FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of March 2006
A/S STEAMSHIP COMPANY TORM
(Translation of registrant's name into English)
Tuborg Havnevej 18
DK-2900 Hellerup
Denmark
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [_]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
INFORMATION CONTAINED IN THIS FORM 6-K REPORT
Set forth herein as Exhibit 1 is a copy of the Annual Report - 2005 issued
by A/S STEAMSHIP COMPANY TORM to The Copenhagen Stock Exchange on March 8, 2006.
Exhibit 1
Table of Contents
Dear Shareholders 4
Group financial highlights 6
2005 highlights 7
Outlook for 2006 8
Tanker Division 10
Bulk Division 12
Business development 14
Trends in the product tanker and dry bulk segments 15
TORM 2008 - Greater Earning Power 22
Human Resources 24
Managing risk and exposure 26
Safety and quality awareness 28
Shareholder relations 30
Corporate Governance 32
Financial review 34
Income statement 39
Balance sheet 40
Statement of changes in shareholders' equity 42
Cash flow statement 43
Notes 44
Board of directors and Management 68
Management's and Auditors' report 70
Financial statements for the parent company 71
Glossary 85
Fleet information 86
Basic
Information
Name and address: A/S Dampskibsselskabet TORM
Tuborg Havnevej 18
DK-2900 Hellerup
Tel.: +45 3917 9200
www.torm.com
Founded: 1889
CVR: 22460218
Board of directors: N. E. Nielsen (Chairman)
Christian Frigast (Deputy Chairman)
Lennart Arrias (elected by the employees)
Ditlev Engel
Rex Harrington
Peder Mouridsen (elected by the employees)
Gabriel Panayotides
Management: Klaus Kjaerulff, CEO
Klaus Nyborg, CFO
Dear Shareholders
Continued profitable growth in 2005
2005 was once again a year in which TORM enjoyed favourable winds and during
which the Company's focus on tank and bulk led to highly satisfactory results.
In 2005, TORM once again saw growth both in terms of better net profit and in
the size of its fleet. Growth in the number of owned vessels combined with high,
though volatile, freight rates within both the tanker and bulk segments meant
that the net profit for 2005 of USD 299 mill. (DKK 1,795 mill.) was the best in
the Company's history. Earnings per share (EPS) rose to USD 8.6 (DKK 51.5) in
2005 from USD 5.4 (DKK 32.2) in 2004.
The expansion and renewal of TORM's fleet continued during 2005, the total owned
fleet increasing by 25% from 29.5 vessels to 37. The fleet owned by TORM has
grown by 26% annually in the past 5 years and has, thereby, more than tripled in
size since 2001. In addition, the Company has presently 9 vessels chartered -
redelivering beyond 31 December 2006. This development is set to continue
through an ongoing investment program and through the chartering in of
additional tonnage. As a result, the fleet, and thereby the number of earning
days, is set to increase by 61% - representing a total of 28 additional vessels
- by 2009 based on agreements entered into per 1 March 2006.
During 2005, the Company took delivery of 4 newbuildings:
2 LR1 and 2 MR product tankers. In line with TORM's strategy to grow the fleet,
the Company purchased a further 7 modern second-hand product tankers: 2 LR1 and
5 MR. The Company also sold 4.5 of the oldest product tankers in the fleet
during 2005. The product tanker fleet thereby totalled 27 vessels at year-end.
The dry bulk fleet consisted on 10 owned vessels at year-end, an increase of one
vessel brought about by the exercising of a purchase option on a vessel already
chartered-in at a favourable price. Out of a total investment program of app.
USD 625 mill. (DKK 3.9 bn.) the remaining investment program as of 1 March 2006
involves 13 vessels representing a total investment of approximately USD 500
mill. (app. DKK 3.1 bn.).
However, TORM is not just about ships. Far from it. TORM has
in recent years implemented organizational improvements aimed at optimizing and
documenting work processes to ensure improved efficiency and that the
organization is prepared for growth. Aside from this, the Company has also
expanded the activities in Singapore, Germany and the Philippines and continues
to be represented in Japan and Korea via pool partners. The Singapore office is
viewed as the Company's "second leg" to ensure an even closer relationship and
dialogue with our customers in the region.
Growth naturally creates challenges - for example, the number of seafarers and
shore-based staff has increased by 20% in 2005. TORM has, through focused
recruitment and training, ensured that we continue to provide a high level of
service and indeed that these standards are at similarly high levels
acrossthe-board. To ensure that this is so, the Company wishes to control
value-creating activities such as the recruitment and training of seafarers as
well as those employed in operations. The initiatives taken in this regard will
continue, because the Company strongly believes that these will, in future, be
key differentiators in a world where customers and regulatory bodies over a
number of years have tightened requirements considerably. To be closer to the
customers the Company plans to be represented in the US in 2006.
The start of 2006 has been good and better than expected. Inspite of the good
start freight rates are expected to be lower than in 2005. The decrease in
freight rates will to some extent be offset by the increase in TORM's fleet.
The profit before tax forecast for 2006 is in the region of USD 140-160 mill. As
at 1 March 2006, approximately 46% of TORM's earning days had been hedged.
This is more than usual.
Klaus Kjaerulff
CEO
The Board considers the result as highly satisfactory and recommends, subject to
the approval by the Annual General Meeting, that a dividend of DKK 23 (USD 3.6)
per share be paid, which means that the total dividend payment will be DKK 837
mill. (USD 132 mill.).
It is pleasing to note that our shareholders have been able to share in the
profitable times enjoyed by the Company. TORM's share price rose 35% (2004:
150%) in 2005, and when including the dividend of DKK 15 (USD 2.7) per share
paid in April 2005, the total return on the shareholders' investment in TORM was
42% in 2005 (2004: 157%).
With the proposed dividend for the financial year 2005, we will underline the
exceptionally good result obtained by TORM's main activities.
TORM's investment in Norden has also in 2005 developed positively, but the
transition to IFRS means that only the dividend received from Norden has
affected TORM's result. We still consider the investment interesting.
TORM's progress has in turn posed significant demands on the Company. With the
achievments in recent years, the Company has laid a strong foundation for the
future, and it is against this background that, at the end of 2005, the
Company's Board approved a new 3-year strategy named "Greater Earning Power".
The Strategy is ambitious and should ensure that TORM maintains its leading and
profitable position to the benefit of all stakeholders. The Strategy is an
extension of the previous strategy with continued focus on tank and bulk but
also with further focus on developing TORM to become a global operator. More
details about the Strategy on page 22.
The Danish Government commenced a work in 2005 to ensuring Denmark's position as
Europe's leading maritime nation. This initiative is needed in order to
continually maintain and further develop the industry's competitive edge given
that there are nations, which offer possibly an even more favourable environment
than Denmark. This initiative is considered to be of great importance for the
Danish shipping industry. Furthermore, the industry is working closely with the
vocational schools in an effort to further improve the education of shipping
trainees as well as to establish a Maritime Master Program to be run by the
University of Southern Denmark. Additionally, the raising of maritime
competences and standards will result from a more effective use of the maritime
educational system, thus ensuring the recruitment of officer cadets.
