s main ly du e to a one - off provisi on coveri ng an exposure r elated to carg o claims of USD 1 8m in 202 0 . FINANCIAL INCOME AND EXPEN SES Net fin ancia l expens es in 2 0 21 were USD 42 m compa red to USD 49 m in 20 20 . The d ecrease was prima rily d riven by lower in terest compa red to 2 020 and the la rger senior f acil ities refi nanc ing com bined with c osts rela ted to sa id refi n ancing . TAX Tax fo r the y ear amou nted t o an expense of USD 0.4 m of in come tax a nd 0.9 m of ton nage ta x compa red to an expen se of USD 0.5 m of inc ome tax an d 0.9m of tonna ge tax in 20 20 . T he Grou p has elected to p arti cipa te in th e Dani sh tonna ge tax sc heme . T he particip ation is binding u ntil 31 Dec ember 2024 . The Grou p exp ects to p artic ipa te in th e tonna ge tax sc heme after the bi ndin g period and, as a minim um, t o maint ain a n inves ting a nd acti vity l evel equ ivalent to th at at th e time of ente ring the tonn age ta x scheme. FINAN CIAL REV IEW 2 0 2 1 CHANGE IN OPERATING EXP ENSES USDm Handy size MR LR LR Total Operat ing expe nses Chan ge i n oper ati ng da ys - - Change in o perating expens es p er day - Opera ting expen ses OPERATING DATA USDd ay Handy size MR LR LR Total Operating expenses per operating day in Operating expenses per operating day in Change in the operatin g expenses per operating day in Operat ing days in ⁾ Off hire - - - - - Dry - dock ing - - - - - Availab le earni ng day s ⁾ Including bareboat charters TORM ANNUAL R EPORT 2021 REVIEW AND RISK 61 ASSESSME NT OF IMPAIR MENT OF ASSE TS Manag ement h as fol lowed the u sual practic e of performi ng a review of impa irmen t indi cators ev ery qua rter and p resentin g the ou tcome to th e Au dit Committee. The Au dit C ommittee evalu ates the impa irment i ndicator a ssessmen t and prepares a recommen dation to the B oard of Di rectors. Th e recoverab le amou nt of th e ass ets is c alcu lated by assessin g the f air va lue l ess costs to sel l an d the val ue in u se of the t a nker f leet. When a ssessin g the f air va lue less cos ts to s ell, Manag ement inc lude s a revi ew of market va lues calc ulated a s the avera ge of two intern ation ally recogn ized sh ipbrok ers’ valua tions. The shi pbrokers ’ prima ry in put is dea dweigh t tonna ge, yard , and age of the vess el. The a ssessmen t o f the va lue i n use i s based on the n et presen t valu e of t he expec ted futu re ca sh flows. T he key a ssump tions a re rela ted to f uture developm ents in freig ht rate s, opera ting expenses a nd to the w eighted averag e cost of capital (WA CC) appli ed as di scoun ting fac tor in th e calc ulati ons. As of 31 D ecemb er 202 1 , Ma nag ement test ed the carry ing amoun t of its f leet f or impa irmen t withi n three CGU s, bein g the M ain Fleet (LR2/ LR1 and MR vessels) an d the two Han dysize vessels. In 202 1 , th e recov erable a mou nt of th e Main Fleet a nd the Han dy si ze vessels was b ased on its va lue in use. Based on this revi ew, M ana gement con clud ed that: • As sets wi thin the Mai n Fleet were not i mpai red as the val ue in use exceed s the carry ing amoun t. • As sets within the Handy vessels wer e not impa ired as th e valu e in use was in line wi th th e carry ing amoun t. The assess ment of the val ue in u se of the M ain F leet and the Handy size vessels was b ased on the pres ent valu e of the exp ected fu ture cash flows. Th e frei gh t rate esti mates in the pe riod 2 02 2- 202 4 a re based on the Comp any ’s busin ess pla ns. Beyond 202 4 , the freigh t rates are based on the C ompan y’s 10 - y ear histori cal averag e rates adj usted for the an tici pated benef icial impact of s crub ber ins tallati ons. The imp airmen t testing is se nsiti ve to cha nges i n th e key as sumpti ons ap plied. Note 8 provid es ad dition al detail s of th e impai rment as sessment as well as sensiti vity a naly sis in resp ect of f reight a nd d iscoun t rates. TORM wil l con tinue to mon itor dev elopmen ts on a qua rterly ba sis for i ndic ations of im pairmen t. P RIMARY F ACTORS AFFE CTING RE SULTS OF OPERATI ONS TORM gen erates rev enu e by c harging customers for the tran sportati on of r efin ed oil produc ts an d crude oil, usi ng TORM’s tan ker s . T ORM ’s focus is on mainta ining a high - qua lity fle et, and TORM act ively mana ges the d eploymen t of th e fleet betw een sp ot market voy age ch arters, whi ch g enerally last f rom several day s to several week s, and time ch arters. TORM bel ieves th at th e importan t measu res for analy zing tren ds in the resul ts of i ts opera tions of tank er s consis t of the f ollowi ng: Time ch ar ter eq uivalent (TCE ) earning s per availa ble earning day TCE earni ngs per a vailable e arning day is defined as revenue l ess voy age exp ense s divi ded by the nu mber of ava ilabl e earni ng day s. Voyag e expenses p rimari ly consi st of port a nd b unker e xpenses which are uni que to a parti cu lar voya ge, wh ich woul d otherwi se be pai d by a ch arterer un der a ti me c harter, a s well a s commis sions, f reigh t , and bunk er deriva tives. T ORM believ es that pres enti ng reve nue n et of voya ge expenses n eutral izes th e vari abili ty crea ted by u nique costs ass ocia ted with partic ular voy ages or the deploy ment of ves sels on the spot mark et and facil itates c ompari sons b etween peri ods on a consi stent ba sis. Un der time ch arter con tracts, th e cha rterer pays the voya ge ex penses, wh ile u nder vo yage c harter c ontrac ts the sh ipown er pay s these expenses. A ch arterer h as the c hoi ce of en tering a time ch arter (w hich may be a on e - trip ti me cha rter) or a voya ge ch arter. TORM i s neutra l as to th e ch arterer’ s choi ce becaus e TORM prim arily bas e s its financ ial deci sions on expected TCE ra tes rather than expected revenue. Th e an alysi s of reve nue i s therefore p rimari ly based on develop ments in TC E earn ings. FINAN CIAL REV IEW 2 0 2 1 TORM ANNUAL R EPORT 2021 REVIEW AND RISK 62 Spot charter rates A spot mark et voya ge ch arter i s genera lly a con tract to carry a speci fic cargo f rom a loa d port to a disch arge port f or an a greed f reigh t rate per ton of carg o or a speci fied total a mount. U nder sp ot market voyage c ha rters, TORM pays voy age expen ses su ch as port, canal, and bun ker costs . Spot ch arter rat es are vol ati l e and fluc tuate on a seaso nal and year - to - year ba sis. Fl uc tuation s derive from imb ala nces in the ava ilabil ity of cargos for ship ment and the nu mber of vessel s avai lab le at a ny given time to tra nsport these carg os. Vessel s operatin g in the spot m arket generate r evenu e which is less p redic table b ut may enabl e TORM to cap ture inc reased prof it ma rgins during peri ods of improvemen ts in tanker f reigh t rates . Time cha rter rates A time c harter is general ly a contra ct to ch arter a vessel fo r a fi xed period of ti me at a se t dai ly or monthl y rate. U nder ti me cha rters, th e cha rterer pa ys voyage exp enses such as port, c ana l , and b unker costs. V essels operatin g on ti me ch arters pro vide more pred icta ble c ash flow s but c an yi eld lower prof it margi ns than vessels ope ratin g in th e spot mark et duri ng period s cha racterized b y favorable market condit ions . Availab le earning da ys Avail able earn ing d ays are th e tota l nu mber of d ays in a period when a vessel i s read y and a vaila ble to perform a voya ge, mean ing tha t the vessel i s not of f - hire or i n dry - dock. For the o wned vess els, th is is calc ulated b y takin g operati ng da ys and su btrac ting off - hire days and days in dry - dock . For th e cha rtered - in ves sels , no s uch calc ulatio n is re quire d, be cause cha rter hire i s only paid on earnin g da ys and n ot for off - h ire day s or day s in d ry - dock . Operating days Operatin g da ys are th e total num ber of ava ilabl e days in a period w ith resp ect to th e owned ve ssels, before deduc ting un availab le day s due to off - hire days and days in dry - dock. Opera ting days is a measurem ent which is on ly applic abl e to the owned vessel s, not t o the time c hartered - in vess els . Operat ing expense s per ope rati ng day Operatin g expen ses per op er atin g day are d efin ed as crew wa ges and related costs, the cost s of spa res an d consu mable stores , exp enses rel atin g to repai rs an d mainte nan ce (ex cludin g capitalize d dry - dock ing), the cost of i nsu rance an d other exp enses on a per - operatin g - da y basis. Operatin g expen ses are on ly p aid for owned vessel s. T ORM d oes not p ay su ch c osts for the time c hartered - in vess els , as th ey are pa id by the vessel ow ner an d in stead factored into the ch arter hi re cost. ACQ UISITION S A ND C APITAL E XP ENDITURE As of 31 D ecemb er 20 21 , TO RM had one LR 2 newbuilding und er constru ction which was del ivered 5 January 2022. The value of the prepa yments incl uded in th e total a sset valu e amoun ts to USD 12 m compa red to USD 12 m in 20 20. RETURN S T O S HAREHOLDERS The Board of Di rectors has dec ided to recomm end that n o divi dends be paid f or 2021. FINAN CIAL REV IEW 2 0 2 1 TORM ANNUAL R EPORT 2021 REVIEW AND RISK 63 GOING CONCERN As of 31 D ecemb er 202 1 , TORM’s av ailable liq uidit y inclu ding u ndraw n and comm itted fa cili ties was U SD 210 m, incl uding a total cash position of USD 172 m (inc luding restricted cash of USD 27m ). TORM’s net interest - b earin g debt wa s USD 972 m, and th e n et debt loa n - to - val ue rati o was 52. 3 %. Furth er inf ormation on TORM’s ob jecti ves and poli cies f or managin g its capit al, it s finan cial ris k manage ment objec tives an d its expos ure t o credi t and liqui dity ri sk can be fo und i n N ote 21 to the fi nanci al sta tement s. The pri ncipa l risk s and unc ertain ties fa cing TORM a re set out on pag es 65 - 69 and detail s on the liquidity and capita l resourc es are de scrib ed in N ote 2. TORM moni tors its f un ding posi tion th rough out the year to ensure th at it h as ac cess to su ffi cient f unds to meet its f orec ast ca sh requ irements, in cl uding newbu ilding and l oan commitmen ts, and to mon itor compl iance with t he fin ancia l cov enants in our loan facil ities, detai ls of w hich are ava ilabl e in N ote 2 to the financ ial sta tements. A k ey el ement for TORM’s financ ial p erforman ce in th e goin g conc ern period relates t o the d evelopmen t o f the CO VID - 19 pandemic and related ef fect on the oil demand and supply bala nce. TORM’s b ase ca se assumes the oil market s to reach a pre - c ovid lev el during th e secon d ha lf of 2022 with f reigh t rates and vessel valu es material izing above 202 1 level s. In th e b ase c ase, TORM h as suff icient l iquidi ty and headroom above all the covena nt li mits. TORM al so pa ys spec ial a ttention to the sig nifi cantly i ncreased geopoli tical risk f ollowin g Russia ’s in vasion of Ukrai ne in F ebrua ry 2022 and the associ ated ef fects on the pro duc t tanker ma rk et. market. Th e immedi ate imp ac t is th at the u ncerta inty and potentia l for re - rou ting of trad e flows h as sen t the tank er freigh t rates in the E uropean mark ets upwa rds. The fi nancia l impa ct go ing fo rwar d is uncer tai n, but TORM cu rrentl y expects th at th e possibl e effec ts are covered wi thin the bel ow sen sitivi ty cal culation s. TORM perf orms sen sitivi ty ca lculati ons to ref lect downsi de scen arios i nclud ing, but n ot lim ited to, futu re freig ht rates a nd vess el val uati ons in ord er to iden tify risk s to futu re liq uidity a nd c ovenant compl iance an d to ena ble Man agement to take correcti ve acti ons, if requi red. The d ownsi de scen arios cover the p rinc ipa l risk s and uncerta inti es faci ng TORM as set out on p ages 65 - 69 and in clude di fferen t distressed outl ooks for the p roduc t tank er market. In a low ca se scen ario , Ma nagement h as a ssumed f reigh t rates whi ch on avera ge are ap proximatel y 25 % below those in the ba se case a nd a related d ecli ne in vessel valu es. In th e low ca se scena rio, th ere rema ins suff icient h eadroom on liqu idity an d covena nts. In a stress c ase scen ario, M ana gement ha s furth er stressed the frei ght ra tes to th e lowes t rolli ng f our quarter average si nc e 2000. In the st ress case scen ario, certai n ac tions wil l be requ ired to mai ntai n coven ant complia nce . Such act ion s are assessed to b e achi evable a lso in a stress ca se scen ario a nd c ould incl ude elemen ts such as sale of older ves sels . The Board of Di rectors has c onsid ered TORM’s cash flow f orecasts a nd th e expected c ompli ance wi th TORM’s fi nanc ial coven ants for th e peri od until 3 1 March 202 3 . TORM’s ca sh f low forec ast an d expected cove nant co mplia nce are based on th e busi ness pl an approved by th e Board of D irec tors . Based on th is review, the Board of D irector s has a reason able expectati on tha t taki ng reas onably possib le change s in tra ding p erforman ce and vessel val uati ons in to acco unt , TORM will b e abl e to conti nue th e operation al exi stenc e and c omply wi th its financi al covena nts for th e period unti l 31 M arch 202 3. Accor dingl y, TORM continu es to adopt the goi ng conc ern bas is i n prep aring i ts finan cial s tatements . LONG - TE RM VIABILITY STATEMENT In ac cordan ce with provisi on 31 of th e UK Corp orate Governa nce C ode, the Boa rd of Direc tors con firms that th ey ha ve a reason abl e expectati on tha t TORM will continu e in op eration and meet it s li abili ties as they f all due for the th ree - yea r period endin g 31 Decemb er 202 4 . Thi s period ha s been sel ected f or the foll owing reas ons: • A peri od of th ree yea rs is g enera lly in lin e with th e foreca st horizon for ext erna l equ ity ana lysts coverin g the sh ipp ing sec tor • TORM w ill h ave pai d its c ommitmen ts relati ng to its remaining newbui lding an d will as o f 31 Decemb er 2024 n ot have a ny c urrentl y known off - ba lance sh eet lia biliti es • The c urrent k ey unc ertain ty in th e produ ct tan ker market rel atin g to the rebou nd of the gl obal oi l market i s expec ted to b e det ermined by th e d evelopmen t of the COVID - 19 pandemic and is expected t o be res olved withi n the th ree - year horizon FINAN CIAL REV IEW 2 0 2 1 TORM ANNUAL R EPORT 2021 REVIEW AND RISK 64 • Wi thin the th ree - year h orizon , there i s reas onabl e certai nty rel ated to the i mpa ct f rom cli mate chan ges and a ddition al regu latory requ ir ement related t h ereto The assess ment of the B oard of D irec tors has b een made wi th referen ce to T ORM’s current finan cial positi on an d prospec ts. The assessmen t of f inan cial performa nce a nd cash flows i s prima rily dependen t on the expec tation s for: • Demand -s upply pictu re in the p roduc t tank er sector in clu ding th e expecte d vessel va lues a nd freigh t rates ac hi eved by TORM , whi ch in a dditi on also c overs th e outlook rela ted to COV ID - 19 and cli mate chan ge develop ments • D evelopmen t of the f leet • Operating and adminis trative exp enses • C apital expendi tures c overing newbu ilding s and main tenance of the exis ting fleet in cludin g insta llation of sc rubbers an d Bal last Wa ter Treatment Sy stems • C hanges in in terest rates The expec ted fin anci al perf ormanc e and cash flow s are based on the same und erlyi ng ass umptio ns as used in T ORM’s general fin ancia l plannin g. Thes e assump tions a re con sistent wi th th ose used i n TORM’s impa irment test , f urther d eta ils of whic h are provi ded in N ote 8 to the fi nanc ial sta tements. V essel valu es used i n forec asting c omplia nce with finan cial covena nts are b ased on the la test marke t valu ation s from two i ndepen dent, recogn ized sh ipbrokers. Th e expected ou tlook h as th en been s ubj ect to a st ress test and sensiti vity a nal ysis over th e three - yea r peri od, using a con servative ou tlook for th e produc t tank er sector with sensi tiviti es inc ludi ng freig ht rates a nd vessel val ues. M anag ement h as assu med tha t low c ase and stress case f reigh t rate a ssumpti ons a s per the goin g conc ern assessmen t con tinu e through out the via bi lity peri od an d has fu rther sen sitized the ves sel valu es downw ard over th e period to refl ect a conti nued d ownturn. In the ba se and low c ase scena rio , suf ficient l iqui dity and h eadroom on all covena nts are ma inta ined. In the stres s ca se scen ario , Manag ement’s ac tion s will be required to main tain compl iance wi th coven ants , and s hould t he pr oduct tank er market ( in terms of eith er freig ht rates or ves sel values ) mater ialize sig nifica ntly be low TO RM’s expectati ons f or a prolon ged period, there i s a risk of a coven ant b reach a fter the goin g conc ern period , which would req uire mi tiga ting ac tions, in cludin g cost savin gs, sal e of vessels or in creased levera ge whi ch are con sidered w ithi n Managemen t’s contr ol a nd achi evable. M anag ement wou ld also c onsid er obt ain ing a ppropria te waiver s and alth ough th ey would be con fiden t of obtai ning them these a re not withi n Manag ement’s con trol . In ad dition , TORM has c onsidered the signif icantly inc reased geop oliti cal ri sk follow ing Russia’s i nvasi on of Ukra ine in Febru ary 202 2 and th e assoc iated ef fects on the p roduc t tank er market. Th e i mmedi ate imp act is tha t the un certai nty an d potentia l for re - r outin g of trade fl ows has sen t the tanker frei ght ra tes in the Europ ean ma rkets up wards. The financia l impact goin g forwa rd is unc ertain , but TORM curren tly expects th at the p ossib le eff ects are c overed by the performed s tress t est a nd sen sitivi ty ana lysis over the three - yea r period . The Board of Di rectors monitors i f TORM i s movi ng towards a covena nt brea ch in order to i ncorp or ate any mit igat ing act ions in due course on an o ngoing basi s. Based on the sens itivi ty a nalysi s, the Boa rd of Direc tors does n ot cu rrently expect th at TORM wil l breac h its f inancia l coven ants or expe rienc e a li quidity shortfa ll over th e th ree - year forec ast peri od. The Board of Di rectors has a lso consi dered the l ong - term prosp ects of TORM b eyon d the th ree - year foreca st viab ility horizon. In doin g so, th e Board of Direc tors has ta ken th e lon g - term risks and opportun iti es for TORM d iscu ssed elsew here i n the strategic repor t and th e poten tial impac t of econ omic volati lity , clima te chan ge agenda , new reg ula tions, techn ologic al disru ption and genera l cha nges in the util izati on of energy sourc es in to con siderati on. Ba sed on thi s assessmen t and taki ng the c urrent c apital structu re and TORM’s op erati onal platform i nto acc ount, the Boa rd of D irectors b elieve s tha t TORM i s well p osition ed both to resp ond to th ese ri sks an d to take ad vanta ge of a ny positive ma rket d evelopmen ts for a peri od bey ond th e three - y ear forec ast hori zon . On beha lf of TORM p lc Kim Balle Chief Financi al Officer TORM A/S 23 March 202 2 FINANCIAL REVIEW 2021 TORM ANNUAL R EPORT 2021 REVIEW AND RISK 65 RISK M ANAGEMENT F RAMEWORK We ackn owled ge that TORM f aces a range of risks in doin g busin ess and th at our su ccess depends on identif ying, b alanci ng , and dec i d ing on how best to manage and mit igate the s e risks . TORM believe s tha t a strong ri sk man agemen t framework is vi tal t o protec t TORM . On an a nnual b asis, we conduc t an En terprise Ri sk Manag ement proc ess, du ring wh ich th e criti cal ri sks that a re facing TORM are iden tifi ed, assessed , and di scussed by TORM ’ s Senior Mana gement Tea m and subseq uentl y approved by the R isk Com mittee. TORM ’ s r isk a ss essme nt p roc es s The obj ective i s for TORM and its sh arehold ers to be adequ ately rewarded for accep ting risk, a nd that th e governa nce stru ctu re tailored to overs ee the ri sk manage ment is in p lace , so risks are mi tigated to the extent d esired. TORM’ S CURRE NT RISK PROFILE The Board of Di rectors and th e Senior M an agement Tea m ha ve carri ed out a robu st assessm ent, u nder th e Corporate G overna nc e Code, of th e prin cip al and emergin g risk s fac ing the TORM , in cluding those tha t would threaten its bu sines s model, f uture performa nce, sol vency or liq uidi ty and reputa tion. All risks are repeat ed from l ast y ear, al beit wi th sli ght adjustm ents. A detai led desc ripti on of ea ch of th e top risk s is available on page s 68 - 69 . The fo cus b elow is the developm ent in the risk s. In 2021 , TORM expe rienc ed conti nued volatili ty in th e produc t tan ker market c aused b y the COV ID - 19 pandemic . TORM’s market risk exp osure remain s hig h, and we are expos ed to p otenti ally a dverse mark et condit ions , including the impact on f reigh t rates and vessel val ues. B ecau se TORM’s f leet ha s inc reased to approxi ma tely 8 4 vessels, exposu re to a dverse developm ent in freigh t rates inc reased sl ightly . Market risk s assoc iated with u nexpec ted ch anges i n vessel valu es have a signi ficant i mpact on the val ue of TOR M. Durin g 2021 , TORM expa nded its f leet an d theref ore the gross risk rel ated to unex pected decl ines in valu es also i ncrea sed. However , TORM removed p art of the vessel val ue risk throu gh ope ratin g sal e and l easeback financ ing stru ctu res. Conseq uentl y, the ri sk is d eemed to be at the same l evel a s las t year. The Oil Compa nies In ternati onal Marin e Forum (OCIM F) is overh aul ing i ts Ship In specti on Report Program ( SIRE) b y in troduc ing a m ore compreh ensive insp ection process f rom Q 4 2022. The new p rogram, SIRE 2.0, wil l faci litate a ri sk - ba sed ap proach to RISK M ANAGEM ENT In order for TO RM to r emain a sustain able busi ness, we must anti cipate and adapt t o our ever - changi ng env ironment an d be rea dy to sei ze the opportuni ties this br ings . We face a di verse set of risk s and m anaging th ese systemati cally is key in order for us to cr eate and pro tect val ue over the short, me dium and l ong ter m . Risk types Risk a ssessment i s made of th e potenti al fin ancia l, repu tational and complia nce im pact of in dividual r isks. Risks a re asses sed as t o whe ther they are of a Sh ort - term, R ecurri ng or Lon g - term (Em erging Risks) na ture. Risk a ppetite The Seni or Man agemen t Team an d the Risk C ommittee d ecid e on TORM’ s risk appeti te for pri nci pal risk exposures. TORM ANNUAL R EPORT 2021 REVIEW AND RISK 66 assessin g the s afety a nd q uality of a vessel a nd i ts crew on a n on going b asis, b ut will requi re a “ch ange in mind set” from th e indust ry, O CIMF has war ned. T his may negativel y impa ct observa tion l evels. TORM allocat e s resourc es to i mplemen t the n ew sta ndard s and is well prepared for the more compr ehen sive requi rement s. O il maj or app roval risk is a t a low l evel due to c ontin ued f ocus and effici ent con trols an d is expected t o be red uced once fu lly implemen ted . IT and cyber s ecuri ty is th e risk rel a tin g to system una vailabil ity and data l oss due to cy ber - atta ck. Increa sing intercon nectivi ty an d “com merciali zation” of cy ber - cri me are drivi ng a higher freq uenc y and severity of in cid ents. In ad dition to l oss of cus tomer data a nd the i mpac t of bu siness interru ption , loss of reputa tion c an be a c ause for financial loss for busin esses after a n inc iden t. The c yber risk con tinues to be ac knowl edged b y TORM a s a bu siness risk and not onl y an IT risk. M itig ating ac tiviti es incl ude busi ness continu ity pl ans an d assessment of cri tica l systems. TORM con siders the i mpac t to be li mited du e to its bu siness m odel an d cu rrent mi tigati ng ac tiviti es. TORM ’ s financial ge aring, liq uidity buf fer , an d break - even level have b een ma inta ined a t an acc eptabl e level. How ever, b ecau se of T ORM ’ s larg er fleet , the liqui dity exposu re an d thu s the risk has i ncreased slig htly. L ikelih ood of su stained low freigh t rates is consi dered to be a l ower du e to m ore posi tive mark et fundame ntals with low o il in ventories an d deman d expected t o retu rn. Read more about mand ates and se nsiti vity anal ysis of the various r isks on page 14 8-1 51 EMERGIN G RIS KS – CLIM ATE As part of the En terpris e Ris k Man agemen t process, long - term (emergi ng) risks are r eported to the Ri sk Committee, fac ilita ting a discuss ion a nd evalu ation of mitig ating a ctiviti es to redu ce the un certai nty. Lik e other shi p operators TOR M is su bjec t to the impa ct of cl imate c hange on its busi ness mod el. it i s diffi cult to p redic t the lon ger - term fu ture gi ven the wide ra nge of p otentia l outcomes assoc iated with th e many va riables an d varying emission s pathw ays. At the mo re extrem e scen arios, th e con sequen ces are potenti ally severe, with soc iety li kely to fac e transf ormation al ch ange. RISK MANAG EMENT T OP RIS K HEA T MA P T ORM TOP RIS KS W IT HIN T HE COMING 12 MONTHS – POS T - MITIGA TION ACTIVITIES : Con sequen ces W orst case Maj or Mo de rat e Mi nor Min . eect Rare Unlikely P ossible Likely Fr equent Likelihood 2020 2021 Unchanged C B E G F J I H D A H D A I A T ank er freight r ates B Bunker p rice C Asse t manag emen t r isk D Oil maj or approval E Se v ere v essel a cc ident F Maritim e safety threa ts G Legal comp liance H IT and cyber security I Liquidity risk J T erms and sour c es of fund ing TORM ANNUAL R EPORT 2021 REVIEW AND RISK 67 This m akes cl imat e chang e and the ri sk fac ed by TORM broa d in natu re. Cli mate chan ge is lik ely to h ave far - reachin g con sequenc es for TORM in th e lon g term and to impac t several areas of core bu sin ess acti vities. TORMs eme rgin g risk s a re in essen ce view ed as direc tly rela ted to cl imate c hang e. TORM con siders the mai n lon g - term risks t o be: Peak oi l demand Indu stry - changi ng ris ks suc h as the sub stituti on of oi l for other energy sources and techno logi cal change s have th e possib ili ty to alter t he l and scape of th e markets th at TORM serv es an d as such radically chan ge tran sportation pattern s. In th e long term, th is will most likely h ave a n egative impa ct on th e tank er markets. Wh en oil demand w ill peak is highly uncerta in. Acc ordin g to seve ral promi nen t oil ma rket observers, such as the Internati onal Energy A gency and WoodMack enzie, th ere is l ittle reas on to b eliev e that on ce it d oes peak, o il demand will fall s harply. TORM bel ieves th at th e dema nd for oi l and oil - rel ated produc ts wil l pha se out over a lon ger peri od, whi ch leaves TORM with time to a dj ust its busi ness. To monitor th e risk , TORM r eport s to th e Risk C ommittee on the devel opment of “di srupti on in dicators” , which funct ions as a warni ng sig n as to wh ether th e strateg y needs to be recon sidered . In dicators are a djus ted when a ppropri ate . During 2021 , disruption indic ator s becam e a reocc urrin g agenda point a t all Risk C ommittee mee ting s. Technolo gy of vesse ls R equiremen ts from society and regul ation to opera te vessels u sing clean er tech nologies pose a transi tion risk to TO RM an d other v essel owners a s existi ng vessels may become ob solet e earli er th an in itiall y expected o r even render vessels redun dant. O lder vessels ar e con sidered p artic ula rly vuln erable. Due to ma gni tude of th e risk , TORM has , through Board M aster Cla sses, sou ght to ac quir e more c lari ty on the obs tacl es and timing of the fu el propu lsion transi tion . TORM s percep tion i s that th ere seem s to a numb er of obsta cles th at needs to be ov ercome in order fo r the fu el tran sition to oc cur, th ese are: 1. Th e mariti me ind ustry i s compl ex, glob al , and decen tr alized 2. Current cost g ap between con vention al f ossil fuel s and al ternati ve fuel s are h igh , leavi ng f ew financ ial in centi ves to make t he swi tch 3. And ev en if, ship - owners wanted to swi tch , the supply - chains of altern ative fuel s are not y et ready f or glob al di stribu tion to ac celera te the transi tion. TORM bel ieves th e righ t path i n the sh ort to med ium term is to f ocu s on impro ving fuel effici ency using existin g tech nolog ies . Throu gh coll aborati ons a nd partn ership s, TORM wi ll c ontinu e to partic ipa te in th e long - term developm ent to d eca rboni ze the shi ppin g indu stry. Insufficient access to financing The ch allen ges of n ew regul ation, su ch as the IM O 2020 su lfu r regula tion, IMO’ s commitm ent to a 50% reduc tion of CO 2 emissions an d other i niti atives, su ch as the E U Taxon omy , may re sul t in a reduced a bility for vessel owners to obta in eq uity or debt fi nanci ng. It may also affect pricing , due to a poten tial realloc ation of fu nds with in the ba nks and i nvestors a vail able to ship ping. Eq uity in vestors, su bj ect to envi ronmenta l regimes su ch a s SFD R, are sel ective a nd a re inc reasing ly seekin g green investmen ts and b anks have a dopted th e “Posei don Pri nci ples” to ensu re th at lend ers disc lose an d conf ront clim ate ch ange. N ot only will t his imp act TORM ’ s abi lity to fu nd investmen ts, bu t it will also impa ct smal ler shi powners, who ha ve histori call y bought of TORM ’ s old er vessels . Navig ating th ese new c omplex i ssues ma y turn out t o be an opportun ity f or TORM . By set tin g ambitio us emission targets , TORM s eeks to p ositi on itsel f with an attrac tive profi le for ban ks and investors . As TORM’s emergin g risk s devel op an d bec ome more tang ible to the i ndu stry, they may i mpact seve ral of the top ri sks ou tlin ed in the top ri sk hea t map. In partic ular , red ucti on or ac celerati on of pea k oil deman d could impac t the risk related to frei ght rates. The tech nolog y of vessel s co uld impact th e risk related to asset mana gement a s vessel val ues may decl ine, and the trend towar ds TORM’s s takeh older becomi ng in creasin gly affec ted by cli mate chan ge may i ncrease th e risk of insu ffici ent acc ess to fina ncing . RISK MA NAGEM ENT TORM ANNUAL R EPORT 2021 REVIEW AND RI SK 68 RISK MA NAGEM ENT Descrip tion of t op r isks Indu stry or mark et - rel ated ri sk s Opera tion al ris ks Tanker freight rate Bunker price Asset Management Oil ma jor approv al Sever e vessel a cciden t Marit ime safety threats Risk Sustai ned low tanker freigh t rate s o r ina bil ity to p redic t and respond timely and accurately to f reigh t ra te devel opm ent s Unexp ec ted bun ker price incre ases that are not cov ered by corre sp ondin g f reigh t rate in crea ses Unexp ec ted value deprec ia tion of vesse ls, the m ost exp osed vess els ar e ol der vess els du e t o new legislation driven by the climate change agenda A sudde n and unexp ec ted brea ch in qua lity requi r emen ts of a sin gl e ve ssel o r conti nuous decrease in quality across the fleet A se ver e v essel accident such as an envi ron men tal d is ast er or mate rial dama ge or pers ona l injury . A m aritime venture ha s inherent ha zards. Eve nts such as piracy and terro ri sm ar e c onsid e red main sec uri ty ri sks Potential impact TORM’s profitability will be nega tiv ely i mpa ct ed in case of a distressed produ ct tank er m ark et. Vuln erabi li ty t o a sus tain ed i nc reas e in the bunker price and pass - throug h to cha rtere rs ma y n ot have an imm ediate effec t, mea nin g th at TORM may bear the full effect of price incre ases. Decline wit h TORM s net asset value , which can lead to a requi r emen t fr om ban ks to pro vid e addi tiona l s ecu rity . TORM i s al so exposed to cyclical asset prices and con tracted at too high pric es . The ri sk of a pa rti al ban of th e T ORM tank er fl eet by on e or more oil maj ors . TORM’s involvement in an env ironmental disaster will da mag e the Company’s repu tati on a nd i mpai r the tra dabi li ty wi th oil majo rs. Events such as p iracy and terro rism co uld result in kidnapping of or injury to seaf are rs o r ves sel damage. Mitigating activitie s TORM’ s spot - orien ted stra tegy limi ts pos sib le mitigation. Time cha rter - outs a nd F FA covera ge ar e cons id ered when t erm s and pric ing ar e d eem ed attra cti ve. In g ene ral , TO RM d oes not hed ge future bun ker e xp ens es. In case freight income is fixed , TORM h edg es future b unker expo sur es With a con ser v ati ve cap ital stru ctu re, f ocu s on l oan - to - va lue and clos e view of the mark et TO RM maintains flexibility and an ability to act on the asset m arket TORM’ s in teg rated platf orm wi th in - hous e safety, technical and opera tion al staf f secures continued focu s on qu ality and high vett ing standards Disaster recover y pla ns f or emerg enc y situa tion s a re i n pl ac e. Ongoi ng sa fety resil ien ce p rog ram to enhance safety culture , including officers being train ed a s “ saf ety ambassadors”. TORM’ s Tradin g Rest ric tions C ommit tee ha s over sigh t of s ecuri ty thr ea t s and decides how best to avo id and mitig ate the ri sk . TORM follows all industry best prac tic es an d ha s pro ce dures in case of an incident. TORM ANNUAL R EPORT 2021 REVIEW AND RISK 69 RISK MA NAGEM ENT Descrip tion of top risks Compliance ris ks Financial risks Lega l com plianc e IT and c yber sec urity Liquid ity risk Terms and s ources of f unding Risk Legal o r pol icy non - compli anc e or ethi cal misconduct. The r isk consist s of c ompe titi on l aw, co rrup ti on, f raud and sanct ions. System unavailability and data loss due to c yb er - att ack due t o incre asing intercon nectivity and severe external thr eat of cy be r - crime are dr iving higher freq uency and seve rity of inc iden ts Liquidity risk is driven by financial gearing, liquidity reserve, distribution policy, maintenance req uirements, fleet employment stra tegy an d r equ ired v ess el investm ents. I nab ility t o ob tain equ ity or de bt financing on attr active ter ms due to a na rrow er ra ng e of ba nks and investors being willing to support the ship ping industry with the usual funding str uctures. Potential impact TORM’s inability to comply with rules and regu lati ons cou ld lead to penal ti es, r epu tati ona l da mag e o r the inabil ity to operate in key mark ets . Busines s interruptio n and disruptio n to trading resulting in loss of busi ness or th eft of m oney . Sustained low freight rates or anot her unforesee n adverse devel opm ent coul d j eopa rdi ze the liquidity, lead to covenant bre aches and hence inflict cost s and lac k of ope rati onal man euv era bil ity. Inabi lity t o gr ow the b usin es s or maint ain the current aver age fleet age. TOR M’s lon g- term p rofi ta bil ity will be n eg ati vel y i mpac ted . Mitigating activitie s Comp liance and awareness training is ma nda tory f or al l em ploy ees . I n conn ecti on wi th sancti ons , a kn ow - your - custo mer scree ning system is impl emen ted . Busines s continuity plans imp lemen ted c overin g the enti re gro up. Plan includes asses sment and conti ng ency of c ri tical sy ste ms in case of business interruption . Conti nuou s f ocu s on capa ci ty to detec t a nd reac t on c yb er - attacks. Conservative financial leverage guided by sho rt - and long - term cas h flow forecasting with stress - testing of c ritic al as sump tion s. C ons tan tly maintaining a tangible catalogue of available liquidity enhancing initiatives TORM h as a c ons erva tiv e ca pital struc tu re p rofil e an d h as acc es s to multiple fun ding sou rce s. TOR M has no larger deb t repayments until 2026 TORM ANNUAL REPORT 2021 REVIEW AND RISK 70 TORM ANNUAL REPOR T 2021 GOVERNANCE 70 GOVERNANC E GOVE RNA NCE I NTR ODU CTI ON Chairman’s Introduction GOVERNANC E STRUCTUR E TOR M’s Go verna nce Str ucture Board of Directors Board and Committee M eeting Attendance Board Activities COMMITT EE REPORT S Audit Com mittee Re port Risk Co mmittee R eport Nomination Committee Report Remun eration Co mmitt ee Repor t OT HER Investor Information Engagem ent and Decisio n Making Directors’ Report Statement of Directors’ Res ponsibilities Safe Habor Statement GOVERNA NCE TORM ANNUAL REP ORT 2021 GOVERN ANCE INTR ODUC TION 71 C HAIRMAN ’ S STATEM ENT Throug hout 2 021 as in 2020, th e cha lleng es of COVID - 19 h ave onc e again p rove n the reli abi lity of the On e TORM pl atform. I a m plea sed th at TORM a s an organ ization has been abl e to adju st operati onal ly, socia lly, an d manag erially to the d emand s of the pan demic. In these ci rcum stances, th e quality o f leadersh ip, th e streng th of boa rd member shi p, an d the valu e of our rel ation ship s with empl oyees, cu stomers, supp liers, an d loca l commu nities demons trate their importa nce. As Cha irman, I a m plea sed to c onfi rm tha t also i n 2 021 TORM respond ed stron gly to all cha llenges th rough the One TORM p latf orm and the del iveran ce of stron g corpora te govern anc e. In the f ollow ing pa ragraph s , I have tri ed to p rovide s ome deep er insi ght i nto our performa nce. Board leadership The Board conti nues to focus on promoti ng th e long - term su stain able succ ess of TORM , ha ving regard to wider sta kehol der in terests. This i nclud es contri butin g to the wid er need s of s ociety . In 2021 , there were no ch anges to th e Board of Direc tors, howev er, TORM sa id g oodbye to To rben Janhol t, a Board observe r an d former D irecto r. The membershi p of th e Board i s dra wn from a diverse m ix of na tionali ties, gen der , and backgrounds whi ch bring the releva nt ski lls a nd know ledge to p rovid e a positi ve contri buti on to the Board . T ORM’s perfo rmanc e as ou tlined i n thi s A nnua l R eport, demonstra tes th e succ ess of this f ocus b y the Boa rd and our Chief Executi ve Officer , Jac ob Meld gaard. Wi th the Ch ief E xecutive’s l eaders hip and th e S enior M anag ement T eam fu lly su pported by the Di rectors , I am con fiden t that TORM ’s Boa rd of D irectors i s wel l placed to lead th e suc cessfu l growth of TORM going forward . Sharehold ers The rela tionsh ip wi th ou r sharehol der s is of fund amental i mportan ce . Despi te the pan demi c, TORM has ens ured consis tent communi catio n an d developm ent throu gh c ontinu ed qu arterly rep orting , sto ck ex change a nnoun ceme nts and a nalys t and indu stry in vestor meetin gs. With th e restri ction s imposed by the pandemi c, TORM h as als o organi zed and conducted conferen ce cal ls and i nvestor presenta tions th rough the us e of dig ital platf orms. TORM bel ieves th at its tra ns paren t compa ny struc ture and corporate g overnan ce pri ncip les enh ance the attrac tiveness of it s sha res. Employe es TORM us es ev ery oppo rtun ity to en sure th at al l our seafa rers have th e opp ortuni ty to be vacci nated . In variou s ports in the US a nd E urope, TORM has succ essful ly conduc ted vac cinati on dri ves for ou r vessels an d ha s vacc inated more than 1,000 crew members. In 2021 , during t he pande mi c, TORM introd uced the “ Well at TORM ” prog ram ai med at focusi ng on th e well being of our seaf arers . Read more about TORM 's Peop le on page 41 Custom ers The rela tionsh ip wi th our cu stomers con tinu es to be strong. TO RM’s mod ern a nd well - mainta ined fl eet with m ajority of the ves sels b eing s crub ber - fitted furth er provides TORM an d its c ustomers wi th enh anc ed flexi bility as well as redu ced fu el costs. Suppliers Throug hout 2 021 and the conti nued p andemic , the mainte nan ce of strong , relia ble su pply chain s has been essentia l. We con tin ue to cre ate joi ntly valua ble relati onshi ps with our su ppliers by en cou raging best prac tice , and w e expect tha t our su ppl iers comp ly w i th recogn ized i nterna tional s tandard s and work to improve h uman rights, l abor c ondi tions, imp act on the environ ment, sa fety, c orrupti on, a nd quality . CHAIRM AN’S I NTRODUC TIO N Governance Introduction TORM ANNUAL REP ORT 2021 GOVERN ANCE INTR ODUC TION 72 Community As a c ompa ny, w e have a history of s upporti ng th e commu nities i n which we work and the needs of the people w e serve. Read more a bout TORM's connection to th e surrounding communities on page s 45- 46 Sustaina bility Envi ronmen tal, Socia l and Governan ce ha ve become a major foc us a rea for the B oard a nd w as dis cussed widel y throu ghout 202 1. I am p leased that as T ORM anno unced in Januar y 2022 , TORM became a Mi ssions Ambassa dor of the Ma ersk McKinne y M ø ller Cen ter for Zero Carb on Shi ppin g and con tinu es to be an acti ve member of Danish S hippi ng, with the a im to impa ct the deci sion mak ing in IMO on the ongoin g di scussion s on the imp lementa tion of CO 2 related reg ula tions . T ogether wi th TORM ’s Ma nagement, the Boa rd ha s been work ing with ma stercl ass session s encom passing subj ects such as future f uels a nd n ext genera tion L R2 vessels , but a lso on mor e near - term poten tial chal lenges, su ch a s the acc ess to cap ital markets. As a compa ny , TORM c onsid er s it a pri ority to del iver measura ble a nd reporta ble perf orman ce in all key areas . Foll owing a thoroug h review , TORM has set a targ et to reduc e its rela tive CO 2 emission s by 4 5 % by 2030 compa red to IMO’ s 2008 b asel ine an d be cl imate neutra l from opera ting our fl eet by 2050. To sup port th is ambitio us target , TORM ’s mana gement will be measured on ac hievin g it. Read more about TORM s ESG jour ney from page 3 2 The year ahead In the y ear ah ead, th e Board will among oth er topic s again focus on ESG , where TORM wil l investi gate th e potenti al of g reen bu sines s adjac encies th at ca n co - create l ong - term va lue a nd opti onali ty for TORM . The focu s will a lso be on a dvanced ana lytics and appl ied AI competen ces a s well as d isru ptive i ndica tors, suc h as oil dem and, mob ility, b iofuels co nsum ption a nd their effec t on peak oil d emand . Read more about TORMs focus on adjacent business on page 22 Chri stoph er H. Boeh rin ger Cha irman of the Board CHAIR M AN’S I NTRODUC TIO N TORM ANNUAL REP ORT 2021 GOVERNANCE STRUCTURE 73 The Board of Director s Chaired by Christopher H. Boehringer. The Board of Directors ho lds six p reschedul ed m eeting s on an ann ual b asis , but usua lly hol ds sev eral ad h oc meet ings . The d uties o f the Boar d of Directors inc lude establi shing policies f or strategy, acco unti ng, or ga nizatio n, fi nanc e , and t he a ppointm ent of exec utive of ficers . The Bo ard of Direct ors go verns TOR M in accordance with the l imits prescribed by the Arti cles of Association or by any special resolution of the shareholders. Chairman Le ad s th e Board of Directors , sets the agenda , and promotes a c ulture of ope n debat e betw een E xecutive and N on - Executive Directors. Mee ts r egular ly wit h the Chi ef Executi ve Off icer, t he ot her Executive Directors , and other senior management execut ives to stay informed. Senior Independent Direc tor Ensur es t hat t he vie ws o f eac h N on - Executive Director are given du e c on sid er at ion . Availa ble to bot h N on -E xecu tive D irectors and shareholders if they have c onc erns . M ee ts with each N on - Exe cu tive Director on an annu al basi s to appraise the performance of the Ch air m an . Non - Executive Directors Committed to contribut ing constructively , chal len ge and h elp develop proposals on strategy . Executive Director s Respo nsible fo r the day - to - day mana gemen t of TO RM , and r esponsible for TOR M’ s operational dev elopm ent, results, and internal dev elopm ent . Implements the strategies and overa ll decis ions approve d by the Board of Directors . Board Obse rvers Three types. Emp loy ee - electe d , p rovid ing a c ommunica tion platfor m betw een t he em ployees and the Board of Directors . Mino rity Board Observer appointed by the B Shareholder and Board Member el ected . All observers are entitle d to attend and speak at Boar d mee tings . Aud it C ommit tee Chaired by Göran Tra pp Meets a minimum of four time s a year . Assists the Board of Directors in fulfilling its re sp ons ib il iti es rel ati ng to th e over si gh t of th e quality and integrity of the a ccounting, auditing, financial reporting, and risk mana gemen t of TO RM . Read more about t he role and activities o f the Audit Com mitt ee on page s 79 - 80 Risk Co mm ittee Chaired by Göran Tra pp Meets a minimum of thr ee times a year . R esponsible for supervisory oversight and monito rs r espo nsibilit ies with r es pect to inter nal co ntro ls a nd ris k ma nag ement Read mo re about the role and activit ies of the R isk Com mitte e on page 85 Nomination Com mittee Chaired by Christopher H. Boehri nger Meets a minimum of tw ice a year . Reviews the structure, size , and composition (incl uding skills , know led ge, ex perie nce , an d diversity) of the Board o f Directors and makes recommendat ions to the Board of Directors regarding any ch ang e s. Considers succession planning for Directors , the Chief E xecutiv e Officer , and oth ers. Read more about the role and activit ies of the Nom inat ion Committ ee on pag e s 87- 88 Remuneratio n Committee Chair ed by C hristopher H. Boe hring er Meets a minimum of tw ice a ye ar . Assists the Board of Directors in reviewing Man ag emen t ’s pe rf orm an ce and remuneration as well as T ORM’s g en e ral remun eratio n policie s Read more about the role and activ ities o f the Remu neration Committ ee on pag e s 89 - 90 Senior Manage ment Team Consists of the following employees of TORM A/S (in a ddition to the Executive Director , Jacob Meldgaard ): Kim B alle ( Chief Fina ncia l Offi cer – CFO), Lars C hristensen (Seni or Vice President and Head of Projec ts) an d Jesp er S. Jensen (Senio r Vic e Presi dent a nd Hea d of T echnica l Divis ion). T he Sen ior Ma nageme nt Tea m hol ds week ly meet ings. Assist s the E xecut ive Dire ctor i n the d ay - to - da y m anag eme n t of the business. TORM’ S G OVERNANCE S TRUCT URE Governance s truc ture TORM ANNUAL REP ORT 2021 GOVERNANCE STRUCTURE 74 M ANAGEMENT STRUCTURE AND DELEGATION OF AUTHORI TY TORM’s Board of D irectors s ets TORM’s strategy and ensures th at Ma nag ement operates the bu sines s in acc ordanc e with thi s strateg y. Deta ils of the strat egy and purpose are s et ou t in th e strateg ic rep ort on pages 16 - 30 . The Board of D irec tors ha s deleg ated the day - to - day management of th e busines s to Exec utive Direc tor Jac ob Meld gaard. Th is i ncludes TORM ’ s