# EDGAR Filing Document

**Accession Number:** 0001655891
**File Stem:** 0001104659-23-032994
**Filing Date:** 2023-3
**Character Count:** 344359
**Document Hash:** 7dfb297fbf95fff61e4f717f550523c9
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001104659-23-032994.hdr.sgml**: 20230316

**ACCESSION NUMBER**: 0001104659-23-032994

**CONFORMED SUBMISSION TYPE**: 6-K

**PUBLIC DOCUMENT COUNT**: 2

**CONFORMED PERIOD OF REPORT**: 20230316

**FILED AS OF DATE**: 20230316

**DATE AS OF CHANGE**: 20230316

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** TORM plc
- **CENTRAL INDEX KEY:** 0001655891
- **STANDARD INDUSTRIAL CLASSIFICATION:** DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412]
- **IRS NUMBER:** 000000000
- **STATE OF INCORPORATION:** X0
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 6-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-38294
- **FILM NUMBER:** 23737021

**BUSINESS ADDRESS:**
- **STREET 1:** OFFICE 105
- **STREET 2:** 20 ST DUNSTAN'S HILL
- **CITY:** LONDON
- **STATE:** X0
- **ZIP:** EC3R 8HL
- **BUSINESS PHONE:** 44 203 286 6222

**MAIL ADDRESS:**
- **STREET 1:** OFFICE 105
- **STREET 2:** 20 ST DUNSTAN'S HILL
- **CITY:** LONDON
- **STATE:** X0
- **ZIP:** EC3R 8HL

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** TORM Ltd
- **DATE OF NAME CHANGE:** 20151125

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Anchor Admiral Ltd
- **DATE OF NAME CHANGE:** 20151016

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 6-K**

**REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

For the month of March 2023

Commission File Number 001-38294

**TORM plc**

Office 105, 20 St Dunstan's Hill, London, United Kingdom, EC3R 8HL

(Address of principal executive offices)

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

Form 20-F ⌧Form 40-F ◻

**INFORMATION CONTAINED IN THIS FORM 6-K REPORT**

Attached to this Report on Form 6-K as [Exhibit 99.1](tm231622d2_ex99-1.pdf) is the Annual Report 2022 of TORM plc (the "Company").

**SIGNATURES**

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

---

| | | |
|:---|:---|:---|
|  | **TORM PLC** | **TORM PLC** |
| Dated: March 16, 2023 |  |  |
|  | By: | /s/ Jacob Meldgaard |
|  |  | Jacob Meldgaard |
|  |  | Executive Director and Principal Executive Officer |

---

### Attached PDF Documents

**Attachment 1:** `tm231622d2_ex99-1.pdf`

TORM

# Annual Report 2022

TORM PLC

OFFICE 105, 20 ST DUNSTAN'S HILL
LONDON, EC3R 8HL, UNITED KINGDOM
COMPANY: 09818728

# Contents

## Strategic Report

### At a glance

| TORM at a glance | 4 |
| --- | --- |
| Letter from the Chairman and the CEO | 6 |
| 2022 in review | 7 |

### Business model and strategic choices

| The value chain in oil transportation | 9 |
| --- | --- |
| Strategic framework and highlights | 10 |
| Leading product tanker owner | 12 |
| The versatile TORM fleet | 13 |
| Positioned to capitalize on a strong market | 14 |
| Greener future with zero emissions | 15 |
| Optimizing performance now | 16 |
| Long-term decarbonization | 17 |
| Superior operating platform | 18 |
| Fuel efficiency initiatives | 19 |
| Integrated digital foundation | 20 |

### Our responsibility

| Responsibility report | 22 |
| --- | --- |
| Enhancements in 2022 | 24 |
| TORM's ESG targets | 27 |
| Stakeholder engagement and materiality | 28 |
| Environment | 30 |
| Social | 34 |
| Governance | 39 |
| SASB index and responsibility data | 43 |

### Review and risk

| Market review | 51 |
| --- | --- |
| Market drivers and outlook | 53 |
| Financial outlook and coverage 2023 | 56 |
| TORM fleet development | 58 |
| Financial review 2022 | 60 |
| Risk management | 70 |

TORM ANNUAL REPORT 2022

## Governance

### Governance introduction

| Governance at TORM | 79 |
| --- | --- |
| Chairman's introduction | 80 |

### Governance structure

| TORM's governance structure | 83 |
| --- | --- |
| Board of Directors | 84 |
| Board and Committee meeting attendance | 85 |
| Leadership, governance, and engagement | 86 |
| Board activities 2022 | 87 |

### Committee reports

| Audit Committee report | 89 |
| --- | --- |
| Risk Committee report | 95 |
| Nomination Committee report | 97 |
| Remuneration Committee report | 100 |

### Other

| Investor information | 111 |
| --- | --- |
| Engagement and decision making | 115 |
| Directors' report | 118 |
| Statement of Directors' responsibilities | 121 |
| Safe harbor statement | 123 |

**TORM strategy**

**Responsibility report**

**11**

**22**

## Financial statements

### Consolidated financial statements

| Consolidated income statement | 125 |
| --- | --- |
| Consolidated statement of comprehensive income | 125 |
| Consolidated balance sheet | 126 |
| Consolidated statement of changes in equity | 127 |
| Consolidated cash flow statement | 129 |
| Notes to the consolidated financial statements | 130 |

### Parent company financial statements

| Management review for TORM plc | 176 |
| --- | --- |
| Income statement | 177 |
| Statement of comprehensive income | 177 |
| Company balance sheet | 178 |
| Company statement of changes in equity | 179 |
| Cash flow statement | 180 |
| Notes to parent company financial statements | 181 |

### Other

| Independent auditor's report | 187 |
| --- | --- |
| TORM fleet overview | 193 |
| Glossary and alternative performance measures | 196 |

**Corporate governance**

**Financial statements**

**79**

**125**

CONTENTS 2

# Key figures

TCE earnings (USD/Day)

![img-0.jpeg](img-0.jpeg)

EBIT (USDm)

![img-1.jpeg](img-1.jpeg)

Adjusted RoIC (%)

![img-2.jpeg](img-2.jpeg)

Dividend/share (USD)

![img-3.jpeg](img-3.jpeg)

Income statement (USDm)

|  | 2022 | 2021 | 2020 | 2019 | 2018 |
| --- | --- | --- | --- | --- | --- |
| Revenue | 1,443 | 620 | 747 | 693 | 635 |
| Time charter equivalent earnings (TCE) 1, 2 | 982 | 379 | 520 | 425 | 352 |
| Gross profit 1 | 782 | 188 | 341 | 252 | 169 |
| EBITDA 1 | 743 | 137 | 272 | 202 | 121 |
| Operating profit (EBIT) | 601 | 1 | 139 | 206 | 3 |
| Financial items | -45 | -42 | -49 | -39 | -36 |
| Profit/(loss) before tax | 557 | -41 | 90 | 167 | -33 |
| Net profit/(loss) for the year | 563 | -42 | 88 | 166 | -35 |
| Net profit/(loss) ex. non-recurrent items 1 | 548 | -36 | 122 | 51 | -31 |

Balance sheet and cash flow (USDm)

| Non-current assets | 1,874 | 1,968 | 1,755 | 1,788 | 1,445 |
| --- | --- | --- | --- | --- | --- |
| Total assets | 2,614 | 2,331 | 1,999 | 2,004 | 1,714 |
| Equity | 1,504 | 1,052 | 1,017 | 1,008 | 847 |
| Total liabilities | 1,111 | 1,279 | 981 | 996 | 867 |
| Invested capital 1 | 2,142 | 2,011 | 1,720 | 1,786 | 1,469 |
| Net interest-bearing debt 1 | 650 | 972 | 713 | 786 | 627 |
| Net Asset Value (NAV) (USDm) 2 | 2,330 | 1,047 | 902 | 1,016 | 856 |
| Cash and cash equivalents, incl. restricted cash | 324 | 172 | 136 | 72 | 127 |
| Investment in tangible fixed assets | 119 | 320 | 173 | 384 | 202 |
| Free cash flow | 513 | -243 | 116 | -152 | -105 |

Key financial figures $^{1}$

|  | 2022 | 2021 | 2020 | 2019 | 2018 |
| --- | --- | --- | --- | --- | --- |
| Gross margins: |  |  |  |  |  |
| Gross profit | 54.2% | 30.4% | 45.6% | 36.4% | 26.6% |
| EBITDA | 51.5% | 22.1% | 36.4% | 29.2% | 19.1% |
| Operating profit (EBIT) | 41.6% | 0.2% | 18.6% | 29.7% | 0.5% |
| Return on Equity (RoE) | 44.0% | -4.1% | 8.7% | 17.9% | -4.3% |
| Return on Invested Capital (RoIC) | 29.2% | 0.01% | 7.8% | 12.6% | 0.1% |
| Adjusted RoIC | 28.1% | 0.2% | 9.3% | 5.2% | 0.3% |
| Equity ratio | 57.5% | 45.1% | 50.9% | 50.3% | 49.4% |
| TCE per day (USD) 3 | 34,154 | 13,703 | 19,800 | 16,526 | 12,982 |
| OPEX per day (USD) 3 | 6,825 | 6,633 | 6,398 | 6,371 | 6,389 |
| Loan-to-value (LTV) ratio 3 | 24.9% | 52.3% | 50.8% | 46.1% | 52.9% |

Share-related key figures $^{1}$

| Basic earnings/(loss) per share (USD) | 6.92 | -0.54 | 1.19 | 2.24 | -0.48 |
| --- | --- | --- | --- | --- | --- |
| Diluted earnings/(loss) per share (USD) | 6.80 | -0.54 | 1.19 | 2.24 | -0.48 |
| Declared dividend per share (USD) | 4.63 | - | 0.85 | 0.10 | - |
| Declared dividend (USDm) | 378.7 | - | 63.2 | 7.4 | - |
| Dividend paid per share (USD) | 2.04 | - | 0.95 | - | - |
| Net Asset Value per share (NAV/share) 2 | 28.5 | 13.0 | 12.1 | 13.6 | 11.6 |
| Stock price in DKK (per share of USD 0.01) 3 | 198.4 | 51.7 | 45.0 | 74.5 | 43.9 |
| Number of shares (m) 3, 4 | 81.8 | 80.7 | 74.4 | 74.4 | 73.9 |
| Number of shares, weighted average (m) 4 | 81.3 | 78.1 | 74.3 | 74.0 | 73.1 |

$^{1}$ For a definition of the calculated key figures (the APMs), please refer to the glossary on pages 196-202.

$^{2}$ Based on broker valuations as of 31 December 2022, excluding charter commitments.

$^{3}$ End of period.

$^{4}$ Excluding treasury shares.

$^{5}$ For Tanker segment

TORM ANNUAL REPORT 2022

KEY FIGURES 3

![img-4.jpeg](img-4.jpeg)

One of the world's largest
owners and operators of
tankers that transport
refined oil products

**CUSTOMERS CONSIST OF**
**MAJOR INDEPENDENT OIL COMPANIES,**
**STATE-OWNED OIL COMPANIES,**
**OIL TRADERS, AND REFINERS.**

TORM PLC IS LISTED ON
**NASDAQ**
**COPENHAGEN**
**& NEW YORK**

**13** LR2

**15** LR1

**60** MR

As of 18 March 2023.

**LONG TRACK RECORD**
**SINCE 1889**

We all have an obligation to do our utmost to reduce CO2 emissions. TORM is pushing fast forward in our environmental efforts and will reduce our carbon intensity by 40% compared to the IMO baseline by 2025 - ahead of IMO's 2030 target.

**8**
OFFICES

**~3,300**
SEAFARERS

**~350**
LAND-BASED
EMPLOYEES

![img-5.jpeg](img-5.jpeg)

TORM ANNUAL REPORT 2022

AT A GLANCE

4

![img-6.jpeg](img-6.jpeg)

CHRISTOPHER H. BOEHRINGER,
CHAIRMAN OF THE BOARD

“2022 was a year where the geopolitical
landscape was changed dramatically,
and we were all confronted by the
tragic Russian invasion of and subsequent
war in Ukraine. Since the beginning, TORM
decided to cease activity with Russian
cargos and Russian harbors completely,”
says Christopher H. Boehringer.

The war meant that Europe had to import
refined oil from further away, and together
with supportive fundamentals, such as
close-down of refineries in distant regions
of the world as well as the limited number of
new vessels coming to the market, this
increased the imbalance between supply
and demand. Consequently, a constant high
utilization of the world fleet led to record
high product tanker rates and the strongest
result on record for TORM,” says Jacob
Meldgaard.

JACOB MELDGAARD
CEO/EXECUTIVE DIRECTOR

![img-7.jpeg](img-7.jpeg)

TORM ANNUAL REPORT 2022

AT A GLANCE

5

# Letter from the Chairman and the CEO

In 2022, the world economy and the product tanker markets were significantly impacted by the changes in the geopolitical landscape. At the beginning of Russia's war against Ukraine, TORM decided to stop transporting Russian products, and in the following months new trading patterns started to take shape. The One TORM platform proved to be ready for the changes that occurred, and at the same time TORM was diligently preparing for the changes we will see in the years to come.

## The One TORM platform

The tragic situation in Ukraine and the changing trading patterns stemming from refinery closures combined with limited fleet growth increased the utilization of the global product tanker fleet to very high levels. This resulted in high and volatile freight rates and the highest yearly earnings on record for TORM with a net profit of USD 563m.

# 28.1%

## Adjusted Return on Invested Capital (ROIC)

We believe the integrated One TORM platform is what enables us to invest in and operate vessels obtaining one of the highest return on investments amongst our peers in the product tanker industry. In 2022, TORM obtained a Return on Invested Capital of 28.1%.

## Distribution Policy

In May 2022, TORM's Board of Directors decided to change the Distribution Policy for the benefit of our shareholders. We introduced a transparent model where the quarterly cash generation is shared with our investors, either in the form of dividends or share buy-back. This means that we distribute cash in excess of a threshold that is based on the number of vessels in our fleet, the net proceeds from vessel sales and purchases, and restricted cash. We believe this is a prudent and transparent way of sharing the cash generated with our owners.

# 4.63

## Dividend per share

All in all, based on our cash generation in the fourth quarter of 2022, TORM will pay out record high dividends of USD 2.59 (approximately DKK 18) per share, which brings the dividend per share based on the full year 2022 cash generation up to USD 4.63 (approximately DKK 33).

## Preparations for the future

TORM has for many years had decarbonization and reducing fuel consumption as a core strategic focus. Hence, we find us well prepared for both the introduction by IMO of the EEXI and CII certification from the beginning of 2023 and further the increasing focus from our financiers and investors to reduce emissions. By being diligent in our efforts to find the next energy efficiency improvement, we will be part of driving a change in our industry. We also expect our customers to increase their focus in the years to come, which is why we have prepared TORM's organization both commercially and technically to exploit the opportunities both directly and in partnerships.

Christopher H. Boehringer, Chairman of the Board

Jacob Meldgaard, Executive Director

TORM ANNUAL REPORT 2022

AT A GLANCE 6

# 2022 in review

January

Pushing fast forward on climate

Since 2015, TORM has accelerated its work to improve energy efficiency and in January 2022, we announced an ambitious 2030 climate target to reduce our carbon intensity by 45% compared to the IMO baseline (2009).

Read more on page 15

January

Increasing efficiency of the fleet

As we entered into 2022, TORM took delivery of the LR2 vessel, TORM Houston, equipped with energy-saving technology such as pre-shrouded vanes, hub vortex absorbed fins, and ability for Flettner rotors.

May

Distributions to shareholders

TORM's new Distribution Policy was introduced, which incorporates a stronger alignment between cash generation and shareholder distributions.

Read more on page 114

July

Strategic fleet adjustment

The last remaining vessel in the Handysize vessel class was sold, in line with our long-term strategic priority to move towards larger vessels.

Read more on pages 13 & 58

Full year

Empowering decarbonization

To deliver on its ambitious climate targets, TORM enhanced its organizational structure by creating dedicated teams for both the technical and the commercial decarbonization work - ensuring high focus and empowerment to take action.

Read more on page 23

![img-8.jpeg](img-8.jpeg)

![img-9.jpeg](img-9.jpeg)

TORM ANNUAL REPORT 2022

AT A GLANCE

7

# 2022 in review

August

Scrubber commitment increased

With the successful installation of more than 50 scrubbers, enabled through our company ME Production, TORM announced further installations that together with already planned installations will bring the total number of scrubbers to 68.

September & November

Reconnecting sea and shore

Once safe to do so following the pandemic, TORM reinstated face-to-face annual officer seminars. Nurturing this close relationship between sea and shore colleagues contributes heavily to the unique value that TORM provides through our integrated One TORM platform.

Read more on page 34

December

Supporting quality education since 2007

Both in India and the Philippines, we have supported hundreds of children from poorer backgrounds by providing education scholarships.

Read more on page 38

December

Climate innovation

Another green pilot project was initiated as an air lubrication system was installed on TORM Hermia with expected energy savings of approximately 5% per vessel.

Read more on page 33

August

Strengthening environment-related innovation

Building on the existing strong partnership, TORM acquired a 75% ownership stake in ME Production to support TORM's climate goals through environmental innovation.

Read more on pages 31-32

December

Record high dividend

In Q3 2022, TORM delivered the best quarterly result on record, and the highest quarterly distribution of USD 119m was paid out to our shareholders in December. Based on Q4 2022, TORM will pay a dividend of around USD 212m.

Read more on page 14

TORM ANNUAL REPORT 2022

AT A GLANCE

8

# The value chain in oil transportation

The global oil industry covers a range of activities and processes that contribute to the transformation of primary petroleum resources into usable end products for industrial and private customers.

The value chain of the global oil industry begins with the identification and subsequent exploration of productive petroleum fields. The unrefined crude oil is transported from the production area to refinery facilities by crude oil tankers, pipelines, roads, and rail.

TORM is primarily involved in the transportation of refined oil products from the refineries to the onshore distributors who transport refined oil products to the end users. Refined oil products (or clean products) are mainly used in the road transportation sector (gasoline, diesel), in the aviation sector (jet fuel), and as a feedstock to the petrochemical industry (naphtha).

In addition to clean products, TORM uses some of its vessels for the transportation of residual fuels from the refineries as well as crude oil directly from the production field to the refinery. These fuel types are commonly referred to as dirty petroleum products, and extensive cleaning of the vessel's cargo tanks is required before a vessel can transport clean products following transportation of dirty cargo. In 2022, 98.6% of TORM's turnover was generated from clean products transportation.

The transportation patterns of both refined and unrefined products are subject to constant change; however, the different products may be affected differently. As an example, closedowns of refineries in oil-importing regions mean that these regions will require less transportation of unrefined oil, while it, at the same time, will require more transportation of refined oil.

Hence, short and long-term changes will impact the value chain of the global oil industry, and vessel operators should be ready to adapt to the changes.

![img-10.jpeg](img-10.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES

9

# Strategic highlights

Leading product tanker owner

88

Vessels in all major product tanker vessel classes
Including acquired vessels as of 16 March 2023

28.1%

Adjusted RoIC

24.9%

Net LTV
Additional capacity available for fleet growth

USDm

379

Dividends paid based on 2022 earnings
Including dividends to be paid in April 2023

Green future with zero emissions

37.1%

AER reduction compared to IMO baseline (2008)

ZERO

Carbon Shipping in 2050
TORM signed up for Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping

Superior operating platform

USDm

563

Net profit

USD

34,154

TCE/day
Across all vessel classes

0.42

Accidents per one million exposure hours LTAF
(Lost Time Accidents Frequency)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES

10

# Strategic framework

## OUR VISION

### The reference company in the transportation industry

Our dedicated team strives to be the reference company, servicing our customers via our integrated business model - safely, reliably, and environmentally responsible.

→ Pages 12-20

## OUR STRATEGIC CHOICES

### Leading product tanker owner

- Financial flexibility and fleet optimization
- Spot exposure
- Integrated operations

### Green future with zero emissions

- Ambitious and ongoing energy optimization
- Zero CO2 emissions by 2050

→ Pages 12-17

## OUR WAY OF WORKING

### Superior operating platform

- Commercial management
- Optimal vessel positioning
- Safe technical management
- An integrated digital foundation leveraging operational performance
- Integrated decarbonization efforts

→ Pages 18-20

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES

11

LEADING PRODUCT TANKER OWNER  
GREENER FUTURE WITH ZERO EMISSIONS  
SUPERIOR OPERATING PLATFORM

# Leading product tanker owner

TORM is an internationally leading product tanker company and one of the largest owners of product tankers in the world.

## Active management of spot market exposure

We primarily employ our fleet of 88 vessels in the spot market. Throughout 2022, TORM has utilized its position to benefit from increasing market conditions. Going into 2023, TORM is thus ready to continue to benefit from the strong market conditions, where seven LR1 vessels were added to our fleet during January 2023.

With our presence in all large product tanker vessel classes, TORM is well positioned to meet our customers' transport and storage requirements. TORM's modern and well-maintained fleet, with the majority of the vessels being scrubber-fitted, further provides TORM and our customers with enhanced flexibility to fulfill different cargo requirements as well as reduced fuel costs. TORM's normalized PBT break-even rate is approximately USD/day 15,000.

While TORM mainly operates in the spot market, TORM also enters into medium and long-term contracts when levels are assessed to be attractive. Such contracts provide more cash flow certainty for TORM and include i) charter contracts on which a specific vessel is chartered out to a customer for a longer period, ii) contracts of affreightment (CoA) which involve several consecutive cargos with a customer at agreed freight rate levels, and iii) forward freight agreements (FFA) which are financial instruments hedging the forward price for freight for a defined period.

Through a combination of various employment and coverage options as well as active fleet management, TORM aims to benefit from movements in freight rates to capitalize on market highs and have lower market exposure when freight rates are low.

➡ Read more on the operational leverage of TORM's spot market exposure in the Financial outlook on page 56

## Fleet growth and optimization

TORM seeks to selectively grow its fleet and to serve as a consolidator in the product tanker segment if the right opportunities arise. TORM continuously assesses opportunities to optimize our fleet by acquiring attractive high-specification second-hand product tankers or selectively pursuing newbuilding programs with high-quality shipyards. Further, TORM seeks to optimize the trading optionality of the fleet through enhanced cargo optionality covering chemical trading options.

During 2022, TORM decided to sell the remaining two Handy-size vessels in the fleet. Further three older LR2 vessels, one LR1 vessel and two older MR vessels were sold. TORM has on the other hand purchased one modern scrubber-fitted LR2 vessel during 2022.

## Positioned to capitalize on the strong market

Going into 2023, TORM owned a fleet of 78 vessels, of which 56 were scrubber-fitted. During the first quarter of 2023, TORM purchased seven LR1 vessels and 3 MR increasing the fleet to 88 vessels. With an almost entirely spot-exposed fleet, TORM is well positioned to capitalize on the elevated product tanker market. In a continued strong market, TORM will have increased focus on maintaining vessels in the fleet for an extended period. In this way, TORM will optimize its invested capital to enable the highest possible RoIC. TORM's scalable business platform provides strategic flexibility as attractive investment or divestment opportunities arise and is a supportive and required enabler for being a leading product tanker owner.

In May 2022, TORM introduced a new quarterly Distribution Policy to allow for increased alignment between cash generation and shareholder distribution. With a prudent and solid capital structure approach, TORM has already based on cash generation from the second and the third quarter of 2022 paid out dividends to our shareholders, and TORM expects to pay out a total of USD 379m in dividends related to 2022 earnings.

➡ Read more about TORM's capital structure on page 14

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES 12

LEADING PRODUCT TANKER OWNER  
GREENER FUTURE WITH ZERO EMISSIONS  
SUPERIOR OPERATING PLATFORM

# The versatile TORM fleet

TORM is present in all larger vessel classes in the product tanker market providing enhanced offering to our customers and synergies across vessel classes. Within the MR vessel class, certain vessels have increased trading flexibility within chemical cargos.

![img-0.jpeg](img-0.jpeg)

Long Range 2 vessels are the largest vessels in TORM's fleet. They are typically employed on long trade routes, including naphtha transportation from the Middle East to the Far East and diesel from the eastern hemisphere into the Atlantic.

![img-1.jpeg](img-1.jpeg)

Long Range 1 vessels are typically employed on the same routes as LR2 vessels, but they also have the flexibility to cover trades and routes which are traditionally dominated by the smaller MR vessels. A typical LR1 trade could be diesel or jet fuel from the Middle East to Europe.

The numbers are as of 16 March 2023, including ordered but not delivered second-hand vessels.

![img-2.jpeg](img-2.jpeg)

Medium Range vessels are often referred to as the 'workhorses' of the product tanker fleet. They cover more trade routes and, compared to the larger LR vessels, this vessel type has the flexibility to enter into more ports and cover shorter and coastal trades. A typical trade for MR vessels would be gasoline from Europe to the US East Coast.

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES

13

LEADING PRODUCT TANKER OWNER  
GREENER FUTURE WITH ZERO EMISSIONS  
SUPERIOR OPERATING PLATFORM

# Positioned to capitalize on a strong market

As the product tanker market has improved during 2022, TORM has capitalized on a strong market and generated strong financial results over the year.

TORM has generated a profit before tax in all quarters of 2022, increasing from USD 11m in the first quarter to USD 222m in the fourth quarter. In the same period, average rates have increased from USD/day 16,743 to USD/day 47,520. Going into 2023, TORM has covered 89% of the first quarter at USD/day 43,002. Combining the strong market fundamentals with a low and stable cost base, TORM expects an EBITDA for the full year 2023 in the range of USD 750m - USD 1,100m.

With an interest rate coverage of 81% at 1.4% excluding margin until 2027, taking the refinancing into account, TORM is only to a very limited degree exposed to the fluctuations in the interest rate markets.

## New Distribution Policy

In May 2022, TORM adjusted its Distribution Policy to allow for quarterly distributions above a fixed threshold cash level as of the quarterly balance sheet day. The new policy combined with TORM's solid capital structure has enabled TORM to make dividend payments to our shareholders in the second and third quarters of 2022. Combined with the dividend of USD 212m related to the fourth quarter, the total dividend for 2022 will be USD 379m.

Strong markets provide significant cashflow generation

![img-3.jpeg](img-3.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES 14

LEADING PRODUCT TANKER OWNER  
GREENER FUTURE WITH ZERO EMISSIONS  
SUPERIOR OPERATING PLATFORM

# Greener future with zero emissions

We strive to utilize our market position and strength to lead the product tanker industry into a more environmentally friendly future and to develop innovative solutions for a greener future.

It is a key priority for TORM to contribute to combatting the accelerating global climate change and to minimizing pollution of the seas and the atmosphere. Thus, TORM has a strong focus on reducing CO$_{2}$ emissions. This is achieved through a committed focus on optimal performance in the short and medium term and industry collaboration in the long term supporting sustainable solutions.

TORM believes that both the decarbonization and the ESG agendas will be integral and determining elements for the future of the product tanker business. At the same time, TORM acknowledges that oil and refined oil products are essential resources for societies, and therefore we want to distribute refined oil products as CO$_{2}$-efficiently as possible with accessible means.

## Optimizing performance now

TORM maintains its focus on the optimization and improvement of our existing fleet and on enhancing the efficiency of our existing fleet by applying a broad set of operational and technical improvements. These efforts include small investments on vessels with short payback time and also large investments with an expected more substantial impact such as air lubrication systems and Flettner rotors. Further, digital solutions such as IOT on vessels and route optimization algorithms are being utilized. To ensure a successful implementation of these efforts,

TORM focuses on seafarers' training and behavioral changes for crew on board the vessels.

To obtain commercially viable and environmentally friendly results, TORM deepens its knowledge through external collaboration. This includes the acquisition of the Danish marine equipment manufacturer ME Production, which will support a faster implementation of our emission reduction ambitions.

## Long-term industry collaboration

Alternative fuels will be required on a global scale to reach the 2050 targets set by the IMO. TORM monitors the development of new fuels and associated technologies, and TORM wants to be part of shaping the development and employing new technologies and alternative fuels whenever commercially and operationally viable.

## 2030 target and 2050 ambition

To quantify the green ambitions, TORM has set the goal to accelerate our climate target and deliver at least a 40% CO$_{2}$ intensity reduction by 2025 compared to 2008 using IMO's defined methodology and a 45% CO$_{2}$ reduction by 2030. For the long term, TORM has an ambition to have zero CO$_{2}$ emissions from operating our fleet in 2050. Further to support these goals, TORM's Management and organization has specific performance measures on achieving these targets.

## Decarbonizing shipping

![img-4.jpeg](img-4.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES 15

LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSIONS
SUPERIOR OPERATING PLATFORM

# Optimizing performance now
Energy transition towards 2030

TORM is continuously working to improve the fuel efficiency of our vessels. In 2022, several concrete steps towards reaching TORM's 2025 and 2030 CO2 intensity reduction targets were taken.

TORM categorizes potential investments to reduce the CO2 emissions from our vessels into two different categories.

Short term and known technologies

One category is small investments with a short payback time where the technology is usually known and proven. An example of this is our investment in ultrasound on propellers. Ultrasound is a promising method to fight biofouling which can prevent surface algae and can ensure smoother, energy-saving sailing.

Long term and test pilot projects

The other category is investments with a longer payback period, which are also typically large investments and where the technology is more unproven for tanker vessels. The typical process for this category is for TORM to do a test pilot project to verify if the technology is successful and will deliver the expected CO2 emission reduction. If successful, a roll out of the technology to more vessels is conducted. Examples of this include Flettner rotors and air lubrication systems.

During 2022, TORM also made an in-depth assessment of the likelihood of reaching our 2025 and 2030 CO2 intensity reduction targets. The assessment showed that both the 2025 and 2030 CO2 emission reduction targets can be reached with the energy reduction initiatives and investment projects currently included in our budget and long-term planning.

![img-5.jpeg](img-5.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES

16

LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSIONS
SUPERIOR OPERATING PLATFORM

# Long-term decarbonization
## Industry collaboration and new fuels

### Active industry collaboration

To achieve our ambitious 2050 environmental target of zero CO2 emissions from operating our fleet, TORM is actively involved in various industry collaborations supporting this journey. These collaborations are important, as the ambitious target cannot be met by single entities alone but requires joint efforts across the shipping industry. The collaborations include TORM's active engagement with participation in Danish Shipping through which TORM aims to impact the decision-making in the IMO in relation to ongoing discussions on the implementation of CO2-related regulations.

### Fuels

### Preparing for new propulsion systems

Over the past years, the shipping industry has increasingly worked on the future of maritime fuels and solutions for zero emission shipping. Some technical solutions are already in place, including methanol engines, while others are in the process of being developed and approved for commercial operation, including ammonia-fueled engines. TORM is enthusiastic about this development and expects that the future fuels for ocean-going vessels will be covered by a mix of different technologies.

With methanol being the only viable solution currently, TORM has special focus on this both from a commercial perspective, where a number of our vessels are in the process of being upgraded to transport this cargo, and also from a technical perspective, where TORM believes that vessels with methanol engines could be a commercial solution for product tankers within a few years.

A significant obstacle for all future propulsion solutions remains to be fuel availability. However, we expect that such obstacles will be reduced over time as production achieves larger scale, and as the supply chain for such fuels is further developed.

![img-6.jpeg](img-6.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES

17

LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSIONS
SUPERIOR OPERATING PLATFORM

# Superior operating platform

TORM's fleet is effectively managed on the in-house integrated operating platform known as One TORM. Operations are conducted jointly for the entire fleet to reap synergies across vessel classes.

The integrated nature of TORM's operating platform provides transparency and clear alignment of management and shareholder interests, which mitigates the potential for actual or perceived conflicts of interest with related parties. We believe that our integrated business model creates a unique customer offering as it further provides our customers with better accountability and insights into safety and vessel performance.

In line with the strategic focus on safety, the One TORM platform features the One TORM Safety Culture program. The purpose of the program is to continuously strengthen TORM's safety culture beyond mere compliance, and it reflects the belief that profitability and safety need to go hand in hand.

On the One TORM platform, the commercial, technical, sale & purchase, and support divisions all work towards common goals in a network-based organization with easy access to stakeholders supporting efficient decision-making.

## Commercial management

TORM's commercial team is responsible for the employment and operation of our fleet and has continuously demonstrated superior performance compared to peers and market benchmarks. One of the key elements for the commercial team to succeed is the ability to ensure an optimal position of the fleet in the global basins, where differences in earnings can be significant over the span of a year.

## Technical management

TORM's fleet is managed by our in-house technical management. The department is responsible for maintaining the high quality of our vessels and the delivery of an environmentally friendly, safe, and cost-efficient technical operation. A key focus area for the technical management and a corporate KPI is to ensure that TORM's fleet is tradable with our customers, thereby supporting commercial performance. The team also has extensive experience in vessel design and construction and provides essential knowledge for TORM to execute newbuilding programs. In addition to the office staff, TORM has more than 3,300 seafarers employed.

## Sale & purchase and support functions

TORM's sale & purchase activities are conducted by an in-house team. The sale & purchase team leverages relationships with shipbrokers, shipyards, financial institutions, and shipowners to ensure fleet renewal and actively pursues opportunities in the second-hand and newbuilding markets. The support division is also an integral part of TORM's day-to-day operations and provides optimized business practices, reporting and payment processes, proactive business partnering, stringent risk management, liquidity and funding management, etc. For years, the support division has built a strong data and digitalized business support function. This includes supporting TORM's commercial operations with an analytical model developed by the advanced analytics and applied AI function.

One TORM in-house organization

![img-7.jpeg](img-7.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES 18

LEADING PRODUCT TANKER OWNER  
GREENER FUTURE WITH ZERO EMISSIONS  
SUPERIOR OPERATING PLATFORM

# Fuel efficiency initiatives

TORM is well positioned to successfully install and implement fuel efficiency equipment on board vessels through the integrated operating platform.

TORM has full control of the usage, full transparency of the impact of the technology, and receives full economic benefit from the installed equipment. This is opposed to other sharing arrangements such as pool structures. Control of both the technical and commercial management also allows TORM to make full use of the equipment in the commercial decision-making.

As fuel efficiency becomes increasingly complex, crew training in systems and equipment becomes increasingly important. This includes implementation of voyage optimization guidelines and knowledge of how the impact of devices such as Flettner rotors and air lubrication systems should be operated. In addition, general energy and power management forms part of the daily work on board the vessels.

TORM conducts continuous training of the crew from the TORM crew pool. TORM is therefore able to ensure that crews with the right competences are matched to ensure optimal use of the fuel efficiency equipment.

![img-8.jpeg](img-8.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES 19

LEADING PRODUCT TANKER OWNER
GREENER FUTURE WITH ZERO EMISSIONS
SUPERIOR OPERATING PLATFORM

# Integrated digital foundation

To be at the forefront of technological and digital developments is a key competitive advantage in our industry. It has been an embedded element of TORM's strategy to monitor and implement new technologies supporting our reference company vision.

## Infrastructure and governance

TORM's digital development is anchored in a solid and robust data governance structure. This supports data transparency and fast decision-making across the organization. The solid structure ensures that data is captured, cleansed, documented, controlled, and governed in all our processes including financially anchored processes such as financial reporting, SOX compliance, and ESG reporting, and also in more commercial processes such as route planning and energy optimization on our vessels. To harvest the benefits of new technologies and digitalization opportunities, we have found that it has become increasingly important to monitor trends and technologies and prioritize what to explore. To prioritize our digital initiatives, discuss ideas, and develop business cases, we have established a cross-organizational Digitalization Committee.

## Internet of Things

To support optimal maintenance and operations of our vessels, we capture relevant voyage and energy data across our fleet. During 2022, this has been accelerated through installations of a wide range of sensors and technologies to create fully connected vessels. The project will enable our on- and offshore staff to monitor all relevant performance measures on each vessel and guide them in decision-making.

## Artificial Intelligence

The use of sophisticated artificial intelligence modelling, e.g. deep learning methodology, has increased in the shipping industry in recent years. For many years, TORM has implemented AI models into our processes and operations to support decision-making.

Two examples of this are i) our use of algorithms to predict the optimal routing of a vessel before departing from its origin port until arrival at the destination port, and ii) the newest generation of our vessel positioning tool which can predict how to optimally deploy our fleet across the global basins.

![img-9.jpeg](img-9.jpeg)

TORM ANNUAL REPORT 2022

BUSINESS MODEL AND STRATEGIC CHOICES 20

![img-0.jpeg](img-0.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Responsibility report

Responsible behavior and sustainability are embedded in the way we conduct business in TORM. We are committed to protecting our employees, our assets, our environment, and our society. We believe that a sustainable business also creates business value for TORM.

We constantly push ourselves to remain relevant and competitive in the eyes of our investors, customers, employees, financiers, and other key stakeholders. We do this by deeply integrating sustainable business practices in our commercial strategy to consider how we affect the world around us, and how the world around us has an impact on us.