The European Union is currently reviewing competition rules governing the
maritime industry. The EU Commission has offered to issue guidelines for pooling
and tramp shipping. A good, open and constructive dialogue between the industry
and the EU Commission has been established as a result of which clear and
practical guidelines are expected to ultimately emerge.
The Board would like to thank all employees, both at sea and ashore, for the
efforts in 2005, which have created this historical result. Equally, the Board
would like to express its thanks to the shareholders for the backing received.
Our sincere thanks also go to our pool and other partners for the good
cooperation throughout the year.
N. E. Nielsen
Chairman
2005 highlights
o Net profit after tax for the year was USD 299 mill. (DKK 1,795 mill.). The
Board of directors considers the result to be highly satisfactory.
o EBITDA was USD 351 mill. (DKK 2,105 mill.).
o Cash flow before financial items was USD (212) mill. (DKK (1,272) mill.).
Cash flow from operating activities was USD 261 mill. (DKK 1,566 mill.),
whilst cash flow from investing activities was USD (473) mill. (DKK (2,873)
mill.).
o Shareholders' equity was USD 905 mill. (DKK 5,721 mill.) as at 31 December
2005 equivalent to USD 26.0 per share (DKK 164.2) excluding treasury
shares.
o The market value of the Company's fleet as at 31 December 2005 exceeded the
book value by USD 768 mill. (2004: USD 573 mill.) equating to USD 22.0 per
share (DKK 139,4) excluding treasury shares.
o Return on Invested Capital (RoIC) was 33.8% (2004: 31.0%), whilst Return on
Equity (RoE) was 36.9% (2004: 33.1%).
o The Company's owned fleet grew in net terms by 7.5 vessels (25%) equivalent
to 310,000 dwt (19%) during the year. The Company took delivery of 12
vessels during the year and contracted 7 newbuildings not yet delivered.
o By the end of 2005, TORM had 12 ships on order and declared 2 purchase
options. TORM had resold 1 of the ships from the order book for delivery in
2006. Additionally, the Company had entered into 14 T/C agreements. As
such, the Company's fleet of owned and chartered vessels will, by 2009,
consist of 74 vessels based on existing contracts assuming that no
disposals take place and that no new agreements are entered into in the
meantime.
o The profit before tax forecast for 2006 is USD 140-160 mill. In 2005,
profit before tax was USD 299 mill. including dividends (USD 12.8 mill.)
and gains from sales of vessels (USD 54.7 mill.).
o The Board of directors recommends, subject to approval by the Annual
General Meeting, that a dividend of DKK 23 (USD 3.6) per share be paid
corresponding to a total dividend payment of DKK 837 mill. (USD 132 mill.)
and equivalent to a return of 7.5 % in relation to the closing price of the
Company's shares on the last business day of 2005.
Outlook for 2006
The profit before tax forecast for 2006 is in the interval of USD 140-160 mill.
TORM's financial results primarily rely on the development in freight rate
levels and available earning days within the product tanker and dry bulk
segments. As per 1 March, 25% of the remaining earning days in the Tanker
Division had been hedged for 2006 via time charter agreements or other hedging
instruments. Similarly, 61% of the remaining earning days for the Bulk Division
had been hedged for 2006 as of 1 March.
The profit before tax forecast for 2006 is in the interval of
USD 140-160 mill. This forecast is, however, subject to a degree of uncertainty
in as much as a number of unpredictable factors could significantly impact
freight rates and thereby the earnings for both the product tankers and the bulk
carriers. Furthermore, it is difficult to predict the timing of additional
tonnage not yet contracted. For 2006 it is estimated that the following factors
would have the greatest influence on earnings:
o Worldwide economic growth
o Consumption of clean petroleum products, especially in the US
o The level of China's import of commodities, especially iron ore, coal and
grain
o The addition of product tankers and bulk carriers
o One-off events such as strikes, political instability in the oil exporting
countries, weather conditions, shut-down of refineries, etc.
The graph above shows the effect that variations in freight rates will have on
the full year pre-tax profit for 2006. The changes are based on the number of
earning days for 2006 not already hedged through existing charter agreements,
and the change in the result through a variation in freight rates of USD
1,000/day in all 5 segments amounts to USD 10 mill.
Tanker Division
The tanker market is expected to be positively affected by an accelerated
increase in worldwide demand for oil in 2006, negated by a relatively
substantial number of newbuilding product tanker deliveries.
The global product tanker fleet will, as it did in 2005, be affected by a
historically large newbuilding order book of ships due for delivery in 2006. As
in 2005, the anticipated net increase in 2006 in the fleet in the 3 segments
operated by TORM is approximately 17% (source: Fearnleys).
The net growth is expected to be reduced in the succeeding years and then
normalized - not least in light of what is expected to be a relatively
substantial phasing out of single-hulled product tankers in the run up to 2010.
Worldwide consumption of oil is expected to increase in 2006 by 2% according to
the Energy Information Administration - EIA - with China and the US being the
largest consumers. The figure compares with an increase in 2005 of 1.5%. The
long distances involved in the transportation of clean petroleum products -
attributable to the fact that additional refinery capacity is far away from the
main consuming countries - (see p. 16) will, when combined with growth in
consumption, continue to positively affect the product tanker market.
For commercial and competitive reasons TORM will not provide the Company's
specific rate expectations for 2006, unlike last year, when the Company did so.
TORM has instead chosen to give the market's expectations through a time charter
equivalent rate.
The decrease in freight rates will probably to some extent be offset by the
increase in TORM's fleet, which will increase the number of earning days in 2006
by 26% as against 2005. As at 1 March 2006, approximately 36% of TORM's product
tankers had been hedged for 2006 at satisfactory rates.
Bulk Division
The Bulk Division has for the past 2 years experienced very high, but also
highly volatile freight rates. It is TORM's expectation that freight rates will
continue to be volatile in 2006 and also somewhat lower than in 2004-2005.
The newbuilding order book for 2006 - and thereby deliveries of new vessels - is
significant although for the subsequent years, it is relatively modest
notwithstanding the very high freight rates experienced in recent years.
The demand and thereby the freight rates in the bulk market in 2006 will be
driven to a great extent by the development in the world economy, especially in
China. As a result of what TORM believes will be another period of great
volatility, the Company has decided to hedge a considerable part of its exposure
to the bulk market for 2006 in the same way as was done in 2005, in other words
by chartering out a number of vessels for periods of 1-2 years. As such, TORM
has hedged approximately 69% of the earning days for the Panamax vessels in 2006
at an average rate of USD 18,360/day as at 1 March 2006. This will serve as a
solid earnings base for the Bulk Division. The Company will continue to seek
period coverage for the remainder of the unhedged earning days.
