20-F 1 d8437125_20-f.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)

[ ] | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the fiscal year ended December 31, 2019
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the transition period from _________________ to _________________
OR
[ ] | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| Date of event requiring this shell company report:

Commission file number: 001-38294

TORM plc
(Exact name of Registrant as specified in its charter)
(Translation of Registrant's name into English)
England and Wales
(Jurisdiction of incorporation or organization)
Birchin Court, 20 Birchin Lane, London, EC3V 9DU, United Kingdom
(Address of principal executive offices)
Jacob Meldgaard, Executive Director and Principal Executive Officer, Tuborg Havnevej 18, DK-2900 Hellerup, Denmark, +45 39 17 92 00
(Name, Telephone, E-mail and/or Facsimile, and address of Company Contact Person)

Securities registered or to be registered pursuant to section 12(b) of the Act.

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Class A common shares, par value $0.01 per share | TRMD | Nasdaq Stock Market LLC

Securities registered or to be registered pursuant to section 12(g) of the Act.

NONE
(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

NONE
(Title of class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As of December 31, 2019 there were 74,748,248 of the Registrant's Class A common shares outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes | ☐ |  | No | ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes | ☐ |  | No | ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes | ☒ |  | No | ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes | ☒ |  | No | ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth Company. See the definitions of "large accelerated filer," "accelerated filer" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

| Large accelerated filer ☐ |  | Accelerated filer ☒ |  |
| Non-accelerated filer ☐ |  | Emerging growth company ☒ |  |
| (Do not check if a smaller reporting company) |  |  |  |

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

[ ] |  | U.S. GAAP
[X] |  | International Financial Reporting Standards as issued by the international Accounting Standards Board
[ ] |  | Other

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 | ☐ |  | Item 18 | ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes | ☐ |  | No | ☒

Table of Contents

|  | Page
PART I
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 1
ITEM 3. | KEY INFORMATION | 1
ITEM 4. | INFORMATION ON THE COMPANY | 36
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 56
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 56
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 79
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 85
ITEM 8. | FINANCIAL INFORMATION | 86
ITEM 9. | THE OFFER AND LISTING | 87
ITEM 10. | ADDITIONAL INFORMATION | 87
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 103
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 103
PART II
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 103
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 103
ITEM 15. | CONTROLS AND PROCEDURES | 103
ITEM 16. | [RESERVED] | 104
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 104
ITEM 16B. | CODE OF ETHICS | 104
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 105
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 105
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 105
ITEM 16F. | CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT | 105
ITEM 16G. | CORPORATE GOVERNANCE | 105
ITEM 16H. | MINE SAFETY DISCLOSURE | 107
PART III
ITEM 17. | FINANCIAL STATEMENTS | 107
ITEM 18. | FINANCIAL STATEMENTS | 107
ITEM 19. | EXHIBITS | 107

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are statements other than statements of historical facts. We desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are issuing this cautionary statement in connection therewith. Our disclosure and analysis in this annual report pertaining to our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "projects," "forecasts," "potential," "continue," "possible," "likely," "may," "should" and similar expressions are forward-looking statements.
All statements in this annual report that are not statements of either historical or current facts are forward-looking statements. These forward-looking statements are based on current expectations, estimates, assumptions and projections about the business and our future financial results and readers should not place undue reliance on them. Forward-looking statements include, but are not limited to, such matters as:

| • | our future operating or financial results;

| • | global and regional economic and political conditions, including piracy;

| • | our pending vessel acquisitions, our business strategy and expected capital spending or operating expenses, including dry-docking and insurance costs;

| • | statements about shipping market trends, including charter rates and factors affecting supply and demand;

| • | our financial condition and liquidity, including our ability to obtain financing in the future to fund capital expenditures, acquisitions and other general corporate activities;

| • | our ability to enter into time charters after our current charters expire and our ability to earn income in the spot market;

| • | the future price of our Class A common shares; and

| • | our expectations of the availability of vessels to purchase, the time it may take to construct new vessels, and vessels' useful lives.

Many of these statements are based on our assumptions about factors that are beyond our ability to control or predict and are subject to risks and uncertainties that are described more fully in "Item 3. Key Information—D. Risk Factors." Any of these factors or a combination of these factors could materially affect our future results of operations and the ultimate accuracy of the forward-looking statements. Factors that might cause future results to differ include, but are not limited to, the following:

| • | our future operating or financial results;

| • | changes in governmental rules and regulations or actions taken by regulatory authorities;

| • | fluctuations in interest rates and foreign exchange rates;

| • | the length and severity of the recent coronavirus (COVID-19) outbreak, including its impact on the demand for seaborne transportation of petroleum products;

ii

| • | general domestic and international political conditions or events, including "trade wars";

| • | changes in economic and competitive conditions affecting our business, including market fluctuations in charter rates and charterers' abilities to perform under existing time charters;

| • | potential liability from future litigation and potential costs due to environmental damage and vessel collisions;

| • | the length and number of off-hire periods and dependence on third-party managers; and

| • | other factors discussed in "Item 3. Key Information—D. Risk Factors" in this annual report.

You should not place undue reliance on forward-looking statements contained in this annual report because they are statements about events that are not certain to occur as described or at all. All forward-looking statements in this annual report are qualified in their entirety by the cautionary statements contained in this annual report. These forward-looking statements are made only as of the date of this report. These forward-looking statements are not guarantees of our future performance, and actual results and future developments may vary materially from those projected in the forward-looking statements.
Except to the extent required by applicable law or regulation, we undertake no obligation to release publicly any revisions or updates to these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
iii

EXPLANATORY NOTE AND PRESENTATION OF OUR FINANCIAL AND OPERATING DATA
Throughout this annual report on Form 20-F, we incorporate information responsive to the items hereof by reference to our annual report for the year ended December 31, 2019, or the Annual Report 2019, including our audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017. Therefore, the information contained in this annual report should be read in conjunction with the Annual Report 2019, which was furnished to the U.S. Securities and Exchange Commission, or the SEC, on Form 6-K on March 11, 2020. The content of quotations, websites and other sources contained in the sections of the Annual Report 2019 referenced herein are not incorporated by reference into this Form 20-F.
Unless otherwise indicated, the terms "TORM plc," "we," "us," "our," the "Company" and the "Group" refer to TORM plc and its consolidated subsidiaries, which includes TORM A/S and its consolidated subsidiaries, following the closing of the Exchange Offer (defined below). When used in this annual report to describe events prior to the closing of the Exchange Offer, the terms "TORM A/S," "we," "us," "our," the "Company" and the "Group" refer to TORM A/S and its consolidated subsidiaries before such time. References to "Former TORM A/S" refer to TORM A/S and its consolidated subsidiaries prior to the Combination (defined below).
Unless otherwise indicated, all references to "U.S. dollars," "USD," "dollars," "US$" and "$" in this annual report are to the lawful currency of the United States of America, references to "Sterling", "£" and "GBP" are to the lawful currency of the United Kingdom, references to "Danish Kroner," and "DKK" are to the lawful currency of Denmark. We use the term deadweight ton, or dwt, in describing the size of vessels. Dwt, expressed in metric tons, each of which is equivalent to 1,000 kilograms, refers to the maximum weight of cargo and supplies that a vessel can carry.
In 2015, TORM A/S, a company organized under the laws of Denmark, entities affiliated with Oaktree Capital Management L.P., or Oaktree, and certain of TORM A/S' lenders entered into a restructuring agreement to recapitalize TORM A/S. The agreement provided for the cancellation of certain of TORM A/S' debt and required OCM Njord Holdings S.à r.l., or Njord Luxco, a subsidiary of Oaktree, to contribute OCM (Gibraltar) Njord Midco Ltd., or Njord, to TORM A/S in exchange for shares in TORM A/S. We refer to this transaction as the "Combination" and together with certain other transactions related to the restructuring as the "2015 Restructuring." We refer to the consummation of the 2015 Restructuring on July 13, 2015 as the Restructuring Completion Date.
In 2016, a new corporate structure was established, whereby TORM plc effectively acquired all of the outstanding securities of TORM A/S in exchange for TORM plc's securities. We refer to these transactions collectively as the "Exchange Offer." On April 19, 2016, upon the closing of the Exchange Offer and the listing of TORM plc's Class A common shares on Nasdaq Copenhagen A/S in Denmark, or Nasdaq Copenhagen, TORM plc became the Group's publicly-held parent company incorporated under the laws of England and Wales. We refer to this as the "Redomiciliation." The Redomiciliation was accounted for as an internal reorganization of entities under common control and, therefore, the assets and liabilities of TORM A/S were accounted for at their historical cost basis and not revalued in the transaction.
Our Class A common shares of TORM plc are issued and traded on Nasdaq Copenhagen under the symbol "TRMD A" and on the Nasdaq Stock Market LLC in New York, or Nasdaq New York, under the symbol "TRMD". All commercial and technical management of our fleet of product tankers is led out of the Denmark office of TORM A/S and our subsidiaries in India, the Philippines, the United States and Singapore. See "Item 4. Information on the Company."
We are therefore subject to the applicable corporate governance rules of Nasdaq New York, the UK Corporate Governance Code, the UKLA's Disclosure and Transparency Rules and the applicable rules and regulations applicable to companies admitted to trading and official listing on Nasdaq Copenhagen.
We report our consolidated financial results in U.S. dollars and in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, which also comply with reporting requirements under English law.
iv

Accordingly, this document includes the audited consolidated financial statements of TORM plc as of and for the years ended December 31, 2019, 2018 and 2017, which have been prepared in accordance with IFRS. The financial information for TORM plc also reflects the activities of Njord and Former TORM A/S from the date of the Combination, and the activities of TORM A/S only prior to the Combination, being a continuation of the financial statements of Njord (the accounting acquirer), with one adjustment, which is to adjust retroactively Njord's legal capital to reflect the legal capital of TORM A/S from the beginning of the earliest period presented.
Enforcement of Civil Liabilities
We are a public limited company incorporated under the laws of England and Wales, and substantially all of our directors and officers are non-residents of the United States. A substantial portion of our assets, including the subsidiaries of TORM plc, and our directors and executive officers are located outside the United States. As a result, it may be difficult for shareholders of TORM plc to effect service within the United States upon directors, officers and experts who are not residents of the United States or to enforce judgments in the United States. In addition, there can be no assurance as to the enforceability in the United Kingdom against us or our respective directors, officers and experts who are not residents of the United States, or in actions for enforcement of judgments of United States courts, of liabilities predicated solely upon the federal securities laws of the United States.
v

PART I

ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. | KEY INFORMATION

A. | Selected Financial Data

The following table presents, in each case for the periods and as of the dates indicated, the selected historical financial and operating data of TORM plc. The selected data is derived from our audited financial statements, which have been prepared in accordance with IFRS as issued by the IASB, and should be read in conjunction with our audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017 and related notes, which are incorporated herein by reference to our Annual Report 2019 together with "Item 5. Operating and Financial Review and Prospects." Our audited consolidated financial statements as of and for the years ended December 31, 2016 and 2015 and the related notes are not included herein. In addition, see "Explanatory Note and Presentation of Our Financial and Operating Data" for further details on the presentation of the financial statements, the history of the Company and its formation.

|  | Year Ended December 31, |
(USD million, except share data) |  | 2019 |  |  | 2018 |  |  | 2017 |  |  | 2016 |  |  | 2015 |
Consolidated income statement data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue |  |  | 692.6 |  |  |  | 635.4 |  |  |  | 657.0 |  |  |  | 680.1 |  |  |  | 540.4 |
Port expenses, bunkers and commissions |  |  | (267.7 | ) |  |  | (283.0 | ) |  |  | (259.9 | ) |  |  | (221.9 | ) |  |  | (169.6 | )
Charter hire |  |  | 0.0 |  |  |  | (2.5 | ) |  |  | (8.5 | ) |  |  | (21.5 | ) |  |  | (12.0 | )
Operating expenses |  |  | (173.0 | ) |  |  | (180.4 | ) |  |  | (188.4 | ) |  |  | (195.2 | ) |  |  | (122.9 | )
Profit from sale of vessels |  |  | 1.2 |  |  |  | 0.7 |  |  |  | 2.8 |  |  |  | 0.0 |  |  |  | 0.0 |
Administrative expenses |  |  | (47.7 | ) |  |  | (47.8 | ) |  |  | (45.0 | ) |  |  | (41.4 | ) |  |  | (19.5 | )
Other operating expenses |  |  | (2.9 | ) |  |  | (2.0 | ) |  |  | (0.4 | ) |  |  | (0.3 | ) |  |  | (6.3 | )
Share of profit from joint ventures |  |  | (0.4 | ) |  |  | 0.2 |  |  |  | 0.0 |  |  |  | 0.2 |  |  |  | 0.2 |
Impairment losses and reversal of impairment |  |  | 114.0 |  |  |  | (3.3 | ) |  |  | (3.6 | ) |  |  | (185.0 | ) |  |  | 0.0 |
Depreciation |  |  | (110.1 | ) |  |  | (114.5 | ) |  |  | (114.5 | ) |  |  | (122.2 | ) |  |  | (67.3 | )
Operating profit/(loss) |  |  | 205.9 |  |  |  | 2.8 |  |  |  | 39.5 |  |  |  | (107.2 | ) |  |  | 143.0 |
Financial income |  |  | 2.8 |  |  |  | 3.3 |  |  |  | 4.3 |  |  |  | 2.8 |  |  |  | 0.9 |
Financial expenses |  |  | (41.9 | ) |  |  | (39.3 | ) |  |  | (40.6 | ) |  |  | (37.3 | ) |  |  | (16.9 | )
Profit/(loss) before income tax |  |  | 166.8 |  |  |  | (33.2 | ) |  |  | 3.2 |  |  |  | (141.7 | ) |  |  | 127.0 |
Tax expenses |  |  | (0.8 | ) |  |  | (1.6 | ) |  |  | (0.8 | ) |  |  | (0.8 | ) |  |  | (1.0 | )
Net profit/(loss) for the year |  |  | 166.0 |  |  |  | (34.8 | ) |  |  | 2.4 |  |  |  | (142.5 | ) |  |  | 126.0 |
Other financial data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic earnings/(loss) per share, EPS (USD) |  |  | 2.24 |  |  |  | (0.5 | ) |  |  | 0.0 |  |  |  | (2.3 | ) |  |  | 2.4 |
Diluted earnings/(loss) per share, EPS (USD) |  |  | 2.24 |  |  |  | (0.5 | ) |  |  | 0.0 |  |  |  | (2.3 | ) |  |  | 2.4 |
Dividends per share (USD) |  |  | 0.10 |  |  |  | 0.00 |  |  |  | 0.02 |  |  |  | 0.40 |  |  |  | 0.00 |

1

(USD million) |  | As of December 31, |
Consolidated balance sheet data: |  | 2019 |  |  | 2018 |  |  | 2017 |  |  | 2016 |  |  | 2015 |
Total assets |  |  | 2,003.9 |  |  |  | 1,714.4 |  |  |  | 1,646.6 |  |  |  | 1,571.3 |  |  |  | 1,867.4 |
Total non-current assets |  |  | 1,788.0 |  |  |  | 1,445.1 |  |  |  | 1,385.1 |  |  |  | 1,390.0 |  |  |  | 1,578.8 |
Total liabilities |  |  | 996.2 |  |  |  | 867.2 |  |  |  | 855.5 |  |  |  | 790.7 |  |  |  | 891.4 |
Total non-current liabilities |  |  | 801.3 |  |  |  | 700.1 |  |  |  | 699.4 |  |  |  | 638.9 |  |  |  | 775.6 |
Equity/net assets |  |  | 1,007.7 |  |  |  | 847.2 |  |  |  | 791.0 |  |  |  | 780.6 |  |  |  | 976.0 |
Share capital |  |  | 0.7 |  |  |  | 0.7 |  |  |  | 0.6 |  |  |  | 0.6 |  |  |  | 0.6 |
Cash and cash equivalents, including restricted cash |  |  | 72.5 |  |  |  | 127.4 |  |  |  | 134.2 |  |  |  | 76.0 |  |  |  | 168.3 |
Number of shares (excluding treasury shares), end of period (million) |  |  | 74.4 |  |  |  | 73.9 |  |  |  | 62.0 |  |  |  | 62.0 |  |  |  | 63.8 |
Number of shares (excluding treasury shares), weighted average (million) |  |  | 74.0 |  |  |  | 73.1 |  |  |  | 62.0 |  |  |  | 62.9 |  |  |  | 51.7 |

| Year Ended December 31, |
Consolidated cash flow data | 2019 |  | 2018 |  | 2017 |  | 2016 |  | 2015 |
(USD million) |  |  |  |  |  |  |  |  |  |
From operating activities |  |  | 171.1 |  |  |  | 70.7 |  |  |  | 109.8 |  |  |  | 171.1 |  |  |  | 214.0 |
Used in investing activities |  |  | (322.8 | ) |  |  | (175.6 | ) |  |  | (113.7 | ) |  |  | (119.4 | ) |  |  | (158.8 | )
Thereof investment in tangible fixed assets |  |  | (384.3 | ) |  |  | (202.4 | ) |  |  | (145.1 | ) |  |  | (119.4 | ) |  |  | (254.0 | )
(Used in)/from financing activities |  |  | 84.5 |  |  |  | 96.0 |  |  |  | 62.7 |  |  |  | (145.6 | ) |  |  | 75.0 |
Total net cash flow |  |  | (67.2 | ) |  |  | (8.9 | ) |  |  | 58.8 |  |  |  | (93.9 | ) |  |  | 130.2 |

B. | Capitalization and Indebtedness

Not applicable.

C. | Reasons for the Offer and Use of Proceeds

Not applicable.

D. | Risk Factors

The following risks relate principally to the industry in which we operate and our business in general. The occurrence of any of the risk factors described herein could have a material adverse effect on our future performance, results of operations, cash flows and our financial position. We may also be subject to other material risks that as of the date of this annual report are not currently known to us or that we currently deem immaterial but which may significantly impair our business.
Risks Related to Our Business and Our Industry
The product tanker sector is cyclical and volatile, and this may lead to reductions and volatility in our charter rates when we re-charter our vessels, in vessel values and in our results of operations.
We are a pure-play product tanker company, meaning that substantially all of our revenues are generated from operating our product tanker fleet. The product tanker market is cyclical in nature, which leads to volatility in freight rates, vessel values and industry profitability. The freight rates among different types of product tankers are highly volatile. For example, product tanker freight rates declined from the historical highs reached in mid-2008 (TORM MR Time Charter Equivalent, or TCE, rates up to $26,458/day) to a cyclical low period between 2009 and 2014 (TORM annual average MR TCE rates of approximately $14,200/day for the period). During 2018 we realized TCE rates of $12,982/day and this increased by 27% during 2019 to TCE rates of $16,526/day. The factors affecting the supply and demand for product tankers are beyond our control, and the nature, timing and degree of changes in industry conditions are unpredictable and we may not be able to correctly assess the nature, timing and degree of changes in industry conditions.
2

Factors affecting the supply and growth of product tanker capacity include:

| • | the number of newbuildings on order and being delivered;

| • | the number of vessels used for floating storage;

| • | the number of vessels in lay-up;

| • | the number of vessels recycled for obsolescence or subject to casualties;

| • | prevailing and expected future freight and charter hire rates;

| • | the number of product tankers trading with crude or "dirty" oil products;

| • | costs of bunkers and fuel oil and their impact on vessel speed;

| • | the efficiency and age of the world product tanker fleet;

| • | shipyard capacity;

| • | availability of financing;

| • | available interest rates on financing;

| • | port congestion and canal congestion;

| • | technological developments, which affect the efficiency of vessels and time to vessel obsoletion;

| • | government and industry regulation of maritime transportation practices, particularly environmental protection laws and regulations; and

| • | crew availability.

Demand for product tankers is primarily determined by the quantity of cargo to be transported and the distance from origin to destination. The demand is affected by a number of external factors including:

| • | world and regional economic conditions;

| • | demand for oil and other petroleum products;

| • | product imbalances across regions (affecting the level of trading activity);

| • | the regulatory environment;

| • | environmental issues and concerns;

| • | developments in international trade including refinery additions and closures;

| • | climate;

3

| • | competition from alternative energy sources;

| • | global and regional political developments, including "trade wars";

| • | embargoes;

| • | armed conflicts; and

| • | availability of financing and changes in interest rates.