TORM's sustainability approach and actions are guided by a range of both internal and external instruments. We harness these to build an overarching approach to create a more sustainable future, sustainability measures allowing us to take decisions based on knowledge, and to provide transparency to our stakeholders. This is done by constantly challenging ourselves and the way we work. Further, TORM does this by interacting and collaborating with different peers and industry stakeholders.

Transparency and accountability are key to TORM's way of doing business, and these values play a central role in our responsibility approach. The principles in the model to the right illustrate some of the important elements of the way we think sustainability. They are frequently reviewed and validated considering our safety culture, how our leaders shall operate, and not least our strategic choices.

This section (pages 22-49) of our report also constitutes the Danish statutory reporting on corporate social responsibility. Our business model, which is set out on page 12, forms an integral part of our statutory reporting.

![img-1.jpeg](img-1.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 22

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Our responsibility

Integrating sustainability into our strategy is a way to grow and optimize our business for the future. TORM harnesses respected guidelines such as the ESG (Environment, social, government) structure, SASB (Sustainability Accounting Standards Board) reporting, Scope 1, 2, & 3 emissions reporting, and the UN SDGs (Sustainable Development Goals) to operate in a responsible manner. A materiality matrix guides the prioritization of our actions.

TORM was the first shipping company in Denmark to sign the UN Global Compact. This, together with the UN Sustainability Goals, is another way in which we commit to an internationally recognized set of principles on health, safety, labor rights, environment, and anti-corruption.

## Enhancements in 2022

In 2022, TORM increased the transparency around our emissions and the impact of our sustainability response on our business by preparing a TCFD (Task Force on Climate-Related Financial Disclosure) report and an analysis of our Scope 3 emissions.

## Governance driving sustainability

Organizing the Company to focus on sustainability is essential. To empower the organization to reduce emissions and achieve our ambitious environmental goals, new organizational roles were created in 2022. This was to establish a separate department of experts focused on accelerating our green efforts.

As an additional governance measure, TORM has for several years incorporated financial mechanisms to drive ESG efforts whereby senior management and the rest of the organization’s KPIs are directly linked to ESG targets to ensure that TORM continues to prioritize sustainable actions.

➔ ESG-linked remuneration is available on page 99

Building a better future requires a joint effort. Therefore, TORM has been a long-standing partner in many industry-relevant collaborations. By working together, we can build momentum, draw focus, and share best practices to make a larger positive imprint on our world.

➔ SASB Index and responsibility data are available on page 43

![img-2.jpeg](img-2.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 23

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Enhancements in 2022

## Scope 3

Scope 3 refers to emissions which are a consequence of TORM's activities but occur from activities which are not owned or controlled/operated by TORM. Scope 3 reporting is an expansion in 2022 of the already reported Scope 1 and 2 emissions. This is to disclose the indirect emissions from TORM's activities.

Scope 3 reporting is an additional voluntary effort creating awareness of our entire value chain enabling us to take ownership beyond our direct business based on data. By including entire value chains, we can understand the knock-on effect of actions to reduce emissions.

For example, efforts to reduce Scope 1 emissions on board our vessels, such as using less fuel to perform our routes, will also positively impact our Scope 3 emissions as less upstream fuel will be consumed. This increased transparency also ripples down to our partners and customers, empowering them with increased emissions transparency in their value chains.

## Scope 3: What does it consist of?

![img-3.jpeg](img-3.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 24

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Enhancements in 2022

## TORM's process on Scope 3

A two-phase process using the Green House Gas Protocol's 15 categories for Scope 3 emissions was conducted. First, we made a mapping of our value chain, and a screening of all 15 categories was performed based on five criteria which considered the number of emissions, the degree of influence we have, associated risks, importance to our stakeholders, and if the activity is performed in-house or not. This resulted in the following five categories:

- Category 1: Purchased goods and services
- Category 2: Capital goods - vessels and modifications
- Category 3: Upstream fuel & energy-related activities
- Category 6: Business travel
- Category 13: Downstream leased assets - T/C out > 3 months

In the second phase, emission data for the five categories was refined and categorized as either 'primary/hybrid' or 'secondary'. 'Primary/hybrid' is data where we know the actual quantities consumed combined with industry-specific emission factors; however, these are only provided by a few vendors. Where only one data point was available, a hybrid calculation method was used, and average industry emission factors were applied to the purchased quantities. Where no primary data was available, spend-based consumption data was used to assess Scope 3 emissions, and this was categorized as 'secondary data'.

Following this selection and data collection process, we attained our 2021 and 2022 Scope 3 emissions data and the split between primary/hybrid quantities and secondary

quantities. Positively, these consist of a high degree of primary/hybrid data, providing us with a deeper degree of transparency. The following discusses each category and the mechanisms involved.

In 2022, category 2 accounts for most emissions, with 32% compared to 57% in 2021, and a category where 88% of data is primary/hybrid data. For vessel acquisitions, we have used a lightweight methodology as we are not able to acquire the exact emissions data from the shipyards. As this category reflects the emissions linked to vessel purchases and modifications, this number can fluctuate from year to year depending on TORM's vessel purchases. This was the case from 2021 to 2022 where the investment in vessels was significantly lower.

The subsequent significant categories were 1, 3, and 13 - purchased goods and services, upstream fuel and energy-related activities, and downstream leased assets, respectively. For category 1, we have lower data transparency, however, we believe this will improve over time due to the general focus on emissions which our suppliers will experience. Category 3 includes upstream emissions associated with the production and distribution of the bunker fuel for our vessels. With our drive to reduce our Scope 1 emissions by sailing more efficiently, we will inevitably reduce our Scope 3 emissions. Category 13 reflects our commercial decision to focus on the spot market which can fluctuate depending on our decisions to employ the fleet in the spot or time charter market. These emissions will fall in either Scope 1 (spot) or Scope 3 (time charter) depending on the degree of operational control

that TORM holds at different times on different vessels. In 2022, we reduced the time charter ratio. The final category, category 6, relates to TORM's business travel, including seafarers' travel. Our seafarer workforce contributes considerably to these emissions as traveling is a necessary part of operating the vessels. Regardless, we constantly implement best practices and improvements to make the positioning of seafarers as efficient as possible. We have also applied this logic to optimize our shore-based business communication towards online platforms. This focus was accelerated during the COVID-19 pandemic and learnings have continued.

Data types applied within each Scope 3 category
SOURCE: BASED ON TCO2E

![img-4.jpeg](img-4.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 25

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Enhancements in 2022

This Scope 3 process has provided us with a deeper understanding of the indirect emissions and how we can move between the different scopes. These improvements also come from working with our partners and suppliers to raise awareness and challenge them to provide their emissions data. To maximize our efforts with this new reporting feature, we engaged ESG expert consultants in the entire process to work closely with TORM.

Next steps

With this increased visibility, TORM will continue to understand the new scope and data and decrease the amount of secondary data by encouraging suppliers to provide the necessary information, thus turning it into primary/hybrid data. Subsequently, we will use this data and our increased understanding to adjust our ways of working to positively impact Scope 3 emissions.

TCFD

Being relevant for tomorrow is just as important as being relevant today. To ensure TORM's position and relevance in the future, we conducted a climate-related scenario analysis in 2022 using the Task Force on Climate-related Financial Disclosures (TCFD) guidelines. This was to assess transitional and physical risks and opportunities and how they might impact the resilience of our company strategy.

We believe in taking advantage of available tools to show our stakeholders and potential investors how TORM is prepared for the future. This also provides TORM with input for focus areas to guide our strategy.

TORM's process

We engaged an external consultancy and developed three climate scenarios to assess TORM's risks and opportunities: Net Zero 2050 (1.5°C), Delayed Transition (1.8°C), and Hot House World (+3°C).

These scenarios were supplemented by data and insights relevant to upstream and midstream oil and gas activities and the transport of refined oil products. They also took into consideration TORM's full value chain including potential production of and demand for renewable energy fuels and technologies.

The scenario analysis process involved senior representatives from TORM's organization and TORM's Board of Directors to fully analyze the consequences of the risks and the opportunities ahead. The risks and opportunities were assessed for financial materiality and their potential impact on TORM's business model and strategy. Four financially material climate-related risks and three financially material climate-related opportunities were investigated.

The findings from the scenario analysis were incorporated into TORM's corporate strategy process to improve its resilience. Further details are outlined in the risk section of this report.

➔ TCFD details are available on pages 75-77

The Task Force on Climate-related Financial Disclosures (TCFD) framework

![img-5.jpeg](img-5.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 26

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# TORM’s ESG targets

These targets ensure our collective focus on the same goals and encourage transparency between management, employees, and stakeholders. TORM has committed to the below ESG-linked targets to be relevant to investors, lenders, customers, and other stakeholders. We will elaborate on these targets throughout this report.

## 2030 Climate target

TORM continues to work on reducing our carbon intensity from -37.1% in 2022 to -45% by 2030 compared to 2008*.

* % reduction compared to the IMO’s 2008 base year using the CII reference line using CO2 g/dwt x nm.

![img-6.jpeg](img-6.jpeg)

## 2030 Safety target

Safety is measured as a long-time accident frequency per million exposure hours. In 2022, TORM’s safety performance was 0.42, and our target for 2030 is 0.30.

![img-7.jpeg](img-7.jpeg)

## 2050 Climate ambition

TORM is pursuing an ambitious climate agenda, whereby we will have zero CO2 emissions from operating our fleet by 2050.

![img-8.jpeg](img-8.jpeg)

## 2030 Leadership diversity target

We believe that diverse teams led by diverse leaders deliver better business performance, and by 2030 at least 35% of our leaders will be female.

![img-9.jpeg](img-9.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 27

# Stakeholder engagement and materiality

## Stakeholder engagement

Working in close collaboration with our customers and stakeholders is an immense focus for TORM and is key to delivering our ambitious climate targets. Among other things, the stakeholder groups include employees, community, suppliers, customers, investors, and authorities.

Throughout the year, specialists across TORM interact with these stakeholders to ensure an open dialogue. This includes our ongoing dialogue with financial institutions to ensure a high level of transparency in our climate efforts - both ashore and at sea.

As a company, we work with a selection of partnerships sharing the same values and goals as TORM. TORM continued its work in the Mærsk Mc-Kinney Møller Centre for Zero Carbon Shipping which we joined in 2021 as a Mission Ambassador. Here we work with industry partners and knowledge specialists to achieve zero carbon shipping solutions by 2050. TORM is also an active member of industry organizations such as Danish Shipping. These efforts must ensure that TORM is part of the conversation that is important to many of our stakeholders and society at large.

➔ Engagement and decision-making in TORM are described on pages 115-117

## Materiality

As part of our continued efforts to increase transparency in our reporting, we included a materiality assessment in our 2021 responsibility reporting. This assessment has been reviewed in 2022 and is still valid. It will be reviewed again in 2023.

In TORM, we have defined materiality as “social and environmental topics with the largest impact throughout our value chain”.

## Materiality assessment

TORM’s ESG materiality assessment is to identify and prioritize the ESG issues which are most important to and have the most impact on TORM and our key stakeholders. We have defined our key stakeholders as customers, lenders, investors, regulators, employees, suppliers, community, and environment.

Each score is evaluated relative to each other as all the material topics are important to TORM and our key stakeholders. The material topics and the materiality matrix were approved by the Board of Directors.

OUR RESPONSIBILITY FRAMEWORK

OUR PRIORITIES AND RESULTS

SASS INDEX AND RESPONSIBILITY DATA

**Mærsk Mc-Kinney Møller Center** for Zero Carbon Shipping

GLOBAL  
MARITIME  
FORUM

![img-10.jpeg](img-10.jpeg)

![img-11.jpeg](img-11.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 28

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASS INDEX AND RESPONSIBILITY DATA

# Stakeholder engagement and materiality

![img-12.jpeg](img-12.jpeg)

- Environmental efforts on pages 30-33
- Health and safety on page 34
- Security on page 35
- People on pages 36-37
- Community on page 38
- Legal compliance on page 39
- Human rights and business ethics on pages 40-41
- Responsible procurement on page 42

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 29

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Environment Environmental efforts

TORM believes in and supports the UN’s SDG 13 Climate Action as marine pollution constitutes the largest environmental risk in the shipping industry.

![img-13.jpeg](img-13.jpeg)

**TORM has dedicated resources, time, and focus to minimize its sea and atmospheric pollution. It also employs a broad range of tools and means to achieve its ambitious emissions reduction goals.**

## 2022 fuel consumption and energy efficiency

TORM has relentlessly worked on the ambitious environmental goal of reducing our carbon footprint by deploying effective strategies and efficient technologies across our value chain. This is done to reduce both our carbon intensity, address how efficiently our vessels transport its cargo, and the subsequent carbon emissions. These ambitions support IMO’s Green House Gas Strategy which envisages a reduction in carbon intensity of international shipping of at least 40% by 2030.

Our decarbonization efforts in 2022 have enabled us to reduce our carbon intensity, measured through the IMO defined methodology using Annual Efficiency Ratio (AER), by 37.1%. This reduction is compared to the IMO baseline of 2008. We are on track to achieve our goal of a 40% reduction in carbon intensity by 2025.

These decarbonization strategies and technologies also produce commercial benefits and synergies, which our

closely connected and integrated One TORM platform enables us to capture.

### Superior operating platform

TORM’s fleet is effectively managed on the in-house integrated operating platform known as One TORM. Operations are conducted jointly for the entire fleet to reap synergies across vessel classes. Daily engagement with the vessels continues to create significant value to encourage and support best practice behavior regarding energy consumption. In addition, the efforts ensure that corrective actions can be taken swiftly, if needed. The strategic choices section elaborates on how this platform operates and the synergies it produces.

Read more about our superior operating platform on page 18

### Vessel performance optimization and behavior

Over the years, TORM has gained a lot from information and data sharing to improve learnings, both ashore and on board our vessels. This concept has been taken further and thereby contributed to our performance in 2022 as well. TORM initiated the NEXUS project that considers all processes influencing fuel efficiency, not only vessel engine performance but also voyage planning, hull performance,

and much more. It aims to be a central tool providing transparency through live data to the various stakeholders and to improve decision-making. The Connected Machinery project is one of the first elements which provides automated vessel data and energy optimization guidance, allowing the crew to proactively make the right decisions on matters impacting fuel efficiency.

This has been tested on 18 vessels during 2022 and has contributed learnings towards improving the tool. During 2023, it is expected that 40-60 vessels will have the tool installed, and it is expected to be completed by 2024.

### Technologies

In 2022, we continued our journey of improving the hull of our vessels to make them glide easier through the water, thereby requiring less power and producing less emissions.

One method to improve vessel hulls is applying a silicon coating. Traditional hull coatings have higher roughness, which requires more power to move the vessel through water. Silicone-based coatings provide a very smooth and low-friction surface with a higher resilience towards fouling organisms sticking to the hull. TORM has increased the number of vessels with this coating that has now been applied to more than 50 vessels.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 30

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Environment Environmental efforts

Before painting the hull, grit blasting the hull is very important. This results in a reduction of roughness and a much smoother surface, and thereby less water resistance. This way both CO$_{2}$ and fuel consumption are reduced. For example, the impact on our largest LR2 vessels is that we can save up to 120 tons of CO$_{2}$ emissions per vessel every single year.

## 120 tons

**CO$_{2}$ emissions saved on an LR2 vessel when grit-blasted prior to hull painting**

### Industry collaboration

To harness momentum and synergies, TORM continued to be an active contributor in several industry collaborations. This involves active participation in Danish Shipping through which TORM aims to impact the decision-making in IMO in relation to ongoing discussions on the implementation of CO$_{2}$-related regulations. This work also continued in 2022 with the innovation partnership, ShippingLab (a non-profit platform for maritime research), for development and innovation with 30 partners from across the maritime industry. TORM was actively involved in two projects that were concluded in 2022.

Again in 2022, TORM supported and engaged in the Mærsk McKinney Møller Institute for Zero Carbon Shipping as a Mission Ambassador to research ways to grow in a more

operationally, commercially, and sustainably viable way. We continued our participation in the Getting to Zero Coalition, a collaboration between the Global Maritime Forum and the World Economic Forum.

### People competencies

People have a considerable influence on how effective our sustainability technology works. Therefore, equipping them with the training and competencies to optimize relevant technology is as important as the technology itself. To achieve this, we train our crew to have the right skills.

To ensure key crews on board have the latest vision for energy and fuel efficiency technologies, the annual junior and senior officer seminars dedicate time to share, discuss, and challenge upcoming technologies. This gives an understanding of the processes and capabilities, but it also provides insight into what the shore-based technical team is working on.

To build competencies for the decarbonization journey, we also focus on the next round of officers. Prior to an officer being promoted to Captain or Chief Engineer, the officer attends a promotion assessment training which involves two weeks in a TORM office where the officers get fully acquainted with all departments with a specific focus on the technical decarbonization work, tools, goals, and upcoming innovations. Addressing behavior and the impact on our performance is a key focus area.

In addition, our shore-based technical team provides an approachable point of contact to virtually troubleshoot

problems by using their expert knowledge. Our seafarers thereby have access to easy and timely assistance and can quickly solve matters and secure optimal vessel performance.

### ME Production acquisition

In 2022, TORM purchased an ownership stake of 75% in ME Production (MEP), a Danish industrial company specializing in developing and producing advanced and green marine equipment. The new partnership is built on a year-long collaboration between TORM and MEP with the two companies working closely together, especially in relation to TORM's substantial exhaust gas cleaning (scrubber) commitment.

This partnership supports TORM's environmental goals both now and going forward. With environmental innovation we aim to be able to be in the forefront when it comes to assets that will support us in minimizing the harm of the environment and to the benefit of TORM in the longer term.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 31

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Environment Environmental efforts

Combining the experience and engineering resources at MEP with the operational excellence at TORM will help TORM in achieving its environmental targets by creating energy optimization devices. One such technology is heat pumps that use the vessels’ own waste heat to heat other machinery, water, and other vessel parts.

In 2022, this technology has been tested on one vessel with positive results. Benefiting from the pilot project, clear improvements are visible to enhance this even further.

We expect this to be tested further with the potential roll out across the fleet where more benefits can be reaped. MEP technology and expertise in building such innovations will be critical.

## Decarbonization is a journey

Over the years, TORM has outperformed its set emissions targets. Therefore, TORM is pushing fast forward on our environmental efforts and will reduce our carbon intensity by 40% by 2025 - instead of by 2030. The baseline for the target is in line with the definition set forth by the International Maritime Organization, IMO, which defined how this should be measured and calculated.

## Our people

Committing to these challenging targets requires support from several aspects. One aspect is our people. Therefore, investing in our people by enhancing their knowledge of new and upcoming technologies is important for this long-term journey to extract the value of new energy and fuel solutions. TORM will thus strengthen and enhance our superior operating platform to harness synergies allowing us to optimize our vessels’ energy and fuel performance.

## New fuels

Another aspect will be industry research on new fuel sources for vessels.

Read more details about TORM’s investments to support the goal of zero emissions under our strategic choice of Greener Future.

➡ Long-term decarbonization on page 17

## Decarbonizing shipping

![img-0.jpeg](img-0.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 32

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASS INDEX AND RESPONSIBILITY DATA

# Environment Environmental efforts

## Innovation and technology will be key

TORM maintains its focus on the optimization and efficiency of our fleet by applying a broad set of operational and technical improvements. These efforts include smaller investments with short payback time and also larger investments with an expected larger impact.

## Variable frequency drives

An example of innovation is the use of variable frequency drives (VFD) for cooling pumps on board vessels which can reduce energy consumption. There are always cooling systems on board vessels, and these are designed for the extreme conditions that the vessels may experience. However, as vessels do not constantly operate in these extreme conditions, these systems can be managed more efficiently. The VFDs control the cooling systems' capacity according to its situation and thus run the systems more efficiently. For example, the VFDs can be used to optimize the air conditioning on board which saves power and also creates a more stable and comfortable temperature for the crew on board. The VFD program is 95% completed across our fleet.

## Air lubrication system

During autumn 2022, we installed the first air lubrication system on one of our LR2 vessels. Air lubrication is a system which blows out microscopic air bubbles at the bottom of the vessel, creating a layer of air between the vessel and the water. Air lubrication is expected to enable a reduction in friction and in CO2 emissions of approximately 5% per vessel. If the tests confirm the desired outcome, we expect this technology to be rolled out on several vessels.

## Route optimization

An accurate weather forecast is one of the most important tools for a sailor. Optimizing a vessels' voyage is essential to any shipping company. And we always strive to do even better - for our business and for the environment. Therefore, TORM has further developed an in-house algorithm model designed to optimize the voyages. This continuously provides our captains and their crew with updated routes, considering factors such as wind, waves, freight markets, and bunker prices. This helps to ensure that every journey is as safe and efficient as possible, while keeping emissions as low as possible.

![img-1.jpeg](img-1.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 33

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Social Health and safety

The majority of our workforce are seafarers, and therefore healthy and safe conditions on board our vessels are crucial.

## Audits

TORM resumed physical audits on board in 2022, providing an increased personal contact and engagement with our crew. This enabled the timely takeover of our newly acquired vessels. Because of the effectiveness of the One TORM platform, audits, inspections, flag changes, etc. have been completed successfully during the time of the COVID-19 pandemic. This includes taking over vessels and delivering vessels to new owners.

## SIRE inspections

Inspections ascertain the health of our vessels, and TORM uses SIRE inspections overseen by the OCIMF (Oil Companies International Marine Forum). In 2022, OCIMF initiated a revamped SIRE 2.0 inspection and assessment regime for the tanker industry. In TORM, this has been prioritized and will be in place prior during the first half of 2023.

## Lost Time Accident Frequency

Lost Time Accident Frequency (LTAF) is a measure of serious work-related personal injuries which result in more than one day off work. LTAF is measured per million hours of work. TORM’s LTAF measure in 2022 was 0.42 (2021: 0.37).

Once the pandemic subsided, we increased the number of physical visits on board. TORM also conducted additional

activities such as physical seminars, virtual town halls, and information-sharing sessions and deployed thorough review and analysis of data such as “near-miss” for better insight. A high number of near-miss reports indicate that the organization proactively monitors and responds to risks.

## Safety

Our safety policy is rooted in the regulations by the Danish Maritime Occupational Health Service. In 2022, TORM continued with its ‘One TORM Safety Culture - driving resilience’ program which defines standards and expectations for excellent performance. TORM also continued the “Safety Delta” tool, continuous crew evaluation, dialogue, reflection, and development. All vessels have completed three Safety Delta cycles in 2022.

In 2022, we could resume physical onsite officer seminars in Copenhagen and Mumbai, and another seminar was held in the Philippines in January 2023. Shore and sea-based colleagues came together to discuss and align on our business strategy. A total of 160 senior officers attended the conferences.

## Officer safety training

TORM continued to conduct safety leadership courses for senior officers on board. The course includes workshops for all senior officers and key marine shore staff and focuses on how to be a good leader when it comes to safety.

TORM increased the number of junior officer safety trainings in 2022 which covers the mindsets, competencies, and behaviors needed for safe operations. This course serves as a supplement to the safety leadership course for senior officers as junior officers should be prepared for their future ambassador roles. TORM took over eight Team Tanker vessels in 2021 and by early 2022, all the crews had participated in the TORM Safety Delta self-assessment program, and all senior officers had been involved in the senior officer safety training and officer seminars.

## Lost Time Accident Frequency (LTAF)

SOURCE: TORM

![img-2.jpeg](img-2.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 34

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Social Security

## Security

TORM’s response to piracy is founded on the Best Management Practice, which is the industry guideline for companies and vessels sailing in areas with increased risk. In 2022, TORM experienced three minor incidents. No persons were harmed during these incidents.

Throughout the year, the security situation and developments in the various risk areas have been monitored closely, and actions have been taken to safeguard TORM’s seafarers and vessels. The main area of concern remains the Gulf of Guinea. This is despite the fact that reported incidents have dramatically decreased in comparison to previous years. However, the root cause of piracy in the region has not been eradicated, so piracy remains a threat. TORM has adapted its procedures to the changing threat levels across all areas called at by TORM vessels.

The security situation in certain areas is affected by changes in geopolitical situations. TORM will continue monitoring the situation globally and implement adequate precautionary measures for risks identified.

![img-3.jpeg](img-3.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 35

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Social People

**People and culture play an essential role in TORM, and it is important for TORM to develop employees within their potential, which positively influences our employee retention, talent acquisition, and brand value. The pandemic challenged the way we work, but we have now adjusted to a post-pandemic world, and we use our learnings to improve the way we work.**

In 2022, TORM increased awareness of its zero-tolerance towards harassment. Although not accepted, we must ensure our people have the right tools to handle such situations. An online training course, including reflection, was rolled out to all seafarers and shore-based colleagues to explain the different types of harassment, what to do if it occurs, and what tools are available to support them.

## At sea

### Improving workplace and well-being

To nurture the close relationship between sea and shore-based colleagues, we re-established the physical induction of new seafarers and physical training in 2022 - taking the best of both online and offline worlds.

The “Well at TORM” program, focuses on the well-being of our seafarers by increasing engagement, mental resilience, physical health, and embracing socialization among the crew, has proven to be successful. More than half of our seafarers are actively participating in this program.

The mealtime for our seafarers is not just important sustenance and nutrition, it is also a time to socialize and nurture the unique tightknit group on board. Therefore, in 2022, we changed the main global catering supplier to ensure this time is even more enjoyable and healthy.

In 2022, TORM implemented a new Marine HR management system to bring our seafarers and shore-based organization closer in daily operations. This platform provides more transparency of status, current and upcoming contract planning, and wage details. The system also facilitates a smoother travel expense process.

In 2022, we have worked to improve our crew engagement survey. This survey allows us to gauge the temperature of our seafarers to understand what support they need. The results highlighted that our seafarers have a very positive relationship with leadership and teams and have high job satisfaction. Senior management is involved in evaluating the results to gain attention and focus for actions. The survey covers questions about their connection with the Company, team and manager, their personal well-being, and job satisfaction.

At the end of 2022, TORM employed 3,218 seafarers and increased the retention rate for senior officers to 95%. Thus, TORM demonstrated compliance with customer requirements in ensuring the right level of experience among senior officers per vessel across the fleet (the so-called officer matrix compliance).

## Ashore

In 2022, we continued our bi-annual real time data engagement survey. 98% of all shore-based employees responded to the November survey which resulted in an engagement score of 8.4 out of ten. The overall positive outcome of the survey was maintained from previous years and positions TORM in the top quartile of companies across all industries using the same platform. Our ambition is to improve and nurture the culture needed to fulfill our ambitious strategy and develop initiatives which matter to our employees.

## Employee health and well-being

During 2022, we formalized the remote work setup as a post-COVID work practice. This derives from the 2021 employee engagement survey and the practices’ success during the pandemic. We expect this opportunity to provide more flexibility for a global team and their work/life balance.

We are consistently focusing on employee health and well-being - physical and mental. Therefore, the stress awareness training initiated in 2021 was rolled out across all offices in 2022. Through in-depth knowledge, a common language, and targeted tools, all employees are equipped with the tools required to spot and mitigate stress.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 36

# Social People

## Diversity

In TORM, it is our policy to work towards a diverse workforce irrespective of gender, religion, sexuality, nationality, ethnicity, or disabilities. A diverse workforce provides a balance of voices and thought that inspires innovation and creativity.

In 2022, we continued to participate and drive the aim of Danish Shipping's taskforce for more women at sea. In this work group, we have incorporated 10 recommendations into processes and procedures as best practice. The recommendations include setting gender diversity targets, supporting women through family-friendly policies, and rethinking the recruitment process.

Also in 2022, we piloted a system with our Danish female seafarers to enhance their network by making use of experienced women seafarers in other parts of our organization and additional mentoring for the unique

lifestyle at sea. Learnings from this pilot project will build a tool that can be used to support diversity.

## Gender diversity

We actively monitor the representation of females in the workforce and in leadership. At the end of 2022, the proportion of female full-time employees in the shore-based workforce was 35%, while women in leadership positions constituted 21%. TORM has a target for 2030 of 35% women in leadership positions. At the end of 2022, the Board of Directors consisted of four male members and one female member elected at the Annual General Meeting. Since 2020, the Board of Directors has fulfilled its target of 20% female Board members (1 out of 5).

This section also constitutes the Danish statutory reporting on gender distribution in management.

## Diversity of permanent employees

|  | Male | Female |
| --- | --- | --- |
| Non-executive Directors of the Company | 3 | 1 |
| Executive Directors of the Company | 1 | - |
| Senior executives | 3 | - |
| Managers not listed above (managers with one or more direct reports) | 135 | 21 |
| Other permanent employees of the Group | 174 | 108 |

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

## Geographical diversity of seafarers in %

TOTAL NUMBER OF SEAFARERS AT THE END OF 2022: 3,218

![img-4.jpeg](img-4.jpeg)

In 2022, we continued our strategy to employ seafarers with different nationalities as we believe that diversity on board is an important foundation for high performance, while keeping focus on cooperation and a safe working environment.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 37

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Social Community

![img-5.jpeg](img-5.jpeg)

**TORM is a long-standing supporter of maritime education in India and in the Philippines, and it is therefore natural for TORM to support SDG 4 Quality Education.**

TORM believes that education is one of the best ways to nurture future competences and build a strong pipeline for the industry. Additionally, by contributing to society, TORM builds a sense of trust and pride in our colleagues, resulting in higher retention and positive brand recognition.

## Education foundation in the Philippines

The TORM Philippines Education Foundation (TPEF) is a foundation set up by TORM Philippines in 2007 to support education in the Philippine community. During the educational year 2022-2023, we supported:

- 38 scholars studying in various colleges and universities
- 24 apprentices (one female and 23 male) within maritime courses

In addition to these students currently supported during 2022, 12 scholars graduated in 2022 with various degrees in engineering, education, psychology, IT, multimedia arts, and masters in business administration.

The TPEF also intensively invests in the Scholars Development Program which focuses on self-awareness and academic support, how to be an environmental warrior outside the classroom, communication and public speaking,

gender sensitivity and equality, facilitation skills, and a mini-retreat and reflection session with discussion focused on developing emotional intelligence.

Another wing of the TPEF, the Social Development Initiatives, works towards providing relief to better surroundings during troubled times. In 2022, a provision of 130 sets of solar lamps and four sets of solar-powered charging stations was given to an elementary school in the island of Jagoliao, Getafe, Bohol. The school was ravaged by super typhoon “Rai” in December 2021 causing a power outage on the island. A total of 130 students, seven teachers, and the community benefited from the project.

## Education support in India

TORM India funds specific projects under selective social causes, and since 2018 TORM India has worked closely with three organizations to achieve the purpose:

- SAMPARC - an organization taking care of disadvantaged children across India
- BAIF - an organization working towards upgrading and providing rural infrastructure
- Akshayshakti - an organization looking to improve the lives of students, welfare, and abandoned children

In 2022, TORM supported the construction and furnishing of one of the Zhilla parishad schools, state-run secondary schools, in India.

TORM sponsors 33 students at SAMPARC and assists them with their basic needs, including school equipment and certain living expenses. With a focus on meeting the hygiene needs of children at Bhaje, TORM sponsored a toilet block construction in 2022. In keeping with the annual tradition, a team from TORM India visited SAMPARC Bhaje to celebrate Deepawali and distribute presents to all the students.

TORM believes that better infrastructural support and more extracurricular activities nurture a holistic education for students. In April 2022, TORM sponsored the construction of a new school at Nalasopara, Mumbai. To further support education infrastructure, TORM has committed to adding an additional floor to the school building.

Additionally, TORM has committed to constructing toilet blocks and paver blocks in Dahanu, Maharashtra to assist pre-nursery schools. Continuing our efforts to have a positive impact on society, TORM is currently evaluating several more projects in and around Mumbai, specifically aimed at helping young girls.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 38

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

## Legal compliance

For TORM, good corporate governance represents the framework and guideline for business management. The aim is to ensure that TORM is managed in a proper and an orderly manner consistent with applicable legislation and codes. This complements our commercial purpose to ensure we meet the high expectations of our investors, customers, and other stakeholders.

Legal compliance is essential to TORM and to our stakeholders. International transport of refined oil products is a highly regulated area, and full compliance with all applicable rules and regulations at all times is a necessity for operating successfully in our industry.

TORM’s compliance with all applicable sanctions requires constant focus as any violation may have a significant business impact. The same applies to compliance with applicable rules and regulations in relation to (without limitation) health, safety and environment, anti-bribery and corruption, competition/anti-trust, as well as employment and labour. Legal compliance is often closely linked to other areas included in the materiality matrix and is also separately included.

The Governance section describes TORM’s framework and governance model, designed to ensure TORM’s continued ability to operate successfully.

Governance section on pages 79-123

### Data Ethics Policy

TORM’s business model, the One TORM platform, uses advanced analytics and digital solutions in which large amounts of data are processed. TORM’s Data Ethics Policy confirms TORM’s commitment to our defined data ethics principles, and it defines how we collect, store, and process data.

TORM wants to maintain high ethical standards for the protection of our data, and we want our handling of all data to be beneficial and value-adding to our customers, employees, business partners, authorities, and other stakeholders.

Our treatment of data must be robust to prevent any unintended disclosure. TORM’s data security measures include a variety of guidelines and defined processes as well as technical and human controls.

TORM generally does not collect, store, or handle data in relation to private customers or consumers. The data which TORM collects and stores is mainly commercial data, relevant to the operation of our owned and chartered vessels. Such commercial data includes without limitation global trade flows, trading patterns, cargo types, weather patterns, port data, etc. and may be generated internally or obtained from external sources.

To ensure that TORM and our employees uphold these high standards, clear instructions are available for how employees should handle personal data. To ensure that employees understand and are kept updated on TORM’s obligations such as sanctions, they are annually asked to confirm that they have read and will comply with the Business Principles and associated policies.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 39

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Governance
## Human rights and business ethics

### Business ethics

Transparency and accountability are key to TORM's way of doing business, and these values play a central role in our corporate social responsibility approach. Our approach to responsible behavior is rooted in our TORM Business Principles which have the following five objectives:

- Maintaining a good and safe workplace
- Reducing environmental impact
- Respecting people
- Doing business responsibly
- Ensuring transparency

### Anti-corruption and anti-bribery

Corruption and bribery impede global trade and can restrict non-corrupt companies' access to markets. In this way, corruption and bribery have a negative impact on economic and social development. For TORM, the risk of corruption does not mean increased costs alone. Corruption also exposes TORM's seafarers to safety and security risks and poses a potential risk to TORM's legal standing and reputation.

TORM does not accept corrupt business practices, and as part of its compliance program TORM has a policy on anti-bribery and anti-corruption, which supports TORM's Business Principles.

It is TORM's policy to conduct all business in an honest and ethical manner. TORM has a "zero tolerance" approach to bribery and corruption, and TORM is committed to acting professionally, fairly, and with integrity in all business

dealings and relationships, wherever TORM operates.

TORM will uphold all laws relevant to countering bribery and corruption in all the jurisdictions in which TORM operates.

TORM has three elements which it leverages to continue a high level of transparency and accountability of its anti-corruption and anti-bribery policy. One being strict employee guidelines and processes to prevent and manage anti-corruption and anti-bribery, the second being specific reporting processes, and the third being compulsory e-learning courses. TORM further complies with SOX regulations according to which employees must complete training and confirm adherence to the policies and guidelines, ensuring 100% compliance. This training was enhanced again in 2022 by MACN to ensure its relevance.

Since 2011 when TORM co-founded the Maritime Anti-Corruption Network (MACN), TORM has been taking a joint stand with the industry against the request for facilitation payments which exists in many parts of the world where TORM conducts business. Best practice is shared between members of the network, and members align their approach to minimizing facilitation payments. MACN seeks support from government bodies and international organizations to eliminate the root causes of corruption. TORM is committed to addressing corrupt business practices among stakeholders by supporting this cross-sector approach. In 2022, TORM actively engaged at a MACN working forum with 200+ members to continue sharing experiences, best practices, and solutions to the current issues facing companies.

In addition to its efforts within MACN, TORM continued to strengthen its companywide anti-corruption policies in 2022 to mitigate the risk of bribery and corruption. TORM has continued its anti-corruption training program, which includes mandatory anti-corruption courses for all shore-based staff and all officers on board TORM's vessels. With the reduced risk of COVID-19 in 2022, we had the enhanced access to share and stress the importance of this at the physical officer seminars held at key TORM offices. The training targets new hires as well as existing employees and must be repeated annually. TORM will continue these efforts in 2023.

Since 2006, TORM's Board of Directors has provided a whistleblower facility with an independent lawyer as part of the internal control system. In 2022, the whistleblower facility received three notifications, which were investigated and closed without any critique or requirements for new measures.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 40

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

## Human rights and business ethics

### Human rights

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

# 2009

### TORM signed the UN Global Compact

TORM recognizes that implementing the necessary policies and respective processes to be in line with the requirements of the UN Global Principles is part of an ongoing effort. Going forward, we will continue to promote human rights-related policies and processes.

