Strategic Ambition and Business Model

SOLID CAPITAL STRUCTURE

TORM has a solid capital structure combined with a strong liquidity position, a fully funded newbuilding program, no near-term debt maturities and limited off-balance sheet charter-in commitments. The Company has an attractive debt profile with favorable interest rates, amortization schedules and covenants.

TORM’s capital structure supports a spot employment strategy and also enhances the Company’s financial and strategic flexibility. In addition, balance sheet strength creates a competitive advantage when pursuing vessel acquisitions, as counterparties prefer well-capitalized companies. TORM plans to finance its business and fleet growth with a combination of operating cash flows, cash-on-hand as well as financing from lenders and the capital markets. In early 2020, TORM obtained commitment from leading ship lending banks for two separate term facilities and a revolving credit facility of up to a total of USD 496m. These facilities replace four term loans and TORM’s existing revolving credit facility that all together on a fully drawn basis cover USD 502m in debt. Following the refinancing, TORM does not have any major debt maturities until 2026. Secured bank financing remains the preferred source of debt funding for TORM, but recent leasing structures reflect TORM’s broad access to various sources of competitive financing. To support the capital structure, TORM works towards improving the liquidity in the Company’s share to attract a broader investor base. TORM is continuously marketing the share towards investors via investor roadshow activities, conference participation and panel discussions. In addition, TORM listed its share on Nasdaq in New York in 2017, thereby providing access to a broader base of potential investors. In February 2019, TORM plc’s USD 250m universal shelf registration on Form F-3

became effective with the Securities and Exchange Commission.

ONE TORM – INTEGRATED OPERATING PLATFORM

TORM’s fleet is managed cost-efficiently and effectively by the in-house commercial and technical management teams, which have an industry reputation for strong commercial performance, safety and operational expertise. Within the One TORM platform, TORM’s employees ensure the high quality of the fleet required by our customers under their strict vetting criteria. TORM believes that the largest customers prefer an integrated operating model as it provides them with better accountability and insight into safety and vessel performance. Within the One TORM platform, digitalization and enhancement of business intelligence are key focus areas in order to optimize vessel performance.

The integrated nature of TORM’s operating platform provides transparency and additional alignment of management and shareholder interests, which mitigates the potential for actual or perceived conflicts of interest with related parties. In addition, it allows for closer control over operating expenses. This is also seen in our competitive OPEX of USD/day 6,371 in 2019.

TORM’s large diverse fleet of well-maintained product tankers gives the Company the advantages of scale both commercially and in terms of cost-efficiency compared to smaller product tanker owners. The Company’s Management believes that the combination of well-maintained vessels, a presence in all product tanker segments and an integrated operating platform provides the commercial management team with enhanced flexibility and responsiveness to customer demands. As a result,

TORM has consistently delivered MR TCE earnings and cash flows above industry average.

TORM’s integrated model includes a strategic focus on safety performance. In line with the Company’s strategic focus on safety performance, TORM continued to promote the safety culture program One TORM Safety Culture – driving resilience in 2019. The purpose of the program is to continuously strengthen TORM’s safety culture beyond mere compliance. This reflects TORM’s belief that profitability and safety are not mutually exclusive.

It is a key priority for TORM, as a Reference Company in the industry, to minimize pollution of the seas and the atmosphere. Thus, TORM has strong focus on reducing fuel consumption and CO₂ emissions as this is not only good for the environment but also for TORM’s business. This is achieved through committed focus on optimal performance, and industry collaboration.

TORM has identified a number of strategic Key Performance Indicators (KPIs) that the Company believes are vital for the fulfillment of its strategic goals. These strategic KPIs are described on page 31.

The global oil industry includes a range of activities and processes which contribute to the transformation of primary petroleum resources into usable end products for industrial and private customers.

The value chain begins with the identification and subsequent exploration of productive petroleum fields. The unrefined crude oil is transported from the production area to refinery facilities by crude oil tankers, pipelines, road and rail.

