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1
ANNUAL REPORT
2007
3
ShiPPiNg
wiTh PRidE
Table of conTenTs
6 Introduction 10 Fiveyearskeyfigures 11 2007highlights 12 outlookfor2008 16 tankerdivision 20 bulkdivision 22 thenewtorm 32 torm2008-2010–“greaterearningpower2.0” 34 Supplyanddemand–producttankers 36 Supplyanddemand–panamaxbulkvessels 38 cSr–corporateSocialresponsibility 42 Humanresources 44 managingriskandexposure 50 corporategovernance 55 Shareholderrelations 62 Financialreview 67 consolidatedincomestatement 68 consolidatedbalancesheet 70 consolidatedstatementofchangesinequity 71 consolidatedcashflowstatement 72 notes102 boardofdirectorsandmanagement106 management’sandauditors’report107 parentcompany115 glossary116 Fleetoverview117 newbuildings
basic informaTion:
nameandaddress:A/Sdampskibsselskabettorm·tuborgHavnevej18·dK-2900Hellerup·denmark·tel.:+4539179200·www.torm.comFounded:1889·cVr:22460218·boardofdirectors:n.e.nielsen(chairman)·christianFrigast(deputychairman)·peterAbildgaard(electedbytheemployees)·LennartArrias(electedbytheemployees)·margrethebilgaard(electedbytheemployees)·gabrielpanayotides·Stefanos-nikoZouvelos·management:KlausKjærulff,ceo·mikaelSkov,coo.
theprofitbeforerestructuringcostsandtaxwasUSd819million,whichisinlinewiththelatestforecastofUSd810-820millionexcludingrestructuringcostsofUSd15millioninconnectionwiththeacquisitionofomI.2007wastheyearwhenwesoldourstakeinA/Sdampskibssel-skabetnorden(norden),whichyieldedanetprofitofUSd643millionbeforetax.novesselsweresoldin2007,althoughthisisanaturalelementoftorm’sbusiness,andexcludingtheprofitfromthesaleofthesharesinnorden,theprofitbeforetaxwasUSd161million.Unlikethepreviousyears,producttankerfreightrateswerenotaffectedbyanyone-offevents.themanynew-buildingscontinuedtoputpressureonfreightrates,butthispressureisexpectedtoeaseasweapproach2010,whensingle-hulledtankersaretobephasedoutandthedemandforproducttankerswillbepositivelyaffectedbynewrefineriescomingonstream,andwhichwillbelocatedfarawayfromthemainconsumingmarkets.
contrarytomarketexpectations,freightratesforbulkcar-riersroseforthefirsttenmonthsoftheyear,attheendoctoberreachingahistoricalhighofapproximatelyUSd95,000/dayforapanamaxvessel.Asthecompany’sbulkcarriersarecharteredoutonlong-termcontractsofonetotwoyears’duration,ourearningsdidnotseethefullbenefitoftherisingfreightrates.
theyearwascharacterizedbymajorstructuralchangesandinitiatives.oursaleofthenordensharesallowedustoaccelerateour“greaterearningpower”strategy,leadingustoacquireomIincollaborationwiththecanadianship-pingcompanyteekay.WiththesaleofthenordensharesandtheacquisitionofomI,aninactiveinvestmentwascon-vertedintoanactiveinvestmentintorm’skeybusinessarea–producttankers.Halfoftheproceedsfromthesaleofthenordenshares,ordKK2,002million(USd369.3mil-lion)weredistributedasanextraordinarydividendinSeptember,correspondingtodKK27.5pershare(USd5.1pershare).FollowingtheacquisitionofomIinJune,thesecondhalfoftheyearwasatimeforintegration–ofcolleaguesaswellasofsystems.twolargeorganizationshavegottoknoweachother.colleagueswhowereoncecompetitorsarenowworkingtogetherandtwofleetsandshippingsystemshavebeenjoined.today,theintegrationprocessiscom-pleteandhasstrengthenedtheorganization.
theacquisitionofomIandtheachievementof“greaterearningpower”havepromptedustoimplementanewstrategyatthebeginningof2008called“greaterearningpower2.0”,andourambitionremainsthesame:tormistogroworganicallyaswellasthroughacquisitions,butneverattheexpenseofourfinancialratios.Againstthisbackground,wehaveconcludedthatthenumberofvesselsistoincreasetoatotalof225-250,includingvesselsinpools,overthecomingthreeyears.Attheendof2007,torm’sfleetconsistedof86vesselsand42poolvessels–atotalof128vessels.
thenewstrategynotonlyaddressesfinancialgoalsandfleetgrowth,butalsothedevelopmentoftheorganization,particularlystrengtheningthetechnicaldivisioninordertohandlethegrowingfleet.ouremployees–ashoreandatsea–arethemostimportantprerequisiteforfuturegrowthandourabilitytomeetthestrategicchallengesofthefuture.Wearethereforeincreasinglyfocusingonstaffdevelopment.
Wewishtooperatethetormbusinessinaresponsiblemanner.therefore,wehaveanintegratedsafety,qualityandenvironmentalmanagementsystem.In2007,itwasdemonstratedthatourenvironmentaleffortsmakeadifferenceasourworktoreducetheenvironmentalimpactofouractivitiesobtainedISo14001certification.Inthecourseof2008,wewillassesshowwecanfurtherstrengthentorm’scontributiontosustainableglobaldevelopmentthroughthequality,safety,environmentalandoccupationalhealth–workthatisalreadyunderway.
Atthebeginningof2008,earningswereinlinewithexpec-tations.Weexpectloweroverallproducttankerratesthanin2008,whileearningsfromthecompany’sbulkcarriersareexpectedtorise.theforecastprofitbeforetaxfor2008isUSd210-230million.
2007wasaverybusyone,andIthankallourcolleagues–ashoreandatsea–fortheirenormouseffortsduringtheyear.theimplementationofourambitiousstrategyistheresultofyourfantasticperformance.
KlausKjærulff ceo
In many ways, 2007 was a landmark year. The acquisition of OMI meant that 2007 was the year when we realized the greatest growth in terms of fleet as well as organization in TORM’s recent history. We also achieved our best performance ever with a net profit for the year of USD 792 million. The Company’s new strategy focuses on continued growth, employee development and the environment.
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KlausKjærulff,ceo
Shippingistheultimateglobalbusiness,andforthisrea-sonaswellitisessentialthatweattormremainattheforefrontintermsofoperatingresultsandaccountability–inlinewithourlongestablishedobjectiveofbeing‘bestinclass’.Society’sdemandsofthewayinwhichweconductourbusinessareincreasing,andmaintainingapoleposi-tioninthemarketcontinuouslyplacesnewandgreaterdemandsonus.therefore,torm’svalues
• entrepreneurship• professionalism• respect
haveneverbeenmorecentral,anditisoftheutmostimportancetoeveryonewithaninterestintormthatourambitionsremainhigh.
tormisfortunatetobebasedinacountrywhereshippingenjoysrecognitionandunderstandingfromsocietyatlargeaswellasfromsuccessivedanishgovernments.Forthesakeofourcontinuedrecruitmentofcompetentemployeesandthedevelopmentoftheshippingbusinessitispleasing,becauseitisvitaltothefuturedevelopmentoftormandtheshippingbusinessindenmark.
Intorm’sAnnualreportfor2006,Iexplainedthepointsthattheboardofdirectorsandboardofmanagementwouldfocusoninordertoacceleratetorm’s”greaterearningpower”strategy.thisledto:
• thesaleofthecompany’ssharesinnordenataprofitofjustoverdKK4billion.
• theacquisitionofomIincollaborationwithteekay,andaresultingincreaseofapproximately50%intorm’sfleetandthenumberofearningdays.
• throughtheomIacquisition,theestablishmentofaglobal,integratedtormorganizationwithcontinuouslyhigherlevelsofcompetenceandeducation.
• Anincentiveprogrammeforthecompany’smanagementandemployeesasdetailedinnote4onpage80oftheAnnualreport.
• Anextensionoftheboardofmanagement,whichinfutureconsistsofaceo,acooandacFo.
• AnordinarydividendofdKK4.5(USd0.89)persharecorrespondingto42%oftheprofitfortheyearexcl.theproceedsfromthesaleofthenordenshares.Inaddi-tionanextraordinarydividendofdKK27.5(USd5.1)persharewasdistributedinSeptember2007asaresultofthesaleofthenordenshares.
In2007,A/Sdampskibsselskabettorm’smajorshare-holderinagreementwiththeboardofdirectorsexpresseditswishtomakeavailableforthemarketupto7,280,000shares(equalling10%ofthecompany’ssharecapital)inordertoincreasetheliquidityinthetormshare.Asaconsequenceofthecompany’sandstockmarket’sdevelopment,theboardofdirectorsdidnotmakeuseofthisopportunity.
torm’snewstrategyplanforthecomingthreeyears,”greaterearningpower2.0”,isalsoambitious,butrealis-tic.thestrategyisdescribedonpage32oftheAnnualreport.Withthisstrategy,ithasbeenimperativetousthatourvisionandhighambitionsshouldbecombinedwithfunctional,achievablestrategiesfurtheralongthevaluechain.
Wehavealsofocusedagreatdealonourawarenessofourresponsibilityasagloballyoperatingshippingcompanytoconductourbusinessinaresponsibleandpropermanner.
Atthisyear’sAnnualgeneralmeeting,aresolutionwillbeproposedtoincreasethenumberofdirectorsontorm’sboardandtherebyaddfurthercompetences.theboardofdirectorsverymuchlooksforwardtothis.
thankyoutoallshareholders,ouremployeesandpartnersforahighlysatisfactory2007.
n.e.nielsenchairmanoftheboard
A focused strategy, dedicated employees and a strong balance sheet provide results. Although the markets in themselves have contributed to TORM’s performance, there is every reason to highlight the enormous efforts of everyone in the organization – ashore as well as at sea.
8
n.e.nielsen,chairmanoftheboard
10
five years key figures
USdmillion danishgAAp
income sTaTemenT 2007 2006 2005 2004 2003*) revenue 819 604 586 442 308timecharterequivalentearnings(tce) 645 455 464 350 198grossprofit 358 271 315 240 98ebItdA 304 301 351 215 87operatingprofit 205 242 303 179 60Financialitems 599 -1 -4 26 100profit/(loss)beforetax 804 241 299 205 160netprofitfortheyear 792 235 299 187 160 balance sHeeT
non-currentassets 2,704 1,968 1,528 1,056 700totalassets 2,967 2,089 1,810 1,240 821equity 1,081 1,281 905 715 414totalliabilities 1,885 808 905 524 408Investedcapital 2,606 1,299 1,176 618 535netinterestbearingdebt 1,536 662 632 272 285cashandbonds 118 33 157 124 80 casH floW
Fromoperatingactivities 205 233 261 228 75Frominvestingactivities -364 -118 -473 -187 -153thereofinvestmentintangiblefixedassets -291 -262 -636 -187 -170Fromfinancingactivities 243 -239 303 -3 72totalnetcashflow 85 -124 91 38 -7 key financial figures **)
grossmargins: tce 78.8% 75.3% 79.2% 79.2% 64.5%grossprofit 43.7% 44.9% 53.8% 54.3% 31.9%ebItdA 37,1% 49.8% 59.9% 48.6% 28.2%operatingprofit 25.0% 40.1% 51.7% 40.5% 19.5%returnonequity(roe) 67.1% 21.5% 36.9% 33.1% 49.6%returnonInvestedcapital(roIc)***) 10,5% 19.6% 33.8% 31.0% 12.8%equityratio 36.4% 61.3% 50.0% 57.7% 50.3%exchangerateUSd/dKK,endofperiod 5.08 5.66 6.32 5.47 5.96exchangerateUSd/dKK,average 5.44 5.95 6.00 5.99 6.59 sHare relaTeD key figures **)
earningspershare,epS(USd) 11.4 3.4 4.3 2.7 2.3dilutedearningspershare,epS(USd) 11.4 3.4 4.3 2.7 2.3cashflowpershare,cFpS(USd) 3.0 3.3 3.7 3.3 1.1proposeddividendpershare(USd)****) 0.89 1.02 1.82 1.37 0.50proposeddividendpershare(dKK) 4.50 5.75 11.50 7.50 3.00extraordinarydividendpershare(dKK) 27.5 0.0 0.0 0.0 0.0SharepriceindKK,endofperiod(pershareofdKK5each) 178.2 186.0 152.6 112.9 45,1numberofshares,endofperiod(million) 72.8 72.8 72.8 72.8 72.8numberofshares(excl.treasuryshares),average(million) 69.2 69.4 69.7 69.6 69.3
*) thegroupFinancialHighlightfiguresfor2004-2007havebeenpreparedinaccordancewithIFrSasadoptedbyeU.thecomparativefiguresfor2003haveaccordingtoIFrS1notbeenrestatedinaccordancewithIFrS,butarepreparedinaccordancewiththepreviousgAApbasedontheprovisionsofthedanishFinancialStatementsActapplicableforlistedcompaniesinAccountingclassdandthethedanishaccountingstandards.
**) KeyfiguresarecalculatedinaccordancewithrecommendationsfromthedanishSocietyofFinancialAnalysts. thecompararativefiguresarerestatettoreflectthechangeinthedenominationofthecompany’ssharesfromdKK10persharetodKK5inmay2007. ***) returnonInvestedcapital.definedas:operatingprofitdividedbyaverageInvestedcapital,definedasaverageofbeginningandendingbalancesof (Shareholders’equityplusnetinterestbearingdebtlessnon-operatingassets). ****) proposeddividendpersharehasbeentranslatedtoUSdusingtheUSd/dKKexchangerateatyearendfortheyearinquestion.
11
• theprofitbeforerestructuringcostsandtaxwasUSd819million,whichisinlinewiththelatestforecastofUSd810-820millionexcludingrestructuringcostsofUSd15millioninconnectionwiththeacquisitionofomI.novesselshavebeensoldin2007.theboardofdirectorsconsiderstheprofittobehighlysatisfactory.
• ebItdAwasUSd304million(dKK1,654million).
• cashflowfromoperatingactivitieswasUSd205mil-lion(dKK1,115million).cashflowbeforefinancingactivitieswasUSd-159million(dKK-865million),whilecashflowfrominvestingactivitieswasUSd-364million(dKK-1,980million).
• At31december2007,equityamountedtoUSd1,081million(dKK5,491million),correspondingtoUSd15.6pershare(dKK79.3)excludingtreasuryshares.
• themarketvalueofthecompany’sfleetasof31december2007exceededthebookvaluebyUSd1,578million(2006:USd1,061million),equallingUSd22.8pershare(dKK115.8)excludingtreasuryshares.tothisshouldbeadded44charteredvessels.thecompanyhaspurchaseoptionson19ofthese.
• returnonInvestedcapital(roIc)was10.5%(2006:19.6%),andreturnonequity(roe)was67.1%(2006:21.5%).
• Inmarch2007,tormsolditsstakeinnordenatapriceofdKK3,987million(USd713million),andinSeptemberhalfoftheproceedsweredistributedasanextraordinarydividend,correspondingtodKK27.5pershare(USd5.1pershare).
• InJune2007,tormtookovertheUSshippingcom-panyomIincollaborationwiththecanadianshippingcompanyteekay.InconnectionwiththeacquisitionofomI,tormtookover26producttankersincl.onenewbuildingfordeliveryin2009.Fourofthesewerecharteredvessels.
• Attheendof2007,thecompanyowned62vessels,56ofwhichwereproducttankersandsixbulkcarriers.InadditiontothevesselstakenoverfromomI,thecompanytookdeliveryoffivevesselsduringtheyearandcontractedsevennewbuildingsnotyetdelivered.
• bytheendof2007,tormhad21vesselsonorderandhadexercisedonepurchaseoption.consequently,thecompany’sfleetofownedandcharteredvesselswillby2011consistof143vesselsincl.poolvesselsbasedonexistingcontracts.
• theforecastprofitbeforetaxfor2008excl.saleofvesselsisUSd210-230million.theprofitbeforetaxin2007wasUSd161million,excludingaprofitofUSd643millionfromthesaleofthenordenshares.
• theboardofdirectorsrecommends,subjecttoapprovalbytheAnnualgeneralmeeting,thata
dividendofdKK4.50(USd0.89)persharebepaid,correspondingtoatotaldividendpaymentofdKK327.6million(USd64.5million)andequivalenttoareturnof2.5%inrelationtotheclosingpriceofthecompany’ssharesonthelastbusinessdayof2007.IncludingtheextraordinarydividendofdKK27.5(USd5.1)persharepaidoutinSeptember2007,theaccumulateddividendfor2007was55%ofthenetprofitequivalenttodKK2,330million(USd434million).
comparativesfor2003havenotbeenrestatedinaccordancewithIFrS.
2007 HigHligHTs
SELECTED KEY FIGURES 2003-2007
At the end of 2007, TORM’s Board of Directors and Management developed a new strategy, “Greater Earning Power 2.0”, which was approved in January 2008. The strategy focuses on continued growth over the next three years, which means that the number of vessels in the fleet has to grow to 225-250 incl. pool vessels. The organ-ization’s resources should reflect these ambitions, and therefore the next three years will focus on the develop-ment of competences and growth as well as to operate the Company in a socially responsible manner.
12
ouTlook for 2008
theforecastprofitbeforetaxfor2008isUSd210-230mil-lion.
torm’sfinancialresultsprimarilydependonthenumberofearningdaysanddevelopmentsinfreightrates.Asof1march,47%oftheremainingearningdaysinthetankerdivisionfor2008hadbeencoveredatanaveragerateofUSd/day21,470vs.37%atanaverageofUSd/day25,640atthesametimein2007.Asof1march,74%oftheremain-ingearningdaysinthebulkdivisionfor2008hadbeencoveredatanaveragerateofUSd/day45,706vs.89%atanaveragerateofUSd/day24,575atthesametimein2007.
thisforecastissubjecttoadegreeofuncertaintyinasmuchasanumberoffactorscouldsignificantlyimpactfreightratesandconsequentlytheearningsofboththeproducttankersandthebulkcarriers.
For2008,thefollowingexternalfactorsareexpectedtohavethegreatestinfluenceonearnings:
• globaleconomictrends.• consumptionofrefinedoilproducts.• transportofrawmaterials,mainlyironore,coaland
grain,toAsiainparticular.• theeconomicdevelopmentintheUSA.• Additionsandscrappingofvessels.• one-offeventssuchasstrikes,politicalinstabilityinthe
oil-exportingcountries,weatherconditions,shut-downofrefineries,etc.
• potentialnationalorinternationalinterventionsagainstshippingcompanies’energyconsumptionorco2emission.
thechartbelowshowstheeffectthatvariationsintheexpectedfreightrateswillhaveonthefullyearpre-taxprofitfor2008.AtachangeinfreightratesofUSd/day1,000,theimpactequatestoUSd14.2million.theestimateisbasedonthenumberofearningdaysin2008duringwhichthecompany’svesselshavenotalreadybeencharteredoutatfixedrates.
tormhasinJanuary2008enteredintoanagreementofbuying50%oftheshippingcompanyFr8forUSd125mil-lion.Fr8controls25vesselsincludingthreeLr2newbuild-ingsfordeliveryin2008.theseller,projector,aninterna-tionaloiltrader,willcontinueasco-ownerofFr8andwillinthefutureprovideoilcargoestotorm.Inaddition,theacquisitionwillenhancetorm’sinsightintothedemandparametersinfluencingtheproducttankermarket.
In 2008, TORM expects a profit before tax of USD 210-230 million against a profit before tax of USD 161 million in 2007, excluding the profit from the sale of the Norden shares, which amounted to USD 643 million before tax.
safe Harbour sTaTemenT – forWarD looking sTaTemenTs
mattersdiscussedinthisreleasemayconstituteforward-lookingstate-ments.Forward-lookingstatementsreflectourcurrentviewswithrespecttofutureeventsandfinancialperformanceandmayincludestatementsconcerningplans,objectives,goals,strategies,futureeventsorperformance,andunderlyingassumptionsandotherstatements,whichareotherthanstatementsofhistoricalfacts.
theforward-lookingstatementsinthisreleasearebaseduponvariousassumptions,manyofwhicharebased,inturn,uponfurtherassumptions,includingwithoutlimitation,management’sexaminationofhistoricaloperatingtrends,datacontainedinourrecordsandotherdataavailablefromthirdparties.Althoughtormbelievesthattheseassumptionswerereasonablewhenmade,becausetheseassumptionsareinherentlysubjecttosignificantuncertaintiesandcontingencieswhicharedifficultorimpos-sibletopredictandarebeyondourcontrol,tormcannotassureyouthatitwillachieveoraccomplishtheseexpectations,beliefsorprojections.
Importantfactorsthat,inourview,couldcauseactualresultstodiffermateriallyfromthosediscussedintheforward-lookingstatementsincludethestrengthofworldeconomiesandcurrencies,changesincharterhireratesandvesselvalues,changesindemandfor“tonnemiles”ofcrudeoilcarriedbyoiltankers,theeffectofchangesinopec’spetroleumproduc-tionlevelsandworldwideoilconsumptionandstorage,changesindemandthatmayaffectattitudesoftimechartererstoscheduledandunscheduleddry-docking,changesintorm’soperatingexpenses,includingbunkerprices,dry-dockingandinsurancecosts,changesingovernmentalrulesandregulationsincludingrequirementsfordoublehulltankersoractionstakenbyregulatoryauthorities,potentialliabilityfrompendingorfuturelitigation,domesticandinternationalpoliticalconditions,potentialdisruptionofshippingroutesduetoaccidentsandpoliticaleventsoractsbyterrorists.
risksanduncertaintiesarefurtherdescribedinreportsfiledbytormwiththeUSSecuritiesandexchangecommission,includingthetormAnnualreportonForm20-FanditsreportsonForm6-K.Seepage44intheAnnualreport.
CHANGE IN PROFIT BEFORE TAX DUE TO CHANGE IN FREIGHT RATES
mikaelSkov,coo
14
tormexpectsthecompany’sproducttankerratestobeapproximately10%lowerin2008thanin2007.thelowerforecastistheresultofaweakwintermarketattheoutsetof2008andthesubstantialadditionofnewproducttankers.Seasonalfluctuationsmeanthatthefirstandthefourthquartersaretraditionallythestrongestduetothewinterseason.Itisanassumptionthatthemarketisnotaffectedbyone-offeventsduringtheyear.
thefollowingfactorswillaffectthedevelopments:
Tonnage supply• theglobalproducttankerfleetwillbeexpandedasa
resultofalargeorderbookofvesselsfordeliveryin2008.onthisbasis,anetadditionofapproximately18%isexpectedinthebusinessareasinwhichtormoperates(source:IngeSteenslandASShipbrokers).
• thephase-outofvesselsisexpectedtobelimitedin2008.ontheotherhand,asignificantnumberofvesselsareexpectedtobescrappedleadingupto2010,whenallsingle-hulledvesselswillbephasedout.
• thehighratesinthebulksegmenthavemadeitfinan-ciallyviabletoconvertoiltankersintobulkcarriers.Itistorm’sevaluationthatsuchconversionsofexistingfleetsaswellasnewbuildingswilllimittheadditiontothefleetby10-15%in2008,althoughitshouldbenotedthatcalculatingthenumberofconversionsissubjecttoconsiderableuncertainty.
Tonnage DemanD• energyInformationAdministration(eIA)expectsan
increaseinglobaloilconsumptionofapproximately1.6%in2008.
• ton-miles,whichillustratesthetotaldemandforcapacityforseabornetransportsofoilproducts,isexpectedtoincreaseby4.0%in2008.theincreaseintransportofrefinedoilproductsisexpectedtobe5.9%(source:marsoft).calculatingthesefiguresissubjecttoconsiderableuncertainty.
• USgasolineconsumption,whichgrewby0.8%in2007,isexpectedtogrowby0.8%in2008(source:eIA).
• europeanfuelconsumptionischangingassalesofdieselvehiclesincrease,thuscreatinganopportunitytoexportgasolinefromeuropetotheUSAanddieselfromtheUSAtoeurope.
• theextensionofrefinerycapacityinIndiaandthemiddleeastupto2011willsignificantlyexceedtheimmediateconsumptionintheseareas,andasharpincreaseinexportsofrefinedoilproductsisexpectedasaresult.thiswillhaveapositiveimpactonthemarketforproducttankers.
Asinpreviousyears,tormhasdecidednottoannounceitsexpectationsofspecificfreightratesinindividualbusinessunitsandinsteadchoosestostatethemarketexpectationsasof1march2008.
Asof1march2008,tormhadcoveredapproximately47%oftheremainingearningdaysin2008atanaveragerateofUSd21,470,whichensuresreasonableearningsforthetankerdivision.
ouTlook – Tanker Division
HeDging in THe Tanker Division as of 1 marcH 2008 totaldays dayscovered 2008 2009 2010 2008 2009 2010
lr2 4,205 4,897 4,928 533 406 159 lr1 6,426 7,886 8,500 3,706 2,258 1,153mr 9,790 14,093 16,734 4,362 2,402 773 sr 3,672 4,684 4,015 2,622 2,195 662 Total 24,093 31,560 34,177 11,223 7,261 2,747 coveredin% coveredinUSd/day 2008 2009 2010 2008 2009 2010
lr2 13 8 3 27,182 28,310 29,320 lr1 58 29 14 23,825 21,922 19,840mr 45 17 5 21,566 22,033 22,128 sr 71 47 16 16,819 16,573 16,775 Total 47 23 8 21,470 20,699 20,294
expecTeD Tce raTes in THe proDucT Tanker markeT for 2008 2007 2008 USd/day realized Q1 Q2 Q3 Q4 lr2 24.988 20,361 18,857 19,059 23,600lr1 27.621 21,670 20,300 21,410 23,853mr 23.949 17,490 17,796 16,676 18,063sr 16.726 - - - -thereisnoefficientforwardSWApmarketforSrvessels. Source:ImAreX
thebulkmarketrosesharplyin2007andexperiencedveryhigh,butalsohighlyvolatilefreightrates.tormexpectsthebulkmarkettobecharacterizedbyhigh,butvolatilefreightratesin2008aswell.
Asaresultofthisexpectedgreatvolatility,tormcontinuesitspracticeofhedgingasignificantpartofitsexposurebycharteringoutvesselsonlong-termcontractsoftypicallyonetotwoyears’duration.
thedevelopmentinthebulkmarketwillremainhighlydependentonglobaleconomictrends.However,freightrateswilldependparticularlyonchineseeconomicgrowth,andthustheconsumptionofsteelandcoalinchina.Freightrateswillalsodependonwaitingdays–inparticularinAustralianports.In2007,upto10%(source:Howerobinsonandco.Ltd.)oftheglobalbulkfleethadtowaittoloadcargoes–especiallycoal–inAustralianports.
Asinpreviousyears,tormhasdecidednottoannounceitsexpectationsofspecificfreightratesandinsteadchoosestostatethemarketexpectationsasof1march2008.
Asof1march2008,tormhadcoveredapproximately74%oftheremainingearningdaysforitspanamaxvesselsatanaveragerateofUSd/day45,706,whichensuressatisfac-toryearningsfor2008.
ouTlook– bulk Division
15
HeDging in THe bulk Division as of 1 marcH 2008 totaldays dayscovered 2008 2009 2010 2008 2009 2010
panamax 5,230 6,075 6,580 3,868 596 -
coveredin% coveredinUSd/day 2008 2009 2010 2008 2009 2010
panamax 74 10 - 45,706 37.300 -
expecTeD Tce raTes in THe bulk markeT anD THe number of earning Days in 2008 2007 2008 realized Q1 Q2 Q3 Q4 panamaxtcerates(USd/day) 25,762 58,681 71,486 68,028 66,778
Source:ImAreX
16
Tanker Division
theacquisitionofomI,whichwascompletedjointlybyteekayandtorminJune,wasanimportantelementintherealizationoftorm’s“greaterearningpower”strate-gydatingfrom2005.Withtheacquisition,thecompanytookoveraverymodernandhomogenousfleetof22ownedvessels,includingonenewbuildingfordeliveryin2009,andfourcharteredvessels.thetakeoverofomI’svesselsalmostdoubledthenumberofownedvesselsandaddedmorethan100land-basedstaffand1,500seafarers.
theintegrationofomIisthusamajorprocess–notleastforthetankerdivisionthatamongstotherprojectsvisitedanumberofcustomerswhohadcontractswithomIandagreedhowtocontinuethesecontracts.thecompany’sphysicalpresenceinmumbai,IndiaandStamford,USAisofgreatimportance.Forinstance,tormwillin2008introduce24-hourshiftsmeaningthattheUSofficewilltakeoverresponsibilitywhenthecopenhagenofficeclos-es,theninturnSingaporeandmumbaibeforereturningtocopenhagen.
themarketfortorm’sproducttankerswascharacter-izedbytwoverydifferentperiodsin2007.Inthefirsthalfof2007,themarketintheWesternHemisphereperformedbetterthanexpected,whilerateswerelowerthanexpecteduptotheendofthefourthquarter.IntheeasternHemisphere,rateswerelowinthefirsthalf,butstabilizedinthesecondhalfandstartedrisingtowardtheendoftheyear.
2007wasalsomarkedbyhighlyunstableandrisingoilpriceswhich,combinedwitharisingUSgasolineconsumptioninthefirsthalf,promptedthecompany’scustomerstofavourthesmaller,moreflexiblemrtankers.thisunexpectedgreaterdemandmeantthattorm’smrtankersperformedfarbetterthanexpectedin2007.
Fortorm’slargestvessels,theLr2tankershowever,earningswerelowerthanexpectedin2007.thiswasduetothefactthatthevesselsprimarilytransportednaphthafromthemiddleeasttotheFareast,wheredemandwaslowerthanexpected.duetothesizeofthevessels,theyarenotveryflexible,andthereforetheirearningsoptionsarelimitedincertainsituations.
earningsfortorm’smediumsizedvessels,theLr1tankers,wereasexpected,whichmeantthattotalearn-ingsforthethreevesseltypeswereasexpected.
therisingcrudeoilpricescausedanincreaseinfuelcostswhichputpressureonearningsfor2007.bunkercostsaveragedUSd371pertonbunkerin2007againstUSd321pertonin2006,anincreaseof16%,whichcorrespondstoanaverageadditionalexpenseofapproxi-matelyUSd2,000perdayofoperation.
therelativelyweakUSdalsomeantrisingportandcanalexpensesoutsidetheUSA.
towardtheendof2007,approximately70employeesofthetankerdivisionwerebroughttogethertoworkontheculturalintegrationaswellastopreparethenewstrategy“greaterearningpower2.0”.
InadditiontotheacquisitionofomI,tormin2007con-tractedthreemrproducttankers(50,500dwt)fordeliveryin2010andcharteredinoneandahalfproducttanker.
In2008,thecompanycharteredanaverageof14.7producttankersatanaverageofUSd/day21,076.Inall,thecompanyhaspurchaseoptionsonthreeproducttankers,whichcanbeexercisedfrom2009.
Attheendof2007,tormowned56producttankersandhad17newbuildingsonorderfordeliveryupuntil2010.
In 2007, the Tanker Division was affected by highly fluctuating freight rates and, not least, by the acquisition of OMI.
Andersengholm,executiveVicepresident,tankerdivision
18
Tanker Division
vessels cHarTereD in 2008 2009 2010 2011 2012DaysLr2 373 360 360 360 -Lr1 3,930 3,735 2,475 1,830 1,125mr 270 1,740 2,160 2,160 2,160Sr 720 690 30 - -
rate usD/day Lr2 24,551 24,500 24,500 24,500 -Lr1 20,775 20,177 20.395 20,880 20,510mr 16,864 15,859 15,908 15,908 15,908Sr 22,500 22,500 22,500 - -
options Lr2 - - - - -Lr1 - 0.5 - 0.5 -mr - - - - 1Sr - - - - -
average option price (usD million) Lr2 - - - - -Lr1 - 15.5 - 14.2 -mr - - - - 38.4Sr - - - - -
Forfurtherinformation,seenotes29and30onpage100and101.
FREIGHT RATES IN THE PRODUCT TANKER MARKET IN 2007
PRICES ON SECOND-HAND PRODUCT TANKERS
FREIGHT RATES IN THE PRODUCT TANKER MARKET IN 2007
PRICES ON SECOND-HAND PRODUCT TANKERS
19
USdmillion
Tanker Division 2006 2007 total Q1 Q2 Q3 Q4 total
income sTaTemenT netrevenue 494.0 133.2 146.8 165.5 194,7 640,2portexpenses,bunkersandcommissions -143.8 -35.8 -37.4 -43.9 -47,4 -164,5Freightandbunkersderivatives 0.6 1.0 -0.8 0.3 2,4 2,9Time charter equivalent earnings 350.8 98.4 108.6 121.9 149,7 478,6charterhire -58.5 -19.0 -20.0 -25.6 -27,8 -92,4operatingexpenses -64.6 -20.3 -21.2 -27.3 -37,1 -105,9gross profit/(loss) (net earnings from shipping activities) 227.7 59.1 67.4 69.0 84,8 280,3profit/(loss)fromsaleofvessels 3.1 0.0 0.0 0.0 0,0 0,0Administrativeexpenses -29.1 -9.6 -10.9 -12.4 -15,0 -47,9otheroperatingincome 9.7 2.5 3.1 2.9 6,0 14,5depreciationandimpairmentlosses -50.8 -13.3 -13.9 -22.2 -34,0 -83,4operating profit 160.6 38.7 45.7 37.3 41,8 163,5
pool parTners as of 31 December 2007 pool manager lr2 lr1 mrLr2: A.p.møller-mærsk/torm A.p.møller-mærsk bWShippingmanagerspte.Ltd. primorskShippingcorporationLr1:torm primorskShippingcorporation difkoA/S rederiAbgotlandmr: torm rederiAbgotland mitsuio.S.K.LinesLtd. SanmarShippingLtd. torm nordictankersA/S torm rederiAbgotland reederei“nord”Klause.oldendorff SkagerackInvestLimited torm WaterfrontShippingAS
tothesurpriseoftormandthemarketingeneral,freightratestookasharpupwardturninthefirsttenmonthsoftheyearasaresultofgreatlyincreasingdemandformain-lyironore,coalandgrain.thiscausedlongwaitsinports,principallyinAustralia.Fortransportationofironore,thewaitingdaysinAustralianportshaveledtoincreasedtransportdistancesastheironoreistransportedfrombraziltochinaandtoalesserdegreefromAustraliatochinawhenthewaitistoolong.
Inthelasttwomonthsoftheyear,ratessuddenlydroppedafterhavingreachedUSd/day95,000attheendofoctober.Attheendoftheyear,panamaxratesstoodatUSd/day67,000,whichwasstillveryhigh.
Intorm’sassessment,thatthefreightratevolatilityforbulkcarrierswillnarrow–withalowertopandahigherbottom–asthebulkmarketinthefutureadjuststothestrongdemandforrawmaterials.
Inthebulkdivision,itistorm’sstrategytocoverearningsbycharteringoutvesselsoncontractsofonetotwoyears’duration.themajorityofthelong-termcontractswereenteredintointhefourthquarterof2006andthefirstquar-terof2007,andearningsin2007thereforedidnotseethefulleffectoftherisingratesduringtheyear.Ithas,however,meantthatearningsfor2008areofftoagoodstart.
thepricesofsecond-handbulkcarriersroseconsiderablyoverthefirsttenmonthsoftheyearasaresultoftherising
freightratesduringtheperiod.towardtheendoftheyear,second-handpricesfell,however,inlinewiththedropinfreightrates.Atyearend,ahistoricallylargedifferencewasseenbetweenthepriceofsecond-handtonnageandthepriceofnewbuildings,asthelatterdidnottothesameextentkeepupwithfreightrates.tormexpectsthegapbetweenthepricesofsecond-handtonnageandnew-buildingstonarrow.
In2007,thecompanyexerciseditspurchaseoptionsfortormAnholtandtormbornholmatanaveragepurchasepriceofUSd22.7million,whichwasconsiderablylowerthanthemarketpriceofsimilarvessels,standingatsomeUSd95millionattheendof2007.
bytheendof2007,tormhadcontractedfourKamsarmax(82,000dwt)bulkcarriersfordeliveryin2010and1011respectively,atatotalpriceofUSd207.5million.In2007,tormcharteredsevenbulkcarriersonlong-termcon-tractswithsixpurchaseoptions.thevesselswillbedeliveredin2008-2010.bytheendof2007,tormownedsixpanamaxdrybulkvessels.
vessels chartered in 2008 2009 2010 2011 2012days 3,270 2,775 3,150 3,240 3,960ratesUSd/day 17,376 15,857 15,494 15,48715,810options 4 1 - 1 1AverageoptionpriceUSdmillion 36.3 23.0 - 28.7 26.5
Forfurtherinformation,seenotes29and30onpage100and101.
bulk Division
bulk Division 2006 2007 USdmillion total Q1 Q2 Q3 Q4 total
income sTaTemenT netrevenue 109.7 28.8 32.6 35.6 37.3 134.3portexpenses,bunkersandcommissions -5.1 -1.1 -1.4 -1.6 -2.2 -6.3Freightandbunkersderivatives 0.0 0.0 0.0 0.0 0.0 0.0Time charter equivalent earnings 104.6 27.7 31.2 34.0 35.1 128.0 charterhire -47.8 -15.4 -14.8 -15.7 -13.1 -59.0operatingexpenses -13.1 -2.3 -2.6 -2.6 -2.9 -10.4gross profit/(loss) (net earnings from shipping activities) 43.7 10.0 13.8 15.7 19.1 58.6 profit/(loss)fromsaleofvessels 51.3 0.0 0.0 0.0 0.0 0.0Administrativeexpenses -5.5 -1.6 -2.0 -1.9 -1.7 -7.2otheroperatingincome 0.1 0.0 0.0 0.0 0.0 0.0depreciationandimpairmentlosses -8.1 -1.5 -1.5 -1.6 -1.9 -6.5operating profit 81.5 6.9 10.3 12.2 15.5 44.9
Freight rates for bulk carriers were at a historical high and continued their almost unbroken rise throughout 2007. The bulk market is driven by major growth in the transportation of iron ore, coal and grain which increased pressure on infrastructure and required additional vessel capacity.
20
FREIGHT RATES FOR PANAMAX DRY BULK CARRIERS IN 2007
PRICES ON PANAMAX DRY BULK CARRIERS IN 2007
FREIGHT RATES FOR PANAMAX DRY BULK CARRIERS IN 2007
PRICES ON PANAMAX DRY BULK CARRIERS IN 2007
Sørenchristensen,SeniorVicepresident,chartering,bulkdivision Kimrasmussen,SeniorVicepresident,operations,bulkdivision
22
tormwasfoundedin1889andoperatesglobally.tormislistedonomXthenordicexchangeandonnASdAQ.theheadofficeinHelleruptodayhousessome143employees.theseniormanagementconsistsofKlausKjærulff,ceoandmikaelSkov,coo.
thebuildingattuborgHavn,Hellerupcomprisestorm’scommercialtankerandbulkdivisionsaswellasstafffunctions.tormoperatesatotalfleetof128modernvessels,someofwhichareoperatedinpoolarrangementswithothershippingcompaniessharingthecompany’shighsafety,environmentalandcustomerservicestandards.
Inrecentyears,tormhasseenstrongperformancegrowthintermsofspecificresults,theexpansionofthefleetaswellastheincreaseinstaff.
thekeyobjectiveoftorm’sformerstrategy,“greaterearningpower”,wastogenerategrowthinthecompanyforthebenefitofallstakeholders.Inordertoachievethisobjective,thestrategywasbasedontwooverallthemes:Acquisitionandorganicgrowth.theformerstrategyisnowreplacedbyanupdatedstrategycalled“greaterearningpower2.0”.
