FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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 2007
A/S STEAMSHIP COMPANY TORM
(Translation of registrant's name into English)
Tuborg Havnevej 18
DK-2900 Hellerup
Denmark
(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 [X] Form 40-F [_]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): ___
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)7: ___
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K if submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [ X ]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): ________.
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Set forth herein as Exhibit 1 is a copy of the annual report issued by A/S
STEAMSHIP COMPANY TORM (the "Company") to the Copenhagen Stock Exchange on March
5, 2007.
ANNUAL REPORT
2006
TORM
Table of contents
4 Introduction
8 Group financial highlights
9 2006 highlights
10 Outlook for 2007
14 Tanker Division
16 Bulk Division
18 Trends
24 "Greater Earning Power"
26 Human Resources
28 Safety and quality
30 Managing risk and exposure
32 Corporate Governance
34 Shareholder relations
40 Financial review
45 Income statement
46 Balance sheet
48 Statement of changes in equity
49 Cash flow statement
50 Notes
50 - Accounting policies
76 Board of Directors and Management
80 Management's and Auditors' reports
81 Financial statements for the Parent Company
89 Glossary
90 Fleet overview
Basic information:
Name and address: A/S Dampskibsselskabet TORM
o Tuborg Havnevej 18
o DK-2900 Hellerup
o Denmark
o Tel.: +45 3917 9200
o www.torm.com
Founded:1889
o CVR: 22460218
o Board of Directors: N. E. Nielsen (Chairman)
o Christian Frigast (Deputy Chairman)
o Lennart Arrias (elected by the employees)
o Ditlev Engel
o Peder Mouridsen (elected by the employees)
o Gabriel Panayotides
o Stefanos-Niko Zouvelos
o Management: Klaus Kjaerulff, CEO.
TORM is a shipping company.
2006 was another busy and eventful year for TORM, and it is pleasing once again
to be able to report a very respectable net profit for the year of USD 235
million.
As expected, we were unable in 2006 to match last year's all-time record result.
But seen in the context of the markets in which we operate, the result is highly
satisfactory. In the past year, freight rates were once again volatile,
particularly in bulk where, pleasingly, the market started to firm considerably
at mid-year, contrary to our and most industry observers' expectations.
Earnings per share were USD 6.8 (DKK 40.3) as against USD 8.6 (DKK 51.5) in
2005.
The Company's fleet has grown considerably in recent years and in this regard,
2006 was no exception. We took delivery of the first two of 7.5 LR2 product
tankers on order from the Dalian Shipyard and exercised our option to purchase
two second-hand vessels we have had on charter for a number of years.
With an eye on growth and renewal, and to ensure we continue to operate an ultra
modern fleet, we were once again active in the newbuilding market, ordering four
A1 Super Ice Class MR vessels from the GSI Shipyard in China as part of a twelve
vessel order with our pool partners. We are excited about our entry into this
more specialized and challenging business area and are pleased that doing so
involves an on-going cooperation with our valued partners.
Our growing relationship with the GSI yard also resulted in us ordering a
further four standard 51,000 dwt MR vessels of high specification, and like the
Ice Class vessels, these are scheduled for delivery in 2010. At year-end, our
total order book therefore stood at 17 vessels, representing a total investment
of USD 776 million. The tanker fleet stood at 31 vessels at year-end and the dry
bulk fleet - following our decision to take advantage of the firmer market by
selling our three oldest Panamax bulk carriers during the year - at five
vessels.
We devoted a considerable amount of time and resources during the year to
implement and - not least toward the end of the year - review our longer-term
and detailed strategy "Greater Earning Power". One key element of this calls for
an increase in our fleet capacity through chartered-in vessels to supplement the
owned fleet. We succeeded during the year in finalizing firm contracts for 15.5
additional vessels - a combination of newbuildings and second-hand - for time
charter periods of between 2 - 8 years.
Whilst pursuing a strategy of growth in our fleet, we have in parallel continued
our efforts to strengthen all aspects of our organization embracing wherever
possible the rapidly developing technologies available. Our full control of
value-creating activities to which I referred last year have received even more
focus across the organization in 2006, and the importance of us continually
striving to be `best in class' must and will be pursued energetically.
Equally, our training schemes with an emphasis on further education were also a
feature during the year, when we convened the largest and most successful
Officer Seminar ever held at Cebu, Philippines. With the tremendous newbuilding
order book, the demand for qualified seafarers is great, which is a cause for
concern in the industry. It is against this background that every effort has
been made to ensure that we retain key personnel across the fleet and invest in
this most critical resource. Ashore, we expanded our intake of trainees to five
persons.
Our overseas offices thrived during the year with expansion taking place at the
offices in Singapore as well as in Manila. We closed our Hamburg office and
concurrently went ahead with plans to open a subsidiary in Kristiansand, Norway
early in 2007.
The shipping industry continues to strive for ever-higher standards - a goal we
in TORM whole-heartedly embrace. We are also encouraged by the active support we
and our fellow Danish shipping companies receive and we hope that a number of
initiatives now being considered by our government to further boost the
industry's importance to the Danish nation will be approved, and thereby further
enhance our country's status as a leading shipping nation.
The new year has started well for TORM with a healthy bulk market enabling us to
hedge most of the year ahead at highly satisfactory rates, whilst the Tanker
Division at the beginning of the year appears to be performing in line with our
forecast. Our profit before tax forecast for 2007 is USD 135-155 million.
My most sincere thanks to each and every colleague ashore and at sea for another
exciting and rewarding year in our long history. These results are above all a
testimony to your tremendous efforts and support of our ambitious strategy.
Klaus Kjaerulff
CEO
Klaus Kjaerulff
Adm. Direkt0r
On behalf of the Board, it is a pleasure once again to be able to report to the
shareholders that TORM is in great shape after yet another highly satisfactory
year.
TORM has over the past six years had a large and stable shareholder base, which
together with capable and committed employees, has led to the most positive
development in the Company's 118 year history. This period of stability has made
it possible for the Company to develop its long-term strategy "Greater Earning
Power", which has ensured good earnings, high dividends and a significant
increase in the Company's share price. At the same time, TORM has invested in
the largest newbuilding programme in its history involving 27.5 vessels, of
which 17 are to be delivered through to 2010.
The investment in Norden, in which TORM has a stake in excess of 30%, has risen
extraordinarily over the past four years. TORM now looks upon this stake as a
financial investment.
After being informed by the Company's largest shareholder that they had received
approaches from a number of internationally based potential investors during
autumn of 2006, the Board undertook a detailed valuation of the Company's
strategic direction, with particular focus on value-creation for all
shareholders and other stakeholders. On 3 December 2006, the Board and
Management publicly announced that an internal valuation of the Company's net
asset value had been carried out (Stock Exchange announcement no. 13/2006).The
calculation showed a value of DKK 429 per share based on a number of assumptions
outlined in the announcement. The Board thereafter engaged the investment bank
Bear Sterns to determine the Company's value given a number of different
scenarios. Bear Stern's conclusion confirmed the valuation provided by the Board
and Management. TORM's Board and Management have subsequently considered how
best to continue and improve the positive development of the Company whilst at
the same time making the Company's value transparent. The result of these
deliberations is that the Board and Management have agreed on the following:
o The strategy "Greater Earning Power" shall be accelerated with a focus on:
o TORM's strategic business model, which will continuously be developed based
on tank and bulk.
o An active utilization of TORM's strong balance sheet.
o Further development and emphasis on the HR function, managers and the
employees.
o Value creation for shareholders.
o The Company's pools have given TORM and its partners an optimal utilization
of the fleet. An on-going development of the pool concept using quality
tonnage will ensure a high level of global service for the customers and
thereby further value creation.
o TORM's strong balance sheet combined with the opportunities offered by the
capital markets will make it possible to achieve an ambitious growth
target, always dependent, however, on Torm's required financial criteria
being met. In this connection, the shareholding in Norden is considered a
substantial financial asset for Torm.
o An on-going development of the Company's organization, the competences of
employees and tomorrow's leaders with the Company offering specific
courses, especially with an emphasis on international Management courses.
o Torm's Management will be expanded and will in future consist of Klaus
Kjaerulff, CEO, the newly appointed Mikael Skov (until recently head of the
Tanker Divition) as COO and an incoming CFO.
o A new bonus and share option programme for all employees will be introduced
consisting of an annual cash bonus and a granting of shares and share
options. The cash bonus will be dependent on a number of more short-term
targets, whereas the shares and share options are granted in order to
ensure a joint, long-term mutual interest between Torm's shareholders and
the employees coupled with a stable development of employees. The programme
that will be financed by the Company's holding of own shares (4.9%) will be
presented at the AGM.
o The Company regularly reviews its capital structure, including future
dividends relative to the Company's strategy, future obligations, market
developments and shareholder interests. The Company's future dividend
policy and capital requirements will make it possible to pay a dividend to
the shareholders of up to 50% of the net profit for the year.
o In order to increase the liquidity in the TORM share, the Company's largest
shareholder (Beltest) wishes to make available up to 3,640,000 shares
(equivalent to 10% of the total share capital of the Company) for the
market, in accordance with an agreement reached with the Board of
Directors.
o Similarly, and again with a view to increasing liquidity in the share, the
Board will propose at the AGM to implement a share split by altering the
nominal value of each share from nominal DKK 10 per share to nominal DKK 5
per share.
o The Board of Directors undertakes prior to the end of the current financial
year to propose a share buy-back programme of up to 15% of the Company's
nominal share capital.
Shipping has in recent years enjoyed highly favourable market conditions and
Torm and other Danish owners have taken advantage of these circumstances to the
benefit of the shareholders, the Company and not least the Danish society in a
satisfactory manner. With the implementation of the various initiatives
described, Torm hopes to be able to continue the positive development for the
benefit of all stakeholders.
Aside from a focus on economic targets, it is equally important for TORM to
focus on the Company's non-financial values, in particular to ensure that the
human resources are available to implement the Company's ambitions. We have
therefore chosen to expand the Management and concurrently committed ourselves
to an even more intensive development of managers and employees.
Thank you to our shareholders, our employees, partners and all those associated
with TORM for an exciting year.
N. E. Nielsen
Chairman
GROUP FINANCIAL HIGHLIGHTS
USD mill. Danish GAAP
INCOME STATEMENT 2006 2005 2004 2003*) 2002*)
Revenue **) 604 586 442 308 194
Time charter equivalent
earnings (TCE) 455 464 350 198 125
Gross profit 271 315 240 98 38
EBITDA 301 351 215 87 35
Operating profit 242 303 179 60 14
Financial items (1) (4) 26 100 1
Profit before tax 241 299 205 160 15
Net profit for the year 235 299 187 160 70
BALANCE SHEET
Non-current assets 1,968 1,528 1,056 700 450
Total assets 2,089 1,810 1,240 821 567
Equity 1,281 905 715 414 229
Total liabilities 808 905 524 408 337
Invested capital 1,299 1,176 618 535 402
Net interest bearing
debt 662 632 272 285 213
Cash and bonds 33 157 124 80 74
CASH FLOW
From operating
activities 233 261 228 75 33
From investing activities (118) (473) (187) (153) (142)
thereof investment in
tangible fixed assets (262) (636) (187) (170) (121)
From financing activities (239) 303 (3) 72 70
Total Net cash flow (124) 91 38 (7) (39)
KEY FINANCIAL FIGURES ***)
Gross margins **):
TCE 75.3% 79.2% 79.2% 64.5% 64.2%
Gross profit 44.9% 53.8% 54.3% 31.9% 19.7%
EBITDA 49.8% 59.9% 48.6% 28.2% 17.8%
Operating profit 40.1% 51.7% 40.5% 19.5% 7.4%
Return on Equity (RoE) 21.5% 36.9% 33.1% 49.6% 35.7%
Return on Invested
Capital (RoIC) ****) 19.6% 33.8% 31.0% 12.8% 4.3%
Equity ratio 61.3% 50.0% 57.7% 50.3% 40.4%
Exchange rate USD/
DKK, end of period 5.66 6.32 5.47 5.96 7.08
Exchange rate USD/
DKK, average 5.95 6.00 5.99 6.59 7.89
SHARE RELATED KEY FIGURES ***)
Earnings per share,
EPS (USD) 6.8 8.6 5.4 4.6 2.0
Diluted earnings per
share, EPS (USD) 6.8 8.6 5.3 4.5 2.0
Cash flow per share,
CFPS (USD) 6.7 7.5 6.6 2.2 1.0
Proposed dividend per
share (USD) *****) 2.0 3.6 2.7 1.0 0.1
Proposed dividend per
share (DKK) 11.5 23.0 15.0 6.0 1.0
Share price in DKK,
end of period (per
share of DKK 10 each) 372.0 305.1 225.8 90.3 28.2
Number of shares, end
of period (mill.) 36.4 36.4 36.4 36.4 36.4
Number of shares (excl.
treasury shares),
average (mill.) 34.7 34.8 34.8 34.6 34.6
*) The Group Financial Highlight figures for 2004-2006 have been prepared in
accordance with IFRS as adopted by the EU. The comparative figures for
2002-2003 have according to IFRS 1 not been restated in accordance with
IFRS, but are prepared in accordance with the previous GAAP based on the
provisions of the Danish Financial Statements Act applicable for listed
companies in Accounting Class D and the Danish accounting standards.
**) As described in the accounting policies a new line has been added in the
income statement. Consequently, the comparative figures for the net revenue
and the gross margins have been restated.
***) Key figures are calculated in accordance with recommendations from the
Danish Society of Financial Analysts.
****) Return on Invested Capital is defined as: Operating profit divided by
average Invested capital, defined as average of beginning and ending
balances of (Equity plus Net interest bearing debt less Non-operating
assets).
*****) Proposed dividend per share has been translated to USD using the USD/DKK
exchange rate at year-end for the year in question.
2006 HIGHLIGHTS
o Net profit after tax for the year was USD 235 million (DKK 1,395 million).
The Board of Directors considers the result very satisfactory.
o EBITDA was USD 301 million (DKK 1,790 million).
o Cash flow before financing items was USD 115 million (DKK 683 million).
Cash flow from operating activities was USD 233 million (DKK 1,383
million), while cash flow from investing activities was USD (118) million
(DKK (699) million).
o At 31 December 2006, equity amounted to USD 1,281 million (DKK 7,251
million), corresponding to USD 37.0 per share (DKK 209.4) excluding
treasury shares.
o The market value of the Company's fleet as at 31 December 2006 exceeded the
book value by USD 1,016 million (2005: USD 768 million) equalling USD 29.3
per share (DKK 166.0) (2005: USD 22.0 (DKK 139.4)) excluding treasury
shares.
o On 3 December 2006, TORM announced its own evaluation of its assets and
hereby the Company's Net Asset Value excluding brand and goodwill. The
evaluation was solely an internal calculation and was not confirmed by
evaluations from external advisers. The calculated value was DKK 14,861
million equivalent to DKK 429 per share of DKK 10. For information about
vessels chartered in and purchase options, please refer to Note 18 and 19.
o Return on Invested Capital (RoIC) was 19.6% (2005: 33.8%), and Return on
Equity (RoE) was 21.5% (2005: 36.9%).
o At the end of 2006, the Company owned 36 vessels: 31 product tankers and
five dry bulk carriers. The Company took delivery of four vessels during
the year and contracted eight newbuildings not yet delivered.
o By the end of 2006, TORM had 17 vessels on order. In addition, the Company
had entered into time charters for another 34 vessels. Consequently, the
Company's fleet of owned and chartered vessels will by 2011 consist of 73
vessels based on existing contracts, assuming that no vessels are disposed
of, acquired and/or chartered in the meantime.
o TORM's Board and Management have re-evaluated the Company's strategy
"Greater Earning Power". The strategy is maintained, but will in a number
of areas be made more precise. For details, please refer to page 24.
o The profit before tax forecast for 2007 is USD 135-155 million. In 2006,
profit before tax was USD 241 million including dividends (USD 26.4
million) and gains from sale of vessels (USD 54.4 million) vs. a profit
before tax forecast range of USD 240-250 million.
o The Board of Directors recommends, subject to approval by the Annual
General Meeting, that a dividend of DKK 11.5 (USD 2.0) per share be paid
corresponding to a total dividend payment of DKK 419 million (USD 74
million) and equivalent to 30% of net profit for the year and a return of
3.1% in relation to the closing price of the Company's shares on the last
business day of 2006.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
SELECTED KEY FIGURES 2002-2006
Outlook for 2007
TORM's financial results primarily depend on developments in freight rate levels
and the number of earning days. At 1 March, 37% of the remaining earning days in
2007 for product tankers had been covered vs. 25% at the same time in 2006. In
the Bulk Division, 89% of the remaining earning days in 2007 had been covered as
at 1 March vs. 61% at the same time in 2006.
The profit before tax forecast for 2007 is in the region of USD 135-155 million.
This forecast is subject to a degree of uncertainty in as much as a number of
factors could significantly impact freight rates and consequently the earnings
of both the product tankers and the bulk carriers. Furthermore, it is difficult
to predict the impact of additional tonnage not yet delivered. TORM does not
hold the view that there will be greater uncertainty or other exceptional
circumstances in 2007 than found previously.
For 2007, it is estimated that the following factors would have the greatest
influence on earnings:
o Worldwide economic growth.
o Consumption of refined oil products, particularly during the winter months.
o Chinese imports of commodities, particularly iron ore, coal and grain. o
Additions and scrapping of vessels. o One-off events such as strikes,
political instability in the oil-exporting countries, weather conditions,
shut-down of refineries, etc.
The below chart shows the effect that variations in the expected freight rates
will have on the full year pre-tax profit for 2007. A change in freight rates of
USD 1,000/day in all four business units operated by TORM would result in a
change amounting to USD 8.9 million. The statement is based only on the number
of earning days in 2007 during which the Company's vessels have not already been
chartered out at fixed rates.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
CHANGE IN PROFIT BEFORE TAX DUE TO CHANGE IN FREIGHT RATES
Profit before tax
USD mill.
SAFE HARBOUR STATEMENT - FORWARD LOOKING STATEMENTS
Matters discussed in this release may constitute forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and financial performance and may include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements, which are other than statements of historical
facts.
The forward-looking statements in this release are based upon various
assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, Management's examination of historical operating
trends, data contained in our records and other data available from third
parties. Although TORM believes that these assumptions were reasonable when
made, because these assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible to predict and
are beyond our control, TORM cannot assure you that it will achieve or
accomplish these expectations, beliefs or projections.
Important factors that, in our view, could cause actual results to differ
materially from those discussed in the forward-looking statements include the
strength of world economies and currencies, changes in charter hire rates and
vessel values, changes in demand for "tonne miles" of crude oil carried by oil
tankers, the effect of changes in OPEC's petroleum production levels and
worldwide oil consumption and storage, changes in demand that may affect
attitudes of time charterers to scheduled and unscheduled dry-docking, changes
in TORM's operating expenses, including bunker prices, dry-docking and insurance
costs, changes in governmental rules and regulations including requirements for
double hull tankers or actions taken by regulatory authorities, potential
liability from pending or future litigation, domestic and international
political conditions, potential disruption of shipping routes due to accidents
and political events or acts by terrorists.
Risks and uncertainties are further described in reports filed by TORM with the
US Securities and Exchange Commission, including the TORM Annual Report on Form
20-F and its reports on Form 6-K.
In 2006, the TORM fleet traveled 3 million nautical miles. That equals 14.5
times the distance to the moon.
OUTLOOK
Tanker Division
In 2007, the tanker market is expected to be positively affected by an increase
in the global oil demand and negatively affected by a relatively substantial
number of product tanker deliveries.
Energy Information Administration (EIA) expects global oil consumption to
increase by approximately 1.8% in 2007, vs. 1.0% in 2006, with China and the US
as the largest consumers. The longer transport distances of refined oil products
- attributable to the fact that additional refinery capacity is located far from
the main consuming countries - will, when combined with growth in consumption,
continue to underpin the product tanker market.
Ton-miles, which illustrates the total demand for capa-city, is expected to
increase by 4.6% in 2007 vs. 5.0% in 2006 (source: Fearnleys). However, it
should be noted that the calculation of this figure is subject to considerable
uncertainty.
The global product tanker fleet will be affected by a historically large order
book of newbuildings due for delivery in 2007. In 2007, the net fleet increase
in the three business units operated by TORM is expected to be approximately 16%
(source: Fearnleys). The net growth is expected to slow down in the succeeding
years and then gradually normalize - not least in light of what is expected to
be a relatively substantial phasing out of single-hulled product tankers in the
run-up to 2010.
For 2007, it is estimated that the following risk factors will have the greatest
influence on the product tanker market:
o The winter market and thereby stockpiling.
o The global economic growth and thereby the consumption of refined oil
products.
Due to seasonal fluctuations, the first and the fourth quarters are
traditionally the strongest as a result of the winter season. With the slack
winter market prevailing at the beginning of 2007 and the large net addition of
product tankers, TORM expects 2007 to be characterized by a little lower rates
overall than in 2006.
TORM does not announce its expectations of freight rates in individual business
units and instead chooses to state the market expectations as of 1 March 2007.
The drop in freight rates will to some extent be offset by the expansion of
TORM's fleet, which will result in 28% more earning days in 2007 compared to
2006.
As of 1 March 2007, TORM had covered approximately 37% of the remaining earning
days in 2007 at an average rate of USD 25,640/day, which ensures reasonable
earnings for the Tanker Division in 2007.
Expected TCE rates in the
PRODUCT TANKER market for 2007 2006 2007
USD/day Realized Q1 Q2 Q3 Q4 Total
LR2 28,641 37,537 23,070 28,417 33,963 30,747
LR1 27,497 22,148 23,733 25,911 28,744 25,135
MR 24,627 26,241 22,700 21,449 23,639 23,507
Source: IMAREX
Expected number of earning days in
TORM's Tanker Division in 2007 2006 2007 Change
Realized Q1 Q2 Q3 Q4 Total
LR2 2,401 810 889 998 1,025 3,722 55%
LR1 4,359 1,406 1,555 1,748 1,719 6,428 47%
MR 6,499 1,695 1,678 1,748 1,677 6,798 5%
OUTLOOK
Bulk Division
The Bulk market has in recent years experienced very firm, but also highly
volatile freight rates. TORM expects this to be the case in 2007 as well.
The most important factor in the demand for bulk
carriers, and thus for freight rates in 2007, is the development of the global
economy, including in particular developments in China. As a result of the
expected considerable volatility, TORM continues its practice of hedging a
significant part of its exposure by chartering out vessels on one-year
contracts.
For 2007, it is estimated that the following risk factors will have the greatest
influence on the bulk market:
o Chinese imports of commodities.
o The number of waiting days in ports.
o Reduced global economic growth.
As of 1 March 2007, TORM had covered approximately 89% of the remaining earning
days for its Panamax vessels at an average rate of USD 24,575/day, which ensures
that the division will achieve satisfactory earnings for 2007.
TORM does not announce its expectations of freight rates. TORM has instead
chosen to state the market expectations as of 1 March 2007.
Expected TCE rates in the bulk market and
the number of earning days in 2007 2006 2007
Realized Q1 Q2 Q3 Q4 Total
Panamax
TCE rates (USD/day)*) 19,325 35,849 38,253 31,753 31,250 34,276
Earning days 5,196 1,198 1,242 1,288 1,273 5,001
*) Source: IMAREX
Tanker Division
The tanker market started out strongly at the beginning of 2006 with high
earnings in January and February in all three business units: LR2, LR1 and MR.
An active winter market at the turn of the year combined with increased price
hedging ensured a highly satisfactory first quarter performance.
Extraordinary seasonal maintenance of refineries and petrochemical plants meant
that rates dropped sharply at the beginning of the second quarter. But by the
end of the quarter and the beginning of the third quarter, the fear of seeing a
repeat of the previous year's hurricanes in the US resulted in highly
satisfactory product tanker earnings. One of the reasons for this was
substantial US imports intended to build inventories to be able to withstand any
closure of production units and refineries resulting from hurricane damage.
A significant addition of new tonnage was seen during the year, and this had a
negative impact on rates.
Unlike in 2005, no serious hurricane damage occurred in 2006, and at the end of
the third quarter inventories of both refined products and crude oil in the US
consequently reached a five-year peak. The large inventories combined with
unseasonably high temperatures in the major consumer areas during the fourth
quarter meant that the freight market did not reach the levels usually seen
during this period.
Although the US economy has slowed down slightly, demand for refined oil
products was unchanged. This fact, coupled with the continued strong demand in
China and general stockpiling in the OECD countries, produced satisfactory
earnings from the vessels in 2006. The capitalization on short-term differences
between prices on oil products occurring in two areas (arbitrage) also helped
boost the demand for transport, thus improving earnings.
Japanese naphthalene imports fell by almost 2%, and inventories were reduced by
3% in 2006. Production rose only marginally, by 1%. These figures illustrate
that the development of the Japanese naphthalene market is stable, although
substantial monthly fluctuations are possible.
A positive factor for the development of rates in 2006 was the increasing
consumption of gasoline - particularly in the US, where demand was up by 1% on
the previous year. Also, US gasoline imports were up by 12%. During the year,
the US introduced new regulations governing the quality of gasoline, which meant
that numerous different qualities were introduced, contributing to increasing
the inventories.
In 2006, freight rates once again fluctuated greatly from one period to the
next, and this volatility is expected to persist. The main geopolitical reasons
for this in 2006 were Iran's nuclear program, the war between Lebanon and
Israel, the temporary halt to production in Nigeria following sabotage and
Venezuela's plans to increase exports to China at the detriment of the US. To
top this off, BP was forced to temporarily shut down half of its largest oil
field in the US, Prudhoe Bay in Alaska, due to corroded pipelines.
In 2006, TORM has contracted eight product tankers at the Chinese Guangzhou
Shipyard International, four of which have Ice Class specifications. All the
vessels will be equipped to carry specially defined chemical cargos under the
international classification of IMO II. This classification, combined with the
technical specifications of the vessels, enables TORM to meet the oil companies'
ever-stricter requirements.
Prices of product tankers in all three segments - LR2, LR1 and MR - remained
stable throughout 2006, albeit at very high levels. Despite the firmer prices,
demand was high for newbuildings as well as for modern second-hand tonnage,
although demand for the latter slowed in the fourth quarter.
FREIGHT RATES IN THE PRODUCT TANKER MARKET IN 2006
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PRICES ON SECOND-HAND PRODUCT TANKERS
[GRAPHIC OMITTED][GRAPHIC OMITTED]
PRICES ON NEWBUILDING PRODUCT TANERS
[GRAPHIC OMITTED][GRAPHIC OMITTED]
NUMBER OF VESSELS IN THE THREE PRODUCT TANKER POOLS
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Pool partners as of 31 december 2006
Pool manager LR2 LR1 MR
LR2: A.P. Moller-Maersk/TORM A.P. Moller-Maersk Difko A/S Primorsk Shipping
LR1: TORM Primorsk Shipping Corporation Mitsui O.S.K. Lines Ltd. Rederi AB Gotland
AB Gotland Rederi AB Gotland Nordic Tankers A/S Sanmar Shipping Ltd.