TORM is primarily involved in the transportation of refined oil products from the refineries to the end user. In addition to clean products, TORM uses some of its vessels for transportation of residual fuels from the refineries as well as crude oil directly from the production field to the refinery. These fuel types are commonly referred to as dirty petroleum products, as extensive cleaning of the vessel’s cargo tanks is required before a vessel can transport clean products again.

In 2019, 95% of TORM's turnover was generated from clean products transportation.

TORM values the relationship with its key stakeholders and aims at conducting business for the benefit of the Company’s shareholders and other stakeholders. TORM has supported the UN Global Compact since 2009 and is committed to supporting the UN Sustainable Development Goals. TORM was the first shipping company in Denmark to commit to the internationally recognized set of principles.

Market

The interaction with key stakeholders is described on pages 19-21 under “Strategic Ambition and Business Model”. For more information on broader value generation and TORM’s Corporate Social Responsibility (CSR) policy, please see pages 49-60.

2019 PRODUCT MARKET

After strong rates at the start of the year, the product tanker market softened through the second and third quarters, before posting a strong recovery in the fourth quarter with freight rates for larger vessels peaking at levels not seen since 2008.

Demand for oil products was negatively affected by general macroeconomic weakness, resulting in subdued oil demand growth. This together with new refining capacity entering the market kept refinery margins generally under pressure, notwithstanding temporary margin hikes. Refinery margins deteriorated, especially in Asia, due to slower oil demand growth, new refineries ramping up production and the region’s typical crude diet becoming more expensive relative to other benchmark regions.

Product tanker freight rates started the year at strong levels supported by open long-haul arbitrage trades and a more supportive supply side after a considerable number of LR2 vessels had switched to the dirty market at the end of 2018. On the other side, strong diesel arbitrage economics between the East and the West incentivized a high number of newbuilt crude tankers to carry clean petroleum products on their maiden voyage from the East to the West. This was further intensified by a frontloaded crude tanker newbuilding program

for 2019, with deliveries in the first quarter being particularly high.

Product tanker rates softened nevertheless as spring refinery maintenance gained pace and narrowed the arbitrage opportunities. Refinery maintenance was not only particularly heavy in 2019, but it also stretched over a longer period than normal, not peaking until May. The particularly heavy spring refinery

maintenance in 2019 was influenced by the refineries’ preparations for the IMO 2020 marine fuel shift. In several regions, planned refinery maintenance was coupled with series of unplanned outages and economic run cuts amid lower-than-average refinery margins. For example, a crude oil contamination in the Druzhba pipeline in Russia disrupted work at several European refineries. In the US, outages at a number of gasoline-producing units and the closure of the largest refinery on the US East Coast supported transatlantic and transpacific gasoline flows.

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The Product Tanker Market

Towards the end of the third quarter, the tanker market was shaken by attacks on Saudi Arabia’s oil facilities and the imposition of US sanctions on two subsidiaries of China’s COSCO Shipping, with the latter affecting around 4% of the global VLCC fleet. This initially sent crude tanker rates to highs not seen since 2008, further spreading to the product tanker market with the impact especially pronounced in the larger segments. The strong reaction of the crude tanker freight rates encouraged several LR2 vessels to switch into dirty trades at the end of the third quarter, during the fourth quarter and into the first months of 2020. This corresponded to a drop in clean-trading LR2 capacity of around 15% and was further supported by a temporary removal of vessels for scrubber retrofitting, which gained pace in the second half of the year. In addition, crude tanker cannibalization eased in the second half of the year as the crude market improved and newbuilding deliveries decreased.

After the initial strong surge in product tanker freight rates, the rates underwent a downward correction yet remaining at strong levels, with rates in the fourth quarter being the highest since the third quarter of 2015. Rates were supported by seasonal demand and multiple open product arbitrage opportunities. Indian diesel exports to the western hemisphere showed strong momentum. Similarly, gasoline flows from Europe to the Middle East and West Africa picked up. Naphtha arbitrage flows from the West to the East reached a 6-month high in November-December. New refinery capacity ramping up in China continued to support the country’s product exports.