Agoodexampleofthiswasdemonstratedasthecompany,inahighlysuccessfulcollaborationwiththecanadianshippingcompanyteekay,acquiredtheUSshippingcompanyomIinJune2007.WiththeacquisitionofomI,tormtrulyfulfilledthecompany’sambitionofacquisitivegrowth.duringtheintegrationprocess,manyspecificexperienceshaveconfirmedourbeliefthatthetwocompaniesmakeaperfectmatch.
moreover,theacquisitionofomImeansthattormhasnowbecomeaglobalcompanyinearnest–thenewtorm.Withofficesindenmark,India,theUSA,Singapore,thephilippinesandnorwaytormistodayabletoprovidethecustomerswith24-hourservice,sevendaysaweek.Itisnotonlyonpaperthattormhasgrown,however.theneedtodeveloptheemployees’competences,theorganizationalstructure,theproce-duresandprocesseshavegrownaswell.thecustomersshouldstillfindauniformserviceandthesamehightormstandards,nomatterwhereintheworldtheymeetus.
THe neW Torm
Alexpatanareyes,bosun,tormHelvig
“Igna faccumsan eum incipiscing erit irilla faccums and.”Shridhar Bharatan, President/CEO TORM India
24
Torm inDia
InFebruary2008,theformerorinocomarineconsultancyIndiaprivateLimited(omcI)changeditsnametotormShippingIndiaprivateLimited.
WiththeacquisitionofomI,tormbecametheownerofthisshipmanagementofficeinmumbai,India.throughthegreatcommitmentandprofessionalismofthealmost100employees–manyofthemformerseafarers,includingcaptainsandengineers–thetaskofintegrat-ing26additionalvesselsintotorm’sexistingfleetbecamepossible.
thecompanyomcIwasestablishedin1996asamanningoffice,andshortlyafteromcIhandledthefullmanningandoperationofvessels.Atthetimeoftheacquisition,thecompanywascertifiedaccordingtotheISo9000–2000(quality),ISo14001(environment),oSHAS18001(occupationalhealthandsafety)andSA8000(humanandemployeerights)standards.theSA8000certificationwasoneofthefirstofitskindinthemaritimesector.
themainactivitiesofthemumbaiofficeare:marineHr,whichisthemanningfunction,handlingcontactwiththesea-basedcrewsandcoordinatingitineraries,wagesand–notleast–contactwithfamilies.thetechnicalandSafetydepartmentsaretwoothermainactivityareasoftheIndianorganization.theseareasensuretheefficientoperationofthefleetwiththegreatestpossibleconsiderationforsafetyandenvironment.thetechnicalandSafetydepartmentsmaintainaclosecollaborationwithandissupportedbythefollowingdepartments:procurement,newbuilding,training,financeandIt.
thenewcolleaguesinmumbaibasetheirworkonasolidfoundationofvalues,strongteamworkand,notleast,greatprofessionalcompetences.
thebigchallengesnowaretomarketthetormnameamongseafarersinIndia,tointegratetheshipmanage-mentsystemsandtogettorm’sandomcI’svaluesandculturestomeetandinteractinfuture.
Withintheorganization,tormIndiareportstoclausUsenJensen,executiveVicepresident,technicaldivision.
Shridharbharatan,director,tormShippingIndia
26
Torm pHilippines
tormShippingphils.,Inc.wasestablishedin2004.thecompany’smainobjectiveistorecruitphilippineseafarersfortorm.
Sinceitsestablishment,torminthephilippineshasgrownintooneofthemainemployersofphilippinesea-farers.In2007,thecompanyofficiallyopeneditsownbuildinginmakaticity,thephilippines.thebuildingisknownunderthenameof“tormHouse”andhousestheentirestaffofhighlycompetentemployeeshandlingtheday-to-dayoperationsandtheemployingofseafarersfortorm’sfleet.
AttheestablishmentoftormShippingphils.,Inc.in2004,thecompanyhadfiveemployeesand18registeredvessels.today,thecompanyrecruitsofficersandcrewsfor38tormvessels.theofficehas20employeeshandlingalmost1,100seafarers,725ofwhomareatseaatanygiventime.theirworkalsoincludesmaintainingrela-tionswiththeseafarerswhileashore.moreover,thecompanytakescareoftheseafarers’families,amongotherthingsbymeansofhealthcareschemes.
thecompanyconsistsofthreedepartments:themanningdepartment,thetrainingdepartmentandtheFinancedepartment.Inaddition,aninsuranceemployeeensurescompliancewithtorm’squalitysystem.
Asaconsequenceoftorm’sfocusonsocialresponsi-bility,tormShippingphils.,Inc.intheautumnof2007establishedthetormphilippineseducationFoundation.theFoundationwillbeofficiallylaunchedinmarch2008,anditsinitialobjectivewillbetosupport25studentsfromdisadvantagedbackgroundseachyear–primarilyyoungsterswhoneedhelptoobtainaneducation.Inthisway,tormwishestodemonstrateitslong-termcom-mitmentinthephilippines.
Withintheorganization,tormphilippinesreportstoclausUsenJensen,executiveVicepresident,technicaldivision.
Alfonsodelcastillo,president,tormphilippines
28
Torm singapore
theofficeinSingaporewasestablishedin2003asalocalofficeforthemrpool–especiallygivenadiscern-ibletrendtowardsmoreandmorecargoesbeingfixedinSingaporebyseveraloftorm’skeycustomers.thefollowingyear,theofficeanditsareaofactivitywereexpandedtoincludeownershipofvessels,technicalmanagementandsafety,aservicecentreandanopera-tionsdepartment.
today,tormSingaporeownsafleetof14vessels,withafurtherfivenewbuildingsonorderfordeliveryin2009-2010.
In2006,itwasdecidedtoexpandthecompany’scom-mercialactivities,andtormSingaporebecamerespon-sibleforthecommercialbrandingoftheLr1poolintheregion.thecompanycontractssome90transportsayearfortheLr1poolandthemrpool.twoemployeeshandlecharteringandthreehandleoperationsforthetwopools.therearealsotwoA.p.møller–mærskemployeesattheoffice,responsibleforcharteringandoperationsfortheLr2pool.
tormtechnicalServicecentreconsistsoffivepeoplehandlingassignmentsonbehalfoftorm’stechnicaldivisionandSafetyincopenhagenandmumbai.theyalsohandlethemanningofthevesselssailingundertheSingaporeflag.
esbenpoulsson,president&ceo,tormSingapore
30
Torm usa
partoftorm’slong-termstrategyistobeclosertotheAmericanmarketandcommerciallydevelopthebusi-nessinnorthaswellasSouthAmerica.Untiltheacqui-sitionofomI,thecompanyplannedtosetupanofficeintheUSA,butthisplanbecameobsoletewhentormacquiredomI.IncludedintheacquisitionwasafullyoperativeheadofficeintheUSAwithanumberofquali-fiedmaritimespecialists,someofwhomhavesubse-quentlybeenemployedwithtormUSALLc.
thecompany’snewUSofficeisinomI’sformerhead-quartersinStamford,connecticut,northofnewYork.theStamfordofficetodayhas22employees.
FollowingtheacquisitionofomIandtheestablishmentoftheofficeintheUSA,tormisnowequippedtomeetthegrowingcommercialandtechnicaldemandsfromcustomersandauthoritiesinthelocaltimezone.Inadditiontothecommercialbusinessdevelopment,whichistoattractcargoesandvesselsfromnorthandSouthAmericatotorm,theofficeundertakestheoperationalandcommercialroleinconnectionwiththeoperationofthefleet.InternalaccountingandItfunctionsarealsohandledbytheUScompany,whichinadditioncoordi-natestorm’sgrowingandconsiderableenvironmentalprogrammeincollaborationwiththeofficeindenmark.
tomaintaintorm’sculturesandvaluesandensurethesuccessfulintegrationofemployeesintheUSA,twoexperiencedemployeesfromtheofficeindenmarkhavebeensecondedtotheoffice.oneofthesehasbeenappointedthenewmanageroftheoffice,inchargeofthecommercialbusinessdevelopmentinnorthandSouthAmerica,andtheotherisincludedintheteamhandlingthecommercialoperationofthefleet.
Withintheorganization,tormUSAreportstoAndersengholm,executiveVicepresident,tankerdivision.
JesperboHansen,president,tormUSA
32
Torm 2008-2010 – “greaTer earning poWer 2.0”
themostimportantelementsofthestrategyare:
• ensureasolidreturnoninvestedcapital.• takeadvantageofthestrongbalancesheetfor continuedinvestment.• Achievestronggrowthinproducttankersaswellas inbulkbyincreasingthenumberofvesselsto225-250
incl.poolvesselsoverthecomingthreeyears.bytheendof2007,torm’sfleetconsistedof128vesselsincl.42poolvessels.
• growthshouldprincipallybefocusedontheproducttankerarea,althoughinvestmentwillalsobemadeinbulkcarriers.
• Inordertoreducetied-upcapitalandincreaseflexibility,thecompanyseeksafleetcompositionofapproximately70%ownedvesselsand30%charteredvessels.
• takeadvantageoftheglobalpresence.• expandanddeveloppoolarrangements.• continuedevelopinginternalanalysisandbusiness
development.• Strengthenstaffrecruitment,developmentandreten-
tion.
thebasisofthenewstrategyisthattheprevious“greaterearningpower”strategyfrom2005hasbeenachievedthroughtheacquisitionofomIandanactivenewbuildingprogramme.
In2007,thecompanythereforedecidedtostartaprocessaimedatsettingoutanewstrategyforthecomingthreeyears.Inthisconnection,theexternalmarketwasanalyzedintheformofcompetitors,shipyards,marketdrivers,thesupplyanddemandsituation,etc.toobtainanoverallsolidandwell-foundedpictureofthestrategiccontextinwhichtormwillfinditselfinthecomingyears,internalstrengthsandweaknesseswereidentified.
morethan200employeesworldwidewereinvolved,inparttoexploitthegreatamountofknowledgefoundintheorganizationaboutourmarkets,inparttoensurethatthenewstrategyisexecutedthroughactiveownershipbykeyemployees.
therearemanyattractivebusinessopportunitiesinthesegmentsinwhichthecompanyisactivetoday.moreover,withregularstrategicadjustments,thecurrentbusinessmodelhasproveneffectiveathighaswellaslowratelevels.tormwillcontinuallydevelopthestrategy,includingcon-sideringnewbusinessareas,butthecompanydoesnotexpecttomakeanydramaticchangestothestrategyinthecomingyears.
Allinvestmentopportunitiesaredividedintofourareasofwhichproducttankersandpanamaxdrybulkcarriersarefocusareasthataremonitoredclosely.chemicaltankers,gastankersandotherdrybulkvesselsaremonitoredforcapitalinvestments.technicalmanagementandcrewingaremonitoredformarketdevelopments.directinvest-mentsinshipyardsarenotconsideredtoberelevant.
thevisionin“greaterearningpower”wastoensuretormaleadingandprofitablepositionwithaprimaryfocusonproducttankersand,onasmallerscale,drybulk.thenewstrategyiscalled“greaterearningpower2.0”becauseitinmanywaysrepresentsacontinuationanddevelopmentoftheformerstrategy.“greaterearningpower2.0”maintainsthevisionandfurtherdevelopsthisvisioninthenewtormwithspecialfocusoncompetencedevelopmentandresponsibilityacrosstheentireglobalorganization.
At the beginning of 2008, TORM’s Board of Directors approved a new and very ambitious three-year strategy “Greater Earning Power 2.0”. The strategy is a continuation of the previous strat-egy, “Greater Earning Power”, which had already been achieved by the end of 2007 – one year ahead of schedule. The strategy is primarily a functional strategy.
ANTAL SKIBE I DE TRE PRODUKTTANKSKIBSPOOLS
ANTAL SKIBE I DE TRE PRODUKTTANKSKIBSPOOLS
33
“greaterearningpower2.0”isafunctionalstrategythatwillgiveacompetitiveadvantagebycombininganincreasedvolumewithanoptimizationoftheseparatepartsofthecompany.tormstillhasbiggrowthambitionsforthetypeofproducttankerswhichcurrentlyplayaroleforetorm.Inaddition,tormexpectstostepupgrowthinthebulkbusiness,whilemaintainingthecurrentpositionasaqualityproviderofpanamaxvessels.
ourbusinessmodelisbasedonacombinationofexperi-enceanddataandourconstantfocusonperformancethroughtheglobalorganization.thebusinessmodelisbasedonourvalues,leadershipandculture.“greaterearningpower2.0”willrefinethisbusinessmodelevenfurthernotonlybydevelopingitsindividualelementsbutalsobycontinuouslystrengtheningtheprocessescreatingcoherencebetweenthecolumnsinthechart.theseincludemanagementsystems,educationandtrainingaswellascommunication.
Tanker DivisionItistorm’sobjectivetofurtherconsolidatetheproducttankermarket,mainlybyincreasingthenumberofearningdaysforthesmallervesseltypes.thisdevelopmentistocomeaboutthroughgrowthintheindividualpools,butfirstandforemostthroughorganicandacquisitivegrowth.tormbelievesthatbyofferingthecustomersincreasedflexibilitythecompanywillbeabletostrengthenitsmarketpositionandimproveearnings.Improvingtheutilizationofthevesselswillstrengthentheefficiency,leadingtoaddi-tionaleconomiesofscaleintermsofprocurement,man-ningandoperations.
Ifitisdeemedbeneficialtothecompany’sdevelopment,thetankerfleetwillbeexpandedbycontinuingtheexten-sivenewbuildingprogrammeandbyacquiringexistingves-selsandfleets,possiblyincludingacquisitionsormergerswithothercompanies.tormwillalsochartermorevesselsonlong-termcontracts.
bulk DivisionIfitisdeemedcommerciallyviable,thecompanywillincreaseitspresenceinthebulkmarket.growthwillprin-cipallycomeaboutbycharteringvessels,unlesspotentiallyinterestinginvestmentopportunitiesarise.
thecompanywillmaintainitspolicyofhedgingamajorproportionofitsriskrelatedtofreightratefluctuationsbycharteringoutvesselsoncontractsofonetotwoyears’duration.
QualiTytormisknownforitshighqualityofvesselsaswellasoftechnicalandoperationalservices.tormaimstoexceedmarketexpectationsintheseareas.tormwantsthecustomerstoexperienceahighlevelofqualityinallareasofthistrading-andforthistohappenconsistentlyandwithagreatdealofinsightintotheindividualexpectationsofthecustomers.
financial sTraTegythecompany’sstrategyisbasedonaverysolidfinancialfoundation,ensuringthatthereiscapacityavailableforfur-therprofitableexpansion.
thetimingofinvestmentandassumptionofliabilitiesisessentialinshipping.Inlightofthehightonnagepricescombinedwithtorm’scriteriaforreturnsoninvestment,prudenceandcautionistheproperapproach.Itisagainstthisbackgroundthattormwishestoretainasignificantfinancialcapacitytoundertakeinvestmentswhenthetimingisright.
34
supply anD DemanD
– proDucT Tankers
Intorm’sassessment,supplyanddemandinthetankermarketwillbeinbalanceupto2011.thefigurebelowshowstheconclusiontoacomparisonmadeoftheglo-balorderbookswiththefactorsaffectingdemand.theexpecteddemandisbasedonincreasedrefinerycapacityinareasfarawayfromtheconsumptionareas,thephase-outofsingle-hulledproducttankers,continuedincreasedglobaldemandforoil,moreportdaysandarbitrageinproductsfromtheincreasedoildemandandfromnewrefineriesinIndiaandthemiddleeast.theindividualelementsintheexpecteddemandaredetailedbelowcomparedtosupply.
supply
FLeetSIZeAndorderbooKShipyardactivityhasincreasedsharplyinrecentyearsasaresultoftheverypositivedevelopmentintheindustrialshippingmarket.thedemandfornewbuildingshasledtomajorgrowthinthenumberofshipyardsandanexpansionofthecapacityofexistingyardsinthemajorshipbuildingnations,particularlychinaandKorea.nonetheless,itisassessedthattheproducttankerfleet’sexpansionwillbelessthanimmediatelyindicatedbytheincreasedcapacity.
SeveralofthenewAsianshipyardsarepresentlynotabletobuildadvancedtonnagesuchasproducttankers.Inaddition,theperiodoftimefromcontractingtodeliveryofavesselhasbecomeconsiderablylonger.Whereasthecontractingperiodusedtobe18-24months,since2004ithasbeenextendedto36-42months.moreover,thedeliverydatesofvesselsfromnewshipyardsaresubjecttosignificantuncertainty.Increasingorderbookshavealsodrainedthesupplyofmainenginesandcrankshafts,astheproducersoftheseproductshavenot
increasedtheircapacitycorrespondingly.themostimportantconsequenceofthisisthatevenifefficiencyintheyards’productionprocessisimproved,thisisnotlikelytoresultinmorevesselsbeingbuiltthanthosealreadyonorderfortheperiod.
Intheproducttankerareas,inwhichtormoperates,theexistingglobalfleetat31december2007stoodat1,039vesselsconsistingof693mr,227Lr1and119Lr2vessels(source:IngeSteenslandASShipbrokers).
thetotalorderbookofproducttankersfordeliveryintheperiod2008-2011currentlystandsat684vessels,whichconvertedintomrvessels,equals935unitscor-respondingtoa66%increaseoftheexistingfleet.thefleetisconvertedintomrunitsbyadjustingforsizeandsailingpattern.theeffectofthisonindividualsegmentsisthatthemrfleetwillbeincreasedby68%overtheperiod,Lr1by52%andLr2by78%.
2009isexpectedtobetheyearwiththegreatestnew-buildingprogramme.Subjecttosomeextenttodevelop-mentsinfreightrates,theImoregulationsonthephas-ing-outofsingle-hulledtankersin2010will,however,meanagradualreductionoftheolderpartofthefleet,tothebenefitoftheoverallfleetdevelopment.Some17%oftheexistingproducttankerfleetisexpectedtobephasedoutintheperiodupto2011equaling226mrunits.
therateatwhichtheoldertonnageisphasedoutcouldwellincreasefurtherinthecomingyearsascertainmajoroilcompanieschoosenottousetonnagethatismorethan20yearsold.Lessfavorablefreightmarketdevelopmentscouldalsoaffecttherateatwhichthevesselsarephasedout.
PRODUCT TANKERS BY YEAR OF CONCTRUCTION
REFINERY EXPANSIONS VERSUS FLEET ORDER BOOK 2008-2011
ORDER BOOK VERSUS EXPECTED DEMAND 2008-2011
EXPECTED REFINERY EXPANSIONS 2008-2011
PRODUCT TANKERS BY YEAR OF CONCTRUCTION
REFINERY EXPANSIONS VERSUS FLEET ORDER BOOK 2008-2011
ORDER BOOK VERSUS EXPECTED DEMAND 2008-2011
EXPECTED REFINERY EXPANSIONS 2008-2011
35
DemanD
eXpAnSIonoFreFInerYcApAcItYthecapacityoftheworld’srefineriesisexpectedtobeincreasedbysome11millionbarrels/dayintheperiod2008-2011,equalinga12.5%increaserelativetothepresentcapacityofapproximately88millionbarrels/day(source:pvmrefineryoutlook).theincreasedcapacityisprincipallyduetothegrowingdemandforrefinedoilproductsandtherefineries’reducedoperatingcosts.
Asmallerproportionofthenewrefinerieswillbelocatedinthemajorconsumptionareas,theUSAandeurope.themajoritywillbeplacedinIndiaandthemiddleeast,whichisexpectedtoleadtoincreasedoveralltransportneedsupto2011,asalimitedamountofIndia’sandthemiddleeast’sproductionofrefinedoilproductsisfordomesticconsumptionbecausehighermarginsmakeitpossibletocompetewiththeoldrefineriesintheareasofconsumption.
theUSAisthelargestimporterandconsumerofrefinedoilproductsintheworldandisthereforeofgreatimpor-tancetothedevelopmentoftheoveralltransportneed.AsthenewrefineriesarelocatedmainlyinIndiaandthemiddleeast,thedevelopmentinUSconsumptionwillcauseanincreasedtransportneedandthusabsorbthecapacityofadditionalnewbuildings.In2009,themiddleeastisexpectedtoproduceanadditionalonemillionbarrelsofrefinedoilproductsperday.transportingthisincreasedproductiontotheUSAwouldrequiresome150mrvessels.
experienceshowsthatsomeoftherefineryexpansionswillbeabandonedorputoff,andtheactualexpansionofcapacityisthereforeexpectedtobelessthanforecast.Iftheexpectedrefineryexpansionistranslatedintovesselequivalents,itwouldutilizeapproximately48%oftheglobalorderbook.
expansionoftherefinerycapacityisexpectedtoequal449mrunits.
IncreASeInoILdemAndthedevelopmentoftheglobaloilconsumptionisessen-tialtotheproducttankermarket,andin2007theglobaloilconsumptionamountedto85.8millionbarrelsofoil/day.energyInformationAdministration,eIA,expectstheyearlyincreaseintheoildemandtobeapproximately1.7%from2008to2011,equalinganannualincreaseof1.5millionbarrels/day.
thegrowthinoildemandisexpectedtoabsorb112mrunits.
nUmberoFportdAYSthenumberofportdaysfortorm’sfleethasincreasedbyapproximately6%peryearsince2003andhasbeenanimportantfactorinthebalancebetweensupplyanddemand.goingforward,anannualincreaseinthenumberofportdaysof3%isexpected.
thegrowthinportdaysisexpectedtoabsorb92mrunits.
ArbItrAgeArbitrageshipping,eveningoutpricedifferencesofrefinedoilproductsbetweenloadinganddischargeport,hasbecomeincreasinglyimportantinrecentyearsforthedemandforproducttankers.In2007,arbitrageship-pingaccountedforsome30%oftorm’sproducttankertransports.
thedevelopmentinarbitrageshippingisexpectedtoabsorb56mrunits.
otHerFActorSotherfactors,suchasconversiontobulkvessels,envi-ronmentalrestrictions,etc.,arealsoimportant,buttheyaredifficulttoquantifyandarethereforenotpartofthisanalysis.
PRODUCT TANKERS BY YEAR OF CONCTRUCTION
REFINERY EXPANSIONS VERSUS FLEET ORDER BOOK 2008-2011
ORDER BOOK VERSUS EXPECTED DEMAND 2008-2011
EXPECTED REFINERY EXPANSIONS 2008-2011
PRODUCT TANKERS BY YEAR OF CONCTRUCTION
REFINERY EXPANSIONS VERSUS FLEET ORDER BOOK 2008-2011
ORDER BOOK VERSUS EXPECTED DEMAND 2008-2011
EXPECTED REFINERY EXPANSIONS 2008-2011
36
supply anD DemanD
– panamax bulk vessels
thechineseand,tosomeextent,theIndianeconomyareessentialtodevelopmentsinthebulkmarkets.thesetwocountries’increasedtradingwiththerestoftheworldhasmeantasharpincreaseinthetransportationofrawmate-rialsand,consequently,inthedemandforbulkcarriers.thishasresultedinanincreasednumberofwaitingdaysinanumberofports,primarilyinAustralia,astheydonothavesufficientcapacitytohandlevesselsattherequiredspeed.Itseemsthattheinfrastructureintermsofports,roadsandrailwaysisnotbeingdevelopedatthesamerateastheexpansionoftheglobalfleet.thissituationisthere-foreexpectedtocontinueforsometimetocome.
theincreaseddemandfortransportationofironoreandcoalistheprincipaldriverbehindtheveryhighfreightratesseeninrecentyears.In2008,transportationofironoreandcoalisexpectedtoaccountfor31%and32%ofthetotalbulkmarketrespectively(source:mSI),withanexpectedgrowthrateof6.6%.In2009,thegrowthintransportationofbulkproductsisexpectedtobe5.6%.othershippinganalystshowever,expectthegrowthratetobeashighas7%.
thecontractingactivityin2007wasextraordinarilyhighinthebulksegment,includingpanamax,whichisthetypeofvesselthattormoperates.panamaxvesselsarebulkcar-rierswithasizeof60-100,000dwt.Atyearend2007,theglobalfleetcomprised1,484panamaxvessels(source:Fearnleys),andinthepanamaxmarketalone,292newvesselswerecontractedin2007,correspondingtoapproxi-mately20%ofthetotalpanamaxfleet.thetotalorderbookofpanamaxnewbuildingsattheendof2007was483ves-sels,equaling33%oftheexistingfleet.Attheendof2006,thepanamaxorderbookequaled16%oftheexistingfleet.
themanynewshipyardsbeingestablishedinchinaarestillexpectedtoprimarilybuildbulkcarriers,includingpanamaxvessels,andtheorderbookisthusexpectedtoincreasefurther,althoughprimarilyfordeliveryafter2011.theextraordinarilyhighfreightratesin2007meantthatmanysingle-hulledoiltankerswereconvertedintobulkcarriers.Similarly,partoftheglobaltankerorderbookisbeingconvertedintobulkcarriers.However,estimatesofconversionsaresubjecttoconsiderableuncertainty.
Withthehugeincreaseinthenumberofbulkcarrierscon-tractedin2007,theglobalorderbookiscurrentlyatahis-toricalhighof2,153vessels(source:Fearnleys)intotal,equaling32%ofthetotalfleet.duetotheeconomicgrowthinchinaandIndiacombinedwiththephasing-outofoldvesselsdatingfromtheearly1980s,supplyanddemandarenonethelessexpectedtoremainbalancedattheendof2009,howeverwithsupplyslightlyexceedingdemand.
<
PANAMAX FLEET BY YEAR OF CONSTRUCTION
BULK: SUPPLY VERSUS DEMAND
GROWTH IN TRANSPORTATION OF BULK<
PANAMAX FLEET BY YEAR OF CONSTRUCTION
BULK: SUPPLY VERSUS DEMAND
GROWTH IN TRANSPORTATION OF BULK
<
PANAMAX FLEET BY YEAR OF CONSTRUCTION
BULK: SUPPLY VERSUS DEMAND
GROWTH IN TRANSPORTATION OF BULK
Janmechlenburg,executiveVicepresident,ShipowningandSale&purchasedivision
38
csr – corporaTe social responsibiliTy
susTainable DevelopmenTtormtakesactiveresponsibilityforcontributingtoaglobalsustainabledevelopment.Intorm,agoodfinancialper-formancethereforegoeshandinhandwiththewishtobeaccountabletoourshareholders,customers,employees,businesspartnersandotherswhoareaffectedbytorm’sactivities.
Accountabilityisanintegralpartoftorm’sbusiness,whetherintermsofcorporategovernance(seethesectiononp.50),intermsofenvironmentalconcernsorintermsofsocialandsafetyissues.thisisreflectedinthecompany’smissionaswellasinthefactthatallvesselsareoperatedaccordingtothehigheststandards,regardlessofwhichflagtheyaresailingunder.therefore,thevesselsareamongstotherthingsrequiredtomeetrigoroussafety,qualityandenvironmentalstandards.
thethreeareaswhich,incombinationwithfinancialper-formance,areparticularlyrelevanttoassessingthesus-tainabilityoftorm’sbusinessaresafetyandquality,work-ingconditionsforouremployeesandthoseofourbusinesspartnersandenvironment.protectingcrew,environment,cargoandvesselisessentialtothecompany,andtormhasthereforeimplementedacertifiedmanagementtoolcoveringsafety,qualityaswellasenvironmentalconcerns.
safeTy anD QualiTyItistorm’sobjectivethattheoperationofthecompany’svesselsshouldmeetthemoststringentsafetyrequire-ments.throughsystematicsafetyreviewsashoreandatsea,thecompanyassessesallaspectsofoperationsandthusminimizerisk.thevessels’operatingproceduresareregularlyevaluatedandimprovedinordertoensurethatthevesselsareoperatedassafelyaspossible.
torm’sownriskassessmentsandexperienceplayakeyroleinconnectionwithreviewsanddevelopmentoftheoperatinginstructions.moreover,therearealargenumberofexternalpartieswhocontributetosettingoperatingstandards.InadditiontothestatutoryrequirementssetoutbytheInternationalmaritimeorganization(Imo),thevari-ousflagstates,torm’scustomersandtheoilcompaniesplayamajorroleinthattheyallmakespecificsafetydemands.tormconsiderstheoilcompaniesitsbusinesspartnersandthereforesharesallrelevantsafetyinforma-tionwiththeminordertocontinuouslyexpandknowledgeandawarenessofsafetyintheindustry.
However,systemsalonedonotoperatethevessels.Withoutthehighlyexperiencedandresponsibleofficersandcrews,thevesselswouldnotbeabletomeettorm’shighstand-ards.Assafetyrequirementscontinuouslygrowstricter,sodothetrainingdemands.tormhasdevelopedamajortrainingprogrammethatsetsnewstandardsfortrainingofallseafarers,fromordinaryseafarerstoseniorofficers.thetrainingprogrammeisdevelopedinclosecollaborationwiththetrainingcentresresponsiblefortrainingourseafarers.
Working conDiTionsWorkingconditionsonthecompany’svesselsareaperma-nentfocusarea,andthisproactiveapproachlimitstheriskofincidentsandaccidents.thenumberofindustrialacci-dentspermillionhoursofworkwas1.9in2007(1.3in2006).
thesystematicapproachtomanagingworkingconditionsmeetstherequirementsoftheoHSAS18001occupationalhealthandsafetystandard,andthecompanywillregularlyassesswhethercertificationshouldbeobtained.
tormbelievesthatthecompany’saccountabilitygoesbeyonditsownemployees.Accordingly,thecompanywillin2008performaself-assessmentinaccordancewiththeSA8000standard.SA8000makesdemandsoftheconductofboththecompanyanditssuppliersintheemployeerightsandhumanrightsareas.
Inadditiontothis,tormhassetupahealthinsuranceplanforemployeeswhoarenotcoveredbyanationalhealthplanandfortheirfamilies.theseincludeemployeesfromtheUSA,Indiaandthephilippines.
thetormFoundationin2007madeamajordonationtotheestablishmentofthetormphilippineseducationFoundation.theobjectiveofthenewfoundationistosup-portthechildrenoftormemployeesorpoorstudentsinthephilippineswhoareinterestedintrainingintheshippingbusinessorwouldliketoengageinamaritimeeducation.
environmenTIn2007,thecompanywascertifiedaccordingtotheISo14001environmentalmanagementstandard,underwhichtormisrequiredtoconstantlyreduceitsenvironmentalimpact,andthecompany’scompliancewiththisiscontrol-led.Asaresultofthisrecentcertification,tormhasthisyeardecidedtofocusparticularlyontheenvironmentintorm’saccountabilityreporting.
torm’sprincipalactivity,shipping,canbesplitintothreephases,eachofwhichhasitsownenvironmentalimpacts:construction,operationandresale/recycling.
themostsignificantenvironmentalissuesandimpactsofshippingactivitiesare:
• consumptionoffuelanduseofsubsidiarymaterialscausingglobalwarming,acidification,waterpollution,smoganddepletionofnaturalfossilresources.
• releaseofsubstancesfrombottompaintthatmayhaveatoxiceffectonhumanbeingsandecosystems.
otherissuesincludedischargeofballastwater,useofchemicalsforcoolingandfireprotection,wastehandling,spillsandlossofcargo.
clausUsenJensen,executiveVicepresident,technicaldivision
40
csr – corporaTe social responsibiliTy
Althoughseatransportsgenerallyconsumelessenergyandemitfewersubstancestotheenvironmentthancom-parablerailandroadtransports,tormcontinuallyseekstoreduceitsenvironmentalimpactthroughmeasuresatallthreestagesofavessel’slife.
consTrucTionthedesignofthevesselandchoiceofenginehaveasigni-ficanteffectonitsresourceconsumptionandenvironmentalimpactsduringoperation.therefore,torm’senvironmentaleffortsalreadybeginduringthevessel’sdesignphase.
torm’sownedvesselsareconstructedatlarge,recognizedandinternationally-orientedshipyardssuchasguangzhouanddalianinchina.Ateachoftheshipyards,tormhassecondedateamtosupervisethatthecompany’shighnewbuildingstandardsaremet.Avoidingerrorsanddefectsduringtheconstructionphasereducestheuseofresourcesandminimizestheriskofsubsequentaccidents.
tormwishestomaintainamodernfleet.thecompanythereforecontinuallyrenewsthefleet,allowingittoimprovetheenginesforthebenefitoftheenvironmentaswellasthebusiness.
In2007,tormsignedanagreementfordeliveryofsevenenginesforaseriesofproducttankersfromtheguangzhoushipyardinchina.theengines,ofmodel6550me-b,aresuppliedbymAndieselandarethemostfueleconomicintheirengineclass.theimprovedfueleconomyisexpectedtoleadtoa4.5%reductionofco2emissions.
Alltorm’svesselsareequippedwithdouble-hulledcargoholds,andthecompanywasamongthefirsttousedouble-hulledfueltanks.
operaTionthegreatestenvironmentalimpactduringtheoperatingphaseistheconsumptionoffossilfuelsforpropulsion,electricityandheating.consumptionandemissionsdependonsuchfactorsasdraughtandtrim,propellerslip,theconditionofthehullandthedegreetowhichtheengineisoptimized.
In2007,tormcarriedoutanumberofactivitiesexpect-edtofurtherimprovetheefficiencyofthevessels.themostimportantoftheseare:
• thefittingoftorsionmeterson12vessels.thismakesiteasiertoincreasetheefficiencyoftheengineandthusreducefuelconsumptionandemis-sions.theplanisforalloftorm’svesselstohavetorsionmetersfittedbytheyear2009.
• electroniccylinderlubricationhasbeenfittedontenvessels.thisisexpectedtoreducecylinderoilcon-sumptionbyupto40%.this,inturn,meansareducedreleaseofparticle-richmaterials.thesystemwillgraduallybefittedonallvesselsastheydock.
• theuseofsilicone-basedbottompaint,whichimprovespropulsionandthusreducesfuelcon-sumption.theeffectismostapparentonrelativelyhigh-speedvessels,however,andtorm’stestsontwovesselshavenotyetdemonstratedanycleareffect.nonetheless,theexperimentwillcontinuein2008-2010.bottompaintsusedtocontaintributyltin(tbt),buttorm’sfleetofownedvesselshasbeentbt-freesince2004.
Inaddition,tormhasstartedamajormaintenancepro-grammetoensurethatthefleet’spropellersandhullsareinoptimalcondition.Alongwitheffectiverouteplanning,thisfurtherreducesfuelconsumption.tormarealsoexperimentingwithaddingadditivestothefuel,whichreducestheamountofsludgeandimprovesfueleconomy.
operatingvesselsproducesvariouskindsofwaste,andasitisnotknowninadvanceinwhichportthevesselwilldisposeofthewaste,strictwastehandlingrequire-mentsapplyonboardtorm’svessels.theseincludesorting,disposalandrecycling.
overall,tormassessesthatchoosingefficientmachin-ery,continuallyoptimizingthefleetandplanningroutesefficientlyleadtoanexpectedannualreductionofco2emissions.
accounTabiliTy over THe life of a vessel
consTrucTion operaTion resale/recycling choiceofsupplier Fuelconsumptionandairemissions recyclingchoiceofrawmaterials bottompaint clean-upchoiceofengine ballastwater WasteWorkingconditions Waste Hazardouswastehandling noise Workingconditions Spills maintenance routeplanning Workingconditions
41
resale/recyclingtheaveragelifeofatormvesselis25years.tormoperatesinthetopsegmentofshipping,inwhichcustom-ersmakehighqualitydemands.tormthereforetypicallysellsitsvesselsafter5-10yearsofoperation.thismeansthatthevesselshaveanumberofyearslefttooperatebeforebeingrecycled.
Attheendofavessel’slife,themajorityofitsweightwillberecycledforthebenefitoftheenvironment,butalltoooftenthehandlingofhazardoussubstancesisinade-quateintheplaceswherethevesselsarepreparedforrecycling.consequently,tormhasintroducedaschemedemandingthatallnewbuildingsmustbeprovidedwithagreenpassport,whichisadetailed,class-approvedlistofthevessel’shazardoussubstances.thegreenpass-portfollowsthevesselthroughoutitslifeandwillcon-tributetoensurethatitisrecycledinanenvironmentallyresponsibleandsafemanner.
Acomprehensivediscussionoftorm’senvironmentaleffortswillbeavailableintheenvironmentalreportfor2007,whichwillbeavailableatthecompany’swebsitein2008.
merger of managemenT sysTemstheintegrationofomIalsomeanscombiningthetwocom-panies’managementsystems.Atthetakeover,omIhadcertifiedmanagementsystemscoveringquality(ISo9000:2000),environmentalmanagement(ISo14001),occu-pationalhealthandsafety(oHSAS18001)andhumanandemployeerights(SA8000).thesecertificatescannotbetransferreddirectlytotorm,butthemanagementsystemswillbemaintainedandduringthecourseof2008tormwillassesstowhatextentcertificationshouldbeobtainedfortheareascurrentlynotcertified.
tormhasboughtagreencow,designedbytheIcelandicartistthora
piaFinnsdottir.themoneypaidforthecowwasdonatedtoredbarnet,
thedanishdivisionofSavethechildren,andthecowisnowtouringall
departmentsinconnectionwiththeestablishmentofenvironmental
targetsforthecomingyear.
”Weboughtthecowwhenourenvironmentaleffortswerecertifiedunder
ISo14001.theaimistoremindusallinavisibleandentertainingwaythat
itcanmakeadifferenceifeachofuscontributestoimprovingtheenviron-
ment”,saysKlausKjærulff,ceo.
number of acTive vessels in THe perioD incluDeD in THe reporT (in months) vessels from omi 2007 3) 2006
Srtankers 50 0 0mrtankers 0 153.5 132.5Lr1tankers 10 102.3 95.0Lr2tankers 55 113.5 101.0bulkvessels 0 63.0 0.0totalnumberofvesselsmonths 115 432.3 328.5 emissions from fuel in tonsFueloiluse(HFo) 58,263.1 347,357.6 299,437.1Fueloiluse(LowSulphurHFo) 36,030.5 23,308.9 4,345.,3motorgasoil 2,382.5 10,590.2 7,837.8Lubricatingoil - 2,982.8 2,409.6co2emissions 304,629.9 1,199,668.0 969,283.0Soxemissions 4,093.2 19,863.6 18,273.3noxemissions 8,962.0 35,065.1 28,323.9 emissions per tonkm (1 ton goods transported 1 km) co2emissions 6.17g/tonkm 5.88g/tonkmSoxemissions 0.10g/tonkm 0.11g/tonkmnoxemissions 0.18g/tonkm 0.17g/tonkm truckco2 109.6g/tonkmtrainco21) 28.0g/tonkm2000tbulkvesselsco21) 16.0g/tonkmcargoplaneco22) 537.0g/tonkm operational aspects Waitingin% 2.40 2.20Inharbourin% 34.56 33.06ballastvoyagein% 25.60 25.46Ladenvoyagein% 37.45 39.28
1)referenceKey2green.dk2)Lufthansa3)excl.vesselstakenoverfromomI
Human resources
asHorethecompany’ssignificantgrowthin2007resultedinmanynewemployees.thisexpansiongaverisetoanumberofnewpositions,andtormsucceededinattract-ingapplicantsandfillingthesepositionswithcompetentandhighlyqualifiedpeople.In2007tormwasalsosatis-fiedtonotealowstaffturnoverof6.8%.Attheendof2007,thecompanyhad296employeesashore,ofwhich143wereemployedincopenhagen,97inIndia,14inSingapore,22intheUSAand20inthephilippines.
InIndiaandtheUSA,theacquisitionofomImeantamajoradditionnotonlyofvesselsbutalsoinparticularofhighlycompetentemployeesatseaaswellasashore.thispresentednewopportunitiesintermsofhowtormusesthehumanresources,butalsonewdemandsastohowtormperceivestheorganizationandemployees.Inthesecondhalfof2007,thecompanyfocusedontheinte-grationoftheomIorganizationand,hadmanypositiveresultsfromthisintegrationwork.torm’svalues(profes-sionalism,entrepreneurship,respect)havebeen,andwillcontinuetobe,anessentialpartoftheintegrationwork.
