TORM plc — 2021 Form 20-F Summary
Business context and reporting period
This is TORM plc’s annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter filing. TORM is a single-segment product-tanker operator, reporting in U.S. dollars under IFRS. Its fleet transports refined petroleum products and is primarily employed in the spot market. Unless otherwise noted, figures below are in U.S. dollars.
Financial and operating results
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $619.5 million | $747.4 million |
| TCE earnings | $378.6 million | $519.5 million |
| Adjusted gross profit | $188.1 million | $341.1 million |
| Adjusted EBITDA | $136.9 million | $271.9 million |
| Operating profit | $1.4 million | $138.9 million |
| Net profit/(loss) | $(42.1) million | $88.1 million |
| Operating cash flow | $47.9 million | $235.8 million |
| Capital expenditures | $368.9 million | $167.6 million |
- Revenue declined 17% and TCE earnings declined 27%. Average fleet TCE fell 31%, from $19,800 to $13,703 per earning day, primarily reflecting weaker spot freight rates. Voyage costs increased to $240.9 million from $227.9 million, mainly due to higher bunker prices.
- Adjusted EBITDA was about 22% of revenue, versus 36% in 2020; net margin was approximately negative 7%, versus positive 12% in 2020. These ratios are calculated from reported figures.
- Net loss included $130.9 million of depreciation, a $4.6 million impairment charge and $42.4 million of financial expenses. The 2021 impairment charge related to vessels sold and impairment testing; management reported no impairment of the Main Fleet CGU in the annual test.
- Cash and cash equivalents, including restricted cash, were $171.7 million, of which $26.9 million was restricted. Undrawn committed facilities were $38.2 million, giving reported available liquidity of about $210 million. Operating cash flow fell sharply, while investing outflows were $290.6 million and financing inflows were $298.0 million.
- Borrowings were $1,148.4 million; net interest-bearing debt was $972.1 million, up from $713.1 million. Net debt LTV increased to 52.3% from 50.8%. Equity was $1,052.2 million and total assets were $2,331.0 million.
- The company reported compliance with debt covenants at year-end. Approximately 85% of debt was interest-rate hedged on average over the coming five years, at a stated average 1.38% rate excluding loan margin.
Material changes versus the prior comparable period
- Lower freight rates drove declines in revenue, TCE, adjusted gross profit, EBITDA and operating profit; TORM moved from net income of $88.1 million in 2020 to a $42.1 million net loss in 2021.
- Operating expenses rose to $190.5 million from $178.4 million, while depreciation increased to $130.9 million from $121.9 million. Financial expenses decreased to $42.4 million from $49.9 million.
- Fleet investment expanded: TORM acquired eight MR vessels for $138 million and three 2015-built LR2 vessels for $120.8 million, and took delivery of an LR2 newbuilding. It sold two vessels during 2021; one sale was still pending delivery at year-end.
- Eight of nine planned MR sale-and-leaseback refinancings were completed in Q4 2021, with the last completed in January 2022. Under IFRS, certain sale-and-leaseback vessels remained on the balance sheet with corresponding financial liabilities.
- Capital increased by $57.9 million, including a $55.0 million non-cash share issue connected with the acquisition of the eight MR vessels. TORM paid no dividend in 2021; the 2020 cash-flow statement reported $70.6 million of dividends paid.
Outlook, commentary, risks and contingencies
- Management’s going-concern base case assumed oil markets would return to pre-COVID levels in the second half of 2022, with freight rates and vessel values above 2021 levels. A scenario with freight rates about 25% below the base case retained liquidity and covenant headroom; a more severe stress scenario required corrective actions, potentially including older-vessel sales. The board concluded the company could meet obligations and comply with covenants through March 31, 2023.
- Management noted that Russia’s invasion of Ukraine increased geopolitical uncertainty and volatility in freight rates, bunker costs, foreign exchange and vessel values. It reported an initial upward effect on European tanker freight rates from uncertainty and potential trade rerouting, but the subsequent market impact was uncertain.
- Two cargo claims related to a customer’s unhonored discharge indemnities remain in litigation in the UK and India. TORM maintained an $18.3 million provision; timing and outcome remain uncertain.
- Key risks include cyclical spot-market exposure, customer concentration (the top 20 customers generated about 72% of 2021 revenue; one customer represented 15%), debt service and covenant constraints, vessel age and values, fuel costs, COVID-19 and crew availability, sanctions, environmental regulation and climate-transition impacts.
- Environmental compliance may require further spending. At year-end, 48 vessels had ballast-water treatment systems installed, with 10 more planned. TORM reported 52 scrubbers installed, with further installations scheduled. The filing also highlights anticipated EEXI/CII requirements and the EU maritime emissions trading scheme, alongside potential compliance costs.
- TORM expected to transition legacy LIBOR-linked financing and hedging contracts to an alternative benchmark, anticipating compounded SOFR, before the June 30, 2023 U.S. dollar LIBOR cessation deadline.
- The company’s Danish tonnage-tax participation is binding through December 31, 2024. A $45.2 million non-current tax liability relates to held-over gains and could become payable if the relevant fleet is significantly or fully disposed of or the tonnage-tax regime is discontinued.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The independent auditor gave an unqualified opinion on the financial statements; no auditor attestation on internal controls was included because TORM was an emerging growth company.
Important facts for investors to verify
- Review the annual report’s full cash-flow statement and debt maturity schedule, including 2022 scheduled principal payments and lease obligations, to assess liquidity after the large 2021 investment program.
- Track spot TCE rates, utilization and bunker costs against the company’s break-even needs and the recovery assumptions in its going-concern analysis.
- Follow the cargo-claim litigation and whether the $18.3 million provision proves adequate.
- Confirm progress on remaining newbuilding delivery, vessel disposals, sale-and-leaseback terms and the associated repayment or purchase obligations.
- Monitor covenant headroom, vessel valuations, LIBOR-to-SOFR transition execution and the use of restricted cash.
- Assess actual environmental-compliance spending and the effects of emissions rules, scrubber restrictions and climate-related financing constraints.
- Consider the controlling shareholder’s voting rights, including the Class C share, and the board’s dividend discretion; the filing states that no 2021 dividend was declared.