operation al d evelopmen t and responsi bil ity f or impl ementin g the stra teg y an d overal l deci sion s approved by th e Board of D irec tors. Th e Execu tive Direc tor also ser ves as Chi ef Exec utive Of ficer of the Group ’s larg est subsi diary , TORM A/ S. Transa ction s of an u nusual nature or of maj or importa nce ma y only be exec uted by the Exec utive Direc tor based on a spec ial authori zation gran ted by the Board of Di rectors. If cer tai n tran saction s cannot awai t approva l by the Board of Di rectors du e to thei r urgen cy, the E xecuti ve Director mu st, ta kin g in to consi derati on TORM’s in terests to the e xtent p ossibl e, obtain the a pproval of the C hai rman and en sure th at the Board of Di rectors i s sub sequen tly inf ormed. An y transa ction must a lways be su bjec t to the auth orizati ons stated in TORM ’s Artic les of Assoc iati on, including any appr ovals required by the Mi nority Direc tor. The E xecuti ve Direc tor is assi sted b y the Senior M ana gement Tea m in the d ay - to - day mana gement of the bu siness. The Seni or Man agemen t Team membe rs are ind ividual ly resp onsib le for fu rther delega tion of auth ority in the orga niza tion. TORM main tains an overview of man dates an d auth orities f or diff erent level s in the organ iza tion. C OMPLIANCE WITH THE UK CORPORATE GOVERNA NCE CODE In respect of th e year en ded 31 Dec ember 2021 , TORM Plc wa s subj ect to th e UK Corp orate Gov e rnance Code (ava ilable f rom www.frc .org.u k) . TORM ha s consi dered the in dividu al provi sions a nd is c ompli ant with 39 ou t of 41 p rovision s. The n on - comp lian ce with provisi ons 18 and 32 is because of b usin ess decisi ons tak en af ter caref ul con sidera tion by th e Board of Direc tors. No plan i s cu rrently in plac e to attai n comp liance w ith th e below rec ommenda tions. In d epth deta ils on the n on - compl iance c an be f ound on pages 87 and 8 9. TORM Corpo rate Governa nce Statem ent on www.torm. com/inv estors /governa nce Board Leadership and Company Purpose Long - term valu e and sustaina bility P. 78 Cult ure P. 37, 47 Shareh older en gagemen t P. 35, 10 5 Other stak ehold er eng agemen t P. 35, 10 5 Conf licts of interest P. 28, 88 Divisio n of R espons ibili ties Role of th e Cha irman P. 74 Divi sion of responsi bili ties P. 74 Non - Exec uti ve Direc tors P. 74 Indepen dence P. 53, 88 Composi tion, succession, and eval uatio n Appoi ntments a nd succ ession planni ng P. 88 - 89 Skills, experien ce, and knowledge P. 76, 88 Leng th of servi ce P. 76 Evalu ation P. 89 Diversi ty P. 43, 89 Non - compli ance P. 88 Audit, risk and i nternal control Committee P. 80 - 85 Integri ty of fi nanc ial sta temen ts P. 112, 167 Fair, bal anced , and unders tand able P. 83 Interna l con trols an d risk manag ement P. 84 Externa l au ditor P. 84 Princ ipal an d emergi ng ris ks P. 66 - 70 Remuner ation Polic ies an d practi ces P. 90 - 100 Indepen dent j udgemen t and discretion P. 93 Non - compli ance P. 90 Align ment with pu rpose, values a nd long - term strateg y P. 9 1 , 9 3 TORM’S GOVER NANC E STRUCTU RE TORM ANNUAL REPORT 2021 GOVE RN A NCE STRUCT URE 75 Christopher H Boehringer Non - Executive Director an d Chair man o f TO RM’s Board of Directors David Neil W einstein Senior Independent Director and Deputy Chairman of T ORM’s Board of Directors Göran Trapp Non - Executive Director Annette Malm Justad Non - Executive Director Jacob B Meld gaard Executive Director and Chief E xecuti ve Off icer Nationality : Canadian Nationality : American Nationality : Swedish Nationality : Norwegian Nationality : Dan i sh First e le c ted : 20 1 5 Appointed : 2015 , cont inues until removed by the B- sh a reh old e r First e lected : 201 5 First e lected : 202 0 First e lected : 201 5 Employment : Managing Director an d Head of Europe, Oaktree Capital Management (International) Limited Employment : Senio r Invest ment Banki ng, Gove rnanc e an d Reor ganiza tion S pecia list Employment : Boar d mem ber Employment : Boar d mem ber Employment : Chief E xecuti ve Of ficer of TORM p lc sinc e 01 April 2010 Skills and e xperience : Shipp ing, strategy, capital investment, M&A. Goldman Sachs, FI Travel Corporation, Warburg D illon Read /SG W arb urg, and LTU Gm bH & Co Skills and experience: Strategy, c apital, M&A, risk o versight, ex tensive public company a nd corpor ate gover nance experience, US listi ngs ( i.a. Seadrill Lt d, Stone Energ y Corp, and Deep Ocean Group ) and as M anagin g D irector of Calyon Securi ties In c, BNP Pa rib as, Bank of Boston an d Ch ase Secu riti es Inc. Global Busi ness Skills and e xperience : Shipp ing, strategy, customers, capital, fina nce. Morgan Stanley cru de oil trader, Hea d of Oil Pr odu cts Tr adi ng E uro pe & Asia, Global Hea d of Oil Trading and Head of Commodities EMEA. Business development and oil tradi ng at Equinor. Founding director o f energy adviso ry bo utique E nergex Skills and e xperience : Shipp ing, strategy, customers, capital, fina nce. More t han 25 y ears o f exec utive exper ience fro m shi pping a nd industry including CEO of O slo listed Eitzen Maritime Services ASA f rom 2006 - 2010. The last 10 years as indepe nden t con sultan t and n on - execut ive boar d member Skills & e xperience: Shipping, customers, strategy, capital, M &A, US lis ting. Pre viously ser ved as Executi ve Vi ce Pres ident o f Dampskibsselskabet NORDEN A/S and he ld a numbe r of managem ent positions in J. Lauri tzen A/S and A . P. Møl ler - Maersk External app ointment s: Utmost Group , Marco Capital Hold ings Limited and Oaktr ee Capital Management (International) Limited External app ointment s: N/ A External app ointment s: Board member of Energex Partners Ltd. External app ointment s: Partner at Recore Norway AS. Chair of the Board of Directors of Store Norske Spi tsbergen Kul kompani A S, Amer ican S hipping Compa ny ASA, Småkraft AS and Norske tog AS. Board member of Awilco LNG ASA, Powe rCe ll Swed en AB an d RE CSi li c on A S A External app ointme nts: Cha irm an of the Bo ard o f Da nish S hip pin g and Grant Compass A/ S an d Boa rd membe r of Danish Ship Fin ance, SYFOG L OMAD Ltd, and t he T OR M Foundation Commi tte es: Commi tte es: Commi tte es: Commi tte es: Commi tte es: None Audit: Risk: N om in at ion: R emune ratio n: Chairman : BOARD OF D IRE CTO RS C C C C C TORM ANNUAL REPORT 2021 GOVERNA NCE STRUCT URE 76 BOARD AND COM MITTEE MEETI NG A TTEND ANCE Board Aud it Commi ttee Risk Commi ttee Nomination Commi ttee Remuneratio n Commi ttee Meetings held in 20 21 1) 1 0 5 3 2 7 Chairman of the Board Christopher Boehringer Senior Independent Non - Executiv e Director David N Wein stein Executive Director Jaco b Mel dgaar d Non - Executive Independent Directors Ann e tte Mal m J us tad Göran Trapp Board Observers Christian Gorrissen Jeffre y S St ein Ras mus J Ska un Hof fman n ) Please note t hat al l Boar d and Committ ee me etings in wer e held virt ually due to the C OVID - pande mic Board of Director s: Au dit: Ri sk: No mina tio n: Remune ratio n: Chairma n: C C C C C C ` TORM ANNUAL R EPORT 2021 GOVERNANCE STRUCTURE 77 The Board of Direc tors ’ ac tiviti es are foc used a round TORM’s st rategi c a mbi tions an d a tran sparen t governa nce f ramework. Th e t op ics bel ow set ou t the key area s of foc us f or the B oard during 2021. TORM’s govern ance structure is described on pages 73-74 Learn m ore about the acti vities of the Comm itte e s on page 79 -99 LEADI NG PRODU CT TANKER OWNER In con tinua tion of the pa st years’ fl eet renewa l an d fl eet growth , TORM’s M an agement an d Board of Di rectors have been inv olved in a number of vessel acqu isi tions. The pu rpose is to main tain the positi on as a leading produc t tan ker owner wi th a m odern fl eet cap able of util izing the commerc ial op portuniti es in the mark et. Acquis ition of eight MR vess els During 2021 , TORM acqui red eight M R vessels of whi ch six of th em were wi th e xtend ed tank segrega tion ( IMO 2) ma king th em capa ble of ch emic al tradi ng. Althoug h produc t tan ker acti vity is th e main purpose of thes e vessels , it may become c onven ien t that th e vessels have more c apab iliti es goin g forward. Th e tra nsac tion was cl osed on a part ly cash and part ly share basis. Acquis ition of three LR2 vessel s Three 201 5 - bui lt scru bber - fi tted LR2 vess els wer e acquir ed in J une 2021 to support TO RM’s a mbiti on to inc rease lon g haul op timized vessels . Refin ery cl osures in man y region s is l ikely to i ncrea se the n eed for these larger ves sels ma kin g them a good fit f or TORM ’s futu re strong c ommerci al perf orman ce . Financ ing The mai n pa rt of the f undi ng f or these add ition al vessel s acquis ition s was made as bank fi nanc ing, however , during 2021 , TORM en gag ed in a nu mber of sale a nd opera ting leaseb ack arran gements b oth as part of s treng theni ng the l iquidi ty positi on to prep are for fl eet growth opportu niti es, but a lso as part of de - riski ng th e balanc e sheet for the lon ger te rm. T ORM has a strong f ocus on the l ong - term risk of ass et valu es, so opera tiona l lea sing of ass ets is a means to reduc e this risk with an accep table i ncrease i n fin ancia l expenses. Changes i n oil m arkets due t o COVID - 19 lockdowns As a con sequ ence of the produ ct stoc k buil ding we saw in 2020, th e Board of Direc tors h as ha d an inc reased f ocus on th e market d evelop ment. Th e downwa rd pressu re on frei ght ra tes inc reased th e need for comp ani es to be rob ust. T he Board of Di rectors h as been u pdated on the c apital structu re and l iquidi ty positi on of TORM and as a p recau tionary mea sure , it has a t any given tim e a cata logue of liquidit y enha ncing ini tiatives , sh ould that ever b e requ ired. During 2021 , TORM supplemented the ph ysic al tradi ng in th e tank er market wi th trad ing FFAs (Forward Freig ht Agreemen ts) in the pa per mark ets. Th e Board of Di rectors ha s been i n cl ose dia logu e with TORM on the ben efits a nd ri sks rela ted to th ese tran sacti ons. GREEN FUT URE W ITH A ZERO EM ISSION AM BITION T hroug hout th e year , E SG has been hi gh on the agend a of the Boa rd of D irecto rs and TORM’s f irst dedi cated ESG rep ort was rel eased i n M arch 2 021. Si nce th en, the Board of Direc tors ha s been work ing w ith ESG related risks an d sol utions in ma ny ways. Deep div e on ESG ESG exp erts from b ank s and investors w ere in vited to share th eir kn owledg e on how i nvestors and lend ers will chang e their ap proach to all ocating capi tal to compa nies. There i s an i nc reasin g focus on the g reen transi ti on, a nd f or TORM to r emain attrac tive as a debt and equity f undin g target, i t is imp ortant to be lea din g, when i t comes to reduc ing emi ssions here an d now a nd enga ging in collab oration s for a long - term z ero emission bus iness mod el. Disrup tion Indic ator mo del T he Risk Committee ha s sign ificant ly intensi fied th e work with disru ption indic ators. Cer tain indi cators, suc h as oil deman d, mobility , Electric Vehicl e upta ke and biofu el con sumpti on etc., wil l be mon itored a nd measured agai nst ta rgets set by f or insta nce IE A. If th e indic ators su ggest a m ore agg ressive de velopm ent towards p eak oil , the B oard of Di rectors may con sider addi tional analysi s to be mad e to assess wheth e r it will impa ct the a ssumpti ons un derlyin g TORM’s s trategy. BOARD ACTIVI TI ES 2 0 21 TORM ANNUAL R EPORT 2021 GOVERNANCE STRUCTURE 78 Board M asterclasses It is the p riori ty of th e Board of D irectors to keep knowl edgeabl e of the devel opmen t of n ew fuel s and the imp lica tions to TORM . Du ring the year , a nu mber of sessions were s et up to educ ate the Boa rd on themes such as Power - to - X, future r enewa ble en ergy ca paci ty, carb on captu re, dif ferent f uel types , and regu latory consi derati ons. Th ese masterc lass es have b een an importa nt way for the Boa rd to u ndersta nd th e risks and opportuni ties wh ich lie a head and w ill be used i n the fu ture strategi c work . Meeting industry requirements Regardl ess of th e fuel which TORM wi ll tran sport in the futu re, it is i mportan t that T ORM i s a lea der in reduc ing emission s today . Th at comp ani es lik e TORM f ol low indu stry requi rements i s a tic ket to p lay in th e capital markets, since investor s and l enders w ill become more and more selecti ve, wh en allocating cap ital. After th e end of 2021 , TORM a nn ounced tha t the IMO 2 030 goa l of redu cing emi ssion by 40% wi ll b e reach ed alrea dy in 2025, unde rli ning t hat TORM has already a ccom plishe d a lot on fuel optimi zation and reduc ing CO 2 emissions. Strategic ally import ant long - term col laborati ons I ndus try coll aborati ons are t he corn erstone of the l ong - term su stain abili ty of th e shippi ng ind ustry. During 2021 , the Board of D irector s h as togeth er with M anag ement assessed the initiative s which wo uld be righ t for TORM to parti cip ate in for gettin g in fluenc e and insight. A lready bein g a member of the Getti ng to Zero Coal ition , TORM na turall y sign ed up to th e Cal l to Action for Sh ippin g Decarb onizati on to urg e governmen ts to: 1 ) Commi t to d ecarbon izing intern ation al shipp ing by 2050. 2) Su pport i ndu strial scal e zero emis sion sh ipp ing projec ts throug h na tional acti on. 3) D eliver pol icy measures which will ma ke zero emission shi pping the def ault choi ce by 2030. At the end of 202 1 , TORM to ok an other step on th e strategic all y importa nt pa th of deca rboni zing by signing up to the Mæ rsk Mc Kinne y M øl ler cen ter for zero ca rbon sh ipping . Bein g a Missi on Amb assador , TORM un derlin es the ded ica tion to f ind soluti ons for a greener fu ture. SUPERI OR O PERATING P LATFORM With C OVID - 19 stil l having a signi fica nt sa y in the g lobal agenda, i t is inevita ble tha t it wil l be a p art of compa nies ’ operat ional chall enge s . It sets h igh requi rement s for p erforman ce of th e c omm erci al and techni cal depa rtments, an d maxi mum vi sibil ity of th e entire va lue c hain is very i mportan t. Vaccin ation of seafar e rs T hroug hout th e pandemi c, the Board of Di recto rs ha s been i nformed about th e situ ation and the mea sures taken by TORM to miti gate ri sks an d cha llengin g scena rios. It is clear t o the B oard of D irec tors tha t h avin g a ll bu sin ess - c ritical functi ons in - hou se is a g reat benef it in a world with dif ferent an d con stant ly chan ging restri ction s. As exa mples , crew ch an ge and vacci nation of seaf arers are s imp ly eas ier to optimi ze with y our c ommercia l acti vities when you are in full control of both commerc ial an d techn ical man agemen t. AI initiative In TORM’ s effor ts to ru n a ref erenc e produc t tan ker platf orm , TORM con soli dated th e ongoi ng AI p rojects into a unif orm organ izati onal set - up during 2021. TORM is worki ng on several A I ini tiati ves, wher e two of them ar e the vessel posi tioni ng projec t and route optimi zation projec t. T o ensu re worl d cl ass solu tions , TORM ha s teamed u p with a deep subj ect matter externa l ad visory boa rd con sisting of spec ific AI experts. Th e pu rpose is t o ma intai n a l eading pos ition in the predi ction of which g lobal b asins to d eploy ou r vessels in and to st reng then TORM ’s voyag e optimi zation algori thm mod elling by creati ng an in - house d omain for deta iled val uable d ata th at will end up in fue l savi ngs, CO 2 emission reduc tions a nd superi or commerc ial p erforma nc e. The Board of Direc tors sees th e ini tiati ve as a n atura l next step for TORM to rem ain the refer ence c ompan y wh en it comes to comme rcia l performa nc e. BOARD ACTIVI TIES 20 2 1 TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 79 AT A GLA NCE Chairman Göran Trapp Members Ann ette Malm Justad Davi d Weinstei n Composi tion The Audit Comm ittee is c omposed solely of ind ependent Non ‑ Execu tive Di rectors. Meetings The Audit Comm ittee ha d five s ched uled m eetings in 2 021. Atten dance b y members a t Commit tee meeting s can be seen on page 76 . 2021 hig hlights • Q u arterly a ssessmen t of th e imp airmen t indic ator test of the v essels i n th e fleet • G oi ng c onc ern a ssessment and viability statements CHAIRMAN’S STATEMENT This rep ort provi des an over view of h ow the Au dit Committee operat es, an i nsigh t into th e Aud it Committee’ s ac tiviti es and its role i n moni toring and reviewin g the i ntegri ty an d quali ty of TO RM’s financ ial statements , the ef fecti veness of intern al c ontrols , and related p rocess es. THE ROLE OF THE AUDIT C OMMITT EE Read more about t he Audit Committee ’s area of responsibility on page 73 Terms of Reference for the Audit Comm ittee on www.torm. com/inv estors /governa nce AUDI T C OMMITT EE MEMBE RS T he Board i s sati sfied th at the A udi t Committee m eets the in depen dence requ irements and an y appl icable laws, reg ula tions an d li sting requ iremen ts, inc ludin g the UK Corp orate Gov ernan ce Code. The Aud it Commi ttee has d eep k nowled ge an d signi fica nt busine ss experience in finan cial reportin g, risk ma nag ement, in ternal control, a nd stra tegic mana gement. Th is c ombined kn owledg e and experienc e ena bles u s to per form our d uties p roperl y. In ad dition , the Boa rd of D irectors bel ieves that th e members of the Au dit Com mittee h ave th e rele vant ship ping sec tor know ledge. In the opi nion of the Boa rd of Di rectors, the Ch airman of the Au dit C ommittee, Göran Trapp , meets the requ irem ent of bri ng ing recen t financ ial exp erienc e to the A udit C ommittee. The Au dit Com mittee als o has acce ss t o the financial experti se in TORM a nd i ts indepen dent a uditors a nd can seek fu rther prof essiona l advic e at TORM’s expense, i f req uired . MEETIN GS The Au dit Com mittee meets a t least f our times a yea r . T he Ch ief Fina ncial O fficer of TORM A/ S, the Hea d of Group Reportin g, Compl iance a nd Ta x of TORM A/ S together with s enior repr esen tatives of TORM’s ind ependent a uditor s are i nvited to atten d all or part s of the mee ting s by i nvita tion as app ropria te. BUSSIN ESS UPD ATES • Qu arterly overview of th e prod uct ta nker ma rket cond itions a nd i ts impact on the qua rterly resu lts • Reg ula r operation upd ates on ma tters arisi ng d ue to the COV ID - 19 pand emic and rol l out of staff vacc inatio ns • D elivery of the ei ght M R prod uct ta nker vessel s acqui red and successfu l in stal l a tion of scrubbers on 52 of our vess els til l the d ate of this rep ort , with a noth er four in stalla tions sch edul ed to be compl eted by th e end of 2022. In add ition , one scrub ber is sc hedul ed to be i nsta lled in the fi rst qua rter of 2023. U pon c ompleti on, 5 7 vessels w ill be fitted with scrub bers, wit h th e remain ing vessels con tin uing to use co mpli ant fu els with 0.5% su lfur c ontent. • Revi ew of the sal e and leaseba ck tra nsacti ons for the vess els AUDIT C OMM ITTEE RE PORT Committ ee Report s AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 80 PRIN CIPAL ACTIV ITIES IN FO CUS Financ ial reporting • K ey elemen ts of th e Qua rterly Reports a nd An nual Report a nd th e estimates and jud gements i nclud ed in TORM’ s finan cial disc losure s • Th e app ropriaten ess of M anagemen t’s an d the externa l au ditor’s an alys is and conclus ions on jud gmental ac countin g matters • An assessmen t of wh ether th e Ann ual Rep ort, taken as a w hole, is fair, balance d, and und erstandab le and w hether ou r US an nual report on Form 2 0 - F comp lies w ith rel evant US regul ation s with f ocus on clarity of disc losures, compl iance wi th releva nt leg al and financ ial reportin g stan dards a nd a pplica tion of ap propria te acco unting p olicie s a nd judg eme nts • Th e goin g conc ern asses sment a nd a doption of the going co ncer n bas is in pr epar ing the Annua l Report a nd f inancia l statemen ts • Th e extern al au ditor’s rep ort s on its a udi t of the financ ial sta tements, an d rep orts fr om Manag ement, th e intern al a uditors, an d the externa l au ditor on th e effec tiven ess of ou r system of in ternal control s and ou r intern al c ontrol o ver financ ial rep orting • C ompli ance wi th appli cable provi sions of the Sarban es - Oxley Act • A q uarterl y assess ment of the imp airmen t ind icator test of th e vessel s in the f leet Risk an d compli ance • Rep orts from G rou p Lega l on th e statu s of signifi cant lit igatio ns, cla ims, and investi gations from tax a uthori ties • C ompli ance revi ew of the U K c orporate governa nce rec ommenda tions • Th e app ropriaten ess of th e En terprise Ri sk Manag ement Report repr esenti ng cri tical ri sk fac tors, its own ershi p and governan ce , and alignme n t with the Risk Committee • C oncern s raised throug h th e whistleb lowing process a nd i ts remedi ation s Externa l audit • M onitori ng th e effec tiveness and qu ality of the externa l au dit process throu gh exa mina tion and review of the c overage provi ded by the extern al auditor’s audi t pla n • Revi ewin g reports from th e externa l au ditor over key aud it and a cco unting mat ters , and busi ness processes i ntern al c ontrol s and IT systems . • Ag reeing the au dit an d non - audit f ees of th e externa l au ditor duri ng th e year, in clud ing the objec tivity and in dependence of the ext ernal auditor AUDIT C OMM ITTEE RE PORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 81 SIGNIF ICANT REPORTIN G ISSUE S In the f inan cial statements, t here are severa l area s requi ring th e exerci se of ju dgement by Man agement . The Aud it Commi ttee’s role i s to a ssess wh eth er the jud gements ma de by M anageme n t are reason able a nd approp riate. To a ssis t in th is eval uati on, the C FO presents a n ac counti ng pap er to the Au dit Commi ttee once a year, set ting out the k ey fi nanci al reportin g jud gements . The m ain areas of j udg ement con sidered by th e Audi t Committee i n the p reparati on of th e fina ncial statements a re as f oll ows: GOING CONCERN The Aud it Commi ttee review ed M a nagemen t’s assessmen t of the basi s for p repari ng TORM’s financ ial statements on a go ing conc ern bas is. T his incl uded reviewin g an d chall enging M an agement’s forec ast an d the un derly ing base a nd l ow case sen sitiv ity calc ulation s along with its assump tions. Th e Audit Committee a lso c onsi dered TORM ’s avai labl e liquid ity including undraw n and committed f aci lities a long with any liquidity enhanc ing proj ects an d proj ection s for th e finan cial co vena nts w ithin TORM’s borrowin g faci lities. Based on this, th e Audit Comm ittee con firmed that th e appli cati on of the goi ng c oncern basis f or the prepara t ion of the qu arterly reports and year - en d financ ial sta tements c ontin ued to be ap propria te, wi th no materi al u ncertai nties. Th e goin g conc ern statemen t is set ou t in the Di rectors’ report on page 1 07 . For furth er inf ormation see Note 1 to the financ ial statements . IMPAIR MENT REVIEW OF VESS ELS The imp airmen t review of T ORM ’s vessels is a key recurri ng ri sk du e to its sig nifi canc e in the c ontext of TORM’s net a sset val ue. The Audit Commi ttee receiv ed and considered a pa per from M ana gement c overin g the ju dgemen ts made i n respec t of the i mpai rment testing of the c arryi ng am ount of TORM ’s vessel s in the fleet wi thin three ca sh - gener ating unit s ( CGU ) s, being the Ma in Fl eet (LR2 /LR1 and MR vessels) and th e two Handysi ze vessels. This issu e was discu ssed and review ed with Manag ement an d the in depen dent aud itors, an d the Audi t Committee c hal lenged ju dgemen ts and sought cla rificati on wh ere necessa ry. As explained in N ote 8 to the fi nanci al statem ents, it w as c onclu ded not to cond uct any impai rments on each of the C GU supp orted by th e DCF value f or the Main Fleet and the two Handy size vessels . To determi ne wh ether a C GU is i mpai red, Ma nagemen t assesses whether there a re a ny in dicators f or impa irment or rev ersal of im pairm ent of th e vessels in the CG Us. If su ch in dica tors exist, th e futu re disc oun ted net ca sh fl ow derivi ng from t he CG Us mu st be estimated . Thes e estima tes are b ased on several assump tions i ncludi ng futu re freigh t rates, es timated operatin g expen ses, wei ghted average c ost of capital (WAC C) and l evel of i nflati on. Manag ement h as assessed that TORM has three CGUs within its sin gle rep orting segmen t – The Tan ker Segment – th e larges t of wh ich is i ts Main Fleet (comp rising LR1/L R2 and M R vessels) . The Ma in Fl eet is a single c ash g eneratin g unit b ecau se the vessel s in th e Main Fleet are l argel y in terchan geable a nd th e cash flows g enerated by them are i nterdepen dent. Th ese vessels ar e op erated col lecti vely a s a comb ined interna l pool, emp loyed p rinc ipally in the sp ot mark et and acti vely man aged to meet the n eeds of our cu stomers in th at mark et, parti cularl y rega rding th e loca tion of vessels meetin g requ ired spec ifica tions a nd th e price of transp ort rather than vessel t ype. G iven th e techn ical speci ficati ons and capaci ty of vessels, the M ain Fleet i s relati vely h omogenou s with a very h igh d egree of interop erabil ity. Th e MR vessels ac quired i n 2021 with chemical tradi ng capabilit ies are operated a s all other produc t tan ker vessel s and thus inc luded i n the Ma in Fleet. The other g roup s of CG Us outsi de the M ain Fleet compri se the two Hand ysize ves sels (wh ic h are typica lly u sed for sh orter an d coa stal tra de routes a nd more freq uent p ort cal ls, in clud ing f or transporta tion of variou s clea n petrol eum prod ucts w ithin Europe an d in the Medi terranea n). AUDIT C OMM ITTEE RE PORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMI TTEE REPORTS 82 Manag ement prep ared a d etai led i mpairmen t test for the Au dit Comm ittee setti ng ou t the key assump tions for the C GUs. Th e Audi t Commi ttee cha llen ged these assump tions a nd jud gements to ensure th at al l materi al fac tors were in clu ded. Further, the Au dit C ommittee discu ssed the sen sitivi ty an alysi s and other di sclosu res in the A nnu al Report. Th e Audi t Committee n oted th at the frei ght ra tes in th e years 202 2- 202 4 are con sistent with th e lon g - term pla nning assumpti ons used by TORM and inclu des the i mpact from cli mate ch anges and climate a genda on the glob al oi l deman d. Furth er, the Au dit Comm ittee disc ussed with M anag ement the freigh t rates bey ond 2 02 4 wh ich are based on TORM’s 10 - year hi storica l avera ge spot rat es adj usted f or estimated scrub ber premiu ms c onsi stent with las t year. The Au dit Com mittee was sa tisf ied wi th th e freigh t rat es applied. The Au dit Com mittee revi ewed th e key p aramete rs in the stan dard W eigh ted Avera ge Costs of Capi tal mod el and was sati sfied that the rat es used to di scoun t fu ture cash flows ap propria tely ref lected curren t market assessmen ts of th e tim e , value of money , an d the ri sk associ ated wi th the C GUs c oncerned . The Au dit Com mittee was sa tis fied th at fu ture ca sh flows rel ated to operati ng ex penses a ppropri ately reflec ted cu rrent mark et assess ments. The Aud it Committee wa s sa tisfi ed tha t the most m ateri al assump tions on which the imp airmen t assessmen t is based a re approp riate. For fu rther desc ripti on, pl ease refe r to N ote 8 to the financ ial sta tements . REVENUE RECOGNITI ON The reven ue rec ogni tion p olicy w as discu ssed an d agreed to h ave no c han ges. Reven ue is rec ogni zed upon deliv ery of servi ces in acc ordance w ith th e terms and conditi ons of the c harter p arties a nd i s made based on “ load to disc harg e ” , and demu rrage is recogn ized wi th up to 95% until actu al real izati on. Accor dingl y, no revenu e i s recog nized for the d ays incu rred du ring a vessel ’s po sition ing voya ge to a l oad port. DEPREC IATIO N PO LICY AN D RES IDUAL VALU E OF VESSEL S The Audit Comm ittee noted an d agreed that th e acc ounting policy of deprec iatin g vessels ove r 25 years was appropr iate a nd in line wi th TORM ’s peers. Th e residu al va lue was c alcula ted based on two el ements: scrap valu es that were re vie wed on a yearl y basi s and cost of voy age t o the s crapp ing place. M anagemen t recommen ded to gradually p hase - in the green scrapping pri c es in the ca lculation as th e market matures. It was ag reed by the Au dit Comm ittee th at TORM would incorp orate the gre en rec ycl ing pric es in th e calculat ion of res idual val ues by app lying an average of green sc rappi ng an d conventi onal scrappin g and st ill us ing a three - y ear avera ge t o limi t volati lity in th e residu al va lues. FAIR, BALANCED, AND UNDERSTANDABLE ASSESSME NT At the r equest of the Boa rd of Direc tors, th e Audit Committee u nderto ok an assessmen t of th is An nual Report to ensu re that, taken as a wh o le, it is fair, bal anc ed , an und erstand able an d tha t it provi des the inf ormation necessary for sha rehold ers to as sess TORM’s posi tion and p erforma nc e, busin ess model a nd strategy . The Audit Comm ittee rec eived a n earl y draf t of the Annua l Report to review i ts p roposed c ontent a nd th e structu ral ch anges f rom the C ommittees Report p rior year an d to un dertak e a review of the reportin g for th e year, f ollowi ng whi ch the C ommittee members provided their i ndi vidual and coll ective f eedba ck. In addi tion, in accord ance wi th its terms of ref erenc e, the Committee ( alon gsid e the Board of Di rectors) to ok an acti ve part in reviewi ng TORM ’s qua rterly rep orts an d consi dered TORM ’s othe r publ ic di sclosures. The proc esses des cribed above a llowed the Commi ttee to provi de assu ranc e to the Board to ass ist i t in ma kin g the statem ent requ ired of it u nder th e UK C orporate Governa nce C ode, whi ch is set out on page 74 . EFFE C TIVENESS In 202 1 , the Aud it Commi ttee c arried ou t a deta iled self - assessme nt by way of a questi onn aire and discu ssions f acili tated by the Head of Grou p Reporti ng , Compl iance an d Tax. Ba sed on th e self - a ssessment, no materia l con cerns a rose. AUDIT C OMM ITTEE RE PORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 83 I NTERNAL AUDIT The Au dit Com mittee asse sses th e need f or an intern al audit funct ion on a n ann ual bas is and ma kes a recommen dation to the B oard of Di rectors. Th e Audi t Committee wa s sa tisfi ed tha t based on TORM’s siz e, compl exity a nd its internal control en viron ment, T ORM can defer th e establi shmen t of an intern al audi t func tion bu t must revisi t the deci sion in 2022. Furth er, the Au dit C ommittee su pported the u se of an externa l au dit firm to review selec ted areas w hen requi red or requ ested by the A udi t Committee a nd/ or TORM’s M anag ement. In the abs ence of an in ternal audit funct ion, i nter nal assur ance is ach ieve d thr ough the work of Group Intern al Con trol an d Pric e Waterhou se Coope rs ’ testi ng of th e intern al c ontrols. This h as n ot affected the wor k of th e externa l au dit. The Audit Comm ittee is sa tisf ied th at the i nterna l aud it arran gements c ontinu e to provi de eff ective a ssuran ce o f TORM’s risk and control s environ ment. Th rough out the yea r, the Aud it Commi ttee mon itored the effec tiveness of TORM’s risk mana gement and intern al control systems, inc ludin g material fina ncial, operation al a nd comp liance c ontrol s . IN TERNAL CONT ROLS AND RI SK MANAGEMENT The Audit Comm ittee ha s the pri mary respon sib ility for the oversi ght of TORMs’ s ystem of intern al c ontrol, incl uding th e risk ma nagemen t framework , the compl iance fra mework, an d the work of the i nterna l control func tion. The Au dit Com mittee reg ula rly di scusses th e prin ciples for risk assess ment an d risk mana gement rel ated to th e financ ial rep orting and revi ews TORM’s signific ant risk s, incl uding f raud, an d thei r impac t on fin ancial reportin g, incl uding stress testi ng, wh en releva nt. Read more about pr incipal risks and un certai nties o n pages 65-69. The Board of Di rectors ful fils its res ponsi bili ty regardi ng ef fecti veness of th e risk m ana gement a nd Interna l Con trols over F in ancial Reportin g (IC FR) throug h the A udit Comm ittee. As a resu lt of th e US listing on Nasdaq i n New York in 201 7, TORM wa s requi red to becom e comp liant w ith th e Sarban es - Oxley Act ( SOX) resul ting in inc reased regul atory requi rements. Th erefor e, Man agemen t has, tog ether with th e Aud it Commi ttee, foc used on ensu ring th at the ICF R meet al l releva nt re quirem ents. The ICF R are ba sed on th e Intern al C ontrol – Integ rated Framework 2013 i ssued b y the C ommittee of Sponsori ng Org ani zations of th e Treadw ay Comm issio n (COSO ), whi ch ens ures the enab lin g of best prac tic e and a stron g control environ ment. Th e oversigh t by th e Audi t Committee i ncl udes th e recurri ng rep orting, incl uding man agemen t oversigh t and the outc ome of man agement tes tin g. Havin g monitored TORM’s risk m anagemen t and intern al c ontrols, an d the ef fecti veness of th e ma terial control s, the Au dit Com mittee h as not i denti fied any signifi cant failin gs and weak nes ses in TORM’s intern al control struc ture du ring th e year. TORM are an "emergin g growth compa ny", as defin ed in the JOBS Act, and we are not r equi red to compl y wi th the auditor a ttestati on requ irem ents of S ection 404 (b) of Sarban es - Oxley f or up to f iv e years. W e are n ow in the fi nal yea r in th e five - yea r period . EX TERNAL AUDIT OR The Audit Comm ittee ha s prima ry respon sibil ity f or overseein g the rel ation ship with the extern al a uditor, Ernst & Y oung LLP (‘E Y’). This i nclud es makin g the rec ommenda tion on the appoi ntmen t, reappoi ntmen t, and rem oval of the externa l au ditor, asses sing their in depen dence on an ongoi ng basi s , approvi ng th e statutory au dit f ee, the scope of the sta tutory a udi t , and th e appoin tment of the lea d aud it enga gement pa rtner. L loyd Brow n ha s held this rol e sinc e the ap pointmen t of EY in 2020 . Durin g the y ear , EY reported to the Au dit Commi ttee on thei r ind ependenc e from TORM . Th e Audit Committee a nd th e Board of Di rectors are sati sfied that E Y ha s adequa te polici es and sa feguard s in p lace to ensure tha t audi tor objec tivity and indepen dence are mai ntain ed. The Aud it Committ ee h as recommen ded to th e Board of D irectors th e re - appoi ntmen t of the exte rnal a uditors f or the 2 022 financia l year , and the Board of Di rectors wi ll be proposin g the re - a ppoi ntment of EY a t the upcomi ng AGM. AUDIT C OMM ITTEE RE PORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 84 Effectiven ess of the externa l audit process The Audit Comm ittee revi ewed th e qua lity of the externa l au dit throu ghou t the year an d con sidered the performa nce of EY by underta king an annua l review of the perf ormanc e of the i ndepen dent a uditors b y a combi nation of dis cussion s with Man agemen t, the quali ty of wri tten del iverab les to th e Aud it Commi ttee , and the qual ity of dialogu e and in sigh ts provid ed duri ng Audit C ommittee m eetin gs. Th e fin dings of th e survey wer e con sidered by th e Aud it Commi ttee , and it agreed th at the a udi t process, i ndep endenc e , and quali ty of th e externa l au dit were s atisfa ctory. Based on these rev iews, th e Au dit C ommittee concl uded tha t there ha d been approp riate f ocus a nd chal lenge by EY on the pri mary areas of the au dit , and that E Y had a pplied robust ch allen ge and sk eptic ism throug hout th e audi t. Auditor indepen dence an d obj ectivit y In its a ssessmen t of the i nde pend ence of the au ditor, and in ac cor dance w ith the stand ard o n indep ende nce, the Audit Comm ittee receiv ed det ails of all relati onshi ps between TORM and EY which m ay have a bearin g on th eir ind epend ence an d received confi rmation from EY that i t is indep enden t of TORM in accor dance w ith appl icable law s and reg ulati ons. The Audit Comm ittee mai ntai ns a p olicy an d has pro - cedu res in p lace for th e pre - approva l of a ll aud it ser - vices, au dit - rela ted servic es an d other servi ces u nder - taken by the exte rna l audi tor. The pri nci pal purp ose of this p olicy i s to ensu re that t he in depen dence an d the objec tivity of the ext ernal auditor i s not i mpaired . The policie s inclu de restric tions on the typ es of servi ces which the ind epend ent audi tor can p rovide, i n li ne with the Eth ical Standard publi shed by the UK F inanc ial Reportin g Cou ncil (F RC). D etails of the servi ces which the in depen dent aud itors can not be en gaged to perform we re provi ded to th e Audi t Committee a t the November 202 1 Aud it Comm ittee meeti ng. A c opy of t he poli cy ca n be ma de be avai lable on request. Audit an d non - audi t fees Full disclos ure of th e audi t and n on - audi t fees pai d during 202 1 ca n be fo und i n N ote 4 to the fi nanc ial statements . Audi t fees: USD 0. 8m Non - aud it fees: USD 0. 2m The in depen dent aud itors may be con tracted to perform c ertai n non - audit acti vities. The Aud it Committee b eli eves th at this c an be performed withou t compromi sing the aud itors’ i ndep endenc e and objec tivity . The Au dit Comm ittee wil l al locate the n on - audit w ork after c onsi derin g TORM’s pol icy on the provisi on of n on - aud it servic es by TORM ’s audi tors. A copy of the pre - a pproval proced ures can be made avai lable on request. Fees rela ting to the pr ovision of non - audi t services b y EY a mounted to USD 0. 2 m c orrespon din g to 27 % of the total cost a nd rel ated pri maril y to requ ested addi tional of certa in in ternal controls a nd th e legacy tax servi ce imm aterial to the Group . The Au dit Committee c onsid ered th at s uch servi ces wer e most effi ciently provid ed by th e external audi tors, as muc h of the i nforma tion u sed in performin g such work wa s derived f rom aud ited f inan cial inf ormation . To maintain the extern al a udi tors’ ind epend ence and objec tivity, th e externa l au ditors did not mak e any decisi ons on b ehalf of Ma nagement. Whistleb low er TORM’s w hi stlebl ower p olic y, wh ich su pports th e groupw ide Bu siness Prin cip les, is mon itored by the Audi t Committee. Read more about TORM’s whistle blowe r polic y here: www.torm. com/inv estors /governa nc e/wh istleb lowe r The Au dit Com mittee rec eived repor ts pr ovidi ng detail s of ma tters repo rted t hroug h TORM’s intern ation al, con fidentia l telep hone rep orting l ines and secure e - ma il rep orting fac ility, wh ich i s operated b y an ind ependent th ird p arty, Hol st Advoka ter. Al l matter s reported a re inv estig ated by Holst Ad vokater an d reported t o the B oard of Direc tors a s w ell as to the Audi t Committee tog ether w ith detai ls of a ny correcti ve acti ons tak en. Th e Audi t Committee a lso received reports at eac h Au dit Committee meeti ng providi ng d etails of any f raud losses d urin g the q uarter. APPROVAL On beh alf of th e Aud it Co mmi ttee Göran Trapp Chairm an of the Audi t Committee 23 March 2022 AUDIT C OMM ITTEE RE PORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 85 AT A GLA NCE Chairman Göran Trapp Members Ann ette Malm Justad Davi d Weinstei n Chri stopher Boeh ring er resig n ed i n Janua ry 2021 Composi tion The Risk C ommittee is comp osed solel y of ind ependent Non ‑ Execu tive Di rectors . Meetings The Risk C ommittee had th ree sch edul ed meetin gs in 2 02 1 . Attend ance b y members a t Commit tee meeting s can be seen on page 76 . 