Inordertohandlethecontinuedgrowthstrategy,thefocusonHumanresourceswillbegreatlystrengthenedin2008.Withtheintensecompetitionforcompetentemployeesintheshippingindustry,itisofcourseessen-tialthattormstillsucceedsinattractingthebesttalents.therefore,torm’sfocusoncorporatebrandingwillcon-tinueinfuturewiththeaimofmakingtormanamethatissowellknownthatitbecomesnaturalforcareerseek-erstolookforjobswithtorm.
Incollaborationwithotherleadingshippingcompanies,thecompanywillcontinuetoofferatwo-yeartraineeshipcombiningpracticaltrainingwithasolidtheoreticaledu-cationthelatterisorganizedincollaborationwithesbjergHandelsskoleandcopenhagenbusinessSchoolintheformofanHdgraduatedegreewiththepossibilityofasubsequentmbAdegree.
torm’semployeesaregenerallyofferedgoodopportuni-tiesforcompetencebuilding,and2007wasnoexception.enhancingemployeeskillsisnotonlypartoftorm’sretentionpolicy,itisalsoakeyelementinthedevelop-mentofthebusinessaswellastheemployee.Inthecourseof2008,tormwillimplementanewperformancemanagementprocesswhichisdesignedtosignificantlyincreasetheattentiontothisareaaswellastofocusevenmoreonthemosttalentedemployeesandonrobustsuc-cessorplanninginkeypositions.
theHrdepartmentspentthelastfewmonthsof2007onplanninganambitious,internationalleadershipdevelop-mentprogrammeforalloftorm’sland-basedmanagers.tormconsidersgoodleadershipakeyfactor,andthe
individualmanagerhasabigresponsibilityforprofes-sionallyhandlingHr-relatedtasks.thelaunchingoftheleadershipdevelopmentprogrammeinthefirstquarterof2008isthereforeeagerlyawaited.
Animportantelementoftorm’ssuccessisthecompany’scultureandvalues,whichreflectthewayinwhichtormconductsbusiness.cultureandvaluesarealsoimportantfactorsintheintegrationworkwithomI.Allemployees,ashoreandatsea,attendedcultureandvalueseminarsin2007.theseseminarswillin2008befollowedupbyfurtherinitiativeswhicharemeanttocontinuallyensurethatallemployeeshaveacommonunderstandingofthecompany’scultureandvaluesandthatthesevaluesbecomeanaturalpartofouractionsandourlanguage.
aT seatormisadynamic,growingcompany,andhighpriorityisgiventorecruitingmotivatedseafarersatalllevelssothatthecompany’svesselsare,andremain,operatedaccord-ingtothehigheststandards.competitivepay,developedwiththeaimofretainingandinspiringtheverybestemployees,recognitionandstaffbenefitsareimportantparametersinourfuturerecruitment–alsoforthecompany’sconsiderablenewbuildingprogramme.
Allseafarersareofferedcareerdevelopmentandpromo-tionopportunitythroughtraininganddevelopmentpro-grammes.Whenatsea,theseafarershavecomputer-basedtrainingprogrammesattheirdisposal,allowingthemtotrainattheirownpace.
tormisparticularlyproudoftheseniorofficers’semi-narsheldtoensurethattheentirefleetreceivescontinualtraininginthecompany’spoliciesandpractices.Inrecentyears,tormhasheldseniorofficers’seminarsindenmark,India,thephilippinesandcroatia.
thecompanyhasregularlylaunchedmanyinitiativesaimedatofferingchiefofficersandsecondengineersamanagingtrainingprogramme,andthusanopportunityforpromotion.Atotalof20peoplehavecompletedthefour-moduletrainingprogramme.
Inrecentyears,thecompanyhasincreasedthenumberofapprenticeofficers,andtormiscurrentlytakingonabout50eachyear.
thecompany’sapproximately3,000seafarershavemanydifferentnationalities,includingdanish,Indian,philippineandcroatian,andtheyaremanagedfrommanningofficesinIndia,thephilippinesanddenmark.
In a dynamic, international and competitive market it is important for TORM to be able to attract and retain the best commercial and technical employees.
42
christianriber,SeniorVicepresident,Hr
44
managing risk anD exposure
theboardandmanagementactivelyidentifyandevalu-atethecompany’ssignificantriskswiththeobjectiveofmanagingthesensitivityoftheresultsandfinancialpositiontothoserisksinaccordancewiththecompany’sstrategyandriskpolicies.managementassessestherisksconsideredtobemostsignificantforthesuccessofthecompanyonatleastayearlybasisandplansanyactiondeemedrelevanttoadjustthesensitivitytothoserisks.riskandactionsarediscussedwiththeAuditcommitteeandtheboardofdirectorsonatleastayearlybasis.torm’sriskmanagementalsoentailsiden-tifyingtheopportunitiesassociatedwiththoserisks,suchasvolatilefreightrates.
theriskscangenerallybedividedintothreecategories:Industryandmarketrelatedrisks,operationalrisksandfinancialrisks.torm’smostsignificantrisksaredescribedbelow.pleaserefertopage12andnote21forsensitivityanalyses.
inDusTry anD markeT relaTeD risksIndustryandmarketrelatedriskfactorsrelatetochangesinthemarketsandinthepolitical,economicalandphysicalenvironmentthatmanagementcannotcontrolandonlyinfluencetoaverylimiteddegree,butneverthelessmustconsiderinthelong-termstrategyplanningforthebusi-nessandtheshort-termexecutionofthestrategy.
poLItIcALAndmAcroeconomIcrISKSShippingisahighlycyclicalindustry.thecargoesthattorm’svesselscarryaroundtheworldincluderefinedoilproducts,ironore,coalandotherproducts,forwhichthedemandishighlydependentonmacroeconomicdevelopmentsandpoliticaldecisions.thesedecisionsanddevelopmentsalsoaffectthepriceofbunkersandsteelaswellastherulesunderwhichtormoperates.changesindemandforthecargoesthattormcarriesaffectourrevenues,changesinbunkerpricesaffecttheoperatingexpensesandchangesinsteelpricesaffectthepricesofvessels.changesintherulesgoverningtheshippingindustry,e.g.Imoregulations,affectthemarketparticipantsinthewaytheyorganizethemselvesandcarryouttheiroperations,andallofthesefactorsulti-matelyaffectthecompany’searningsandthevalueofthecompany.
tormmonitorsproducttankerandbulkmarkettrendsaswellastheglobaleconomictrendsthatarelikelytoaffectthecompany’sbusinessareas.theanalysisofsupplyanddemandonpage34-36isanexamplehereof.theseongoingeffortsaredesignedtoensurethatthecompany’sstrongcommercialexpertiseiscomplement-edwiththoroughanalysesinordertoimprovethebasis
forthecompany’sdecisions,andtherebyreducerisksandcapitalizeonpotentialbusinessopportunities.thepoliticalandmacroeconomicrisksaretypicallyofageneralnatureandareassessedtoaffectallmarketparticipantsinamoreorlesssimilarfashion.
FreIgHtrAteVoLAtILItYthecompany’sincomeisprincipallygeneratedfromvoyagescarriedoutbyitsfleetofvessels.Assuch,tormisexposedtotheconsiderablevolatilitythatcharacterizesthefreightrates.
Inthetankersegment,torm’sprimaryriskobjectiveaspartofthepoolconceptistoreducethesensitivitytothevolatilityoffreightratesnotbyenteringintolong-termagreementsatfixedfreightrates,butratherbyachievingeconomiesofscaleandoptimizingtheofferingtothecustomerandusingthecompany’sknowledgeofthemarketandgoodgeographicalcoveragetoachievethehighestpossibleearningsunderanygivenmarketcondi-tions.therefore,voyagesareprimarilyfixedatratesreflectingprevailingmarketconditionswithanaveragedurationof20-40days.
Withinthetankerpools,freightincomeistoacertainextentcoveredagainstvolatilitythroughtheuseofphys-icalcontracts,suchascargocontractsandtimecharteragreements,andfinancialinstruments,suchasforwardfreightagreements(FFAs)andsynthetictimechartercontracts.coverageistypicallymade6to12monthsforward.Inadditiontothecoveragearrangedinthepools,tormmaysupplementwithadditionalcoverageonthebasisonmarketexpectationsandinaccordancewiththecompany’sriskmanagementpolicies.
In2007,50%offreightearningsderivingfromthecompany’stankersweresecuredinthisway.timecharterpartiesaccountedfor70%ofoverallhedging,asthishedginginstrumentresultedinhigherratesthanthoseofferedbytheforwardmarket.In2007,thecompanyenteredintoFFAswithacontractvalueofUSd264million.
FFAtradeandotherfreightrelatedderivativesaresub-jecttospecificriskpoliciesandguidelinesapprovedbytheboardofdirectorsincludingtradinglimits,stop-losspolicies,segregationofdutiesandotherinternalcontrolprocedures.transactionsareregisteredinanindustrydevelopedItsystem,whichprovidesdailymarketreportstomanagementandinputforfinancialreporting.onalimitedscaleandwithintheboundariessetoutbytheboardofdirectors,thecompanyfromtimetotimeentersintoFFAcontractsasasupplementtothephysi-calpositionsinvessels.
Shipping is an industry highly sensitive to macroeconomics and changes in political and legal circumstances. Furthermore, TORM is exposed to the risks associated with owning and operating vessels globally with a primary focus on the spot freight market.
torbenbager,SeniorVicepresident,Finance
46
managing risk anD exposure
Inordertocontrolthecompany’sFFApositions,thecompanyappliesariskmanagementsoftwarebasedontheValue-at-riskmethod.
Inthebulksegment,tormisarelativelysmallmarketparticipant,andthecompanyreducessensitivitytothevolatilityoffreightratesprimarilybyenteringintotimecharteragreements,typicallyof12to24months’duration.
SALeSAndpUrcHASeprIceFLUctUAtIonSItisacoreelementoftorm’sstrategytomaintainandexpandalargefleetofmodernvessels,particularlyinthetankersegment,throughcontractingnewbuildingsandthroughtransactionsinthesecond-handmarket.Asaresult,thecompanyisexposedtoriskassociatedwithchangesinthevalueofthevessels,whichcanvarycon-siderablyduringtheirlifetime.
basedonanoverallportfolioapproachandbyconsist-entlymaintainingastrongfinancialposition,thecompany’spolicyistobeinapositiontopurchaseandselltonnagewhenthetimingisconsideredoptimal.managementcontinuouslyevaluatessaleandpurchaseopportunitiesandrecommendsthesetotheboardofdirectorsbasedonprevailingmarketinformationandthecompany’slong-termmarketexpectations.
Withregardtotorm’snewbuildingprogramme,with21vesselsonorderatchineseshipyardsatyear-end,theyardshaveissuedguaranteesforthecompany’spre-paymentsmadethroughtheconstructionperiod.Allguaranteeshavebeenarrangedviastate-ownedbanks.Attheendof2007,prepaymentstotheseshipyardstotalledUSd257million.
bUnKerprIceFLUctUAtIonSthecompany’soperatingresultisaffectedbymove-mentsinthepriceoffueloilconsumedbythevessels–knownintheindustryasbunkers.
tocoverthisrisk,thecompanyhedgesthepriceofpartofitsbunkerrequirements.Withinthetankerpools,bunkerrequirementsarehedgedwhenacontractofaffreightmentcoveringseveralvoyageshasbeenconcludedatafixedfreightrate.coverageisusuallyprovidedforaperiodofupto12monthsforward.
Indecember2007,tormintroducedarollingbunkerhedgingprogrammeasasupplementtothehedgingactivitieswithinthepools.thepurposeoftherollingprogrammeistobuildupahedgepositionof20%ofthebunkerexposureasindependentofthecurrentforwardratesaspossible.thisisconsideredtobetheleastriskyapproachtostarthedginginaperiodofall-timehighbunkerforwardprices.tormwillbuybunkersabout40
timesforthecoming12monthsofabout0.5%oftheexposuretoreachthehedgepercentage.
bunkertradeissubjecttospecificriskpoliciesandguidelinesapprovedbytheboardofdirectorsincludingtradinglimits,segregationofdutiesandotherinternalcontrolprocedures.
Forbulkcarriers,thebunkerrequirementsaresimilarlyhedgedtomatchcargocontractcommitments,buttherequirementsaregenerallyless,giventhatthemajorityofearningsderivefromvesselscharteredoutontimecharter,wherethechartererisresponsibleforthepay-mentofbunkers.
operaTional risksgiventhepoliticalandmacroeconomicenvironment,theconditionswithintheshippingindustryandtherisksassociatedherewith,theboardandmanagementmakecertainstrategic,managerialandoperationalchoicesinsettingupthecompany’sobjectivesandthemeanstoachievethoseobjectives.operationalrisksarethoserisksassociatedwiththemanagementofthebusinessandtheday-to-dayoperations.
VeSSeLUtILIZAtIonInthetankersegment,tormisashipownerwithalargefleetofmoderndouble-hulledvessels.thecompany’sstrategicfocusistoprovideaqualityservicetocargoholders,whichrequiresustooperateprimarilyinthespotfreightmarket.consequently,vesselutilizationisasignificantriskfactor.
Inthebulksegment,tormdoesnothavethesameshort-termexposureasthevesselsarecharteredoutontimechartercontracts.
byoperatingandparticipatinginlargewell-establishedtankerpoolsandthroughthecarefulmatchingoffrontandbackhaulcargoes,thecompanyachievesanopti-malgeographicalcoverageandmarketpresenceandminimizesballasttimeandwaitingdays.onthisbasis,tormisabletomaximizeitsvesselutilizationandachievehigherandmorestableearningsthanthecompanywouldonitsown.
SAFeoperAtIonoFVeSSeLSgroundings,collisions,pollutionorsimilareventscanhaveseriousconsequences,andoperationofvesselsisconsequentlyheavilyregulatedbystatutorybodies.Sucheventscouldresultinfinanciallosses,intheshorttermthroughlossofhire,costofvesselrepairs,claimsandpenalties,andinthelongertermthroughlossofreputa-tioncausedbydelayandcustomerdissatisfaction.Inaddition,manycustomersincludingthemajoroilcom-panieshavesetupownstandardsrelatingtosafety,pro-
47
tectionoftheenvironment,etc.thatthevessel,thecrewandtheland-basedoperationmustfulfilinordertobeallowedtotransportoilproductsforthem.Inspections,so-calledvettings,arecarriedoutbytheoilcompaniestoensurethattheirstandardsarefulfilled.
Ahighstandardofoperationisacornerstoneinthewaythattormconductsitsbusiness.tormhasdedicatedthenecessaryspecificresourcesandbuiltupgoodman-agementsystemstoensurethatthecompanyisincom-pliancewithbothstatutoryrequirementsandadditionalrequirementsfromcustomersconcerningoperationalprocedures,qualityandexperienceofseafarers,etc.officerseminarsareconductedseveraltimesayeartosecurethatthesea-basedstaffalwayshasthemostrecentknowledgeofregulationsandbestpractice.
Inordertodocumentandassistinmaintainingaconsistentlyhighstandardofoperations,thecompanyobservesthevoluntaryInternationalStandardssuchasISo14001andthecompliancewiththisstandardisauditedannuallybyLloyd’sregister.
thecompany’sQualitymanagementSystem(QmS)observestherequirementsofmandatoryandvoluntarystandards.
tormrecruitsseafarersfromfourdifferentgeographicalareasinordertobeabletoselectthebestqualifiedstaffandtoavoidunduerelianceonaspecificmanningsource.
Forfurtherdetailsonsecurityandquality,workingcon-ditionsandenvironment,pleaserefertopage38.
InSUrAncecoVerAgeInthecourseofthefleet’soperation,variouscasualties,accidentsandotherincidentsmayoccurthatmayresultinfinanciallossesfortorm.Forexample,nationalandinternationalrules,regulationsandconventionsmeanthatthecompanymayincursubstantialliabilitiesintheeventthatavesselisinvolvedinanoilspilloremissionofotherenvironmentallyhazardousagents.Inordertoreduceoreliminateanyfinanciallossand/orotherliabil-itythatthecompanymightincur,thefleetisinsuredagainstsuchriskstotheextentpossible.
thetotalinsuranceprogramcomprisesabroadcoverofriskinrelationtotheoperationofvesselsandtranspor-tationofcargoes,includingpersonalinjury,environmen-taldamageandpollution,third-partycasualtyandliability,hullandenginedamage,totallossandwar.Alloftorm’sownedvesselsareinsuredforanamountcorrespondingtotheirmarketvalueplusamargintocoveranyfluctuations.Liabilityrisksarecoveredinlinewithinternationalstandards.Allvesselsarefurthermoreinsuredforlossofhireforaperiodofuptoatleast90daysintheeventofacasualty.
Itistorm’spolicytocooperatewithfinanciallystronginternationalinsurancecompanieswitharatingofbbborbetter–presentlysome8-10companiesalongwithtwop&Iclubstodiversifyrisk.Attheendof2007,theaggregateinsuredvalueofhullandmachineryandinterestsforourownedvesselsandnewbuildingsamountedtoUSd5.7billion.thep&Iclubsaremem-bersoftheinternationallyrecognizedcollaboration,Internationalgroupofp&Iclubs,andthecompany’svesselsareinsuredwithapproximatelyUSd5billionwhichisthemaximumcoveroffered.p&Iclubsdifferfromtraditionalinsurancecompaniesastheparticipantsarejointlyliable.Incaseamemberwithdrawsfromaclub,thememberremainsliableforacertainnumberofyearsforclaimsarisenintheperiodpriortowithdrawal,unlesstheparticipantpaysareleasecall.thecompanydoesnotexpecttopayanyamountstop&Iclubsrelatingtotheperiodpriorto31december2007inadditiontotheagreedandannouncedpremiumpayments.
StAbILItYoFItSYStemStorm’sabilitytoservicethecustomersandoperatethevesselsisdependentontheaccesstoandcontinuedoperationofcertaincriticalItsystems,primarilyaves-seloperationssystemincludinginformationaboutvesselpositions,thecompany’sownagreementswithcustom-ersandotheragreementsmadeinthemarket,theelec-tronicmailingsystem,asystemrecordingestimatedandactualearningsonindividualvoyagesandthefinancialaccountingsystem.
AllItsystemsaremonitored,maintained,protectedanddevelopedsystematicallyandsafelyinaccordancewiththecompany’sinternalcontrolsystem“IncA”.theinternalcontrolsystemincludesanItsystemrecoveryplandetailinghowtheemployeesshouldreactandcon-tinuetoconductthebusinessincaseofanemergencyrenderingasysteminactive.theplanisdesignedtoallowtormtoresumebusinessactivitieswithinafewhoursofatotalsystemfailureandtocontinuebusinesswithoutinterruptionsinthecaseofmorelimitedsystemfailures.Itsystemsareadded,updated,developedandreplacedinaccordancewithasystemlifecyclemodel,whichisdesignedtoensurethatthecompany’sItsystemscanalwaysbeservicedunderlicenseandsupportagreementsandthatthetotalItplatformiscoherentandwellfunctionalatalltimes.
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managing risk anD exposure
coUnterpArtYrISKthecompany’screditrisksareassociatedpartlywithreceivables,cashandcashequivalentsandpartlywithderivativefinancialandcommodityinstrumentswithpositivefairvalue.themaximumcreditriskassociatedwithfinancialassetsisequaltothevaluesrecognizedinthebalancesheet.
themajorityoftorm’scustomersarecompaniesthatoperateintheoilindustry.Itisassessedthatthesecom-paniesinallessentialsarebeingaffectedbythesameriskfactorsasthoseidentifiedintorm’stankerdivision.
Amajorportionofthecompany’sfreightrevenuesisconcentratedonasmallgroupofcustomers.In2007,10customersaccountedfor64%offreightrevenues,andtwocustomersaccountedfor14%and10%offreightrevenues,respectively.
Financialinstrumentsareonlyenteredintowithmajorbankswithahighcreditratingandwithreputablepartnerswithasatisfactorycreditrating.tormonlytradesfreightandbunkerderivativeswithhighratedwellfoundedcounterpartsandforemost,directlywiththeparentcompany.thelargestcounterpartswithrespecttoFFAtradearemorganStanleyandtrafigura,whicheachaccountedfor10-15%ofthevolumestradedduring2007.thecreditriskislimitedwithallcounterpartsasvolumesarerelativelysmall.comparedtophysicalfixtures,thetrafigurafixturesduring2007compareto15physicalmrcargoesdistributedovertheyearwithamaximumriskoflossofapproximatelyUSd3.0million.Forcomparison,tormfixed19physicalcargoestotrafiguraduring2007inthemrbusinessareaalone.
thehighconcentrationofriskonafewcustomersrequiresstrictattentiontocreditrisk.tormhasacreditpolicyunderwhichacontinuedcreditevaluationofnewandexistingcustomerstakeplace.Forlongstandingcustomers,itisnormalpracticethatthepaymentoffreighttakesplaceafteravesselhasdischargedhercargo.Fornewer,smallerandlesswell-knowncustomers,thecompany’sfinancialriskislimitedbythefactthatmostoftenitisaconditionthatfreightispaidpriortothecargo’sdischargeor,alternatively,thatasuitableguaranteeisplacedinlieuthereof.
Unliketheproducttankermarket,thebulkmarketisveryfragmented.duetotherelativelylongcontractsinthebulkdivisionof12to24months,vesselsareonlycharteredouttolargecustomerswithasolidreputationthatarewell-knowntotormregardlessofwhetherahighercharterratecouldpotentiallyhavebeenobtainedfromothersmallerandunknowncustomers.
thecompany’sreceivablesthereforeprimarilyconsistofreceivablesfromcross-overvoyagesand,toalesserextent,ofoutstandingdemurrage.Forthepastfiveyears,thecompanyhasnotexperiencedanysignificantlossesinrespectofcharterpaymentoranyotherfreightagreements.
Withregardtothecollectionofdemurrage,thecompany’saveragestandsat95-97%whichisconsid-eredtobesatisfactorygiventhedifferencesininterpre-tationofevents.demurragerepresentsapproximately4%ofthetotalfreightearnings.
financial risksFinancialrisksrelatetothecompany’sfinancialpositionandthenatureofthecashflowsgeneratedbythebusi-ness.
LIQUIdItYrISKduetothecyclicalnatureoftheshippingindustryandthevolatilefreightrates,incomingcashflowsmayvarysignificantlyfromyeartoyearwhereastheoutgoingcashflowsmaynotbevariabletothesameextentandatthesametime.
Inordertosecuretorm’sabilitytoconductbusinessevenunderunfavourablemarketconditionsandtoreactquicklywhenbusinessopportunitiesarise,thecompanyaimstomaintainastrongfinancialposition.theprimaryobjectiveofthecompany’scapitalmanagementistoensurethatitmaintainsastrongcreditratingandhealthycapitalratiosinordertosupportitsbusinessandmaximizeshareholdervalue.tomanageitscapitalstructureandmakeadjust-mentstoit,inlightofchangesineconomicconditions,thecompanymayadjustthedividendpaymenttoshare-holders,returncapitaltoshareholdersorissuenewshares.nochangesweremadetothecapitalmanagementobjectives,policiesorprocessesduringtheyearsended31december2007and31december2006.
thecompanymonitorsthecapitalstructureusinggearingratios,primarilytheequityratio,whichisequitydividedbytotalassets.thecompany’spolicyistomain-tainanequityratioabove30%bothwhenexecutingshort-termbusinessactivitiesandwhenconsideringstrategicinitiativesandplanninglong-terminvestments.
ForeIgneXcHAngerISKtormreportsfinancialstatementsinUSdbecausethemajorityofthecompany’stransactionsaredenominatedinUSd.ForeignexchangeriskislimitedtothosecashflowswhicharenotdenominatedinUSd.theprimaryriskrelatestodKKbasedtransactionssuchaswagestodanishsea-basedstaff,salariestodanishland-basedstaff,otheradministrativeexpensesanddividendstothe
49
shareholders.Furthermore,certaininstallmentsonnewbuildingsaredenominatedinJpYandaportion(approx.31%)ofthetechnicalexpensesaredenominatedinothercurrenciesthanUSd,mainlydKK(approx.23%).
Itisthecompany’spolicytominimizetheimpactofexchangeratefluctuationsonthefinancialstatementsandonthefinancialpositionofthecompany.dKKcashflowsarehedgedforaperiodofupto12monthsforwardtypicallybyenteringintoforwardforeignexchangecon-tracts.Asat31december2007,thetotalvalueofthecontractswasUSd1.4million.
othersignificantcashflowsinnon-USdrelatedcurren-ciesoccuroccasionallyandaretypicallyhedgedassoonastheybecomeknown.
Forwardforeignexchangecontractsandothercurrencycontractsaretradedsubjecttospecificriskpoliciesandguidelinesapprovedbytheboardofdirectorsincludingtradinglimits,segregationofdutiesandotherinternalcontrolprocedures.
IntereStrAterISKtorm’sinterestrateriskgenerallyrelatestoitsinterestbearingmortgagedebt.Allthecompany’sloansforfinancingvesselsaredenominatedinUSd,andmostcarryvariableinterest.
Incertaincases,thecompanyutilizesfinancialinstru-mentstomanagetheeffectsofinterestratechangesonearningsandcashresources.thecompanytypicallyusesinterestrateswaps,whichareenteredintoforperiodsofuptofiveyears,althoughtypicallyfortwotothreeyearswhenacceptableinterestratelevelscanbeobtained.Forshorterinterestratehedging,thecompanyfromtimetotimeusesFrAs.
theprofileoftheinstrumentsalwaysmatchesthepro-fileoftheparticularloaninquestion.Whenassessinginterestrateriskhedgingforitsloanportfolio,tormtakesintoconsiderationexpectedinterestratedevelop-mentsandfuturechangestothecompositionofthefleetinordertomeetongoingandfuturemarketexpectationsandrequirements.In2007,thecompanyenteredintointerestrateswapswithacontractvalueofUSd172million.
Interestrateswapsandotherinterestcontractsaretradedsubjecttospecificriskpoliciesandguidelinesapprovedbytheboardofdirectorsincludingtradinglimits,segregationofdutiesandotherinternalcontrolprocedures.
collision in gibralTarthetormgertrudwasinvolvedinacasualtyon12August2007whenshehadacollisionwiththegreek-owneddrycargovesselnewFlameoffgibraltar.Whereasbothvesselssufferedseverehulldamages,therefortu-natelywereneitherpersonalinjuriestothecrewofthevesselsnoranymajoroilpollution.thetormgertrudwasfullyladenatthetimeoftheinci-dent,andafterthecargoonboardwassafelytransferredtoanothervesselandcarriedontoitsdestination,thetormgertrudwasdockedataship-yardinportugalforrepairs.thevesselwasagaininserviceon26november2007aftersuccessfulcompletionofrepairs.thenewFlamesankpartlyafterthecollisionandhassubsequentlybeenundergoingsalvageattempts.thelossesinvolvingthetormgertrudandliabilitiesinconnectionwiththe
incidentarecoveredbyinsurance.
Torm’s DerivaTive financial insTrumenTsderivativefinancialinstrumentsaretradedbyspecificallyappointedemplo-yeesonlyandinaccordancewithtorm’spoliciesandprocedures.theyareonlyenteredintowithmajorbankswithhighcreditratingsandwithotherreputablepartnerswithadequatecreditratings.
tohedgeagainstrisksinrelationtofreightincomeandvoyagecosts,thecompanyprimarilyusesthefollowingderivativefinancialinstruments:
Forwardfreightagreement(FFA).Aforwardagreementtobuyorsellfuturefreightratesforagivenperiodandamountatapredeterminedprice.
Synthetictimecharter.Aforwardagreementtobuyorsellvoyageresults,i.e.freightratesandthecostsofportcalls,bunkerconsumptionandcom-missions,foragivenperiodandamountatapredeterminedprice.
bunkerhedgingcontract.Aforwardagreementtobuyorsellfuturebunkerpricesforagivenamountatapredeterminedprice.
tohedgeagainstinterestrateandexchangeraterisks,thecompanyprima-rilyusesthefollowingderivativefinancialinstruments:
Interestrateswaps.Aforwardagreementtosellfuturefloatinginterestratepaymentsforfixedratepaymentsforagivenperiodandamount.
Forwardexchangecontract.Aforwardagreementtobuyorsellacurrencyagainstpaymentinadifferentcurrencyforagivenamountatapredetermi-nedprice.
mostofthesederivativefinancialinstrumentsareshort-termwithadurationofupto12months.
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corporaTe governance
tormiscommittedtomaintainingahighstandardofcor-porategovernanceandbelievesthatthiscommitmentisconsistentwithandalsoadriverforachievingthecompany’sbusinessobjectivesandcreatingshareholdervalue.Itistorm’spolicytoensurethatthecompanyisatalltimesmanagedinanorderlyandpropermannercon-sistentwiththeregulationapplicableinthecountriesinwhichthecompanyoperatesandwiththecodesimposedbythestockexchangesonwhichthecompanyislisted.theprincipalentitiesinthecompanyarelocatedindenmark,India,theUSAandSingapore,andthecompanyislistedonomXthenordicexchangeindenmarkandonnASdAQintheUSA.
thecompanyhasthroughouttheyearcompliedwithalltherecommendationsforgoodcorporategovernancefromomXthenordicexchangeexceptforthefollowing:
• torm’sboardofdirectorsconsistsofsevenmem-bersofwhichfourareelectedattheAnnualgeneralmeetingandthreeareelectedbytheemployeesinaccordancewithdanishlegislation.twooftheboardmemberselectedattheAnnualgeneralmeetingareconsideredindependentasdefinedbytherecommen-dationswhiletwomembers,Stefanos-nikoZouvelosandgabrielpanayotides,arerelatedtothecompany’slargestshareholder,beltestShippingcompanyLtd.,andtheultimatebeneficiaryofthiscompany,respec-tively.theboardofdirectorsvaluesthecontributionandexpertiseofthetwomembers.
• Alltheboardmembersareelectedforafour-yearterm.theappropriatenessofthelengthoftheelec-tionperiodisevaluatedperiodically,anditistheopin-ionoftheboardofdirectorsthatthefour-yeartermcurrentlyconstitutesanappropriatebalancebetweenreplacementandcontinuity.
• theboardofdirectorscontinuouslyevaluatesit’sownperformancebutithasnotappliedastructuredevalua-tionprocessyet.duetoahighactivitylevel–alsofortheboardofdirectors–inconnectionwithinvestmentanddivestmentprojects,theimplementationoftheevaluationprocesswilltakeplaceduring2008.
tormhasthroughouttheyearcompliedwiththeUSSarbanes-oxleyActasitappliestoforeignprivateissuers.
theboardofdirectorsandmanagementbelievethatstrongcorporatevaluesarefundamentalinsecuringthatbehaviourandbusinesspracticesthroughoutthegroupareinalignmentwithtorm’sgovernancepolicies.during2007,aseriesofcultureandvaluesseminarswerecon-ductedatallgrouplocationstoreinforcethethreetormvaluesandtoembedthemintothecontextofdailytasksanddecision-making.
thecompanybelievesthatvaluefortheshareholdersandthecustomersmustbecreatedwithrespectforanddemonstrationofresponsibilityforemployees,businesspartnersandtheenvironment.therefore,tormhasanintegratedmanagementsystemforsafety,qualityandtheenvironment.pleaserefertopage38fordetailsoftorm’sapproachtoresponsibility.
Torm values
entrepreneurship-howwedevelop,growandimprove. •Wethinkofourselves,andbehave,asownersbybringingthe bestofourabilities,engagementandcreativitytotorm. •Wetakeinitiativeswithcommercialopportunitiesinmind. •Wevalueaculturethatencouragesanopenanddirectdialogue,
delegationofauthorityandan’opendoor’policyforstaffmembers.
professionalism–howwecreatetrust. •Westandbyallourcommitmentsandcanbereliedontodo so–‘ourwordisourbond’. •Wepreservetorm’sindustryreputation-beingafirstclass company-byactinginaprofessionalmannerineverythingwe undertake. •Weknowourjobanditsrelatedexpectations,weknowourmarket andkeepuptodatewiththelatesttrendsinordertocontinue being’thebestinthebusiness’. •Wemeasure,improveandperformtoobtainandpreserve excellenceinqualitywithintheshippingbusiness.
respect–howwebuildrelations. •Werespectall–customers,businesspartnersandcolleagues–
alike,andouraimistoestablishsustainablewin-winrelationships wheneverpossible.
•Wealwaysattempttounderstandtheotherperson’spointofview anddemonstratewillingnesstonegotiateingoodfaithandina respectfulmanner,beingatthesametimecommercialinthe approach. •Wesupportandhelpourcolleagues,alwaysrecognizingthatwe areamemberofateamwhichformstheheartoftheorganization.
The Board of Directors and Management in TORM believe that good corporate governance is a key element in the creation of shareholder value and in gaining the trust of customers, business partners and the financial markets.
JesperHolmark,SeniorVicepresident,corporategovernance,controlling&Accounting
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corporaTe governance
THe boarD of DirecTorsInaccordancewithdanishcompanylegislation,tormhasatwo-tiermanagementstructure.theboardofdirectorsisentirelycomprisedofpersonsnotinvolvedintheday-to-daymanagement.theboardofdirectorslaysoutclearpoliciesanddirectivesformanagement’simplementation.themanagementinturnimplementstheseguidelinesintheirday-to-daymanagement.thenon-executiveboardofdirectorsactsasasparringpartneraswellasacontrolbodyformanagement.nooneservesasamemberofboththeboardofdirectorsandmanagement,butmanagementnormallypartici-patesinboardmeetings.
theprimaryresponsibilitiesoftheboardofdirectorsaretosafeguardtheinterestsofshareholders,tosuper-visetheactivitiesofthecompanyandensurethatthecompanyisproperlymanagedinaccordancewiththearticlesofassociation,lawsandregulations,andtolaydownthecommercialobjectivesandthestrategicdevel-opmentofthecompany.
theboardofdirectorshaslaiddownclearmanagementguidelinesandacodeofethicsandconductsinordertoensurethatthecompanyismanagedandbusinessactivitiesarecarriedoutinaccordancewithprinciplesinwhichtrustworthinessandethicsareatthecore.theseprinciplesareatthefoundationofthecompanyandcon-tributetowardsthecreationofvalueforthecompanyandtherebyitsshareholders.
torm’sboardofdirectorsandmanagementhaveanongoingdialoguetocontinuallyimprovethemanage-mentofthecompany.theboardofdirectorsmeetsaminimumoffivetimesperannumaccordingtotherulesofproceduresfortheboardofdirectorsandmanagement.In2007,16boardmeetingswhereheldduetoahighactivitylevel.
maTTers reserveD for THe boarD of DirecTors:
1. Approvalofthecompany’svision,valuesand governanceframework.2. Approvalofthecompany’sstrategy,overallbusiness
objectivesandannualbudgets.3. ApprovalofAnnualreportandquarterlyfinancial
statements.4. recommendationofdividendpayments.5. Approvalofthecompany’spolicystatements, includingriskpolicyandfinancialpolicyaswellas
thereportingstructureforthese.6. Approvalofmaterialcapitalprojects,investments,
acquisitionanddisposalofvesselsorbusinessunits.7. Approvalofincentiveschemesforemployees.
boardmembersshallnormallyretireattheAnnualgeneralmeetingheldintheyearinwhichtheyattaintheageof65.theboardmemberselectedbytheemployeeshavethesamerights,obligationsandresponsibilitiesasthedirectorselectedattheAnnualgeneralmeeting.
ItistheopinionoftheboardofdirectorsthatpoliciesandguidelinesconcerningthemanagementofthecompanyanditsinteractionwithstakeholdersareinaccordancewiththerecommendationsforgoodcorporategovernancefromomXthenordicexchangeandarefor-malizedtoadegreethatisconsistentwiththesizeofthecompanyandthecomplexityofitsactivities.theboardofdirectorsregularlyevaluatesthework,resultsandcompositionoftheboardofdirectorsandmanagement.
meeTings aTTenDeD/HelD board audit committee remuneration
committee
nielseriknielsen(2) 16/16 3/3 christianFrigast(1),(2) 13/16 4/4 3/3peterAbildgaard(elected17April2007) 7/9 LennartArrias 14/16 margrethebligaard(elected17April2007) 6/9 ditlevengel(resigned29June2007) 6/11 pedermouridsen(resigned17April2007) 6/8 gabrielpanayotides(1) 15/16 2/4 Stefanos-nikoZouvelos 16/16
1)memberoftheAuditcommittee2)memberoftheremunerationcommittee
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THe auDiT commiTTeetheAuditcommitteemeetsatleasttwiceperannumandbothmanagementandtheauditorsusuallypartici-pateinthemeetings.In2007,fourmeetingswereheld.theAuditcommitteehastwomembers,whicharebothelectedbytheboardamongitsmembers.theAuditcommitteeperformsitsdutiesunderacharterapprovedbytheboardandassiststheboardwiththeoversightoffinancialreporting,internalcontrolsandauditingmat-tersaswellastheorganizationofworkandcomplaintshandlinginrelationtosuchmatters.
theworkoftheAuditcommitteeduring2007included:
1. monitoringofprogressandresultsofinternalcontrolactivities.
2. reviewofriskassessments.3. discussionoftheauditapproachfor2007withthe
auditorsandapprovaloftheauditengagementletter.4. reviewofengagementswithandfeestotheauditors
electedattheAnnualgeneralmeetingconcerningbothauditandnon-auditrelatedservices.
5. reviewofauditcommitteereportsfromtheauditors.6. reviewoftheauditors’independence.7. reviewofrelatedpartiestransactions.8. reviewofreportsfromtheexternalwhistleblower
serviceprovider.
theAuditcommitteeprovidesanoralreportonthecommittee’sactivitiestotheboardatleastatthefirstboardmeetingfollowinganAuditcommitteemeeting.
THe remuneraTion commiTTee anD remuneraTion policiestheremunerationcommitteemeetsatleasttwiceperannum.threemeetingswereheldduring2007.theremunerationcommitteehastwomembers,whoarebothelectedbytheboardamongitsmembers.theremunerationcommitteeassiststheboardwithreview-ingtheperformanceofmanagement,theremunerationtomanagementandthecompany’sgeneralremunera-tionpolicies.
Inordertoattract,retainandmotivatequalifiedexecu-tivemanagers,remunerationisbasedonthenatureandqualityofwork,valuecreationtothecompanyandremunerationatcomparablebusinesses.Itistheboard’sopinionthattheremunerationandthegeneraltermsofemploymentofmanagementareinaccordancewithmarketconditions.theamountsandcomponentsofremunerationtotheindividualmembersoftheboardandmanagementarepresentedinnote4.
Amongitsprimaryactivitiesin2007,theremunerationcommitteecarriedoutthefollowing:
1. Approvalofemploymenttermsandcompensationpackageforthecompany’sceo.
2. Approvalofemploymenttermsandcompensationpackageforthecompany’scoowitheffectfrom
6march2007.3. recommendationforapprovalbytheboardofan
incentiveschemecoveringallland-basedpersonnelinthecompanyaswellasallofficersemployedonpermanentcontracts.theschemeconsistsofbothcashandshareelementsandrewardsshort-termfinancialresultsaswellaslong-termshareholdervaluecreation.detailsoftheprogrammeandout-standingshareoptionsarepresentedinnote4.