SAFE HARBOUR STATEMENT - FORWARD LOOKING STATEMENTS
Matters discussed in this release may constitute forward-looking statements.
Forward-looking statements reflect our current views with respect to future
events and financial performance and may include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements, which are other than statements of historical
facts.
The forward-looking statements in this release are based upon various
assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, Management's examination of historical operating
trends, data contained in our records and other data available from third
parties. Although TORM believes that these assumptions were reasonable when
made, because these assumptions are inherently subject to significant
uncertainties and contingencies which are difficult or impossible to predict and
are beyond our control, TORM cannot assure you that it will achieve or
accomplish these expectations, beliefs or projections.
Important factors that, in our view, could cause actual results
to differ materially from those discussed in the forward-looking statements
include the strength of world economies and currencies, changes in charter hire
rates and vessel values, changes in demand for "tonne miles" of crude oil
carried by oil tankers, the effect of changes in OPEC's petroleum production
levels and worldwide oil consumption and storage, changes in demand that may
affect attitudes of time charterers to scheduled and unscheduled dry-docking,
changes in TORM's operating expenses, including bunker prices, dry-docking and
insurance costs, changes in governmental rules and regulations including
requirements for double hull tankers or actions taken by regulatory authorities,
potential liability from pending or future litigation, domestic and
international political conditions, potential disruption of shipping routes due
to accidents and political events or acts by terrorists.
Risks and uncertainties are further described in reports filed by TORM with the
US Securities and Exchange Commission, including the TORM Annual Report on Form
20-F and its reports on Form 6-K.
Tanker Division
The market for the Company's product tankers reached a historical peak in 2005,
characterized by high but volatile freight rates with strong earnings especially
during the first and fourth quarters.
An unusually high growth in oil consumption towards the end of 2004 ensured that
the product tanker market had a strong beginning in 2005.
During the second quarter of 2005, the product tanker market experienced a
normal seasonal decrease. However, the ongoing growth in demand in the US for
the import of gasoline and other oil products - especially up to the holiday
season - ensured a satisfactory product tanker market during mid-year. Towards
the end of the summer holiday period in the US, the market eased somewhat.
Hurricanes Katrina and Rita - that struck the southern US with such tragic
effect during the third quarter -- had a major and boosting effect on the
product tanker market in 2005. 95% of oil production in the Mexican Gulf was
interrupted, and 20% of local refining capacity was temporarily shut down. The
refining capacity in the US was restored to normal output levels during the
fourth quarter.
Demand for transportation capacity increased further as a result of low
inventory levels of refined products in the Western Hemisphere - the effect of
high oil prices and limited refining capacity. In the opinion of the Company
these low inventories, expressed in "days of consumption", combined with lack of
refinery capacity often result in wild swings in demand for product tankers -
something that also occurred in 2005.
Rates were once again on the rise towards year-end, reaching very attractive
levels despite a large number of product tanker newbuildings - 17% as against
20% in 2004 entering the market in 2005 (source: Fearnleys). Concurrently, oil
demand grew by 1.5% in 2005 (3.3% in 2004 - source: EIA), and on average freight
rates during the year were 5.0% higher than in 2004 (source: Clarksons). It is
considered very positive, and to some extent surprising, that the freight market
has remained so firm for most of the year.
Ton-miles, which indicates the total demand for capacity, rose by 7.1% in 2005
versus 6.2% in 2004 (source: Fearnleys). However, it should be noted that there
is great uncertainty when estimating this figure.
Operating profit totalled USD 216.9 mill. for the year. The Tanker Division had
36% more earning days in 2005 than in 2004.
TORM's position
TORM expanded and renewed its fleet of modern product tankers throughout 2005.
During the year, the Company took delivery of 4 newbuildings and purchased 7
modern second-hand vessels. At the end of 2005, TORM's product tanker fleet
consisted of 27 owned vessels and 6 chartered vessels, 2 of which included
purchase options, which were exercised during the fourth quarter of the year
with delivery scheduled to take place in the first quarter of 2006. Growth in
capacity measured in tons deadweight was 28%, whilst the growth in the number of
earning days totalled 36%. The average age of the fleet owned by TORM was 4
years, making it one of the world's youngest fleets of product tankers.
TORM has over an extended period of time gradually increased the number of
vessels it has taken on time charter from third party owners for delivery during
the period 2006-2009. The contracts are typically of 3-7 years' duration and
have been entered into at rate levels favourable in comparison to market levels
prevailing at the end of 2005. The gradual process of building this chartered
fleet has come about as part of the agreed strategy "Greater Earning Power",
where the objective for the product tanker fleet is to consist of approximately
70% owned and 30% chartered vessels.
Bulk Division
In 2005, freight rates prevailing in the dry bulk segment did not quite match
those of 2004, as the recovery in rates during the second half of the year did
not materialize.
The dry bulk market began the year strongly following the very firm tone reached
in the fourth quarter of 2004, but has again been extremely volatile throughout
2005.
At the outset of 2005, a large part of the world bulk fleet was idle in ports,
especially in Australia and China, awaiting loading or discharge due to lack of
port capacity. This contributed to maintaining the very high rates experienced
towards the end of 2004 and early into 2005. From mid 2005, however, port delays
were reduced to more normal levels in most ports.
A lower rate of growth in the import mainly of coal and iron ore primarily by
China during the third quarter, coupled with an increase in newbuilding
deliveries and limited scrapping, resulted in an across-the-board fall in
freight rates as the year progressed. Notwithstanding these trends, however,
rates ended the year considerably above the historical mean of 12,644 USD/day
for the period 1990-2005 (source: Clarksons).
Operating profit totalled USD 86.3 mill. for the year, which is a litlle lower
than in 2004. The Bulk Division had 11% fewer earning days in 2005 than in 2004.
Given the rise in freight levels in 2003 and 2004 to levels never seen before,
TORM elected to take advantage of these circumstances by chartering out a
substantial part of the dry bulk fleet on longer term time charter - often for
periods of about 1 year. These longer period charters have tended to reduce the
risk inherent in a market of such volatility. TORM has continued to pursue this
strategy successfully in 2005, which has meant that the Bulk Division's income
has not been significantly affected by the market's volatility.
At the end of 2005, TORM's Panamax dry bulk fleet consisted on 8 owned and 7
chartered-in bulk carriers, 3 of which include purchase options. Additionally,
the Company owns 2 Handysize vessels.
In continuation of the Strategy "Greater Earning Power" TORM has for some time
gradually increased the number of vessels on time charter from third party
owners with delivery during the period 2006 - 2009. The contracts are typically
of a duration ranging from 3 - 8 years and are at favourable rate levels
compared to market rates prevailing at the end of 2005.