Reederei "Nord" Klaus E. Oldendorff Rederi AB Gotland TORM
TORM Reederei "Nord"
Klaus E. Oldendorff
Skagerack Invest Limited
TORM
Waterfront Shipping AS
TANKER DIVISION 2005 2006
(USD mill.) Total Q1 Q2 Q3 Q4 Total
INCOME STATEMENT
Revenue 417.9 130.6 108.6 134.1 120.7 494.0
Port expenses, bunkers and commissions (113.2) (34.7) (36.5) (35.4) (37.2) (143.8)
Freight and bunkers derivatives 3.2 4.1 3.6 (5.8) (1.3) 0.6
Time charter equivalent earnings 307.9 100.0 75.7 92.9 82.2 350.8
Charter hire (44.3) (12.0) (11.4) (17.6) (17.5) (58.5)
Operating expenses (51.4) (16.0) (16.6) (17.2) (14.8) (64.6)
Gross profit (Net earnings from
shipping activities) 212.2 72.0 47.7 58.1 49.9 227.7
Profit from sale of vessels 54.7 0.0 2.9 0.0 0.2 3.1
Administrative expenses (25.4) (5.9) (7.3) (5.4) (10.5) (29.1)
Other operating income 12.4 2.9 2.2 2.5 2.1 9.7
Depreciation and impairment losses (37.0) (12.4) (12.3) (12.8) (13.3) (50.8)
Operating profit 216.9 56.6 33.2 42.4 28.4 160.6
Bulk Division
Contrary to expectations at the beginning of the year, freight rates for the
Company's bulk carriers rose sharply in mid-2006. The rise happened on the back
of increased commodities imports, in particular in China, Europe and Japan.
Poor weather conditions and logistical problems at the beginning of 2006 caused
difficulties in loading iron ore in Australia. This factor contributed to the
relatively poor market toward the end of 2005 extending into the first quarter
of 2006.
Freight rates rose from mid-2006 - primarily due to increased demand for iron
ore. The growth in demand for coal by the Chinese steel industry and European
and Japanese power plants coupled with increasing grain imports to China and
India also underpinned freight rates.
There was a relatively large addition of new tonnage to the bulk market in 2006,
but the market was able to absorb the additional tonnage.
In 2006, TORM continued its strategy of chartering a substantial part of the dry
bulk fleet on longer-term time charter - often for periods of about one year.
Such charters have tended to reduce the risk inherent in a market of such
volatility. The majority of the longer-term charters were entered into in the
first half of 2006, which meant that the division's earnings did not benefit in
full from the impact of rising freight rates in the second half.
According to the strategy "Greater Earning Power",
the division renewed its fleet in 2006. Two Handysize vessels and three older
Panamax vessels were sold. The number of earning days in the Panamax segment
rose by 1% in 2006.
At the end of 2006, TORM's Panamax fleet comprised five owned and nine chartered
vessels, four of which include purchase options, of which two can be exercised
in 2007.
In accordance with the strategy "Greater Earning Power", the Company in 2006
entered into agreements to charter in three Panamax vessels for delivery in 2010
and 2011. Consequently, TORM will take delivery of seven vessels on long-term
charters with purchase options in the period 2007-2011. The contracts are
typically of a duration ranging from three to eight years and are at favorable
rate levels compared to the market rates prevailing at the end of 2006.
The prices of bulk carriers fell in early 2006, followed by a considerable
increase - intially in the price of modern tonnage and later, to a lesser
extent, in the price of older tonnage. The pressure on tonnage prices also
caused a strong demand for newbuildings, although prices in this area were less
sensitive. In Japan, newbuildings were contracted for delivery in 2011.
AVERAGE TCE EARNINGS FOR PANAMAX DRY BULK CARRIERS
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PRICES ON PANAMAX DRY BULK CARRIERS
[GRAPHIC OMITTED][GRAPHIC OMITTED]
BULK DIVISION 2005 2006
USD mill. Total Q1 Q2 Q3 Q4 Total
INCOME STATEMENT
Revenue 167.6 31.1 28.5 23.9 26.2 109.7
Port expenses, bunkers and commissions (11.7) (1.6) (1.3) (1.0) (1.2) (5.1)
Time charter equivalent earnings 155.9 29.5 27.2 22.9 25.0 104.6
Charter hire (37.9) (11.4) (11.2) (10.9) (14.3) (47.8)
Operating expenses (15.3) (4.1) (3.9) (3.3) (1.8) (13.1)
Gross profit (Net earnings from
shipping activities) 102.7 14.0 12.1 8.7 8.9 43.7
Profit from sale of vessels 0.0 0.0 16.5 34.8 0.0 51.3
Administrative expenses (5.8) (1.2) (1.5) (1.0) (1.8) (5.5)
Other operating income 0.2 0.2 (0.2) 0.1 0.0 0.1
Depreciation and impairment losses (10.8) (2.7) (2.5) (1.6) (1.3) (8.1)
Operating profit 86.3 10.3 24.4 41.0 5.8 81.5
TRENDS
The following sections describe significant trends which TORM believes will have
an effect on the industry and the Company in the coming years.
Increased refinery capacity
In the period 2007-2010, global refinery capacity is expected to rise by almost
8%, equalling 6.8 million barrels/day, from the current capacity of 87 million
barrels/day. The increased capacity is principally a result of the growing
demand for oil products and the refineries' reduced operating costs.
Only a minor part of the new refineries will be placed in OECD countries
including the US and Europe, which are the major consuming areas. The majority
will be located in other areas - principally China, the Middle East and India -
and this is expected to lead to an increase in the overall need for
transportation.
The production of refined oil products in China is primarily aimed at the
domestic market and therefore has rela-tively little impact on the need for
transportation (ton/miles), while the refineries in the Middle East and India
mainly produce oil for export and to a lesser extent for domestic consumption.
In India, exports are also backed by domestic circumstances, as Government
controlled retail prices have made the domestic market less profitable for the
refineries than the export markets.
Exports of oil products to the US from countries such as Algeria and Saudi
Arabia have decreased in recent years, but the Middle East and Africa are
expected to increase their exports to the US in the years up to 2010 as the
planned expansion of refinery capacity is realized. The refinery capacity in
India is expected to increase sharply up to 2010, but the increased production
is mainly expected to be sold locally or exported to neighbouring countries. The
expansion of the refinery capacity in India is therefore not expected to
contribute to any significant extent to the increase in transportation volumes.
The market's consensus expectations for the development in the demand for
transports is about 4-5% a year in the coming years. The US is the world's
leading importer and consumer of refined oil products and therefore weighs
heavily in the calculation of total transportation volumes.
It is the refinery increase in the Middle East that will increase the need for
transportation and thereby absorb the newbuildings.
In 2009, the Middle East will produce an additional one million barrels of
refined oil products per day. If this increased production is to be transported
to the US, it will tie up approximately 150 MR vessels.
GLOBAL OIL DEMAND AND REFINERY CAPACITY
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PLANNED REFINERY EXPANSION
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Fleet size and order book
Following the highly favourable developments in the industrial shipping market
in recent years, the activity level at shipyards has increased considerably in
the last couple of years. The demand for newbuildings has led to an explosive
growth in the number of shipyards and to an expansion in the capacity of
existing yards in the major shipbuilding nations (particularly China and Korea).
Several of the new Asian shipyards are presently not able to build more advanced
tonnage such as product tankers.
In addition, the period of time from contracting to delivery of a vessel has
become considerably longer. Whereas the contracting period used to be 18-24
months, since 2004 it has been extended to 42-48 months.
The extended contracting period, rising construction prices and the efficiency
of the shipyards have all together boosted the value of the yard's order books,
which has made it more expensive and more difficult for the yards to obtain the
necessary bank guarantees. This situation has not only increased the shipping
companies' expenses but also limited the yards' ability to extend production any
further.
Increasing order books have also drained the supply of main engines and crank
shafts, as the producers of these parts have not increased their capacity
correspondingly. The most important consequence of this is that improved
efficiency in the yards' production process will not in the short term result in
additional vessels being built.
Product Tankers
In the product tanker markets in which TORM operates, the existing global fleet
totalled just over 57 million dwt at the end of 2006, corresponding to 978
vessels. 591 of these are MR tankers, 236 are LR1 tankers and 151 are LR2
tankers (source: Fearnleys).
Additions to product tanker fleet
2006 compared to 2005 2007 compared to 2006
Change in dwt (%) no. of vessels Changein dwt (%) no. of vessels
MR 12 65 16 92
LR1 27 52 26 60
LR2 11 14 8 11
Total 16 131 16 163
Source: Fearnleys
PRODUCT TANKERS BY YEAR OF CONSTRUCTION
[GRAPHIC OMITTED][GRAPHIC OMITTED]
2006 saw a substantial addition of new tonnage. This expansion is set to
continue in 2007, when the fleet is expected to increase by just over 16% in
line with 2006, resulting in a total fleet of 1,141 vessels, 683 of which will
be MR tankers, 296 LR1 tankers and 162 LR2 tankers.
As a result of the product tanker market remaining strong during 2006, scrapping
activity was limited. In 2007, the scrapping activity is again expected to be
insignificant, and will therefore not reduce the size of the fleet to any
noticeable degree.
The total product tanker order book for delivery in the period 2007-2011
presently comprises a total of 572 vessels out of an existing fleet of 978
vessels, corresponding to 58%. The effect of this on each business unit is that
the MR fleet will be increased by 43% over the period, LR1 by 112% and LR2 by
37%. The relatively larger number of contracted vessels in the LR1 segment
should be seen in the context of the very low number of vessels constructed in
the 1990s in this segment as a result of the introduction of LR2 vessels
entering the market then and the poor product tanker market conditions during
most of that period.
For the time being, 2008 is expected to be the year with the largest newbuilding
programme. Subject to some extent to developments in freight rates, the IMO
regulations on the phasing-out of single-hulled tankers by 2010 will, however,
mean a gradual reduction of the older part of the fleet to the benefit of the
overall fleet development. Some 14% of the existing product tanker fleet is
expected to be phased out in accordance with IMO regulations in the period up to
2010.
The rate at which the older tonnage is phased out could well increase further in
the coming years as certain major oil companies are not using tonnage that is
more than 20-22 years old, and in case the freight market should become less
attractive.
Panamax bulk
The bulk markets have tended toward larger units in the past thirty years. The
sizes of vessels as well as of cargos have also increased. Whereas a Panamax
vessel used to have a size of 50-60,000 dwt, this size today corresponds to the
capacity of a modern Handymax vessel. A modern Panamax vessel, which is the
vessel size operated by TORM, today has a size of some 83,000 dwt, vs. some
75,000 dwt a few years ago. Their sizes are already rising further, and a
Panamax vessel is expected to grow to approximately 100,000 dwt within a few
years. The Panama Canal is less important to the Panamax segment, as the number
of types of cargo suited to this segment has dropped in recent years, while
growing in size.
The Panamax segment - bulk vessels with a size of 60-100,000 dwt - comprised
1,408 vessels, and the order book totalled 224 vessels (source: Fearnleys).
Unlike product tankers, the contracting activity in the Panamax segment has
remained at a relatively normal level in recent years as a result of the heavy
demand for other types of vessels preferred by the shipyards due to their
greater earnings on these. The total order book comprises 16% of the existing
fleet. However, the many new shipyards being established in China in recent
years are expected to build bulk carriers, including Panamax vessels, and thus
increase the order books, although with delivery after 2009.
PANAMAX FLEET BY YEAR OF CONSTRUCTION
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New Markets
An ever-increasing proportion of the global consumption of commodities such as
oil, coal and iron ore are demanded and consumed by "new" markets such as China
and, to some extent, India. Consequently, freight rates for bulk carriers in
particular and, to a lesser extent, product tankers are dependent on
developments in these countries. China is today the world's fourth largest
economy (source: IMF).
Bulk
China and India are key to developments in the bulk markets. These two
countries' increased imports and, to some extent, exports of bulk commodities
increase the transportation to and from distant countries, which occupies a
major part of the bulk fleet. This trend is expected to continue in the coming
years.
During certain periods of the year, the increased demand for bulk carriers means
that a number of ports do not have the required capacity to handle vessels
sufficiently quickly. The consequence is an increased number of waiting days
tying up part of the fleet. This situation is expected to persist for some time
to come, as the infrastructure in terms of ports, roads and railways has not
been developed sufficiently yet.
Product Tankers
The new markets only account for a limited share of the global demand for
refined oil products. For example, China and India mainly import crude oil,
which they process at their own refineries. In TORM's assessment, the new
markets thus do not have a significant effect on product tanker demand.
However, TORM expects markets outside the Western Hemisphere to become
increasingly important in view of the expansion of refinery capacity in
countries far from the main consuming areas.
Increased regulation and supervision TORM is experiencing increased focus on
regulation of conduct, not only by national and international authorities, but
also by stakeholder organizations. The industry consolidation among oil
companies and the increased regulatory requirements as to such companies'
environmental safety, etc. has also prompted the oil companies to toughen their
demands toward the vessels and shipping companies transporting their goods. TORM
and other shipping companies constantly have to face new regulations, and
ensuring that the continuous changes are correctly implemented requires
permanent resources, regular adjustment of procedures and, often, additional
investment.
Financial reporting regulations are converging toward common international
standards, which for TORM and most other large companies means more, and often
significant, changes to their accounting policies almost every year. The public
regulators are accordingly intensifying their supervision of companies'
compliance with these accounting standards, and the fear of sanctions may cause
companies and their auditors to focus heavily on compliance with formal
requirements, occasionally appearing to give this a higher priority than
relevant information.
Similarly, TORM is experiencing stricter stock exchange requirements in terms of
corporate governance, internal controls and public disclosure of information on
these issues, as well as stricter requirements from the competition authorities
as to the Company's contractual matters.
Most important for TORM, however, is the restrictive regulation in respect of
the construction, equipment and operation of tankers. The International Maritime
Organization (IMO) under the auspices of the UN passes a steady stream of new
rules, which are subsequently ratified by the member countries and incorporated
in national law. In addition to the international regulations, organizations
such as the EU and the United States Coast Guard regularly tighten these
requirements. Finally, it is not unususal that further requirements are added at
national level on top of the IMO requirements.
Stricter requirements
In the past few years, the IMO has introduced rules shortening the useful lives
of vessels and tightened vessel structure requirements, which has narrowed the
shipowners' earnings base and pushed up the costs of acquiring and operating
vessels.
Among the more recent major changes is the implementation of the MARPOL Annex II
changes, which mean that some of the products that TORM transports in tankers
are changing classification from oil products to chemical pro-ducts. Among these
are certain vegetable oils. To transport these products in the future, vessels
must be upgraded to a combination of oil and chemical tankers.
Notice of statutory changes is usually given sufficiently long before they come
into force in order for companies to be able to implement the necessary
technical and procedural changes in due time.
However, in the current market, it is far from enough to be able to fully comply
with statutory requirements. A number of stricter requirements from customers,
NGOs and other stakeholder organizations must be addressed in order for vessels
to secure the most attractive cargos. Such requirements are often far stricter
than the statutory requirements.
An example of this is the Tanker Management and Self Assessment (TMSA). These
rules have been issued by the Oil Companies International Marine Forum (OCIMF).
The TMSA is a set of guidelines setting out best practice for tanker operators.
These guidelines cover the safety aspects of tanker operations in respect of
procedures for the land-based organization as well as of onboard operations.
Procedures and operations are reviewed in twelve main areas, and the results are
reported to the oil companies, which use the information to select the vessels
to transport their cargos.
On a scale from 1 to a maximum of 4, TORM's TMSA score is currently 3. The
Company is continually striving to raise it to achieve the highest possible
level of acceptance from the oil companies.
In connection with the review of TORM's safety and quality systems, several
areas were identified in which current practice may be improved. For example,
the procedure for the risk assessment of major process changes has been
improved, including a performance evaluation of officers and captains, requiring
the four most senior officers on each vessel to evaluate each other in a
so-called 360(degree) evaluation. This untraditional approach was well received
on board the vessels.
TORM operates under various other voluntary authorities such as ISO 14001 and
Green Award. These regimes are also stricter than the level required under
statutory regulation.
THE Necessity to be proactive
It is necessary to maintain a high knowledge level, keep resources ready and
adopt a proactive approach to customer requirements and possible future
requirements, as implementing systems takes some time. Often, it is not enough
to change processes and to implement the changes. Staff must also be trained to
meet the requirements.
To maintain its market position, it has been essential for TORM to start
reviewing systems and procedures at an earlier stage than required by TMSA, to
implement the changes and to train crews and relevant land-based staff. The oil
companies have been very interested in obtaining assessments of the shipping
companies' TMSA status as early as possible, and TORM has also participated in
office audits by two oil companies for the purpose of verifying the Company's
TMSA status.
In order to maintain a proactive approach to future customer and regulatory
requirements, it is important to communicate openly in relevant work groups and
participate in industry seminars. A great deal of importance is attached to the
participation in such groups, and this investment pays off in the form of a
continuously updated view of the direction of current trends. For the same
reason, representatives of the Company are also active in INTERTANKO, ITOSF and
various technical committees under the Danish Shipowners' Association, etc. as
well as in classification relations.
New IMO rules
The International Maritime Organization (IMO) is an agency of the United
Nations. IMO's main task is to develop and maintain a comprehensive regulatory
framework for shipping and its remit today includes safety, environmental
concerns (MARPOL), legal matters, technical co-operation and efficiency of
shipping. In 2004, the IMO adopted a code for the construction and equipment of
ships carrying dangerous chemicals in bulk (the IBC Code). The code came into
force in January 2007.
The IBC Code prescribes the design and construction standards of ships involved
in the mentioned types of carriage and the equipment such ships should carry in
order to minimize the risk to the ship, its crew and to the environment and
having due regard to the nature of the products being transported.
Some products that were previously transported on board regular MR tankers have
now been redefined as chemicals and will consequently be required to be
transported by fully certified chemical carriers. In IMO terms, chemical
carriers are often referred to by their ship type (1, 2 or 3; type 1 being the
highest standard). This is a parameter based on a ship's cargo tank
configuration and its ability to withstand collision or grounding damage.
TORM is in the final stage of upgrading the six MR tankers (TORM MARY and five
sisters) to comply with
the requirements set out by the IBC Code for certified type 2 chemical tankers,
thus enabling the Company to remain in this business unit. In the future,
certain vegetable oils will require transportation in type 2 or type 3 tankers.
Seven more of the Company's MR tankers will also be converted to type 2
specifications, and all the Company's MR tankers under construction will also be
certified as type 2 tankers.
Additional training has been arranged to upgrade masters', deck officers', chief
engineers' and 1st engineers' certificates to the chemical tanker trade and
subsequent courses will be held as required.
The Company's Quality and Safety Management System (QMS) has been revised in
order to address the new requirements.
The MARPOL requirements to tankers carrying bioethanol are expected to be
published in April 2007. The Company expects to be able to meet these
requirements, initially with the 13 ships currently being converted to carrying
type 2 products.
"Greater Earning Power"
At the turn of the year 2006/07, the Board re-assessed the strategy "Greater
Earning Power" in order to ensure that TORM's leading and profitable position is
sustained, with a primary focus on product tankers. The plan is maintained, but
is broadened and made more precise in certain areas.
The plan is thereafter to accelerate the implementaion
of the strategy of recent years with a continuing focus on
product tankers and, on a smaller scale, dry bulk. The plan emphasizes building
an organization that operates globally and develop-ing the necessary staff
competences, with particular focus on strengthening Management education
according to the strategy's level of ambition.
The aim is to increase the number of earning days
significantly, provided that the growth is profitable. Based on TORM's existing
order book and vessels chartered in as of 1 January 2007, the number of earning
days will increase by 35% by year-end 2011.
The strategy covers the following focus areas:
o The aim is to provide shareholders with a high long-term return on invested
capital and on their investment in TORM shares both through the development
of the share price and through dividends.
o Optimize the capital structure of the Company, utilize the strong balance
sheet and use commercial opportunities for joint ventures and cooperation
with the goal of achieving faster and greater growth.
o To achieve significant growth in both the product tanker and dry bulk
segments.
o Product tankers will remain the most significant business area, and growth
should in general be generated within the existing business units: MR, LR1
and LR2.
o Investments will primarily be made in the product tanker segment, while
growth in the dry bulk segment is principally to be generated by chartering
in vessels and/or exercising purchase options.
o To limit tied-up capital and increase flexibility, the Company is in the
longer term seeking a fleet composition of approximately 70% owned vessels
and 30% chartered vessels.
o The Company will use its strong market position to compile and utilize
valuable knowledge and understanding of market dynamics in order to improve
the basis and speed of decisions and consequently the quality of critical
decision making.
o The plan comprises activities aimed at the continued development of the
Company's organization and employee competences with a focus on Management
development and expansion of the Company's leader-ship capabilities.
o For the purpose of strengthening its customer service, the Company will
continue the expansion of its own organization and develop the
collaboration with pool partners in the most important geographical areas.
Tanker Division
It is TORM's goal to be a consolidator of the product tanker market within the
LR2, LR1 and MR segments and thereby become the undisputed leading player in
this market. This development should come about through growth within each pool,
but first and foremost through organic growth. A stronger market position is
expected to improve earnings as it will enable the Company to offer customers
increased flexibility and capacity. At the same time, efficiency is improved as
a result of improved vessel utilization and economies of scale in purchasing,
manning and operations.
TORM anticipates being able to expand its product tanker fleet, primarily by
continuing its extensive newbuilding programme and additionally through the
purchase of existing vessels or fleets or through mergers with other companies,
should this be judged to be beneficial to the Company's further development.
Furthermore, TORM will increase the number of long-term chartered vessels and if
possible, with purchase options.
Bulk Division
TORM expects to slowly increase its exposure to the bulk market if this is
judged to be financially viable. The bulk market is highly fragmented, and TORM
sees no possibility for market consolidation in the next couple of years.
Growth will principally come about by chartering in vessels, unless potentially
interesting investment opportunities arise, as the Company finds chartering to
be the most economical way of strengthening its market position. The strategy
for the Bulk Division is based on chartering in tonnage for longer periods
combined with purchase options, if possible.
Having sold the Company's Handysize vessels in 2006, the Bulk Division now
focuses exclusively on the Panamax market.
It remains the Company's policy to hedge a significant part of the risk of
freight rate fluctuations.
Financial strategy
The Company enjoys a very solid financial foundation, which ensures that there
is capacity available for further profitable expansion.
The timing of investment and assumption of liabilities is essential in shipping.
In light of the high tonnage prices combined with TORM's criteria for returns on
investment, prudence and caution is the proper approach. It is against this
background that TORM wishes to retain a significant financial capacity to
undertake investments when the timing is right.
Human Resources
In a dynamic, international and highly competitive market, TORM needs to be able
to attract and retain the most capable commercial and technical staff.
Ashore
In order to be an attractive workplace, TORM focuses on employee training,
providing challenging jobs, a good physical and psychological work environment
and attractive salaries.
A large number of new employees have been hired in the course of TORM's
expansion in recent years, and the average seniority is seven years. Additional
staff were recruited to establish larger and more efficient chartering,
operating and technical support units, ensuring professional, efficient and
strong teams to operate the Company, which is vital for its continued growth.
In order to attract the right employees, the HR Depart-ment increased its
resources in 2006, focusing on job introduction, training and development for
all employees. It is particularly important to maintain the best of the dynamic
TORM spirit, so that it can bind the Company together as a coherent unit as it
expands in numbers of staff and locations. This work will receive further
attention in 2007 with courses and seminars on TORM's values and corporate
culture.
In TORM's further expansion, it is essential that the Company is able to
continually build a staff of talented, internationally competitive employees.
One measure of ensuring this is the targeted trainee program, which was expanded
in 2006 - in part in collaboration with other leading shipowners - to enable the
Company to offer traineeships combining practical training with a sound
theoretical education. The latter is organized in collaboration with Esbjerg
Handelsskole and Copenhagen Business School in the form of an HD graduate degree
with the possibility of a subsequent MBA degree.
TORM has a staff retention policy, which focuses not only on competitive
salaries but also on the competences, development needs and training of each
individual employee, from a professional, a personal as well as a management
perspective as part of a planned carrier.
The competition for employees in the shipping industry is intense, but TORM has
succeeded in attracting competent employees in all functions. A staff turnover
of 8% is proof that the Company has been able to attract and retain competent
people. Furthermore, a low sickness rate of 2% indicates that high commitment
levels and a positive work environment exist in TORM.
At sea
TORM continues to train officers and to take on new trainees each year. At the
end of 2006, the Company employed approximately 50 Danish trainee officers at
various stages of training. To strengthen its position in the fierce competition
for qualified seamen, the Company has decided to increase the number of Croatian
seamen, including hiring of Croatian cadets.
The turnover of seamen is still satisfactory at just over 5%. This level is
considered low.
To strengthen the sense of solidarity among the seamen and allow them to profit
from each other's experience, an international seminar was held in Cebu in the
Philippines, attended by officers from Denmark, the Philippines and Croatia. The
seminar was very success-ful and will be followed up by similar events in
Denmark and Croatia in 2007.
In order to better equip future captains and chief engineers to perform their
work and in order to strengthen land-sea communication, the Company decided in
2006 that chief officers and second engineers selected for promotions are to
undergo training programs of up to three months' duration at the Copenhagen head
office.
In 2006, the TORM Training and Competence Platform (TTCP) was implemented
following a pilot project testing the system on a single vessel at the end of
2005. The system is used to register documentation of training and assessments
as well as for information and knowledge-sharing purposes. The system was well
received, and its implementation proceeded according to plan.
TORM's office in Manila extended its staff as the office took over the
accounting function for all Philippine seamen - a task that was previously
handled externally.
Safety and quality
The safety of staff and vessels and the service TORM provides is vital to the
Company. TORM is therefore continually seeking to develop systems and
competences to ensure that all of the Company's employees focus on safety and
quality in everything they do.
TORM continually focuses on safety and environment onboard its vessels, and this
proactive approach limits the risk of incidents and accidents. The number of
accidents per million exposure hours (the Lost Time Accident Frequency or LTAF)
was 1.3 in 2006 (2005: 2.1). This level is considered satisfactory, as TORM's
target is 1.5.
TORM's system of reporting near-accidents has been crucial to the high degree of
safety onboard the Company's vessels. When a person onboard a vessel or ashore
is involved in a near-accident, the incident is reported to the Safety
Department where the details of the report are then assessed and the lessons to
be learned recorded. The details of the reports and the lessons learned are then
distributed throughout the fleet. And to further learn from experience, TORM is
participating in a project with other Danish shipowners to compile and maintain
a database of information on relevant incidents.
In order to obtain ISO-14001 certification, TORM in 2006 began implementing the
system in the Company's existing Quality Management System (QMS), which has
highlighted the environmental aspects of TORM's operations. To increase the
Company's knowledge of the environmental impact of day-to-day operations and
maximize the environmental investments, the Company has collected data across
vessels and offices.
Environmental management requires that the Company is aware of environmental
impacts and sets realistic goals for the reduction of spills and emissions of
environmentally hazardous agents.
In 2006, the guidelines for inspection of the Company's vessels were reviewed.
These guidelines are in the form of Vessel Inspection Questionnaires and
procedures in relation to the International Safety Guide for Oil Tankers and
Terminals. As a result of the review, changes were made to the requirements as
to the vessels' equipment, training and aid.