4. Awardof1,087,362shareoptionsundertheincentiveschemeto331employees.
5. Approvalofgeneralprinciplesforthedistributionofestimatedbonustoleadingemployees.
inTernal conTrol anD risk managemenTWhiletheboardofdirectorsrecognizesthatithastheoverallresponsibilityforthecompany’sinternalcontrolandtheassessmentandmanagementofrisk,managementcarriesouttheidentificationandassess-mentofrisks,theoperationofaneffectiveinternalcon-trolsystemandtheinitiationofappropriatemitigatingaction.managementisalsoresponsiblefortheperiodi-calpresentationofmajorriskandchangeshereintotheAuditcommitteeandtheboard.theboardreviewsthemajorrisksanddiscussesriskdevelopmentswithmanagementasdeemedappropriateandatleastonceayear.majorrisksincludegeopolitical,financial,insuranceandenvironmentalissues.
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corporaTe governance
tormisobligedinconnectionwiththenASdAQlistingtocomplywithanumberofstandards,rulesandregula-tionsaimedatgoodcorporategovernanceundertheSarbanes-oxleyAct,coveringAmericanandforeignpri-vateissuers,ofwhichthemostimportantaretherequirementslistedinSection404.
torm’sSarbanes-oxleycomplianceprogrammeisexe-cutedandmonitoredintheInternalcontrolandAdministrationSystem(IncA).IncAisconsistentwiththerecognizedframeworkestablishedbythecommitteeofSponsoringorganizations(coSo)anditprovidesaclearaudittrailofchangesinriskassessmentsandinthedesignofcontrolsaswellasoftheresultsoftestsofinternalcontrols.tormmustensureatleastannuallybyactualtesting,thattherearenomaterialweaknessesintheinternalcontrols,whichcouldpotentiallyleadtoamaterialmisstatementinthefinancialreporting.IntheForm20-Ffor2006filedwiththeUSSecuritiesandexchangecommissionon26June2007,managementaswellastheauditorsconcludedthattherewerenomate-rialweaknessesduring2006andnoareasofconcernwereidentified.management’sconclusionandtheaudi-tor’sevaluationoftheinternalcontrolsandthetestingperformedbymanagementregarding2007willbeincludedintheForm20-Ffilingregarding2007whichisexpectedtobefiledinJune2008.Inadditiontosecurecompliancewiththerelevantlaws,tormbelievesthatthehighfocusoninternalcontrolsandriskmanagementcontributespositivelytoimprovetheefficiencyofthecompany’sbusinessproceduresandprocessesandtherebyearningsbothintheshortandlongterm.
WHisTlebloWer faciliTyAspartoftheinternalcontrolsystem,theboardhassetupawhistleblowerfacilityallowingemployees,businesspartnersandotherstofilecomplaintstoanindependentlawyer’sofficesolicitedbytheboardconcerningbreachesoflaws,regulationsandgoodbusinessconductbytormrepresentatives.generally,tormencouragesemployeesandotherstakeholderstopursuethefollowingissues:
1) Fraud,includingtheprovisionortheendorsementoffalseormisleadingstatementsaboutthecompany’saffairs.
2) criminaloffences.3) Violationsoflawsandregulations.4) Intentionalprovisionofincorrectinformationtopub-
licbodies.5) Unlawfulbehaviourinconnectionwithaccounting,
internalaccountingcontrolsorauditingmatters,includingbutnotlimitedto:a. Fraudordeliberateerrorinthepreparationor
maintenanceofanyfinancialstatementorfinan-cialrecordsofthecompany.
b. non-compliancewithinternalaccountingcontrols.c. misrepresentationorfalsestatementtoorbyan
employeeoraccountantregardingamattercon-tainedinthefinancialrecords,financialreportsorauditreportsofthecompany.
d. deviationfromfullandfairreportingofthecompany’sfinancialcondition.
6) Violationsoftorm’scodeofethicsandconduct.7) Intentionalsuppression,destructionormanipulation
ofinformationregardingthemattersdetailedin1)-6).
detailsofhowtosubmitcomplaintsarepubliclyavail-ableinenglishontorm’swebsiteandintranet,andcomplaintsmaybefiledanonymously.nocomplaintsweresubmittedthroughthisfacilityduring2007.
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sHareHolDer relaTions
torm’smanagementkeepsinregularcontactwiththefinancialmarketsthroughpresentations,investormeet-ingsandteleconferences,discussingperformance,strategyandthecompany’smanagement.thisisbasedonawishtokeepinvestorsfullyupdatedonimportanteventsinthecompanysoastocreateagoodfoundationfortheirassessmentoftormasaninvestmentobject,companyandborrower.throughthestockexchange,allinvestorsgainaccesstoprice-sensitiveinformationsimultaneously.
Inconnectionwiththecompany’sexternalfinancialreporting,theboardofdirectorsandmanagementdis-cussthemarkets’expectationsoftorm’sresultsandreceiveregularfeedbackfrominvestorsandanalystsontheirviewsofthecompany.
Forathree-weekperiodpriortothepublicationofquarterlyandannualfinancialstatements,communicationwithinvestors,analystsandthepressissubjecttospeciallimitations,however.
torm’ssharecapitalconsistsof72.8millionsharesofdKK5each.thesharesareissuedtobearerandlistedonomXthenordicexchangeandonnASdAQintheformofAmericandepositaryreceipts(Adrs).
torm’ssharepricedecreasedby4%in2007,standingat178.2attheendoftheyearagainstapriceof186.0attheendof2006.IncludingthedividendofdKK33.25pershare,theshareholdersreceivedatotalreturnof13.7%in2007.themarketcapitalizationofthecompany’ssharesthusdecreasedtodKK13billionattheend2007againstdKK13.5billionattheendof2006.theoveralldailyturnoveroftormsharesaveragedapproximatelydKK63million(USd12million)in2007.
thecompany’sregistrarisVærdipapircentralenA/S,HelgeshøjAllé61,p.o.box20,dK-2630taastrup,denmark.
sHareHolDerstormhad13,499registeredshareholdersasat31december2007,representing86.9%ofthesharecapital.Attheendoftheyear,approximately10%ofthesharecapitalhadbeenconvertedintoAdrs.
thefollowingshareholdershavereportedtothecompanypursuanttoSection29ofthedanishSecuritiestradingActthattheyownmorethan5%oftheshares:
beltestShippingcompanyLtd,cyprus 32.2%menfieldnavigationcompanyLimited,cyprus 20.0%A/SdampskibsselskabettormsUnderstøttelsesfond 6.3%Inaddition,tormholds4.9%treasuryshares
managemenT’s HolDings of Torm sHaresAttheendof2007,themembersoftheboardofdirectorsheldatotalof70,246shares,equivalenttoatotalmarketcapitalizationofdKK12.5million(USd2.5million).
themembersofmanagementheldatotalof12.600shares,equivalenttoamarketcapitalizationofdKK2.2million(USd0.4million).
Alltormemployeesarecoveredbyinsideinformationrules,andtheyhaveadutytoreportanysharetransac-tions.Allemployeesandtheirspousesandchildrenundertheageof18arelimitedtotradingsharesforafour-weekperiodafterthepublicationofprofitannouncements.
DiviDenDthecompany’sdividendpolicyisbasedonthefactthatupto50%ofnetprofitfortheyearcanbepaidasdividend,howeverthedividendmustalwaysbeconsideredinthelightofthecompany’scapitalstructure,thestrategicdev-lopment,futureobligations,markettrendsandshareholderinterests.
For2007,theboardofdirectorsrecommendstotheAnnualgeneralmeetingthatadividendofdKK4.5(USd0.89)persharebepaid(2006:dKK5.75(USd1.02)).thedividendpaymenttotalsdKK327.6million(USd64.5mil-lion),correspondingtoareturnof2.5%basedonthesharepriceattheendof2007.thedividendcorrespondsto42%oftheprofitfortheyearexcl.theproceedsfromthesaleofthenordenshares.IncludingtheextraordinarydividendofdKK27.5(USd5.1)persharepaidoutinSeptember2007,theaccumulateddividendfor2007was55%ofthenetprofitequivalenttodKK2,330million(USd434million).
TORM has one overall objective where our investors are concerned: Clear communication. Accordingly, TORM keeps existing and potential investors fully updated on important events and any milestones achieved by the Company. Private and institutional investors have access to the same information – at the same time.
TORM SHARE PRICE – COPENHAGEN 2007
TORM SHARE PRICE – NASDAQ 2007
TORM SHARE PRICE – COPENHAGEN 2007
TORM SHARE PRICE – NASDAQ 2007
56
THe folloWing analysTs cover THe Torm sHareAbgSundalcollierAlm.brandHentoncarnegiedanskeequitiesdnbFIHHandelsbankenJefferies&company,Inc.JyskebankKauptingnordeamarketsparetoSebenskildaStandard&poor’sSydbank
announcemenTs To omx THe norDic excHange in 2007
01 05march Annualreport200602 27march Shareholdinginnorden03 29march changeoftheboardofdirectors04 02April Saleoftorm’sshareholdinginnorden/Shareholdings02.04.200705 10April noticeofAnnualgeneralmeeting06 17April Sharebuy-backprogramme07 17April Annualgeneralmeeting08 17April AcquisitionofomIcorporation09 09may InterimreportFirstquarter200710 16may Sharesplit11 26may completionoftheAcquisitionofomIcorporation12 01June Sharecapitalandvotingrights13 08June completionoftheAcquisitionofomIcorporation14 20June Incentiveschemeforemployees15 29June Sharebuy-backprogramme16 29June ditlevengelresignsfromtheboard17 06July distributionofextraordinarydividendinlieuofsharebuy-backprogramme18 31July noticeofextraordinarygeneralmeeting19 03August tormtakesovercontrolofomIvessels20 14August extraordinarygeneralmeeting21 31August distributionofinterimdividend22 31August deferredreportingforthethirdQuarter200723 31August InterimreportFirstHalf200724 22november InterimreportthirdQuarter200725 17december tormfinancialcalendar2008
financial calenDar 2008
14march Annualreport200722April Annualgeneralmeeting09may Interimreport,FirstQuarter08August Interimreport,FirstHalf11november Interimreport,ninemonths
sHareHolDer relaTions
thomasAndersen,Vicepresident,Investorrelations&communications
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59
FiNANCiAL
STATEMENTS
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61
consoliDaTeD financial sTaTemenTs
Table of conTenTs
62 Financialreview 67 consolidatedincomestatement 68 consolidatedbalancesheet 70 consolidatedstatementofchangesinequity 71 consolidatedcashflowstatement 72 notes102 boardofdirectorsandmanagement106 management’sandauditors’report
financial revieW
netprofitfortheyearincreasedby238%toUSd792millionin2007fromUSd235millionin2006resultinginearningspershare(epS)ofUSd11.4in2007againstUSd3.4in2006.
InJune2007,tormacquiredtheUStankershippingcompanyomIcorporationina50/50jointventurewithteekay,andtheincomefromthisinvestmentwasrecognizedintorm’sconsolidatedfinancialstate-mentswitheffectfrom1June2007.thefinancialstatementsforomIareincludedintheconsolidatedfinancialstatementsinproportiontotheownershipsharebycombiningitemsofauniformnature.thevastmajorityoftheactivitiesweretransferredtotormandteekayrespec-tivelywitheffectfrom1August2007.thenetprofitfortheperiod1Juneto31July2007hasnotbeenallocatedtotorm’sreportablesegmentsandthenetprofitforthefewremainingactivitiesinomIafter31July2007havealsonotbeenallocatedtothesegments.theactivitiesthatweretransferredtotormat1August2007arerecognizedfullyinthetankerdivisionasfromthisdate.
theprofitbeforetaxfortheyearwasUSd804million,andexcludingrestructuringcostsinconnectionwiththeacquisitionofomIofUSd15million,theprofitbeforetaxofUSd819millionwasinlinewiththeexpectationsaccordingtothelatestannouncementofexpectedprofitfor2007.restructuringcostsprimarilycompriseretentionbonusestoemployeesandseverancepaymentstotheformermanagementinomI.
thenetprofitfor2007includesacapitalgainonthesaleofsharesindampskibsselskabetnordenA/SofUSd643million.excludinggainsfromsaleofcapitalinterestsandvesselsinbothyears,theprofitbeforetaxdecreasedby14%toUSd161millionin2007fromUSd187millionin2006.thelowerprofitcomparedto2006despiteasignificantincreaseinearningdayswasprimarilyduetolowerfreightratesintheLr2andmrbusinessareas,increasedexpensesanddepreciationperearningdayduetotheexpansionandrenewalofthefleetofownedandcharteredvessels,primarilythroughtheacquisitionofomIaswellasrestructuringcostsrelatingtothisacquisition.
torm’stotalassetsincreasedbyUSd878millionin2007toUSd2,967millionfromUSd2,089millionin2006.themostsignificantdevelop-mentsbehindthisincreaseweretheadditionofUSd88millioningood-willandanetincreaseinthecarryingamountofvessels,capitalizeddry-dockingandprepaymentsonvesselsofUSd1,222millionmainlyduetotheacquisitionofomI,adecreaseinotherinvestmentsduetothesaleofthesharesinnordenofUSd633millionandanincreaseincashandcashequivalentsofUSd85million.
theequitydecreasedbyUSd200millionin2007toUSd1,081millionfromUSd1,281millionin2006.thesignificantdecreaseinequitywasmainlyduetotheprofitfortheyearofUSd792million,lessthevalueadjustmentofthesharesinnordenrelatingtoprioryearsofUSd572millionandlessanextraordinarilyhighdividendpaidoutofUSd424million.torm’stotalliabilitiesincreasedbyUSd1,077millionin2007toUSd1,885millionfromUSd808millionin2006primarilyduetotheacquisitionofomI.
neT earnings from sHipping acTiviTiestorm’stotalnetrevenuein2007wasUSd819millionascomparedtoUSd604millioninthepreviousyear.torm’srevenuederivesfromtwosegments:thetankerdivisionandthebulkdivision.Inthemarketsinwhichthesedivisionsoperate,thetimecharterequivalent(tce)rates,definedasnetrevenuelessvoyageexpensesdividedbythenumberofavailableearningdays(daysavailableforservice)areusedtocomparefreightrates.Undertimechartercontractsthechartererpaysforthevoyageexpenses,whereastheshipownerpaysforthevoyageexpensesundervoyagechartercontracts.Achartererbasicallyhasthechoiceof
enteringintoeitheratimecharter(whichmaybeaone-triptimecharter)oravoyagecharter,andtormisneutraltothecharterer’schoice,becausethecompanywillbaseitseconomicdecisionsprimarilyupontheexpectedtceratesratherthanonexpectednetrevenues.theanaly-sisofrevenueisthereforeprimarilybasedonthedevelopmentintimecharterequivalentearnings.torm’stimecharterequivalentearningsin2007wereUSd645millioncomparedtoUSd455millionin2006.theincreaseinthetcewasprimarilyduetotheincreaseinearningdaysinthetankerdivisionmainlyasaresultoftheacquisitionofomI.
tAnKerdIVISIonrevenueinthetankerdivisionincreasedby30%toUSd640millionfromUSd494millionin2006,whereasthetimecharterequivalentearn-ingsincreasedbyUSd128millionor36%toUSd479millionin2007fromUSd351millioninthepreviousyear.
In2007,thedeliveryof2.5newbuildingsintheLr2businessareawastheprimaryreasonfortheincreaseinthenumberofavailableearningdaysby905daysor38%resultinginanincreaseinearningsofUSd26million.Freightratesthatwereonaverage13%lowerthanintheprevi-ousyeardecreasedearningsbyUSd12million.
IntheLr1businessarea,thecompanyaddedtenvesselsfromtheformeromIfleetandtookdeliveryof1.5newbuildings.thesewerethemostimportantfactorsbehindtheincreaseinthenumberofavailableearningdaysby1,654daysor38%fromthepreviousyear,resultinginanincreaseinearningsofUSd45million.theaveragefreightratesremainedatalevelslightlyabovethepreviousyearincreasingearningspositivelybyUSd1million.
Inthemrbusinessarea,theadditionof11vesselsfromtheformeromIfleetduring2007causedthenumberofavailableearningdaystoincreaseby1,670daysor26%,whichincreasedearningsbyUSd41mil-lion.theaveragefreightrateswere3%lowerthaninthepreviousyear,whichaffectedearningsnegativelybyUSd6million.
during2007,tormtookover11HandysizeproducttankervesselsfromtheformeromIfleet.duringtheperiodfromtakeoveron1Augustto31december2007,thisareashowed1,836availableearningdaysandachievedUSd31millioninearnings.
thenetincreaseinthetimecharterequivalentearningsinthetankerdivisioncanbesummarizedasillustratedinthetablebelow.
bULKdIVISIonInthebulkdivision,revenueincreasedby22%toUSd134millionfromUSd110millioninthepreviousyear,whereasthetimecharterequivalentearningsincreasedbyUSd23millionor22%toUSd128millionfromUSd105millionin2006.In2007,thefreightratesforbulkcarrierswereonceagainhighlyvolatile.However,tormcontinuedtopursueastrategyofhighcoverageinthebulksegment,primarilythroughoneyeartimechar-teragreements,andthemarketdevelopmentinfreightratesduring2007isthereforenotdirectlyreflectedinthecompany’searningsfor2007.
Freightratesinthepanamaxbusinessareawereonaverage33%higherthanin2006,increasingearningsbyUSd32million.Inthisbusinessarea,thecompanyaddedavesseltothefleetofownedvesselwhichwasalreadycharteredinandthereforedidnotaffectthenumberofavailableearningdays.thenetreductioninthenumberofavailableearningdaysfromothercharteredinvesselswas-4%or224daysfromthepreviousyear.Asaresult,thetimecharterequivalentearningsinthissegmentdecreasedbyUSd5million.
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63
thenetincreaseinthetimecharterequivalentearningsinthetankerdivisioncanbesummarizedasillustratedinthetablebelow
earnings for the Tanker Division
USdmillion Handy mr lr1 lr2 un-allocated Total
timecharterequivalentearnings2006 - 160 120 69 2 351changeinnumberofearningdays 31 41 45 26 143changeinfreightrates - -6 1 -12 -17other 2 2timecharterequivalentearningsin2007 31 195 166 83 4 479
Un-allocatedearningscomprisefairvalueadjustmentoffreightandbunkersderivatives,whicharenotdesignatedashedges,andgainsandlossesonfreightandbunkersderivatives,whicharenotenteredforhedgepurposes.
thetablebelowsummarizestheearningsdataperquarterforthetankerdivision.
earnings data for the Tanker Division USd/day 2006 2007 2007 2007 2007 2007 % change Fullyear q1 q2 q3 q4 Fullyear Fullyear
lr2/aframax vessels Availableearningdays 2,401 717 767 906 916 3,306 38%tceperearningdays*) 28,641 26,838 29,073 21,841 23,227 24,988 -13% lr1/panamax vessels Availableearningdays 4,359 1,278 1,364 1,623 1,748 6,013 38%tceperearningdays*) 27,497 27,816 29,108 27,407 26,517 27,621 0% mr vessels Availableearningdays 6,499 1,643 1,652 2,284 2,590 8,169 26%tceperearningdays*) 24,627 24,676 28,143 22,941 21,702 23,949 -3% Handysize vessels Availableearningdays n.a. n.a. n.a. 732 1,104 1,836 n.a.tceperearningdays*) n.a. n.a. n.a. 16,129 17,121 16,726 n.a. *)tce=timecharterequivalentearnings=grossfreightincomelessbunker,commissionsandportexpenses.
thechangeinthetimecharterequivalentearningsinthebulkdivisioncanbesummarizedasillustratedinthetablebelow.
earnings for the bulk Division
USdmillion Handysize panamax Total
timecharterequivalentearnings2006 4 101 105changeinnumberofearningdays -4 -5 -9changeinfreightrates 0 32 32timecharterequivalentearnings2007 0 128 128
thetablebelowsummarizestheearningsdataperquarterforthebulkdivision.
earnings data for the bulk Division USd/day 2006 2007 2007 2007 2007 2007 % change Fullyear q1 q2 q3 q4 Fullyear Fullyear
panamax vessels Availableearningdays 5,196 1,205 1,222 1,258 1,287 4,972 -4%tceperearningdays*) 19.325 22.955 25.467 27.019 27.443 25.762 33%
*)tce=timecharterequivalentearnings=grossfreightincomelessbunker,commissionsandportexpenses.
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financial revieW
operaTion of vesselsVesselscharteredinontimechartersdonotgiverisetooperatingexpensesfortormbutonlytocharterhirepayments.Ascomparedto2006,charterhireinthetankerdivisionincreasedbyUSd33mil-liontoUSd92millionin2007,whereascharterhirepaidinthebulkdivisionincreasedbyUSd11milliontoUSd59million.theincreaseinthetankerdivisionwasprimarilycausedbyasignificantincreaseinthenumberofvesselscharteredin,primarilyduetotheacquisitionofomI,whereasthedevelopmentinthebulkdivisionwascausedbyacombina-tionofanincreaseintheavailableearningdaysandhighertimecharterratescomparedto2006.
theoperatingexpensesfortheownedvesselsincreasedbyUSd49millionor64%toUSd127millionin2007.themostsignificantfactorbehindthisdevelopmentwastheincreaseinthenumberofoperatingdaysof3,985daysor31%,whichcausedanincreaseintheoperatingexpensesofUSd26million.theincreaseinthenumberofoperatingdayswasprimarilycausedbytheadditionofvesselsinthemrandLr1businessareasfromtheacquisitionofomIandtheadditionofnewbuild-ingsintheLr2businessarea.
thetotaloperatingexpenseswhicharenotallocatedonvesselsamountedtoUSd15millionin2007,ofwhichUSd4millionrelatedtothetankerdivision.theremainingUSd11millionrelatedtothevesselsinomIpriortotheirtransfertoeithertormorteekay.
operatingexpensesperoperatingdayincreaseby14%forthewholeownedfleetinthetwosegmentswhichcausedanincreaseintheoperatingexpensesofUSd10million.operatingexpensesareprimarilyincurredinUSdanddKK.theshareoftheexpensesincurredindKKwas23%in2007andtheincreaseintheaveragedKK/USdexchangeratecomparedto2006of8%causedanincreaseintheoperatingexpensesofUSd2million.
thetotalfleetofownedvesselsincurred145off-hiredaysin2007cor-respondingto9perthousandofthenumberofoperatingdayscomparedto69off-hiredaysin2006correspondingtofiveperthousandofthenumberofoperatingdays.ofthisincreaseinoff-hiredays,twospecificincidentsaccountfor26days.themrtankertormgertrudwasinvolvedinacollisionandtheLr1tankertormSignewasgrounded,andbothvesselshadtoundergomajorrepairs.Apartfromthesetwoincidents,thecompanyconsidersthelevelofoff-hiredaystobesatisfactory.
theaverageoperatingexpensesperoperatingdayincreasedbyUSd814or14%comparedto2006.theincreasewasprimarilycausedbyanincreaseinwagescostsperoperatingdayofUSd364toUSd3,380,cor-respondingtosixpercentagepointsofthetotalincrease.theincreasewasmainlyduetotheadditionoftonnageintheLr2segmentbeingregisteredinthedanishship’sregisterandsailingwithdanishofficerswhichonaveragereceivehigherwagesthantheremainingofficers.thehourlywagestoofficersshowedageneralincreaseof16%during2007calculatedasaweightedaverage,whichhasalsoaffectedthetotalwagescostsnegativelyjustasithasaffectedallothershippingcom-panies.Inaddition,theluboilcostsincreasedbyUSd139peroperatingdaytoUSd339peroperatingdaycorrespondingto2percentagepointsofthetotalincreaseof14%asaconsequenceoftherisingoilprices.InsurancecostsincreasedbyUSd148toUSd773peroperatingdaycorrespondingto3percentagepointsofthetotalincrease.theincreaserelatestolossofhireandisattributabletothetwoincidentswithtormgertrudandtormSigne.
aDminisTraTive expenses anD oTHer operaTing incomethetotaladministrativeexpensesincreasedfrom2006to2007byUSd34milliontoUSd69million.ofthisincrease,restructuringexpensesrelatingtotheacquisitionofomIamountedtoUSd15million,expensesrelatingtothenewincentiveschemeamountedtoUSd3million,expensestoconsultantsandadvisorsinconnectionwiththepaymentofextraordinarydividendandevaluationofseveralinvestmentprojectsamountedtoUSd3millionandthechangeinthedKK/USdexchangeratecausedanincreaseofUSd4million.themajorityoftheremainingpartoftheincreaseisattributabletotheacquiredactivitiesinomI.
otheroperatingincomeprimarilycomprisescharteringcommissionsreceivedbytorminconnectionwiththemanagementofthethreetankerpools.otheroperatingincomeamountedtoUSd15millionin2007comparedtoUSd10millionin2006.theincreasewasprimarilyrelatedtocommissionsfromtechnicalmanagementofthirdpartyvessels.InconnectionwiththesplitoftheomIactivitiesbetweentormandteekay,tormperformedtechnicalmanagementforanumberofteekayvesselsforashortperiodoftime.
financial income anD expensesnetfinancialitemsin2007wereUSd599millioncomparedtoUSd-1millionin2006.themostsignificantreasonforthechangeisthegainfromthesaleofthenordensharesofUSd643millioncomparedtoadividendfromnordenofUSd25millionin2006andanincreaseinnetinterestexpensesofUSd17milliontoUSd53millionin2007duetotheincreaseinnetinterestbearingdebtofUSd874millionduringtheyeartoUSd1,536millionfromUSd662millionin2006.
TaxtaxexpensesfortheyearamountedtoUSd13millioncomparedtoUSd7millionin2006.thetaxexpensesfor2007comprisecurrenttaxfortheyearofUSd16millioncomparedtoUSd5millioninthepreviousyear,areductionofdeferredtaxofUSd7millioncomparedtoanincreaseofUSd8millionin2006andanexpenseofUSd4millionduetoanadjust-menttotheestimatedtaxliabilitiesforthepreviousyearscomparedtoanincomeofUSd6millionin2006.thedeferredtaxliabilityasat31december2007wasUSd56millioncomparedtoUSd63millioninthepreviousyear.
Allsignificantdanishentitiesinthetormgroupenteredintotheton-nagetaxationschemewitheffectfrom2001andhavefiledtaxreturnsfor2001throughto2006.thecompanyhasfiledacomplaintregardingtheassessmentsbythetaxauthoritiesofthetaxreturnsfortheyears2001to2004andtheassessmentsfor2005and2006havenotbeencompleted.therecognizedcurrenttaxliabilitiesarethereforetoagreatextentbasedonmanagement’sjudgementregardingtheoutcomeofthecomplaintandtheassessment.tormpaidUSd10millionincorporationtaxonaccountin2007regardingtheseentities.
vessels anD Dry-DockingtheincreaseintangiblefixedassetsofUSd1,229milliontoUSd2,553millionin2007isattributabletothechangeinvesselsandcapitalizeddry-dockingandinprepaymentsonvessels,primarilyasaconsequenceoftheacquisitionofomI.thecarryingvalueofvesselsandcapital-izeddry-dockingincreasedbyUSd1,134milliontoUSd2,270million.theadditionofnewtonnageamountedtoatotalacquisitioncostofUSd1,200millionresultingfrom11mrtankersand10Lr1tankerstransferredfromomI,2.5Lr2tankernewbuildings,1.5Lr1tankernew-buildingsandapanamaxbulkcarrierbuiltin2004.Inaddition,twomrtankersarestillownedbyomIwhichtormownsjointlywithteekay.
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thedevelopmentintheoperatingexpensescanbesummarizedasillustratedinthetablebelow.
USdmillion Tanker Division bulk Division operaTing cosTs Handy mr lr1 lr2 panamax Handy un-allocated Total
operatingexpenses2006 - 38.1 12.3 11.9 11.9 1.2 2.3 77.7changeinthenumberofoperatingdays 11.9 11.0 1.3 5.5 (2.1) (1.2) 26.4changeinexpensesperoperatingday - 4.3 1.7 3.7 0.7 - 10.4other 0 12.6 12.6operatingexpenses2007 11.9 53.4 15.3 21.1 10.5 - 14.9 127.1
thetablebelowsummarizestheoperatingdataforthecompany’sownedfleet.
USdmillion Tanker Division bulk Division operaTing Days Handy mr lr1 lr2 panamax Handy Total
operatingdaysin2006 - 5,835 2,298 2,067 2,474 306 12,980operatingexpensesperoperatingdayin2006 - 6,525 5,365 5,748 4,802 3,847 5,804operatingexpensesperoperatingdayin2007 6,467 7,098 6,071 6,976 5,135 - 6,618changeintheoperatingexpensesperoperatingdayin% n.a. 9% 13% 21% 7% n.a. 14%operatingdaysin2007 1,836 7,523 2,532 3,027 2,047 - 16,965-off-hiredays -0 -82 -10 -43 -10 - -145-daysindry-dock -0 -173 -84 -16 -77 - -350-earningdaysforvesselscharteredin 0 901 3,575 338 3,012 - 7,826earningdaysin2007 1,836 8,169 6,013 3,306 4,972 - 24,296
operatingexpensesperdayofUSd6,618andUSd5,804in2007and2006respectivelycanbedistributedontypesofcostsasillustratedinthefiguresbelow.
OPERATING COSTS 2006
OPERATING COSTS 2007
OPERATING COSTS 2006
OPERATING COSTS 2007
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financial revieW
novesselsweresoldduring2007.prepaymentsonvesselsincreasedbyUSd89milliontoUSd272millionduetoadditionalcostsrelatingtovesselsunderconstructionofUSd255millionlesstheabove-mentionednewbuildingdeliveriesofUSd166million.
totaldepreciationamountedtoUSd99millionin2007ascomparedtoUSd59millionin2006,anincreaseofUSd35million.theincreaseisduetotheexpansionandrenewalofthefleetduring2006and2007andtheamortisationofintangibleassetsacquiredintheomIacquisition.
Asat31december2007,torm’snewbuildingprogrammecomprised17tankervesselsandfourbulkcarrierstobedeliveredduring2008to2011,andthecontractualliabilitiesundertheprogrammeamountedtoUSd1,002million.
themarketvalueofthefleetandinvestmentprogramme(threeLr2tankernewbuildings,13mrtankernewbuildings,oneHandysizetankernewbuildingandfourpanamaxbulkcarriernewbuildings)exceededthecarryingvalueofthefleetincludingnewbuildingcontractsbyUSd1,578millionatyear-end.thisvaluationisbasedontheaverageofthreeinter-nationallyacknowledgedshipbrokers’valuations.
oTHer invesTmenTs (norDen)Inmarch2007,tormsoldit’sentireinvestmentinapproximately33%ofthesharesinnordenforasumofUSd704millionwherebythecompanyachievedagainofUSd643million.thecompanyholdsinvestmentsinotherentitieswithanaggregatecarry-ingamountofUSd11millionasat31december2007,ofwhichUSd3millionconcernsunlistedentities,whichisunchangedfromthepreviousyear.thecarryingamountoftheunlistedsharesconstitutestheestimatedfairvaluebasedonavailableinformation.
liQuiDiTy anD capiTal resourcestheinvestedcapitalincreasedbyUSd1,307milliontoUSd2,606millionasat31december2007fromUSd1,299millioninthepreviousyear.theincreasecanprimarilybeexplainedbytheacquisitionofomIandthefurtheradditionoftonnageduringtheyear.
equitydecreasedbyUSd200milliontoUSd1,081millionfromUSd1,281millionin2006.theconsiderablereductioninequityismainlyduetothenetprofitfortheyearofUSd792millionlessthevalueadjustmentofthecompany’sinvestmentinnordenattributabletopreviousyearsofUSd572millionandextraordinarilyhighdividendspaidoutduringtheyearofUSd424million.Asat31december2007,theequityratiowas36%comparedto61%asat31december2006.
thepaymentofthecompany’sobligationsunderloanagreements,alongwiththepaymentofcharterhireforchartered-invesselsandallothercommitmentsthattormhasenteredinto,arepaidoutofthecashgen-eratedbythecompany.totalcashandcashequivalentsamountedtoUSd118millionattheendof2007vs.USd33millionatthebeginningoftheyear,resultinginanetincreaseincashandcashequivalentsfromcashflowsfortheyearofUSd85millioncomparedtoanetdecreaseofUSd124millionin2006.theprimarysourcesofthecashflowwereprofitfromoperatingactivities,additionalborrowingandproceedsfromthesaleofthesharesinnorden,whichcontributedwithatotalofUSd2,717millionincash.
thecashflowswereprimarilyusedtofinancetheacquisitionofomIandfurtheradditionstothefleet,torepaymortgagedebtandbankloansandtopaydividendtoshareholdersduringtheyear,whichrequiredatotalofUSd2,665millionincash.
thecompany’soperationsgeneratedacashinflowofUSd205millioncomparedtoaninflowofUSd233millionin2006.
USd810millionwasinvestedintheacquisitionofomI.Inaddition,thecompanyinvestedUSd291millionintangiblefixedassetsduringtheyear,primarilycomprisingtheextensionofthefleet,comparedtoUSd262millionin2006.thecompanydidnotsellvesselsin2007,whereasthetotalcashinflowfromthesaleofvesselswasUSd145millionin2006.
thetotalcashinflowfromfinancingactivitiesamountedtoUSd243mil-lioncomparedtoacashoutflowofUSd239millionin2006.AdditionalborrowinggeneratedaninflowofUSd1,809millionforthefinancingoftheacquisitionofomI,thenewbuildingprogrammeandpurchaseofsecond-handvessels,whilerepaymentsonmortgagedebtandbankloansamountedtoUSd1,142million.dividendpaymentstotorm’sshareholders,whichin2007amountedtoUSd424million,alsoaffectedcashflowfromfinancingactivities.
Asat31december2007,tormhadenteredintocreditagreementswithleadingbankswithatotalcommitmentofUSd1,964million,ofwhichUSd1,657millionwasdrawn.ofthetotalborrowingsofUSd1,657mil-lion,USd1,532millionwasbearingvariableinterest.thecreditagree-mentsarededicatedtothefinancingofnewtonnageandtotheongoingfinancingofsomeoftheexistingvessels.
Forall21vesselsinthenewbuildingprogrammepaymentscorrespond-ingtoapproximately26%oftheaggregatecontractpricehavebeenmade.thetotaloutstandingcontractualcommitmentunderthenew-buildingprogrammeamountedtoUSd745millionasat31december2007.
tormisclosetofinalizingtherefinancingoftheoneyearUSd700mil-lionbridgefacilityobtainedinconnectionwiththeacquisitionofomI.
tormbelievesthatbasedonavailablecashandplannedinvestments,projectedoperatingcashflowsandfinancingcapacitythecompanyhassufficientcashflowtomeettheoperatingrequirements,cashflowobligationsandotherstrategicinitiativessetbythecompany’sboardofdirectors.tormalsobelievesthatthecurrentfleetstructure,basedontimechartersandownedvessels,providesthecompanywiththeflexibilitytoreacttochangesinmarketconditionsreducingtheexposuretonegativemarketdevelopments.
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consoliDaTeD income sTaTemenT1 January - 31 December
USd‘000
note 2007 2006revenue 818,773 603,717portexpenses,bunkersandcommissions -176,702 -148,943Freightandbunkersderivatives 2,894 620 Time charter equivalent earnings 644,965 455,394 charterhire -160,207 -106,329operatingexpenses 4 -127,140 -77,624 gross profit (net earnings from shipping activities) 3 357,618 271,441 profitfromsaleofvessels 0 54,362Administrativeexpenses 4.5 -68,743 -34,594otheroperatingincome 14,787 9,839depreciationandimpairmentlosses 7.8 -98,681 -58,915 operating profit 204,981 242,133 Financialincome 9 677,451 39,473Financialexpenses 9 -78,210 -40,520 profit before tax 804,222 241,086 taxexpenses 11 -12,545 -6,574 net profit for the year 791,677 234,512 2007 2006 earnings per share *) earningspershare(USd) 25 11.4 3.4earningspershare(dKK)**) 62.3 20.1dilutedearningspershare(USd) 25 11.4 3.4dilutedearningspershare(dKK)**) 62.1 20.1
*) thecomparativefiguresarerestatedtoreflectthechangeinthedenominationofthecompany’ssharesfromdKK10persharetodKK5inmay2007.
**)calculatedfromUSdtodKKattheaverageUSd/dKKexchangeratefortherelevantperiod.
theaccompanyingnotesareanintegratedpartofthesefinancialstatements.
consoliDaTeD balance sHeeTaT 31 December
USd‘000
asseTs note 2007 2006
non-currenT asseTs
intangible assetsgoodwill 87,663 0otherintangibleassets 7,481 0 7 95,144 0 Tangible fixed assets Landandbuildings 4,169 374Vesselsandcapitalizeddry-docking 16 2,270,064 1,136,408prepaymentsonvessels 271,523 183,348otherplantandoperatingequipment 7,682 3,575 8 2,553,438 1,323,705financial assets otherinvestments 6 11,029 644,409otherfinancialassets 20 44,600 0 55,629 644,409 Total non-current assets 2,704,211 1,968,114 currenT asseTs
bunkers 19,823 12,134Freightreceivables,etc, 10 90,265 49,690otherreceivables 29,533 21,500prepayments 4,746 4,546cashandcashequivalents 117,984 33,035
Total current assets 262,351 120,905
ToTal asseTs 2,966,562 2,089,019 theaccompanyingnotesareanintegratedpartofthesefinancialstatements.
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USd‘000
eQuiTy anD liabiliTies note 2007 2006
eQuiTy
commonshares 12 61,098 61,098treasuryshares 12 -18,118 -18,118revaluationreserves 7,268 579,852retainedprofit 953,656 574,493proposeddividend 64,548 73,939Hedgingreserves 8,664 5,589translationreserves 4,114 3,993
Total equity 1.081,230 1.280,846 liabiliTies
non-current liabilities deferredtaxliability 11 55,588 62,787mortgagedebtandbankloans 14,16 884,579 639,065Acquiredliabilitiesrelatedtooptionsonvessels 20 12,200 0Acquiredtimechartercontracts 19 16,018 0Total non-current liabilities 968,385 701,852 current liabilities mortgagedebtandbankloans 14,16 768,871 55,902otherfinancialliabilities 1,072 0tradepayables 44,310 18,760currenttaxliabilities 14,437 4,575otherliabilities 15 60,086 26,004Acquiredtimechartercontracts 19 20,196 0deferredincome 13 7,975 1,080Total current liabilities 916,947 106,321 ToTal liabiliTies 1.885,332 808,173 ToTal eQuiTy anD liabiliTies 2.966,562 2.089,019 Accountingpolicies 1-2collateralsecurity 16guaranteeandcontingentliabilities 17contractualliabilities 18derivativefinancialinstruments 20Financialandcommercialrisks 21Financialinstruments 22relatedpartytransactions 23entitiesinthegroup 24earningspershare 25Appropriationonnetprofitfortheyearincl.proposeddividend 26cashflows 27Acquisitionofcompanies 28timechartercontracts 29purchaseoptionsonvessels 30 theaccompanyingnotesareanintegratedpartofthesefinancialstatements.