Business development
In 2005, a new division "Shipowning and Sale & Purchase Division" was
established with a brief to focus on investments in newbuildings, sale and
purchase of second-hand tonnage and the development of new projects on behalf of
TORM and, to a lesser extent, TORM's partners. The division was involved in a
considerable number of transactions in 2005 and is seen as a key element in the
implementation of the adopted Strategy "Greater Earning Power". The Division is
also involved in general business development working in close cooperation with
the Tanker and Bulk Divisions. As a natural link between investment and market
information, the division also incorporates research and analysis.
In 2005, the value of transactions - newbuildings and second- hand tonnage -
totalled approximately USD 1 bn. (approximately DKK 6 bn.). Furthermore, 10
charter partiers involving product tankers and bulk carriers were entered into.
Product tanker
Newbuilding prices were at a very high level throughout the entire year in 2005.
Demand for all types of product tankers was strong throughout 2005, but as a
result of yard capacity, yard asking prices for the 3 sizes of product tankers
operated by TORM differed somewhat:
o Prices for LR2 product tankers (the Aframax segment) were stable in 2005.
At the end of 2005, there was limited yard capacity available for this
segment up until and including the end of 2009.
o During 2005, some yards reduced prices for LR1 product tankers (the Panamax
segment) in response to a sudden drop in the contracting of container
vessels, which gave rise to yard capacity being freed up sufficiently to
offer LR1 berths.
o Demand for MR product tankers (Handymax segment) was strong in 2005, which
meant that no capacity was available until the end of 2009. A few owners -
especially in Japan - were understood to have made enquiries about 2010
deliveries.
Early in 2006, the company entered into a contract for the construction of a
further 2MR product tankers with "1A Super" Ice Class designation for delivery
in 2009. Price levels of second-hand product tankers increased overall in 2005,
particularly for MR vessels. The second-hand price of a 5 year-old MR product
tanker was approximately USD 46 mill. which was similar to the asking price of a
newbuilding. Throughout 2005, in general terms, price levels of all modern
tonnage were very firm.
Dry Bulk
Newbuilding activity within the bulk segment was generally very limited in as
much as the yards generally preferred to focus on much more lucrative ship types
such as LNG, container vessels and tankers. A few yards, primarily based in
Japan, were at year-end 2005 offering Panamax bulk carriers for 2008 delivery.
Prices of second-hand bulk carriers have doubled as a result of the firm rates
prevailing in the dry bulk market in recent years. At certain stages, a 5
year-old vessel has been more expensive than a newbuilding for later delivery.
During the early part of 2005, the price of a 5 year-old Panamax vessel reached
USD 45 mill. At year-end 2005, the price had fallen to app. USD 30 mill. - a
development which given the volatility of this market calls for caution.
Trends
Trends in the product tanker and dry bulk segments
This section describes significant trends and tendencies which TORM's Management
believes will have an effect on future operations.
16 Refineries are moving away from the Western Hemisphere
17 Shipping and derivatives
18 Service
19 The oil market
20 Order book - delivery of new tonnage
Refineries are moving away from the Western Hemisphere
In recent years, the clear trend has been for expansion of refinery capacity to
occur primarily in areas other than the Western Hemisphere, which in turn
remains the major consumer area.
From the present time through to 2012, additional refining capacity will
primarily be built in OPEC - especially in Saudi Arabia. In addition to this,
China and India are expected to increase capacity through to 2010 (source: PVM
Oil Associates). Refining capacity in Europe and the US will conversely only be
increased slightly and, as such, insufficiently to meet demand. This will result
in longer transportation distances given the resulting increase in demand for
clean petroleum products emanating from the Middle East and the Far East
destined for Europe and the US.
This trend is the result of increasingly stringent environmental focus in the
western part of the world coupled with the fact that the oil producing nations
wish to retain more of the value added by the refining process. This trend is
positive for the product tanker market.
Shipping and Derivatives
A "Forward Freight Agreement" (FFA) is a derivative product used in shipping. It
is a contract to buy or sell a volume on a particular route and at a
specifically agreed price to take place at some agreed future date.
The FFA market has in recent years experienced significant growth in terms of
volume and active market participants. The International Maritime Exchange
(IMAREX), which is an authorized and regulated market place for trading and
clearing of freight derivatives, consisted of 112 members at the end of 2005
(2004: 75 members). Volume in the global trading of FFAs rose 5,000% over the
last 5 years. Liquidity in the key FFA routes is growing, reflecting the
increasing level of trading. The volume in the paper market depends on the
volatility in the physical market and as such more trading takes place when
volatility is greater.
TORM was active in the FFA market during 2005 and expects to continue using the
derivatives market as a means of hedging freight rates. As a consequence of the
increased trading volume in the FFA market together with the expected influence
on the physical market the Company has decided to establish a separate FFA desk
in 2006.
Service
The ongoing and ever increasing safety and environmental requirements have
considerable consequences both ashore and at sea.
The International Maritime Organization (IMO), the individual flag states as
well as the classification societies issue requirements and regulations
governing ship design and the operation of vessels. The requirements represent a
wide spectrum of rules from the construction of vessels and its equipment to the
operation of the vessel as well as the qualifications for officers and ratings -
along with the Company's own qualifications in respect of vessel operations. On
top of this, customers have to an increasing extent begun to issue their own
environmental and safety requirements. The effect is increased demand for the
establishment and documentation of routines and procedures.
TORM expects that this development will over time mean that it will become
progressively difficult to identify differences in the way in which high quality
shipowners operate their tonnage. As such service will in the future become a
key differentiator.
TORM considers this to be a positive development which underpins the Company's
chosen strategy in this regard - namely to aim for the highest quality in terms
of education and training, design and shipbuilding thereby ensuring a very high
level of service.
The oil market
Inventories of clean petroleum products have been at very low levels since 2003.
This has been the result of significant consumption combined with a policy to
keep inventories deliberately low. At the same time the high and increasing oil
prices resulted in reluctance by many market participants to have too much
capital tied up in large inventories. The low inventories in turn result in
erratic deliveries, occasionally forcing market participants to pay very high
freight rates.
The graph below illustrates the historical highs and lows of inventories of
clean petroleum products in the OECD nations expressed in "days of consumption".
order book - delivery of new tonnage
Freight rates in both the product tanker and bulk segments are strongly
influenced by the number of vessels available and, as a consequence, the
delivery of new tonnage into the market and the scrapping of older vessels.
Product tank
The delivery of newbuilding product tankers during the period 2006 - 2009 will
be at historically high levels. The existing global order book of product
tankers due for delivery from the present time to 2009 represents approximately
40-45% of the existing world fleet in the 3 segments operated by TORM.