202 1 hig hlights • Ris k m ana gement revi ew of TOR M’s pol ici es on i nsurance , IT , f inanc ial instrumen ts, and its financia l poli cy • Revi e w of TORM ’s cap ital structu re risk • Review of TORM’s govern anc e on mari time safety threats • Review an d ap proval of e nterpris e r isk m anag ement report CHAIRMAN’S S TATEMENT In 20 21 , th e Risk C ommitte e ha d speci al focu s on liquid ity and fin ancing a ctivit y to mitigat e TORM ’ s risk in rel ation to the ongoi ng C OVID - 19 pandemic . A special fo cus area w a s the risks rel ated t o interes t rat e derivati ves tra din g where th e target hedge l evel was upda ted . An other foc us area was the ri sks rela ted to custom er credit ri sk wi th parti cula r focu s on ensur ing an ef ficien t and ac curate c redit ris k poli cy . TH E R OLE OF T HE R ISK C OMMI TTE E Read more about t he Ri sk Committee ’s area of responsibility on page 73 Terms of Reference for the Risk Committee on www.torm. com/inv estors /governa nce A CTIV ITIES D URIN G THE Y EAR At each meetin g, the Ri sk Co mmittee fol lows up on key risk i ndica tors to ensu re ali gnmen t of risk tolera nce a nd actu al risk level. Th ese meas ures in clud e the risk s descri bed in the Ri sk Mana gement secti on an d monitori ng of the comp lian ce with i nterna l mand ates , such as FFA derivati ves level , refin ance ri sk, in terest rate hedg e level, credi t risk a n d Time c harter positi on . Furth er, a liquidi ty forecast i s presented at eac h risk committee m eetin g . Spe cia l focu s areas c overed i n 202 1 were: Pr olonged COVID - 19 The prolon ged CO VID - 19 pande mic has had a sign ificant i mpac t on soci ety as well as on shipping, incl uding p roduct tan kers. D urin g 202 1, the ma rket for refin ed produ cts c ontinu ed to be impa cted by lock downs an d restric tions a round the world resulti ng in l ower deman d for ref ined produc ts . This h as led to a subdued tanker mark et with ra tes below b reak - even for period s duri ng th e year. At every me etin g , t he Risk Committee review s liq uidity forecast s which incl udes scena rio an d stress te sting of the mark et to ens ure th at a sufficie nt liq uidity positio n is in pla ce . Moreover, th e Risk C ommi ttee r eviewed TORM ’ s main liquidit y risk drivers c onfi rming that all relevan t drivers w ere already part of th e exi sting risk ma nagemen t framework . Forward Freight Agreements (FFAs) and Liquidity Risk D uring 2020, TORM h edged part of i ts fu ture earni ng days u sing FFAs. Th ese FFA s matured durin g th e first half of 20 21 , and , co nseq uent ly , TO RM had a liqu idity risk a ssocia ted with the FF A position . To ac coun t for a pote ntial incr ease in liq uidit y risk, liq uidity stress tests are period ica lly revi ewed tog ether with TORM’s liqui dity f orecast , an d more f requen t reporti ng h as been i mplemen ted. Fin ancial Polic y The Risk Commi ttee app roved to i ncrea se maximum interest h edge l evel u p to 10 0% to ensu re stab ili ty i n the fu ture ca sh flow b y prote ctin g variab ility in interest costs. Cy ber se curity The Risk Commi ttee revi ewed T ORMs c yb er s ecuri ty p rogram estab lish ed to enh anc e and ma ture TORM cyb er securi ty even f urther o ver th e comin g yea rs . RISK CO MMI TTEE REPO RT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 86 Custo mer Credit R isk During 2021 , the Risk Commi ttee ap proved a n up dated custom er credit ri sk pol icy . TORM ha s a well - func tioning c ustomer c redit approv al proc ess, where all custom ers are re viewed p rior to commerc ial charters. TORM ha s revisi ted and subseq uentl y refi ned th e credi t methodol ogy to ensure c onsi stency , effi ciency , and hi gh - qua lity ri sk assessm ent. Ad jus tments to the methodol ogy wa s to inc lud e more focus on in dustry and country risk, pred efin ed financ ial ra tios an d pre - set criteri a for pa rent an d gover nmen t supp ort. Sanctions The Risk Commi ttee revi ewed TORM ’s comp lia nce set - up, d esign ed to avoid that TORM enga g es with sancti one d counterpa rties th ereby vi olati ng sa nction s. Maritime s afety thre ats The Risk Commi ttee revi ewed th e measu res tak en by TORM to assess, mana ge , and miti gate fu ture atta cks. Cap ita l structu re risks The Risk Commi ttee revi ewed ri sk c onsid eration s related to TORM’s c apita l stru ctu re , incl uding l iquidity positi on, loa n - to - val ue, TORM’s D istrib ution Policy , off - balan ce sh eet liabi liti es, terms an d sou rces of f unding vessel invest ments , an d fl eet empl oyment stra tegy . Review po licies The Risk Commi ttee revi ewed T ORM’s IT Polic y, Fina ncial Pol icy, F FA and Bunker Pol icy , and Credi t Risk Pol icy . These pol ici es outlin e core ac tiviti es an d risks , an d the mea sures th at TORM has taken to mitig ate these ri sks. Enterpris e risk man agement The Risk Commi ttee revi ewed th e key ri sks fa ced b y TORM an d the u nderly ing drivers of those exp o sures. The al ignmen t of ac tual ris k an d desired risk wa s discu ssed, an d the Ri sk Commi ttee approv ed TORM ’s risk p rofile b ased on these di scus sions. F urth er, the Risk C ommittee rev iewed the assi gned managemen t acco untabi lity, which h ighli ght s curr ent and p lann ed risk - mi tiga ting acti vities. TO RM’s a nnua l Enterp rise Risk Manag ement Report w as a pproved a t the B oard of Direc tors meeti ng in Q1 202 2 . TORM’s ann ual risk assessmen t is pr esented in d etail in th e “Risk Manag ement” sec tion on pages 65 - 69 . APPROVAL O n beha lf of th e Risk C ommittee Göran Trapp Chairm an of the Risk Committee 23 March 2022 RISK COMMITT EE REPORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 87 C HAI RMAN’S STATEMENT In 2021, no cha nges were ma de to th e Nomina tion C ommittee members o r Boar d of D irectors, and th e key focus areas of the Nomi nati on Com mittee ha ve been th e Nasda q b oard d iversity rules, g overna nce, succes sion p lann ing , and employee en gag ement T HE ROLE OF THE N OMINATION COM MITTEE Read more about t he Nomin ation Committ ee’s are a of responsi bility on page 73 Terms of Reference for the Nomination Commi ttee on www.t orm.com/in vestors/g overnance C OMP LIANC E WITH T HE CO DE The Nomi nati on C ommi ttee compl i es with the UK Corporate G overn anc e Code excep t for p rovision 18. The Corp orate G overnan ce Cod e states th at al l direc tors shoul d be su bjec t to ann ual re - el ection , however, TORM’s B - Direc tor is not app ointed for a speci fied term but wi ll c ontinue u ntil removed by the B- shareh older. T ORM believe s tha t conti nuity in the B - Direc tor role is i mporta nt, as thi s Direc tor serves a s a represen tative of the m inori ty sha rehold ers. The B - shareh older, wh o repres ents th e min ority sh arehol der s, can replace th e B - Di rector at a ny ti me. The remai nin g Direc tors of T ORM are el ected on a bi - annual bas is as defi ned in TORM’s Articl es of Associ ation . The Board has d iscu ssed wh ether to change to ann ual r e - election of the rema ini ng Direc tors, howev er, to ensure c ontin uity i n the B oard of Direc tors, it ha s been d ecid ed to con tinu e with a bi - annu al electi on for n ow. Al l TORM’s N on - Exec utive Direc tors wil l sub mit themsel ves for re - elec tion a t the 2022 AGM. The Nomin ation Committee r eviewed the ind ependen c e of al l Non - Exec utive D irec tors pursu ant to the Cod e. Exc ept for the C hairma n, the N omina tion Committee i s c omposed s olel y of i ndepend ent Non ‑ E xecutive D irectors a nd th ey con tinue to m ake ind ependent c ontrib utions an d effec tivel y chall enge M anag ement. T he Exec utive D irectors’ s ervi ce con trac ts and the Non - Exec uti ve Direc tors’ t erms an d c on dition s of appoi ntmen t are avai lable f or inspec tion a t our register ed offi ce an d will be ava ilabl e on di splay a t the 2022 AGM. E FFECT IVENES S Durin g the y ear, the Nomi nati on Comm ittee revi ewed the in depen dence, tim e commi tment a nd poten tial confl icts of interests of th e Non - executi ve Direc tors and conclu ded that ea ch c ontinued to demonstra te chal lenge an d indep endent j udgem ent an d to devote suff icient ti me to di scha rging thei r duti es . NOMI NATION COMMIT TEE REP ORT AT A GLA NCE Chairman Chri stopher H. Boehri nger Members Ann ette Malm Justad David Weinstein Composi tion Excep t for the Ch airm an, th e Nominati on Committee i s c omposed s olel y of i ndepend ent Non ‑ E xecutive D irectors Meetings The Nomin ation Committee ha d two sch eduled meeting s in 2 021. Atten dan ce by members at c ommittee m eeting s can be seen on pag e 76 . FOCUS AR EA AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMIN ATI ON C OMM ITTEE REP OR T REMUNERATION CO MMITTEE REPORT 16% 46% 8% 30% Success ion Pla nning Diversity Employee population Governance TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 88 B OARD EVAL UATION In ac cordan ce with the UK Corporate G overn ance Code, TOR M conducts an a nnua l int ernal e valu ation o f the Board. T he ou tcome of th is review led to the Board requesti ng f urther d eep dives on ESG, and themes such as Power - to - X , fu ture renew ab le energy capa city, carb on captu re, dif ferent f uel types a nd reg ula tory co nsiderati ons . Read more about th e what th e B oard did th is year in detail on page 77 - 78 E MPLOY EE ENGA GEMEN T Throug hout th e year , th e Nomin ation C ommi ttee receives u pda tes on key elemen ts of the p eopl e strategy w hic h provi de in sight into a variety of area s , inclu ding c ulture , div ers ity and inclus ion, s ucces sion planni ng, f uture capab ilitie s , and collea gue enga gement. Th e Nomina tion Com mittee revi ewed the results of the 202 1 Empl oyment E ngagemen t Survey . It was pl easin g to note th e resu lt is among the top 25 of the comp ani es across all in dustries u tili zing th e Peakon platf orm. Good sc ores wer e a lso obtai ned w ith rega rds to questi ons spec ifi call y related to s exual hara ssment . The Nomin ation Committee is plea sed tha t the Board wishes to furth er streng then T ORM’s eff orts t o have a n entirel y ha rassment f ree envi ronmen t , and thr ough variou s ini tiatives we w ill contin ue to emph asize ou r zero tole ranc e stan d on th is subj ect. D IVER SITY The Nomin ation Committee con tinued to review TORM’s prog ress ag ain st its gender d iversity target s for both femal e Board m embers an d women i n th e shore - ba sed workf orce. Th e Nomi nati on Comm ittee took time to review the SE C a pproved Nasda q b oard diversi ty rul es introd uced i n 2 021. T hese r equi r e Nasdaq - listed compa nies with five or f ewer di rectors to meet the d iversity obj ective by h aving at lea st one diverse di recto r. The N omina tion C ommittee is pl eased that TORM , having alread y understood the imp ortan ce of diversi ty in the workp lac e, met thi s requi rement i n 2020. Read about TORM’s diversity Targets on page 34 The B oard of D irec tors’ di versity matrix c an b e found below Board Di versity Matrix Country of Pr incipl e Executi ve Offic es Unit ed K ingdo m Foreign p rivate issuer Yes Disclosure prohibited under home law No Total number of Directors Gender Identity Female Male Non - Binary Not disclosed Directors - - Underr epres ented i ndiv idual in h ome c ountr y j uri sd ict i on None LGBT Not known Did n ot d isclose d emo graph ic b ackg r oun d S UCCESSION PLANNING Succ ession plannin g conti nues to be a p riority for th e Nomin ation Committee , an d throu ghou t the yea r the Nomin ation Committee foc used on th e suc cession pipel ine for sen ior man agemen t , which is essen tial to ensure a conti nuou s level of quali ty in ma nagemen t. It furth er aid s TORM in avoid ing ins tabili ty by m itigatin g the risk s whi ch may b e associ ated wi th unf oreseen events, such as the d epartu re of a key ind ividu al, as well a s promotin g di versity a nd inc lusion . R ETENTION R ATE At the end of 2021, th e re tention rate for al l sh ore - based emp loyees wa s 8 8% , which is still a s satis facto ry level. In 2020 an d 2019 the r etention rate was 92 %. Read more about o ur employee he alth an d wellb eing on page s 37 - 39 APPROVAL On beh alf of th e Nomin ation Committee Chri stopher H. Boehrin ger Ch airma n of the Nomin ation s Committee NOMI NATION COMMIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTE E REPORT NOMIN ATI ON C OMM ITTEE REP OR T REMUNERATION CO MMITTEE REPORT TORM ANNUAL R EPORT 2021 COMMI TTEE REPO RT S 89 AT A GLA NCE Chairman Chri stopher H. Boehri nger Members Ann ette Malm Justad Davi d Weinstei n Composi tion Excep t for the Ch airm an, th e Remunerati on Committee i s c omposed s olel y of i ndepend ent Non ‑ E xecutive D irectors Meetings The Remun eration Committe e had two sch edul ed and five extraord ina ry meetin gs in 2021. Attenda nce b y members a t c ommitte e meeti ngs can be seen on pa ge 76 FOCUS AR EA S CHAIRMAN'S S TATEMENT Th e Renumera tion C ommitte e report de scri bes the acti vities of the R emun eratio n C ommi ttee for th e period 0 1 J anu ary 202 1 to 31 D ecember 2 021. It sets out remunera tion d etail s for the executi ve and non - executi ve direc tors in TORM . It h as been prepa red i n accor dance w ith S chedule 8 of th e L arge a nd M ediu m - S ized C ompa nies a nd G roups ( A ccou nts and R eports) R egula tions 2 008 as a mended (th e " R egul ation s"). The repor t is spl it in to two m ain areas: • Chairman’s s tatement • A nnual r eport on r emun eration The R emun eration P olicy , approved b y the shareh olders a t the A nnual G eneral M eetin g ( AGM ) on 14 April 2021, took effec t from th e date of tha t meeti ng . As of th e date of this A nnual R eport, TO RM plc is in compl iance wi th the req uiremen ts of thi s R emun eration P olicy. Find TORM’s Rem uneration Policy on www.torm. com/inv estors /governa nce The an nual report on remu nerati on provi des detai ls on remunera tion i n th e period a nd a ddition al informa tion requi red by th e regul ation s. The UK C omp ani es A ct 2006 requ ires th at au ditors r eport to the sh arehold ers on certa in p arts of th e D irec tors' R emun eration R eport and stat e whether, in th eir op inion , those pa rts of th e report h ave been properl y prep ared in accord ance wi th the r egul ation s. The pa rts of th e an nual rep ort on remunera tion su bjec t to aud it are in dic ated in th e report. Th e sta tement b y the C h airm an of the R emunera tion C ommi ttee is n ot subj ect to au dit. THE ROL E OF THE R EMUNERATION C OMMITTEE Read more about t he Remunerati on Committ ee’s area of responsibility on page 73 F ind the Terms of Reference fo r the Remuneration Commit tee on www.torm .com/investors/governance COMP LIANC E WITH T HE C ODE The R emun eration C ommittee i s in full c omplia nce with the UK C orporation G overna nce C od e except for provisi on 32. Th e said C od e states th at the B oard of Direc tors shal l estab lish a remun eration commi ttee of ind ependent n on - execu tive di rectors, wi th a mi nim um membershi p of th ree. In addi tion, th e C ha irman of the B oard of D irectors c an on ly be a mem ber if he i s ind ependent on app ointment, a nd h e cann ot chai r the Remunera tion C ommittee. T ORM 's C hairman of th e Board of Direc tors , Chri stopher H. Boeh ring er, has been ap poin ted as ch airman of TORM’s R emu nerati on C ommittee. However, given hi s associ ation wi th th e control ling shareh older and the al ignmen t of in terest regardi ng remu nerati on, th e B oard of D irectors consi ders it a ppropri ate for Chri stopher H. Boehri nger to cha ir the Remu nera tion C ommittee. 80% 7% 4% 3% 3% 3% One T ORM KPI s CEO Remuneration LTIP New Bonus Structure Governance Board Remuneration REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 90 MEETIN GS The C hairma n and t he E xecutive D i rector at tend th e meeting s of the R emunera tion C om mittee exc ept for matters rel atin g to thei r own remun eration. The H ead of G roup H uma n R esources attend s all meeting s and other mem bers of M ana gement may attend when necessa ry. ACTIV ITIES DURIN G 2021 KPIs and new bonus structure In 2021 , a la rge proporti on of the Remu nerati on C ommittee’s time was used discussi ng TORM’s proposed n ew bon us struc ture . The n ew stru cture will better a lign TORM’s f inanc ial performa nce wi th bon us pay - outs to empl oyees. Ou r in tention is to do th is by using selected key KPIs. The Remunera tion Committee will be abl e to use i ts jud gement i n eval uatin g non - financ ial p erforman ce, inc luding the execu tives’ commitm ent to s afety and q ual ity, CO 2 footprin t, diversi ty an d inclu sion, as well as overal l lea dershi p contri buti ons when s etting fu ture perf ormanc e bonu s levels. Success ion and the wider workforc e In ad dition , the Remu nerati on Commi ttee enga ged in discussi on s surroun ding the wider work force remunera tion, s ucc ession p ipeline, a nd in centives, ensuri ng tha t as a c o mpany , TORM creates an environ ment wh ere our m ost tal ented emp loyees a re being recognized and given greater respon sibi liti es. Stress Awareness We were pl eased th at we conti nue to prom ote men tal heal th awaren ess progra ms ac ross TORM , which this year in clu ded our n ew s tress a wa reness prog ram, educ ating ou r manag ement an d casc ading rel evant inf ormation to all employ ees. Stress mi tigati on is an ongoi ng and essentia l pa rt of TORM's val ues. Work from ho me Throug hout th e COVID - 19 pand emic, we h ave supp orted our empl oyees in work ing home, wh ere possible, and in doing so, recogn ized th is as a n opportun ity to f urth er inc rease flexib le work i n the futu re. The perc eption of the remote w ork c oncept h as change d wit h regard s to ope ration al p erforman ce, job satisf acti on an d work - life b alanc e. Going forward , remote wo rk wil l con tinue to f orm part of the w ay da ily operation s are pe rformed i n TORM provi din g more flexi bility than h as previ ously been avai lable. Annual rem uneration polic y reviews The R emun eration C ommittee re viewed the remunera tion p olicy . Their c onclu sion was that n o amend ments to the remun erati on pol icy were req uired at thi s time. APPROVAL On beh alf of th e Remun eration Committee Chri stopher H. Boehrin ge r Chairm an of th e Remunera tion C ommittee REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 91 REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT STATEMENT OF VOTING AT THE AGM Shareholder voting on th e resolutions to approve the a nnual remuneration r eport put to the 2021 AGM and the Directors’ r emuneration policy put to t he 2021 AG M w ere as follows: Annual remuneration report Votes f or Vote s agai nst Total vot es Abstentions Directors remuneration policy Votes f or Vote s agai nst Total vot es Abstentions TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 92 EXECU TIVE D IRECTO R’S AN D CHIEF EX ECUT IVE OFFIC ER’S REMU NERATION Single tota l figure of remuneratio n The tab le below sets out the 2 020 - 21 remu nerati on for Jacob Meldga ard in his roles as Exec utive D irec tor of TORM pl c and Chief E xecuti ve Offic er (CE O) of TORM A/S, a s ubsidiary o f TORM plc . Total remuneration for the financial y ear Adj FIXED P AY ( ) Base Sal ary - Taxable benefits - Pensio n - - - Total fixed remuneration - VARIAB LE P AY ( ) - - - Annual performance bonus - Total variable pay - SINGLE TOTAL FIGURE OF REM UNERATI ON ( ) - Change in remuneration of col le ag ues and Directors chan ge fro m to Salary Benef its Bonus Employee entire group Chief Exec utive Officer Base s alary The ba se sala ry is di scussed and a greed wi th the Chairm an of the Board and th e Remun eration Committee onc e a year . The CEO’s base s alary was reviewed on 24 F ebrua ry 2021 to determi ne th e approp riate sa lary f or the c oming year. Ba se sala ry as of 0 1 January 2020 : DKK 7.0 m. B ase salary as of 0 1 January 20 21: DKK 7.2 8m (U SD 1 . 16m) . In additi on th e CEO rec eives Eu ro 70 t (USD 8 2t) f or his rol e as Execu tive Di rector . The CEO’s base sal ary wa s revi ewed on 07 M arch 2022 to determi ne the a ppropri ate s alary for 2022 . The ba se salary as o f 01 Januar y 2022 has been determined a t DKK 7.39m , the adjustmen t of the sa lary will take effe c t on 0 1 January 20 22 . Taxabl e benefi ts TORM can plac e a car c osting n o more tha n DKK 1m at the CE O’s disp osal. H owever, the CE O has i nstead acc epted an a moun t of DKK 23t per m onth , coverin g the r unning a nd mai ntena nce expe nses as sociat ed wi th a priv ate vehi cle. F or 2021, th e amou nt of D KK 276 t (USD 4 4 t) has b een in cluded in th e sing le figu re amoun t. Other ben efits p rovid ed direc tly i nclud e two newspa pers, a mob ile p hone wh ich m ay be u sed for both bu sin ess and pri vate purp oses, a PC at the C EO’s disposal at hi s home ad dress whi ch may be used for both bu sin ess and pri vate purp oses, in clu ding in ternet access and call charg es. No chang es in a llowa nces a nd benef its are expec ted f or 202 2. Perfor mance bon us 2020 As dis cusse d in the 2020 A nnua l R eport, at the time of issue th e CEO’ s bonu s figure h ad y et to be agreed and instea d the 2020 An nua l Report in cl uded an estimate of DKK 8. 4m (US D 1 . 26m), equatin g to 120% of h is bas e sala ry. After f ina l agreement by th e Remu n eration Committee, the CE O’s bon us fi gure wa s set at D KK 7 .0 m (USD 1 . 14 m), eq uatin g to 100% of his base sal ary. Perfor mance bon us 2021 The Remu nerati on Commi ttee ha s provid ed the C EO with a performa nce c ash bonu s for the f ina ncial year 2021 i n the f ollowin g ranges and b ased on the fol lowing param eters: • Th e ful filmen t of spec ific performan ce metric s set by TORM (up to 70% of the CE O’s bas e salary ). These in clud e but a re not li mited to, RoIC, cost structu re, hi ghest sa fety sta ndard s and environ mental footpr int • U p to 50% of the CE O’s base sal ary ba sed on th e sole di scretion of TORM’s Board of Di rectors In ag gregate, th e maximu m ac hieva ble cash bonu s for the f inan cial year 2021 f or the CE O is equa l to 120% of the C EO’s ba se sala ry in the financia l year 202 1. T he specif ic metri cs and calc ulation method ology f or each of the param eters have be en d etermi ned b y the Boa rd of Di rectors . Bas ed on th e aforesa id method ology , the CE O’s performa nce c ash bonus for 2 021 wa s determin ed to b e a tota l of 100% (6 0% on param eter 1 and 40% on p arameter 2 ) of th e 202 1 fixed ann ual salary o f DKK 7. 28m, re sulting in an amount of DK K 7.28m (USD 1 . 16m ). REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 93 L ONG - T E RM I NCENTIVE PROGRA M – RESTRICT ED SHARE UNITS GRANTED TO THE CEO In ac cordan ce with TORM’s Remu nerati on Poli cy, the Board of Direc tors has a s par t of the L ong - Term Incen tive Progra m (LTIP) gran ted Rest ricted Sh are Uni ts (RSUs) in th e form of restri cted s tock option s to certai n empl oyees. The R SUs aim a t retain ing an d inc entivizin g the emp loyees t o seek to i mprov e the performa nce of TORM an d thereb y the TORM share pric e for the mu tual benef it of themsel ves an d TORM ’s shareh olders. E ach RSU gra nted un der the LT IP enti tles its hol der to ac qui re one Cl ass A com mon sha re, subj ect to vestin g. Below is a descri ption of the RSU s whi ch have n ot expired w ith out exerc ise. L ONG - TE RM INCENTI VE PROGRAM – R ESTRICTED SHAR E UNITS GR ANTED TO THE C HIEF E XECUTIV E OFFIC ER In ac cordan ce with its Remun eration Polic y, TORM h as gran ted the CE O a nu mber of R estricted Sh are Units (RSU s), whic h wer e com municat ed in compa ny anno uncem ent no . 2 date d 18 January 20 16, ann ouncement n o. 10 da ted 2 5 April 2018 and ann ouncement n o. 7 da ted 18 M arch 2 021. Th ere are no performa nce c ondi tions assoc iated with thi s gran t of RSUs. The orig ina l RSUs gra nted to th e CEO i n 201 6 amoun ted to 1,2 76,7 25 and v ested ove r a fi ve - year period, w ith on e fif th of th e gran t amoun t vestin g at each anniversa ry duri ng th e five - yea r period. Th e exercise p rice f or the 2 016 R SUs was D KK 9 6.3. As of 1 Janua ry 201 7, one f ifth of th e origi nal grant, a mountin g to 255,345 , vest ed with an exerc ise peri od en din g 31 Decemb er 2017. None of th ese RSUs were e xerci sed. As of 0 1 Ja nua ry 201 8, one f ifth of th e origi nal grant, amoun ting to 2 55,345, ves ted with a n exerci se period endi ng 31 Dec ember 201 8. None of these RSUs were exercised . As detail ed in announ cement no. 1 0 issu ed on 25 April 2018, th e CEO was gra nted a tota l of 7 66,035 RSUs with ef fect a s of 0 1 Ja nuary 2018, wh ich wi ll vest in equa l instal ments over the n ext three y ears. Th e RSU gran t correspon ds to th e unv ested porti on ( 60%) of the CE O’s origi nal five - year g rant f rom 2016 . It has been ag reed tha t the CE O will not exerci se th e origi nal RSUs. The exerc ise pric e for each RSU is D KK 53. 7, correspon din g to the a verag e price of TORM sh ares duri ng 90 c alenda r days prec eding th e app ro val at TORM p lc’s AGM on 12 April 2 018 plus a 1 5% prem ium. Vested RSU s may b e exerc ised f or a period of 3 60 days f rom eac h vestin g date. As of 0 1 January 2019, one fi fth of the gra nt, amou nting to 255,345 , vested with a n exerci se period endi ng 31 D ecemb er 2019. These RSUs amou ntin g to one th ird of the re - g rant issued on 25 A pril 2018 were exerc ised. In Novemb er 2019, 255,345 RSUs were exerc ised by Execu tive Direc tor Jac ob Meld gaard. Th e total va lue of the RSU all ocation i s calcu lated ba sed on th e Blac k - Sch oles model a nd is includ ed in th e overall cost esti mate fo r TORM’s Lon g - Term Inc entive Program (LTIP) (cf . compa ny announ cemen ts dated 18 Janua ry 201 6, 1 8 March 20 21 and 25 April 2018 ). The val ue of th e 2018 grant, USD 0.9 m, is esti mated taking into a ccount th at as p art of th e gran t the CE O will not exerci se the u nveste d porti on of th e 2016 gran t. The val uati on is ba sed on th e Blac k - Schol es model wi th an exercise p rice of DK K/sha re 53.7, a market va lue of one TORM A - sha re of DK K 49.5 (the closi ng pric e per A- sha re at th e time of a lloc ation and assumi ng 100% vesting ). The sin gle f igure remu nerati on tab le for th e CEO does not in clud e any amoun ts in relati on to the R SU awa rds sinc e, as of th e date ea ch tra nche vested , TORM’s sha re pric e was less th an the exerc ise pri ce. As detai led i n ann ouncemen t no. 7 issu ed on 18 Mar ch 2021, th e CEO w as gran ted a tota l of 2 55,200 RSUs with ef fect a s of 0 1 January 2 022, w hich will ve st in equa l instal ments over the n ext three y ears. Th e exercise p rice f or eac h RSU i s DKK 53.5, c orrespondi ng to the av erage pri ce of T ORM sha res in th e 90 calendar days p recedi ng the pu blica tion of TORM plc ’s 2020 Annua l Report p lus a 15% premium. Vested RSUs ma y be exerc ised f or a period of 360 da ys from ea ch vesting date REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 94 REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT LONG - TE RM INCENTI VE PROGRAM – RESTRIC TED SHA RE UNITS GRANT ED TO TH E EXEC UTIVE D IRECTO R A ND EMPLOY EES Year Gran t of RSUs Gran t of RSUs to Ex.Di r Vesting Period i n years Vesting Period i n years to Ex .Di r Beginn ing 01 -Jan- 17 01 -Jan- 18 01 -Jan- 19 01 -Jan- 20 01 -Jan- 21 01 -Jan- 22 Exerci se period f rom ves tin g Six month s and month s for ExDir Six month s d ays after eac h vest ing da te days after eac h vest ing da te days after eac h vest ing da te days after eac h vest ing da te Exerci se Price kr kr kr kr kr kr Reduc ed du e to divid end p ayment kr kr k r Black - Sc holes mod el, the th eoreti cal m arket val ue USD m USD m USD m USD m USD m USD m Total RSU 's expi red un exerci sed - RSUs exerc ised wi thin 2019 - - - - - RSUs exerc ised wi thin 2020 - - - - RSUs exerc ised wi thin 2021 - - - - Total RSU 's exerc ised b y gran t year - - - - RSU's outs tan ding a s at 31 D ecember 2 021 - - - TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 95 LTIP elemen t of Jacob Meldg aard’ s remunerati on package Grant Date April March RSU LTIP grant ⁾ Exercise price per share DK K DKK RSU grant value ass uming vest ing USD m USD m E ND OF SERVICE GRA TUITY T ORM can termin ate the CEO’s Servic e Agreem ent givi ng 12 mon ths’ n otice to e xpire on the la st day of a month. The CE O can termi nate th e Ser vice Ag reement givi ng six mon ths’ wri tten n otice to e xpire on the la st day of a mo nth. P OST - SERVI CE SALAR Y If the C EO di es duri ng his such po st - service sal ary wi ll onl y be pa id until the da te on wh ich th e employm ent woul d have termi nated as a result of termin ation of th e Servic e Agreem ent. T OTAL PENSION ENTITLEMENTS The Di rectors of T ORM p lc a re not enti tle d to any pensi on con tributi ons from TORM . In a dditi on, Denma rk - based E xecu tive Direc tor Jacob Meld gaard , in hi s role as C EO of TORM A/ S, is n ot entitl ed to a ny pensi on con tributi ons. TAXABLE BENEFITS In gen eral, memb ers of th e Boa rd of Di rectors of TORM p lc d o not recei ve any addi tional benef its. P AYMEN TS FOR LOSS OF OFFICE No pay ments for l oss of offi ce have been made i n 202 1. O UTSIDE APPOINT MENTS The Exec utive D irec tor is ent itled to retai n the f ees earned f rom non - executi ve appoi ntmen ts outsid e TORM . Jac ob Meld gaard wa s app ointed a s a Non - Execu tive Di rector of D an ish Shi p Financ e A/S for which he rec eived DK K 350,000 a nd a s a Non - Execu tive Di rector of SY FOGL OMAD Limited for whic h he recei ved EUR 5,000 f or his ser vic es. Jacob Meldga ard is als o Chair man of Grant C ompass A /S for which he rec eives no f ee but has b een gran ted warran ts ANNUA L BONUSE S AND L TIPS T ORM’s Remu nerati on Poli cy stip ula tes that th e Non - Execu tive Di rectors’ r emun eration cann ot includ e partic ipati on in sh are or warr ant p rograms. T he Non - Execu tive Di rectors of TORM p lc d o not recei ve any part of th eir r emunera tion f rom TORM in sha res or warran ts. The re munera tion for th e Non - Execu tive Direc tors is det ermin ed by th e Board of Direc tors subj ect to li mits in TORM’s Arti cles of Associ ation . Durin g 2021 , none of the Non - Execu tive Di rectors received any part of th eir rem unera tion in shares or warran ts. REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 96 E XECUTIV E DIR ECTOR ’S INTER EST IN THE SHAR ES OF TORM The tab le to the righ t summari zes the total i nterests of the Exec utive D irector i n sh ares of TORM plc as of 31 Decemb er 2021. D uri ng the peri od 01 Ja nua ry to 31 Decemb er no gai ns were made by the Exec utive Direc tor on the e xercise of s hare op tions . No changes took pla ce in the E xecuti ve Director ’ s interes ts between 31 Decemb er 202 1 an d 23 March 2022. D IRE CTORS’ INTERE ST IN THE SHARES OF TORM The tab le to the righ t summari zes the total i nterests of the Di rectors in sha res of TORM plc as of 31 Decem ber 2021. N o cha nges took pl ace i n the D irectors ’ interes ts between 31 Decemb er 202 1 an d 23 March 2022. REMUNERATION TABLE NON - EXEC UTIVE DIRE CTORS The tab le to the righ t summari zes the remu nerati on paid to the Non - Execu tive Direc tors of T ORM in 2021. The fees sh own in clud e any ad diti onal fees p aid in respect of cha irman ships of commi ttees or oth er rol es such as Senior In depen dent D irector. Boa rd Obs erver fees are n ot show n in this rep ort, howe ver , the f ees payab le can b e found in th e Remunerati on Poli cy. REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT DIRECT ORS’ INTERES TS IN THE SHAR ES OF TH E COMP ANY (AU DITED ) Jacob Meldgaard’s Restricted Share Un its Awarded Vest ed no t exerc ised Agreed not to exerc ise Exercised Un vested - - - - - - - - - - - - - - 2021 STATE MENT OF DIRE CTORS' SHARE HOL DING AND SHARE I NTEREST Ordinary Shares as at Jan Ordinary Shares as at Dec Changes from Dec to M ar Ordinary Shares as at Mar Christopher H Boehringer - David Weins tein - Göran Trapp - Annette Justad - - Jaco b Mel dgaar d - 2021 REM UNERATI ON TABLE NON - EXEC UTIVE DIREC TO RS USD '000 Base fe e Commi ttee fees Total DIRECTOR Christopher H Boehr inge r David Weins tein Göran Trapp Annette Justad - - - TORM ANNUAL R EP OR T 202 1 COMMITTE E REP ORTS 97 ASSESSING PAY AND PERFORMANCE In the ta ble s to th e righ t, we summa rize the C hief Execu tive Officer ’s sin gle fi gure remun eration over th e past six years , as well as how our variab le pay plans have p aid ou t in rela tion to t he ma ximum op portun ity. This c an be c ompared to TORM’s p erforman ce sin ce the li sting of TORM p lc, mea sured b y total s hareh older return, c ompared with th e av erage of a selecti on of TORM’s mai n peers i n the i ndu stry an d with the performa nce of the Da nish stoc k in dex OMX . Th e OMX ind ex is a ma rket cap weigh ted ind ex of all stocks listed on Nasd aq i n Copenhagen . The total shareh older retu rn is c alcu lated in USD . REMUN ERA TION COM MIT TEE REP ORT Informatio n provide d in the foll owing part of the Annual Repo rt on remuner ation is not s ubject t o audit AUDIT COMMITTEE REP ORT RISK COMMITTEE REPORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT 6 - YEAR HI STORICAL PE RFORMANCE. T ORM PLC VS P EER A ND THE OM X INDEX FINANC IAL Y EAR REMUN ER ATION FO R CHI EF EXECU TIVE O FFICER 72 71 51 62 56 58 96 106 108 112 134 177 0 20 40 60 80 100 120 140 160 180 200 2016 2017 2018 2019 2020 2021 Peer Average TORM OMX 67% 60% 45 % 117% 100% 100% 1,473 1,626 1,531 2,208 2,307 2,449 0% 20% 40% 60% 80% 100% 120% 140 % 0 500 1,00 0 1,50 0 2,000 2,50 0 3,00 0 2016 2 017 2018 2019 2020 2021 Annua l bo nus ( % earn ed of bas e sal ary) Total remune ration US D '000 TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 98 ANNU AL PERCENTAGE CHANGE IN DIRECTORS’ REMU NERATION The tab le to the righ t shows the perc entage c hang e over the y ear en ded 31 Decemb er 2020 to the y ear ended 31 Dec ember 2021 in resp ect of di recto rs’ remunera tion a nd a verage empl oyee remu nerati on. A s requi red by l egisl ation , directors’ remunera tion i s compa red to the employ ees of TORM plc on a f ull - time equ ival ent bas is. RELATIVE IMPORTANCE OF SPEND ON PAY The tab le to the righ t shows the ac tual expenditu re of TORM on empl oyee pa y an d distri buti ons to shareh olders c ompared to the re tain ed earn ings of TORM. REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT RELATIVE IMPORTANCE OF SPEND ON PAY Expen ditur e USD m Divi dend s paid - - Purchase of outstan ding treasury shares in TORM AS - - - Purchasedisposals of treasur y shares - - Executive Directors remun eration Total Staff costs Retained earnings CHANGE IN REMUNERATI ON OF COLLEA GUES AND DIRECT ORS’ Salary or fees change Benef its ch ange Bonus change t o t o t o t o t o t o Chief E xecuti ve Off icer Mr Christopher H Boehringer N A NA NA NA Mr Da vid W einst ein N A NA NA NA Mr Göran Trapp NA NA NA NA Ms Annette Justad - NA NA N A NA Collea gues ent ire gr oup - 3 5 1 4 ⁾ The comparative figures used to determine the change take into consideration the CEOs salary and benefits ⁾ Other benefits provided relate directly to company car benefit ⁾ change in DKK for salary and Executive Directors fees is taxable benefits is and annual bonus is ⁾ Due to Christopher H Boehringer and David Weinstein changing roles on the Risk Committee the fees change in EUR are - and respe ctively ⁾ Due to Annette Justad completing her first full year the Fees change in EUR is TORM ANNUAL R EPORT 2021 COMMITTE E REP ORTS 99 REMU NERATION POL ICY The TORM plc Rem unera tion Poli cy ap proved a t the 20 Apri l 2021 AGM remained unchanged durin g 2021. In ac cordan ce with the UK Corporate G overn ance Code, TORM ’s Remu nerati on Poli cy a nd prac tices are design ed to su pport the b usin ess strat egy an d promote TORM ’s lon g - term su staina ble suc cess. Th e Remunera tion C ommittee wi ll contin ue to c onsid er the approp riaten ess of the R emun eration Polic y annu ally to ensure tha t it con tinu es to ali gn with the bu siness strategy. At thi s poin t, there is no i nten tion to revi se the Remun eration Polic y more of ten tha n every third year, u nless req uired due to chan ges to regu lation s or legislat ion. Find TORM’s Rem uneration Policy on Fin d TOR M’s Remuneration Policy on www.torm. com/inv estors /governa nce 2022 RE MUNERA TION The Remun eration Polic y ag reed at the 20 April 2022 AGM will be im plemen ted for the 2 022 fi nanci al y ear . There are no fores een c han ges to the p olic y. A daptat ion and pu blicat ion The Board of Di rectors must revi ew th e Remun eration Polic y at l east onc e a year. Any ch anges to th e Remunera tion Pol icy must be ad opted by the Board of Di rectors an d ap proved by the sha rehold ers at an A GM. TORM’s Re munera tion R eport wi ll b e includ ed in TORM’s an nual reports fo r all f inanc ial yea rs and will conta in inf ormation on remu nerati on pa id to th e Board of Direc tors and Execu tive Ma nagemen t. A PPROVAL O n behal f of the Remun eration Commi ttee Chri stopher H. Boehrin ger Chairm an of the Remun eration Commi ttee 23 March 2022 REMUN ERA TION COM MIT TEE REP ORT AUDIT COMMITTEE REP ORT RISK COMMITTEE REP ORT NOMINATION COMMITTEE REP ORT REMUNERATION COM MITTEE REPORT TORM ANNUAL R EPORT 2021 OTHER 100 SHARE IN FORMATI ON Excha nges Nas daq C PH a nd NY ISIN (CPH) GB BZCN K CUSIP (NY) G Tickers TRMD A and TRMD Year h igh (TRMD A) DKK ( Ma y ) Year low (TRMD A) DKK ( Jan ) Number of A s hares (end ) Number of treasury s hare s F INANCIAL CALENDAR 2022 20 April 202 2 , Annu al Gen eral M eeting 11 May 202 2 , Fi rst qua rter 202 2 results 17 August 2 02 2 , Fi rst hal f 202 2 resul ts 09 November 202 2 , Ni ne mo nths 202 2 resul ts I NVEST OR RELATIONS CON TACT Andrea s Abil dgaard - Hein Group Treasury and IR Phone: +45 391 7 9339 Ema il: i [email protected] om Jomkwa n Pal itwanon Investo r Relation s Phone: +45 391 7 9 331 Ema il: i [email protected] om A NALYST COVERAGE Danske Ba nk Håvard Sjursen Lie Phone: +47 40 47 4443 Ema il: hvli@da nskeba nk. com Clarksons Frode M ørkedal Phone: +47 22 01 63 27 Ema il: f rode.morkeda l@c larksons.c om Everco re ISI Jonat han B. Chapp ell Phone: +1 212 - 497 - 08 27 Ema il: j onatha n.chapp ell@everc oreisi.c om Fearnle y Securities Peder Nic olai Jarlsb y Phone: +47 22 93 64 71 Ema il: p n.jarls by@fea rnley s.com Kepler Cheuvr eux Anders Red igh Karl sen Phone: +47 23 13 9 068 Ema il: a rkarl sen@kepl ercheuvreux.c om Skandina viska Enskild a Banken AB Ulrik Bak Phone: +45 332 8 3314 Ema il: ul rik.bak @seb.dk COMMUNICATION T O I NVESTORS To ensure c onsi stent com muni cation to all investors, qua rterly an d annual finan cial statem ents an d other stock exc han ge ann ouncements a re the mai n veh icl es of commu nic ation . TORM main tains reg ula r capital market c ontac t throug h ana lyst an d indu stry present a tions, i nvesto r meeti ngs and con ferenc e call s. Investo r meetin gs are p rimar ily held in Copenh agen and in the ma jor Eu ropean and US f inancia l cen ters. In 202 1 , TO RM issu ed a tota l of 32 annou nceme nts to the stock excha nge. Th ese an nouncemen ts are availab le in Englis h ve rsions at https:/ /ww w.torm.com/ investors /an nounc ements T hree week s prior to the pu bli cation of quarterl y an d annu al finan cial statements, commu nica tion is l imited to issues of a g eneral natu re, and in tha t period n o indivi dual investor m eetings are h eld. SHARE PRI CE PERFORM ANCE In 202 1 , TORM had an aver age o f 78,5 60,048 A- shares ou tstan ding . The av erage da ily trad ing volume on Nasd aq in Copenha gen has been app roximatel y 2 12 t shares an d app roximately 90 t shares on Nasdaq in New York. D uring 2 02 1 , the sh are pri ce in creased from DKK 45 .3 to DKK 51 .7 on Nasdaq in Co penhagen and from USD 7. 3 to USD 8 .0 on Na sdaq i n New Y ork. Throug hout 2 02 1 , TORM has been p art of th e MidCap segment on Nasda q in Copenh agen. 202 1 sha re price developm ent is a vail able a t www.torm .com/i nvestors/ share . INVESTO R INFO RMATIO N Other TORM ANNUAL R EPORT 2021 OTHER 101 CHANGES T O T HE S HARE C APITAL As of 31 D ecemb er 20 20 , TORM pl c’s total share capital w as USD 748 ,559.31 cons istin g of 74,855,929 A- shares of USD 0.01 each, one B- share and one C- share b oth of USD 0.01 . During 2021 , TORM has in creased its s hare c apita l by 6,377 ,340 A- shares a s a resul t of 409 ,427 numb er of Restricted Sha re Uni ts being exercised and issuance of 5,9 67,913 shares to Team Ta nkers D eep Sea L td. in excha nge for 8 MR vesse ls acquisitio n. SHARE C APITAL As of 31 D ecemb er 2021 , TO RM’s sh are ca pita l amount ed to USD 81 2,332.71 d ivid ed into 81 ,233,269 A- shares of USD 0.01 eac h, one B - share of USD 0.01 a nd one C - sh ar e of USD 0.01. A total of 81,2 33,269 votes are attac hed to th e A - sha res. On ly th e A - sha res are admi tted to trad ing and off icial listin g on Na sdaq in Copen hagen an d Nasd aq in New York . A s of 31 Decemb er 2021, TORM holds 493,371 as treasury shares. Each A - share c arries on e vot e on al l resolu tions proposed a t the G eneral Mee tings of the Com pany except for the el ection or re moval of the B - Di rector. Unti l the Th reshold Date (th e first ti me at w hic h OCM Njord H oldin gs S.à r.l . Oaktre e an d its af fili ates cea se to benef ici ally own at lea st one th ird of th e issu ed shares) , the sol e B - sha re has one vote a t the G eneral Meetin g and sp ecial admini strative rig hts, in clud ing the rig ht to app oint th e Depu ty Cha irman of the Boa rd of Di rectors. Af ter the Thresh old D ate, al l Di rectors can be appoi nted or remo ved b y pass ing an ordina ry resoluti on. Th e B - shareh older a lso ha s the rig ht to appoi nt one Boa rd Observe r. Purs uan t to the Ar ticl es of Assoc iation , no more than on e B- share c an b e issued by th e Company . The Comp any can only take certa in ma terial acti ons relati ng to su permaj ority ma tters and R eserved Matters ( as spec ifi ed in its Artic les of A ssocia tion) if either ( i) th e majori ty of th e Direc tors (wh o must incl ude the Ch airm an and the B - D irector) app rove the releva n t acti on or (i i) (a ) in ca se of a su permaj ority acti on, if the B - Direc tor did not app rove su ch ac tion or atten d the rel evant B oard meetin g, suc h acti on is approved by a s hareh older resol ution approved by at least 86% of th e votes c apa ble of bei ng c ast on such superma jority acti on or (i i) (b) in cas e of a Reser ved Matter a ction , if th e B - Direc tor did not ap prove su ch acti on or atten d the rel evant Board mee ting , such acti on is a pproved by a sha reholder res olu tion approved by at l east 70% of the votes c apa ble of bein g cast on s uch Reserved M atter ac tion. Unti l the Th reshold Date, the sole TORM C - sha re has 350,000,00 0 votes at the G enera l Meeti ng i n respec t of certa in Sp ecif ied Matters only , inclu ding th e electi on of memb ers to the Boa rd of D irectors of TORM (includ ing the Chair man, but e xclud ing the B - Direc tor) an d certai n amen dments to th e Arti cles of Associ ation . The sole C - shareh older, OC M Njord Holdi ngs S.à r.l . (“Oa ktree”) , mu st conti nue to h old the C- share a s long as it or i ts aff ili ates ben eficial ly own at least on e third of the i ssued shares (“Thres hold D ate”) . Acc ordingly, O aktree may co ntinu e to opera te as th e Compa ny’s c ontrolli ng sha reholder, ev en if Oaktre e does not own a majori ty of t he A - sha res. Pursu ant to the Artic les of A ssocia tion, n o more t han one C - share can be issu ed by the C ompany . A nu mber of th e A - shares a re is sued su bjec t to restric tions on tran sfer (“R estric ted Sha res”) i mposed by US sec uriti es law s. These Restricted Sha res may only be tran sferred pu rsuan t to an eff ective registra tio n sta tement f iled with th e U.S. S ecuri ties and Exchang e Commis sion or an exemption from th e registra tion requ iremen ts of the Un ited Sta tes Securi ties Ac t of 19 33 as ame nded . There are n o speci fic restri ction s on the s ize of a h oldi ng of the A - shares n or the transf er of the A - sha res (excep t for th e Restricted Sha res as deta iled a bove), w hic h are both governed b y the g eneral provi sions of the Arti cles of Asso ciation an d prev ailing le gislatio n. The B - sh are can only b e transf erred to ( i) a noth er trustee ( it is curren tly h eld by SF M Tru stee Limi ted on beha lf of the mi nori ty INVESTO R INFO RMATIO N TORM ANNUAL R EPORT 2021 OTHER 102 The C - sh are is h eld b y Oaktree an d ca n only be transf erred (i ) to one of Oak tree’s af fil iates or (i i) to the Comp any if the C - sh are is rede emed or ( iii ) any person wh o has acqui red 100% of the i ssued A - s hares. The C - sh are ca nnot be en cumbered . Further d etails o n the tran sfera bility, p lease se e the in the A rticle s of Ass ocia tion o n www.torm. com/inv estors /governa nce The B - sh are and the C - sh are do n ot have a ny ri ghts to receive d ividen ds or oth er distri buti ons wh ich th e Company de cides t o pay. The Compan y must red eem the B - sh are and the C - sh are at th e same time as s oon as possi ble af ter the Th resho ld D ate for U SD 0.01 each . Once red eemed, the B - sh are an d the C - share must be cance lled , and no further B - sh ares or C - shares c an b e issued by th e Company . Pursua nt to TORM ’s Arti cles of Associ ation and auth orities g ranted at TORM p lc’s AG M on 15 March 2016 ( 2016 AG M) and updated auth orities g ranted a t TORM pl c’s AG M on 1 4 April 2020, the B oard of D irec tors was gra nted au thori ty to all ot sha res or righ ts relati ng to sh ares for c ash free from p re - emption up to a n agg regate n ominal amount of USD 5,073,29 3 compri sing : • U p to an a ggrega te nomi nal amount of USD 686,14 2 in co nnect ion wit h th e Excha nge O ffer (o f which USD 6 22,988 .48 nominal value was i ssued (62,2 98,84 6 A - shares, on e B - sh are an d one C - share) ) duri ng the peri od end ed 31 D ecember 2016. As the Exc hang e Offer h as been compl eted, no fu rther sh ares wil l be is sued u nder th is auth ority • U p to an a ggrega te nomi nal amount of USD 1,372,2 83 which can be offer ed in co nnect ion wit h any proposed i nitia l publ ic offerin g of eq uity securi ties on c ertain US stock exch anges, of w hic h none wa s issu ed from 1 Janua ry 2020 to 31 D ecember 2 021, l eavin g a curren t au thority to issue u p to 137 ,228,300 A- sh ares • U p to an a ggrega te nomi nal amount of USD 2,477 ,026 i n gene ral eq uity is sues includ ing warran ts, con vertible d ebt a nd g eneral eq uity with th e issu e bein g at fai r valu e as determi n ed by the Board of Di rectors, of wh ich none wa s issued from 1 Ja nu ary 202 0 to 31 Dec ember 2021 , leavi ng a cu rrent au thority to issu e up to 24 7,702,6 00 A - shares. • U p to an a ggrega te nomi nal amount of USD 777 ,625 to Di rectors, offi cers or emp loyees of the Com pa ny or any of its su bsidi aries. SHARE PREE MPTION GRANT Au th ori ty Date Value Granted A pril USD Utiliz ed May USD Utiliz ed March USD Rema ining USD Furth er, the Boa rd of Di recto rs receiv ed au thoriza tion at the 202 0 AGM to make m arket pu rch ases up to a maximum of 7 ,476,065 A - shares wi thin a certa in p rice rang e. SHARE RE PURCHASE GRAN T Granted April Repurchase period January to Decem ber Rema ining Appr ox of TORM s share capital excluding treasury shares All of the ab ove auth orities t o issu e and purch ase shares exp ire on 14 Apri l 202 5. Detai ls of TORM ’s employ ee sh are sch emes an d any righ ts attac hed to th e shares un der these sc hemes are set out on pag es 89 - 99 of th e Direc tors’ Remunera tion R eport. The U.K . Takeove r Code, issued and admin istered by the U.K. Takeov er Panel , appl ies to the Comp any SHAREHOL DERS As of 31 D ecemb er 20 21 , TO RM h ad approxi mately 10 , 787 registered sha rehold ers rep resen ting approxi mately 85 % of the share c api tal. In 2020 , TORM has b een sub ject to UK Dis closu re Guida nce an d Trans pare ncy Rules under w hich INVESTO R INFO RMATIO N TORM ANNUAL R EPORT 2021 OTHER 103 shareh olders h ave a 3% ownersh ip n otifica tion requi rement. From 1 Jan uary 2021, a s a con sequenc e of Brexit , TORM has c hang ed its home m ember sta te in rel ation EU’s Prosp ectus R egul ation and Transp arency Direc tive to Den mark. T his i mplies th at shareh olders n ow ha ve a 5% ow nershi p noti fica tion requi rement. Based on n otific ation s receiv ed during 2020 an d 2021 to date OCM Njord Holdi ngs S.à r.l. (Oak tree) is th e only shareh older wi th more th an 5% of the sh are ca pita l hold ing 66 % of th e share c apita l . As of 31 D ecemb er 20 21 , TO RM’s trea sury sh ares represen ted app roximatel y 0. 