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consoliDaTeD sTaTemenT of cHanges in eQuiTy
USdmillion
gains/lossesrecognizeddirectlyinequity common treasury retained proposed revaluation Hedging translation total shares shares profit dividends reserves reserves reserves eQuiTybalance at 1 January 2006 61.1 -7.7 415.3 132.4 296.4 3.3 3.9 904.7 changes in equity 2006: exchangerateadjustmentarisingontranslation ofentitiesusingameasurementcurrency differentfromUSd 0.1 0.1reversalofdeferredgain/lossonhedge instrumentsatthebeginningoftheyear -3.3 -3.3deferredgain/lossonhedgeinstruments atyear-end 5.6 5.6reversaloffairvalueadjustmentonavailable forsaleinvestmentsatbeginningofyear -296.4 -296.4Fairvalueadjustmentonavailableforsale investmentsatyear-end 579.8 579.8netgains/lossesrecognizeddirectlyinequity 0.0 0.0 0.0 0.0 283.4 2.3 0.1 285.8profitfortheyear 234.5 234.5Total recognized income/expenses for the year 0.0 0.0 234.5 0.0 283.4 2.3 0.1 520.3purchaseoftreasuryshares,cost -10.4 -10.4disposaloftreasuryshares,cost 0.0 0.0dividendspaid -140.1 -140.1dividendspaidontreasuryshares 5.9 5.9exchangerateadjustmentondividendspaid -7.7 7.7 0.0exerciseofshareoptions 0.4 0.4proposeddividendsforthefinancialyear -73.9 73.9 0.0Total 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 changes in equity 2007: exchangerateadjustmentarisingontranslation ofentitiesusingameasurementcurrency differentfromUSd 0.1 0.1reversalofdeferredgain/lossonhedge instrumentsatbeginningofyear -5.6 -5.6deferredgain/lossonhedgeinstruments atyearend 8.7 8.7Fairvalueadjustmentonavailableforsaleinvestments 70.8 70.8transfertoprofitorlossonsaleofavailablefor saleinvestments -643.3 -643.3netgains/lossesrecognizeddirectlyinequity 0.0 0.0 0.0 0.0 -572.5 3.1 0.1 -569.3profitfortheyear 791.7 791.7Total recognized income/expenses for the year 0.0 0.0 791.7 0.0 -572.5 3.1 0.1 222.4extraordinarydividendspaid -369.3 -369.3extraordinarydividendspaidontreasuryshares 18.0 18.0dividendspaid -76.4 -76.4dividendspaidontreasuryshares 3.7 3.7exchangerateadjustmentondividendspaid -2.5 2.5 0.0Share-basedcompensation 2.0 2.0proposeddividendsforthefinancialyear -64.5 64.5 0.0Total changes in equity 2007 0.0 0.0 379.1 -9.4 -572.5 3.1 0.1 -199.6 equity at 31 December 2007 61.1 -18.1 953.6 64.5 7.3 8.7 4.1 1,081.2
theaccompanyingnotesareanintegratedpartofthesefinancialstatements.
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consoliDaTeD casH floW sTaTemenT
USd‘000
note 2007 2006
casH floW from operaTing acTiviTies
operatingprofit 204,981 242,133 Adjustments: reversalofprofitfromsaleofvessels 0 -54,362reversalofdepreciationandimpairmentlosses 98,681 58,915reversalofothernon-cashmovements 27 -1,433 6,020
dividendsreceived 1,317 26,401Interestreceivedandexchangerategains 16,216 10,096Interestpaid -73,164 -40,734Incometaxespaid -9,525 -3,153changeininventories,receivablesandpayables -31,865 -12,813 net cash inflow from operating activities 205,208 232,503 casH floW from invesTing acTiviTies Investmentintangiblefixedassets -290,555 -262,376Investmentinequityinterestsandsecurities 0 -14Acquisitionofenterprisesandactivities 28 -810,159 0Saleofequityinterestsandsecurities 736,868 241Saleofnon-currentassets 194 144,550 net cash outflow from investing activities -363,652 -117,599 casH floW from financing acTiviTies borrowing,mortgagedebtandotherfinancialliabilities 1,808,983 162,096repayment/redemption,mortgagedebt -1,141,640 -256,143dividendspaid -423,950 -134,140purchase/disposaloftreasuryshares 0 -10,410 cash inflow/(outflow) from financing activities 243,393 -238,597 net cash inflow/(outflow) from operating, investing and financing activities 84,949 -123,693 cash and cash equivalents, at 1 January 33,035 156,728 cash and cash equivalents, at 31 December 117,984 33,035ofwhichusedascollateral 0 0 117,984 33,035 theaccompanyingnotesareanintegratedpartofthesefinancialstatements.
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noTe 1
accounTing policiestheannualreporthasbeenpreparedinaccordancewiththeInternationalFinancialreportingStandardsasadoptedbytheeUandthedisclosurerequirementsfordanishlistedcompanies’financialreporting.
theannualreportalsocomplieswiththeInternationalFinancialreportingStandards(“IFrS”)issuedbytheInternationalAccountingStandardsboard(IASb).
thefinancialstatementsarepreparedinaccordancewiththehistori-calcostconventionexceptwherefairvalueaccountingisspecificallyrequiredbyIFrS.
thefunctionalcurrencyinallmajorentitiesisUSd,andthecompanyappliesUSdaspresentationcurrencyinthepreparationoffinancialstatements.
cHanges in accounTing policies anD presenTaTiontormhasimplementedIFrS8“operatingSegments”intheannualreportfor2007.thestandardreplacesIAS14andalignssegmentreportingwiththerequirementsofSFAS131underUSgAAp.
Inaddition,thecompanyhasimplementedIFrIc10“InterimFinancialreportingandImpairment”andIFrIc11“IFrS2–groupandtreasurySharetransactions”.
theimplementationoftheabovestandardandinterpretationshasnotaffectedtorm’sfinancialstatements.
accounTing sTanDarDs anD inTerpreTaTions noT yeT aDopTeDIASbhasissuedanamendmenttoIAS1“presentationofFinancialStatements”.themostnotablechangesincomparisontothecurrentversionofIAS1are:
• Arequirementthat”comprehensiveincome”ispresentedeitherinasinglestatementorintwostatements(anincomestatementandastatementofcomprehensiveincome,inwhichnetprofitfortheyearisincludedinoneline).thestatementofchangesinequitycannolongerincludeelementsofcomprehensiveincome,butonlythetotalofthisstatement.
• Whenchangesinaccountingpoliciesorrestatementshaveoccured,astatementoffinancialposition(balancesheet)atthebeginningofthecomparativeperiodispresented(i.e.twoyearscomparativefigures).
• Arequirementforinformationregardingthetaxeffectofeachitemin”othercomprehensiveincome”.
• Arequirementofdisclosureofamounts,whicharereclassifiedfromothercomprehensiveincometonetprofitfortheyear(“recycling”).
• theterminologyregardingthefinancialstatementsinaccordancewithIFrSischanged.
IASbhasissuedanamendmenttoIAS23”borrowingcosts”.thechangestoIAS23imply,thatthecompanyisrequiredtocapitalizebor-rowingcosts,thatrelatedirectlytoassetsacquisition,constructionorproductionofaqualifyingasset,includingvessels,aspartofthecostoftheasset.
tormexpectstoimplementthesechangeswhentheybecomeeffectivein2009.
theimplementationofIAS1willchangethepresentationofthefinancialstatements,whereastheimplementationoftheamendmenttoIAS23willnoteffectthefinancialstatements.
In2008,IASbhasissuedrevisedIFrS3“businesscombinations”,amendmentstoIAS27“consolidatedandseparatefinancialstatements”,amendmenttoIFrS2“Share-basedpayment:vestingconditionsandcancellations”,whichhavenotyetbeenendorsedbytheeU.theeffectoftheseamendmentsonthefinancialstatementsisyettobedetermined.
key accounTing policiesthemanagementconsidersthefollowingtobethemostimportantaccountingpoliciesforthetormgroup.
Participation in poolstormgeneratesitsrevenuefromshippingactivities,whichtoalargeextentareconductedthroughpools.totalpoolrevenueisgeneratedfromeachvesselparticipatinginthepoolsinwhichthegrouppartici-patesandisbasedoneithervoyageortimecharterparties.thepoolmeasuresnetrevenuesbasedonthecontractualratesandthedurationofeachvoyage,andnetrevenueisrecognizedupondeliveryofserviceinaccordancewiththetermsandconditionsofthecharterparties.
thepoolsareregardedasjointlycontrolledoperations,andthecompany’sshareoftheincomestatementandbalancesheetintherespectivepoolsisaccountedforbyrecognizingaproportionalshare,basedonparticipationinthepool,combiningitemsofuniformnature.thecompany’sshareoftherevenuesinthepoolsisprimarilydependentonthenumberofdaysthecompany’svesselshavebeenavailableforthepoolsinrelationtothetotalavailablepoolearningdaysduringtheperiod.
tormactsaspoolmanagerforthreepoolsinwhichthecompanyisparticipatingwithasignificantnumberofvessels.Aspoolmanagertormreceivesacharteringcommissionincometocovertheexpensesassociatedwiththisrole.thecharteringcommissionincomeiscal-culatedasafixedpercentageofthefreightincomefromeachcharteragreement.Ifthepooldoesnotearnanyfreightincome,tormwillnotreceiveanycommissionincome.thecommissionincomeisrecognizedintheincomestatementunder“otheroperatingincome”simultaneouslywiththerecognitionoftheunderlyingfreightincomeinthepool.
Cross over voyagesrevenueandtherelatedexpensesarerecognizedupondeliveryofserviceinaccordancewiththetermsandconditionsofthecharterparties.Forcrossovervoyages(voyagesinprogressattheendofareportingperiod)theuncertaintyandthedependenceonestimatesaregreaterthanforconcludedvoyages.thecompanyrecognizesapercentageoftheestimatedrevenueforthevoyageequaltothepercentageoftheesti-mateddurationofthevoyagecompletedonthebalancesheetdate.theestimateofrevenueisbasedontheexpecteddurationanddestinationofthevoyage.Voyageexpensesarerecognizedasincurred.Whenrecogniz-ingnetrevenue,thereisariskthattheactualnumberofdaysittakestocompletethevoyagewilldifferfromtheestimate,andfortimecharterpartiesalowerdayratemayhavebeenagreedforadditionaldays.thecontractforasinglevoyagemaystateseveralalternativedestination
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ports.thedestinationportmaychangeduringthevoyage,andtheratemayvarydependingonthedestinationport.changestotheestimateddurationofthevoyageaswellaschangingdestinationsandweatherconditionswillaffectthevoyageexpenses.
Demurrage revenues Freightcontractscontainconditionsregardingtheamountoftimeavail-ableforloadinganddischargingofthevessel.Iftheseconditionsarebreached,tormiscompensatedfortheadditionaltimeincurredintheformofademurragerevenue.demurragerevenuesarerecognizedupondeliveryofserviceinaccordancewiththetermsandconditionsofthecharterparties.
Uponcompletionofthevoyage,thecompanyassessesthetimespentinport,andademurrageclaimbasedontherelevantcontractualconditionsissubmittedtothecharterers.theclaimwilloftenbemetbycounterclaimsduetodifferencesintheinterpretationoftheagreementcomparedtotheactualcircumstancesoftheadditionaltimeused.basedonpreviousexperience,95%ofthedemurrageclaimsubmittedisrecognizedasdemurragerevenue.thecompanyreceivesthedemurragepaymentuponreachingfinalagreementoftheamount,whichonaverageisapproximately100daysaftertheoriginaldemurrageclaimwassubmitted.Ifthegroupacceptsareductionofmorethan5%oftheoriginalclaim,orifthechartererisnotabletopay,demurragerevenuewillbeaffected.
VesselsVesselsaremeasuredatcostlessaccumulateddepreciationandaccu-mulatedimpairmentlosses.costcomprisesacquisitioncostandcostsdirectlyrelatedtotheacquisitionupuntilthetimewhentheassetisreadyforuseincludinginterestexpensesincurredduringtheperiodofconstruction,basedontheloansobtainedforthevessels.Allmajorcomponentsofvesselsexceptfordry-dockingcostsaredepreciatedonastraight-linebasistotheestimatedresidualvalueovertheirestimatedusefullives,whichtormestimatestobe25years.thecompanyconsid-ersthata25-yeardepreciablelifeisconsistentwiththatusedbyothershipownerswithcomparabletonnage.depreciationisbasedoncostlesstheestimatedresidualvalue.residualvalueisestimatedasthelightweighttonnageofeachvesselmultipliedbyscrapvalueperton.theusefullifeandtheresidualvalueofthevesselsarereviewedatleastateachfinancialyear-endbasedonmarketconditions,regulatoryrequire-mentsandthecompany’sbusinessplans.thecompanyalsoevaluatesthecarryingamountstodetermineifeventshaveoccurredthatindicateimpairmentandwouldrequireamodificationoftheircarryingamounts.prepaymentonvesselsismeasuredatcostsincurred.
Dry-docking thevesselsarerequiredtoundergoplanneddry-dockingsforreplace-mentofcertaincomponents,majorrepairsandmaintenanceofothercomponents,whichcannotbecarriedoutwhilethevesselsareoperating,approximatelyevery30and60monthsdependingonthenatureofworkandexternalrequirements.thesedry-dockingcostsarecapitalizedanddepreciatedonastraight-linebasisovertheestimatedperioduntilthenextdry-docking.theresidualvalueofsuchcomponentsisestimatedatnil.theusefullifeofthedry-dockingcostsarereviewedatleastateachfinancialyear-endbasedonmarketconditions,regulatoryrequirementsandtorm’sbusinessplans.
Aportionofthecostofacquiringanewvesselisallocatedtothecom-ponentsexpectedtobereplacedorrefurbishedatthenextdry-docking.depreciationhereofiscarriedovertheperioduntilthenextdry-docking.Fornewbuildings,theinitialdry-dockingassetisestimatedbasedontheexpectedcostsrelatedtothefirst-comingdry-docking,whichisagainbasedonexperienceandpasthistoryofsimilarvessels.Forsecond-handvessels,adry-dockingassetisalsosegregatedandcapitalizedseparately,however,takingintoaccountthenormaldockingintervalsinthecompany.
Atsubsequentdry-dockingsthecostscomprisetheactualcostsincurredatthedry-dockingyard.drydockingcostsmayincludethecostofhiringcrewstoeffectreplacementsandrepairsandthecostofpartsandmateri-alsused,costoftravel,lodgingandsupervisionofcompanypersonnelandthecostofhiringthirdpartypersonneltooverseeadry-docking.dry-dockingactivitiesinclude,butarenotlimitedto,theinspection,serviceonturbocharger,replacementofshaftseals,serviceonboiler,replacementofhullanodes,applyingofantifoulingandhullpaint,steelrepairsandrefurbishmentandreplacementofotherpartsofthevessel.
Deferred taxAllsignificantdanishentitieswithinthegroupenteredthedanishtonnagetaxationschemeforabinding10-yearperiodwitheffectfrom1January2001andhavefiledtaxreturnsforthefiscalyears2001to2006.Underthedanishtonnagetaxationscheme,taxableincomeisnotcalculatedonthebasisofincomeandexpensesasunderthenormalcorporatetaxation.Instead,taxableincomeiscalculatedwithreferencetotheton-nageusedduringtheyear.thetaxableincomeforacompanyforagivenperiodiscalculatedasthesumofthetaxableincomeunderthetonnagetaxationschemeandthetaxableincomefromtheactivitiesthatarenotcoveredbythetonnagetaxationschememadeupinaccordancewiththeordinarydanishcorporatetaxsystem.
Iftheentities’participationinthedanishtonnagetaxationschemeisabandoned,oriftheentities’levelofinvestmentandactivityissignifi-cantlyreduced,adeferredtaxliabilitywillbecomepayable.Adeferredtaxliabilityisrecognizedinthebalancesheetateachperiodendandisaccountedforusingthebalancesheetliabilitymethod.thedeferredtaxliabilityrelatingtothevesselsismeasuredonthebasisofthedifferencebetweenthetaxvalueofthevesselsatthedateofentryintothetonnagetaxationschemeandthelowerofthecostandtherealizedorrealizablesalesvalueofthevessels.
oTHer accounTing policies
Consolidation principlestheconsolidatedfinancialstatementscomprisethefinancialstatementsoftheparentcompany,A/Sdampskibsselskabettormanditssubsidi-aries,i.e.theentitiesinwhichtheparentcompany,directlyorindirectly,holdsthemajorityofthevotesorotherwisehasacontrollinginterest.
entitiesinwhichthegroupexercisessignificantbutnotcontrollinginfluenceareregardedasassociatedcompaniesandarerecognizedusingtheequitymethod.
companieswhicharebyagreementmanagedjointlywithoneoremoreothercompaniesandthereforesubjecttojointcontrol(jointlycontrolledentities)areaccountedforusingproportionateconsolidation,wherebytheindividualitemsintheirfinancialstatementsareincludedinpropor-tiontotheownershipshare.
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theconsolidatedfinancialstatementsarepreparedonthebasisofthefinancialstatementsoftheparentcompany,itssubsidiariesandpropor-tionatelyconsolidatedcompaniesbycombiningitemsofauniformnatureandeliminatinginter-companytransactions,balancesandshareholdingsaswellasrealizedandunrealizedgainsandlossesontransactionbetweentheconsolidatedcompanies.thefinancialstatementsusedforconsolidationpurposesarepreparedinaccordancewiththecompany’saccountingpolicies.
Business combinationsnewlyacquiredorformedentitiesarerecognizedintheconsolidatedfinancialstatementsfromthedateofacquisitionorformation.thedateofacquisitionisthedateonwhichcontrolovertheentityiseffectivelytransferred.Soldorunwoundentitiesarerecognizedintheconsolidatedfinancialstatementsuntilthedateofthesaleortheunwinding.thedateofsaleorunwindingisthedatewhencontroliseffectivelytransferredtothirdparties.
businesscombinationsareaccountedforbyapplyingthepurchasemethod,wherebytheacquiredentities’identifiableassets,liabilitiesandcontingentliabilitiesaremeasuredatfairvalueattheacquisitiondate.restructuringcostsareonlyrecognizedintheacquisitionbalancesheettotheextentthattheyconstituteanobligationfortheacquiredentity.thetaxeffectoftherevaluationactivitiesisalsotakenintoaccount.thecostofabusinesscombinationismeasuredasthefairvalueoftheconsiderationpaidandthecostsdirectlyattributabletothebusinesscombination.
theexcess(goodwill)ofthecostofthebusinesscombinationoverthefairvalueoftheacquiredassets,liabilitiesandcontingentliabilitiesisrecognizedasanassetunderintangibleassetsandistestedforimpairmentatleastonceeveryyear.Ifthecarryingamountoftheassetexceedstherevocerableamountoftheassetitshouldbereducedtothelowerrecoverableamount.
Foreign currencies thefunctionalcurrencyofallsignificantentitiesincludingsubsidiariesandassociatedcompaniesisUSd,becausethecompany’svesselsoper-ateininternationalshippingmarkets,inwhichrevenuesandexpensesaresettledinUSd,andthecompany’smostsignificantassetsandliabilitiesintheformofvesselsandrelatedfinancialliabilitiesareinUSd.transactionsincurrenciesotherthanthefunctionalcurrencyaretranslatedintothefunctionalcurrencyatthedateofthetransactions.cash,accountsreceivableandpayableandothermonetaryitemsdenominatedincurrenciesotherthanthefunctionalcurrencyaretranslatedintothefunctionalcurrencyattheexchangerateprevailingatthebalancesheetdate.gainsorlossesduetodifferencesbetweentheexchangerateatthetransactiondateandtheexchangerateatthesettlementdateorthebalancesheetdatearerecognizedintheincomestatementunder“Financialitems”.
Anexchangerategainorlossrelatingtoanon-monetaryitemcarriedatfairvalueisrecognizedinthesamelineasthefairvalueadjustment.thereportingcurrencyofthecompanyisUSd.Uponrecognitionofenti-tieswithfunctionalcurrenciesotherthanUSd,thefinancialstatementsaretranslatedintoUSd.ItemsintheincomestatementaretranslatedintoUSdattheaverageexchangeratesfortheperiod,whereasbalancesheetitemsaretranslatedattheexchangeratesasatthebalancesheetdate.exchangedifferencesarisingfromthetranslationoffinancialstate-mentsintoUSdarerecognizedasaseparatecomponentofequity.onthedisposalofanentity,thecumulativeamountoftheexchangediffer-
encesdeferredintheseparatecomponentofequityrelatingtothatentityshallbetransferredtotheincomestatementaspartofthegainorlossondisposal.
Fair valuesAllfairvaluesoffinancialassets,liabilitiesandderivativefinancialinstrumentsarebasedonquotedmarketpricesorstandardpricingmodelsusingobservablemarketdata.
Derivative financial instrumentsderivativefinancialinstruments,primarilyinterestrateswaps,forwardcurrencyexchangecontracts,forwardfreightagreementsandforwardcontractsregardingbunkerpurchases,areenteredtohedgefuturecommittedoranticipatedtransactions.tormapplieshedgeaccountingunderthespecificrulesforcashflowhedgeswhenallowedandappro-priate.Inaddition,tormtakeslimitedpositionsinforwardfreightagree-mentsasasupplementtothecompany’sphysicalpositionsinvessels,whicharenotenteredforhedgepurposes.
derivativefinancialinstrumentsareinitiallyrecognizedinthebalancesheetatcostandaresubsequentlymeasuredattheirfairvalueasotherreceivablesorotherliabilitiesrespectively.
changesinfairvalueofderivativefinancialinstruments,whicharedesignatedascashflowhedgesanddeemedtobeeffective,arerecog-nizeddirectlyinequityunder“Hedgingreserves”.Whenthehedgedtransactionisrecognizedintheincomestatement,thecumulativevalueadjustmentrecognizedinequityistransferredtotheincomestatementandincludedinthesamelineasthehedgedtransaction.changesinfairvalueofaportionofahedgedeemedtobeineffectivearerecognizedintheincomestatement.
changesinfairvalueofderivativefinancialinstrumentsthatarenotdesignatedashedgesarerecognizedintheincomestatement.Whileeffectivelyreducingcashflowriskinaccordancewiththeriskmanage-mentpolicyofthecompany,interestrateswapswithcapfeaturesandcertainforwardfreightagreementsandforwardcontractsregardingbunkerpurchasesdonotqualifyforhedgeaccounting.changesinfairvalueofthesederivatefinancialinstrumentsarethereforerecognizedintheincomestatementunder“Financialexpenses”forinterestrateswapswithcapfeaturesandunder“Freightandbunkersderivatives”forforwardfreightagreementsandforwardbunkercontracts.changesinfairvalueofforwardfreightagreements,whicharenotenteredforhedgepurposes,arealsorecognizedunder“Freightandbunkersderivatives”.
Segment information tormconsistsoftwobusinesssegments:tankerandbulk.thisseg-mentationisbasedonthegroup’sinternalmanagementandreportingstructureinadditiontoevaluationofriskandearnings.transactionsbetweensegmentsarebasedonmarket-relatedpricesandareelimi-natedatgrouplevel.thegrouponlyhasonegeographicalsegment,becausethecompanyconsiderstheglobalmarketasawhole,andastheindividualvesselsarenotlimitedtospecificpartsoftheworld.
thesegmentincomestatementcomprisesrevenuesdirectlyattributabletothesegmentandexpenses,whicharedirectlyorindirectlyattributabletothesegment.Indirectallocationofexpensesisbasedondistributionkeysreflectingthesegment’suseofsharedresources.
thesegmentnon-currentassetsconsistofthenon-currentassetsuseddirectlyforsegmentoperations.
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currentassetsareallocatedtosegmentstotheextentthattheyaredirectlyattributabletosegmentoperations,includinginventories,out-standingfreight,otherreceivablesandprepayments.
Segmentliabilitiescomprisesegmentoperatingliabilitiesincludingtradepayablesandotherliabilities.not-allocateditemsprimarilycompriseassetsandliabilitiesaswellasrevenuesandexpensesrelatingtothecompany’sadministrativefunc-tionsandinvestmentactivities,includingcashandbankbalances,inter-estbearingdebt,incometax,deferredtax,etc.
Employee benefits Wages,salaries,socialsecuritycontributions,paidholidayandsickleave,bonusesandothermonetaryandnon-monetarybenefitsareaccruedintheyearinwhichtheemployeesrendertheassociatedservices.
Pension plansthegrouphasenteredintodefinedcontributionplansonly.pensioncostsrelatedtodefinedcontributionplansarerecordedintheincomestatementintheyeartowhichtheyrelate.
Sharebasedcompensationthemanagementandallland-basedemployeesandofficersemployedonpermanentcontracts(apartfromtrainees,apprenticesandcadets)thataredirectlyemployedbyA/Sdampskibsselskabettormpartici-pateinanincentivescheme,whichincludesgrantofsharesandshareoptions.theschemedoesnotprovidethechoicesofcashsettlementinsteadofshares.thefairvalueofthesharesandshareoptionsgrantedunderschemeismeasuredatthegrantdateandisrecognizedintheincomestatementasapersonnelexpenseunderadministrativeexpens-esandoperatingcostsoverthevestingperiod.thecounteritemisrec-ognizedinequity.thefairvalueismeasuredbasedontheblack-Scholesandthemontecarlomodels.
LeasesAgreementstocharterinvesselsandtoleaseotherproperty,plantandequipment,wheretormhassubstantiallyalltherisksandrewardsofownership,arerecognizedinthebalancesheetasfinanceleases.Leaseassetsaremeasuredattheloweroffairvalueandthepresentvalueofminimumleasepaymentsdeterminedintheagreements.
Forthepurposeofcalculatingthepresentvalue,theinterestrateimplicitintheleaseoranincrementalborrowingrateisusedasdiscountfactor.theleaseassetsaredepreciatedandwrittendownunderthesameaccount-ingpolicyasthevesselsownedbythecompanyorovertheleaseperioddependingontheleaseterms.
thecorrespondingleaseobligationisrecognizedasaliabilityinthebalancesheet,andtheinterestelementoftheleasepaymentischargedtotheincomestatementasincurred.
othercharteragreementsconcerningvesselsandotherleasesareclassifiedasoperatingleases,andleasepaymentsarechargedtotheincomestatementonastraight-linebasisovertheleaseterm.theobligationfortheremainingleaseperiodisdisclosedinthenotestothefinancialstatement.
Agreementstocharteroutvessels,wheresubstantiallyalltherisksandrewardsofownershiparetransferredtothelessee,areclassifiedasfinanceleases,andanamountequaltothenetinvestmentintheleaseisrecognizedandpresentedinthebalancesheetasareceivable.the
carryingamountofthevesselisderecognizedandanygainorlossondisposalisrecognizedintheincomestatement.
otheragreementstocharteroutvesselsareclassifiedasoperatingleasesandleaseincomeisrecognizedintheincomestatementonastraight-linebasisovertheleaseterm.
Sale and leaseback transactionsAgainorlossrelatedtoasaleandleasebacktransactionresultinginafinanceleaseisdeferredandamortizedinproportiontothegrossrentalonthetimecharterovertheleaseterm.
Againrelatedtoasaleandleasebacktransactionresultinginanoperatingleaseisrecognizedintheincomestatementimmediatelyprovidedthetransactionisagreedonmarkettermsorthesalespriceislowerthanthefairvalue.Ifthesalespriceexceedsthefairvalue,thedifferencebetweenthesalespriceandthefairvalueisdeferredandamortizedinproportiontotheleasepaymentsoverthelifeofthelease.Alossrelatedtoasaleandleasebacktransactionresultinginanoperatingleaseisrecognizedintheincomestatementatthedateoftransactionexceptifthelossiscom-pensatedbyfutureleasepaymentsbelowfairvalue,itisdeferredandamortizedinproportiontotheleasepaymentsoverthelifeofthelease.
income statement
RevenueIncome,includingrevenue,isrecognizedintheincomestatementwhen:• theincomecreatingactivitieshavebeencarriedoutonthebasisofa
bindingagreement,• theincomecanbemeasuredreliably,• itisprobablethattheeconomicbenefitsassociatedwiththetrans-
actionwillflowtothecompany,and• costsrelatingtothetransactioncanbemeasuredreliably.
revenuecomprisesfreight,charterhireanddemurragerevenuesfromthevesselsandgainsandlossesfromforwardfreightagreementsdesig-natedashedges.revenueisrecognizedwhenitmeetsthegeneralcriteriamentionedaboveandthestageofcompletioncanbemeasuredreliably.Accordingly,freight,charterhireanddemurragerevenuearerecognizedatsellingpriceupondeliveryofserviceinaccordancewiththecharterpartiesconcluded.
Port expenses, bunkers and commissionsportexpenses,bunkerfuelconsumptionandcommissionsarerecognizedasincurred.gainsandlossesfromforwardbunkercontractsdesignatedashedgesareincludedinthisline.
Freight and bunkers derivativesFreightandbunkersderivativesincludefairvalueadjustmentsandgainsandlossesonforwardfreightagreements,forwardbunkercontractsandotherderivatefinancialinstrumentsdirectlyrelatingtoshippingactivitieswhicharenotdesignatedashedges.
Charter hirecharterhireincludestheexpensesrelatedtothecharteringinofvesselsincurredinordertoachievethenetrevenuefortheperiod.
Operating expensesoperatingexpenses,whichcomprisecrewexpenses,repairandmainte-nanceexpensesandtonnageduty,areexpensedasincurred.
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Profit from sale of vesselsprofitorlossfromsaleofvesselsisrecognizedwhenthesignificantrisksandrewardsofownershiphavebeentransferredtothebuyer,anditismeasuredasthedifferencebetweenthesalespricelesssalescostsandthecarryingamountoftheasset.Administrative expensesAdministrativeexpenses,whichcompriseadministrativestaffcosts,managementcosts,officeexpensesandotherexpensesrelatingtoadministration,areexpensedasincurred.
Other operating incomeotheroperatingincomeprimarilycomprisescharteringcommissions,managementfeesandprofitsandlossesderivingfromthedisposalofother plant and operating equipment.
Depreciation and impairment lossesdepreciationandimpairmentlossescomprisedepreciationoffixedassetsfortheperiodaswellasthereductioninthevalueofassetsbytheamountbywhichthecarryingamountoftheassetexceedsitsrecoverableamount.Intheeventofindicationofimpairmentofvalue,thecarryingamountisassessedandthevalueoftheassetisreducedtoitsrecoverableamountequaltothehigherofvalueinusebasedonnetpresentvalueoffutureearningsfromtheassetsanditsnetsellingprice.therecoverableamountofgoodwillisassessedeveryyear.Financial incomeFinancialincomecompriseinterestincome,realizedandunrealizedexchangerategainsrelatingtotransactionsincurrenciesotherthanthefunctionalcurrency,realizedgainsfromotherinvestmentsandsecuri-ties,unrealizedgainsfromsecurities,dividendsreceivedandotherfinancialincomeincludingvalueadjustmentsofcertainfinancialinstru-mentsnotaccountedforashedginginstruments.Interestisrecognizedinaccordancewiththeaccrualbasisofaccountingtakingintoaccounttheeffectiveinterestrate.dividendsfromotherinvestmentsarerecog-nizedwhentherighttoreceivepaymenthasbeendecided,whichistypi-callywhenthedividendhasbeendeclaredandcanbereceivedwithoutconditions.
Financial expensesFinancialexpensescompriseinterestexpense,financingcostsoffinanceleases,realizedandunrealizedexchangeratelossesrelatingtotrans-actionsincurrenciesotherthanthefunctionalcurrency,realizedlossesfromotherinvestmentsandsecurities,unrealizedlossesfromsecuritiesandotherfinancialexpensesincludingvalueadjustmentsofcertainfinancialinstrumentsnotaccountedforashedginginstruments.Interestisrecognizedinaccordancewiththeaccrualbasisofaccountingtakingintoaccounttheeffectiveinterestrate.
TaxIndenmark,A/Sdampskibsselskabettormisjointlytaxedwithitsdanishsubsidiaries.theparentcompanyprovidesforandpaystheaggregatedanishtaxofthetaxableincomeofthesecompaniesbutrecoverstherelevantportionofthetaxespaidfromthesubsidiariesbasedoneachentity’sportionoftheaggregatetaxableincome.taxexpensesincludetheexpectedtaxincludingtonnagetaxofthetaxableincomefortheyearforthegroup,adjustmentsrelatingtopreviousyearsandthechangeindeferredtaxfortheyear.However,taxrelatingtoitemspostedinequityisposteddirectlyinequity.
balance sheet
Goodwillgoodwillismeasuredastheexcessofthecostofthebusinesscombina-tionoverthefairvalueoftheacquiredassets,liabilitiesandcontingentliabilitiesandisrecognizedasanassetunderintangibleassets.
goodwillisnotamortized,butistestedatleastonceeveryyearforimpairment.Ifthecarryingamountoftheassetexceedsitsrecoverableamount,theassetscarryingamountisreducedtothelowerrecoverableamount.goodwillisforimpairmenttestingpurposesallocatedtothosecash-generatingunits,towhichitrelates.
Other intangible assetsotherintangibleassetswereacquiredinconnectionwiththeacquisitionofomIandareamortizedovertheirusefullives,whichvaryfrom1to15years.
other plant and equipment
Landismeasuredatcost.buildingsaremeasuredatcostlessaccumulateddepreciationandaccu-mulatedimpairmentlosses.buildingsaredepreciatedonastraight-linebasisover50years.
operatingequipmentismeasuredatcostlessaccumulateddepreciation.computerequipmentisdepreciatedonastraight-linebasisoverthreeyears,andotheroperatingequipmentisdepreciatedonastraight-linebasisoverfiveyears.
Leaseholdimprovementsaremeasuredatcostlessaccumulatedamortizationandimpairmentlosses,andleaseholdimprovementsareamortizedonastraight-linebasisovertheshorterofthetermoftheleaseandtheestimatedusefullife.costcomprisesacquisitioncostandcostsdirectlyrelatedtotheacquisitionupuntilthetimewhentheassetisreadyforuse.
Financial assetsFinancialassetsareinitiallyrecognizedonsettlementdateatfairvalueplustransactioncosts,exceptforfinancialassetsatfairvaluethroughprofitorloss,whicharerecognizedatfairvalue.Financialassetsarederecognizedwhentherightstoreceivecashflowsfromtheassetshaveexpiredorhavebeentransferred.
Financialassetsareclassifiedas:• Financialassetsatfairvaluethroughprofitorloss.• Held-to-maturityinvestments.• Loansandreceivables.• Available-for-salefinancialassets.
Other investmentsotherinvestmentscomprisesharesinothercompaniesandareclas-sifiedasavailable-for-sale.Listedsharesaremeasuredatthemarketvalueatthebalancesheetdate,andunlistedsharesaremeasuredatestimatedfairvalue.Unrealizedgainsandlossesresultingfromchangesinfairvalueofsharesarerecognizedinequity.realizedgainsandlossesresultingfromsalesofsharesarerecognizedasfinancialitemsintheincomestatement.thecumulativevalueadjustmentrecognizedinequityistransferredtotheincomestatementwhenthesharesaresold.dividendsonsharesinothercompaniesarerecognizedasincomeintheperiodinwhichtheyaredeclared.
76
otherinvestmentsarepresentedasnon-currentunlessmanagementintendstodisposeoftheinvestmentswithin12monthsofthebalancesheetdate.Other financial assetsotherfinancialassetscomprisetorm’srightstoshareofgainonpur-chaseoptionsonvessels,whichwereacquiredaspartofomIandareclas-sifiedasderivatefinancialinstruments.therightsaremeasuredandrec-ognizedatfairvalueandthechangefortheperiodisrecognizedintheincomestatementunderfinancialincomeorexpenses.
Receivablesoutstandingfreightreceivablesandotherreceivablesthatareofacur-rentnature,expectedtoberealizedwithin12monthsfromthebalancesheetdate,areclassifiedasloansandreceivablesandpresentedascurrentassets.receivablesaremeasuredatthelowerofamortizedcostandnetrealizablevalues,whichcorrespondstonominalvaluelessprovisionforbaddebts.derivativefinancialinstrumentsincludedinotherreceivablesaremeasuredatfairvalue.
Impairment of assetsnon-currentassetsarereviewedtodetermineanyindicationofimpair-ment.Inthecaseofsuchindication,therecoverableamountoftheassetisestimatedasthehigheroftheasset’snetsellingpriceanditsvalueinuse.Ifthisamountislessthanthecarryingamountoftheasset,thecar-ryingamountisreducedtotherecoverableamount.theimpairmentlossisrecognizedimmediatelyintheincomestatement.
Forthepurposeofassessingimpairment,assetsaregroupedatthelowestlevelsforwhichthereareseparatelyidentifiablecashflows(cash-generatingunits).Forvessels,thecash-generatingunitisthetotalfleetofthecompany.
Bunkersbunkersandlubricantsarestatedatthelowerofcostandnetrealizablevalue.thecostisdeterminedbytheFIFo-methodandincludesexpendi-turesincurredinacquiringthebunkersandlubricantsanddeliverycostlessdiscounts.
Treasury sharestreasurysharesarerecognizedasaseparatecomponentofequityatcost.Uponsubsequentdisposaloftreasuryshares,anyconsiderationisalsorecognizeddirectlyinequity.
DividenddividendisrecognizedasaliabilityatthetimeofdeclarationattheAnnualgeneralmeeting.dividendproposedfortheyearismovedfrom“retainedprofit”andpresentedasaseparatecomponentofequity.
Provisionsprovisionsarerecognizedwhenthecompanyhasalegalorconstructiveobligationasaresultofpasteventsanditisprobablethatitwillleadtoanoutflowofresourcesthatcanbereliablyestimated.provisionsaremeasuredattheestimatedultimateliabilitythatisexpectedtoarisetakingintoaccountthetimevalueofmoney.
Acquired liabilities related to options on vesselAspartoftheacquisitionofomI,thecompanyacquiredcertainoptionobligationsrelatingtovesselscharteredoutontimechartercontracts.theoptionobligationsareclassifiedasderivativefinancialinstrumentsandarerecognizedatfairvalue.thechangefortheperiodisrecognizedintheincomestatementunderfinancialincomeorexpenses.
Acquired time charter contractsAspartoftheacquisitionofomI,thecompanyacquiredcertaintimechartercontractswhichhavetermsthatarelessfavorablethanthemarkettermsprevailingatthetimeoftheacquisition.thecompanyhasrecognizedaliabilitybasedontheestimatedfairvalueofthesecontractsandisamortizingthisliabilityovertheremainingtermofthecontracts.thechangefortheperiodisrecognizedintheincomestatementunderrevenue.
Other liabilitiesLiabilitiesaregenerallymeasuredatamortizedcost.mortgagedebtandbankloansrelatingtothefinancingofvesselsareinitiallymeasuredatnominalamountslesspremiumsandcostsincurredintheloanarrange-mentandsubsequentlyatamortizedcostwiththedifferencebetweentheloanproceedsandthenominalvaluebeingrecognizedintheincomestatementoverthetermoftheloan.derivativefinancialinstrumentsincludedinotherliabilitiesaremeasuredatfairvalue.
cash flow statementthecashflowstatementshowsthecompany’scashflowsandcashandcashequivalentsatthebeginningandtheendoftheperiod.
cashflowfromoperatingactivitiesispresentedindirectlyandisbasedonprofitbeforefinancialitemsfortheyearadjustedforprofitfromsaleofvessels,non-cashoperatingitems,changesinworkingcapital,incometaxpaid,dividendsreceivedandinterestpaid/received.
cashflowfrominvestingactivitiescomprisesdividendsreceivedandthepurchaseandsaleoftangiblefixedassetsandfinancialfixedassets.
cashflowfromfinancingactivitiescompriseschangesinlong-termdebt,bankloans,purchasesorsalesoftreasurysharesanddividendpaidtoshareholders.
cashandcashequivalentscomprisecashatbankandinhandandhighlyliquidbondswithatermtomaturitynotexceedingthreemonths.otherbondsandotherinvestmentsareclassifiedasinvestmentactivities.
earnings per sharebasicearningspershareiscalculatedbydividingtheconsolidatedprofitorlossavailabletocommonshareholdersbytheweightedaveragenumberofcommonsharesoutstandingduringtheperiod.treasurysharesarenotincludedinthecalculation.purchasesandsalesoftreasurysharesduringtheperiodareweightedbasedontheremainingperiod.
dilutedearningspersharearecalculatedbyadjustingtheconsolidatedprofitorlossavailabletocommonshareholdersandtheweightedaveragenumberofcommonsharesoutstandingfortheeffectsofallpotentiallydilutiveshares.Suchpotentiallydilutivecommonsharesareexcludedwhentheeffectwouldbetoincreaseearningspershareorreducealosspershare.