In 2003, the EU and the IMO adopted new and revised rules covering the phasing
out of single-hulled tankers. The rules will result in the phasing out of
single-hulled tankers, which have not been built since the beginning of the
1990s, up to 2010. It is anticipated that up to 25% of the world product tanker
fleet will be phased out or will operate in areas, where the IMO rules are not
observed.
Dry bulk
The net addition of Panamax bulk carriers to the existing fleet in 2006 will be
considerable, but in the subsequent years, the order book is modest seen in the
context of the very strong dry bulk market experienced in recent years. Freight
rates for the Panamax bulk carriers are affected not only by newbuilding
deliveries in the Panamax fleet, but also by the addition to the fleet of
Capesize vessels (addition of 19% of the total fleet up to 2009) and Handymax
vessels (addition of 15% of the total fleet up to 2008) (source: Fearnleys).
TORM 2008 - Greater Earning Power
Towards the end of 2005, TORM's Board approved a new 3-year strategy plan termed
"Greater Earning Power". This Strategy is ambitious and is aimed at ensuring
that TORM continues to be in a leading and profitable position.
The Strategy plan focuses on the following areas:
o Ensuring high long-term return on equity and the TORM share.
o Even greater focus on the development of the Company's organizational
structure and the employes' skills.
o Use of the Company's market position to achieve better market intelligence
and knowledge and thereby improve the basis on which decisions are made,
the speed of such decisions and thereby reducing uncertainty.
o Establish its own organization or work in cooperation with pool partners in
the key geographical centres woldwide in order to further improve customer
service.
o Secure significant growth in both the product tanker and dry bulk segments.
o Tank shall continue to be the most significant business area. Growth shall
in general come from within the existing business segments.
o Investments will primarily be in the product tanker segment, whereas growth
within the bulk segment shall principally be via chartering in of vessels
and/or the exercising of purchase options.
o The break down between owned and chartered-in vessels shall at the end of
the 3-year period be approximately 70% owned and 30% chartered-in tonnage
in order to reduce the capital tied up and with the aim of increasing
flexibility.
The Strategy is an extension of the recent years' strategy and has continued
focus on product tank and on a smaller scale dry bulk. However, TORM puts more
emphasis on setting up a globally operating organization and developing
employees and competences corresponding to these ambitions.
It is TORM's ambition to increase the number of earning days significantly,
subject to such growth being profitable for the Company and its shareholders.
Based on TORM's newbuilding order book and ships commitments for time charter as
of 1 March 2006, the number of earning days will already be increased by 43% by
year-end 2008 (2009: 61%).
Tanker Division
It is TORM's long-term goal to be a significant consolidator of the product
tanker market within the LR2, LR1 and MR segments and thereby become the
undisputed leading player in the product tanker market. This development should
come about through growth within each pool, but first and foremost through the
Company's own growth and development. This is expected to result in better
earnings against a background of an improved market position, improved vessel
utilization, offering customers more flexibility as well as the benefits
deriving from large-scale purchasing power including crewing.
TORM anticipates being able to expand its product tanker fleet by continuing its
ambitious newbuilding program, through the purchase of existing vessels or
fleets or through being open to a merger with other companies should this be
judged to be in the interest of TORM's shareholders and the Company's further
development. Additionally, TORM will increase the number of long-term chartered
product tankers, possibly inclusive of purchase options.
Bulk Division
The dry bulk market is highly fragmented, and TORM sees no possibility for this
market to be consolidated during the period in which the revised Strategy is
implemented, let alone in the years thereafter.
The Bulk Division is focused on the Panamax segment and currently has no
newbuildings on order. Growth will principally come about via chartering in
vessels, unless potentially interesting investment opportunities come about.
Chartering in is, according to the Company's assessment, the most cost effective
way in which to increase the market share. The Strategy for the Bulk Division is
based on chartering in tonnage for longer periods combined with purchase
options. Accordingly, it will continue to be the Company's policy to hedge a
significant portion of this forward exposure, so as to guard against volatile
trading conditions.
TORM expects to slowly increase its exposure to the dry bulk market by expanding
in the Panamax segment only, when the timing for doing so is considered optimal.
Financial strategy
The Company enjoys a very solid financial foundation, which ensures that there
is capacity available for further profitable expansion when the timing is
considered to be right. This is the key to the Company's Strategy.
In light of the currently very high freight levels and thereby vessel prices
combined with the Company's criteria for financial returns, prudence and caution
continue to be the order of the day. It is against this background that TORM
wishes to retain a significant financial capacity to undertake investments when
the timing is right.
The timing of investments and entering into commitments is absolutely crucial -
in shipowning as much as in any business. Therefore, favourable as well as
unfavourable market conditions mean that implementation of the Strategy within
the planned time horizon may in the event not prove to be possible.
Human resources
2005 has been a year of strong growth in TORM's fleet and corporate activity
generally as a result of which the number of employees ashore and at sea also
grew.
Ashore
At the end of 2005, 113 people were employed at TORM's office in Copenhagen
including personnel seconded to other offices and the site offices in Korea and
China. Added to this are local employees in Singapore and Germany. The total
number of shore-based personnel was 126. In the Copenhagen office alone, the
number of employees increased by nearly 20% in 2005 .
Most of the new employees have joined the Tanker Operations and the Technical
Division, and 4 trainees also joined the Company. TORM sees its ability to
attract and retain capable people as an important element of the Company's
development. The development and education of trainees and younger staff
continue to form a key element in TORM's expansion as well as paving the way for
tomorrow's leaders. In 2005, TORM together with other shipowners established a
new shipping education program due to commence in 2006. Whilst the principle
that shipping is best learnt `'on the job" is retained, more weight will be
placed on theory and the ongoing competence enhancing courses available at
Danish centres of learning and international management institutes.
Despite the ever increasing demand for shipping employees, it is with pleasure
that TORM can report only a slight increase in employee turnover to 8.0% (2004:
6.2%) and it has also proved possible to attract capable and competent new
employees when required. The considerable growth, which TORM has experienced in
recent years, and the resultant significant increase in the number of employees
has meant that TORM today employs a capable and dynamic group of young people.
The average age of all employees is 41 years with 7 years being the average
duration of employment in TORM. This will also help ensure energy and renewal
within the organization.
A comparatively low sickness absenteeism rate of 4 days per employee per annum
also underscores a willingness and enthusiasm for working for TORM.
It is also important for TORM to ensure that all employees can enjoy the
prospect of a life long, ongoing international training and education at
relevant Danish and international institutions of higher learning, enabling them
and the Company to compete in the market place and to help in the implementation
of TORM's Strategy in 2006 and beyond.
At sea
TORM's ongoing expansion has led to a considerable increase in the number of
seafarers. At the end of 2005, nearly 1,200 seafarers were associated as opposed
to nearly 1,000 at the end of 2004 - an increase of 20% in 2005. In order to
keep up with the expansion, the Company engaged a number of Croatian officers
early in 2005 as a result of which the Company today employs Danish,
Scandinavian, Filipino and Croatian seafarers. The turnover in seafarers is
considered acceptable with a figure of around 5% which is comparatively low.