The most material risk for human rights abuses is related to TORM’s supply chain. TORM complies with the International Labor Organization’s Maritime Labor Convention, an international set of standards on labor conditions at sea, which was ratified by 30 countries in 2012. All vessels under TORM’s technical management are audited and certified as required under the Maritime Labor Convention of 2006. To enforce and promote the importance of human rights on how TORM performs business at large projects such as newbuildings or yard

stays, TORM has a supervision team consisting of 4-6 TORM employees or externals representing TORM to ensure work is carried out in line with TORM standards.

TORM respects employees’ right to associate freely, to join - or not to join - unions and to bargain collectively. TORM offers equal opportunities for its employees as stated in TORM’s Business Principles. Zero claims or offenses have been reported regarding human rights in 2022.

![img-0.jpeg](img-0.jpeg)

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 41

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Governance
Responsible procurement

Responsible behavior throughout the organization is central to TORM's business, management practices, and corporate culture.

Our supply chain is important to achieve our goals, and we must ensure that our quality standards and responsibility efforts are extended and improved throughout it. We expect our suppliers to comply with recognized international standards and work to improve human rights, labor conditions, impact on the environment, safety, corruption, and quality.

As a long-standing member of the UN Global Compact, TORM remains committed to protecting its employees, assets, reputation, and the environment by maintaining the highest possible standards. Transparency and accountability are central parts of TORM's way of doing business.

TORM signed the UN Global Compact in 2009 as the first shipping company in Denmark to commit to the internationally recognized set of principles regarding health, safety, labor rights, environmental protection, and anti-corruption. This also means that TORM reports on its social and environmental performance on an annual basis to ensure progress and accountability to stakeholders.

Because of TORM's commitment to integrate responsibility in all business practices, a revised set of Business Principles has been introduced. The Business Principles ensure

alignment between our values, as outlined in the TORM Leadership Philosophy, and the policies that ensure appropriate behavior, which cannot be deviated from. This relationship applies to policies within all operations, including those related to sustainability. TORM also applies its Business Principles when dealing with subcontractors and suppliers. TORM's Business Principles emphasize our commitment to promote responsible business principles in our supply chain. Therefore, TORM is compliant with the UK Modern Slavery Act.

TORM is certified according to ISO 14001:2015, and in accordance with the requirements of our certifications, we constructed a supplier assessment questionnaire and supporting process in 2021. In 2022, this assessment process was rolled out, and initially it focuses on the suppliers with the highest spend. This is to allocate resources to the areas with the largest potential risks and impacts.

The main purpose of the first supplier assessment is to establish a baseline and understand the status of our suppliers to facilitate a dialogue with them about how we together can extend and improve the quality of sustainability efforts. In some situations, there may be areas where we will work with a particular supplier to align with TORM requirements.

The questionnaire consists of a range of questions related to their business within the following main categories:

- Company information
- Quality management
- Performance
- Training
- Human rights and labor
- Environment, health, and safety
- Business ethics
- Complain procedure

In 2022, TORM has individually followed up on each questionnaire response to ensure their completeness. TORM will, when possible, conduct site visits to audit the categories in the questionnaire or conduct a remote audit. This document can also be used as a guide for all TORM suppliers to self-assess their compatibility with TORM standards.

This is a live document and is constantly incorporating improvements and adapting to the latest regulations. The questionnaire and process will be further developed in 2023.

Anti-corruption and anti-bribery on page 40

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 42

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# SASB marine transportation industry standard

| Topic | Accounting metric | Unit | 2022 | 2021 | Code |
| --- | --- | --- | --- | --- | --- |
| Greenhouse Gas | Gross global Scope 1 emissions | Metric tons (t) CO 2 e | 1,363,076 | 1,081,027 | TR-MT-110a.1 |
|  | Discussion of long-term and short-term strategy or plan to manage Scope 1 emissions, emissions reduction targets, and an analysis of performance against those targets |  | See pages 15-17, 19, 22-27, 30-33 | See pages 22-27, 34, 40 in AR 21 | TR-MT-110a.2 |
|  | 1) Total energy consumed | Gigajoules (GJ) | 19,265 | 17,672 | TR-MT-110a.3 |
|  | 2) Percentage heavy fuel oil | Percentage (%) | 53 | 50 | TR-MT-110a.3 |
|  | 3) Percentage renewable | Percentage (%) | 0 | 0 | TR-MT-110a.3 |
|  | Average Energy Efficiency Design Index (EEDI) for new vessels | Grams of CO 2 per ton-nautical mile | 3 | 3 | TR-MT-110a.4 |
| Air quality | Air emissions of the following pollutants: |  |  |  |  |
|  | 1) NO x (excluding N 2 O) | Metric tons (t) | n/a 1) | n/a 1) | TR-MT-120a.1 |
|  | 2) SO x | Metric tons (t) | 1,785 | 1,533 | TR-MT-120a.1 |
|  | 3) Particulate matter (PM10) | Metric tons (t) | n/a 1) | n/a 1) | TR-MT-120a.1 |
| Ecological impacts | Shipping duration in marine protected areas or areas of protected conservation status | Number of travel days | n/a 1) | n/a 1) | TR-MT-160a.1 |
|  | Percentage of fleet implementing ballast water: 1) exchange | Percentage (%) | 12 | 27 | TR-MT-160a.2 |
|  | Percentage of fleet implementing ballast water: 2) treatment | Percentage (%) | 88 | 73 | TR-MT-160a.2 |
|  | Number of spills and releases to the environment 2) | Number | 0 | 0 | TR-MT-160a.3 |
|  | Aggregate volume of spills and releases to the environment 3) | Cubic meters (m 3 ) | 0 | 0 | TR-MT-160a.3 |

The emission figures in this report represent TORM's findings to the best of our knowledge given today's methodology used by TORM and aligned with current IMO methodology. TORM is continuously committed to improving the methodology and advancing transparency in reporting as well as to following best industry practices on emissions reporting. In 2021, we allocated the emissions related to T/C out to gross global Scope 1 emissions as we did not report on Scope 3. In 2022, we report on Scope 3 and have reallocated the part included in Scope 1 in 2021 to Scope 3 in 2021. SO$_{x}$ emissions for 2021 have been adjusted slightly due to updates to the methodology.

$^{1)}$ Data unavailable. Assessment of feasibility of disclosure is ongoing.

$^{2)}$ Our definition of spills is based on ITOPF.

$^{3)}$ We report total volume of spills as the estimated aggregate volume of all spills as defined above. We do not do netting of the amount of such material that was subsequently recovered, evaporated, or otherwise lost as required by SASB standard TR-MT-160a.3 -2.1.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 43

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# SASB marine transportation industry standard

| Topic | Accounting metric | Unit | 2022 | 2021 | Code |
| --- | --- | --- | --- | --- | --- |
| Employee Health & Safety | Lost Time Incident Rate (LTIR) 1) | Rate | 0.42 | 0.37 | TR-MT-320a.1 |
| Business ethics | Number of calls at ports in countries that have the 20 lowest rankings in Transparency International's Corruption Perception Index | Number | 18 | 13 | TR-MT-510a.1 |
|  | Total amount of monetary losses as a result of legal proceedings associated with bribery or corruption | USD | 0 | 0 | TR-MT-510a.2 |
| Accident & Safety Management | Number of marine casualties 2) | Number | 1 | 1 | TR-MT-540a.1 |
|  | Percentage classified as very serious 2) | Percentage (%) | 0 | 0 | TR-MT-540a.1 |
|  | Number of Conditions of Class or Recommendations | Number | 3 | 7 | TR-MT-540a.2 |
|  | Number of port state control: 1) deficiencies | Ratio 3) | 0.71 | 0.55 | TR-MT-540a.3 |
|  | Number of port state control: 2) detentions | Ratio 3) | 0.01 | 0.00 | TR-MT-540a.3 |
| Activity metrics | Number of shipboard employees | Number | 3,218 | 3,420 | TR-MT-000.A |
|  | Total distance travelled by vessels | Nautical miles (nm) | 4,588,294 | 4,398,088 | TR-MT-000.B |
|  | Operating days | Days | 29,610 | 28,717 | TR-MT-000.C |
|  | Deadweight tonnage | Thousand deadweight tons | 5,034 | 4,746 | TR-MT-000.D |
|  | Number of vessels in total shipping fleet | Number | 78 | 84 | TR-MT-000.E |
|  | Number of vessel port calls | Number | 2,428 | 2,514 | TR-MT-000.F |
|  | Twenty-foot equivalent unit (TEU) capacity | TEU | n/a | n/a | TR-MT-000.G |

$^{1)}$ Instead of LTIR, we report on LTAF (LTIF) which is an industry norm based on OCIMF guidelines on injury reporting. The rate per one million man hours is the most common unit in respect of LTAF.

$^{2)}$ Our definition of marine casualty is based on the IMO Casualty Investigation Code Ch 2 -2.9, and very serious marine casualty is based on IMO Casualty Investigation Code Ch 2 -2.22.

$^{3)}$ We report the number of port state control deficiencies and detentions as a ratio instead of a number. It is the industry norm to report port state control performance as a ratio as it provides important context to the metrics. The ratio is calculated as the number of deficiencies (or detentions) divided by the total number of PSC inspections.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 44

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Environmental indicators

| Indicator | Unit | 2022 | 2021 | 2020 |
| --- | --- | --- | --- | --- |
| Greenhouse gas (GHG) emissions |  |  |  |  |
| Direct GHG emissions (Scope 1) | Tons CO 2 e | 1,363,076 | 1,081,027 | 1,257,468 |
| Indirect GHG emissions - owned (Scope 2) | Tons CO 2 e | 448 | 486 | 434 |
| Indirect GHG emissions - not owned (Scope 3) | Tons CO 2 e | 607,961 | 1,238,479 | Not calculated |
| Total GHG emissions 1) | Tons CO 2 e | 1,971,485 | 2,319,991 | 1,257,902 |
| Energy consumption |  |  |  |  |
| Heavy fuel | Tons | 252,012 | 216,610 | 170,907 |
| Low-sulfur heavy fuel | Tons | 136,329 | 126,371 | 174,836 |
| Marine gas oil | Tons | 84,086 | 88,978 | 80,865 |
| Office consumption |  |  |  |  |
| Electricity consumption | kWh | 659,476 | 514,461 | 445,093 |
| Water consumption | m3 | 4,062 | 3,875 | 3,268 |
| Greenhouse gas (GHG) emissions - Fleet |  |  |  |  |
| CO 2 emissions, AER - total fleet | g/dwtxnm | 5.15 | 5.05 | 5.34 |
| CO 2 emissions, AER - LR2 | g/dwtxnm | 3.68 | 3.72 | 4.10 |
| CO 2 emissions, AER - LR1 | g/dwtxnm | 4.73 | 4.33 | 4.66 |
| CO 2 emissions, AER - MR | g/dwtxnm | 6.09 | 5.83 | 6.02 |
| CO 2 emissions, AER - Handysize | g/dwtxnm | 8.37 | 7.23 | 7.52 |
| CO 2 emissions, EEOI - total fleet | g/cargoxnm | 10.88 | 10.64 | 11.17 |
| CO 2 emissions, EEOI - LR2 | g/cargoxnm | 8.13 | 8.67 | 8.07 |
| CO 2 emissions, EEOI - LR1 | g/cargoxnm | 9.38 | 8.95 | 9.43 |
| CO 2 emissions, EEOI - MR | g/cargoxnm | 12.69 | 11.80 | 13.06 |
| CO 2 emissions, EEOI - Handysize | g/cargoxnm | 21.29 | 15.24 | 15.07 |

The emission figures in this report represent TORM’s findings to the best of our knowledge given today’s methodology used by TORM aligned with current IMO methodology. TORM is continuously committed to improving the methodology and advancing transparency in reporting as well as to following best industry practices on emissions reporting. In 2021, we allocated the emissions related to T/C out to direct GHG emissions (Scope 1) as we did not report on Scope 3. In 2022, we report on Scope 3 and have reallocated the part included in Scope 1 in 2021 to Scope 3 in 2021.

$^{1)}$ The total CO$_{2}$ emissions are significantly lower in 2020 compared to 2021 and 2022 because Scope 3 emissions have not been calculated for 2020.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 45

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Social indicators

| Indicator | Unit | 2022 | 2021 | 2020 | Further information |
| --- | --- | --- | --- | --- | --- |
| Our employees |  |  |  |  |  |
| Total number of seafarers | Headcount | 3,218 | 3,420 | 3,023 | Annual Report 2022 |
| Total number of employees (shore-based) | Headcount | 355 | 348 | 345 | Annual Report 2022 |
| Diversity - shore-based employees |  |  |  |  |  |
| Total women in leadership | % | 21 | 22 | 21 | Annual Report 2022 |
| Gender with lowest representation (women) | % | 35 | 37 | 36 | Annual Report 2022 |
| Diversity - seafarers |  |  |  |  |  |
| Total women in leadership | % | 2 | 1 | 1 | Annual Report 2022 |
| Gender with lowest representation (women) | % | 1 | 1 | 1 | Annual Report 2022 |
| Health & Safety |  |  |  |  |  |
| Fatalities | Headcount | 0 | 0 | 0 | Annual Report 2022 |
| Lost Time Accident Frequency (LTAF) | Per million exposure hours | 0.42 | 0.37 | 0.65 | Annual Report 2022 |
| Ethics |  |  |  |  |  |
| Sexual Harassment and/or Non-discrimination Policy |  | • | • | • | Business Principles |
| Equal and fair opportunity employer |  | • | • | • | Business Principles |
| Child and/or Forced Labor Policy |  | • | • | • | Business Principles |
| Child and/or Forced Labor Policy covers suppliers and vendors |  | • | • | • | Business Principles |
| Human Rights Policy |  | • | • | • | Business Principles |
| Human Rights Policy covers suppliers and vendors |  | • | • | • | Business Principles |
| Modern Slavery Policy |  | • | • | • | UK Modern Slavery Act |
| UN Global Compact Signatory |  | • | • | • | Responsibility Report |
| Recycling and Scrapping Policy |  | • | • | • |  |

Yes • / No •

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 46

OUR RESPONSIBILITY FRAMEWORK  
OUR PRIORITIES AND RESULTS  
SASB INDEX AND RESPONSIBILITY DATA

# Governance indicators

| Indicator | Unit | 2022 | 2021 | 2020 | Further information |
| --- | --- | --- | --- | --- | --- |
| Board of Directors |  |  |  |  |  |
| Members | Number | 5 | 5 | 5 | Annual Report 2022 |
| Gender with lowest representation (women) | % | 20 | 20 | 20 | Annual Report 2022 |
| Total nationalities | Number | 5 | 5 | 5 | Annual Report 2022 |
| Independence | % | 60 | 60 | 60 | Annual Report 2022 |
| Senior Management |  |  |  |  |  |
| Members | Number | 4 | 4 | 4 | Annual Report 2022 |
| Gender with lowest representation (women) | % | 0 | 0 | 0 | Annual Report 2022 |
| Total nationalities | Number | 1 | 1 | 1 | Annual Report 2022 |
| Executive Management has their bonus linked to ESG performance |  | • | • | • | Annual Report 2022 |
| Whistleblower function |  |  |  |  |  |
| Number of whistleblower notifications received through external system |  | 3 | 1 | 3 | Annual Report 2022 |
| Number of whistleblower cases reviewed |  | 3 | 1 | 3 | Annual Report 2022 |
| Ethics |  |  |  |  |  |
| Anti-corruption Policy |  | • | • | • | Business Principles |
| Anti-bribery Policy |  | • | • | • | Business Principles |
| Whistleblower Policy |  | • | • | • | Annual Report 2022 |
| Articles of Association |  | • | • | • |  |
| Data Ethics Policy |  | • | • | • | Annual Report 2022 |
| Code of Conduct Policy (Business Principles) |  | • | • | • | Business Principles |

Yes • / No •

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 47

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Definitions

CO2 emissions (equivalent ton)

The greenhouse gas emissions (GHG) reporting covers Scope 1 (direct emissions from own production), Scope 2 (indirect emissions from the generation of purchased energy) and Scope 3 (emissions indirectly affected but not owned or controlled by TORM) of the Greenhouse Gas Protocol.

TORM uses the operational control principle as our organizational boundary when calculating our Scope 1, Scope 2, and Scope 3 emissions. This has the following implications:

- Upstream emissions from fuel usage in Scope 1 and Scope 2 are accounted for in Scope 3
- Investments with operational control are accounted for in Scope 1. The Marine Exhaust segment is not included in 2022 but will be included from 2023
- In line with our organizational boundary, we consider vessels that are time-chartered out (T/C-out) for less than three months as well as vessels which are time-chartered in (T/C-in) for more than three months as part of Scope 1
- In line with our organizational boundary, we consider vessels that are time-chartered out for more than three months as well as vessels which are time-chartered in for less than three months as part of Scope 3

Scope 1

CO2 emissions have been calculated based on the consumption of heavy fuel oil and marine gas oil according to IMO's conversion factor for emission per ton. Emissions

are calculated for each single vessel and then consolidated. Numbers under the Scope 1 data sheet have been collected on board the vessels or at the offices. The collection is based on actual usage. The vast majority of TORM's Scope 1 emissions are linked to vessel operations with our fleet. Due to the very limited share, emissions from company cars have not been included.

Scope 2

CO2 emissions generated indirectly from operational activities at the TORM offices are calculated using Danish and World Resources Institute emission factors. Only offices where data is available are included.

Scope 3

CO2 emissions generated from activities not owned or controlled by TORM, but that we indirectly affect in our value chain. Scope 3 emissions are calculated using a mixed approach where spent-based data as well as supplier-specific and/or activity data are used, and where the relevant emission factors are applied. We are using a variety of data sources for these emission factors where the key sources are DEFRA, WIOD, GLEC, and Ecoinvent.

AER/Carbon intensity (g/dwtxnm)

AER is a measure of efficiency using the total fuel consumption, distance travelled, and deadweight. The measure is defined as grams CO2 emissions per deadweight-ton-nautical mile. AER is affected by vessel size, speed, duration of waiting time, and port stays.

EEOI (g/cargoxnm)

EEOI is a measure of efficiency using the total fuel consumption, distance travelled, and cargo intake. The measure is defined as grams CO2 emissions per cargo-ton-nautical mile. EEOI is affected by vessel size, speed, cargo availability, duration of ballast voyages, waiting time, and port stays.

SOx emissions (ton)

SOx emissions are calculated based on average sulfur content for the different fuel types.

A comprehensive study for TORM by an independent specialist, which compared the emissions from vessels fitted with exhaust gas cleaning systems (scrubbers) to emissions from vessels using low-sulfur fuel, found that the sulfur emissions are reduced to an average of 0.025% when using the exhaust gas cleaning system.

Energy consumption (GJ)

All fuel burned on board the vessels has been converted into energy based on fuel oil analysis results.

Office electricity consumption (kWh)

Electricity consumed indirectly in operating activities at TORM offices excluding the London and the Houston offices.

Office water consumption (m3)

Water consumed indirectly in operating activities at the TORM offices excluding the offices in London, Houston, Mumbai, and New Delhi.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 48

OUR RESPONSIBILITY FRAMEWORK
OUR PRIORITIES AND RESULTS
SASB INDEX AND RESPONSIBILITY DATA

# Definitions

Spills

The definition of spills is based on ITOPF. We report the total volume of spills as the estimated aggregate volume of all spills. We do not net the amount of such material that was subsequently recovered, evaporated, or otherwise lost as required by SASB standard TR-MT-160a.3 -2.1.

Deadweight tonnage (based on SOLAS II-1A-Reg 2-20)

Deadweight tonnage is the difference in tons between the displacement of a ship in water of a specific gravity of 1.025 at the draught corresponding to the assigned summer freeboard and the lightweight of the ship.

COC (based on IACS document Classification societies Section B3 Classification surveys)

The requirement that specific measures, repairs, request for survey, etc. are to be carried out within a specified time period in order to retain class.

LTAF or LTIF (based on OCIMF Marine Injury Reporting Guidelines Section 4)

The number of Lost Time Injuries per unit exposure hours. Unit in respect of LTIF is one million man hours. Lost Time Injuries are the sum of fatalities, permanent total disabilities, permanent partial disabilities, and lost workday cases as based on OCIMF Marine Injury Reporting Guidelines Section 3.

Marine casualty (based on IMO Casualty Investigation Code Ch 2 -2.9)

A marine casualty means an event, or a sequence of events, that has resulted in any of the following and that has occurred directly in connection with the operation of a ship:

- the death of, or serious injury to, a person
- the loss of a person from a ship
- the loss, presumed loss, or abandonment of a ship
- material damage to a ship
- the stranding or disabling of a ship or the involvement of a ship in a collision
- material damage to marine infrastructure external to a ship that could seriously endanger the safety of the ship, another ship, or an individual
- severe damage to the environment or the potential for severe damage to the environment, brought about by the damage of a ship or ships

However, a marine casualty does not include a deliberate act or omission with the intention to cause harm to the safety of a ship, an individual, or the environment.

Material damage to ship (based on IMO Casualty Investigation Code Ch 2 -2.16)

A material damage in relation to a marine casualty means:

- damage that significantly affects the structural integrity, performance or operational characteristics of marine infrastructure, or a ship
- damage that requires major repair or replacement of a major component or components
- destruction of the marine infrastructure or ship

Very serious marine casualty (based on IMO Casualty Investigation Code Ch 2 -2.22)

A very serious marine casualty means a marine casualty involving the total loss of the ship, a death, or severe damage to the environment.

Permanent management positions (ex. Directors and senior executives) - shore-based

Total Management other than Directors of the Company (VPs, GMs, Senior Managers and Managers with one or more direct reports). The five Non-Executive Directors are not included as employees of the Group.

Permanent seafarer officers

Defined as officers living in Scandinavia.

TORM ANNUAL REPORT 2022

OUR RESPONSIBILITY 49

NORTH ANNUAL REPORT 2023

NORTH ANNUAL REPORT 2023

REVIEW AND RISK

50

# Market review

The Russian invasion of Ukraine in 2022 and the consequent EU/G7 sanctions against the Russian oil sector are set to reshape the global crude and oil product trade flows. The subsequent lengthening of trade distances pushed the product tanker market into freight rate levels not seen for years.

The shift in trade patterns following Russia's invasion of Ukraine led the product tanker benchmarks to reach multi-year highs, despite looming risks from the energy crisis in Europe and worsening of the global economic situation. Further support came from strong import demand, especially in Latin America and also regions where refineries had been closed recently, not only adding to ton-mile demand but also contributing to increased ballast distances.

## Sanctions on Russia

Russia's invasion of Ukraine on 24 February 2022 triggered several oil market players to self-sanction Russian oil, which was followed by more formal sanction packages introduced by the US, the UK, and the EU. Given the high importance of Russia as a source of the EU's crude oil and diesel imports, it was especially the EU ban on Russian oil which played a major role, scheduled to come into full effect on 05 December 2022 for the crude oil and on 05 February 2023 for refined oil products. The tightness in the diesel market pushed refinery margins to new highs, incentivizing refineries worldwide to maximize diesel output.

The deadline for the EU sanctions against Russian oil products on 05 February 2023 has been one of the main drivers behind strong freight rates in 2022. The EU countries started to look for diesel from sources further afield, such as the Middle East, India, the US, and even

China. At the same time, Russia also needed to redirect some of the lost volume towards Turkey, the Middle East, and North Africa. By the end of 2022, i.e. five weeks before the EU ban on Russian oil products came into full effect, Europe still imported 1 mb/d of refined oil products from Russia. That was down from the peak of 1.3 mb/d in February 2022 but on par with the 2021 average trade volumes. The EU countries stopped importing Russian oil products once the ban on Russia took effect on 05 February 2023. Nevertheless, in anticipation of trade

disruptions due to the oil embargo, European countries increased their imports from the Middle East, Asia, and the Atlantic basin by 25% in 2022, leading to a strong freight rate environment which was not weakened even with lost long-haul naphtha flows from Russia to OECD Asia.

## EU/UK clean petroleum product imports by source

SOURCE: KPLER

![img-0.jpeg](img-0.jpeg)

## Tanker freight rates in 2022

SOURCE: CLARKSONS

![img-1.jpeg](img-1.jpeg)

TORM ANNUAL REPORT 2022

REVIEW AND RISK 51

# Market review

## Vessel delays in Latin America

Recovering oil demand in Latin America led to increased fuel inflows to the region, exceeding the discharging capacities. This led to temporary logistical floating storage tying up vessels, especially during the second and third quarters of the year.

## Changes in the refinery landscape

In addition to the geopolitical tensions in Europe and the consequent shifts in trade flows, changes in the refinery landscape contributed to the strong freight rate environment in 2022. The closure of two out of four refineries in Australia at the end of 2021 and the sole refinery in New Zealand in April 2022 led to a 22% increase in the region's fuel imports in 2022, not only adding to the ton-mile demand but also contributing with longer ballast distances. At the same time, permanent and temporary refinery closures in South Africa increased the country's fuel imports by more than 20%.

## China product export quotas

China's product exports remained at low levels throughout the year until new and high product export quotas were released in the last quarter of 2022. This brought the level of China's refined product exports to an all-time high level in the fourth quarter of 2022. Although most of the Chinese exports remained within Asia, flows to Europe reached record high levels, facilitating Europe's shift away from Russian diesel and contributing with a strong ton-mile effect.

## Active LR2 swing tonnage

While the product tanker market experienced elevated rates across the vessel classes, the crude tanker market saw more diverting trends. The market for the largest crude tankers, the VLCC segment, remained weak during the first three quarters of 2022. It was negatively influenced by OPEC under-performance relative to its production targets and started to pick up only at the end of the third quarter of 2022 in tandem with China's increasing appetite for imported crude oil. On the other hand, the Aframax and the Suezmax crude tanker segments benefitted from Russia's attempts to redirect its crude exports away from close-by

Europe towards India and China. In addition, the release of the US strategic crude stockpiles (SPR) mostly supported the Suezmax tanker segment. The volatility between the relative strength of the clean LR2 and the dirty Aframax segments triggered a number of LR2 vessels to move into dirty voyages immediately after the Russian invasion of Ukraine, followed by a wave of LR2 clean-ups in mid-year 2022, and again a wave of moves into dirty voyages towards the end of 2022. At the end of 2022, the LR2 fleet trading dirty had increased by a net of four vessels compared to the end of 2021.

### Australia/New Zealand/South Africa clean petroleum product imports

SOURCE: KPLER

![img-2.jpeg](img-2.jpeg)

### China clean petroleum product exports

SOURCE: KPLER

![img-3.jpeg](img-3.jpeg)

TORM ANNUAL REPORT 2022

REVIEW AND RISK 52

# Market drivers and outlook

The product tanker market continues to benefit from longer trade distances amid sanctions against Russia, further supported by recent developments in the refinery landscape and the need to replenish stockpiles. This is accompanied by an unprecedented favorable tonnage supply side.

In this section, we lay out TORM's expectations for the product tanker market in the next three years. The development of the product tanker market is the most important driver impacting

➔ TORM's financial performance for which an outlook is further explained on page 56

## Tonnage demand

Despite the weaker macroeconomic environment, growth in oil demand in 2023 will be supported by China's reopening and the recovering international travel. The key demand driver on the product tanker market, however, was and will be the full implementation of the EU ban on Russian oil products on 05 February 2023 and the corresponding need to recalibrate the whole oil product trade ecosystem towards longer trade distances. Even though some of this effect already started in 2022 and in early 2023, the full effect is expected to be seen once both the EU/UK fully replace the volumes previously imported from Russia with non-Russian sources, and Russia finds new buyers for their oil products, previously exported to the EU/UK. The impact of this trade recalibration will stay intact as long as the oil embargo remains in place. Given the proximity of Europe and Russia, the EU/UK will need to source more diesel from regions further afield, while Russia will need to find new markets for its diesel in regions further away. It remains to be seen whether Russian diesel and other refined products

will be shipped to third countries under the G7 price cap regime (allowing the EU/UK vessel insurance) or will utilize a shadow fleet. Either way, according to TORM estimates, a full recalibration of the diesel trade flows would add at least 7% to the ton-mile demand for product tankers.

In addition to sanctions against Russia, changes in the refinery landscape - both recent and still to come - will support the product tanker market. Since 2020, 2.5 mb/d of refining capacity has been closed permanently, and a further 0.6 mb/d is scheduled to be closed during 2023-2024. Most of the affected capacity is in regions which are already large importers of refined oil products, with Australia, New Zealand, and South Africa as some of the most prominent examples. Given the fact that oil demand in these regions is still lagging the pre-COVID-19 levels, the full effect of refinery closures is yet to be seen.

On the other hand, these refinery closures coincide with around 4 mb/d of new capacity coming online mainly in the Middle East, China, and India - regions which already today are large exporters of oil products. Both these developments are positive for trade flows and ton-mile in the coming years, with only a few projects which are not positive for trade, most notably the large-scale Dangote refinery in Nigeria, which exact start date is, nevertheless, still uncertain.

The third demand side driver on the market is the need to replenish oil inventories. Since the summer of 2020, product inventories in main trading hubs (e.g. the US Gulf Coast, the US East Coast, Northwest Europe, and Singapore) have declined as refinery production has lagged the recovery in oil demand. This was especially the case for diesel, where inventories in main trading hubs had fallen to 22% below normal seasonal levels by the beginning of the fourth quarter of 2022 - the same magnitude as the excess stocks seen in the early months of the COVID-19 pandemic. In spite of diesel inventories in main trading hubs gaining towards the end of the year (at least partly due to the EU countries building up stocks via increased imports ahead of the EU ban on Russian oil products), they nevertheless remained 14% below the seasonal norm in December 2022.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 53

# Market drivers and outlook

The need to replenish the stocks to at least pre-COVID-19 levels translates into higher fuel transportation needs. The exact timing of this effect is, however, uncertain given the current tight supply-demand situation for diesel.

Subsequently, TORM expects the product tanker ton-mile demand on main trade routes to grow by a compound annual rate of around 6% during 2023-2025. This is a pure ton-mile effect not taking into account any potential emerging inefficiencies in the market which can similarly affect freight rates.

~6 %

Expected ton-mile growth during 2023-2025 (CAGR)

## Tonnage supply

The positive outlook for the demand for product tankers in the next three-year period coincides with the supply side which is the most supportive seen for more than two decades.

The product tanker fleet grew by 2.4% in terms of capacity (2.2% in terms of number of vessels), down from a 2.3% growth in 2021. Compared to the year before, both deliveries and scrapping declined, the latter reflecting the strength of the freight market in 2022. While 106 newbuilt vessels entered the fleet, 31 older vessels were scrapped.

The effective fleet growth turned out slightly lower as a net of four LR2 vessels had moved to the dirty trade by the end of the year.

With record high newbuilding prices and limited shipyard space, tanker ordering in 2022 remained very low, despite a strong freight market. The general tanker ordering (crude and product tankers) corresponded to around 1% of the existing fleet, which was 4-5 times less than seen in recent years. The low ordering level was in stark contrast to the above 10% ordering activity seen in 2015 and 2008, the

years comparable with 2022 in terms of freight market strength. The number of product tanker newbuilding orders placed in 2022 was 69 vessels, with the MR vessels accounting for the majority of orders (42 units), while the number of LR2 vessels ordered was 17. No new orders for LR1 vessels were placed.

![img-4.jpeg](img-4.jpeg)

TORM ANNUAL REPORT 2022

REVIEW AND RISK 54

# Market drivers and outlook

Consequently, the order book-to-fleet ratio for product tankers ended 2022 at a historically low level of 5%. This was further supported by a similarly historically low 4% order book-to-fleet ratio for crude tankers.

Due to the recent record high ordering activity in the container vessel segment and shipyards currently targeting the LNG segment, ordering of product tankers with delivery before 2025 remains difficult. This will limit the fleet growth in 2023-2025 even further, in addition to already record low order book ratios. Given the uncertainty around the requirements for vessel propulsion systems in the future, TORM expects the newbuilding ordering activity to remain relatively limited in the next couple of years.

With a historically low order book and newbuilding ordering activity expected to be limited in the coming years, TORM expects the net product tanker fleet capacity to grow by a compound annual rate of approximately 1% during 2023-2025.

~1%

Expected fleet growth during 2023-2025 (CAGR)

Generally, positive trends on the product tanker demand side combined with limited tonnage supply growth support a positive freight market development in the next three-year period, although market volatility is expected not least due to the geopolitical instability.

Global product tanker fleet and order book

| As of 31 December 2022 | Fleet 31.12.2021 | Delivered in 2022 | Scrapped in 2022 | Fleet 31.12.2022 | Order book for 2023-2025 | 2023-2025 Order book as % of end- 2022 fleet |
| --- | --- | --- | --- | --- | --- | --- |
| LR2 | 403 | 19 | 6 | 416 | 44 | 11% |
| LR1 | 377 | 0 | 1 | 376 | 1 | 0% |
| MR | 1,809 | 68 | 14 | 1,863 | 97 | 5% |
| Handysize | 776 | 19 | 10 | 785 | 29 | 4% |
| Total | 3,365 | 106 | 31 | 3,440 | 171 | 5% |

TORM ANNUAL REPORT 2022

REVIEW AND RISK 55

# Financial outlook 2023

## Financial outlook

To assess our financial performance, the number of covered days, interest-bearing bank debt, the TCE market, and EBITDA sensitivity to freight rates are included in our periodic ongoing reporting.

The primary driver for our financial performance is the product tanker market which is highly uncertain and therefore expected to be highly volatile. We expect to maintain relatively stable OPEX on a per vessel day basis, however, with a slightly increasing trend compared to recent historical levels. Administrative costs are also expected to remain at historical levels. In 2022, we had an EBITDA break-even TCE rate of approx. USD/day 8,000.

Our financial outlook is primarily based on the assumptions described on the preceding pages, and the most important macroeconomic factors affecting our TCE earnings in 2023 are expected to be:

- The EU ban on imports and transportation of Russian crude oil and oil products, and the G7 price gap vis-à-vis imports of Russian oil by third countries
- Global economic growth or recession, consumption of refined oil products, and inflationary pressure
- Location of closing and opening refineries and temporary shutdowns due to maintenance
- Oil price development
- Oil trading activity and developments in ton-mile
- Bunker price developments
- Global fleet growth and newbuilding ordering activity
- Potential difficulties of major business partners

- One-off market-shaping events such as strikes, embargoes, political instability, weather conditions, etc.

We have very low visibility on TCE rates that are not yet fixed with our customers. Hence, these rates may be significantly lower or significantly higher than our current expectations.

For the full year 2023, TCE earnings are expected to be in the range of USD 1,025 - USD 1,375m (2022: USD 981.5m), and EBITDA is expected to be in the range of USD 750 - 1,100m (2022: USD 743m) based on the current fleet size, including published acquisitions and divestments of vessels. Please refer to page 202 for a definition of TCE earnings.

As of 12 March 2023, TORM had covered 31% of the 2023 full-year earning days at USD/day 42,759. Hence, 69% of the 2023 full-year earning days are subject to change.

As 20,647 earning days in 2023 are unfixed as of 12 March 2023, a change in freight rates of USD/day 1,000 will - all other things being equal - impact the EBITDA by USD 20.6m.

Also as of 12 March 2023, 89% of the Q1 2023 earning days was covered at USD/day 43,002. For the individual segments, the Q1 2023 coverage was 90% at USD/day 65,950 for LR2, 86% at USD/day 44,135 for LR1 and 89% at USD/day 37,730 for MR.

## Disclaimer on financial outlook

The purpose of this Financial Outlook for 2023 is to comply with reporting requirements for Companies listed in Denmark. Actual results may vary, and this information may not be accurate or appropriate for other purposes. Information about our financial outlook for 2023, including the various assumptions underlying it, is forward-looking and should be read in conjunction with the Safe Harbor Statements on page 123, and the related disclosure and information about various economic, competitive, and regulatory assumptions, factors, and risks that may cause our actual future financial and operating results to differ materially from what we currently expect.

The information included in this Financial Outlook for 2023 is preliminary, unaudited and based on estimates and information available to us at this time. TORM has not finalized its financial statements for the periods presented. During the course of the financial statement closing process, TORM may identify items that would require it to make adjustments, which may be material to the information provided in this section. As mentioned above, the provided information constitutes forward-looking statements and is subject to risks and uncertainties, including possible adjustments to the financial outlook for 2023.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 56

# Coverage 2023-2025

Total physical and covered days in TORM as of 12 March 2023

|  | 2023 | 2024 | 2025 |
| --- | --- | --- | --- |
| Total physical days |  |  |  |
| LR2 | 4,527 | 4,671 | 4,659 |
| LR1 | 4,805 | 5,366 | 5,316 |
| MR | 20,694 | 21,602 | 21,453 |
| Total | 30,026 | 31,640 | 31,428 |
| Covered days |  |  |  |
| LR2 | 1,043 | - | - |
| LR1 | 2,108 | 65 | - |
| MR | 6,229 | 333 | - |
| Total | 9,379 | 398 | - |

|  | 2023 | 2024 | 2025 |
| --- | --- | --- | --- |
| Covered, % |  |  |  |
| LR2 | 23 | - | - |
| LR1 | 44 | 1 | - |
| MR | 30 | 2 | - |
| Total | 31 | 1 | - |
| Coverage rates, USD/day |  |  |  |
| LR2 | 65,801 | - | - |
| LR1 | 45,106 | 46,108 | - |
| MR | 38,109 | 40,011 | - |
| Total | 42,759 | 41,010 | - |

Actual no. of days can vary from projected no. of days primarily due to vessel sales and delays of vessel deliveries.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 57

# TORM fleet development

Expected development in the fleet of owned and leased vessel as of 16 March 2023

As of the end of December 2022, TORM had 78 vessels in the LR2, LR1 and MR vessel classes. In January 2023, TORM purchased seven LR1 vessels built in 2011-2013 that will be financed by sale and leaseback.