External requirements
In 2006, TORM focused particularly on ensuring compliance with the Company's
external requirements by such external parties as the Oil Companies
International Marine Forum (OCIMF), the International Maritime Organisation
(IMO), classification companies, states of registration, customers, ports and
countries of call.
Changes to the IMO rules regarding transportation of chemicals by tankers have
specified the definitions of products and the requirements of the vessels
allowed to transport various products.
Newbuildings
TORM has seconded a team of employees to each of the three Chinese shipyards
with which the Company has placed orders for newbuildings, to supervise
construction so as to ensure that the Company's high newbuilding standards are
met. A team consists of some twelve persons possessing special shipbuilding
competences. Throughout the construction period, the team is led by either a
captain or a chief engineer from TORM's fleet in collaboration with local
experts.
Because of the great demand for new vessels, three to four years often pass
between the time of ordering and delivery of a tanker. The period from when the
shipyard begins cutting the steel until the tanker is delivered is about one
year. It takes five months to manufacture vessel parts, which may weigh up to
250 tons, and another three months to assemble the parts in a dry dock. After
the launch, it takes another four months to finish the painting, equipment and
trials of the vessel before delivery.
Managing risk and exposure
TORM operates globally, and consequently the Company is exposed to changes in
economic, political and legal circumstances. Furthermore, owning and operating
vessels is a business highly sensitive to macro-economics and imposes a number
of risks on the industry's participants.
The Board and Management continuously receive and evaluate information on the
development in and monitoring of the Company's risk factors.
Commercial risks
Political AND MACROECONOMIC risks
In shipping there are considerable political risks which can result in
significant volatility in earnings. TORM's analyst function monitors product
tanker and bulk market trends as well as the global economic trends that are
likely to affect the Company's business areas. These ongoing efforts are
designed to ensure that the Com-pany's strong commercial expertise is
complemented with thorough analyses in order to improve the basis for the
Company's decisions, and thereby reduce risks and capitalize on potential
business opportunities.
Earnings volatility
The Company's income is principally generated from individual voyages, fixed at
rates reflecting prevailing market conditions with an average duration of 20-40
days, and to a lesser extent, from time charter agreements, typically of 6 to 12
months' duration. As such, TORM is exposed to the considerable volatility that
characterizes the freight markets. By participating in well-established pool
arrangements, TORM reduces its risk to a degree, primarily via a greater
geographical spread and fewer waiting days which are the direct results of the
greater market presence offered by pooling.
Freight income is to a certain extent covered against volatility through the use
of cargo contracts, FFAs and time charters, and in 2006 almost 40% of freight
earnings deriving from the Company's tankers were secured in this way. Time
charter parties accounted for 70% of overall hedging, as this hedging instrument
resulted in higher rates than those offered by the forward market. TORM has
during 2006 started to apply hedge accounting to certain FFA contracts.
In order to achieve a greater degree of control over the Company's freight
positions, the Company, in collaboration with an external partner, has developed
a Risk Manage-ment system based on the Value-at-Risk method.
Technical and operational risks
In addition to Value at Risk, the risk aspect is dealt with on an ongoing basis
in many parts of the organization. This is also true for the Safety & Quality
Department, which continually focuses on ensuring that the Company's owned
tonnage and its staff comply fully with external requirements such as regulatory
requirements and certifications, etc.
Purchase and sales price fluctuations
The fleet expansion taking place, particularly in the Tanker Division and
primarily through a substantial newbuilding program, also encompasses a number
of risk elements. These include the timing of the placing of contracts and the
value of the vessels, which can vary considerably during their lifetime. Based
on an overall portfolio approach and consistently maintaining strong financial
resources, the Company's strategy is to be in a position to purchase and sell
tonnage when the timing to do so is considered optimal.
With regard to TORM's newbuilding programme, with 17 vessels on order at Chinese
shipyards at year-end, the yards have issued guarantees for the Company's
prepayments made through the construction period. All guarantees have been
arranged via state-owned banks. At the end of 2006, prepayments to these
shipyards totalled USD 183 million.
Fleet insurance
The Insurance Department ensures that the Company as a minimum complies with
insurance requirements made by authorities as well as commercial and financial
business partners. The Company also takes out other forms of insurance to
minimize risk, including consequential loss insurance.
In the course of the fleet's operation, various casualties, accidents and other
incidents may occur that may result in financial losses for TORM. For example,
national and international rules, regulations and conventions mean that the
Company may incur substantial liabilities in the event that a vessel is involved
in an oil spill or emission of other environmentally hazardous agents. In order
to reduce or eliminate any financial loss and/or other liability that the
Company might incur in such a situation, the fleet is insured against various
types of risk.
The total insurance program comprises a broad cover of risk in relation to the
operation of vessels and transportation of cargos, including personal injury,
environmental damage and pollution, third-party casualty and liability, hull and
engine damage, total loss and war. All of TORM's owned vessels are insured for
an amount corresponding at least to their market value plus a margin to cover
any fluctuations. All vessels are furthermore insured for loss of hire for a
period of up to at least 90 days in the event of a casualty.
The Company's policy is to the extent possible to place insurances with the most
highly rated insurers - presently some 8-10 companies along with two P&I clubs
to diversify risk. The P&I clubs are members of the internationally recognized
collaboration, International Group of P&I clubs, and the Company's vessels are
insured with the maximum cover offered. P&I clubs differ from traditional
insurance companies as the participants are jointly liable, and as a participant
upon withdrawal from a club remains liable for claims arisen in the period prior
to withdrawal, unless the participant pays a release call. The Company does not
expect to pay any amounts to P&I clubs relating to the period prior to 31
December 2006 in addition to the agreed premium payments. Insurances are only
arranged with companies with a rating of BBB or better.
Bunker price fluctuations
The Company's operating result is affected by movements in the price of fuel oil
consumed by the vessels - known in the industry as bunkers. To cover this risk,
the Company hedges the price of part of its bunker requirements for a period of
up to 12 months forward. TORM has during 2006 started to apply hedge accounting
to certain bunker hedges.
In light of the Company's pool arrangements, bunker requirements of tankers are
not hedged individually in respect of cargo contracts or other forms of bunker
hedging. Instead, bunker hedging is planned taking into account the specific
pool's total estimated bunker requirements. Nonetheless, where a contract of
affreightment covering several voyages has been fixed, the pool may hedge bunker
requirements specifically for such a contract.
For bulk carriers, the bunker requirements are similarly hedged to match cargo
contract commitments, but the requirements are generally less, given that a
larger part of earnings derive from vessels chartered out on time charter, where
the charterer is responsible for the payment of bunkers.
USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company sets up all bunker hedging, and indeed any other form of hedging,
entirely on the basis of the specific market hedging requirements. In general,
hedge accounting is applied systematically and is based upon policies.
On a limited scale and within the boundaries set out by the Board of directors,
the Company from time to time enters into FFA and bunker contracts as a
supplement to the physical positions in vessels.
Credit risks
The Group's credit risks are associated partly with receivables, cash and cash
equivalents and partly with derivative financial instruments with positive fair
value. The maximum credit risk associated with financial assets is equal to the
values recognized in the balance sheet.
The majority of TORM's customers are companies that operate in the oil industry.
It is assessed that these companies in all essentials are being affected by the
same risk factors as those identified in TORM's Tanker Division. TORM has a
credit policy under which a continued credit evaluation of new and existing
customers take place.
For long standing customers, it is normal practice that the payment of freight
takes place after a vessel has discharged her cargo. For newer, smaller and less
well-known customers, the Company's financial risk is limited by the fact that
most often it is a condition that freight is paid prior to the cargo's discharge
or, alternatively, that a suitable guarantee is placed in lieu thereof. The
Company's receivables therefore primarily consist of receivables from cross-over
voyages and, to a lesser extent, of outstanding demurrage. For the past five
years, the Company has not experienced any significant losses in respect of
charter payment or any other freight agreements. With regard to the collection
of demurrage, the Company's average stands at 97-98% which is considered to be
satisfactory given the differences in interpretation of event. Demurrage
represents approximately 4% of the total freight earnings.
Financial risks
Exchange rate risk
As TORM uses USD as its measurement currency and most of the Company's
transactions are denominated in USD, TORM only has limited transaction risk,
which primarily relates to costs in DKK.
Exchange rate risks are assessed in relation to USD, and as the Company's policy
is to minimize the impact of exchange rate fluctuations on the financial
statements and on the financial position of the Company, typically by entering
into forward contracts. The expected cash flow in relation to the payment of
technical expenses in non-USD related currencies, wages, salaries and other
administrative expenses and dividends are typically hedged for a period of up to
twelve months ahead.
Interest rate risk
TORM's interest rate risk generally relates to its interest-bearing mortgage
debt. All the Company's loans for financing vessels are denominated in USD, and
most carry variable interest.
In certain cases, the Company utilizes financial instruments to manage the
effects of interest rate changes on earnings and cash resources. The Company
typically uses interest rate swaps, which are entered into for periods of up to
five years, although typically for two to three years when acceptable interest
rate levels can be obtained. For shorter interest rate hedging, the Company from
time to time uses FRAs.
The profile of the instruments always matches the profile of the particular loan
in question. When assessing interest rate risk hedging for its loan portfolio,
TORM takes into consideration expected interest rate developments and future
changes to the composition of the fleet in order to meet ongoing and future
market expectations and requirements.
CORPORATE GOVERNANCE
Good corporate governance is a key element in the creation of shareholder value
and in gaining the trust of customers, partners and the financial markets.
It is TORM's policy to ensure that the Company is at all times managed in an
orderly and proper manner in accordance with the regulation applicable in the
countries in which the Company operates and with the codes imposed by the stock
exchanges on which the Company is listed. The principal entities in the Group
are located in Denmark and Singapore, and the Parent Company is listed on the
Copenhagen Stock Exchanges in Denmark and on the NASDAQ Stock Market in the US.
For an overview of Danish corporate governance and key differences between
corporate governance in Denmark and the Anglo-Saxon practices, please refer to
the Company's website www.torm.com.
With the information provided below it is the opinion of the Board that the
Company follows the recommendations for good corporate governance from the
Copenhagen Stock Exchange on a comply-or-explain basis.
Management structure
In accordance with Danish company legislation, TORM has a two-tier management
structure. The Board of Directors ("the Board") is entirely comprised of persons
not involved in the day-to-day management. The non-executive Board of Directors
acts as a sparring partner as well as a controlling organ for Management, who in
turn is responsible for the day-to-day management of the business. No one serves
as a member of both the Board and Management but Management normally
participates in Board meetings. The main responsibilities of the Board are to
safeguard the interests of sharehold-ers, to supervise the activities of the
Company and ensure that the Company is properly managed in accordance with the
articles of association, laws and regula-tions, and to lay down the commercial
objectives and the strategic development of the Company.
The Board has laid down clear management guidelines and a code of ethics and
conducts in order to ensure that the Company is managed and business activities
are carried out in a manner in which trustworthiness and ethics are at the core.
These values are at the foundation of the Company and contribute towards the
creation of value for the Company and its shareholders.
TORM's Board and Management have an ongoing dialogue to continually improve the
management of the Company. The Board meets a minimum of five times per annum
according to the rules of procedures for the Board of directors and Management.
In 2006, 15 Board meetings where held. The Board lays out clear policies and
directives for Management's implementation. The Management in turn implements
these guidelines in their day-to-day management.
TORM's Board consists of seven members of which five are elected at the Annual
General Meeting and two are elected by the employees in accordance with Danish
legislation. The majority of the Board members elected at the Annual General
Meeting are considered independ-ent as defined by the Danish Corporate
Governance Recommendations while two members, Stefanos-Niko Zouvelos and Gabriel
Panayotides, are related to the Company's largest shareholder, Beltest Shipping
Company Ltd., and the ultimate beneficiary of this company, respectively.
The Board members including the members elected
by the employees are elected for a 4-year term. The appropriateness of the
length of the election period is evaluated periodically, and it is the opinion
of the Board that the 4-year term currently constitutes an appropriate balance
between replacement and continuity. Board members shall normally retire at the
Annual General Meeting held in the year in which they attain the age of 65. The
Board members elected by the employees have the same rights, obligations and
responsibilities as the directors elected at the Annual General Meeting.
It is the opinion of the Board that policies and guidelines concerning the
management of the Company and its inter-action with stakeholders are in
accordance with the recommendations for good corporate governance from the
Copenhagen Stock Exchange and are formalized to a degree that is consistent with
the size of the Group and the complexity of its activities. The Board regularly
evaluates the work, results and composition of the Board and Management. The
Board will introduce a structured evaluation process in 2007 and provide
information on this process in future annual reports.
The Board has formed an Audit Committee that meets at least twice per annum. In
2006, two meetings were held. The Audit Committee has two members elected by the
Board among its members. The Audit Committee assists the Board with the
oversight of financial reporting, internal controls and auditing matters as well
as the organization of work and complaints handling in relation to such matters.
Additionally, the Board has formed a Remuneration Committee that meets at least
twice per annum. Two meetings were held during 2006. The Remuneration Committee
has two members elected by the Board among its members. The Remuneration
Committee assists the Board with reviewing the performance of Management, the
remuneration to Management and the Company's general remuneration policies.
Remuneration to members of the Board and Management
The amount and components of remuneration to the Board and to Management is
presented in note 4. It is not currently considered useful to disclose the
remuneration to the individual members of the Board and Management. Members of
Management receive a fixed amount and a discretionary bonus based on individual
and company performance. Board members receive a fixed amount. In order to
attract, retain and motivate qualified executive managers, remuneration is based
on the nature and quality of work, value creation to the Company and
remuneration at comparable businesses. It is the Board's opinion that the
remuneration and the general terms of employment of Management are in accordance
with market conditions. TORM does not currently have any incentive programs.
Risk Management
Management is responsible for the identification and assessment of risks and for
the initiation of appropriate mitigating action. Management is also responsible
for the periodical presentation of major risk and changes herein to the Board.
The Board reviews the major risks and discusses risk developments with
Management as deemed appropriate and at least once a year. Major risks include
geopolitical, financial, insurance and environmental issues.
Internal control
TORM is obliged in connection with the NASDAQ listing to comply with a number of
standards, rules and regulations aimed at good corporate governance under the
Sarbanes-Oxley Act, covering American and foreign private issuers, of which the
most important are the requirements listed in Section 404.
TORM has in 2006 completed the process of becoming compliant with the
Sarbanes-Oxley Act, Section 404. TORM must ensure by actual testing that there
are no material weaknesses in the internal controls, which could potentially
lead to a material misstatement in the financial reporting. Management's
conclusion and the auditor's evaluation of the internal controls and the testing
performed by Management will be included in the first coming Form 20-F filing to
the US Securities and Exchange Commission.
As part of the internal control system, the Board has set up a whistleblower
facility allowing employees, business partners and others to file complaints to
an independent lawyer's office solicited by the Board concerning breaches of
laws, regulations and good business conduct by TORM representatives. Complaints
may be filed anonymously.
In addition to secure compliance with the relevant laws TORM believes that the
increased focus on internal controls and risk management will contribute
positively to improve the efficiency of the Company's business procedures and
processes and thereby earnings both in the short and long term.
Shareholder relations
TORM aims to provide relevant and accurate information to its stakeholders for
their assessment of TORM as a business partner and an investment object.
TORM's share capital consists of 36.4 million shares of DKK 10 each. The shares
are issued to bearer and listed on the Copenhagen Stock Exchange and on NASDAQ
in the form of American Depositary Receipts (ADRs).
TORM's share price rose by 22% in 2006, standing at DKK 372 at the end of the
year vs. a price of DKK 305 at the end of 2005. Including the dividend of DKK 23
per share, the shareholders received a total return of 30% in 2006. Thus the
market capitalization of the Company's shares was DKK 13.5 billion at the end of
2006. The overall daily turnover of TORM shares averaged approximately DKK 50
million (USD 8-9 million) in 2006.
TORM is included in the Nordic Exchange's leading equity index, OMX-C20. TORM
aims to ensure that existing and prospective investors are at all times
sufficiently informed about important developments and that the Company is
perceived to be professional, approach-able and trustworthy.
TORM has in recent years maintained close contact with the financial markets by
means of presentations, investor meetings and telephone conferences as well as
interim and full-year financial reports. The driving force behind these efforts
is a wish to increase awareness of the Company in order to provide an improved
basis for stakeholders to assess TORM as a business partner, investment object
and borrower. In 2006, approximately 100 meetings were held with investors and
analysts in Denmark, the Nordic region, Europe and the US.
Shareholders
TORM had more than 9,600 registered shareholders as at 31 December 2006,
representing 86% of the share capital. At the end of the year, approximately 10%
of the share capital had been converted into ADRs.
The following shareholders have notified the Company pursuant to section 29 of
the Danish Securities Trading Act that they hold more than 5% of the shares.
Percent
Beltest Shipping Company Ltd., Cyprus 32.2%*)
Menfield Navigation Company Limited, Cyprus 20.0%
A/S Dampskibsselskabet TORMs Underst0ttelsesfond (Cph) 6.3%
In addition, TORM holds 4.9% of its own shares.
*) Announcement no. 12/2006 from TORM
Dividend
The Board regularly reviews the Company's capital structure, including future
dividends relative to the Company's strategy, future obligations, market
developments and shareholder interests. For the financial year 2007 and beyond,
the Company intends to recommend the payment of dividends to the shareholders of
up to 50% of the net profit for the year.
For 2006, the Board recommends to the Annual General Meeting that a dividend of
DKK 11.5 (USD 2.0) per share be paid (2005: DKK 23 (USD 3,6)). The dividend
payment totals DKK 419 million (USD 74 million) corresponding to a return of
3.1% based on the share price at the end of 2006.
The following analysts cover the TORM share
ABG Sundal Collier
Danske Equities
Carnegie
FIH
Gudme Raaschou Bank
Handelsbanken Capital Markets
Jefferies & Company, Inc.
Nordea Markets
Pareto Securities
SEB Enskilda
Standard & Poor's
Sydbank
Announcements to the Copenhagen Stock Exchange in 2006
01 08 March Annual Report 2005
02 27 March Notice of Annual General Meeting
03 04 April Shareholding in NORDEN
04 19 April Annual General Meeting
05 27 April Sale of two bulk carriers and increase in guidance forecast
06 09 May First quarter 2006 report
07 02 June Retirement of CFO
08 28 July Sale of three bulk carriers
09 09 August First half 2006 report
10 07 November Financial calendar 2007
11 08 November Third quarter 2006 report
12 27 November Message from shareholder (Beltest)
13 03 December TORM's evaluation of the Company's assets
14 12 December Information from shareholder (Beltest) and the Board of TORM
Financial calendar 2007
05 March 2006 Annual Report
17 April Annual General Meeting 2007
09 May First quarter 2007 results
09 August First half 2007 results
08 November Nine months 2007 results
Investor contact
Thomas Andersen, IR Manager +45 3917 9343; e-mail: tha@torm.com
TORM SHARE PRICE - COPENHAGEN 2006
DKK/SHARE
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TORM SHARE PRICE - NASDAQ 2006
USD/ADR
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AVERAGE DAILY VOLUME ON THE COPENHAGEN STOCK EXCHANGE IN 2006
DKK mill.
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AVERAGE DAILY VOLUME ON NASDAQ IN 2006
USD mill.
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FINANCIAL
STATEMENTS
FINANCIAL REVIEW
Net profit for the year decreased by 22% to USD 235 million in 2006 from USD 299
million in 2005 resulting in earnings per share (EPS) of USD 6.8 in 2006 against
USD 8.6 in 2005. Excluding profit on sale of vessels of USD 54 million and the
increase in dividend from Dampskibsselskabet Norden A/S of USD 13 million
compared to the previous year, the profit before tax for the year was USD 174
million, which is slightly better than expected as reported at the beginning of
the financial year.
The lower profit compared to 2005 is primarily due to lower freight rates in
both segments and increased expenses and depreciation due to the expansion and
renewal of the fleet of owned and chartered vessels.
TORM's total assets increased by USD 279 million in 2006 to USD 2,089 million
from USD 1,810 million in 2005. The most significant developments behind this
increase are a net increase in the carrying amount of vessels, capitalized
dry-docking and prepayments on vessels, including vessels held for sale, of USD
113 million mainly due to fleet renewal, an increase in the carrying amount of
the shares in Norden of USD 281 million, and a decrease in cash and cash
equivalents of USD 124 million.
The equity increased by USD 376 million in 2006 to USD 1,281 million from USD
905 million in 2005. The significant increase in equity is mainly due to the
profit for the year and value adjustment of the Company's investment in Norden
less dividend paid out. TORM's total liabilities decreased by USD 97 million in
2006 to USD 808 million from USD 905 million in 2005 primarily due to repayment
of mortgage debt and bank loans.
NET EARNINGS FROM SHIPPING ACTIVITIES
TORM's total net revenue in 2006 was USD 604 million as compared to USD 586
million in the previous year. TORM's revenue is derived from two segments: the
Tanker Division and the Bulk Division. In the markets in which these divisions
operate, the time charter equivalent (TCE) rates, defined as net revenue less
voyage expenses divided by the number of available earning days (days available
for service) are used to compare freight rates. Under time charter contracts the
charterer pays for the voyage expenses, whereas the shipowner pays for the
voyage expenses under voyage charter contracts. A charterer basically has the
choice of entering into either a time charter (which may be a one-trip time
charter) or a voyage charter, and TORM is neutral to the charterer's choice,
because the Company will base its economic decisions primarily upon the expected
TCE rates rather than on expected net revenues. The analysis of revenue is
therefore primarily based on the development in time charter equivalent
earnings. TORM's time charter equivalent earnings in 2006 were USD 455 million
compared to USD 464 million in 2005. This modest decrease in the TCE was due to
lower freight rates in both segments, the effect of which was almost fully
offset by the increase in earning days in the Tanker Division.
TANKER DIVISION
Revenue in the Tanker Division increased by 18% to USD 494 million from USD 418
million in 2005, whereas the time charter equivalent earnings increased by USD
43 million or 14% to USD 351 million in 2006 from USD 308 million in the
previous year.
In 2006, the delivery of two newbuildings in the LR2 business area was the
primary reason for the increase in the number of available earning days by 412
days or 21% resulting in an increase in earnings of USD 14 million. TORM also
took delivery of two vessels, which had previously been chartered in and, thus,
did not affect the number of earning days. Freight rates that were on average
16% lower than in the previous year decreased earnings by USD 13 million.
In the LR1 business area, the Company added five vessels to the chartered fleet,
and the vessels delivered to the owned fleet during 2005 had full effect in
2006. These were the most important factors behind the increase in the number of
available earning days by 1,608 days or 58% from the previous year, resulting in
an increase in earnings of USD 52 million. The decrease in average freight rates
of 14% reduced earnings by USD 20 million from the previous year.
In the MR business area, the net delivery of five vessels to the fleet during
2005 had full effect in 2006 causing the number of available earning days to
increase by 918 days or 16%, which increased earnings by USD 24 million. The
average freight rates were 6% lower than in the previous year, which affected
earnings negatively by USD 10 million.
The net increase in the time charter equivalent earnings in the Tanker Division
can be summarized as illustrated in the table below.
The table below summarizes the earnings data per quarter for the Tanker
Division.
Earnings data for the Tanker division
USD/day 2005 2006 2006 2006 2006 2006 Change in %
Total Q1 Q2 Q3 Q4 Total 2005-2006
LR2/Aframax vessels
Available earning days 1,989 529 527 642 703 2,401 21%
TCE per earning day*) 34,019 40,814 21,507 27,282 25,940 28,641 (16%)
OPEX per earning day**) (5,612) (5,464) (6,695) (7,141) (5,614) (6,032) 7%
Operating C/F per earning day***) 21,234 30,787 12,058 17,333 18,674 19,571 (8%)
LR1/Panamax vessels
Available earning days 2,751 912 1,060 1,194 1,193 4,359 58%
TCE per earning day*) 32,099 32,845 23,530 28,843 25,588 27,497 (14%)
OPEX per earning day**) (5,903) (5,730) (5,254) (6,450) (5,109) (5,631) (5%)
Operating C/F per earning day***) 19,951 19,203 11,974 13,105 11,526 13,672 (31%)
MR vessels
Available earning days 5,581 1,599 1,632 1,642 1,627 6,499 16%
TCE per earning day*) 26,115 26,614 24,755 25,306 21,861 24,627 (6%)
OPEX per earning day**) (6,708) (7,199) (7,320) (6,660) (6,197) (6,834) 2%
Operating C/F per earning day***) 20,844 20,225 18,251 19,392 16,365 18,553 (11%)
*) TCE = Time Charter Equivalent Earnings = Gross freight income less bunker,
commissions and port expenses including the effect from realized hedge
transactions on freight income and bunkers.
**) Operating expenses for own vessels.
***) TCE earnings less operating expenses and charter hire.
BULK DIVISION
In the Bulk Division, net revenue decreased by 35% to USD 110 million from USD
168 million in the previous year, whereas the time charter equivalent earnings
decreased by USD 51 million or 33% to USD 105 million from USD 156 million in
2005. In 2006, the freight rates for bulk carriers were once again highly
volatile. However, TORM continued to pursue a strategy of high coverage in the
bulk segment, primarily through 1-year time charter agreements, and the market
development in freight rates during 2006 is therefore not directly reflected in
the Company's earnings for 2006.
Freight rates in the Panamax business area were on average 31% lower than in
2005, reducing earnings by USD 44 million. In this busi-
ness area, the Company sold three vessels but increased the number of earning
days by chartering in vessels, so that the net increase in the number of
available earning days was 1% or 73 days from the previous year. As a result the
time charter equivalent earnings in this segment increased by USD 2 million.
In the Handysize business area, the two owned vessels were sold during the
second quarter of 2006 and the activities in this business area were
discontinued. The timecharter equivalent earnings decreased by USD 9 million to
USD 4 million in 2006.
The change in the time charter equivalent earnings in the Bulk Division can be
summarized as illustrated in the table below.
Earnings for the Bulk Division
USD mill. Handysize Panamax Total
Time charter equivalent earnings 2005 13 143 156
Change in number of earning days (8) 2 (6)
Change in freight rates (1) (44) (45)
--------------------------------
Time charter equivalent earnings 2006 4 101 105
FINANCIAL REVIEW
The table below summarizes the earnings data per quarter for the Bulk Division.
Earnings data for the Bulk division
USD/day 2005 2006 2006 2006 2006 2006 Change in %
Total Q1 Q2 Q3 Q4 Total 2005-2006
Panamax vessels
Available earning days 5,123 1,346 1,382 1,234 1,234 5,196 1%
TCE per earning day*) 27,897 20,324 18,343 18,402 20,272 19,325 (31%)
OPEX per earning day**) (4,676) (4,572) (4,576) (5,662) (4,020) (4,859) 4%
Operating C/F per earning day***) 17,487 9,430 7,681 6,872 9,846 7,929 (55%)
Handysize vessels
Available earning days 816 179 124 - - 303 n.a.
TCE per earning day*) 16,011 12,479 11,899 - - 12,249 n.a.
OPEX per earning day**) (3,919) (4,583) (4,583) - - (4,583) n.a.
Operating C/F per earning day***) 11,588 7,897 9,700 - - 8,366 n.a.