77
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noTe 2
criTical accounTing esTimaTes anD JuDgemenTsthepreparationofconsolidatedfinancialstatementsinconformitywithIFrSrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.theseestimatesandassumptionsareaffectedbythewaytormappliesitsaccountingpolicies.Anaccountingestimateisconsideredcriticalif:theestimaterequiresmanagementtomakeassumptionsaboutmattersthatwerehighlyuncertainatthetimetheestimatewasmade;differentestimatesreasonablycouldhavebeenused;orifchangesintheestimatethatwouldhaveamaterialimpactonthecompany’sfinancialconditionorresultsofoperationsarereasonablylikelytooccurfromperiodtoperiod.managementbelievesthattheaccountingestimatesemployedareappropriateandresultingbalancesarereasonable.However,actualresultscoulddifferfromtheoriginalestimatesrequiringadjustmentstothesebalancesinfutureperiods.
managementbelievesthatthefollowingarethesignificantaccountingestimatesandjudgmentsusedinthepreparationoftheconsolidatedfinancial:
carrying amounTs of vesselsthecompanyevaluatesthecarryingamountsofthevesselstodeter-mineifeventshaveoccurredthatwouldrequireamodificationoftheircarryingamounts.thevaluationofvesselsisreviewedbasedoneventsandchangesincircumstancesthatwouldindicatethatthecar-ryingamountoftheassetsmightnotberecovered.Inassessingtherecoverabilityofthevessels,thecompanyreviewscertainindicatorsofpotentialimpairmentsuchasreportedsaleandpurchaseprices,marketdemandandgeneralmarketconditions.marketvaluationsfromlead-ing,independentandinternationallyrecognizedshipbrokingcompaniesareobtainedonasemi-annualbasisaspartofthereviewforpotentialimpairmentindicatory.Ifanindicationofimpairmentisidentified,theneedforrecognizinganimpairmentlossisassessedbycomparingthecarryingamountofthevesselstothehigherofthefairvaluelesscosttosellandthevalueinuse.
thereviewforpotentialimpairmentindicatorsandprojectionoffutureundiscountedanddiscountedcashflowsrelatedtothevesselsiscom-plexandrequiresthecompanytomakevariousestimatesincludingfuturefreightrates,earningsfromthevesselsanddiscountrates.Alloftheseitemshavebeenhistoricallyvolatile.
thecarryingamountsoftorm’svesselsmaynotrepresenttheirfair-marketvalueatanypointintimeasmarketpricesofsecond-handvesselstoadegreetendtofluctuatewithchangesincharterratesandthecostofnewbuildings.However,iftheestimatedfuturecashfloworrelatedassumptionsinthefutureexperiencechange,animpairmentofvesselsmayberequired.
therewerenoindicatorsofimpairmentnotedorimpairmentsofvesselsrecordedin2006or2007.
TaxAllsignificantdanishentitieswithinthegroupenteredthedanishton-nagetaxationschemewitheffectfrom1January2001andhavefiledtaxreturnsfor2001to2006.theassessmentofthetaxreturnsbythetaxauthoritieshasnotyetbeencompletedfor2005and2006andwehavefiledacomplaintregardingtheassessmentsfortheyears2001to2004.thetaxregulationsarehighlycomplex,andwhilethegroupaimstoensuretheestimatesoftaxassetsandliabilitiesthatitrecordsareaccurate,theremaybeinstanceswheretheprocessofagreeingthetaxliabilitieswiththetaxauthoritiescouldrequireadjustmentstobemadetoestimatespreviouslyrecorded.
Itisthegroup’sassessmentthatthereisuncertaintyastotheestimateoftaxespayableasof31december2007duetothelackofprecedentsthathaveinterpretedthetonnagetaxregulation.theestimateisbasedonscenarioanalysesanddiscussionswiththetaxauthorities,taxadvi-sorsandindustryorganizations,andtheuncertaintyprimarilyrelatestothesplitoftheactivitiesbetweenincomeandexpensesfromshippingrelatedactivities,whicharetaxedunderthetonnagetaxscheme,andincomeandexpensesfromotheractivities,whicharenottaxedunderthetonnagetaxscheme.
78
USdmillion
notnoTe 3 tanker bulk allocated Total 2007
consoliDaTeD segmenT informaTion
income sTaTemenT revenue 640.2 134.3 44.3 818.8portexpenses,bunkersandcommissions -164.5 -6.3 -5.9 -176.7Freightandbunkersderivatives 2.9 0.0 0.0 2.9Time charter equivalent earnings 478.6 128.0 38.4 645.0charterhire -92.4 -59.0 -8.8 -160.2operatingexpenses -105.9 -10.4 -10.9 -127.2gross profit/(loss) (net earnings from shipping activities) 280.3 58.6 18.7 357.6profit/(loss)fromsaleofvessels 0.0 0.0 0.0 0.0Administrativeexpenses -47.9 -7.2 -13.6 -68.7otheroperatingincome 14.5 0.0 0.3 14.8depreciationandimpairmentlosses -83.4 -6.5 -8.8 -98.7operating profit 163.5 44.9 -3.4 205.0Financialitems 599.2 599.2profit/(loss) before tax 595.8 804.2taxexpenses -12.5 -12.5net profit/(loss) for the year 583.3 791.7 balance sHeeT totalnon-currentassets 2,473.8 154.3 76.1 2,704.2totalassets 2,603.2 155.7 207.7 2,966.6totalliabilities 134.3 3.5 1,747.5 1,885.3 oTHer informaTion Additionstointangibleassetsandtangiblefixedassets 1,283.4 71.9 68.3 1,423.6Impairmentlossesrecognizedintheincomestatement 0.0 0.0 0.0 0.0reversalofimpairmentlossesrecognizedintheincomestatement 0.0 0.0 0.0 0.0
theactivitythattormownsina50/50jointventurewithteekayisincludedin”notallocated”.
duringtheyear,therehavebeennotransactionsbetweenthetankerandthebulksegments,andthereforealltherevenuederivesfromexternalcustomers.
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80
USdmillion
notnoTe 3, continued tanker bulk allocated Total 2006
consoliDaTeD segmenT informaTion
income sTaTemenTrevenue 494.0 109.7 0.0 603.7portexpenses,bunkersandcommissions -143.8 -5.1 0.0 -148.9Freightandbunkersderivatives 0.6 0.0 0.0 0.6Time charter equivalent earnings 350.8 104.6 0.0 455.4charterhire -58.5 -47.8 0.0 -106.3operatingexpenses -64.6 -13.1 0.0 -77.7gross profit/(loss) (net earnings from shipping activities) 227.7 43.7 0.0 271.4profit/(loss)fromsaleofvessels 3.1 51.3 0.0 54.4Administrativeexpenses -29.1 -5.5 0.0 -34.6otheroperatingincome 9.7 0.1 0.0 9.8depreciationandimpairmentlosses -50.8 -8.1 0.0 -58.9operating profit 160.6 81.5 0.0 242.1Financialitems -1.0 -1.0profit/(loss) before tax -1.0 241.1taxexpenses -6.6 -6.6net profit/(loss) for the year -7.6 234.5
balance sHeeT totalnon-currentassets 1,234.9 88.8 644.4 1,968.1totalassets 1,308.2 91.8 689.0 2,089.0totalliabilities 36.8 2.3 769.1 808.2
oTHer informaTion Additionstointangibleassetsandtangiblefixedassets 260.4 1.9 0.0 262.3Impairmentlossesrecognizedintheincomestatement 0.0 0.0 0.0 0.0reversalofimpairmentlossesrecognizedintheincomestatement 0.0 0.0 0.0 0.0 duringtheyeartherehavebeennotransactionsbetweenthetankerandthebulksegments,andthereforealltherevenuederivesfromexternalcustomers.
USdmillion
noTe 4 2007 2006
sTaff cosTs
Total staff costs Staffcostsincludedinoperatingexpenses 15.2 13.6Staffcostsincludedinadministrativeexpenses 39.0 22.7Total 54.2 36.3 staff costs comprise the following Wagesandsalaries 47.7 33.2Share-basedcompensation 2.3 0.0pensioncosts 3.3 2.9othersocialsecuritycosts 0.9 0.2Total 54.2 36.3
USd’000
noTe 4, continued
Hereof remuneration to the board of Directors and salaries to the management: board committee total remunera- remunera- short-term2007 tion tion benefits
nielseriknielsen 138 18 156christianFrigast 92 18 110peterAbildgaard(appointedon17April2007) 39 0 39LennartArrias 55 0 55margrethebligaard(appointedon17April2007) 39 0 39ditlevengel(resignedon29June2007) 28 0 28pedermouridsen(resignedon17April2007) 16 0 16gabrielpanayotides 55 0 55Stefanos-nikoZouvelos 55 0 55Total for 2007 517 36 553
Short-termbenefits Share- basedcom-2007 Salaries bonus pension pensation total
KlausKjærulff 1,036 2,341 100 326 3,803mikaelSkov 549 1,217 53 210 2,029Total for 2007 1,585 3,558 153 536 5,832
board committee total remunera- remunera- short-term2006 tion tion benefits
nielseriknielsen 126 0 126christianFrigast 84 0 84LennartArrias 50 0 50ditlevengel 50 0 50rexHarrington(resignedon19April2006) 15 0 15pedermouridsen 50 0 50gabrielpanayotides 50 0 50Stefanos-nikoZouvelos(appointedon19April2006) 35 0 35Total for 2006 460 0 460
Short-termbenefits Share- basedcom- 2006 Salaries bonus pension pensation total
KlausKjærulff 718 2,347 69 0 3,134Klausnyborg 373 0 36 0 409Total for 2006 1,091 2,347 105 0 3,543
employee information theaveragenumberofstaffinthegroupinthefinancialyearwas439(2006:353). themajorityofthestaffonvesselsarenotemployedbytorm. themembersofmanagementare,intheeventofterminationbythecompany,entitledtoaseverancepaymentofupto24months’salary. thepensionableageformembersofmanagementis62.
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.
noTe 4, continued
incenTive scHeme for managemenT anD employeesIn2007,anIncentiveSchemewasestablishedforallland-basedemploy-eesandofficersemployedonpermanentcontracts(apartfromtrainees,apprenticesandcadets)thataredirectlyemployedinA/Sdampskibs-selskabettorm.Intotal,approximately331employeesareincludedintheprogramme.theboardofdirectorsarenotincludedinthepro-gramme.theprogrammecoversthefinancialyearsof2007,2008and2009.theprogrammeconsistsofbothbonusesandshareoptions. bonus thebonuswillbeawardedbasedontormachievingacalculatedroIc(returnonInvestedcapital)ineachfinancialyearcomparedtoeachyear’sbudgetedroIc.75%oftheachievedbonuswillbepaidincashand25%inshares,whichtheemployeeswillownprovidedthattheyarestillemployedbythecompanyafteraperiodoftwoyears.thenumberofsharesgrantedtotheemployeewilldependonthemarketpriceforthetormsharewhentorm’sAnnualreportforthegrantyearispublished.theindividualemployee’sshareofthebonuswillbebasedpartlyontheindividual’ssalaryandpartlyontheevaluationoftheindividual’sper-formance.theemployeewillreceivethebonusafterthepublicationoftorm’sAnnualreport.Forthefinancialyear2007,thetotalvalueofthebonusunderthisprogrammeamountstoUSd10.5million,ofwhichUSd8.2millionhasbeenrecognizedasanexpenseintheincomestatementin2007.oftheUSd8.2million,USd0.3millionrelatestosharesandUSd7.9millionrelatestocashbonus.theremainingpartofthetotalvalueofthebonuswillbeamortizedandexpensedovertheperiod2008-2010.Fromthetotalvalueofthebonusprogrammefor2007,USd2.5millionrelatestoshares. share options thenumberofshareoptionsgrantedduringthefinancialyear2007is1,087,362ofwhich5,829areforfeited.eachshareoptiongivestheemployeetherighttoacquireonetormshareofanominalvalueofdKK5.Itispresumedthatanequivalenttotalofshareoptionswillbeissuedin2008and2009.theshareoptionscanonlybesettledinshares.thecompany’sholdingoftreasurysharescovertheshareoptionpro-gramme.
theshareoptionsconsistof2elements:50%oftheshareoptionsaregrantedwithafixedexerciseprice(standardoptions).Fortheshareoptionsgrantedin2007,thepriceisdKK151.5pershare,(basedonthemarketpricewhentheAnnualreportfor2006waspublishedon5march2007)andforthefollowingyearsdKK162.5anddKK173.5respectivelyafteradjustmentfortheextraordinarydividendpaidoutinSeptember2007.
50%oftheshareoptionsaregrantedwithanexercisepricethatisdeter-minedultimatelywiththepublicationoftorm’sAnnualreportafterathreeyearperiod,i.e.forthegrantfor2007,inmarch2010.theexercisepriceisdeterminedbytherelativedevelopmentintorm’ssharepriceinrelationtoadefinedpeergroup(peergroupoptions).Ifthetormsharedevelopsrelative-lybetterthanthepeergroup,theshareoptionswillhaveavalue. Allshareoptionscanbeexercisedafterthreeyearsfromgrantandshouldbeatthelatestexercisedthreeyearslater,howeverobservingtherulesaboutinsidertrading.Forthe2007grant,shareoptionscanbeexercisedafterthepublicationoftheAnnualreportfor2009,inmarch2010,andshallbeexercisedbymarch2013atthelatest.theshareoptionswillbeinaccordancewithdanishlawandconditionsincludecontinuedemploymentinthecompanyuntiltheshareoptionshavevest-ed.In2007,anexpenseofUSd2.0millionregardingshareoptionshavebeenrecognizedintheincomestatement.
themarketvalueoftheshareoptionsgrantedin2007isbasedontheblack-ScholesandmontecarlomodelsandcalculatedatUSd10.9mil-lionasperthegrantday. thekeyassumptionsforthecalculationofthemarketvaluebasedontheblack-Scholesandmontecarlomodelsare:
• thesharepriceatthemeasurementdateisestimatedatdKK202.25persharebasedonthesharepriceatomXthenordicexchangeasper9August2007.
• theexerciseprice(beforeadjustmentforextraordinarydividends)isdKK179persharecorrespondingtothequotedsharepriceasof5march2007.
• theexercisepricewillbeadjustedforextraordinarytormdividends.• theexpecteddividendrateisestimatedat3%oftheequityper
annum.• thevolatilityonthetormshareisestimatedbasedonthecompany’s
historcalvolatilityandwasestimatedat36%andforthepeergroupat22%.
• theriskfreeinterestratebaseduponexpiryoftheoptionsis4.46%.• theoptionsareonaverageheldforaperiodof4.1year.• thecorrelationratebetweenpeergroupandtormis92.5%,based
onthecorrelationontheyearlyreturnforthehistoricalsharepricesduringthelasttenyears.
82
83
.
noTe 4, continued
changesinoutstandingshareoptionsareasfollows: numberof shareoptions 2007
share option programme - 2007 to 2009 management granted 328,349exercised 0Forfeited/expired 0notexercisedat31december2007 328,349
other employees granted 759,013transferredtoresignedemployees -41,614exercised 0Forfeited/expired -5,829notexercisedat31december2007 711,570 resigned employees granted 0tranferredfromotheremployees 41,614exercised 0Forfeited/expired 0notexercisedat31december2007 41,614 Total number of not exercised at 31 December 2007 1,081,533 Hereof:Shareoptionswithafixedexerciseprice 479,585Shareoptionswithanexercisepricebasedonpeergroup 601,948 Total number of share options that can be exercised at 31 December 2007 0
USdmillion
noTe 5 2007 2006
remuneration to the auditorsappointed at the annual general meeting Deloitte Auditfees 0.6 0.8Auditrelatedfees 0.2 0.0taxfees 0.0 0.1Feesforotherservices 0.1 0.0Total fees 0.9 0.9
noTes
84
USdmillion
noTe 6 2007 2006
oTHer invesTmenTscost:balanceat1January 64.5 64.5Additions 0.1 0.0disposals -60.9 0.0balanceat31december 3.7 64.5 value adjustment: balanceat1January 579.9 296.5exchangerateadjustment 2.4 42.2Valueadjustmentfortheyear 68.3 241.2disposals -643.3 0.0balanceat31december 7.3 579.9 carrying amount at 31 December 11.0 644.4 Hereoflisted 7.8 641.7Hereofunlisted 3.2 2.7 USdmillion
noTe 7 other intangible goodwill assets total inTangible asseTs cost: balanceat1January2007 0.0 0.0 0.0exchangerateadjustment 0.0 0.0 0.0Additions 0.0 0.0 0.0Additionsthroughbusinesscombination 87.6 13.4 101.0disposals 0.0 0.0 0.0transferredto/fromotheritems 0.0 0.0 0.0balanceat31december2007 87.6 13.4 101.0 Depreciation and impairment losses: balanceat1January2007 0.0 0.0 0.0exchangerateadjustment 0.0 0.0 0.0reversalofimpairmentlosses 0.0 0.0 0.0depreciationandimpairmentlossesfortheyear 0.0 5.9 5.9balanceat31december2007 0.0 5.9 5.9
carrying amount at 31 December 2007 87.6 7.5 95.1
theadditionofotherintangibleassetscompriseapoolcollaborationcontract,aseafarerdatabaseandnon-competeagreementswiththeformer omImanagement.AlltheseassetswereacquiredintheomIacquisition.thepoolcollaborationcontractwasfullyamortizedin 2007whenthecollaborationceased.theseafarerdatabasehasanestimatedlifeof15years,whereasthenon-compete agreementsareamortizedovertheirtermendingin2008.
85
USdmillion
noTe 7, continued impairmenT TesTing of gooDWill goodwillwithacarryingamountofUSd87.6millionwasacquiredinconnectionwiththeacquisitionofomIin2007andhasbeenallocatedtothetankerdivision.duringthefinancialyear,thecompanyassessedtherecoverableamountofthetankerdivisionanddeterminedthatthetankerdivisionandtheallocatedgoodwillwasnotimpaired.therecoverableamountofthetankerdivisionwasdeterminedbasedonavalueinusecalculationwhichusesfive-yearcashflowprojectionsbasedonfinanci-albudgetsapprovedbytheboardofdirectorsandadiscountrateof9.0%perannum.thediscountrateisbasedonariskfreeinterestrateof5.4%.managementbelievesthatanyreasonablypossiblechangeinthekeyassumptionsonwhichtherecoverableamountisbasedwouldnotcausetheaggregatecarryingamounttoexceedtheaggregaterecoverableamountofthetankerdivision.thekeyassumptionsusedinthevalueatusecalculationareasfollows:-thecashflowsarebasedonknowntonnageinthebudgetperiodonly.Additionsorsalesoftonnagearenotfactoredinasthetimingandeffectofsuchtransactionsarehighlyuncertain.However,additionswillonlybemadeifmanagementexpectstoachieveareturninexcessofthediscountrateappliedintheimpairmenttestandsaleswouldimprovethecashflows.
-theproducttankervesselshaveanexpectedusefullifeofatleast20years.giventhecurrentageprofileofthetankerfleet,theremaininglifeisatleast 15years.-Freightrateestimatesarebasedontheextensiveexperienceandknowledgeofthemarketembeddedinthetankerdivision.-operatingexpensesandadministrativeexpensesareexpectedtoincreaseby3%yearonyear.managementbelievesthesekeyassumptionstobereasonablyachievable.
USdmillion
noTe 8 Vesselsand prepay- otherplant Landand capitalized menton andoperating buildings dry-docking vessels equipment total Tangible fixeD asseTs cost: balanceat1January2006 1.3 1,230.0 97.4 6.1 1,334.8exchangerateadjustment 0.0 0.0 0.0 0.0 0.0Additions 0.0 93.3 166.3 2.7 262.3disposals -0.8 -119.6 0.0 -0.5 -120.9transferredto/fromotheritems 0.0 80.4 -80.4 0.0 0.0transferredtonon-currentassetsheldforsale 0.0 0.0 0.0 0.0 0.0balanceat31december2006 0.5 1,284.1 183.3 8.3 1,476.2 Depreciation and impairment losses: balanceat1January2006 0.4 163.6 0.0 3.8 167.8exchangerateadjustment 0.0 0.0 0.0 0.0 0.0disposals -0.3 -73.6 0.0 -0.3 -74.2reversalofimpairmentlosses 0.0 0.0 0.0 0.0 0.0depreciationfortheyear 0.0 57.7 0.0 1.2 58.9balanceat31december2006 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 Hereoffinanceleases 0.0 0.0 0.0 0.0 0.0 Hereoffinancialexpensesincludedincost 0.0 1.2 0.8 0.0 2.0
noTes
86
USdmillion
noTe 8, continued Vesselsand prepay- otherplant Landand capitalized menton andoperating buildings dry-docking vessels equipment total cost: balanceat1January2007 0.5 1,284.1 183.3 8.3 1,476.2exchangerateadjustment 0.0 0.0 0.0 0.0 0.0Additions 1.7 38.4 247.7 2.7 290.5Additionsthroughbusinesscombination 2.2 1,018.7 7.4 3.8 1,032.1disposals 0.0 -5.8 0.0 -0.5 -6.3transferredto/fromotheritems 0.0 166.9 -166.9 0.0 0.0transferredtonon-currentassetsheldforsale 0.0 0.0 0.0 0.0 0.0balanceat31december2007 4.4 2,502.3 271.5 14.3 2,792.5 Depreciation and impairment losses: balanceat1January2007 0.1 147.7 0.0 4.7 152.5exchangerateadjustment 0.0 0.0 0.0 0.0 0.0disposals 0.0 -5.8 0.0 -0.3 -6.1reversalofimpairmentlosses 0.0 0.0 0.0 0.0 0.0depreciationfortheyear 0.1 90.4 0.0 2.2 92.7balanceat31december2007 0.2 232.3 0.0 6.6 239.1 carrying amount at 31 December 2007 4.2 2,270.0 271.5 7.7 2,553.4 Hereoffinanceleases 0.0 0.0 0.0 0.0 0.0 Hereoffinancialexpensesincludedincost 0.0 1.8 0.9 0.0 2.7
At1october2006,thevalueoflandandbuildingsassessedfordanishtaxpurposesamountedtoUSd0.8million(carryingamountat31december2007USd0.4million)comparedwithUSd0.6millionat1october2005. Includedinthecarryingamountforvesselsandcapitalizeddry-dockingarecapitalizeddry-dockingcostsintheamountofUSd27.1million(2006:USd9.4million).Forinformationonassetsusedascollateralsecurity,pleaserefertonote16.InallmaterialaspectsthedepreciationsunderotherplantandoperatingequipmentofUSd2.2millionrelatetoadministration(2006:USd1.2million).
USdmillion
noTe 9
financial iTems 2007 2006
financial income Interestincomefromcashandcashequivalents 17.7 4.1gainonotherinvestments(available-for-sale) 643.3 0.0dividends*) 1.3 26.4Fairvalueadjustmentsonderivativefinancialinstruments 0.0 1.7exchangerateadjustmentsincludingnetgainsfromforwardexchangeratecontracts 15.1 7.3 677.4 39.5financial expenses Interestexpenseonmortgageandbankdebt 70.6 40.2Fairvalueadjustmentsonderivativefinancialinstruments 5.4 0.0otherinterestexpenses 3.0 1.1Hereofincludedinthecostoftangiblefixedassets -0.8 -0.8 78.2 40.5
Total financial items 599.2 -1.0
*)IncludesdividendonthenordensharesofUSd0.0millionin2007(2006:USd25.5million).
87
USdmillion
noTe 10 2007 2006
freigHT receivables, eTc. Analysisasat31decemberoffreightreceivablesetc.: freigHT receivables, eTc. neitherpastduenorimpaired 53.4 22.7due<180days 30.1 24.3due>180days 6.8 2.7Total freight receivables, etc. 90.3 49.7 Asat31december2007,freightreceivablesetc.includereceivablesatavalueofUSd1.5million(2006:USd1.5million), thatisindividuallydeterminedtobeimpairedtoavalueofUSd0.6million(2006:USd0.6million). movementsintheprovisionforimpairmentoffreightreceivablesetc.duringtheyearareasfollows: provision for impairmenT of freigHT receivables, eTc. balanceat1January 0.9 0.8provisionsfortheyear 0.0 0.2provisionsreversedduringtheyear 0.0 0.0provisionsutilizedduringtheyear 0.0 -0.1balance at 31 December 0.9 0.9 provisionforimpairmentoffreightreceivables,etc.hasbeenrecognizedintheincomestatementunder administrativeexpenses.theprovisionisbasedonanindividualassessmentofeachindividual receivable.
USdmillion
noTe 11 2007 2006
Tax expenses currenttaxfortheyear -15.8 -4.7Adjustmentsrelatedtopreviousyears -3.8 6.3Adjustmentofdeferredtax 7.1 -8.2Tax expenses -12.5 -6.6
reconciliaTion of THe effecTive corporaTion Tax raTe for THe year corporationtaxrateindenmark 25.0% 28.0%differencesintaxrates,foreignsubsidiaries -0.7% -3.0%Adjustmentoftaxrelatedtopreviousyears 0.5% -2.6%changeindeferredtaxduetoreductionofdanishcorporationtaxfrom28%to25% -0.8% -effectfromthetonnagetaxscheme -22.4% -19.7%effectivecorporatetaxrate 1.6% 2.7%
thecompanyparticipatesinthetonnagetaxschemeindenmark.participationinthetonnagetaxschemeisbindinguntil31december2010.
Underthedanishtonnagetaxscheme,theincomeandexpensesfromshippingactivitiesarenotsubjecttodirecttaxation.Insteadthetaxableincomeiscalcu-latedfrom:·thenettonnageofthevesselsusedtogeneratetheincomefromshippingactivities ·Arateapplicabletothespecificnettonnageofthevessel,basedonaslidingscale ·thenumberofdaysthevesselsareusedduringtheyear. thecompanyexpectstoparticipateinthetonnagetaxschemeafterthebindingperiodandataminimumtomaintainitscurrentinvestingandactivitylevel. paymentofdividendstotheshareholdersofA/SdampskibsselskabettormhasnotaxconsequencesforA/Sdampskibsselskabettorm.
USdmillion
noTe 11, continued 2007 2006
DeferreD Tax balanceat1January 62.8 54.6reductionofdanishcorporationtaxfrom28%to25% -6.7 -deferredtaxfortheyear -0.5 8.2balance at 31 December 55.6 62.8 essentiallyalldeferredtaxrelatestovesselsincludedinthetransitionaccountunderthedanishtonnagetaxscheme.
noTe 12 2007 2006 2007 2006 number number nominal nominal ofshares ofshares value value million million dKKmillion dKKmillion common sHares balanceat1January 36.4 36.4 364.0 364.0Sharesplit 36.4 - - -balance at 31 December 72.8 36.4 364.0 364.0
thecommonsharesconsistof72.8millionsharesatdenominationdKK5pershare.nosharescarryspecialrights.Allissuedsharesarefullypaid. Inmay2007,thedenominationofthecompany’sshareswaschangedfromdKK10persharetodKK5pershare.thenominalvalueofthecompany’scommonsharesremainedunchangeddKK364.0million,whereasthenumberofshareswerechangedfrom36.4millionsharesofdKK10eachto72.8millionsharesofdKK5each.Inmay2004,thecompanyincreasedthesharecapitalfromnominallydKK182.0milliontonominallydKK364.0millionthroughtheissueof18.2millionbonussharesofdKK10each.thebonusshareswereallottedtothecompany’sexistingshareholdersattheratioof1:1.beyondthis,nochangeshavebeenmadetothesharecapitalwithinthelastfiveyears. 2007 2006 2007 2006 2007 2006 number number nominal nominal %of %of ofshares ofshares value value share share (1,000) (1,000) dKKmillion dKKmillion capital capital
Treasury sHares*) balanceat1January 3,556.4 3,117.0 17.8 15.6 4.9 4.3purchase 0.0 455.6 0.0 2.3 0.0 0.6Sale 0.0 0.0 0.0 0.0 0.0 0.0Shareoptionsexercised 0.0 -16.2 0.0 -0.1 0.0 0.0balance at 31 December 3,556.4 3,556.4 17.8 17.8 4.9 4.9 *)thefiguresinthetableaboveandthedescriptionbelowareadjustedtoreflectthesharesplitinmay2007. At31december2007,thecompany’sholdingoftreasurysharesrepresented3,556,364shares(2006:3,556,364shares)atdenominationdKK5pershare,withatotalnominalvalueofUSd3.5million(2006:USd3.1million)andamarketvalueofUSd124.9million(2006:USd116.8million).theretainedsharesequatesto4.9%(2006:4.9%)ofthecompany’scommonshares. totalconsiderationinrespectofthepurchaseoftreasuryshareswasUSd0.0million(2006:USd10.4million),andforthesaleofsharesitwasUSd0.0million(2006:USd0.0million).Asthedisposaloftreasurysharesin2006wascarriedoutinconnectionwiththeexerciseofshareoptions,theconsiderationwasbasedonexercisepricesintheshareoptionprogramme.theholdingoftreasurysharesisheldasahedgeofthecompany’sshareoptionprogramme.
88
noTes
89
USdmillion
noTe 13 2007 2006 DeferreD income prepaidcharterhire 3.8 0.0other 4.2 1.1 8.0 1.1
USdmillion
noTe 14 2007 2006
morTgage DebT anD bank loans toberepaidasfollows: Fallingduewithinoneyear 768.8 55.9Fallingduebetweenoneandtwoyears 139.1 55.9Fallingduebetweentwoandthreeyears 69.1 68.5Fallingduebetweenthreeandfouryears 112.6 53.5Fallingduebetweenfourandfiveyears 107.7 53.5Fallingdueafterfiveyears 456.1 407.6 1,653.4 694.9 thepresentedamountstoberepaidareadjustedbydirectlyrelatedcostsarisingfromtheissuingoftheloansbyUSd3.2million(2006:USd2.9million).whichareamortizedoverthetermoftheloans.
USdmillion 2007 2006 2007 2006 Fixed/ effective effective Fair Fair maturity floating interest interest value value loan USd 2008 Floating 4.6% 6.2% 700.0 5.1USd 2009 Floating 4.6% 5.8% 70.0 15.0USd 2011 Floating - 6.2% 0.0 8.1USd 2011 Fixed 4.4% 4.4% 92.5 63.6USd 2012 Floating 5.2% - 16.7 0.0USd 2012 Fixed 4.4% - 32.1 0.0USd 2014 Floating 5.1% 5.2% 328.9 399.2USd 2015 Floating 5.0% 5.9% 190.3 206.8USd 2016 Floating 4.7% - 226.0 0.0Weighted average effective interest rate 4.7% 5.4% Fairvalue 1,656.5 697.8 thecompanyhasanearlysettlementoptiontorepaytheloans.partoftheloanswithfloatinginterestratehavebeenswappedtofixedinterestrate.pleaserefertonote20forfurtherinformationoninterestrateswaps. certainoftorm’sloanagreementscontainminimumrequirementstotheliquidityandsolvencyoftormandotherrestrictions,whichmaylimittorm’sabilityto:·engageinmergersoracquisitions.·changethemanagementoftorm’svessels.
Asof31december2007,tormcomplywiththeseminimumrequirementsandrestrictivecovenants.basedontorm’sexpectedfuturecashflow,investmentprogrammes,etc.tormexpectstocomplywiththerequirementsandcovenantsuntilthematurityoftheloanagreements.
pleaserefertothesection’managingriskandexposure’andnote21forfurtherinformationonfinancialrisks.
USdmillion
noTe 15 2007 2006
oTHer liabiliTies partnersandcommercialmanagements 1.0 1.8Accruedoperatingexpenses 6.3 6.3Accruedinterest 11.0 3.8Wagesandsocialexpenses 13.5 5.2derivativefinancialinstruments 4.9 6.2payablestojointventures 21.4 0.0miscellaneous,includingitemsrelatedtoshippingactivities 2.0 2.7 60.1 26.0
USdmillion
noTe 16 2007 2006
collaTeral securiTy collateral security for mortgage debt and bank loans: Vessels 956.5 682.9 956.5 682.9
thetotalcarryingamountforvesselsthathavebeenprovidedassecurityamountstoUSd1,033millionat31december2007(2006:USd744million). USdmillion
noTe 17 2007 2006
guaranTee anD conTingenT liabiliTies guaranteeliabilities 0.0 0.0 theguaranteeliabilityforthegroupislessthanUSd0.1millionandrelatestoguaranteeliabilitiestodanishShipowners’Association.
USdmillion
noTe 18 2007 2006 conTracTual liabiliTies - as lessee (operating leases) charter hire for vessels on time charter (incl. vessels not delivered): Fallingduewithinoneyear 177.6 129.4Fallingduebetweenoneandtwoyears 181.8 128.0Fallingduebetweentwoandthreeyears 147.9 115.4Fallingduebetweenthreeandfouryears 131.6 103.6Fallingduebetweenfourandfiveyears 120.0 99.4Fallingdueafterfiveyears 397.8 306.1 1,156.7 881.9Averageperioduntilredelivery(year) 4.1 4.9 Leaseshavebeenenteredintowithamutuallyirrevocableleaseperiodofuptoeightyears.certainleasesincludeanoptiontorenewforoneortwoadditionalyearsatatimeforuptothreeyearsand/orapurchaseoption.exerciseofthepurchaseoptionontheindividualvesselisbasedonanindividualassessment.certainleasesincludeaprofitsharingelementimplyingthattheactualcharterhiremaybehigher.
noTes
90
91
USdmillion
noTe 18, continued 2007 2006 newbuilding installments and exercised purchase options (purchase obligations): Fallingduewithinoneyear 273.5 191.3Fallingduebetweenoneandtwoyears 249.7 161.3Fallingduebetweentwoandthreeyears 207.2 179.7Fallingduebetweenthreeandfouryears 37.8 62.9Fallingduebetweenfourandfiveyears 0.0 18.0Fallingdueafterfiveyears 0.0 0.0 768.2 613.2other operating leases: Fallingduewithinoneyear 3.7 2.1Fallingduebetweenoneandtwoyears 3.6 1.9Fallingduebetweentwoandthreeyears 3.3 1.7Fallingduebetweenthreeandfouryears 3.1 1.7Fallingduebetweenfourandfiveyears 2.7 1.8Fallingdueafterfiveyears 5.2 3.7 21.6 12.9 otheroperatingleasesprimarilyconsistofcontractsregardingofficespacesandapartmentsaswellasIt-relatedcontracts. duringtheyear,charterhireexpenseshavebeenrecognizedintheincomestatementatUSd160.2million(2006:USd106.3million)ofwhichUSd4.2million(2006:USd7.1million)relatetoprofitsharingelements.otheroperatingleaseexpenseshavebeenrecognizedintheincomestatementbyUSd3.9million(2006:USd2.5million). conTracTual liabiliTies - as lessor (operating leases) charter hire income for vessels on time charter and bareboat charter (incl. vessels not delivered): Fallingduewithinoneyear 370.1 145.0Fallingduebetweenoneandtwoyears 151.2 41.0Fallingduebetweentwoandthreeyears 39.1 23.6Fallingduebetweenthreeandfouryears 13.7 6.1Fallingduebetweenfourandfiveyears 9.3 0.0Fallingdueafterfiveyears 8.6 0.0 592.0 215.7Averageperioduntilredelivery(year) 1.3 1.1
certainleasesincludeaprofitsharingelementimplyingthattheactualcharterhireincomemaybelower.
charterhireincomeforvesselsontimecharterandbareboatcharterisrecognizedunderrevenue.
neWbuilDing conTracTs Asat31december2007,tormhadcontracted21newbuildings(2006:17newbuildings)tobedeliveredduring2008to2011.Forall21vesselsthetotaloutstandingcontractualcommitmentamountedtoUSd745millionasat31december2007.Inadditiontormcalledanoptionin2007toacquireonepanamaxbulkcarrierontimecharterbuiltin2004,whichwillbedeliveredinthefirstquarterof2008.thecontractualliabilityrelatingtothisvesselamountedtoUSd23millionasat31december2007.
USdmillion
noTe 19
acQuireD Time cHarTer conTracTs thecompanyhasunderabusinesscombinationacquiredsometimechartercontractswhichhavebeenmeasuredatfairvalueandrecognizedasaliabilityasoftheacquisitiondate.thisliabilityisamortizedoverthelifeoftheunderlyingtimechartercontract,andisrecognizedasincomeunderrevenue.
thetablebelowshowstheamortization: USdmillion 2007 2006
amorTiZaTion of acQuireD Time cHarTer conTracTs Amortizationwithinoneyear 20.2 0.0Amortizationbetweenoneandtwoyears 12.2 0.0Amortizationbetweentwoandthreeyears 3.7 0.0Amortizationbetweenthreeandfouryears 0.1 0.0Amortizationbetweenfourandfiveyears 0.0 0.0Amortizationafterfiveyears 0.0 0.0 36.2 0.0 duringtheyear,amortizationofacquiredtimechartercontractshavebeenrecognizedasanincomebyUSd13,7million.
noTe 20
DerivaTive financial insTrumenTs thetablebelowshowsthefairvalueofthederivativefinancialinstruments: fair value Fairvalue at 31 Dec. at31dec. 2007 2006 Hedge accounting cash flows: Interestrateswaps -0.6 3.0bunkerhedge 3.3 -3.3ForwardFreightAgreements 6.0 5.9non hedge accounting: Forwardexchangeratecontracts 1.7 1.0Forwardrateagreement -0.2 0.0Interestrateswaps -2.0 3.5currencyoptions -0.3 0.4Forwardtobuyshares -0.3 0.0bunkerhedge -1.4 -1.5ForwardFreightAgreements 2.0 -2.3rightstoshareofgainonpurchaseoptionsonvessels 44.6 0.0Acquiredliabilitiesrelatedtooptionsonvessels -12.2 0.0 40.6 6.7
noTes
92
93
USdmillion
noTe 20, continued thetablebelowshowsrealizedamountsandfairvalueadjustmentsregardingderivativefinancialinstrumentsrecognizedintheincomestatementandequityin2007:
Incomestatement portexpenses, Freightand equity bunkersand bunker Financial Hedging revenue commissions derivatives items reserves
bunkerhedge - 0.9 0.0 - 6.6ForwardFreightAgreements 8.8 - 2.9 - 0.1Forwardexchangeratecontracts - - - 2.9 -Forwardrateagreement - - - -0.1 -Interestrateswaps - - - -0.7 -3.6currencyoptions - - - 0.1 -Forwardtobuyshares - - - -0.3 -Total 2007 8.8 0.9 2.9 1.9 3.1 pleaserefertothesection’managingriskandexposure’andnote21forfurtherinformationoncommercialandfinancialrisks. theinterestrateswapswithafairvalueofUSd-0.6million(2006:USd3.0million)aredesignatedashedgeaccountingtohedgeapartoftorm’sinterestpaymentsduringtheperiod2008to2009.thebunkerhedgecontractswithafairvalueofUSd3.3million(2006:USd-3.3million)aredesignatedashedgeaccountingtohedgeapartoftorm’sbunkerexpensesduringtheperiod2008to2009.theForwardFreightAgreementswithafairvalueofUSd6.0million(2006:USd5.9million)aredesignatedashedgeaccountingtohedgeapartoftorm’srevenueduringtheperiod2008to2009.thegainsorlossesonthesecontractswillberecognizedintheincomestatementwhenrealizedtogetherwiththehedgeditems.
USdmillion
noTe 21 financial anD commercial risks excHange raTe risk Allthingsbeingequal,achangeintheUSdexchangerateof1%inrelationtodKKwouldresultinachangeinprofitbeforetaxandequityasfollows: sensiTiviTy To cHanges in THe usD/Dkk excHange raTe 2007 2006
changesatanincreaseintheUSdexchangerateof1%inrelationtodKK:
changesinprofitbeforetax 0.8 0.7changesinequity 0.1 6.4 Atyear-end2006,tormhadforwardhedgingcontractsofUSd12millionagainstdKKinrespectofoperatingcostsfor2007.In2007,tormenteredintoexchangeratecontractsforthesaleofUSd451millionagainstdKKandsoldUSd25millionspotinordertocoverthedKKcashrequirementsforoperatingcostsanddivi-dendsin2007.Assuch,in2007spotandtermexchangecontractsforatotalofUSd488millionwereunwoundatanaverageexchangerateof5.57asagainsttheaverageexchangeratefortheyearofUSdagainstdKKof5.45.Furthermore,tormsoldUSd55millionwithvaluein2008atanexchangerateof5.24againstdKK.
