TORM plc — FY2020 Form 20-F Summary
Business context and reporting period
TORM is a product-tanker operator transporting refined petroleum products, with substantially all revenue generated by its tanker fleet. This annual report covers the fiscal year ended December 31, 2020; it is not a standalone fourth-quarter report. Financial statements are prepared under IFRS in U.S. dollars. The filing incorporates parts of the company’s 2020 annual report, furnished separately on Form 6-K.
Financial and operating performance
| Metric (USD millions, except per-share and daily data) | 2020 | 2019 |
|---|---|---|
| Revenue | 747.4 | 692.6 |
| TCE earnings | 519.5 | 424.9 |
| Adjusted gross profit | 341.1 | 251.9 |
| Adjusted EBITDA | 271.9 | 202.0 |
| Operating profit | 138.9 | 205.9 |
| Profit before tax | 89.5 | 166.8 |
| Net profit | 88.1 | 166.0 |
| Operating cash flow | 235.8 | 171.1 |
| Cash used in investing activities | (119.8) | (322.8) |
| Cash from/(used in) financing activities | (83.3) | 84.5 |
| Cash and cash equivalents, including restricted cash, at year-end | 135.6 | 72.5 |
Average fleet TCE earnings were $19,800 per day, up 20% from $16,526 in 2019 and above the company’s stated fleet-wide break-even level of $15,100 per day. Revenue increased 8%, while TCE earnings rose 22%, principally on higher spot freight rates and lower voyage costs, including bunker expenses. Adjusted EBITDA increased 35%. Net profit fell 47%, mainly because 2019 included a $114.0 million impairment reversal, whereas 2020 included $11.1 million of impairment losses and higher depreciation and financial expenses.
Operating expenses were $178.4 million, versus $173.0 million; average operating expense per day was $6,398, up slightly from $6,371. Financial expenses were $49.9 million, compared with $41.9 million, partly reflecting refinancing-related deferred-fee write-offs. Basic and diluted earnings per share were each $1.19, versus $2.24 in 2019. The filing’s selected data reports dividends per share of $0.85 for 2020; elsewhere it states approximately $70.6 million, or $0.95 per share, was paid during 2020 for the second half of 2019 and first half of 2020.
Balance sheet, debt and liquidity
At December 31, 2020, total assets were $1,998.6 million, liabilities $981.2 million and equity $1,017.5 million. Interest-bearing debt was $853.3 million; net interest-bearing debt was $713.1 million, down from $786.3 million in 2019. Broker-based vessel values were $1,585.3 million, and the reported loan-to-value ratio rose to 50.8% from 46.1%. Available liquidity, including undrawn committed facilities, was $267.8 million: $135.6 million of cash and restricted cash and $132.2 million of undrawn facilities. Of reported cash, $46 million was restricted, primarily as collateral for financial instruments. The company said working capital was adequate for its needs over the next 12 months and reported compliance with debt covenants at year-end.
Operating cash flow was $235.8 million. Investing cash outflow was $119.8 million, including $173.1 million of investment in tangible fixed assets; financing cash outflow was $83.3 million. Capital expenditure was $167.6 million, down from $383.1 million in 2019. Outstanding capital expenditure commitments at year-end were $100.6 million, excluding scrubber commitments.
Material changes, outlook and risks
- During 2020, TORM took delivery of four newbuildings, acquired two 2010-built MR vessels, sold eight older vessels for approximately $76 million and ordered two scrubber-fitted LR2 newbuildings. It reported 72 vessels on the water at year-end, including 64 fully owned and eight financial leasebacks.
- Scrubbers were installed on 46 vessels by year-end; two further installations and two scrubber-equipped LR2 newbuildings were planned. The company expected approximately two-thirds of its fleet to have scrubbers when installations were complete.
- On March 1, 2021, after the reporting period, TORM agreed to acquire eight MR vessels for $82.5 million in cash plus 5.97 million shares, subject to the stated terms and delivery mechanics. The filing also expected two LR2 newbuildings to be delivered in late 2021 and early 2022.
- COVID-19 reduced oil and refined-product demand but also contributed to exceptional spot-rate strength and floating-storage opportunities in the second quarter. Rates eased later in the year as inventories and seasonal weakness affected the market. Crew-change restrictions caused substantial operational disruption; TORM said overdue crew employment had returned to normalized pre-pandemic levels by year-end.
- Management’s strategy was to employ vessels primarily in the spot market, while considering longer-term charters where customer requirements and returns were attractive. The supplied filing text does not provide clear numerical 2021 earnings or rate guidance; its outlook discussion is incorporated from the separate annual report.
- Principal risks include volatile spot freight rates and vessel values, COVID-19 and broader economic conditions, customer concentration, financing and covenant requirements, environmental compliance and retrofit costs, fuel and operating costs, and vessel-counterparty performance. The fleet’s broker-estimated value declined approximately 12% during 2020, excluding vessels acquired or sold.
- Two cargo claims concerning a customer’s failure to honor discharge indemnities remained in litigation in the UK and India. TORM recorded provisions totaling $18.3 million. It also recognized a $5.5 million impairment on two Handy vessels as part of its 2020 testing.
Important facts for investors to verify
- Reconcile the stated 2020 dividend per share of $0.85 with the separate disclosure of $0.95 paid per share and approximately $70.6 million in aggregate, including the relevant declaration and payment periods.
- Review the incorporated 2020 annual report for detailed 2021 outlook, charter coverage, full audited cash flow detail and contractual-obligation schedules.
- Assess the liquidity available for the $100.6 million of outstanding capital expenditure commitments, future scrubber and ballast-water-system costs, and debt service.
- Track the outcome and potential recoveries or additional exposure from the two cargo claims, against the $18.3 million provision.
- Confirm completion, financing and share-issuance terms for the post-year-end eight-vessel acquisition, and delivery and funding arrangements for the LR2 newbuildings.
- Monitor vessel values, spot-market rates, debt covenants and benchmark-rate transition risk; the filing notes that approximately 68% of year-end interest-bearing debt was hedged at 2.1% plus margin.