As of the date of this report, two of these vessels were delivered, and the rest of the vessels are expected to be delivered before the end of April 2023.

In March 2023, TORM purchased three 2013-built MR vessels that are expected to be financed partly with shares and partly with mortgage loans. The vessels are expected to be delivered during the second quarter of 2023.

TORM expects to refinance two leased MR vessels with bank financing in the second quarter of 2023.

## Fleet development

|  | Q4 2022 | Changes | Q1 2023 | Changes | Q2 2023 | Changes | Q3 2023 | Changes | Q4 2023 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Owned vessels |  |  |  |  |  |  |  |  |  |
| LR2 | 7 | - | 7 | - | 7 | - | 7 | - | 7 |
| LR1 | 8 | - | 8 | - | 8 | - | 8 | - | 8 |
| MR | 40 | - | 40 | 5 | 45 | - | 45 | - | 45 |
| Total | 55 | - | 55 | 5 | 60 | - | 60 | - | 60 |
| Leased vessels |  |  |  |  |  |  |  |  |  |
| LR2 | 6 | - | 6 | - | 6 | - | 6 | - | 6 |
| LR1 | - | 4 | 4 | 3 | 7 | - | 7 | - | 7 |
| MR | 17 | - | 17 | -2 | 15 | - | 15 | - | 15 |
| Total | 23 | 4 | 27 | 1 | 28 | - | 28 | - | 28 |
| Total fleet | 78 | 4 | 82 | 6 | 88 | - | 88 | - | 88 |

TORM ANNUAL REPORT 2022

REVIEW AND RISK 58

TORM ANNUAL REPORT 2022

![img-5.jpeg](img-5.jpeg)

![img-6.jpeg](img-6.jpeg)

![img-7.jpeg](img-7.jpeg)

![img-8.jpeg](img-8.jpeg)

![img-9.jpeg](img-9.jpeg)

![img-10.jpeg](img-10.jpeg)

REVIEW AND RES

# Financial review 2022

Financial review for the year ended 31 December 2022

We delivered a record high TCE of USD 982m and a net profit of USD 563m, which is slightly better than our estimate from the Q3 2022 outlook. Our capital structure is currently very conservative with a Net Loan-to-Value of 25%, USD 416m in available liquidity including restricted cash, no major refinancing need before 2026, and limited off-balance sheet commitments of USD 18m. In March 2022, we obtained a USD 433m commitment for refinancing existing facilities, thereby extending maturities to 2028 and with an option to extend to 2029. Further, we secured a USD 123m commitment for financing additional second-hand vessels.

Kim Balle, CFO

![img-11.jpeg](img-11.jpeg)

## Key highlights

| USDm | 2022 | 2021 | Change |
| --- | --- | --- | --- |
| Income statement |  |  |  |
| Revenue | 1,443 | 620 | 823 |
| Time charter equivalent (TCE) | 982 | 379 | 603 |
| Gross profit | 782 | 188 | 594 |
| EBITDA | 743 | 137 | 606 |
| Operating profit (EBIT) | 601 | 1 | 600 |
| Financial items | -45 | -42 | -3 |
| Net profit/(loss) for the year | 563 | -42 | 605 |
| Balance sheet |  |  |  |
| Non-current assets | 1,874 | 1,968 | -94 |
| Total assets | 2,614 | 2,331 | 283 |
| Equity | 1,504 | 1,052 | 452 |
| Total liabilities | 1,111 | 1,279 | -168 |
| Key figures |  |  |  |
| Invested capital in USDm | 2,142 | 2,011 | 131 |
| Net Asset Value per share (NAV) (USD) | 28.5 | 13.0 | 15.5 |
| Return on Invested Capital (RoIC) | 29.2% | 0.0% | 29.2% points |
| Adjusted RoIC | 28.1% | 0.2% | 27.9% points |
| Return on Equity (RoE) | 44.0% | -4.1% | 48.1% points |
| Basic earnings per share (EPS) | 6.92 | -0.54 | 7.46 |

TORM ANNUAL REPORT 2022

REVIEW AND RISK 60

# Financial review 2022

## TCE

In 2022, total revenue increased by USD 823m to USD 1,443m, corresponding to a 133% increase of which revenue in the tanker fleet increased by USD 820m. The significant increase in the revenue can primarily be attributed to the higher freight rates.

Higher freight rates were driven by a strong product tanker market supported by the trade recalibration caused by the sanctions and the self-sanctioning of Russian product exports as a consequence of the Russian invasion of Ukraine. In particular, we saw a significant increase in the average TCE rate/day across all vessel classes with an overall increase of 149% from USD/day 13,703 in 2021 to USD/day 34,154 in 2022. Similarly, the TCE earnings increased by 159% to USD 981m in 2022, which is partly due to an increased amount of earning days.

In 2022, port expenses, bunkers, commissions, and other cost of goods sold were USD 459m compared to USD 241m in 2021. The increase is primarily driven by increased bunker consumption at substantially higher bunker prices compared to previous periods.

### Change in time charter equivalent earnings in the tanker fleet

| USDm | Handysize | MR | LR1 | LR2 | Total |
| --- | --- | --- | --- | --- | --- |
| Time charter equivalent earnings 2021 | 7.0 | 263.9 | 46.3 | 61.4 | 378.6 |
| Change in number of earning days | -4.4 | 15.5 | -7.4 | 14.6 | 18.3 |
| Change in freight rates | 0.9 | 404.7 | 60.6 | 119.2 | 585.4 |
| Other | - | -0.5 | -0.1 | -0.2 | -0.8 |
| Time charter equivalent earnings 2022 | 3.5 | 683.6 | 99.4 | 195.0 | 981.5 |

TORM ANNUAL REPORT 2022

REVIEW AND RISK 61

# Financial review 2022

## Earnings data

| USDm | 2021 Full year | 2022 |  |  |  |  | % change Full year |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Q1 | Q2 | Q3 | Q4 | Full year |  |
| LR2 vessels |  |  |  |  |  |  |  |
| Available earning days | 3,979 | 1,340 | 1,306 | 1,184 | 1,096 | 4,926 | 24% |
| Spot rates 1) | 14,037 | 17,220 | 39,027 | 52,595 | 64,485 | 44,137 | 214% |
| TCE per earning day 2) | 15,422 | 18,432 | 30,741 | 55,532 | 58,889 | 39,612 | 157% |
| LR1 vessels |  |  |  |  |  |  |  |
| Available earning days | 3,206 | 694 | 691 | 685 | 620 | 2,690 | -16% |
| Spot rates 1) | 13,702 | 20,201 | 36,535 | 51,089 | 50,287 | 38,881 | 184% |
| TCE per earning day 2) | 14,365 | 16,424 | 33,269 | 51,102 | 48,067 | 36,879 | 157% |
| MR vessels |  |  |  |  |  |  |  |
| Available earning days | 19,703 | 5,254 | 5,309 | 5,161 | 5,138 | 20,862 | 6% |
| Spot rates 1) | 12,918 | 16,525 | 34,115 | 43,284 | 47,876 | 35,014 | 171% |
| TCE per earning day 2) | 13,395 | 16,462 | 29,174 | 40,968 | 45,029 | 32,795 | 145% |
| Handysize vessels |  |  |  |  |  |  |  |
| Available earning days | 726 | 180 | 92 | 6 | - | 278 | -62% |
| Spot rates 1) | 9,665 | 13,391 | 12,602 | 12,505 | - | 12,917 | 34% |
| TCE per earning day 2) | 9,709 | 13,614 | 12,196 | 6,397 | - | 12,995 | 34% |
| Total |  |  |  |  |  |  |  |
| Available earning days | 27,614 | 7,468 | 7,398 | 7,036 | 6,854 | 28,756 | 4% |
| Spot rates 1) | 13,019 | 16,884 | 34,844 | 45,646 | 50,818 | 36,641 | 181% |
| TCE per earning day 2) | 13,703 | 16,743 | 29,622 | 44,376 | 47,520 | 34,154 | 149% |

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

$^{2)}$ TCE = Time Charter Equivalent Earnings = Gross freight income less bunker, commissions, and port expenses.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 62

# Financial review 2022

## Liquidity and cash flow

TORM's liquidity position by the end of 2022 was USD 416m including restricted cash of USD 3m and undrawn credit facilities of USD 93m.

In the beginning of 2022, TORM finalized the refinancing of nine specific MR vessels. The refinancing was initiated in late 2021 by executing sale and leaseback transactions. TORM also took delivery of the LR2 newbuilding, TORM Houston, financed in a sale and leaseback transaction.

During 2022, TORM entered into one additional new sale and leaseback agreement to finance the purchase of the second-hand LR2 vessel, TORM Hannah. Further, TORM repaid debt on two revolving credit facilities and therefore has undrawn and committed credit facilities amounting to USD 92.6m at the end of 2022.

In March 2023, TORM obtained commitment for USD 433m bank refinancing at attractive terms, thereby extending our debt maturities until 2028 and with the possibility to extend to 2029. We further secured a USD 123m commitment for financing additional second-hand vessels.

With this refinancing, TORM has a flexible capital structure, a prudent liquidity strategy, and further available funding capacity.

As of 31 December 2022, TORM had CAPEX commitments of USD 18.4m related to scrubber installations and Flettner rotors.

# 502m

## Net cash inflow from operating activities

Net cash inflow from operating activities was USD 502m (2021, USD 48m). The increase was primarily driven by an increase in TCE compared to 2021, offset by a related increase in working capital.

# 11m

## Net cash inflow from investing activities

Net cash flow from investing activities was USD 11m (2021, USD -291m). This was the result of the divestment of eight older vessels in 2022, of which seven were sold during 2022 and one in 2021, offset by the purchase of one newbuilding and one newer second-hand vessel.

# 338m

## Net cash outflow from financing activities

Net cash flow from financing activities was USD -338m (2021, USD 298m). The decrease was primarily driven by ordinary loan installments, a decrease in the proceeds from borrowings by 452m due to reduced vessel purchase activities, and dividends paid during the year related to Q2 and Q3 2022 of 167m (2021, USD nil).

## Distribution

A dividend of USD 2.59 per share has been approved by the Board of Directors for the quarter ended 31 December 2022, in total USD 212m. The distribution is in line with TORM's Distribution Policy with a cash position of USD 323.8m, working capital facilities of USD 92.6m, restricted cash of USD 3.3m, earmarked proceeds of USD 58.4m, and a cash position related to Marine Exhaust Technology A/S of USD 2.4m. Cash reservation per vessel is USD 1.8m for 78 vessels, USD 140.4m in total.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 63

# Financial review 2022

## Operation of vessels

The development in operating expenses (OPEX) is summarized in the table on this page. The table also summarizes the operating data for TORM's fleet (including both owned vessels and vessels financed via bareboat charters in sale and leaseback arrangements).

OPEX for the fleet increased by USD 11m to USD 202m in 2022 compared to USD 191m in 2021. This was due to an increasing number of operating days and operating expenses per day. Higher global inflation in 2022 was one of the main drivers behind the increase in repair and maintenance costs and crew wages impacting operating expenses per day.

The total fleet of owned vessels had 854 off-hire and dry-docking days, corresponding to 3% of the operating days in 2022. This compares to 1,103 off-hire days in 2021 or 4% of the number of operating days.

### Change in operating expenses

| USDm | Handysize | MR | LR1 | LR2 | Total |
| --- | --- | --- | --- | --- | --- |
| Operating expenses 2021 | 4.6 | 134.6 | 21.9 | 29.4 | 190.5 |
| Change in operating days | -2.8 | 4.7 | -1.8 | 6.2 | 6.3 |
| Change in operating expenses per day | -0.0 | 4.7 | 0.4 | 0.3 | 5.3 |
| Operating expenses 2022 | 1.8 | 144.1 | 20.4 | 35.9 | 202.1 |

### Operating data

| USD/day | Handysize | MR | LR1 | LR2 | Total |
| --- | --- | --- | --- | --- | --- |
| Operating expenses per operating day in 2021 | 6,300 | 6,566 | 6,660 | 6,992 | 6,633 |
| Operating expenses per operating day in 2022 | 6,133 | 6,788 | 6,781 | 7,045 | 6,825 |
| Change in the operating expenses per operating day in % | -3% | 3% | 2% | 1% | 3% |
| Operating days in 2022 1) | 290 | 21,216 | 3,011 | 5,093 | 29,610 |
| Off-hire | -12 | -123 | -95 | -55 | -285 |
| Dry-docking | - | -231 | -226 | -112 | -569 |
| Available earning days 2022 | 278 | 20,862 | 2,690 | 4,926 | 28,756 |

$^{1)}$ Including bareboat charters.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 64

# Financial review 2022

## Assets

TORM's total assets increased by USD 283m to USD 2,614m in 2022. The increase was primarily driven by an increase in trade receivables of USD 176m due to a substantial increase in TCE in Q3 and Q4 2022 and an increase in cash position of USD 152m, which can be attributed to higher freight rates and earnings. The movement is partly offset by a decrease in the carrying value of vessels. During the year, TORM sold seven vessels. All vessels sold in 2022 and one vessel sold in 2021 were delivered to the new owners.

As of 31 December 2022, the carrying amount of vessels, capitalized dry-docking, and prepayments on vessels amounted to USD 1,856m compared to USD 1,950m at the end of 2021. The decrease was due to the divestment of seven vessels of USD 78m as well as depreciations of USD 134m and an impairment of USD 3m offset by investment in two vessels and capitalized dry-docking of USD 120m. Based on broker valuations, TORM's fleet had a market value of USD 2,650m as of 31 December 2022, 43% above the carrying value.

## Assessment of impairment of assets

Management has followed the usual practice of performing a review of impairment indicators for Q1 to Q3 2022 and presented the outcome to the Audit Committee. The Audit Committee evaluates the impairment indicator assessment and prepares a recommendation to the Board of Directors on whether to conduct an impairment test of the carrying value of the fleet. In Q1 to Q3 2022, no indicators of

impairment existed, and thus no recommendations to test the value of the fleet were made to the Board of Directors.

As in previous years, the carrying amount at the end of the year was tested using either fair value less cost of disposal or the future discounted net cash flow deriving from the Main Fleet CGU. In 2022, Management based the recoverable amount on the fair value less cost of disposal. When assessing the fair value less cost of disposal, Management includes a review of market values calculated as the average of two internationally recognized shipbrokers' valuations. The shipbrokers' primary input is deadweight tonnage, yard, and age of the vessel. The fair value is based on the assumption that the vessels are in good and seaworthy condition and with prompt, charter-free delivery. The fair value less cost of disposal of the vessels is determined to be within level 3 of the fair value hierarchy. Based on this review, Management concluded that as of 31 December 2022 assets within the Main Fleet CGU were not impaired as fair value less cost of disposal exceeded the carrying amount by USD 784m. Please refer to note 10 for additional details of the impairment assessment. For the newly acquired MET business, the year-end impairment test did not identify any impairments.

## Equity

In 2022, total equity increased by USD 452m to USD 1,504m. The increase was primarily driven by an increase in retained profit of USD 563m due to increased freight rates and earnings partially offset by dividend payments of USD 167m. Additionally, the hedging reserve, largely stemming from unrealized gains on interest derivatives of USD 57m in 2022, has increased by USD 43m from 2021 because of increasing interest rates. During 2022, 5-year USD swaps increased from approximately 1.35% at the end of 2021 to approximately 4.02% at the end of 2022. On average, TORM has fixed 92.7% of its interest rate exposure over the coming three years and 87.7% over the coming five years. 94.6% of the debt level as per the end of 2022 was hedged.

## Tax

Tax for the year amounted to an expense of USD 0.5m of income tax and USD 1m of tonnage tax compared to an expense of USD 0.4m of income tax and 0.9m of tonnage tax in 2021. In addition, deferred tax adjustments of USD 7.3m were recognized compared to USD 0.0m in 2021.

TORM has elected to participate in the Danish tonnage tax scheme since 2001. The participation is binding until 31 December 2024. The Group expects to participate in the tonnage tax scheme after the binding period and, as a minimum, to maintain an investment and activity level equivalent to that at the time of entering into the tonnage tax scheme.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 65

# Financial review 2022

## Primary factors affecting the results of operations

TORM generates revenue by charging customers for the transportation of refined oil products and crude oil, using TORM's tankers. TORM's focus is on maintaining a high-quality fleet and high tradability, and TORM actively manages the deployment of the fleet between spot market voyage charters, which generally last from several days to several weeks, and time charters.

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

### Time charter equivalent (TCE) earnings per available earning day

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

charterer's choice because TORM primarily bases its financial decisions on expected TCE rates rather than expected revenue. The analysis of revenue is therefore primarily based on developments in TCE earnings.

### Spot charter rates

A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for an agreed freight rate per ton of cargo or a specified total amount. Under spot market voyage charters, TORM pays voyage expenses such as port, canal, and bunker costs.

Spot charter rates are volatile and fluctuate on a seasonal and a year-to-year basis. Fluctuations derive from imbalances in the availability of cargo for shipment and the number of vessels available at any given time to transport these cargoes. Vessels operating in the spot market generate revenue which is less predictable but may enable TORM to capture increased profit margins during periods of improvements in tanker freight rates.

### Time charter rates

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

### Available earning days

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

### Operating days

Operating days are the total number of available days in a period with respect to the owned and leased vessels, before deducting unavailable days due to off-hire days and days in dry-dock. Operating days is a measurement which is only applicable to the owned vessels, not to the time chartered-in vessels.

### Operating expenses per operating day

Operating expenses per operating day are defined as crew wages and related costs, the costs of spares and consumable stores, expenses relating to repairs and maintenance (excluding capitalized dry-docking), the cost of insurance, and other expenses on a per-operating-day basis. Operating expenses are only paid for owned vessels. TORM does not pay such costs for the time chartered-in vessels, as they are paid by the vessel owner and instead factored into the charter hire cost.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 66

# Financial review 2022

## Going concern

As of 31 December 2022, TORM's available liquidity including undrawn and committed facilities was USD 416m, including a total cash position of USD 324m (including cash held for dividend payment). TORM's net interest-bearing debt was USD 663m, and the net debt loan-to-value ratio was 25% (Tanker segment only and before dividend payment). Further information on TORM's objectives and policies for managing its capital, its financial risk management objectives, and its exposure to credit and liquidity risk can be found in note 24 to the financial statements.

The principal risks and uncertainties facing TORM are set out on pages 70-74

TORM monitors its funding position throughout the year to ensure that we have access to sufficient funds to meet the forecasted cash requirements, including potential newbuildings, purchase of secondhand vessels and loan commitments, and to monitor compliance with the financial covenants in our loan facilities, details of which are available in note 2 to the financial statements. A key element for TORM's financial performance in the going concern period relates to the increased geopolitical risk following Russia's invasion of Ukraine in February 2022 and the associated effects on the product tanker market. The changed geopolitical situation has so far been positive for the product tanker market, and TORM's base case assumes that this positive sentiment related to freight rates and vessel values will continue throughout 2023. In the base

case, TORM has sufficient liquidity and headroom above all the covenant limits.

TORM performs sensitivity calculations to reflect downside scenarios including, but not limited to, future freight rates and vessel valuations in order to identify risks to future liquidity and covenant compliance and to enable Management to take corrective actions, if required. The downside scenarios cover the principal risks and uncertainties facing TORM as set out on pages 70-74 and include different distressed outlooks for the product tanker market. In a stress case scenario, Management has stressed freight rates to the lowest rolling four-quarter average since 2000 on a per vessel class basis and a decline in vessel values. In such scenario, TORM maintains sufficient headroom on liquidity and covenants.

The Board of Directors has considered TORM's cash flow forecasts and the expected compliance with TORM's financial covenants for the period until 31 March 2024. TORM's cash flow forecast and expected covenant compliance are based on the Business Plan approved by the Board of Directors. Based on this review, the Board of Directors has a reasonable expectation that taking reasonably possible changes in trading performance and vessel valuations into account, TORM will be able to continue the operational existence and comply with its financial covenants for the period until 31 March 2024. Accordingly, TORM continues to adopt the going concern basis in preparing its financial statements.

## Long-term viability statement

In accordance with provision 31 of the UK Corporate Governance Code, the Board of Directors confirms that they have a reasonable expectation that TORM will continue in operation and meet its liabilities as they fall due for the three-year period ending 31 December 2025.

This period has been selected for the following reasons:

- The general volatility and uncertainty in the product tanker market leads to a significant increase in the degree of judgement and uncertainty beyond a three-year period
- Three years are generally in line with the forecast horizon for external equity analysts covering the shipping sector
- TORM will not have any outstanding CAPEX commitments related to currently known projects
- TORM will have passed the first CO2 reduction target milestone covering a 40% emission intensity reduction in 2025 compared to the 2008 level

TORM ANNUAL REPORT 2022

REVIEW AND RISK 67

# Financial review 2022

The assessment of the Board of Directors has been made with reference to TORM's current financial position and prospects. The assessment of financial performance and cash flows is primarily dependent on the expectations for:

- Demand-supply picture in the product tanker sector including the expected vessel values and freight rates achieved by TORM, which also covers the outlook related to the geopolitical situation and climate change developments
- Development of the fleet
- Operating and administrative expenses
- Capital expenditures covering newbuildings and maintenance of the existing fleet including installation of scrubbers and fuel efficiency equipment
- Changes in interest rates

The expected financial performance and cash flows are based on the same underlying assumptions as used in TORM's general financial planning. The operating and administrative cost levels are on similar levels as TORM's historical performance, and freight rates are assumed to remain at strong and profitable levels, however, with a decreasing trend from 2024 onwards. Vessel values used in forecasting compliance with financial covenants are based on the latest market valuations from two independent, recognized shipbrokers. The expected outlook has then been subject to a stress test and a sensitivity analysis over the three-year period, using a conservative outlook for the product tanker sector with sensitivities including freight rates and vessel values. Management has conducted a low case scenario and a stress case to assess the long-term

viability. In a low case with freight rates slightly above the lowest rolling four-quarter average since 2000 on a per vessel class basis and a related decline in vessel values, TORM maintains sufficient headroom on liquidity and covenants throughout the viability period. TORM's freight rate assumptions as per the going concern assessment continue throughout the viability period and have further sensitized the vessel values downward over the period to reflect a continued downturn. Should the product tanker market (in terms of either freight rates or vessel values) materialize significantly below TORM's expectations for a prolonged period, there is a risk of a covenant breach after the going concern period, which would require mitigating actions, including cost savings, sale of vessels, or increased leverage which are considered within Management's control and achievable. In such a scenario, Management would also consider obtaining appropriate waivers, and although Management would be confident of obtaining such waivers, this is not within Management's control.

The Board of Directors monitors if TORM is moving towards a covenant breach in order to incorporate any mitigating actions in due course on an ongoing basis. Based on the sensitivity analysis, the Board of Directors does not currently expect that TORM will breach its financial covenants or experience a liquidity shortfall over the three-year forecast period.

The Board of Directors has also considered the long-term prospects of TORM beyond the three-year forecast viability horizon. In doing so, the Board of Directors has taken the long-term risks and opportunities for TORM, and the

potential impact of economic volatility, climate change agenda, new regulations, technological disruption, and general changes in the utilization of energy sources into consideration. Based on this assessment and taking the current capital structure and TORM's operational platform into account, the Board of Directors believes that TORM is well positioned both to respond to these risks and to take advantage of any positive market developments for a period beyond the three-year forecast horizon.

On behalf of TORM plc

Kim Balle
Chief Financial Officer
TORM A/S
16 March 2023

TORM ANNUAL REPORT 2022

REVIEW AND RISK 68

“

We must anticipate and adapt to our ever-changing environment and mitigate risks as well as seize the opportunities this brings.

TORM ANNUAL REPORT 2022

69

# Risk management

In our efforts to be a sustainable company, we must anticipate and adapt to our ever-changing environment and mitigate risks as well as seize the opportunities this brings. We face a diverse set of risks, and managing these systematically is key for us to create and protect value over the short, medium, and long term.

## Risk management framework

We acknowledge that TORM faces a range of risks in doing business and that our success depends on identifying, balancing, and deciding on how best to manage and mitigate these risks. TORM believes that a strong risk management framework is vital to protect TORM.

On an annual basis, TORM conducts an Enterprise Risk Management (ERM) process, during which the critical risks facing TORM are identified, assessed, and discussed by TORM's Senior Management Team and subsequently approved by the Risk Committee.

The objective is for TORM and its shareholders to be adequately rewarded for any desired risk tolerance level, and that the governance structure tailored to oversee the risk management activities is in place, so that risks are mitigated to the extent desired.

## Governance

TORM's risk management approach emphasizes management's accountability and oversight. Identified risk responsibility is assigned to the Senior Management Team member most suited to managing the risk, who is required to continually monitor the risk, implement and maintain mitigating actions, evaluate and report.

If the consequence of a risk exceeds the agreed risk tolerance, Management is required to assess if implementation of additional mitigating controls is possible and necessary until the desired risk level is achieved.

TORM's risk management framework acknowledges that unforeseen or "black swan events" occur in the maritime industry. Therefore, TORM accepts these types of risks and will have a plan or will diligently develop a plan in case such events materialize. The ability to react and navigate an unpredictable future is managed in close collaboration between Management and the Risk Committee via agreed predefined accepted risk tolerance levels, which will be reported on at regular meetings or, if needed, extraordinarily.

## Risk assessment process

TORM's risk identification process stipulates that the risk department conducts risk interviews with heads of departments and senior management on an annual basis to identify principal and emerging risks. Identified risks are prioritized, challenged, and approved by the Senior Management Team as risk owners. This also includes the assessment of availability and effectiveness of mitigating actions taken to avoid or reduce the impact or occurrence of the underlying risks.

The risks are reassessed on a quarterly basis, and if specific events occur, it may require a reassessment. The identified risks in TORM are divided into top risks and risks on TORM's watch list.

## TORM's risk appetite and main risk exposure

The Senior Management Team and the Risk Committee discuss and decide on TORM's risk appetite and risk tolerance to principal and emerging risk exposures. TORM's risk appetite and inherited exposure risks are divided into five main categories and emerging risks:

- Industry and market risks
- Operational risks
- Compliance and IT risks
- Financial risks
- Emerging risks

## TORM's general risk appetite per group of risk categories:

### Industry and market risks

TORM accepts taking risks, where the expected return outweighs the evaluated risk exposure.

### Operational, compliance and IT risks

TORM is risk adverse regarding operational, compliance and IT risks. In essence, TORM will seek to mitigate any such risks to a meaningful minimum level.

TORM ANNUAL REPORT 2022

REVIEW AND RISK 70

## NOTE 1 - ACCOUNTING POLICIES, CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

### Overview of business

TORM plc is a shipping company that primarily owns and operates a fleet of product tankers and is engaged in the marine exhaust industry. TORM plc is a public company limited by shares and is incorporated in England and Wales. Its registered number is 09818726, and its registered address is Office 105, 20 St Dunstan's Hill, London, EC3R 8HL, United Kingdom. Unless otherwise indicated, the terms 'TORM plc', 'we', 'us', 'our', the 'Company', and the 'Group' refer to TORM plc and its consolidated subsidiaries, which include TORM A/S and its consolidated subsidiaries.

TORM plc is listed on the stock exchanges Nasdaq in Copenhagen, Denmark, and on Nasdaq in New York, the United States.

### Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with UK-adopted International Accounting Standards ('UK-adopted IAS'). The consolidated financial statements are also prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB') and IFRS as adopted by the EU, as applied to financial periods beginning on or after 01 January 2022 and additional disclosure requirements for listed companies in accordance with the Danish Financial Statements Act.

The consolidated financial statements have been prepared on a going concern basis and under the historical cost convention, except where fair value accounting is specifically required by IFRS.

The functional currency of the Company is USD, and the Company applies USD as the presentation currency in the preparation of the consolidated financial statements.

### Going concern

As of 31 December 2022, TORM's available liquidity including undrawn and committed facilities was USD 416m, including a total cash position of USD 324m (including cash held for dividend payment). TORM's net interest-bearing debt was USD 663m, and the net debt loan-to-value ratio was 25% (Tanker segment only and before dividend payment). Further information on TORM's objectives and policies for managing its capital, its financial risk management objectives, and its exposure to credit and liquidity risk can be found in note 24 to the financial statements. The principal risks and uncertainties facing TORM are set out on pages 70-74.

TORM monitors its funding position throughout the year to ensure that we have access to sufficient funds to meet the forecasted cash requirements, including potential newbuildings, purchase of second-hand vessels and loan commitments, and to monitor compliance with the financial covenants in our loan facilities, details of which are available in note 2 to the financial statements. A key element for TORM's financial performance in the going concern period relates to the increased geopolitical risk following Russia's invasion of Ukraine in February 2022 and the associated effects on the product tanker market. The changed geopolitical situation has so far been positive for the product tanker market, and TORM's base case assumes that this positive sentiment related to freight rates and vessel values will continue throughout 2023. In the base case, TORM has sufficient liquidity and headroom above all the covenant limits.

## NOTE 1 - continued

TORM performs sensitivity calculations to reflect downside scenarios including, but not limited to, future freight rates and vessel valuations in order to identify risks to future liquidity and covenant compliance and to enable Management to take corrective actions, if required. The downside scenarios cover the principal risks and uncertainties facing TORM as set out on pages 70-74 and include different distressed outlooks for the product tanker market. In a stress case scenario, Management has stressed freight rates to the lowest rolling four-quarter average since 2000 on a per vessel class basis and a decline in vessel values. In such scenario, TORM maintains sufficient headroom on liquidity and covenants.

The Board of Directors has considered TORM's cash flow forecasts and the expected compliance with TORM's financial covenants for the period until 31 March 2024. TORM's cash flow forecast and expected covenant compliance are based on the Business Plan approved by the Board of Directors. Based on this review, the Board of Directors has a reasonable expectation that taking reasonably possible changes in trading performance and vessel valuations into account, TORM will be able to continue the operational existence and comply with its financial covenants for the period until 31 March 2024. Accordingly, TORM continues to adopt the going concern basis in preparing its financial statements.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 131

NOTE 1 - continued

# Adoption of new or amended IFRS standards

TORM has implemented the following standards and amendments issued by the IASB and adopted by the UK in the consolidated financial statements for 2022:

- Annual Improvements 2018-2020
- Amendments to IFRS 3 Business Combinations; IAS 16 Property, Plant and Equipment; IAS 37 Provisions, Contingent Liabilities and Contingent Assets

It is assessed that application of these effective on 01 January 2022 has not had any material impact on the consolidated financial statements in 2022.

# Accounting standards and interpretations not yet adopted

IASB has issued a number of new or amended accounting standards (IFRS) and interpretations (IFRIC) which have not yet come into effect:

- IFRS 17 Insurance Contracts (01 January 2023)
- IAS 12 amendments Deferred Tax related to Assets and liabilities arising from a Single Transaction (01 January 2023)
- IAS 8 amendments Definition of Accounting Estimates (01 January 2023)
- IAS 1 and IFRS Practice Statement 2 amendments Disclosure of Accounting Policies (01 January 2023)
- Amendments to IAS 1 Presentation of Financial Statements (01 January 2024)
- Amendments to IFRS 16 Lease Liability in a Sale and Leaseback (01 January 2024)
- IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture issued in September 2014 (deferred indefinitely)

TORM has assessed the accounting standards and interpretations not yet adopted and does not expect the new standards to have any material impact on neither TORM's figures nor the disclosures.

# Accounting policies

The Group's general accounting policies are described below. In addition to this, specific accounting policies are described in each of the individual notes to the consolidated financial statements as outlined in the following notes:

- Segment reporting
- Revenue from contracts with customers
- Staff costs
- Intangible assets
- Tangible fixed assets

NOTE 1 - continued

- Leasing
- Impairment
- Loan receivables
- Financial items
- Trade receivables
- Tax
- Other liabilities
- Borrowings
- Derivative financial instruments
- Provisions
- Earnings per share
- Business combinations

# Consolidation principles

The consolidated financial statements comprise the financial statements of the parent company, TORM plc and entities controlled by the Company and its subsidiaries. Control is achieved when the Company has all the following:

- Power over the investee
- Exposure, or rights, to variable returns from its involvement with the investee
- The ability to use its power over the investee to affect the amounts of the investor's returns

TORM reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities unilaterally. The Company considers all facts and circumstances in assessing whether or not the Company's voting rights in an investee are sufficient to give it power, including:

- The size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other vote holders
- Potential voting rights held by the Company, other vote holders, or other parties
- Rights arising from other contractual arrangements
- Any additional facts and circumstances which indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time when decisions need to be made, including voting pattern at previous shareholders' meetings

Entities in which the Group exercises significant but not controlling influence are regarded as associated companies and are accounted for using the equity method.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 132

# ---**NOTE 1 - continued**

Companies which are managed jointly by agreement with one or more companies and therefore are subject to joint control (joint ventures) are accounted for using the equity method.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ends when the Company loses control over the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated income statement and other comprehensive income from the date on which the Company obtains control until the date when the Company loses control over the subsidiary.

The consolidated financial statements are prepared using consistent accounting policies and eliminating intercompany transactions, balances, and shareholdings as well as gains and losses on transactions between the consolidated entities.

# **Foreign currencies**

The functional currency of all significant entities, including subsidiaries and associated companies, is United States Dollars (USD) because the Company's vessels operate in international shipping markets, in which income and expenses are settled in USD, and because the Company's most significant assets and liabilities in the form of vessels and related liabilities are denominated in USD. Transactions in currencies other than the functional currency are translated into the functional currency at the transaction date. Cash, receivables and payables and other monetary items denominated in currencies other than the functional currency are translated into the functional currency at the exchange rate at the balance sheet date. Gains or losses due to differences between the exchange rate at the transaction date and the exchange rate at the settlement date or the balance sheet date are recognized in the income statement under 'Financial income' and 'Financial expenses'.

The reporting currency of the Company is USD. Upon recognition of entities with functional currencies other than USD, the financial statements are translated into USD. Income statement items are translated into USD at the exchange rate for each transaction, whereas balance sheet items are translated at the exchange rate as of the balance sheet date. Exchange differences arising from the translation of financial statements into USD are recognized as a separate component in 'Other comprehensive income'. On the disposal of an entity, the cumulative amount of the exchange differences recognized in the separate component of equity relating to that entity is transferred to the income statement as part of the gain or loss on disposal.

# ---**NOTE 1 - continued**

# **Income statement**

# **Port expenses, bunkers, and commissions and other costs of goods and services sold**

Port expenses, bunker fuel consumption, and commissions are recognized as incurred. To the extent that the costs are recoverable, costs directly attributable to relocate the vessel to the load port are capitalized and amortized over the course of the transportation period.

Gains and losses on forward bunker contracts, forward freight agreements (FFA) as well as write-down for losses on trade receivables are included in this line.

# **Operating expenses**

Operating expenses, which comprise crew expenses, repair and maintenance expenses, and tonnage duty, are expensed as incurred.

# **Profit from sale of vessels**

Profit from sale of vessels is recognized at the time of delivery to the buyer, representing the difference between the sales price less costs to sell and the carrying value of the vessel.

# **Administrative expenses**

Administrative expenses, which comprise administrative staff costs, management costs, office expenses, and other expenses relating to administration, are expensed as incurred.

# **Other operating expenses and income**

Other operating expenses primarily comprise management fees paid to commercial and technical managers for managing the fleet, profits and losses deriving from the disposal of fixed assets other than vessels as well as claims and disputes provisions.

# **Depreciation and impairment losses and reversals of impairment losses**

Depreciation and impairment losses comprise depreciation of tangible fixed assets for the year as well as the write-down of the value of assets by the amount by which the carrying amount of the asset exceeds its recoverable amount. In the event of indication of impairment, the carrying amount is assessed, and the value of the asset is written down to its recoverable amount equal to the higher of value in use based on net present value of future earnings from the assets and its fair value less costs to sell.

Subsequent reversal of impairment losses is recognized if the recoverable amount exceeds the carrying amount to the extent that the carrying amount does not exceed the carrying amount without any historical impairment losses.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 133

## NOTE 1 - continued

### Balance sheet

#### Financial assets

Financial assets are initially recognized on the settlement date at fair value plus transaction costs, except for financial assets at fair value through profit or loss, which are recognized at fair value. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred.