With an improved freight market, vessel values continued to increase. Asset prices on second-hand product tankers

climbed by 9% for modern MR tonnage and 24% for modern LR2 tonnage (source: Clarksons).

Strong freight rates carried over into the start of 2020, as LR2 vessels continued to shift to dirty trades and vessel availability was reduced by scrubber retrofits. However, the start of a heavy refinery maintenance in the Middle East and a weakening sentiment due to removal of the COSCO sanctions and the outbreak of the COVID-19 in particular weighted on the crude and product tanker markets.

TORM

The value of TORM's fleet measured by broker values increased by 6% during 2019 (when adjusted for vessels acquired and sold during 2019).

In 2019, TORM achieved a gross profit of USD 252m (2018: USD 169m). The increase from 2018 was driven by higher freight rates. TORM’s product tanker fleet realized TCE

earnings of USD/day 16,526, up 27% year on year, with the LR2 segment at USD/day 19,730, the LR1 segment at USD/day 17,102, the MR segment at USD/day 15,840 and the Handysize segment at USD/day 14,965.

During 2019, TORM took delivery of five MR vessels from Guangzhou Shipyard International (GSI) all equipped with a scrubber. In January 2020, TORM made an additional purchase of two fuel- efficient dual-fuel-ready LR2 newbuildings with scrubbers.

As of 11 March 2020, TORM has taken delivery of three additional newbuildings from GSI – one MR vessel and two LR1 vessels. One remaining MR newbuilding is expected to be delivered in April 2020, and two LR2 vessels are expected to be delivered in the fourth quarter of 2021.

At the end of 2019, TORM operated a fleet of 76 vessels on the water, of which 65 are fully owned and 11 are financial leaseback.

MARKET DRIVERS AND OUTLOOK

Tonnage supply

In 2019, the global product tanker fleet grew by 4.7% in terms of capacity (4.1% in terms of number of vessels). This was up from 2.4% in 2018, which was the lowest growth in more than 20 years. Vessel deliveries increased in all segments. Fleet growth ranged from 7.3% for the LR2 segment, 2.2% for the LR1 segment,

4.5% for the MR segment and 2.5% for the Handysize segment. However, effective tonnage supply growth was reduced by the LR2 net migration to the dirty market as well as temporary removal of vessels from the market for scrubber retrofitting, with the latter reportedly experiencing delays compared to initially planned timelines.

Product tanker fleet growth

The number of newbuilding orders placed in 2019 remained at similar levels as in 2018, thus remaining below the ten-year

average level. A total of 87 product tankers were ordered in 2019 compared to an annual average of 118 over the past decade. The MR segment accounted for the majority of orders with 62 units contracted, while the number of LR2 vessels ordered was 23. At the end of 2019, the existing order book for deliveries in 2020-2022 totaled 223 units (corresponding to 6.9% of the current fleet), including 39 LR2 vessels, 8 LR1 vessels, 154 MR vessels and 22 Handysize vessels.

Taking into account lead time in production, TORM anticipates limited ordering of new product tankers with delivery before the end of 2021. Along with improvements on the freight market, TORM expects ordering activity in 2020 to increase from the relatively low levels seen in the last couple of years. Nevertheless, the ordering activity is expected to remain below the peaks seen in the previous years underpinned by uncertainty around requirements for vessel propulsion systems in the future.

Around 1.2m dwt of product tanker capacity was recycled in 2019, corresponding to approximately 0.7% of the fleet capacity as of the end of 2018. This was down from 2.2m dwt in the previous year. TORM estimates that approximately 3% of the existing capacity of the global fleet will be phased out or recycled during 2020-2022, as these vessels reach an age where trading possibilities are limited.

With a historically low order book and low probability of over-ordering in the coming years, TORM expects the net product tanker fleet capacity to grow by a compound annual rate of approximately 3% during 2020-2022.