In addition to the prevailing and anticipated freight rates, factors that greatly affect our financial profitability will include newbuilding, recycling and laying-up prices, second-hand vessel values in relation to recycling prices, cost of bunkers, cost of crew, vessel availability, other operating costs, costs associated with classification society surveys, normal maintenance costs, insurance coverage costs and the efficiency and age profile of the existing product tanker fleet in the market.
We anticipate that the future demand for our vessels will be dependent upon economic growth in the world's economies, seasonal as well as regional changes in demand, changes in the capacity of the global product tanker fleet and the sources and supply of oil and petroleum products to be transported by sea. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results. The product tanker sector is cyclical and volatile, and this may lead to reductions and volatility in our charter rates when we employ our vessels, to volatility in vessel values and in our future performance, results of operations, cash flows and our financial position.
Our revenues are derived substantially from a single segment, the product tanker segment, which exposes us to adverse developments in the product tanker market and which may adversely affect our future performance, results of operations, cash flows and financial position.
Substantially all of our revenues are derived from a single market, the product tanker segment, and therefore, our financial results depend on the development and growth in this segment. External factors that affect the product tanker market will have a significant impact on our business. Freight rates and asset prices have been volatile. Any adverse development in the product tanker segment would have a material adverse impact on our future performance, results of operations, cash flows and financial position. Further, our lack of diversification makes us increasingly vulnerable to adverse developments in the international product tanker market, and this could have a greater material adverse impact on our future performance, results of operations, cash flows and financial position than it would if we maintained more diverse lines of business.
An oversupply of product tanker capacity may lead to a reduction in charter rates, vessel values and profitability.
The supply of product tankers is affected by a number of factors such as supply and demand for energy resources, including oil and petroleum products, supply and demand for seaborne transportation of such energy resources and the current and expected purchase orders for newbuildings. If the capacity of new product tankers delivered exceeds the capacity of product tankers being recycled and converted to non-trading tankers, overall industry capacity in the product tanker will increase. If the supply of product tanker capacity increases, and if the demand for product tanker capacity decreases or does not increase correspondingly, charter rates could materially decline, which may also negatively affect freight rates and the value of our vessels. During 2019, the value of our product tanker fleet, based on independent broker quotes, increased by approximately 6% (excluding vessels that we sold and/or acquired during 2019). A reduction in charter rates and the value of our vessels may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
In addition, product tankers may be "cleaned up" from "dirty/crude" trades and swapped back into the product tanker market, which would increase the available tanker tonnage able to transport refined oil products and which may affect the supply and demand balance for product tankers. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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Our results of operations are subject to seasonal fluctuations, which may adversely affect our results of operations, cash flows and financial position.
We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, freight rates. This seasonality may result in quarter-to-quarter volatility in operating results. The product tanker segment is typically stronger in the fall and winter months in anticipation of increased consumption of oil and petroleum products in the northern hemisphere. As a result, revenues from product tankers may be weaker during the fiscal quarters ending June 30 and September 30, and, conversely, revenues may be stronger in fiscal quarters ending December 31 and March 31. This seasonality could have a material adverse effect quarter to quarter on our future performance, results of operations, cash flows and financial position.
Variations in incoming cash flows due to the cyclical nature of the shipping industry may have a material adverse effect on our future performance, results of operations and financial position.
Due to the cyclical nature of the shipping industry and volatile freight rates, incoming cash flows may vary significantly from year to year, whereas outgoing operating and financing cash flows may not vary to the same extent and at the same time. Significant deviations between ingoing and outgoing cash flows can thus damage our financial position and could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
A shift in consumer demand from oil towards other energy sources or changes to trade patterns for refined oil products may have a material adverse effect on our business.
A significant portion of our earnings are related to the oil industry. A shift in or disruption of the consumer demand from oil towards other energy resources such as electricity, natural gas, LNG or hydrogen will potentially affect the demand for our product tankers. A shift from the use of internal combustion engine vehicles to electric vehicles may also reduce the demand for oil. These factors could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Seaborne trading and distribution patterns are primarily influenced by the relative advantage of the various sources of production, locations of consumption, pricing differentials and seasonality. Changes to the trade patterns of refined oil products may have a significant negative or positive impact on the ton-mile and therefore the demand for our product tankers. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Acts of piracy on ocean-going vessels could adversely affect our business.
Acts of piracy have historically affected ocean-going vessels. At present, most piracy and armed robbery incidents are recurrent in the Gulf of Aden region off the coast of Somalia, South China Sea, Sulu Sea, Celebes Sea and in particular, the Gulf of Guinea region off Nigeria, which experienced increased incidents of piracy in 2019. Sporadic incidents of robbery are also reported in many parts of Asia. The political turmoil in the Middle East region may also lead to collateral damages in waters off Yemen. The current diplomatic crisis between Gulf Co-operation Council (GCC) countries may lead to an uncertain security situation in the Middle East region.
The security arrangements made for ship staff and vessels to counteract the ever-evolving security threat and to comply with Best Management Practices to Deter Piracy and Enhance Maritime Security in the Red Sea, Gulf of Aden, the Gulf of Guinea region off Nigeria, Indian Ocean and Arabian Sea add to the cost of operations of our ships.
The "war risks" areas are established by the Joint War Risks Committee. Our vessels often trade in "war risk" areas due to the nature of our business. Due to the above issues when vessels trade in such areas, the insurance premiums are increased significantly to cover for the additional risks.
The above factors could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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Increase in frequency of immigrant salvage operations in the Mediterranean could adversely affect our business.
In recent years, the number of immigrants attempting to cross the Mediterranean from North Africa to Europe in unseaworthy vessels has increased significantly. Many of the vessels are in such a poor condition that they capsize and sink, incur engine problems or are otherwise incapacitated en route to Europe. As a result, commercial ships may, if witnessing an immigrant vessel in distress, deviate from the task and course and conduct a salvage operation. Such salvage operation may prove costly in terms of time and resources spent and can thus prove a substantial cost for the commercial vessel and may pose risks to the safety of the crew, vessel and cargo. If we are not able to mitigate this potential exposure, and dependent on the number of such salvage operations which must be carried out in the future, this could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Changes in fuel prices may adversely affect profits.
Fuel, including bunkers, is a significant expense in our shipping operations of our vessels, and changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events beyond our control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, including as a result of the implementation of low sulfur fuel requirements by the International Maritime Organization, or IMO, that took effect January 1, 2020, which may reduce our profitability and have a material adverse effect on our future performance, results of operations, cash flows and financial position.
An economic slowdown or changes in the economic and political environment in the Asia Pacific region could have a material adverse effect on our business, financial condition and results of operations.
We anticipate a significant number of the port calls made by our vessels will continue to involve the loading or discharging of cargo in ports in the Asia Pacific region. As a result, any negative changes in economic conditions in any Asia Pacific country, particularly in China, may have a material adverse effect on our business, financial condition and results of operations, as well as our future prospects. Before the global economic financial crisis that began in 2008, China had one of the world's fastest growing economies in terms of gross domestic product, or GDP, which had a significant impact on shipping demand. The quarterly year-over-year growth rate of China's GDP was approximately 6.1% for the year ended December 31, 2019, as compared to approximately 6.6% for the year ended December 31, 2018, and continues to remain below pre-2008 levels. Furthermore, there is a rising threat of a Chinese financial crisis resulting from excessive personal and corporate indebtedness and “trade wars.” The International Monetary Fund has warned that continuing trade tensions, including significant tariff increases, between the United States and China, are expected to result in a 0.8% cumulative reduction of global GDP in 2020. Although the United States and China signed a trade agreement in early 2020, as further described below, we cannot assure you that the Chinese economy will not experience a significant contraction in the future.
Although state-owned enterprises still account for a substantial portion of the Chinese industrial output, in general, the Chinese government is reducing the level of direct control that it exercises over the economy through state plans and other measures. There is an increasing level of freedom and autonomy in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a "market economy" and enterprise reform. Limited price reforms were undertaken with the result that prices for certain commodities are principally determined by market forces. Many of the reforms are unprecedented or experimental and may be subject to revision, change or abolition based upon the outcome of such experiments. If the Chinese government does not continue to pursue a policy of economic reform, the level of imports to and exports from China could be adversely affected by changes to these economic reforms by the Chinese government, as well as by changes in political, economic and social conditions or other relevant policies of the Chinese government, such as changes in laws, regulations or export and import restrictions. Notwithstanding economic reform, the Chinese government may adopt policies that favor domestic shipping companies and may hinder our ability to compete with them effectively. For example, China imposes a tax for non-resident international transportation enterprises engaged in the provision of services of passengers or cargo, among other items, in and out of China using their own, chartered or leased vessels. The regulation may subject international transportation companies to Chinese enterprise income tax on profits generated from international transportation services passing through Chinese ports. This tax or similar regulations, such as the recently promoted environmental taxes on coal, by China may result in an increase in the cost of raw materials imported to China and the risks associated with importing raw materials to China, as well as a decrease in any raw materials shipped from our charterers to China. This could have an adverse impact on our charterers' business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. Moreover, an economic slowdown in the economies of the European Union and other Asian countries may further adversely affect economic growth in China and elsewhere.
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In addition, public health threats, such as the coronavirus, influenza and other highly communicable diseases or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate, including China, could adversely impact our operations, the timing of completion of outstanding or future newbuilding and scrubber installation projects, as well as the operations of our customers.
Outside of Asia, the product tanker industry may be negatively affected if a potential economic slowdown in Latin America or Africa were to cause a decrease in imports of refined products from the United States or Europe. This, in turn, could have a negative impact on our earnings, cash flows and financial position.
If economic conditions throughout the world deteriorate or become more volatile, it could have a negative impact on TORM's earnings.
The world economy faces a number of challenges, including the effects of volatile oil prices, trade protectionism and political turmoil in several geographic areas. If one or more of the major national or regional economies should weaken, there is a substantial risk that such a downturn will impact the world economy. There has historically been a strong link between the development of the world economy and demand for energy, including oil and gas.
While recent developments in Europe, such as the exit of the United Kingdom from the European Union, and China, as described above, have been without significant immediate impact on product tanker freight rates thus far, an extended period of deterioration in the world economy could reduce the overall demand for oil and gas and for our services. Such changes could adversely affect our future performance, results of operations, cash flows and financial position.
We face risks attendant to changes in economic environments, changes in interest rates and instability in the banking and securities markets around the world, among other factors. We cannot predict how long the current market conditions will last. These recent and developing economic and governmental factors may have a material adverse effect on our results of operations and financial condition and may cause the price of our Class A common shares to decline.
Prospective investors should consider the potential impact, uncertainty and risk associated with the development in the wider global economy. Further economic downturn in any of these countries could have a material effect on our future performance, results of operations, cash flows and financial position.
Our ability to secure funding is dependent on well-functioning capital markets and on an appetite to provide funding to the shipping industry.
At present, capital markets are well-functioning and funding is available for the shipping industry. However, if global economic conditions worsen, or lenders for any reason decide not to provide debt financing to us, we may, among other things, not be able to secure additional financing to the extent required, on acceptable terms or at all. If additional financing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due, or we may be unable to enhance our existing business, complete additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
Credit markets in the United States and Europe have in the past experienced significant contraction, de-leveraging and reduced liquidity, and there is a risk that the U.S. federal government and state governments and European authorities continue to implement a broad variety of governmental action and/or new regulation of the financial markets. Global financial markets and economic conditions have been, and continue to be, volatile. This volatility may have a material adverse effect on our ability to obtain financing on acceptable terms, or at all, and could have a material effect on our results of operations, cash flows and financial position.
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We are subject to complex laws and regulations, including environmental laws and regulations that can adversely affect our results of operations, cash flows and financial position.
Our vessels operate worldwide and are thus subject to numerous international laws, rules, regulations, conventions and treaties. Moreover, our vessels are registered, flagged, and call in ports in multiple countries where the applicable flag and/or port state rules, regulations and laws can differ. This complex web of rules, regulations, conventions, treaties and laws can be dynamic and influence the cost of owning and operating our vessels.
The various requirements we might have to comply with are discussed throughout and include, but are not limited to:

| • | International requirements such as those from the International Maritime Organization, or IMO, like the International Convention for the Safety of Life at Sea of 1974, or SOLAS, the International Ship and Port Facility Security Code, or the ISPS Code, and the International Convention for the Prevention of Pollution from Ships of 1973, as from time to time amended, or MARPOL, as well as those from the Maritime Labor Convention 2006, or the MLC 2006, adopted by the International Labour Organization, or ILO;

| • | United States, or U.S., requirements such as the U.S. Oil Pollution Act of 1990, or OPA, the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and those enforced by the U.S. Environmental Protection Agency, or the EPA, and the U.S. Coast Guard, or the USCG; and

| • | European Union, or EU, regulations regarding greenhouse gas emissions.