#### Investments in joint ventures

Investments in joint ventures comprise investments in companies which by agreement are managed jointly with one or more companies and therefore are subject to joint control and in which the parties have rights to the net assets of the joint venture. Joint ventures are accounted for using the equity method. Under the equity method, the investment in joint ventures is initially recognized at cost and thereafter adjusted to recognize TORM's share of the profit or loss in the joint venture. When TORM's share of losses in a joint venture exceeds the investment in the joint venture, TORM discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that TORM has incurred legal or constructive obligations or made payments on behalf of the joint venture.

#### Inventories

Inventories consist of bunkers, lube oil and other inventories and are stated at the lower of cost in accordance with the FIFO-principle and net realizable value. Cost of bunkers and lube oil includes expenditure incurred in acquiring bunkers and lube oil including delivery costs less discounts. The cost of other inventories consists of raw materials and components based on direct costs, direct payroll costs and a proportionate share of indirect production costs. Indirect production costs include the proportionate share of capacity costs directly relating hereto, which are allocated on the basis of the normal capacity of the production facility.

#### Treasury shares

Treasury shares are recognized as a separate component of equity at cost. Upon subsequent disposal of treasury shares, any consideration is also recognized directly in equity.

#### Dividend

Interim dividends are recognized as a liability at the time of declaration. Any year-end dividend is recognized as a liability at the date of approval at the AGM.

#### Other non-current liabilities

Other non-current liabilities consist of long-term employee-related liabilities related to the frozen Danish holiday funds in connection with the transition to the new Danish Holiday Act. TORM has elected to keep the holiday funds until the employees, covered at the transition date, reach the age of retirement. The liability is remeasured annually based on an index rate published by the Holiday Allowance fund.

## NOTE 1 - continued

### Trade payables

Trade payables are recognized at the fair value of the item purchased and are subsequently measured at amortized cost.

### Deferred income

Deferred income relates to amounts received from customers in advance of the related performance obligations being satisfied.

### Cash flow statement

The cash flow statement shows how income and changes in the balance sheet items affect cash and cash equivalent, i.e. how cash is generated or used in the period. The cash flow statement is presented in accordance with the indirect method commencing with 'Net profit/(loss) for the year'.

Cash flow from operating activities converts income statement items from the accrual basis of accounting to cash basis. Starting with 'Net profit/(loss) for the year', non-cash items are reversed, and actual payments are included. Further, the change in working capital is taken into account.

Cash flow from investing activities comprises the cash used or received in the purchase and sale of tangible fixed assets and financial assets as well as cash from business combinations.

Cash flow from financing activities comprises changes in the cash used or received in borrowings (amount of new borrowings and repayments), purchases or sales of treasury shares, dividend paid to shareholders.

Cash and cash equivalents including restricted cash comprise cash and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets is approximately equal to their fair value. Cash and cash equivalents including restricted cash at the end of the reporting period are shown in the consolidated cash flow statement and can be reconciled to the related items in the consolidated balance sheet.

The restricted cash balance relates to cash provided as security for initial margin calls and negative market values on derivatives as well as a sale and leaseback transaction prepayment to be released upon delivery of the vessel.

### Critical accounting estimates and judgements

The preparation of financial statements in accordance with IFRS requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are affected by the way TORM applies its accounting policies. An accounting estimate is considered critical if the estimate requires Management to make assumptions about matters subject to significant uncertainty, if different estimates could reasonably have been used, or if

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 134

## NOTE 1 - continued

changes in the estimate that would have a material impact on the Company's financial position or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates applied are appropriate and the resulting balances are reasonable. However, actual results could differ from the original estimates requiring adjustments to these balances in future periods.

Management also makes various accounting judgements in the preparation of the consolidated financial statements which can affect the amounts recognized.

### Judgements

Management has assessed that TORM has two cash-generating units (CGUs), being the Main Fleet and the Marine Exhaust cash-generating units. The Main Fleet is comprised of TORM's LR1, LR2 and MR vessels, which are largely interchangeable, and the cash flows generated by them are interdependent. These vessels are operated collectively as a combined internal pool, employed principally in the spot market, and actively managed to meet the needs of our customers in that market, particularly regarding the location of vessels meeting required specifications and the price of transport rather than vessel class. Given the technical specifications and capacity of vessels, the Main Fleet is relatively homogenous with a very high degree of interoperability. All vessels in the Main Fleet can handle multiple sizes of cargo and sail all seas and oceans, over both shorter and long distances. The Main Fleet is monitored and managed on an aggregated level as one pool, i.e. each vessel or vessel class does not generate cash inflows which are largely independent of those from other vessels or vessel classes. The MR vessels acquired in 2021 with chemical trading capability are operated as all other product tanker vessels and thus included in the Main Fleet CGU.

In addition, the activities within the Marine Exhaust segment represent a single CGU because cash inflows are generated independent of the cash inflows from the Main Fleet from serving the existing external customer base of the Marine Exhaust segment.

In 2021 and 2020, CGUs outside the Main Fleet in the Tanker segment comprised the two Handysize vessels, which are typically used for shorter and coastal trade routes and more frequent port calls. The Handysize vessels were both disposed of during 2022.

### Estimates

#### Carrying amounts of vessels

The Company evaluates the carrying amounts of the vessels (including newbuildings) to determine if events have occurred which would require a modification of their carrying amounts. The recoverable number of vessels is reviewed based on events or changes in circumstances which would indicate that the carrying amount of its vessels might not be recoverable. In assessing the recoverability of the vessels, the Company reviews certain indicators of potential impairment or indication of any past impairment losses that should be reversed such as reported sale and purchase prices, market demand and general market conditions.

## NOTE 1 - continued

Further, market valuations from leading, independent, and internationally recognized shipbrokers are obtained on the reporting date as part of the review for potential impairment indicators. If an indication of impairment or reversal of past impairment is identified, the need for recognizing an impairment loss or a recognition of a reversal of a past impairment loss is assessed by comparing the carrying amount of the vessels to the higher of the fair value less costs of disposal and the value in use.

The review for potential impairment indicators and projection of future discounted cash flows related to the vessels is complex and requires the Company to make various estimates including future freight rates, utilization, earnings from the vessels, future operating expenses and capital expenditure including dry-docking costs and discount rates. For more information on key assumptions and related sensitivities, please refer to Note 10.

All these factors have been historically volatile, especially the freight rates. The carrying amounts of TORM's vessels may not represent their fair market value at any point in time, as market prices of second-hand vessels to a certain degree tend to fluctuate with changes in freight rates and the cost of newbuildings. However, if the estimated future cash flow or related assumptions in the future experience change, an impairment write-down or reversal of impairment may be required.

## NOTE 2 - LIQUIDITY, CAPITAL RESOURCES, AND SUBSEQUENT EVENTS

### Liquidity and capital resources

As of 31 December 2022, TORM's cash and cash equivalents including restricted cash totaled USD 324m (2021: USD 172m, 2020: USD 136m), and undrawn and committed credit facilities amounted to USD 93m (2021: 38m, 2020: USD 132m). The undrawn and committed credit facilities consisted of two revolving credit facilities as part of a syndicate loan agreement. TORM had no newbuildings on order as of December 2022 (2021: one, 2020: two).

TORM has a Syndicated Facilities Agreement which includes a USD 144m Term Facility Agreement, an undrawn USD 48m Revolving Credit Facility and an undrawn USD 45m Working Capital Facility with maturity in 2026. The undrawn facilities were utilized in 2021 and repaid by TORM in 2022. In addition to the Syndicated Facilities, TORM has a USD 202m Term Facility Agreement with Danish Ship Finance with maturity in 2027. Further, TORM has a USD 31m Term Facility Agreement and a USD 11m Term Facility Agreement both with maturity in 2025, and a USD 21m Term Facility Agreement with maturity in 2026 with Hamburg Commercial Bank. TORM also has a Term Facility Agreement with China Export-Import Bank of USD 41m with maturity in 2030 and with KfW-IPEX Bank of USD 38m with maturity in 2032. As of 31 December 2022, the scheduled minimum payments on mortgage debt and bank loans in 2023 were USD 73m.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 135

## NOTE 2 - continued

TORM has lease debt of a total of USD 70m with various Japanese leasing providers expiring in 2026, lease debt of a total of USD 211m with BoComm Leasing which consists of a lease facility of USD 46m expiring in 2025, a USD 4m lease facility to finance scrubber and ballast water treatment systems expiring in 2024, a lease facility of USD 91m to finance three second-hand LR2 vessels expiring in 2029 and a facility of USD 71m to finance the two newbuilt LR2 vessels delivered in late 2021 and early 2022, with expiry in 2031. Further, TORM has a lease facility of a total of USD 160m with China Development Bank Financial Leasing with expiry in 2029 and 2032 and a lease facility of USD 37m with China Merchant Bank Financial Leasing with expiry in 2033. As of 31 December 2022, the scheduled minimum payments on lease agreements in 2022 were USD 43m.

TORM manages its capital structure for the Group as a whole in order to support our spot-based vessel employment profile. This is done through a conservative leverage, a strong liquidity position and limited off-balance sheet commitments. TORM ongoingly stress tests the capital structure and liquidity position as well as prepares cash forecasts to make sure the capital structure remains robust to potential risks. Besides the liquidity position, the main considerations are loan-to-value ratio, distribution policy, CAPEX commitments, off-balance sheet liabilities, terms and sources of funding vessel investments, hedging of financial market risks and fleet employment strategy, hereunder entering into FFA contracts.

In the second quarter of 2022, TORM introduced a new Distribution Policy where we intend to distribute on a quarterly basis excess liquidity above a fixed threshold cash level as of the balance sheet date. For each quarter, the threshold cash level will be determined as the product of cash requirement per vessel and the number of owned and leased vessels in TORM's fleet as of the balance sheet date. Excess liquidity is determined as TORM's readily available liquidity less the threshold cash level. The readily available liquidity is defined as i) TORM's cash balance at the last day of the quarter preceding the relevant distribution date excluding restricted cash, plus ii) undrawn amounts on TORM's working capital facilities, minus iii) proceeds received from vessel sales, or additional proceeds from vessel refinancing, or securities offerings in the past 12 months earmarked for share repurchases, debt prepayment, vessel acquisitions, or general corporate purposes.

The cash requirement per vessel is fixed at:

- USD 1.5m for 30 June 2022
- USD 1.8m for 30 September 2022 onwards

## NOTE 2 - continued

TORM's debt facilities include financial covenants related to:

- Minimum liquidity (cash and cash equivalents minimum amount requirement at all times)
- Minimum security value (loan-to-value for individual borrowings)
- Equity ratio (minimum level)

During 2022, 2021 and 2020, TORM did not have any covenant breaches, and Management has assessed that a covenant breach in the near future is remote.

### Subsequent events

On 25 January 2023, TORM entered into an agreement to acquire three LR1 vessels which together with another agreement that TORM entered into earlier in January 2023 resulted in TORM purchasing a total of seven 2011-2013 built LR1 vessels for an aggregate cash consideration of USD 233.0m. All vessels are expected to be delivered no later than 30 April 2023 and are expected to be financed by sale and leaseback agreements with a Chinese financial institution.

In March 2023, TORM entered into an agreement to purchase three 2013-built MR eco product tanker vessels for a total cash consideration of USD 48.5m and the issuance of 1.42 million shares. The vessels are expected to be delivered no later than 31 May 2023. The cash element of the transaction is expected to be financed through traditional bank financing and in connection with each of the three deliveries, TORM will issue one third of the total share issuance, corresponding to 50% of the total consideration. The transactions will increase TORM's total fleet to 88 vessels on a fully delivered basis.

In March 2023, TORM obtained commitment for refinancing of USD 433m bank and leasing agreements into two new bank facilities, thereby extending debt maturities until 2028, with a possibility to extend most of the debt expiration to 2029. Further, TORM has obtained commitment for financing additional second-hand vessels for up to USD 123m with the same expiration terms. Closing of the agreements is subject to documentation and is expected during the second quarter of 2023.

The geopolitical risk increased significantly following Russia's invasion of Ukraine in February 2022. The sanctions imposed on Russia by certain Western nations increased uncertainty on the general energy market, sending the price of crude oil to the highest level since 2014. The initial sanctions were not targeting the oil trade, however, the uncertainty and potential for rerouting of trade flows sent the crude tanker freight rates in the European markets upwards. Due to the continuous development and complexity of the situation, the impact on the tanker markets going forward is uncertain, not least due to the implementation by the EU and other nations of oil import and oil price cap sanctions that were imposed on Russian oil on 05 February 2023. Considering our current customer base, main suppliers and financial counterparties as well as covenants in our loan facilities, we do not expect any direct impact on our operations although we expect increased volatility in freight rates, bunker cost, foreign exchange rates, and vessel values.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 136

# **NOTE 3 - SEGMENT**

# **Segment reporting - consolidated income statement**

| USDm | 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Tanker segment | Marine Exhaust segment | Intersegment elimination | Total |
| Revenue | 1,440.4 | 5.9 | -2.9 | 1,443.4 |
| Port expenses, bunkers, and commissions | -458.9 | - | - | -458.9 |
| Other cost of goods and services sold | - | -3.0 | 2.4 | -0.6 |
| Operating expenses | -202.1 | - | - | -202.1 |
| Profit from sale of vessels | 10.2 | - | - | 10.2 |
| Administrative expenses | -52.4 | -2.6 | - | -55.0 |
| Other operating income and expenses | 5.8 | - | - | 5.8 |
| Share of profit/(loss) from joint ventures | 0.2 | - | - | 0.2 |
| Impairment losses and reversal of impairment on tangible assets | -2.6 | - | - | -2.6 |
| Depreciation and amortization | -138.7 | -0.3 | - | -139.0 |
| Operating profit (EBIT) | 601.9 | - | -0.5 | 601.4 |
| Financial income | 4.0 | 0.1 | - | 4.1 |
| Financial expenses | -48.7 | -0.1 | - | -48.8 |
| Profit before tax | 557.2 | - | -0.5 | 556.7 |
| Tax | 5.9 | - | - | 5.9 |
| Net profit for the year | 563.1 | - | -0.5 | 562.6 |

Prior to the acquisition of Marine Exhaust Technology A/S (MET) on 01 September 2022, TORM had only one reportable segment, the Tanker segment. Accordingly, comparative segmental information is not provided.

The eliminations above represent revenue and other costs of goods and services sold from the installation of scrubbers performed by the Marine Exhaust entities on tanker vessels within the Tanker segment. All revenue from the Tanker segment is derived from external customers.

In all material aspects, TORM's customers are domiciled outside the UK and are spread all over the world with only a few countries contributing significantly to TORM's revenue. In 2022, Switzerland and Mexico contributed with 15.30% (USD 220.9m) and 12.35% (USD 178.2m) respectively of TORM's revenue. In 2021, Switzerland and Mexico contributed with 23.16% (USD 143.5m) and 16.0% (USD 96.6m) respectively of TORM's revenue. In 2020, Switzerland, the United States and Mexico contributed with 24.69% (USD 184.5m), 11.87% (USD 88.7m), and 10.73% (USD 80.2m) respectively of TORM's revenue. Revenue is allocated to countries based on the customer's ultimate parent domicile.

A major part of TORM's revenues stems from a small group of customers. In 2022, one customer accounted for 12% of TORM's revenue in the Tanker segment (2021: one accounted for 15% in the Tanker segment; 2020: one customer accounted for more than 10% in the Tanker segment).

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 137

# **NOTE 3 - continued**

# **Segment reporting - consolidated balance sheet**

| USDm | 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Tanker segment | Marine Exhaust segment | Intersegment elimination | Total |
| ASSETS |  |  |  |  |
| NON-CURRENT ASSETS |  |  |  |  |
| Intangible assets |  |  |  |  |
| Goodwill | - | 1.8 | - | 1.8 |
| Other intangible assets | 0.7 | 1.3 | - | 2.0 |
| Total intangible assets | 0.7 | 3.1 | - | 3.8 |
| Tangible fixed assets |  |  |  |  |
| Land and buildings | 2.8 | 1.0 | - | 3.8 |
| Vessels and capitalized dry-docking | 1,863.4 | - | -7.5 | 1,855.9 |
| Other plant and operating equipment | 4.1 | 1.5 | - | 5.6 |
| Total tangible fixed assets | 1,870.3 | 2.5 | -7.5 | 1,865.3 |
| Financial assets |  |  |  |  |
| Investments in joint ventures | 0.1 | - | - | 0.1 |
| Loan receivables | 4.6 | - | - | 4.6 |
| Deferred tax asset | 0.5 | - | - | 0.5 |
| Other investments | 0.2 | - | - | 0.2 |
| Total financial assets | 5.4 | - | - | 5.4 |
| Total non-current assets | 1,876.4 | 5.6 | -7.5 | 1,874.5 |
| CURRENT ASSETS |  |  |  |  |
| Inventories | 61.1 | 11.0 | -0.1 | 72.0 |
| Trade receivables | 255.7 | 4.2 | -0.4 | 259.5 |
| Other receivables | 72.7 | 1.3 | - | 74.0 |
| Prepayments | 9.7 | 0.7 | - | 10.4 |
| Cash and cash equivalents incl. restricted cash | 321.4 | 2.4 | - | 323.8 |
| Total current assets | 720.6 | 19.6 | -0.5 | 739.7 |
| TOTAL ASSETS | 2,597.0 | 25.2 | -8.0 | 2,614.2 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 138

# NOTE 3 - continued

# Segment reporting - consolidated balance sheet

| USDm | 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Tanker segment | Marine Exhaust segment | Intersegment elimination | Total |
| EQUITY AND LIABILITIES |  |  |  |  |
| Total equity | 1,498.0 | 6.2 | -0.5 | 1,503.7 |
| LIABILITIES |  |  |  |  |
| NON-CURRENT LIABILITIES |  |  |  |  |
| Non-current tax liability related to held-over gains | 45.2 | - | - | 45.2 |
| Deferred tax liability | 5.8 | 0.3 | - | 6.1 |
| Borrowings | 844.6 | 5.2 | - | 849.8 |
| Other non-current liabilities | 2.2 | 0.8 | - | 3.0 |
| Total non-current liabilities | 897.8 | 6.3 | - | 904.1 |
| CURRENT LIABILITIES |  |  |  |  |
| Borrowings | 115.7 | 1.3 | - | 117.1 |
| Trade payables | 46.4 | 3.5 | -1.4 | 48.5 |
| Current tax liabilities | 1.6 | 0.4 | - | 2.0 |
| Other liabilities | 31.0 | 0.3 | -0.2 | 31.1 |
| Provisions | 6.5 | 0.3 | - | 6.8 |
| Deferred income | - | 6.8 | -5.9 | 0.9 |
| Total current liabilities | 201.2 | 12.7 | -7.5 | 208.4 |
| Total liabilities | 1,099.0 | 19.0 | -7.5 | 1,110.5 |
| TOTAL EQUITY AND LIABILITIES | 2,597.0 | 25.2 | -8.0 | 2,614.2 |
| Non-current asset additions during the year: |  |  |  |  |
| Goodwill | - | 1.8 | - | 1.8 |
| Other intangible assets | 0.6 | 1.2 | - | 1.8 |
| Land and buildings | 0.3 | 1.1 | - | 1.4 |
| Vessels and capitalized dry-docking | 84.7 | - | -7.5 | 77.2 |
| Prepayments on vessels | 43.1 | - | - | 43.1 |
| Other plant and operating equipment | 0.8 | 1.6 | - | 2.4 |
| Total non-current asset additions | 129.5 | 5.7 | -7.5 | 127.7 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 139

### NOTE 3 - continued

The Company's non-current assets are based on domicile of the legal entity ownership in the following countries:

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| UK | 0.1 | - | 0.1 |
| Denmark | 1,389.7 | 1,442.9 | 1,199.9 |
| Singapore | 475.0 | 516.7 | 546.3 |
| Other countries | 4.5 | 2.9 | 3.7 |
| Non-current assets | 1,869.3 | 1,962.5 | 1,750.0 |

#### Accounting policies

The segmentation is based on the Group's internal management and reporting structure. The Group has two operating segments, the Tanker segment, for which the services provided primarily comprise transportation of refined oil products such as gasoline, jet fuel, and naphtha, and the Marine Exhaust segment for which the services provided primarily comprise developing and producing advanced and green marine equipment.

Transactions between the segments are based on market-related prices and are eliminated at Group level.

TORM considers the global product tanker market as a whole, and as the individual vessels are not limited to specific parts of the world, the Group has only one geographical segment for the Tanker segment. Further, the internal management reporting does not provide geographical information for either the Tanker segment or the Marine Exhaust segment. Consequently, geographical segment information on revenue from external customers or non-current segment assets for the Tanker segment or the Marine Exhaust segment is not provided.

### NOTE 4 - REVENUE FROM CONTRACTS WITH CUSTOMERS

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Disaggregation of revenue |  |  |  |
| Transportation of refined oil products | 1,440.4 | 619.5 | 747.4 |
| Scrubbers and related services | 1.2 | - | - |
| Welding and mounting | 1.1 | - | - |
| Others | 0.7 | - | - |
| Total revenue | 1,443.4 | 619.5 | 747.4 |
| Tanker segment | 1,440.4 | 619.5 | 747.4 |
| Marine Exhaust segment | 5.9 | - | - |
| Intersegment elimination | -2.9 | - | - |
| Total revenue | 1,443.4 | 619.5 | 747.4 |

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Customer contract balances |  |  |  |
| Trade receivables | 259.5 | 84.0 | 58.6 |
| Customer contract assets 1) | 3.0 | 2.0 | - |
| Customer contract liabilities 2) | -0.9 | - | - |
| Total | 261.6 | 86.0 | 58.6 |

$^{1)}$ Recognized in prepayments.

$^{2)}$ Recognized in deferred income.

Refer to Note 13 for further information on trade receivables. Customer contract assets primarily relate to prepaid voyage expenses until the cargo load date. During the year, USD 2.0m was recognized relating to customer contracts entered in 2022 (2021: USD 1.4m relating to 2020, 2020: USD 2.6m relating to 2019). Customer contract liabilities primarily relate to prepayments received by customers in connection with scrubber installations. The acquisition of Marine Exhaust Technology A/S resulted in an increase in customer contract liabilities of USD 4.3m.

#### Accounting policies

##### Revenue

Income is recognized in the income statement when:

- The income generating activities have been carried out on the basis of a binding agreement
- The income can be measured reliably
- It is probable that the economic benefits associated with the transaction will flow to the Company

Revenue comprises freight, charter hire, and demurrage revenue from the vessels as well as Marine Exhaust revenue. Revenue is recognized when or as performance obligations are satisfied

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 140

#### NOTE 4 - continued

by transferring services to the customer, i.e. over time, provided that the stage of completion can be measured reliably. Revenue is measured as the consideration that the Group expects to be entitled to. Freight revenue including charter hire and demurrage (and related voyage costs) are recognized in the income statement according to the entered charter parties from the date of load to the date of delivery of the cargo (discharge). The completion is determined using the load-to-discharge method based on the percentage of the estimated duration of the voyage completed at the reporting date because the customer receives the benefit during the voyage as it is provided.

#### Cross-over voyages

For cross-over voyages (voyages in progress at the end of a reporting period), the uncertainty and the dependence on estimates are greater than for finalized voyages. The Company recognizes a percentage of the estimated revenue for the voyage equal to the percentage of the estimated duration of the voyage completed at the balance sheet date. The estimate of revenue is based on the expected duration and destination of the voyage.

When recognizing revenue, there is a risk that the actual number of days it takes to complete the voyage will differ from the estimate. The contract for a single voyage may state several alternative destination ports. The destination port may change during the voyage, and the rate may vary depending on the destination port. Changes to the estimated duration of the voyage as well as changing destinations and weather conditions will affect the voyage expenses.

#### Demurrage revenue

Freight contracts contain conditions regarding the amount of time available for loading and discharging of the vessel. If these conditions are breached, TORM is compensated for the additional time incurred in the form of demurrage revenue. Demurrage revenue is recognized in accordance with the terms and conditions of the charter parties. Upon completion of the voyage, the Company assesses the time spent in port, and a demurrage claim based on the relevant contractual conditions is submitted to the charterers. The claim will often be met by counterclaims due to differences in the interpretation of the agreement compared to the actual circumstances of the additional time used. Based on previous experience, 95% of the demurrage claim submitted is recognized as demurrage revenue upon initial recognition. For cross-over voyages, an estimate of incurred demurrage is recognized at the balance sheet date.

The Company receives the demurrage payment upon reaching final agreement on the amount, which could be up to approximately 100 days after the original demurrage claim was submitted. Any adjustments to the final agreement are recognized as demurrage revenue.

#### Marine Exhaust revenue

Some of the Group's contracts with customers relate to the sale of marine exhaust equipment with installation services. Customers obtain control of the marine exhaust equipment with installation services when the goods are delivered to the customer, they have completed commissioning and delivery has been accepted by the customers. When without installation services, customers obtain control of the marine exhaust equipment when the goods are delivered to and have been accepted by the customers.

#### NOTE 4 - continued

Revenue is thus recognized upon the customers obtaining control. There is generally only one performance obligation related hereto.

A warranty provision is recognized for expected repair costs related to warranty claims for sold marine exhaust equipment within the standard warranty period of one year. These provisions are recognized when the equipment is sold and are based on historical experience. The warranty provision estimates are updated annually.

#### NOTE 5 - STAFF COSTS

##### Employee information

Staff costs included in operating expenses relate to the 100 seafarers employed under Danish contracts (2021: 106, 2020: 109).

The average number of employees is calculated as a full-time equivalent (FTE).

The Executive Director is, in the event of termination by the Company, entitled to a severance payment of up to 12 months' salary.

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Total staff costs |  |  |  |
| Staff costs included in operating expenses | 7.7 | 9.7 | 9.2 |
| Staff costs included in administrative expenses | 42.0 | 42.4 | 41.5 |
| Total | 49.7 | 52.1 | 50.7 |
| Staff costs comprise the following |  |  |  |
| Wages and salaries | 38.8 | 42.1 | 42.3 |
| Share-based compensation | 2.9 | 2.3 | 1.7 |
| Pension costs | 3.3 | 3.6 | 3.3 |
| Other social security costs | 1.5 | 1.3 | 1.3 |
| Other staff costs | 3.2 | 2.8 | 2.1 |
| Total | 49.7 | 52.1 | 50.7 |
| Average number of permanent employees |  |  |  |
| Seafarers | 100 | 106 | 109 |
| Land-based | 386 | 341 | 332 |
| Total | 486 | 447 | 441 |

The majority of seafarers on vessels are on short-term contracts. The number of seafarers on short-term contracts in 2022 was on average 1,565 (2021: 1,449, 2020: 1,474). Total seafarers' costs in 2022 were USD 76.3m (2021: USD 75.9m, 2020: USD 80.5m), which is included in 'Operating expenses'.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 141

# **NOTE 5 - continued**

| USD '000 | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Non-Executive Board and Committee remuneration, short term |  |  |  |
| Christopher H. Boehringer | 210 | 235 | 256 |
| David N. Weinstein | 207 | 234 | 200 |
| Göran Trapp | 155 | 176 | 172 |
| Torben Janholt | - | - | 89 |
| Annette Malm Justad | 155 | 176 | 139 |
| Total | 727 | 821 | 856 |

# **Executive Management**

| USD '000 | Salary | Taxable benefits | Annual performance bonus | Total |
| --- | --- | --- | --- | --- |
| Executive Management remuneration |  |  |  |  |
| Jacob Meldgaard |  |  |  |  |
| 2020, TORM A/S 1) | 1,052 | 41 | 1,262 | 2,355 |
| 2020, TORM A/S adjustment 1) | - | - | -125 | -125 |
| 2020, TORM plc 1) | 77 | - | - | 77 |
| 2021, TORM A/S 1) | 1,161 | 44 | 1,161 | 2,366 |
| 2021, TORM plc 1) | 82 | - | - | 82 |
| 2022, TORM A/S 1) | 1,040 | 39 | 593 | 1,672 |
| 2022, TORM plc 1) | 72 | - | - | 72 |

$^{1)}$ Paid by legal entity as noted.

As discussed in the 2020 Annual Report, at the time of issue the CEO's bonus figure had yet to be agreed, and instead the Annual Report 2020 included an estimate of DKK 8.4m (USD 1.262m), equating to 120% of the CEO's base salary. After final agreement with the Remuneration Committee, the CEO's bonus figure was set at DKK 7.0m (USD 1.1m), equating to 100% of his base salary.

Key management personnel consist of the Board of Directors and the Executive Director. Total compensation to key management personnel expensed during the year as detailed in this note amounts to USD 2.5m (2021: USD 3.3m, 2020: USD 3.2m).

# **NOTE 5 - continued**

# **Senior Management Team**

The aggregated compensation paid by the Group to the three (2021: 3) other members of the Senior Management Team in 2022 (excluding CEO Jacob Meldgaard) was USD 2.1m (2021: USD 2.2m, 2020: USD 2.1m), which includes an aggregate of USD 0.1m (2021: USD 0.1m, 2020: USD 0.1m) allocated for pensions (defined contribution plans) for these individuals.

# **LTIP element of CEO Jacob Meldgaard's remuneration package 2022:**

| Grant date | 25-Apr-18 | 18-Mar-21 | 23-Mar-22 |
| --- | --- | --- | --- |
| RSU LTIP grant 1) | 766,035 | 255,200 | 255,200 |
| Exercise price per share | DKK 53.7 | DKK 53.5 | DKK 58.0 |
| RSU grant value assuming 100% vesting | USD 0.9m | USD 0.6m | USD 0.5m |

$^{1)}$ LTIP award is fixed by the Board of Directors and was communicated via company announcement no. 10 of 25 April 2018, announcement no. 7 dated 18 March 2021, and announcement no. 9 dated 23 March 2022, therefore there is no minimum or maximum for 2018, 2021 and 2022.

TORM operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of shares is recognized as an expense and allocated over the vesting period. Employment in TORM throughout the period is in most cases a prerequisite for upholding the full vesting rights in the RSU program. For good leavers subject to the Danish Stock Options Act, the RSUs will vest in accordance with the vesting schedule, but for all other leavers, all unvested RSUs shall be immediately forfeited for no consideration. Options are granted under the plan for no consideration and carry no dividend or voting rights.

In accordance with its Remuneration Policy, TORM has granted the CEO a number of Restricted Share Units (RSUs). There are no performance conditions associated with this grant of RSUs.

Refer to Long-Term Incentive Program - restricted share units granted to the executive director on page 104 for further information. The original RSUs granted to the CEO in 2016 vested in equal installments over a five-year period. Subsequent awards vest in equal installments over three years.

Vested RSUs may be exercised for a period of 360 days from each vesting date. Details of the CEO's awards and interests in Restricted Share Units are set out on page 106.

The single figure remuneration table for the CEO does not include any amounts in relation to the RSU awards as there are no performance conditions associated with this grant of RSUs.

As detailed in announcement no. 7 issued on 18 March 2021, the CEO was granted a total of 255,200 RSUs which will vest in equal amounts over the next three years. The first amount can be exercised from 01 January 2022. The exercise price for each RSU is DKK 53.5, corresponding to the average price of TORM shares in the 90 calendar days preceding the publication of TORM plc's 2020 Annual Report plus a 15% premium. Vested RSUs may be exercised for a period of 360 days from each vesting date.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 142

#### NOTE 5 - continued

As detailed in announcement no. 9 issued on 23 March 2022, the CEO was granted a total of 255,200 RSUs which will vest in equal amounts over the next three years. The first amount can be exercised from 01 January 2023. The exercise price for each RSU is DKK 58, corresponding to the average price of TORM shares in the 90 calendar days preceding the publication of TORM plc's 2021 Annual Report plus a 15% premium. Vested RSUs may be exercised for a period of 360 days from each vesting date.

#### Long-term employee benefit obligations

The obligation comprises an obligation under the incentive programs to deliver Restricted Share Units in TORM plc at a determinable price to the entity's key personnel. The RSUs granted entitle the holder to acquire one TORM A-share.

The program comprises the following number of shares in TORM plc:

| Number of shares (1,000) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Outstanding as of 01 January | 2,372.9 | 2,187.5 | 2,228.3 |
| Granted during the period | 1,393.0 | 1,355.1 | 1,047.4 |
| Exercised during the period | -1,078.0 | -409.4 | -107.7 |
| Expired/forfeited during the period | -263.8 | -760.3 | -980.5 |
| Outstanding as of 31 December | 2,424.0 | 2,372.9 | 2,187.5 |
| Exercisable as of 31 December | - | - | - |

In 2020, the Board of Directors agreed to grant a total of 1,047,389 RSUs to other management. The vesting period of the program is three years for key employees. The exercise price is set at DKK 69.9. The exercise period is 360 days from each vesting date. The fair value of the options granted in 2020 was determined using the Black-Scholes model and is not material. The average remaining contractual life for the restricted shares as of 31 December 2020 is 1.5 years.

In 2021, the Board of Directors agreed to grant a total of 1,355,121 RSUs to other management. The vesting period of the program is three years for key employees. The exercise price is set at DKK 53.5. The exercise period is 360 days from each vesting date. The fair value of the options granted in 2021 was determined using the Black-Scholes model and is not material. The average remaining contractual life for the restricted shares as of 31 December 2021 is 1.5 years.

In 2022, the Board of Directors agreed to grant a total of 1,137,770 RSUs to other management. The vesting period of the program is three years for key employees. The exercise price is set at DKK 58.0. The exercise period is 360 days from each vesting date. The fair value of the options granted in 2022 was determined using the Black-Scholes model and is not material. The average remaining contractual life for the restricted shares as of 31 December 2022 is 1.5 years.

#### NOTE 5 - continued

#### Accounting policies

##### Employee benefits

Wages, salaries, social security contributions, holiday and sick leave, bonuses, and other monetary and non-monetary benefits are recognized in the year in which the employees render the associated services. Please also refer to the accounting policy for share-based payment.

##### Pension plans

The Group has entered into defined contribution plans only. Pension costs related to defined contribution plans are recorded in the income statement in the year to which they relate.

##### Share-based payments

The Group makes equity-settled share-based payments to certain employees, which are measured at fair value at the date of grant and expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares which will eventually vest. The fair value of the share schemes is calculated using the Black-Scholes model at the grant date.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 143

#### NOTE 6 - REMUNERATION TO AUDITORS APPOINTED AT THE PARENT COMPANY'S ANNUAL GENERAL MEETING

The remuneration of the auditor is required to be presented as follows:

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Audit fees |  |  |  |
| Fees paid to the Company's auditor for the audit of the Company's annual accounts | 0.9 | 0.5 | 0.4 |
| Audit of the Company's subsidiaries pursuant to legislation | 0.1 | 0.3 | 0.2 |
| Total audit fees | 1.0 | 0.8 | 0.6 |
| Non-audit fees |  |  |  |
| Audit-related services | 0.2 | 0.1 | 0.0 |
| Tax services | - | 0.1 | 0.1 |
| Others | 0.2 | - | - |
| Total non-audit fees | 0.4 | 0.2 | 0.1 |
| Total | 1.4 | 1.0 | 0.7 |

Under SEC regulations, the remuneration of the auditor of USD 1.4m (2021: USD 1.0m, 2020: USD 0.7m) is required to be presented as follows: Audit USD 1.4m (2021: USD 0.8m, 2020: USD 0.6m), audit-related USD 0.0m (2021: other audit related services USD 0.1m, 2020: USD 0.0m) and tax services USD 0.0m (2021: tax related services USD 0.1m, 2020: USD 0.1m).

Our Audit Committee pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees prior to the engagement of the independent auditor with respect to such services.

#### NOTE 7 - INTANGIBLE ASSETS

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Goodwill |  |  |  |
| Cost: |  |  |  |
| Balance as of 01 January | 11.4 | 11.4 | 11.4 |
| Additions from business combinations | 1.8 | - | - |
| Balance as of 31 December | 13.2 | 11.4 | 11.4 |
| Impairment: |  |  |  |
| Balance as of 01 January | 11.4 | 11.4 | 11.4 |
| Impairment losses | - | - | - |
| Balance as of 31 December | 11.4 | 11.4 | 11.4 |
| Carrying amount | 1.8 | - | - |

The opening balance on goodwill cost and impairment relates to the reverse acquisition of TORM A/S in 2015, which was impaired in 2016. The goodwill addition during the year of USD 1.8m relates to the acquisition of Marine Exhaust Technology A/S, which is allocated to the Marine Exhaust cash-generating unit. Please refer to note 33 for further reference on acquisition and note 10 for further reference on impairment testing.