In2007,tormenteredintospotcontractsforthepurchaseofUSd703millionagainstdKKinordertohedgethedKKproceedsfromthesaleofthenordensharesatanaverageexchangerateof5.51.In2007,withsettlementin2008,tormhadenteredintoanagreementtopurchaseput-optionsintheamountofUSd15millionagainstdKK.Withregardtotheput-options,tormcansellUSdtothecounterpartatanaverageexchangerateof5.02tothedKK.Additionalin2007,withsettlementin2008,tormhadenteredintoanagreementtosellacall-optionintheamountofUSd40millionagainstdKK.Withregardtothecall-option,tormisobligedtosellUSdtothecounterpartatanaverageexchangerateof5.50tothedKK.
tormapplieshedgeaccountingtocertainforwardforeignexchangecontracts.Hedgeaccountingisappliedsystematicallyandisbaseduponspecificpolicies.
noTes
94
USdmillion
noTe 21, continued inTeresT raTe risk tormhassignificantcashrequirementsassociatedwithlong-termdebtandtimecharters.thesepaymentsareinfluencedbychangesininterestrates.Inordertomanageinterestraterisks,financialinstrumentsareenteredtoswapthevariableinterestrateonaportionoftheborrowingsforfixedratedebt. Allthingsbeingequal,achangeintheinterestratelevelof1%pointontheunhedgedvariableinterestdebtwillresultinachangeintheinterestrateexpensesasfollows: sensiTiviTy To cHanges in inTeresT raTes 2007 2006
changesatincreaseintheinterestratelevelof1%-point:Increaseininterestrateexpenses 8.0 1.8 torm’sinterestbearingUSddebtdecreasedfromyear-end2006toyear-end2007byUSd959milliontoUSd1,657million.oftorm’smortgagedebtinUSdwithvariableinterestratesUSd761millionwillbeduewithina12monthsperiodandUSd314millionafter1–5years.theaverageeffectiveinterestrateisbetween4.0%and5.7%.
pleaserefertonote14forfurtherdetailsregardingourinterestbearingdebt. theportionoftheinterestswapshedgingtheUSdmortgagedebtwithmaturitywithin1yearwasUSd37millionandUSd146millionafter1-5years.theaverageeffectiveinterestrateswerebetween3.2%and4.7%.themarketvalueoftorm’sinterestrateswapswasUSd-2.6millionatyear-end2007(2006:USd6.5million).
Atyear-end,tormhadcovered50%ofitstotal2008interestcostsatanaveragerateof5.0%includingmargin.Fortheperiod2009-2010,thecoverageis22%.thefixedinterestdebthasanaverageperiodof2.5yearsremaining,expiringbetween2008and2013.
tormapplieshedgeaccountingtointerestrateswaps.Hedgeaccountingisappliedsystematicallyandisbaseduponspecificpolicies.
movemenT in bunker prices In2007,tormcovered23%ofitsbunkerrequirementsusingderivatives.Asat31december2007,tormhadhedgedthepricefor0.5%ofitsbunkerrequire-mentsfor2008,andthemarketvalueofthesecontractsasatyear-endwasUSd1.9million(2006:-4.8million).
tormapplieshedgeaccountingtocertainbunkerhedgecontracts,primarilycontractscoveringperiodsof12monthsorlonger.Hedgeaccountingisappliedsystematicallyandisbaseduponspecificpolicies. Allthingsbeingequal,apricechangeof1%pertonofbunkeroilwouldleadtothefollowingchangeinexpenditurebasedontheexpectedbunkerconsumption:
sensiTiviTy To cHanges in THe bunker prices 2007 2006changesatanincreaseinthebunkerpricesof1%perton: changesinbunkerexpenses 1.4 1.0 movemenT in freigHT raTes tormapplieshedgeaccountingtocertainFFAcontracts,primarilycontractscoveringperiodsof12monthsorlonger.Hedgeaccountingisappliedsystematicallyandisbaseduponspecificpolicies.
pleaserefertopage12intheannualreportforinformationonmovementinfreightrates.
95
USdmillion
noTe 22 2007 2006
financial insTrumenTs
caTegories of financial asseTs anD liabiliTies as DefineD in ias 39:
loans and receivablesFreightreceivables,etc. 90.3 49.7otherreceivables 14.9 8.5cashandcashequivalents 118.0 33.0Total loans and receivables 223.2 91.2 available-for-sale financial assets otherinvestments 11.0 644.4Total available-for-sale financial assets 11.0 644.4 Derivative financial instruments (assets) otherfinancialassets(heldfortrading) 44.6 0.0otherreceivables(heldfortrading) 3.8 3.1otherreceivables(hedgeaccounting) 9.3 9.4Total derivative financial instruments (assets) 57.7 12.5 financial liabilities measured at amortized cost mortgagedebtandbankloans 1,653.5 695.0tradepayables 44.3 18.8otherliabilities 41.7 15.0Total financial liabilities measured at amortized cost 1,739.5 728.8 Derivative financial instruments (liabilities) Acquiredliabilitiesrelatedtooptionsonvessels(heldfortrading) 12.2 0.0otherliabilities(heldfortrading) 4.3 2.0otherliabilities(hedgeaccounting) 0.6 3.8Total derivative financial instruments (liabilities) 17.1 5.8
thefairvalueofthefinancialassetsandliabilitiesaboveequalsthecarryingamountexceptformortgagedebtandbankloansforwhichthefairvaluecanbefoundinnote14.
USdmillion
noTe 23
relaTeD parTy TransacTions
themembersofthecompany’sboardofdirectorsandSeniormanagement,nearrelativestothesepersonsandcompanieswherethesepersonshavecontrolorexercisesignificantinfluenceareconsideredasrelatedparties. mr.nielseriknielsen,chairmanoftheboardofdirectors,isapracticingpartnerinthelawfirmbech-bruun.bech-bruunhasrenderedlegalassistanceduringthefinancialyearasoneofanumberoflawfirms.thefirm’sfeeofUSd0.3million(2006:USd0.3million)isbasedupontheamountoftimespentbythefirm. mr.Stafanos-nikoZouvelos,memberoftheboardofdirectors,isgeneralmanagerofbeltestShippingcompanyLimited.tormhasduringtheyearpaidUSd6.8million(2006:USd8.5million)toanentityownedbybeltestShippingcompanyLimitedunderatimecharteragreementinvolvingoneproducttankervessel. therehavebeennoothertransactionswithsuchpartiesduringthefinancialyear. managementremunerationisdisclosedinnote4. Itisconsideredthatnosinglepersonhascontroloverthegrouportheparentcompany.
noTes
96
noTe 24
enTiTies in THe group parent company: A/Sdampskibsselskabettorm denmark investments in subsidiaries*): tormSingapore(pte)Ltd. 100% Singapore republicanShippingLLc 100% marshallIslandsAmazonShippingLLc 100% marshallIslands rhoneShippingLLc 100% marshallIslandsnechesShippingLLc 100% marshallIslands rosettaShippingLLc 100% marshallIslandstormnorgeAS 100% norway SanJacintoShippingLLc 100% marshallIslandstormShipping(germany)g.m.b.H. 100% germany SaoneShippingLLc 100% marshallIslandsLongrange1A/S 100% denmark tevereShippingLLc 100% marshallIslandsmediumrangeA/S 100% denmark thamesShippingLLc 100% marshallIslandsLr1managementK/S 100% denmark trinityShippingLLc 100% marshallIslandsmrmanagementK/S 100% denmark WabashShippingLLc 100% marshallIslandscharenteShippingLLc 100% marshallIslands ottawaShippingLLc 100% marshallIslandsFoxShippingLLc 100% marshallIslands tamarShippingLLc 100% marshallIslandsgaronneShippingLLc 100% marshallIslands rubyShippingLLc 100% marshallIslandsHorizonShippingLLc 100% marshallIslands gangesShippingLLc 100% marshallIslandsKansasShippingLLc 100% marshallIslands LibratankersShippingLLc 100% marshallIslandsLoireShippingLLc 100% marshallIslands tiberShippingLLc 100% marshallIslandsmadisonShippingLLc 100% marshallIslands omImarineServiceLtd. 100% delawaremoselleShippingLLc 100% marshallIslands omIHoldingLtd. 100% mauritiusohioShippingLLc 100% marshallIslands omcILtd. 100% IndiaplatteShippingLLc 100% marshallIslands omIcrewingServiceLtd. 100% bermudainvestments in legal entities included as jointly controlled entities*): Longrange2A/S 50% denmark Ugland&tormShipowningApS 50% denmarkLr2managementK/S 50% denmark omIcorporation 50% marshallIslandsttShipowningK/S 50% denmark brazosShippingLLc 50% marshallIslandstorghatten&tormShipowningApS 50% denmark HorizonShippingLLc 50% marshallIslandsUtShipowningK/S 50% denmark tormSHIppIng(pHILS.),Inc. 25% philippines
Furthermore,tormisparticipatinginanumberofjointventuresprimarilythemrpool,theLr1poolandtheLr2poolwhicharenotlegalentities.theinvestmentsinthesejointventuresareincludedasinvestmentsinjointlycontrolledoperations.
thefollowingrepresentstheincomeandexpensesreflectedintheconsolidatedincomestatementandthesummarizedbalancesheetdatathatisreflectedintheconsolidatedbalancesheetfortheyearended31december,2006and2007inaccordancewithIFrSassociatedwithjointlycontrolledentities:
USdmillion 2007 2006
totalincome 57.5 16.4totalexpenses -54.2 -11.8net profit for the year 3.3 4.6
non-currentassets 114.1 17.0currentassets 33.6 3.9
non-currentliabilities 0.0 15.8currentliabilities 5.4 0.2
*)companieswithactivityinthefinancialyear.
97
USdmillion
noTe 25 2007 2006
earnings per sHare netprofitfortheyear(USdmillion) 791.7 234.5 million shares Averagenumberofshares 72.8 72.8Averagenumberoftreasuryshares -3.6 -3.4Averagenumberofsharesoutstanding 69.2 69.4dilutiveeffectofoutstandingshareoptionsandrestrictedshares 0.2 0.0Averagenumberofsharesoutstandingincl.dilutiveeffectofshareoptions 69.4 69.4 earningspershare(USd) 11.4 3.4 dilutedearningspershare(USd) 11.4 3.4
thecomparativefiguresarerestatedtoreflectthechangeinthedenominationofthecompany’ssharesfromdKK10persharetodKK5inmay2007.
noTe 26 2007 2006
appropriaTion of neT profiT for THe year incl. proposeD DiviDenD
proposedappropriationofnetprofitfortheyearintheparentcompany,A/Sdampskibsselskabettorm: proposeddividend 64.5 73.9retainedprofit 709.0 114.5netprofitfortheyear 773.5 188.4 totalequityintheparentcompany,A/Sdampskibsselskabettorm: commonshares 61.1 61.1treasuryshares -18.1 -18.1revaluationreserves 7.3 579.8retainedprofit 874.1 513.1proposeddividend 64.5 73.9Hedgingreserves 8.7 5.6translationreserves 5.9 6.0totalequity 1,003.5 1,221.4 proposeddividendpershare(USd)*) 0.9 1.0dividendpersharepaid(USd)*) 6.1 1.9
thedifferencebetweenproposeddividendpershareinUSdin2006anddividendpersharepaidinUSdin2007relatestotheextraordinarydividendpaidin2007andthechangeintheUSd/dKKexchangerateasthedividendispaidindKK.
*)thecomparativefiguresareadjustedtoreflectthesharesplitinmay2007.
USdmillion
noTe 27 2007 2006
casH floWs reversal of other non-cash movements: Amortizationofacquiredassetsandliabilities -13.7 0.0Adjustmentsonderivativefinancialinstruments -1.9 3.9exchangerateadjustments 12.8 1.7otheradjustments 1.4 0.4Total reversal of other non-cash movements -1.4 6.0
noTes
98
USdmillion
noTe 28
acQuisiTion of companies thecompanyandteekaythroughtheirjointlyownedentityomahaInc.acquiredomIcorporation(omI)on8June2007.themajorityofomI’sassetsandliabi-litieswasdividedequallybetweenthecompanyandteekayon1August2007.thepartiesintendtodividetheremainingassetsandliabilitiesequallyaswell.
theacquistionof50%ofomIwasrecognizedasaninvestmentinajontventurebyproportionateconsolidation,whiletheassetsandliabilitiesacquiredfromomIon1August2007wasrecognizedusingthepurchasemethod.cashwasonlypaidinthe50%acquisitionofomIon8June2007.
thedetailsoftheomIacquisitionareasfollows(torm’sshare):
Acquired Acquired voting Acquisition Acquisition ownership instruments pricenameandprimaryactivity date % % USdmillion
omIcorporation,Stamford,connecticut,USA-Ashipping companyintheenergytransportationsector 8June2007 50 50 910.9 thecompanydidnotparticipateinmergersoracquisitionsin2006.
thefollowingtablesummarisesthepreliminaryfairvaluesoftheassetsacquiredandtheliabilitiesassumedbythecompanyon1August2007:
FairvalueUSdmillion bookvalue adjustment Fairvalue Intangibleassets 7.5 5.9 13.4tangiblefixedassets 581.2 382.6 963.8otherfinancialassets 0.0 44.8 44.8Freightreceivables,etc. 30.0 0.0 30.0otherreceivables 3.0 0.0 3.0prepayments 9.7 0.0 9.7cashandcashequivalents 41.9 0.0 41.9mortgagedebtandbankloans -261.4 -14.7 -276.1Acquiredliabilitiesrelatedtooptionsonvessels 0.0 -12.2 -12.2otherfinancialliabilities 0.0 -2.1 -2.1tradepayables -13.2 0.0 -13.2Acquiredtimechartercontracts 0.0 -46.0 -46.0otherliabilities -58.1 0.0 -58.1deferredincome -4.5 0.0 -4.5net assets acquired 336.1 358.3 694.4goodwill 87.7consideration 782.1
99
USdmillion
noTe 28, continued
thetablebelowsummarisesreconcilesthe8June2007cashpaymentfortheinvestmentinomIandthevalueoftheacquiredassetsandliabilitieson1August2007. USdmillion Fairvalue
cost of acquisition from joint venture 1 august 2007 782.1 tangiblefixedassetsstillownedbyjointventure 68.3movementsintheperiodfrom8Juneto31July2007: Shareofnetresult -4.6marketablesecuritiessold 28.5otherrepayment 36.6 consideration paid in cash for 50% of omi 8 June 2007 910.9cashandcashequivalents,acquired8June2007 -100.7net cash outflow 810.2 theacquisitionbalancesheetasper8June2007hasbeenpreparedonaprovisionallybasis.thefinalreviewofassetsandliabilitiestransferredtotormandteekayandpaymenthereofhasnotyetbeencompleted.
ofthenetprofitfortheyearforthegroupofUSd792millionareUSd20millionattributabletoincomegeneratedbyacquiredassetsandassumedliabilities.IfomIhadbeenacquiredwitheffectof1January2007,therevenuewouldhavebeenUSd929millionandnetprofitfortheyearUSd834million.Itisthemanage-ment’sassessmentthattheseproformafiguresreflectthelevelofearningsforthegroupaftertheacquisitionandthatthefiguresconstituteabasisforcom-parisoninsubsequentfinancialyears.
thepreparationtheproformafiguresforrevenueandprofitfortheyearisbasedonactualearningsfortheperiodandthefairvaluesusedintheacquisitionbalancesheetandtheeffecthereofonearnings,includingdepreciationontangiblefixedassetsandintangibleassets.
100
a
noTes
100
USdmillion
noTe 29
Time cHarTer conTracTs At31december2007,tormhadenteredintothefollowingtimechartercontractsaslessee:
theabove-mentionedtimechartercontractsareincludedinthecontractualliabilitiesinnote18.thenoteabovedoesnotincludetwobareboatcontractswhichexpiremedio2010fixedatanaveragedailyfreightrateofUSd14,004whichisincludedinnote18.
Year/ numberof AveragedailyVesseltype operatingdays freightrates USd 2008: Lr2 373 24,551Lr1 3,930 20,775mr 270 16,864Sr 720 22,500panamax 3,270 17,3762009: Lr2 360 24,500Lr1 3,735 20,177mr 1,740 15,859Sr 690 22,500panamax 2,775 15,8572010: Lr2 360 24,500Lr1 2,475 20,395mr 2,160 15,908Sr 30 22,500panamax 3,150 15,4942011: Lr2 360 24,500Lr1 1,830 20,880mr 2,160 15,908panamax 3,240 15,4872012: Lr1 1,125 20,510mr 2,160 15,908panamax 3,960 15,810
Year/ numberof AveragedailyVesseltype operatingdays freightrates USd
2013: Lr1 240 20,656mr 2,160 15,908panamax 4,155 16,1702014: mr 1,905 15,796panamax 3,720 15,9732015: mr 1,575 15,746panamax 3,210 16,0042016: mr 360 15,900panamax 2,205 16,3392017: mr 315 15,900panamax 1,800 16,4762018: panamax 1,530 16,7672019: panamax 720 17,4502020: panamax 630 17,450
101
a
101
USdmillion
noTe 30
purcHase opTions on vessels At31december2007,tormhadthefollowingpurchaseoptionsonvessels: exerciseyear/ number Averageage AverageoptionVesseltype ofvessels ofvessels, exerciseprice years at31dec.2007 USdmillion 2008: panamax 2.0 3.0 22.6Kamsarmax*) 2.0 0.0 50.02009: Lr1**) 0.5 3.0 15.5panamax 1.0 3.0 23.02011: Lr1**) 0.5 5.0 14.2panamax 1.0 3.0 28.72012: mr***) 1.0 3.0 38.4panamax 1.0 3.0 26.52013: panamax 3.0 4.3 32.62014: mr 1.0 5.0 32.1panamax 1.0 5.0 45.02015: panamax 1.0 5.0 35.42016: panamax 1.0 5.0 39.82017: panamax 2.0 5.0 39.42018: panamax 1.0 7.0 39.8 At31december2006,tormhadpurchaseoptionson14vessels. *) eachoptioncanbeexercisedifthemarketpriceforthevesselexceedstheoptionpricebyminimumUSd2million.thereisa50/50profitsharingonthedifferencebetweenthemarket
priceandtheoptionprice.
**) tormholds50%ofthepurchaseoptiononthevessel,andthereforethestatedoptionpriceisfor50%ofthevessel.
***)thestatedoptionpriceistheminimumoptionpriceforthevessel.
boarD of DirecTors
niels erik nielsenborn:14-03-48 tormshares:5,360 re-election:2011n.e.nielsenbecamechairmanoftorminApril2002andhasbeenaboardmembersinceSeptember2000.n.e.nielsenisapartnerofthelawfirmbech-bruunandholdsaLawdegreefromtheUniversityofcopenhagen.n.e.nielsenismemberoftorm’sremunerationcommitteeandaboardmemberofthefollowingcompanies:
• AmagerbankenAktieselskab.• AmbuA/S.• charleschristensenA/S.• cimberAirHoldingA/S.• danica-elektronikA/S.• gammelrandSkærvefabrikA/S.• gpVIndustriA/S.• IntermailA/S.• mezzaninKapitalA/S.• peleHoldingA/S.• p.o.A.ejendommeA/S.• SatairA/S.• ScF-technologiesA/S.• WeibelScientificA/S.withsubsidiarycompanies.
special competencies:• generalmanagementaschairmanofotherlistedcompanieswith globalactivities.• Specialistincompanylaw.
cHrisTian frigasTborn: 23-11-51 tormshares:5,704 re-election:2011AmemberoftheboardsinceSeptember2000.mr.FrigastbecamedeputychairmaninApril2002.HeisthemanagingdirectorofAxcelA/Sandholdsanm.Sc.(econ)fromtheUniversityofcopenhagen.christianFrigastismemberoftorm’sAuditcommitteeandremunerationcommitteeandaboardmemberofthefollowingcompanies:
• AxcelmanagementA/S.• IddesignA/S.• noanoaApS.• royalScandinaviaA/S.
special competencies:• generalmanagementaschairman.• boardmemberofprimarilynon-listeddanishandinternational companies.• Financing.• mergesandacquisitions.peTer abilDgaarDborn:21-04-65 tormshares:4,968 re-election:2011AmemberoftheboardsinceApril2007,representingtheemployeesoftormontheboard.mr.AbildgaardisemployedbytormasgeneralmanagerforQualityandVettingandhasbeenwiththecompanysince1987.
special competencies:• memberofIntertanko’sVettingcommittee.• currentlystudyingforanmbAinShippingandLogistics.
lennarT arriasborn:17-07-48 tormshares:680 re-election:2011AmemberoftheboardsinceApril2003,representingtheemployeesoftormontheboard.mr.Arriasisemployedbytormasacaptainandhasbeenwiththecompanysince1992.
special competencies:• Worldwideseaservicessince1965withexperiencefromgeneral, refrigerated,containerandprojectcargoesaswellasdrybulkand tankercargo.
margreTHe bligaarDborn:18-05-68 tormshares:4,570 re-election:2011AmemberoftheboardsinceApril2007,representingtheemploy-eesoftormontheboard.ms.bligaardisemployedbytormasHrconsultant,Hrprojectsandhasbeenwiththecompanysince1989.
special competencies:• 16years’experiencewithtankercharteringandoperations.• Strategywork.• currentlystudyingforanmbAatHenleymanagementcollege.
gabriel panayoTiDesborn:14-01-55 tormshares:48,864 re-election:2011AmemberoftheboardsinceSeptember2000.mr.panayotideshasbeenengagedintheownershipandoperationofshipssince1978.HehasabachelorsdegreefromthepireausUniversityofeconomics.mr.panayotidesismemberoftorm‘sAuditcommitteeandaboardmem-berofthefollowingcompanies:
• excelmaritime(listedonnYSe).• bureauVeritasandLloydsregisterofShippingclassificationsociety greekcommittee.
special competencies:• boardexperiencefromotherlistedcompanies.• Shipmanagment–shipowning.
sTefanos-niko Zouvelosborn:20-07-55 tormshares:100 re-election:2010AmemberoftheboardsinceApril2006.generalmanagerofbeltestShippingcompanyLtd.mr.Zouvelosholdsanm.Sc.inQuantitativeeconomicsfromtheUniversityofStirling,Scotland.
special competencies:• Financialmanagementinshipping.• over20yearsinshipping.
102
senior managemenT managemenT
klaus kJærulff born:30-01-52presidentandchiefexecutiveofficersinceSeptember2000.KlausKjærulffhasworkedfortormsince1976.From1997to2000,heheadedthecompany’stankerandbulkdivisionsasexecutiveVicepresident,andfrom1981to1997hewasVicepresidentinchargeofthetankerdivision.Heisaboardmemberofthefollowingcompanies:
•danishShipowners’Association.•AssuranceforeningenSKULd.•thetradecouncilofdenmark.•norskVeritasråd.•Iccdenmark.
mikael skovborn:03-07-63chiefoperatingofficersincemarch2007.mikaelSkovhasworkedfortormsince1984.From2000to2007,heservedasexecutiveVicepresidentfortorm’stankerdivision.Heisaboardmemberofthefollowingcompanies:
•SyddanskUniversitet–InstituteformaritimeresearchandInnovation.
esben poulssonpresidentandceo,tormSingapore
anDers engHolmexecutiveVicepresident,tankerdivision
claus usen JensenexecutiveVicepresident,technicaldivision
Jan mecHlenburgexecutiveVicepresident,ShipowningandSale&purchasedivision
Torben bagerSeniorVicepresident,Finance
søren cHrisTensenSeniorVicepresident,bulkdivision
Jesper HolmarkSeniorVicepresident,Accounts
kim rasmussenSeniorVicepresident,bulkdivision
cHrisTian riberSeniorVicepresident,Hr
104
managemenT’s anD auDiTors’ reporT
sTaTemenT by THe boarD of DirecTors anD managemenT on THe annual reporT
theboardofdirectorsandmanagementhavepresentedandadoptedtheAnnualreportofA/Sdampskibsselskabettormforthefinancialyearended31december2007.
theAnnualreporthasbeenpreparedinaccordancewithInternationalFinancialreportingStandardsasadoptedbytheeUandadditionaldanishdisclosurerequirementsforlistedcompanies.
WeconsidertheaccountingpoliciesappliedtobeappropriatefortheAnnualreporttogiveatrueandfairviewofthegroup’sandtheparent’sfinancialpositionat31december2007andoftheirfinancialperform-anceandtheircashflowsforthefinancialyearthenended.
WerecommendthattheAnnualreportisadoptedattheAnnualgeneralmeeting.
copenhagen,14march2008
boarD of DirecTors: managemenT:
nielseriknielsen, KlausKjærulffchairman ceo
christianFrigast mikaelSkovdeputychairman coo
peterAbildgaard
LennartArrias
margrethebligaard
gabrielpanayotides
Stefanos-nikoZouvelos
THe inDepenDenT auDiTors’ reporT To THe sHareHolDers of a/s DampskibsselskabeT Torm
WehaveauditedtheannualreportofA/Sdampskibsselskabettormforthefinancialyearended31december2007.theannualreportcomprisesthestatementbymanagementontheannualreport,themanagement’sreview,theincomestatement,thebalancesheet,thestatementofchangesinequity,thecashflowstatementandthenotestothefinancialstatements,includingtheaccountingpolicies.theannualreporthasbeenpreparedinaccordancewithInternationalFinancialreportingStandardsasadoptedbytheeUandadditionaldanishdisclosurerequirementsforlistedcompanies.
managemenT’s responsibiliTy for THe annual reporTmanagementisresponsibleforthepreparationandfairpresentationofanannualreportinaccordancewithInternationalFinancialreportingStandardsasadoptedbytheeUandadditionaldanishdisclosurerequirementsforlistedcompanies.thisresponsibilityincludes:design-ing,implementingandmaintaininginternalcontrolrelevanttotheprepa-rationandfairpresentationofanannualreportthatisfreefrommaterialmisstatement,whetherduetofraudorerror,selectingandapplyingappropriateaccountingpolicies,andmakingaccountingestimatesthatarereasonableinthecircumstances.
auDiTor’s responsibiliTy anD basis of opinionourresponsibilityistoexpressanopiniononthisannualreportbasedonouraudit.WeconductedourauditinaccordancewithdanishandInternationalStandardsonAuditing.thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassurancewhethertheannualreportisfreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheannualreport.theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementoftheannualreport,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofanannualreportinordertodesignauditproceduresthatareappro-priateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheannualreport.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.
ouraudithasnotresultedinanyqualification.
opinionInouropinion,theannualreportgivesatrueandfairviewofthegroup’sandtheparent’sfinancialpositionat31december2007andoftheirfinan-cialperformanceandtheircashflowsfortheyearthenendedinaccord-ancewithInternationalFinancialreportingStandardsasadoptedbytheeUandadditionaldanishdisclosurerequirementsforlistedcompanies.
copenhagen,14march2008
DeloiTTeStatsautoriseretrevisionsaktieselskab
erikHolstJørgensen KirstenAaskovmikkelsenStateAuthorizedpublicAccountant StateAuthorizedpublicAccountant
106
P A R E N T C O M P A N y
A N N U A L R E P O R T 2 0 0 7
108
THe parenT company
USd
’000
2007
2006
note
reven
ue
612,14
053
9,57
3porte
xpen
ses,bun
kersand
com
mission
s
-155
,722
-142
,524
Freigh
tand
bun
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2,89
462
0
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9,31
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2
-76,50
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8
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rofit
(net
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)
22
1,55
521
2,06
7
profitfrom
saleofvessels
19,337
34
,772
Administrativeexpe
nses
2.3
-46,24
7-31,22
4otherope
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11,165
9,85
8dep
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5
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5-44,99
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157,36
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773,51
318
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theboa
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ofUSd
774m
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llows:
propo
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ndUSd
0.9persha
reofd
KK5(2006:USd
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64,548
retaine
dprofit
708,96
5
77
3,51
3
th
eaccompa
nyingno
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La
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buildings
2,021
374
Vesselsan
dcapitalized
dry-docking
11
934,004
868,046
prepa
ymen
tsonvessels
218,691
146,640
otherplantand
ope
ratin
geq
uipm
ent
4,332
3,293
51,159,048
1,018,353
fina
ncia
l ass
ets
Investmen
tinsu
bsidiaries
4
916,044
26,473
Loan
stosub
sidiaries
162,441
22,902
Investmen
tinjointlycontrolle
den
tities
4
99
Loan
stojointlycontrolle
den
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126,991
0otherinvestmen
ts
4
10,869
644,374
1,216,354
693,758
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2
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,712,111
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Inventoriesofbun
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18,019
10,906
Freigh
treceivables,etc.
7
59,005
45,035
otherreceivables
35,195
20,908
prepa
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ts
2,325
4,193
cashan
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88,900
24,795
totalcurrentassets
203,444
105,837
ToTa
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2
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,817,948
theaccompa
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note
eQu
iTy
an
D l
iab
iliT
ies
eQu
iTy
com
mon
sha
res
61,098
61
,098
trea
surysha
res
-18,11
8-18,11
8revalua
tionreserves
7,26
857
9,85
2retaine
dprofit
874,10
051
3,09
7propo
seddivide
nd
64,548
73
,939
Hed
ging
reserves
8,66
45,58
9tran
slationreserves
5,89
65,89
6
Tota
l equ
ity
1
,003
,456
1,221
,353
li
ab
iliT
ies
non
-currentliab
ilitie
s
deferredtaxlia
bility
8
55,662
62
,787
mortgag
ede
btand
ban
kloan
s
9,11
693,86
344
8,77
7To
tal n
on-c
urre
nt li
abili
ties
749,52
551
1,56
4
curr
ent l
iabi
litie
s
mortgag
ede
btand
ban
kloan
s
9,11
750,62
539
,342
trad
epa
yable
28,948
17
,351
currentta
xlia
bilities
13,986
4,27
0otherliab
ilitie
s
10
32,306
24
,068
Tota
l cur
rent
liab
ilitie
s
82
5,86
585
,031
To
tal l
iabi
litie
s
1,575
,390
59
6,59
5
ToTa
l eQ
uiT
y a
nD
lia
bil
iTie
s
2
,578
,846
1,817
,948
Accoun
tingpo
licies
1
collateralsecurity
11
gua
rantee
and
con
tinge
ntliab
ilitie
s
12con
tractualliab
ilitie
s
13derivativefin
ancialinstrumen
ts
14
Fina
ncialintrumen
ts
15
related
partytran
sactions
16cashflo
ws
17
th
eaccompa
nyingno
tesarean
integrated
parto
fthe
sefina
ncialstatemen
ts.
ba
lan
ce s
Hee
Ta
T 31
Dec
emb
er
USd
million
gains
/lossesrecogn
ized
directlyinequ
ity
revalua-
transla
com
mon
treasury
retained
proposed
tion
Hedging
tion
shares
shares*)
profit
dividend
sreserves
reserves
reserves
total
eQu
iTy
bal
ance
at 1
Jan
uary
200
661.1
-7.7
400.0
132.4
296.4
3.2
6.0
891.4
chan
ges
in e
quity
200
6:
exch
ange
ratead
justmen
tarising
ontran
slation
ofe
ntitiesusing
am
easu
remen
tcurrenc
y
differen
tfromUSd
0.0
0.0
reversalofd
eferredga
in/losson
cashflo
w
hed
gesatbeg
inning
ofyea
r
-3.2
-3.2
deferredga
in/losson
cashflo
whed
ges
atyea
r-en
d
5.6
5.6
reversaloffairvaluead
justmen
tonavailable
fo
rsaleinvestmen
tsatthe
beg
inning
ofthe
yea
r
-296.4
-296.4
Fairvalue
adjus
tmen
tonavailableforsale
investm
entsatyea
r-en
d
579.8
579.8
netgains
/lossesrecogn
ized
directlyinequ
ity
0.0
0.0
0.0
0.0
283.4
2.4
0.0
285.8
profitfo
rtheyear
188.4
188.4
Tota
l rec
ogni
zed
inco
me/
expe
nses
for
the
year
0.0
0.0
188.4
0.0
283.4
2.4
0.0
474.2
purch
aseoftrea
surysha
res,cost
-10.4
-10.4
dividen
dspaid
-140.1
-140.1
dividen
dspaidon
trea
surysha
res
5.9
5.9
exch
ange
ratead
justmen
tondivide
ndspa
id
-7.7
7.7
0.0
exerciseofsha
reoptions
0.4
0.4
propo
seddivide
ndsforthefin
ancialyea
r
-73.9
73.9
0.0
Tota
l cha
nges
in e
quity
200
60.0
-10.4
113.1
-58.5
283.4
2.4
0.0
330.0
eq
uity
at 3
1 D
ecem
ber
2006
61.1
-18.1
513.1
73.9
579.8
5.6
6.0
1,221.4
chan
ges
in e
quity
200
7:ex
chan
geratead
justmen
tarising
ontran
slation
ofe
ntitiesusing
am
easu
remen
tcurrenc
y
differen
tfromUSd
-0.1
-0.1
reversalofd
eferredga
in/losson
cashflo
w
hed
gesatth
ebe
ginn
ingofth
eyear
-5.6
-5.6
deferredga
in/losson
cashflo
whed
ges
atyea
r-en
d
8.7
8.7
Fairvalue
adjus
tmen
tonavailable
fo
rsaleinvestmen
ts
70.8
70.8
tran
sferto
profitoflosson
saleofavaila
ble
fo
rsaleinvestmen
ts
-643.3
-643.3
netgains
/lossesrecogn
ized
directlyinequ
ity
0.0
0.0
0.0
0.0
-572.5
3.1
-0.1
-569.4
profitfo
rtheyear
773.5
773.5
Tota
l rec
ogni
zed
inco
me/
expe
nses
for
the
year
0.0
0.0
773.5
0.0
-572.5
3.1
-0.1
204.1
extrao
rdinarydivide
ndpaid
-369.3
-369.3
extrao
rdinarydivide
ndpaidon
trea
surysha
res
18.0
18.0
dividen
dspaid
-76.4
-76.4
dividen
dspaidon
trea
surysha
res
3.7
3.7
exch
ange
ratead
justmen
tondivide
ndspa
id
-2.5
2.5
0.0
Share-ba
sedcompe
nsation
2.0
2.0
propo
seddivide
ndsforthefin
ancialyea
r
-64.5
64.5
0.0
Tota
l cha
nges
in e
quity
200
70.0
0.0
360.9
-9.4
-572.5
3.1
-0.1
-217.9
eq
uity
at 3
1 D
ecem
ber
2007
61.1
-18.1
874.1
64.5
7.3
8.7
5.9
1,003.5
*)pleaserefertonote11
inth
econs
olidated
fina
ncialstatemen
tsfo
rfurthe
rinform
ationon
trea
surysha
res.
theaccompa
nyingno
tesarean
integrated
parto
fthe
sefina
ncialstatemen
ts.
sTa
Tem
enT
of
cHa
ng
es in
eQ
uiT
y
110
THe parenT company
USd
’000
2007
2006
note
cas
H f
loW
fr
om
op
era
Tin
g a
cTiv
iTie
s
ope
ratin
gprofit
157,36
518
0,47
7
Adjustmen
ts:
reversalofp
rofitfrom
saleofvessels
-19,33
7-34,77
2reversalofd
epreciationan
dim
pairmen
tlosses
48,445
44
,996
reversalofo
thernon
-cashmovem
ents
17
13
,033
5,88
9
dividen
dsreceived
8,07
828
,501
Interestreceivedan
dexch
ange
ratega
ins
26,341
9,52
1Interestpaid
-57,40
2-26,72
9Incometaxespa
id
-9,439
-3,085
cha
ngeininventories,accou
ntsreceivab
lesan
dpa
yables
-13,66
6-20,42
0
net
cas
h in
flow
/(ou
tflo
w) f
rom
ope
ratin
g ac
tiviti
es
153,41
818
4,37
8
cas
H f
loW
fr
om
inve
sTi
ng
acT
iviT
ies
Investmen
tintang
iblefixedassets
-207
,999
-223
,351
Investmen
tineq
uityinterestsan
dsecu
ritie
s
-977
,244
-1,187
Saleofe
quityinterestsan
dsecu
ritie
s
79
1,84
8
0Lo
ansan
drepa
ymen
tofloa
nsto
sub
sidiariesan
dassociated
com
panies
-266
,530
29
,932
Saleofn
on-currentassets
38,194
63
,432
n
et c
ash
inflo
w/(
outf
low
) fro
m in
vest
ing
activ
ities
-621
,731
-131
,174
ca
sH
flo
W f
ro
m f
ina
nci
ng
acT
iviT
ies
borrowing,m
ortgag
ede
btand
otherfina
ncialliabilities
1
,796
,978
13
3,09
6rep
aymen
t/rede
mption,m
ortgag
ede
bt
-840
,610
-162
,673
dividen
dspaid
-423
,950
-134
,140
purch
ase/disp
osaloftreasurysh
ares
0-10,41
0
cash
inflo
w/(
outf
low
) fro
m fi
nanc
ing
activ
ities
53
2,41
8-174
,127
n
et c
ash
inflo
w/(
outf
low
) fro
m o
pera
ting,
in
vest
ing
and
finan
cing
act
iviti
es
64,105
-120
,923
ca
sh a
nd c
ash
equi
vale
nts,
at 1
Jan
uary
24,795
14
5,71
8
cash
and
cas
h eq
uiva
lent
s, a
t 31
Dec
embe
r
88
,900
24
,795
ofw
hich
usedascollateral
00
88
,900
24
,795
theaccompa
nyingno
tesarean
integrated
parto
fthe
sefina
ncialstatemen
ts.
cas
H f
loW
sTa
Tem
enT
su
pp
lem
enTa
ry
acc
ou
nTi
ng
po
lici
es f
or
TH
e p
ar
enT
com
pa
ny
Inadd
ition
toth
eaccoun
tingpo
liciesforthegroup
aspresen
tedinnote1inth
econs
olidated
fina
ncialstatemen
ts,the
paren
tcom
pany,
A/Sdam
pskibs
selska
bett
orm,app
liesthefollo
wingsu
pplemen
taryaccou
ntingpo
licies.
fore
ign
curr
enci
esex
chan
geratega
insorlossesonintercom
panybalan
ceswith
sub
sidiaries,which
arecon
side
redapa
rtofthe
investmen
tintheen
tity,
arerecogn
ized
directlyinequ
ity.
inve
stm
ents
in s
ubsi
diar
ies
and
join
tly c
ontr
olle
d en
titie
sInvestmen
tinsu
bsidiaries,associatedcompa
niesand
jointlycontrolle
den
titiesarerecogn
ized
and
mea
suredinth
efin
ancialstate-
men
tsofthe
paren
tcom
panyatcosta
ndclassified
asno
n-cu
rren
tassets.dividen
dsarerecog
nizedun
derfin
ancialincome.
USd
million
not
e 2
2007
2006
sTa
ff c
os
Ts
To
tal s
taff
cos
ts
Staffcostsinclud
edinope
ratin
gexpe
nses
15,2
13.6
Staffcostsinclud
edinadm
inistrativeexpe
nses
27.3
20.4
total
42.5
34.0
sta
ff c
osts
com
pris
e th
e fo
llow
ing
Wag
esand
salaries
36.8
31.0
Share-ba
sedcompe
nsation
2.3
0.0
pen
sion
costs
3.2
2.8
othersocialsecuritycosts
0.2
0.2
total
42.5
34.0
empl
oyee
info
rmat
ion
theaverag
enu
mbe
rofstaffinth
eparen
tcom
panyinth
efin
ancialyea
rwas364(2006:327).
man
agem
entrem
unerationisdisclosed
innote4inth
econs
olidated
fina
ncialstatemen
ts.
