TORM Plc 2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019; this is an annual report, not a standalone fourth-quarter filing. Financial statements are audited and prepared under IFRS as issued by the IASB, in U.S. dollars. The filing incorporates portions of TORM’s 2019 Annual Report furnished on Form 6-K; some referenced detail is not included in the supplied text.
Business context and key financial metrics
TORM is a product tanker operator transporting refined petroleum products, with activity primarily in the spot market. It reported 74,748,248 Class A shares outstanding at year-end and operated a fleet of owned and chartered-in vessels.
| Metric (USD millions unless stated) | 2019 | 2018 |
|---|---|---|
| Revenue | 692.6 | 635.4 |
| TCE earnings | 424.9 | 352.4 |
| Adjusted gross profit | 251.9 | 169.5 |
| Adjusted EBITDA | 202.0 | 120.5 |
| Operating profit | 205.9 | 2.8 |
| Profit/(loss) before tax | 166.8 | (33.2) |
| Net profit/(loss) | 166.0 | (34.8) |
| Operating cash flow | 171.1 | 70.7 |
| Investing cash flow | (322.8) | (175.6) |
| Financing cash flow | 84.5 | 96.0 |
| Net cash flow | (67.2) | (8.9) |
| Cash and cash equivalents, including restricted cash, at year-end | 72.5 | 127.4 |
Average fleet TCE earnings were $16,526 per earning day, up 27% from $12,982. Reported basic and diluted EPS were both $2.24, versus a loss of $0.50 per share in 2018. No dividend was declared for 2019.
Liquidity, debt and investment
At December 31, 2019, the filing reports interest-bearing debt of approximately $855 million and net interest-bearing debt of $786.3 million. The reported loan-to-value ratio improved to 46.0% from 52.9%. Total liabilities were $996.2 million, equity was $1,007.7 million and total assets were $2,003.9 million.
The filing describes available liquidity of approximately $246 million, comprising about $73 million of cash and $173 million of undrawn credit facilities. A separate liquidity discussion identifies $72 million of cash and a $75 million undrawn working-capital facility. The company said working capital was adequate for the following 12 months. It reported $51 million of outstanding capital expenditure commitments for its order book, excluding scrubber commitments.
Capital expenditures were approximately $383 million in 2019, including $302 million of newbuilding prepayments. Operating cash flow did not cover investing outflows, and total cash declined by $67.2 million. The company was in compliance with its debt covenants at year-end.
Material changes and unusual items
- Revenue rose 9% year over year, and TCE earnings increased by about $73 million, primarily due to higher spot freight rates. Operating expenses fell to $173.0 million from $180.4 million.
- Operating profit and net income improved substantially from 2018. A net positive impairment line of $114 million was reported for 2019; management attributes the result in part to reversal of earlier impairments, while also noting impairments associated with vessels sold. The filing describes an approximately $120 million reversal of impairments recognized in 2016.
- Investing outflows increased as vessel and newbuilding investment expanded. TORM took delivery of five MR newbuildings and acquired four second-hand MR vessels, while agreeing to sell eight older vessels for about $65 million.
- Eight vessels were subject to sale-and-leaseback transactions in 2019. These transactions increased lease liabilities; total liabilities rose by $129 million, partly offset by lower mortgage debt and bank loans.
- In February 2020, TORM completed refinancing of five facilities with new facilities aggregating $496 million. It said the refinancing left no major debt maturities until 2026.
Outlook, commentary and risks
Management said 2019 market conditions were volatile, with a significant recovery in tanker rates in the final months of the year. It cited efficient operations and cost control as supporting performance. The supplied filing text refers investors to the 2020 outlook in the incorporated Annual Report but does not provide clear numeric guidance.
After year-end, the board recommended a $0.10 per-share dividend, subject to shareholder approval, and authorized up to $1.4 million of share repurchases. Together, the potential distribution was described as up to $8.8 million, equivalent to 50% of net income for the six months ended December 31, 2019.
Key risks include volatile spot freight rates and vessel values, reliance on the product tanker market, customer concentration, fuel and regulatory compliance costs, financing and covenant exposure, and geopolitical, sanctions, piracy and environmental risks. The filing flags the IMO’s 0.5% sulfur limit effective January 1, 2020: 20 vessels had scrubbers installed at year-end, with another 27 installations planned for the first half of 2020. It also identifies COVID-19 as a developing risk to operations and petroleum-product transport demand; the filing does not quantify its financial impact.
The filing says 20 customers represented approximately 75% of 2019 revenue in its business discussion, but states approximately 80% in its risk discussion. TORM also disclosed a one-off provision related to operational exposure, without a clear amount in the supplied text. Management concluded disclosure controls and internal control over financial reporting were effective at year-end; the auditor issued an unqualified opinion on the IFRS financial statements.
Investor facts to verify
- Review the incorporated Annual Report 2019 for full audited statements, detailed cash-flow drivers, contractual obligations and numeric 2020 outlook, which are not fully reproduced in the supplied filing text.
- Reconcile the liquidity disclosures: approximately $246 million of total available liquidity versus the separate $72 million cash and $75 million working-capital-facility figures.
- Confirm the customer concentration figure, reported as both approximately 75% and approximately 80% for the top 20 customers.
- Assess the quality and sustainability of 2019 earnings, particularly the impairment reversal, vessel-sale effects and spot-market rate recovery.
- Track refinancing terms and covenants, lease obligations, committed vessel and scrubber spending, and delivery timing for newbuildings.
- Evaluate dividend and buyback proposals against cash generation, debt terms and the company’s capital requirements.