*) TCE = Time Charter Equivalent Earnings = Gross freight income less bunker,
commissions and port expenses.
**) Operating expenses for own vessels.
***) TCE earnings less operating expenses and charter hire.
OPERATION OF VESSELS
Vessels chartered in on time charters do not give rise to operating expenses for
TORM but only to charter hire payments. As compared to 2005, charter hire in the
Tanker Division increased by USD 15 million to USD 59 million in 2006, whereas
charter hire paid in the Bulk Division increased by USD 10 million to USD 48
million. The increase in the Tanker Division was primarily caused by a
significant increase in the number of vessels chartered in, whereas the
development in the Bulk Division was caused by a combination of an increase in
the available earning days and higher time charter rates compared to 2005.
The operating expenses for the owned vessels increased by USD 11 million or 16%
to USD 78 million in 2006. The most significant factor behind this development
was the increase in the number of operating days of 1,364 days or 12%, primarily
due to the addition of owned vessels in the LR2 business area. The main reason
for the operating expenses not increasing proportionately to the increase in the
number of operating days is a decrease in the number of dry-dockings to 100 days
during 2006 compared to 277 days in 2005. Days in dry-dock are not included in
the number of operating days, whereas the vessels incur operating expenses at
similar levels as during operation. The total fleet of owned vessels incurred 43
off-hire days in 2006 corresponding to three per thousand of the number of
operating days compared to 31 off-hire days in 2005 corresponding to three per
thousand of the number of operating days. The Company considers this a very
satisfactory level.
Operating expenses are mainly incurred in USD and DKK. The average DKK/USD
exchange rate in 2006 was more or less unchanged from 2005 and did not affect
the development in operating expenses significantly.
ADMINISTRATIVE EXPENSES AND OTHER OPERATING INCOME
The increase in total administrative expenses from 2005 to 2006 by USD 4 million
to USD 35 million was mainly due to increased salary expenses due to the
addition of new staff and a general increase in salary levels.
Administrative expenses are primarily incurred in DKK. The average DKK/USD
exchange rate in 2006 was more or less unchanged from 2005 and did not affect
the development in administrative expenses significantly.
Other operating income primarily comprises chartering commissions received by
TORM in connection with the management of the three tanker pools. Other
operating income amounted to USD 10 million in 2006 compared to USD 13 million
in 2005. The decrease was primarily related to commissions from the tanker
pools. The commissions are based on net revenues in the pools, and the change is
a direct result of the change in freight rates and the number of vessels in the
pools compared to the previous year.
FINANCIAL INCOME AND EXPENSES
Net financial items in 2006 were USD -1 million compared to USD -4 million in
2005. The most significant reason for the change is the higher dividend from
Norden of USD 25 million compared to USD 12 million in 2005 and an increase in
net interest expenses of USD 10 million to USD 36 million in 2006 due in part to
the increase in net interest bearing debt of USD 30 million during the year to
USD 662 million from USD 632 million in 2005 but more importantly due to the
significant increase in net interest bearing debt of USD 360 million in 2005
having full effect in 2006.
TAX
Tax expenses for the year amounted to USD 7 million compared to USD 0 million in
2005. The tax expenses for 2006 comprise current tax for the year of USD 5
million compared to USD 9 million in the previous year, an increase in deferred
tax of USD 8 million compared to a decrease of USD 9 million in 2005 and an
income of USD 6 million due to an adjustment to the estimated tax liabilities
for the previous years. The deferred tax liability as at 31 December 2006 was
USD 63 million compared to USD 55 million in the previous year.
All significant Danish entities in the TORM group entered into the tonnage
taxation scheme with effect from 2001 and have filed tax returns for 2001
through to 2005. The Company has filed a complaint regarding the assessments by
the tax authorities of the tax returns for the years 2001 to 2004 and the
assessment for 2005 has not been completed. The recognized current tax
liabilities are therefore to a great extent based on Management's judgement
regarding the outcome of the complaint and the assessment. TORM paid USD 3
million in corporation tax on account in 2006 regarding these entities.
VESSELS AND DRY-DOCKING
The increase in tangible fixed assets of USD 157 million to USD 1,324 million in
2006 is attributable to the change in vessels and capitalized dry-docking and in
prepayments on vessels. The carrying value of vessels and capitalized
dry-docking increased by USD 70 million to USD 1,136 million. The increase
relating to vessels amounted to USD 73 million. The addition of new tonnage
amounted to a total acquisition cost of USD 168 million resulting from two LR2
tanker newbuildings, two LR2 tankers built in 1999 and 2000 and one LR1 tanker
newbuilding. One LR1 tanker built in 2006, three Panamax bulk carriers built in
1990, 1992 and 1993, and two Handysize bulk carriers built in 1997 at a total
carrying amount of USD 43 million were sold during the year and depreciation on
the vessels amounted to USD 52 million. Prepayments on vessels increased by USD
86 million to USD 183 million due to additional costs relating to vessels under
construction of USD 166 million less the above-mentioned newbuilding deliveries
of USD 80 million.
Total depreciation amounted to USD 59 million in 2006 as compared to USD 48
million in 2005, an increase of USD 11 million. The increase is due to the
expansion and renewal of the fleet during 2005 and 2006.
As at 31 December 2006, TORM's newbuilding programme comprised
17 tanker vessels to be delivered during 2007 to 2011, and the contractual
liabilities under the program amounted to USD 776 million. In addition, the
Company called an option in 2006 to acquire one Panamax bulk carrier on time
charter built in 2004, which will be delivered in the second quarter of 2007.
The contractual liability relating to this vessel amounted to USD 19 million as
at 31 December 2006.
The market value of the fleet and investment program (5.5 LR2 tanker
newbuildings, 1.5 LR1 tanker newbuildings, 10 MR tanker newbuildings and one
second-hand Panamax bulk carrier) exceeded the carrying value of the fleet
including newbuilding contracts by USD 1,016 million at year-end. This valuation
is based on the average of three internationally acknowledged shipbrokers'
valuations.
OTHER INVESTMENTS (Norden)
Other investments mainly comprise the investment in approximately 33% of the
shares in Norden with a carrying value of USD 633 million as at 31 December 2006
compared to USD 352 million in the previous year.
TORM does not consider Norden as an associated company, as the Company does not
have influence on decisions and is not represented on Norden's Board of
Directors. The investment in Norden is valued on the basis of the closing price
on the Copenhagen Stock Exchange on 31 December 2006 of DKK 4,765.82 per share.
To the positive effect from the increase in the share price from DKK 2,958.63 as
at 31 December 2005 was added the effect of the change in the DKK/USD exchange
rate of USD 66 million. The Company holds investments in other entities with an
aggregate carrying amount of USD 11 million as at 31 December 2006, of which USD
3 million concerns unlisted entities, compared to USD 9 million as at 31
December 2005. The carrying amount of the unlisted shares constitutes the
estimated fair value based on available information.
LIQUIDITY AND CAPITAL RESOURCES
The invested capital increased by USD 123 million to USD 1,299 million as at 31
December 2006, from USD 1,176 million in the previous year. The increase can
primarily be explained by the addition of tonnage and prepayments on
newbuildings during the year.
The primary objective of the Company's capital management is to ensure that it
maintains a strong credit rating and healthy capital ratios in order to support
its business and maximize shareholder value. To manage its capital structure and
make adjustments to it, in light of changes in economic conditions, the Company
may adjust the dividend payment to shareholders, return capital to shareholders
or issue new shares. No changes were made to the capital management objectives,
policies or processes during the years ended 31 December 2006 and 31 December
2005.
The Company monitors the capital using gearing ratios, primarily the equity
ratio, which is equity divided by total assets. The Company's policy is to
maintain the equity ratio above 30% both when executing short-term business
activities and when considering strategic initiatives and planning long-term
investments. As at 31 December 2006, the equity ratio was 61% compared to 50% as
at 31 December 2005.
Equity increased by USD 376 million to USD 1,281 million. The considerable
growth in equity is mainly due to the net profit for the year of USD 235 million
and value adjustment of the Company's investment in shares in other companies,
including Norden, of USD 283 million less dividends paid out during the year of
USD 134 million.
The payment of the Company's obligations under loan agreements, along with the
payment of charter hire for chartered-in vessels and all other commitments that
TORM has entered into, are paid out of the cash generated by the Company. Total
cash and cash equivalents amounted to USD 33 million at the end of 2006 vs. USD
157 million at the beginning of the year, resulting in a net decrease in cash
and cash equivalents from cash flows for the year of USD 124 million compared to
a net increase of USD 91 million in 2005. The primary sources of the cash flow
were profit from operating activities, additional borrowing and proceeds from
the sale of vessels.
The cash flows were primarily used to finance the renewal of the fleet, to repay
mortgage debt and bank loans and to pay dividend to shareholders during the
year.
The Company's operations generated a cash inflow of USD 233 million compared to
an inflow of USD 261 million in 2005, which was historically high. The Company
invested USD 262 million in tangible fixed assets during the year, primarily
comprising the extension of the fleet, compared to USD 636 million in 2005. The
total cash inflow from the sale of vessels was USD 145 million in 2006 compared
to USD 178 million in 2005.
The total cash outflow from financing activities amounted to USD 239 million
compared to a cash inflow of USD 303 million in 2005. Additional borrowing
generated inflow of USD 162 million for the financing of the newbuilding program
and purchase of second-hand vessels, while repayments on mortgage debt and bank
loans amounted to USD 256 million. Dividend payments to TORM's shareholders,
which in 2006 amounted to USD 134 million, also affected cash flow from
financing activities.
As at 31 December 2006, TORM had entered into credit agreement with leading
banks with a total commitment of USD 1,514 million, of which USD 698 million was
drawn. Of the total borrowings of USD 698 million, USD 634 million was bearing
variable interest. The credit agreements are dedicated to the financing of new
tonnage and to the ongoing financing of some of the existing vessels.
For all 17 vessels in the newbuilding programme payments corresponding to
approximately 23% of the aggregate contract price have been made, and TORM has
entered into an agreement for the remaining financing of three of the LR2
product tankers in the newbuilding programme to be delivered during the period
from April 2007 to June 2008. The remaining financing for the other vessels has
not yet been agreed but will be in place in due time to meet all payment
obligations. The total outstanding contractual commitment under the newbuilding
programme amounted to USD 594 million as at 31 December 2006.
TORM believes that based on available cash and planned investments, projected
operating cash flows and financing capacity the Company has sufficient cash flow
to meet the operating requirements, cash flow obligations and other strategic
initiatives set by the Company's Board of directors. TORM also believes that the
current fleet structure, based on time charters and owned vessels, provides the
Company with the flexibility to react to changes in market conditions reducing
the exposure to negative market developments.
CONSOLIDATED INCOME STATEMENT
1 January - 31 December
USD `000
Note 2006 2005
Revenue 603,717 585,611
Port expenses, bunkers and commissions (148,943) (124,968)
Freight and bunkers derivatives 620 3,194
------------------
Time charter equivalent earnings 455,394 463,837
Charter hire (106,329) (82,139)
Operating expenses 4 (77,624) (66,744)
------------------
Gross profit (Net earnings from shipping
activities) 3 271,441 314,954
Profit from sale of vessels 54,362 54,731
Administrative expenses 4, 5 (34,594) (31,176)
Other operating income 9,839 12,570
Depreciation and impairment losses 7 (58,915) (47,894)
------------------
Operating profit 242,133 303,185
Financial income 8 39,473 26,004
Financial expenses 8 (40,520) (29,822)
------------------
Profit before tax 241,086 299,367
Tax expenses 10 (6,574) (4)
------------------
Net profit for the year 234,512 299,363
------------------
Earnings per share
Earnings per share (USD) 25 6.8 8.6
Earnings per share (DKK)*) 40.3 51.5
Diluted earnings per share (USD) 25 6.8 8.6
Diluted earnings per share (DKK)*) 40.3 51.4
*) Calculated from USD to DKK at the average USD/DKK exchange rate for the
relevant period. The accompanying notes are an integrated part of these
financial statements.
CONSOLIDATED BALANCE SHEET
At 31 December
USD `000
ASSETS Note 2006 2005
NON-CURRENT ASSETS
Tangible fixed assets
Land and buildings 374 883
Vessels and capitalized dry-docking 15 1,136,408 1,066,474
Prepayments on vessels 183,348 97,397
Other plant and operating equipment 3,575 2,319
--------------------
7 1,323,705 1,167,073
--------------------
Financial fixed assets
Other investments 6 644,409 360,993
----------------
644,409 360,993
Total non-current assets 1,968,114 1,528,066
--------------------
CURRENT ASSETS
Inventories of bunkers 12,134 10,869
Freight receivables, etc. 9 49,690 53,890
Other receivables 21,500 14,133
Prepayments 4,546 2,853
Marketable securities 0 241
Cash and cash equivalents 33,035 156,728
--------------------
120,905 238,714
Non-current assets held for sale 24 0 43,358
--------------------
Total current assets 120,905 282,072
--------------------
TOTAL ASSETS 2,089,019 1,810,138
--------------------
The accompanying notes are an integrated part of these financial statements.
USD `000
EQUITY AND LIABILITIES Note 2006 2005
EQUITY
Common shares 11 61,098 61,098
Treasury shares 11 (18,118) (7,708)
Revaluation reserves 579,852 296,448
Retained profit 574,493 415,306
Proposed dividend 73,939 132,382
Hedging reserves 5,589 3,258
Translation reserves 3,993 3,867
--------------------
Total equity 1,280,846 904,651
--------------------
LIABILITIES
Non-current liabilities
Deferred tax liability 10 62,787 54,560
Mortgage debt and bank loans 13,15 639,065 729,088
--------------------
Total non-current liabilities 701,852 783,648
--------------------
Current liabilities
Mortgage debt and bank loans 13, 15 55,902 59,926
Trade payables 18,760 22,918
Current tax liabilities 4,575 9,381
Other liabilities 14 26,004 23,592
Deferred income 12 1,080 6,022
--------------------
Total current liabilities 106,321 121,839
--------------------
Total liabilities 808,173 905,487
--------------------
TOTAL EQUITY AND LIABILITIES 2,089,019 1,810,138
--------------------
Accounting policies 1-2
Collateral security 15
Guarantee and contingent liabilities 16
Contractual liabilities 17
Time charter contracts 18
Purchase options on vessels 19
Fair value of derivative financial instruments 20
Financial and commercial risks 21
Financial instruments 22
Related party transactions 23
Non-current assets held for sale 24
Earnings per share 25
Appropriation on net profit for the year incl.
proposed dividend 26
Cash flows 27
Reconciliation to United States Generally
Accepted Accounting Principles (US GAAP) 28
The accompanying notes are an integrated part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
USD mill.
Gains/losses recognized directly in equity
Common Treasury Retained Proposed Revaluation Hedging Translation
EQUITY shares shares profit dividends reserves reserves reserves Total
----------------------------------------------------------------------------------------
Balance at 1 January 2005 61.1 (7.7) 238.4 99.9 319.3 0.4 4.0 715.4
Changes in equity 2005:
Exchange rate adjustment arising
on translation of entities using a
measurement currency different from USD (0.1) (0.1)
Reversal of deferred gain/loss on hedge
instruments at the beginning of the year (0.4) (0.4)
Deferred gain/loss on hedge instruments
at year-end 3.3 3.3
Reversal of fair value adjustment on
available for sale investments at the
beginning of the year (319.3) (319.3)
Fair value adjustment on available for
sale investments at year-end 296.4 296.4
----------------------------------------------------------------------------------------
Net gains/losses recognized
directly in equity 0.0 0.0 0.0 0.0 (22.9) 2.9 (0.1) (20.1)
Profit for the year 299.4 299.4
----------------------------------------------------------------------------------------
Total recognized income/expenses
for the year 0.0 0.0 299.4 0.0 (22.9) 2.9 (0.1) 279.3
Disposal of treasury shares, cost 0.0 0.0
Dividends paid (94.5) (94.5)
Dividends paid on own shares 4.1 4.1
Exchange rate adjustment on dividends paid 5.4 (5.4) 0.0
Exercise of share options 0.4 0.4
Proposed dividends for the
financial year (132.4) 132.4 0.0
----------------------------------------------------------------------------------------
Total changes in equity 2005 0.0 0.0 176.9 32.5 (22.9) 2.9 (0.1) 189.3
----------------------------------------------------------------------------------------
Equity at 31 December 2005 61.1 (7.7) 415.3 132.4 296.4 3.3 3.9 904.7
Changes in equity 2006:
Exchange rate adjustment arising on
translation of entities using a
measurement currency different from USD 0.1 0.1
Reversal of deferred gain/loss on hedge
instruments at the beginning of the year (3.3) (3.3)
Deferred gain/loss on hedge instruments
at year-end 5.6 5.6
Reversal of fair value adjustment on
available for sale investments at
the beginning of the year (296.4) (296.4)
Fair value adjustment on available for
sale investments at year-end 579.8 579.8
Net gains/losses recognized
directly in equity 0.0 0.0 0.0 0.0 283.4 2.3 0.1 285.8
----------------------------------------------------------------------------------------
Profit for the year 234.5 234.5
----------------------------------------------------------------------------------------
Total recognized income/expenses
for the year 0.0 0.0 234.5 0.0 283.4 2.3 0.1 520.3
Purchase of treasury shares, cost (10.4) (10.4)
Disposal of treasury shares, cost 0.0 0.0
Dividends paid (140.1) (140.1)
Dividends paid on treasury shares 5.9 5.9
Exchange rate adjustment on dividends paid (7.7) 7.7 0.0
Exercise of share options 0.4 0.4
Proposed dividends for the financial year (73.9) 73.9 0.0
----------------------------------------------------------------------------------------
Total changes in equity 2006 0.0 (10.4) 159.2 (58.5) 283.4 2.3 0.1 376.1
----------------------------------------------------------------------------------------
Equity at 31 December 2006 61.1 (18.1) 574.5 73.9 579.8 5.6 4.0 1,280.8
----------------------------------------------------------------------------------------
The accompanying notes are an integrated part of these financial statements.
CONSOLIDATED CASH FLOW STATEMENT
USD `000
Note 2006 2005
CASH FLOW FROM OPERATING ACTIVITIES
Operating profit 242,133 303,185
Adjustments:
Reversal of profit from sale of vessels (54,362) (54,731)
Reversal of depreciation and impairment losses 58,915 47,894
Reversal of other non-cash movements 27 6,020 (6,523)
Dividends received 26,401 12,825
Interest income and exchange rate gains 10,096 7,809
Interest expenses (40,734) (26,045)
Income taxes paid (3,153) (7,505)
Change in inventories, accounts
receivables and payables (12,813) (15,797)
-------------------
Net cash inflow/(outflow) from
operating activities 232,503 261,112
-------------------
CASH FLOW FROM INVESTING ACTIVITIES
Investment in tangible fixed assets (262,376) (635,877)
Sale of /investment in equity interests
and securities 227 (15,415)
Sale of non-current assets 144,550 178,157
-------------------
Net cash inflow/(outflow) from
investing activities (117,599) (473,135)
-------------------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing, mortgage debt and other
financial liabilities 162,096 645,493
Repayment/redemption, mortgage debt (256,143) (251,905)
Dividends paid (134,140) (90,401)
Purchase/disposal of treasury shares (10,410) 40
-------------------
Cash inflow/(outflow) from financing activities (238,597) 303,227
Net cash inflow/(outflow) from operating,
investing and financing activities (123,693) 91,204
Cash and cash equivalents, at 1 January 156,728 65,524
-------------------
Cash and cash equivalents, at 31 December 33,035 156,728
Of which used as collateral 0 0
-------------------
33,035 156,728
The accompanying notes are an integrated part of these financial statements.
NOTEs
NOTE 1
ACCOUNTING POLICIES
The annual report has been prepared in accordance with the International
Financial Reporting Standards as adopted by the EU and the disclosure
requirements for Danish listed companies' financial reporting.
The annual report also complies with the International Financial Reporting
Standards ("IFRS") issued by the International Accounting Standards Board
(IASB).
The financial statements are prepared in accordance with the historical cost
convention except where fair value accounting is specifically required by IFRS.
The functional currency in all major entities is USD, and the Group applies USD
as presentation currency in the preparation of financial statements.
Changes in accounting policies and presentation
TORM has implemented the following standards and changes to standards in the
annual report for 2006:
IFRS 7 "Financial Instruments: Disclosures". The standard adds certain new
disclosures about financial instruments to those currently required by IAS 32,
replaces the disclosures now required by IAS 30 and compiles all of those
financial instruments disclosures together in a new standard.
Amendment to IAS 1 "Presentation of Financial Statements". The amendment
introduces disclosure requirements about the level of capital and how the
capital is managed.
In addition, TORM has implemented IFRIC 8 "Scope of IFRS 2 Share-based Payment"
and IFRIC 9 "Reassessment of Embedded Derivatives".
The implementation of the above standards, changes to standards and
interpretations has not affected TORM's financial statements. However,
disclosures have been added due to the implementation.
A new line "Freight and bunkers derivatives" has been added in the income
statement. The income statement effect of forward freight agreements, forward
bunker contracts and other shipping related derivates for which hedge accounting
is not applied is included in this line. Previously, the effect was included in
"Revenue" and "Port expenses, bunkers and commissions" respectively. The volume
of trade with freight forward agreements and forward bunker contracts is
increasing and in periods of high volatility in freight rates and oil prices the
change in the value of the contracts for which hedge accounting is not applied
may affect the income statement materially. Although all freight and bunker
derivatives are regarded as part of the time charter equivalent earnings, it is
TORM's view that presenting these contracts separately provides a more relevant
presentation of "Revenue" and "Port expenses, bunkers and commissions" for the
period. The comparative figures have been reclassified accordingly. Revenue in
2005 is reduced by USD 1.4 million, and port expenses, bunkers and commisions
are increased by USD 1.8 million as a result of the change.
Note 17 includes lease liabilities relating to vessels not yet delivered.
Previously, the lease liabilities presented only represented delivered vessels.
While there may be uncertainty relating to the delivery of vessels, it is TORM's
view that including these liabilities in the note provides a more relevant
presentation of the contractual liabilities. The comparative figures have been
adjusted accordingly. The lease liabilities in 2005 are increased by USD 228
million as a result of the change. The change has no effect on any financial
statement line items and earnings per share in 2005.
Accounting standards and interpretations not yet adopted
IASB has issued IFRS 8 "Operating Segments" in November 2006. The standard
replaces IAS 14 and aligns segment reporting with the requirements of SFAS 131
under USGAAP. TORM expects to implement this standard with effect from the
financial year 2007 if adopted by the EU.
IASB also issued IFRIC 10 "Interim Financial Reporting and Impairment" in July
2006 and IFRIC 11 "IFRS 2: Group and Treasury Shares Transactions" in November
2006. TORM expects to implement these interpretations when they become effective
and adopted by the EU in 2007 and 2008 respectively.
TORM expects that implementation of the standard and interpretations do not have
material effect on the annual report and interim reporting.
Key accounting policies
The Management considers the following to be the most important accounting
policies for the TORM Group.
Participation in pools
TORM generates its revenue from shipping activities, which to a large extent are
conducted through pools. Total pool revenue is generated from each vessel
participating in the pools in which the Group participates and is based on
either voyage or time charter parties. The pool measures net revenues based on
the contractual rates and the duration of each voyage, and net revenue is
recognized upon delivery of service in accordance with the terms and conditions
of the charter parties.
The pools are regarded as jointly controlled operations, and the Group's share
of the income statement and balance sheet in the respective pools is accounted
for by recognizing a proportional share, based on participation in the pool,
combining items of uniform nature. The Group's share of the revenues in the
pools is primarily dependent on the number of days the Group's vessels have been
available for the pools in relation to the total available pool earning days
during the period.
TORM acts as pool manager for three pools in which the Group is participating
with a significant number of vessels. As pool manager, TORM receives a
chartering commission income to cover the expenses associated with this role.
The chartering commission income is calculated as a fixed percentage of the
freight income from each charter agreement. If the pool does not earn any
freight income, TORM will not receive any commission income. The commission
income is recognized in the income statement under "Other operating income"
simultaneously with the recognition of the underlying freight income in the
pool.
Cross over voyages
Revenue and the related expenses are recognized upon delivery of service in
accordance with the terms and conditions of the charter parties. 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 concluded voyages. The
Group recognizes a percentage of the estimated revenue for the voyage equal to
the percentage of the estimated duration of the voyage completed on the balance
sheet date. The estimate of revenue is based on the expected duration and
destination of the voyage. Voyage expenses are recognized as incurred.
When recognizing net revenue, there is a risk that the actual number of days it
takes to complete the voyage will differ from the estimate, and for time charter
parties a lower day rate may have been agreed for additional days. 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 revenues
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 a
demurrage revenue. Demurrage revenues are recognized upon delivery of service in
accordance with the terms and conditions of the charter parties.
Upon completion of the voyage, the Group 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 counter claims 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. The Group receives the demurrage
payment upon reaching final agreement of the amount, which on average is
approximately 100 days after the original demurrage claim was submitted. If the
Group accepts a reduction of more than 5% of the original claim, or if the
charterer is not able to pay, demurrage revenue will be affected.
Vessels
Vessels are measured at cost less accumulated depreciation and accumulated
impairment losses. Cost comprises acquisition cost 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 based on the loans
obtained for the vessels.
All major components of vessels, except for dry-docking costs, are depreciated
on a straight-line basis to the estimated residual value over their estimated
useful lives, which TORM estimates to be 25 years. The Group considers that a
25-year depreciable life is consistent with that used by other shipowners with
comparable tonnage. Depreciation is based on cost less the estimated residual
value. Residual value is estimated as the lightweight tonnage of each vessel
multiplied by 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 the Group's business plans. The Group
also evaluates the carrying amounts to determine if events have occurred that
indicate impairment and would require a modification of their carrying amounts.
Prepayment on vessels is measured at costs incurred.
Dry-docking costs
The vessels are required to undergo planned dry-dockings for replacement of
certain components, major repairs and maintenance of other components, which
cannot be carried out while the vessels are operating, approximately every 30
and 60 months depending on the nature of work and external requirements. 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 are
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. The two elements
are recognized and depreciated separately. For newbuildings, the initial
dry-docking asset is segregated and capitalized separately. The cost of such
asset is estimated based on the expected costs related to the first-coming
dry-docking, which is again based on experience and past history of similar
vessels. For second-hand vessels, a dry-docking asset is also segregated and
capitalized separately, however, taking into account the normal docking
intervals in TORM.
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
effect replacements and repairs and the cost of parts and materials used, cost
of travel, lodging and supervision of TORM personnel and 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
antifouling and hull paint, steel repairs and refurbishment and replacement of
other parts of the vessel.
Deferred tax
All significant Danish entities within the Group entered the Danish tonnage
taxation scheme for a binding 10-year period with effect from
1 January, 2001 and have filed tax returns for the fiscal years 2001 to 2005.
Under the Danish tonnage taxation scheme, taxable income is not calculated on
the basis of income and expenses as under the normal corporate taxation.
Instead, taxable income is calculated with reference to the tonnage used during
the year. The taxable income for a company for a given period is calculated as
the sum of the taxable income under the tonnage taxation scheme and the taxable
income from the activities that are not covered by the tonnage taxation scheme
made up in accor-dance with the ordinary Danish corporate tax system.