In 2005, the Company employed 7 new trainee officers
whereby at year-end 2005 a total of 49 trainees were trained by the Company.
This is a significant contribution to "The Blue Denmark".
TORM's recruitment office in the Philippines made good progress during 2005 and
additional staff has been engaged in response to the increasing work load.
In order to maintain and increase knowledge, a number of
relevant courses in shipowning operations have been held both in Denmark and the
Philippines during which specific subjects relevant to ships' operations have
been covered in detail.
During the second half of 2005, the first steps were taken with regard to the
implementation of a TORM Training and Competence Platform (TTCP) - an internet
based tool which without doubt affords a greater overview and thereby a better
utilization of competences as well as optimizing educational and training
activities. TTCP ran as a pilot project towards the end of 2005 with the
intention of fully implementing the system during the first half of 2006.
MANAGING RISK AND EXPOSURE
TORM operates globally, and consequently the Company is exposed to changes in
economic, political and legal circumstances. Furthermore, shipowning and
operating is highly sensitive to macro economics resulting in a number of risks
for the industry's participants. These can be divided into commercial and
financial risks.
As commercial risks are considerable, it is the Company's policy to reduce the
financial risks to a considerable degree.
Political Risks
In shipping there are considerable political risks which can result in
significant variations in earnings.
Commercial risks
Earnings volatility
The Company's income is principally generated from individual voyages, fixed at
rates reflecting market conditions prevailing at the time and with an average
duration of 20-40 days. To a lesser extent, income is also generated from time
charter agreements typically of 6 to 12 months' duration. As such, TORM is
exposed to the considerable volatility inherent in the freight markets. By
participating in well-established pool arrangements risk is reduced to a degree,
primarily via a greater geographical spread and fewer waiting days which are the
direct results of the greater market presence offered by pooling.
Freight income is to a certain extent covered against volatility through the use
of cargo contracts, FFAs and time charters, and in 2005 above 1/3 of freight
earnings derived from the Company's tankers were secured in this way. Time
charter parties accounted for 75%, as this hedging instrument resulted in higher
rates than offered by the "paper market". TORM does not apply hedge accounting
to FFA contracts.
In order to achieve a greater degree of control over the Company's freight
positions, the Company will implement a Risk Management system based on the
Value-at-Risk method. Furthermore, as an integral part of the Company's
shipowning and Sale & Purchase Division, an analyst function was established in
2005 with a view to providing market research and trends for the product tanker
and bulk segments as well as trends and tendencies for the world economy, which
are deemed to have a significant influence on the Company's business areas. This
development is designed to ensure that the Company's Shipowning and strong
commercial expertise is complemented with analyses in order that the Company can
make decisions on the basis of more thorough analysis and evaluation, and
thereby reduce risks and utilise potential business opportunities.
Volatility in purchase and selling prices The fleet expansion taking place,
particularly in the Tanker Division and primarily through a substantial
newbuilding program, also encompasses a number of risk elements. These include
the timing for placing contracts and the value of the vessels - which can vary
considerably during their lifetime. The Company strategy is through an effective
overall portfolio management of the assets and a solid financial foundation, to
always be in a position to be able to purchase and sell tonnage when the timing
to do so is considered optimal.
With regard to TORM's newbuilding program, where at year-end there were 11
vessels on order at Chinese yards, guarantees for the Company's prepayments have
been put in place by the yards throughout the building period in accordance with
the relevant newbuilding contracts. All guarantees have been arranged via state
owned banks. At year-end 2005, the value of the total prepayments to the yards
concerned was USD 97 mill. excluding a newbuilding from a korean already sold
for delivery in 2006.
Fleet casualties and accidents
National and international rules, regulations and conventions mean that the
Company can incur considerable liabilities in the event that a vessel should be
involved in an oil spill or emission of other environmentally damaging agents.
In order to reduce or eliminate the likely effect this could have on the
Company's financial position, the fleet has been insured in internationally
renowned P&I clubs with the maximum coverage offered in the insurance market.
The total insurance package consists of a wide insurance cover of vessel and
cargo, including environmental damage, pollution and third party casualty and
liability, hull and machine damage, total loss and war cover. All owned vessels
are furthermore insured for loss of hire for a period of up to 90 days in the
event of a casualty. The Company's policy is to place insurances only with the
most highly rated insurers - presently some 8-10 companies - along with the use
of 2 P&I clubs in order to spread risk. Insurances are only arranged with
companies having a rating of BBB or better.
Movement in bunker prices
The Company's operating result is affected by movements in the price of fuel oil
consumed by the vessels - known in the industry as bunkers. To cover this risk,
the Company hedges the price of part of its bunker requirements for a period of
up to 12 months forward. In 2005, the Company hedged 25% of its bunker
requirements using hedging instruments. As at 31 December 2005, the Company had
hedged the price for 29% of its bunker requirements for 2006, and the market
value of these contracts as at year-end was USD 0.0 mill. (2004: (0.8) mill.).
TORM does not apply hedge accounting to bunker hedges. A hypothetical price
change of 1% point per ton of bunker oil would lead to a change in expenditure
in 2006 of USD 1.2 mill. based on the expected bunker consumption.
In light of the Company's pool structure, bunker hedging for tankers is not done
in respect of an individual vessel when it has been chartered out. Instead,
bunker hedging is planned taking into account the specific pool's total
estimated bunker requirements. Nonetheless, where a contract of affreightment
covering several voyages has been fixed, the pool may hedge bunker requirements
specifically for such a contract.
For the bulk carriers, the bunker requirements are similarly hedged to match
cargo contractual obligations, but the requirements are generally less given
that a larger part of earnings derive from vessels chartered out on time
charter, where the charterer is responsible for the payment of bunkers. All
bunker hedging and indeed any other form of hedging is carried out only based on
specific requirements.
Credit risk
For customers of long standing, it is normal practice that the payment of
freight takes place after a vessel has discharged her cargo. For newer, smaller
and less well known customers the Company's financial risk is limited by the
fact that it is a condition that freight is paid prior to the cargo's discharge
or, alternatively, that a suitable guarantee is placed in lieu thereof. The
Company's receivables, therefore, primarily consist of receivables from cross
over voyages, to a lesser extent, outstanding demurrage. For the past 5 years,
the Company has not experienced any losses in respect of charter payment or any
other freight agreements. With regard to the collection of demurrage, the
Company's average stands at 97-98% which is considered satisfactory given the
differences in interpretation of event. Demurrage represents approximately 5% of
total freight earnings.
FINANCIAL RISKS
Nearly all of the Company's income and charter obligations and by far the
largest portion of operating costs as well as assets and liabilities are in USD.