Tonnage demand

With a slowdown in several major consuming regions and countries, the global demand for oil products grew by 0.9 mb/d in 2019 (source: IEA OMR February 2020). Looking at individual products, diesel demand was affected by weak global industrial performance, while LPG continued to replace naphtha in the petrochemical industry especially in the OECD countries. In 2020, global oil demand is projected to grow by around 0.8 mb/d, the lowest since 2011, as the outbreak of the COVID-19 and the widespread shutdown of the Chinese economy are expected to have shaved off around 0.4 mb/d of the global growth (source: IEA OMR February 2020). Nevertheless, the sharp decline in oil demand in China in the first quarter of the year (and the corresponding cut in refinery runs) is expected to be followed by a rebound that is likely to be supported by additional government stimulus measures.

Clean petroleum product inventories, which were contributing to the market weakness in the previous three years, normalized at historical levels in 2019. This removed some of the headwinds from the product tanker market recovery.

In 2020, the market will be affected by the IMO 2020 sulfur regulation. TORM expects that the shift towards low sulfur fuels could lead to an increase of up to 1 mb/d in demand for diesel/gasoil as a low sulfur bunker fuel or as a feedstock for the latter. This, in turn, is expected to lead to higher interregional trade with clean petroleum products, which will support the product tanker market. The regions that are diesel net exporters already today have more flexibility to increase diesel production compared to net importing regions, leading to additional demand for large- and medium-sized product tankers. For example, new refining capacity comes online in Asia and the Middle East, while the complex refining system in the US Gulf allows the region to a higher degree to take advantage of the cheaper excess high sulfur fuel oil (HSFO) in producing cleaner fuels such as gasoline and diesel/gasoil. The latter development was already clearly visible in the last months of 2019, with increasing flows of HSFO from Russia to the US Gulf refining hub. On top of increased interregional trades, demand for smaller vessels is expected to increase for intraregional redistribution of new bunker fuels.

negative so far this year, which has reportedly led to several vessel owners in Europe opting for MGO instead of VLSFO. Also, the VLSFO availability could be lower during the summer months when a stronger gasoline market increasingly competes for feedstocks.

On the tonnage supply side, the temporary removal of vessels from the market for scrubber retrofitting that already started in 2019 will continue in 2020, thereby supporting the market.

Over the longer term, global refinery capacity additions will exceed the growth in oil demand, adding to the already existing oversupply of the global refining capacity. While new

refining capacity is primarily located in Asia and the Middle East, the competitive pressure on older and less efficient refineries in regions such as Europe and South America will thus increase.

REGULATION

In October 2016, IMO’s Marine Environment Protection Committee (MEPC) announced that as of 1 January 2020, the global limit for sulfur emissions from fuel oil used on board vessels operating outside designated emission control areas will be reduced from 3.5% to 0.5%. This will significantly reduce the amount of sulfur oxides emanating from vessels and should have major health and environmental benefits for the world.

There are two relevant methods for TORM vessels to comply with the new sulfur regulation:

Install an exhaust gas cleaning system, also known as a “scrubber”, which is designed to remove sulfur oxides from a vessel’s engine and boiler exhaust gases, or use compliant fuel with a sulfur content level below 0.5%

TORM IMO 2020 SULFUR LIMIT PREPARATIONS

TORM has been preparing for the sulfur regulation since 2016, when the first internal sulfur compliance working team was established. The work has included committed scrubber installations including pilot installations and a joint venture with a scrubber production facility. In addition, TORM ensured that the remaining fleet would be in compliance by 1 January 2020.

Committed scrubber installations

TORM has committed to install 49 scrubbers on both newbuildings and second-hand vessel and has already installed 30 scrubbers as of 11 March 2020. These scrubbers are installed on two LR2, six LR1 and 22 MR vessels based on a business case and technical and commercial considerations.