If the entities' participation in the Danish tonnage taxation scheme is
abandoned or if the entities' level of investment and activity is significantly
reduced, a deferred tax liability will become payable. A deferred tax liability
is recognized in the balance sheet at each period end and is accounted for using
the balance sheet liability method. The deferred tax liability relating to the
vessels is measured on the basis of the difference between the tax value of the
vessels at the date of entry into the tonnage taxation scheme and the lower of
the cost and the realized or realizable sales value of the vessels.
Other accounting policies
Consolidation principles
The consolidated financial statements comprise the financial statements of the
Parent Company, A/S Dampskibsselskabet TORM and its subsidiaries, i.e. the
entities in which the Parent Company, directly or indirectly, holds the majority
of the votes or otherwise has a controlling interest.
Entities in which the Group holds between 20% and 50% of the votes and exercises
significant but not controlling influence are regarded as associated companies.
Associated companies which are by agreement managed jointly with one or more
other companies, and therefore subject to joint control (jointly controlled
entities), are accounted for using proportionate consolidation, whereby the
individual items in their financial statements are included in proportion to the
ownership share.
The consolidated financial statements are prepared on the basis of the financial
statements of the Parent Company, its subsidiaries and proportionately
consolidated companies by combining items of a uniform nature and eliminating
inter-company transactions, balances and shareholdings as well as realized and
unrealized gains and losses on transaction between the consolidated companies.
The financial statements used for consolidation purposes are prepared in
accordance with the Group's accounting policies. Entities are included in the
consolidated financial statements from the date of acquisition or founding until
the date of disposal or wounding up.
Foreign currencies
The functional currency of all significant entities including subsidiaries and
associated companies is USD, because the Group's vessels operate in
international shipping markets, in which revenues and expenses are
settled in USD, and the Group's most significant assets and liabilities in the
form of vessels and related financial liabilities are in USD. Transactions in
currencies other than the functional currency are translated into the functional
currency at the date of the transactions.
Cash, accounts receivable and payable and other monetary items denominated in
currencies other than the functional currency are translated into the functional
currency at the exchange rate prevailing 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 items".
An exchange rate gain or loss relating to a non-monetary item carried at fair
value is recognized in the same line as the fair value adjustment.
The reporting currency of the Group is USD. Upon recognition of entities with
functional currencies other than USD, the financial statements are translated
into USD. Items in the income statement are translated into USD at the average
exchange rates for the period, whereas balance sheet items are translated at the
exchange rates as at the balance sheet date. Exchange differences arising from
the translation of financial statements into USD are recognized as a separate
component of equity. On the disposal of an entity, the cumulative amount of the
exchange differences deferred in the separate component of equity relating to
that entity shall be transferred to the income statement as part of the gain or
loss on disposal.
Derivative financial instruments
Derivative financial instruments, primarily interest rate swaps, forward
currency exchange contracts, forward freight agreements and forward contracts
regarding bunker purchases are entered to hedge future committed or anticipated
transactions. TORM applies hedge accounting under the specific rules for cash
flow hedges when allowed and appropriate. In addition, TORM takes limited
positions in forward freight agreements as a supplement to the Group's physical
positions in vessels, which are not entered for hedge purposes.
Derivative financial instruments are initially recognized in the balance sheet
at cost and are subsequently measured at their fair value as other receivables
or other liabilities respectively.
Changes in fair value of derivative financial instruments, which are designated
as cash flow hedges and deemed to be effective, are
recognized directly in equity under "Hedging reserves". When the hedged
transaction is recognized in the income statement, the cumulative value
adjustment recognized in equity is transferred to the income statement and
included in the same line as the hedged transaction. Changes in fair value of a
portion of a hedge deemed to be ineffective are recognized in the income
statement.
Changes in fair value of derivative financial instruments that are not
designated as hedges are recognized in the income statement. While effectively
reducing cash flow risk in accordance with the risk management policy of the
Group, interest rate swaps with cap features, and 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
expenses" for interest rate swaps with cap features and under "Freight and
bunkers derivatives" for forward freight agreements and forward bunker
contracts. Changes in fair value of forward freight agreements, which are not
entered for hedge purposes, are also recognized under "Freight and bunkers
derivatives".
All fair values are based on market-to-market prices or standard pricing models.
Segment information
TORM consists of two business segments: Tanker and Bulk. This segmentation is
based on the Group's internal management and reporting structure in addition to
evaluation of risk and earnings. Transactions between segments are based on
market-related prices and are eliminated at Group level.
The Group only has one geographical segment, because the Group considers the
global market as a whole, and as the individual vessels are not limited to
specific parts of the world.
The segment income statement comprises revenues directly attributable to the
segment and expenses, which are directly or indirectly attributable to the
segment. Indirect allocation of expenses is based on distribution keys
reflecting the segment's use of shared resources.
The segment non-current assets consists of the non-current assets used directly
for segment operations.
Current assets are allocated to segments to the extent that they are directly
attributable to segment operations, including inventories, outstanding freight,
other receivables and prepayments.
Segment liabilities comprise segment operating liabilities including trade
payables and other liabilities.
Not-allocated items primarily comprise assets and liabilities as well as
revenues and expenses relating to the Group's administrative functions and
investment activities, including cash and bank balances, interest bearing debt,
income tax, deferred tax, etc.
Employee benefits
Wages, salaries, social security contributions, paid holiday and sick leave,
bonuses and other monetary and non-monetary benefits are accrued in the year in
which the employees render the associated services.
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 compensation
The Board of Directors, the Management and a number of key employees participate
in a share option scheme. The scheme provides these persons with the choices of
cash settlement or receipt of TORM shares. At the balance sheet date a liability
for the current fair value of the share options not exercised is recognized in
the balance sheet under other liabilities. The change in the liability for the
period is recognized in the income statement. The liability is measured using
the Black-Scholes model.
Leases
Agreements to charter in vessels and to lease other property, plant and
equipment, where TORM has substantially all the risks and rewards of ownership,
are recognized in the balance sheet as finance leases. Lease assets are measured
at the lower of fair value and the present value of minimum lease payments
determined in the agreements.
For the purpose of calculating the present value, the interest rate impli-cit in
the lease or an incremental borrowing rate is used as discount factor. The lease
assets are depreciated and written down under the same accounting policy as the
vessels owned by the Group or over the lease period depending on the lease
terms.
The corresponding lease obligation is recognized as a liability in the
balance sheet and the interest element of the lease payment is charged to the
income statement as incurred.
Other charter agreements concerning vessels and other leases are classified as
operating leases, and lease payments are charged to the income statement on a
straight-line basis over the lease term. The obligation for the remaining lease
period is disclosed in the notes to the financial statement.
Agreements to charter out vessels, where substantially all the risks and rewards
of ownership are transferred to the lessee, are classified as finance leases,
and an amount equal to the net investment in the lease is recognized and
presented in the balance sheet as a receivable. The carrying amount of the
vessel is derecognized and any gain or loss on disposal is recognized in the
income statement.
Other agreements to charter out vessels are classified as operating leases and
lease income is recognized in the income statement on a straight-line basis over
the lease term.
Sale and leaseback transactions
A gain or loss related to a sale and leaseback transaction resulting in a
finance lease is deferred and amortized in proportion to the gross rental on the
time charter over the lease term.
A gain related to a sale and leaseback transaction resulting in an operating
lease is recognized in the income statement immediately provided the transaction
is agreed on market terms or the sales price is lower than the fair value. If
the sales price exceeds the fair value, the difference between the sales price
and the fair value is deferred and amortized in proportion to the lease payments
over the life of the lease.
A loss related to a sale and leaseback transaction resulting in an operating
lease is recognized in the income statement at the date of transaction except if
the loss is compensated by future lease payments below fair value, it is
deferred and amortized in proportion to the lease payments over the life of the
lease.
Income statement
Revenue
Income, including revenue, is recognized in the income statement when:
o the income creating activities have been carried out on the basis of a
binding agreement,
o the income can be measured reliably,
o it is probable that the economic benefits associated with the transaction
will flow to the Group, and
o costs relating to the transaction can be measured reliably.
Revenue comprises freight, charter hire and demurrage revenues from the vessels
and gains and losses from forward freight agreements designated as hedges.
Revenue is recognized when it meets the general criteria mentioned above and the
stage of completion can be measured reliably. Accordingly, freight, charter hire
and demurrage revenue is recognized at selling price upon delivery of service in
accordance with the charter parties concluded.
Port expenses, bunkers and commissions
Port expenses, bunker fuel consumption and commissions are recognized as
incurred. Gains and losses from forward bunker contracts designated as hedges
are included in this line.
Freight and bunkers derivatives
Freight and bunkers derivatives includes fair value adjustments and gains and
losses on forward freight agreements, forward bunker contracts and other
derivate financial instruments directly relating to shipping activities which
are not designated as hedges.
Charter hire
Charter hire includes the expenses related to the chartering in of vessels
incurred in order to achieve the revenue for the period.
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 or loss from sale of vessels is recognized when the significant risks and
rewards of ownership have been transferred to the buyer, and it is measured as
the difference between the sales price less sales costs and the carrying amount
of the asset.
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 income
Other operating income primarily comprises chartering commissions, management
fees and profits and losses deriving from the disposal of other plant and
operating equipment.
Depreciation and impairment losses
Depreciation and impairment losses comprise depreciation of fixed assets for the
period as well as the deduction in the value of vessels by the amount by which
the carrying amount of the asset exceeds its recoverable amount. In the event of
indication of impairment of value, the carrying amount is assessed and the value
of the asset is reduced 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 net
selling price.
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 investments and securities, unrealized gains
from securities, dividends received and other financial income including value
adjustments of certain financial instruments not accounted for as hedging
instruments. Interest is recognized in accordance with the accrual basis of
accounting taking into account 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 expense, financing costs of finance leases,
realized and unrealized exchange rate losses relating to transactions in
currencies other than the functional currency, realized losses from other
investments and securities, unrealized losses from securities and other
financial expenses including value adjustments of certain financial instruments
not accounted for as hedging instruments. Interest is recognized in accordance
with the accrual basis of accounting taking into account the effective interest
rate.
Tax
In Denmark, A/S Dampskibsselskabet TORM is jointly taxed with its Danish
subsidiaries. The Parent Company provides for and pays the aggregate Danish tax
of the taxable income of these companies but recovers the relevant portion of
the taxes paid from the subsidiaries based on each entity's portion of the
aggregate taxable income. Tax expenses include the expected tax including
tonnage tax of the taxable income for the year for the Group, adjustments
relating to previous years and the change in deferred tax for the year. However,
tax relating to items posted in equity is posted directly in equity.
Balance sheet
Other plant and operating equipment
Land is measured at cost.
Buildings are measured at cost less accumulated depreciation and accumulated
impairment losses. Buildings are depreciated on a straight-line basis over 50
years.
Operating equipment is measured at cost less accumulated depreciation. Computer
equipment is depreciated on a straight-line basis over three years, and other
operating equipment is depreciated on a straight-line basis over five years.
Leasehold improvements are measured at cost less accumulated amortization and
impairment losses, and leasehold improvements are amortized on a straight-line
basis over the shorter of the term of the lease and the estimated useful life.
Cost comprises acquisition cost and costs directly related to the acquisition up
until the time when the asset is ready for use.
Financial assets
Financial assets are initially recognized on 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.
Financial assets are classified as:
o Financial assets at fair value through profit or loss
o Held-to-maturity investments
o Loans and receivables or
o Available-for-sale financial assets.
Other investments
Other investments comprise shares in other companies and are classified as
available-for-sale. Listed shares are measured at the market value at the
balance sheet date, and unlisted shares are measured at estimated fair value.
Unrealized gains and losses resulting from changes in fair value of shares are
recognized in equity under "Revaluation reserves". Realized gains and losses
resulting from sales of shares are recognized as financial items in the income
statement. The cumulative value adjustment recognized in equity is transferred
to the income statement when the shares are sold.
Dividends on shares in other companies are recognized as income in the period in
which they are declared.
Other investments are presented as non-current unless Management intends to
dispose of the investments within 12 months of the balance sheet date.
Receivables
Outstanding freight receivables and other receivables that are of a current
nature, expected to be realized within 12 months from the balance sheet date,
are classified as loans and receivables and presented as current assets.
Receivables are measured at the lower of amortized cost and net realizable
values, which corresponds to nominal value less provision for bad debts.
Derivative financial instruments included in other receivables are measured at
fair value.
Securities
Bonds are classified as financial assets at fair value through profit or loss
and are measured at market value at the balance sheet date. Realized and
unrealized gains and losses resulting from valuation or realization of bonds are
recognized as financial items in the income statement. Bonds are traded
frequently and therefore presented as current assets.
Impairment of assets
Non-current assets are reviewed to determine any indication of impairment. In
the case of such indication, the recoverable amount of the asset is estimated as
the higher of the asset's net selling price and its value in use. If this amount
is less than the carrying amount of the asset, the carrying amount is reduced to
the recoverable amount. The impairment loss is recognized immediately in the
income statement.
For the purpose of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows
(cash-generating units). For vessels, the cash-generating unit is the total
fleet of the Group.
Inventories
Inventories consist of bunkers and lubricants and are stated at the lower of
cost and net realizable value. The cost is determined by the FIFO-method and
includes expenditures incurred in acquiring the inventories and delivery cost
less discounts.
Non-current assets held for sale
Non-current assets held for sale are presented in a separate line below current
assets in the balance sheet and measured at the lower of carrying amount and
fair value less costs to sell. Depreciation of an asset ceases when it is
classified as held for sale.
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
Dividend is recognized as a liability at the time of declaration at the Annual
General Meeting. Dividend proposed for the year is moved from retained profit
and presented as a separate component of equity.
Provisions
Provisions are recognized when the Group has a legal or constructive obligation
as a result of past events and it is probable that it will lead to an outflow of
resources that can be reliably estimated. Provisions are measured at the
estimated ultimate liability that is expected to arise taking into account the
time value of money.
Liabilities
Liabilities are generally measured at amortized cost.
Mortgage debt and bank loans relating to the financing of vessels are
initially measured at nominal amounts less premiums and costs incurred in the
loan arrangement and subsequently at amortized cost with the difference between
the loan proceeds and the nominal value being recognized in the income statement
over the term of the loan.
Derivative financial instruments included in other liabilities are measured at
fair value.
Statement of cash flows
The statement of cash flows shows the Group's cash flows and cash and cash
equivalents at the beginning and the end of the period.
Cash flow from operating activities is presented indirectly and is based on
profit before financial items for the year adjusted for profit from sale of
vessels, non-cash operating items, changes in working capital, income tax paid,
dividends received and interest paid/received.
Cash flow from investing activities comprises dividends received and the
purchase and sale of tangible fixed assets and financial fixed assets.
Cash flow from financing activities comprises changes in long-term debt, bank
loans, purchases or sales of treasury shares and dividend paid to shareholders.
Cash and cash equivalents comprise cash at bank and in hand and highly liquid
bonds with a term to maturity not exceeding three months. Other bonds and other
investments are classified as investment activities.
Earnings per share
Basic earnings per share are calculated by dividing the consolidated profit or
loss 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 and sales of treasury shares during the period are
weighted based on the remaining period.
Diluted earnings per share is 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 would be to
increase earnings per share or reduce a loss per share.
United States Generally Accepted Accounting Principles (US GAAP)
As a consequence of the registration of American Depository Receipts (ADRs) with
the United States Securities and Exchange Commission (SEC), the Group has
prepared a summary of the effect on net income and equity, had the financial
statements been prepared in accordance with the accounting principles generally
accepted in the US.
NOTE 2
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of consolidated financial statements in conformity with IFRS and
accounting principles generally accepted in the United States 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 that were highly uncertain at the time the estimate was made;
different estimates reasonably could have been used; or if changes in the
estimate that would have a material impact on the Group's financial condition or
results of operations are reasonably likely to occur from period to period.
Management believes that the accounting estimates employed 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 believes that the following are the significant accounting estimates
and judgments used in the preparation of the consolidated financial statements
and the reconciliation to US GAAP.
Carrying amounts of vessels
The Group evaluates the carrying amounts of the vessels to determine if events
have occurred that would require a modification of their carrying amounts. The
valuation of vessels is reviewed based on events and changes in circumstances
that would indicate that the carrying amount of the assets might not be
recovered. In assessing the recoverability of the vessels, the Group reviews
certain indicators of potential impairment such as reported sale and purchase
prices, market demand and general market conditions. Market valuations from
leading, independent and internationally acknowledged shipbroking companies are
obtained on a semi-annual basis as part of the review for potential impairment
indicatory. Under US GAAP, if an indication of impairment is identified, the
undiscounted future cash flows are compared to carrying amount of the assets. If
these are less than the carrying amount, an impairment loss is recorded based on
the difference between the fair value (generally based on discounted future cash
flows) and the carrying amount of the vessels. If, under IFRS, an indication of
impairment is identified, the need for recognizing an impairment loss is
assessed by comparing the carrying amount of the vessels to the higher of the
net selling price and the discounted future cash flows.
The review for potential impairment indicators and projection of future
undiscounted and discounted cash flows related to the vessels is complex and
requires the Group to make various estimates including future freight rates,
earnings from the vessels and discount rates. All of these items have been
historically volatile.
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 degree tend to
fluctuate with changes in charter rates and the cost of newbuildings. However,
if the estimated future cash flow or related assumptions in the future
experience change, an impairment of vessels may be required.
There were no indicators of impairment noted or impairments of vessels recorded
in 2005 or 2006.
Tax
All significant Danish entities within the Group entered the Danish tonnage
taxation scheme with effect from 1 January 2001 and have filed tax returns for
2001 to 2005. The assessment of the tax returns by the tax authorities has not
yet been completed for 2003, 2004 and 2005, and we have filed a complaint
regarding the assessments for 2001 and 2002. The tax regulations are highly
complex, and while the Group aims to ensure the estimates of tax assets and
liabilities that it records are accurate, there may be instances where the
process of agreeing the tax liabilities with the tax authorities could require
adjustments to be made to estimates previously recorded.
It is the Group's assessment that there is material uncertainty as to the
estimate of taxes payable as of 31 December 2006 due to the lack of precedents
that have interpreted the tonnage tax regulation. The estimate is based on
scenario analyses and discussions with the tax authorities, tax advisors and
industry organizations, and the uncertainty primarily relates to the division of
the activities between income and expenses from shipping related activities,
which are taxed under the tonnage tax scheme, and income and expenses from other
activities, which are not taxed under the tonnage tax scheme.
USD mill.
NOTE 3 Tanker Bulk Not allocated Total 2006
CONSOLIDATED SEGMENT INFORMATION
INCOME STATEMENT
Revenue 494.0 109.7 0.0 603.7
Port expenses, bunkers and commissions (143.8) (5.1) 0.0 (148.9)
Freight and bunkers derivatives 0.6 0.0 0.0 0.6
--------------------------------------
Time charter equivalent earnings 350.8 104.6 0.0 455.4
Charter hire (58.5) (47.8) 0.0 (106.3)
Operating expenses (64.6) (13.1) 0.0 (77.7)
-----------------------------------------
Gross profit/(loss) (Net earnings from
shipping activities) 227.7 43.7 0.0 271.4
Profit/(loss) from sale of vessel 3.1 51.3 0.0 54.4
Administrative expenses (29.1) (5.5) 0.0 (34.6)
Other operating income 9.7 0.1 0.0 9.8
Depreciation and impairment losses (50.8) (8.1) 0.0 (58.9)
-----------------------------------------
Operating profit 160.6 81.5 0.0 242.1
-------------
Financial items (1.0) (1.0)
----------------------
Profit/(loss) before tax (1.0) 241.1
Tax expenses (6.6) (6.6)
----------------------
Net profit/(loss) for the year (7.6) 234.5
----------------------
BALANCE SHEET
Total non-current assets 1,234.9 88.8 644.4 1,968.1
Total assets 1,308.2 91.8 689.0 2,089.0
Total liabilities 36.8 2.3 769.1 808.2
OTHER INFORMATION
Additions to tangible fixed assets 260.4 1.9 0.0 262.3
Impairment losses recognized in the income statement 0.0 0.0 0.0 0.0
Reversal of impairment losses recognised in the
income statement 0.0 0.0 0.0 0.0
--------------------------------------
During the year there have been no transactions between the Tanker og the Bulk
segments, and therefore all the revenue derives from external customers .
USD mill.
NOTE 3 Tanker Bulk Not allocated Total 2005
CONSOLIDATED SEGMENT INFORMATION
INCOME STATEMENT
Revenue 418.0 167.6 0.0 585.6
Port expenses, bunkers and commissions (113.3) (11.7) 0.0 (125.0)
Freight and bunkers derivatives 3.2 0.0 0.0 3.2
-----------------------------------------
Time charter equivalent earnings 307.9 155.9 0.0 463.8
Charter hire (44.3) (37.9) 0.0 (82.2)
Operating expenses (51.4) (15.3) 0.0 (66.7)
-----------------------------------------
Gross profit/(loss) (Net earnings from
shipping activities) 212.2 102.7 0.0 314.9
Profit/(loss) from sale of vessels 54.7 0.0 0.0 54.7
Administrative expenses (25.4) (5.8) 0.0 (31.2)
Other operating income 12.4 0.2 0.0 12.6
Depreciation and impairment losses (37.0) (10.8) 0.0 (47.8)
-----------------------------------------
Operating profit 216.9 86.3 0.0 303.2
-------------
Financial items (3.8) (3.8)
----------------------
Profit/(loss) before tax (3.8) 299.4
Tax expenses 0.0 0.0
----------------------
Net profit/(loss) for the year (3.8) 299.4
----------------------
BALANCE SHEET
Total non-current assets 1,025.8 141.3 361.0 1,528.1
Total assets 1,139.2 145.5 525.4 1,810.1
Total liabilities 39.4 5.7 860.4 905.5
----------------------------------------
OTHER INFORMATION
Additions to tangible fixed assets 607.2 28.7 0.0 635.9
Impairment losses recognized in the
income statement 0.0 0.0 0.0 0.0
Reversal of impairment losses recognised in
the income statement 0.4 0.1 0.0 0.5
During the year there have been no transactions between the Tanker og the Bulk
segments, and therefore all the revenue derives from external customers .
USD mill.
NOTE 4 2006 2005
STAFF COSTS
Total staff costs
Staff costs included in operating expenses 13.6 12.9
Staff costs included in administrative expenses 22.7 21.1
----------------------
Total 36.3 34.0
----------------------
Staff costs comprise the following
Wages and salaries 33.2 30.3
Share-based compensation 0.0 0.5
Pension costs 2.9 2.7
Other social security costs 0.2 0.5
---------------------
Total 36.3 34.0
----------------------
Hereof remuneration to the Board of
Directors and salaries to the Management
Wages and salaries 4.0 3.7
Share-based compensation 0.0 0.5
Pension and social security costs 0.1 0.1
---------------------
Total 4.1 4.3
---------------------
Hereof remuneration to the Board of Directors 0.5 0.9
Hereof salaries to the Management 3.6 3.4
---------------------
Total 4.1 4.3
---------------------
Employee information
The average number of staff in the Group in the financial year was 353 (2005:
339). The majority of the staff on vessels are not employed by TORM. The members
of Management are, in the event of termination by the Company, entitled to a
severance payment of up to 24 months' salary.
The pension age for members of Management is 62.
SHARE OPTION PROGRAM
In 2001, a share option compensation plan for 20 of our Board members,
executives and key employees was introduced. The plan grants 1,606,640 options,
which are priced at three different dates, 485,300 in 2001, 564,740 in 2002 and
556,600 in 2003. Option holders may exercise their options in specified periods
and choose to purchase the Company's shares at the strike price or receive a
cash payment equivalent to the difference between the strike price and the share
price.
The individual must be employed at the grant date to receive that year's
options.
The share options for 2001 were priced on 20 February 2001, the share options
for 2002 on 20 March 2002 and the share options for 2003 on 27 February 2003.
The 2001 share options are exercisable at a price of DKK 27 (USD 4.53) per
share, the 2002 share options at a price of DKK 29.25 (USD 4.91) and the 2003
share options at a price of DKK 31.3 (USD 5.25). The share options can be
exercised at the earliest one year and at the latest three years and four weeks
after the pricing, observing the rules about insider trading.
At 1 January 2006, 24,420 options were outstanding (2005: 52,980 options) with
an exercise price of DKK 31.3 (USD 5.25). No options have been forfeited,
granted or expired during 2005 and 2006.
In 2006, 24,420 options have been exercised (2005: 28,560). The weighted average
share price at the date of exercise is DKK 283.27 (USD 47.63) per share for
shares exercised in 2006 (2005: DKK 281.03 (USD 46.86)). The total number of not
exercised options at 31 December 2006 is 0 (2005: 24,420 options with an
exercise price of DKK 31.3 (USD 5.25) and a remaining life of three months)
which equates 0.00% (2005: 0.07%) of the common shares.
In 2005 the fair value of the not excercised part of the share option program
was according to the Black-Scholes model estimated at USD 1.0 mill. at the
balance sheet date. The amount was recognized in the balance sheet. The amount
is equal to intrinsic value.
The key assumptions of the Black-Scholes model as of 31 December 2005 were: oThe
average dividend was estimated at 5.81 % of the average share price for the
period. o The volatility was estimated at 27.7 %. o The risk free interest rate
based upon expiry of the options applied to 2.75 %. o The quoted share price as
of 31 December 2005 was 305.12 DKK/share (48.25 USD/share).
USD mill.
NOTE 5 2006 2005
Remuneration to the auditors
appointed at the Annual General Meeting
Deloitte
Audit fees 0.8 0.5
Audit related fees 0.0 0.0
Tax fees 0.1 0.1
Fees other services 0.0 0.0
------------
Total fees, Deloitte 0.9 0.6
------------
Ernst & Young
Audit fees - 0.1
Audit related fees - 0.0
Tax fees - 0.0
Fees other services - 0.0
------------
Total fees, Ernst & Young - 0.1
------------
USD mill.
NOTE 6 2006 2005
OTHER INVESTMENTS
Cost:
Balance at 1 January 64.5 49.1
Additions 0.0 15.4
Disposals 0.0 0.0
------------
Balance at 31 December 64.5 64.5
-------------
Value adjustment:
Balance at 1 January 296.5 319.4
Exchange rate adjustment 42.2 (50.5)
Value adjustment for the year 241.2 27.6
Disposals 0.0 0.0
------------
Balance at 31 December 579.9 296.5
--------------
Carrying amount at 31 December 644.4 361.0
--------------
Hereof listed 641.7 358.5
Hereof unlisted 2.7 2.5
------------
Note 6
Parent Company:
A/S Dampskibsselskabet TORM Denmark
Investments in subsidiaries*):
Torm Singapore (Pte) Ltd. 100% Singapore
Torm Asia Bulkers Limited 100% Hong Kong
Eastern Light Shipping Limited 100% Liberia
Southern Light Shipping Limited 100% Liberia
Torm Shipping (Germany) G.m.b.H. 100% Germany
Long Range 1 A/S 100% Denmark
Medium Range A/S 100% Denmark
LR1 Management K/S 100% Denmark
MR Management K/S 100% Denmark
Investments in jointly controlled entities*):
Long Range 2 A/S 50% Denmark
LR2 Management K/S 50% Denmark
TT Shipowning K/S 50% Denmark
Torghatten & Torm Shipowning ApS 50% Denmark
UT Shipowning K/S 50% Denmark
Ugland & Torm Shipowning ApS 50% Denmark
TORM SHIPPING (PHILS.), INC. 25% Philippines
Furthermore, TORM is participating in a number of joint ventures, primarily the
MR Pool, the LR1 Pool and the LR2 Pool, which are not legal entities. The
investments in these joint ventures are included as investments in jointly
controlled operations.