6% of th e total sh are capita l. Th e C - sha re is hel d by Oak tree, and th e B - share i s held by th e Minority Trustee , SFM Tru stees Limi ted, on b ehalf of TORM’s n on - Oak tree shareh olders. Th e B - sha re and th e C - sh are hav e certai n votin g rig hts. At the end of 20 21 , th e mem bers of th e Boa rd of Direc tors held a total of 297 ,135 sha res, equi valen t to a total ma rket ca pital izati on of DKK 15,361 ,880 or USD 2,341,322 . The Board of D irectors and c ertain employ ees are l imited to tra din g shares du rin g a four - week peri od after the pu bli cation of fi nancial report . TORM’s Tra nsfer Ag ent is C ompu tersha re Inc, D ept CH 19 228, Pal atine, IL 60055, U SA. DISTRIB UT ION POLICY TORM in tends to d istrib ute 25 - 50% of n et inc ome on a semi - annual basis. The D istribu tion Pol icy wi ll be reviewed p eriod ica lly, ca refully c onsideri ng TOR M’s capita l struc ture, stra tegic developmen ts, f uture oblig ation s, market tren ds an d sh arehold er interests . TORM gen erates a n et loss of USD 42 .1m du ring 202 1. In li ne with the Dis tribu tion Polic y, th e Board of Direc tors ha s dec ided not to rec ommend any distri buti ons for 202 1. DUAL L ISTIN G AND TR ADIN G TORM’s A - sh ares ar e listed on Na sdaq in Copenh agen und er the tic ker TRMD - A and on N asdaq in New York und er the tic ker TRMD . TORM’s A - shares c an mov e freely b etween th e two Na sda q exch anges. WARRANTS AND RESTRICTED SHARE UNITS As of 31 D ecemb er 202 1 , 2, 372,887 RSUs were outstan ding w ith 1 ,046,510 bei n g exerci sed duri ng 202 1. The sp ecif ic terms f or th e RSU’s ar e furth er descri bed in the Remu neration Committee Report on page s 89 - 99 . In ac cordan ce with TORM’s Remu nerati on Poli cy, the Board of Direc tors has a s par t of the L ong - Term Incen tive Progra m (LT IP) gran ted certa in emp loyees Restricted Sha re Uni ts (RSUs) in th e form of restric ted stock op tions. Th e RSUs aim at retai nin g and ince n tivi zing the em ployees t o seek to impr ove th e performa nce of TORM an d thereb y the TORM share pric e for the mu tual benef it of themsel ves an d TORM ’s shareh olders. E ach RSU gra nted un der the LT IP entitl es its hol der to a cqu ire one C lass A common share, su bjec t to vesti ng. For further inf ormation ab out investor re lations, pleas e visit www.to rm.com/i nves tors/ INVESTO R INF ORMATIO N TORM ANNUAL R EPORT 2021 OTHER 104 Why? Why is it i mportant to engage How? How did Management and Direc tors engage? Outcomes and actions What wa s the impact of the engagem ent? SHAREHOL DERS Transparent and open s hareholder communi catio n is expec ted to sup port the markets’ valuation of TO RM shares and future access to capital i n the equity markets. To ensure consistent co mmunication to all investors, quarterly and annual financial statements an d other stock exchange anno uncem ents are the main vehic les of co mmun icat ion. T OR M maintains regular capital mark et contact through analyst an d industry presentations, investor meetings and conferenc e calls. TORM’s management an d the Directors have a co n tinuo us foc us on the lev e ragi ng on the i nt eg rate d One TO RM pl atf orm , TO RM ’s capital structure and T ORMs ESG agenda in support for short term and long term RoIC generation with the aim of maximizing the long - term va lu e fo r TOR M’ s sh a reh old er s. TORM i ssued 3 2 stoc k excha nge a nnou ncem ents dur ing 2 021. Th e COVID - 19 pandemic cha llenged the p ossibility to c onduct physical meeti ngs wit h inves tors a nd inst ead T ORM or ganize d sever al co nferenc e calls and presentations via digital platforms with investors t hrough e.g. analysts. Further, TORM was r epresented on a number of industry panels. In connection with the d evelopment of TOR M’s updated ESG reporting, equity analysts and i nvestors have been consulted a bout their requirements for the report ing of 2021. TORM is active ly communicating initiatives that are a ffecting leverage and li quidit y and are c ontinuo usly conf irming TORM’s f ocus on the One TORM platform throu gh quarterly and annual pr esentations. EMPLOYE ES TORM’s employees are fundamental to enable the Company to do business, and their cont inue d en gagem ent i s an i ntegr al part of the decision - making across the organization. The Board s upports an open dialogue between the Bo ard and the workforce. The Board oversees the mechanisms we have in place to help ensur e that em ploy ees ca n rais e any mat ter s of c oncer n, how s uch matters are considered an d, whe n necessary, investigated, through the whistleblow er facility. Two employee - elected representatives atte nded all Board meeti ngs as o bservers , Th e curre nt obser vers include o ne of fice - bas ed empl oyee and on e sea - based employ ee. Obser vers ar e Since 2006, TORM’s Bo ard of Directors has provided a whistleblower facility with an independent law yer as part of the internal control system. Read m ore on page 44 The observers on TO RM’s Board al low TORM’s employees to have a direct line of questioning to and receive feedback from t he Board. Full details of attendance ca n be found on pag e 76. ENGAGE MENT AND D ECISIO N - MAKI NG The followin g informat ion compr ises our section 1 72 stateme nt, setting o ut how, in per formi ng their dut ies over the course o f the year, Directors have had regar d to t he matters set o ut in sectio n 172(1) (a - f) o f the UK Co mpanies Act 2006. We have int egrat ed our r eporting o n how our stakeho lders h ave been c onsidere d in terms o f our busin ess model a nd gov ernance thro ughout t his report. The Bo ard of Dir ectors o f TORM consider s, both indivi dually and together , that they have acted in th e way the y consid er, i n good faith, would be mo st likely t o promo te the success o f the TORM for the bene fit of it s members as a who le during the year ende d 31 December 2 021 TORM ANNUAL R EPORT 2021 OTHER 105 Why? Why is it i mportant to engage How? How did Management and Direc tors engage? Outcomes and actions What wa s the impact of the engagem ent? TORM regards responsible behavior as a central part of the Co mpany, our business and th e minds et of o ur peo ple. permitted to participate but are not permitted to formally vote on matters submitted to a vote. The Board receives and follows up on t he Employee Engagement Survey performed twice a year. Throu gho ut the C OVID - 19 pan demic, t he Com pany has ens ured that every employee is p rovided with the required equipment to work s afely fr om ho me whe n re quired. In 202 1, w e co ntinu ed o ur bi - an nual real time data e ngagement surv ey wh ich we int rodu ced in 2 019. Mo re t han 9 0% o f al l shor e - base d e mploy ees r espo nde d to this s ur vey. Read abo ut TO RMs engag ement su rvey on page 41- 42 Throughout t he COVID - 19 pan demic , we have sup port ed o ur employ ees to w ork fr om ho me, w here po ssible, and r ecogni zed t his as an opportunity to furth er increase flexible working in t he future. Going forward, remote wo rk will continue to for m part of the way daily operat ions are perfor med i n TO RM pro vidin g mor e fle xibilit y than h as pr evio usly b een a vaila ble. R ead more a bout o ur peo ple o n page 41- 42 SUPP LIER S & CUSTOMER S Managing the relationship w ith suppliers and customers is a n integral part of the way TORM c onducts i ts business. The COVID - 19 pand emic h ighli ghte d the import anc e of maintaining a dialogue as w ell as a good relationship with both su ppliers and customers. At the beginn ing o f the C OVID - 19 pand emic, T OR M revie wed t he supplier chain to search for critical vendors, ensuring that a dialogue took place to p re - empt any unforeseen problems that might occur. Beyon d nat iona l and i nter nation al r egulat ion, T OR M’s lar g est customers have their own compliance criteria that TO RM and other product tanker operators have to com ply with. Ensur ing qualit y i n ever ythi ng T ORM do es, is par t o f the one TORM KPI Framework. W ithin this framework, t he Board includes a Tradability KPI ensuring that TORM vessels are av ailable to meet our custome rs’ demands. TORM encourages fee dback from its customers an d suppliers. The Board’s pre - emptive actions enabled TORM to ensure smooth continuation of operations thro ughout 2021. TORM has a high degre e of a ppro val by oil majors and r egu larly r ece ives feedback from our custo mers. TORM utilizes this feed back in solving future logistical demands, understanding our custom ers’ difficulties and requirements and to help resolve issues each tim e they are enco unter ed. Read about more detail on how TORM meets customers’ requ irem ent s on pa ge 37 - 39 TORM’s m odern and we ll - maintained fleet with most of the vessels being scrub ber - fitted further p rovides TORM and its customers with enhanced flexibili ty as well as reduced fuel costs. 2021 proved to be ano the r chall engi ng year , part icularly on supply chain availability and op t ion s . Despite this TORM’ s sup plier r elatio nsh ips an d regional approach , mea nt tha t no off hire w as s uffere d by our fleet d ue to unava ilabi lity o f crit ical s pares . LEND ERS Strong relationships with our banks, finan cial i nstit utions and investors supports the Company’s ability to be financially flex ible . TORM main tain s an ongoing dialogue with sev eral fund ing providers. TORM is engaged with lenders and potential lenders for being able to fund vessel acquisitions. TOR M is also in dia logue with leasing providers for operational lease fund ing o f vesse l acq uisit ions a nd for sale and lease back transactions in order to m itigate stranded asset risk. TORM entered into sev eral financing agreements to f inance numerous 2 nd hand vessel acquisition s to allow the Compa ny to continue the fleet renewal program. Several of the acquisitions and some of the sale and leaseback transactions entered into during 2021 were structur ed as operational leases securing TORM’s option to rede liver the asset to the lessor at the end o f the leas e. TORM ANNUAL R EPORT 2021 OTHER 106 Why? Why is it i mportant to engage How? How did Management and Direc tors engage? Outcomes and actions What wa s the impact of the engagem ent? TORM is engaged wit h funding providers i n order to understand ESG risks related to financ ing in order to be an attr active and transparent borrower. REGUL ATO RS As a company incor porated in the UK and liste d on Nas da q both i n Copen hage n and New York, the Compa ny must ensure that the high standard s requi red by the loc al regulatory bodies are me t. Through close dialogue wit h Management, its co mmittees and through its compliance syst ems, the Board e nsures that the Company remains u p to date with the latest re gulatory changes. Examples of matters d iscussed this year by the Boar d or the committ ees include : • IMO re gulat ions on C O 2 emiss ions • Danish Shipping an d the Charter for more wom en in shipping • Mæ rsk McKinney M ø ller Center for Zero Carbon Shipping • The Modern Slavery A ct TORM’s Business Principles, ensure th at TORM is always in compl iance wit h legis latio n an d lives up to the com mitme nt to respo nsible bus iness pract ices . See pages 32, 44, 47 TORM’s Corporate Social Responsibility Statement and Corporate Governance statement www.torm.co m/about TORM’s Modern Slavery Act Statement www.modernslaveryregistry.org Read about more T ORM’s participation in the Da nish Shipping on pages . 35 ,4 3 ,72 and th e C entre fo r Zero Carbon S hippi ng see page s 27 ,3 5, 40 COMMUNITY & ENVIRO NMENT TORM remains co mmitted to taking an active role in caring for co mmunities and our environment. It is not just our shared duty, but o ur s hare d res pons ibilit y. Therefo re, T ORM co ntinues the w ork to combat carbon, sulfur and other emissions and remains committed to enabling quality education, as this is a matter of concern for TOR M and it s e mploye es. W e bel ieve t hat by hav ing all involv ed st akehold ers wor king toge th er o n t his , g rea t re su lt s c an be achi eved . TOR M is e ngaged in s everal loca l an d globa l init iati ves su pport ing the differen t communi ties in w hich the C ompany ope rates and also the overarching cli mate issues faced by the world. Di fferent initiat ives inclu d e our ed ucation foundation, our comm itment to the UN SDGs 4 a nd 13 and our climate e ngagement supporting initiat ives . TORM has set a target to reduce its re lative CO 2 emissions by 45% by 2030 compared to 2008 and be climate neutral by 2050. For information on how TORM Phi lippin es and TORM India’s Education Foundation ha ve been upli fting and supp orting the educat iona l dev elop ment a ctio ns in the co mm unity s ee pa ge s 45-46 . To see how TORM is actively involved in various industry collaboration s supporting our ambitious journey to achieve our 2050 environmental target of zero CO2 emissions from our operating fleet see pages 27 ,3 5, 40 . To support TORMs ambitious CO 2 tar get TOR M mana gement will be measured on achieving it. You can read m ore ab out TOR M s ES G jour ney fro m page 32 . TORM ANNUAL R EPORT 2021 OTHER 107 The Di rectors are p leased to p resent the A nnu al Rep ort on the a ffa irs of th e TORM Grou p for 2 021, in clu ding the fi nanci al statem ents an d the au ditor’s repo rt. Other di sclosu re requi rement s, whi ch f orm part of the Direc tors’ Report , are i ncl uded in other sec tions of this Annua l Report. D etail s on in formation in corporated by referenc e are g eneral ly set o ut un der the rel evant topic s in th e Direc tors’ Repo rt. TORM’s sectio n 172 statement can be found on pages 104 - 106 . RESPONSI BILI TY STATEM ENT As requi red un der UK - adopted Internation al Acc ounting Sta nda rds a statemen t made b y the Boa rd regardi ng th e prepara tion of the fi nanci al sta tements . TORM’s responsi bility statement can be f ound on page s 11 0- 111 . GOING CONCERN TORM’s going concern statem ent can be found on page 63. C ORPORATE G OVERNAN CE STATEM ENT The Corpora te Gov ernan ce Statemen t settin g out h ow the Comp any complies with th e Code, a nd wh ich incl udes a desc ripti on of th e main features of our intern al c ontrol an d risk managemen t arran gements in relati on to the f ina ncial rep ortin g proc ess . Find TOR Ms Corp orate Go vernan ce Statem ent www.torm. com/inv estors /governa nce A descript ion of the com positi on and operat ion of the Board and its Committe es is s et out on pag es 73 - 76 . Find the UK Corpo rate Gove rna nce Code www.frc.o rg.uk OTHER INFORMATION INCLUDED IN THE STRATEGIC REPORT The “Strat egic Report” set o ut on p ages 16 - 30 provi des a review of TORM ’s opera tion s in 2021 and the potenti al fu ture dev elopmen ts of those operati ons. Detai ls on g reenhou se gas emi ssion s are in clud ed in the “Strat egic Report” on pa ge 16 - 30 , an d detai ls on TORM’s gen eral p olic y rela ting to rec rui tment, trai nin g, career dev elopm ent an d disab led empl oyees are included on page 43 . Information on ho w the Direc tors ha ve had reg ard to the need to foster the Company’s bus iness relationship with suppliers, customers, and other stakeholders i s set out on pages 104 - 106 . DIRE CTORS AND T HEIR INTERE STS The Directors of the Comp any who served during the financial year 2021 and up t o the date of signing the financial statements can b e found on page 75 . The rules relating to the appoi ntment and replace ment of Di rectors and Direc tors’ p owers can be found on TORMs Articl es of Ass ociation . Details of Di rectors’ interest s in the Company’s is set out on pages 96. INDEMNIFICATION OF DIRECTORS AND INSURANCE TORM ha s not gra nted a ny indemn ity f or the ben efit of the Di rectors bu t has a genera l Di rectors’ an d Off icers’ Lia bility In suranc e and a Pu blic Offeri ng of Sec uriti es Insura nce coveri ng th e Prosp ectus a nd th e Exchan ge Offer doc umen tation related to the Co rporate Reorgan izati on. REQUI REMENTS OF T HE LISTI NG RULE S TORM plc is liste d on Nasdaq in Copen hagen and Nasda q in New Y ork. The on ly l istin g rule req uiremen t regardi ng th e conten t of th e Annua l Report i s that TORM’s An nual Report must c omply with th e provisi ons of th e UK Comp anies Act, includin g provisi ons for E EA - l isted c ompan ies. With ef fect f rom 1 Ja nuary 2021 , TORM pl c el ected Denma rk as i ts Home Stat e un der the Tran sparen cy Direc tive rul es, due to the i mplica tions of Brexit. Accordingly, TORM plc has co mplied wit h the gui delines l aid dow n in th e Public Statemen t from The Europ ean Sec uriti es and M arkets Auth ority ( ESMA 32 - 61 - 1156) c oncernin g the ap plicati on of tra nspa rency requi rements by UK issu ers wi th sec uriti es admi tted to tradin g on reg ulated markets in th e EU un der Artic le 4 of the Tra nspa rency Directi ve, to en sure comp lia nce and transparen cy in this an nual report. SHARE CAPITAL More i nformatio n on TORM’s s hare capi tal can be found on page 101 . DIVID ENDS In li ne with the C ompany’s D istribu tion Pol icy , the Board of Direc tors has d ecid ed to rec ommend th at no dividends be pa id for 2021 . D IREC TORS ’ R EPORT TORM ANNUAL R EPORT 2021 OTHER 108 SUSTAINABILITY Informa tion a bout th e Compa ny’s a pproach to sustai nabi lity risk s and opportun ities i s set out on pages 32 - 54 . Also inclu ded on these pa ges are de tail s of our g reenhou se gas emi ssi ons. FINANCIAL RISK MANAGEMENT The Comp any uses fin ancial instru ments to man age risks rel ated t o freigh t rate s, bu nker fu els, in terest rates and foreign exchang e. For fu rther in formati on on the use of f inan cial in strumen ts, plea se refer to N ote 22 to the fi nanci al statem ents. Det ail s on f inancia l risk s are provided in N ote 21 to the fin anci al statemen ts . ANNUAL GENERAL MEETING TORM’ s nex t Annual Gener al Mee ting (AG M) will be held on 20 Apri l 202 2. The notic e of th e AGM, i nclu ding the comp lete propo sal s, will be ava ila ble on TORM ’s website, www .tor m.com pri or to th e meeti ng. RETIREMENT, REAPPOINTMENT AND APPOINTMENT OF DI RECTORS In li ne with the C ompany’s A rticl es of Assoc iati on on fil e at Compa nies Hou se, each Direc tor, apa rt from the B- Direc tor, must r etire a t the en d of th e second AGM after h is or her a ppoin tment or last r eapp ointmen t unless h e or sh e has b een rea ppoin ted at th at AG M. The Comp any ’s Direc tors were r e - elected at th e 2020 Annua l Genera l Meeti ng and will th erefore be du e to retire i n 2022 . The ter ms and cond ition s of the appoi ntmen t of Non - E xecutive Di rectors ar e set out in the Comp any 's Memoran dum of Ter ms an d Con dition s which, in accordanc e with the U K Compa nies Act 2006, C hapter 5 , Section 228 , is ava ilab le for i nspec tion from the C ompan y Secreta ry. SHARE CAPITAL Informa tion a bout th e Compa ny’s sh are ca pital is set out in Investor inf ormation on pa ges 101 - 1 03 . R ESEARCH AND DEVELO PMEN T The Comp any continu es to focu s on opti mizati on, but does not al loca te specif ic cos ts to resea rch and developm ent. GROUP POLI CY COMPLI ANCE TORM ha s impl emented a compreh ensi ve compl ianc e program to ensu re that th e Com pany remain s in complia nce with rules a nd reg ulation s rela ted to ou r busin ess acti vities w orldwi de. As pa rt of th is compl iance prog ram, al l empl oyees are requi red to docu ment tha t they a re aware of and have rec eived a ll train ing requ ired i n rela tion to eac h comp liance a rea. COMPAN Y BRANCHES The TORM Group h as of fices in Den mark, Ind ia, th e Phil ippines, Si nga pore, the U K an d the U SA. Fu rther detail s on th e Compan y's g lobal pres ence a re set out on pa ge 6 . POL ITICAL DO NAT IONS No poli tica l donati ons were made d uring 2 021. SIGNIFICANT SHAREHOLDINGS Detai ls on si gnific ant sh areholdin gs are set out in the “Investo r Informa tion” sectio n on p age 101 - 103 . CONTROLLI NG SHARE HOLDER TORM’s c ontroll ing shareh older, Oaktr ee, own s TORM plc ’s sole C - sh are, wh ich c arries 350,0 00,000 v otes at the Gen eral M eeting in resp ect of Spec ifi ed Ma tters, incl uding el ection of members to the Boa rd of Direc tors of TORM plc ( inc luding the Chai rman, bu t excl uding t he Dep uty Ch airm an) and cert ain amend ments to the A rtic les of A ssocia tion. RECEN T DEVELO PMENTS AND POST - BALANCE SHEET EV ENTS Detai ls of i mportan t events a ffec ting TORM whic h have occu rred sinc e the end of the f inan cial year di sclosed i n N ote 2 to the f inan cial statements. INDEP ENDENT A UDITO RS Each person wh o is a D irec tor at the da te of a pprova l of the An nu al Report con firm s t hat: • As far as th e Di rector is a ware, th ere i s no rel evan t audit i nform ation of which the Compan y’s ind ependent a uditor is una ware. • Th e Direc tor ha s taken all reason abl e steps tha t he or she ou ght to h ave tak en as a Direc tor in order to make h im or hersel f awa re of a ny rel evant a udit inf ormation and to esta blish tha t the Comp any’ s ind ependent a uditor is aware of tha t inf ormation . DIREC TO RS’ R EPO RT TORM ANNUAL R EPORT 2021 OTHER 109 This c onfirma tion i s given and shou ld b e interpreted in acc ordanc e with th e provisi ons of s ection 418 of the U K Comp anies Ac t 2006. STATEM ENT BY TH E DIR ECTO RS IN P ERFOR MANCE OF THEI R STATUT ORY DUTIES I N ACCORDANCE WITH SEC TION 1 72(1) O F THE UK C OMPA NIES A CT 2006 TORM’s E ngagement and Decisi on making can be found on pages 104 - 106 . Approval On beh alf of th e Board of Direc tors Chri stopher H. Boehrin ger Chairm an of the Board of Di rectors 23 March 2022 DIREC TO RS’ R EPO RT TORM ANNUAL R EPORT 2021 OTHER 110 The Di rectors are respon sible f or prep arin g the An nual Report a nd th e financ ial sta tements in ac cordanc e with appli cable U nited Ki ngdom l aw an d regula tions. Compa ny law req uires th e Directors to p repare financ ial sta tements for eac h fin ancial y ear. Und er that law, th e Direc tors are requi red to prep are th e grou p financia l st atements in a ccord ance wi th UK - adop ted Interna tiona l Accoun ting Standa rds ( UK - adop ted IAS ) and have elected to prep are th e paren t compa ny financ ial sta tements in ac cordanc e with United Kingd om Genera lly Accepted Ac countin g Prac tice (United Kin gdom Acc ounti ng Standards and appl icable law) , inclu ding Fin ancial Reporting Stand ard 101 “Reduc ed Di sclosure F ramework ” (FR S 101). Under compa ny law , the Di rectors mu st not ap prove th e financ ial sta tements u nless t hey a re satisf ied th at they give a tru e an d fai r view of t he sta te of a ffa irs of th e Group and the C ompan y and of th e profi t or loss of th e Group and the C ompan y for tha t period. In prepa ring these fi nanci al statemen ts, th e Direc tors are requi red to: • Sel ect sui tabl e acc ounting polici es in acc ordance with IA S 8 Account ing P olici es , Change s in Acc ounting E stima tes and E rrors and th en ap ply them con sisten tly • M ake ju dgements a nd ac countin g estima tes that are reas onab le and p ruden t • Pres ent i nforma tion, i nclud ing acc ounting polici es, in a manner th at provi des rel evant, rel iab le, compa rable an d und erstandab le inform ation • Provi de add ition al d isclosu res when compl iance with th e speci fic req uiremen ts in UK - adopted IAS (or in respect of the pa rent c ompan y fin ancial statements , FRS 1 01) i s insu ffici ent to ena ble u sers to und erstand the imp act of partic ular transa ction s, other ev ents an d con diti ons on the entity 's fin ancia l positi on and f inanci al perf ormanc e • In respect of the g roup f inanc ial statemen ts, sta te whether UK - a dopted IAS h ave been foll owed, subj ect to an y materi al dep artures dis closed and explai ned in the fi nancial statemen ts • In respect of the p arent c omp any fin ancial statements state wheth er app lica ble UK Accou nting Standa rds, inclu ding FRS 101, have been f ollowed , subj ect to an y materi al dep artures disc losed a nd explai ned in the fin ancial statements • Prep are th e fin ancial stateme nts on th e goin g conc ern basi s unless i t is in appropri ate to p resume that th e Compa ny wil l con tinue in busin ess S TATEM EN T OF D IRECTO RS ’ R ESP ONSIBIL ITIES TORM ANNUAL R EPORT 2021 OTHER 111 The D irec tors are responsi ble for k eepi ng a dequate acc ounting records th at are suff icient to sh ow and explai n th e C ompan y’ s and the Group ’s transa ction s and disclose w ith rea sonab le accura cy at a ny ti me the financ ial p osition of the C ompany and the G roup a nd en ab le them to en sure th at t he comp any a nd the grou p financ ial sta tements c omply w ith th e Compa nies Ac t 2006. Th ey are al so resp onsib le for saf egua rding th e assets of the Grou p an d Comp any an d hence f or taki ng reasona ble steps for th e prev ention an d detecti on of frau d and oth er irregu lari ties. Under a pplic able l aw and reg ula tions, the d irectors are also resp onsib le for prep arin g a stra tegic rep ort, direc tors’ repor t, direc tors’ remu nerati on report an d corpora te govern anc e statemen t tha t compl y with that law a nd those regu lati ons. Th e Direc tors ar e responsi ble f or the mai ntena nce a nd in tegrity of the corpora te and f inanc ial inf ormation inclu ded on the Compa ny’s web site. Leg isla tion in the Un ited Kin gdom governi ng th e prepara tion a nd diss emina tion of fina nc ial statements ma y di ffer from legis lation in other juri sdicti ons Directo rs’ respons ibility sta tement We conf irm th at to the bes t of our kn owledg e: • Th e consol ida ted finan cial s tatements, pr epared i n acc ordanc e with th e Compan ies Act 2 006 an d UK - adopted Interna tiona l Accoun ting Standard s, give a true a nd fa ir view of the a ssets, l iabi lities, financ ial p osition and prof it or loss of th e Compan y and the underta king s inclu ded in th e cons olidati on taken as a wh ole • Th e annu al report, inc ludin g the Strateg ic Re p ort, incl udes a fa ir review of the developm ent an d performa nce of the bu siness a nd th e positi on of the Comp any and the un dertak ings inc luded in the consol idati on taken as a w hole, toge ther with a descri ption of the pri ncip al risk s and uncerta inties that t hey face • Th e annu al report, taken as a wh ole, is f air, balan ced an d understa ndable a nd prov ides th e inf ormation necessary for sha rehold ers to as sess the Comp any ’s positi on and p erforman ce, bu sin ess model a nd strateg y This resp onsib ili ty statemen t was a pproved b y the B oard of D irectors on 23 March 2 02 2 and is signe d on its be half by: Jacob Meldga ard Execu tive Di rector STATEM ENT O F DIREC TORS’ RESP ONSIBIL ITIES TORM ANNUAL R EPORT 2021 OTHER 112 SAFE H ARBO R STAT EM ENTS AS TO THE FUTURE Matters d iscu ssed in this rel ease may con stitute forward looki ng statem ents. T he Priva te Secu rities Liti gation Ref orm Act of 199 5 provid es safe h arbor protecti ons for f orward - looki ng sta tements in order to encou rage c ompani es to provi de prospec tive inf orma tion about th eir bu siness. Forw ard - look ing statements reflec t our c urren t views wi th r espect t o futu re events an d fi nanci al performan ce an d may incl ude statemen ts con cern ing pla ns, obj ectives, g oals, strategies , fu ture events or p erforman ce, an d und erlying as sumpti ons and other statemen ts, wh ich are other than statemen ts of his torica l facts. T he Compa ny desi res to take a dva ntag e of the sa fe ha rbor provisi ons of th e Priv ate Sec uriti es Liti gati on Reform Act of 1 995 and is includi ng thi s cauti onary statemen t i n c onnecti on with th is saf e harbor l egisl ation . Words such as, but n ot lim ited to, “b eli eve”, “an tici pate”, “inten d”, “esti mate”, “f orec ast”, “proj ect” , “pla n”, “potential”, “may”, “should”, “expect”, “pending” an d simil ar expressi ons o r phrase s may iden ti fy forward - looki ng sta tements. The forwa rd - look ing statemen ts in this rel ease are base d upon va rious assum ptio ns, m any of whi ch are , in turn, base d upon f urthe r ass umptio ns, in cludi ng withou t lim itation, m ana gement’s exa mina tion of histori cal operati ng tren ds, data c ontain ed in our records a nd oth er data a vail able from th ird p arties. Althou gh the C ompany believes tha t thes e assump tions w ere reason able wh en mad e, beca use these assu mption s are in here ntly subjec t to sign ific ant uncerta inti es an d con t ingen cies tha t are di fficu lt or impossi ble to pred ict a nd a re beyon d our c ontrol, th e Compa ny cann ot gua rantee tha t it wil l ach ieve or acc omplish these expec tation s, beli efs or proj ection s. Importan t fac tors that, i n our view, c oul d cause a ctual results to dif fer materi all y from th ose disc ussed i n th e forward - looki ng statem ents in clud e, but a re not li mited to, the str eng th of th e world econom y an d currenci es, general market c ondi tions , incl uding f luctua tions in cha rter hire ra tes and vessel val ues, the d urati on and severity of the on goin g COVID - 19 pan demi c, incl uding its imp act on the dema nd f or petroleu m prod ucts a nd the seab orne tra nsporta tion of these an d the a bil ity to chan ge crew a nd op erate a vessel w ith C OVID - 19 inf ected c rew, the opera tions of ou r customer s an d our busin ess in g eneral , the fa ilure of our con tract coun terparti es to meet their obli gation s, chang es in deman d for “ton - miles” of oil carri ed by oi l tan kers an d chan ges in demand f or tank er vessel c apaci ty, the effec t of ch anges i n OPEC ’s petroleu m produ ction levels a nd worl dwid e oil c onsumpti on and storage, chan ges in demand th at may a ffec t attitu des of ti me cha rterers to sc hedu led and unsch eduled dry - docking, change s in TO RM’s oper ating e xpe nses, incl uding bunker p rices, d ry - docking and i ns uranc e costs, chan ges in the regu lation of shi pping operation s, incl uding ac tions ta ken b y regula tory au thoriti es incl uding b ut not l imited to C O2 tari ffs or t rade ta riff s , potenti al li ability from pen ding or futu re liti gation , domestic an d interna tiona l poli tical cond itions, p otentia l disru ption of ship ping rou tes du e to acc iden ts, weather, politi cal events in clu ding “tra de wars”, th e geopol itic al cri sis rela ted to Ru ssia a nd Ukrai ne , or ac ts of te rrorism. In li ght of these risk s and uncertai nties, u ndu e relia nce shoul d not be pl aced on forwa rd - look ing statem ents conta ined in this rel ease bec au se they a re statemen ts abou t events tha t are n ot cer tain to occu r as desc ribed or at al l. These f orward - looki ng sta tements are not gua rantees of our f utu re perf ormanc e, and actual results a nd f uture d evelopmen ts may va ry materi all y from those projec ted in the forw ard - look ing statements . Excep t to the ext ent requ ired by a pplicab le la w or regul ation , the Compa ny undertak es no oblig ation to release pu bli cly an y revisi ons or up dates t o thes e forward - looki ng statem ents to ref lect e vents o r circu mstances a fter the d ate of thi s releas e or to r eflec t the occ urrenc e of u nantici pated even ts. Plea se see TORM’s fi lin gs with th e U.S. Sec uriti es and Exchan ge Commissi on f or a more c ompl ete disc ussi on of c ertain of these a nd oth er risk s and uncerta inti es. The inf ormation set forth h erein spea ks onl y as of the date hereof, a nd th e Compa ny di sclaims a ny in tention or ob lig ation to update a ny f orward - l ooking statements as a resu lt of d evelop ments oc cu rring af ter the da te of this c ommuni cation . TORM AN NUAL REPORT 2021 CO NSOLIDATED FINA NCIAL STATEMENTS 113 FINANCI AL STATEMENTS 202 1 CON SOLIDAT ED FINANC IAL STATEM ENTS Consolidated Income Statem ent Consolidated Statement o f Comprehensive Income Consolidated Balance Sheet Consolidated Statement o f Changes in Equity Consolidated Cash Flow State ment Notes Consolid ated PARE NT COMPA NY FINANC IAL STA TEM ENTS Parent Company Balance Sheet Chang es in Equi ty Notes to Parent Co mpany Financial Statements OT HER Independent Auditor’s Report TORM Fl eet Overv iew Glossary and APM FINANC IAL STATEM ENTS Consol idated financial statement s TORM AN NUAL REPORT 2021 CO NSOLIDATED FINA NCIAL STATEMENTS 114 CONSOLIDAT ED I NCOME ST ATEMENT 1 JANUARY - 31 D ECEMBER USD No te 2021 2020 2019 Rev enue 619,532 747,356 692,610 Port expenses bunkers and commissions -240,937 -227,924 -267,739 Operat ing expe nses 3 -190,471 Profit from sale of vessels 0 -178,376 1,069 -172,983 1,180 Administrative expenses -51,542 -50,773 -47,724 Other operating expen ses 414 -19,185 -2,911 Share of p rofit(loss) from joint ven tures -104 -242 -422 Impair ment loss es an d rev ersal o f im pairme nt o n tangible assets -4,645 -11,096 114,004 Depreciation 6,7 -130,851 -121,922 -110,124 Operating profit/(loss) (EBIT) 1,396 138,907 205,891 Financ ial inc ome 241 536 2,796 Financ ial expens es -42,382 -49,914 -41,881 Profit/(loss) before tax -40,745 89,529 166,806 Tax -1,344 -1,415 -784 Net pr ofit/(lo ss) for the yea r -42,089 88,114 166,022 EARNI NGS PE R SH ARE Basic earnings(loss) per share (USD) -0.54 1.19 2.24 Dilu ted earnings(loss) per share (USD) -0.54 1.19 2.24 CONSOLIDAT ED STATEMEN T OF C OMPREHEN SIVE I NCOME 1 JANUARY - 31 D ECEMBER USD 2021 2020 2019 Net pr ofit/(lo ss) for the yea r -42,089 88,114 166,022 Other com preh ensi ve inc om e/(l oss): Items that may be reclassified to profit or loss: Exchange rate adjustme nt arising from translation of entiti es us ing a funct iona l curre ncy differ ent fro m USD 16 426 Fair value adjustment on hedging instruments -209 8,455 -15,790 -13,289 Fair value adjustment on hedging instruments transferred to income statement 8,667 6,860 1,284 Items that may n ot be recla ssifie d to prof it or loss : Remeasurements of net pension and other p ost - ret irem en t benef it lia bilit y or ass et -8 103 -82 Other c ompr ehensi ve inco me/(l oss) aft er ta x ¹ ⁾ 16,905 -8,811 -11,661 Total c ompreh ensiv e inco me/(lo ss) for t he yea r -25,184 79,303 154,361 ⁾ No income tax was incurred relating to other comprehensive income(loss) items TORM AN NUAL REPORT 20 21 CO NSOLIDATED FINANCIAL STATEMENTS 115 CONSOLID ATED BA LANCE SHEET A S OF 31 DEC EMBE R USD No te 2021 2020 ASSETS NON - CU RR ENT AS SET S Tang ible fixed asset s Land and bu ildi ngs 4,824 7,098 Vessels and ca pita lized dry - do cki ng 6,7,8,17 1,937,791 1,722,465 Prepayments on v essels 11,996 12,024 Other plant and op erating equipment 6,327 6,847 Total t angibl e fixed a sset s 1,960,938 1,748,434 Financial a ssets Inves tme nts in joi nt vent ures 1,473 1,588 Loan rec eiva bles 4,617 4,617 Deferred tax asset 651 344 Other investments 1 1 Total fin ancial ass ets 6,742 6,550 Total non - current as sets 1,967,680 1,754,984 CU RR ENT A SS ETS Bunk ers 48,812 22,459 Fre ig h t recei vables 83,968 58,574 Other r eceiva bles 39,966 24,881 Prepayments 5,624 2,181 Cash and cash eq uivalents including restricted cash 135,564 Cur rent asset s 350,103 243,659 Assets held for sale 13,216 - Total curre nt assets 363,319 243,659 TOTAL A SSETS 2,330,999 1,998,643 USD No te 2021 2020 EQUITY AND LIABILITIES EQUITY Co mm on sh a re s 812 748 Sha re prem ium 159,558 102,044 Treasury shares -4,235 -4,235 Hedgi ng res erves -20,681 Translation reserves -3,559 137 346 Reta ine d profi t 899,467 939,247 Total equity 1,052,180 1,017,469 LIABILITIES NON - CURRENT LIABILITIES Non - current tax liability related t o held over gains 45,176 44,923 Borrowings 926,450 739,543 Total non - current liabilities 971,626 784,466 CU RR ENT LIABILITIES Borrowings 208,951 102,858 Trade payables 35,332 14,350 Curr ent tax lia bilit ies 929 1,418 Other lia bilit ies 43,681 59,782 Provis ions 18,300 18,300 Total current liabilities 307,193 196,708 Total liabilities 1,278,819 981,174 TOTAL EQUITY AND LIABILITIES 171,733 2,330,999 1,998,643 TORM AN NUAL REPORT 2021 CO NSOLIDATED FINA NCIAL STATEMENTS 116 CONSOLID ATED STAT EMEN T OF CHAN GES IN EQU ITY 1 JANUARY - 31 D ECEMBER USD '000 Common shares Share pr em ium Treasury shares ¹ ⁾ Hed ging rese rves Translation rese rves Retai ned profit Total Equity as of 1 Janua ry 2019 742 97,092 -2,887 254 -96 752,106 847,211 Com prehen siv e inco me/l oss f or the yea r: Net profi t/(loss) for the year - - - - - 166,022 166,022 Other com prehe nsive inc ome/(l oss) for t he year² ⁾ - - - -12,005 426 -82 -11,661 Total c ompreh ensiv e inco me/(lo ss) for the yea r - - - -12,005 426 165,940 154,361 Capital increase 5 4,197 - - - - 4,202 Share - based compensation - - - - - 1,913 1,913 Total changes in equity 2019 5 4,197 - -12,005 426 167,853 160,476 Equity as of 31 Decemb er 2019 747 101,289 -2,887 -11,751 330 919,959 1,007,687 Com prehen siv e inco me/l oss f or the yea r: Net profi t/(loss) for the year - - - - - 88,114 88,114 Other com prehe nsive inc ome/(l oss) for t he year ² ⁾ - - - -8,930 16 103 -8,811 Total c ompreh ensiv e income/(loss) for the year - - - -8,930 16 88,217 79,303 Capital increase 1 787 - - - - 788 Transaction costs of capital increase - - - - -32 Acquisition of treasu ry shares -1,348 - - - -1,348 Share - based compensation - - - 1,682 1,682 Divi dend p aid - -32 - - - - - - -70,611 -70,611 Total chan ges in equit y 2020 755 -1,348 -8,930 16 19,288 9,782 Equity as of 31 Decem ber 2020 748 102,044 -4,235 -20,681 346 939,247 1,017,469 1 - - - TORM AN NUAL REPORT 2021 CO NSOLIDATED FINA NCIAL STATEMENTS 117 CONSOLID ATED STAT EMEN T OF CHAN GES IN EQU ITY 1 JANUARY - 31 D ECEMBER USD Common shares Share pr em ium Treasury shares ¹ ⁾ Hed ging rese rves Translation rese rves Retai ned profit Total Equity as of January 748 102,044 -4,235 -20,681 346 939,247 1,017,469 Com prehen siv e inco me/( loss) f or the year : Net profi t(loss) for the year - - - - - -42,089 Other com prehe nsive inc ome(l oss) for t he year ⁾ - - - 17,122 -209 -8 -42,089 16,905 Total c ompreh ensiv e inco me/(lo ss) for the yea r - - - 17,122 -209 -42,097 -25,184 Capital increase ⁾ 64 57,799 - - - - 57,863 Transaction costs of capital increase - - - - Share - based compensation - - -285 2,317 Divi dend p aid - -285 - - - - - - - 2,317 - - - Total chan ges in equit y 2021 64 57,514 - 17,122 -209 -39,780 34,711 Equity as of 31 Decemb er 2021 812 159,558 -4,235 -3,559 137 899,467 1,052,180 ⁾ Please refer to note for further information on treasury shares ⁾ Please refer to Consolidated Statement of Comprehensive Income ⁾ Please refer to note for further information on capital increases during the year TORM AN NUAL REPORT 2021 CO NSOLIDATED FINA NCIAL STATEMENTS 118 USD No te 2021 2020 2019 CASH FLOW FROM OPERATING ACT IVITIES Net profi t(loss) for the year -42,089 88,114 166,022 Reversals Prof it from sa le of vessels -1,180 Depr ecia tion 130,851 - -1,069 121,922 110,124 Impair ment loss es a nd re versa l of i mpair ment losses on tangible assets 4,645 11,096 -114,004 Share of profit(loss) from joint ventures 104 242 422 Financ ial in come -241 -536 Fina nci al expen se s 42,382 49,914 -2,796 41,881 Tax expenses 1,344 1,415 784 Oth er n on - ca sh mo vemen ts 1,350 1,093 925 Divid ends r ecei ved fr om jo int v entur es 275 275 19 Interes t recei ved an d real ized e xchan ge gains 241 583 2,535 Interes t pai d and rea lized excha nge los ses -41,046 -52,905 -45,283 In com e tax e s pai d -1,379 -252 -216 Ch ang e in bun ker s rec eiv abl es and pay ab les etc -48,489 15,909 11,858 Net cas h flow from operatin g activitie s 47,948 235,801 171,091 USD No te 2021 2020 2019 CASH FLOW FRO M INVESTING ACTIVITIES Investment in tangible fixe d assets ⁾ -319,787 -173,050 -384,349 Inves tme nts in joi nt vent ures - - -275 Sale o f tangi ble fix ed asset s 10,033 83,662 61,801 Change in restricted cas h 19,161 -30,414 - Net cash flow from inv estin g acti vities -290,593 -119,802 -322,823 CASH F LOW FROM F INANC ING ACTIVI TIES Proceeds borrowings 5, 16 548,817 734,346 261,830 Repay ment bor rowi ngs 16 -253,420 -746,475 -169,177 Divi dend p aid - -70,611 - Capital incr ease ⁾ 2,863 788 4,202 Transaction costs share iss ue -285 -32 - Purchasedisposal of treasury s hares - Change in restricted cas h - -1,348 - - -12,364 Net cas h flow from financing activ ities 297,975 -83,332 84,491 Net cas h flow from operatin g, inves ting and financing activities 55,330 32,667 -67,241 Cash and cash eq uivalents as of January 89,514 56,847 124,088 Cash and cash e quivalen ts as of 3 1 Decem ber 144,84 89,514 56,847 Re stric ted cash as of Dec ember 26,889 46,050 15,636 Cash and cash eq uivalents, inc luding restri cted ca sh as o f 31 Dec emb er 171,733 135,564 72,483 ⁾ In share capital was increased by USD m including a USD m non-cash share issue in relation to acquisition of eight vessels Please refer to Note for further reference CONSOLID ATED CA SH FLOW STA TEMEN T 1 JANUARY - 31 D ECEMBER TORM AN NUAL REPORT 2021 CO NSOLIDATED FINA NCIAL STATEMENTS 119 N ote – Acc ounti ng Pol ici es Cri tica l Ac coun ting Estima tes an d Ju dgemen ts Note – L iquid ity C apital Resources and Su bsequ ent Ev ents Note – Staf f Costs Note – Rem u nerati on to Au di tors Appoi nted at th e Par ent C ompan y’s Annua l Gen eral Meetin g Note – L oan Rec eivab les Note – Ta ngib le Fixed A ssets Note – L easin g Note – Imp airmen t Testin g Note – Non - Curren t Assets Note – Fi nanc ial Items Note – Frei ght Rec eivab les No te – Oth er Recei vabl es Note – Tax Note – Comm on Sh ares a nd Trea sury Shares Note – O ther Li abil ities Note - E ffec tive Interes t Ra te Outstan din g Borrowi ngs Note – Col latera l Secu rity f or Borrowi ngs Note – Gu aran tee Commi tments a nd C onting ent Lia bil ities Note – Con tractu al Rights and Obligations Note – Deri vative Fi nancial Instru ments Note – Ris ks Ass ocia ted wi th TORM ’s Activi ties Note – Fi nanc ial In strumen ts Note – R elated Pa rty Tra nsac tion s Note – Assets Held f or Sal e and N on - Curr ent Ass ets Sol d Du rin g t he Yea r Note – Cash Flows Note – En tities in th e Grou p Note - Pr ovision s Note – Ea rnin gs per Sh are an d Divi dend p er Share Note – Cash and Cas h Equiv ale nts Includin g Re str icted Cas h NOTE S TO CONSOLIDATED FINANC IAL S TAT EMENTS TORM ANNUAL R EPORT 202 1 CONSOLIDATED FINANCIAL STATEMENTS 1 120 N OTE 1 – A CCOUNTIN G P OLICIES , C RITIC AL A CCOUNT ING ESTIMATES AND J UDGEMEN TS OVERVIEW OF BUSINESS TOR M plc is a sh ippin g com pany , whi ch owns and operates a f leet of product tankers. T ORM pl c is a public company l imited by shares and is incorporated in Englan d and Wales. Its registered number is 09818726 an d its registere d a ddress is B irch in Co urt, 2 0 Birc hin La ne, Londo n, E C3V 9DU. Unless otherwise indicated, the terms “ T ORM plc ” , “ we ”, “ us ”, “ our ”, th e ” Co mpan y ”, and the “ Group ” refer to TORM plc and its conso lidated subsidiaries, which include T ORM A/S and its consolidated subsidiarie s. TOR M plc is liste d on t he st ock excha nge s N asda q in Cop enhag en, D enmar k , an d on N asda q in New York, United States. BASI S OF PRE PA RATI ON The consolidated financial state ments of the Group have been prepare d in accordance with UK - ado pted I nternational Account ing Standards (“ UK - a dopt ed I AS ”) . The co nsol idat ed fin ancia l statements are also prepared in ac cordance with International Financial Re port ing S ta ndar ds (“IFRS”) as issued by the International Accounting Stand ards Board (“IASB”) and I FRS as ado pted by th e EU , as applied to financial periods beginning on o r after 1 January 202 1. The consolidated financial state ments have been pr epar ed o n a goin g co ncern bas is a nd un der the h istoric al cos t co nvent ion e xce pt whe re fa ir val ue acc ount ing is spec ifica lly r equir ed by IFRS. The functional currency of the Comp any i s USD, and the Co mpany applie s USD as the pres entat ion c urre ncy i n the preparation of the conso lidated financial statements. GOIN G CONCERN As of 31 Decemb er 202 1, TORM’s a vail able liq uidi ty inc luding undraw n and c ommitted facil itie s was USD 210m, including a total cash position of USD 172m (including restricted cash of USD 2 7m). T ORM’s net int erest - bearing debt was USD 972m, and the net debt loan - to - value ratio was 52.3%. Further informat ion on TORM’s o bjectives and policies for managing its capital, its finan cial ris k ma nage ment obje ctiv es and its exposur e to credit and l iqu idi ty risk c an be found in N ote 21 to the financial stat ements. The principal risks a nd uncertainties facing TOR M are set out on pages 65 - 69 and deta ils on the liquidity and capital r esources ar e descr ibe d in N ote 2. NOTE 1 – continue d TORM monitors its funding position t hroughout the year to e nsure that it has access to suf fici ent fu nd s to meet our fore cast cas h req uire ments, incl udin g new buil ding and loan com mitme nts, a nd to mo nitor co mplian ce w ith t he fi nancia l co ve nants in its loan fa cil ities, details of w hich are a vaila ble in N ote 2 to t he financial statement s. A key element for TO RM’s financia l perfor manc e in t he goi ng conc ern p eriod r elates t o th e develo pme nt of th e COVI D - 19 pand emic a nd rela te d effec t on t he oil de mand a nd s upply bala nce. TORM’s base c ase assumes the oil markets to reach pre - COVI D - 19 le vel s dur ing the second half of 2022 with freight rates and ve ssel v alu es materi alizi ng abo ve 2 021 le vels. In the base case, TORM h as sufficient liquidity and h eadro om a bove a ll th e cov enant limits . TORM also pays special attention to t he signi ficant ly increased g eopoli tical risk following Russia’s invasion of Ukraine in February 2022 and the asso ciated effect s on the product tanker market . The immediate impact is that the uncertainty and potential for re - routing of trade flows has sent the tanker fre ight rates in the European markets upwards . T he fin ancia l impa ct goin g forwa rd is uncert ain, but T OR M curr entl y expects that the pos sible eff ects are co vered wit hin th e below sensit ivity ca lcula tions . TOR M perfor ms s ensit ivity calc ulatio ns to refle ct do wnsi de sce nario s incl udin g, but not limit ed to, future freight rates an d vessel valuations in order to identify ri sks t o f utu re liq ui di ty and covenant compliance a nd to enable Management to tak e corrective actions, i f required. The downside scenarios co ver the principal risks and u ncertainties facing TOR M as set out on pa ges 65 - 69 and include different d istressed out l ooks for the pro duct tanker market. In a low cas e scenario , Management has assumed freight rates wh ich on average are approxi mately 25% below t hose i n the base cas e an d a related de cline i n vess el valu es. I n the low case s cenar io , there remains sufficient hea droom on liquidity and covenants. In a stress cas e scenario , Management has further stressed the fre ight rates to the lowest r olling four quarter average since 2 000. I n the stress case sc enario, certain actions will be req uired to maintain covenant compliance. Such actions are assessed to be achievable also in a stress case scenario and could inclu de eleme nts such a s the sale of older vessels . The Board of Directors h as considered TORM ’s cash flow fo recast s an d the ex pecte d com plia nce wit h TORM’s fina ncia l cove nant s for the pe ri od un til 3 1 March 202 3 . TORM’s cash flow forecast and expected covenant compliance are based on the business plan appr ove d by the Board of Directors. Bas ed on this review, the Boar d of Directors has a rea sonab le expectation that taking reason ably possible changes in trad ing performance an d vessel valuations in to a cc oun t , TOR M will b e able to cont inue the operational existence and com ply with its financi al covenants for the p er i od until 31 March 2023. Accor dingly, TORM c ont inu e s t o adopt the going concer n basis in preparing its financial stat ements. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 121 NOTE 1 - c ontinu ed ADOPTI ON OF NE W OR AME NDED IFRS STANDAR DS TORM has imple mented the following standar d s an d ame nd men ts issued by the IASB and ado pted by t he UK in the consolidated financial stat ements for 20 21: • IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 amendments Interest rate Benchmark Ref orm – Phas e 2 • IFRS 4 amend ment Extension of the Tempor ary exemp tion fr om Applyin g IFR S 9 • IFRS 16 amendmen t Co vi d - 19 - related Ren t Conc ession s beyond 30 June 2021 It is assessed that a pplication of these effective on 0 1 January 202 1 has not had any material impact on the consoli dated financial statements in 202 1. ACCO UNTING STA NDARDS AN D INTE RPRET ATIO NS NO T YET ADOPTE D IASB has issued a n umber of new or a mended accounting stand ards (IFRS) and interpretations (IFRIC) whi ch have not y et co me in to eff ect: • Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and E quipment; IAS 37 Provisi ons, Contingent Li abilities and C ontingent Assets ( all ma ndatory 0 1 Jan ua ry 20 22 ) • Annual Improvem ents 20 18 - 2020 (0 1 Jan uary 2022 ) • Amendme n ts to IAS 1 Prese ntation of Financial Statements: Class ification of Liabilities as Cu rre n t or No n - current ( 0 1 J an uary 2023) • IFRS 17 Insurance Co ntracts ( 0 1 Jan uary 202 3) • IAS 12 amendment s Def erred T ax rel ated t o Ass ets an d liab iliti es arisin g fro m a Single Transaction ( 0 1 J an uary 20 23 ) • IAS 8 ame ndm ents D efinit ion of Acc ountin g Estim ates (0 1 Jan ua ry 20 23) • IAS 1 and IFRS Practice Stat ement 2 amendmen ts Disc losure o f Accoun ting P olicies ( 0 1 Jan ua ry 20 23 ) • IFRS 10 and IAS 28 (amendments) Sale o r Contrib uti on of Assets between an Investor and its Associ ate or J oint V enture issue d in Se ptem ber 201 4 (deferr ed i ndefinit ely) TORM has assessed th e accounting standards a nd interpretations not yet a dopted and does not expect the new standar ds to have any material i mpact on neither TORM’s f igures nor the disclosures. NOTE 1 - c ontinu ed ACCOUNTING POLICIES The Group’s g eneral accounting p olicies are descr ibe d belo w. I n add itio n to this , specif ic acco unt ing pol icies are des cri bed in each o f the indiv idual notes to the co nsolidat ed f inanc ial statements as outlined in the following notes: • Staff costs • Loan r eceiva bles • Tangible fixed assets • Leas ing • Impa irme nt • Fina ncial ite ms • Frei ght recei vables • Other r ecei vables • Tax • Other liabilit ies • Borrowings • Derivative financial instruments • Provis ions • Earnings per share Consolidation princi ples The consolidated financial state ments comprise the financ ial statements of the Par ent Company, TORM plc and e ntities controlled by the Compa ny and its subsidiaries. Contro l is achieved when the Company has all t he following: • Power o ver t he inves tee • Exposure, or rights, to var iable returns from its involve ment with the investee • The ability to use its pow er over the i nvestee to affect the amou nts of the investor’s returns T ORM reassess whether it controls an i nvestee if facts and circ umstances indicate that ther e are changes to one or more of the three elements of control listed above TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 122 NOTE 1 - c ontinu ed When t he C om pany has le ss t han a majo rity of the vot ing r ights of an inve stee, it has p ower over the investee when the voting rights are s ufficient to give it the practical ability to direct the relevant activities unilaterally. The Co mpany considers all facts a nd circumstances in assessin g whether or not the Co mpany’s voting rights in an investee are sufficient to give it power, incl uding: • The size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders • Potential voting rights h eld by the Company, other vote holders or other p arties • Rights arising from other con tractual arrangeme nts • Any a dditio nal f acts and c ircu mstanc es whic h indicate that the Com pany has, or does not have, the current a bility to direct the relevant activities at t he time when decisio ns need to be mad e, including voting pattern at previous shareholders’ me etings Entities in which the Grou p exercises significant but not co ntrolling influence are regar ded as associated companies and are accounted for using the equity method. Compa nies w hich are mana ged joint ly by a gree ment with o ne or mor e co mpan ies an d ther efor e are subject to joint control (joint ventures) are accounte d for using the equity method. Consolidation of a su bsidiary begins when the Com pany obtains control over t he subsidiary and en ds when the Company loses c ontrol ove r the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consoli dated income statement and other co mprehensive income from t he date on which the Com pan y ob tai ns control until the date wh en the Company los es control over the subsi diary. The consolidated financial state ments are prepared using consistent accounting po licies and eliminating intercompany transa ctions, balances , and shareholdings as well as gains and l osses on transac tions between the c onsolidated en tities. NOTE 1 - c ontinu ed Foreign curre ncies The functional currency of a ll significant entities, including s ubsidiaries and associated companies, is United States D ol lar s ( U SD) , b eca u se th e Compan y’s vessels o perate i n international shipping markets, in which income and exp enses are settled in USD, a nd because the Co mpan y’s mo st s ignifi cant ass ets an d liab ilities in t he for m o f vess els a nd rel ated liabi lities are denominated in USD. Transac tions in c urrencies other than the functional c urrency are translated into the functional c urrency at the tra nsaction date. Cash, receivables and p ayables and other monetary items denominated in currencies other than the functional currency are translated into the functional c urrency at the exc hange rate at the balance s heet date. Gains or losses due to differences between the exchange rate at th e transaction date an d the exchange rate at the settlement dat e or the balance s heet date are recognized in t he income statement under “F inanc ial inco me” a nd “Fi nancia l expe nses”. The reporting currency of the Company is USD. Upon recognition o f entities with functional currencies other than USD, t he financial stateme nts are translated into USD. I ncome statement items are translated into US D at the exchange rate for each transaction , whereas bala nce sh eet items ar e tra nslated at the excha nge rat e as o f the ba lance sheet date. Ex chang e differ ences arising from the translation o f financial statements into USD ar e recognized as a s eparate compon ent in “Other c omprehensi ve inc ome”. On th e disposal of an en tity, the cumulative amount of the excha nge differen ces reco gnized in t he separ ate c omponent of e quity r elatin g to that entity is transferred to t he income statement as part of the gain or loss o n disposal. Segment information The s egme ntati on is base d on the Group’s internal management and reporting str ucture. The Group only has one op erating segment w hich is the sole reportab le segment, the Tanker Segment, for which the ser vices provided primarily co mprise transportation of refined oil products such as gasoline, jet fuel , and na pht ha. The Gr oup has only o ne g eograp hical seg ment, beca use th e Compa ny cons iders t he glo bal market as a whole an d as the individual vesse ls are not limited to specific parts of the world. Further, the internal management reporting does not provide such information. Consequently, it is not poss ible t o pro vide geogra phica l se gment infor matio n o n reve nue from e xter nal customers or non - current segment assets. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 123 NOTE 1 - c ontinu ed I NCOME STAT EME NT Revenue I nco me is r eco gniz ed in t he i ncome sta teme nt wh en: • The income generat ing activities have been carried o ut on the basis of a bind ing agreement • The in come c an be measu red rel iab ly • It is probable that th e economic benefits associate d with the transaction wi ll flow to the Co mpan y Revenue comprises frei ght, charter hire , and de murra ge revenu e from the v essels. R evenue is recognized when or as performance obligations are sat isfied by transferring services to t he custome r, i.e . , over time , provided that the stag e of completion can be m easured reliably. Rev enue i s meas ured a s the consideration the Group expects to be entitled to. Freight revenue, including ch arter hire and demurra ge (and related voyage costs) ar e recogn ized i n the in come s tat ement accordin g to the entered charter parti es from the date of load to the date of d elivery of the cargo ( discharge). The co mple tion is deter mine d usin g the load - to - discharge method based on the percentage of the estimated duration o f the voyage comp le ted at the reporting dat e , becaus e the Co mpa ny has a n enfo rceable r ight to pay ment for perform ance co mplet ed to date. Cross - ove r vo yages For cross - over voyages (voya ges in progress at the end of a reporting period), the uncertainty and the depende nce on estimates are greater tha n for finalized voyages. Th e Company rec ogni zes a p ercen tage of the es tim ated revenu e fo r the v oyage e qual to the pe rce ntage of the estimated duration of t he voyage completed at th e balance sheet date. T he estimate of revenue is ba sed o n the expect ed dur ation a nd dest inatio n of t he voya ge. When recognizing re venue, there is a risk that th e actual number of days it takes to complete the voyage will differ fro m the estimate. The contra ct for a single voya ge may state several alternative destination ports. T he destination port may chan ge during the voyage, and t he rate may vary depending on the d estination port. Changes to the estimated duration o f the voyage as well as changing destinations and weather co nditions will affect t he vo yage expe nses. Demur rag e rev enu e Freight contracts contain co nditions regarding the amount of time available for loadi ng and dischar ging of the vessel. I f thes e co nditions are breache d, TOR M is co mpensa ted for the additional time incurred in t he form of demu rrage reve nue. D emurra ge rev enu e is rec ogni zed in accordance with the ter ms and conditions of the charter parties. Upon com pletion of the voyage, the Co mpan y assess es t he time s pent in port , and a dem urrage claim b ased o n the relevant contractual conditions is submitted to the chart erers. NOTE 1 – continue d The cla im will often be met by co unterc laims due to d iffer ences in the i nterpr etation o f the agreement compared to t he actual circumsta nces of the additional time use d. Based on previo us e xper ience, 95% o f the demur rage claim sub mitte d is r ecog nized a s de m urrage revenue upon initial recogn ition. The Company rece ives the demurrage pay ment upon reaching final agreement on th e amount, which on avera ge is approximately 100 da ys after the original demurrage claim was s ubmitted. Any adjustme nts to the final agreement ar e recognized as demurr age rev enue. Port ex pens es, bun ker s , and co mmissions Port ex penses , bunk er fuel consu mptio n , and commissions ar e recognized as incurred. To the extent that the costs are r ecoverable, costs directly attributa ble to relocate the vessel to the load port are capitalize d and amortized over the co urse of the transportatio n period. Gains and losses on forward bunker contracts and write - down for losses on freight receivables are i nclud ed i n this line. Opera ting ex pens es Operating exp enses , whic h compr ise cr ew ex penses, r epair a nd mai ntena nce ex penses and tonnage duty, are exp ensed as incurred. Profit from sale of vessels Profit from sa le of v essels is reco gnized at the time of deli very to the b uyer, r epresent ing t he differe nce bet ween t he sa les pric e less costs to sell a nd t he carryi ng val ue of t he vess el. Admi nistra tive expe nses Administrative expenses, w hich comprise administrative staff cos ts, management costs, office expenses and other e xpenses relating to administratio n, are exp ensed as incu rred . Other opera tin g expen ses Other o per atin g expe nses primar ily c ompr ise ma nage ment fees paid to co mmer cial a nd techn ical mana gers fo r ma nagin g the fl eet an d profit s and lo sses deri ving fro m the d isposa l of fixed assets other than v essel s. Depreciation and impairment losses and reversals of impairment losses Depreciation and impairm ent losses comprise depreciation o f tangible fixed assets for t he year as well as the write - dow n of the value of assets by the amount by wh ich the carry in g amo unt o f the asset exceeds its recov erable amount. In the e vent of indication of im pairment, the carrying amount is assessed, and t he value of the asset is written down to its recov erable amount equal to the higher of value in use based on net pr esent value of future earnings from the assets a nd its fair value less costs to sell . Subsequent reversal of impairment losses is reco gnize d if the recover able a mount excee ds the carrying amount to the extent that the carrying a mount does not exceed the carryi ng amoun t without any historic impairment losses. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 12 4 NOTE 1 - c ontinu ed BALANCE SHE ET Financial a ssets Financ ial a ssets are i nitia lly rec ogniz ed on th e settlement date at fair value plus transaction costs, except for financial ass ets at fair value through profit or loss, which are r ecognized at fair value. Financial assets are derecognized when the rights to receive cash flows fro m the assets have ex pired or have been transferred. Inve stment s in join t ven tur es Inves tme nts i n joi nt ve ntures com prise inve stme nts i n co mpan ies w hich by a gree ment ar e managed jointly with o ne or more com panies and therefore are s ubject to joint control and i n which the p ar ties have rights to the net assets of t he joint venture. Joint ventures ar e accounted for us ing t he eq uity m etho d. Un der th e equ ity me tho d, the invest ment in joi nt v enture s is initia lly recognized at cost and t hereafter adjusted to recog nize TORM’s share o f the profit or loss in the joint venture. When TORM’s share of losses in a joint venture exceeds the investment in the joint venture, TORM discontinues recognizing its share of further losses. Additional losses are recognized only to the e xtent that TORM has incurred legal or co nstructive obligations or made payme nts o n beha lf of the jo int v enture. Bunkers Bunkers and lube oil are stat ed at the lower of cost a nd net realizable value. Cost is determined using the F IFO metho d a nd inc lu des ex pen ditur e inc urre d in ac qu iring the bunk ers a nd lub e oi l and cost of delivery less discounts. Trea sury sha res Treasury shares are reco gnized as a separate co mponent of equity at cost. Upon subseque nt disposal of treasury shares, any consideration is also recognized dire c tly in equity. Di vid e nd Interim dividends are recog nized as a liability at t he time of declaration. Any y ear - end di vidend is re cog n i z ed as a liability at the date of approval at the AGM. Trade pay ables Trade payables are recog nized at the fair value of t he item purchased and ar e subsequently measured at amortized cost. NOTE 1 - c ontinu ed CASH F LOW STATE MENT The cash flow stateme nt shows how income a nd changes in the balance sheet items affect cas h and cash equivalent, i.e. , how cash is generated or used in the period. The cash flow statement is present ed in a ccor dance w ith th e indir ect met hod co mmen cing with “ Net prof it/(loss ) for t he year”. Cash flow from operati ng activities converts income stat ement items from the accr ual basis of accounting to cash basis. Starting with “Net profit/(loss) for the year”, non - cash i tem s are reversed, and actual paym ents included. Further, the ch ange in working capital is tak en into account. Cash flow from investi ng activities comprises the cash used or received in th e purc hase and sale of tangible fixed assets a nd financial assets as well as cas h from business comb inations. Cash flo w fro m fina ncing act iviti es com prises c hang es in the cas h used or recei ved in borrowings (amount of new borrowings and repayments), purchases or sales of treasury shares and di vide nd pai d to shar eho lder s. Cash and cash eq uivalents including restricted cash comp ri se cas h and sh ort - term b ank depos its w ith a n orig inal maturit y of t hre e mo nths or less . The carrying amount of these assets is approximately equal to t heir fair value. Cash and cash equivalent s including restricted cash at the end of the reportin g period are sho wn i n the conso lidat ed c ash f low s tat ement an d can be reconciled to the related ite ms in the consolidated balanc e sheet. The restricted cash bala nce relates to ca sh provi ded a s security for initia l mar gin calls and negative marke t valu es o n deriva tives as well as a s ale an d leaseback transaction prepaym ent to be release d upon de liver y of the vessel . CRITIC AL ACC OUNTI NG ESTI MATES AND JUD GEMEN TS The preparation of financial s tatements in accordance w ith IFRS requires Management to make estimates and assum ptions that affect the reporte d amounts of assets and liab ilities, the disclosure of contingent assets and liabilities at t he date of the fin ancial statements and the report ed amo unts o f reven ues a nd exp enses during t he repo rting period. T hese estima tes a nd assumptions are affected b y the way TORM app lies its accounting policies. A n acc ount ing estimate is considered critical if t he estimate requires Management to make ass umptions about matters subject to significant uncertainty, if different estimates could reasonably have been used, or if changes in th e estimate that would have a material impact on th e Company’s financial position or results of operatio ns are reasonably likely to o ccur from period to period. Management believes t hat the accounting estimates a pplied are appropriate and t he resulting balances are reasonable. Ho wever, actua l res ults co uld d iffer fr om t he ori ginal est imates requiring adjustments to t hese balances in future periods. Management also makes various accounting judgements in the preparatio n of the consolidated financial statements which can affect the a mounts re cogn i zed . TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 125 NOTE 1 - c ontinu ed Jud ge me nts Management has ass essed that TORM has thre e CGUs w ith in its s ing le re p ortable segment – the product tanker segment – the la rgest of w hich is its Mai n Flee t (co mprisi ng LR 1/LR2 and MR vessels ). The Main F leet is consi dered to be a s ingle c ash g enerati ng unit becaus e the vessels in the Ma in Fleet are largely i nterc hangea ble a n d the cash flows generated by them are in terdep enden t. T hese ve ssel s are oper ated c ollec tiv ely a s a combi ned intern al pool, emp lo yed principally in the spot market a nd actively manage d to meet the needs o f our customers in t hat market, particularly regardi ng the location of vessels meeting required specificati ons and the price of transport rather t han vessel cla ss . Given the technical specificatio ns and capacity of vessels, the Main Fleet is relatively homogenous with a very high degree of i nteroperability. All vesse ls in the Ma in Fle et can handle multiple sizes of cargoes and sail all seas and oceans, over both shorter and lon g distances. The Main Fl eet is monitored and ma naged on an aggregated level as o ne poo l, i.e. , each vessel or vessel class does not g enera te cas h inflo ws which are largely independent of those from other vessels or vessel classes. The MR vessels acquired in 2021 wi th chemical trading capability are operated as all othe r product tanker vessel s and thus incl uded i n the Mai n Flee t CG U. The other groups of CGUs outside the Main F leet comprise the tw o Handysize vessels (whic h are typically used for shorter a nd coastal trade ro utes and more frequent port calls, including for transportation of various clea n petroleum products wit hin Europe and in th e Mediterranean). ESTIMATES Carryi ng amoun ts of vesse ls The C ompany eval uates the carryi ng amount s of the ve ssels (i ncludin g newbui lding s) to deter mine if event s have occurr ed whic h wo uld requ ire a modifi cation of their carryi ng amounts. The recoverable number of vessels is reviewed based on events and changes in circumstances whic h would indicate that t he carrying amount of the assets might not be recov erable. In assessing the recoverabili ty of the vessel s, the Com pany reviews certain ind icators of potential impairment or indication whic h past impairment losses should be reversed such as rep orted sale and purchase prices, market demand and general market conditions. Further, market valuations from leadin g, i ndepe ndent , an d int erna tiona lly rec og nized shipbrokers are obtained on the reporting date as part o f the review for potential i mpairment indicators. If an indication of i mpairment or reversal of past impairment is id entified, the need for recog nizing a n impairment loss or a recognition of a reversal of a past impairment loss is assessed by comparing the carrying amount of the vessels to the higher of the fair value less costs of disposal and the value in use. The review for pote ntial impairment indicat ors and projec tion of future d iscounted cash flows related to th e vess els is co mplex and re quires t he Co mpany to ma ke vario us est imates inclu ding future freight r ates, utilizat ion, earni ngs fro m the v essels , futur e operat ing ex pens es and c apita l expe ndit ur e includ ing d ry - doc king costs and discount rates. For more i nformati on on key assumptions and related sensitivitie s, please refer to N ote 8. NOTE 1 - c ontinu ed All these factors have been historically volatile , espe cially t he frei ght rates . Th e carrying amounts of TORM’s v essels may not represent t heir fair market value at any po int in time , as market prices of seco nd - ha nd vessels to a certain degree tend to fluctuate with changes in freight rates and the cost of newbuildings. However, if the est imated future cash flow or related assum ptio ns i n the futur e exp erie nce c han ge, an impa irme nt wr ite - do wn or reversal of impai rment ma y b e requ ire d. NOTE 2 – L IQUIDITY , C APITAL R ESOURCES AND S UBSEQ UENT E VENTS LIQUIDITY AND CAPITAL RESOURCES As of 31 Decemb er 20 21 , TORM’s cas h and cash eq uivalents including restricted cash totale d USD 172 m (20 20 : USD 136 m ; 201 9 : U SD 72 m) , and u ndrawn and comm itted credit facilities amounted to U SD 38 m (20 20 : US D 132 m ; 201 9 : USD 173 m) . The un drawn and committed cr ed it facilitie s consisted of a USD 38 m leas ing fac ility wi th Bo Comm Leasi ng. TORM had one newbuil ding (2020 : tw o ; 201 9 : fou r ) to be deliver ed in early 2022. The total outstanding CAPEX related to the newbuil ding was USD 38 m (2020 : U SD 86 m ; 201 9 : USD 51 m) and is mai nly fina nced b y the com mitted BoComm Leasing faci lities of USD 38 m. TORM has a Syn dicated Facilities Agreement w hich includes a USD 177 m Ter m Fac ility Agree ment , a USD 5 7m Revo lvin g Credit Facilit y and a drawn USD 45m Working Capital Facility with maturity in 20 26. In 2 02 1 , TORM repa id U SD 83m debt o n eight MR ves sels on the Ter m Facility Agree ment and refinanced the vessels wit h a sal e and le ase bac k ag re emen t . In additio n to the Synd icat ed Fac ilities , T ORM h as a USD 222 m Term Fa cilit y A greem ent w ith Da nish S hip Finance with maturity in 2027. Further, TO RM has a USD 59 m Ter m Fac ility Agre ement an d a USD 26 m Te rm F ac ili ty Agre eme nt both with maturity in 2025, an d a USD 25m Term Fa cility Ag re eme nt w ith ma tur it y in 2026 with Ha mb urg Co mmer cial B ank . TORM also has a Term Facility Agreement wit h China Export - Import Bank of USD 45 m with mat urity in 2 030 an d with KfW - IPEX Ban k of USD 4 1 m wi th m atu r ity in 203 2. Th e f acility wit h China Ex port - Im port Bank was partially repaid in 20 21 , and TORM r efin anced two ve ssel s with a sale and leaseback agreement with Bo C o mm Leas ing. As of 31 Dec ember 2 02 1 , the sched uled mi nim um pay ments on mortgage debt an d bank loans in 202 2 were USD 151 m. TORM has lease debt of a total USD 77 m with var ious Ja pan ese le asin g pro viders , leas e debt of a total USD 197m with Bo C om m Leasin g and of USD 151m with Ch ina De velop ment Bank Financial Leasing. The leas ing fac ilities with Bo C omm Leasing consist of a U SD 5 2m lea sing facility expiring in 2025, a US D 7m le asing facili ty to fi nance scrubber and ballast water treatment systems exp iring in 2024 and a leasin g facility of USD 100m for f inancing three LR2 vessels . Two o f the t hree LR2 ve ssels w ere ref inance d from t he lo an faci lity wit h Chi na Export - Import Bank and on e of them was acquire d by TORM in 2021. F urther, TORM has a l easing facilit y wit h Bo C omm L easin g of USD 38m fo r the newbu ilding LR2 vess el del ivered in 202 1 and a comm itte d leasin g facilit y t o fin ance t he rem aining ne wbuildi ng on o rder . As o f 31 Dec embe r 202 1 , the s cheduled minimum payments o n lease agreements in 2 02 2 wer e USD 37 m . TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 126 NOTE 2 - c ontinu ed TORM’s debt facilities includ e financial covenants related to: • Mini mum l iquid ity (c ash a nd cas h eq uival ents minim um a mount r equir eme nt at all ti mes) • Mini mum se cur ity val ue (lo an - to - value for indiv idual bo rrowi ngs) • Equity ra tio ( mini mum leve l) Du rin g 20 2 1 , 20 20 and 201 9 , TO RM did no t have any cov enant breac hes. S UBS EQ UENT EV ENT S On 05 January 2022, TORM took delivery of th e LR2 newbuilding vessel TO RM Houston and subsequently sold the vess el to new owners in a sa le and leaseback fina ncing transaction which incl uded purcha se o ptio ns for T ORM. On 06 January 2022, t he MR vessel T ORM Astrid was delivered upon completion of a sal e and leaseback financing transactio n whic h included purchase options for TORM. On 15 February 2022 , th e Handysize vessel TORM Tevere was sold to new owners with expected delivery during the first half of 2 022. The g eopolit ica l risk incr eased s ignif icant ly fo llowin g Rus sia’s inv asion o f Uk raine in Fe bruar y 2022. The sanctions imposed on Russia by the We stern nations in creased uncertainty on the gener al en ergy mark et, se nding t he pr ice o f cru de oi l to t he hig hes t leve l sinc e 2014. Th e init ial sanctions were not tar geting the oil trade, howev er , the uncertainty and potential for re - routing of trade flows s ent the crude tan ker freight rates in the Euro pean markets upwards. Due to the continuous development an d complexity of th e situation, the impact on the ta nker markets going forward is u ncertain. Considering our current c ustomer base, main suppliers an d fi nancia l counterparties as well as co venants in our loan fac ilities, we do not expect a ny direct impact on our operations although w e expect increased volatility in freight rates, bunker cost, foreign excha nge rat es , and ve ssel values . NOTE 3 – STAFF C OSTS EMPLOYE E INFORMATION The majority of the staff on vessels are not employed by TORM. Staff costs included in operating expenses relate to t he 106 seafarers employed und er Dani sh contr act ( 20 20 : 1 09 , 201 9 : 1 08 ). The a verag e num ber o f empl oyees i s calculated as a full - t ime equ ivale nt (FTE ). The Executive Director is, in th e event of ter minatio n by t he Co mpany, entitle d to a s evera nce payment of up to 12 months' salary. USDm Total s taff costs Staff costs included in operat ing ex penses Staff costs included in a dministrative expenses Total Staf f cost s com pri se th e fol lowin g Wages and salaries Share - base d compensation Pension costs Other social security cost s Other staff costs Total Avera ge n umb er of perm anen t em ploy ees Seafarers Land - based Total The m ajority of s eafarers on vess els ar e on shor t - term contracts . The number o f seafarers on short - term contracts in 202 1 w as on averag e 1, 449 (20 20 : 1 , 474 , 20 1 9 : 1,5 10 ). Total seafarers ’ costs in 202 1 was USD 75.9m (2020 : U SD 80 .5 m, 20 1 9 : USD 79.5 m) , which is in cluded in “Opera ting e xpenses ”. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 127 NOTE 3 - con tinued USD Non - Execu tiv e Boar d an d Co mmitt ee R emun erati on short t er m Christopher H Boehringer David Weins tein Göran Trapp Torbe n Janho lt - Annette Justad - Total Executive Management USD Salary Taxabl e ben ef its Annual pe rfo r - man ce bo nus Total Executive Management Remuneration Jacob Meldgaard TO RM AS ⁾ TO RM plc ⁾ - - TO RM AS ⁾ TO RM AS adj ustme nt ⁾ - - - - TO RM plc ⁾ - - TO RM AS ⁾ TO RM plc ⁾ - - ⁾ Paid by legal entity as noted As discussed in t he 20 20 Annual R eport, at the time of issue th e CEO’s bonus figure had yet to be agr eed an d inst ead t he Ann ual Re port 20 20 includ ed an esti mate o f DKK 8.4 m (USD 1 . 262m ), equating to 120% of h is base salary. After final agr eement by the Rem unerat ion Committ ee, the CEO’s bonus figure was s et at DKK 7,000 (USD 1, 137m), equating to 10 0% of his base salary. Key mana gemen t p ers onnel consist s of the Boar d of Directors and the Executive Director. Senior M anagement Team The aggregate d com pensation paid by the Grou p to the th ree ( 20 20 : 3) other mem bers o f the Senior Management Team in 20 2 1 (e xcludin g J aco b Meldgaard) was USD 2 .2m ( 20 20 : U SD 2 .1 m 201 9 : U SD 1.7m ), which includes an a ggregate of USD 0.1m ( 20 20 : USD 0.1m , 201 9 : USD 0.1m ) allocated for pensions (defi ned co ntrib utio n plans) for the se indivi dua ls. NOTE 3 - con tinued LTIP elemen t of Jacob Meldg aards remuneration p ackage Grant Date - Apr - - Mar - RSU LTIP g rant ⁾ Exerc ise pr ice per share DKK DKK RSU grant value ass uming vesting USD m USD m ⁾ LTIP award is fixed by the Board of Directors and was communicated via company announcement no of April and announcement no dated March therefore there is no minimum or maximum for and TORM operates an equ i ty - s et tled , s ha re - based co mpensation plan. The fair value of the employ ee ser vices r eceive d in e xchan ge for t he gra nt of s hares is reco gnized as exp ense a nd allocated over the vestin g period. Employment in T ORM throughout the period is i n most cases a prer equis ite f or uphold ing the fu ll ve sting right s in the RSU program. For good leavers subject to the Danis h Sto ck O ptions Act, the RSUs w ill vest in accor da nce w ith th e vest ing s che dule, bu t for al l other leavers, all u nveste d RSU’s s hall be im mediatel y forfei ted for no co nsidera tion . Options are granted under the plan for no co nsideration and carry no dividend or voting rig hts. In accordance with its R emuneration Policy, TORM has gr anted th e CEO a num ber of Restric ted Share Unit s (RS Us), whic h wer e c omm unicat ed i n com pany anno unc ement no. 2 dat ed 18 Ja nu ary 201 6, c omp an y announcement no. 1 0 dated 25 April 2018 , and c omp an y annou nce ment no. 7 dated 18 March 2021. There are no p erformance cond itions associated with th e grant of RSUs. The original RSUs gra nted to the CEO in 2016 a mounted to 1,276,725 a nd vested over a five - ye ar period, with one fifth of t he grant amount vestin g at each anniversary during the f ive - year pe ri od . The ex erc is e p ric e f or the 2016 RSUs was DKK 96.3. As of 0 1 January 2017, one fifth o f the original grant, amo unting to 255,345, vested w ith an exercise period e nding 31 December 2017. None of these RSUs were exercised. As of 0 1 January 2 018, one fifth of the original gr an t, amount ing to 255,345 , vest ed wi th an exer cise period endi ng 31 D ecember 2018. None o f thes e RSUs were exercised. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 128 NOTE 3 - con tinu ed As d etaile d in c omp an y announcemen t no. 10 issued on 25 April 2018, the CEO was granted a total of 766,035 RSUs with effect as of 0 1 Ja nuary 2018, whic h wil l vest in e qual insta lments over the next three years. T he RSU grant corres ponds to the unvested portion (60%) of the CEO ’s origina l fi ve - year grant from 2016. It has been agreed that the CE O will not exercise the ori ginal RSUs. The exercise price for each RSU is DKK 53.7, corresponding to the average price of TORM shares during 90 cale ndar days preceding the ap proval at TORM plc ’ s AGM on 12 April 2018 plu s a 15% premium. Veste d RSUs may be exerc ised fo r a perio d of 3 60 da ys from each vestin g date. As of 0 1 January 2019, one fifth of the grant, amounting to 2 55,345, vested with a n exercise period endin g 31 Dec ember 2 019. Thes e RSUs amounting to o ne third of the re - grant issued on 25 April 2018 wer e exercis ed. In Nove mber 2019 , 255,345 RS Us were ex ercise d by Execut ive Dire ctor Jacob Meldgaard. The total value of the RSU al location is calculated base d on the Black - Sch ole s mod e l and is include d in th e over all cos t estim ate fo r the Co mpan y ’ s Long - Term I ncent ive Program (LTIP) (cf. com pany announcements dated 1 8 January 2016, 8 March 2016 and 25 April 2018) . The value of the 201 8 grant, USD 0.9m, is est imated taking into accou nt that as part of the gra nt the CEO will not e xercise the unvested portion of the 2016 grant. The valuatio n is based on the Black - Scho les mode l with an e xercis e pr ice of D KK /share 5 3.7, a market val ue of o ne TO RM A - share of DK K 49.5 (the clo sing p rice per A - sh are at the time of a llocation and assuming 10 0% ves ting) . The single figure rem uneration table for the CEO does not include any amou nts in relation to the RSU awards since, as of the date each tranche v ested, the Compa ny ’ s share price was less than the exerc ise price. As detail ed in com pan y an nounc eme nt no. 7 is sue d on 1 8 Ma rch 2 021, the CEO was granted a to tal of 255,200 RSUs w ith effect as of 0 1 Jan uary 2022, which will vest in equal i nstalm ents o ver the next t hree y ears. Th e ex ercise price fo r eac h RSU is DKK 53.5, corresponding to the avera ge price of TORM s hares in the 90 cale ndar days preceding the publica tio n of TOR M plc ’ s 2020 Annual Report plus a 15% premium. Vested RSUs may be exercis ed for a perio d of 3 60 da ys from ea ch v estin g date NOTE 3 - c on tinued Lo ng - term emp loye e bene fit oblig ation s The obligation comprises a n obligation under the i ncentive programs to deliver Restricted Share Units in TORM plc at a determinable price to th e entity's key personnel. The RSUs granted entitl e the holder to acqui re one TORM A - share. The program comprises the following number of shares in TORM plc: Numbe r of s hares ( ) Outstanding as of Janu ary Granted during the period Exercised during the period - - - Expired during the pe riod - - - Forfeit ed durin g the perio d - - - Outsta nding a s of D ecem ber Exerci sable as of Decem ber - - - In 2019, the Board a greed to grant a total of 1, 001,100 RSUs to ot her management. The vestin g period of the progra m is t hree y ears fo r key e mploye es. Th e exer cise price is s et to DKK 49 .7. The exercise period is 12 months after the vesting date . Th e fai r v alue of the options granted in 2019 was determined us ing the Black - S choles mod el an d is not ma terial. The a vera ge re maini ng contractual life for the restrict ed shares as per 31 Dec ember 2019 is 1. 5 years. In 2020, the Board agr eed to grant a total of 1,047, 389 RSUs to o ther ma nage ment. T he ves ting period of the progra m is t hree y ears fo r key e mploye es. Th e exer cise price is s et to DKK 69 .9. The exercise period is 12 months after the vesting date. The fair value of the o ptions granted in 2020 was determ ined us ing the Blac k - Scho les mode l and is not mater ial. T he a verage rema inin g contractual life for the restrict ed shares as per 31 Dec ember 2020 is 1.5 years . In 2021, the Board agree d to grant a total of 1.3 55,121 RSUs to other management. The vesting period of the progra m is t hree y ears fo r key e mploye es. Th e exer cise price is s et to DKK 53 .5. The exercise period is 12 months after the vesting date. The fair value of the o ptions granted in 2021 was determine d using the Black - Sc holes mod el an d is not mat erial. The a vera ge re maini ng contractual life for the restrict ed shares as per 31 Dec ember 202 1 is 1.5 years. ACCOUNTING POLICIES Empl oyee b enefi ts Wages, salaries, social sec urity contributions, holiday and s ick le ave, bonuses and other monetary and non - monetary benefits are r ecognized in the year i n which the employees ren der the associated services. P lease also refer to the accou nting policy for share - based pay ment. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 129 NOTE 3 - con tinu ed Pe ns io n pl ans The Group ha s entered into defined contribution plans only. Pension costs rel ated to defined contribution plans are recor ded in the income stat ement in the year to w hich they relate. Share - base d pa yment s The Group makes e quity - settled share - based payments to cert ain emp loyees , w hich ar e measured at fair value at t he date of grant and ex pensed on a straight - li ne basis over the vesting period, based on th e Group’s estimate of shar es whic h wil l event ually vest. The fair v alue of the share schemes is calculated using the Black - Scholes model at the grant date. NOTE 4 – REMU NERATI ON TO A UD ITORS A PPOINTED AT THE P ARENT C OMPANY’S A NNUAL G E NERAL M EETI NG USDm Au dit fees Fees pa yable to the Compa nys auditor for t he audit of the Comp anys annu al accounts Audit of the Companys subsidiaries pursuant t o legislation Total aud it fees Non - aud it fe es Audi t - relat ed ser vices Tax services - Total non - au di t fe es Total Under SEC regulations, the remuneration of the auditor of USD 1.0 m ( 20 20 : U SD 0 . 7 m, 201 9: USD 0. 7 m) is requ ired to be present ed as fo llows: A udit U SD 0.8 m ( 2020 : USD 0.6m, 201 9: USD 0. 6m) , Audi t - related USD 0.1m (2019: other au dit related se rvi c es US D 0 .1 m) and tax se rvi c es USD 0.1 m ( 2020 : t ax related services USD 0. 1m). EY w as appointed as the Group’s auditors for the year e nded 31. December 2020. Accordingly , comparative figures in the ta ble above for t he year ended 31 Decemb er 2019 is in respec t of remun eratio n paid to the Group’s previous auditor , Deloitte . Ou r Aud i t Commit tee pre - a pproves all audit, audit - re lated and non - audit services not prohibited by law to be performed by our independent auditors and associated fees prior to the engagement of the i ndependent auditor with respect to s uch services. NOTE 5 – LOAN R ECEIVA BLES USDm Lo an rec ei v able s Cost Balance as of J anuary - Addit ions durin g the year - - Bala nce as of Dec ember Expected cre dit loss Balance as of January - Addit ions durin g the year - - Bala nce as of Dec ember Carrying amo unt as of De cember These lo ans w ere iss ued as part of sale an d lea se bac k transaction s in 20 19 for two MR vessels . The l oans will mature in 202 6 and h a ve an interest rate applicable , fixed at 1% per annum . Expe cted credi t l oss is r ecogni zed b ased on the 1 2 - mon th e xpe c ted cre di t l osse s. ACCOUNTING POLICIES Loan re ce iv ab les Loan receivables are initially reco gnized on the balance s heet as fair value less transa ction costs. Subsequent to initial recognitio n, loan receivables are measur ed at amortized cost. A mortized cost is def ined as th e amo unt i nitiall y reco gnize d re duce d by prin cipa l re paym ents a nd allowances for the expected credit loss (ECL). TORM ANNUAL R EPORT 2021 C ONSOLIDATED FINANCIAL STATEMENTS 1 130 NOTE 6 – TANGIBLE F IXED A SSETS USDm Land and buildings Cost Balance as of J anuary Exchange rate a djust ment - - - Additi ons Disposals - - - Bala nce as of Dec ember Depreciation Balance as of J anuary - Disposals - - - Deprec iation fo r th e year Bala nce as of Dec ember Carrying amo unt as of De cember NOTE 6 - con tinu ed USDm Vessels an d capitaliz ed dry - dock ing Cost Balance as of January Additi ons Disposals - - - Transferred from prepayments Transferred to assets hel d for sale - - - Bala nce as of Dec ember Depreciation Balance as of J anuary Disposals - - - Deprec iation fo r th e year Transferred to assets hel d for sale - - - Bala nce as of Dec ember Im p airm en t Balance as of J anuary Impairment losses on tangible fixed assets Reversa l of i mpairm ent ⁾ - - - Transferred to assets hel d for sale - - - Bala nce as of Dec ember Carrying amo unt as of De cember ⁾ For additional information regarding impairment considerations please refer to Note Included in the carryin g amount for “Vessels and ca pitalized dry - dock ing” are ca pita lize d dry - docking costs in the amount of USD 65.9m (2020: USD 66.1m, 2019: USD 60 .7m). Includ ed i n the carrying amount of “ Vessels and capitalized drydocking” are vessels on short term time charter leases (as lessor) in the amount of USD 24 7 .6m (2020: 201. 1 m , 2019: 75.9 m) . Please r efer t o N ote 19 for expec ted rede livery of th e vesse ls . TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 131 NOTE 6 - con tinu ed USDm Pre paymen ts on ve ssel s Cost Balance as of J anuary Additi ons Transferred to vessels - - - Bala nce as of Dec ember Carrying amo unt as of De cember During the year borrowing c osts of U SD 0.6 m (2 020: 0.0 m, 2019: 0.0m) hav e been capitalized . The capitalization rate was 3. 7 % (2 020: 0. 0%, 2 019: 0.0%) USDm Oth er plan t an d opera tin g equi pm ent Cost Balance as of J anuary Exchange rate adjustme nt - - - Additi ons Disposals - - - Balance as o f Decem ber Depreciation Balance as of J anuary Exchange rate adjustme nt - - - Disposals - - - Deprec iation fo r th e year Bala nce as of Dec ember Carrying amo unt as of De cember For information o n assets p rov ide d as collateral security, please refer to N ote 17 . Please r efer t o N ote 8 for information on impairment testing. The depreciation expens e related to “ Oth er pla nt an d operat ing e quip ment ” of USD 2.4 m relates to “ Administrative expense ” ( 2020 : US D 1. 2m , 201 9 : USD 1. 0m) . De preciat ion an d impa irment losses on tangible fixed assets on “ Ve sse ls and c ap it aliz ed dry - docki ng ” relate to operating expenses. NOTE 6 - con tinu ed ACCOUNTING POLICIES Vesse ls Vessels consist of owned vessels and leased vessels. The accounting policy f or leased vessels is specif ied under “L eases”. Owned v essels are m easured at cost less accumulated depreciation and accumulated im pairment losses. Cost comprises ac quisition cost and costs d irectly related to the a cquisit ion u p unti l the ti me w hen the asset is ready for us e, inc luding interest expens es incur r ed during the period of construction. All major components of vessels (scrubbers, etc.) except for dry - docking costs are depreciated on a stra ight - line basis to the esti mated residual value over their estimated useful li fe , which TORM estimates to b e 25 y ears. TORM considers that a 25 - year depr eciab le life is appropriate and c onsis tent with w hat is us ed by ot her shipowners with com parable tonnage. Depreciatio n is based on cost less the est imated residual valu e. Resid ual value i s estim ated as th e ligh tweigh t tonnage of each vessel multiplied by scrap value p er to n. The useful life an d the r esidual value o f the vessels are re viewed at leas t at ea ch finan cial y ear - end based on mark et conditions, regulatory require ments , and TOR M’ s business pl an s. T ORM al s o ev aluates the carryin g amounts to determine if events have occ urred wh ic h ind i ca te impairment and woul d require a modification of the carry ing amounts at the re porting date. Prepayment on vessels is measured at costs incurred. Dry -docking Approximately ever y 24 a nd 6 0 mo nths , de pendi ng o n the nat ure of wor k and exte rnal requir ements, the vessels ar e req uired t o under go p lanned dr y - dockings for replacement of certain components, major repairs and major mai ntenance of other compo nents, which cannot be carried out whi le the v essels a re op eratin g. Thes e dry - dock ing costs are capitalized and depreciated on a straight - line ba sis ov er the estimat ed per iod u ntil the next dry - docking. T he residual value of such com ponents is estimated at nil. The useful life of the dr y - docking costs i s reviewed at least at each financial year - end bas ed on market conditions, r egulatory requ irem ent s , and TORM’s bu siness plans. A portion of the cost of acquiring a new vessel is allocated to the compon ents expected to be replac ed or refurb ished at the next dry - docki ng. Depreciation t her eof is carrie d over the perio d unti l the next dry - docking. For newbuildings, the initia l dry - docking asset is estimated bas ed on the expected costs related to the first - comi ng dry - doc king, whic h agai n is base d on experience and past history of similar vessels. For second - hand vessels, a dry - docking asset is also s egregated and capitalized se parately, taking into account the normal docking intervals of the vessels. At sub se que nt d ry - d ockings, the costs comprise the a ctual costs incurred at the dry - docki ng yard. Dry - docking costs may include the cost of hiring crews to carry out replacements and repairs, the cost of parts a nd materials used, the cost o f travel, lodging and su pervision of Company personnel as well as the cost of hiring third - party personnel to oversee a dry - dock in g. Dry - docking activities include, but are not limited to, t he inspection, service o n turbocharger, replac ement o f sha ft seals , servic e on bo iler, r eplace ment o f hull a nodes , apply ing of an ti - fou l ing and hull paint, steel repa irs as well as refurbishme nt and replacement of other parts of the vessel. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 132 NOTE 6 - con tinu ed Pre paymen ts on ve ssel s Prepayments consist of prepayments related to newb uilding contracts for vessels not yet del ivered and include th e share of borrowi ng costs directly attributable to t he acquisition of the under lying vess el. W hen a v esse l is deliver ed, t he pr epai d amo unt is rea lloca ted to the f inan cial statement line “Vessels an d capitalized dry - doc kin g” . Land and buildings and other plant and operating equipment Land and buildi ngs and other plan t and oper ating equi pmen t consist of leaseh olds reg arding office buildings, leasehold im provements, company cars , IT equipment and soft ware and is measured at historical cost l ess accumulated depreciation an d any impairment loss. A ny subsequent cost is includ ed in the asset’s carryin g amount or recognized as a s eparate asset only when it is pro bable that future economic benefits are associated with t he item and the cost of the item can be measured reliably. Depreciat ion is based on the straig ht - line m ethod o ver t he estimated useful life of the ass ets. The current estimates ar e: • Land and buildings • Office buildin gs: Over t he s horte r of the r emai ning leas ing t erm a nd the e stimated useful life • Leasehold improvements: O ver the shorter of the remaining leasi ng term and the esti mated use ful lif e • Oth er pla nt an d oper atin g equ ipm ent • Company cars: Over the lease t erm, typically 3 years • IT e quipmen t: 3 – 5 years • Software: 3 – 5 years • O the r eq ui pm en t 3 – 5 years The de preciat ion co mmenc es wh en the as set is a vaila ble for use, i. e. , w hen it is in t he lo catio n and condition necessary for it to be capable of op erating in the manner intende d by Management. For a ri ght - of - use asset, d epreciation commences at the commence ment date of the lease. Ass ets held f or sal e Assets are classified as held - for - sale if the carrying amou nt will be recovered principally through a sales transaction rather tha n through continuing use. T his condition is regarded as met only when the asset is available for immediate sale in its present condition subject to terms whic h are usual and customary for sales of such assets, and when its sale is highly probable. Management must be committed to the sale, which sh ould be exp ected to qualify for recognition as a comp let ed sal e with in on e year fr om th e da te of cl assi fic ation . Assets held for sale mai nly refer to vessels being sold a nd are measured at th e lower of their previous carrying amo unt and fair value less costs to sell. Gains are recognized on delivery to the new owners in t he inco me st atement in the item “Pr ofit from sale of v essels ”. Ant icipat ed losses are recognized at the time when the asset is classified as held - for - sale in the item “I mp ai rmen t l o sses on tangible and intangible assets”. NOTE 7 – LEASING TORM l eases o ffice b uildings , s ome veh icles , and other administrative equ ipment. With the ex ce pti on of sho rt - ter m leases a nd leas es of low - value ass ets, ea ch lea se is ref lect ed on the balance sheet as a rig ht - of - use asset wi th a corr espo ndin g le ase li abili ty. Th e righ t - of - use as se ts are included in the financial statement line item in w hich t he cor respo nding u nde rlyi ng a sse ts would be pres ented if they were owned. Pleas e refer to N ote 6 . As of 31 Dec embe r 202 1 , TORM had recognize d the foll owing right - of - use assets: USDm Land and building s Other plant and operati ng equipme nt Cost Balance as of January Exchange rate adjustme nts - - Additi ons Disposals - - Bala nce as of Dec ember Depreciation Balance as of J anuary Disposals - - Deprec iation fo r th e year Bala nce as of Dec ember Carrying amo unt as of De cember TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 133 NOTE 7 - c ontinu ed USDm Vesse ls and capitalize d dry -docking Land and building s Other plant and operating equipme nt Cost Balance as of January Additi ons Disposals - - - Balan ce as of Dec ember - Depreciation Balance as of January Disposals - - Deprec iation fo r th e year Balan ce as of Dec ember - Carr ying amount as of Decem ber - The sale and leaseback transactions relating to vessels wer e all classified as financi ng arrangements prior to im plementation of IFRS 16 a nd did not result in dere cognition of the underlying assets as contro l was retained by th e Group. During 2020, the vessels were disposed. NOTE 7 - c ontinu ed USDm Vesse ls and capitalize d dry -docking Land and building s Other plant and operating equipme nt Cost Balance as of January Additi ons Disposals - - - Balan ce as of Dec ember Depreciation Balance as of January - - Disposals - - - Deprec iation fo r th e year Balan ce as of Dec ember Carr ying amount as of Decem ber The table below describes the nature of t he Group’s leasing activities by type of right - of - use asset recogn ized o n the balanc e she et as of 31 D ecemb er 2021 : Land and building s Other plant and operati ng equipme nt No of right - of - use as sets l eased Rang e of re main ing t erm - years - y ears Avera ge rema ining l ease ter m year s y ears No of leases with extension options No of leases with options to purchase - - No of leases with termination o ptions Leas e liabi lities reg a rdin g ri gh t - of - use assets are incl uded o n the balance s heet unde r “Borrowings” . TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 134 NOTE 7 - c ontinu ed USDm Maturity analysis - contractual undiscounted cas h f low Less t han one year One to five years More tha n five years Total undiscounted lease liabiliti es as of Decem ber Lease liabilities included under “Borrowings” as of D ecem ber Non - current Current Extension and termination opt ions are included in sever al leases in order to opti mize operational flexibility in terms of managing contracts. The lease term determined by TORM is the non - cancellable period of a lease, to gether with any e xtension/termination options if th ese are/are not reasonably certain to b e exercised. Lease paym ents not r ecognize d as a liab ility T ORM has elected not to rec ogn ize a lease lia bilit y for shor t - ter m leases (leas es of an expec ted term of 12 months or less) or for leases of l ow value assets. Payments ma de under such leases are expensed on a stra ight - line basis. T he exp ense s relating to pa yments not rec ogn i zed as a lease liabil ity are insign ificant . Cash out flow for lea ses The total cash outflow for leases amounts to USD 2.8 m ( 2020 : 2. 3m , 2019: 2.9m ). NOTE 7 - c ontinu ed ACCOUNTING POLICIES TORM assesses whet her a contract is or contai ns a lease at inception of t he contract and recognizes right - of - use assets a nd corresponding leas e liabilities at the leas e commen ceme nt date, except for short - term leases and leases of low value. For these leases, TORM recognizes the lease payments as a n operating expense o n a straight - line basis over t he ter m of th e leas e. Agreements to charter i n vessels and to lease lan d and buildings and other plant and operating equipment for which T ORM substantially has th e control are recogniz ed on the balance sheet as righ t - of - use assets and initially measured at cost, w hich comprises the i nitial amount of the leas e liabi lities a dju st ed for any le ase p ayments mad e at or befor e the c omme nceme nt date. Subs equent ly t he ri ght - of - use assets are measured at cost less ac cumulated depreciation and impairment losses. The rig ht - of - use assets are depr eciated and written down u nder the same acco unt ing polic y as the asse ts o wned by t he C ompa ny or ov er the leas e per io d de pendi ng o n the lease t erms. The corresponding lease o bligation is recognized as a l iability in the balance sheet u nder “Borrowings” and initially measured at the present value of the lea se payments that are not paid at the commence ment date, the Company uses its incremental b orrowing rate at the lease comme nceme nt dat e becaus e th e inter est rat e impl icit in t he lea se is not rea dily determi nable. Subs equent ly leas e liabi lities ar e me as ured at amorti zed cos t usin g the ef fecti ve inter est metho d, where the lease l iabiliti es are r emeas ured w hen th ere is a chan ge in f uture lea se payments. L eases to charter o ut vessels are classified as o perating leases as the leases are short term i n nat ure a nd us uall y les s tha n one year. Chartered out vessels are presented as part of Vessels and ca pita lize d dry - docking. Please refer to N ot e 6. T he leas e inc ome is reco gnized i n the income statement on a stra ight - line bas is ov er the lease t erm. Following a sale transaction, for agreements to immediately charter - in the related vessels (sale and leaseback) but for w hich TORM maintains substantially all the risks a nd rewards incidental to ec onom i c ow ne rsh ip including repurchase options at low er value that the initial sal es price , the proceeds received are presented as a financial liability in “Borrowings”. No gain or loss is recor ded, and t he as set re mains recogn ized on t he ba lance s heet. TORM ANNUAL R EPORT 2021 CO NSOLIDATED FINANCIAL STATEMENTS 1 135 N OTE 8 – IMPAIRME NT T ESTING As of 31 Dec embe r 20 2 1 an d 20 20 , Mana gement test ed the ca rryi ng amou nt of it s fleet for impa irme nt with in CG Us, b eing t he Ma in Fl eet a nd t he two h andysize vessels. Each CGU sits within a single reportable s egment – the Tan ker Seg ment – and comprises the following groups of vessels: Mai n Fle et : Co mpris ing T ORM’ s LR1 /LR2 and M R vess els, the Main F leet is o per ated co llec tive ly as a combined internal pool, employed principally in th e spot market and activ ely managed to meet the needs of our customers in that market, particularly regarding the locat ion of v essels meet ing requ ired s pecifi cati ons. Al l vessel s in th e Main F leet are able to han dle mul tiple size s of refined oil cargoes and sail all seas and oceans, over both shorter and long distances. Given the technical specifications and capa city of ve sse ls, th e Mai n Flee t is r elati vely homo geno us wit h a very high d egree of int eropera bilit y. The mai n fleet incl udes the 2021 acqu i red MR vessels with ch emi cal tr adi ng c ap abil i ty , wh ich are operated as a ll ot her product tanker vessel s. Handys ize: Compr i sin g two product tank ers with a cargo carrying capacity of 35,000 – 37,000 dwt, these smaller vessels ar e typically used in shorter a nd coastal trade routes, inclu ding for transportation of various clea n petroleum products wit hin Europe and in th e Mediterranean . In both years, the recov erable amount of the CG Us was based o n their value in use. T he results of impairment testing ar e summarized as follows : Im p airm en t losse s a nd ( rever sals ) Discount rate app lie d Reco vera ble amount Excess val ues (valu e in u se o ver carrying amount) 202 1 2020 202 1 2020 202 1 2020 2021 2020 CGU USDm USDm % % USDm USDm USDm USDm Main F leet - - 6.7 7.0 2,276 1,7 47 2 69 8 Ha nd ysi ze - 5.5 6.7 7.0 26 27 0 0 Total - 5.5 2, 302 1, 774 2 69 8 Bas e d on th i s review, Manage ment concluded that as of 31 Dec embe r 202 1 • Assets within the Main F leet were not im paired as the value in us e was hig her tha n the carrying amount • Th e two h and y si ze vessels were not im paired as the va lue in use was in lin e with the ca rry in g amount on a vessel - by - vessel basis Impair ment s reco gniz ed d uring 2 021 of USD 4 .6 m (2020: USD 5.6m) as set out in N ote 6 rel ate to the di spo sa l of i ndiv idual ve ssel s during the yea r. T he impairment test i s sensitive to reasonably possible change s in key assum ptions. These sensitivitie s are set out on the next page. NOTE 8 - continue d KEY ASSUMPTIONS USED IN THE DETE RMINATION OF V ALUE IN USE The ass essme nt of th e val ue in u se of ea ch CG U was based on t he net present value of t he expect ed fut ure cas h flows . The freight rate est imat es in th e per iod 202 2- 202 4 are based on TORM’s bu siness plans. Be y on d 2 02 4 , the freight rates are based on TORM’s 10 - year historical average rates, adjusted for expected inflation of 2% in line wit h US F edera l Reserv e and E CB target over the medi um term . T ORM believes that the approac h used for long - term ra tes appropriately reflects the cyclica l nature of the shipping in dustry and is the most re liable estimate fo r per iods beyo nd tho se inc lude d in its thre e - year business plan. T ORM’s busine ss plans for 202 2- 202 4 and be yond also includ e the anticipated benefit arising from t he insta llatio n of scr ubbers on c ertain o f the Group’ s vesse ls (th e “scr ubber premi um”), ba sed on current market differentials betwe en the cost of heavy a nd low sulphur fu el oil. As part of determining fair value, the impact fro m climate changes and the climate agenda on the g lobal o il d eman d, em issio n reg ulatio ns a nd oper atin g expenses, etc ., ha ve been consi dered with focus on the short to medium term i mplications and our commitm ent to reduce CO 2 emissions by 40% by 2025 an d 45% by 2030 . Howe ver, no adverse impact from climate chan ges ha ve bee n antici pate d in impa irm ent test ing our current fleet. We continue to monitor the development closely and are working on more specific plans for our ambition to have zero CO 2 emissions from o perating our fleet by 20 50 , which m ay impact our impa irmen t testin g in the futur e. The discount rate us ed i n the val ue in us e c alcul atio n is ba se d on a Wei ghte d Aver age Cost o f Capital (WACC) of 6. 7 % as o f 31 Dec ember 202 1 (2020 : 7. 0 %, 201 9 : 7.5 %). WACC is calcu lated by using a standard W ACC model in wh ich cost of equity, cost o f debt and capital stru ctu re are the key parameters. As of 31 Dec embe r 20 21 , th e 1 0 - year historical average spot freight rates use d in the va lue in us e calcula tio n are as follows: • LR2 : US D/d ay 19,111 (2020 : U SD/ da y 1 8, 884 , 20 1 9 : U SD/ d ay 17 , 986 ) • LR1 : USD/ da y 17 , 856 (20 20 : U SD/ da y 1 7, 443 , 20 1 9 : US D/d ay 1 7, 060 ) • MR : U SD/ da y 16 , 044 (20 20 : US D/ day 1 6, 076 , 2 01 9 : USD/day 15 ,80 2 ) • Ha nd ysi ze : U SD/ da y 13 , 208 (20 20 : USD/day 13, 435 , 201 9 : U SD/d ay 1 3, 60 1 ) TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 136 NOTE 8 - conti nued Operating expenses a nd administrative expenses are estimated based on TORM's bu siness plans for the period 202 2- 202 4 . Beyond 202 4 , operating e xpenses are adjusted for 2 % inflation (20 20 : 2%) and administrative ex penses are adjusted for 2 % inflation (20 20 : 2%) in l ine with U S F ederal Reserv e and E CB tar get o ver th e med ium t erm. The product tankers are e xpected to generate normal income for 25 years from delivery from the shi pyard. G iven the curr ent a ge pro file o f the ta nker f leet, t he avera ge re maini ng life would be approximately 14 years (20 20 : approximate ly 15 years). The est im a ted r e sid ual valu e of the vessels is bas ed o n TO RM’s gree n re cycli ng polic y . T he i mp ai rmen t tes t is sensitive to reasonably p ossible ch anges in the k ey assump tions , which may result in future impa irments. These are r elated to t he futur e dev elopme nt in fr eight r ates, the WACC applied as discounting factor in th e calculations, and the development in operating expenses. All other things being equal , the sensitivities to the value in use have been assessed as follows: • An increase/decrease i n the tanker freight rates of USD/day 1 ,000 would r esu lt in a n increas e/decr ease in the value i n use o f USD 285 m an d U SD 6 m for the Main Fleet and th e two h and y siz e vessels , re spe c tiv ely • An in crease / decr ease i n WACC of 1.0% woul d resu lt in an increas e /decrease in t he value in use of approx . U SD 1 48 - 1 67 m and USD 2 m for the Main F leet and the two h and y si ze vessels , respect ively • An increase/decrease i n operating expenses o f 10.0% would result in a decrease/increase in the valu e in use of USD 201 m and U SD 4 m for the Main Fleet an d the two h andy s ize vess els , respect ively As outlined above, the i mpairment test has bee n prepared on the basis that the Company wi ll continue to operate its v essels as a fleet in the curr ent set - up. The fair val ue based on brok er v alues fo r ves sels i n the Ma in Flee t incl uding th e order book and chartered - in vessels was USD 1, 892 m (2020 : USD 1 ,577 m) , wh ic h is USD 72 m bel ow the carrying amo unt (2020 : whi ch was USD 245 m b el ow the carrying amount) . The fa ir value bas ed on broker values for th e Handy vess els was 21 m (20 20 : USD 22 m) , w hich is USD 3 m belo w t he carrying amount (20 20 : whi ch wa s USD 10 m belo w the carrying amount). ACCOUNTING POLICIES Impa irmen t of ass ets Non - current assets are review ed at the reporting date to determine a ny indication of impairment including a si gnificant decline in either t he assets’ market value, increase to market rates of return or in the cash flows expected to be generated by the fl eet. If impairment indicator(s) exists, an impair ment test on a cash - generat ing u nit (CG U) leve l will be pe rfor med. A c ash - generating unit is determined as the smallest group o f assets that generates indep ende nt cas h inf lows. An ass et/C GU is impa ired if the rec ov era ble am oun t i s be lo w the carrying amount. NOTE 8 - continue d The recoverable amou nt of the CGU is estimat ed as the higher of fair value less costs of disposal and v alue in us e. T he va lue i n use is the pres ent value of t he f uture cash flow s exp ec ted to be derived from a cas h generating unit (CGU), utilizing a pre - tax discount rate that reflects c urrent market estimat es o f the t ime val ue of mo ney an d the r isks s pecifi c to the unit fo r whi ch the estimates of future cas h flows have not been a djusted. If th e rec overa ble a mo unt is less t ha n the carrying amount of t he cash generating unit, th e carrying amount is red uced to the recoverable amount. The impairment loss is reco gnized immediately in the income statement. Where an impairment loss subsequently reverses, the carrying amou nt of the cash gene rating unit is increased to the revised estimate of the reco verable amount, b ut so that the increased carrying a mount does not exceed the carrying amo unt that would have b een determined, had no impairment loss been recognized in prior years. The Management in T ORM has assessed that T ORM has three CG Us, being the Main Fleet a nd th e tw o h andysize vessels. For the purpose of ass essing impairment, assets a nd time charter an d bareboat contracts are grouped at the l owest levels at which impairment is monitored for in ternal management purposes. NOTE 9 – N ON -C URRENT A SSETS The C ompany’s n on - current assets are domici led in the foll owing countr ies: USDm UK Denmark Singapore Oth e r Not allocated Non - current assets TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 137 NOTE 10 – FINANCIAL I TEMS USDm Financial in come Inter est i ncome fro m ca sh an d c ash eq uiva lents inc ludi ng restricted cash ⁾ Exchange rate adjustme nts including gain from forwar d exchange rate contracts - - Total Financial exp enses Interest expenses on borrowings ⁾ Financ ial e xpens es ar ising fro m lease liabi lities rega rding righ t - of - use asse ts Exchange rate adjustme nts including loss from forw ard exchange rate contracts Commit ment fee Amortization of interest rate swaps - - Ineffectiveness on interest rate s waps - - - Other fina ncial expens es Total Total financial items - - - ⁾ Interest for financial assets and liabilities not at fair value through profit and loss ACCOUNTING POLICIES Financial in come Financ ial inco me compris es inter est inco me, realiz ed and unrea lized ex chan ge rate gai ns relating to transactions in curr encies other than the functional c urrency, realized gains from other equity investments an d securities, unrealized gains fro m securities, dividends rec eived and other financial income. Interest is recognized in accordance with the accrual basis of acco unting taking into account the effective interest rate. Dividends from other investments are reco gnized when t he r ight to r eceiv e pay me nt has been dec ided, whic h is typic ally whe n the divi dend has been declared and can be received without conditions. NOTE 1 0 - continue d Financial exp enses Financ ial e xpens es co mpris e int ere st exp enses , fina ncin g cos ts of leases lia biliti es, r ealiz ed and unrealized exchange rat e losses relating to transactions i n currencies other than t he functional currency, realized l oss es fro m other equity invest ments and sec urities , unr ealize d losses from securit ies and oth er fina ncial exp enses inc luding pay ments under interes t rate he dge instruments. Interest is recogn ized in accordance with the accr ual basis of accounting tak ing in to a ccount the eff ectiv e interes t rat e. NOTE 11 – FREIGHT R ECEIV ABL ES USDm Analy sis a s of D ecem ber o f fr eight r ece ivabl es Gross freight receiv ables Not d ue Due days Due be tween and da ys Due days Total g ross Al lowanc e f or e xpect ed credi t l oss Total net M anagement mak es allowance for expec ted c redit loss base d on the sim plifi ed a pproa ch to provide for expected credit l osses, which pe rmits the u se of the lifetime expected loss provisi on for al l trade r eceiva bles. Ex pected credit loss for receivables overdue more than 180 d ays is 25% - 100 %, depe ndi ng on the category of the recei vab le . Expected c redit loss for receivables overd ue mor e than o ne yea r is 1 00%. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 138 NOTE 1 1 - c ontinu ed Movements in provisions for impairment of freight rec eivables during the year are as follows: USDm Allow ance fo r expected credi t loss Balance as of J anuary Adjustment to prior years - - Provisions for the year Provisions reversed during t he year - - - Bala nce as of Dec ember Allowan ce for expe cted cr edit lo ss of fr eight receiva bles ha s been recog nized in the inc ome statem ent un der “Por t exp enses, bunkers and co mmiss ions”. Allowance for expected cr edit loss of freight receiva bles is calculated using an ag eing factor as well as specific customer k nowledge and is base d on a provision matrix on days past due. All allowance for expected credit loss relates to receivables d ue > 180 days. ACCOUNTING POLICIES Recei vables Outstanding freight recei vables and other receivables which are expected to be realize d within 12 mon th s f rom th e balan ce she et d ate a re cla ssifi ed a s “Freig h t recei vable s” or “Othe r receivables” and presented as current assets. Receivables are at initial reco gnition measured at their tra nsaction price less allowance for expect ed cred it los ses over the l ifetim e of th e rece ivable a nd ar e subs equent ly meas ured at amortized cost adjusted for changes in expect ed credit losses. Derivative financial instr uments includ ed in ot her rec eiva bles ar e meas ured at fair value. Expe cted cr edit losses Expected credit losses at initial recognition are determi ned using an ageing factor as well as a specific customer knowledge, such as customers’ ability to pay, considering historical information about pay ment patterns, credit risks, custom er concentrations, customer creditworthines s as well as pre vaili ng ec onom ic co nditio ns. T he es timat es ar e updat ed subs equ ently, an d if t he d ebtor ’s abilit y to pay is be co ming do ubt ful, ex pecte d cr edit loss es ar e calculated on an individ ual basis. When there are no r easonable expectations of recov er ing th e carrying amount, the rec eivable is written off in part or e ntirely. NOTE 1 2 – OTHER R ECEIVABLES USDm Partners and commerc ial managements - - Derivative financial instruments Escrow accounts - Oth e r Bala nce as of Dec ember No significant other receivables are past due or cred it impair ed. The carrying amount is a re asonable approximatio n of fair value due to the short - te rm n atu re of the rec eiva bles. Pl ease ref er to N ote 2 2 for further information on fair v alue hierarchies. NOTE 1 3 – TAX USDm Tax for the year Current tax for the year Adjustments related to previous years - - Adjust ment o f deferr ed tax - - - Income t ax cha rge fo r the y ear Tonnage tax charge for t he year Total The majority of the Gro up's taxable income is locat ed in Denmark , and therefore the majority o f the tax base is subject to Danish tax legislation. As s uch, the Group has elected to participate in the Danish tonnage tax s cheme; the part icipat ion is bindin g until 31 Decemb er 202 4. The Group expects to participate in the tonnage tax sc heme after the binding period and, a s a minim um, t o mai ntain a n i nvesti ng a nd act ivity leve l equi vale nt to that at the ti me of enterin g the to nnage t ax sch eme. Under t he Da nish to nnage ta x sc heme, in come a nd ex penses from s hippi ng activ ities are not subject to direct taxation , a nd ac cor dingl y , an effective rate reconciliation has not been provid ed , as it would not provide any meaningful information. Instead, t he taxable income is calculated from: • The n et tonna ge of the ves sels used to genera te t he inco me fro m ship ping act iviti es • A rate applicable to t he specific net tonna ge of the vessel based on a slid ing sc ale TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 139 NOTE 1 3 - con tinu ed Corporate income tax is primarily levied on t he Group’s non - ves sel relat ed act ivities outsi de Denmark. The effective tax rat e of the Group is 3.3% (2020: 1.6%, 2019: 0.5%). No deferred tax is reco gnized rela ted to ass ets an d lia bilit ies, i nclud ing v essels, which ar e subject to tonnage taxation. Deferred tax in re lation to entities outside the to nnage tax regime a mount s to U SD 0.7m . USDm Non - curre nt tax lia bility relate d to hel d over gains Bala nce as of Dec ember The no n - curre nt tax liability related to held over g ains is the undiscounted incom e tax payable calc ulate d on t he r ealized gain on sale of vessels whi ch came fro m corporate income taxatio n into the Danish tonnage ta x scheme upon initial a pplication in 2001 (the held o ver gain reflected in th e tra nsitio n acco unt u nder the Danish ton nage t ax s cheme) . This tax liabi lity w ill b ecome pay able, in part o r in full , if th e Danis h owne d fleet of vess els is sign ifica ntly or fully disposed of, or if operated to end of useful life and sold for scrap. If TORM discontinues its part icipation in the Danish tonna ge tax scheme, a deferred tax liability would arise in relation to th e vessels held by the Gro up and taken out o f the tonnage tax scheme. Manageme nt considers this to be a r emote scenario. ACCOUNTING POLICIES Tax Tax expenses compr ise the expected incom e tax charge for the year in a ccordance with IAS 12 as well as tonnage tax related to the Group’s vessels for th e year. The income tax charge for the year includes adjustments relating to previous years and the change in de ferred tax for the year. However, income tax relating to items in other comprehensive income is rec ogniz ed d irectly in the stat ement of ot her com prehens ive i ncome. Deferred tax Deferred tax is recog nized in respect of temporary differences between the carry ing amounts of assets and liabilities for fina ncial reporting purposes and t he amounts used for inco me tax purposes. Deferred tax is calculated at the income tax rat es whic h ar e ex pected to ap ply in t he perio d whe n the liab ility is settl ed or the asset is r ealize d, bas ed o n the laws which have be en enacted or substantially e nacted at the balance s heet date. The deferred tax is charged through the income statement except when it rel ate s t o o the r com p reh ensi v e in com e i tem s. No de fe rred tax is re cogn i zed related to assets and liabilities, includ ing vessels, which are subject to tonnage tax. NOTE 1 3 - con tinu ed Income tax balan ces The expected income tax payable on the ta xable profits for the y ear is classified as current tax in the balanc e sheet . Inco me tax es expect ed to fall d ue aft er mor e than o ne y ear are c lassif ied as non - current liabilities or asset s in the balance sheet. Incom e tax is measured using tax rat es en ac ted or substantially enacted at the balance sheet date an d includes any adjust ment to tax payable in respect of pr evious years. Current and no n - current income tax balances are n ot disco unte d. NOTE 1 4 – COMM ON S HARES AND TRE ASURY S HARES Common shares Nominal value per share ( USD) Numbe r of shares Numbe r of shares Numbe r of shares A - shares B - sh are s C - shares Total During the year , th e share capital was increased by 6,377,340 A- sha res with a no mina l val ue of USD 64k . The total amount incl uding share premium a mounted to USD 57.9 m . U SD 55.0m was a non - cash increase in con junct ion with th e ac quisit ion o f the eig ht Team Tank er vessels , and US D 2.9m was co ntrib uted in cas h in co nnect ion w ith exercis e of Restricte d Shar e Units. The A- sh ares are listed on N as daq in Co pen hage n and N asd aq in Ne w York and are pu blicly available for trading. Each A - share carries one vote at th e Annual G eneral M eet ing an d gives the shareholder s righ t t o div idend s, liq uida tion p roceed s , or othe r distributions. The A - shares carr y no other rights or obligations. The B - share has on e vote at the Annual G en er al M eeting, has no pre - emption rights in relatio n to any issue of new shares of other classes , and carries no right to receive dividends, liquidation proc eeds , or other distributions from TORM. The holder of the B - sha r e has the right to elect on e member to the Boar d of Directors (being the D eputy Chairman), up to t hree alternates as well as one Board Observer. The B - share cannot be transferred or pledged, except for a transfer to a replacement trustee. TORM ANNUAL R EPORT 2021 CON SOLIDATE D FINANCIAL STATEMENT S 1 140 NOTE 1 4 - continue d The C - share represents 35 0,000,000 votes at the Annua l G enera l M eeting in res pect of certa in Specified Matters, including ele ction of members to th e Board of Directors (i ncluding the Chair man , but excluding the Deputy Chairman) and certain am en dments to the Articles of Association proposed by the Board of Directors. The C - share has no pre - emptio n ri ghts in relation to any issue of new shares of other clas ses and carries no right to rec eive dividends, liquidation proceeds or ot her distributions f rom TO RM . Th e C - sh are cannot be transferred or pledg ed, exc ept to a n aff iliate o f Njor d Luxco . The B - share and the C - share are redeemable by TORM in the ev ent that (i) TORM has re ceived written notification from Njor d Luxco (or its affiliates) that N jord Luxco and its af filiates (as defined in the Articles of Association) hold less than 1/3 in aggregate of TORM’s issued and outstanding shares, (ii ) five business days have elapsed from the Board of Directors’ receipt of such written notice either wi thout an y Board me mber disputing such notice or with at least 2/3 of the Board memb ers conf irming such noti ce , and (i ii) both of the B - share and the C - share are redee med at t he sam e tim e. Restricted Share Units Ke y m an agem en t p ar ti cip ate s in an LTIP program , whic h gives the right to buy TOR M shares at a pred efine d share price. P lease r efer to N ote 3. Trea sury sha res Numbe r of s hares ( ) Balance as of J anuary Additi ons - - Cance llat ions - - - Disposals - - - Bala nce as of Dec ember Nominal value U SD Balance as of J anuary Additi ons - - Cance llat ions - - - Disposals - - - Balance as o f Dec ember NOTE 1 4 - continue d Trea sury sha res - continued Perc enta ge of shar e capi tal Balance as of J anuary Additi ons - - Cance llat ions - - - Disposals - - - Dilution due to capital increases - Bala nce as of Dec ember The total consideration during the year for the treasury shares was USD 0.0 m ( 2020 : U SD 1.4 m, 201 9 : USD 0 .0 m) . A s of 31 Dec ember 2 0 21 , the Co mpany's holding of treas ury shares rep resen ted 493 , 371 shares ( 20 20 : 4 93 ,3 71 shares, 201 9 : 3 12,871 shares ) of USD 0.01 each at a total nominal value of USD 0.0m ( 20 20 : USD 0.0m, 201 9 : USD 0.0m ) and a m arket value of USD 3.9m ( 20 20 : USD 3. 7m , 201 9 : U SD 3.5 m ). NOTE 1 5 – OTHE R L IABILITIES USDm Acc rued opera ting exp ens es Ac cru ed in te res t Wages an d so cial e xpe nses Derivative financial instruments Oth e r Balance as o f Decem ber T he carrying amount is a reasonable approximation of fair value due to the short - te rm n atu re of the pay abl e . Please refer to N ote 2 2 for further informa tion o n fair valu e hiera rchies . ACCOUNTING POLICIES Other liabilities are generally m easured at amortize d cost. Derivative financial instrum ents included in other liabilities are m easured at fair value. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 141 As of 31 Dec embe r 202 1 , USD 45 m ha d been d rawn on th e USD 45m W ork ing Ca pital Term Facility and USD 38 .0m is undra wn o n the B oCo mm F acil ity. Please r efer t o N ote 2 for further information on the Co mpany’s liquidity and capital reso urces and N o te s 21 and 2 2 for further information on interest rate s waps and financial risks. NOTE 1 6 - EFFECTIVE INTEREST RATE, OUTSTANDING BORROWINGS USDm Fixed floating Maturity Effective interest ⁾ Carrying value ⁾ Maturity Effective interest ⁾ Carrying value ⁾ Maturity Effective interest ⁾ Carrying value ⁾ BORROWIN GS DSF Facility (USD) Floating - - - - - - TFA Facility (USD) Floating - - - - - - DSF Facility (USD) Floating - - - - - - DSF Facility (USD) Floating - - - - - - TFA Facility (USD ) Floating - - - - - - IN G ( US D) Floating - - - - - - ABN AM RO (USD ) Floating - - - - - - DSF Facility (USD) Floating - - - - - - CEXIM (USD) Floating Term Facility Floating - - - DSF Facility Floating - - - HCOB Facility Floating - - - HCOB Facility Floating - - - KFW F acilit y Floating - - - BoComm (USD) ⁾ Floating BoComm (USD) ⁾ Floating - - - - - - BoComm scrubber ( USD) ⁾ Floating - - - - - - BoComm (USD) ⁾ Floating - - - - - - CDBL ⁾ Fix ed - - - - - - Spring line r (USD ) ⁾ Fix ed Eifuku (USD) ⁾ Floating Showa (USD) ⁾ Floating Sale and leaseback transaction prepayme nt NA - - - - - - - Weight ed av erage ef fecti ve inte rest ra te Carrying val ue Hereof no n - current ⁾ Hereof c urrent ⁾ ⁾ Effective interest rate includes deferred and amortized bank fees ⁾ Because of the floating interest rate the carrying value of the Groups borrowings is approximately equal to the fair value The carrying value is excluding capitalized bank fees of USD m ( USD m USD m) recognized in the balan ce sh eet as we ll as lea se liabil itie s of USD m ( USD m USD m) regarding right-of-use assets recognized under Land an d buildings and Other plant and equipment ⁾ Split between current and non-current is based on terms in effect on Decem ber without consideration to the refinancing taking place in ⁾ Lease debt recognised under sale and leaseback arrangement with repurchase options TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 14 2 NOTE 1 6 - c ontinu ed The following table su mmarizes the reconciliation of liabilities ari sing from fina ncing activi ties : Cash Non - cash USDm Op eni ng balance as of January Bor - ro wi ngs Re pay - me nts Ot he r chan - ges End balance as of Decem ber Borrowings - - Total - - Cash Non - cas h USDm Op eni ng balance as of January Bor - ro wi ngs Re pay - me nts Ot he r chan - ges End balance as of Decem ber Borrowings - - Total - - ACCOUNTING POLICIES Borrowings consist of mortgage debt, ban k loans , and lease lia bilities . Borrowings are initially meas ured at fair value less transact ion costs. Mortgage debt a nd bank loans are subseq uently measured at amortized cost. T his means that the difference between the net proc eeds at the t ime o f borr owing a nd t he nomi nal amo unt o f the lo an is r ecogn ized i n the incom e stat ement as a fina ncial expense o ver t he ter m of th e loan a pplyin g the e ffecti ve inter est me th od . When terms of existi ng financial liabilities are renegotiated, or ot her changes regard ing the effective interest rate occur, T ORM performs a test to e valuate whether the new ter ms are substa ntia lly di ffere nt fro m th e or iginal t erms. I f the new ter ms ar e substa ntiall y differ ent fro m the original terms, TORM accounts for the cha nge as an extinguishme nt of the original financial liabi lity an d th e reco gnitio n of a new fina ncial liab ility. NOTE 1 7 – COLLATERAL S ECURITY F OR BORROWIN GS The total carrying amo unt for vessels whi ch have been pro vided as security amounts to USD 1, 928 m a s of 31 Dece mber 20 21 ( 2020 : US D 1, 711 m) , includ ing transf erred ownershi p unde r sale and leaseback arrange ments , where the ve ssel s are n ot de recogn ized and where vess els ar e provided as security for leas e debt . Please r efer t o N ote 1 for f ur the r i nf orm ati on . NOTE 1 8 – GUARANTEE C OMMITMEN TS AN D C ONTINGENT L IABILITIES The guarantee comm itments of the Group are less than USD 0.1 m ( 20 20 : USD 0 . 1m ) and re la te to guarantee commitm ents to Danish Ship ping Fina nce . The Gro up is in volve d in certain other legal proceedings and disputes. It is Management's opinio n t hat t he out co me of t hes e proc eedi ngs a nd d ispute s wi ll not have any material impact on the Group's financial pos ition, results of operations , a nd cas h fl ows . TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 14 3 NOTE 1 9 – CONTRAC TUAL R IGH TS AND O BLIGATIONS TORM has various co ntractual obligations and co mmercial commitments to make future payme nts , inclu ding lease obliga tio ns, p urchas e co mmit ments, int erest payme nts , and re payment of mortgage debt and bank l oans. The f o llowing table s ummarizes the Group's co ntractual obligations as of 31 D ecember 202 1. USDm Ther eaft er Total Borrowings ⁾ ⁾ Interest payments related to sc heduled interest fixing Estimated variable interest payments ⁾ - - - - Newbuil ding instalments ⁾ - - - - - Committed scrubber installations - - - - Trade payables and oth er obligations - - - - - Total The f ollow ing tab le summarizes t he Groups contractual obli gations as of Decemb er USDm Ther eaft er Total Borrowings ⁾ Interest payments related to sc heduled interest fixing Estimated variable interest payments ⁾ Newbuil ding instalments ⁾ - - - - Committed scrubber installations - - - - - Trade payables and oth er obligations - - - - - Total ⁾ The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD m ( USD m) which are amortized over the term of the loans Borrowing costs capitalized during the year amount to USD m ( USD m) ⁾ The contractual obligations relating to lease liabilities arising from land and buildings and other plant and operating equipment amount to USD m ( USD m) ⁾ Variable interest payments are estimated based on the forward rates for each interest period including hedging instruments ⁾ As of December TORM had one contracted newbuilding to be delivered during ( two) Commitments regarding ne wb uildin g inst alment s are in exc ess of the prepayments included in note TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 14 4 NOTE 1 9 - continu ed TORM has contractual ri ghts to receive future pay ments as lessor of vessels o n time charter and bareboat c harter The following table su mmarizes the Groups contractual r ights as of Dece mber USDm Ther eaft er Total Contractual rights - as less or Charter hire i ncom e for vessels ⁾ - - - - - Total - - - - - The following table su mmarizes the Groups contractual r ights as of Dece mber USDm Ther eaft er Total Contractual rights - as lesso r Charter hire i ncom e for v essels ⁾ - - - - Total - - - - ⁾ Charter hire income for vessels on time charter is recognized under Revenue During the year revenue from time charter amounted to USD m ( m) The average period until redelivery of the vessels for the period ended December year ( year) TORM ANNUAL R EPORT 2021 CONS OLIDATE D FINANCIAL STATEMENTS 1 145 NOTE 20 – DERIVA TIVE F INANCIAL I NSTRUMENTS Please r efer t o N ote 22 for furth er information on fair value hierarchies. USDm Fair value of derivatives Derivative financial instruments regarding freight and bunkers Forward freight agreements - fair value through profit and loss - Bunker swaps - fair value through profit and loss Bunker swaps - hed ge acc ount in g Derivative financial instruments regarding in terest and currency excha nge rat e Forward exchange contracts - hedge ac counting - Interest rate swaps - hedge accou nting - - Fair value o f derivati ves as of Decem ber - - Derivative financial instruments a re prese nted as below on t he ba lance s heet: USDm Financial asset s Financial liabilities Offset ting finan cial a sset s and fina ncial liabilit ies Gross amo unt - Offsetting amount - - Net amount pres ented in the stateme nt of financial posit ion - USDm Financial asset s Financial liabilities Offsetting financial assets a nd financial liab ilities Gross amount - Offsetting amount - Net amount pres ented in the stateme nt of financial posit ion - Derivative financial instrument s assets are set of f with derivative financial instr uments liabilities where the counterparty is identical. NOTE 20 – continue d Hedging of risks with d erivative financial instruments are made with a ratio of 1:1. Sour ces of ineffect ivenes s are mainly deriv ed fro m diff erences in ti ming a nd cre dit risk adjust ments. Any ineffect ive portions of th e cash flow h edges ar e reco gnize d in th e income statement as financial items . Value adjustme nts of the effective part of cas h flow hedges are reco gnized directly in comprehensive income. Gai ns and losses on cas h flow hedges are transferred upon realization from t he equity he dging res erve into t he income statement. A t year - end 20 21 and 20 20 , TORM held the following derivative financial instru ments design ated as hedge accounting : Hedge a ccount ing Ex pec ted ma tu rity Notiona l value U nit Af te r Forward exchange contracts (USDDKK) ⁾ DKKm - - Interest rate swaps ⁾ U SDm Bunker swaps ⁾ MT - - ⁾ The average hedge of USDDKK currency was ⁾ The average interest rate was plus margin ⁾ The average price of the hedging instruments was USD Hedge a ccount ing Expe c ted m at ur ity Notiona l value Unit Af te r Forward exchange contracts (USDDKK) ⁾ DKKm - - Interest rate swaps ⁾ US Dm Bunker swaps ⁾ MT - - ⁾ The average hedge of USDDKK currency was ⁾ The average interest rate was plus margin ⁾ The average price of the hedging instruments was USD TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 146 NOTE 20 - con tinued Interest rate swaps with a fa ir value of USD 2.2 m (net l oss) app l yin g the USD LIBOR settings are designated as hedge accounting relationships to fix a part of TORM's interest payments during the period 202 2- 20 27 with a notional value of USD 768 .7 m (20 20 : U SD 757 .5 m, 20 1 9 : USD 5 97 .8m). The derivatives are not u nder central clearing but are s ettled on a bilateral basis wit h the counterparties. All contracts ar e settled in a net amou nt per counterparty, and therefor e the net value per counterparty is prese nte d in the fi nancia l stat eme nt. Cash collateral of USD 3 .7 m (20 20 : U SD 43 .8 m) has b een pro vide d as security for the agreements relating to d erivat iv e financ ial instr ument s, w hich do es no t meet the of fsett ing criteria in IAS 32, but w hich can be offs et against the net a mount of the derivative asset a nd derivat ive liabi lity i n cas e of defa ult an d inso lvenc y or ba nkr uptcy in acc orda nce w ith a ssocia ted collateral arrangements. TORM did not ent er into any enforceable netting arra ngements. Further detail s o n derivative financial instruments are provided in N ote s 21 and 2 2. Forward freight agreements (FFAs) of USD 0.4 m (net gain) have b een r ecogni zed in the income statement in 20 21 (20 20 : U SD 1.9 m, 20 1 9 : USD 0 .4 m). FFAs are use d to mitigate fluctuations in the freight rates of vessels with a d uration of 0 – 24 months. The FFAs are not designated for hedge acco unting. Bunker swap a gree ments o f USD 12 .0 m (ne t gai n ) ha ve be en reco gnized i n the i ncome statement in 20 21 (20 20 : USD 2.9 m, 201 9 : USD -0 .1m). Bunker sw aps with a duration similar to the per iod he dged ar e use d to re duce t he ex posure to fluct uatio ns in b unker pr ices fo r fixe d voyages. Bunker swap a greements are designated as hedge accounting whe n appropriate. Forward exchange contracts wit h a fair value of USD 1.6 m (net l oss ) are designated as hedge accounting relationships to h edge a part of TORM's payments in 20 22 regard ing administrative and operating expens es denominated in DKK wit h a notional value of DKK 274 .0 m (20 20 : DKK 2 31 .5m, 20 1 9 : DKK 222 .5 m). TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 147 NOTE 20 - conti nued The table below shows rea lized amounts as well as fair value adjustments r egarding deriv ati ve fina nci al inst ru ments r eco gniz ed in t he i nco me stat eme nts a nd e quit y in 2 02 1 , 20 20 and 201 9. Incom e stat ement Other com preh ensi ve income Eq uity USDm Revenue Port expen ses bunkers and commission s Financial ite ms Operating expen ses Adm in ist ra - tive exp enses Transfer to inc ome statement Fair value ad jus t - ment Hed ging rese rves as o f Dec ember Forward freight agreements - - - - - - - Bunk er swa ps - - - - - Forward exchange contracts - - - - - - Interest rate swaps - - - - - - Total - - - Forward freight agreements - - - - - - - Bunk er swa ps - - - - - Forward exchange contracts - - - - - Interest rate swaps - - - - - - - Total - - - - Forward freight agreements - - - - - - - Bunk er swa ps - - - - - - Forward exchange contracts - - - - - - - Interest rate swaps - - - - - - - Total - - - - - The hed ging reserv es as of 3 1 Dec ember of th e derivati ve s used f or cash flow h edge i s equal to the en tire fai r valu e of th e hedge i nstrum ents as no in effec tiven ess has b een iden tified a nd th e reserve in clud es open h edge i nstrumen ts, only. Please r efer t o note 2 1 for furt her infor matio n on co mmer cia l and finan cial r isks. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 148 NOTE 20 - con tinued ACCOUNTING POLICIES Derivativ e financial in struments and hed ge accountin g Derivative financial instruments, primarily forward currency exc hange contracts, forward freig ht ag reements, interest rate hedges and forward co ntracts regarding bunker purchases are entered into to eliminate risks relating to future fluctuations in prices and interest rates, etc. on future committed or antic ipated transactions. TORM a pplies hedge accou nt ing un der t he specific rules on cash flow hedges when appro priate as described below for e ach type of derivat ive. Changes in the fair va lue of derivative financial instrume nts designated as cash flow hedges and deem ed to be effe ctiv e are r ecog nize d dir e ctly in “Ot her com prehe nsive inco me”. Whe n the hedged transaction is reco gnized in the income state ment, the cumulative value a djustment rec ogni zed in “Oth er comp rehens iv e inc ome” is trans fe rred to the in come statem ent and incl uded i n the sam e line as t he h edged transaction. However, w hen the hedged transact ion results in the recognition of a fixed asset, the gains and losses previously accumulated in “Other compre hensiv e inco me” ar e tran sferred from “ Other compr ehensi ve inco me” a nd inclu ded in the initia l meas urement of t he cost o f the f ixed a sset. Changes in t he fair value o f a por tion o f a hedge d eemed to be in effect ive are recog nized i n the income sta tement. Changes in the fair va lue of derivative financial instrume nts not designated as he dges are re cog nized i n the inco me stat em ent. W hile effe ctive ly red ucing cas h flow r isk i n acc orda nce with the Company’s risk m anagement policy, certain forward freight a greements and forward contracts regarding bunker purchases do n ot qualify for hedge accounting. Chang es in fair value o f thes e deriv ate fi nancial instr uments are t herefor e reco gnize d in the income state ment under “F inanc ial inco me” or “Fin ancial expens es” fo r inter est rat e swaps wit h cap feat ures , under “Reven ue” for forwa rd fre ight ag reements and under “ Port expenses, bunkers and commissions” for forward bunker contra cts. NOTE 21 – RISKS A SSOCI ATE D WITH TORM’S A CTIVITIES TOR M’s over all r isk to lera nce a nd in herite d ex posur e to r isks is di vided into fo ur main categories : • L ong - term strategic risks • I ndustry and market - rel a ted r is ks • O perat iona l an d com plianc e risk s • F inanc ial r isks The risks de scribed below under each of the four categories are considered to be among the most significant risks f or TORM within each category. L ONG - TERM STRATEGIC RISKS I ndustry - changing risks, such as the substitution of oil for other energy sources and radical changes in transportation patt erns, are considered to h ave a relatively high potential i mpact but are long - term risks. Management c ontinues to m onitor long - te rm st rate gic risks to ensure th e earli est po ssibl e mit igatio n of potent ial r isks a nd de velop the nec essary capa bilit ies to explo it opportunities crea ted by the sa me risks. I NDU STRY AN D MAR KET - RELATED RISKS Industry and market - related risk factors relate to c ha nges in the m arkets and in the political, ec on omi c , and phys ical e nviro nme nt whic h Management cannot control s uch as freight rates and v esse l an d bu nker pric es . Freight rate fluctuations T ORM’s income is primar ily gene rated from voyages carrie d out by its fleet o f vessels. As such, TOR M is ex posed t o th e cons ider able volat ility wh ich characterizes freight rates for such voyages. It is TOR M ’s strategy to seek a certain ex posure to this risk, as vo latility also repr esents an oppor tu nity bec aus e earn ings hav e hist orica lly been hig her i n the day - to - day market compared to time charters. The fl uctuations in freight rates for different routes may vary s ubstantially. Howe ver, T ORM a im s to reduc e the s ensiti vity t o the vola tility of such specific freight rat es by activel y seeki ng the o ptim al geo graphica l posit ionin g of t he fleet and by o ptimi zing t he serv ice s offered to cus tomers . Pleas e refe r to N ote 8 for details on impairment testi ng. Tanker freight income is to a certain extent co vered against general fluctuations thro ugh the use of physical contracts such as cargo contracts and ti me charter agreements with d urations of 6 - 36 mo nths. In a dditio n, T ORM uses deri vativ e fin ancia l ins trum ent s suc h as forwa rd fr eig ht agr eemen t s (FF As) w ith co vera ge of t ypica lly 0 - 24 months forwa rd, based on market expectations and in accor dance with TOR M’s risk manag ement p olic ies. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 149 NOTE 21 - con tinued During 20 21, 31.5 % ( 2020 : 14 .4 %; 201 9 : 9.5 %) of earning day s equ al to 2 7,614 deriv ing f rom the Company’s tanke rs w ere hedg ed in this way. Physical time chart er contracts accounted for 35.7 % ( 20 20 : 41 .9 %; 201 9 : 59 . 3 %) of ove rall hedging . In 20 21 , the Com pany sold FFAs with a notional contract value of USD 44.2 m ( 20 20 : USD 165.0m; 201 9 : USD 34 .9 m) a nd b oug ht F FAs with a notional c ontract value of USD 1 10. 3 m ( 2020 : USD 5 2. 7 m; 201 9 : US D 22 .5 m). The tota l notional contract volume so ld in 20 21 wa s 2,410,000 metric tons ( 2020 : 8, 799 , 00 0 me tric tons; 201 9 : 1, 585 , 19 0 metric tons) , and the total no tio nal vol ume bo ught was 5,962,000 metric tons ( 20 20 : 2, 714 ,0 00 metric tons ; 201 9 : 1, 295 ,0 00 me tri c t ons ). A t th e en d of 20 21 , the co verage of available earning days fo r 20 22 was 9.9 % through time c harters, current spot voyages, car go cont racts and FFAs ( 2020 : 2 8. 1 %; 201 9 : 8. 6 %). No FFA had maturity beyond 20 22. FFA tra de an d other freight - related derivatives are subject to specific policies a nd guidelines appro ved b y the Risk C ommit tee , inclu ding t rad ing li mits, s top - loss policies, segrega tion of duties and other internal co ntrol procedures. All things being equal an d to the extent the Co mpany’s vessels have not a lready been chartered out at fixed rates, a fr eight rate change of USD /day 1,000 would lead to t he follo wing ch ange s in profit before tax based on the expected number of e arning days for the coming financial year: Sensi tivit y to chan ges i n fr eight rat es USDm Decr ease in freight rate s of USD day Changes in profit loss befor e tax for the fo llowin g year - - - Changes in e quity for the fo llow ing ye ar - - - Sales and p urchase price f luctuations As an owner of vessels, TORM is exposed to risk associated with changes in the value of the vesse ls, w hich can var y co nsid erabl y dur ing t heir us eful lives. As of 31 D ece mber 20 21 , the carryi ng val ue of t he fleet was USD 1,937.8 m ( 20 20 : USD 1, 722 .5 m; 201 9 : U SD 1, 674 .8 m). Ba sed on broker valuations, TORM’ s flee t exc luding undel ivered newbuild ings ha d a mark et value of USD 1,869.5 m a s of 31 De cemb er 20 21 ( 20 20 : USD 1, 4 75 .8 m; 201 9 : USD 1, 632 .6 m). NOTE 21 - con tinued Bunker price fluctuations The cost of fuel oil consumed by the vessels, known in the indu stry as bun ker s , acco unted for 56.4 % ( 20 20 : 62 .3 %; 201 9 : 61.1% ) of the total voyage costs in 20 21 and is by f ar t he bi gges t sin gle cost related to a voyag e. TORM is exposed to fluctuations in bunker prices whi ch are not reflected in the freight rat es achi eved by TORM . To reduce this expos ure, TORM hedges part of its bunker require ments with oil der ivati ves in its ent iret y for all ris ks . Bunker trade is subject to s pecific risk policies and gui delines approved by the Risk Committee incl uding trad ing limits, stop - loss, stop - gain and stop - at - zero policies, segregation of duties and other internal control procedures. In 20 21, 42.1 % ( 20 20 : 14 .6 %; 201 9 : 6.5 %) of TORM ’s bun ker purcha se was hedge d thro ugh b unker hedging contracts. At t he end of 20 21 , TORM had covered 4 .1 % equal to 17,2 70 metric tons ( 20 20 : 15 .6 %; 20 1 9 : 2. 6 %) of its bu nker requi rements for 20 22 usi ng hed ging ins trum ent s at an average price of U SD 531 . N o bunker derivatives had maturity beyond 20 22. Total bunker exposure is estimated to be approximately 426,261 metric tons . All th ings bei ng eq ual, a pric e ch ange o f 1 0% pe r to n of b unker o il (wit hout s ubse quent cha nges in freight rates) would l ead to the following chan ge s in e xpend itu re ba sed o n the exp ected bunker consumption i n the spot market : Sensitivity to changes in the bunker price USDm Incr ease in the bunk er pri ces of per ton Changes in profit loss befor e tax for the fo llowin g year - - - Changes in e quity for the fo llow ing ye ar - - - O PERAT IONAL AN D COMPL IANCE R ISKS Operational risks are risks associated wi th the ongoing operations of the business and include risks su ch as the safe operation of vessels, the availability of experienced seafarers and st aff, terrorism, piracy as well as insurance and counterparty r isk. TORM ANNUAL R EPORT 2021 CONSO LIDA TED FINANCIAL STATEMENTS 1 150 NOTE 21 - con tinued Insurance coverage In the course of the fle et’s operation, various casualties, acc idents and other incidents may occur whic h may result in financial loss es for TORM. For exa mple, national and inter national rules, regula tio ns a nd co nve nt ions cou ld mean that TORM may incur su bstantial liabilities if a v essel is invol ved in an o il spil l or emissio n o f other env iron menta lly ha zard ous a gents. In order to reduce the exposure to these risks, the fleet is insured against such risks to the ext ent possible. T he total insurance program co mprises a broad cover o f risks in relation to the operation of vessels and tra nsportation of cargo, including personal injury, environ mental dama ge a nd po llut ion, car go da ma ge, t hird - party casualty and li ability, hull a nd m achi nery damage, total loss , and war. All TORM’s owned vessels are insured for an amount corresponding to their market value p lus a margin to cover any fluct uations. Liability risks are co vered in line with international standards. It is TORM’s policy to coo perate with financially soun d international insurance companies wit h a credit rating of BBB or better, presently so me 14 - 16 compani es, along with two P&I clubs, to diversify risk. The P&I clubs are member s of the i nter natio nally recogniz ed col laboration, Interna tional Group of P&I cl ubs, and TOR M’ s vessels ar e each ins ured for the maximum amo unt available in the P &I system. At the e nd of 20 21 , t he a ggre gate insur ed value of hull and mach inery and interest for TOR M’s owned vessels amo unted to US D 2.1 bn ( 20 20 : U SD 1. 9 bn; 201 9 : USD 1. 8 bn ). Counterparty risk Counterparty risk is an ever - present challenge demanding close monitoring to manage and decide on actions to mi nimize possible l osses. The m aximum counterparty ri sk associated i s equal to the values r eco gnized i n the b alanc e sheet. A cons equ ential eff ect of t he co unter party risk i s loss of income in fu ture periods, e .g. , counterparties not being able to fulfil their responsibilities under a time c harter, a contract of affrei ghtment or an option. T he main risk is the difference between th e fixed rates under a ti me charter or a c ontract of affreightment and the market rates prevailing up on default . T his character izes the method for ident ifyi ng the market value of a d erivative instruments. T OR M has a close focus on its risk policies and procedures to ensure that risks managed in the day - to - day business are k ept at agreed levels and t hat changes in the risk situat ion are brought to Management’s attention. T ORM’s counterparty risks are primarily associated with: • R eceivables, cash an d cash equivalents , includ ing re stric ted ca sh • C ontracts of affreightment with a positive fai r value • D erivative financial instruments and commodity instruments with a posit ive fair value In all material aspects, TORM’s customers are domiciled outside the UK an d are spread all over the world with only a fe w countries contributing si gnificantly to TOR M’ s revenue. In 2021 , Switzer la nd and Mex ico co ntrib uted with 23 % a nd 16% , respectively , of TORM’s rev enue . In 2020 , Switzerland, the Uni ted S tate s an d M exi co con tri bu te d wi th 24% , 1 2%, a nd 11% , respect ively , of TORM ’s revenue. Revenu e is allocated to countries based o n the customer’s ultimat e par ent dom icile . NOTE 21 - c ontinu ed Rec eiv able s , c ash and cash equivalents , inclu ding restri cted cash The majority of TORM’s c ustomers are compa nies operat ing in the oil indu stry. It is assessed that these companies are, to a great extent, su bject to the same risk factors as t hose identified fo r TO RM . A major part of TORM’s freight revenues stems from a s mall group of customers. In 20 21, o ne customer accounted fo r 15 % of TOR M’ s freight r eve nues ( 2020 : o ne acco unt ed for mor e tha n 10%; 201 9: one cus tom e r accounted for more than 1 0% ). The concentration of earnings on a few customers requires extra atte ntion to credit risk. TORM has a credit policy under w hich cont inued credit evaluations of new and existing custo mers take place. For long - standing customers, payment of freight normally takes pl ace after a vessel’s cargo has b een discharged. For new and smaller customers, TORM’s credit r isk is limit ed as frei ght is u sually paid prior to the cargo’s discharge, or, alt ernatively, a suitable bank guarantee is placed in lieu thereof. As a co nsequ ence o f the pay me nt patter ns me ntion ed abov e, TORM ’s rec eivab les pr imari ly consist of receivables f rom voyages in pr ogress at ye ar - end and outstanding demurrage. For the past five years, TORM has no t exper ience d any si gnifica nt loss es in r espect of c harter payments or any ot her freight agreements. With re gard to the collection o f orig inal demurrage cla imed , TORM’s average stands at 97 % ( 20 20 : 9 6.9 %; 201 9 : 98.7% ), whic h is cons ider ed to be satisfactory given the differenc es in interpretation of eve nts. In 20 21 , d em ur rage re pre sen t ed 18 % ( 20 20 : 17 .3 %; 201 9 : 13 .1% ) o f the to tal freight r evenu es. Pleas e refer to N ote 1 for more details on recognition of de murrage claim s into re venue. Excess liquidity is placed on deposit accounts w ith major banks with stron g and acceptable credit ratings or invested in sec ure papers such as American or Danish government bonds. Cash is inv este d wit h the a im of getti ng t he hig hest poss ible yi eld w hile mainta ini ng a lo w counterparty risk and a dequate liquidity reserves for possible i nvestment opportunities or to withstand a sudden drop in freight rates. Derivativ e financial in struments and comm odity inst ruments In 20 21 , 1 00 % ( 20 20 : 1 00.0%; 201 9 : 100.0%) of T ORM’s forwar d frei ght agr eements (FFAs ) wer e cleared through clearing ho uses, effectively reducing cou nterparty credit risk by da ily c lear ing of bala nces. Over - the - count er fuel swa ps ha ve restri ctive ly bee n entere d into with major oil companies, b ank s, or highly reputed partners with a satisf actory credit rating. TO RM also trades FX and interest de rivatives. All such deri vatives were done wit h investment grade counterparties. FINANCIAL RISKS Financ ial r isks r elat e to TORM’s financial posi tion, financing and cash flow s generated by the busines s, inc luding foreig n excha nge r isk and interes t rat e risk. T ORM’s liquidit y and capit al resources are described in N ote 2. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 151 NOTE 21 - con tinued Foreign exchange risk TORM uses USD as its functional currency because the majorit y of the Company’s transactio ns are denominated in USD. T he foreign exchange risk is thereby limited to cas h flows not denominated in USD. T he primary risk relates to tra nsactions denominated i n DKK, EUR and SGD a nd relates to administrati ve and operating ex penses. The part of TORM’s expenses denominated in currencies other than USD accounts for approximately 86 % ( 20 20 : 80.9 %; 201 9 : 83.2 %) for ad ministrative expenses an d approximately 21.3 % ( 20 20 : 2 3.8 %; 201 9 : 2 0.1 %) for operating e xpenses. TORM’s expecte d administrative and operat ing ex penses i n DKK a nd EUR for 20 22 are approximately DKK 390 m, w hereo f 70.3 % ( 20 20 : 6 6.1 %; 20 1 9 : 6 3.0 %) are hedged t hrough FX forward contracts. All FX forward contract s ha ve maturity wit hin 20 2 2, an d TO RM ’ s avera ge hedg e USD / DKK currency rate is 6.27 . FX exposure is he dged i n its e ntir ety fo r all r isks. TORM assumes identical currency risks arising fr om exposures in DKK and EUR. Sensitivity to changes in the USD/DKK an d USD/EUR exchange rate All th ings bei ng eq ual, a chan ge i n the USD /DKK a nd US D/E UR e xcha nge ra te o f 10% wou ld result in a change in prof it /loss before tax and equity as follows: USDm Effect of a incr ease of D KK and EU R Changes in profit loss befor e tax for the fo llowin g year - - - Changes in e quity for the fo llow ing ye ar - - - NOTE 2 1 - con tinued Interest rate risk TORM’s interest rate risk generally relates to interest - bearing borrowings. All TO RM ’s loans for financing vessels are de nominated in USD. Please refer to Note 1 6 for additional i nformation on borrowings. A t the end of 202 1 , TORM ha d fixed 84.9 % ( 20 20 : 6 7 .6%; 201 9 : 61 .6 %) of the d ebt with interest rate swaps a nd fixed rate leasing de bt corresponding to an amount of USD 953 m. USD 772 m of this amount is hed ged at an interest rate of 1. 38 % plu s margin with interest rate swaps with maturity in the period 202 2- 202 7. Most of TOR M’s debt a nd i nter est hedgi ng is bas ed on U SD LI BOR which is set to ex pire by 3 0 June 20 23. TORM is significantly exposed to the ICE US LIBOR reform as all financing and associated interest hedging contracts are denominated in USD. TORM has been in dialo g with majority lenders and aligned expectations on how the amendment process should be imple mente d. To ensur e a s moot h tra nsitio n, TO RM w ill a men d l egacy fina ncin g and he dgin g contracts during 2022 and early 2023. TORM expects c omp ou nde d SOFR in ar re ars to become the market standard. TO RM expects no effect on th e hedging relationship as lenders and hedging providers are largely the sam e banks . T ORM is co nfident t hat a ll fina nci ng an d he dging contracts are transitioned to SOFR before the final dead line of 30 J un e 2023. As of 31 Dec embe r 202 1 , 75.1 % of the debt with a nominal value of USD 704 m relates to the period after 30 June 2023. As of 31 D ecemb er 2021 , 74.9 % of th e inter est he dging wit h a nominal value of USD 578 m relates to t he period after 30 Ju ne 2023 . Sensitivity t o chang es in inter est rates All things being equal, a c hange in the interest rate lev el of 1 %- point w ou ld resu lt in a cha nge in the interest rate expenses as follows: USDm Effect of a - point increa se in int erest r ate s Changes in profit loss befor e tax for the fo llowin g year - - - Changes in e quity for the fo llow ing ye ar LIQUIDITY RISK TORM’s strategy is to ensure continuous access to funding sources by ma intaining a rob us t capital structure and a c lose relationship with several financial partners. As of 31 Dece mber 20 21, TORM’s loan portfolio was spread across elev en differe nt banks. As of 31 Dec embe r 20 21, TOR M mainta ins a liq uidity reser ve of US D 172 m in ca sh a nd cas h e quiva lents , includ ing res tricted c ash combined wi th USD 38 m in undrawn and c ommitted credit facilit ies. Ca sh is onl y plac ed in banks with a high cre dit rat ing. For furt her information on contractual obligations, includin g a maturity analysis, please refer to N ote 1 9. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 152 NOTE 2 2 – FINANCIAL I NSTRUMENTS Categori es of financial assets a nd liabilitie s (USDm) Obser vabl e input (level ) Financial instruments measu red at fair value Financial instruments measu red at amortized cost Total carry ing value Financial a ssets Loan rec eiva bles ⁾ - - Freight recei vables ⁾ - - Other r eceiva bles Cash and cash equ ivalen ts incl uding restricted cash ⁾ - - Total Financial lia bilities Borrowings ⁾ ⁾ - - Trade payables ⁾ - - Other lia bilit ies ⁾ Total Financial a ssets Loan rec eiva bles ⁾ - - Freight recei vables ⁾ - - Other r eceiva bles Cash and cash eq uivalents including restricted cash ⁾ - - Total Financial lia bilities Borrowings ⁾ ⁾ - - Trade pay abl es ⁾ - - Other lia bilit ies ⁾ Total ⁾ Due to the short maturity the carrying value is considered to be an appropriate expression of the fair value ⁾ See note ⁾ Derivative financial instruments are presented within the balance sheet line other receivables and o ther lia bilit ies TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 153 NOTE 2 2 - con tinued F AIR VALUE HIER ARCHY FOR FINANCIAL INSTRUMEN TS MEASURED AT FAI R VALUE IN THE B ALANCE SHEE T Below , please find the fair value hierarchy for financial instruments measured at f air value in the bala nce she et. Th e fina ncial ins trum ents in quest ion ar e grou ped into l evels 1 to 3 based o n the degree to w hich the fair value is obs er v able . • L eve l 2 fair valu e meas urem e nts are those derived from input other than quoted p rices incl uded wit hin l eve l 1 w hich are obser v able for the asset or lia bility, either directly (as prices) or indirectly (derived fro m prices) M ETH ODS AND ASS UMPTI ONS I N DETE RMING FAI R VAL UE OF FINANC IA L INS TRUM ENT S Deriva tiv e par t of o ther rec eiva bles a nd oth er paya bles The fair val ue of der ivativ es in o ther r ece i vables and other payables is measured using accepted valuation methods wit h input variables such as yield cur ves, forward curves, s prea ds , etc. and compared to financial co unterparties to ensure acce ptable valuations. The valuation methods discount the future fixed an d estimated cash flows a nd valuation of any optio n elements. NOTE 2 3 – RELATED P ART Y T RANSACTIONS TORM’s ultimate cont rolli ng part y is Oaktr ee Ca pital G ro up, LLC , a li mite d lia bility comp any in co rp ora ted in the U SA . The immediate controlling shareholder is Njord Luxco. Shareholders' cont ribution and dividends paid are disclosed in the consolidated statement of chang es in equi ty. Divide nds to r elated parties are paid out on the basis of the relat ed parties’ ow ne rsh ip of share s . The remuneration of key management personnel, which consists of the Board of Directors and the Exec utive D irect or, is dis clos ed in n ote 3. Du rin g 20 21 , TOR M di d transactions with its joint ve nture producing scrubbers for t he TORM fleet a mount ing to US D 1.4 m in total (20 20 : 11 .7 m) . The joi nt vent ure will co ntin ue to a ssist TORM in installing scrub bers in 202 2. NOTE 24 – A SSETS H EL D FOR S ALE AND N ON -C URRE NT A SSETS S OLD D URING THE Y EAR During 2021 , TORM sold two vessel s . One vessel w as d elivere d to the new owner s in M ay 20 21 , and one wa s held for sale as of 31 December 2 021 , an d expec ted deli ver y is dur ing th e first h alf of 20 22 . Th e sal e s resulted in an impairment loss on tangible assets of USD 4.6 m. The fair value of the as set h eld for sale of U SD 1 3.2 m is comp rised of sales p rice le ss expected transac tion costs (fair va lue hi erarchy level 2 ). Du rin g 20 20 , TO RM s old eigh t vessels all of whic h were d elivere d to t he new owners duri ng 2020 . The sales resulted in a profit from sale of vessels of USD 1.1m and impairment losses on tangib le assets of USD 5. 5 m. No assets were held for sale as of 31 Decem ber 2020. During 2019, TORM sold eight vessels, of which seven were delivered to the new owners during 2019, a nd on e vesse l was d eliver ed in Q1 202 0 (pres ente d as “ass ets hel d for sale” as of 31 Decem ber 20 19). Th e sales r esult ed i n a prof it from s ale of vessels of USD 1. 2 m and impa irme nt losses on tangible assets of USD 6.0m. NOTE 2 5 – CASH F LOW S USDm Reversal of other non - cash mov ement s Exchange rate adjustme nts - - - Share - based payments Fair value adjustments on deri vative financial instruments - - - Other adjus tm ents - - - Total USDm Change in bunkers receivables and pay ables Chan ge in bu nkers - Ch ange in recei vabl es - - Change in prepayments - - Chan ge in t rade paya bles a nd ot her lia bilit ies - Other cha nges - Adjust ed for fair va lue cha nges o f deri vativ e financial instruments - - Total - TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 154 Entity Country TORM p lc Unit ed K ingdo m Inve stment s in sub sidia ries ⁾ Entity Country Ownership ⁾ TORM AS Denmark DK Vessel HoldCo GP ApS ⁾ Denmark DK Vessel HoldCo KS ⁾ Denmark OCM S inga por e Njo rd Ho ldi ngs Alic e Pt e L td ⁾ Singapore OCM S inga pore N jord Ho ldi ngs Al mena Pte Ltd Singapore OCM S inga pore N jord Holdings Hardrada Pte Ltd Singapore OCM S inga pore N jord Ho ldi ngs S tMic hael is Pte Ltd Singapore OCM S inga por e Njo rd Ho ldi ngs St G abr iel Pt e Ltd Singapore OCM S inga por e Njo rd Ho ldi ngs Agn ete Pte Ltd Singapore OCM Si ngapo re Njo rd Ho ldi ngs Al exa ndra Pt e Lt d ⁾ Singapore OMI Holdin g Ltd Mauritius TORM Cr ewin g Serv ice Ltd Bermud a TORM S hippin g Indi a Priva te Limited ⁾ Indi a TORM Singapore Pte Lt d Singapore TORM USA LLC USA Vessel Co K S ⁾ Denmark Vessel Co K S ⁾ Denmark Vessel Co K S ⁾ Denmark Vessel Co K S ⁾ Denmark Vessel Co Pte Lt d ⁾ Singapore Vessel Co Pte Lt d ⁾ Singapore Vessel Co Pte Lt d Singapore Vessel Co Pte Lt d Singapore Vessel Co Pte Lt d Singapore Vessel Co Pte Lt d Singapore Vessel Co Pte Lt d Singapore TORM SHIPPI NG (PHILS) INC Phil ippin es Inve stment s in sub sidia ries ⁾ - continued Entity Country Ownership ⁾ VesselCo A A pS ⁾ Denmark Vessel Co C ApS ⁾ Denmark VesselCo E ApS ⁾ Denmark VesselCo F ApS ⁾ Denmark ⁾ Entities dissolved in the financial year ended December ⁾ Entities dissolved in the financial year ended December ⁾ Entities with different reporting periods TORM Shipping India have a fin ancia l reporting period that runs from April to March as required by Indian governments laws and legislations ⁾ For all subsidiaries ownership and voting rights are the same except for TORM SHIPPING (PHILS) INC where voting rights are ⁾ All su bsidia ries a re co nsolid ated in full Inter est in lega l en titi es in clud ed a s join t vent ur es Entity (USDm) Country Contr ol Profit and loss fro m continuing operations Ot he r co mp re - hensive income Total co mp re - hensive income Long Ran ge AS Denmark - - - LR Ma nage ment KS Denmark - - - Marine Exhaust Techn ology L td Hong Kong - NOTE 2 6 – ENTITIES IN THE G ROUP TORM ANNUAL R EPORT 2021 CONSOL IDATED FINANCIAL STATEMENTS 1 155 NOTE 2 6 - con tinued The table below shows the registered addresses for the companies mentioned above: Denmark India Philippine s Si ng ap ore Tubo rg Hav nevej nd Floor th Floor Battery Road - DK - Hel lerup Leela Business Park Salcedo Towers Singa pore Denmark And he ri - Kurl a Ro ad HV dela Costa Street Singapore And he ri (E ) Salce do Vil lage Mumb ai Makati City Indi a Phil ippin es United Kin gdom USA Marshall Islands Mauritius Birc hin Cour t Su ite co The Trust co Temp le Corpor ate Birchin Lane City West Compa ny of Services Londo n ECV DU Boule vard Marshall Islands Inc Temple Court Unit ed K ingdo m H ousto n Texa s PO Box Labo urdo nnais Str eet USA Resto n VA - Port Louis USA Mauritius Be rm uda Gibraltar Ho ng Kong co Est era Ser vices L ine Wa ll Roa d Ro om A F (Berm uda Li mite d) GX A A China Ov erseas B ldg Cano ns Co urt Gibraltar Henn essy Roa d Victoria Street Wanchai PO B ox Hong Kong Hamilton HM GX Bermud a NOTE 2 7 - PROVISION S Sin ce 2020 , t he G rou p h as be en involved in two cargo c laims, both relating to on e customer havi ng iss ued in demnit ies to T ORM fo r the sa fe discharge of cargoes, and not b eing able to honor those indemnity o bligations. Both cases invo lved irregular activities by the c ustomer in relation to the han dling o f the bills of la ding. Lega l actio n ha s bee n init iate d by th e Gro up i n the UK and in India agains t the custom er and a numb er of ind ividua l owners and managemen t representatives. The Gro up has reco gnized provis ions in t he tot al amo unt o f US D 18 .3 m r elatin g to the two claims. The p roc eed ing s a re o ng oing and th ere f ore the p r ovi si ons rec ogn iz ed a re subject to uncertainty relat ed to both timing an d amount. NOTE 2 7 - con tinued ACCOUNTING POLICIES Provisions are recognized w hen the Group has a le gal or constructive obligatio n as a result of past events, and when it is probable that this will lea d to an outflow of r esources wh ich can be reliably estimated. Provisions are measured at the estimate d liability expected to arise, taki ng into ac count t he tim e valu e of m oney. NOTE 2 8 – EARNINGS PER S HARE AND D IVI DEND PER S HARE EARNI NGS PE R SH ARE Net pr ofit(lo ss) for the yea r (US Dm) - Million shares Weight ed avera ge number of sh ares Weighted average number of treasury shares - - - Weight ed avera ge number of sh ares outs tandi ng Dilutive effect of outstan ding share options - Weight ed av erage nu mber of sha res outst andin g incl diluti ve effect of sha re option s Basic earni ngs(l oss) per share ( USD) - Dilut ed earni ngs(lo ss) p er shar e (USD) - When calculating diluted ear nings per share for 2 0 20 , RSU s have been omitted as they are out - of - th e - money and thus not anti - di lu ti ve, bu t the R SU s m ay potentially dilute earnings per share in th e fut ure. P lease r efer t o N ote 3 for information on th e R SU share options. ACCOUNTING POLICIES Basic earnings per shar e are calculated by dividing the consolida ted net profit/(loss) for the year available to commo n shareholders by the we ighted average number of common shares outstanding during the p eriod. Treasury shares are not included in the ca lculation. Purchases of t reasury shares during the period are weighte d based on the remaining period. Diluted earnings per s hare are calculated by a djusting the consolidated profit or loss a vailable to common shareho lder s and the weig hted ave rage numbe r of commo n shares outstandi ng fo r the effects of all potentially dilutive s hares. Such potentially dilutive c ommon shares are excluded when t he effe ct of i ncludi ng the m would be to increas e earn ings per shar e or red uce a loss per share. TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 156 NOTE 2 8 - c ontinu ed DIVIDEND PER SHARE Divide nd for the ye ar (USDm) - Number of sha res e nd of p eriod (million) - Divide nd per share - The Board of Directors h as decided not to rec ommend a ny dividen d s relating to th e sec ond h alf of 202 1. NOTE 2 9 – C ASH AND C ASH E QUIVALENTS , I NCLUDIN G R ESTRICT ED C ASH Cash at banks and o n hand Cash and cash eq uivalents Cash provided as secur ity for initial margin calls and ne gative market values on de rivatives etc ⁾ Sale - and - leaseback transaction prepayme nt to be released upon deliv ery of th e vess el ⁾ - - Restr icted cash Cash and cas h equivale nts including restricted cash ⁾ The counterparties have an obligation to return any excess cash provided as security to the Group upon settlement or early termination of the contracts ⁾ Prepayment released on January TORM ANNUAL R EPORT 2021 CONSOLIDATED FINANCIAL STATEMENTS 1 157 P ARENT C O MPANY 20 2 1 TORM ANNUAL R EPORT 2021 PARENT COMPANY FINANCIAL STATEMENT 2021 1 158 COMPAN Y B ALAN CE S HEET AS OF 31 DEC EMBER USD No te ASSETS NON - CU RR ENT AS SET S Tang ible fixed asset s Land and bu ildi ngs Other plant and op erating equipment Total tangible fixed a ssets Financial a ssets Inve stment s in sub sidi aries Loan rec eiva bles Loans to subsidiaries - Total fin ancial ass ets Total non - current as sets CU RR ENT A SS ETS Loans to subsidiaries Other r eceiva bles Prepayments Cash and cash eq uivalents Total curre nt assets TOTAL A SSETS Note: The profit/(loss) for th e financial year dealt wit h in the financial statements o f the Co mpan y is USD 36 , 996 k (20 20 : US D -1 5,516 k). USD No te EUITY AND LIABILITIES EUITY Co mm on sh a re s Treasury shares - - Hedgi ng res erves - - Sha re prem ium Retained profi t(loss) Total equity LIABILITIES NON - CURRENT LIABILITIES Borrowings Total non - current liabilities CURRENT LIABILITIES Borrowings Trade pay abl es Payables to subsidiaries Other lia bilit ies Total current liabilities Total liabilities TO TAL E UI TY AND LIABILITIES The financial statements o f TORM plc, company number 09818726, have been approved by the Board of Directors an d signed on their behalf by: Jacob Meldga ard Execu tive Di rector 23 March 202 2 Paren t company f inanci al statement 202 1 TORM ANNUAL R EPORT 2021 PARENT COMPANY FINANCIAL STATEMENT 2021 1 1 59 COMPANY ST ATEMENT OF CHA NGES IN EQUITY USD Common shares Treasury shares Hed ging rese rves Share pr em ium Retai ned profit Total EUITY Equity as of January - - Com prehen siv e inco me f or th e yea r Net profi t(loss) for the year - - - - - - Other com prehe nsive inc ome(l oss) for t he year - - - - - - Total c ompreh ensiv e inco me(lo ss) for the yea r - - - - - - Capital in cre as e - - - Capital decrease - - - - - Transaction costs capital d ecrease - - - - - - Share - based compensation - - - - Acquisition treasury shares c ost - - - - - - Divi dend p aid - - - - - - Total chan ges in equit y - - - - Equity as of Decemb er - - Com prehen siv e inco me( loss) f or the year Net profi t(loss) for the year - - - - Other com prehe nsive inc ome(l oss) for t he year - - - - Total c ompreh ensiv e inco me(lo ss) for the yea r - - - Capital increase - - - Capital decrease - - - - - - Transaction costs capital i ncrease - - - - - - Share - based compensation - - - - Acquisition treasury shares c ost - - - - - - Divi dend p aid - - - - - - Total chan ges in equit y - - Equity as of Decemb er - - TORM AN NUAL REPORT 2 021 PARENT COMPANY FINANCIAL STATEMENT 2021 160 Note – Acc oun t ing Pol ic i es – Supplementary for the Parent Company Note – ProfitLoss and Total Comprehensive Income for the Year Note – Borrowings Note – Staff Costs Note – Fin ancia l Ass ets Note – Loa n Rece ivab les Note – Oth er Liab ilit ies Note – Imp ai rmen t T es ting Note – Collateral Sec urity for Mortgage Debt a nd Bank Loans Note – G uarant ee Co mmit me nts and Cont inge nt Lia bilit ies Note – Related P arty Transactions NOTE S TO PARENT COMPAN Y FINANC IAL STAT EMEN TS TORM ANNUAL R EPORT 2021 PARENT COMPANY FINANCIAL STATEMENT 2021 161 NOTE 1 – ACCOUNTING P OLI CIES – SUPP LEMENTAR Y FOR THE P ARENT C OMPANY BASI S OF PRE PA RATI ON TORM plc is a pu blic company limited by s hares and is incorporated in E ngland and Wales. Its regis tered num ber is 0981 8726 a nd its r egis tere d ad dress is Birc hi n Court, 20 B irch in La ne, London, E C3V 9DU. Th e C ompa ny meets the defin itio n of a qual ifyi ng e nti ty under Financ ial Repor tin g Sta ndar d 1 00 (“F RS 1 00”) iss ued by t he Fi nanc ial Repor tin g Cou ncil. Ther efor e , these financial statements were prepared in accordance wit h Unite d Kin gdom G enera lly A ccept ed Acc ounting P ractice (United Kingdom Acc ounting Standar ds and a ppli ca ble la w), incl udin g Financial Reporting Standard 1 01 Reduced Disclosure Fram ework. As permitted by F RS 101, the Company has taken advantage of t he disclosure exemptions available under that standar d in relation to accou nting standards issued but n ot y et e ff ect iv e or imp lemen ted , shar e - based payment information, financial instruments, capital management, presentation of comparati ve information in respect of certa in assets, presentation o f a cashflow statement and certain related party transact ion s. The fo llowi ng ex emptio ns a vaila ble under F RS 1 01 hav e be en a pplied: • Paragraphs 45(b) a nd 46 to 52 of IFRS 2, “Shared - based pay ment” (details of the number and weigh ted - average e xercis e pric es of s hare o ptions, and ho w t he fair va lue o f goods or serv ices recei ved was det ermi ned) • IFRS 7 “Financial Instruments: Disclosu res” • Paragraph 91 to 99 o f IFRS 13, “Fair value m easurement” (disclosure of va luation techniques and inputs used for fair value measurement of ass ets and liabilities) • Paragraph 38 of IAS 1 “Presentation of financial state ments” comparative information requ irem ent s in respect of parag raph 79(a)(iv) of IAS 1 • The following paragra phs of IAS 1 “Presentation of financial statements” • 10(d) (sta tement of cash flows) • 16 (statement of compliance wi th all I FRS ) • 38A (requirement for minimu m of two primary statem ents, including cash flow statements) • 111 (cash flow statement information) • 134 - 136 (capital management disclosures) • IAS 7 “Statement of cash flows” • Paragraph 30 a nd 31 of IAS 8 “Accountin g pol icies, changes in accounting estimates and errors” (requirement for t he disclosure of information w hen an entity has not applie d a new IFRS that has been iss ued but is not yet effective) • Paragraph 17 and 18A of IAS 24 “Related Party Disclos ures ” (Key manag ement perso nnel compensation) • The requirements in IAS 36 “Impairme nt of Assets” (disclosure of valuation technique and assumpt ions used i n deter minin g reco verable a mou nt) The financial statements have been prepared on a going concern basis. Further information relating to the going concern assumption is provided in N ote 1 to the Group co nsolidated financial statements . NOTE 1 - c ontinu ed Where r equir ed, th e equiva lent dis closures are given in the Group's consolidated financial statements. Key sources o f estimation uncertainty d isclosure are provided in t he accounting policies and in relevant notes to the Group consolidated financi al statements as applicable. Details of t he C omp any's sha re - based payment schem es are provided in N ote 3 to the Group consolidated fin ancial statements. ACCOUNTING POLICIES In supp lemen t to the accoun ting po licie s provid ed in N ote 1 to the Gro up consolidated financial statements, the following acco unting policies wer e appl ied to the Comp an y ’s financ ial statements. Investment in subsidiaries and joint ventures Investment in subsidiaries, assoc iated companies and joint ventures are recog nize d an d measured in the fina ncial statements of the Pare nt C ompany at cos t less p rovision for impai rment and class ifie d as “ n on - current assets ” . Divid ends a re recogn ized und er “F inanc ial in c ome ”. The carrying amount of investment in subsidiaries an d joint ventures is increas ed to its recover able a mount, if ther e ha ve bee n chan ges in t he esti mates used to deter mine t he recoverable amount si nce the last impairment loss was recognized. Revers al o f impa irme nt los ses o n inves tment in s ubsi diar ies an d joint v ent ures is r ecogn ized i n “Fina ncial income” . CRITIC AL ACC OUNTI NG ESTI MATES AND JUD GEMEN TS In s upplem ent to the crit ical a cco unting esti mates an d judge men ts pro vided in N ote 1 to the Group consolidated financial statements , t he fo llowin g is co nsid ered a si g nifica nt a cco unti ng estimate used in the p r eparation of the Company ’s financial statements. Carrying amounts of inv estm ents in su bsidia ri es The Company evaluates t he carrying amounts of s ubsidiaries to determine if e vents have occurre d which would require a mo dification of their carrying am ounts. The valuation of subs idiari es is r eview ed bas ed o n t he per forme d impa irme nt t estin g of t he Gro up ’s cash - gener ati ng unit , excl uding the Pa rent Co mpany’ s effect on th e val ue in us e of th e cash - generating unit. For fu rthe r informa tion rega rding the underly ing impa irmen t testing of the ve ssels in the Group, please r efer to N ote 8 to the Gro up c onso lidat ed financ ial statements. TORM ANNUAL R EPORT 2021 PARENT COMPANY FINANCIAL STATEMENT 2021 162 NOTE 2 – PROF IT/ L O SS AND T OTAL C OMP REHENS IVE I NCOME FOR THE Y EAR As per mitte d by sect ion 40 8 of t he Co mpanies Act 20 06, th e stat ement o f com prehe nsive income of the Compa ny is not presented as part of these financial statements. NOTE 3 – BORROW INGS As of 31 Dec embe r 20 2 1 , t he Company had b orrowed USD 611 .9m ( 20 20 : U SD 563 .8m, 20 19 : USD 24 0. 1m) . The loa n p roc ee ds were USD 5.3m low er ( 20 20 : U SD 5.9 m, 2 01 9 : U SD 3 . 0m ) due to borrowing fees. T he fee s are amortized over th e loan period s . In 20 2 1 , t he Company h ad interest expens es of USD 16 .6m ( 2020 : U SD 16 .5m , 201 9 : U SD 9.4m) reg ard in g th e se loan facilit ies . As of 31 Dec embe r 20 2 1 , the Co mpany had f ina nce lease liab ili ties of ni l ( 2020 : USD 0.1m, 20 1 9 : USD 2 1.9m) . I n 20 21 , the C ompany had inter est exp ense s of USD n il ( 2020 : U SD 1.1m , 20 19 : USD 2. 0 m) regarding financial l eases. NOTE 4 – STAFF C OSTS USD Total s taff costs Staff costs included in a dministrative expenses Total staff costs Avera ge nu mber of p erma nent em ployees Employee in formation The average number of employees is calculated as a full - time equiva lent (FT E) . NOTE 5 – FINANCIAL A SSETS USD Inve stment s in sub sidia ries Cost Balance as of J anuary Capital decreases in subs idiaries - - Capital increases related to s hare - based payments Bala nce as of Dec ember Im p airm en t Balance as of J anuary Impairment (reversal)losses f or the year - - Bala nce as of Dec ember Carrying amo unt as of De cember NOTE 6 – LOAN R ECEIV ABLES USD Lo an rec ei v able s Cost Balance as of J anuary Addit ions durin g the year - - Bala nce as of Dec ember Expected cre dit loss Balance as of J anuary Addit ions durin g the year - - Bala nce as of Dec ember Carrying amo unt as of De cember TORM ANNUAL R EPORT 2021 PARENT COMPANY FINANCIAL STATEMENT 2021 163 NOTE 7 – OTHER L IABILITIES USD Derivative financial instruments Oth e r Bala nce as of Dec ember NOTE 8 – IMPAIRMENT T ESTI NG As of 31 Dec embe r 20 21 , Mana gement perfor med a n impair ment test of investme nts in subsidiaries. The subsidi aries of TORM plc are the formal owners of the TORM vessels an d operate in the product tanker market. As of 31 Dec embe r 20 21 , the r ecovera ble amo unt o f the in vestments in subsidiaries was based on the va lue in us e . Based on this test, Management concluded that no reve rsal o f impairment c harge was needed (2020: a reversal of impa irment charge of USD 1.4 m) . The ass essme nt of th e val ue in u se of t he subsidiar ies was bas ed on the prese nt val ue of the exp ected futu re cas h flo ws , w hich is pri marily in fluenc ed by t he c ash flows of th e vess els own ed by each subsidiary . Please r efer t o N ote 8 to the G rou p consolidated financial statements for further information in respect of t he valu e in use of t hese vessels . NOTE 9 – COLLATERAL S ECURITY FOR M ORT GAGE D EBT AND B ANK L OANS The vessels owned by subsidiaries of the C omp an y which have been provided as security for TORM’s d eb t am oun t ed to U SD 611 ,873k as of 31 Dec embe r 202 1 (20 20 : U SD 563 , 821 k ). NOTE 10 – GUARANTEE C OMMIT MENTS A ND C ONTINGENT L IABILIT IES T ORM is guarantor f or a loa n amo unting t o US D 86 m est ablis hed in t he s ubsid iarie s TO RM A/S and Vess elCo 9 Pte. Ltd. As part of sale and leaseback transactions made by a subsidiary , TORM issued a guarantee to the third party in relation to f uture lease payme nts to be made by the subsidiary, which are expected to total ap proximately USD 386 m. NOTE 11 – RELATED P ARTY T RANSACTIONS T ORM’s ul timate co ntrolling party is Oaktree Capital Gro up, LLC , a li mite d liabi lity c omp any incorporated in the US A. The immediate controlling shar eholder is OCM Njord Holding s S.à.r.l . ( Njor d Luxco ). The Company has re ceived dividends from su bsidiaries amounting to U SD 44 .3 m ( 20 20 : US D 0.1m , 201 9 : USD 7.6 m) . The Co mpany has inco me i n the form of i nterests from its subsidiar ies of U SD 12 .7m ( 2020 : U S D 16 .2m , 201 9 : USD 8.8 m) , relating to loans to s ubsidiaries . The Co mpa ny has inco me in the form of bareboat hire fro m its subsidiary TORM A/S o f USD 32 .1m ( 20 20 : U SD 70.3 m , 201 9 : USD 53 .0m). The Company has paid bareboat hire to its subsidiaries in the am ount of USD 31 .7m ( 2020 : U SD 66. 