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Other intangible assets |  |  |  |
| Cost: |  |  |  |
| Balance as of 01 January | - | - | - |
| Exchange rate adjustments | 0.2 | - | - |
| Additions | 0.6 | - | - |
| Additions from business combinations | 1.2 | - | - |
| Transfer from other items | 0.3 | - | - |
| Balance as of 31 December | 2.3 | - | - |
| Amortization: |  |  |  |
| Balance as of 01 January | - | - | - |
| Amortization for the year | 0.3 | - | - |
| Transfer from other items | 0.1 | - | - |
| Balance as of 31 December | 0.4 | - | - |
| Carrying amount | 1.9 | - | - |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 144

# **NOTE 7 - continued**

# **Accounting policies**

# **Goodwill**

Goodwill is measured as the excess of the cost of the business combination over the fair value of the acquired assets, liabilities, and contingent liabilities and is recognized as an asset under intangible assets. For each business combination, TORM elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. Goodwill is not amortized as it is considered to have an indefinite useful life, but the recoverable amount of goodwill is assessed annually. For impairment testing purposes, goodwill is on initial recognition allocated to the cash generating unit expected to benefit from the synergies of the combination. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is first allocated to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss for goodwill is not reversed in a subsequent period.

# **Other intangible assets**

Other intangible assets consist of software as well as scrubber test facility development costs and customer list acquired in connection with the Marine Exhaust Technology A/S acquisition. Other intangible assets are measured at cost less accumulated amortization and impairment losses. Other intangible assets are considered as having finite useful lives and are amortized on a straight-line basis over:

- Scrubber test facility: 2 years

# **NOTE 8 - TANGIBLE FIXED ASSETS**

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Land and buildings |  |  |  |
| Cost: |  |  |  |
| Balance as of 01 January | 10.9 | 11.7 | 10.4 |
| Exchange rate adjustment | -0.3 | -0.1 | - |
| Additions | 0.3 | 0.1 | 1.3 |
| Additions from business combinations | 1.1 | - | - |
| Disposals | - | -0.8 | - |
| Balance as of 31 December | 12.0 | 10.9 | 11.7 |
| Depreciation: |  |  |  |
| Balance as of 01 January | 6.1 | 4.6 | 2.3 |
| Exchange rate adjustment | -0.2 | - | - |
| Disposals | - | -0.8 | - |
| Depreciation for the year | 2.3 | 2.3 | 2.3 |
| Balance as of 31 December | 8.2 | 6.1 | 4.6 |
| Carrying amount as of 31 December | 3.8 | 4.8 | 7.1 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 145

# **NOTE 8 - continued**

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Vessels and capitalized dry-docking |  |  |  |
| Cost: |  |  |  |
| Balance as of 01 January | 2,443.3 | 2,160.1 | 2,064.2 |
| Additions | 77.2 | 290.3 | 102.5 |
| Disposals | -14.2 | -40.9 | -29.8 |
| Transferred from prepayments | 55.1 | 78.6 | 148.1 |
| Transferred to assets held for sale | -140.2 | -44.8 | -124.9 |
| Balance as of 31 December | 2,421.2 | 2,443.3 | 2,160.1 |
| Depreciation: |  |  |  |
| Balance as of 01 January | 475.0 | 406.2 | 360.6 |
| Disposals | -14.2 | -40.9 | -29.8 |
| Depreciation for the year | 133.7 | 126.2 | 118.4 |
| Transferred to assets held for sale | -50.7 | -16.5 | -43.0 |
| Balance as of 31 December | 543.8 | 475.0 | 406.2 |
| Impairment: |  |  |  |
| Balance as of 01 January | 30.5 | 31.4 | 28.8 |
| Impairment losses on tangible fixed assets 1) | 2.7 | 4.6 | 11.1 |
| Transferred to assets held for sale | -11.7 | -5.5 | -8.5 |
| Balance as of 31 December | 21.5 | 30.5 | 31.4 |
| Carrying amount as of 31 December | 1,855.9 | 1,937.8 | 1,722.5 |

$^{1)}$ For additional information regarding impairment considerations, please refer to Note 10.

Included in the carrying amount for 'Vessels and capitalized dry-docking' are capitalized dry-docking costs in the amount of USD 50.1m (2021: USD 65.9m, 2020: USD 66.1m).

Included in the carrying amount for 'Vessels and capitalized dry-docking' are vessels on short-term time charter leases (as lessor) in the amount of USD 13.7m (2021: 398.8m, 2020: 488.2m). Please refer to Note 22 for expected redelivery of the vessels.

# **NOTE 8 - continued**

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Prepayments on vessels |  |  |  |
| Cost: |  |  |  |
| Balance as of 01 January | 12.0 | 12.0 | 95.0 |
| Additions | 43.1 | 78.6 | 65.1 |
| Transferred to vessels | -55.1 | -78.6 | -148.1 |
| Balance as of 31 December | - | 12.0 | 12.0 |
| Carrying amount as of 31 December | - | 12.0 | 12.0 |

During the year, borrowing costs of USD nil (2021: 0.6m, 2020: nil) have been capitalized. The capitalization rate in 2021 was 3.7% and in 2020: 0.0%.

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Other plant and operating equipment |  |  |  |
| Cost: |  |  |  |
| Balance as of 01 January | 9.3 | 7.6 | 8.1 |
| Exchange rate adjustment | -0.2 | -0.1 | - |
| Additions | 0.8 | 1.9 | 3.8 |
| Additions from business combinations | 1.6 | - | - |
| Disposals | -0.7 | -0.1 | -4.3 |
| Transfers | -0.3 | - | - |
| Balance as of 31 December | 10.5 | 9.3 | 7.6 |
| Depreciation: |  |  |  |
| Balance as of 01 January | 3.0 | 0.8 | 3.8 |
| Exchange rate adjustment | -0.2 | -0.1 | - |
| Disposals | -0.6 | -0.1 | -4.2 |
| Depreciation for the year | 2.8 | 2.4 | 1.2 |
| Transfers | -0.1 | - | - |
| Balance as of 31 December | 4.9 | 3.0 | 0.8 |
| Carrying amount as of 31 December | 5.6 | 6.3 | 6.8 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 146

NOTE 8 - continued

For information on assets provided as collateral security, please refer to Note 20. Please refer to Note 10 for information on impairment testing.

The depreciation expense related to "Other plant and operating equipment" of USD 2.8m relates to "Administrative expense" (2021: USD 2.4m, 2020: USD 1.2m). Depreciation and impairment losses on tangible fixed assets on "Vessels and capitalized dry-docking" relate to operating expenses.

Accounting policies

Vessels

Vessels consist of owned vessels and leased vessels. The accounting policy for leased vessels is specified under "Leases". Owned vessels are measured at cost less accumulated depreciation and accumulated impairment losses. Costs comprise acquisition costs and costs directly related to the acquisition up until the time when the asset is ready for use, including interest expenses incurred during the period of construction. All major components of vessels (scrubbers, etc.) except for dry-docking costs are depreciated on a straight-line basis to the estimated residual value over their estimated useful life, which TORM estimates to be 25 years for newbuildings. TORM considers that a 25-year depreciable life is appropriate and consistent with what is used by other shipowners with comparable tonnage. Depreciation is based on costs less the estimated residual value. Residual value is estimated as the lightweight tonnage of each vessel multiplied by the scrap value per ton. The useful life and the residual value of the vessels are reviewed at least at each financial year-end based on market conditions, regulatory requirements, and TORM's business plans.

TORM also evaluates the carrying amounts to determine if events have occurred which indicate impairment and would require a modification of the carrying amounts at the reporting date. Prepayment on vessels is measured at costs incurred.

Dry-docking

Approximately every 24 and 60 months, depending on the nature of work and external requirements, the vessels are required to undergo planned dry-dockings for replacement of certain components, major repairs, and major maintenance of other components, which cannot be carried out while the vessels are operating. These dry-docking costs are capitalized and depreciated on a straight-line basis over the estimated period until the next dry-docking. The residual value of such components is estimated at nil. The useful life of the dry-docking costs is reviewed at least at each financial year-end based on market conditions, regulatory requirements, and TORM's business plans. A portion of the cost of acquiring a new vessel is allocated to the components expected to be replaced or refurbished at the next dry-docking. Depreciation thereof is carried over the period until the next dry-docking. For newbuildings, the initial dry-docking asset is estimated based on the expected costs related to the first-coming dry-docking, which again is based on experience and history of similar vessels. For second-hand vessels, a dry-docking asset is also segregated and capitalized separately, taking into account the normal docking intervals of the vessels.

NOTE 8 - continued

At subsequent dry-dockings, the costs comprise the actual costs incurred at the dry-docking yard. Dry-docking costs may include the cost of hiring crews to carry out replacements and repairs, the cost of parts and materials used, the cost of travel, lodging and supervision of Company personnel as well as the cost of hiring third-party personnel to oversee a dry-docking. Dry-docking activities include, but are not limited to, the inspection, service on turbocharger, replacement of shaft seals, service on boiler, replacement of hull anodes, applying of anti-fouling and hull paint, steel repairs as well as refurbishment and replacement of other parts of the vessel.

Prepayments on vessels

Prepayments consist of prepayments related to newbuilding contracts for vessels not yet delivered and include the share of borrowing costs directly attributable to the acquisition of the underlying vessel. When a vessel is delivered, the prepaid amount is reallocated to the financial statement line "Vessels and capitalized dry-docking".

Land and buildings and other plant and operating equipment

Land and buildings and other plant and operating equipment consist of leaseholds regarding office buildings, leasehold improvements, company cars, IT equipment, and software and is measured at historical cost less accumulated depreciation and any impairment loss. Any subsequent cost is included in the asset's carrying amount or recognized as a separate asset only when it is probable that future economic benefits are associated with the item and the cost of the item can be measured reliably. Depreciation is based on the straight-line method over the estimated useful life of the assets. The current estimates are:

- Land and buildings
  - Office buildings: Over the shorter of the remaining leasing term and the estimated useful life
  - Leasehold improvements: Over the shorter of the remaining leasing term and the estimated useful life
- Other plant and operating equipment
  - Company cars: Over the lease term, typically 3 years
  - IT equipment: 3-5 years
  - Software: 3-5 years
  - Other equipment 3-15 years

The depreciation commences when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by Management. For a right-of-use asset, depreciation commences at the commencement date of the lease.

Assets held for sale

Assets are classified as held-for-sale if the carrying amount will be recovered principally through a sales transaction rather than through continuing use. This condition is regarded as met only

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 147

# **NOTE 8 - continued**

when the asset is available for immediate sale in its present condition subject to terms which are usual and customary for sales of such assets, and when its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Assets held for sale mainly refer to vessels being sold and are measured at the lower of their previous carrying amount and fair value less costs to sell. Gains are recognized on delivery to the new owners in the income statement in the item 'Profit from sale of vessels'. Anticipated losses are recognized at the time when the asset is classified as held-for-sale in the item 'Impairment losses on tangible and intangible assets'.

# **NOTE 9 - LEASING**

TORM leases office buildings, some vehicles, and other administrative equipment. Except for short-term leases and leases of low-value assets, each lease is reflected on the balance sheet as a right-of-use asset with a corresponding lease liability. The right-of-use assets are included in the financial statement line item in which the corresponding underlying assets would be presented if they were owned. Please refer to Note 8.

As of 31 December 2022, TORM had recognized the following right-of-use assets:

| USDm | Land and buildings | Other plant and operating equipment |
| --- | --- | --- |
| Cost: |  |  |
| Balance as of 01 January 2022 | 10.9 | 0.7 |
| Exchange rate adjustments | -0.3 | - |
| Additions | 0.3 | 0.1 |
| Additions from business combinations | 1.1 | 0.9 |
| Disposals | - | -0.4 |
| Balance as of 31 December 2022 | 12.0 | 1.3 |
| Depreciation: |  |  |
| Balance as of 01 January 2022 | 6.1 | 0.5 |
| Exchange rate adjustment | -0.2 | - |
| Disposals | - | -0.3 |
| Depreciation for the year | 2.3 | 0.2 |
| Balance as of 31 December 2022 | 8.2 | 0.4 |
| Carrying amount as of 31 December 2022 | 3.8 | 0.9 |

# **NOTE 9 - continued**

| USDm | Land and buildings | Other plant and operating equipment |
| --- | --- | --- |
| Cost: |  |  |
| Balance as of 01 January 2021 | 11.7 | 0.6 |
| Exchange rate adjustments | -0.1 | - |
| Additions | 0.1 | 0.2 |
| Disposals | -0.8 | -0.1 |
| Balance as of 31 December 2021 | 10.9 | 0.7 |
| Depreciation: |  |  |
| Balance as of 01 January 2021 | 4.6 | 0.4 |
| Disposals | -0.8 | -0.1 |
| Depreciation for the year | 2.3 | 0.2 |
| Balance as of 31 December 2021 | 6.1 | 0.5 |
| Carrying amount as of 31 December 2021 | 4.8 | 0.2 |
| USDm | Vessels and capitalized dry-docking | Land and buildings |
| Cost: |  |  |
| Balance as of 01 January 2020 | 42.4 | 10.4 |
| Additions | - | 1.3 |
| Disposals | -42.4 | - |
| Balance as of 31 December 2020 | - | 11.7 |
| Depreciation: |  |  |
| Balance as of 01 January 2020 | 15.5 | 2.3 |
| Disposals | -17.1 | - |
| Depreciation for the year | 1.6 | 2.3 |
| Balance as of 31 December 2020 | - | 4.6 |
| Carrying amount as of 31 December 2020 | - | 7.1 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 148

# **NOTE 9 - continued**

The sale and leaseback transactions relating to vessels were all classified as financing arrangements prior to implementation of IFRS 16 and did not result in derecognition of the underlying assets as control was retained by the Group. During 2020, the vessels were disposed of.

The table below describes the nature of the Group's leasing activities by type of right-of-use assets recognized on the balance sheet as of 31 December 2022:

|  | Land and buildings | Other plant and operating equipment |
| --- | --- | --- |
| No. of right-of-use assets leased | 16 | 20 |
| Range of remaining term | 0 - 6 years | 0 - 4 years |
| Average remaining lease term | 1.8 years | 1.8 years |
| No. of leases with extension options | 12 | 9 |
| No. of leases with options to purchase | - | 1 |
| No. of leases with termination options | 10 | 13 |

Lease liabilities regarding right-of-use assets are included on the balance sheet under 'Borrowings'.

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Maturity analysis - contractual undiscounted cash flow |  |  |  |
| Less than one year | 2.7 | 2.8 | 2.8 |
| One to five years | 2.6 | 3.0 | 5.9 |
| More than five years | - | 0.1 | 0.1 |
| Total undiscounted lease liabilities as of 31 December | 5.3 | 5.9 | 8.8 |
| Lease liabilities included under 'Borrowings' as of 31 December |  |  |  |
|  | 5.0 | 5.6 | 8.3 |
| Non-current | 2.5 | 3.7 | 6.2 |
| Current | 2.5 | 1.9 | 2.1 |

Extension and termination options are included in several leases in order to optimize operational flexibility in terms of managing contracts. The lease term determined by TORM is the non-cancellable period of a lease, together with any extension/termination options if these are/are not reasonably certain to be exercised.

# **NOTE 9 - continued**

# **Lease payments not recognized as a liability**

TORM has elected not to recognize a lease liability for short-term leases (leases of an expected term of 12 months or less) or for leases of low-value assets. Payments made under such leases are expensed on a straight-line basis. The expenses relating to payments not recognized as a lease liability are insignificant.

# **Cash outflow for leases**

The total cash outflow for leases amounts to USD 2.7m (2021: USD 2.8m, 2020: UDS 2.3m).

# **Accounting policies**

TORM assesses whether a contract is or contains a lease at inception of the contract and recognizes right-of-use assets and corresponding lease liabilities at the lease commencement date, except for short-term leases and leases of low value. For these leases, TORM recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease.

Agreements to charter in vessels and to lease land and buildings and other plant and operating equipment for which TORM substantially has the control are recognized on the balance sheet as right-of-use assets and initially measured at cost, which comprises the initial amount of the lease liabilities adjusted for any lease payments made at or before the commencement date. Subsequently the right-of-use assets are measured at cost less accumulated depreciation and impairment losses. The right-of-use assets are depreciated and written down under the same accounting policy as the assets owned by the Company or over the lease period depending on the lease terms.

The corresponding lease obligation is recognized as a liability in the balance sheet under 'Borrowings' and initially measured at the present value of the lease payments that are not paid at the commencement date. The Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. Subsequently lease liabilities are measured at amortized cost using the effective interest method, where the lease liabilities are remeasured when there is a change in future lease payments.

Leases to charter out vessels are classified as operating leases as the leases are short-term in nature and usually less than one year. Chartered-out vessels are presented as part of Vessels and capitalized dry-docking. Please refer to Note 6. The lease income is recognized in the income statement on a straight-line basis over the lease term.

Following a sale transaction, for agreements to immediately charter in the related vessels (sale and leaseback) but for which TORM maintains substantially all the risks and rewards incidental to economic ownership including repurchase options at lower value that the initial sales price, the proceeds received are presented as a financial liability in 'Borrowings'. No gain or loss is recorded, and the asset remains recognized on the balance sheet under Vessels and capitalized dry-docking.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 149

## NOTE 10 - IMPAIRMENT TESTING

Following the acquisition of Marine Exhaust Technology A/S and the 2022 disposal of the two remaining Handysize vessels, the Management of TORM has assessed that TORM has two CGUs being the Main Fleet and the Marine Exhaust cash-generating unit.

As of 31 December 2022, Management tested the carrying amount of the Main Fleet and the Marine Exhaust investment for impairment as further set out below.

### Tanker segment

#### 31 December 2022

As of 31 December 2022, the assessment of the recoverable amount of the Main Fleet is based on the fair value less cost of disposal of the vessels. The Main Fleet is comprised of TORM's LR1, LR2 and MR vessels, which are operated collectively as a combined internal pool, employed principally in the spot market and actively managed to meet the needs of our customers in that market, particularly regarding the location of vessels meeting required specifications. All vessels in the Main Fleet can handle multiple sizes of refined oil cargos and sail all seas and oceans, over both short and long distances. Given the technical specifications and capacity of the vessels, the Main Fleet is relatively homogenous with a very high degree of interoperability. The Main Fleet includes the 2021 acquired MR vessels with chemical trading capability, which are operated as all other product tanker vessels.

The recoverable amount of the Main Fleet as of 31 December 2022 amounts to USD 2,647m, and is based on the market approach which considers the valuations from two internationally acknowledged shipbrokers with appropriate qualifications and recent experience in the valuation of vessels. The shipbrokers' primary input is deadweight tonnage, yard, and age of the vessel. The fair value assumes that the vessels are in good and seaworthy condition and with prompt, charter-free delivery. The fair value less costs of disposal of the vessels is determined to be within Level 3 of the fair value hierarchy.

We have assessed the impact from climate changes and the potential adverse impact on vessel values, however, no specific adjustments in this respect have been reflected in the impairment testing of the Main Fleet given the recoverable amount has been based on the fair value less costs of disposal. Further discussion can be found in the Audit Committee Report, page 91 and TCFD, pages 75-77. We continue to monitor the development closely, and we continuously work on more specific plans for our ambition to have zero CO$_{2}$ emissions from operating our fleet by 2050, which may impact our impairment testing in the future.

## NOTE 10 - continued

Based on this review, Management concluded that as of 31 December 2022 assets within the Main Fleet were not impaired as fair value less costs of disposal exceeded the carrying amount by USD 784m.

Impairments recognized during 2022 of USD 2.7m (2021: USD 4.6m) as set out in Note 8 relate to the disposal of individual vessels during the year. The recoverable amount of the vessels was based on fair value less costs of disposal, which amounted to USD 31.8m. The fair value was based on sales price less transaction costs (fair value hierarchy level 2).

#### 31 December 2021 and 31 December 2020

As of 31 December 2021 and 2020, the assessment of the recoverable amount of the Tanker Fleet was based on the value in use for the Main Fleet and Handysize CGUs. The results of impairment testing were summarized as follows:

| CGU | Impairment losses and (reversals) |  | Discount rate applied |  | Recoverable amount |  | Excess values (value in use over carrying amount) |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2021 USDm | 2020 USDm | 2021% | 2020% | 2021 USDm | 2020 USDm | 2021 USDm | 2020 USDm |
| Main Fleet | - | - | 6.7 | 7.0 | 2,276 | 1,747 | 269 | 8 |
| Handysize 1) | - | 5.5 | 6.7 | 7.0 | 26 | 27 | - | - |
| Total | - | 5.5 |  |  | 2,302 | 1,774 | 269 | 8 |

$^{1)}$ Comprising two product tankers with a cargo carrying capacity of 35,000-37,000 dwt, these smaller vessels are typically used in shorter and coastal trade routes, including transportation of various clean petroleum products within Europe and in the Mediterranean.

The impairment test was sensitive to reasonably possible changes in key assumptions.

### Key assumptions used in the determination of value in use

The assessment of the value in use of each CGU was based on the net present value of the expected future cash flows. The freight rate estimates in the period 2022-2024 was based on TORM's business plans. Beyond 2024, the freight rates was based on TORM's 10-year historical average rates, adjusted for expected inflation of 2% in line with US Federal Reserve and ECB target over the medium term. TORM believed that the approach used for long-term rates appropriately reflected the cyclical nature of the shipping industry and was the most reliable estimate for periods beyond those included in its three-year business plan.

TORM's business plans for 2022-2024 and beyond also included the anticipated benefit arising from the installation of scrubbers on certain of the Group's vessels (the 'scrubber premium'). This is based on current market differentials between the cost of heavy and low-sulphur fuel oil.

As part of determining fair value, the impact of climate changes and the climate agenda on the global oil demand, emission regulations, and operating expenses, etc. was considered with

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 150

## NOTE 10 - continued

focus on the short to medium term implications and our commitment to reduce CO2 emissions by 40% by 2025 and 45% by 2030. However, no adverse impact of climate changes was anticipated in impairment testing our current fleet. We continue to monitor the development closely and are working on more specific plans for our ambition to have zero CO2 emissions from operating our fleet by 2050, which may impact our impairment testing in the future.

The discount rate used in the value in use calculation was based on a Weighted Average Cost of Capital (WACC) of 6.7% as of 31 December 2021 (2020: 7.0%, 2019: 7.5%). WACC was calculated by using a standard WACC model in which cost of equity, cost of debt and capital structure were the key parameters.

As of 31 December 2021, the 10-year historical average spot freight rates used in the value in use calculation were as follows:

- LR2: USD/day 19,111 (2020: USD/day 18,884, 2019: USD/day 17,986)
- LR1: USD/day 17,856 (2020: USD/day 17,443, 2019: USD/day 17,060)
- MR: USD/day 16,044 (2020: USD/day 16,076, 2019: USD/day 15,802)
- Handysize: USD/day 13,208 (2020: USD/day 13,435, 2019: USD/day 13,601)

Operating expenses and administrative expenses were estimated based on TORM's business plans for the period 2022-2024. Beyond 2024, operating expenses were adjusted for 2% inflation (2020: 2%), and administrative expenses were adjusted for 2% inflation (2020: 2%) in line with US Federal Reserve and ECB target over the medium term.

The product tankers were expected to generate normal income for 25 years from delivery from the shipyard. Given the current age profile of the Tanker Fleet, the average remaining life would be approximately 14 years (2020: approximately 15 years). The estimated residual value of the vessels was based on TORM's green recycling policy.

The impairment test was sensitive to reasonably possible changes in the key assumptions, which may result in future impairments. These were related to the future development in freight rates, the WACC applied as discounting factor in the calculations, and the development in operating expenses. All other things being equal, the sensitivities to the value in use have been assessed as follows:

- An increase/decrease in the tanker freight rates of USD/day 1,000 would result in an increase/decrease in the value in use of USD 285m and USD 6m for the Main Fleet and the two Handysize vessels, respectively
- An increase/decrease in WACC of 1.0% would result in an increase/decrease in the value in use of approx. USD 148-167m and USD 2m for the Main Fleet and the two Handysize vessels, respectively
- An increase/decrease in operating expenses of 10.0% would result in a decrease/increase in the value in use of USD 201m and USD 4m for the Main Fleet and the two Handysize vessels, respectively

## NOTE 10 - continued

As outlined above, the impairment test has been prepared on the basis that the Company will continue to operate its vessels as a fleet in the current setup.

The fair value based on broker values for vessels in the Main Fleet including the order book and leased vessels was USD 1,892m (2020: USD 1,577m), which is USD 72m below the carrying amount (2020: which was USD 245m below the carrying amount). The fair value based on broker values for the Handysize vessels was 21m (2020: USD 22m), which is USD 3m below the carrying amount (2020: which was USD 10m below the carrying amount).

### Marine exhaust segment
31 December 2022

As of 31 December 2022, the assessment of the recoverable amount of the Marine Exhaust cash-generating unit is based on value in use. The result of the impairment test showed an excess value of USD 3.2m compared to the carrying amount. No impairment of goodwill was recognized as of 31 December 2022.

#### Key assumptions used in the determination of value in use

The value in use is calculated based on future cash flows using a five-year budget period from 2023-2027. The future cash flows are based on the budget for 2023, assuming no growth in sales. Cost of goods sold is calculated using the gross margins from the 2023 budget. The gross margins are assumed to be constant in the budget period. Operating costs are based on the 2023 budget and are being inflated in the forecast period with the assumed inflation rates of 2-3% p.a. Cash levels are assumed constant in the forecast period, investments in non-current assets are USD 0.3m in 2023 and zero afterwards, and lastly, leasing liabilities are assumed constant. The terminal value extending beyond 2027 are based on a continuation of beforementioned parameters.

The discount rate used in the value in use calculation was based on a Weighted Average Cost of Capital (WACC) of 10.8% as of 31 December 2022 (2021: n/a). The WACC was calculated by using a standard WACC model in which cost of equity, cost of debt and capital structure were the key parameters.

The impairment test was sensitive to reasonably possible changes in the key assumptions, which may result in future impairments. These were related to the future development in sales across all revenue segments. All other things being equal, the sensitivities to the value in use have been assessed as follows:

- An increase/decrease in the total sales of 10.0% would result 2023 and onwards an increase/decrease in the value in use of USD 3.8m.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 151

## NOTE 10 - continued

### Accounting policies

#### Impairment of assets

Non-current assets are reviewed at the reporting date to determine any indication of impairment including a significant decline in either the assets' market value, increase in market rates of return, or in the cash flows expected to be generated by the fleet. At least annually, or if impairment indicator(s) exists, an impairment test on a CGU level will be performed. A CGU is determined as the smallest group of assets that generates independent cash inflows. An asset/CGU is impaired if the recoverable amount is below the carrying amount.

The recoverable amount of the CGU is estimated as the higher of fair value less costs of disposal and value in use. The value in use is the present value of the future cash flows expected to be derived from a CGU, utilizing a pre-tax discount rate that reflects current market estimates of the time value of money and the risks specific to the unit for which the estimates of future cash flows have not been adjusted. If the recoverable amount is less than the carrying amount of the cash generating unit, the carrying amount is reduced to the recoverable amount.

The impairment loss is recognized immediately in the income statement. Where an impairment loss subsequently reverses, the carrying amount of the CGU is increased to the revised estimate of the recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined, had no impairment loss been recognized in prior years.

For the purpose of assessing impairment, assets, time charter and bareboat contracts are grouped at the lowest levels at which impairment is monitored for internal management purposes.

## NOTE 11 - LOAN RECEIVABLES

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Loan receivables |  |  |  |
| Cost: |  |  |  |
| Balance as of 01 January | 4.7 | 4.7 | 4.7 |
| Balance as of 31 December | 4.7 | 4.7 | 4.7 |
| Expected credit loss: |  |  |  |
| Balance as of 01 January | 0.1 | 0.1 | 0.1 |
| Balance as of 31 December | 0.1 | 0.1 | 0.1 |
| Carrying amount as of 31 December | 4.6 | 4.6 | 4.6 |

The loans were issued as part of sale and lease back transactions in 2019 for two MR vessels. The loans will mature in 2026 and have an interest rate applicable fixed at 1% per annum.

Expected credit loss is recognized based on the 12-month expected credit losses.

### Accounting policies

#### Loan receivables

Loan receivables are initially recognized on the balance sheet as fair value less transaction costs. After initial recognition, loan receivables are measured at amortized cost. Amortized cost is defined as the amount initially recognized reduced by principal repayments and allowances for the expected credit loss (ECL).

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 152

## NOTE 12 - FINANCIAL ITEMS

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Financial income |  |  |  |
| Interest income from cash and cash equivalents, including restricted cash 1) | 4.0 | 0.2 | 0.5 |
| Total | 4.0 | 0.2 | 0.5 |
| Financial expenses |  |  |  |
| Interest expenses on borrowings 1) | 48.5 | 40.0 | 45.6 |
| Financial expenses arising from lease liabilities regarding right-of-use assets | 0.2 | 0.3 | 1.5 |
| Exchange rate adjustments, including loss from forward exchange rate contracts | 0.5 | 0.5 | 1.0 |
| Commitment fee | 0.6 | 1.1 | 1.5 |
| Amortization of interest rate swaps | 2.4 | 1.4 | - |
| Ineffectiveness on interest rate swaps | -3.6 | -1.2 | - |
| Other financial expenses | 0.2 | 0.3 | 0.3 |
| Total | 48.8 | 42.4 | 49.9 |
| Total financial items | -44.8 | -42.2 | -49.4 |

$^{1)}$ Interest for financial assets and liabilities not at fair value through profit and loss.

### Accounting policies

#### Financial income

Financial income comprises interest income, realized and unrealized exchange rate gains relating to transactions in currencies other than the functional currency, realized gains from other equity investments and securities, unrealized gains from securities, dividends received, and other financial income. Interest is recognized in accordance with the accrual basis of accounting considering the effective interest rate. Dividends from other investments are recognized when the right to receive payment has been decided, which is typically when the dividend has been declared and can be received without conditions.

#### Financial expenses

Financial expenses comprise interest expenses, financing costs of leases liabilities, realized and unrealized exchange rate losses relating to transactions in currencies other than the functional currency, realized losses from other equity investments and securities, unrealized losses from securities, and other financial expenses including payments under interest rate hedge instruments. Interest is recognized in accordance with the accrual basis of accounting considering the effective interest rate.

## NOTE 13 - TRADE RECEIVABLES

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Analysis as of 31 December of trade receivables: |  |  |  |
| Gross trade receivables: |  |  |  |
| Not due | 122.3 | 43.4 | 17.9 |
| Due < 30 days | 52.1 | 17.9 | 10.8 |
| Due between 30 and 180 days | 76.8 | 23.2 | 23.7 |
| Due > 180 days | 14.2 | 2.6 | 12.0 |
| Total gross | 265.4 | 87.1 | 64.4 |
| Allowance for expected credit loss | 5.9 | 3.1 | 5.8 |
| Total net | 259.5 | 84.0 | 58.6 |

Management makes allowance for expected credit loss based on “the simplified approach” according to IFRS 9 to provide for expected credit losses, which permits the use of the lifetime expected loss provision for all trade receivables. Expected credit loss for receivables overdue more than 180 days is 25%-100%, depending on the category of the receivable. Expected credit loss for receivables overdue more than one year is 100%.

Movements in provisions for impairment of freight receivables during the year are as follows:

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Allowance for expected credit loss |  |  |  |
| Balance as of 01 January | 3.1 | 5.8 | 3.7 |
| Provisions for the year | 3.4 | 0.7 | 3.1 |
| Provisions reversed during the year | -0.6 | -3.4 | -1.0 |
| Balance as of 31 December | 5.9 | 3.1 | 5.8 |

Allowance for expected credit loss of trade receivables has been recognized in the income statement under “Port expenses, bunkers, commissions, and other costs of goods sold”.

Allowance for expected credit loss of trade receivables is calculated using an ageing factor as well as specific customer knowledge and is based on a provision matrix on days past due.

All allowance for expected credit loss relates to receivables due &gt; 180 days.

### Accounting policies

#### Receivables

Outstanding trade receivables and other receivables which are expected to be realized within 12 months from the balance sheet date are classified as “Trade receivables” or “Other receivables” and presented as current assets.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 153

#### NOTE 13 - continued

Receivables are, at initial recognition, measured at their transaction price less allowance for expected credit losses over the lifetime of the receivable and are subsequently measured at amortized cost adjusted for changes in expected credit losses. Derivative financial instruments included in other receivables are measured at fair value.

##### Expected credit losses

Expected credit losses are, at initial recognition, determined using an ageing factor as well as a specific customer knowledge such as customers' ability to pay, considering historical information about payment patterns, credit risks, customer concentrations, customer creditworthiness as well as prevailing economic conditions. The estimates are updated subsequently, and if the debtor's ability to pay is becoming doubtful, expected credit losses are calculated on an individual basis. When there are no reasonable expectations of recovering the carrying amount, the receivable is written off in part or entirely.

#### NOTE 14 - OTHER RECEIVABLES

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Derivative financial instruments | 55.3 | 8.3 | 4.5 |
| Escrow accounts | 14.9 | 27.4 | 14.9 |
| Other | 3.8 | 4.3 | 5.5 |
| Balance as of 31 December | 74.0 | 40.0 | 24.9 |

No significant other receivables are past due or credit impaired.

The carrying amount is a reasonable approximation of fair value due to the short-term nature of the receivables. Please refer to Note 25 for further information on fair value hierarchies.

#### NOTE 15 - PREPAYMENTS

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Prepaid insurance payments | - | 0.8 | 0.7 |
| Prepaid bareboat hire | 3.0 | 0.4 | 0.3 |
| Prepaid customer contract assets | 3.0 | 2.0 | - |
| Other prepayments | 4.0 | 2.4 | 1.2 |
| Balance as of 31 December | 10.0 | 5.6 | 2.2 |

#### NOTE 16 - TAX

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Tax for the year |  |  |  |
| Current tax for the year | 0.5 | 0.6 | 0.4 |
| Adjustments related to previous years | -0.1 | -0.1 | 0.1 |
| Adjustment of deferred tax | -7.3 | -0.1 | - |
| Income tax charge for the year | -6.9 | 0.4 | 0.5 |
| Tonnage tax charge for the year | 1.0 | 0.9 | 0.9 |
| Total | -5.9 | 1.3 | 1.4 |

Adjustment of deferred tax of USD 7.3m for the year ended 31 December 2022 primarily consists of the recognition of deferred tax assets for unused tax credits for charges subject to the corporate interest restriction and for carried forward losses, which now qualify for recognition as a result of the deferred tax liability related to the unrealized gain on interest swaps.

The majority of the Group's taxable income is located in Denmark, and therefore the majority of the tax base is subject to Danish tax legislation. As such, the Group has elected to participate in the Danish tonnage tax scheme; the participation is binding until 31 December 2024. The Group expects to participate in the tonnage tax scheme after the binding period and, as a minimum, to maintain an investment and activity level equivalent to that at the time of entering the tonnage tax scheme.

Under the Danish tonnage tax scheme, income and expenses from shipping activities are not subject to direct taxation, and accordingly, an effective rate reconciliation has not been provided, as it would not provide any meaningful information. Instead, the taxable income is calculated from:

- The net tonnage of the vessels used to generate the income from shipping activities

Corporate income tax is primarily levied on the Group's non-vessel-related activities. The effective tax rate of the Group is -1% (2021: 3.3%, 2020 1.6%). Net deferred tax liability in relation to entities outside the tonnage tax regime amounts to USD 5.5m.

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Deferred tax recognised in the balance sheet |  |  |  |
| Deferred tax asset | 0.6 | 0.7 | 0.3 |
| Deferred tax liabilities | -6.1 | - | - |
| Deferred tax, net as of 31 December | -5.5 | 0.6 | 0.3 |
| Balance as of 01 January | 0.6 | 0.3 | - |
| Deferred tax for the year | 7.3 | 0.1 | - |
| Deferred tax relating to changes in equity | -13.2 | - | - |
| Additions from business combinations | -0.3 | - | - |
| Other changes | 0.1 | 0.3 | 0.3 |
| Balance as of 31 December | -5.5 | 0.7 | 0.3 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 154

#### NOTE 16 - continued

The deferred tax asset is derived from prior-year losses and can only be utilized on taxable income arising from the same trade as when the tax losses were incurred. The tax value of tax loss carry forwards is included in deferred tax assets to the extent that these are expected to be utilized in future taxable income.

As per December 2022, there are unused tax credits of USD 2.2m (2021: USD 13.5m) relating to prior year losses, as the utilization of these losses may not be used to offset taxable profit due to a high degree of uncertainty of future taxable profits.

The deferred tax liability is derived from temporary differences between the accounting and tax values of derivative financial instruments of USD 13.2m and intangible assets of USD 0.3m.

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Non-current tax liability related to held-over gains |  |  |  |
| Balance as of 31 December | 45.2 | 45.2 | 44.9 |

The non-current tax liability related to held-over gains is the undiscounted income tax payable calculated on the realized gain on sale of vessels which came from corporate income taxation into the Danish tonnage tax scheme upon initial application in 2001 (the held-over gain reflected in the transition account under the Danish tonnage tax scheme). This tax liability will become payable, in part or in full, if the Danish owned fleet of vessels is significantly or fully disposed of, or if operated to end of useful life and sold for scrap.

If TORM discontinues its participation in the Danish tonnage tax scheme, a deferred tax liability would arise in relation to the vessels held by the Group and taken out of the tonnage tax scheme. Management considers this to be a remote scenario.