Scrubber partnership

In order to secure availability of scrubbers and to forge a closer relationship with the China State Shipbuilding Corporation (CSSC) yard group, TORM established a joint venture in 2018 with Guangzhou Shipyard International, which is part of the CSSC group, and ME Production, a leading scrubber manufacturer. TORM holds an ownership stake of 27.5% in the joint venture: ME Production China.

The main benefits to TORM have been increased flexibility to secure scrubber production slots. In addition, if the partnership continues to prove successful, TORM will generate an additional income stream.

ME Production China’s production of scrubbers commenced in November 2018, and the company will deliver a total of 43 scrubbers to TORM.

Scrubber experiences

Throughout 2019, TORM has gained valuable experience from using and installing scrubbers through the pilot scrubber installations on TORM Hilde and TORM Lene. Further knowledge has been gained from the additional 18 scrubber installations that have taken place in the second half of 2019 on both newbuildings and vessels on the water. These installations have helped TORM to be fully able to use the scrubbers from 1 January 2020.

imo 2020 sulfur regulation

0.5% compliant fuel readiness for remaining fleet

In early 2019, TORM initiated an internal working group to ensure that the remaining TORM fleet without scrubbers would be in full compliance with the IMO 2020 sulfur regulation by using compliant fuel.

This work included the emptying and cleaning of tanks and investigating potential tank modifications as well as testing, assessing and evaluating the specifications of the new 0.5% compliant fuels including determining the commingling ability. In the second half of 2019, there was also focus on training the crew to handle the new fuels and ensuring that the vessels switched over to the new 0.5% compliant fuel as late in December 2019 as possible in order to save fuel costs.

On a global scale, published data on bunker sales shows that the shift from high sulfur fuel oil (HSFO) to low sulfur fuel oil (VLSFO) took off in the last months of 2019, as vessel operators were taking measures to prepare for the IMO 2020 sulfur regulation. In one of the largest bunker hubs, Singapore, the HSFO market share dropped to barely 28% in December from 85% in September. It was primarily VLSFO that replaced HSFO, reaching a market share of 59% from just 4% three months earlier, when the shipping industry was testing the new compliant fuel. Initial gains in marine gas oil (MGO) demand were less pronounced, reaching an 12% market share, which was nevertheless up from 7% at the start of 2019 and has a potential to increase further when VLSFO inventories ran down and its supply is limited due to feedstock competition for the gasoline pool.

A strong increase in VLSFO demand in the last quarter of 2019 coupled with logistical challenges at a number of bunkering ports supported VLSFO prices, resulting in VLSFO-HSFO spot spreads in Rotterdam reaching new highs of above USD 300 per ton. In Singapore, VLSFO even reached a premium to the MGO price in December. In the first week of 2020, the VLSFO-HSFO forward spread for the calendar year 2020 peaked at around USD 275 per ton. The recent COVID-19 outbreak and the accompanying fall in the crude oil price have caused the VLSFO-HSFO spot and forward spreads to fall to new lows as the HSFO has recently been linked to the crude oil price while the new VLSFO product has decreased even further. The spot spread as of 5 March 2020 was USD 109 per ton while the 2021 forward spread was USD 151 per ton. With these spreads, TORM’s scrubber investment has a payback time well below three years.

LR2

Long Range 2 vessels are the largest vessels in TORM’s fleet. They are typically employed on longer trade routes, including naphtha transportation from the Middle East to the Far East and diesel from the eastern hemisphere into the Atlantic. 12 vessels are currently on the water, and two newbuildings are expected to be delivered in 2021.

MR

The Medium Range vessels are often referred to as the “workhorse” of the product tanker fleet. They cover more trade routes and, compared to the larger LR vessels, this vessel type has the flexibility to enter into more ports and cover shorter and coastal trades. A typical trade for MR vessels would be gasoline from Europe to the US East Coast.

55 vessels are currently on the water, and one newbuilding is expected to be delivered in the second quarter of 2020.

LR1

Long Range 1 vessels are typically employed on the same routes as LR2 vessels, but they also have the flexibility to cover trades and routes that are traditionally dominated by the smaller MR vessels. A typical LR1 trade could be diesel or jet fuel from the Middle East to Europe.