2m, 201 9 : USD 47.2m). There have been no or limited transactions wit h related parties during the fina ncial year other than the transactions disclosed abov e . TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S R EPOR T 164 OP INION In our opinion: • TORM plc’ s group fi nancial state ments and p arent company financi al statement s (the “financial statements ”) give a true and fair v iew of the state of the group’s and o f the p arent comp any’s af fairs as at 31 December 2 021 and of the group’s lo ss for the year then ended; • the group fi nancial statements have been properly prepared in accord ance with UK adopted inte rnational accounting st andards; • the parent co mpany fina ncial state ments have be en properly prep ared in a ccordanc e with United Kingdom Generally Accep ted Accounting Practice; and • the financial statements hav e been prep ared in accordance with t he r eq uir eme nts of t he Co mpa nies Act 2006. • The group financial s tatement s are also p repared in accordance with International Financial Report ing Standards ( “IFRS”) as issued by the Intern ational Accounting Standard s Board ( “IASB”) and IFRS as adopted by th e EU, as appl ied to financial period s beginning on or after 1 January 2021. • Xx The financial reporting fram ework that has been a pplied in the preparation of the group financial statements is applicable law and UK a dopted international accounting standards. The group f inancial statements are also prepared in acc orda nce with I nter nat i onal F inanc ial Repo rting Standards (“IFRS”) as iss ued by the International Accounting Standards Board (“IASB”) a nd IFRS as adopted by the EU, as appli ed to fi nancia l pe rio ds be ginn ing o n or aft er 1 Ja nua ry 2021. The financial re porting framework that has bee n applied in the preparation of the parent company financial statements is applicable law a nd United Kingdom Accounting Stan dards , in clu ding F RS 1 01 “ Redu ced D isclo sur e Framework” (United Kingdom Generally Accepted Accounting Practice). BASIS FOR OP INI ON We conducted our a udit in accordance with Internationa l Standards on Auditing ( UK) (ISAs (UK)) and ap plicable law. Our responsibilities under those standard s are further described in the Auditor’s responsibil ities for the audit of the financial statements section of o ur report. We are independent of the gro up and parent co mpany in accordance with the ethical requireme nts that are relevant to o ur audit of the financial statements in t he UK, including the FRC’s Et hical Standard as applied to listed entitie s, a nd we have fulf illed o ur other ethical r espo nsibilit ies in a ccorda nce w ith thes e requ irem ent s. We believ e that t he au dit evi dence w e have o btain ed is sufficient and appropriate to pro vide a basis for our o pinion. CON CLUS ION S REL ATI NG TO G OING C ONCE RN In auditing the financial state ments, we have conc luded that the d irecto rs’ use o f the goi ng co ncer n bas is of acco unti ng i n the preparation of the fi nancial statements is appro priate. Our evaluat ion of t he dir ectors ’ assessment of the group and parent company’s ability to co ntinue to adopt the goi ng concern basis of accou nting included carrying out th e following procedures: • We confir med our unde rstand ing of man agement ’s going concern assessment process and also engage d wi th management early to ensure key factors were co nsidered in th eir ass ess ment , incl udi ng t he eva luatio n of any operational and economic impacts of COVID - 19 as well as Russ ia’s i nvas ion of Ukra ine o n t he gro up; Independent a udi tor ’s re port INDEPENDENT AU DITOR’S REPORT T O T HE MEMBERS OF T ORM P LC REPORT O N T HE AUDIT OF THE F INANCIA L ST ATE MENTS We have audited th e financial statements of TO RM plc (the ‘pare nt company’) and its su bsidiaries (the ‘group’) for the year end ed 31 Dec e mber 2021 which compri se: GROUP PARE NT COMPA NY Conso lidated ba lance sheet as at Dec ember Balance sheet as at December Consolidated income state ment for the year the n ended Statement of changes i n equity for the year then en ded Conso lidated s tate ment o f comp rehens ive in come for the year the n ended Statement of cash flows for the year then end ed Consolidated statement o f changes in equity for t he year then end ed Related notes to to the financial statements incl uding a summ ary of sig nifi cant a ccount ing poli cies Consolidated statement o f cash flows for the y ear then ended Related notes to to the financial statements incl uding a summ ary of signifi cant a ccount ing poli cies TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S REPORT 165 • We obtained mana gement’s board approved for ecast cash flows and covenant calculation covering the period of assessment from the date of signing to 31 Mar ch 2023. As part of thi s assessment, in addition to the base case scenario, the group has modelled a low case and stress case scenarios in their cas h forecasts and covenant calculations in order to incorporate unexpected change s to the forecasted liquidity a nd covenant compli an ce of the group. We con sidered managem ent’s stress case scenario as the ma nagement’s reverse stress test; • We assessed the reasonableness of the cashflow forecast by analysing manage ment’s historical forecasting accuracy; • We evaluated t he key assumptions and sensitivities iden tified unde rpinni ng the group ’s a ssessmen t by challen ging how thes e com pare with ext ernal benchmarks, historical perfor mance adjusted for inflation, the lowest rolling 4 - quarter averages since 200 0, as well as perfo rma nce in t he perio d post year end; • We ha ve ev aluated the key a ssumpti ons u nderpi nning the group’s base case, low case and stress case scenario by challenging the appropriate ness of the low case an d stress case scenarios modelled and how these compared with the principal ri sks and u ncer tainties o f the grou p; • We have evaluate d the reverse stress test (str ess case scena rio) and conside red whet her the combina tion of factors (notably significantly red uced freight rates and vessel va lues) is a p lausible outcome or remote based up on the historical performance, external benchmarks, and per for manc e and co ndit ions in the per iod po st yea r end; • We tested the clerica l accuracy and logical integrity of the mo del us ed to prepar e the g roup’ s goi ng conc er n assessment; • We co nsider ed whet her the gro up’s forecasts in the going concern asse ssment were consisten t with other f orecasts used by th e grou p in it s ac count ing es timat es, inclu ding impairment testing of t he carrying value of vessels; • Our a nalys is a lso co nsider ed t he mit igati ng act ions s uc h as sale of older vessels t hat management co uld undertake in an ext reme downs ide sc enario and w hether these w ere achie vable and in co ntrol o f ma nage ment c onsi derin g timi ng and quan tum; • We als o co nfirm ed th e cont inue d avai labil ity o f debt facilit ies t hro ug h the goi ng co ncer n per iod, and revi ewed their under lyin g ter ms, i ncludi ng co vena nts, b y exami natio n of exe cut ed doc umenta tion; • We have considere d factors, such as freight rat es and vesse l val ues, in the perio d im mediat ely aft er t he go ing concern period by comparing them to the external benchmarks. We considered whether management’s disclosures in the financial statements sufficiently and a ppropriately reflect the going concern assessment and outcomes. The group is forecast to be profitable a nd generate positive o perating cashf lows thro ugho ut the go ing conc ern pe riod i n base ca se scenario, low case scenario and stress case scenario (reverse stress test) modelled. U nder the stress case sc enario, the cash covenant will breach wi th USD 24m liquidity shortfall . This s cenar io is cons idere d as h ighly unl ikely a nd re mot e by management. Further more, in the stress case scenario, Management has ide ntified mitigating actions suc h as sale and leaseback or sale of older vessels, which, whilst not fully in their con trol, base d on past experience and g eneral market activity, are deemed reasona ble and achievable. We considered management’s assessment over the impact of Ru ssia’s in vasi on of Ukr aine, in clud ing ge o - polit ica l consequences, on the going concern assessment and outcomes. Management have observed that the im mediate impact is that the uncerta inty and potential for re - routing of trade flows has sent t he tanker freight rates i n the European markets upwards. The financial impact going forwar d is unce rtain, but TORM cu rrently expects that the possible effects a re co vere d by the perfor med str ess test and sensit ivity a nalysis for a period to 31 Mar ch 2023 . Based o n the w ork w e have perf ormed, w e hav e not ident ified a ny ma teria l un certa int ies rela ting t o e vents o r co ndi ti ons that , indi vidua lly or co llecti vely, may cast significant doubt on the group and parent com pany’s ability to continue as a go ing concern for a period to 31 M arch 2023. Our res ponsi bilities a nd t he res ponsi bilities o f the director s with respect to going c oncer n are de scri bed in the rel evan t sections of this report. However, because not all future events or conditions can b e predicted, this stateme nt is not a guarantee as to the gro up’s ability to continue as a going conc ern. OVE RVIE W OF OU R AUDI T APP ROAC H Audit scope We perfor med an aud it of the co mplete financ ial infor matio n of th e Group . Key audit matter Carrying val ue of vess els Materialit y Overall gr oup ma terial ity of $1 0m which represen ts 4% of group tota l assets. . AN OV ERVI EW OF T HE SC OPE OF TH E PARE NT C OMPA NY AND GROU P AUDIT S Tailoring the scope Our assessment of a udit risk, our evaluation of materiality and our allocation of performa nce materiality determine our a udit scope for eac h compa ny wit hin t he grou p. Ta ken together, this enab les us to fo rm a n opi nion o n t he cons oli date d financial statements In assessing the risk of material misstatement to t he group financial statements, we cons idered that all significant eleme nts of th e group’s finan ce and accoun ting f unc tion are situated and managed centrally in Copenhagen, D emark, and operate under one common internal control envi ronment; and all operations of the group are also managed from this location together with the U K headquarters. All audit work perform ed for the purposes of th e audit was undertaken by the group audit tea m, as an integrated audit en gagement team, consisting of tea m members located in Denmark and the UK. As an integrate d team all audit work was performed in a shared electronic work space. The au dit pla n was dev eloped join tl y and bo th tea ms we re inv olved in th e execution of the plan and in the consideration of areas of signi fica nt j udgem ent a nd est ima tion. INDEPEND ENT AUD ITOR’S R EPORT T O THE ME M BERS OF TORM PLC REPORT ON T HE AUDIT OF THE F INANCIA L STATE MENT S - continued TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S REPORT 166 During the cou rse of the audit, the UK seni or members , including the Senior Statutory Auditor, supervised the members of the aud it team who a re base d in Co penh age n, Denmark. Due to tra vel restrictions and UK governm ent’s recommendation to work from home, the au dit planning proced ures p erform ed by U K au dit tea m mem bers wer e performed remotely. We held regular meetings with mana geme nt a nd the D enmark based audit team via video calls to direct and sup ervise the audit and the UK team continued to access client do cumentation and docu ment our work in the shared electro nic work file. The UK se nior mem bers als o vis ited t he Co pen hage n opera tions dur ing the year end phase of t he audit. Climate ch ange There has been increasi ng interest from stakeholders as to how climate chan ge will impact the group. Th e group has de te rmin ed th at th e m os t sig ni fic an t f utu re imp ac ts f rom climate change on its operations will be from peak o il demand, technology of vessels, insufficie nt access to financing and estimate d freight rates. These are ex plained on pages 66 - 68 in the Risk Ma nage ment s ectio n, w hich fo rm part of the “Other informat ion,” rather than the a udited fina nc ial statements. Our procedures on these disclosures therefo re co nsisted solely o f co nsideri ng whet her th ey are materially inconsistent with the financial statements or o ur knowl edge o btained in the cours e of th e audit o r other wis e appear to be materia lly misstated. As expl ained in Em erging Risk – Cli mate w ithi n Risk Management and Not e 8 to the consolida ted group financi al statements, governmental a nd societal responses to climate change risks are still dev eloping, and are interdepend ent upon ea ch ot her, an d consequently financial statem ents cannot capture all possi ble future outcomes as th ese are not yet k nown. T he degr ee of certa inty o f these chang es may also mean t hat t hey can not be ta ken i nto ac cou nt wh en deter mini ng ass et an d liab ility valua tions a nd the timing of future cash f lows under t he requ irements of UK ado pted inter natio nal a cco unti ng sta ndar ds a nd IFRS iss ued I ASB as ado pted by th e EU as a ppli ed to fina ncia l per iods beg inni ng on or after 1 January 2021. Our a udit effort in c onsi deri ng cl i mate change was focused on ensuring that the ef fects of material climate risks disclosed on pages 66 - 68 ha ve b een ap propriat ely re flecte d in t he carrying value of vessels a nd associated disclosures wh ere values are determined thro ugh modelling future cas h flows, being estimat ed fr eight rat es, ca pitalis ed ex pendit ures a nd external loan in terest. Details of our procedures and f indings on carrying value of vessels are included in our key audit matters below. We also challenged the Directors’ considerations of climate change in their as sessment of going concern and viability and associated discl osures. Whilst the group hav e stated its commitment to t he aspirations of the Paris A greement to achieve net zero emissions by 2050 and have set the goal to accelera te th e climate target at a 40 % CO2 reduction by 202 5 compared to 2008 usin g IMO’s defin ed met ho dolo gy and 4 5% CO2 reduction by 2030, t he group is currently unable to deter mine th e full f uture ec ono mic im pact on their business model, operational plans a nd customers to ac hieve this and therefore as set out a bove the potential impacts ar e not fully incorporated in these fi nancial statements. Key audit matter s Key audit matters are t hose matters that, in our profess ional judgment, were of most significanc e in o ur au dit o f the financial statements of the c urrent period and include th e most significant assessed risks of materi al misstatement (whether or not d ue to fraud) that we ide ntified. These matters included those w hich had the greatest effect on the ov erall audit strategy, the allocat ion of resources in the a udit; and directing the efforts of t he engagement team. Th ese matters were addressed i n the context of our a udit of the financial statements as a w hole, and in our opinion t hereon, and w e do not pro vide a separate opi nion on these matters. INDEPEND ENT AUD ITOR’S R EPORT T O THE ME MBERS O F TORM PL C REPORT ON T HE AUDIT OF THE F INANCIA L STATE MENT S - continued TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S REPORT 167 INDEPEND ENT AUD ITOR’S R EPORT T O THE ME MBERS O F TORM PL C REPORT ON T HE AUDIT OF THE F INANCIA L STATE MENT S - continued Risk Our res ponse t o the r isk Key observa tions co mmunicate d to the Audit Committee Carrying value of the group’s ve ssels carried as at 31 Dece mber 2021 tot alled $ 2,30 2m (202 0: $1,774m). Refer to the Audit C ommittee Report (page 79); Accounting policies (page 125,131 and 132); and Note 8 of the Consolidated Fi nancial State ments (p age 13 5) The carryi ng values o f vessels ar e review ed quarterl y by management for indicators of impairm ent. If impair ment indica tor s exist, an impairment te st is carried out where the futu re discounted net cash flo w derivin g from the cash gene rati ng un its ( CGUs ) must be estimated. These estima tes are based on a number of assum ptions principally future freight rates and weighted av erage cost of cap ital (WACC ). As of 31 D ecember 202 1, Manage ment tested t he carrying amount of its fleet for impairment wi thin 3 CGUs , being t he Main F leet ( LR2/ LR1 and MR vessel s) and the 2 Hand ysize vessel s. There is a ri sk that CGUs are not correctly classi fied and that the te sting is not performed at the appropria te le vel, whic h may mask impa irme nts that would otherwise ari se. Aud iting the group's impa irment assessmen t is comple x due t o sig nificant j udge ments i nvolve d in the hig h esti mation uncert ainty i n fore casting t he undisc ounted cashf lows of the CGUs. Th ese signif icant assump tions are forward looking and subject to future e con omic and m arket conditio ns. We perfo rme d a walk throu gh of the group’ s impair ment process to gain an unders tandin g of the p rocess and asse ssed the design effectiv eness of the con trols. We chal lenge d mana gement’ s CG U deter minatio n by e valuat ing th eir analysi s in respect of the sma llest group of assets tha t generate la rgely independ ent cash infl ows. This con sidered mana gement’s view o f the ho mo genous nature and joi nt opera tion of the L R1, L R2 and M R vessels, inclu ding the 2 021 ac quired che mical tra ding capa bility MR vessels opera ted as al l the other product tan ker vessels, thereby f orming a single CGU (the Main Fleet) and that the two Handysize vessels were each the lowes t level at whic h indepen dent cash flow s are ide ntified. We inspecte d evidenc e to su pport the explanations and ration ale supporting the joint operati on of the LR1 , LR2 and MR vessel s (the Main Fl eet). We obt ained manage ment’ s impair ment mo del co ntain ing the value in use ca lculatio ns a nd tested the cle rical accuracy of the model. We cha l lenge d the key assu mptio ns by co mparing them w ith p ublicly availa ble mark et inform ation, our kn owledge of the grou p and industry a nd the group’s m ost recen t business pla n. We anal ysed t he ass umptions an d estim ates ma de by ma nagem ent i n their i mpair ment a ssessment for t he past three years again st the actual outcomes to assess th e robust ness and accurac y of m anagemen t’s forec asting p rocess. We invo lved o ur interna l valuatio n spec ialists to inde pendently ass ess the ap propriat eness o f the discoun t rate (WACC ) appli ed to t he valu e - in - use ca lculatio n. This include d asses sing mana gement’s metho dolo gy and prepari ng our o wn in depende nt po int estima te to check management ’s rate fel l within an accepta ble range. We review ed manag ement’s s ensitivities on the grou p’s value - in - use calculation inc orporating reasonab le possible changes in key assu mptions in cluding in respect of fr eight rate s, the discoun t rate and op erating costs. We h ave ensu red the fact that r easonab le possible change s in key assump tions may lead to im pair ment has been d iscl osed an d have c hecke d the imp act of reasonab ly possible ch anges in ke y assumptions i s correctly c alculate d and discl osed. At the c onclusion of the above procedu res we stood b ack and consider ed all eviden ce gathe red to reassess an d c onfir m our c onclus ions re mained a ppro pria te. We assessed the appropri ateness of d isclosu res provided , includi ng the impac t from climate changes , in t he finan cial sta temen ts in ac corda nce wit h IAS 36 . Based on ou r audit proced ures performe d, we concur wit h mana gement ’s conc lusio n on impairment of vesse ls at 31 December 2021, includin g: • That the deter minat ion of CG Us is highly judge mental, but is support ed by mana gement’s asses sment ; • No impair ment recog nised for the main fleet due to headroom between the v a lue i n use and carr ying value, however the i mpairme nt tests are se nsitiv e to reason ably possible change s in key assump tions; • No impairmen t or reversal of impairment regarding t he handy siz e vessels . The headroo m is limited a nd therefore sensitive to cha nge s in assumption s; • The impa irme nt of USD 4.6 m reco gnised i n 2021 rel ates to ve ssels classif ied as held f or sale pr ior to di sposal; • The determined discount rate is within the range determi ned by o ur int ernal valuatio n speci alist; • The freight rate s assumed a nd applie d have been benc hmarked to ext ernal so urces an d assessed a s reasonab le; • The historical freight rates appli ed have been tied to hi storical data; • Othe r assumptions h ave been verifi ed to support ing docu menta tion. We consi der the disclo sures in the fina ncial statements to be su fficient and appropriate and in com plianc e with ac count ing st andards. TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S REPORT 168 OUR A PPLICATION OF MAT ERIALITY We a pply t he co ncept of mat eria lity in pla nning and perform ing th e au dit, in eva luati ng the effect of i dentifie d missta te ments o n the a udit and in for min g our a udit o pin ion. Materialit y The ma gnit ude of a n omiss ion or mis stat ement that , indi vidua lly o r i n the a ggre gat e, could r eas ona bly b e ex pect ed to infl uence t he eco nomic decisi ons of t he user s of t he financial statements. Materiality provides a basis for determining the nature and extent of our audit proc edur es. We determined materiality for the g roup to be $10million (202 0: $10 millio n), wh ich is 4% (2 020: 5% ) of t he gr oup ‘s total assets. We believe t hat the key users of the gro up’s financial statements are pr imarily focused on the gro up’s assets, prim arily t he ves sel value. In ad ditio n, we a lso considered that total assets b e the most stable and consistent benchmark in a period of significant freight rate volatility. We determined materiality for the Parent Co mpany to be $8.4 millio n (202 0: $8.5 mil lio n), w hich is 5% (2 020: 5%) o f tota l assets as the Parent C ompany principally holds investments in subsidiaries and does not tra de externally. During the course of our audit, we reassesse d initial materiality and no change has been made to the mater ial ity le vel reflecting the insignificant mo vement in the carrying value o f vesse ls bet ween t he t ime w e set init ial materia lity a nd 31 December 2021. Performance materiality The application of materiality at t he individual account or balanc e le vel. I t is s et at an amo unt to reduce to an appropriately low level t he probability that the aggregat e of uncorrected and undetect ed misstatements excee ds materiality. On the basis of our risk assessments, together with our assessment of the group’s overall control e nvironm ent, our judgement was that performance materiality was 50% (2 020: 50%) of our plannin g materiality, namely $5m (2 020: $5m). Our objective in ado pting this approach is to confir m that total de tected and un detec ted audi t di ffe rence s d o not ex ceed ou r materiality for the financial stat ements as a whole. Reporting threshold An amo unt below whic h ide ntifi ed mis stat ement s ar e consi dere d as b eing c lear ly triv ial. We agreed with the A udit Committee that we would report to them all u ncorr ecte d audit diffe r ences in excess of $0. 5m (2020: $0.5m), which is set at 5% of planning materiality, as well as differences below t hat threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any u ncorrected misstatements a gainst both the quan titative meas ures of materiality discussed a bove and in light of ot her re levant qua litat ive c onsid eratio ns in for ming o ur opinio n. Other infor mation The other information co mprises the information included in the annual report, other t han the financial stateme nts and our auditor’s report thereon. T he directors are respo nsible for the other information containe d within the annual report. Our o pinio n o n the fina ncial s tat ements doe s not cover th e other information and, e xcept to the extent otherw ise exp licitly stated in this report, we do not express any form of assur ance co nclusio n the reo n. Our responsibility is to rea d the other information a nd, in doing so, consider whether the other informa tion is materially inco nsist ent wit h t he fi nanc ial st atem en ts or o ur knowledge obtained in the course of the audit or otherwise a ppears to be materially misstated. If we identify such material inconsistencies or apparent mat erial misstatements, we are required to determine wh ether this gives rise toa mat erial miss tat ement in the financial stat ements themselves. If, base d on the work we hav e perfo rmed, we conc lude t hat ther e is a material misstatement of t he other information, we are required to report that fact. We have nothing to re port in this regard. OPIN IONS ON OT HER MA TTE RS PRE SC RIBED BY THE COMP ANIES ACT 20 06 In our opinion, the part o f the directors’ remuneration re port to be au dite d ha s be en pro per ly pr epar ed i n acc orda nce with the Companies Act 2006. In our opi nion, bas ed o n the wo rk undert ake n i n the course of the audit: • the information given i n the strategic report and the directors’ report for the fina ncial year for which the financial statements are pr epared is consistent with t he financial statements; and • the strategic report an d directors’ report have been prepared in accordance with applicable legal requireme nts. Matters on w hich we are required to rep ort by e xception In the light of t he k nowled ge and underst andin g of t he grou p and the parent co mpany and its environment o btained in the cou rse of t he a udit, we ha ve not id entif ied ma teria l misstatements in the strate gic report or the directors’ report. We have nothing to re port in respect of the fo llowing matters in relation to which the Companies Act 2006 re quires us to report to you if, in our op in i on : • adequate accountin g records have not been kept by the parent company, or ret urns adequate for our a udit have not been received from branches not v isited by us; or • the parent com pany financial statements and th e part of the directors’ remunera tio n report to be audited are not in agreement with the a ccounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not r eceived all the information and explanations we requ i re f or o ur a udi t INDEPEND ENT AUD ITOR’S R EPORT T O THE ME MBERS O F TORM PL C REPORT ON T HE AUDIT OF THE F INANCIA L STATE MENT S - co ntinued TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S REPORT 169 Responsibili ties of direc tors As exp lained more fully i n the d irector s’ res ponsi bilities statement set out on page 110, the directors are res ponsible for the preparation of the fi nancial statements and for being satisfied that they give a tr ue and fair view, a nd for such inter nal co ntr o l as the directors determine is necessary to enable the preparation o f financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial stat ements, the directors are responsible for assessing the g roup and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and usin g the going concern basis of accounting unless the directors either in te nd t o li qu id ate the gr oup o r th e pare n t company o r to cease operations, or have no realistic alternative but to do so. . AUDITOR’S RESPONSIBILITIES FOR THE AUDIT O F THE FIN ANCIAL STATEM ENTS Our objectives are to obt ain reasonable assurance abo ut wheth er the financia l stat ements as a w hole ar e free fro m m aterial misstatement, wh ether due to fraud or error, a nd to issue an auditor’s report t hat includes our opinion. Reaso nable assurance is a high level of assurance, but is not a guarantee that a n au dit c ond ucted in ac cor dance wit h ISA s (UK ) wil l always dete ct a material misstat ement when it exists. Misstatements can arise fro m fraud or error and are con sidered materi al if, individ ual ly or in the agg regate , they could r easo nably b e expect ed to influe nce the econo mic decisions of users taken on the basis of th ese finan cial statements. EXPLA NATIO N AS TO WHA T EXTENT THE AUDIT WAS CONSI DE RED CA PAB LE OF DE TE CTING I RREG ULA RITI ES, INC LUD ING FR AUD Irregularities, including fraud, are instances of non - co mplianc e with laws and re gulations. We design procedur es in lin e w ith our responsibilities, outlined a bove, to detect irregularities, including fraud. The risk of not detec ting a material misstatement due to fra ud is higher than the risk o f not detecting one resulting from error, as fraud may in volve deliberate concealment by, for example, f orgery or intentional misr epres entat ions, or t hro ugh c oll usion. The exte nt to whic h our procedures are capable of dete cting irregularities, including fraud is d etailed below. However, the primary responsibility for the prevention and det ection o f fra ud rest s with both t hose cha rge d with gover na nce of t he c om pany a nd mana gemen t. • We obtained an u nderstanding of the le gal and regulatory frameworks that are a pplicable to the group an d de te rmin ed th at th e m os t sig ni fic an t a re U K ad op t ed international accounting standar ds, IFRS as issued by th e IASB and ado pted by th e EU as a pplie d to fina ncia l per iods beginning on or after 1 Ja nuary 2021, FRS 101, t he Compa nies Act 2006 and Co rpo rate Gov ernan ce Code, the Danish and UK tax legislation as well as IMO 2020 Sulp hur Re gulati on. • We understood h ow TORM plc is complying with those frameworks by making inquiries of management and identify ing th e pol icies a nd proc edures regar ding compl iance wit h law a nd re gulat ions . We a lso id entif ied those mem bers of ma nag eme nt who ha ve the pri mary resp onsib ili ties f or en suring c omplianc e wi th la w and regulations, and for report ing any known instance o f non - compliance to those charged with governance. We corroborated our en quiries through our review of board minut es, discuss ion w ith t he A udit Co mmitt ee an d any correspo ndenc e rece ived fro m reg ulator y bodies . • We assessed the s usceptibility of the group’s fina ncial statements to material misstatement, including how f raud might occur by meet ing wit h mana gem e nt to understand where t hey co nsider ed ther e wa s suscept ibility to fra ud, review ing t he group’ s risk r egis ter , enqu iry w ith management and the Audit Committee during the plan ning a nd ex ecut ion phases o f our aud it. We a lso considered performance targets an d thei r influe nce on efforts ma de by ma nageme nt to manag e earni ngs. Wher e this risk was considered to be higher, we performed au dit proced ures to addres s eac h iden tified fra ud risk . Thes e procedures included testin g manual journals an d were designe d to p ro vide reasonable assurance that the financial statements were fr ee from material misstatem ents arising from fraud. • Based on this und erstand ing we de signed ou r audit proced ures to ident ify no n - comp liance wit h suc h laws a nd regulations. Our proce dures involved : • inq ui ries of membe rs of seni or manag emen t, and when appropriate, those char ged with governance re garding their knowledge of any non - com plian ce or po te ntial non - compliance with laws a nd regulations that could affect the financial state ments; • review of mi nutes of me eting of t hose charg ed with governances; • obtaining and reading correspo ndence from legal a nd regulatory b odies; • obtaining electronic confirmations fro m the group’s banking provider to verifyi ng the existence of cash balanc es an d compl eteness of l o an and b orrowings; • journa l ent ry t estin g, wit h a f ocu s on manua l jour nals and journals indicating lar ge or unusual transactions base d on o ur u nders tand ing o f the busi ness A furt her des criptio n of o ur resp onsibi lities for the a udit o f the financial statements is locat ed on the Financial Reporting Council’s website at https://www.frc.org .uk/auditorsresponsibilitie s . Th is description forms part of o ur auditor’s report. Use of o ur report This report is made solely to the company’s members, as a body, in accordance wit h Chapter 3 of Part 16 of the Companies Act 2006. Our aud it work has been undertaken so that we might state to t he company’s mem bers those matters we are required to state to them in an auditor’s r eport and for no other purpose. To t he fullest extent p ermitted by law, we do not accept or assu me responsibility to anyo ne other than the company and the company ’s membe rs as a bod y, for ou r audit work, for this report, or for the opin ions we ha ve for med. Lloyd Brown (Senior stat utory auditor) for and on behalf of Er nst & Young LLP, Stat utory Auditor Lo nd on , 23 March 2022 INDEPEND ENT AUD ITOR’S R EPORT T O THE ME MBERS O F TORM PL C REPORT ON T HE AUDIT OF THE F INANCIA L STATE MENT S - continued TORM ANNUAL REPORT 2021 IND EPENDENT AUDIT OR’S REPORT 170 TORM FLEET O VERV IEW AS OF 31 DEC EMBE R 20 21 Vesse l type Vesse l class Vesse l DWT Built Ownership Carrying val ue (USDm) Tanker LR TORM GU DRUN Tanker LR TOR M H ELL ERU P Tanker LR TOR M H ELEN E Tanker LR TORM H ERM IA Tanker LR TORM HER DIS Tanker LR TORM HIL DE Tanker LR TORM IN GEBORG ⁾ Tanker LR TORM KIARA Tanker LR TORM KIR STEN Tanker LR TORM KRI STINA Tanker LR TORM M AREN ⁾ Tanker LR TORM M ARI NA ⁾ Tanker LR TOR M MATHILD E ⁾ Tanker LR TORM VAL BORG ⁾ Tanker LR TOR M EMILI E ⁾ ⁾ Tanker LR TORM ESTR ID ⁾ Tanker LR TORM ISM INI ⁾ Tanker LR TORM SARA ⁾ Tanker LR TORM SIGN E ⁾ Tanker LR TORM SOFIA ⁾ Tanker LR TORM VENT URE ⁾ Tanker LR TORM ELISE Tanker LR TOR M EL IZ AB ETH Tanker MR TORM ADV ENTUR ER Tanker MR TORM AGNE S ⁾ Tanker MR TORM AGNETE ⁾ Tanker MR TORM ALE XANDRA ⁾ Tanker MR TORM ALI CE ⁾ Tanker MR TORM ALLE GRO TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S REPORT 171 TORM FLEET OVERV IEW AS OF 31 DEC EMBE R 20 21 - c ontinue d Vesse l type Vesse l class Vesse l DWT Built Ownership Carrying val ue (USDm) Tanker MR TORM ALMENA ⁾ Tanker MR TORM AMAL IE ⁾ Tanker MR TORM AMORI NA Tanker MR TORM ANA BEL ⁾ Tanker MR TORM ARAWA ⁾ Tanker MR TORM ASLAU G ⁾ Tanker MR TORM ASTR ID ⁾ Tanker MR TORM ATLANTIC ⁾ Tanker MR TORM AU STRAL IA ⁾ Tanker MR TORM CAVAT INA Tanker MR TORM CORRI DO ⁾ Tanker MR TORM DISCOVERER Tanker MR TORM ERIC ⁾ Tanker MR TORM FREYA ⁾ Tanker MR TOR M H ARDR A DA Tanker MR TORM HEL VIG ⁾ Tanker MR TORM HORI ZON ⁾ Tanker MR TORM IN DIA ⁾ Tanker MR TORM K ANS AS ⁾ Tanker MR TORM LAURA ⁾ Tanker MR TORM LEA DER Tanker MR TORM LEN E ⁾ Tanker MR TOR M LILLY ⁾ Tanker MR TORM LOKE ⁾ Tanker MR TORM LO TTE ⁾ Tanker MR TORM LOUI SE ⁾ TORM ANNUAL REPORT 2021 INDEPENDENT AUDIT OR’S REPORT 1 72 TORM FLEET OVERV IEW AS OF 31 DEC EMBE R 20 21 – c ontinue d Vesse l type Vesse l class Vesse l DWT Built Ownership Carrying val ue (USDm) Tanker MR TORM PHIL IPPINES ⁾ Tanker MR TORM PLA TTE ⁾ Tanker MR TORM R AGNHILD ⁾ Tanker MR TORM R EPUBLICAN ⁾ Tanker MR TORM R ESILIEN CE ⁾ Tanker MR TORM SIN GAPORE ⁾ Tanker MR TORM SOLU TION Tanker MR TORM SOVER EIGN Tanker MR TORM SPLE NDID Tanker MR TORM STEL LAR Tanker MR TORM STRENGTH Tanker MR TORM STRON G Tanker MR TORM SU BLIME Tanker MR TORM SUCCES S Tanker MR TORM SUPR EME Tanker MR TORM THAMES ⁾ Tanker MR TORM THOR ⁾ Tanker MR TORM THUND ER ⁾ Tanker MR TORM THYRA ⁾ Tanker MR TORM TIMOT HY ⁾ Tanker MR TORM TITA N Tanker MR TORM TORINO Tanker MR TORM TRO ILU S Tanker MR TORM VOYAGER Tanker Ha nd ysi ze TORM GYDA ⁾ Tanker Ha nd ysi ze TORM TEVERE ⁾ ⁾ Indica tes that the ves sels are as sets held - for - sale ⁾ Indicates vessels for which TORM believes that as of December the basic charter-free market value is lower than the vessels carrying amount TORM ANNUAL REPORT 2021 GLOSSARY 173 GLOSSARY Available e arning da ys: A measure of unfixed operatin g days available for generating earnings. B/B: Ba reboat: A form of charter arrangement, where the charterer is responsible for al l costs and risks in connection with th e operat ion o f the v essel. Backwardat ion : A sit uatio n in whic h t he spot pr ice of a commodity is higher than the forward price. The opposite is known as contango . Bunker hedg e: A forward agree ment used to reduce a company’s exposure to fluctuating bunker costs. Bunkers: F uel wit h wh ich to run a vess el’s engin es. CAP EX: Capital expe nditure. Charter - in and l ease back d ays: A measure of operating days available for generating earn ings from vessels that are not owne d by th e Compa ny. Charter part y: A lease or freight agreement between a shipowner and a c harterer for a longer period of ti me or for a single voy age. Classificatio n society: I ndepe ndent or ganiz atio n, w hich ensur es t hrou gh ver ifica tion of d esign, co nstr uctio n, b uildin g process and operation o f vessels that the vesse ls at all times meet a long list of requirements to seaworthiness, etc. If the vessels do not meet thes e requir emen ts, in suring and mortgaging the v essel will typically not be possible. COA: Contract of Affr eightment. A contract that in volves a number of consec utive carg o s at previously agreed freight rates. Coa tin g: The internal coatings applied to the tanks of a pr oduct ta nker enabling the vessel to loa d refined oil products. Commercial manageme nt: An agr eemen t t o man age a ve ssel ’s commercial operations for t he account and risk of t he shipowner. Coverage: A measure of Cover ed da ys div ide d by Ear ning days. Covered d ays: A measure of fi xed operat ing days . Demurrage: A charge agai nst the charterer of a vessel for delayi ng the vesse l beyon d the a llow ed free t ime. T he demurrage rate will typically be at a level equal to t he earnings in USD/day for the voy age. DKK: Danish kroner. Dwt: Deadweight ton. Th e cargo carrying capacity of a vessel. EBIT/Operati ng pro fit/(loss): Ea rnin gs Befor e Inter est and Tax. Earning da ys: A measure of operating days available for generating earnings. ESG: Enviro nment al, S ocial, an d Gover na nce. FFA: Forward f re igh t a gr eemen t. A financia l der ivativ e instrument enabling freight to be hedged forward at a fixed pr ice . Handysize: A sp ecific class of product tanke rs with a cargo carrying capacity of 20,0 00 – 40,00 0 dwt. IAS: International Accounting Standards. IF RS: Inter natio nal F ina ncial Reporting Standards. IMO: International Maritime Organization. KPI: Key Perfor manc e Indicator . A measure of perfor mance used to define and evaluate how the Company is making progress towards its long - term o rganiza tio nal goa ls. Loan - to - value (LTV) : A measure of n otional debt divided by broker values of th e encu mbere d vess els. LR 1: Long Range 1. A specific c lass of product tankers w ith a cargo carrying capacity of 60,000 – 80,000 dwt. LR2: L ong Range 2. A specific class of product tankers with a carg o carrying capacity of 80,000 – 110,000 dw t. LTAF: Lost Time Accident Frequency. Work - related personal injur ies tha t res ult in mor e tha n one day o ff wor k per millio n hours of work. MR: Medium Ra nge. A specific class of product tankers with a cargo carrying capacity of 40,000 – 60 ,000 d wt. MT: Metric ton. Oak tre e: Oaktree Capital Management, L.P. Oil major: One of the world’s lar gest publicl y owned oil and gas companies. Exam ples of oil majors are B P, Chevron, Exxo nMobi l, Shel l an d Tota l. OP EC: Organization of the Petro leum Exporting Cou ntries. Owned days: A measure of operating days available for generating earnings from vessels that are owned by th e Co mpan y . P& I club: Protectio n & Indemnity club. Product tanker : A vessel suitable for carr ying clean petroleum products such as gasoline, jet fuel and naphtha. Spot mark et: Mark et in whic h ves sels a re contracte d for a single vo yage for near - term d elivery. T/C : Time charte r : An agree ment covering the charterin g out of a ves sel to an e nd user fo r a defined perio d of ti me, wh ere the owner is respo nsible for crewing the vessel, but t he charterer must pa y p ort costs and bun kers. Technical managem ent: An agre ement to manage a vessel’s technical operations and crew for the account a nd risk of the shipowner. Ton - mi le: A unit of freig ht transportation equivalent to a to n of freight moved one m ile. UN Globa l Compact: The United Nation’s social charter for enterpr ises, etc . Vetting: An a udit of the safety and perfor mance status of a tanker vessel made by oil majors. Glossary TORM ANNUAL REPORT 2021 GLOSSARY 174 GLOSSARY KEY FINANC IAL FIG URES TCE % = TCE Revenue TCE per day = TCE Availab le earnin g days Gross pro fit % = Gross prof it Revenue EBITD A % = EBITDA Revenue Oper ating pr ofit/(lo ss) % = Operatin g prof it/(l oss) ( EBIT) Revenue Retu rn on Equ ity (R oE) % = Net profi t/(l oss) f or the year Average e q uity Return on Inve sted Capital (RoiC) % = Operatin g prof it/(l oss) les s tax Average i nvested c api tal Equity ratio = Equi ty Total a ssets Earnin gs per shar e, EPS = Net profi t/(l oss) f or the year Average n umber of shares Dilut ed earnin gs/(lo ss) per sh are, EPS (U SD) = Net profi t/(l oss) f or the year Average n umber of shares l ess a verage n umber of treasu ry s hares TORM ANNUAL REPORT 2021 GLOSSARY 175 GLOSSARY ALTERNAT IVE P ERFORMAN CE ME ASURES Ne t pr of it /(loss) for the year e xcluding non - recu rrent ite ms : Ne t profit e xclud ing impa irme nt is net pro fit less i mpair ment a nd re versa ls of impa irment generated from impairment testing during the year (Please r efer to Note 8) . T ORM reports n et profit excl uding i mpa irmen t bec ause we be lieve it pro vid es add itiona l mea nin gful i nforma tion to in vest ors re gard ing th e oper atio nal perform ance exc ludin g f luct uatio ns i n the val uatio n of fi xed as set s. The APM replaces “Net profit/(loss) f or the year ” exclu ding impairment as it is more relevant and provides more useful infor matio n. USDm Recon ciliati on to n et profit (los s) for th e year Net profi t(loss) for the year - Profit from sale of vessels - - - Impairment losses and reversals on tangible asse ts - Expense of capitalized ba nk fees at refinancing - Termination of finance leas es - - Provis ions - - Net profit (loss) for th e year ex non - recurrent items - Time Charter Equivalent ( TCE) earnings: T ORM def ines T CE earn ings, a perfor manc e meas ure, as revenue after port ex penses, bunkers and com missions incl. freight and bunker d erivatives. The Company reports TCE earnings because we believe it provides a dditional meaningful information to investors in relation to revenue, the most directly comparable IFRS meas ure. TCE earnings is a standard s hipping industry performance measure used primarily to com pare pe ri od - to - period c hanges in a s hippi ng comp any’s perfor mance ir respec tive o f chan ges in t he mix o f charter types (i.e. , spot charters, time charters an d bareboat charters) under w hich the vessels may be emp loyed bet ween the per iods. Be low is pres ented a reco ncilia tion from r evenue to TCE earnings: USDm Reconciliati on to rev enue Rev enue Port expenses bunkers and commissions - - - TCE earning s Gross profit: TO RM defi nes Gross profit , a p erformance measure , as revenue l ess port expenses, bunkers and commissions, charter hire and operatin g expenses. T ORM reports Gross p rofit because we believe it pro vides additional meaningful i nformation to investors, as Gross pro fit measures the net earnings from shipping activities. Gross p rofit is calculated as follows: USDm Reconciliati on to rev enue Rev enue Port expenses bunkers and commissions - - - Operat ing expe nses - - - Gross p rofit TORM ANNUAL REPORT 2021 GLOSSARY 176 GLOSSARY ALTERNAT IVE P ERFORMAN CE ME ASURES – continue d EBI T DA: TORM defines EBIT DA a s earni ngs befor e fi nancial i ncome and ex penses , depr eciatio n, impairment, amortization , an d taxes. The computation o f EBITDA refers to fi nancial income and expenses which TORM deems to be e quival ent to “interes t” for purpos es of pres entin g EBITDA. Financial expenses consist of interest on borrowings, losses on foreign exchange transactions and bank c harg es. F ina ncial inco me co nsist s of inter est i nco me a nd gai ns o n for eign e xcha nge transactions. EBITDA is used as a s upplemental financ ial measure by Management and external users of financial statements, such as lenders, to assess TO RM's operating performance as well as com plianc e wit h the fina ncia l co vena nts a nd res tric tions cont ain ed in T ORM’s financin g agreements. TORM believes that E BITDA assi sts Management and investors by increasing comparability of TORM’s performance from perio d to period. This increased co mparability is achieved by excluding the potentially di sparate effects of interest, depreciation, impairment, amortization , and taxes. Th ese ar e items whi ch could be affected by vari ous ch anging financ ing metho ds a nd ca pita l str uctur e s, and which ma y significantly affect profit/(loss) betw een periods. Including EBITDA as a me asure benefits investors in selecting between investment alternatives. EBITDA excludes some, but not all, items wh ich affect profit/(loss), and these meas ures may vary a mong ot her co mpani es an d not be direct ly com parab le. Th e follow ing ta ble reco ncil es EBITDA to net profit/( loss), the most directly com parable IFRS financial measur e, for the perio ds pr ese nted: USDm Reconciliati on to n et profit(l oss) Net profi t(loss) for the year - Tax Financ ial expens es Financ ial in com e - - - Depreciation Impairment (reversal)losses o n tangible assets - EBITDA Return on Investe d Capital (RoIC): T ORM defi nes RoIC as ear nin gs before int erest an d tax (EBIT) less tax , di vide d by the a verage invested capital for the period. Invested capital is defined bel ow. RoIC ex press es the returns gene rated o n capita l inves ted i n TORM . T he prog r es si on of R oI C is used by TORM to measure progress agai nst our longer - term value cr eation goals outlined to investors. RoIC is calculated as follows: USDm Operating profit(loss) (EBIT) Tax - - - EBIT less Tax Invested capital opening balance Invested capital ending balance Averag e invest ed ca pital f or the year Return on Invested Capital (RoIC) TORM ANNUAL REPORT 2021 GLOSSARY 177 GLOSSARY ALTERNAT IVE P ERFORMAN CE ME ASURES – continue d Adjusted Return on Inve sted Capital (Adjusted RoI C): TORM defi nes A dju s ted RoIC as earnings before interest and tax (EBIT) le ss tax an d impai rment losses and reversals , divide d by th e averag e invest ed ca pital less aver age im pai rmen t for the per iod. Inv ested cap ital is defi ned bel ow. The Ad ju sted RoI C ex presses the ret urns gener ated o n capital invested in TORM adjusted for impacts related to the i mpairment of the fleet . The progression of R oIC is used by TOR M to measure progress against our longer - term value creation goals outlined to investors. Adju s ted RoIC is calculated as f ol lows: USDm EBIT less Tax Profit from sale of vessels - - - Impairment losses and reversals on tangible asse ts - Provis ions - - EBIT les s tax and impai rment Average invested capital ⁾ Avera ge impa irme nt ⁾ Averag e invest ed ca pital l ess av erage i mpairm ent Adjust ed RoI C ⁾ Average invested capital is calculated as the average of the opening and closing balance of invested capital ⁾ Average impairment is calculated as the average of the opening and closing balances of impairment charges on vessels and goodw ill in th e balanc e sheet Invested capita l: TORM defines i nvested capital as the su m of intangible assets, tan gible fixed assets, investments in joint ve ntures´, deferred tax assets, bu nkers, accounts receivables, assets hel d - for - sale (w hen ap plica ble) , non - c urrent tax liability related to hel d over gai ns , tr ade payables, current tax lia bilities and deferred income. Invested capital measures the net invest ment us ed to a chiev e TORM’s operating profit. T ORM believes that inv ested capital is a relevant measure that Management uses to measure the overall development of the assets and liabilities generating the net profi t. Such measure may not be comparable to s imilarly titled measur es of ot her co mpan ies. In vested capita l is cal culat ed as fo llows : USDm Tang ible and intang ible fixed a ssets Inves tme nts in joi nt vent ures Deferred tax asset - Bunk ers Accounts re ceivables ⁾ Assets held - for - sale - Non - current tax liabili ty re lated to h eld ove r gain s - - - Trade payables ⁾ - - - Provis ions - - - Curr ent tax lia bilit ies - - - Invested capital ⁾ Accou nts receivables in clude Freight receivables Other receivables and Prepayments ⁾ Trade payables inclu de Trade payables and O ther liabiliti es TORM ANNUAL RE PORT 2021 GLOSSARY 178 GLOSSARY ALTERNAT IVE P ERFORMAN CE ME ASURES - continue d Net interest - bearing debt: Net inter est - bea ring debt is defined as borrowings (current and non - current) less loans receivables and cash and cash e quivalents, including restricted cash. Net interest - beari ng de bt dep icts the net ca pital r esourc es, whic h ca use net interes t ex penditur e and interest rate risk and which, together with equity, are used to fina nce TO RM’ s investments. As such, TO RM believ es that net interest - bearing debt is a r elevant measure which Ma nagement uses to meas ure th e overal l dev elopme nt of t he us e of fina ncin g, other t han equity. Such measure may not be comparable to similarly titled measures of other companies. N et interest - bearing debt is calculated as follows: USDm Borrowings Loans r eceiva bles - - - Cash and c ash equivalents including restrict ed cash - - - Net int erest - bear ing debt Net Loan - to - value (LTV): TORM define s Loan - to - value (LTV ) ratio as v essel value s divi ded b y net borrowings on the vessels. LTV describes the net deb t ratio on the v essel and is used by TORM to describe the financial situation, the liquidity risk as well as to express the future possibilities to raise new capital by ne w l oa n faci lities. USDm Vess el valu es inclu ding newbui lding s (broke r values ) Total (value) Borrowings - Hereo f debt rega rd ing La nd an d buil dings & Other plant and opera ting eq uipmen t - - - Commit ted CAPEX on newbui ldings Loans r eceiva bles - - - Cash and cash eq uivalents including restricted cash - - - Total (loan) Net Lo an - to - value (LTV) ratio Net Asset Value per share (N AV/share ): TORM believes that t he NAV/share is a re levant measur e whi ch M anagement us es to measure the ov erall development o f the assets and liabilities per share. Such measure may not be co mparable to similarly title d measures of other companies. NAV/share is calcu lated using broker values o f vessels and excluding chart er commitments. NAV/share is calculated as follows: USDm Net Ass et Val ue per sh are Tota l vessel va lues includi ng new buildi ngs (bro ker va lues) Commit ted CAPEX on newbui ldings - - - Land and bu ildi ngs Other plant and op erating equipment Inves tme nts in joi nt vent ures Loans r eceiva bles Deferred tax assets - Bunk ers Freight recei vables Other r eceiva bles Prepayments Ca sh p o sit i on Borrowings - - - Trade payables - - - Other lia bilit ies - - - Curr ent tax lia bilit ies - - - Provis ions - - - Total Net Asset Val ue (NAV) Total number of shares e xcluding treasury shares ( million) Total N et Asset Valu e per sh are (NAVsh are) (US D) TORM ANNUAL REPORT 2021 GLOSSARY 179 GLOSSARY ALTERNAT IVE P ERFORMAN CE ME ASURES - continue d Liquidity: T ORM defi nes li quidity as ava ila ble ca sh, c ompr ising cash a nd ca sh eq uiva lents, including restricted cash, as well as undrawn and co mmitted credit facilities. TOR M finds t he A PM i mport ant a s the liqui dity expres ses T ORM’ s fin ancia l posit ion, ability to meet current liabilities and cas h buffer. Further, it ex presses TORM’s ability to act an d invest when possibil ities occur. USDm Cash and cash eq uivalents including restricted cash Undrawn credit facil ities and c om mitted facil ities i ncl s ale & leaseback financing transa ctions Liquidity
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