The following represents the results reflected in the consolidated income
statement and the summarized balance sheet data that is reflected in the
consolidated balance sheet for the year ended 31 December, 2005 and 2006 in
accordance with IFRS associated with jointly controlled entities:
USD mill. 2006 2005
Revenue 13.4 0.0
Port expenses, bunkers and commissions (5.3) 0.0
------------
Time charter equivalent earnings 8.1 0.0
Charter hire and operating expenses (4.7) 0.0
------------
Gross profit (Net earnings from shipping activities) 3.4 0.0
Administrative expenses (1.7) (1.5)
Other operating income 2.8 2.7
Depreciation and impairment losses 0.0 0.0
------------
Operating profit 4.5 1.2
Financial income 0.2 0.1
Financial expenses 0.0 (0.2)
-------------
Profit before tax 4.7 1.1
Tax expenses (0.1) 0.0
------------
Net profit for the year 4.6 1.1
------------
Non-current assets 17.0 0.0
Current assets 3.9 2.1
Non-current liabilities 15.8 0.0
Current liabilities 0.2 1.0
Other investments:
Dampskibsselskabet "Norden" A/S 33%**) Denmark
The Norden shareholding is currently treated in TORM's accounts as `Other
investments', given that TORM is deemed not to have significant influence on
Norden in the form of board seats or similar.
*) Companies with activity in the financial year.
**) Including Norden's treasury shares.
USD mill.
NOTE 7 Land and Vessels and Prepayments Other plant Total
buildings capitalized on vessels and operating
dry-docking equipment
TANGIBLE
FIXED ASSETS
Cost:
Balance at 1 January 2005 1.3 836.0 37.3 5.9 880.5
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 340.1 294.7 1.1 635.9
Disposals 0.0 (137.3) 0.0 (0.9) (138.2)
Transferred to/from other items 0.0 191.2 (191.2) 0.0 0.0
Transferred to non-current assets
held for sale 0.0 0.0 (43.4) 0.0 (43.4)
Balance at 31 December 2005 1.3 1,230.0 97.4 6.1 1,334.8
Depreciation and impairment losses:
Balance at 1 January 2005 0.9 188.5 0.0 3.2 192.6
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 0.0 0.0 0.0 0.0
Disposals 0.0 (71.9) 0.0 (0.8) (72.7)
Reversal of impairment losses (0.5) 0.0 0.0 0.0 (0.5)
Depreciation for the year 0.0 47.0 0.0 1.4 48.4
Balance at 31 December 2005 0.4 163.6 0.0 3.8 167.8
Carrying amount at 31
December 2005 0.9 1,066.4 97.4 2.3 1,167.0
Hereof finance leases 0.0 0.0 0.0 0.0 0.0
Hereof financial expenses
included in cost 0.0 1.3 0.2 0.0 1.5
Cost:
Balance at 1 January 2006 1.3 1,230.0 97.4 6.1 1,334.8
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 93.3 166.3 2.7 262.3
Disposals (0.8) (119.6) 0.0 (0.5) (120.9)
Transferred to/from other items 0.0 80.4 (80.4) 0.0 0.0
Transferred to non-current assets
held for sale 0.0 0.0 0.0 0.0 0.0
Balance at 31 December 2006 0.5 1,284.1 183.3 8.3 1,476.2
Depreciation and impairment losses:
Balance at 1 January 2006 0.4 163.6 0.0 3.8 167.8
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 0.0 0.0 0.0 0.0
Disposals (0.3) (73.6) 0.0 (0.3) (74.2)
Reversal of impairment losses 0.0 0.0 0.0 0.0 0.0
Depreciation for the year 0.0 57.7 0.0 1.2 58.9
Balance at 31 December 2006 0.1 147.7 0.0 4.7 152.5
Carrying amount at 31
December 2006 0.4 1,136.4 183.3 3.6 1,323.7
Hereof finance leases 0.0 0.0 0.0 0.0 0.0
Hereof financial expenses
included in cost 0.0 1.2 0.8 0.0 2.0
At 1 October 2005, the value of land and buildings assessed for Danish tax
purposes amounted to USD 0.6 mill. (carrying amount at 31 December 2006 USD 0.4
mill.) compared with USD 0.5 mill. at 1 October 2004.
Included in the carrying amount for vessels and capitalized dry-docking are
capitalized dry-docking costs in the amount of USD 9.4 mill. (2005: USD 12.6
mill.).
Please refer to note 15 for information relation to assets used for collateral
security. In all material aspects the depriciations under Other plant and
operating equipment of USD 1.2 mill. relate to administration.
USD mill.
NOTE 8 2006 2005
FINANCIAL ITEMS
Financial income
Interest income from cash and cash equivalents 4.1 2.2
Interest income from marketable securities at
fair value through profit and loss 0.0 1.1
Gain on other investments (available-for-sale) 0.0 0.1
Dividends*) 26.4 12.8
Gain on derivative financial instruments 7.6 0.2
Exchange rate adjustments 1.4 9.6
------------
39.5 26.0
Financial expenses
Interest expenses on mortgage and bank debt 40.2 25.6
Net losses on marketable securities at
fair value through profit and loss 0.0 3.9
Exchange rate adjustments 0.0 0.0
Other interest expenses 1.1 0.5
Hereof included in the cost of tangible fixed assets (0.8) (0.2)
--------------
40.5 29.8
Total financial items (1.0) (3.8)
--------------
*Includes dividend on the Norden shares of USD 25.5 mill. in 2006 (2005: USD
12.6 mill.).
Note 9
FREIGHT RECEIVABLES, ETC.
Analysis as at 31 December of freight receivables, etc.
USD mill. 2006 2005
FREIGHT RECEIVABLES, ETC.
Neither past due nor impaired 22.7 29.1
Due < 180 days 24.3 17.9
Due > 180 days 2.7 6.9
------------
Total Freight receivables, etc. 49.7 53.9
-------------
As at 31 December 2006, freight receivables etc. includes receivables at a value
of USD 1.5 mill. (2005: USD 1.4 mill.), that is individually determined to be
impaired to a value of USD 0.6 mill. (2005: USD 0.6 mill.).
Movements in the provision for impairment of freight receivables etc. during the
year are as follows:
USD mill. 2006 2005
PROVISION FOR IMPAIRMENT OF FREIGHT RECEIVABLES, ETC.
Balance at 1 January 0.8 0.2
Provisions for the year 0.2 0.6
Provisions reversed during the year 0.0 0.0
Provisions utilised during the year (0.1) 0.0
------------
Balance at 31 December 0.9 0.8
------------
Provision for impairment of freight receivables, etc. has been recognized in the
income statement under administrative expenses. The provision is based on an
individual assessment of each individual receivable.
USD mill.
NOTE 10 2006 2005
TAX EXPENSES
Current tax for the year (4.7) (8.8)
Adjustments related to previous years 6.3 0.0
Adjustment of deferred tax (8.2) 8.8
-------------
Tax expenses (6.6) 0.0
-------------
Reconciliation of the effective corporation
tax rate for the year
Corporation tax rate in Denmark 28.0% 28.0%
Differences in tax rates, foreign subsidiaries (3.0%) (4.5%)
Adjustment of tax related to previous years (2.6%) 0.0%
Effect due to the tonnage tax scheme (19.7%) (23.5%)
----------------
Effective corporate tax rate 2.7% 0.0%
-------------
The Company participates in the tonnage tax scheme in Denmark. Participation in
the tonnage tax scheme is binding until 31 December 2010. The Company expects to
participate in the tonnage tax scheme after the binding period and at a minimum
to maintain its current investing and activity level Payment of dividends to the
shareholders of A/S Dampskibsselskabet TORM has no tax consequences for A/S
Dampskibsselskabet TORM.
USD mill. 2006 2005
DEFERRED TAX LIABILITY
Balance at 1 January 54.6 73.3
Exchange rate adjustment 0.0 (9.9)
Reduction of Danish corporation tax from 30% to 28% - (4.2)
Deferred tax for the year 8.2 (4.6)
--------------
Balance at 31 December 62.8 54.6
-------------
Essentially all deferred tax relates to vessels included in the transition
account under the tonnage tax scheme.
Note 11 2006 2005 2006 2005
Number Number Nominal Nominal
of shares of shares value value
mill. mill. DKK mill. DKK mill.
36.4
Balance at 1 January 36.4 36.4 364.0 364.0
--------------------------------------------
Balance at 31 December 36.4 36.4 364.0 364.0
--------------------------------------------
The common shares consist of 36.4 mill. shares at a denomination of DKK 10 per
share. No shares carry special rights. All issued shares are fully paid.
In May 2004, the Company increased the share capital from nominally DKK 182.0
mill. to nominally DKK 364.0 mill. through the issue of 18.2 mill. bonus shares
of DKK 10 each. The bonus shares were allotted to the Company's existing
shareholders at the ratio of 1:1. Beyond this, no changes have been made to the
share capital within the last 5 years.
2006 2005 2006 2005 2006 2005
Number Number Nominal Nominal % of % of
of shares of shares value value share share
(1,000) (1,000) DKK mill. DKK mill. capital capital
TREASURY SHARES
Balance at 1 January 1,558.5 1,566.6 15.6 15.7 4.3 4.3
Purchase 227.8 0.0 2.3 0.0 0.6 0.0
Sale 0.0 0.0 0.0 0.0 0.0 0.0
Share options exercised (8.1) (8.1) (0.1) (0.1) 0.0 0.0
----------------------------------------------------------------
Balance at 31 December 1,778.2 1,558.5 17.8 15.6 4.9 4.3
At 31 December 2006, TORM's holding of treasury shares represented 1,778,182
shares (2005: 1,558,472 shares) at denomination DKK 10 per share, with a total
nominal value of USD 3.1 mill. (2005: USD 2.5 mill.) and a market value of USD
116,8 mill. (2005: USD 75.2 mill.). The retained shares equates to 4.9% (2005:
4.3%) of the Company's common shares.
Total consideration in respect of the purchase of treasury shares was USD 10.4
mill. (2005: USD 0.0 mill.), whereas for the sale of shares it was USD 0.0 mill.
(2005: USD 0.0 mill.). As the disposal of treasury shares is carried out in
connection with the exercise of share options the consideration is based on
exercise prices in the share option programme. The shares will be used for
further development of the capital structure, for financing or execution of
acquisitions, for sale or for other types of transfers.
USD mill.
NOTE 12 2006 2005
DEFERRED INCOME
Deferred gain related to sale and lease back transactions 0.0 5.9
Other 1.1 0.1
--------------
Balance at 31 December 1.1 6.0
--------------
USD mill.
NOTE 13 2006 2005
MORTGAGE DEBT AND BANK LOANS To be repaid as follows:
Falling due within one year 55.9 59.9
Falling due between one and two years 55.9 59.9
Falling due between two and three years 68.5 90.0
Falling due between three and four years 53.5 57.5
Falling due between four and five years 53.5 57.5
Falling due after five years 407.6 464.2
--------------
694.9 789.0
--------------
The presented amounts to be repaid are adjusted by directly related costs arised
from the issuing of the loans by USD 2.9 mill. (2005: USD 1.7 mill.). which are
amortized over the term of the loans.
USD mill.
Note 13, continued 2006 2005 2006 2005
Fixed/ Effective Effective Fair Fair
Maturity floating interest interest value value
LOAN
USD 2008 Floating 6.2% 5.4% 5.1 37.6
USD 2009 Floating 5.8% -- 15.0 0.0
USD 2011 Floating 6.2% 5.4% 8.1 22.0
USD 2011 Fixed 4.4% -- 63.6 0.0
USD 2013 Floating -- 5.4% 0.0 14.2
USD 2014 Floating 5.2% 4.9% 399.2 490.7
USD 2015 Floating 5.9% 5.2% 206.8 226.2
Weighted average effective interest rate 5.4% 5.0%
----------------
Fair value 697.8 790.7
-------------
The Group has an early settlement option to repay the loans by paying a breakage
cost.
Part of the loans with floating interest rate have been swapped to fixed
interest rate. Please refer to Note 20 for further information on interest rate
swaps.
Certain of TORM's loan agreements contain minimum requirements to the liquidity
and solvency of TORM and restrictive covenants, which may limit TORM's ability
to:
o engage in mergers or acquisitions;
o change the management of TORM's vessels
As of 31 December 2006, TORM complies with these minimum requirements and
restrictive covenants. Based on TORM's expected future cash flow, investment
programmes, etc. TORM expects to comply with the requirements and covenant until
the maturity of the loan agreements.
Please refer to the section `Managing risk and exposure' and note 21 for further
information on financial risks.
USD mill.
Note 14 2006 2005
OTHER LIABILITIES
Partners and commercial managements 1.8 1.9
Accrued operating expenses 6.3 4.1
Accrued dry-docking costs 0.0 1.9
Accrued interests 3.8 3.2
Wages and social expenses 5.2 6.5
Derivative financial instruments 6.2 2.9
Miscellaneous, including items related to shipping activities 2.7 3.1
-------------
26.0 23.6
-------------
USD mill.
Note 15 2006 2005
COLLATERAL SECURITY
Collateral security for mortgage debt and bank loans:
Vessels 682.9 760.7
-------------
682.9 760.7
-------------
The total carrying amount for vessels that have been provided as security
amounts to USD 744 mill. as at 31 December 2006 (2005: USD 767 mill.).
USD mill.
Note 16 2006 2005
GUARANTEE AND CONTINGENT LIABILITIES
Guarantee liabilities 0,0 0,0
The guarantee liability for the Group is less than USD 0.1 mill. and relates to
guarantee liabilities to the Danish Shipowners' Association.
USD mill.
NOTE 17 2006 2005
CONTRACTUAL LIABILITIES - AS LESSEE (operating leases)
Charter hire for vessels on time charter (incl
vessels not delivered):
Falling due within one year 129.4 80.9
Falling due between one and two years 128.0 66.4
Falling due between two and three years 115.4 80.9
Falling due between three and four years 103.6 81.0
Falling due between four and five years 99.4 66.4
Falling due after five years 306.1 105.7
-------------
881.9 481.3
-------------
Average period until redelivery (year) 4.9 3.9
-------------
Leases have been entered into with a mutually interminable lease period of up to
eight years. Certain leases include an option to renew for one or two additional
years at a time for up to three years and/or a purchase option. Exercise of the
purchase option on the individual vessel is based on an individual assessment.
Certain leases include a profit sharing element implying that the actual charter
hire may be higher.
Newbuilding installments and exercised purchase options
(purchase obligations):
Falling due within one year 191.3 225.3
Falling due between one and two years 161.3 146.7
Falling due between two and three years 179.7 95.5
Falling due between three and four years 62.9 28.0
Falling due between four and five years 18.0 0.0
Falling due after five years 0.0 0.0
---------------
613.2 495.5
---------------
Other operating leases:
Falling due within one year 2.1 2.2
Falling due between one and two years 1.9 2.2
Falling due between two and three years 1.7 1.9
Falling due between three and four years 1.7 1.7
Falling due between four and five years 1.8 1.8
Falling due after five years 3.7 5.8
---------------
12.9 15.6
---------------
Other operating leases primarily consist of contracts regarding office spaces
and apartments as well as IT-related contracts.
During the year charter hire expenses have been recognized in the income
statement by USD 106.3 mill. (2005: USD 82.1 mill.) of which USD 7.1 mill.
(2005: USD 7.5 mill.) relate to profit sharing elements. Other operating lease
expenses have been recognized in the income statement by USD 2.5 mill. (2005:
USD 1.5 mill.).
USD mill
Note 17, continued 2006 2005
CONTRACTUAL LIABILITIES - AS LESSOR (operating leases)
Charter hire income for vessels on time charter and
bareboat charter (incl. vessels not delivered):
Falling due within one year 145.0 102.7
Falling due between one and two years 41.0 26.8
Falling due between two and three years 23.6 13.8
Falling due between three and four years 6.1 13.7
Falling due between four and five years 0.0 6.0
Falling due after five years 0.0 0.0
---------------
215.7 163.0
---------------
Average period until redelivery (year) 1.1 0.9
---------------
Charter hire income for vessels on time charter and bareboat charter is
recognized under net revenue.
NEWBUILDING CONTRACTS
As at 31 December 2006, TORM had contracted 17 newbuildings (2005: 12
newbuildings) to be delivered during 2007 to 2011. For all 17 vessels the total
outstanding contractual commitment amounted to USD 594 mill. as at 31 December
2006. In addition, TORM called an option in 2006 to acquire one Panamax bulk
carrier on time charter built in 2004, which will be delivered in the second
quarter of 2007. The contractual liability relating to this vessel amounted to
USD 19 mill. as at 31 December 2006.
Note 18
TIME CHARTER CONTRACTS
As at 31 December 2006, TORM had entered into the following time charter
contracts as lessee:
Year/ Number of Average daily
Vessel type operating days freight rates
USD
2007:
LR2 454 25,224
LR1 3,195 20,668
Panamax 2,940 17,658
2008:
LR2 368 24,574
LR1 3,300 20,680
Panamax 2,880 17,597
2009:
LR2 360 24,500
LR1 3,030 19,953
MR 1,440 15,831
Panamax 1,560 14,970
2010:
LR2 360 24,500
LR1 1,830 19,939
MR 2,160 15,908
Panamax 1,710 13,986
2011:
LR2 360 24,500
LR1 1,425 20,720
MR 2,160 15,908
Panamax 1,890 14,096
2012:
LR1 765 20,044
MR 2,160 15,908
Panamax 2,070 14,419
2013:
LR1 210 20,536
MR 2,160 15,908
Panamax 1,800 14,583
2014:
MR 1,980 15,832
Panamax 1,800 14,583
2015:
MR 1,800 15,740
Panamax 1,620 14,719
2016:
MR 540 15,833
Panamax 1,170 15,191
2017:
MR 360 15,900
Panamax 1,080 14,518
2018:
Panamax 270 15,475
Note 19
PURCHASE OPTIONS ON VESSELS
As at 31 December 2006, TORM had the following purchase options on vessels:
Exercise year/ Number Average age Average option
Vessel type of of vessels, exercise price as
vessels years at 31 Dec. 2006
USD mill.
2007:
Panamax 2.0 3.0 21.3
2008:
Panamax 1.0 3.0 21.3
2009:
LR1 *) 0.5 3.0 15.1
Panamax 1.0 3.0 21.7
2011:
LR1 *) 0.5 5.0 13.8
Panamax 1.0 3.0 27.1
2012:
MR **) 1.0 3.0 38.4
Panamax 1.0 3.0 25.0
2013:
Panamax 3.0 4.3 31.3
2014:
MR 1.0 5.0 30.2
2015:
Panamax 1.0 5.0 33.3
2016:
Panamax 1.0 5.0 37.5
As at 31 December 2005, TORM had purchase options on 11 vessels.
*) TORM holds 50% of the purchase option on the vessel. Consequently, the
stated option price is for 50% of the vessel.
**) The stated option price is the minimum options price for the vessel.
USD mill.
Note 20
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
Fair value adjustments
Income statement
Port
expenses, Freight and Equity
Fair value at bunkers and bunkers Financial Hedging Fair value at
1 Jan. 2005 Revenue commisions derivatives items reserves 31 Dec. 2005
Hedge accounting, cash flows:
Interest rate swaps 0.4 -- -- -- -- 2.9 3.3
Non hedge accounting:
Cross currency swaps 0.1 -- -- -- (0.1) -- 0.0
Forward rate contracts 3.8 -- -- -- (3.9) -- (0.1)
Interest rate swaps (0.2) -- -- -- 3.5 -- 3.3
Currency options 3.6 -- -- -- (3.6) -- 0.0
Bunker hedge (0.8) -- -- 0.8 -- -- 0.0
Forward Freight
Agreements (4.4) -- -- 2.5 -- -- (1.9)
----------------------------------------------------------------------------------
2.5 0.0 0.0 3.3 (4.1) 2.9 4.6
----------------------------------------------------------------------------------
Fair value adjustments
Income statement
Port
expenses, Freight and Equity
Fair value at bunkers and bunkers Financial Hedging Fair value at
1 Jan. 2006 Revenue commisions derivatives items reserves 31 Dec. 2006
Hedge accounting,
cash flows:
Interest rate swaps 3.3 -- -- -- -- (0.3) 3.0
Bunker hedge 0.0 -- -- -- -- (3.3) (3.3)
Forward Freight
Agreements 0.0 -- -- -- -- 5.9 5.9
Non hedge accounting:
Forward rate contracts (0.1) -- -- -- 1.1 -- 1.0
Interest rate swaps 3.3 -- -- -- 0.2 -- 3.5
Currency options 0.0 -- -- -- 0.4 -- 0.4
Bunker hedge 0.0 -- -- (1.5) -- -- (1.5)
Forward Freight
Agreements (1.9) -- -- (0.4) -- -- (2.3)
----------------------------------------------------------------------------------
4.6 0.0 0.0 (1.9) 1.7 2.3 6.7
----------------------------------------------------------------------------------
Please refer to the section `Managing risk and exposure' and note 21 for further
information on commercial and financial risks.
The interest rate swaps with a fair value of USD 3.0 mill. (2005: USD 3.3 mill.)
are designated to hedge a part of TORM's interest payments during the period
2007 to 2008. The bunkerhedge contracts with a fair value of USD (3.3) mill.
(2005: USD 0.0 mill.) are designated to hedge a part of TORM's bunker expenses
during the period 2007 to 2009. The Forward Freight Agreements with a fair value
of USD 5.9 mill. (2005: USD 0.0 mill.) are designated to hedge a part of TORM's
revenue during the period 2007 to 2009. The gains or losses on these contracts
will be recognized in the income statement together with the hedged items.
USD mill.
NOTE 21 2006 2005
FINANCIAL AND COMMERCIAL RISKS
Exchange rate risk
All things being equal, a change in the USD exchange rate of 1% in relation to
DKK would result in a change in profit before tax and equity as follows:
SENSITIVITY TO CHANGES IN THE USD/DKK EXCHANGE RATE
Changes at increase in the USD exchange rate of 1% in relation to DKK:
Changes in profit before tax 0.7 0.8
Changes in equity 6.4 4.0
------------
At year-end 2005, TORM had forward hedging contracts of USD 8 mill. against DKK
in respect of operating costs for 2006. In 2006, TORM entered into exchange rate
contracts for the sale of USD 154 mill. against DKK and sold USD 24 mill. spot
in order to cover the DKK cash requirements for operating costs in 2006. As
such, in 2006 spot and term exchange contracts for a total of USD 186 mill. were
unwound at an average exchange rate of 6.18 as against the average exchange rate
for the year of USD against DKK of 5.95. Furthermore, TORM sold USD 12 mill.
with value in 2007 at an exchange rate of 6.12 against DKK.
In 2006, with value in 2007, TORM had entered into an agreement to purchase a
put-option in the amount of USD 21 mill. against DKK including a "knock-in"
element for the counterparty. With regard to the put-option, TORM can sell USD
to the counterpart at an exchange rate of 5.80 to the DKK. In case the USD/DKK
exchange rate exceeds 6.12, the counterpart can purchase USD from TORM at an
exchange rate of 5.80 per USD.
In 2006, with value in 2007, TORM had entered into an agreement to purchase a
put-option in the amount JPY 2.6 bill. against USD including a "knock-in"
element for the counterparty to cover a vessel purchase. With regard to the
put-option, TORM can buy JPY from the counterpart at an exchange rate of 115.50
to the USD. In case the USD/JPY exchange rate exceeds 122.20, the counterpart
can sell JPY to TORM at an exchange rate of 115.50 per USD. None of the options
were called neither by TORM nor by the counterpart during 2006.
USD mill. 2006 2005
Interest rate risk
TORM has significant cash requirements associated with long-term debt and time
charters. These payments are influenced by changes in interest rates. In order
to manage interest rate risk, financial instruments are entered to swap the
variable interest rate on a portion of the borrowings for fixed rate debt.
All things being equal, a change in the interest rate level of 1% point on the
unhedged variable interest debt will result in a change in the interest rate
expenses as follows:
SENSITIVITY TO CHANGES IN INTEREST RATES
Changes at increase in the interest rate level of 1% point:
Increase in interest rate expenses 1.8 2.0
------------
TORM's interest bearing USD debt decreased from year-end 2005 to year-end 2006
by USD 91 mill. to USD 698 mill. Of TORM's mortgage debt in USD with variable
interest rates USD 52 mill. will be due within a 12 months period and USD 216
mill. after 1 - 5 years. The average effective interest rate is between 4.0% and
6.2%.
The portion of the interest swaps hedging the USD mortgage debt with maturity
within 1 year was USD 30 mill. and USD 121 mill. after 1 - 5 years. The average
effective interest rates were between 3.2% and 4.5%. The market value of TORM's
interest rate swaps was USD 6.5 mill. at year-end 2006 (2005: USD 6.6 mill.).
At year-end, TORM had covered 77% of its total 2007 interest costs at an average
rate of 4.9% including margin. For the period 2008-2009, the coverage is 36%.
The fixed interest debt has an average period of 2.4 years remaining, expiring
between 2007 and 2013.
Please refer to Note 13 for further information on interest bearing debt.
USD mill.
Note 21, continued 2006 2005
Movement in bunker prices
In 2006, TORM covered 44% of its bunker requirements using hedging instruments.
As at 31 December 2006, TORM had hedged the price for 12% of its bunker
requirements for 2007, and the market value of these contracts as at year-end
was USD (4.8) mill (2005: 0.0 mill.).
All things being equal, a price change of 1% per ton of bunker oil would lead to
the following change in expenditure based on the expected bunker consumption:
SENSITIVITY TO CHANGES IN THE BUNKER PRICES
Changes at increase in the bunker prices of 1% per ton:
Changes in bunker expenses 1.0 1.2
------------
USD mill.
Note 22 2006 2005
FINANCIAL INSTRUMENTS
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES AS DEFINED IN IAS 39:
Financial assets at fair value through profit or loss
Marketable securities (held for trading) 0.0 0.2
--------------
Total financial assets at fair value through profit or loss 0.0 0.2
--------------
Loans and receivables
Freight receivables, etc 49.7 53.9
Other receivables 8.5 6.7
Cash and cash equivalents 33.0 156.7
--------------
Total loans and receivables 91.2 217.3
--------------
Available-for-sale financial assets
Other investments 644.4 361.0
--------------
Total available-for-sale financial assets 644.4 361.0
--------------
Derivative financial instruments (assets)
Other receivables (held for trading) 3.1 3.7
Other receivables (hedge accounting) 9.4 3.3
--------------
Total derivative financial instruments (assets) 12.5 7.0
--------------
Financial liabilities measured at amortised cost
Mortgage debt and bank loans 695.0 789.0
Trade payables 18.8 22.9
Other liabilities 15.0 14.7
--------------
Total financial liabilities measured at amortised cost 728.8 826.6
--------------
Derivative financial instruments (liabilities)
Other liabilities (held for trading) 2.0 2.4
Other liabilities (hedge accounting) 3.8 0.0
--------------
Total derivative financial instruments (liabilities) 5.8 2.4
--------------
The fair value of the financial assets and liabilities above equals the carrying
amount except for mortgage debt and bank loans for which the fair value can be
found in Note 13.