Handysize

Handysize vessels are the smallest vessels in TORM’s fleet. They are involved in more varied and typically shorter and coastal trade routes. Typical trades for a Handysize vessel include transportation of various clean petroleum products within Europe and in the Mediterranean.

TORM is present in all larger segments in the product tanker market with specific focus on the LR2, LR1 and MR segments as these three segments have the highest degree of synergies.

TORM’s fleet has increased from 75 vessels in December 2018 to 78 vessels on the water in March 2020. Two LR2 vessels and one MR vessel newbuilding are pending delivery in the second quarter of 2020 and in the fourth quarter of 2021. The change is primarily driven by our opportunistic approach to fleet renewal through disposal of older tonnage, acquisition of younger tonnage and modern second-hand vessels and contracting of newbuildings.

 

RISK MANAGEMENT FRAMEWORK

TORM acknowledges that the Company faces a range of risks in doing business, and that the Company’s success depends on identifying, balancing and mitigating these as early as possible. TORM believes that a strong risk management framework is vital to protect the Company and to ensure that the Company is well positioned in key markets. Risk management is an integrated part of doing business in TORM. It enables transparency and insight into the risks related to the Company and provides a common risk framework, making it simpler to communicate and take decisions.

On an annual basis, TORM conducts an Enterprise Risk Management process, during which the critical risks facing the Company are identified, assessed and discussed by TORM’s Senior Management Team and subsequently approved by the Risk Committee. In between the annual Enterprise Risk Management processes, TORM assesses the identified critical risks to reconfirm and iterate TORM’s view on the risks.

Risk & Review

The objective is that TORM and its shareholders are adequately rewarded for accepting risk, and that the governance structure tailored to oversee risk management is in place. This is to ensure that risks related to core and non-core activities are mitigated to the extent desired. TORM’s

risk management framework seeks to provide reasonable assurance that business objectives can be achieved and obligations towards customers, shareholders and employees can be met.

RISK MEASURE

Risks are assessed based on a two-dimensional heat map rating system that estimates the consequence of a risk based on financials or reputation and the likelihood of that risk materializing. Risk likelihood and consequence is considered based on the immediate strategic window of the coming 12 months.

GOVERNANCE

TORM’s risk management approach emphasizes Management accountability and oversight. Identified risks are analyzed, discussed, and responsibility is assigned to the Senior Management Team member most suited to manage the risk. Assigned owners are required to continually monitor risk, implement and maintain mitigating actions and evaluate and report on risks for which they bear responsibility.

If the consequence of a risk exceeds the agreed risk tolerance, Management is required to assess if implementation of additional mitigation controls is necessary until the desired risk level is achieved. As part of the

Enterprise Risk Management process, risks are reviewed and challenged by the Risk Committee.

RISK ASSESSMENT PROCESS

TORM’s risk identification process involves that the risk department on an annual basis conducts risk interviews with heads of departments and senior management to identify principal risks. Identified risks are prioritized, challenged and approved by senior management as risk owners. This also includes the assessment of availability and effectiveness of mitigating actions taken to avoid or reduce the impact or occurrence of the underlying risks.

The identified risks in TORM are divided into three risk groups: “Potential Risks”, “Top Risks” and “Emerging Risks” in order to facilitate and clarify the type of action required for each risk.

Potential Risks are events that are not currently perceived having a significant adverse or unanticipated impact. TORM seeks to implement early warnings for monitoring if these risks begin to evolve. TORM typically develops long-term mitigation plans such as clearly defined mandates reducing risk exposure.

Risk Management

Identified risks include, among other things, exposure to financial derivatives, IT and cyber risk and counterparty credit risk.