The Group operates in a wide variety of jurisdictions, in some of which the tax law is subject to varying interpretations and potentially inconsistent enforcement. As a result, there can be practical uncertainties in applying tax legislation to the Group's activities. Whilst the Group considers that it operates in accordance with applicable tax law, there are potential tax exposures in respect of its operations, the impact of which cannot be reliably estimated but could be material.

#### Accounting policies

##### Tax

Tax expenses comprise the expected income tax charge for the year in accordance with IAS 12 as well as tonnage tax related to the Group's vessels for the year. The income tax charge for the year includes adjustments relating to previous years and the change in deferred tax for the year. However, income tax relating to items in other comprehensive income is recognized directly in the statement of other comprehensive income.

#### NOTE 16 - continued

##### Deferred tax

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Deferred tax is calculated at the income tax rates which are expected to apply in the period when the liability is settled or the asset is realized, based on the laws which have been enacted or substantially enacted at the balance sheet date. The deferred tax is charged through the income statement except when it relates to other comprehensive income items. No deferred tax is recognized related to assets and liabilities, including vessels which are subject to tonnage tax.

##### Income tax balances

The expected income tax payable on the taxable profits for the year is classified as current tax in the balance sheet. Income taxes expected to fall due after more than one year are classified as non-current liabilities or assets in the balance sheet. Income tax is measured using tax rates enacted or substantially enacted at the balance sheet date and includes any adjustment to tax payable in respect of previous years. Current and non-current income tax balances are not discounted.

#### NOTE 17 - COMMON SHARES AND TREASURY SHARES

| Common shares | Nominal value per share (USD) | 2022 Number of shares | 2021 Number of shares | 2020 Number of shares |
| --- | --- | --- | --- | --- |
| A-shares | 0.01 | 82,311,299 | 81,233,269 | 74,855,929 |
| B-shares | 0.01 | 1 | 1 | 1 |
| C-shares | 0.01 | 1 | 1 | 1 |
| Total |  | 82,311,301 | 81,233,271 | 74,855,931 |

During the year, the share capital was increased by 1,078,030 A-shares with a nominal value of USD 10,780.30 in connection with exercises of Restricted Share Units leading to a total cash contribution of USD 8.0m.

During 2021, the share capital was increased by 6,377,340 A-shares with a nominal value of USD 63,773.40. The total amount including share premium amounted to USD 57.9m. USD 55.0m was a non-cash increase in conjunction with the acquisition of the eight Team Tanker vessels, and USD 2.9m was contributed in cash in connection with exercises of Restricted Share Units.

During 2020, the share capital was increased by 107,681 A-shares with a nominal value of USD 1,076.81 in connection with exercises of Restricted Share Units leading to a total cash contribution of USD 0.8m.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 155

#### NOTE 17 - continued

The A-shares are listed on Nasdaq in Copenhagen and Nasdaq in New York and are publicly available for trading. Each A-share carries one vote at the General Meetings and gives the shareholders the right to dividends, liquidation proceeds, or other distributions. The A-shares carry no other rights or obligations. The B-share has one vote at the General Meetings, has no pre-emption rights in relation to any issue of new shares of other classes, and carries no right to receive dividends, liquidation proceeds, or other distributions from TORM.

The holder of the B-share has the right to elect one member to the Board of Directors (being the Deputy Chairman), up to three alternates as well as one Board Observer. The B-share cannot be transferred or pledged, except for a transfer to a replacement trustee.

The C-share represents 350,000,000 votes at the General Meetings in respect of certain Specified Matters, including election of members to the Board of Directors (including the Chairman, but excluding the Deputy Chairman) and certain amendments to the Articles of Association proposed by the Board of Directors. The C-share has no pre-emption rights in relation to any issue of new shares of other classes and carries no right to receive dividends, liquidation proceeds, or other distributions from TORM. The C-share cannot be transferred or pledged, except to an affiliate of Njord Luxco.

The B-share and the C-share are redeemable by TORM in the event that (i) TORM has received written notification from Njord Luxco (or its affiliates) that Njord Luxco and its affiliates (as defined in the Articles of Association) hold less than 1/3 in aggregate of TORM's issued and outstanding shares, (ii) five business days have elapsed from the Board of Directors' receipt of such written notice either without any Board member disputing such notice or with at least 2/3 of the Board members confirming such notice, and (iii) both of the B-share and the C-share are redeemed at the same time.

| Treasury shares | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Number of shares ('000) |  |  |  |
| Balance as of 01 January | 493.4 | 493.4 | 312.9 |
| Additions | - | - | 180.5 |
| Balance as of 31 December | 493.4 | 493.4 | 493.4 |
|  | 2022 | 2021 | 2020 |
| Nominal value USD '000 |  |  |  |
| Balance as of 01 January | 4.9 | 4.9 | 3.1 |
| Additions | - | - | 1.8 |
| Balance as of 31 December | 4.9 | 4.9 | 4.9 |

#### NOTE 17 - continued

| Treasury shares - continued | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Percentage of share capital |  |  |  |
| Balance as of 01 January | 0.6% | 0.7% | 0.4% |
| Additions | - | - | 0.2% |
| Dilution due to capital increases | - | -0.1% | 0.1% |
| Balance as of 31 December | 0.6% | 0.6% | 0.7% |

The total consideration during the year for the treasury shares was USD 0.0m (2021: USD 0.0m, 2020: USD 1.3m). As of 31 December 2022, the Company's holding of treasury shares represented 493,371 shares (2021: 493,371 shares, 2020: 493,371 shares) of USD 0.01 each at a total nominal value of USD 0.0m (2021: USD 0.0m, 2020: USD 0.0m) and a market value of USD 14.0m (2021: USD 3.9m, 2020: USD 3.7m).

#### Restricted Share Units

Key management participates in an LTIP program, which gives the right to buy TORM shares at a predefined share price. Please refer to Note 3.

#### NOTE 18 - OTHER LIABILITIES

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Accrued operating expenses | 12.0 | 11.8 | 14.3 |
| Accrued interest | 3.6 | 2.3 | 3.1 |
| Wages and social expenses | 15.0 | 15.1 | 16.8 |
| Derivative financial instruments | 1.9 | 11.3 | 24.7 |
| Other | 1.6 | 3.2 | 0.9 |
| Balance as of 31 December | 34.1 | 43.7 | 59.8 |
| Hereof non-current | 3.0 | - | - |
| Hereof current | 31.1 | 43.7 | 59.8 |

The carrying amount is a reasonable approximation of fair value due to the short-term nature of the payable. Please refer to Note 25 for further information on fair value hierarchies.

#### Accounting policies

Other liabilities are generally measured at amortized cost. Derivative financial instruments included in other liabilities are measured at fair value.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 156

## NOTE 19 - EFFECTIVE INTEREST RATE, OUTSTANDING BORROWINGS

As of 31 December 2022, TORM had an undrawn USD 45m Working Capital Facility and an undrawn USD 47m Revolving Credit Facility as part of the Term Facility.

Please refer to Note 2 for further information on the Company's liquidity and capital resources as well as to Note 2 Subsequent events for commitment obtained for refinancing existing facilities and Notes 23 and 24 for further information on interest rate swaps and financial risks.

| USDm | Fixed/ floating | 2022 |  |  | 2021 |  |  | 2020 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Maturity | Effective interest 1) | Carrying value 2) | Maturity | Effective interest 1) | Carrying value 2) | Maturity | Effective interest 1) | Carrying value 2) |
| Borrowings |  |  |  |  |  |  |  |  |  |  |
| CEXIM (USD) | Floating | 2030 | 7.0% | 41.1 | 2030 | 4.0% | 44.9 | 2030 | 3.2% | 96.4 |
| Term Facility | Floating | 2026 | 7.6% | 143.8 | 2026 | 3.8% | 279.4 | 2026 | 3.0% | 299.1 |
| DSF Facility | Floating | 2027 | 6.7% | 201.8 | 2027 | 3.6% | 221.9 | 2027 | 2.9% | 150.3 |
| HCOB Facility | Floating | 2025 | 9.9% | 42.4 | 2025 | 5.1% | 85.3 | 2025 | 4.3% | 81.2 |
| HCOB Facility 2 | Floating | 2026 | 8.3% | 21.1 | 2026 | 4.5% | 25.4 | 2025 | 3.9% | 33.3 |
| KFW Facility | Floating | 2032 | 7.1% | 37.9 | 2032 | 4.1% | 40.9 | 2032 | 3.3% | 44.0 |
| BoComm 1 (USD) 3) | Floating | 2025 | 8.7% | 49.4 | 2025 | 4.9% | 59.2 | 2025 | 4.1% | 57.8 |
| BoComm 2 (USD) 3) | Floating | 2031 | 7.4% | 71.3 | 2031 | 4.9% | 37.8 | - | - | - |
| BoComm 3 (USD) 3) | Floating | 2029 | 7.8% | 90.9 | 2029 | 4.9% | 99.5 | - | - | - |
| CDBL 3) | Fixed | 2029 | 5.8% | 160.8 | 2029 | 5.8% | 150.8 | - | - | - |
| Springliner (USD) 3) | Fixed | 2026 | 4.8% | 30.7 | 2026 | 4.8% | 33.4 | 2026 | 4.8% | 36.0 |
| Eifuku (USD) 3) | Floating | 2026 | 7.9% | 20.9 | 2026 | 4.3% | 22.4 | 2026 | 3.9% | 24.1 |
| Showa (USD) 3) | Floating | 2024 | 8.6% | 18.7 | 2024 | 4.1% | 20.9 | 2024 | 3.3% | 23.0 |
| CMBFL 3) | Fixed | 2033 | 4.9% | 37.3 | - | - | - | - | - | - |
| Other credit facilities | Fixed | 2026 | 3.1% | 4.9 | - | - | - | - | - | - |
| Sale and leaseback transaction prepayment | N/A | - | - | - | 2022 | - | 21.0 | - | - | - |
| Weighted average effective interest rate 4) |  |  | 7.1% |  |  | 4.4% |  |  | 3.4% |  |
| Total borrowings |  |  |  | 973.0 |  |  | 1,142.8 |  |  | 845.2 |
| Borrowing costs included (amortised costs) |  |  |  | -11.1 |  |  | -13.0 |  |  | -10.9 |
| Right-of-use lease liabilities |  |  |  | 5.0 |  |  | 5.7 |  |  | 8.1 |
| Total |  |  |  | 966.9 |  |  | 1,135.5 |  |  | 842.4 |
| Hereof non-current |  |  |  | 849.8 |  |  | 926.5 |  |  | 739.5 |
| Hereof current |  |  |  | 117.1 |  |  | 209.0 |  |  | 102.9 |

$^{1)}$ Effective interest rate includes deferred and amortized bank fees.

$^{2)}$ Because of the floating interest rate, the carrying value of the Group's borrowings is approximately equal to the fair value except for fixed rate borrowings, where the fair value amounts to USD 223.5m (compared to a total carrying value as of 31 December 2022 of USD 233.7m).

$^{3)}$ Lease debt recognized under sale and leaseback arrangement with repurchase options (accounted for as finance transactions).

$^{4)}$ Please refer to note 23 for average interest rate including hedges.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 157

# **NOTE 19 - continued**

The following table summarizes the reconciliation of liabilities arising from financing activities:

| USDm | Opening balance as of 01 January 2022 | Cash movements |  | Non-cash movements |  | End balance as of 31 December 2022 |
| --- | --- | --- | --- | --- | --- | --- |
|  |  | Borrowings | Repayments | Business combinations | Other changes |  |
| Borrowings | 1,135.4 | 96.3 | -275.2 | 7.9 | 2.5 | 966.9 |
| Total | 1,135.4 | 96.3 | -275.2 | 7.9 | 2.5 | 966.9 |

| USDm | Opening balance as of 01 January 2021 | Cash movements |  | Non-cash movements |  | End balance as of 31 December 2021 |
| --- | --- | --- | --- | --- | --- | --- |
|  |  | Borrowings | Repayments | Business combinations | Other changes |  |
| Borrowings | 842.4 | 548.8 | -253.4 | - | -2.4 | 1,135.4 |
| Total | 842.4 | 548.8 | -253.4 | - | -2.4 | 1,135.4 |

| USDm | Opening balance as of 01 January 2020 | Cash movements |  | Non-cash movements |  | End balance as of 31 December 2020 |
| --- | --- | --- | --- | --- | --- | --- |
|  |  | Borrowings | Repayments | Business combinations | Other changes |  |
| Borrowings | 855.4 | 734.3 | -746.5 | - | 0.8 | 842.4 |
| Total | 855.4 | 734.3 | -746.5 | - | 0.8 | 842.4 |

# **NOTE 19 - continued**

# **Accounting policies**

Borrowings consist of mortgage debt, bank loans, and lease liabilities.

Borrowings are initially measured at fair value less transaction costs. Mortgage debt and bank loans are subsequently measured at amortized cost. This means that the difference between the net proceeds at the time of borrowing and the nominal amount of the loan is recognized in the income statement as a financial expense over the term of the loan applying the effective interest method.

When terms of existing financial liabilities are renegotiated, or other changes regarding the effective interest rate occur, TORM performs a test to evaluate whether the new terms are substantially different from the original terms. If the new terms are substantially different from the original terms, TORM accounts for the change as an extinguishment of the original financial liability and the recognition of a new financial liability.

# **NOTE 20 - COLLATERAL SECURITY FOR BORROWINGS**

The total carrying amount for vessels which have been provided as security for borrowings amounts to USD 1,856m as of 31 December 2022 (2021: USD 1,928m, 2020: USD 1,711m), including transferred ownership under sale and leaseback arrangements accounted for as financing transactions, where the vessels are not derecognized and where vessels are provided as security for lease debt.

Please refer to Note 1 for further information.

# **NOTE 21 - GUARANTEE COMMITMENTS AND CONTINGENT LIABILITIES**

The guarantee commitments of the Group are less than USD 0.1m (2021: USD 0.1m, 2020: USD 0.1m) and relate to guarantee commitments to Danish Shipping.

The Group is involved in certain other legal proceedings and disputes. It is Management's opinion that the outcome of these proceedings and disputes will not have any material impact on the Group's financial position, results of operations, and cash flows.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 158

## NOTE 22 - CONTRACTUAL OBLIGATIONS AND RIGHTS

The following table summarizes the Group's contractual obligations as of 31 December 2022.

| USDm | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Borrowings 1) | 119.8 | 130.0 | 127.2 | 185.9 | 161.7 | 253.4 | 978.0 |
| Interest payments related to scheduled interest fixing | 34.8 | 30.6 | 24.7 | 18.0 | 14.1 | 22.1 | 144.3 |
| Estimated variable interest payments 2) | 3.3 | 1.6 | 2.5 | 2.2 | 5.5 | 11.1 | 26.2 |
| Newbuilding installments 3) | - | - | - | - | - | - | - |
| Committed scrubber installations | 17.3 | 1.1 | - | - | - | - | 18.4 |
| Trade payables and other obligations | 81.6 | - | - | - | - | 2.5 | 84.1 |
| Total | 256.8 | 163.3 | 154.4 | 206.1 | 181.3 | 289.1 | 1,251.0 |

The following table summarizes the Group's contractual obligations as of 31 December 2021.

| USDm | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Borrowings 1) | 211.7 | 129.9 | 139.3 | 134.2 | 181.4 | 351.9 | 1,148.4 |
| Interest payments related to scheduled interest fixing | 43.4 | 38.6 | 33.0 | 25.4 | 17.8 | 35.3 | 193.5 |
| Estimated variable interest payments 2) | -0.3 | -0.8 | -0.7 | -0.1 | 0.2 | 2.8 | 1.1 |
| Newbuilding installments 3) | 39.9 | - | - | - | - | - | 39.9 |
| Committed scrubber installations | 8.1 | 0.5 | - | - | - | - | 8.6 |
| Trade payables and other obligations | 62.5 | - | - | - | - | - | 62.5 |
| Total | 365.3 | 168.2 | 171.6 | 159.5 | 199.4 | 390.0 | 1,454.0 |

The following table summarizes the Group's contractual obligations as of 31 December 2020.

| USDm | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Borrowings 1) | 101.8 | 101.9 | 102.1 | 114.4 | 106.9 | 315.3 | 842.4 |
| Interest payments related to scheduled interest fixing | 32.3 | 25.3 | 21.1 | 17.6 | 12.4 | 12.4 | 121.1 |
| Estimated variable interest payments 2) | 0.2 | 0.4 | 0.6 | 0.9 | 1.4 | 6.1 | 9.6 |
| Newbuilding installments 3) | 62.5 | 38.1 | - | - | - | - | 100.6 |
| Committed scrubber installations | 4.9 | - | - | - | - | - | 4.9 |
| Trade payables and other obligations | 42.7 | - | - | - | - | - | 42.7 |
| Total | 244.4 | 165.7 | 123.8 | 132.9 | 120.7 | 333.8 | 1,121.3 |

$^{1)}$ The presented amounts to be repaid do not include directly related costs arising from the issuing of the loans of USD 11.1m (2021: USD 13.0m, 2020: USD 10.9m), which are amortized over the term of the loans. Borrowing costs capitalized during the year amount to USD 0.7m (2021: USD 5.8m, 2020: USD 7.5m).

$^{2)}$ Variable interest payments are estimated based on the forward rates for each interest period including hedging instruments.

$^{3)}$ As of 31 December 2022, TORM had zero contracted newbuildings (2021: one, 2020: two). Commitments regarding newbuilding installments are in excess of the prepayments included in note 8.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 159

# **NOTE 22 - continued**

TORM has contractual rights to receive future payments as lessor of vessels on time charter and bareboat charter to customers.

The following table summarizes the Group's contractual rights as of 31 December 2022.

| USDm | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Contractual rights - as lessor: |  |  |  |  |  |  |  |
| Charter hire income for vessels a) | 2.1 | - | - | - | - | - | 2.1 |
| Total | 2.1 | - | - | - | - | - | 2.1 |

The following table summarizes the Group's contractual rights as of 31 December 2021.

| USDm | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Contractual rights - as lessor: |  |  |  |  |  |  |  |
| Charter hire income for vessels a) | 21.6 | - | - | - | - | - | 21.6 |
| Total | 21.6 | - | - | - | - | - | 21.6 |

The following table summarizes the Group's contractual rights as of 31 December 2020.

| USDm | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Contractual rights - as lessor: |  |  |  |  |  |  |  |
| Charter hire income for vessels a) | 39.1 | 2.3 | - | - | - | - | 41.4 |
| Total | 39.1 | 2.3 | - | - | - | - | 41.4 |

$^{a)}$ Charter hire income for vessels on time charter is recognized under 'Revenue'. During the years, revenue from time charter amounted to USD 64.7m (2021: 90.7m, 2020: USD 66.2m).

The average period until redelivery of the vessels for the period ended 31 December 2022 was 0.4 years (2021: 0.3 years, 2020: 0.4 years).

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 160

## NOTE 23 - DERIVATIVE FINANCIAL INSTRUMENTS

Please refer to Note 25 for further information on fair value hierarchies.

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Fair value of derivatives: |  |  |  |
| Derivative financial instruments regarding freight and bunkers: |  |  |  |
| Forward freight agreements - fair value through profit and loss | - | 0.4 | -3.2 |
| Bunker swaps - fair value through profit and loss | - | 0.2 | 3.7 |
| Bunker swaps - hedge accounting | - | 0.1 | 0.8 |
| Derivative financial instruments regarding interest and currency exchange rate: |  |  |  |
| Forward exchange contracts - hedge accounting | 0.4 | -1.6 | 2.0 |
| Interest rate swaps - hedge accounting | 53.7 | -2.2 | -23.5 |
| Fair value of derivatives as of 31 December | 54.1 | -3.1 | -20.2 |

Derivative financial instruments are presented as below on the balance sheet:

| USDm | Financial assets | Financial liabilities |
| --- | --- | --- |
| 2022 |  |  |
| Offsetting financial assets and financial liabilities: |  |  |
| Gross amount | 54.5 | -0.4 |
| Offsetting amount | - | - |
| Net amount presented in the statement of financial position | 54.5 | -0.4 |

| USDm | Financial assets | Financial liabilities |
| --- | --- | --- |
| 2021 |  |  |
| Offsetting financial assets and financial liabilities: |  |  |
| Gross amount | 7.7 | -10.8 |
| Offsetting amount | - | - |
| Net amount presented in the statement of financial position | 7.7 | -10.8 |

## NOTE 23 - continued

| USDm | Financial assets | Financial liabilities |
| --- | --- | --- |
| 2020 |  |  |
| Offsetting financial assets and financial liabilities: |  |  |
| Gross amount | 9.9 | -30.1 |
| Offsetting amount | -5.4 | 5.4 |
| Net amount presented in the statement of financial position | 4.5 | -24.7 |

Derivative financial instruments assets are offset against derivative financial instruments liabilities where the counterparty is identical.

Hedging of risks with derivative financial instruments is made with a ratio of 1:1. Sources of ineffectiveness are mainly derived from differences in timing and credit risk adjustments. Any ineffective portions of the cash flow hedges are recognized in the income statement as financial items. Value adjustments of the effective part of cash flow hedges are recognized directly in comprehensive income. Gains and losses on cash flow hedges are transferred upon realization from the equity hedging reserve into the income statement.

At year-end 2022, 2021, and 2020, TORM held the following derivative financial instruments designated as hedge accounting:

| 2022 | Notional value | Unit | 2023 | 2024 | After 2024 |
| --- | --- | --- | --- | --- | --- |
| Forward exchange contracts (USD/DKK) 1) | 280.3 | DKKm | 280.3 | - | - |
| Interest rate swaps 2) | 687.2 | USDm | 136.9 | 51.6 | 498.7 |

$^{1)}$ The average hedge of USD/DKK currency was 6.9.

$^{2)}$ The average interest rate was 1.37 p.a. plus margin.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 161

# **NOTE 23 - continued**

| Hedge accounting 2021 | Notional value | Unit | Expected maturity |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | 2022 | 2023 | After 2023 |
| Forward exchange contracts (USD/DKK) 1) | 274.0 | DKKm | 274.0 | - | - |
| Interest rate swaps 2) | 768.7 | USDm | 130.9 | 136.9 | 500.9 |
| Bunker swaps 3) | 9,920.0 | MT | 9,920.0 | - | - |

$^{1)}$ The average hedge of USD/DKK currency was 6.3.

$^{2)}$ The average interest rate was 1.38 p.a. plus margin.

$^{3)}$ The average price of the hedging instruments was USD 642.4.

| Hedge accounting 2020 | Notional value | Unit | Expected maturity |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | 2021 | 2022 | After 2022 |
| Forward exchange contracts (USD/DKK) 1) | 231.5 | DKKm | 231.5 | - | - |
| Interest rate swaps 2) | 757.5 | USDm | 318.0 | 84.0 | 355.5 |
| Bunker swaps 3) | 19,783.0 | MT | 19,783.0 | - | - |

$^{1)}$ The average hedge of USD/DKK currency was 6.4.

$^{2)}$ The average interest rate was 2.11 p.a. plus margin.

$^{3)}$ The average price of the hedging instruments was USD 326.9.

Interest rate swaps with a fair value of USD 53.7m (net gain) applying the USD LIBOR settings are designated as hedge accounting relationships to fix a part of TORM's interest payments during the period 2023-2028 with a notional value of USD 687.2m (2021: USD 768.7m, 2020: USD 757.5m).

The derivatives are not under central clearing but are settled on a bilateral basis with the counterparties. All contracts are settled in a net amount per counterparty, and therefore the net value per counterparty is presented in the financial statement.

Cash collateral of USD 1.4m (2021: USD 3.7m, 2020: USD 43.8m) has been provided as security for the agreements relating to derivative financial instruments, which does not meet the offsetting criteria in IAS 32, but which can be offset against the net amount of the derivative asset and derivative liability in case of default, and insolvency, or bankruptcy in accordance with associated collateral arrangements.

# **NOTE 23 - continued**

TORM did not enter into any enforceable netting arrangements.

Further details on derivative financial instruments are provided in Notes 24 and 25.

Forward freight agreements (FFAs) of USD 33.3m (net loss) have been recognized in the income statement in 2022 (2021: USD 0.4m, 2020: USD 1.9m). FFAs are used to mitigate fluctuations in the freight rates of vessels with a duration of 0-24 months. The FFAs are not designated for hedge accounting.

Bunker swap agreements of USD 13.8m (net gain) have been recognized in the income statement in 2022 (2021: USD 12.0m, 2020: USD 2.9m). Bunker swaps with a duration similar to the period hedged are used to reduce the exposure to fluctuations in bunker prices for fixed voyages. Bunker swap agreements are designated as hedge accounting when appropriate.

Forward exchange contracts with a fair value of USD 0.4m (net gain) are designated as hedge accounting relationships to hedge a part of TORM's payments in 2023 regarding administrative and operating expenses denominated in DKK with a notional value of DKK 280.3m (2021: DKK 274.0m, 2020: DKK 231.5m).

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 162

# **NOTE 23 - continued**

The table below shows realized amounts as well as fair value adjustments regarding derivative financial instruments recognized in the income statements and equity in 2022, 2021 and 2020.

| USDm | Income statement |  |  |  |  | Other comprehensive income |  | Equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Revenue | Port expenses, bunkers, and commissions | Financial items | Operating expenses | Administrative expenses | Transfer to income statement | Fair value adjustment | Hedging reserves as of 31 December |
| 2022 |  |  |  |  |  |  |  |  |
| Forward freight agreements | - | -33.3 | - | - | - | - | - | - |
| Bunker swaps | - | 13.8 | - | - | - | -3.3 | 3.3 | - |
| Forward exchange contracts | - | - | - | -2.4 | -2.3 | 4.6 | -2.7 | 0.4 |
| Interest rate swaps | - | - | 3.2 | - | - | 0.4 | 54.3 | 52.6 |
| Total | - | -19.5 | 3.2 | -2.4 | -2.3 | 1.7 | 54.9 | 53.0 |
| 2021 |  |  |  |  |  |  |  |  |
| Forward freight agreements | - | 0.4 | - | - | - | - | - | - |
| Bunker swaps | - | 12.0 | - | - | - | -2.8 | 2.1 | 0.1 |
| Forward exchange contracts | - | - | - | 0.1 | 0.1 | -0.2 | -3.4 | -1.6 |
| Interest rate swaps | - | - | -10.8 | - | - | 11.7 | 9.8 | -2.1 |
| Total | - | 12.4 | -10.8 | 0.1 | 0.1 | 8.7 | 8.5 | -3.6 |
| 2020 |  |  |  |  |  |  |  |  |
| Forward freight agreements | 1.9 | - | - | - | - | - | - | - |
| Bunker swaps | - | 2.9 | - | - | - | 1.2 | -0.1 | 0.8 |
| Forward exchange contracts | - | - | - | -0.1 | 0.1 | - | 2.4 | 2.0 |
| Interest rate swaps | - | - | -5.7 | - | - | 5.7 | -18.1 | -23.5 |
| Total | 1.9 | 2.9 | -5.7 | -0.1 | 0.1 | 6.9 | -15.8 | -20.7 |

The hedging reserves as of 31 December relates to derivatives used for cash flow hedge for open hedge instruments, only. Certain interest rate swaps include portions of ineffectiveness. The ineffectiveness is recognized in 'Financial expenses' in the income statement. Please refer to note 23 for a full overview of the fair value of hedge instruments.

Please refer to note 21 for further information on commercial and financial risks.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 163

NOTE 23 - continued

## Accounting policies

### Derivative financial instruments and hedge accounting

Derivative financial instruments, primarily forward currency exchange contracts, forward freight agreements, interest rate hedges, and forward contracts regarding bunker purchases are entered into to eliminate risks relating to future fluctuations in prices and interest rates, etc. on future committed or anticipated transactions. TORM applies hedge accounting under the specific rules on cash flow hedges, when appropriate, as described below for each type of derivative.

Changes in the fair value of derivative financial instruments designated as cash flow hedges and deemed to be effective are recognized directly in “Other comprehensive income”. When the hedged transaction is recognized in the income statement, the cumulative value adjustment recognized in “Other comprehensive income” is transferred to the income statement and included in the same line as the hedged transaction. However, when the hedged transaction results in the recognition of a fixed asset, the gains and losses previously accumulated in “Other comprehensive income” are transferred from “Other comprehensive income” and included in the initial measurement of the cost of the fixed asset. Changes in the fair value of a portion of a hedge deemed to be ineffective are recognized in the income statement.

Changes in the fair value of derivative financial instruments not designated as hedges are recognized in the income statement. While effectively reducing cash flow risk in accordance with the Company’s risk management policy, certain forward freight agreements and forward contracts regarding bunker purchases do not qualify for hedge accounting. Changes in fair value of these derivative financial instruments are therefore recognized in the income statement under “Financial income” or “Financial expenses” for interest rate swaps with cap features and under “Port expenses, bunkers and commissions” for forward freight agreements and forward bunker contracts.

NOTE 24 - RISKS ASSOCIATED WITH TORM’S ACTIVITIES

TORM’s overall risk tolerance and inherited exposure to risks is divided into five main categories:

- Emerging risks
- Industry and market risks
- Operational risks
- Compliance and IT risks
- Financial risks

The risks described below under each of the five categories are considered to be among the most significant and quantifiable risks for TORM.

### Emerging risks

Industry-changing risks, such as the substitution of oil for other energy sources and radical changes in transportation patterns, are considered to have a relatively high potential impact but are long-term risks. Management continues to monitor long-term strategic risks to ensure the earliest possible mitigation of potential risks and develop the necessary capabilities to exploit opportunities created by the same risks.

Please refer to the Risk Management section under Climate-related risk analysis and TCFD on pages 75-77 for a detailed description of emerging risks.

### Industry and market risks

Industry and market-related risk factors relate to changes in the markets and in the political, economic, and physical environment which Management cannot control, such as freight rates and vessel and bunker prices.

### Freight rate fluctuations

TORM’s income is primarily generated from voyages carried out using the Company’s fleet of vessels. As such, TORM is exposed to the considerable volatility which characterizes freight rates for such voyages.

It is TORM’s strategy to seek a certain exposure to this risk, as volatility also represents an opportunity because earnings have historically been higher in the day-to-day market compared to time charters. The fluctuations in freight rates for different routes may vary substantially. However, TORM aims to reduce the sensitivity to the volatility of such specific freight rates by actively seeking the optimal geographical positioning of the fleet and by optimizing the services offered to customers. Please refer to Note 10 for details on impairment testing.

Tanker freight income is to a certain extent covered against general fluctuations through the use of physical contracts such as cargo contracts and time charter agreements with durations of 6-36 months. In addition, TORM uses derivative financial instruments such as forward freight agreements (FFAs) with coverage of typically 0-24 months ahead, based on market expectations and in accordance with TORM’s risk management policies.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 164

#### NOTE 24 - continued

During 2022, 12.8% (2021: 31.5%, 2020: 14.4%) of the 28,756 earning days deriving from operating the Company's product tankers were hedged in this way. Physical time charter contracts accounted for 46.1% (2021: 35.7%, 2020: 41.9%) of overall hedging. In 2022, the Company sold FFAs with a notional contract value of USD 58.3m (2021: USD 44.2m, 2020: USD 165.0m) and bought FFAs with a notional contract value of USD 92.3m (2021: USD 110.3m, 2020: USD 52.7m). The total notional contract volume sold in 2022 was 2,310,000 metric tons (2021: 2,410,000 metric tons; 2020: 8,799,000 metric tons), and the total notional volume bought was 2,592,000 metric tons (2021: 5,962,000 metric tons, 2020: 2,714,000 metric tons). At the end of 2022, the coverage of available earning days for 2023 was 3.7% through time charters, current spot voyages and cargo contracts (2021: 9.9%, 2020: 28.1%).

FFA trade and other freight-related derivatives are subject to specific policies and guidelines approved by the Risk Committee, including trading limits, stop-loss policies, segregation of duties, and other internal control procedures.

All things being equal and to the extent the Company's vessels have not already been chartered out at fixed rates, a freight rate change of USD/day 1,000 would lead to the following changes in profit before tax based on the expected number of earning days for the coming financial year:

##### Sensitivity to changes in freight rates

| USDm | 2023 | 2022 | 2021 |
| --- | --- | --- | --- |
| Decrease in freight rates of USD/day 1,000: |  |  |  |
| Changes in profit/loss before tax for the following year | -26.5 | -27.2 | -18.8 |
| Changes in equity for the following year | -26.5 | -27.2 | -18.8 |

##### Sales and purchase price fluctuations

As an owner of vessels, TORM is exposed to risks associated with changes in the value of the vessels, which can vary considerably during their useful lives. As of 31 December 2022, the carrying value of the fleet was USD 1,856m (2021: USD 1,937.8m, 2020: USD 1,722.5m). Based on broker valuations, TORM's fleet had a market value of USD 2,650.3m as of 31 December 2022 (2021: USD 1,869.5m, 2020: USD 1,475.8m).

#### NOTE 24 - continued

##### Bunker price fluctuations

The cost of fuel oil consumed by the vessels, known in the industry as bunkers, accounted for 61.3% (2021: 56.4%, 2020: 62.3%) of the total voyage costs in 2022 and is by far the biggest single cost related to a voyage.

TORM is exposed to fluctuations in bunker prices which are not reflected in the freight rates achieved by TORM. To reduce this exposure, TORM hedges the bunker exposure with oil product instruments to the extent bunker element in the freight rates achieved is considered fixed.

Bunker trade is subject to specific risk policies and guidelines approved by the Risk Committee including trading limits, stop-loss, stop-gain and stop-at-zero policies, segregation of duties and other internal control procedures.

TORM only hedges bunker exposure whenever the freight is fixed beyond one month. In 2022, 15.2% (2021: 42.1%, 2020: 14.6%) of TORM's total bunker purchase was hedged through bunker hedging contracts. At the end of 2022, TORM had covered 0% (2021: 4.1%, 2020: 15.6%) of its bunker requirements for 2023. The total bunker exposure is estimated to be approximately 398,021 metric tons.

All things being equal, a price change of 10% per ton of bunker oil (without subsequent changes in freight rates) would lead to the following changes in expenditure based on the expected bunker consumption in the spot market:

##### Sensitivity to changes in the bunker price

| USDm | 2023 | 2022 | 2021 |
| --- | --- | --- | --- |
| Increase in the bunker prices of 10% per ton: |  |  |  |
| Changes in profit/loss before tax for the following year | -22.1 | -22.6 | -22.0 |
| Changes in equity for the following year | -22.1 | -22.6 | -22.0 |

##### Operational risks

Operational risks are risks associated with the ongoing operations of the business and include risks such as the safe operation of vessels, the availability of experienced seafarers and staff, terrorism, piracy as well as insurance and counterparty risk.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 165

## NOTE 24 - continued

### Insurance coverage

During the fleet's operation, various casualties, accidents, and other incidents may occur which may result in financial losses for TORM. For example national and international rules, regulations, and conventions could mean that TORM may incur substantial liabilities if a vessel is involved in an oil spill or emission of other environmentally hazardous agents.

To reduce the exposure to these risks, the fleet is insured against such risks to the extent possible. The total insurance program comprises a broad cover of risks in relation to the operation of vessels and transportation of cargo, including personal injury, environmental damage and pollution, cargo damage, third-party casualty and liability, hull and machinery damage, total loss, and war. All TORM's owned vessels are insured for an amount corresponding to their market value plus a margin to cover any fluctuations. Liability risks are covered in line with international standards. It is TORM's policy to cooperate with financially sound international insurance companies with a credit rating of BBB or better, presently some 14-16 companies along with two PBI clubs, to diversify risk. The PBI clubs are members of the internationally recognized collaboration, International Group of PBI clubs, and TORM's vessels are each insured for the maximum amount available in the PBI system. At the end of 2022, the aggregate insured value of hull and machinery and interest for TORM's owned vessels amounted to USD 2.8bn (2021: USD 2.1bn, 2020: USD 1.9bn).

### Counterparty risk

Counterparty risk is an ever-present challenge demanding close monitoring to manage and decide on actions to minimize possible losses. The maximum counterparty risk associated is equal to the values recognized in the balance sheet. A consequential effect of the counterparty risk is loss of income in future periods, e.g. counterparties not being able to fulfill their responsibilities under a time charter, a contract of affreightment, or an option. The main risk is the difference between the fixed rates under a time charter or a contract of affreightment and the market rates prevailing upon default. This characterizes the method for identifying the market value of a derivative instrument.

TORM has a close focus on its risk policies and procedures to ensure that risks managed in the day-to-day business are kept at agreed levels, and that changes in the risk situation are brought to Management's attention.

TORM's counterparty risks are primarily associated with:

- Derivatives financial instruments and commodity instruments with a positive fair value

## NOTE 24 - continued

### Receivables, cash, and cash equivalents, including restricted cash

The majority of TORM's customers are companies operating in the oil industry. It has been assessed that these companies are, to a great extent, subject to the same risk factors as those identified for TORM.