Some laws also impose strict liability for pollution incidents. To avoid liability in those cases, parties may have to show they fall into an exception and took all reasonable precautionary steps to prevent a pollution incident. Thus, for remediation of environmental damage, the liability can include fines, penalties, criminal liability and costs for natural resource damages. In our case, these could harm our reputation with current or potential charterers of our product tankers. Compliance with environmental laws and regulations, where applicable, may require installation of costly equipment or operational changes and may affect the resale value or useful lives of our vessels. We may also incur additional costs in order to comply with other existing and future regulatory obligations, including, but not limited to, costs relating to air emissions including greenhouse gases, sulfur emissions, the management of ballast waters, maintenance and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our ability to address pollution incidents.
We are required to satisfy insurance and financial responsibility requirements for potential oil (including marine fuel) spills and other pollution incidents. Although we arrange insurance to cover environmental risks, there can be no assurance that such insurance will be sufficient to cover all the risks or that any claims will not have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Developments in safety and environmental requirements relating to the recycling of vessels may result in escalated and unexpected costs.
The 2009 Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, or the Hong Kong Convention, aims to ensure ships, being recycled once they reach the end of their operational lives, do not pose any unnecessary risks to the environment, human health and safety. The Hong Kong Convention has yet to be ratified by the required number of countries to enter into force. Upon the Hong Kong Convention's entry into force, each ship sent for recycling will have to carry an inventory of its hazardous materials. The hazardous materials, whose use or installation are prohibited in certain circumstances, are listed in an appendix to the Hong Kong Convention. Ships will be required to have surveys to verify their inventory of hazardous materials initially, throughout their lives and prior to the ship being recycled. The Hong Kong Convention, which is currently open for accession by IMO Member States, will enter into force 24 months after the date on which 15 IMO Member States, representing at least 40% of world merchant shipping by gross tonnage, have ratified or approved accession. As of the date of this annual report, fifteen countries representing just over 30% of world merchant shipping tonnage have ratified or approved accession of the Hong Kong Convention.
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On November 20, 2013, the European Parliament and the Council of the EU adopted the Ship Recycling Regulation, which retains the requirements of the Hong Kong Convention and requires that certain commercial seagoing vessels flying the flag of an EU Member State may be recycled only in facilities included on the European list of permitted ship recycling facilities. We are required to comply with EU Ship Recycling Regulation by December 31, 2020, since our ships trade in EU region.
These regulatory developments, when implemented, may lead to cost escalation by shipyards, repair yards and recycling yards. This may then result in a decrease in the residual scrap value of a vessel, and a vessel could potentially not cover the cost to comply with latest requirements, which may have an adverse effect on our future performance, results of operations, cash flows and financial position.
We may incur additional costs to retrofit ballast water treatment systems in our vessels to comply with new regulations.
Vessels unload ballast water during passage by taking ballast water in one port and unloading it in another. This helps maintain safety and stability. However, the ballast water can contain local organisms and pathogens. When vessels unload ballast water, they can then release organisms and pathogens in new parts of the world, which can be invasive to that ecosystem. To avoid transfers of invasive species in ballast water, the IMO and the United States have regulations that require ballast water is treated prior to discharge.
In order to comply with IMO and U.S. ballast water regulations, we are required to install ballast water treatment plants on all vessels from December 2018 to September 2024. The cost of compliance per vessel for us is estimated to be between $1.0 and $1.3 million, depending on size of the vessel. There are uncertainties associated with installing the equipment both operationally and technically, which could have adverse effect on the cost. Significant investments in ballast water treatment systems may have a material adverse effect on our future performance, results of operations, cash flows and financial position. For more information on these regulations, see "Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations—The International Maritime Organization—Pollution Control and Liability Requirements."
Regulations relating to ballast water discharge may adversely affect our revenues and profitability.
The IMO has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel's ballast water. Depending on the date of the IOPP renewal survey, existing vessels constructed before September 8, 2017 must comply with the updated D-2 standard on or after September 8, 2019. For most vessels, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are to comply with the D-2 standards on or after September 8, 2017. Currently, all of our vessels comply with the updated guideline, although costs of compliance in the case of further regulations or for new vessels that we may acquire may be substantial and adversely affect our revenues and profitability.
Furthermore, United States regulations are currently changing. Although the 2013 Vessel General Permit ("VGP") program and U.S. National Invasive Species Act ("NISA") are currently in effect to regulate ballast discharge, exchange and installation, the Vessel Incidental Discharge Act ("VIDA"), which was signed into law on December 4, 2018, requires that the EPA develop national standards of performance for approximately 30 discharges, similar to those found in the VGP within two years. By approximately 2022, the U.S. Coast Guard must develop corresponding implementation, compliance, and enforcement regulations regarding ballast water. The new regulations could require the installation of new equipment, which may cause us to incur substantial costs.
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Sulfur regulations to reduce air pollution from ships have required retrofitting of scrubbers on vessels or use of very-low sulfur fuel, and may cause us to incur significant costs.
In October 2016, the IMO set January 1, 2020 as the implementation date for vessels to comply with its low sulfur fuel oil requirement, which cut sulfur levels from 3.5% to 0.5%. The interpretation of "fuel oil used on board" includes use in main engine, auxiliary engines and boilers. Shipowners may comply with this regulation by (i) using 0.5% sulfur fuels on board, which are currently available around the world but at a higher cost (which may continue to rise) due to, among other things, increased market demand; (ii) installing scrubbers for cleaning of the exhaust gas; or (iii) by retrofitting vessels to be powered by liquefied natural gas (LNG), which may not be a viable option due to the lack of supply network and high costs involved in this process. To comply with the new regulations, as of December 31, 2019, we have installed scrubbers on 20 of the vessels in our fleet, and plan to install scrubbers on an additional 27 of our vessels in the first half of 2020. We currently use, and intend to continue to use, compliant fuels with 0.5% sulfur content for vessels that have not been retrofitted with scrubbers, which account for approximately half of our fleet. The CAPEX related to the confirmed scrubber orders is on average estimated below $2 million per scrubber including installation costs. We have been able to obtain financing for a significant portion of this investment. Costs of compliance with these regulatory changes may be significant and may have a material adverse effect on our future performance, results of operations, cash flows and financial position. See "Item 4. Information on the Company—B. Business Overview—Environmental and Other Regulations—The International Maritime Organization".
Several countries have announced a ban on using open-loop scrubbers in their ports and inland waters
To comply with IMO 2020 0.5% global sulfur cap, shipowners have different options: switching to low-sulfur fuels, burning distillates, using LNG or installing an exhaust gas cleaning system, commonly known as a scrubber, on board their vessels. Scrubbers are currently an accepted measure in complying with IMO 2020. Scrubbers can be designed either as “closed-loop” or “open-loop”. Open-loop scrubbers discharge the “cleaned” washwater into the ocean. We have opted to install hybrid-prepared open-loop scrubbers on board our vessels, which in the future can be refitted at further costs into a hybrid scrubber that can operate in both open and closed loops. It has been widely discussed whether scrubbers in general, and in particular open-loop scrubbers, represent an environmentally sound option. A few ports and regions, including Singapore, China and certain states within the U.S., have already stated that they will not allow the discharge of washwater from scrubbers. Prior to investing in scrubbers, we evaluated scrubber economics, and the effects of local regulations have already been considered to only have a limited negative impact on the investment at this time. Further material restrictions on the use of open-loop scrubbers would likely result in vessels having to use low-sulfur fuel for longer periods, which in general comes at a higher cost compared to using scrubbers.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries and the IMO have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among other things, adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. In addition, although the emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the Paris Agreement, a new treaty may be adopted in the future that includes restrictions on shipping emissions. Compliance with changes in laws, regulations and obligations relating to climate change could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.
On June 29, 2017, the Global Industry Alliance, or the GIA, was officially inaugurated. The GIA is a program under the Global Environmental Facility-United Nations Development Program-IMO project, which supports shipping, and related industries, as they move towards a low carbon future. Organizations including, but not limited to, shipowners, operators, classification societies and oil companies signed to launch the GIA.
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Adverse effects upon the oil and gas industry relating to climate change, including growing public concern about the environmental impact of climate change, may also adversely affect demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources. Therefore, any long-term material adverse effect on the oil and gas industry could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
If we fail to comply with international safety regulations, we may be subject to increased liability, which may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports.
The operation of our vessels is affected by governmental regulations in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. As such, we are subject to the requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and for Pollution Prevention, or the ISM Code. The ISM Code is promulgated by the IMO under SOLAS to provide an international standard for the safe management and operation of ships and for pollution prevention. The ISM Code requires the party with operational control of a vessel to develop and maintain an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for the safe operation, and describing procedures for dealing with emergencies, when operating vessels. We rely on the safety management system that has been developed for our vessels for compliance with the ISM Code.
The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel's management with code requirements for a safety management system. No vessel can obtain a certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the ISM Code. These documents of compliance and safety management certificates are renewed as required.
Non-compliance with the ISM Code and other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to a reduction in, or invalidation of, available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and EU authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and EU ports. This could have a material adverse effect on our future performance, results of operations, cash flows and financial position. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
A major incident on one of our vessels affecting the safety and health of the crew could disrupt completely or delay operations thereby having a negative impact on customer confidence and on our future performance, results of operations, cash flows and financial position.
Recent action by the IMO's Maritime Safety Committee and United States agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber risk management systems must be incorporated on vessels by shipowners and managers by 2021. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. The impact of such regulations is hard to predict at this time.
Declines in charter rates and other market deterioration could cause us to incur impairment charges.
In accordance with IFRS, we review the carrying amounts of assets on a quarterly basis to determine any indication of impairment either due to a significant decline in market value or in the cash flows expected to be generated by the vessels. In case of such indication, the recoverable amounts of the assets are estimated as the higher of the net realizable value and the value in use in accordance with the requirements of applicable accounting standards. The value in use is the present value of the future cash flows expected to derive from an asset. For the purpose of assessing net realizable values, our management estimates the market values of the individual vessels, for which the most important parameters are the vessels' tons deadweight, the shipyard they were built at and age. Management uses internal as well as external sources of information, including two internationally recognized shipbrokers' valuations. There may be deviations between the market value and the book value of the vessels.
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Accordingly, the carrying values of our vessels may not represent their fair market value at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. In 2019, the value of our product tanker fleet increased by approximately 6% (when excluding vessels sold and/or acquired during 2019). As a result of further declines in charter rates or vessel values, we may in the future need to record impairment losses and loss from sale of vessels, which could have a material adverse effect on our future performance, results of operations, cash flows and financial position. Please see the consolidated financial statements as of and for the year ended December 31, 2019 and the accompanying notes included herewith for details on the impact of changes in charter rates and other key assumptions.
If our vessels suffer damage due to the inherent operational risks of the product tanker industry, we may experience unexpected dry-docking costs and delays or total loss of our vessels.
The operation of an ocean-going vessel carries inherent risks. Our vessels and their cargoes will be at risk of being damaged or lost because of events such as marine disasters, bad weather and other acts of God, business interruptions caused by mechanical failures, unexpected tank corrosion, grounding, fire, explosions and collisions, human error, war, terrorism, piracy and other circumstances or events. Changing economic, regulatory and political conditions in some countries, including political and military conflicts, have from time to time resulted in attacks on vessels, mining of waterways, piracy, terrorism, labor strikes and boycotts. These hazards may result in death or injury to persons, loss of revenue or property, environmental damage, higher insurance rates, damage to our customer relationships, delay or rerouting.
In addition, international shipping is subject to various security and customs inspection and related procedures in countries of origin and destination and trans-shipment points. Inspection procedures can result in the seizure of the cargo and/or our vessels, delays in the loading, offloading or delivery and the levying of customs duties, fines or other penalties against us. It is possible that changes to inspection procedures could impose additional financial and legal obligations on us. Furthermore, changes to inspection procedures could also impose additional costs and obligations on our customers and may, in certain cases, render the shipment of certain types of cargo uneconomical or impractical. Any such changes or developments may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
The protection & indemnity insurance coverage that we have arranged for our vessels covers the vessel owner's liabilities towards the owner of any damaged cargo, subject to standard international conventions limiting such liability. If our vessels suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock repairs are unpredictable and may be substantial. We may have to pay dry-docking costs that our insurance does not cover in full. The loss of earnings while these vessels are being repaired and repositioned as well as the actual cost of these repairs would decrease the Company's earnings. In addition, space at dry-docking facilities is sometimes limited and not all dry-docking facilities are conveniently located. We may be unable to find space at a suitable dry-docking facility or the vessels may be forced to travel to a dry-docking facility that is not conveniently located in relation to the vessels' positions. The loss of earnings while these vessels are forced to wait for space or to sail to more distant dry-docking facilities could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
If labor interruptions are not resolved in a timely manner, they could have a material adverse effect on our business, results of operations, cash flows and financial position.
We employ masters, officers and crews to man our vessels. We have in the past implemented and will potentially continue in the future to implement restructuring measures including divesting or closing down business activities, reducing our workforce and negotiating collective agreements with trade unions. Restructurings and other factors such as disagreements concerning ordinary or extraordinary collective bargaining may damage our reputation and the relationship with our employees and lead to labor disputes, including work stoppages, strikes and/or work disruptions. If not resolved in a timely and cost-effective manner, industrial action or other labor unrest could prevent or hinder our operations from being carried out as we expect and could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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Political instability, terrorist attacks and international hostilities can affect the seaborne transportation industry, which could adversely affect our business.
We conduct most of our operations outside of the United States, and our business, results of operations, cash flows, financial condition and ability to pay dividends, if any, in the future may be adversely affected by changing economic, political and government conditions in the countries and regions where our vessels are employed or registered. Moreover, we operate in a sector of the economy that is likely to be adversely impacted by the effects of political conflicts, including the current political instability in the Middle East and the South China Sea region and other geographic countries and areas, geopolitical events such as the withdrawal of the U.K. from the European Union, or "Brexit," terrorist or other attacks, and war (or threatened war) or international hostilities, such as those between the United States and North Korea. Terrorist attacks such as those in Paris on November 13, 2015, Manchester on May 22, 2017, as well as the frequent incidents of terrorism in the Middle East, and the continuing response of the United States and others to these attacks, as well as the threat of future terrorist attacks around the world, continues to cause uncertainty in the world's financial markets and may affect our business, operating results and financial condition. Continuing conflicts and recent developments in the Middle East, including increased tensions between the U.S. and Iran, as well as the presence of U.S. or other armed forces in Iraq, Syria, Afghanistan and various other regions, may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets. As a result of the above, insurers have increased premiums and reduced or restricted coverage for losses caused by terrorist acts generally. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. Any of these occurrences could have a material adverse impact on our operating results, revenues and costs. Additionally, Brexit, or similar events in other jurisdictions, could impact global markets, including foreign exchange and securities markets; any resulting changes in currency exchange rates, tariffs, treaties and other regulatory matters could in turn adversely impact our business and operations.
Further, governments may turn and have turned to trade barriers to protect their domestic industries against foreign imports, thereby depressing shipping demand. In particular, leaders in the United States and China have implemented certain increasingly protective trade measures, which have been somewhat mitigated by the recent trade deal (first phase trade agreement) between the United States and China in early 2020, which, among other things, requires China to purchase over $50 billion of energy products including crude oil, and future phases may result in decreased tariffs. The results of the 2016 presidential election and the potential results of the upcoming 2020 presidential election in the United States have created significant uncertainty about the future relationship between the United States, China and other exporting countries, including with respect to trade policies, treaties, government regulations and tariffs. For example, in March 2018, President Trump announced tariffs on imported steel and aluminum into the United States that could have a negative impact on international trade generally and in January 2019, the United States announced expanded sanctions against Venezuela, which may have an effect on its oil output and in turn affect global oil supply. There have also been continuing trade tensions, including significant tariff increases, between the United States and China. Protectionist developments, or the perception that they may occur, may have a material adverse effect on global economic conditions, and may significantly reduce global trade. Moreover, increasing trade protectionism may cause an increase in (a) the cost of goods exported from regions globally, (b) the length of time required to transport goods and (c) the risks associated with exporting goods. Such increases may significantly affect the quantity of goods to be shipped, shipping time schedules, voyage costs and other associated costs, which could have an adverse impact on our charterers' business, operating results and financial condition and could thereby affect their ability to make timely charter hire payments to us and to renew and increase the number of their time charters with us. This could have a material adverse effect on our business, results of operations, financial condition and our ability to pay any cash distributions to our stockholders.
In January 2020, in response to certain perceived terrorist activity, the United States launched an airstrike in Baghdad that killed a high-ranking Iranian general, increasing hostilities between the U.S. and Iran. This attack or further escalations between the U.S. and Iran that may follow, could result in retaliation from Iran that could potentially affect the shipping industry, through increased attacks on vessels in the Strait of Hormuz (which already experienced an increased number of attacks on and seizures of vessels in 2019), or by potentially closing off or limiting access to the Strait of Hormuz, where a significant portion of the world's oil supply passes through. Any restriction on access to the Strait of Hormuz, or increased attacks on vessels in the area, could negatively impact our earnings, cash flow and results of operations.
In the past, political instability has also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea and the Gulf of Aden off the coast of Somalia.
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Any of these occurrences could have a material adverse impact on our future performance, results of operations, cash flows and financial position.
If our vessels call on ports located in countries or territories that are subject to restrictions, sanctions or embargoes imposed by the U.S. government, the European Union, the United Nations or other governments, it could lead to monetary fines or penalties and adversely affect our reputation and the market for our Class A common shares.
Although we do not expect that our vessels will call on ports located in countries or territories subject to country-wide or territory-wide sanctions and or embargoes imposed by the U.S. government and other authorities or countries identified by the U.S. government or other authorities as state sponsors of terrorism, such as Iran, Sudan, Syria and North Korea, the European Union, the United Nations, or other governments, from time to time on charterers’ instructions, and without our knowledge, our vessels may call on ports located in such countries or territories in the future. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time.
The past few years have seen increased implementation of sanctions and embargoes imposed against trading with certain countries by in particular the United States, the European Union and the United Nations. Our operations are currently and may in the future become subject to various economic and trade sanctions and anti-bribery laws, including sanctions. In 2015, we revised our internal policies and procedures regarding vessel calls at ports located in countries or territories subject to U.S. and other sanctions. Special internal procedures relating to Iran were added in January 2016 when the Office of Foreign Assets Control, or OFAC, issued “General License H” authorizing certain transactions relating to non-U.S. entities owned or controlled by a U.S. person. When General License H was revoked in June 2018, our special procedures were revoked accordingly. With the exception of Sudan (and between January 2016 and May 2018, Iran), our vessels have not called on ports located in countries currently identified by the U.S. government as a state sponsor of terrorism since June 29, 2012. To our knowledge, the port calls made by our vessels in Sudan and Iran did not violate any sanctions regimes or embargoes to which we were subject at the time of the port calls. Sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions on companies such as ours and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products.
A significant part of our share capital is owned by entities managed by Oaktree, consequently we have U.S shareholders. Due to our ownership, our operations are subject to the regulations, executive orders and other sanctions administered by OFAC, which restricts or prohibits certain transactions, dealings and travel involving certain Sanctioned Persons and Sanctioned Countries, including Cuba, where we have historically been active, and Iran. As such, our operations in countries that are subject to sanctions and embargoes imposed by the United States government and/or identified by the United States government as state sponsors of terrorism have been restricted following the 2015 Restructuring. From time to time, vessels in our fleet have called on ports in Sudan. We believe these activities have not been subject to then applicable U.S. sanctions laws. Any violation of applicable sanctions could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest or not to invest in the Company. Further, our lenders may determine that any non-compliance with applicable sanctions and embargoes imposed by the United Kingdom, the European Union, the United Nations or the United States constitute an event of default under current or future debt facility agreements. An event of default may lead to an acceleration of the repayment of debt under the facility in question and, due to the cross-default provisions, under all other facilities as well, which could have a material adverse effect on our future performance, results of operations, cash flows and financial position, and could lead to bankruptcy or other insolvency proceedings.
Further, charterers and other parties that we have previously entered into contracts with regarding our vessels may be affiliated with persons or entities that are now or may soon be the subject of sanctions imposed by the U.S. government and/or the European Union or other international bodies. If we determine that such sanctions require us to terminate existing contracts, or if we are found to be in violation of such sanctions, we may suffer reputational harm, which may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations as of December 31, 2019, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our Class A common shares may adversely affect the price at which our Class A common shares trade. Additionally, some investors may decide to divest their interest, or not to invest, in our company simply because we do business with companies that do business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities such as entering into charters with individuals or entities in countries or territories subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries or territories, or engaging in operations associated with those countries or territories pursuant to contracts with third-parties that are unrelated to those countries, territories, or entities controlled by their governments. Investor perception of the value of our Class A common shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries, which may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Maritime claimants could arrest our vessels, which would have a negative effect on our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo, secured lenders, time charter-in counterparties and other parties may be entitled to a maritime lien against the relevant vessel for unsatisfied debts, claims or damages.
In many jurisdictions, a maritime lien holder may enforce its lien by arresting a vessel and commencing foreclosure proceedings. In addition, in some jurisdictions a claimant may arrest both the vessel which is subject to the claimant's maritime lien and any "associated" vessel owned or controlled by the same owner. Claimants could try to assert "sister ship" liability against one vessel in the fleet for claims relating to another of our vessels. The arrest or attachment of one or more of our vessels could under certain circumstances constitute an event of default under our financing agreements or interrupt operations and require us to pay a substantial sum of money to have the arrest lifted, which could result in a loss of earnings and have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Governments could requisition our vessels during a period of war or emergency, which may have an adverse effect on our future performance, results of operations, cash flows and financial position.
A government could requisition one or more of our vessels for title or hire. Requisition for title occurs when a government takes control of a vessel and becomes the owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a vessel and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency. Although none of our vessels have been requisitioned by a government for title or hire, a government requisition of one or more of our vessels in the future may adversely affect our future performance, results of operations, cash flows and financial position.
Technological innovation and quality and efficiency requirements from our customers could reduce our charter hire income and the value of our vessels.
Our customers, in particular those in the oil industry, have a high and increasing focus on quality and compliance standards with their suppliers across the entire supply chain, including the shipping and transportation segment. Our continued compliance with these standards and quality requirements is vital for our operations. Charter hire rates and the value and operational life of a vessel are determined by a number of factors including the vessel's efficiency, operational flexibility and physical life. Efficiency includes speed, fuel economy and the ability to load and discharge cargo quickly. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. The length of a vessel's physical life is related to its original design and construction, its maintenance and the impact of the stress of operations. If new vessels are built that are more efficient or more flexible or have longer physical lives than our vessels, competition from these more technologically advanced vessels could adversely affect the amount of charter hire payments we receive for our vessels, and the resale value of our vessels could significantly decrease which may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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The smuggling of drugs or other contraband onto our vessels may lead to governmental claims against us.
We expect that our vessels will call on ports where smugglers may attempt to hide drugs and other contraband on vessels, with or without the knowledge of crew members. To the extent our vessels are found with contraband, whether inside or attached to the hull of our vessel and whether with or without the knowledge of any of our crew, we may face governmental or other regulatory claims which could have an adverse effect on our business, results of operations and financial condition.
Risks Related to Our Company
If we are unable to operate our vessels profitably, we may be unsuccessful in competing in the highly competitive international product tanker market, which would negatively affect our financial condition and our ability to expand our business.
Our ability to achieve positive cash flows is subject to freight rates, financial, regulatory, legal, technical and other factors, many of which are beyond our control. In addition, the operation of product tankers and transportation of petroleum products is extremely competitive, and reduced demand for transportation of oil and oil products could lead to increased competition. Competition arises primarily from other product tanker owners, including major oil companies as well as independent product tanker companies, some of whom have substantially greater resources than we do. Competition for the transportation of oil and oil products can be intense and depends on price, location, size, age, condition and the acceptability of the product tanker and its operators to the charterers. We will have to compete with other product tanker owners, including major oil companies as well as independent product tanker companies. Our ability to operate our vessels profitably depends on a variety of factors, including, but not limited to (i) loss or reduction in business from significant customers, (ii) unanticipated changes in demand for transportation of crude oil and petroleum products, (iii) changes in production of or demand for oil and petroleum products, generally or in particular regions, (iv) greater than anticipated levels of tanker newbuilding orders or lower than anticipated levels of tanker recylings, (v) increases in the cost of bunkers, and (vi) changes in rules and regulations applicable to the tanker industry, including legislation adopted by international organizations such as IMO and the EU or by individual countries. If we are unable to operate our vessels profitably, our financial condition and ability to expand our business would be negatively affected.
We are dependent on spot charters and any decrease in spot charter rates in the future may adversely affect our earnings.
We employ the majority of our vessels on spot voyage charters or short-term time charters and generate a significant portion of our revenue from the spot market. The spot charter market may fluctuate significantly based upon product tanker and oil supply and demand. The successful operation of our vessels in the competitive spot charter market depends on, among other things, obtaining profitable spot charters and minimizing, to the extent possible, time spent waiting for charters and time spent traveling ballast to pick up cargo. The spot market is very volatile, and, in the past, there have been periods when spot charter rates have declined below the operating cost of vessels. For example, over the past five years, MR spot market rates expressed as a time charter equivalent have ranged from a low of approximately $6,500 to a high of approximately $44,600 per day. During 2019, our product tanker fleet realized average spot TCE earnings of $16,526 per day. If future spot charter rates decline, we may be unable to operate our vessels trading in the spot market profitably, meet our obligations, including payments on indebtedness, or pay dividends in the future. Furthermore, as charter rates for spot charters are fixed for a single voyage, which may last up to several weeks, during periods in which spot charter rates are rising, we will generally experience delays in realizing the benefits from such increases, which may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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We are subject to certain risks with respect to entering into new time charter-in contracts due to our dependence on spot charters.
We have the opportunity to charter-in additional vessels for longer or shorter periods. Because we employ the majority of our vessels on spot voyage charters or short-term time charters, we may be exposed to changes in the freight rates that are significantly below the hire to be agreed in a time charter-in contract. This exposure could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
We are subject to certain risks with respect to our counterparties on contracts, and failure of such counterparties to meet their obligations could cause us to suffer losses or negatively impact our results of operations and cash flows.
We regularly enter into bunker hedging contracts, employ vessels on Contracts of Affreightment, or COAs, fixed rate time charters and voyage charters, and enter into newbuilding contracts with shipyards. Such agreements subject us to counterparty risks. The ability of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the maritime industry, the overall financial condition of the counterparty, charter rates received for specific types of vessels and various expenses. In addition, in depressed market conditions, our charterers and customers may no longer need a vessel that is currently under charter or contract or may be able to obtain a comparable vessel at lower rates. As a result, charterers and customers may seek to renegotiate the terms of their existing charter agreements or avoid their obligations under those contracts, and it may be difficult for us to secure substitute employment for such vessel. Furthermore, any new charter arrangements we secure in the spot market or on time charters may be at lower rates. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses, which could have a material adverse effect on our future performance, results of operations, cash flows and financial position. To reduce our counterparty risk, we perform a credit check on the prospective customers, however, we cannot guarantee that this process reveals the embedded default risk.
We are subject to certain risks with respect to our counterparties on our newbuilding construction contracts, and the failure of our counterparties to meet their obligations under our newbuilding contracts could cause us to suffer losses or otherwise adversely affect our business.
Timely delivery of the three newbuildings in our orderbook (two LR2 vessels and one MR vessel), and any other newbuildings we may acquire in the future, are subject to our counterparties meeting their obligations. We are therefore exposed to the risk of failure, cost overruns, delayed delivery, technical problems, quality or engineering problems and other counterparty risks. A number of shipping construction companies have reportedly been experiencing financial challenges. Any such financial challenges may affect operations and the timely delivery of newbuildings. Furthermore, a cancellation due to financial difficulties or bankruptcy of the yard could imply that pre-delivery installments are not recovered or are recovered only after long arbitrations that can last occasionally several years.
Measures have been taken to supervise the quality of the work completed at the yard where our newbuildings are being constructed. We have obtained refund guarantees for the pre-delivery installments on each GSI MR Vessel from the Export-Import Bank of China or China CITIC bank as security for pre-delivery installment payments paid to Guangzhou Shipyard International Company Limited, or GSI. The refund guarantees are limited to an amount of approximately $6.2 million plus interest for each of the GSI MR newbuildings, which corresponds to the maximum outstanding exposure we would have at any given time. We expect the MR newbuildings to be delivered in the first half of 2020.
We can provide no assurance that these, or any other measures we may take, will fully mitigate these risks, and any failure by a counterparty to meet its obligations in relation to the newbuildings may result in delays or cancellations of the delivery of the newbuildings, renegotiation of terms, delayed renewal of our product tanker fleet and consequent deterioration of our competitive position, any of which may result in significant losses for us which could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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An inability to effectively time investments in and divestments of vessels could prevent the implementation of our business strategy and negatively impact our results of operations and financial condition.
Our strategy is to own and operate a fleet large enough to provide global coverage, but no larger than what the demand for our services can support over a longer period by both contracting newbuildings and through acquisitions and disposals in the second-hand market. Our business is greatly influenced by the timing of investments and/or divestments and contracting of newbuildings. If we are unable to identify the optimal timing of such investments, divestments or contracting of newbuildings in relation to the shipping value cycle due to capital restraints, this could have a material adverse effect on our competitive position, future performance, results of operations, cash flows and financial position.
An increase in operating costs would decrease our earnings and have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Our vessel operating expenses include the costs of crew, provisions, deck and engine stores, insurance, security measures and maintenance and repairs. Those expenses depend on a variety of factors, many of which are beyond our control and subject to development in the market of the respective input. Voyage expenses include bunkers (fuel), port and canal charges. If our vessels suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock repairs are unpredictable and can be substantial. Some of these costs, primarily relating to insurance, crewing and enhanced security measures, have been increasing on a relative basis and may increase further in the future. An increasing cost base may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
When purchasing and managing previously second-hand vessels, we are exposed to unforeseen operating costs and vessels off-hire. Second-hand vessels are typically acquired without a warranty period, and inspections prior to purchase may not fully reveal the condition of the vessel. We may therefore be required to perform repair and maintenance resulting in additional operating costs.
A substantial portion of our revenues is derived from a limited number of customers, and the loss of any of these customers could result in a significant loss of revenues and cash flow.
We currently derive substantially all of our revenues from a limited number of customers. In 2019, twenty customers accounted for approximately 80% of our total revenues. The loss of any significant customer or a decline in the amount of services provided to a significant customer could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
We may not be able to meet our ongoing operations and working capital needs and may not be able to obtain additional financing in the future on acceptable terms or at all.
As of December 31, 2019, our available liquidity was approximately $246 million, which consisted of approximately $73 million in cash and approximately $173 million in undrawn credit facilities. As of December 31, 2019, outstanding capital expenditures relating to our order book excluding scrubber commitments amounted to $51 million.
If we do not generate sufficient cash flows from our operations to finance our ongoing operations and working capital needs, including funding for, among other things, our newbuilding commitments, we may need to procure additional funding in the future in the public or private equity or debt capital markets. Adequate sources of funding may not be available when needed or may not be available on terms acceptable to us. Our ability to obtain such additional capital or financing will in part depend on prevailing market conditions as well as the financial position of our business and our operating results, which may affect our efforts to arrange additional financing on satisfactory terms. If new shares are issued, it may result in a dilution of the existing shareholders. There can be no assurance that we will be able to maintain or obtain required loan or equity financing to meet any additional working capital or capital investment needs.
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In line with industry practice, our suppliers provide us with short-term credit, or short-term supply credits, to purchase, among other things, bunkers and other petroleum products. If our short-term supply credits are reduced or withdrawn, this could have a material adverse effect on our business, results of operations, cash flows and financial position.
In addition, if available and satisfactory funding is insufficient at any time in the future, we may be unable to respond to competitive pressures or customers' requirements regarding vessel maintenance and fleet age or take advantage of business opportunities. Failure to obtain additional financing could have a material adverse effect on our business, results of operations, cash flows and financial position and could lead to bankruptcy or other insolvency proceedings.
As our product tanker fleet ages, we are exposed to increased operating costs and decreased competitiveness, which could adversely affect our earnings, and the risks associated with older vessels could adversely affect our ability to obtain profitable charters.
Our owned vessels had an average age of 10.8 years as of December 31, 2019. The recent introduction of eco-designs for vessels emphasizes that there is a continuous need for us to focus on cost optimizing measures to remain competitive, which may require us to more rapidly upgrade our product tanker fleet in the future. We may not be able to fund or secure additional financing to complete the acquisition of new or second-hand vessels required to renew and upgrade our product tanker fleet, which may lead to deterioration of our product tanker fleet's performance.
In general, the costs to maintain a vessel in good operating condition increase with the age of the vessel, and the current age of our fleet means that we must spend substantial resources on maintenance. It is also difficult to estimate with certainty the maintenance and operating costs that will be incurred for an older vessel and there is a risk that these costs will exceed expectations. Further, older vessels are typically less fuel-efficient than more recently constructed vessels due to improvements in engine technology. This difference in fuel-efficiency is likely to be compounded going forward as a result of the IMO's lower sulfur fuel requirements currently in effect. Cargo insurance rates increase with the age of a vessel, as older vessels may be less desirable to charterers and may be restricted in the type of activities in which the vessels can engage. Some oil companies chartering our vessels have stricter compliance and maintenance requirements on vessels of 15 years of age or older and therefore such vessels' tradability may decrease. Governmental regulations, safety or other equipment standards related to the age of vessels may require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which the vessels may engage. As our vessels age, market conditions may not justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives.
While we have tried to strike a balanced portfolio based on return of invested capital of vessel types and age, the increasing average age of our product tanker fleet, the potential for more fuel-efficient vessels to enter the market, uncertainties regarding our maintenance costs going forward and our willingness or ability to renew our product tanker fleet could have a material adverse effect on our competitive position, future performance, results of operations, cash flows and financial position.