The Company is thus exposed to USD exchange rate swings and changes in interest
rates. In order to manage these risks, the Company utilises financial hedging
instruments.
Exchange rate risk
As TORM uses USD as measurement currency and most of the Company's transactions
are in USD, TORM only has limited transaction risk, which primarily relates to
costs in DKK.
Exchange rate risks are assessed in relation to the USD, and the Company's
policy is to limit the impact of exchange rate movements on the financial
statements and on the financial position of the Company.
In order to minimize the exchange rate risk on the year's estimated result, the
Company typically enters into forward contracts. The expected cash flow in
relation to the payment of technical expenses in non-USD related currencies,
salaries, wages and other administrative expenses and dividends are typically
covered for a period of up to 1 year ahead. All things being equal, a variation
of 1% in the USD/DKK exchange rate would result in a change in the net profit of
USD 0.8 mill. in 2006. Shareholders' equity as of 31 December 2005 would be
affected to the tune of USD 4 mill. should the USD exchange rate change by 1%.
At year-end 2004, the Company had no forward hedging contracts in respect of
operating costs for 2005. In 2005, the Company entered into exchange rate
contracts for the sale of USD 7 mill. against DKK and sold USD 43 mill. spot in
order to cover the DKK cash requirements for operating costs in 2005. As such,
in 2005 spot and term exchange contracts for a total of USD 50 mill. were
unwound at an average exchange rate of 6.17 as against the average exchange rate
for the year of USD against DKK of 6.00. Furthermore, the Company sold USD 8
mill. partly to fund the payment of dividends in 2006 at an exchange rate of
6.26 against DKK.The Company decided to sell its bond portfolio of USD 58 mill.
during 2005 in order to cover its DKK requirements. In addition, TORM entered
into an agreement to buy put-options in the amount of USD 16 mill. which leaves
28% coverage of the expected DKK cash flow - excluding the payment of dividends
- for 2005. With regard to the put-options, the counterpart must buy USD from
TORM at an exchange rate of 6.00 to the DKK. In case the USD/DKK exchange rate
exceeds 6.81, the counterpart can purchase USD from TORM at an exchange rate of
6.00 per USD. In 2005, the Company had entered into agreements to purchase
put-options in the amount of USD 35 mill. inclusive of a `'knock-in"' element
for the counterparty. None of these options were called neither by Torm nor by
the counterpart during the option period.
Interest rate risk
TORM's interest rate risks are in practical terms connected to the interest
bearing mortgage debt. All the Company's loans for financing vessels are based
on variable interest rate loans and are in USD. The Company's interest bearing
USD debt increased from year-end 2004 to year-end 2005 by USD 395 mill. to USD
791 mill. Of the Company's priority debt in USD with variable interest rates USD
60 mill. will be due within a 12 months period and USD 268 mill. after 1 - 5
years. The average effective interest rate is between 3.4% and 5.4%. Please
refer to note 13 for further details regarding our interest bearing debt.
In certain cases, the Company utilises financial instruments to control the
effects, which interest rate fluctuations can have on earnings and cash
resources. The Company typically makes use of interest rate swaps, which are
entered into for periods of up to 5 years, although generally of 2-4 years'
duration when acceptable interest rate levels can be achieved. For shorter
period interest rate coverage the Company from time to time makes use of FRAs.
The profile of the instruments always matches the loan profile of the particular
loan in question. When assessing interest rate risk hedging for its loan
portfolio, the Company takes into consideration expected interest rate
developments and future changes to the composition of the fleet in order to meet
ongoing and future market expectations and requirements.
The portion of the interest swaps hedging the USD mortgage debt with maturity
within 1 year was USD 31 mill. and USD 125 mill. after 1 - 5 years. The average
effective interest rates were between 2.6% and 4.5%. The market value of the
Company's interest rate swaps was USD 6.6 mill. at year-end 2005 (2004: USD 0.2
mill.).
At year-end, the Company had covered 77% of its total 2006 interest costs at an
average rate of 4.5% including margin. For the period 2007-2009, the coverage is
stable to falling at an average of 39%. The fixed interest debt has an average
period of 3 years remaining, expiring between 2007 and 2013. A change of 1%
point in unhedged variable interest debt will result in interest rate expenses
of USD 2.0 mill. in 2006.
REPORTING
The Board and Management continuously receive and evaluate information on the
above-mentioned risks.
Safety and quality awareness
TORM has a continuing focus on safety on board the vessels and through a
proactive approach to this area, incidents and accidents are being prevented.
Over the last 5 years a database of so-called near-accidents has been developed
within the Company. When a person onboard a vessel or ashore is involved in a
near-accident, the event is reported to the Safety Department where the details
of the report are then assessed and the lessons learned recorded.
The details of the reports and the lessons learned are then distributed
throughout the fleet. In order to further expand the experience TORM is
participating in a project where a database of near-accidents is being built up
with input from other Danish shipowners and ship managers. Consequently, any
shipowner will be able to receive experience transfer from other participants in
the scheme.
A program of Safety Awareness Training Courses has also been developed and
implemented in 2005. The aim of these courses is to anchor the TORM Safety
Culture and ensure that all persons on board are conscious of the high safety
standards required within the TORM fleet.
The Tanker Manager and Self Assessment Scheme (TMSA) issued by OCIMF (Oil
Companies International Marine Forum) is a voluntary self-assessment scheme
based on a detailed set of key performance indicators. These indicators are all
geared to the safe and environmentally responsible operation of tankers, and
they are a valuable tool to enhance the safety performance on board the vessels
as well as ashore.
During 2004 and 2005, all security procedures were reviewed and updated
according to the Green Award and TMSA requirements. As for all safety and
quality work, the TMSA and Green Award Scheme are a continuing process aimed at
improving the performance of the safety, quality and environmental protection
levels to the highest possible standards.
Apart from the above-mentioned value adding process the compliance itself with
the TMSA and Green Award Scheme requirements is expected to result in fewer
external vetting inspections by the Oil Majors given that the Company's current
status is always available for the Oil Majors via a web-based database.
Fewer external inspections are primarily in relation to office audits, but in
future they could also involve the vetting of the vessels. This would offer a
degree of relief to the officers and ratings and thereby save time in general.
Over the last 5 years the TORM fleet has tripled numerically. It has been a
challenging task to expand the fleet at such a pace while at the same time
maintaining or improving the skills and understanding of all the officers and
ratings in respect of the continuing safe operation of all the vessels. It is
considered that the expansion has gone well.
The Company has also succeeded in taking newbuildings straight from the shipyard
to sea without any significant problems with regard to pre-vettings, ISM
compliance, USCG requirements and the various statutory shipboard response
plans.
Over the past few years, the Lost Time Accident Frequency (LTAF), which is the
number of Lost Time Accidents per million exposure hours, has been between 1.5
and 2.2. This level is considered satisfactory. TORM's target for LTAF is 1.5.