A major part of TORM's freight revenues stem from a small group of customers. In 2022, one customer accounted for 12% of TORM's freight revenues (2021: one accounted for 15%, 2020: one accounted for more than 10%). The concentration of earnings on a few customers requires extra attention to credit risk. TORM has a credit policy under which continued credit evaluations of new and existing customers take place. For long-standing customers, payment of freight normally takes place after a vessel's cargo has been discharged. For new and smaller customers, TORM's credit risk is limited as freight is usually paid prior to the cargo's discharge, or, alternatively, a suitable bank guarantee is placed in lieu thereof.

Because of the payment patterns mentioned above, TORM's receivables primarily consist of receivables from voyages in progress at year-end and outstanding demurrage. For the past five years, TORM has not experienced any significant losses in respect of charter payments or any other freight agreements. With regard to the collection of original demurrage claims, TORM's average stands at 98.6% (2021: 97.0%, 2020: 96.9%), which is considered to be satisfactory given the differences in interpretation of events. In 2022, demurrage represented 14% (2021: 18.0%, 2020: 17.3%) of the total freight revenues. Please refer to Note 1 for more details on recognition of demurrage claims into revenue.

Excess liquidity is placed on deposit accounts with major banks with strong and acceptable credit ratings or invested in secure papers such as American or Danish government bonds. Cash is invested with the aim of getting the highest possible yield, while maintaining a low counterparty risk, and having adequate liquidity reserves for possible investment opportunities or to withstand a sudden drop in freight rates.

### Derivative financial instruments and commodity instruments

In 2022, 100% (2021: 100.0%, 2020: 100.0%) of TORM's forward freight agreements (FFAs) were cleared through clearing houses, effectively reducing counterparty credit risk by daily clearing of balances. Over-the-counter fuel swaps have restrictively been entered into with major oil companies, banks, or highly reputed partners with a satisfactory credit rating. TORM also trades FX and interest derivatives. All such derivatives were entered into with investment grade counterparties.

### Financial risks

Financial risks relate to TORM's financial position, financing, and cash flows generated by the business, including foreign exchange risk and interest rate risk. TORM's liquidity and capital resources are described in Note 2.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 166

## NOTE 24 - continued

### Foreign exchange risk

TORM uses USD as its functional currency because most of the Company's transactions are denominated in USD. The foreign exchange risk is thereby limited to cash flows not denominated in USD. The primary risk relates to transactions denominated in DKK, EUR, and SGD and relates to administrative and operating expenses.

The part of TORM's expenses denominated in currencies other than USD accounts for approximately 81.4% (2021: 86.0%, 2020: 80.9%) for administrative expenses and approximately 19.8% (2021: 21.3%, 2020: 23.8%) for operating expenses. TORM's expected administrative and operating expenses in DKK and EUR for 2023 are approximately DKK 406.7m, whereof 68.9% (2021: 70.3%, 2020: 66.1%) are hedged through FX forward contracts. All FX forward contracts have maturity within 2023, and TORM's average hedge USD/DKK currency rate is 6.93. FX exposure is hedged in its entirety for all risks.

TORM assumes identical currency risks arising from exposures in DKK and EUR.

### Sensitivity to changes in the USD/DKK and USD/EUR exchange rate

All things being equal, a change in the USD/DKK and the USD/EUR exchange rates of 10% would result in a change in profit/loss before tax and equity as follows:

| USDm | 2023 | 2022 | 2021 |
| --- | --- | --- | --- |
| Effect of a 10% increase of DKK and EUR: |  |  |  |
| Changes in profit/loss before tax for the following year | -1.8 | -1.8 | -2.2 |
| Changes in equity for the following year | -1.8 | -1.8 | -2.2 |

## NOTE 24 - continued

### Interest rate risk

TORM's interest rate risk generally relates to interest-bearing borrowings. All TORM's loans for financing vessels are denominated in USD. Please refer to Note 19 for additional information on borrowings. At the end of 2022, TORM had fixed 94.6% (2021: 84.9%, 2020: 87.6%) of the debt then outstanding with interest rate swaps and fixed rate leasing debt corresponding to an amount of USD 916m. USD 687m of this amount is hedged at an interest rate of 1.37% plus margin with interest rate swaps with maturity in the period 2023-2028.

Most of TORM's debt and interest hedging is based on USD LIBOR which is set to expire by 30 June 2023. TORM is significantly exposed to the ICE US LIBOR reform as all financing and associated interest hedging contracts are denominated in USD. TORM has been in dialog with majority lenders and aligned expectations on how the amendment process should be implemented. To ensure a smooth transition, TORM has amended legacy financing and hedging contracts during 2022 and early 2023. TORM expects compounded SOFR in arrears to become the market standard. TORM expects no effect on the hedging relationship as lenders and hedging providers are largely the same banks. TORM is confident that all financing and hedging contracts are transitioned to SOFR before the final deadline on 30 June 2023.

As of 31 December 2022, 93.3% of the debt with a nominal value of USD 689.5m relates to the period after 30 June 2023. As of 31 December 2022, 90.8% of the interest hedging with a nominal value of USD 624m relates to the period after 30 June 2023.

### Sensitivity to changes in interest rates

All things being equal, a change in the interest rate level of 1%-point would result in a change in the interest rate expenses as follows:

| USDm | 2023 | 2022 | 2021 |
| --- | --- | --- | --- |
| Effect of a 1%-point increase in interest rates: |  |  |  |
| Changes in profit/loss before tax for the following year | -0.7 | -2.1 | -3.7 |
| Changes in equity for the following year | 16.3 | 19.9 | 11.3 |

### Liquidity risk

TORM's strategy is to ensure continuous access to funding sources by maintaining a robust capital structure and a close relationship with several financial partners. As of 31 December 2022, TORM's loan portfolio was spread across eleven different banks.

As of 31 December 2022, TORM maintains a liquidity reserve of USD 323.8m in cash and cash equivalents, including restricted cash, combined with USD 92.6m in undrawn and committed credit facilities. Cash is only placed in banks with an investment grade rating. For further information on contractual obligations, including a maturity analysis, please refer to Note 22.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 167

# **NOTE 25 - FINANCIAL INSTRUMENTS**

| Categories of financial assets and liabilities (USDm): | Observable input (level 2) | Financial instruments measured at fair value | Financial instruments measured at amortized cost | Total carrying value |
| --- | --- | --- | --- | --- |
| 2022 |  |  |  |  |
| Financial assets |  |  |  |  |
| Loan receivables 1) | - | - | 4.6 | 4.6 |
| Trade receivables 1) | - | - | 259.5 | 259.5 |
| Other receivables | 55.3 | 55.3 | 18.7 | 74.0 |
| Cash and cash equivalents, including restricted cash 1) | - | - | 323.8 | 323.8 |
| Total | 55.3 | 55.3 | 606.6 | 661.9 |
| Financial liabilities |  |  |  |  |
| Borrowings 1)2) | - | - | 966.9 | 966.9 |
| Other non-current liabilities | - | - | 3.0 | 3.0 |
| Trade payables 1) | - | - | 48.5 | 48.5 |
| Other liabilities 1) | 1.9 | 1.9 | 29.2 | 31.1 |
| Total | 1.9 | 1.9 | 1,047.6 | 1,049.5 |
| 2021 |  |  |  |  |
| Financial assets |  |  |  |  |
| Loan receivables 1) | - | - | 4.6 | 4.6 |
| Trade receivables 1) | - | - | 84.0 | 84.0 |
| Other receivables | 8.3 | 8.3 | 31.7 | 40.0 |
| Cash and cash equivalents, including restricted cash 1) | - | - | 171.7 | 171.7 |
| Total | 8.3 | 8.3 | 292.0 | 300.3 |
| Financial liabilities |  |  |  |  |
| Borrowings 1)2) | - | - | 1,135.3 | 1,135.3 |
| Trade payables 1) | - | - | 35.3 | 35.3 |
| Other liabilities 1) | 11.2 | 11.2 | 32.5 | 43.7 |
| Total | 11.2 | 11.2 | 1,203.1 | 1,214.3 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 168

# **NOTE 25 - continued**

| Categories of financial assets and liabilities (USDm): | Observable input (level 2) | Financial instruments measured at fair value | Financial instruments measured at amortized cost | Total carrying value |
| --- | --- | --- | --- | --- |
| 2020 |  |  |  |  |
| Financial assets |  |  |  |  |
| Loan receivables 1) | - | - | 4.6 | 4.6 |
| Trade receivables 1) | - | - | 58.6 | 58.6 |
| Other receivables | 4.5 | 4.5 | 20.4 | 24.9 |
| Cash and cash equivalents, including restricted cash 1) | - | - | 135.6 | 135.6 |
| Total | 4.5 | 4.5 | 219.2 | 223.7 |
| Financial liabilities |  |  |  |  |
| Borrowings 1) | - | - | 842.4 | 842.4 |
| Trade payables 1) | - | - | 14.4 | 14.4 |
| Other liabilities 1) | 24.7 | 24.7 | 35.1 | 59.8 |
| Total | 24.7 | 24.7 | 891.9 | 916.6 |

$^{1)}$ Due to the short maturity, the carrying value is considered to be an appropriate expression of the fair value.

$^{2)}$ See note 20.

$^{3)}$ Derivative financial instruments are presented in the balance sheet line 'Other receivables' and 'Other liabilities'.

# **NOTE 25 - continued**

# **Fair value hierarchy for financial instruments measured at fair value in the balance sheet**

Below, please find the fair value hierarchy for financial instruments measured at fair value in the balance sheet. The financial instruments in question are grouped into levels 1 to 3 based on the degree to which the fair value is observable.

- Level 2 fair value measurements are those derived from input other than quoted prices included in level 1 which are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices)

# **Methods and assumptions in determining fair value of financial instruments**

# **Derivative part of other receivables and other liabilities**

The fair value of derivatives in other receivables and other liabilities is measured using accepted valuation methods with input variables such as yield curves, forward curves, spreads, etc. and compared to financial counterparties to ensure acceptable valuations. The valuation methods discount the future fixed and estimated cash flows and valuation of any option elements.

# **NOTE 26 - RELATED PARTY TRANSACTIONS**

TORM's ultimate controlling party is Oaktree Capital Group, LLC, a limited liability company incorporated in the USA. The immediate controlling shareholder is OCM Njord Holdings S.à.r.l. (Njord Luxco).

Shareholders' contribution and dividends paid are disclosed in the consolidated statement of changes in equity. Dividends to related parties are paid out based on the related parties' ownership of shares.

The remuneration of key management personnel, which consists of the Board of Directors and the Executive Director, is disclosed in note 5.

On 01 September 2022, TORM purchased 75% of the shares in Marine Exhaust Technology A/S, thereby obtaining a controlling interest in its joint venture entity Marine Exhaust Technology (Hong Kong) Ltd. Until 01 September 2022, TORM's transactions with its joint venture entity producing scrubbers for the TORM fleet covered CAPEX of USD 5.6m in total.

During 2021, TORM effected transactions with its joint venture producing scrubbers for the TORM fleet amounting to USD 1.4m in total (2020: 11.7m).

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 169

## NOTE 27 - ASSETS HELD FOR SALE AND NON-CURRENT ASSETS SOLD DURING THE YEAR

During 2022, TORM sold seven vessels. All the vessels sold in 2022 and one vessel sold in 2021 were delivered to the new owners. The sales resulted in an impairment loss of USD 2.6m and a profit of USD 10.2m which are recognized in the income statement for 2022.

During 2021, TORM sold two vessels. One vessel was delivered to the new owners in May 2021, and one was held for sale as of 31 December 2021, and expected delivery is during the first half of 2022. The sales resulted in an impairment loss on tangible assets of USD 4.6m. The fair value of the asset held for sale of USD 13.2m is comprised of sales price less expected transaction costs (fair value hierarchy level 2).

During 2020, TORM sold eight vessels all of which were delivered to the new owners during 2020. The sales resulted in a profit from sale of vessels of USD 1.1m and impairment losses on tangible assets of USD 5.5m. No assets were held for sale as of 31 December 2020.

## NOTE 28 - CASH FLOWS

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Reversal of other non-cash movements: |  |  |  |
| Exchange rate adjustments | -0.3 | -0.7 | -0.2 |
| Share-based payments | 2.2 | 2.3 | 1.7 |
| Fair value adjustments on derivative financial instruments | 0.6 | -0.2 | - |
| Reversal of provisions adjustments | -6.3 | - | - |
| Other adjustments | 0.1 | - | -0.4 |
| Total | -3.7 | 1.4 | 1.1 |

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Change in inventories, receivables, and payables: |  |  |  |
| Change in inventories | -21.8 | -26.9 | 13.2 |
| Change in receivables | -158.1 | -37.5 | 14.9 |
| Change in prepayments | -5.7 | -3.5 | 1.3 |
| Change in trade payables and other liabilities | 4.7 | 19.4 | -13.5 |
| Total | -180.9 | -48.5 | 15.9 |

## NOTE 29 - ENTITIES IN THE GROUP

| Entity | Country |
| --- | --- |
| TORM plc | United Kingdom |

### Investments in subsidiaries $^{a)}$:

| Entity | Country | Ownership b) |
| --- | --- | --- |
| TORM A/S | Denmark | 100% |
| DK Vessel HoldCo GP ApS 2) | Denmark | 100% |
| DK Vessel HoldCo K/S 2) | Denmark | 100% |
| OCM Singapore Njord Holdings Alice, Pte. Ltd 2) | Singapore | 100% |
| OCM Singapore Njord Holdings Almena, Pte. Ltd 2) | Singapore | 100% |
| OCM Singapore Njord Holdings Hardrada, Pte. Ltd | Singapore | 100% |
| OCM Singapore Njord Holdings St.Michaelis Pte. Ltd 2) | Singapore | 100% |
| OCM Singapore Njord Holdings St. Gabriel Pte. Ltd 2) | Singapore | 100% |
| OCM Singapore Njord Holdings Agnete, Pte. Ltd 2) | Singapore | 100% |
| OCM Singapore Njord Holdings Alexandra, Pte. Ltd 2) | Singapore | 100% |
| OMI Holding Ltd. 2) | Mauritius | 100% |
| TORM Crewing Service Ltd. 2) | Bermuda | 100% |
| TORM Shipping India Private Limited 4) | India | 100% |
| TORM Singapore Pte. Ltd. | Singapore | 100% |
| TORM USA LLC | USA | 100% |
| VesselCo 1 K/S 1) | Denmark | 100% |
| VesselCo 3 K/S 1) | Denmark | 100% |
| VesselCo 5 K/S 1) | Denmark | 100% |
| VesselCo 6 K/S 1) | Denmark | 100% |
| VesselCo 6 Pte. Ltd. 2) | Singapore | 100% |
| VesselCo 7 Pte. Ltd. 1) | Singapore | 100% |
| VesselCo 8 Pte. Ltd. 2) | Singapore | 100% |
| VesselCo 9 Pte. Ltd. | Singapore | 100% |
| VesselCo 10 Pte. Ltd. | Singapore | 100% |
| VesselCo 11 Pte. Ltd. 2) | Singapore | 100% |
| VesselCo 12 Pte. Ltd. | Singapore | 100% |
| TORM SHIPPING (PHILS.), INC. | Philippines | 25% |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 170

# **NOTE 29 - continued**

# **Investments in subsidiaries $^{5)}$ - continued:**

| Entity | Country | Ownership 5) |
| --- | --- | --- |
| VesselCo A ApS 1) | Denmark | 100% |
| VesselCo C ApS 1) | Denmark | 100% |
| VesselCo E ApS 1) | Denmark | 100% |
| VesselCo F ApS 1) | Denmark | 100% |
| Marine Exhaust Technology A/S | Denmark | 75% |
| ME Production A/S | Denmark | 75% |
| Marine Exhaust Technology (Hong Kong) Ltd | China | 59% |
| Suzhou ME Production Technology Co., Ltd. | China | 75% |

$^{1)}$ Entities dissolved in the financial year ended 31 December 2020.

$^{2)}$ Entities dissolved in the financial year ended 31 December 2021.

$^{3)}$ Entities dissolved in the financial year ended 31 December 2022.

$^{4)}$ Entities with different reporting periods: TORM Shipping India has a Financial reporting period that runs from 1 April to 31 March as required by the Indian government's laws and legislations.

$^{5)}$ For all subsidiaries, ownership and voting rights are the same except for TORM SHIPPING (PHILS.), INC where voting rights are 100%.

$^{6)}$ All subsidiaries are consolidated in full.

# **Interest in legal entities included as joint ventures:**

| Entity (USDm) | Country | % Control | 2022 |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  | Profit and loss from continuing operations | Other comprehensive income | Total comprehensive income |
| Long Range 2 A/S | Denmark | 50% | - | - | - |
| LR2 Management K/S | Denmark | 50% | - | - | - |
| Marine Exhaust Technology Ltd. 1) | Hong Kong | 28% | -0.1 | - | -0.1 |

$^{1)}$ TORM obtained control over the entity on 01 September following the acquisition of Marine Exhaust Technology A/S. The amounts above represents the period until TORM obtains control.

# **NOTE 29 - continued**

The table below shows the registered addresses for the companies mentioned above:

| Denmark | India | Philippines |
| --- | --- | --- |
| Tuborg Havnevej 18 | 2nd Floor | 7th Floor |
| 2900 Hellerup | Leela Business Park | Salcedo Towers, 169 |
| Denmark | Andheri-Kurla Road | HV dela Costa Street |
|  | Andheri (E) | Salcedo Village, |
|  | Mumbai 400059 | Makati City |
|  | India | Philippines 1227 |
| Singapore | United Kingdom | USA |
| 6 Battery Road #27-02 | Office 105 | Suite 1625 |
| Singapore 049909 | 20 St Dunstan's Hill | 2500 City West |
| Singapore | London, EC3R 8HL | Boulevard |
|  | United Kingdom | 77042, Houston , Texas USA |
| Denmark | China | Hong Kong |
| Sandholm 7 | 208 Longward Road | Room 3, 10/F |
| 9900 Frederikshavn | Zhapu Town Ping Hu | Yue Xiu Building |
| Denmark | Jiaxing City | 160-174 Lockhart Road |
|  | Zhejiang Province | Wanchai |
|  | China | Hong Kong |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 171

## NOTE 30 - PROVISIONS

| USDm | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Cargo claim provisions | 6.5 | 18.3 | 18.3 |
| Warranty provisions | 0.3 | - | - |
| Balance as of 31 December | 6.8 | 18.3 | 18.3 |

In 2020, TORM was involved in cargo claims relating to a customer having granted indemnities for discharge of cargos, but not being able to honor those obligations. The cases involved irregular activities committed by the customer. Legal action was initiated by TORM in the UK and in India against the customer and related individuals. TORM has previously recognized provisions of USD 18.3m in relation to the claims.

During 2022, TORM settled one claim and reassessed its provisions for the remaining part of the case complex. TORM has reversed provisions amounting to USD 6.3m, and the total amount as of 31 December 2022 relating to the case complex is USD 6.5m. Legal proceedings are still ongoing, and therefore the provisions recognized are subject to uncertainty in relation to both timing and amount.

Warranty provisions relate to sold marine exhaust equipment.

### Accounting policies

Provisions are recognized when the Group has a legal or constructive obligation as a result of past events, and when it is probable that this will lead to an outflow of resources which can be reliably estimated. Provisions are measured at the estimated liability expected to arise, considering the time value of money.

## NOTE 31 - EARNINGS PER SHARE AND DIVIDEND PER SHARE

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Earnings per share |  |  |  |
| Net profit/(loss) for the year attributable to TORM plc shareholders (USDm) | 562.8 | -42.1 | 88.1 |
| Million shares |  |  |  |
| Weighted average number of shares | 81.8 | 78.6 | 74.8 |
| Weighted average number of treasury shares | -0.5 | -0.5 | -0.5 |
| Weighted average number of shares outstanding | 81.3 | 78.1 | 74.3 |
| Dilutive effect of outstanding share options | 1.5 | 0.3 | - |
| Weighted average number of shares outstanding incl. dilutive effect of share options | 82.8 | 78.4 | 74.3 |
| Basic earnings/(loss) per share (USD) | 6.92 | -0.54 | 1.19 |
| Diluted earnings/(loss) per share (USD) | 6.80 | -0.54 | 1.19 |

When calculating diluted earnings per share for 2020, RSUs have been omitted as they are out-of-the-money and thus not anti-dilutive, but the RSUs may potentially dilute earnings per share in the future. Please refer to Note 5 for information on the RSUs.

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Dividend per share |  |  |  |
| Declared dividend per share (USD) | 4.63 | - | 0.85 |
| Declared dividend for the year (USDm) | 378.7 | - | 63.2 |
| Dividend paid during the year (USDm) | 166.7 | - | 70.6 |
| Number of shares, end of period (million) | 82.3 | 81.2 | 74.9 |
| Number of treasury shares, end of period (million) | -0.5 | -0.5 | -0.5 |
| Number of shares outstanding, end of period (million) | 81.8 | 80.7 | 74.4 |
| Dividend paid per share | 2.04 | - | 0.95 |

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 172

## NOTE 31 - continued

### Accounting policies

Basic earnings per share are calculated by dividing the consolidated net profit/(loss) for the year available to common shareholders by the weighted average number of common shares outstanding during the period. Treasury shares are not included in the calculation. Purchases of treasury shares during the period are weighted based on the remaining period.

Diluted earnings per share are calculated by adjusting the consolidated profit or loss available to common shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive shares. Such potentially dilutive common shares are excluded when the effect of including them would be to increase earnings per share or reduce a loss per share.

## NOTE 32 - CASH AND CASH EQUIVALENTS, INCLUDING RESTRICTED CASH

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Cash at banks and on hand | 320.5 | 144.8 | 89.5 |
| Cash and cash equivalents | 320.5 | 144.8 | 89.5 |
| Cash provided as security for initial margin calls and negative market values on derivatives, etc. 1) | 3.3 | 5.9 | 46.1 |
| Sale and leaseback transaction prepayment to be released upon delivery of the vessel 2) | - | 21.0 | - |
| Restricted cash | 3.3 | 26.9 | 46.1 |
| Cash and cash equivalents, including restricted cash | 323.8 | 171.7 | 135.6 |

$^{1)}$ The counterparties have an obligation to return any excess cash provided as security to the Group upon settlement or early termination of the contracts.

$^{2)}$ Prepayment released on 06 January 2022.

## NOTE 33 - BUSINESS COMBINATION

On 01 September 2022, TORM acquired an ownership stake of 75% of Marine Exhaust Technology A/S (MET), a Danish industrial company specialized in developing and producing advanced and green marine equipment for a cash consideration of USD 2.0m. TORM acquired MET because the entity has gained strong expertise in developing and producing components for the maritime industry, including scrubbers for the shipping industry. As part of the transaction, TORM also obtained control over the joint venture entity Marine Exhaust Technology (Hong Kong) Ltd in which TORM previously held a 27.5% interest.

TORM has elected to measure the non-controlling interest in the acquiree at fair value.

The fair value of the non-controlling interest in MET has been assessed based on the EBITDA multiples method using estimated 2023 financials based on expected scrubber orders. The value includes an adjustment based on development costs to account for potential future income from the sales of Flettner rotors. Based on the enterprise value estimate, the equity value is calculated through a standard adjustment for net interest-bearing debt.

The previously held interest in Marine Exhaust Technology (Hong Kong) Ltd was remeasured at fair value as part of the transaction leading to a gain of USD 0.3m recognized in the share of profit/loss from joint ventures in the consolidated income statement.

The acquired assets include contractual receivables of USD 5.7m of which USD 0.3m were considered to be uncollectible at the day of the acquisition.

Transaction costs in connection with the acquisition amounted to less than USD 0.1m and are recognized as administration expenses.

The goodwill of USD 1.8m represents the value of expected synergies arising from the acquisition and is allocated entirely to the Marine Exhaust segment. The goodwill recognized is not expected to be deductible for tax purposes.

Revenue and profit for the period generated by the acquired entity amounted to USD 5.9m and 0.0m, respectively, and have been recognized in the consolidated income statement since the acquisition. Had the acquisition taken place on 01 January 2022, the revenue and profit for the Group for 2022 would have been USD 1,455.9m and USD 561.9m, respectively.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 173

# **NOTE 33 - continued**

The following table summarizes the fair values of the assets acquired and the liabilities assumed on 01 September 2022:

| USDm | 01 September 2022 |
| --- | --- |
| Intangible assets | 1.2 |
| Tangible fixed assets | 2.5 |
| Inventories | 6.4 |
| Trade receivables | 1.6 |
| Other receivables | 3.8 |
| Prepayments | 1.5 |
| Cash and cash equivalents | 3.0 |
| Borrowings | -7.9 |
| Deferred tax liabilities | -0.3 |
| Provisions | -0.4 |
| Other non-current liabilities | -0.8 |
| Trade payables | -1.5 |
| Other liabilities | -0.3 |
| Deferred income | -4.3 |
| Current tax liabilities | -0.3 |
| Net identifiable assets acquired | 4.2 |
| Goodwill | 1.8 |
| Total net assets acquired | 6.0 |
| Of which fair value of non-controlling interest | -2.4 |
| Total purchase consideration | 3.6 |
| Cash consideration | 2.0 |
| Fair value of previously held interests | 1.6 |
| Total purchase consideration | 3.6 |
| Cash acquired | 3.0 |
| Cash consideration | -2.0 |
| Acquisition of subsidiaries, net of cash acquired | 1.0 |

# **NOTE 33 - continued**

# **Accounting policies**

Newly acquired or formed entities are recognized in the consolidated financial statements from the date of acquisition or formation. The date of acquisition is the date on which control over the entity is effectively transferred.

Business combinations are accounted for by applying the purchase method, whereby the acquired entities' identifiable assets, liabilities, and contingent liabilities are measured at fair value at the acquisition date. The tax effect of the revaluation activities is also considered.

When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the amount of that adjustment is included in the cost of the combination if the event is probable and the adjustment can be measured reliably. Costs of issuing debt or equity instruments in connection with a business combination are accounted for together with the debt or equity issuance. All other costs associated with the acquisition are expensed in the income statement.

The excess of the cost of the business combination over the fair value of the acquired assets, liabilities, and contingent liabilities is recognized as goodwill under intangible assets and is tested for impairment at least once a year. Upon acquisition, goodwill is allocated to the cash generating units that subsequently form the basis for the impairment test. If the fair value of the acquired assets, liabilities, and contingent liabilities exceeds the cost of the business combination, the identification of assets and liabilities and the processes of measuring the fair value of the assets and liabilities and the cost of the business combination are reassessed. If the fair value of the business combination continues to exceed the cost, the resulting gain is recognized in the income statement.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 174

# Parent company 2022

## Parent company financial statements

| Management review for TORM plc | 176 |
| --- | --- |
| Income statement | 177 |
| Statement of comprehensive income | 177 |
| Company balance sheet | 178 |
| Company statement of changes in equity | 179 |
| Cash flow statement | 190 |
| Notes to parent company financial statements | 191 |

TORM FINANCIAL REPORT 2022

PARENT COMPANY 2022

# Management review for TORM plc

The parent company activities include holding company activities for the TORM Group, treasury activities as well as bareboat chartering activities.

In 2022, revenue amounted to USD 11.9m compared to USD 32.1m in 2021, primarily driven by fewer vessels on bareboat charters to TORM A/S. The operating loss amounted to USD 4.6m compared to an operating profit of USD 1.9m in 2021, which was impacted by reversals of expected credit losses.

In 2022, a reversal of impairment of investment in subsidiaries amounting to USD 139.0m (2021: nil) has been recognized as the recoverable amount exceeded the carrying amount of the investments in subsidiaries. The primary driver of the impairment reversal is the improved conditions in the product tanker market outlook for vessel owning subsidiaries.

Net financial income amounted to USD 33.6m compared to USD 35.1m in 2021, primarily impacted by an increase in interest income from subsidiaries of USD 11.5m and a decrease in dividends from subsidiaries of USD 22.2m as well as a decrease in borrowing interest of USD 8.1m

Net profit amounted to USD 175.3m compared to USD 37.0m in 2021.

Total assets decreased by USD 275.9m to USD 1,619.8m as of 31 December 2022, mainly driven by a decrease in loans to subsidiaries of USD 324.5m partially offset by fair value gains on interest rate swaps of USD 53.7m.

Total equity increased by USD 60.4m to USD 1,202.2m as of 31 December 2022, primarily driven by a net profit of USD 175.3m and increased hedging reserves of USD 54.7m from unrealized gains on interest derivatives partially offset by dividend payments of USD 166.7m.

During 2022, total borrowings decreased by USD 201.1m, to USD 405.5m primarily driven by debt repayments in connection with vessel sales in subsidiaries.

TORM ANNUAL REPORT 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 176

## Income statement
01 January-31 December

| USD '000 | Note | 2022 | 2021 |
| --- | --- | --- | --- |
| Revenue |  | 11,861 | 32,132 |
| Charter hire |  | -11,715 | -31,735 |
| Administrative expenses |  | -4,737 | -3,192 |
| Other operating income and expenses |  | 44 | 44 |
| Expected credit loss |  | -47 | 4,660 |
| Depreciation and amortization |  | -39 | -43 |
| Operating profit/(loss) (EBIT) |  | -4,633 | 1,866 |
| Impairment reversal on investment in subsidiaries | 5 | 138,984 | - |
| Financial income | 2 | 52,718 | 63,555 |
| Financial expenses | 2 | -19,107 | -28,425 |
| Profit before tax |  | 167,962 | 36,996 |
| Tax | 4 | 7,372 | - |
| Net profit for the year |  | 175,334 | 36,996 |

## Statement of comprehensive income
01 January-31 December

| USD '000 | 2022 | 2021 |
| --- | --- | --- |
| Net profit for the year | 175,334 | 36,996 |
| Other comprehensive income: |  |  |
| Items that may be reclassified to profit or loss: |  |  |
| Fair value adjustment on hedging instruments | 54,259 | 10,306 |
| Fair value adjustment on hedging instruments transferred to income statement | 412 | 9,159 |
| Tax on items that may be reclassified to profit or loss | -13,162 | - |
| Other comprehensive income after tax 1) | 41,509 | 19,465 |
| Total comprehensive income for the year | 216,843 | 56,461 |

TORM ANNUAL REPORT 2022

PARENT COMPANY FINANCIAL STATEMENTS 177

# Company balance sheet
as of 31 December

| USD '000 | Note | 2022 | 2021 |
| --- | --- | --- | --- |
| Assets |  |  |  |
| Non-current assets |  |  |  |
| Tangible fixed assets |  |  |  |
| Land and buildings |  | 102 | 33 |
| Other plant and operating equipment |  | - | 3 |
| Total tangible fixed assets |  | 102 | 36 |
| Financial assets |  |  |  |
| Investments in subsidiaries | 5 | 940,291 | 937,589 |
| Loan receivables | 6 | 4,570 | 4,617 |
| Loans to subsidiaries |  | - | 803,712 |
| Total financial assets |  | 944,861 | 1,745,918 |
| Total non-current assets |  | 944,963 | 1,745,954 |
| Current assets |  |  |  |
| Loans to subsidiaries |  | 619,049 | 139,854 |
| Other receivables | 7 | 53,702 | 6,843 |
| Prepayments |  | 371 | 374 |
| Cash and cash equivalents |  | 1,706 | 2,622 |
| Total current assets |  | 674,828 | 149,693 |
| Total assets |  | 1,619,791 | 1,895,647 |

The financial statements of TORM plc, company number 09818726, have been approved by the Board of Directors and signed on their behalf by:

Jacob Meldgaard
Executive Director
16 March 2023

| USD '000 | Note | 2022 | 2021 |
| --- | --- | --- | --- |
| EQUITY AND LIABILITIES |  |  |  |
| EQUITY |  |  |  |
| Common shares |  | 823 | 812 |
| Treasury shares |  | -4,235 | -4,235 |
| Hedging reserves |  | 39,485 | -2,024 |
| Share premium |  | 77,794 | 69,821 |
| Retained profit |  | 1,088,297 | 1,077,410 |
| Total equity |  | 1,202,164 | 1,141,784 |
| LIABILITIES |  |  |  |
| NON-CURRENT LIABILITIES |  |  |  |
| Deferred tax liability | 4 | 5,790 | - |
| Borrowings | 8 | 340,602 | 463,459 |
| Total non-current liabilities |  | 346,392 | 463,459 |
| CURRENT LIABILITIES |  |  |  |
| Borrowings | 8 | 64,882 | 143,135 |
| Trade payables |  | 349 | 256 |
| Payables to subsidiaries |  | 2,993 | 135,825 |
| Other liabilities |  | 3,011 | 11,188 |
| Total current liabilities |  | 71,235 | 290,404 |
| Total liabilities |  | 417,627 | 753,863 |
| TOTAL EQUITY AND LIABILITIES |  | 1,619,791 | 1,895,647 |

TORM ANNUAL REPORT 2022

PARENT COMPANY FINANCIAL STATEMENTS 176

# Company statement of changes in equity

| USD '000 | Common shares | Treasury shares | Hedging reserves | Share premium | Retained profit | Total |
| --- | --- | --- | --- | --- | --- | --- |
| EQUITY |  |  |  |  |  |  |
| Equity as of 01 January 2021 | 748 | -4,235 | -21,489 | 12,307 | 1,038,097 | 1,025,428 |
| Comprehensive income for the year: |  |  |  |  |  |  |
| Net profit for the year | - | - | - | - | 36,996 | 36,996 |
| Other comprehensive income for the year | - | - | 19,465 | - | - | 19,465 |
| Total comprehensive income for the year | - | - | 19,465 | - | 36,996 | 56,461 |
| Capital increase | 64 | - | - | 57,799 | - | 57,863 |
| Transaction costs capital decrease | - | - | - | -285 | - | -285 |
| Share-based compensation | - | - | - | - | 2,317 | 2,317 |
| Total changes in equity 2021 | 64 | - | - | 57,514 | 2,317 | 59,895 |
| Equity as of 31 December 2021 | 812 | -4,235 | -2,024 | 69,821 | 1,077,410 | 1,141,784 |
| Comprehensive income for the year: |  |  |  |  |  |  |
| Net profit for the year | - | - | - | - | 175,334 | 175,334 |
| Other comprehensive income for the year | - | - | 54,671 | - | - | 54,671 |
| Tax on other comprehensive income | - | - | -13,162 | - | - | -13,162 |
| Total comprehensive income for the year | - | - | 41,509 | - | 175,334 | 216,843 |
| Capital increase | 11 | - | - | 8,004 | - | 8,015 |
| Transaction costs capital increase | - | - | - | -31 | - | -31 |
| Share-based compensation | - | - | - | - | 2,211 | 2,211 |
| Dividend paid | - | - | - | - | -166,658 | -166,658 |
| Total changes in equity 2022 | 11 | - | - | 7,973 | -164,447 | -156,463 |
| Equity as of 31 December 2022 | 823 | -4,235 | 39,485 | 77,794 | 1,088,297 | 1,202,164 |

TORM ANNUAL REPORT 2022

PARENT COMPANY FINANCIAL STATEMENTS 179

# Cash flow statement

| USD '000 | 2022 | 2021 |
| --- | --- | --- |
| Cash flow from operating activities |  |  |
| Net profit for the year | 175,334 | 36,996 |
| Reversals: |  |  |
| Reversal of depreciation and impairment losses | 39 | 43 |
| Reversal of other non-cash movements | 12,418 | 25,846 |
| Impairment reversal on investment in subsidiaries | -138,984 | - |
| Financial income | -52,718 | -63,555 |
| Financial expenses | 19,107 | 28,425 |
| Tax | -7,372 | - |
| Interest received | - | 17,750 |
| Interest paid | -18,553 | -27,384 |
| Net exchange rate gains and losses | -717 | -68 |
| Repayments of intercompany trading balances | 15,501 | 87,539 |
| Change in inventories, receivables, and payables, etc. | 356 | 281 |
| Net cash flow from operating activities | 4,411 | 105,871 |

| USD '000 | 2022 | 2021 |
| --- | --- | --- |
| Cash flow from investing activities |  |  |
| Payments/repayments of loans to subsidiaries | 356,093 | -226,285 |
| Net cash flow from investing activities | 356,093 | -226,285 |
| Cash flow from financing activities |  |  |
| Borrowing, mortgage debt | 20,000 | 224,048 |
| Repayment/redemption, mortgage debt | -222,708 | -176,000 |
| Repayment/redemption, finance lease | -38 | -43 |
| Capital increase | 8,015 | 2,863 |
| Transaction costs capital increase | -31 | -241 |
| Dividends paid | -166,658 | - |
| Net cash flow from financing activities | -361,420 | 50,627 |
| Net cash flow from operating, investing, and financing activities | -916 | -69,787 |
| Cash and cash equivalents as of 01 January | 2,622 | 72,409 |
| Cash and cash equivalents as of 31 December | 1,706 | 2,622 |

TORM ANNUAL REPORT 2022

PARENT COMPANY FINANCIAL STATEMENTS 180

**Time limit hit – remaining pages or documents were skipped.**