Our failure to pass vessel inspections by classification societies and other private and governmental entities and operate our vessels may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Our vessels are subject to inspections from government and private entities, and we are required to obtain permits, licenses and certificates for the operation of our vessels as well as vetting or other types of commercial and operational approvals. In addition, the hull and machinery of every commercial vessel must be classed by a classification society authorized by the vessel's country of registry. Classification societies are non-governmental, self-regulating organizations and certify that a vessel is safe and seaworthy in accordance with the applicable rules and regulations of the country of registry of the vessel. A vessel must undergo various mandatory surveys. A vessel's machinery may be on a continuous survey cycle, under which the machinery would be surveyed periodically over a five-year period. The Company's vessels are on survey cycles for hull inspection and continuous survey cycles for machinery inspection. Every vessel is subject to statutory annual, intermediate and special surveys in a five-year cycle, this will include two surveys of the vessels underwater areas. If any vessel fails any survey, the vessel may be unable to trade between ports and therefore be unemployable, which may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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If we cannot meet our customers' quality and compliance requirements, we may not be able to operate our vessels profitably.
Customers, and in particular those in the oil industry, have a high and increasing focus on quality and compliance standards with their suppliers across the entire value chain, including the shipping and transportation segment. Our continuous compliance with these standards and quality requirements is vital for the Company's operations. Related risks could materialize in multiple ways, including a sudden and unexpected breach in quality and/or compliance concerning one or more vessels, a continuous decrease in the quality concerning one or more vessels occurring over time. Moreover, continuously increasing requirements from oil industry constituents can further complicate our ability to meet the standards. Any non-compliance by the Company, either suddenly or over a period of time, on one or more vessels, or an increase in requirements by oil operators above and beyond what we deliver, may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Obligations associated with being a U.S.-listed public company require significant resources and management attention, and we incur increased costs as a result of being a U.S.-listed public company.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the other rules and regulations of the SEC, including Sarbanes-Oxley, and the listing and other requirements of Nasdaq New York. The various financial and other reporting obligations place significant demands on our management, administrative, operational and accounting resources and cause us to incur significant legal, accounting and other expenses that we would not otherwise incur. These rules and regulations increase our legal and financial compliance costs and may divert management's attention to ensure compliance and make some activities more time-consuming and costly. We may need to upgrade our systems or create new systems, implement additional financial and management controls, reporting systems and procedures, create or outsource an internal audit function and hire additional accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to reporting companies could be impaired. We cannot accurately predict the amount of the additional costs we may incur in the future, the timing of such costs or the degree of impact that our management's attention to these matters will have on our business.
Any failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, prospects, liquidity, results of operations and financial condition. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common shares from Nasdaq New York and/or Nasdaq Copenhagen, fines, sanctions and other regulatory action.
Sarbanes-Oxley requires, among other things, that we maintain and periodically evaluate our internal control over financial reporting as well as disclosure controls and procedures. In particular, subject to certain phase-in periods that may continue to be available to us as long as we are an emerging growth company, we will have to perform systems and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley. Compliance with Section 404 will require substantial accounting expenses and significant management efforts, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to satisfy ongoing compliance requirements. The costs of compliance with the foregoing requirements may have a material adverse effect on our future performance, results of operations, cash flows and financial condition.
We recently completed a chief financial officer transition and this transition, along with the possibility that we may in the future be unable to retain and recruit qualified key executives, key employees or key consultants, may delay our development efforts or otherwise harm our business.
Following the resignation of Mr. Christian Søgaard-Christensen in December 2018, we announced the appointment of Mr. Kim Balle as Chief Financial Officer. Mr. Balle began his tenure as Chief Financial Officer in December 2019. Our future development and prospects depend to a large degree on the experience, performance and continued service of our senior management team. Retention of these services or the identification of suitable replacements in case of future vacancies cannot be guaranteed. There can be no guarantee that the services of the current Directors and senior management team will be retained, or that suitably skilled and qualified individuals can be identified and employed, which may adversely impact our ability to commercial and financial performance. The loss of the services of any of the Directors or other members of the senior management team and the costs of recruiting replacements may have a material adverse effect on our commercial and financial performance as well. If we are unable to hire, train and retain such personnel in a timely manner, our operations could be delayed and our ability to grow our business will be impaired and the delay and inability may have a detrimental effect upon our performance.
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Failure to obtain or retain highly skilled personnel could adversely affect our operations.
We require highly skilled personnel to operate our business. There can be no assurance that we will be able to attract and retain such employees on reasonable terms in the future. Our ability to attract and retain employees and management in the future may be affected by circumstances beyond our control. Competition for skilled and other labor required for our operations has increased in recent years as the number of ocean-going vessels in the worldwide fleet has increased. If this expansion continues and is coupled with improved demand for seaborne shipping services in general, shortages of qualified personnel could further create and intensify upward pressure on wages and make it more difficult for us to staff and service vessels. In addition, we employ staff and vessel crews in a number of countries, all of which are covered by international rules of employment. Changes are made on an ongoing basis to international rules of employment and this may have a material influence on our flexibility in manning our vessels.
Such developments could adversely affect our ability to attract and retain qualified employees and management on reasonable terms in the future and, in turn, could adversely affect our future performance, results of operations, cash flows and financial position.
U.S. tax authorities could treat us as a ''passive foreign investment company'', which could have adverse U.S. federal income tax consequences to U.S. shareholders.
A foreign corporation will be treated as a ''passive foreign investment company,'' or PFIC, for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of ''passive income'' or (2) at least 50% of the average value of the corporation's assets during such taxable year produce or are held for the production of those types of ''passive income''. For purposes of these tests, ''passive income'' includes dividends, interest and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. Income derived from the performance of services does not constitute ''passive income''. U.S. shareholders of a PFIC are subject to certain reporting obligations and a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC.
Based on our current and anticipated method of operation, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. In this regard, we intend to take the position that the gross income we derive or are deemed to derive from our time and voyage chartering activities constitutes services income rather than rental income. Accordingly, we believe that our income from our time and voyage chartering activities does not constitute ''passive income'', and the assets that we own and operate in connection with the production of that income (in particular, our vessels) do not constitute assets that produce or are held for the production of "passive income".
There is substantial legal authority supporting this position, consisting of the Code, legislative history, case law and United States Internal Revenue Service, or IRS, pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is no direct legal authority under the PFIC rules addressing our specific method of operation, and there is authority that characterizes time charter income as rental income rather than services income for other tax purposes. Accordingly, no assurance can be given that the IRS or a court of law will accept this position, and there is a risk that the IRS or a court of law could determine that we are a PFIC. Moreover, no assurance can be given that we would not constitute a PFIC for any future taxable year if the nature and extent of our operations or the composition of our income or assets change. If the IRS were to find that we are a PFIC for any taxable year, our U.S. shareholders will face adverse U.S. federal income tax consequences and will incur certain information reporting obligations that may be onerous. Under the PFIC rules, unless those shareholders make an election available under the Code (which election could itself have adverse tax consequences for such shareholders), such shareholders would be subject to U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of the common shares. Please see "Item 10. Additional Information—E. Taxation –U.S. Federal Income Taxation of U.S. Holders—Passive Foreign Investment Company Status and Significant U.S. Federal Income Tax Consequences" for a more comprehensive discussion.
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We may have to pay tax on U.S. source income, which would reduce our earnings.
Under the U.S. Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as we and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as U.S. source shipping income, and such income is subject to a 4% U.S. federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under Section 883 of the Code or under the terms of a U.S. income tax treaty.
We do not believe that we or our subsidiaries will qualify for exemption from tax under Section 883, although we and our subsidiaries may qualify in the future if there is a change in our capital structure. See "Item 10. Additional Information—E. Taxation—United States Federal Income Taxation of the Company" for a more comprehensive discussion.
We and/or one or more of our subsidiaries (collectively referred to as "we" for purposes of this paragraph) may qualify for exemption from tax under the terms of the U.S.-U.K. Income Tax Treaty or the U.S.-Denmark Income Tax Treaty. Whether we so qualify depends, among other things, on whether we satisfy the Limitation on Benefits article of the applicable U.S. income tax treaty. In particular, we would generally satisfy the Limitation on Benefits article if we can establish that we are engaged in the active conduct of a trade or business in the U.K. or Denmark, whichever is applicable, our U.S. source shipping income is derived in connection with, or is incidental to, such trade or business, and such trade or business activity in the applicable treaty jurisdiction is substantial in relation to our trade or business activity in the United States. Given the legal and factual uncertainties in making the foregoing determination, there can be no assurance that we will be able to qualify for exemption from tax under a U.S. income tax treaty, or that the IRS or a court of law will agree with our determination in this regard.
If we or our subsidiaries are not entitled to the exemption under Section 883 of the Code or under the terms of a U.S. income tax treaty for any taxable year, we and our subsidiaries would be subject to a 4% U.S. federal income tax on gross U.S. source shipping income for such taxable year. The imposition of this taxation could have a negative effect on our business and result in decreased earnings available for distribution to our shareholders. For example, if the benefits of Section 883 and the applicable U.S. income tax treaties were unavailable for our taxable year ended December 31, 2019, we estimate that our U.S. federal income tax liability for such taxable year would have increased by approximately $4 million, although our U.S. federal income tax liability for future taxable years would vary depending upon the amount of U.S. source shipping income that we earn in each such year. See "Item 10. Additional Information—E. Taxation—United States Federal Income Taxation of the Company" for a more comprehensive discussion.
Changes to the tonnage tax or the corporate tax regimes applicable to us, or to the interpretation thereof, may impact our future operating results.
We are currently subject to tonnage tax schemes in Denmark and Singapore. If our participation in the tonnage tax schemes in these countries is abandoned, or if our level of investments and activities in these countries are significantly reduced, we may have to pay a deferred tax liability, which as of December 31, 2019 is $45 million.
Additional taxes may be payable as a result of a change in other tax laws of any country in which we operate or a change in complex tax laws that affect our international operations.
In the event that tonnage tax schemes or other tax laws are changed in the future, our overall tax burden could increase, which could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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Insurance may be difficult to obtain, or if obtained, may not be adequate to cover our losses that may result from our operations due to the inherent operational risks of the product tanker industry.
The operation of ocean-going vessels represents a potential risk of significant losses and liabilities caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In the course of the fleet's operation, various casualties, accidents and other incidents, including an oil spill or emission of other environmentally hazardous agents from a vessel, may occur that may result in significant financial losses and liabilities for us. An accident involving any of the fleet's vessels could result in death or injury to persons, loss of property, environmental damage, delays in delivery of cargo, loss of revenue from termination of contracts or unavailability of vessels, fines or penalties, higher insurance rates, litigation and damage to our reputation and customer relationships.
In order to reduce the exposure to these risks, we carry insurance to protect us against most of the accident-related risks involved in the conduct of our business, including marine hull and machinery insurance, cyber and crime insurance, protection and indemnity insurance, including pollution risks, crew insurance and war risk insurance. Incidents may occur where we may not have sufficient insurance coverage, and some claims may not be covered. Furthermore, insurance costs may increase as a consequence of unforeseen incidents or other events beyond our control. In addition, in the future particularly in adverse market conditions it may not be possible to procure adequate insurance coverage or only on commercially unacceptable terms.
Any significant loss or liability for which we have not or have not been able to take out adequate insurance, or events causing an increase of insurance costs could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
We may be subject to litigation that, if not resolved in our favor, could have a material adverse effect on us.
We and our activities are subject to both U.K. and foreign laws and regulations many of which include legal standards, which are subject to interpretation, and we are party to agreements and transactions, involving matters of assessment of interests of various stakeholders and valuation of assets, liabilities and contractual rights and obligations. Furthermore, we may be subject to the jurisdiction of courts or arbitration tribunals in many different jurisdictions.
Our counterparties and other stakeholders or authorities may dispute our compliance with laws and regulations or contractual undertakings or the assessments made by us in connection with our business and the entry into agreements or transactions. The outcome of any such dispute or legal proceedings is inherently uncertain and may include payment of substantial amounts in legal fees and damages or that a transaction or agreement is deemed invalid or voidable. Such proceedings or decisions could have a material adverse effect on our future performance, results of operations, cash flows and financial position. If cases or proceedings in which we may be involved are determined to our disadvantage, it may result in fines, default under our debt facilities, damages or reputational damage and could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Fluctuations in exchange rates and non-convertibility of currencies could result in losses to us.
As a result of our international operations, we are exposed to fluctuations in foreign exchange rates due to parts of our revenues being received and operating expenses paid in currencies other than United States dollars. We use United States dollars as the functional currency because the majority of the Company's transactions are denominated in United States dollars. Thus, the Company's exchange rate risk is related to cash flows not denominated in United States dollars. The primary risk relates to transactions denominated in Danish Krone or DKK, Euro or EUR, Indian Rupee or INR, Singapore Dollar or SGD, or other major currencies, which relate to administrative and operating expenses.
We have historically generated almost all revenues and incurred the majority part of our expenses in United States dollars. The remaining balances were in DKK, EUR, INR, SGD and other major currencies. Accordingly, we may experience currency exchange losses if we have not fully hedged our exposure to a foreign currency. A change in exchange rates could have a material adverse impact on our future performance, results of operations, cash flows and financial position.
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Investment in derivative instruments such as freight forward agreements could result in losses to us.
We use the derivative markets and take positions in derivative instruments, such as forward freight agreements, or FFAs, for the purposes of hedging our exposure to fluctuations in the charter market, interest rates, foreign exchange rates and bunker prices. Our financing agreements set forth limitations on our level of forward freight agreements exposure and prohibit speculation on interest rates, foreign exchange and bunker swaps. From time to time, we may take positions in such derivative instruments, and as a result we may incur derivative exposure that could have a material adverse effect on our future performance, results of operations, cash flows and financial position. If liquidity in these derivative markets decreases or disappears, it could make it difficult or more expensive for us to perform such hedging, which could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
U.S. and other non-U.K. holders of our Class A common shares may not be able to exercise pre-emptive subscription rights or participate in future offerings.
Holders of our Class A common shares have certain pre-emption rights with respect to certain of our issuances unless those rights are disapplied by virtue of a resolution of the shareholders at a general meeting. Securities laws of certain jurisdictions may restrict the ability for shareholders in such jurisdictions to participate in any future issuances of shares carried out on a pre-emptive basis. Shareholders residing or domiciled in the United States, as well as certain other countries, may not be able to exercise their pre-emption rights or participate in future capital increases or securities issuances, including in connection with an offering below market value, unless we decide to comply with local requirements and, in the case of the United States, unless a registration statement is effective, or an exemption from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act, is available with respect to such rights.
In such cases, shareholders resident in such non-U.K. jurisdictions may experience a dilution of their shareholding, possibly without such dilution being offset by any compensation received in exchange for subscription rights. No assurance can be given that local requirements will be complied with or that any registration statement would be filed in the United States or other relevant jurisdictions, or that another exemption from the registration requirements of the Securities Act or laws of other relevant jurisdictions would apply, so as to enable the exercise of such holders' pre-emption rights or participation in any future securities issuances.
Because we are a non-U.S. corporation, you may not have the same rights that a creditor of a U.S. corporation may have, and it may be difficult to serve process on or enforce a U.S. judgment against us and our officers and directors.
We are an English company, and our executive offices are located outside of the United States. Our officers and the majority of our directors reside outside of the United States. In addition, substantially all of our assets and the assets of our officers and directors are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons or enforcing any judgments obtained in U.S. courts to the extent assets located in the United States are insufficient to satisfy the judgments. In addition, original actions or actions for the enforcement of judgments of U.S. courts with respect to civil liabilities solely under the federal securities laws of the United States may not be enforceable in England.
We may be exposed to fraudulent behavior, which may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
The risk of fraud is inherent in all industries and is not specific to the shipping industry. However, historically, the shipping industry has involved an increased risk of fraud and fraudulent behavior. Potential fraud risks include purposeful manipulation and misrepresentation of financial statements, misappropriation of tangible assets, intangible assets and proprietary business opportunities, corruption including bribery and kickbacks and cyberattacks. We have established a system of internal controls to prevent and detect fraud and fraudulent behavior, consisting of segregation of duties, authorizations for trading, purchase and approval, codes of ethics and conduct, close monitoring of our financial position and a whistleblower facility. Moreover, we have implemented a fraud awareness campaign and instituted additional fraud prevention processes in cooperation with leading fraud prevention specialists.
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However, there can be no assurance that our fraud prevention measures are sufficient to prevent or mitigate our exposure to fraud or fraudulent behavior in the future, and any such behavior can have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Breakdowns in our information technology, including as a result of cyberattacks, may negatively impact our business, including our ability to service customers, and may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
Our ability to operate our business and service our customers is dependent on the continued operation of our information technology, or IT, systems, including our IT systems that relate to, among other things, the location, operation, maintenance and employment of our vessels. Our IT systems may be compromised by a malicious third party, man-made or natural events, or the intentional or inadvertent actions or inactions by our employees or third-party service providers. If our IT systems experience a breakdown, including as a result of cyberattacks, our business information may be lost, destroyed, disclosed, misappropriated, altered or accessed without consent, and our IT systems, or those of our service providers, may be disrupted.
Cybercrime attacks could cause disclosure and destruction of business databases and could expose the Company to extortion by making business data temporarily unreadable. As cyberattacks become increasingly sophisticated, and as tools and resources become more readily available to malicious third parties, there can be no guarantee that our actions, security measures and controls designed to prevent, detect or respond to intrusion, to limit access to data, to prevent destruction or alteration of data or to limit the negative impact from such attacks, can provide absolute security against compromise.
Any breakdown in our IT systems, including breaches or other compromises of information security, whether or not involving a cyberattack, may lead to lost revenues resulting from a loss in competitive advantage due to the unauthorized disclosure, alteration, destruction or use of proprietary information, including intellectual property, the failure to retain or attract customers, the disruption of critical business processes or information technology systems and the diversion of management's attention and resources. In addition, such breakdown could result in significant remediation costs, including repairing system damage, engaging third-party experts, deploying additional personnel, training employees and compensation or incentives offered to third parties whose data has been compromised. We may also be subject to legal claims or legal proceedings, including regulatory investigations and actions, and the attendant legal fees as well as potential settlements, judgments and fines.
Even without actual breaches of information security, protection against increasingly sophisticated and prevalent cyberattacks may result in significant future prevention, detection, response and management costs, or other costs, including the deployment of additional cybersecurity technologies, engaging third-party experts, deploying additional personnel and training employees. Further, as cyberthreats are continually evolving, our controls and procedures may become inadequate, and we may be required to devote additional resources to modify or enhance our systems in the future. Such expenses could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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Risks Relating to Our Indebtedness
We have a significant amount of financial debt, and servicing our current or future indebtedness limits funds available for other purposes.
As of December 31, 2019, we had interest-bearing debt, which includes mortgage debt and bank loans, finance lease liabilities and net of amortized bank fees of $855 million and net interest-bearing debt, which includes interest-bearing debt net of cash and cash equivalents, including restricted cash of $786 million.
We may also incur additional debt in the future. This level of debt could adversely affect our ability to obtain additional financing for working capital or other capital expenditures on favorable terms. Future creditors may subject us to certain limitations on our business and future financing activities as well as certain financial and operational covenants. Such restrictions may prevent us from taking actions that otherwise might be deemed to be in the best interest of us and our shareholders.
Debt service obligations require us and will require us in the future to dedicate a substantial portion of our cash flows from operations to payments on principal and interest on our interest-bearing debt, which could limit our ability to obtain additional financing, make capital expenditures and acquisitions and/or carry out other general corporate activities in the future. Any such obligations may also limit our flexibility in planning for, or reacting to, changes in our business and the industry where we operate or detract from our ability to successfully withstand a downturn in our business or the economy in general.
Our ability to service our debt will, among other things, depend on our future financial and operating performance, which will be affected by prevailing economic conditions as well as financial, business, regulatory, competitive, technical and other factors, some of which are beyond our control. If our cash flow is not sufficient to service our current or future indebtedness, we will be forced to take action such as reducing or delaying business activities, acquisitions or investments, selling assets, restructuring or seeking additional capital, which may not be available to us on acceptable terms or at all. We may not be able to effect any of these remedies on satisfactory terms, without the consent of our existing lenders or at all. Additionally, a default under any indebtedness or other financial agreement by a subsidiary may constitute an event of default under other borrowing arrangements pursuant to cross-default provisions. Our inability to service and repay our debt upon maturity could have a material adverse effect on our future performance, results of operations, cash flows and financial position and could lead to bankruptcy or other insolvency proceedings.
Our financial and operational flexibility is restricted by the covenants contained in our debt facilities, and we may be unable to comply with the restrictions and financial covenants imposed in such facilities.
Our current debt facilities impose restrictions on our financial and operational flexibility. Our debt facilities impose, and any future debt facility may impose, covenants and other operating and financial restrictions on our ability to, among other things, pay dividends, charter-in vessels, incur additional debt, sell vessels or refrain from procuring the timely release of arrested vessels. Our debt facilities require us to maintain various financial ratios, including a specified minimum liquidity requirement, a minimum equity requirement and a collateral maintenance requirement. Our ability to comply with these restrictions and covenants is dependent on our future performance and our ability to operate our fleet and may be affected by events beyond our control, including fluctuating vessel values. We may therefore need to seek permission from our lenders in order to engage in certain corporate actions.
Failure to comply with the covenants and financial and operational restrictions under our debt facilities may lead to an event of default under those agreements. An event of default may lead to an acceleration of the repayment of debt. In addition, any default or acceleration under our existing debt facilities or agreements governing our other existing or future indebtedness is likely to lead to an acceleration of the repayment of debt under any other debt instruments that contain cross-acceleration or cross-default provisions. If all or a part of our indebtedness is accelerated, we may not be able to repay that indebtedness or borrow sufficient funds to refinance that debt, which could have a material adverse effect on our future performance, results of operations, cash flows and financial position and could lead to bankruptcy or other insolvency proceedings.
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Such restrictions may prevent us from taking actions that otherwise might be deemed to be in the best interest of the Company and our shareholders, and it may further affect our ability to operate our business moving forward, particularly our ability to incur debt, make capital expenditures or otherwise take advantage of potential business opportunities as they arise.
As of December 31, 2019, we were in compliance with the financial covenants contained in our debt facilities.
Change of control and mandatory repayment provisions contained in certain of our debt facilities may lead to a foreclosure of our fleet.
The terms of certain of our debt facilities require us to repay the outstanding borrowings thereunder in full if there is a change of control, which would occur if: (i) Njord Luxco or any funds solely managed by Oaktree ceases to be able, through its appointees to our Board of Directors, to control our Board of Directors or ceases to own or control at least 33.34% of the maximum number of votes eligible to be cast at a general meeting, or (ii) another person or group of persons acting in concert gains direct or indirect control of more than 50% of the shares or otherwise has the power to cast more than 50% of the votes at a general meeting of the Company, appoint or remove the chairman of our Board of Directors or the majority of the members of our Board of Directors direct our operating and financial policies with which our directors are obliged to comply. Such change of control may occur as a result of either a sale of shares by Njord Luxco or by a share capital increase resulting in a dilution of Njord Luxco's shareholding in the Company.
Njord Luxco is not restricted by us from selling their shares, and there can be no assurance that they will retain their holdings in us. We can give no assurance that Njord Luxco will continue to hold a significant interest in us. Any mandatory prepayment as a result of a change of control under certain of our debt facilities could lead to the foreclosure of all or a portion of our fleet and could have a material adverse effect on our future performance, result of operations, cash flows and financial position and could lead to bankruptcy or other insolvency proceedings.
We are exposed to volatility in the USD London Interbank Offered Rate, or LIBOR, which could affect our profitability, earnings and cash flow.
The amounts outstanding under certain of our debt facilities have been, and amounts under additional debt facilities that we may enter in the future will generally be, advanced at a floating rate based on LIBOR, which has been stable since 2009, but was volatile in prior years, and will affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. In addition, in recent years, LIBOR has been at relatively low levels and may rise in the future as the current low interest rate environment comes to an end.
LIBOR has historically been volatile, with the spread between LIBOR and the prime lending rate widening significantly at times. These conditions are the result of the disruptions in the international credit markets. Because the interest rates borne by our outstanding indebtedness fluctuate with changes in LIBOR, if this volatility were to occur, it would affect the amount of interest payable on our debt, which in turn, could have an adverse effect on our profitability, earnings and cash flow. In order to manage our exposure to interest rate fluctuations, we may from time to time use interest rate derivatives to effectively fix some of our floating rate debt obligations. As of December 31, 2019, we had hedged the interest rate on approximately 62% of our outstanding interest-bearing debt at an interest rate of 2.33% plus margin. Our current hedge ratio is within the limits set forth in our hedging policy, which is reviewed and approved annually by our Board of Directors. While we hedge parts of our exposure to floating rate interest rates via interest rate swaps, our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our exposure to the interest rates applicable to our debt facilities and any other financing arrangements we may enter into in the future. No assurance can be given that the use of these derivative instruments, or any others that we may use in the future, will effectively protect us from adverse interest rate movements. The use of interest rate derivatives may affect our results through mark to market valuation of these derivatives. Also, adverse movements in interest rate derivatives may require us to post cash as collateral, which may impact our free cash position.
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We are exposed to the proposed disappearance of USD London Interbank Offered Rate, or LIBOR beyond 2021, which could affect our interest expenses.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to be eliminated or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness and obligations.
The banks that submit loan rates are supposed to submit interest rates that they would pay for borrowing from other banks. But since there are few unsecured bank-to-bank lending transactions, they use "expert judgment" to provide most of their inputs for LIBOR calculation. The lack of transactions has led to increasing regulatory pressure to end the use of LIBOR altogether. In fact, the UK's Financial Conduct Authority announced that after 2021, it will no longer "compel or persuade" banks to submit rates. The continuation of LIBOR beyond 2021 would then rely on voluntary submissions from the panel banks, which is unlikely.
In response to the potential discontinuation of LIBOR, working groups are converging on alternative reference rates. The Alternative Reference Rates Committee, a committee convened by the Federal Reserve that includes major market participants, has proposed an alternative rate to replace the U.S. Dollar LIBOR: the Secured Overnight Financing Rate, of "SOFR". However, SOFR and other alternatives are fundamentally different to LIBOR and to each other and there can be no assurance that any alternative reference rate would become widely accepted. This means a transition will be more than an administrative challenge.
The phasing out or discontinuation of LIBOR poses the risk that our loans and swaps would be forced to be anchored to a new benchmark rate, and that shift could have a substantial effect such as a sudden jump to higher interest rates on our loans. In the event of the continued or permanent unavailability of LIBOR, many of our financing agreements contain a provision requiring or permitting us to enter into negotiations with our lenders to agree to an alternative interest rate or an alternative basis for determining the interest rate. These clauses present significant uncertainties as to how alternative rates or alternative bases for determination of rates would be agreed upon, as well as the potential for disputes or litigation with our lenders regarding the appropriateness or comparability to LIBOR of any substitute indices. In the absence of an agreement between us and our lenders, most of our financing agreements provide that LIBOR would be replaced with some variation of the lenders’ cost-of-funds rate.
TORM's interest rate hedging agreements only includes fallbacks which apply if the rate does not appear on the screen. These fallbacks were not generally drafted with permanent cessation in mind. The governing body ISDA published a benchmark supplement in September 2018, which incorporates definitions that apply in case of a permanent LIBOR cessation. TORM intends to incorporate such permanent LIBOR cessation clauses into the existing ISDA agreements. However, there is a risk that our loan agreements and interest rate swap agreements will not be anchored to the same rates if the counterparties fail to agree to these clauses.
The discontinuation of LIBOR presents a number of risks to our business, including volatility in applicable interest rates among our financing agreements, increased lending costs for future financing agreements or unavailability of or difficulty in attaining financing, which could in turn have an adverse effect on our profitability, earnings and cash flow.
Risks Relating to an Investment in Our Class A common shares
The majority of our Class A common shares are held by a limited number of shareholders, which may create conflicts of interest.
As a result of the 2015 Restructuring, a large portion of our Class A common shares are beneficially held by a limited number of shareholders, including Njord Luxco, a company affiliated with Oaktree and its affiliates. Njord Luxco is our controlling shareholder. As of the date of this annual report Oaktree owns approximately 48,252,053 Class A common shares, or approximately 64.6% of our issued and outstanding Class A common shares. One or a limited number of shareholders may have the ability, either acting alone or together as a group, to influence or determine the outcome of specific matters submitted to our shareholders for approval, including the election and removal of directors and amendments to the Articles of Association such as changes to our issued share capital or any merger or acquisition. Our Articles of Association contain certain restrictions on us undertaking certain actions unless the approval by certain of our Directors and/or a particular majority of our shareholders is obtained. Such restrictions may hamper or impede our ability to take certain corporate actions in a timely manner or at all. Any changes to the composition of the Board of Directors may lead to material changes to our business going forward.
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In its capacity as our controlling shareholder, Njord Luxco may also have interests that differ from those of other shareholders. In addition, Njord Luxco holds the Class C share, which has 350,000,000 votes at the general meetings on specified matters, including the election of members to the Board of Directors (including the Chairman but excluding the Deputy Chairman) and certain amendments to the Articles of Association proposed by the Board of Directors. When the votes carried by the Class C share are combined with the votes carried by the Class A common shares, each held by Njord Luxco, such votes would represent approximately 93.8% of the votes that may be cast on resolutions on which the Class C share may vote.
The Class C share votes may only be cast on resolutions in respect of the appointment or removal of directors (excluding the Deputy Chairman) and certain amendments to the Articles of Association proposed by the Board of Directors. The Class C share votes may not be cast on resolutions in respect of any amendments to reserved matters as specified in our Articles of Association (unless those reserved matters also constitute changes to our Articles of Association on which the Class C share is entitled to vote), pre-emptive rights of shareholders, rights attached to the Class B share and other minority protection rights provisions contained in our Articles of Association. Please see "Item 10. Additional Information—A. Share Capital —Our Shares—Class C Share". The Class C share will be automatically redeemed when Njord Luxco and its affiliates cease to beneficially own at least one third of our issued Class A common shares. The voting rights attached to the Class C share have the practical effect of allowing Njord Luxco to control our Board of Directors and to make amendments to the Articles of Association proposed by the Board of Directors, other than amendments to the minority protections, even when Njord Luxco holds only a third of our issued Class A common shares.
The interests of Njord Luxco may conflict with the interests of the other shareholders. In addition, conflicts of interest may exist or occur among the major shareholders themselves.
Further, Njord Luxco, companies affiliated with Njord Luxco and companies affiliated with Njord Luxco's indirect parent, Oaktree, hold substantial commercial and financial interests in other shipping companies, including companies that are active in the same markets as us, and with whom we might compete from time to time. Any material conflicts of interest between us and Njord Luxco, Oaktree and/or other shareholders may not be settled in our favor and may have a material adverse effect on our future performance, results of operations, cash flows and financial position.
An active and liquid market for our Class A common shares may not develop or be sustained.
TORM plc's Class A common shares commenced trading on Nasdaq New York on December 11, 2017, prior to which there had been no established trading market for those shares in the United States. Our Class A common shares now trade on both Nasdaq New York and Nasdaq Copenhagen. Active and liquid trading markets generally result in lower bid ask spreads and more efficient execution of buy and sell orders for market participants. Since the listing of our Class A common shares on Nasdaq New York, a limited number of our Class A common shares have traded on Nasdaq New York. If a more active trading market for our Class A common shares does not develop, the price of the Class A common shares may be more volatile, and it may be more difficult and time-consuming to complete a transaction in the Class A common shares, which could have an adverse effect on the realized price of the Class A common shares, or we could be delisted from Nasdaq New York. We cannot predict the price at which our Class A common shares will trade and cannot guarantee investors can sell their shares at or above the issuance price. There is no assurance that a more active and liquid trading market for our Class A common shares will develop or be sustained in the United States.
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We are an "emerging growth company", and we cannot be certain that the reduced disclosure and other requirements applicable to emerging growth companies will make our Class A common shares less attractive to investors.
We are an "emerging growth company", as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley for up to five years. We are now two years into the five-year period as an emerging growth company. Investors may find our Class A common shares and the price of our Class A common shares less attractive because we rely, or may rely, on these exemptions. If some investors find our Class A common shares less attractive as a result, there may be a less active trading market for our Class A common shares and the price of our Class A common shares may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare our consolidated financial statements in accordance with IFRS as issued by the IASB, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an emerging growth company, we may be able to take advantage of the benefits of this extended transition period and, as a result, during such time that we delay the adoption of any new or revised accounting standards, our consolidated financial statements may not be comparable to other companies that comply with all public company accounting standards.
We could remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the date we first sell our common equity securities pursuant to an effective registration statement under the Securities Act, although a variety of circumstances could cause us to lose that status earlier. For as long as we take advantage of the reduced reporting obligations, the information that we provide to shareholders may be different from information provided by other public companies.
We cannot guarantee that our Board of Directors will declare dividends.
Our Board of Directors may, in its sole discretion, from time to time, declare and pay cash dividends in accordance with our Articles of Association, applicable law and in accordance with loan agreements. We can only distribute dividends to shareholders out of funds legally available for such payments. Our Board of Directors makes determinations regarding the payment of dividends in its sole discretion, and there is no guarantee that we will be able to or decide to pay dividends to shareholders in the future. In addition, our dividend policy provides that up to 50% of the net profit for the financial year, payable on a quarterly basis, may be distributed as a dividend. On May 12, 2016, we announced a new distribution policy, pursuant to which we intend to distribute 25-50% of our net income on a semi-annual basis. We did not declare any dividends or distributions in 2019.
In addition, the markets in which we operate our vessels are volatile, and we cannot predict with certainty the amount of cash, if any, that will be available for distribution as dividends in any period. We may also incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described herein. If additional financing is not available to us on acceptable terms, our Board of Directors may determine to finance or refinance acquisitions with cash from operations, which would reduce the amount of any cash available for the payment of dividends. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Distribution Policy".
We may issue additional securities without shareholder approval, which may dilute ownership interests of existing shareholders and may depress the market of our securities.
We may issue additional securities of equal or senior rank to existing securities, without shareholder approval, in a number of circumstances. At the Company's 2016 Annual General Meeting of Shareholders, our Board of Directors was granted certain authorizations to increase our issued share capital, both with and without pre-emption rights to the existing shareholders. These share authorities expire on March 14, 2021.
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The issuance by us of additional securities of equal or senior rank to existing securities may have the following effects:

| • | our existing shareholders' proportionate ownership interest in us may decrease;

| • | the amount of cash available for dividends or interest payments may decrease;

| • | the relative voting strength of previously issued outstanding securities may be diminished; and

| • | the market price of our securities may decline.

As of the date of this annual report, we had 4,701,864 warrants outstanding with each warrant being convertible into one Class A common share, par value $0.01 per share, against payment of a subscription price in cash to us of DKK 95.24. The warrants can be exercised until July 13, 2020. In accordance with our remuneration policy, our Board of Directors has, as part of the long-term incentive program, granted certain members of our management and employees Restricted Share Units, or RSUs, in the form of restricted stock options. The RSUs aim at incentivizing the employees to seek to improve the performance of the Company and thereby our share price for the mutual benefit of themselves and our shareholders. There were an aggregate of 2,228,230 RSUs outstanding as of the date of this annual report. Subject to vesting, each RSU entitles the holder to acquire one Class A common share. The RSUs will vest over a three to five-year period from the grant date with an exercise price for each Class A common share of DKK 93.6, 53.7 or 49.7, depending on the year that the RSUs were granted. The exercise price on the RSUs may be adjusted by the Board of Directors to reflect dividend payments made to shareholders. Assuming the exercise of all of our outstanding warrants and full vesting and exercise of our outstanding RSUs, this would result in the issuance of 6,930,094 additional Class A common shares representing approximately 9% of our issued and outstanding Class A common shares. Please see "Item 10. Additional Information—A. Share Capital—Warrants" and "—Restricted Share Units".
Our share price may be highly volatile, and future sales of our Class A common shares could cause the market price of our Class A common shares to decline.
The market price of TORM A/S' and TORM plc's shares, as applicable, has historically fluctuated over a wide range and may continue to fluctuate significantly in response to many factors, such as actual or anticipated fluctuations in our operating results, changes in financial estimates by securities analysts, economic and regulatory trends, general market conditions, rumors and other factors, many of which are beyond our control. The stock market experiences extreme price and volume fluctuations. If the volatility in the market continues or worsens, it could have a material adverse effect on the market price of our Class A common shares and impact a potential sale price if holders of our Class A common shares decide to sell their shares.
In addition, a large proportion of our Class A common shares are held by a limited number of shareholders. A potentially limited free float due to shareholder concentration may have a negative impact on the liquidity of our Class A common shares and may result in a low trading volume, which could have an adverse effect on the market price and result in increased volatility.
Further, future sales or availability for sale of our Class A common shares may materially affect the price of our Class A common shares. Sales of substantial amounts of Class A common shares, including sales by Njord Luxco, or the perception that such sales could occur, may adversely affect the market price of our Class A common shares.
Future issues of new shares or other securities may be restricted.
According to our Articles of Association, certain issuances of shares, warrants, debt instruments or other securities convertible into or exchangeable for shares without giving effect to pre-emption rights require consent from shareholders representing 95% or more of the votes cast at the relevant general meeting. Further, certain reserved matters, as specified in our Articles of Association, require approval by either the majority of the members of the Board of Directors (including the Chairman and the Deputy Chairman (or their respective alternates) or, in circumstances where the Deputy Chairman (or his alternate) has either not voted in favor of any such matter or did not attend the meeting of the Board of Directors at which such matter was considered, or any such matter has been put to a shareholder vote, by shareholders representing at least 70% or 86% of our issued Class A common shares, as applicable. These restrictions may limit our financial and operational flexibility, including our ability to raise funds on the equity capital markets, and could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
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Future issuances and sales of our Class A common shares could cause the market price of our Class A common shares to decline.
As of the date of this annual report, our issued (and fully paid up) share capital is $747,606.55, which is represented by 74,760,653 Class A common shares (which includes 312,871 treasury shares), one Class B share and one Class C share. Issuances and sales of a substantial number of Class A common shares in the public market, or the perception that these issuances or sales could occur, may depress the market price for our Class A common shares. Such sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. Our shareholders may incur dilution from any future equity offering.
Risks Related to Being an English Company Listing Class A Common Shares
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation organized in Delaware.
We are incorporated under the laws of England and Wales. The rights of holders of our Class A common shares are governed by English law, including the provisions of the U.K. Companies Act 2006, or the U.K. Companies Act, and by our Articles of Association. These rights may differ in certain respects from the rights of shareholders in typical U.S. corporations organized in Delaware. The principal differences are set forth in “UK Law Considerations” contained in our Registration Statement on Form 20-F (Registration No. 001-38294), as amended, which was filed with the SEC on November 24, 2017, and which we refer to as the 20-F Registration Statement.
U.S. investors may have difficulty enforcing civil liabilities against the Company, our directors or members of senior management and the experts named in this annual report.
We are incorporated under the laws of England and Wales. Several of our directors reside outside the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may be difficult for you to serve legal process on us or our directors or have any of them appear in a U.S. court. The United States and the United Kingdom do not currently have a treaty providing for the recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. The enforceability of any judgment of a U.S. federal or state court in the United Kingdom will depend on the laws and any treaties in effect at the time, including conflicts of laws principles (such as those bearing on the question of whether a U.K. court would recognize the basis on which a U.S. court had purported to exercise jurisdiction over a defendant). In this context, there is doubt as to the enforceability in the United Kingdom of civil liabilities based solely on the federal securities laws of the United States. In addition, awards for punitive damages in actions brought in the United States or elsewhere may be unenforceable in the United Kingdom. An award for monetary damages under the U.S. securities laws would likely be considered punitive if it did not seek to compensate the claimant for loss or damage suffered and was intended to punish the defendant.
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Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in England or in actions instituted in England to enforce judgments of U.S. courts.
Civil liabilities based upon the securities and other laws of the United States may not be enforceable in original actions instituted in England or in actions instituted in England to enforce judgments of U.S. courts. Actions for the enforcement of judgments of U.S. courts might be successful only if the English court confirms the jurisdiction of the U.S. court and is satisfied that:

| • | the effect of the enforcement judgment is not manifestly incompatible with English public policy or natural justice;

| • | the judgment was not obtained on the basis of fraud;

| • | the judgment did not violate the human rights of the defendant;

| • | the judgment is final and conclusive;

| • | the judgment is not incompatible with a judgment rendered in England or with a subsequent judgment rendered abroad that might be enforced in England;

| • | a claim was not filed outside England after the same claim was filed in England, while the claim filed in England is still pending;

| • | the English courts did not have exclusive jurisdiction to rule on the matter; and

| • | the judgment submitted to the English court is authentic.

English law and provisions in our Articles of Association may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.
Certain provisions of English law and our Articles of Association may have the effect of delaying or preventing a change in control of us or changes in our management. For example, English law and our Articles of Association include provisions that establish an advance notice procedure for shareholder approvals to be brought before a general meeting of our shareholders, including proposed nominations of persons for election to our Board of Directors. Such provisions could delay or prevent hostile takeovers and changes in control or changes in our management. In addition, these provisions may adversely affect the market price of our Class A common shares or inhibit fluctuations in the market price of our Class A common shares that could otherwise result from actual or rumored takeover attempts.
The U.K. City Code on Takeovers and Mergers, or the Takeover Code, applies to the Company. If at the time of a takeover offer the Takeover Code still applies, we would be subject to a number of rules and restrictions, including - but not limited to - the following: (i) our ability to enter into deal protection arrangements with a bidder would be extremely limited; (ii) we might not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions or disposals; and (iii) we would be obliged to provide equality of information to all bona fide competing bidders.
Njord Luxco holds over 50% of our voting share capital, and therefore, if the Takeover Panel were to determine that we were subject to the Takeover Code, Njord Luxco would be able to increase its aggregate holding in us without triggering the requirement under Rule 9 of the Takeover Code to make a cash offer for the outstanding shares in the Company.
The United Kingdom has formally withdrawn from the European Union, and the implications for the laws and regulations in the United Kingdom and the impact on the global economy are uncertain.
In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum (informally known as Brexit). The United Kingdom’s withdrawal from the European Union took effect at 11pm GMT on January 31, 2020, when the European Union (Withdrawal Agreement) Act 2020 came into force. The European Union (Withdrawal Agreement) Act 2020 provides for a transition period commencing on January 31, 2020 and ending at 11pm GMT on December 31, 2020. It is not clear what impact Brexit will have on the conduct of cross-border business. There remains significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply to the United Kingdom following the end of the transition period. The UK's exit from the EU could materially change the regulatory and tax framework applicable to the Company. These developments have had and may continue to have a material adverse effect on global economic conditions. The withdrawal of the United Kingdom from the EU may lead to a downturn across the European economies, and there is a risk that other countries in the European Union will look to hold referendums on whether to stay in or leave the EU. In addition, there are increasing concerns that these events might push the UK, Eurozone and/or United States into an economic recession. Although it is too early to anticipate what these developments and impacts will be, the Group considers that the potential effects of Brexit could have unpredictable consequences for financial markets and may adversely affect our future performance, results of operations, cash flows and financial position.
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We are subject to data protection laws under UK legislation, and any breaches of such legislation could adversely affect our business, reputation, results of operations and financial condition.
Our ability to obtain, retain and otherwise manage personal data is governed by data protection and privacy requirements and regulatory rules and guidance. In the UK, we must comply with the Data Protection Act 1998 in relation to processing certain personal data. The application of data privacy laws is often uncertain, and as business practices are challenged by regulators, private litigants and consumer protection agencies, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data protection practices. Additionally, under European data protection laws, distributing personal data into the United States may constitute an offense. Any breaches of such legislation could have a material adverse effect on our business, reputation, results of operations and financial condition.
Pre-emption rights for U.S. and other non-U.K. holders of shares may be unavailable.
In the case of certain increases in our issued share capital, under English law, existing holders of shares are entitled to pre-emption rights to subscribe for such shares, unless shareholders disapply such rights by a special resolution at a shareholders' meeting. These pre-emption rights have been disapplied by TORM plc's shareholders in respect of certain new issuances, see "Item 10. Additional Information—A. Share Capital", and we shall propose equivalent resolutions in the future once the initial period of disapplication has expired. In any event, U.S. holders of common shares in U.K. companies are customarily excluded from exercising any such pre-emption rights they may have, unless a registration statement under the Securities Act is effective with respect to those rights, or an exemption from the registration requirements thereunder is available. We do not intend to file any such registration statement, and we cannot assure prospective U.S. investors that any exemption from the registration requirements of the Securities Act or applicable non-U.S. securities laws would be available to enable U.S. or other non-U.K. holders to exercise such pre-emption rights or, if available, that we will utilize any such exemption.
We are and will be subject to the UK Bribery Act, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.
Our operations are and will be subject to anti-corruption laws, including the UK Bribery Act 2010, or the Bribery Act, the U.S. Foreign Corrupt Practices Act, or the FCPA, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, FCPA and these other laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We and our commercial partners operate in a number of jurisdictions that may pose a risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the Bribery Act, FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our internal operations might be subject or the manner in which existing laws might be administered or interpreted.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the European Union, including applicable export controls, economic sanctions on countries or persons, customs requirements, anti-boycott requirements and currency exchange regulations (collectively, "Trade Control Laws").
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While we maintain policies and procedures reasonably designed to ensure compliance with applicable anti-corruption laws and Trade Control Laws, there is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control Laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions, remedial measures and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control Laws by UK, U.S. or other authorities could also have a material adverse impact on our reputation, our future performance, results of operations, cash flows and financial position.
Our tax liabilities may change in the future.
While we believe that being incorporated in England and Wales and resident for tax purposes in the United Kingdom should help us maintain a competitive worldwide effective corporate tax rate, we cannot give any assurance as to what our effective tax rate will be. This is, among other things, because of uncertainties regarding the tax policies of all the jurisdictions where we operate our business and uncertainties regarding the application to our structure, which is complex, of the tax laws of various jurisdictions, including, without limitation, Denmark, the United States and the United Kingdom. Because of this uncertainty, our actual effective tax rate may vary from our expectation and that variance could be material. The G20 and the Organization for Economic Co-Operation and Development are currently focused on the taxation of multinational corporations as part of the Base Erosion and Profit Shifting Project, or BEPS. The implementation of BEPS outcomes in the jurisdictions in which we operate may have an impact on our effective tax rate, which, in turn, could have a material adverse effect on our future performance, results of operations, cash flows and financial position.
TORM plc and certain of its subsidiaries have entered and may in the future enter into internal agreements which must be at market value or on terms no more favorable than would have been agreed if the transaction was not conducted on an intra-group basis.
We have global operations, and the functions related to owning and operating a global scale product tanker fleet are spread across various subsidiaries, including crewing, technical maintenance, chartering and ownership of vessels. Cross-border business within our foreign subsidiaries and TORM plc can be complicated. We will likely enter into further agreements by and among our subsidiaries on the one hand and TORM plc on the other hand in the future. To ensure compliance with transfer pricing regulations, such transactions must in general be conducted on arm's length basis. We believe that these transactions are on arm's length terms, but no assurance can be given that we would not have been able to secure more favorable terms from third parties.
Regarding any cross-border transactions, we may face significant compliance challenges with the regulations and administrative requirements around transfer pricing, as they differ from country to country. Tax authorities are increasingly sophisticated in the way they operate and are focusing more closely on transfer pricing in companies that transact cross-border business.
The Danish Tax Authorities may challenge whether TORM plc is entitled to Danish withholding tax exemption on dividends from TORM A/S.
TORM plc is a tax resident of the United Kingdom and owns 100% of the shares of TORM A/S and should as a starting point be entitled to the benefits under the EU Parent/Subsidiary Directive (2011/96/EU) provided TORM plc is the beneficial owner of the dividends and is not subject to Danish anti-abuse rules. It is, however, not currently clear whether similar provisions would continue to apply following the United Kingdom's intended departure from the European Union.
However, TORM plc should be entitled to the benefit of the double tax treaty entered into between Denmark and the United Kingdom. The double tax treaty reduces dividend withholding tax to nil for wholly-owned subsidiaries (where the relevant conditions are satisfied), and its protection would, in principle, be available regardless of the United Kingdom's departure from the European Union. In order for the double tax treaty to apply, TORM plc must be considered the beneficial owner of the dividends and must not be subject to Danish anti-abuse rules. We believe that the group structure, the level of business activity carried out in the United Kingdom by TORM plc, the economic risk of TORM plc and TORM plc's right to dispose of dividends received justify that TORM plc is the beneficial owner of dividends received from TORM A/S, that TORM plc is not a conduit entity and that Danish anti-abuse rules should not apply.
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Consequently, we believe that dividends distributed from TORM A/S to TORM plc should be exempt from Danish dividend withholding tax according to either the application of the EU Parent/Subsidiary Directive (2011/96/EU) or the double tax treaty entered into between Denmark and the United Kingdom (so long as a claim is made and the treaty relief is granted). If the provisions of the EU Parent/Subsidiary Directive (2011/96/EU) did not apply and not all of the applicable conditions in the double tax treaty between the United Kingdom and Denmark are fulfilled, Danish withholding taxes of 27% (potentially reduced to 22%) will be triggered on such dividend distributions.