The number of seafarers employed by TORM has increased significantly in recent
years, i.e. in 2004 by 40% and in 2005 by 20%, which has made the LTAF vary. All
newly employed seafarers are subject to a comprehensive training program where
TORM's strong safety culture is highlighted with the greatest emphasis. Despite
these efforts, however, some accidents, although not serious, can be attributed
to a lack of safety awareness. Therefore the safety awareness training is
currently being reviewed and improved taking into account the experiences
gained.
The International Ship and Port Facility Security Code, the ISPS Code, that
addresses the security of the vessels in port and at sea, preventing piracy and
terrorist attacks, smuggling,
stowaways, etc., has now been in force for 1.5 year. Before the implementation
on 1 July 2004, great concern was expressed throughout the shipping industry
including some scepticisme as to how these rather stringent rules should be
implemented on the world fleet as well as the ports serving international trade.
TORM's experience in this field indicates that this concern has proved to be
unfounded. The Company has not had any significant problems during port calls or
at sea; only the fact that in some parts of the world, the seafarers'
opportunity for shore leave has been extremely restricted, which is an area of
concern to the Company given the importance that the Company attaches to the
well-being of its seafarers.
Collision
Late at night on the 28 June 2005 a Torm owned tanker was anchored off the port
of Ulsan. Dense fog enveloped the area when the vessel had to weigh anchor in
order to proceed into the port of Ulsan. The Master was assisted by 2 pilots
when the vessel departed from the anchorage with slow speed.
A cargo vessel had just left the port of Ulsan and was heading south, crossing
the anchorage area, without following the designated fairway. This vessel was
identified on the ARPA (Automatic Range and Plotting Aid) onboard the Torm
tanker. The ARPA indicated a possible collision, wherefore the Master tried to
contact the vessel by VHF without success.
The collision occurred 10 minutes after the Torm tanker had left the anchorage.
Luckily no one was hurt.
An investigation into the accident revealed several root causes, such as the
lack of proper communication between the bridge team and the pilot, and also
between the pilots and the port control.
The accident has lead to new safety precautions measures being implemented in
the Quality and Safety Management system.
Shareholder Relations
TORM wishes to provide relevant, accurate and timely information to all
investors and partners.
TORM has in recent years maintained a close contact with the financial markets
through roadshow presentations, telephone conferences and quarterly and full
year reports. In 2005, approximately 200 meetings were held with institutional
investors and analysts in Denmark, the Nordic countries, Europe and the US. This
active investor relations program increases awareness of the Company and ensures
a sounder basis upon which to evaluate TORM as a partner, an investment or a
borrower. During 2005, TORM was included in the Copenhagen Stock Exchange's
KFX/OMXC20 index.
TORM wishes to ensure that existing and potential investors are at all times
sufficiently informed about important developments and that the Company is
perceived to be professional, approachable and trustworthy.
The total daily turnover of the TORM share increased in 2005. The turnover of
the TORM share on the Copenhagen Stock Exchange increased considerably in 2005,
whilst turnover on NASDAQ fell during the year. On average, the daily turnover
was in the region of DKK 51.6 mill. (USD 8.6 mill.) in 2005.
TORM's share price increased by 35% in 2005. Taking into account the payment of
dividends of DKK 15 per share the total return for shareholders was 42% in 2005.
TORM's share capital consists of 36.4 mill. shares of DKK 10. The shares, which
are bearer shares, are listed on the Copenhagen Stock Exhange. In addition, TORM
is listed on NASDAQ in the form of American Depositary Receipt (ADR). TORM had
more than 9,000 registered shareholders as at 31 December 2005 representing 73%
of the share capital. At year-end 2005, approximately 11% of TORM's share
capital was converted to ADRs. The following shareholders have reported that
they own more than 5% of the share capital according to Section 29 of the Danish
Securities Trading Act covering share dealings:
Corporate Governance
Good corporate governance is a key element in the creation of shareholder value
and in gaining the trust of customers, partners and the financial markets.
It is TORM's policy to ensure that the Company is at all times managed in an
orderly and proper manner. The Board has laid down clear management guidelines
in order to ensure that the Company is managed in a manner in which
trustworthiness and ethics are at the core. These values are at the foundation
of the Company and contribute towards the creation of value for the Company and
its shareholders.
TORM's Board of directors and Management have an ongoing dialogue to continually
improve the management of the Company. The Board meets a minimum of 5 times per
annum according to the rules of procedures for the Board of directors and
Management. In 2005, 11 Board meetings where held. The Board lays out clear
policies and directives for Management's implementation. The Management in turn
implements these guidelines in their day-to-day management.
TORM's Board consists of 7 members of which 2 are elected by the employees in
accordance with Danish law. The 5 directors elected at the Annual General
Meeting and the 2 Board members elected by the employees are elected for a
4-year term, the next election being in 2007. The Board members elected by the
employees have the same rights, obligations and responsibilities as the
directors elected at the AGM.
The Board has formed an Audit Committee that meets at least twice per annum.
Additionally, the Board has formed a Remuneration Committee.
It is the Board's opinion that the payment to Management is in accordance with
market conditions.
The Board and Management own less than 0.1% of TORM's share capital.
In the annual report for 2006, TORM will implement the recommendations for good
corporate governance including the "comply-or-explain" principle from the
Copenhagen Stock Exchange. The "comply-or-explain" principle implies that the
companies are required to either comply with the recommendations for corporate
governance or explain why they do not comply with the recommendations.
Aside from complying with Danish rules, regulations and standards, TORM is also
obliged in connection with the NASDAQ listing to comply with a number of
requirements under the Sarbanes-Oxley Act, of which the most important are the
requirements listed in Section 404.
The Sarbanes-Oxley Act enacted a number of standards, rules and regulations
aimed at good management, covering American and foreign private issuers. One of
the requirements under the Sarbanes-Oxley Act is that Management shall provide
declarations in respect of the Company's internal controls, these being required
to be documented and kept up-to-date.
TORM is already well advanced with the work involved in ensuring compliance with
the Sarbanes-Oxley Act and will be in a position to document and to comply with
the rules in time for the release of the 2006 results. Aside from complying with
the relevant laws, TORM expects to increase the Company's focus on internal
controls and risk management, which will positively contribute to the Company's
business procedures and processes both in the short and long term. Total
expenditure in connection with complying with the Sarbanes-Oxley Act, including
IT costs, is expected to be less than USD 1 mill.
For an overview of Danish corporate governance and key differences between
corporate governance in Denmark and the Anglo-Saxon practices, please refer to
the Company's website www.torm.com.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
A/S STEAMSHIP COMPANY TORM
(registrant)
Dated: March 13, 2006
By: /s/ Klaus Nyborg
--------------------------
Klaus Nyborg
Chief Financial Officer
03810 0001 651399