NOTE 23
RELATED PARTY TRANSACTIONS
The members of the Parent Company's Board of Directors and Senior Management,
near relatives to these persons and companies where these persons have control
or exercise significant influence are considered as related parties with
significant influence.
Mr. Niels Erik Nielsen, Chairman of the Board of Directors, is a practicing
partner in the law firm Bech-Bruun. Bech-Bruun has rendered legal assistance
during the financial year as one of a number of law firms. The firm's fee of USD
0.3 mill. (2005: USD 0.0 mill.) is based upon the amount of time spent by the
firm.
Mr. Stefanos-Niko Zouvelos, member of the Board of Directors, is General Manager
of Beltest Shipping Company Limited. TORM has during the year paid USD 8.5 mill.
(2005: USD 7.2 mill.) to an entity owned by Beltest Shipping Company Limited
under a time charter agreement involving one product tanker vessel.
There have not been any other transactions with such parties during the
financial year.
Management remuneration is disclosed in note 4.
It is considered that no single person has control over the Group or the Parent
Company.
NOTE 24
NON-CURRENT ASSETS HELD FOR SALE
In 2005, TORM entered into a contract concerning sale of a vessels under
construction for delivery in 2006. The vessel was delivered to the buyer in May
2006 and the result from the sale of the vessel has been recognized in the
income statement in 2006 under the item profit from sale of vessels by USD 3.1
mill. As at 31 December 2005, the vessel was classified as held for sale and
presented separately in the balance sheet and was included under Tanker in the
segment information.
NOTE 25 2006 2005
EARNINGS PER SHARE
Net profit for the year (USD mill.) 234.5 299.4
Mill. shares
Average number of shares 36.4 36.4
Average number of treasury shares (1.7) (1.6)
-----------------
Average number of shares outstanding 34.7 34.8
Dilutive effect of outstanding share options 0.0 0.1
-----------------
Average number of shares outstanding incl
dilutive effect of share options 34.7 34.9
-----------------
Earnings per share (USD) 6.8 8.6
-----------------
Diluted earnings per share (USD) 6.8 8.6
-----------------
USD mill
NOTE 26 2006 2005
APPROPRIATION OF NET PROFIT FOR THE YEAR INCL
PROPOSED DIVIDEND
Proposed appropriation of net profit for the year
in the Parent Company, A/S Dampskibsselskabet TORM:
Proposed dividend 73.9 132.4
Retained profit 114.5 103.3
-----------------
Net profit for the year 188.4 235.7
-----------------
Total equity in the Parent Company,
A/S Dampskibsselskabet TORM:
Common shares 61.1 61.1
Treasury shares (18.1) (7.7)
Revaluation reserves 579.8 296.4
Retained profit 513.1 400.0
Proposed dividend 73.9 132.4
Hedging reserves 5.6 3.2
Translation reserves 6.0 6.0
-----------------
Total equity 1,221.4 891.4
-----------------
Proposed dividend per share (USD) 2.0 3.6
Dividend per share paid (USD) 3.8 2.7
-----------------
The difference between proposed dividend per share in USD in 2005 and dividend
per share paid in USD in 2006 relates to the change in the USD/DKK exchange rate
as the dividend is paid in DKK.
USD mill.
NOTE 27 2006 2005
CASH FLOWS
Reversal of other non-cash movements:
Adjustmens on derivative financial instruments 3.9 (1.3)
Exchange rate adjustments 1.7 (5.7)
Other adjustments 0.4 0.4
--------------
Total reversal of other non-cash movements 6.0 (6.6)
--------------
USD mill.
Note 28 2006 2005 2006 2005
RECONCILIATION TO UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
The Group's Annual Report has been prepared
in accordance with IFRS, which differs in
certain material respects from accounting
principles generally accepted in the United
States (US GAAP).
The following is a summary of the adjustments
to profit/(loss) for the years ended 31
December 2006 and 2005 and equity as of those
dates, necessary to reconcile those to net
income/(loss) and equity determined in
accordance with US GAAP.
Net income Equity
AS REPORTED UNDER IFRS 234.5 299.4 1,280.8 904.7
a) Write-down on assets 0.5 1.4 0.0 (0.5)
b) Share options 0.0 0.0 0.0 0.0
c) Deferred gain related to sale and
lease back transactions 4.3 (17.3) (13.1) (17.3)
d) Deferred taxation (1.1) 4.3 3.7 4.8
---------------------------------
Effect of changes in accounting policies
at 1 January 0.0 8.7 0.0 0.0
---------------------------------
Net income equity in The Group's accounting policies under IFRS are described
below where these differ from the accounting treatment under US GAAP:
a) Write-down on assets
In 1998, TORM recognized an impairment charge for certain vessels on capital
leases as the carrying value at the time exceeded the fair value of these
vessels. In 2000, TORM recognized an impairment charge for certain properties
for the same reason. Under IFRS, impairment losses are reversed in subsequent
periods if the fair value increases. The Company recorded a reversal of the
impairment loss of USD 1.7 million for the increase in fair value of these
vessels during 2002 and a reversal of the impairment loss of USD 0.5 million for
the increase in fair value of the properties during 2005.
Under US GAAP, impairment losses cannot be reversed. This results in a
difference in depreciation expense between US GAAP and IFRS. In February 2005,
the vessels were sold and the remaining impairment loss was added to the profit
on sale of vessels recognized under IFRS. In May 2006, the properties were sold
and the remaining impairment loss was added to the profit on sale of properties
recognized under IFRS.
b) Share options
Under IFRS, TORM's share option scheme is treated as cash-settled share-based
payment transactions. A liability relating to share options not exercised is
recognized in the balance sheet. The change in the liability for the period is
recognized in the income statement. The liability is measured at fair value
using the Black-Scholes model.
Under US GAAP, TORM implemented SFAS 123(R) as per 1 January 2006 using the
prospective method. TORM's share option scheme qualifies as a liability under
SFAS 123(R), which means that a liability for the fair value of the plan is
recognized in the balance sheet and that the change in the liability for the
period is recognized in the income statement. Previously, stock-based
compensation was accounted for in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." and related
interpretations in accounting for stock based compensation. Under APB No. 25,
the Company recognized compensation expense for the difference between the
exercise price and market price at the measurement date. This compensation was
amortized over the vesting period. TORM grants options with cash settlement
terms for which the measurement date is the date that these options are
exercised. Under APB 25, compensatory plans with cash settlement terms qualified
as variable plans, for which total compensation cost must be recalculated each
period based on the current share price, until the options are exercised. The
implementation of SFAS 123(R) had an effect of USD 0.0 million on the
shareholders' equity under US GAAP as of 1 January 2006.
c) Deferred gain on sale and lease back of vessels
During 2005, TORM sold and leased back 2 vessels for 5 years. The leases are
regarded as operating leases under both IFRS and US GAAP.
Under IFRS, the profit on the sale of the vessels is recognized in the income
statement immediately in accordance with IAS 17.
Under US GAAP, the profit on the sale shall be deferred and amortized in
proportion to the related gross rental charged to expense over the lease term in
accordance with FAS 28 as the criteria to deviate from this treatment (cf. FAS
28 a, b and c) were not met. The profit on the sale and lease back transaction
is deferred and amortized on a straight-line basis from 1 February 2005 to 1
February 2010.
d) Deferred taxation
TORM applies the same treatment of deferred tax under IFRS and US GAAP. The
reconciliation item relates to the tax effect of the differences in accounting
treatment expressed by the items a) to c) above. The difference in deferred tax
liability as at 31 December 2006 only relates to the deferral under US GAAP of
the gain on sale of vessels in item c) above.
e) Investment in bonds
Under IFRS, bonds are classified as financial assets at fair value through
profit or loss and are measured at market value at the balance sheet date.
Realized and unrealized gains and losses resulting from valuation or realization
of bonds are recognized as financial items in the income statement. Bonds are
traded frequently and therefore presented as current assets.
Under US GAAP, investments in bonds are classified as an available-for-sale, cf.
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". Unrealized gains and losses are
recorded as a component of equity unless there is an other than temporary
impairment of the securities. The bonds were divested in 2005, and there were no
other than temporary impairments in 2005.
The effect of this difference on net income and equity in 2005 was USD 0.0
million. accordance with US GAAP 238.2 296.5 1,271.4 891.7
BOARD OF DIRECTORS
Niels Erik Nielsen
Born: 14-03-48 TORM shares: 2,680 Re-election: 2007
N. E. Nielsen became Chairman of TORM in April 2002 and has been a Board member
since September 2000. N. E. Nielsen is a partner of the law firm Bech-Bruun and
holds a law degree from the University of Copenhagen. N. E. Nielsen is member of
TORM's Remuneration Committee and a Board member of the following companies:
o Amagerbanken Aktieselskab
o Ambu A/S
o Charles Christensen A/S
o Cimber Air Holding A/S
o Danica-Elektronik A/S
o Gammelrand Skaervefabrik A/S
o GPV Industri A/S
o InterMail A/S
o Mezzanin Kapital A/S
o Pele Holding A/S
o Preben Olsen Automobiler A/S
o Satair A/S
o SCF-Technologies A/S
o Weibel Scientific A/S
with subsidiary companies
Special competencies:
o General management as Chairman of other listed companies with global
activities
o Specialist in company law
Christian Frigast
Born: 23-11-51 TORM shares: 1,800 Re-election: 2007
A member of the Board since September 2000. Mr. Frigast became Deputy Chairman
in April 2002. He is the Managing Director of Axcel A/S and holds an M.Sc(Econ)
from the University of Copenhagen. Christian Frigast is member of TORM's Audit
Committee and Remuneration Committee and a Board member of the following
companies:
o Aktieselskabet Dampskibssekskabet TORM
o Axcel Management A/S
o FM-S0kjaer Holding 2 ApS
o Holdingsselskabet af 1. august 1997 A/S
o Icopal a/s
o Icopal Holding a/s
o Noa Noa ApS
o Royal Scandinavia A/S
o Royal Scandinavia Invest A/S
o Tvilium-Scanbirk ApS
Special competencies:
o General management as Chairman
o Board member of primarily non-listed Danish and international
companies
Lennart Arrias
Born: 17-07-48 TORM shares: 2,400 Re-election: 2007
A member of the Board since April 2003, representing the employees of TORM on
the Board. Mr. Arrias is employed by TORM as a Captain and has been with the
Company since 1992.
Special competencies:
o Worldwide sea services since 1965 with experience from general,
refrigerated, container and project cargos as well as dry bulk and tanker
cargo
Ditlev Engel
Born: 24-05-64 TORM shares: 40 Re-election: 2007
A member of the Board since April 2002. Since 1 May 2005, Mr. Engel is the
President and CEO of Vestas Wind Systems A/S. Mr. Engel holds a Diploma in
Business Economics from the Copenhagen Business School. He is Chairman of the
following companies:
o NEG Micon A/S
o Vestas Americas A/S
o Vestas Asia Pacific A/S
o Vestas Blades A/S
o Vestas Central Europe A/S
o Vestas Control Systems A/S
o Vestas Mediterranean A/S
o Vestas Nacelles A/S
o Vestas Northern Europe A/S
o Vestas Offshore A/S
o Vestas Towers A/S
Special competencies:
o Global trade and management
o International experience
o Experience of business-to-business in heavy industry
Stefanos-Niko Zouvelos
Born: 20-07-55 TORM shares: 50 Re-election: 2010
A member of the Board since April 2006. General Manager of Beltest Shipping
Company Ltd. Mr. Zouvelos holds a M.Sc in Quantitative Economics from the
University of Stirling, Scotland.
Special competencies:
o Financial management in shipping
o Over 20 years in shipping
Peder Mouridsen
Born: 20-12-49 TORM shares: 4,720 Re-election: 2007
A member of the Board since April 2003, representing the employees of TORM on
the Board. Mr. Mouridsen is employed by TORM as a Chief Engineer and has been
with the Company since 1970.
Special competencies:
o Site supervisor
o Site manager on TORM newbuilding projects
Gabriel Panayotides
Born: 14-01-55 TORM shares: 24,432 Re-election: 2007
A member of the Board since September 2000. Mr. Panayotides has been engaged in
the ownership and operation of ships since 1978. He has a Bachelors degree from
the Pireaus University of Economics. Mr. Panayotides is member of TORM`s Audit
Committee and a Board member of the following companies:
o Excel Maritime (listed on NYSE).
o Bureau Veritas and Lloyds Register of Shipping classification society Greek
committee.
Special competencies:
o Board experience from other listed companies
o Ship managment - shipowning.
SENIOR MANAGEMENT
Klaus Kjaerulff
Born: 30-01-52
President and Chief Executive Officer since September 2000. Klaus Kjaerulff has
worked for TORM since 1976. From 1997 to 2000, he headed the Company's Tanker
and Bulk Divisions as Executive Vice President, and from 1981 to 1997 he was
Vice President in charge of the Tanker Division. He is a Board member of the
following companies:
o Danish Shipowners' Association
o Assuranceforeningen SKULD
o The Trade Council of Denmark
o Norsk Veritas Rad
o ICC Denmark
MANAGEMENT
S0ren Christensen
Senior Vice President, Bulk Division
Mogens Fynbo
Executive Vice President, Technical Department
Jan Mechlenburg
Executive Vice President, Shipowning and Sale & Purchase Division
Esben Poulsson
Executive Vice President, TORM Singapore
Kim Rasmussen
Senior Vice President, Bulk Division
Mikael Skov
Executive Vice President, Tanker Division
MANAGEMENT'S AND AUDITORS' REPORT
STATEMENT BY THE BOARD OF DIRECTORS AND MANAGEMENT ON THE ANNUAL REPORT
The Board of directors and Management have presented and adopted the Annual
Report of A/S Dampskibsselskabet TORM for the financial year ended 31 December
2006.
The Annual Report has been prepared in accordance with International Financial
Reporting Standards as adopted by the EU and additional Danish disclosure
requirements for listed companies.
We consider the accounting policies applied to be appropriate for the Annual
Report to give a true and fair view of the Group's and the Parent's financial
position at 31 December 2006 and of their financial performance and their cash
flows for the financial year then ended.
We recommend that the Annual Report is adopted at the Annual General Meeting.
Copenhagen, 5 March 2007
BOARD OF DIRECTORS: MANAGEMENT:
Niels Erik Nielsen, Klaus Kjaerulff
Chairman CEO
Christian Frigast
Deputy Chairman
Lennart Arris
Ditlev Engel
Peder Mouridsen
Gabriel Panayotides
Stefanos-Niko Zouvelos
The Independent auditors' report To the shareholders of
A/S Dampskibsselskabet TORM
We have audited the annual report of A/S Dampskibsselskabet TORM for the
financial year ended 31 December 2006. The annual report comprises the statement
by Management on the annual report, the Management's review, the income
statement, the balance sheet, the statement of changes in equity, the cash flow
statement and the notes to the financial statements, including the accounting
policies. The annual report has been prepared in accordance with International
Financial Reporting Standards as adopted by the EU and additional Danish
disclosure requirements for listed companies.
Management's responsibility for the annual report
Management is responsible for the preparation and fair presentation of an annual
report in accordance with International Financial Reporting Standards as adopted
by the EU and additional Danish disclosure requirements for listed companies.
This responsibility includes: designing, implementing and maintaining internal
control relevant to the preparation and fair presentation of an annual report
that is free from material misstatement, whether due to fraud or error,
selecting and applying appropriate accounting policies, and making accounting
estimates that are reasonable in the circumstances.
Auditor's responsibility and basis of opinion
Our responsibility is to express an opinion on this annual report based on our
audit. We conducted our audit in accordance with Danish and International
Standards on Auditing. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance
whether the annual report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the annual report. The procedures selected depend on
the auditor's judgement, including the assessment of the risks of material
misstatement of the annual report, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of an annual report in order to
design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity's
internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by
Management, as well as evaluating the overall presentation of the annual report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Our audit has not resulted in any qualification.
Opinion
In our opinion, the annual report gives a true and fair view of the Group's and
the Parent's financial position at 31 December 2006 and of their financial
performance and their cash flows for the year then ended in accordance with
International Financial Reporting Standards as adopted by the EU and additional
Danish disclosure requirements for listed companies.
Copenhagen, 5 March 2007
Deloitte
Statsautoriseret Revisionsaktieselskab
Erik Holst Jorgensen Kirsten Aaskov Mikkelsen
State Authorized Public Accountant State Authorized Public Accountant
Parent company
Annual report 2006
INCOME STATEMENT
1 January - 31 December
USD'000 2006 2005
Note
Revenue 539,573 509,428
Port expenses, bunkers and commissions (142,524) (120,882)
Freight and bunkers derivatives 620 3,194
-------------------------
Time charter equivalent earnings 397,669 391,740
Charter hire (123,994) (100,340)
Operating expenses 2 (61,608) (49,529)
-------------------------
Gross profit (Net earnings from shipping
activities) 212,067 241,871
Profit from sale of vessels 34,772 26,084
Administrative expenses 2, 3 (31,224) (34,363)
Other operating income 9,858 22,684
Depreciation and impairment losses 5 (44,996) (34,238)
-------------------------
Operating profit 180,477 222,038
Financial income 6 41,027 42,522
Financial expenses 6 (26,704) (30,548)
-------------------------
Profit before tax 194,800 234,012
Tax expenses 8 (6,421) 1,674
-------------------------
Net profit for the year 188,379 235,686
-------------------------
Allocation of profit
The Board of directors recommends that the year's
Result of USD 188 mill. be allocated as follows:
Proposed dividend USD 2.0 per share of DKK 10
(2005: USD 3.6) 73,939
Retained profit 114,440
----------
188,379
----------
BALANCE SHEET
At 31 December USD'000 2006 2005
Note
ASSETS
NON-CURRENT ASSETS
Tangible fixed assets
Land and buildings 374 883
Vessels and capitalized dry-docking 12 868,046 767,860
Prepayments on vessels 146,640 97,397
Other plant and operating equipment 3,293 2,075
-------------------------
5 1,018,353 868,215
-------------------------
Financial fixed assets
Investment in subsidiaries 4 26,473 25,663
Loans to subsidiaries 22,902 43,922
Investment in jointly controlled entities 4 9 9
Loans to jointly controlled entities 0 0
Other investments 4 644,374 360,956
-------------------------
693,758 430,550
-------------------------
Total non-current assets 1,712,111 1,298,765
CURRENT ASSETS
Inventories of bunkers 10,906 9,900
Freight receivables, etc. 7 45,035 49,508
Other receivables 20,908 13,511
Prepayments 4,193 2,617
Marketable securities 0 241
Cash and cash equivalents 24,795 145,718
-------------------------
105,837 221,495
Non-current assets held for sale 0 0
-------------------------
Total current assets 105,837 221,495
-------------------------
TOTAL ASSETS 1,817,948 1,520,260
-------------------------
The accompanying notes are an integrated part of these financial statements.
BALANCE SHEET
At 31 December
USD'000 2006 2005
Note
EQUITY AND LIABILITIES
EQUITY
Common shares 61,098 61,098
Treasury shares (18,118) (7,708)
Revaluation reserves 579,852 296,448
Retained profit 513,097 400,048
Proposed dividend 73,939 132,382
Hedging reserves 5,589 3,258
Translation reserves 5,896 5,896
-------------------------
Total equity 1,221,353 891,422
-------------------------
LIABILITIES
Non-current liabilities
Deferred tax liability 8 62,787 54,560
Mortgage debt and bank loans 10, 12 448,777 477,681
-------------------------
Total non-current liabilities 511,564 532,241
-------------------------
Current liabilities
Mortgage debt and bank loans 10, 12 39,342 40,015
Trade accounts payable 17,351 20,498
Current tax liabilities 4,270 9,075
Other liabilities 11 24,068 21,119
Deferred income 9 0 5,890
-------------------------
Total current liabilities 85,031 96,597
-------------------------
TOTAL LIABILITIES 596,595 628,838
-------------------------
TOTAL EQUITY AND LIABILITIES 1,817,948 1,520,260
-------------------------
Accounting policies 1
Collateral security 12
Guarantee and contingent liabilities 13
Contractual liabilities 14
Fair value of derivative
financial instruments 15
Financial intruments 16
Related party transactions 17
Cash flows 18
The accompanying notes are an integrated part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
USD mill.
Gains/losses recognized directly in equity
Common Treasury Retained Proposed Revaluation Hedging Translation
EQUITY shares shares* profit dividends reserves reserves reserves Total
----------------------------------------------------------------------------------------
EQUITY
Balance at 1 January 2005 61.1 (7.7) 286.8 99.9 319.3 0.4 6.0 765.8
Changes in equity 2005:
Exchange rate adjustment
arising on translation
of entities using a
measurement currency
different from USD 0.0
Reversal of deferred
gain/loss on cash flow
hedges at beginning of year (0.4) (0.4)
Deferred gain/loss on cash
flow hedges at year-end 3.2 3.2
Reversal of fair value adjustment
on available for sale
investments at the beginning
of the year (319.3) (319.3)
Fair value adjustment on available
for sale investments at year-end 296.4 296.4
----------------------------------------------------------------------------------------
Net gains/losses recognized
directly in equity 0.0 0.0 0.0 0.0 (22.9) 2.8 0.0 (20.1)
Profit for the year 235.7 235.7
----------------------------------------------------------------------------------------
Total recognized income/expenses
for the year 0.0 0.0 235.7 0.0 (22.9) 2.8 0.0 215.6
Disposal of treasury shares, cost 0.0 0.0
Dividends paid (94.5) (94.5)
Dividends paid on treasury shares 4.1 4.1
Exchange rate adjustment on
dividends paid 5.4 (5.4) 0.0
Exercise of share options 0.4 0.4
Proposed dividends for the
financial year (132.4) 132.4 0.0
----------------------------------------------------------------------------------------
Total changes in equity 2005 20.050 0.0 113.2 32.5 (22.9) 2.8 0.0 125.6
----------------------------------------------------------------------------------------
Equity at 31 December 2005 61.1 (7.7) 400.0 132.4 296.4 3.2 6.0 891.4
Changes in equity 2006:
Exchange rate adjustment arising on
translation of entities using
a measurement currency different
from USD 0.0
Reversal of deferred gain/loss on cash flow
hedges at the beginning of the year (3.2) (3.2)
Deferred gain/loss on cash flow hedges
at year-end 5.6 5.6
Reversal of fair value adjustment on
available for sale investments at
beginning of year (296.4) (296.4)
Fair value adjustment on available for
sale investments at year end 579.8 579.8
----------------------------------------------------------------------------------------
Net gains/losses recognized
directly in equity 0.0 0.0 0.0 0.0 283.4 2.4 0.0 285.8
Profit for the year 188.4 188.4
----------------------------------------------------------------------------------------
Total recognized income/expenses
for the year 0.0 0.0 188.4 0.0 283.4 2.4 0.0 474.2
Purchase of treasury shares, cost (10.4) (10.4)
Disposal of treasury shares, cost 0.0
Dividends paid (140.1) (140.1)
Dividends paid on treasury shares 5.9 5.9
Exchange rate adjustment on dividends paid (7.7) 7.7 0.0
Exercise of share options 0.4 0.4
Proposed dividends for the
financial year (73.9) 73.9 0.0
----------------------------------------------------------------------------------------
Total changes in equity 2006 0.0 (10.4) 113.1 (58.5) 283.4 2.4 0.0 330.0
----------------------------------------------------------------------------------------
Equity at 31 December 2006 61.1 (18.1) 513.1 73.9 579.8 5.6 6.0 1,221.4
----------------------------------------------------------------------------------------
----------
*) Please refer to Note 11 in the consolidated financial statements for
further information on treasury shares.
The accompanying notes are an integrated part of these financial statements.
CASH FLOW STATEMENT
USD'000 2006 2005
Note
CASH FLOW FROM OPERATING ACTIVITIES
Operating profit 180,477 222,038
Adjustments:
Reversal of profit from sale of vessels (34,772) (26,084)
Reversal of depreciation and impairment losses 44,996 34,238
Reversal of other non-cash movements 18 5,889 (6,451)
Dividends received 28,501 23,819
Interest income and exchange rate gains 9,521 13,333
Interest expenses (26,729) (21,153)
Income taxes paid (3,085) (5,858)
Change in inventories, accounts receivables and payables (20,420) (13,220)
---------------------
Net cash inflow/(outflow) from operating activities 184,378 220,662
---------------------
CASH FLOW FROM INVESTING ACTIVITIES
Investment in tangible fixed assets (223,351) (415,122)
Investment in equity interests and securities (1,187) (29,826)
Loans and repayment of loans to subsidiaries and
associated companies 29,932 77,935
Sale of non-current assets 63,432 119,057
---------------------
Net cash inflow/(outflow) from investing activities (131,174) (247,956)
---------------------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing, mortgage debt and other financial liabilities 133,096 331,668
Repayment/redemption, mortgage debt (162,673) (124,437)
Repayment/redemption, lease liabilities 0 0
Dividends paid (134,140) (90,401)
Purchase/disposal of treasury shares (10,410) 40
---------------------
Cash inflow/(outflow) from financing activities (174,127) 116,870
---------------------
Net cash inflow/(outflow) from operating,
investing and financing activities (120,923) 89,576
Cash and cash equivalents, at 1 January 145,718 56,142
---------------------
Cash and cash equivalents, at 31 December 24,795 145,718
Of which used as collateral 0 0
---------------------
24,795 145,718
---------------------
The accompanying notes are an integrated part of these financial statements.
NOTes
SUPPLEMENTARY ACCOUNTING POLICIES FOR THE PARENT COMPANY
In addition to the accounting policies for the Group as presented in Note 1 in
the consolidated financial statements, the Parent Company, A/S
Dampskibsselskabet TORM, applies the following supplementary accounting
policies.
Foreign currencies
Exchange rate gains or losses on intercompany balances with subsidiaries, which
are considered a part of the investment in the entity, are recognized directly
in equity.
Investments in subsidiaries and jointly controlled entities
Investment in subsidiaries, associated companies and jointly controlled entities
are recognized and measured in the financial statements of the Parent Company at
cost and classified as non-current assets. Dividends are recognized under
financial income.
USD mill.
Note 2 2006 2005
STAFF COSTS
Total staff costs
Staff costs included in operating expenses 13.6 12.9
Staff costs included in administrative expenses 20.4 19.2
----------------
Total 34.0 32.1
----------------
Staff costs comprise the following
Wages and salaries 31.0 28.5
Share-based compensation 0.0 0.5
Pension costs 2.8 2.6
Other social security costs 0.2 0.5
----------------
Total 34.0 32.1
----------------
Employee information
The average number of staff in the Parent Company in the financial year was 327
(2005: 319).
Management remuneration is disclosed in note 4 in the consolidated financial
statements.
USD mill.