ITEM 4. | INFORMATION ON THE COMPANY

A. History and Development of the Company
The Company was founded as TORM A/S in 1889 by Captain Ditlev E. Torm and Christian Schmiegelow and we celebrated our 130th anniversary in 2019. Within the first ten years, the fleet of TORM A/S consisted of four vessels, and in 1905 TORM A/S became listed on the Copenhagen Stock Exchange. In connection with the Redomiciliation in 2016, TORM A/S became a wholly-owned subsidiary of TORM plc. As of the date of this annual report, we operate a fleet of 78 owned or chartered-in vessels and our Class A common shares are listed on both Nasdaq Copenhagen and Nasdaq New York under the symbols “TRMD A” and “TRMD,” respectively.
TORM plc is a public limited company incorporated under the laws of England and Wales on October 12, 2015 under the name Anchor Admiral Limited with company number 09818726. Anchor Admiral Limited was renamed TORM Limited on November 26, 2015, and TORM Limited was renamed TORM plc on January 20, 2016. TORM plc's registered office is at Birchin Court, 20 Birchin Lane, London, EC3V 9DU, United Kingdom. Our telephone number at this address is +44 203 713 4560. Our main commercial and technical activities are managed out of our office at Tuborg Havnevej 18, DK-2900 Hellerup, Denmark. Our telephone number at that address is +45 39 17 92 00. We also have offices located in Mumbai (India), New Delhi (India), Manila (the Philippines), Cebu (the Philippines), Singapore (Singapore) and Houston (Texas, USA). Our website is www.torm.com. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC’s Internet site is www.sec.gov. None of the information contained on these websites is incorporated into or forms a part of this annual report.
We are one of the world's largest carriers of refined oil products. Our activities are primarily the transportation of clean petroleum products, such as gasoline, jet fuel, kerosene, naphtha and gas oil, and occasionally dirty petroleum products, such as fuel oil. We are active in all larger vessel segments of the product tanker market from Handysize to Long Range 2 (LR2) tankers. For an overview of the specifications of our fleet, reference is made to "TORM Fleet Overview" on pages 157-159 of our Annual Report 2019. In addition, as of March 11, 2020, we had three newbuildings, two LR2 vessels and one MR vessels under construction with expected delivery in fourth quarter 2021 and in April 2020, respectively. See "Item 4. Information on the Company—B. Business Overview."
We have an extensive in-house operating and management platform which performs commercial, administrative and technical management for our vessels. Through this integrated platform, we handle the commercial management of all our vessels and the technical management of all our owned vessels, other than three vessels managed by an unaffiliated third party. In addition, we conduct all vessel sale and purchase activities in-house, leveraging relationships with shipbrokers, shipyards, financial institutions and other shipowners.
Listing on Nasdaq New York
In December 2017, we effected a direct listing of our Class A common shares on Nasdaq New York. Our Class A common shares commenced trading on Nasdaq New York under the symbol "TRMD" on December 11, 2017. As a result of our listing on Nasdaq New York, our Class A common shares may be traded on both Nasdaq New York and Nasdaq Copenhagen. All of our outstanding Class A common shares are identified by CUSIP G89479 102 and ISIN GB00BZ3CNK81.
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Private Placement
In January 2018, we completed a private placement of 11,920,000 Class A common shares for gross proceeds of approximately $100 million, or the Private Placement. Njord Luxco fully backstopped this offering and purchased approximately $70 million of our Class A common shares in the Private Placement. Following the Private Placement and as of the date of this annual report, Njord Luxco owns approximately 64.8% of our outstanding Class A common shares and our one outstanding C share, the voting rights associated with which relate to election and dismissal of members of the Board of Directors and certain amendments to our Articles of Association.
Fleet Development
For information regarding the development of our fleet, including vessel acquisitions and dispositions and the status of newbuildings in our current order book, please see “Item 4. Information on the Company⸻B. Business Overview⸻Our Fleet” and “⸻Fleet Development.”
Recent and Other Developments
In January 2020, we entered into an agreement to purchase two scrubber-fitted, fuel-efficient LR2 newbuildings from GSI for an aggregate of $95 million (inclusive of costs relating to scrubber installations). The vessels will be prepared for potential dual-fuel installation in the future. We expect to finance $76 million of the acquisition price through ten year sale and leaseback agreements that we have secured with an international financial institution, subject to definitive documentation, with purchase options during the lease period and at maturity. The remainder of the purchase price will be funded through working capital. The vessels are expected to be delivered in the fourth quarter of 2021.
In the first quarter of 2020 we took delivery of two LR1 newbuildings and one MR newbuilding. We also refinanced five of our existing loan agreements by executing two separate term facilities and a revolving credit facility with leading ship lending banks that provide an aggregate amount of $496 million. These new facilities replaced four of our existing term loans (the Term Facility 1, Term Facility 2, ING Facility and ABN Facility) and our existing revolving credit facility (the Working Capital Facility) that in aggregate on a fully drawn basis cover $502 million in debt. Following the refinancing, we do not have any major debt maturities until 2026, supporting our financial flexibility. In conjunction with refinancing we amended or will amend bilateral loan agreements to align to new covenant levels.
In the first quarter of 2020, the Board of Directors decided to recommend a dividend of $0.10 per share, corresponding to an aggregate amount of $7.4 million, for the approval of shareholders at the Company’s Annual General Meeting to be held on April 15, 2020. Subject to shareholder approval, payment of the dividend is expected to be made on or around May 6, 2020 to holders of record on April 20, 2020. In addition, the Board of Directors approved up to $1.4 million of open-market share repurchases of its Class A common shares to be made during the first six months of 2020. Share repurchases may be made in the sole discretion of management and in the form of open market purchases, privately negotiated transactions, accelerated share repurchase programs or a combination of these methods. The actual timing and amount of the repurchases will depend on Company and market conditions and management is not obligated to make any share repurchases under this program. The total distribution of up to $8.8 million, including the dividend and assuming the full share repurchase amount, is in line with the Company’s Distribution Policy and corresponds to 50% of net income for the six months ended December 31, 2019.
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B. Business Overview
Our Fleet
The following table sets forth summary information regarding our fleet of owned product tankers, including the vessels that we charter in as of the date of this annual report.

Vessel Name | Type | DWT | Year Built | Shipyard(1)
Owned On-the-Water Product Tankers
TORM Kristina | LR2 | 99,999 | 1999 | Halla
TORM Gudrun | LR2 | 99,999 | 2000 | Hyundai
TORM Ingeborg | LR2 | 99,999 | 2003 | Samho
TORM Valborg | LR2 | 99,999 | 2003 | Samho
TORM Marina | LR2 | 109,672 | 2007 | Dalian New
TORM Maren | LR2 | 109,672 | 2008 | Dalian New
TORM Mathilde | LR2 | 109,672 | 2008 | Dalian New
TORM Herdis | LR2 | 114,000 | 2018 | GSI
TORM Hermia | LR2 | 114,000 | 2018 | GSI
TORM Hellerup | LR2 | 114,000 | 2018 | GSI
TORM Hilde | LR2 | 114,000 | 2018 | GSI
TORM Elise | LR1 | 75,000 | 2019 | GSI
TORM Elizabeth | LR1 | 75,000 | 2019 | GSI
TORM Sara | LR1 | 72,718 | 2003 | Samsung
TORM Estrid | LR1 | 74,999 | 2004 | Hyundai
TORM Emilie | LR1 | 74,999 | 2004 | Hyundai
TORM Ismini | LR1 | 74,999 | 2004 | Hyundai
TORM Signe | LR1 | 72,718 | 2005 | Samsung
TORM Sofia | LR1 | 72,660 | 2005 | Samsung
TORM Venture | LR1 | 73,700 | 2007 | New Century
TORM Gertrud | MR | 45,990 | 2002 | STX
TORM Gerd | MR | 45,960 | 2002 | STX
TORM Caroline | MR | 44,999 | 2002 | STX
TORM Moselle | MR | 47,024 | 2003 | Onomichi
TORM Carina | MR | 46,219 | 2003 | STX
TORM Freya | MR | 45,990 | 2003 | STX
TORM Thyra | MR | 45,950 | 2003 | STX
TORM Camilla | MR | 44,990 | 2003 | STX
TORM Horizon | MR | 46,955 | 2004 | Hyundai Mipo
TORM Resilience | MR | 49,999 | 2005 | STX
TORM Solution | MR | 49,999 | 2019 | GSI
TORM Thames | MR | 47,036 | 2005 | Hyundai Mipo
TORM Helvig | MR | 46,187 | 2005 | STX
TORM Ragnhild | MR | 46,187 | 2005 | STX
TORM Eric | MR | 44,999 | 2006 | STX
TORM Platte | MR | 46,959 | 2006 | Hyundai Mipo
TORM Kansas | MR | 46,955 | 2006 | Hyundai Mipo
TORM Republican | MR | 46,955 | 2006 | Hyundai Mipo
TORM Loke | MR | 51,372 | 2007 | SLS
TORM Hardrada | MR | 45,983 | 2007 | Shin Kurushima
TORM Lene | MR | 49,999 | 2008 | GSI
TORM Laura | MR | 49,999 | 2008 | GSI
TORM Lotte | MR | 49,999 | 2009 | GSI
TORM Louise | MR | 49,999 | 2009 | GSI
TORM Lilly | MR | 49,999 | 2009 | GSI
TORM Aslaug | MR | 49,999 | 2010 | GSI
TORM Agnete | MR | 49,999 | 2010 | GSI
TORM Almena | MR | 49,999 | 2010 | GSI
TORM Atlantic | MR | 49,999 | 2010 | GSI
TORM Agnes | MR | 49,999 | 2011 | GSI
TORM Amalie | MR | 49,999 | 2011 | GSI
TORM Arawa | MR | 49,999 | 2012 | GSI
TORM Anabel | MR | 49,999 | 2012 | GSI
TORM Astrid | MR | 49,999 | 2012 | GSI

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TORM Thor | MR | 49,842 | 2015 | Sungdong
TORM Timothy | MR | 49,842 | 2015 | Sungdong
TORM Thunder | MR | 49,842 | 2015 | Sungdong
TORM Troilus | MR | 49,842 | 2016 | Sungdong
TORM Sovereign | MR | 50,000 | 2017 | Hyundai Mipo
TORM Splendid | MR | 49,999 | 2019 | GSI
TORM Strength | MR | 49,999 | 2019 | GSI
TORM Strong | MR | 49,999 | 2019 | GSI
TORM Sublime | MR | 49,999 | 2019 | GSI
TORM Success | MR | 49,999 | 2019 | GSI
TORM Supreme | MR | 50,000 | 2017 | Hyundai Mipo
TORM Garonne(2) | Handysize | 37,178 | 2004 | Hyundai Mipo
TORM Tevere | Handysize | 37,383 | 2005 | Hyundai Mipo
TORM Gyda | Handysize | 36,207 | 2009 | Hyundai Mipo

Chartered-in Product Tankers |  |  |  |
TORM Helene(3) | LR2 | 99,999 | 1997 | Hyundai
TORM Vita(3) | MR | 46,350 | 2002 | STX
TORM Mary(3) | MR | 46,350 | 2002 | STX
TORM Alexandra(4) | MR | 49,999 | 2010 | GSI
TORM Alice(4) | MR | 49,999 | 2010 | GSI
TORM New Zealand(5) | MR | 49,999 | 2011 | Hyundai Mipo
TORM Singapore(5) | MR | 49,999 | 2011 | Hyundai Mipo
TORM Malaysia(5) | MR | 49,999 | 2011 | Hyundai Mipo
TORM Australia(5) | MR | 49,999 | 2011 | Hyundai Mipo
TORM Titan(6) | MR | 49,842 | 2016 | Sungdong
TORM Torino(7) | MR | 49,842 | 2016 | Sungdong
Newbuildings |  |  |  |
Hull no. 15121040 | MR | 49,999 | Exp. 2020 | GSI
Hull no. 19121031 | LR2 | 114,000 | Exp. 2021 | GSI
Hull no. 19121032 | LR2 | 114,000 | Exp. 2021 | GSI