Top Risks are defined as all events or developments that could significantly reduce TORM’s ability to sustain the long-term value of the Company and to meet the expectations of investors and lenders. Each risk is stress-tested including a consideration of the impact of a number of severe but plausible events that could impact the business. The work also takes into account the availability and likely effectiveness of mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks. TORM executes monitoring plans and mitigation of these risks in order to ensure that the risks are aligned with the risk tolerance level. TORM’s Top Risks are depicted in the heat map on page 36. Please also see the table on pages 37-38 for a description of each of the risks in the heat map.

Emerging Risks are developing long-term risks which are often difficult to quantify. They usually also have a relatively low likelihood and are often driven by external factors. TORM aspires to be a sustainable company, which requires a long-term perspective on value creation. In the context of risk management, this means taking an active role in addressing risks related to long-term value creation. Risks and opportunities beyond the immediate strategy window are monitored by TORM’s Senior Management Team and incorporated in the corporate strategic planning. As part of the Enterprise Risk Management process, emerging risks are reported to the Risk Committee, facilitating a discussion and evaluation of mitigating activities to reduce the uncertainty.

TORM’S RISK APPETITE AND MAIN RISK EXPOSURE

The Senior Management Team and the Risk Committee discuss and decide on TORM’s risk appetite and risk tolerance to the Company’s principal risk exposures. TORM’s risk appetite and inherited exposure to principal risks is divided into three main categories as detailed below:

Industry and Market-Related Risks (“Risk Tolerant”)

TORM’s business is sensitive to changes in market-related risks such as changes in the global economic situation, changes in product tanker freight rates and changes in bunker prices. It remains a cornerstone of the Company’s strategy to actively pursue this type of risk by taking positions to benefit from fluctuations in freight rates.

Operational and Compliance Risks (“Risk Averse”)

Adequate management of operational and compliance risks within TORM’s risk tolerance limits is a prerequisite for TORM to succeed and comply with our strategy as a tanker owner and operator.

TORM aims to maintain its position as a quality operator with high focus on operating vessels in a safe and reliable manner. TORM constantly focuses on reducing potentially severe risks with respect to environment, health, safety and compliance. This is achieved by a strong integrated platform, where cross-functional collaboration ensures that rigorous procedures and standardized controls are maintained to the highest quality.

Financial Risks (“Moderately Risk-Averse/Risk Neutral”)

Management believes that a prudent approach to financial risks benefits the Company the most. TORM’s global presence means that its financial position is exposed to a number of risk factors including interest rate, foreign exchange, credit and liquidity risks.

TORM’S CURRENT RISK PROFILE

The Board of Directors and the Senior Management Team confirm that they have carried out a robust assessment, under the new Governance Code, of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity and reputation.

The majority of risks are repeated from last year, albeit with slight adjustments. The key aspects of TORM’s current risk profile are summarized below:

TORM’s Top Risks and the changes compared to last year are depicted on page 36. A detailed description of each of the Top Risks is available on page 37-38.

For a more in-depth description of mandates and sensitivity analyses of the various risks, please see note 20 on pages 134-137.

EMERGING RISKS

TORM considers the main emerging risks to be:

Climate change

Like other ship operators TORM is subject to the impact of climate change on its business model. Independent studies generally forecast that demand for the products that TORM

transports will remain robust over the short to medium term. However, the longer term future is difficult to predict given the wide range of potential outcomes associated with the many variables and varying emissions pathways. At the more extreme end, the consequences are potentially severe, with society likely to face transformational change across all scenarios. This makes climate change and the risk TORM faces broad in nature. Climate change is likely to have far-reaching consequences for TORM in the long term and to impact several areas of TORM’s core business activities. Below we have outlined additional emerging risk. All have elements directly related to climate change.

Peak oil demand

Industry-changing risks such as the substitution of oil for other energy sources and technological changes have the possibility to alter the landscape of the markets TORM serves and as such radically change transportation patterns. Longer term, this will likely have a negative impact on the tanker markets. The time at which oil demand will peak is highly uncertain. According to several prominent oil market observers, among others the International Energy Agency and WoodMackenzie, there is little reason to believe that once it does peak, the oil demand will fall sharply.