Note 3 2006 2005
Remuneration to the auditors appointed at the
Annual General Meeting
Deloitte
Audit fees 0.8 0.4
Audit related fees 0.0 0.0
Tax fees 0.1 0.1
Fees for other services 0.0 0.0
---------------
Total fees, Deloitte 0.9 0.5
---------------
Ernst & Young
Audit fees -- 0.1
Audit related fees -- 0.0
Tax fees -- 0.0
Fees for other services -- 0.0
---------------
Total fees, Ernst & Young -- 0.1
---------------
Note 4 Investment in Investment Total Other
subsidiaries in jointly invest- investments
controlled ments
USD mill. entities
FINANCIAL FIXED ASSETS
Cost:
Balance at 1 January 2005 17.4 0.0 17.4 49.1
Additions 14.4 0.0 14.4 15.4
Disposals (6.1) 0.0 (6.1) 0.0
-------------------------------------------
Balance at 31 December 2005 25.7 0.0 25.7 64.5
-------------------------------------------
Value adjustment:
Balance at 1 January 2005 0.0 0.0 0.0 319.4
Exchange rate adjustment 0.0 0.0 0.0 (50.5)
Value adjustment for the year 0.0 0.0 0.0 27.6
Disposals 0.0 0.0 0.0 0.0
------------------------------------------
Balance at 31 December 2005 0.0 0.0 0.0 296.5
-------------------------------------------
Carrying amount at 31
December 2005 25.7 0.0 25.7 361.0
-------------------------------------------
Cost:
Balance at 1 January 2006 25.7 0.0 25.7 64.5
Additions 1.2 0.0 1.2 0.0
Disposals (0.4) 0.0 (0.4) 0.0
------------------------------------------
Balance at 31 December 2006 26.5 0.0 26.5 64.5
-------------------------------------------
Value adjustment:
Balance at 1 January 2006 0.0 0.0 0.0 296.5
Exchange rate adjustment 0.0 0.0 0.0 42.2
Value adjustment for the year 0.0 0.0 0.0 241.2
Disposals 0.0 0.0 0.0 0.0
------------------------------------------
Balance at 31 December 2006 0.0 0.0 0.0 579.9
-------------------------------------------
Carrying amount at 31
December 2006 26.5 0.0 26.5 644.4
-------------------------------------------
Hereof listed 641.7
-----
Hereof unlisted 2.7
---
A list of companies in the Group is found in Note 6 at page 61 in the annual
report.
Note 5 Land and Vessels and Prepayments Other plant Total
buildings capitalized on vessels and operating
USD mill. dry-docking equipment
TANGIBLE
FIXED ASSETS
Cost:
Balance at 1 January 2005 1.3 597.2 37.3 5.9 641.7
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 263.9 150.3 0.9 415.1
Disposals 0.0 (74.7) 0.0 (0.9) (75.6)
Transferred to/from
other items 0.0 90.2 (90.2) 0.0 0.0
--------------------------------------------------------------
Balance at 31
December 2005 1.3 876.6 97.4 5.9 981.2
--------------------------------------------------------------
Depreciation and
impairment losses:
Balance at 1 January 2005 0.9 115.8 0.0 3.2 119.9
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 0.0 0.0 0.0 0.0
Disposals 0.0 (40.3) 0.0 (0.8) (41.1)
Reversal of impairment
Losses (0.5) 0.0 0.0 0.0 (0.5)
Depreciation for the year 0.0 33.3 0.0 1.4 34.7
--------------------------------------------------------------
Balance at 31
December 2005 0.4 108.8 0.0 3.8 113.0
--------------------------------------------------------------
Carrying amount at 31
December 2005 0.9 767.8 97.4 2.1 868.2
--------------------------------------------------------------
Hereof financial expenses
included in cost 0.0 1.0 0.2 0.0 1.2
--------------------------------------------------------------
Cost:
Balance at 1 January 2006 1.3 876.6 97.4 5.9 981.2
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 91.9 128.9 2.4 223.2
Disposals (0.8) (78.2) 0.0 (0.4) (79.4)
Transferred to/from
other items 0.0 79.7 (79.7) 0.0 0.0
--------------------------------------------------------------
Balance at
31 December 2006 0.5 970.0 146.6 7.9 1,125.0
--------------------------------------------------------------
Depreciation and
impairment losses:
Balance at 1 January 2006 0.4 108.8 0.0 3.8 113.0
Exchange rate adjustment 0.0 0.0 0.0 0.0 0.0
Additions 0.0 0.0 0.0 0.0 0.0
Disposals (0.3) (50.7) 0.0 (0.3) (51.3)
Reversal of
impairment losses 0.0 0.0 0.0 0.0 0.0
Depreciation for the year 0.0 43.8 0.0 1.1 44.9
--------------------------------------------------------------
Balance at
31 December 2006 0.1 101.9 0.0 4.6 106.6
--------------------------------------------------------------
Carrying amount at
31 December 2006 0.4 868.1 146.6 3.3 1,018.4
Hereof finance leases 0.0 0.0 0.0 0.0 0.0
--------------------------------------------------------------
Hereof financial expenses
included in cost 0.0 1.1 0.8 0.0 1.9
--------------------------------------------------------------
At 1 October, 2005 the value of land and buildings assessed for Danish tax
purposes amounted to USD 0.6 mill. (carrying amount at 31 December 2006 USD 0.4
mill.) compared with USD 0.5 mill. at 1 October 2004.
Included in the carrying amount for vessels and capitalized dry-docking are
capitalized dry-docking costs in the amount of USD 7,2 mill. (2005: USD 10.4
mill.).
Please refer to note 12 for information on to assets used for collateral
security.
USD mill.
Note 6 2006 2005
FINANCIAL ITEMS
Financial income
Interest income from cash and cash equivalents 3.5 7.8
Interest income from marketable securities at fair
value through profit and loss 0.0 1.1
Gain on other investments (available-for-sale) 0.0 0.1
Dividends*) 26.4 12.8
Dividends from subsidiaries 2.1 10.7
Dividends from jointly controlled entities 0.0 0.3
Gain on derivative financial instruments 7.6 0.2
Exchange rate adjustments 1.4 9.5
------------
41.0 42.5
------------
Financial expenses
Impairment losses on subsidiaries, associated
companies and jointly controlled entities 0.2 5.6
Interest expense on mortgage and bank debt 26.2 20.7
Net losses on marketable securities at fair
value through profit and loss 0.0 3.9
Exchange rate adjustments 0.0 0.0
Other interest expenses 1.0 0.5
Hereof included in the cost of tangible fixed assets (0.7) (0.2)
------------
26.7 30.5
------------
Total financial items 14.3 12.0
------------
* Includes dividend on the NORDEN shares of USD 25.5 mill. in 2006 (2005: USD
12.6 mill.).
USD mill.
Note 7 2006 2005
FREIGHT RECEIVABLES, ETC.
Analysis as at 31 December of freight receivables, etc.:
FREIGHT RECEIVABLES, ETC.
Neither past due nor impaired 22.1 28.3
Due < 180 days 20.2 16.9
Due >180 days 2.7 4.3
-------------
Total Freight receivables, etc 45.0 49.5
-------------
As at 31 December 2006, freight receivables etc. includes receivables at a value
of USD 1.4 mill. (2005: USD 1.4 mill.), that is individually determined to be
impaired to a value of USD 0.6 mill. (2005: USD 0.6 mill.).
Movements in the provision for impairment of freight receivables, etc. during
the year are as follows:
USD mill. 2006 2005
PROVISION FOR IMPAIRMENT OF FREIGHT RECEIVABLES, ETC.
Balance at 1 January 0.8 0.2
Provisions for the year 0.0 0.6
Provisions reversed during the year 0.0 0.0
Provisions utilised during the year 0.0 0.0
-----------
Balance at 31 December 0.8 0.8
-----------
Provision for impairment of freight receivables, etc. have been recognized in
the income statement under administrative expenses. The provision is based on an
individual assessment of each individual receivable.
USD mill.
Note 8 2006 2005
TAX EXPENSES
Current tax for the year (4.5) (7.1)
Adjustments related to previous years 6.3 0.0
Adjustment of deferred tax (8.2) 8.8
-------------
Tax expenses (6.4) 1.7
-------------
Effective corporate tax rate 3.3% (0.7%)
-------------
The Company participates in the tonnage tax scheme in Denmark. Participation in
the tonnage tax scheme is binding until 31 December 2010.
The Company expects to participate in the tonnage tax scheme after the binding
period and at a minimum to maintain its current investing and activity level.
The difference between the effective corporate tax rate 3.3% (2005: 0.0%) and
the corporation tax rate in Denmark 28% (2005: 28%) primarily relates to the
tonnage tax scheme.
USD mill. 2006 2005
DEFERRED TAX
Deferred tax at 1 January 54.6 73.3
Exchange rate adjustment 0.0 (9.9)
Reduction of Danish corporation tax from 30% to 28% 0.0 (4.2)
Deferred tax for the year 8.2 (4.6)
------------
Deferred tax at 31 December 62.8 54.6
------------
Essentially all deferred tax relates to vessels included in the transition
account under the tonnage tax scheme.
USD mill.
Note 9 2006 2005
DEFERRED INCOME
Deferred gain related to sale and lease back transactions 0.0 5.9
----------
0.0 5.9
----------
USD mill.
Note 10 2006 2005
MORTGAGE DEBT AND BANK LOANS
To be repaid as follows:
Falling due within one year 39.3 40.0
Falling due between one and two years 39.4 40.0
Falling due between two and three years 51.9 70.0
Falling due between three and four years 36.9 37.6
Falling due between four and five years 36.9 37.6
Falling due after five years 283.7 292.5
-------------
488.1 517.7
-------------
The presented amounts to be repaid are adjusted by directly related costs arised
from the issuing of the loans by USD 2.9 mill. (2005: USD 1.7 mill.). which are
amortized over the term of the loans.
USD mill.
Note 10, continued 2006 2005 2006 2005
Fixed/ Effective Effective Fair Fair
Maturity floating interest interest value value
LOAN
USD 2008 Floating 6.2% 5.4% 5.1 37.6
USD 2009 Floating 5.8% -- 15.0 0.0
USD 2011 Floating 6.2% 5.4% 8.1 22.0
USD 2011 Fixed 4.4% -- 63.6 0.0
USD 2013 Floating -- 5.4% 0.0 14.2
USD 2014 Floating 5.2% 4.8% 399.2 445.6
Weighted average effective interest rate 5.1% 4.9%
----------------
Fair value 491.0 519.4
-------------
The Parent Company has an early settlement option to repay the loans by paying a
breakage cost.
Part of the loans with floating interest rate have been swapped to fixed
interest rate.
Certain of TORM's loan agreements contain minimum requirements to the liquidity
and solvency of the Company and restrictive covenants, which may limit our
ability to:
o engage in mergers or acquisitions;
o change the management of TORM's vessels
As of 31 December 2006, the Company complies with these minimum requirements and
restrictive covenants. Based on the Company's expected future cash flow,
investment programmes, etc. we expect to comply with the requirements and
covenants until the maturity of the loan agreements.
Please refer to the section `Managing risk and exposure' and note 21 in the
consolidated financial statements for further information on financial risks.
USD mill.
Note 11 2006 2005
Other liabilities
Partners and commercial management 1.8 1.3
Accrued operating expenses 5.9 3.8
Accrued dry-docking costs 0.0 1.9
Accrued interests 3.5 2.9
Wages and social expenses 5.1 6.0
Derivative financial instruments 6.2 2.9
Miscellaneous, incl. items related to shipping activities 1.6 2.3
-----------
24.1 21.1
-----------
USD mill.
Note 12 2006 2005
COLLATERAL SECURITY
Collateral security for mortgage debt and bank loans:
Vessels 476.0 489.4
-------------
476.0 489.4
-------------
The total carrying amount for vessels that have been provided as security
amounts to USD 546 mill. (2005: USD 498 mill.).
USD mill.
Note 13 2006 2005
GUARANTEE AND CONTINGENT LIABILITIES
Guarantee liabilities 0.0 0.0
----------
The guarantee liability for the Parent Company is less than USD 0.1 mill. and
relates to guarantee liabilities to the Danish Shipowners' Association.
USD mill.
Note 14 2006 2005
CONTRACTUAL LIABILITIES - AS LESSEE (Operating lease)
Charter hire for vessels on time charter (incl. vessels not delivered):
Falling due within one year 151.7 99.3
Falling due between one and two years 155.7 89.3
Falling due between two and three years 143.1 109.0
Falling due between three and four years 110.4 109.0
Falling due between four and five years 99.4 73.2
Falling due after five years 306.1 105.7
------------
966.4 585.5
Average period until redelivery (year) 5.0 4.1
------------
Leases have been entered into with a mutually interminable lease period of up to
8 years: Certain leases include an option to renew for one or two additional
years at a time for up to three years and/or a purchase option. Exercise of the
purchase option on the individual vessel is based on an individual assesment.
Certain leases include a profit sharing element implying that the actual charter
hire may be higher.
Newbuilding installments and exercised purchase options
(purchase obligations):
Falling due within one year 163.1 217.9
Falling due between one and two years 143.1 146.7
Falling due between two and three years 93.6 95.5
Falling due between three and four years 18.0 28.0
Falling due between four and five years 18.0 0.0
Falling due after five years 0.0 0.0
-------------
435.8 488.1
-------------
Other operating leases:
Falling due within one year 1.8 1.8
Falling due between one and two years 1.9 1.9
Falling due between two and three years 1.8 1.8
Falling due between three and four years 1.7 1.8
Falling due between four and five years 1.8 1.8
Falling due after five years 3.6 5.8
-------------
12.6 14.9
-------------
Other operating leases primarily consist of contracts regarding office spaces
and apartments as well as IT-related contracts. During the year charter hire
expenses have been recognized in the income statement by USD 123.9 mill. (2005:
USD 100.3 mill.) of which USD 7.1 mill. (2005: USD 7.5 mill.) regards profit
sharing elements. Other operating lease expenses have been recognized in the
income statement by USD 2.2 mill. (2005: USD 1.3 mill.).
USD mill. 2006 2005
CONTRACTUAL LIABILITIES - AS LESSOR (operating lease)
Charter hire income for vessels on time charter and bareboat
charter (incl. not delivered vessels):
Falling due within one year 101.3 75.4
Falling due between one and two years 27.2 9.6
Falling due between two and three years 9.9 0.0
Falling due between three and four years 0.0 0.0
Falling due between four and five years 0.0 0.0
Falling due after five years 0.0 0.0
138.4 85.0
-------------
Average period until redelivery (year) 1.0 0.6
-------------
Charter hire income for vessels on time charter and bareboat charter is
recognized under net revenue.
NEWBUILDING CONTRACTS
As at 31 December 2006, TORM had contracted 13 newbuildings (2005: 11
newbuildings) to be delivered during 2007 to 2011. For all 13 vessels the total
outstandingcontractual commitment amounted to USD 436 mill.
Other contractual liabilities
TORM is liable to lend TT Shipowning K/S up to USD 30.5 mill. of which USD 14.0
mill. was utilized at 31 December 2006.
Note 15
FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
Fair value adjustments
Income statement
Port
expenses, Freight and Equity
Fair value at bunkers and bunkers Financial Hedging Fair value at
USD Mill. 1 Jan. 2005 Revenue commisions derivatives items reserves 31 Dec. 2005
Hedge accounting, cash flows:
Interest rate swaps 0.4 -- -- -- -- 2.9 3.3
Non hedge accounting:
Cross currency swaps 0.1 -- -- -- (0.1) -- 0.0
Forward rate contracts 3.8 -- -- -- (3.9) -- (0.1)
Interest rate swaps (0.2) -- -- -- 3.5 -- 3.3
Currency options 3.6 -- -- -- (3.6) -- 0.0
Bunker hedge (0.8) -- -- 0.8 -- -- 0.0
Forward Freight
Agreement (4.4) -- -- 2.5 -- -- (1.9)
----------------------------------------------------------------------------------
2.5 0.0 0.0 3.3 (4.1) 2.9 4.6
----------------------------------------------------------------------------------
Fair value adjustments
Income statement
Port
expenses, Freight and Equity
Fair value at bunkers and bunkers Financial Hedging Fair value at
USD Mill. 1 Jan. 2006 Revenue commisions derivatives items reserves 31 Dec. 2006
Hedge accounting, cash flows:
Interest rate swaps 3.3 -- -- -- -- (0.3) 3.0
Bunker hedge 0.0 -- -- -- -- (3.3) (3.3)
Forward Freight
Agreement 0.0 -- -- -- -- 5.9 5.9
Non hedge accounting:
Forward rate contracts (0.1) -- -- -- 1.1 -- 1.0
Interest rate swaps 3.3 -- -- -- -- -- 3.3
Currency options 0.0 -- -- -- 0.4 -- 0.4
Bunker hedge 0.0 -- -- (1.5) -- -- (1.5)
Forward Freight
Agreement (1.9) -- -- (0.4) -- -- (2.3)
---------------------------------------------------------------------------------
4.6 0.0 0.0 (1.9) 1.5 2.3 6.5
---------------------------------------------------------------------------------
Please refer to the section `Managing risk and exposure' and note 21 in the
consolidated financial statements for further information on financial risks.
Interest rate swaps with a fair value of USD 3.0 mill. (2005: USD 3.3 mill.) are
designated to hedge a part of the Company's interest payments during the period
2007 to 2008. The bunker hedge contracts with a fair value of USD -3.3 mill.
(2005: USD 0.0 mill.) are designated to hedge a part of the Company's bunker
expenses during the period 2007 to 2009. The Forward Freight Agreements with a
fair value of USD 5.9 mill. (2005: USD 0.0 mill.) are designated to hedge a part
of the Company's net revenue during the period 2007 to 2009.The gains or losses
on these contracts will be recognized in the income statement together with the
hedged items.
USD mill.
Note 16 2006 2005
FINANCIAL INSTRUMENTS
CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES AS DEFINED IN IAS 39:
Financial assets at fair value through profit or loss
Marketable securities (held for trading) 0.0 0.2
Total financial assets at fair value through profit or loss 0.0 0.2
Loans and receivables
Loans to subsidiaries 22.9 43.9
Freight receivables, etc 45.0 49.5
Other receivables 8.1 6.1
Cash and cash equivalents 24.8 145.7
Total loans and receivables 100.8 245.2
Available-for-sale financial assets
Other investments 644.4 361.0
Total available-for-sale financial assets 644.4 361.0
Derivative financial instruments (assets)
Other receivables (held for trading) 2.9 3.7
Other receivables (hedge accounting) 9.4 3.3
Total derivative financial instruments (assets) 12.3 7.0
Financial liabilities measured at amortised cost
Mortgage debt and bank loans 488.1 517.7
Trade payables 17.4 20.5
Other liabilities 13.2 12.7
Total financial liabilities measured at amortised cost 518.7 550.9
Derivative financial instruments (liabilities)
Other liabilities (held for trading) 2.0 2.4
Other liabilities (hedge accounting) 3.8 0.0
Total derivative financial instruments (liabilities) 5.8 2.4
The fair value of the financial assets and liabilities above equals the carrying
amount except for mortgage debt and bank loans for which the fair value can be
found in note 13.
USD mill.
Note 17 2006 2005
RELATED PARTY TRANSACTIONS
Subsidiaries and jointly controlled entities are considered as related parties
in relation to the Parent Company A/S, Dampskibsselskabet TORM, in addition to
the related parties disclosed in note 23 to the consolidated financial
statements. The following transactions took place between A/S Dampskibsselskabet
TORM and subsidiairies and jointly controlled entities during the year:
Services provided by A/S Dampskibsselskabet TORM 11.2 14.2
Services provided by subsidiaries and jointly controlled entities 32.5 33.6
------------
43.7 47.8
------------
The service provided between the parties are all directly related to the Group's
shipping activities.
USD mill.
Note 18 2006 2005
CASH FLOWS
Reversal of other non-cash movements:
Fair value adjustmens on derivative financial instruments 3.9 (1.3)
Exchange rate adjustments 1.6 (5.6)
Other adjustments 0.4 0.4
--------------
Total reversal of other non-cash movements 5.9 (6.5)
--------------
GLOSSARY
20-F: Annual report filed with the US Securities and Exchange
Commission (SEC)
ADR: American Depository Receipt. Proof of ownership of (the equivalent) of
one share. ADRs are used by foreign companies wishing to list on American stock
exchanges.
ADS: American Depositary Shares. Shares registered with SEC and kept
in custody with a bank as security for the ADRs issued.
Aframax: A vessel with a cargo carrying capacity of 80,000 - 100,000 dwt.
Asset management: Acquisition and ownership of assets (ships), which may be
disposed of at an optimal time with a view to generating a one-off profit - as
opposed to profits derived from operating the asset.
Bareboat: See B/B.
B/B: Bareboat. A form of charter arrangement whereby the charterer is
responsible for all costs and risks in connection with the vessel's operation.
Bulk: Dry cargo - typically commodities such as grain, coal, iron ore,
etc.
Bunker: Fuel with which to run a ship's engines.
Capesize: Bulk carrier with a cargo carrying capacity of 120,000-200,000
dwt.
Classification society: Independent organization, which through verification of
design, construction, building process and operation of vessels ensure that the
vessels at all times meet a long list of requirements to seaworthiness, etc. If
the vessels do not meet these requirements, insurance and mortgaging the vessel
will typically not be possible.
COA: Contract of affreightment. A contract that involves a number of
consecutive cargos at previously agreed freight rates.
Coating: The internal coatings applied to the tanks of a product tanker
enabling the vessel to load refined oil products.
Demurrage: A charge against the charterer of a ship for delaying the vessel
beyond the allowed free time. The demurrage rate will typically be at a level
equal to the earnings in USD/day for the voyage.
DKK: Danish Kroner.
Dry cargo: See Bulk.
Dwt: Deadweight tons. The cargo carrying capacity of a ship.
FFA: Forward Freight Agreement. A financial derivative instrument
enabling freight to be hedged forward at a fixed price.
GAAP: Generally accepted accounting principles.
Handymax: Bulk carriers with a cargo carrying capacity of 40-60,000 dwt.
Handysize: Bulk carriers with a cargo carrying capacity of
20-35,000 dwt.
IAS: International Accounting Standards.
IFRS: International Financial Reporting Standards.
IMO: International Maritime Organisation.
LR1: Long Range 1. A specific class of product tankers with a cargo
carrying capacity of 60,000 - 80,000 dwt.
LR2: Long Range 2. A specific class of product tankers with a cargo
carrying capacity of 80,000 - 110,000 dwt.
MR: Medium Range. A specific class of product tankers with a cargo
carrying capacity of 35,000 - 50,000 dwt.
OPA-90: Oil Pollution Act 1990. US environmental law implemented
following the grounding of Exxon Valdez in Alaska.
OPEC: Organization of the Petroleum Exporting Countries.
Panamax: A vessel with a cargo carrying capacity of 60,000 - 80,000 dwt.
The biggest vessel allowed to pass through the Panama Canal.
P&I clubs: Protection & Indemnity club.
Pool: A grouping of ships of similar size and characteristics, owned by
different owners, but which are commercially operated jointly.
The pool manager is mandated to charter the ships out for the
maximum benefit of the pool as a whole. Earnings are equalized
taking account of differences in ships' specifications, the
number of days the ships have been ready for charter, etc.
Product
tanker: A vessel suitable for trading clean petroleum products such as
gasoline, jet fuel and naphtha.
SEC: US Securities and Exchange Commission.
T/C: Time Charter. An agreement covering the chartering out of a
vessel to an end user for a defined period of time, where the
owner is responsible for crewing the vessel, but the charterer
must pay port costs and bunker.
TCE: See T/C equivalent.
Timecharter: See T/C.
T/C
equivalent: The freight receivable after deducting port expenses, consumption
of bunker and commissions.
UN: The United Nations.
Fleet overview
At 31 December 2006
Tankers DWT Build
LR2
m.t. TORM MARGRETHE 109,672 2006
m.t. TORM MARIE 109,672 2006
m.t. TORM INGEBORG 99,999 2003
m.t. TORM VALBORG 99,999 2003
m.t. TORM GUDRUN 101,122 2000
m.t. TORM KRISTINA 105,001 1999
m.t. TORM HELENE 99,999 1997
LR1
m.t. TORM SIGNE 72,718 2005
m.t. TORM SOFIA 72,718 2005
m.t. TORM ESTRID 74,999 2004
m.t. TORM EMILIE 74,999 2004
m.t. TORM ISMINI 74,999 2004
m.t. TORM SARA 72,718 2003
MR
m.t. TORM HELVIG 44,990 2005
m.t. TORM RAGNHILD 44,990 2005
m.t. TORM FREYA 45,990 2003
m.t. TORM THYRA 45,990 2003
m.t. TORM CAMILLA 44,990 2003
m.t. TORM CARINA 44,990 2003
m.t. TORM GERD 45,940 2002
m.t. TORM GERTRUD 45,940 2002
m.t. TORM VITA 45,940 2002
m.t. TORM MARY 45,990 2002
m.t. TORM CAROLINE 44,946 2002
m.t. TORM CECILIE 44,946 2001
m.t. TORM CLARA 45,999 2000
m.t. TORM AGNETE 47,165 1999
m.t. TORM ANNE 44,990 1999
m.t. TORM GUNHILD 44,999 1999
m.t. TORM ALICE 44,999 1995
m.t. TORM GOTLAND 44,999 1995
Bulkers
Panamax
m.v. TORM ROTNA 75,971 2001
m.v. TORM TINA 75,966 2001
m.v. TORM BALTIC 69,614 1997
m.v. TORM MARLENE 69,548 1997
m.v. TORM MARTA 69,638 1997
Newbuildings
At 31 December 2006
TANKERS OWNERSHIP DWT EXPECTED
DELIVERY
LR2
DALIAN 1100-25 100% 110,000 Q2 2007
DALIAN 1100-26 100% 110,000 Q3 2007
DALIAN 1100-29 50% 110,000 Q4 2007
DALIAN 1100-30 100% 110,000 Q2 2008
DALIAN 1100-31 100% 110,000 Q4 2008
DALIAN 1100-32 100% 110,000 Q1 2009
LR1
NEW CENTURY 0307323 50% 74,999 Q1 2007
NEW CENTURY 0307324 100% 74,999 Q2 2007
MR
NB GUANGZHOU 05130013 100% 52,000 Q3 2008
NB GUANGZHOU 05130015 100% 52,000 Q1 2009
NB GUANGZHOU 05130016 100% 52,000 Q2 2009
NB GUANGZHOU 05130017 100% 52,000 Q3 2009
NB GUANGZHOU 05130020 100% 52,000 Q3 2009
NB GUANGZHOU 05130021 100% 52,000 Q4 2009
NB GUANGZHOU 06131033 100% 50,500 Q1 2010
NB GUANGZHOU 06131034 100% 50,500 Q2 2010
NB GUANGZHOU 06131035 100% 50,500 Q3 2010
NB GUANGZHOU 06131036 100% 50,500 Q4 2010
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.
A/S STEAMSHIP COMPANY TORM
(registrant)
Dated March 15, 2007 By: /s/Klaus Kjaerulff
--------------------------
Klaus Kjaerulff
Chief Executive Officer
SK 03810 0001 755774