USd
million
not
e 3
2007
2006
rem
uner
atio
n to
the
audi
tors
app
oint
ed a
t the
ann
ual g
ener
al m
eetin
g
D
eloi
tte
Au
ditfee
s
0.5
0.8
Auditrelated
fees
0.2
0.0
taxfees
0.0
0.1
Feesfo
rothe
rservices
0.1
0.0
Tota
l fee
s, D
eloi
tte
0,8
0.9
no
Tes
111
THe parenT company
USd
million
n
ote
4
Investment
Investment
injointly
total
other
in
controlled
invest-
invest-
subsidaries
activities
ments
ments
fin
an
cia
l a
ss
eTs
cost
:
balan
ceat1
Jan
uary2006
25
.7
0.0
25.7
64.5
Additio
ns
1.2
0.0
1.2
0.0
dispo
sals
-0.4
0.0
-0.4
0.0
balan
ceat3
1decem
ber2006
26.5
0.0
26.5
64.5
valu
e ad
just
men
t:
balan
ceat1
Jan
uary2006
0.0
0.0
0.0
296.5
exch
ange
ratead
justmen
t
0.0
0.0
0.0
42.2
Valuead
justmen
tforth
eyear
0.0
0.0
0.0
241.2
dispo
sals
0.0
0.0
0.0
0.0
balan
ceat3
1decem
ber2006
0.0
0.0
0.0
579.9
ca
rryi
ng a
mou
nt a
t 31
Dec
embe
r 20
06
26
.5
0.0
26.5
644.4
cost
:
balan
ceat1
Jan
uary2007
26
.5
0.0
26.5
64.5
Additio
ns
97
7.2
0.0
977.2
0.0
dispo
sals
-87.7
0.0
-87.7
-60.9
balan
ceat3
1decem
ber2007
916.0
0.0
26.5
3.6
va
lue
adju
stm
ent:
balan
ceat1
Jan
uary2007
0.0
0.0
0.0
579.9
exch
ange
ratead
justmen
t
0.0
0.0
0.0
2.4
Valuead
justmen
tforth
eyear
0.0
0.0
0.0
68.3
dispo
sals
0.0
0.0
0.0
-643
.3balan
ceat3
1decem
ber2007
0.0
0.0
0.0
7.3
carr
ying
am
ount
at 3
1 D
ecem
ber
2007
91
6.0
0.0
916.0
10.9
Hereo
flisted
7.8
Hereo
funlisted
3.1
Alisto
fcom
paniesinth
egroup
isfo
undinnote24
atp
age96
inth
ean
nualrep
ort.
no
Tes
USd
million
not
e 5
Ve
sselsan
d
otherplant
La
ndand
capitalized
prepa
ymen
tsan
dop
erating
build
ings
dry-do
cking
onvessels
equipm
ent
total
Tan
gib
le
fi
xeD
as
seT
s
co
st:
balan
ceat1
Jan
uary200
61.3
876.6
97.4
5.9
981.2
exch
ange
ratead
justmen
t0.0
0.0
0.0
0.0
0.0
Additio
ns
0.0
91.9
128.9
2.4
223.2
dispo
sals
-0.8
-78.2
0.0
-0.4
-79.4
tran
sferredto/fromotheritem
s0.0
79.7
-79.7
0.0
0.0
balan
ceat3
1decem
ber20
06
0.5
970.0
146.6
7.9
1,125.0
D
epre
ciat
ion
and
impa
irm
ent l
osse
s:
balan
ceat1
Jan
uary200
60.4
108.8
0.0
3.8
113.0
exch
ange
ratead
justmen
t0.0
0.0
0.0
0.0
0.0
Additio
ns
0.0
0.0
0.0
0.0
0.0
dispo
sals
-0.3
-50.7
0.0
-0.3
-51.3
reversalofimpa
irmen
tlosses
0.0
0.0
0.0
0.0
0.0
dep
reciationfortheyear
0.0
43.8
0.0
1.1
44.9
balan
ceat3
1decem
ber20
06
0.1
101.9
0.0
4.6
106.6
ca
rryi
ng a
mou
nt a
t 31
Dec
embe
r 20
06
0.4
868.1
146.6
3.3
1,018.4
Hereo
ffinan
cialexpen
sesinclud
edincost
0.0
1.1
0.8
0.0
1.9
cost
:
balan
ceat1
Jan
uary200
70.5
970.0
146.6
7.9
1,125.0
exch
ange
ratead
justmen
t0.0
0.0
0.0
0.0
0.0
Additio
ns
1.6
13.9
189.9
2.6
208.0
dispo
sals
0.0
-28.5
0.0
-0.5
-29.0
tran
sferredto/fromotheritem
s0.0
117.8
-117.8
0.0
0.0
balan
ceat3
1decem
ber20
07
2.1
1,073.2
218.7
10.0
1,304.0
D
epre
ciat
ion
and
impa
irm
ent l
osse
s:
balan
ceat1
Jan
uary200
70.1
101.9
0.0
4.6
106.6
exch
ange
ratead
justmen
t0.0
0.0
0.0
0.0
0.0
dispo
sals
0.0
-9.8
0.0
-0.3
-10.1
reversalofimpa
irmen
tlosses
0.0
0.0
0.0
0.0
0.0
dep
reciationfortheyear
0.0
47.1
0.0
1.4
48.5
balan
ceat3
1decem
ber20
07
0.1
139.2
0.0
5.7
145.0
c
arry
ing
amou
nt a
t 31
Dec
embe
r 20
07
2.0
934.0
218.7
4.3
1,159.0
Hereo
ffinan
celeases
0.0
0.0
0.0
0.0
0.0
Hereo
ffinan
cialexpen
sesinclud
edincost
0.0
1.7
0.7
0.0
2.4
At1octob
er200
6thevalueofland
and
buildings
inden
markassessed
fordan
ishtaxpu
rposesamou
nted
toUSd
0.8m
illion(carryingam
ountat3
1decem
ber20
07
USd
0.4m
illion)com
paredwith
USd
0.6m
illionat1octob
er200
5.
Includ
edinth
ecarrying
amou
ntfo
rvesselsan
dcapitalized
dry-docking
arecap
italized
dry-docking
costsinth
eam
ountofU
Sd15.3million(200
6:USd
7.2m
illion).
pleaserefertonote11
forinform
ationinrelationtoassetsus
edfo
rcolla
teralsecurity.
112
THe parenT company
USd
million
not
e 6
2007
2006
fin
an
cia
l iT
ems
fi
nanc
ial i
ncom
e
Interestincomefrom
cashan
dcash
equ
ivalen
ts
25.0
3.5
gainon
otherinvestmen
ts(availa
ble-for-sale)
643.3
0.0
dividen
ds*
1.3
26.4
dividen
dsfrom
sub
sidiaries
6.8
2.1
Fairvalue
adjus
tmen
tsonde
rivativefin
ancialinstrumen
ts
0.0
1.5
exch
ange
ratead
justmen
tsinclus
ivene
tgains
from
forw
ardexch
ange
ratecontracts
15
.3
7.5
69
1.7
41.0
fina
ncia
l exp
ense
s
Impa
irmen
tlosseson
sub
sidiaries,associatedcompa
niesand
jointlycontrolle
den
tities
0.0
0.2
Interestexpen
seonmortgag
ean
dba
nkdeb
t
56
.4
26.2
Fairvalue
adjus
tmen
tsonde
rivativefin
ancialinstrumen
ts
5.4
0.0
otherinterestexpen
ses
2.8
1.0
Hereo
finc
lude
dinth
ecostoftan
giblefixed
assets
-0.6
-0.7
64
.0
26.7
Tota
l fin
anci
al it
ems
627.7
14.3
*Inc
lude
sdivide
ndonthenorden
sha
resofUSd
0.0m
illionin200
7(200
6:USd
25.5million).
USd
million
not
e 7
2007
2006
frei
gH
T r
ecei
vab
les
, eTc
.
Analysisasat31decem
beroffreigh
treceivables,etc.:
fr
eig
HT
rec
eiva
ble
s, e
Tc.
neitherpastd
uenorim
paired
30
.4
22.1
due
<180days
23.8
20.2
due
>180days
4.8
2.7
totalF
reightreceivables,etc.
59.0
45.0
Asat3
1decem
ber2007,freightreceivables,etc.inc
lude
sreceivab
lesatavalue
ofU
Sd1.3m
illion(200
6:USd
1.4m
illion),
thatisindividu
allydetermined
tobeim
paired
toavalue
ofU
Sd0.5m
illion(200
6:USd
0.6m
illion).
movem
entsinth
eprovisionforim
pairmen
toffreightreceivablesetc.duringtheyearareasfollo
ws:
movem
entsinth
eprovisionforim
pairmen
toffreightreceivables,etc.duringtheyearareasfollo
ws:
USd
million
2007
2006
pr
ovi
sio
n f
or
imp
air
men
T o
f fr
eig
HT
rec
eiva
ble
s, e
Tc.
balan
ceat1
Jan
uary
0.8
0.8
provision
sfortheyear
0.0
0.0
provision
sreversed
duringtheyear
0.0
0.0
provision
sutiliseddu
ring
theyear
0.0
0.0
balan
ceat3
1decem
ber
0.8
0.8
provision
forim
pairmen
toffreightreceivables,etc.hasbee
nrecogn
ized
inth
eincomestatem
entu
nder
administrativeexpe
nses.the
provision
isbased
onan
individu
alassessm
ento
feachindividu
alreceivable.
no
Tes
USd
million
not
e 8
2007
2006
Tax
currentta
xfortheyear
-14.8
-4.5
Adjustmen
tsrelated
topreviou
syears
-3.8
6.3
Adjustmen
tofd
eferredtax
7.1
-8.2
taxexpe
nses
-11.5
-6.4
ef
fect
ive
corp
orat
e ta
x ra
te
1.5%
3.3%
thecom
panypartic
ipatesinth
etonn
agetaxsche
meinden
mark.partic
ipationinth
etonn
agetaxsche
meisbinding
until31
decem
ber20
10.
Und
erth
edan
ishtonn
agetaxsche
me,th
eincomean
dexpe
nsesfrom
shipp
ingactivitiesarenotsub
jectto
directtaxation.
Instea
dthetaxableincomeiscalcu
latedfrom
:
·the
netto
nnag
eofth
evesselsus
edto
gen
eratetheincomefrom
shipp
ingactivities
·Arateap
plicab
leto
thesp
ecificne
tton
nage
ofthe
vessel,ba
sedon
aslid
ingscale
·the
num
berofdaysthevesselsareus
edduringtheyear.
thecom
panyexpectsto
partic
ipateinth
etonn
agetaxsche
meafterthebind
ingpe
riod
and
ata
minim
umto
maintainits
currentinvestingan
dactivitylevel.
thedifferen
cebetwee
ntheeffectivecorporatetaxrate1.5%(200
6:3.3%)and
thecorporationtaxrate
inden
mark25
%(200
6:28%
)primarilyrelatesto
thetonn
agetaxsche
me.
paymen
tofd
ividen
dsto
thesh
areh
olde
rsofA
/Sdam
pskibs
selska
bett
ormhasnotaxablecons
eque
ncesfo
rA/Sdam
pskibs
selska
bett
orm.
20
07
2006
Def
err
eD T
ax
deferredtaxat1Jan
uary
62.8
54.6
red
uctio
nofdan
ishcorporationtaxfrom
28%
to25%
-6.7
0.0
deferredtaxfortheyear
-0.4
8.2
Def
erre
d ta
x at
31
Dec
embe
r
55.7
62.8
essentiallyallde
ferred
taxrelatestovesselsinclud
edinth
etran
sitio
naccoun
tund
erth
etonn
agetaxsche
me.
USd
million
not
e 9
2007
2006
mo
rTg
ag
e D
ebT
an
D b
an
k l
oa
ns
toberepa
idasfollo
ws:
Fa
lling
due
with
inone
yea
r
750.6
39.3
Falling
due
betwee
non
ean
dtw
oyears
121.0
39.4
Falling
due
betwee
ntw
oan
dthreeyears
51.1
51.9
Falling
due
betwee
nthreean
dfouryea
rs
94.5
36.9
Falling
due
betwee
nfourand
fiveyea
rs
89.6
36.9
Falling
due
afterfiveyea
rs
337.7
283.7
1,444.5
488.1
thepresen
tedam
ountstoberepa
idareadjus
tedbydirectlyrelatedcostsarised
from
theissu
ingofth
eloan
sbyUSd
2.8m
illion(200
6:USd
2.9m
illion).
which
areamortized
overtheterm
ofthe
loan
s.
113
THe parenT company
USd
million
n
ote
9, c
ontin
ued
2007
2006
20
07
2006
Fixed/
effective
effective
Fair
Fair
maturity
floating
interest
interest
value
value
lo
an
USd
20
08
Floa
ting
4.6%
6.2%
70
0.0
5.1
USd
20
09
Floa
ting
4.6%
5.8%
70.0
15.0
USd
20
11
Floa
ting
-6.2%
0.0
8.1
USd
20
11
Fixed
4.4%
4.4%
92.5
63.6
USd
20
12
Floa
ting
5.2%
-
16.7
0.0
USd
20
12
Fixed
4.4%
-
32.1
0.0
USd
20
14
Floa
ting
5.1%
5.2%
310
.0
399.2
USd
20
16
Floa
ting
4.7%
-
226
.0
0.0
Wei
ghte
d av
erag
e ef
fect
ive
inte
rest
rat
e
4.7%
5.1%
Fa
irvalue
1,44
7.3
491.0
th
eparen
tcom
panyhasanea
rlysettlemen
toptiontorep
ayth
eloan
s.
parto
fthe
loan
swith
floa
tinginterestrateha
vebee
nsw
appe
dtofixedinterestrate.
certainofthe
torm’sloan
agree
men
tscon
tainm
inim
umreq
uiremen
tsto
theliq
uidityand
solvenc
y
ofth
ecom
panyand
otherrestrictio
ns,w
hich
maylimitou
rab
ilityto
:•en
gage
inm
erge
rsoracqu
isition
s.•cha
ngetheman
agem
ento
fthe
com
pany’svessels.
Asof31decem
ber2
007thecom
panycom
plyw
iththeseminim
umre
quire
mentsand
restric
tivecovenants.basedonthecom
pany’sexpectedfuture
cashflow
,investm
entprogram
mes,etc.w
eexpectthattherequ
irementsand
covenantsiscom
pliedun
tilthematurityoftheloanagreements.
pleaserefertoth
esection’m
anag
ingriskand
exposure’and
note21
inth
econs
olidated
fina
ncialstatemen
tsfo
rfurthe
rinform
ationon
fina
ncialrisks.
USd
million
not
e 10
2007
2006
oTH
er l
iab
iliT
ies
partnersan
dcommercialm
anag
emen
ts
1.0
1.8
Accrue
dop
eratingexpe
nses
2.2
5.9
Accrue
ddry-do
ckingcosts
0.0
0.0
Accrue
dinterests
8.0
3.5
Wag
esand
socialexpen
ses
9.4
5.1
derivativefin
ancialinstrumen
ts
4.7
6.2
payab
lestojointven
tures
2.3
0.0
miscella
neou
s,includ
ingite
msrelatedtoshipp
ingactivities
4.7
1.6
32
.3
24.1
USd
million
not
e 11
2007
2006
coll
aTe
ra
l s
ecu
riT
y
co
llate
ral s
ecur
ity fo
r m
ortg
age
debt
and
ban
k lo
ans:
Ve
ssels
747
.3
476.0
74
7.3
476.0
thetotalcarryingam
ountfo
rvesselsthathavebe
enprovide
dassecurityamou
ntsUSd
784
million(200
6:USd
546
million).
USd
million
not
e 12
2007
2006
gu
ar
an
Tee
an
D c
on
Tin
gen
T li
ab
iliT
ies
gua
rantee
liab
ilitie
s
0.0
0.0
thegu
aran
teelia
bilityfortheparen
tcom
panyislessth
anUSd
0.1m
illionan
drelatestogua
rantee
liab
ilitie
stodan
ishSh
ipow
ners’A
ssociatio
n.
no
Tes
USd
million
not
e 13
2007
2006
con
Tra
cTu
al
lia
bil
iTie
s -
as
les
see
(ope
ratin
g le
ase)
char
ter
hire
for
vess
els
on ti
me
char
ter
(incl
. ves
sels
not
del
iver
ed):
Falling
due
with
inone
yea
r
151.4
151.7
Falling
due
betwee
non
ean
dtw
oyears
155.8
155.7
Falling
due
betwee
ntw
oan
dthreeyears
142.5
143.1
Falling
due
betwee
nthreean
dfouryea
rs
131.6
110.4
Falling
due
betwee
nfourand
fiveyea
rs
120.0
99.4
Falling
due
afterfiveyea
rs
397.8
306.1
1,099.1
966.4
Averag
epe
riod
untilrede
livery(yea
r)
4.3
5.0
Leaseshavebe
enentered
intowith
am
utua
llyinterm
inab
leleasepe
riod
ofu
pto8yea
rs.c
ertainleasesinclud
ean
optiontoren
ewfo
ron
eortw
oad
ditio
nalyea
rsat
atim
eforup
toth
reeyearsan
d/orapurch
aseop
tion.exerciseofth
epu
rcha
seoptionon
theindividu
alvesselisba
sedon
anindividu
alassessm
ent.certainleases
includ
eaprofitsh
aringelem
entimplying
thatth
eactualcha
rterhiremaybehigh
er.
n
ewbu
ildin
g in
stal
lmen
ts a
nd e
xerc
ised
pur
chas
e op
tions
(pur
chas
e ob
ligat
ions
):
Fa
lling
due
with
inone
yea
r
204.8
163.1
Falling
due
betwee
non
ean
dtw
oyears
134.1
143.1
Falling
due
betwee
ntw
oan
dthreeyears
135.2
93.6
Falling
due
betwee
nthreean
dfouryea
rs
37.8
18.0
Falling
due
betwee
nfourand
fiveyea
rs
0.0
18.0
Falling
due
afterfiveyea
rs
0.0
0.0
511.9
435.8
oth
er o
pera
ting
leas
es:
Falling
due
with
inone
yea
r
2.2
1.8
Falling
due
betwee
non
ean
dtw
oyears
2.3
1.9
Falling
due
betwee
ntw
oan
dthreeyears
2.1
1.8
Falling
due
betwee
nthreean
dfouryea
rs
2.0
1.7
Falling
due
betwee
nfourand
fiveyea
rs
2.0
1.8
Falling
due
afterfiveyea
rs
2.2
3.6
12.8
12.6
otherope
ratin
gleasesprimarilycon
sistofcon
tractsreg
arding
officesp
acesand
apa
rtmen
tsaswellasIt-related
con
tracts.
duringtheyearcha
rterhireexpe
nseshavebe
enrecog
nizedinth
eIncomeStatem
entb
yUSd
161
.2m
illion(200
6:USd
123
.9m
illion)ofw
hich
USd
4.2m
illion(200
6:
USd
7.1m
illion)reg
ards
profitsha
ring
elemen
ts.o
therope
ratin
gleaseexpe
nseshavebe
enrecog
nizedinth
eincomestatem
entb
yUSd
2.7m
illion(200
6:USd
2.2
million).
USd
million
2007
2006
con
Tra
cTu
al
lia
bil
iTie
s -
as
les
so
r (o
pera
ting
leas
e)
cha
rterhireincomeforvesselson
timech
arteran
dba
rebo
atcha
rter(inc
l.no
tdelivered
vessels):
Falling
due
with
inone
yea
r
213.9
101.3
Falling
due
betwee
non
ean
dtw
oyears
71.6
27.2
Falling
due
betwee
ntw
oan
dthreeyears
21.9
9.9
Falling
due
betwee
nthreean
dfouryea
rs
13.6
0.0
Falling
due
betwee
nfourand
fiveyea
rs
9.3
0.0
Falling
due
afterfiveyea
rs
8.6
0.0
338.9
138.4
Averag
epe
riod
untilrede
livery(yea
r)
1.2
1.0
cha
rterhireincomeforvesselson
timech
arteran
dba
rebo
atcha
rterisrecog
nizedun
derrevenu
e.
neW
bu
ilD
ing
co
nTr
acT
s
Asat3
1decem
ber20
07th
ecom
panyhad
con
tracted15
new
build
ings
(200
6:13ne
wbu
ildings
)tobe
delivered
during20
07to
201
1.Forall15
vesselsth
etotalout-
stan
ding
con
tractualcom
mitm
enta
mou
nted
toUSd
512
million.
114
THe parenT company
not
e 14
Der
iva
Tive
fin
an
cia
l in
sTr
um
enTs
thetablebe
lowsho
wsthefairvalue
ofthe
derivativefin
ancialin
strumen
ts:
Fairvalue
Fairvalue
USd
million
at31dec.2007
at31dec.2006
Hed
ge a
ccou
ntin
g
cash
flow
s:
Interestratesw
aps
-0.6
3.0
bun
kerhe
dge
3.3
-3.3
Forw
ardFreigh
tAgree
men
t
6.0
5.9
non
hed
ge a
ccou
ntin
g:
Fo
rwardexch
ange
ratecontracts
1.7
1.0
Interestratesw
aps
-2.0
3.3
currenc
yop
tions
-0.3
0.4
Forw
ardtobuysha
res
-0.3
0.0
bun
kerhe
dge
-1.4
-1.5
Forw
ardFreigh
tAgree
men
t
2.0
-2.3
8.4
6.5
thetablebe
lowsho
wsrealized
amou
ntsaswellasfairvalue
adjus
tmen
tsreg
arding
derivativefin
ancialinstrumen
tsrecog
nizedinth
eincomestatem
enta
ndequ
ityin2007:
In
comestatem
ent
portexpenses,
Freigh
tand
equity
bunkersand
bunkers
Financial
Hedging
USd
million
revenue
commissions
derivative
sitems
reserves
bun
kerhe
dge
-0.9
0.0
-6.6
Forw
ardFreigh
tAgree
men
t
8.8
-2.9
-0.1
Forw
ardratecon
tracts
--
-2.9
-Fo
rwardrateagree
men
t
-
--
0.1
-Interestratesw
aps
--
--0.7
-3.6
currenc
yop
tions
-
--
0.1
-Fo
rwardtobuysha
res
--
--0.3
-To
tal 2
007
8.8
0.9
2.9
2.1
3.1
pleaserefertoth
esection‘m
anag
ingriskand
exposure’and
note21inth
econs
olidated
fina
ncialstatemen
tsfo
rfurthe
rinform
ationon
fin
ancialrisks.
theinterestratesw
apswith
afa
irvalue
ofU
Sd-0.6million(2006:USd
3.0m
illion)aredesigna
tedashed
geaccou
ntingtohed
geapart
ofth
ecom
pany’sinterestpaymen
tsduringthepe
riod
2008to2009.
thebu
nkerhed
gecon
tractswith
afa
irvalue
ofU
Sd3.3m
illion(2006:USd
-3.3million)aredesigna
tedashed
geaccou
ntingtohed
gea
partofthe
com
pany’sbun
kerexpe
nsesduringthepe
riod
2008to2009.
theFo
rwardFreigh
tAgree
men
tswith
afa
irvalue
ofU
Sd6.0m
illion(2006:USd
5.9m
illion)aredesigna
tedashed
geaccou
ntingto
hedg
eapa
rtofthe
com
pany’sreven
ueduringthepe
riod
2008to2009.
thega
insorlossesonthesecontractswillberecogn
ized
inth
eincomestatem
entw
henrealized
toge
therwith
thehe
dged
item
s.
no
Tes
USd
million
not
e 15
20
07
2006
fin
an
cia
l in
sTr
um
enTs
caTe
go
rie
s o
f fi
na
nci
al
as
seT
s a
nD
lia
bil
iTie
s a
s D
efin
eD in
ias
39:
loan
s an
d re
ceiv
able
s
Lo
anstosub
sidiaries
162.4
22.9
Loan
stojointlycontrolle
den
tities
127.0
0.0
Freigh
treceivables,etc.
59.0
45.0
otherreceivables
20.5
8.1
cashan
dcash
equ
ivalen
ts
88.9
24.8
Tota
l loa
ns a
nd r
ecei
vabl
es
457.8
100.8
a
vaila
ble-
for-
sale
fina
ncia
l ass
ets
otherinvestmen
ts
10.9
644.4
Tota
l ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
10.9
644.4
Der
ivat
ive
finan
cial
inst
rum
ents
(ass
ets)
otherreceivables(h
eldfortrad
ing)
3.8
2.9
otherreceivables(h
edge
accou
nting)
9.3
9.4
Tota
l der
ivat
ive
finan
cial
inst
rum
ents
(ass
ets)
13.1
12.3
fina
ncia
l lia
bilit
ies
mea
sure
d at
am
ortis
ed c
ost
mortgag
ede
btand
ban
kloan
s
1,444.5
488.1
trad
epa
yables
28.9
17.4
otherliab
ilitie
s
18.2
13.2
Tota
l fin
anci
al li
abili
ties
mea
sure
d at
am
ortis
ed c
ost
1,491.6
518.7
Der
ivat
ive
finan
cial
inst
rum
ents
(lia
bilit
ies)
otherliab
ilitie
s(heldfortrad
ing)
4.1
2.0
otherliab
ilitie
s(hed
geaccou
nting)
0.6
3.8
Tota
l der
ivat
ive
finan
cial
inst
rum
ents
(lia
bilit
ies)
4.7
5.8
thefairvalue
ofthe
fina
ncialassetsan
dlia
bilitiesab
oveeq
ualsth
ecarrying
amou
ntexcep
tform
ortgag
ede
btand
ban
kloan
sforwhich
thefairvalue
can
befoun
dinnote9.
USd
million
not
e 16
2007
2006
rel
aTe
D p
ar
Ty T
ra
ns
acT
ion
s
Subsidiariesand
jointlycon
trolleden
titiesarecons
idered
asrelatedpa
rtiesinre
latio
ntoth
epa
rentcom
panyA/Sdam
pskibsselska
bet
torminadd
ition
toth
erelatedpa
rtiesdisclosedinnote23toth
econs
olidated
fina
ncialstatemen
ts.the
follo
wingtran
sactions
took
place
betweenA/Sdam
pskibsselska
bett
ormand
sub
sidiairiesand
jointlycon
trolledactivitiesduringtheyear:
Servicesprovide
dbyA/Sdam
pskibs
selska
bett
orm
23.3
11.2
AssetssoldbyA/Sdam
pskibs
selska
bett
orm
87.7
0.0
Servicesprovide
dbysub
sidiariesan
djointlycontrolle
dactivities
37.5
32.5
148.5
43.7
theserviceprovided
betwee
nthepa
rtiesarealld
irectlyrelatedtoth
egroup
’sshipp
ingactivities.
USd
million
not
e 17
2007
2006
cas
H f
loW
s
rev
ersa
l of o
ther
non
-cas
h m
ovem
ents
:Fa
irvalue
adjus
tmen
son
derivativefin
ancialinstrumen
ts
-1.9
3.9
exch
ange
ratead
justmen
ts
12.6
1.6
otheradjus
tmen
ts
2.3
0.4
totalreversalofo
thernon
-cashmovem
ents
13.0
5.9
115
glossary
20-F: AnnualreportfiledwiththeUSSecuritiesandexchangecommission(Sec)
Adr: Americandepositoryreceipt.proofofownershipof(theequivalent)ofoneshare.AdrsareusedbyforeigncompanieswishingtolistonAmericanstockexchanges.
AdS: AmericandepositaryShares.SharesregisteredwithSecandkeptincustodywithabankassecurityfortheAdrsissued.
Aframax: Avesselwithacargocarryingcapacityof80,000–100,000dwt.
Assetmanagement: Acquisitionandownershipofassets(ships),whichmaybedisposedofatanoptimaltimewithaviewtogeneratingaone-offprofit–asopposedtoprofitsderivedfromoperatingtheasset.
bareboat: Seeb/b.
b/b: bareboat.Aformofcharterarrangementwherebythechartererisresponsibleforallcostsandrisksinconnectionwiththevessel’soperation.
bulk: drycargo–typicallycommoditiessuchasgrain,coal,ironore,etc.
bunker: Fuelwithwhichtorunaship’sengines.
capesize: bulkcarrierwithacargocarryingcapacityof120,000-200,000dwt.
classificationsociety: Independentorganization,whichthroughverificationofdesign,construction,buildingprocessandopera-tionofvesselsensurethatthevesselsatalltimesmeetalonglistofrequirementstoseaworthiness,etc.Ifthevesselsdonotmeettheserequirements,insuranceandmortgagingthevesselwilltypicallynotbepossible.
coA: contractofaffreightment.Acontractthatinvolvesanumberofconsecutivecargosatpreviouslyagreedfreightrates.
coating: theinternalcoatingsappliedtothetanksofa producttankerenablingthevesseltoloadrefined oilproducts.
demurrage: Achargeagainstthechartererofashipfordelayingthevesselbeyondtheallowedfreetime.thedemurrageratewilltypicallybeatalevelequal
totheearningsinUSd/dayforthevoyage.
dKK: danishKroner.
drycargo: Seebulk.
dwt: deadweighttons.thecargocarryingcapacityofaship.
FFA: ForwardFreightAgreement.Afinancialderivativeinstrumentenablingfreighttobehedgedforwardatafixedprice.
gAAp: generallyacceptedaccountingprinciples.
Handymax: bulkcarrierswithacargocarryingcapacityof 40-60,000dwt.
Handysize: bulkcarrierswithacargocarryingcapacityof 20-40,000dwt.
IAS: InternationalAccountingStandards.
IFrS: InternationalFinancialreportingStandards.
Imo: Internationalmaritimeorganisation.
Lr1: Longrange1.Aspecificclassofproducttankerswithacargocarryingcapacityof60,000–80,000dwt.
Lr2: Longrange2.Aspecificclassofproducttankerswithacargocarryingcapacityof80,000–110,000dwt.
mr: mediumrange.Aspecificclassofproducttankerswithacargocarryingcapacityof40,000–60,000dwt.
opA-90: oilpollutionAct1990.USenvironmentallawimple-mentedfollowingthegroundingofexxonValdezinAlaska.
opec: organizationofthepetroleumexportingcountries.
panamax: Avesselwithacargocarryingcapacityof60,000–80,000dwt.thebiggestvesselallowedtopassthroughthepanamacanal.
p&Iclubs: protection&Indemnityclub.
pool: Agroupingofshipsofsimilarsizeandcharacteri-stics,ownedbydifferentowners,butwhicharecommerciallyoperatedjointly.thepoolmanagerismandatedtochartertheshipsoutforthemaximumbenefitofthepoolasawhole.earningsareequali-zedtakingaccountofdifferencesinships’specifica-tions,thenumberofdaystheshipshavebeenreadyforcharter,etc.
producttanker: Avesselsuitablefortradingcleanpetroleumproductssuchasgasoline,jetfuelandnaphtha.
Sec: USSecuritiesandexchangecommission.
Sr: Shortrange.Aspecificclassofproducttankerswithacargocarryingcapacityof20,000–40,000dwt.
t/c: timecharter.Anagreementcoveringthecharteringoutofavesseltoanenduserforadefinedperiodoftime,wheretheownerisresponsibleforcrewingthevessel,butthecharterermustpayportcostsandbunker.
tce: Seet/cequivalent.
timecharter: Seet/c.
t/cequivalent: thefreightreceivableafterdeductingportexpenses,consumptionofbunkerandcommissions.
Un: theUnitednations.
not
e 14
Der
iva
Tive
fin
an
cia
l in
sTr
um
enTs
thetablebe
lowsho
wsthefairvalue
ofthe
derivativefin
ancialin
strumen
ts:
Fairvalue
Fairvalue
USd
million
at31dec.2007
at31dec.2006
Hed
ge a
ccou
ntin
g
cash
flow
s:
Interestratesw
aps
-0.6
3.0
bun
kerhe
dge
3.3
-3.3
Forw
ardFreigh
tAgree
men
t
6.0
5.9
non
hed
ge a
ccou
ntin
g:
Fo
rwardexch
ange
ratecontracts
1.7
1.0
Interestratesw
aps
-2.0
3.3
currenc
yop
tions
-0.3
0.4
Forw
ardtobuysha
res
-0.3
0.0
bun
kerhe
dge
-1.4
-1.5
Forw
ardFreigh
tAgree
men
t
2.0
-2.3
8.4
6.5
thetablebe
lowsho
wsrealized
amou
ntsaswellasfairvalue
adjus
tmen
tsreg
arding
derivativefin
ancialinstrumen
tsrecog
nizedinth
eincomestatem
enta
ndequ
ityin2007:
In
comestatem
ent
portexpenses,
Freigh
tand
equity
bunkersand
bunkers
Financial
Hedging
USd
million
revenue
commissions
derivative
sitems
reserves
bun
kerhe
dge
-0.9
0.0
-6.6
Forw
ardFreigh
tAgree
men
t
8.8
-2.9
-0.1
Forw
ardratecon
tracts
--
-2.9
-Fo
rwardrateagree
men
t
-
--
0.1
-Interestratesw
aps
--
--0.7
-3.6
currenc
yop
tions
-
--
0.1
-Fo
rwardtobuysha
res
--
--0.3
-To
tal 2
007
8.8
0.9
2.9
2.1
3.1
pleaserefertoth
esection‘m
anag
ingriskand
exposure’and
note21inth
econs
olidated
fina
ncialstatemen
tsfo
rfurthe
rinform
ationon
fin
ancialrisks.
theinterestratesw
apswith
afa
irvalue
ofU
Sd-0.6million(2006:USd
3.0m
illion)aredesigna
tedashed
geaccou
ntingtohed
geapart
ofth
ecom
pany’sinterestpaymen
tsduringthepe
riod
2008to2009.
thebu
nkerhed
gecon
tractswith
afa
irvalue
ofU
Sd3.3m
illion(2006:USd
-3.3million)aredesigna
tedashed
geaccou
ntingtohed
gea
partofthe
com
pany’sbun
kerexpe
nsesduringthepe
riod
2008to2009.
theFo
rwardFreigh
tAgree
men
tswith
afa
irvalue
ofU
Sd6.0m
illion(2006:USd
5.9m
illion)aredesigna
tedashed
geaccou
ntingto
hedg
eapa
rtofthe
com
pany’sreven
ueduringthepe
riod
2008to2009.
thega
insorlossesonthesecontractswillberecogn
ized
inth
eincomestatem
entw
henrealized
toge
therwith
thehe
dged
item
s.
116
fleeT overvieWaT 31 December 2007
Tankers oWnersHip DWT builT lr2 m.t. tormHeLene 100% 99,999 1997m.t. tormKrIStInA 100% 105,001 1999m.t. tormgUdrUn 100% 101,122 2000m.t. tormIngeborg 100% 99,999 2003m.t. tormVALborg 100% 99,999 2003m.t. tormmArgretHe 100% 109,672 2006m.t. tormmArIe 100% 109,672 2006m.t. tormmArgIt 100% 109,672 2007m.t. tormmette 100% 109,672 2007m.t. tormmArInA 50% 109,672 2007 lr1 m.t. tormSArA 100% 72,718 2003m.t. tormeStrId 100% 74,999 2004m.t. tormemILIe 100% 74,999 2004m.t. tormISmInI 100% 74,999 2004m.t. tormSIgne 100% 72,718 2005m.t. tormSoFIA 100% 72,718 2005m.t. tormUgLAnd 50% 74,999 2007m.t. tormVentUre 100% 74,999 2007
mr m.t. tormALIce 100% 44,999 1995m.t. tormgotLAnd 100% 44,999 1995m.t. tormAgnete 100% 47,165 1999m.t. tormgUnHILd 100% 44,999 1999m.t. tormAnne 100% 44,990 1999m.t. tormnecHeS 100% 47,052 2000m.t. tormcLArA 100% 45,999 2000m.t. tormcecILIe 100% 44,946 2001m.t. tormAmAZon 100% 47,275 2002m.t. SAnJAcInto 100% 47,038 2002m.t. tormmArY 100% 45,990 2002m.t. tormVItA 100% 45,940 2002m.t. tormcAroLIne 100% 44,946 2002m.t. tormgertrUd 100% 45,940 2002m.t. tormgerd 100% 45,940 2002m.t. tormtHYrA 100% 45,990 2003m.t. tormFreYA 100% 45,990 2003m.t. moSeLLe 100% 47,024 2003m.t. roSettA 100% 47,015 2003m.t. tormcAmILLA 100% 44,990 2003m.t. tormcArInA 100% 44,990 2003m.t. HorIZon 100% 46,955 2004m.t. tormHeLVIg 100% 44,990 2005m.t. tormrAgnHILd 100% 44,990 2005m.t. tHAmeS 100% 47,035 2005m.t. WAbASH 100% 46,893 2006m.t. KAnSAS 100% 46,922 2006m.t. repUbLIcAn 100% 46,893 2006m.t. pLAtte 100% 46,920 2006
Tankers oWnersHip DWT builT srm.t. mAdISon 100% 35,828 2000m.t. trInItY 100% 35,834 2000m.t. rHone 100% 35,751 2000m.t. cHArente 100% 35,751 2001m.t. oHIo 100% 37,274 2001m.t. LoIre 100% 37,106 2004m.t. gAronne 100% 37,178 2004m.t. SAone 100% 37,106 2004m.t. FoX 100% 37,006 2005m.t. teVere 100% 36,990 2005 bulkers panamax m.v. tormmArtA 100% 69,638 1997m.v. tormbALtIc 100% 69,614 1997m.v. tormmArLene 100% 69,548 1997m.v. tormrotnA 100% 75,971 2001m.v. tormtInA 100% 75,966 2001m.v. tormAnHoLt 100% 74,195 2004m.v. tormbornHoLm*) 100% 75,950 2004
*)expecteddeliverymarch2008
117
neWbuilDingsaT 31 December 2007
Tankers oWnersHip DWT expecTeD Delivery
lr2 m.t. tormmArIAnne-dALIAn1100-30 100% 110,000 Q22008m.t. tormmAren-dALIAn1100-31 100% 110,000 Q32008m.t. tormmAtHILde-dALIAn1100-32 100% 110,000 Q42009
mr m.t. tormLotte-nbguangzhou05130016 100% 52,000 Q12009m.t. tormASLAUg-nbguangzhou06131034 100% 50,500 Q12010m.t. tormALeXAndrA-nbguangzhou06130041 100% 50,500 Q12010m.t. tormLAUrA-nbguangzhou05130013 100% 52,000 Q22008m.t. tormLoUISe-nbguangzhou05130020 100% 52,000 Q22009m.t. tormLAnA-nbguangzhou05130021 100% 52,000 Q22009m.t. tormALmenA-nbguangzhou06131035 100% 50,500 Q22010m.t. tormAgnete-nbguangzhou06130042 100% 50,500 Q22010m.t. tormLILLY-nbguangzhou05130017 100% 52,000 Q32009m.t. tormAASe-nbguangzhou06131036 100% 50,500 Q32010m.t. tormAmALIe-nbguangzhou06130043 100% 50,500 Q32010m.t. tormLene-nbguangzhou05130015 100% 52,000 Q42008m.t. tormALIce-nbguangzhou06131033 100% 50,500 Q42009
sr m.t. tormgYdA-nbHyundaimipo2111 100% 37,000 Q12009
bulkers kamsarmax
m.v. nbtsuneishiZhoushan-SS063 100% 82,100 Q42010m.v. nbtsuneishiZhoushan-SS064 100% 82,100 Q12011m.v. nbtsuneishiZhoushan-SS065 100% 82,100 Q22011m.v. nbtsuneishiZhoushan-SS066 100% 82,100 Q22011
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