_______________________
(1) As used in this annual report, Hyundai refers to Hyundai Heavy Industries Co. Ltd.; Halla refers to Halla Engineering & Heavy Industries, South Korea; Samho refers to Hyundai Samho Heavy Industries Co. Ltd.; Dalian New refers to Dalian Shipbuilding Industry, China; New Century refers to New Century Shipbuilding Co. Ltd.; Onomichi refers to Onomichi Dockyard, Japan; Daedong refers to Daedong Shipbuilding, South Korea; STX refers to STX Offshore and Shipbuilding Co. Ltd.; Hyundai Mipo refers to Hyundai Mipo Dockyard Co. Ltd.; Shin Kurushima refers to Shin Kurushima Dockyard Co. Ltd., Japan; SLS refers to SLS Shipbuilding Co. Ltd. Tongyeong, South Korea; and GSI refers to Guangzhou Shipyard International Co., Ltd.
(2) We entered into an agreement to sell the TORM Garonne in the fourth quarter of 2019. The vessel was delivered to the buyer in the first quarter of 2020.
(3) Vessels were sold and leased back on bareboat charter with a contract expiration in 2022. We have a purchase option for the individual vessels. The vessels are accounted for as financial lease.
(4) Vessels were sold and leased back on bareboat charter with contract expirations in 2026. We have a purchase option for the individual vessels in both 2024 and 2026. The vessels are accounted for as a financial lease.
(5) Vessels were sold and leased back on bareboat charter with a contract expiration in 2025. We have a purchase obligation for the individual vessels. The vessels are accounted for as a financial lease.
(6) Vessel was sold and leased back on bareboat charter with a contract expiration in 2026. We have a purchase obligation for the vessel. The vessel is accounted for as a financial lease.
(7) Vessel was sold and leased back on bareboat charter with a contract expiration in 2024. We have a purchase obligation for the vessel. The vessel is accounted for as a financial lease.
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Fleet Development
Vessel Acquisitions
We took delivery of five MR newbuildings in 2019, with two being delivered in the second quarter, two in the third quarter and one in the fourth quarter. We financed the acquisition of four of these vessels through a new tranche of borrowings of $81 million in September 2017 that was consolidated with our existing facility with Danish Ship Finance A/S, or DSF (as amended and restated, the DSF Facility). We further amended and restated the DSF Facility in July 2018 to include an additional $7 million to finance the purchase and installation of scrubbers on these vessels. We financed the acquisition of the remaining vessel through a secured loan agreement with ABN for up to $73 million, which also covers two additional MR newbuildings, one of which was delivered in January 2020 and the other which is expected to be delivered in April 2020. All five vessels delivered in 2019 and the remaining two vessels delivered in 2020 were constructed with scrubbers.
In the second quarter of 2019, we entered into agreements to purchase four 2011-built MR vessels, or the 2011 MR Vessels, for total consideration of $83 million. The 2011 MR Vessels were subsequently delivered to us in the third quarter of 2019. We financed the acquisition of these vessels (TORM Singapore, TORM New Zealand, TORM Malaysia and TORM Australia) through sale and leaseback transactions executed in the third quarter of 2019. See "Item 4. Information on the Company⸻B. Business Overview⸻Fleet Development⸻Sale and Leaseback Transactions."
In 2018, we took delivery of four LR2 newbuildings and in connection with the delivery of these vessels we incurred borrowing of $115 million under our secured term loan facility with the Export-Import Bank of China, or the CEXIM Facility.
In 2017, we agreed with Hyundai Mipo to acquire the construction contracts for two MR vessels then under construction at Hyundai Mipo, or the Hyundai Mipo MR Resale Vessels. We financed the purchase price of the Hyundai Mipo MR Resale Vessels, which were delivered to us in September 2017, with cash from operations and borrowings under our secured term loan facility with ING Bank NV, or the ING Facility. For information about our financing agreements, see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Financing Agreements".
Vessel Dispositions
In 2019 we entered into agreements to sell a total of eight vessels: the MR vessels TORM Amazon (built in 2002), TORM Cecilie (built in 2001), TORM Gunhild (built in 1999), TORM San Jacinto (built in 2002) and TORM Rosetta (built in 2003), and the Handy vessels TORM Saone (built in 2004), TORM Garonne (built in 2004) and TORM Loire (built in 2004). The aggregate consideration for the sale of these vessels was approximately $65 million, of which we used $35 million to repay existing indebtedness that was secured by these vessels. All of the vessels were delivered to their respective buyers in the last three quarters of 2019, except for TORM Garonne, which was delivered in the beginning of January 2020.
In 2018, we entered into agreements to sell a total of four vessels: TORM Clara (built in 2000), TORM Neches (built in 2000), TORM Ohio (built in 2001) and TORM Charante (built in 2001). The four vessels were sold for a total consideration of approximately $27 million and the sale proceeds were used to repay approximately $16 million of indebtedness secured by these vessels. We delivered the first three vessels to their respective buyers in 2018, and the last vessel to its buyer in the first quarter of 2019.
In 2017, we entered into agreements to sell a total of five vessels: TORM Anne (built in 1999), TORM Madison (built in 2000), TORM Trinity (built in 2000), TORM Fox (built in 2005) and TORM Rhone (built in 2000). We sold these five vessels for aggregate proceeds of $39 million, and we delivered the first four vessels to their respective buyers in 2017 and the last vessel to its buyer in the first quarter of 2018.
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Scrubber Investments
In the fourth quarter of 2018, TORM established a joint venture with ME Production, a leading scrubber manufacturer, and Guangzhou Shipyard International, which is part of the China State Shipbuilding Corporation group. The joint venture, named ME Production China, will manufacture scrubbers in China and deliver them to a range of maritime industry customers for both newbuildings and retrofitting. TORM holds an ownership stake of 27.5% in the new joint venture. In connection with the establishment of the joint venture, TORM has ordered a number of scrubbers from ME Production China. As of the date of this report, we have successfully installed scrubbers on 30 of our vessels, with another 17 installations scheduled to be completed by the end of the third quarter of 2020. In addition, our two LR2 newbuildings with expected delivery in fourth quarter of 2021 will also have scrubbers installed upon delivery. Upon completion, approximately half of our fleet will be retrofitted with scrubbers, with the other half continuing to use compliant fuels with 0.5% sulfur content.
Sale and Leaseback Transactions
In the third quarter of 2019, we entered into sale and leaseback agreements and corresponding bareboat charters with four separate Japanese and Chinese counterparties for eight of our vessels: the four 2011 MR Vessels, as well as TORM Torino, TORM Titan, TORM Alice and TORM Alexandra. We have options to purchase TORM Alice and TORM Alexandra from the counterparty in both 2024 and 2026, and obligations to purchase the 2011 MR Vessels, TORM Torino and TORM Titan from the respective counterparties in 2025, 2024 and 2026, respectively.
During the first and second quarters of 2017, we entered into sale and leaseback agreements and bareboat charters for the LR2 tanker, TORM Helene, and two MR tankers, TORM Mary and TORM Vita, pursuant to which we sold the vessels to three buyers not affiliated with us from which we concurrently chartered-in the three vessels each for a period of 58 months from the delivery date plus 50 more days at our option. These three sale and leaseback transactions are treated as financial leases but have no purchase obligation attached. We have an option to purchase TORM Mary and TORM Helene at the expiration of their respective charter-in agreements at fixed option prices. We have the option to purchase TORM Vita at the fourth anniversary of its delivery date and again at the expiration of the charter-in agreement at fixed option prices.
For information about our financing agreements, see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Financing Agreements".
Employment of Our Product Tanker Fleet
Our current strategy is to employ our vessels worldwide primarily in the spot market. We believe that this will enable us to take advantage of potential increases in product tanker hire rates in the near term. We may seek to employ some of our vessels on longer-term time charter contracts, if customer needs and expected returns make this more attractive. Employing vessels on longer-term contracts may provide us with the benefits of stable cash flows and high utilization rates. In addition, from time to time, we may employ our vessels on shorter-term charters and under COAs. Reference is made to the Glossary on page 160 of the Annual Report 2019 for the definitions of Spot Market, Time Charter, COA and Bareboat Charter.
Coverage
For information on the coverage of our Fleet, including the definitions of certain key terms related to the coverage of our Fleet, reference is made to "Outlook 2020" on pages 14-16 of the Annual Report 2019 and to the Glossary on page 160 of the Annual Report 2019.
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Management of Our Fleet
For information on management of our fleet, reference is made to "Strategic Ambition and Business Model—One TORM—Integrated Operating Platform" on page 20 of the Annual Report 2019.
Customers
We generate revenue by charging customers for the transportation of refined oil products and crude oil. Many of our largest customers in the product tanker segment are companies operating in the oil industry such as major oil companies, state-owned oil companies and international trading houses.
Customer Concentration
During 2019, our 20 largest customers accounted for approximately 75% of our total revenue. None of our other customers accounted for more than 2% of our total revenues.
Our Business Strategy
For information on our business strategy, reference is made to "Strategic Ambition and Business Model" on pages 19-21 and "Value Chain in Oil Transportation" on page 22 of the Annual Report 2019.
The Product Tanker Industry
For information on the product tanker industry, reference is made to "The Product Tanker Market" on pages 23-27 of the Annual Report 2019. For information on the risks associated with operating within the product tanker market, see "Item 3. Key Information—D. Risk Factors— Risks Related to Our Business and Our Industry."
Environmental and Other Regulations in the Shipping Industry
Government regulation and laws significantly affect the ownership and operation of our fleet. We are subject to international conventions and treaties, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered relating to safety and health and environmental protection including the storage, handling, emission, transportation and discharge of hazardous and non-hazardous materials, and the remediation of contamination and liability for damage to natural resources. Compliance with such laws, regulations and other requirements entails significant expenses, including vessel modifications and implementation of certain operating procedures.
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (applicable national authorities such as the United States Coast Guard ("USCG"), harbor masters or equivalent), classification societies, flag state administrations (countries of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses, certificates and other authorizations for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or result in the temporary suspension of the operation of one or more of the vessels in our product tanker fleet or lead to the invalidation or reduction of our insurance coverage. We believe that the heightened levels of environmental and quality concerns among insurance underwriters, regulators and charterers have led to greater inspection and safety requirements on all vessels and may accelerate the recycling of older vessels throughout the industry. Each of our vessels is inspected by a surveyor of the classification society in three surveys of varying frequency and thoroughness: every year for the annual survey, every two to three years for intermediate survey and every four to five years for special surveys. Should any defects be found, the classification surveyor generally issues a notation or recommendation for appropriate repairs, which have to be made by the shipowner within the time limit prescribed. Vessels may be required, as part of the annual and intermediate survey process, to be dry-docked for inspection of the underwater parts of the vessel and for necessary repair stemming from the inspection. Special surveys frequently require dry-docking.
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Increasing environmental concerns have created a demand for product tankers that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with applicable local, national, and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations, and that our vessels have all material permits, licenses, certificates or other authorizations necessary for the conduct of our operations. However, because such laws and regulations frequently change and may impose increasingly stricter requirements, we cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our vessels. In addition, a future serious marine incident that causes significant adverse environmental impact could result in additional legislation or regulation that could negatively affect our profitability.
International Maritime Organization
The IMO is a specialized agency of the United Nations responsible for setting global standards for the safety, security and environmental performance of vessels engaged in international shipping. The IMO's primary objective is to create a regulatory framework for the shipping industry that is fair and effective, and universally adopted and implemented. The IMO has adopted several international conventions that regulate the international shipping industry, including, but not limited to, the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984 and 1992, and amended in 2000, or the CLC, the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001, or the Bunker Convention, the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto, collectively referred to as MARPOL 73/78 and herein as "MARPOL," adopted the International Convention for the Safety of Life at Sea of 1974 ("SOLAS Convention"), and the International Convention on Load Lines of 1966 (the "LL Convention"). MARPOL establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged forms. MARPOL is applicable to dry bulk and LNG carriers as well as oil tankers, and is broken into six Annexes, each of which regulates a different source of pollution. Annex I relates to oil leakage or spilling; Annexes II and III relate to harmful substances carried in bulk in liquid or in packaged form, respectively; Annexes IV and V relate to sewage and garbage management, respectively; and Annex VI, lastly, relates to air emissions. Annex VI was separately adopted by the IMO in September of 1997.
In 2013, the IMO's Marine Environmental Protection Committee, or the "MEPC," adopted a resolution amending MARPOL Annex I Condition Assessment Scheme, or "CAS." These amendments became effective on October 1, 2014, and require compliance with the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, or "ESP Code," which provides for enhanced inspection programs. CAS is not applicable to our vessels. For ships older than 15 years we carry our voluntary CAP ( Condition Assessment program) rating along with ESP. We may need to make certain financial expenditures to maintain CAP Rating.
Air Emissions
In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from vessels. Effective May 2005, Annex VI sets limits on sulfur oxide and nitrogen oxide emissions from all commercial vessel exhausts and prohibits "deliberate emissions" of ozone depleting substances (such as halons and chlorofluorocarbons), emissions of volatile compounds from cargo tanks and the shipboard incineration of specific substances. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions, as explained below. Emissions of "volatile organic compounds" from certain tankers and the shipboard incineration (from incinerators installed after January 1, 2000) of certain substances (such as polychlorinated biphenyls, or PCBs), are also prohibited. We believe that all our vessels are currently compliant in all material respects with these regulations.
The MEPC adopted amendments to Annex VI regarding emissions of sulfur oxide, nitrogen oxide, particulate matter and ozone depleting substances, which entered into force on July 1, 2010. The amended Annex VI seeks to further reduce air pollution by, among other things, implementing a progressive reduction of the amount of sulfur contained in any fuel oil used on board ships. On October 27, 2016, at its 70th session, the MEPC agreed to implement a global 0.5% m/m sulfur oxide emissions limit (reduced from 3.50%) starting from January 1, 2020. This limitation can be met by using low-sulfur compliant fuel oil, alternative fuels or certain exhaust gas cleaning systems. Once the cap becomes effective, ships will be required to obtain bunker delivery notes and International Air Pollution Prevention ("IAPP") Certificates from their flag states that specify sulfur content. Additionally, at MEPC 73, amendments to Annex VI to prohibit the carriage of bunkers above 0.5% sulfur on ships were adopted and will take effect on March 1, 2020. These regulations subject ocean-going vessels to stringent emissions controls and may cause us to incur substantial costs.
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Sulfur content standards are even stricter within certain "Emission Control Areas," or ("ECAs"). As of January 1, 2015, ships operating within an ECA were not permitted to use fuel with sulfur content in excess of 0.1% m/m. Amended Annex VI establishes procedures for designating new ECAs. Currently, the IMO has designated four ECAs, including specified portions of the Baltic Sea area, North Sea area, North American area and United States Caribbean area. Ocean-going vessels in these areas will be subject to stringent emission controls and may cause us to incur additional costs. Other certain areas including areas in China that are subject to local regulations also impose stricter emission controls. If other ECAs are approved by the IMO, or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the U.S. Environmental Protection Agency ("EPA") or the states where we operate, compliance with these regulations could entail significant capital expenditures or otherwise increase the costs of our operations.
Amended Annex VI also establishes new tiers of stringent nitrogen oxide emissions standards for marine diesel engines, depending on their date of installation. At the MEPC meeting held from March to April 2014, amendments to Annex VI were adopted which address the date on which Tier III Nitrogen Oxide (NOx) standards in ECAs will go into effect. Under the amendments, Tier III NOx standards apply to ships that operate in the North American and U.S. Caribbean Sea ECAs designed for the control of NOx produced by vessels with a marine diesel engine installed and constructed on or after January 1, 2016. Tier III requirements could apply to areas that will be designated for Tier III NOx in the future. At MEPC 70 and MEPC 71, the MEPC approved the North Sea and Baltic Sea as ECAs for nitrogen oxide for ships built on or after January 1, 2021. The EPA promulgated equivalent (and in some senses stricter) emissions standards in 2010. As a result of these designations or similar future designations, we may be required to incur additional operating or other costs.
As determined at the MEPC 70, the new Regulation 22A of MARPOL Annex VI became effective as of March 1, 2018 and requires ships above 5,000 gross tonnage to collect and report annual data on fuel oil consumption to an IMO database, with the first year of data collection commencing on January 1, 2019. The IMO intends to use such data as the first step in its roadmap (through 2023) for developing its strategy to reduce greenhouse gas emissions from ships, as discussed further below.
As of January 1, 2013, MARPOL made mandatory certain measures relating to energy efficiency for ships. All ships are now required to develop and implement Ship Energy Efficiency Management Plans ("SEEMPS"), and new ships must be designed in compliance with minimum energy efficiency levels per capacity mile as defined by the Energy-Efficiency Design Index ("EEDI"). Under these measures, by 2025, all new ships built will be 30% more energy efficient than those built in 2014.
We may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems and could adversely affect our business, results of operations, cash flows and financial condition.
Safety Management System Requirements
The SOLAS Convention was amended to address the safe manning of vessels and emergency training drills. The Convention of Limitation of Liability for Maritime Claims (the "LLMC") sets limitations of liability for a loss of life or personal injury claim or a property claim against shipowners. We believe that our vessels are in substantial compliance with SOLAS and LLMC standards.
Under Chapter IX of the SOLAS Convention, or the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the "ISM Code"), our operations are also subject to environmental standards and requirements. The ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and describing procedures for responding to emergencies. We rely upon the safety management system that we and our technical management team have developed for compliance with the ISM Code. The failure of a vessel owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports.
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The ISM Code requires that vessel operators obtain a safety management certificate for each vessel they operate. This certificate evidences compliance by a vessel's management with the ISM Code requirements for a safety management system. No vessel can obtain a safety management certificate unless its manager has been awarded a document of compliance, issued by each flag state, under the ISM Code. We have obtained applicable documents of compliance for our offices and safety management certificates for all of our vessels for which the certificates are required by the IMO. The document of compliance and safety management certificate are renewed as required.
Regulation II-1/3-10 of the SOLAS Convention governs ship construction and stipulates that ships over 150 meters in length must have adequate strength, integrity and stability to minimize risk of loss or pollution. Goal-based standards amendments in SOLAS regulation II-1/3-10 entered into force in 2012, with July 1, 2016 set for application to new oil tankers and bulk carriers. The SOLAS Convention regulation II-1/3-10 on goal-based ship construction standards for bulk carriers and oil tankers, which entered into force on January 1, 2012, requires that all oil tankers and bulk carriers of 150 meters in length and above, for which the building contract is placed on or after July 1, 2016, satisfy applicable structural requirements conforming to the functional requirements of the International Goal-based Ship Construction Standards for Bulk Carriers and Oil Tankers (GBS Standards). All our vessels comply with these requirements as applicable.
Amendments to the SOLAS Convention Chapter VII apply to vessels transporting dangerous goods and require those vessels to be in compliance with the International Maritime Dangerous Goods Code ("IMDG Code"). Effective January 1, 2018, the IMDG Code includes (1) updates to the provisions for radioactive material, reflecting the latest provisions from the International Atomic Energy Agency, (2) new marking, packing and classification requirements for dangerous goods, and (3) new mandatory training requirements. Amendments which took effect on January 1, 2020 also reflect the latest material from the UN Recommendations on the Transport of Dangerous Goods, including (1) new provisions regarding IMO type 9 tank, (2) new abbreviations for segregating groups, and (3) special provisions for carriage of lithium batteries and of vehicles powered by flammable liquids or gas.
The IMO has also adopted the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers ("STCW"). As of February 2017, all seafarers are required to meet the STCW standards and to be in possession of a valid STCW certificate. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
Pollution Control and Liability Requirements
The IMO has negotiated international conventions that impose liability for pollution in international waters and the territorial waters of the signatories to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships' Ballast Water and Sediments (the "BWM Convention") in 2004. The BWM Convention entered into force on September 9, 2017. The BWM Convention requires ships to manage their ballast water to remove, render harmless or avoid the uptake or discharge of new or invasive aquatic organisms and pathogens within ballast water and sediments. The BWM Convention's implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits, and require all ships to carry a ballast water record book and an international ballast water management certificate.
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On December 4, 2013, the IMO Assembly passed a resolution revising the application dates of the BWM Convention so that the dates are triggered by the entry into force date and not the dates originally in the BWM Convention. This, in effect, makes all vessels delivered before the entry into force date "existing vessels" and allows for the installation of ballast water management systems on such vessels at the first International Oil Pollution Prevention (IOPP) renewal survey following entry into force of the convention. The MEPC adopted updated guidelines for approval of ballast water management systems (G8) at MEPC 70. At MEPC 71, the schedule regarding the BWM Convention's implementation dates was also discussed, and amendments were introduced to extend the date existing vessels are subject to certain ballast water standards. Those changes were adopted at MEPC 72. Ships over 400 gross tons generally must comply with a "D-1 standard," requiring the exchange of ballast water only in open seas and away from coastal waters. The "D-2 standard" specifies the maximum amount of viable organisms allowed to be discharged, and compliance dates vary depending on the IOPP renewal dates. Depending on the date of the IOPP renewal survey, existing vessels must comply with the D-2 standard on or after September 8, 2019. For most ships, compliance with the D-2 standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ballast water management systems, which include systems that make use of chemical, biocides, organisms or biological mechanisms, or which alter the chemical or physical characteristics of the ballast water, must be approved in accordance with IMO Guidelines (Regulation D-3). As of October 13, 2019, MEPC 72’s amendments to the BWM Convention took effect, making the Code for Approval of Ballast Water Management Systems, which governs assessment of ballast water management systems, mandatory rather than permissive, and formalized an implementation schedule for the D-2 standard. Under these amendments, all ships must meet the D-2 standard by September 8, 2024. Costs of compliance with these regulations may be substantial.
Once mid-ocean ballast water treatment requirements become mandatory under the BWM Convention, the cost of compliance could increase for ocean-going carriers, which may have a material effect on our operations. However, many countries already regulate the discharge of ballast water carried by vessels from country to country to prevent the introduction of invasive and harmful species via such discharges. The U.S., for example, requires vessels entering its waters from another country to conduct mid-ocean ballast water exchange, or undertake some alternate measure, and to comply with certain reporting requirements.
The IMO adopted the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended by different Protocols in 1976, 1984, and 1992, and amended in 2000 ("the CLC"). Under the CLC and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessel's registered owner may be strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain exceptions. The 1992 Protocol changed certain limits on liability expressed using the International Monetary Fund currency unit, the Special Drawing Rights. The limits on liability have since been amended so that the compensation limits on liability were raised. The right to limit liability is forfeited under the CLC, where the spill is caused by the shipowner's actual fault, and under the 1992 Protocol, where the spill is caused by the shipowner's intentional or reckless act or omission, where the shipowner knew pollution damage would probably result. The CLC requires ships over 2,000 tons covered by it to maintain insurance covering the liability of the owner in a sum equivalent to an owner's liability for a single incident. We have protection and indemnity insurance for environmental incidents. P&I Clubs in the International Group issue the required Bunkers Convention "Blue Cards" to enable signatory states to issue certificates. All of our vessels are in possession of a CLC State issued certificate attesting that the required insurance coverage is in force.
Ships are required to maintain a certificate attesting that they maintain adequate insurance to cover an incident. In jurisdictions, such as the United States, where the CLC or the Bunker Convention has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict-liability basis.
In 1996, the IMO created the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious substances by Sea, or the HNS Convention. The HNS Convention aims to ensure adequate, prompt and effective compensation for damage that may result from shipping accidents involving hazardous and noxious substances. The HNS Convention has not yet entered into force, but if it does, compliance with the HNS Convention could entail additional capital expenditures or otherwise increase the costs of our operations. The HNS Convention will enter into effect 18 months after its ratification.
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In November 2014 and May 2015, the IMO's Maritime Safety Committee and MEPC, respectively, each adopted relevant parts of the International Code for Ships Operating in Polar Water, or the Polar Code. The Polar Code entered into force on January 1, 2017. The Polar Code covers design, construction, equipment, operational, training, search and rescue as well as environmental protection matters relevant to ships operating in the waters surrounding the two poles. It also includes mandatory measures regarding safety and pollution prevention as well as recommendatory provisions. Ships intending to operate in the applicable areas must have a Polar Ship Certificate. This requires an assessment of operating in said waters and includes operational limitations, additional safety equipment and plans or procedures, necessary to respond to incidents involving possible safety or environmental consequences. A Polar Water Operational Manual is also needed on board the ship for the owner, operator, master, and crew to have sufficient information regarding the ship to assist in their decision-making process. The Polar Code applies to new ships constructed after January 1, 2017. After January 1, 2018, ships constructed before January 1, 2017 are required to meet the relevant requirements by the earlier of their first intermediate or renewal survey.
Anti‑Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti‑fouling Systems on Ships, or the "Anti‑fouling Convention." The Anti‑fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. Vessels of over 400 gross tons engaged in international voyages will also be required to undergo an initial survey before the vessel is put into service or before an International Anti‑fouling System Certificate is issued for the first time; and subsequent surveys when the anti‑fouling systems are altered or replaced. We have obtained Anti‑fouling System Certificates for all of our vessels that are subject to the Anti‑fouling Convention.
Wreck Removal
The Nairobi Convention on the Removal of Wrecks, or the Wreck Removal Convention, entered into force on April 14, 2015 and contains obligations for shipowners to effectively remove wrecks located in a member state's exclusive economic zone or equivalent 200 nautical miles zone. The Wreck Removal Convention places strict liability, subject to certain exceptions, on a vessel owner for locating, marking and removing the wreck of any owned vessel deemed to be a hazard due to factors such as its proximity to shipping routes, traffic density and frequency, type of traffic and vulnerability of port facilities as well as environmental damage. It also makes government certification of insurance, or other form of financial security for such liability, compulsory for ships of 300 gross tonnage and above.
Member states may intervene in certain situations. They can remove, or have removed, wrecks that pose a danger or impediment to navigation or that may be expected to result in major harmful consequences to the marine environment, or damage to the coastline or related interests, of one or more member states. The same applies for a ship that is about, or may reasonably be expected, to sink or to strand as set forth in the Wreck Removal Convention. The cost of such removal and other measures falls on the vessel owner.
Should one of our vessels become a wreck subject to the Wreck Removal Convention, substantial costs may be incurred in addition to any losses suffered as a result of the loss of the vessel.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
Compliance Enforcement
Non-compliance with the ISM Code or other IMO regulations may subject the shipowner or bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports. The USCG and European Union authorities have indicated that vessels not in compliance with the ISM Code by applicable deadlines will be prohibited from trading in U.S. and European Union ports, respectively. As of the date of this report, each of our vessels is ISM Code certified. However, there can be no assurance that such certificates will be maintained in the future. The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulations might have on our operations.
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United States Regulations
The U.S. Oil Pollution Act of 1990 and the Comprehensive Environmental Response, Compensation and Liability Act
The U.S. Oil Pollution Act of 1990 (“OPA”) established an extensive regulatory and liability regime for the protection and clean-up of the environment from oil spills. OPA affects all "owners and operators" whose vessels trade or operate within the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States' territorial sea and its 200 nautical mile exclusive economic zone around the United States. The United States has also enacted the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), which applies to the discharge of hazardous substances other than oil, except in limited circumstances, whether on land or at sea. OPA and CERCLA both define "owner and operator" in the case of a vessel as any person owning, operating or chartering by demise, the vessel. Both OPA and CERCLA impact our operations.
Under OPA, vessel owners and operators are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels, including bunkers (fuel). OPA defines these other damages broadly to include:
(i) injury to, destruction or loss of, or loss of use of, natural resources and related assessment costs;
(ii) injury to, or economic losses resulting from, the destruction of real and personal property;
(iv) loss of subsistence use of natural resources that are injured, destroyed or lost;
(iii) net loss of taxes, royalties, rents, fees or net profit revenues resulting from injury, destruction or loss of real or personal property or natural resources;
(v) lost profits or impairment of earning capacity due to injury, destruction or loss of real or personal property or natural resources; and
(vi) net cost of increased or additional public services necessitated by removal activities following a discharge of oil, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources.
OPA contains statutory caps on liability and damages; such caps do not apply to direct clean-up costs. Effective November 12, 2019, the USCG adjusted the limits of OPA liability for an oil tanker, other than a single-hull oil tanker, over 3,000 gross tons liability to the greater of $2,300 per gross ton or $19,943,400 (subject to periodic adjustment for inflation). These limits of liability do not apply if an incident was proximately caused by the violation of an applicable U.S. federal safety, construction or operating regulation by a responsible party (or its agent, employee or a person acting pursuant to a contractual relationship), or a responsible party's gross negligence or willful misconduct. Similarly, the limitation on liability does not apply if the responsible party fails or refuses to (i) report the incident as required by law where the responsible party knows or has reason to know of the incident; (ii) reasonably cooperate and assist as requested in connection with oil removal activities; or (iii) without sufficient cause, comply with an order issued under the Federal Water Pollution Act (Section 311 (c), (e)) or the Intervention on the High Seas Act.
CERCLA contains a similar liability regime whereby owners and operators of vessels are liable for clean-up, removal and remedial costs as well as damages for injury to, or destruction or loss of, natural resources, including the reasonable costs associated with assessing same, and health assessments or health effects studies. There is no liability if the discharge of a hazardous substance results solely from the act or omission of a third party, an act of God or an act of war. Liability under CERCLA is limited to the greater of $300 per gross ton or $5.0 million for vessels carrying a hazardous substance as cargo and the greater of $300 per gross ton or $500,000 for any other vessel. These limits do not apply (rendering the responsible person liable for the total cost of response and damages) if the release or threat of release of a hazardous substance resulted from willful misconduct or negligence, or the primary cause of the release was a violation of applicable safety, construction or operating standards or regulations. The limitation on liability also does not apply if the responsible person fails or refused to provide all reasonable cooperation and assistance as requested in connection with response activities where the vessel is subject to OPA.
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OPA and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. OPA and CERCLA both require owners and operators of vessels to establish and maintain with the USCG evidence of financial responsibility sufficient to meet the maximum amount of liability to which the particular responsible person may be subject. Vessel owners and operators may satisfy their financial responsibility obligations by providing a proof of insurance, a surety bond, qualification as a self-insurer or a guarantee. We comply and plan to comply with the USCG's financial responsibility regulations by providing applicable certificates of financial responsibility.
The 2010 Deepwater Horizon oil spill in the Gulf of Mexico resulted in additional regulatory initiatives or statutes, including higher liability caps under OPA, new regulations regarding offshore oil and gas drilling and a pilot inspection program for offshore facilities. However, several of these initiatives and regulations have been or may be revised. For example, the U.S. Bureau of Safety and Environmental Enforcement's ("BSEE") revised Production Safety Systems Rule ("PSSR"), effective December 27, 2018, modified and relaxed certain environmental and safety protections under the 2016 PSSR. Additionally, the BSEE amended the Well Control Rule, effective July 15, 2019 which rolled back certain reforms regarding the safety of drilling operations, and the U.S. President proposed leasing new sections of U.S. waters to oil and gas companies for offshore drilling. The effects of these changes are currently unknown. Compliance with any new requirements of OPA and future legislation or regulations applicable to the operation of our vessels could impact the cost of our operations and adversely affect our business.
OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, provided they accept, at a minimum, the levels of liability established under OPA, and some states have enacted legislation providing for unlimited liability for oil spills. Many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent than U.S. federal law. Moreover, some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters, although in some cases, states which have enacted this type of legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws. The Company intends to comply with all applicable state regulations in the ports that the Company's vessels call.
We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage, it could have an adverse effect on our business and results of operation.
Other United States Environmental Initiatives
The U.S. Clean Air Act of 1970 (including its amendments of 1977 and 1990) ("CAA") requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargos when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. The CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in each state. Although state-specific SIPs may include regulations concerning emissions resulting from vessel loading and unloading operations by requiring the installation of vapor control equipment. Our vessels operating in such regulated port areas with restricted cargos are equipped with vapor recovery systems that satisfy these existing requirements.
The U.S. Clean Water Act ("CWA") prohibits the discharge of oil, hazardous substances and ballast water in U.S. navigable waters, unless authorized by a duly-issued permit or exemption, and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In 2015, the EPA expanded the definition of "waters of the United States" ("WOTUS"), thereby expanding federal authority under the CWA. Following litigation on the revised WOTUS rule in December 2018, the EPA and Department of the Army proposed a revised, limited definition of "waters of the United States." The proposed rule was published in the Federal Register on February 14, 2019 and was subject to public comment. On October 22, 2019, the agencies published a final rule repealing the 2015 Rule defining “waters of the United States” and recodified the regulatory text that existed prior to 2015 Rule. The final rule became effective on December 23, 2019. The effect of this rule on U.S. environmental regulations is still unknown.
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The EPA and the USCG have also enacted rules relating to ballast water discharge, compliance with which requires the installation of equipment on our vessels to treat ballast water before it is discharged or the implementation of other port facility disposal arrangements or procedures at potentially substantial costs, and/or otherwise restrict our vessels from entering U.S. Waters. The EPA will regulate these ballast water discharges and other discharges incidental to the normal operation of certain vessels within United States waters pursuant to the Vessel Incidental Discharge Act ("VIDA"), which was signed into law on December 4, 2018 and replaces the 2013 Vessel General Permit ("VGP") program (which authorizes discharges incidental to operations of commercial vessels and contains numeric ballast water discharge limits for most vessels to reduce the risk of invasive species in U.S. waters, stringent requirements for exhaust gas scrubbers, and requirements for the use of environmentally acceptable lubricants) and current Coast Guard ballast water management regulations adopted under the U.S. National Invasive Species Act ("NISA"), such as mid-ocean ballast water exchange programs and installation of approved USCG technology for all vessels equipped with ballast water tanks bound for U.S. ports or entering U.S. waters. VIDA establishes a new framework for the regulation of vessel incidental discharges under Clean Water Act (CWA), requires the EPA to develop performance standards for those discharges within two years of enactment and requires the U.S. Coast Guard to develop implementation, compliance and enforcement regulations within two years of EPA's promulgation of standards. Under VIDA, all provisions of the 2013 VGP and USCG regulations regarding ballast water treatment remain in force and effect until the EPA and U.S. Coast Guard regulations are finalized. Non-military, non-recreational vessels greater than 79 feet in length must continue to comply with the requirements of the VGP, including submission of a Notice of Intent ("NOI") or retention of a PARI form and submission of annual reports. We have submitted NOIs for our vessels where required. Compliance with the EPA, U.S. Coast Guard and state regulations could require the installation of ballast water treatment equipment on our vessels or the implementation of other port facility disposal procedures at potentially substantial cost or may otherwise restrict our vessels from entering U.S. waters.
In order to comply with IMO and USCG ballast water regulations, we are required to install ballast water treatment plants on all of our vessels from December 2018 to September 2024. The cost of compliance per vessel for us is estimated to be between $1.0 and $1.3 million, depending on size of the vessel. Significant investments in ballast water treatment systems may have a material adverse effect on our future performance, results of operations, cash flows and financial position. We have performed due diligence in this regard and have established a project group that is carrying out technical feasibility of the available plants. We are also carrying out pilot projects to minimize risks in the future implementation process for all vessels.
European Union Regulations
In October 2009, the European Union amended a directive to impose criminal sanctions for illicit ship-source discharges of polluting substances, including minor discharges, if committed with intent, recklessly or with serious negligence and the discharges individually or in the aggregate result in deterioration of the quality of water. Aiding and abetting the discharge of a polluting substance may also lead to criminal penalties. The directive applies to all types of vessels, irrespective of their flag, but certain exceptions apply to warships or where human safety or that of the ship is in danger. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 (amending EU Directive 2009/16/EC) governs the monitoring, reporting and verification of carbon dioxide emissions from maritime transport and, subject to some exclusions, requires companies with ships over 5,000 gross tonnage to monitor and report carbon dioxide emissions annually, which may cause us to incur additional expenses.
The European Union has adopted several regulations and directives requiring, among other things, more frequent inspections of high-risk ships, as determined by type, age and flag as well as the number of times the ship has been detained. The European Union also adopted and extended a ban on substandard ships and enacted a minimum ban period and a definitive ban for repeated offenses. The regulation also provided the European Union with greater authority and control over classification societies, by imposing more requirements on classification societies and providing for fines or penalty payments for organizations that failed to comply. Furthermore, the EU has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/33/EC (amending Directive 1999/32/EC) introduced requirements parallel to those in Annex VI relating to the sulfur content of marine fuels. In addition, the EU imposed a 0.1% maximum sulfur requirement for fuel used by ships at berth in the Baltic Sea, the North Sea and the English Channel (the so called “SOx-Emission Control Area”). As of January 2020, the EU member states must also ensure that ships in all EU waters, except the SOx-Emission Control Area, use fuels with a 0.5% maximum sulfur content.
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Greenhouse Gas Regulations
Currently, the emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in 2005, and pursuant to which adopting countries have been required to implement national programs to reduce greenhouse gas emissions with targets extended through 2020. International negotiations are continuing with respect to a successor to the Kyoto Protocol, and restrictions on shipping emissions may be included in any new treaty. In December 2009, more than 27 nations, including the U.S. and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. The 2015 United Nations Climate Change Conference in Paris resulted in the Paris Agreement, which entered into force on November 4, 2016 and does not directly limit greenhouse gas emissions from ships. The U.S. initially entered into the agreement, but on June 1, 2017, the U.S. President announced that the United States intends to withdraw from the Paris Agreement, which provides for a four-year exit process, meaning that the earliest possible effective withdrawal date cannot be before November 4, 2020. The timing and effect of such action has yet to be determined.
At MEPC 70 and MEPC 71, a draft outline of the structure of the initial strategy for developing a comprehensive IMO strategy on reduction of greenhouse gas emissions from ships was approved. In accordance with this roadmap, in April 2018, nations at the MEPC 72 adopted an initial strategy to reduce greenhouse gas emissions from ships. The initial strategy identifies "levels of ambition" to reducing greenhouse gas emissions, including (1) decreasing the carbon intensity from ships through implementation of further phases of the EEDI for new ships; (2) reducing carbon dioxide emissions per transport work, as an average across international shipping, by at least 40% by 2030, pursuing efforts towards 70% by 2050, compared to 2008 emission levels; and (3) reducing the total annual greenhouse emissions by at least 50% by 2050 compared to 2008 while pursuing efforts towards phasing them out entirely. The initial strategy notes that technological innovation, alternative fuels and/or energy sources for international shipping will be integral to achieve the overall ambition. These regulations could cause us to incur additional substantial expenses.
The EU made a unilateral commitment to reduce overall greenhouse gas emissions from its member states from 20% of 1990 levels by 2020. The EU also committed to reduce its emissions by 20% under the Kyoto Protocol's second period from 2013 to 2020. Starting in January 2018, large ships over 5,000 gross tonnage calling at EU ports are required to collect and publish data on carbon dioxide emissions and other information.
In the United States, the EPA issued a finding that greenhouse gases endanger the public health and safety, adopted regulations to limit greenhouse gas emissions from certain mobile sources and proposed regulations to limit greenhouse gas emissions from large stationary sources. However, in March 2017, the U.S. President signed an executive order to review and possibly eliminate the EPA's plan to cut greenhouse gas emissions, and in August 2019, the Administration announced plans to weaken regulation for methane emissions. The EPA or individual U.S. states could enact environmental regulations that would affect our operations.
Any passage of climate control legislation or other regulatory initiatives by the IMO, the EU, the U.S. or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol or Paris Agreement that restricts emissions of greenhouse gases could require us to make significant financial expenditures which we cannot predict with certainty at this time. Even in the absence of climate control legislation, our business may be indirectly affected to the extent that climate change may result in sea level changes or certain weather events.
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Maritime Labor Convention
The ILO is a specialized agency of the UN with headquarters in Geneva, Switzerland. The ILO adopted the MLC 2006, which entered into force on August 20, 2013. A Maritime Labor Certificate and a Declaration of Maritime Labor Compliance are required to ensure compliance with the MLC 2006 for all ships above 500 gross tons in international trade. These documents will provide prima facie evidence that the vessels are in compliance with the requirements of the MLC 2006. The Maritime Labor Certificate and Declaration of Maritime Labor Compliance will be subject to inspection by port state control when vessels enter the ports of other countries that have ratified the MLC 2006. In addition, vessels flying the flag of countries that have not ratified the MLC 2006 are also subject to inspection with respect to working and living conditions for seafarers when those vessels enter in port of countries where the MLC 2006 is in force. Amendments to MLC 2006 were adopted in 2014 and 2016.
There are costs associated with complying with the MLC 2006, and the methods to be used by port state control to check and ensure compliance are currently unclear. Given the uncertain interpretation of the MLC 2006 and the local legislation enacting it in various countries, there are risks associated with ensuring proper compliance.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001 in the United States, there have been a variety of initiatives intended to enhance vessel security such as the U.S. Maritime Transportation Security Act of 2002 ("MTSA"). To implement certain portions of the MTSA, the USCG issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States and at certain ports and facilities, some of which are regulated by the EPA.
Similarly, Chapter XI-2 of the SOLAS Convention imposes detailed security obligations on vessels and port authorities and mandates compliance with the International Ship and Port Facilities Security Code ("the ISPS Code"). The ISPS Code is designed to enhance the security of ports and ships against terrorism. To trade internationally, a vessel must attain an International Ship Security Certificate ("ISSC") from a recognized security organization approved by the vessel's flag state. Ships operating without a valid certificate may be detained, expelled from or refused entry at port until they obtain an ISSC. The various requirements, some of which are found in the SOLAS Convention, include for example, on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ship's identity, position, course, speed and navigational status; on-board installation of ship security alert systems, which do not sound on the vessel but only alert the authorities on shore; the development of vessel security plans; ship identification number to be permanently marked on a vessel's hull; a continuous synopsis record kept onboard showing a vessel's history including the name of the ship, the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ship's identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and compliance with flag state security certification requirements.
The USCG regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from MTSA vessel security measures, provided such vessels have on board a valid ISSC that attests to the vessel's compliance with the SOLAS Convention security requirements and the ISPS Code. Future security measures could have a significant financial impact on us. We intend to comply with the various security measures addressed by MTSA, the SOLAS Convention and the ISPS Code.
The cost of vessel security measures has also been affected by the escalation in the frequency of acts of piracy against ships, notably off the coast of Somalia, including the Gulf of Aden and Arabian Sea area. Substantial loss of revenue and other costs may be incurred as a result of detention of a vessel or additional security measures, and the risk of uninsured losses could significantly affect our business. Costs are incurred in taking additional security measures in accordance with Best Management Practices to Deter Piracy, notably those contained in the BMP4 industry standard.
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Inspection by Classification Societies
Every seagoing vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in-class,'' signifying that the vessel has been built and maintained in accordance with the rules of the classification society. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned and will certify that such vessel complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member.
The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows:

| • | Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant, and where applicable for special equipment classed, within three months before or after each anniversary date of the date of commencement of the class period indicated in the certificate.

| • | Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and are to be carried out either at or between the second and third Annual Surveys after Special Periodical Survey No. 1 and subsequent Special Periodical Surveys. Those items which are additional to the requirements of the Annual Surveys may be surveyed either at or between the second and third Annual Surveys. After the completion of the No. 3 Special Periodical Survey, the following Intermediate Surveys are of the same scope as the previous Special Periodical Survey.

| • | Special Periodical Surveys (or Class Renewal Surveys). Class renewal surveys, also known as Special Periodical Surveys, are carried out for the ship's hull, machinery, including the electrical plant, and for any special equipment classed, and should be completed within five years after the date of build or after the crediting date of the previous Special Periodical Survey. At the special survey, the vessel is thoroughly examined, including ultrasonic-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than the minimum class requirements, the classification society would prescribe steel renewals. A Special Periodical Survey may be commenced at the fourth Annual Survey and be continued with completion by the fifth anniversary date. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear.

As mentioned above, for vessels that are more than 15 years old, the Intermediate Survey may also have a considerable financial impact.
At an owner's application, the surveys required for class renewal (for tankers only the ones in relation to machinery and automation) may be split according to an agreed schedule to extend over the entire five-year period. This process is referred to as continuous survey system. All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years.
Most vessels are subject also to a minimum of two examinations of the outside of a vessel's bottom and related items during each five-year special survey period. Examinations of the outside of a vessel's bottom and related items are normally to be carried out with the vessel in dry-dock, but an alternative examination while the vessel is afloat by an approved underwater inspection may be considered. Such an examination is to be carried out in conjunction with the Special Periodical Survey, and in this case the vessel must be in dry-dock. For vessels older than 15 years (after the 3rd Special Periodical Survey), the bottom survey must always be in the dry-dock. In all cases, the interval between any two such examinations is not to exceed 36 months.
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In general during the above surveys, if any defects are found, the classification surveyor will require immediate repairs or issue a ''recommendation'' which must be rectified by the shipowner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in-class" by a classification society which is a member of the International Association of Classification Societies, or IACS. All our vessels are certified as being "in-class" by American Bureau of Shipping, Lloyds Register or Bureau Veritas who are all members of IACS. All new and second-hand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memoranda of agreement. If the vessel is not certified on the scheduled date of closing, we have no obligation to take delivery of the vessel.
Risk of Loss and Liability Insurance
General
The operation of any cargo vessel includes risks such as mechanical failure, physical damage, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, piracy incidents, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. OPA, which in certain circumstances imposes virtually unlimited liability upon shipowners, operators and bareboat charterers of any vessel trading in the exclusive economic zone of the United States for certain oil pollution accidents in the United States, has made liability insurance more expensive for shipowners and operators trading in the United States market. We carry insurance coverage as customary in the shipping industry. However, not all risks can be insured, specific claims may be rejected, and we might not be always able to obtain adequate insurance coverage at reasonable rates.
Marine and War Risks Insurance
We have in force marine hull and machinery and war risks insurance for all of our vessels. Our marine hull and machinery insurance covers risks of particular and general average and actual or constructive total loss from collision, fire, grounding, engine breakdown and other insured named perils up to an agreed amount per vessel. Our war risks insurance covers the risks of particular and general average and actual or constructive total loss from acts of war and civil war, terrorism, piracy, confiscation, seizure, capture, vandalism, sabotage and other war-related named perils. We have also arranged coverage for increased value for each vessel. Under this increased value coverage, in the event of total loss of a vessel, we will be able to recover amounts in excess of those recoverable under the hull and machinery policy in order to compensate for additional costs associated with replacement of the loss of the vessel. Each vessel is covered up to at least its fair market value at the time of the insurance attachment and subject to a fixed deductible per each single accident or occurrence, but excluding actual or constructive total loss.
Protection and Indemnity Insurance
Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, and covers our third-party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses of injury or death of crew, passengers and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances, and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity from mutual associations, or "clubs."
Our current protection and indemnity insurance coverage for pollution is $ 1 billion per vessel per incident. The 13 P&I Associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. The International Group's website states that the Pool provides a mechanism for sharing all claims in excess of US$ 10 million up to, currently, approximately US$ 8.2 billion. As a member of a P&I Association, which is a member of the International Group, we are subject to calls payable to the associations based on our claim records as well as the claim records of all other members of the individual associations and members of the shipping pool of P&I Associations comprising the International Group.
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Permits and Authorizations
We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The permits, licenses and certificates that are required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew and the age of the vessel. We have obtained all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted, which could limit our ability to do business or increase the cost of us doing business.
Competition
We operate in markets that are highly competitive. We compete for charters on the basis of price, vessel location, size, age and condition of the product tankers as well as our reputation as an operator. We compete primarily with owners and operators of product tankers in the Handysize, MR, LR1 and LR2 fleets. We believe that the ownership of product tankers is fragmented and divided among major oil companies and independent product tanker owners. The fragmented competitive landscape can be illustrated by our market position. Although we have one of the largest owned fleets, according to industry sources, our owned fleet constitutes approximately 3% of the existing global product tanker fleet (in dwt terms).
C. Organizational Structure
TORM plc (formerly Anchor Admiral Limited and TORM Limited) is a public limited company incorporated on October 12, 2015 under the laws of England and Wales under the name Anchor Admiral Limited with company number 9818726. Anchor Admiral Limited was renamed TORM Limited on November 26, 2015 and TORM Limited was renamed TORM plc on January 20, 2016. Following the closing of the Exchange Offer (discussed herein) and the listing of TORM plc's Class A common shares on Nasdaq Copenhagen on April 19, 2016, TORM plc became the publicly listed parent company of TORM A/S, which is now our wholly-owned subsidiary. The Group is engaged in the business of owning and operating product tankers to transport refined petroleum products. We, TORM A/S and other subsidiaries, own each of the vessels in our product tanker fleet (including eight newbuildings and other than five vessels that we charter in) and expect to own each additional vessel that we acquire in the future, through separate wholly-owned subsidiaries. The management of our fleet, including vessels that we charter in, is performed by our wholly-owned subsidiaries. We have offices in the United Kingdom, Denmark, Mumbai (India), New Delhi (India), Manila (the Philippines), Cebu (the Philippines), Singapore (Singapore) and Houston (Texas, USA).
A list of our significant subsidiaries is filed herewith as Exhibit 8.1.
D. Property, Plants and Equipment
We own no properties other than our vessels. We lease office space in various jurisdictions and had the following material leases in place as of December 31, 2019:

| • | London, United Kingdom, located at Birchin Court, 20 Birchin Lane, EC3V 9DU with 1 employee at this location;

| • | Hellerup, Denmark, located at Tuborg Havnevej 18, DK-2900, with approximately 141 employees at this location;

| • | Singapore, Singapore, located at 6 Battery Road #27-02, with approximately 16 employees at this location;

| • | Houston, Texas, USA, located at Suite 710, 2500 City West Boulevard, with approximately 9 employees at this location;

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| • | Manila, the Philippines, located at 7th Floor Salcedo Towers, 169 HV dela Costa Street, with approximately 36 employees at this location;

| • | Cebu, the Philippines, located at 2nd Floor Causing-Lozada Inc Building, Osmena Blvd. cor Lapu-Lapu St., with 2 employees at this location;

| • | Mumbai, India, located at 2nd Floor, Leela Business Park, Andheri-Kurla Road, with approximately 132 employees at this location; and

| • | New Delhi, India, located at 5th Floor, Caddle Commercial Tower, Aerocity, with 4 employees at this location.

For a description of our fleet, see “Item 4. Information on the Company⸻B. Business Overview.”
Patents, Licenses and Trademarks
We have no material patents and do not use any licenses other than ordinary information technology licenses.
We have trademark registered the rights to our Company's name (TORM) and logo (the TORM flag) in all relevant jurisdictions including Denmark, the European Union, Bahrain, Brazil, Singapore, the United Arab Emirates and the United States.
We have registered our primary domains: www.torm.com, www.torm.dk and www.torm.eu.

ITEM 4A. | UNRESOLVED STAFF COMMENTS

None.

ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following presentation of management's discussion and analysis of results of operations and financial condition should be read in conjunction with our audited consolidated financial statements and related notes. You should also carefully read the following discussion with the sections of this annual report entitled "Cautionary Statement Regarding Forward-Looking Statements", "Explanatory Note and Presentation of Our Financial and Operating Data", "Item 3. Key Information—D. Risk Factors", "Item 4. Information on the Company—B. Business Overview". This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those set forth in "Item 3. Key Information—D. Risk Factors" and elsewhere in this annual report.
The audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017 have been prepared in accordance with IFRS as issued by the IASB. The financial statements are presented in U.S. Dollar millions unless otherwise indicated.
Non-IFRS measures
Certain non-IFRS measures included in our financial and operating data have been derived from amounts calculated in accordance with IFRS but are not themselves IFRS measures. They should not be viewed in isolation as alternatives to the equivalent IFRS measure, rather they should be read in conjunction with the equivalent IFRS measure. These include Time Charter Equivalent or TCE earnings, Adjusted gross profit (net earnings from shipping), Adjusted EBITDA (net profit/(loss) for the period before tax expense, financial income, financial expenses, depreciation and impairment losses and reversals of impairment on tangible assets), loan-to-value ratio and net interest-bearing debt. The computation of Adjusted EBITDA includes an adjustment for financial income and expenses which we deem to be equivalent to "interest" for purposes of presenting Adjusted EBITDA. Financial expenses consist of interest on bank loans, losses on foreign exchange transactions and bank charges, and financial income consists of interest income and gains on foreign exchange transactions. The term Adjusted EBITDA as used in this annual report has the same meaning and corresponds to all references to the term EBITDA as used in our Annual Report 2019.
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There are a number of non-IFRS measures included in the Annual Report 2019 on pages 162-165. Only those non-IFRS measures listed herein are considered to form part of the annual report on Form 20-F.
Management believes that these non-IFRS measures are both useful and necessary to present in our financial and operating data, because they are used by management for internal performance analysis, the presentation of these measures facilitates an element of comparability with other companies, although management's measures may not be calculated in the same way as similarly titled measures reported by other companies, and because these measures are useful in connection with discussions with the investment community.

Non-IFRS Financial Measures |  | Year ended December 31, |
(USD million) |  | 2019 |  |  | 2018 |  |  | 2017 |
Time charter equivalent (TCE) earnings |  |  | 424.9 |  |  |  | 352.4 |  |  |  | 397.1 |
Adjusted gross profit (Net earnings from shipping activities) |  |  | 251.9 |  |  |  | 169.5 |  |  |  | 200.2 |
Adjusted EBITDA |  |  | 202.0 |  |  |  | 120.5 |  |  |  | 157.6 |
Net interest-bearing debt |  |  | 786.3 |  |  |  | 627.3 |  |  |  | 619.7 |
Loan-to-value (LTV) |  |  | 46.0 | % |  |  | 52.9 | % |  |  | 55.8 | %

Time Charter Equivalent (TCE) earnings. We define TCE earnings, a performance measure, as revenue after port expenses, bunkers and commissions. We report TCE earnings, a non-IFRS measure, because we believe it provides additional meaningful information to investors in conjunction with revenue, the most directly comparable IFRS measure, given it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance irrespective of changes in the mix of charter types (i.e. spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods. Below is presented a reconciliation from revenue to TCE earnings.

Reconciliation from revenue | Year ended December 31, |
(USD million) | 2019 |  | 2018 |  | 2017 |
Revenue |  |  | 692.6 |  |  |  | 635.4 |  |  |  | 657.0 |
Port expenses, bunkers and commissions |  |  | (267.7 | ) |  |  | (283.0 | ) |  |  | (259.9 | )
Time charter equivalent (TCE) earnings |  |  | 424.9 |  |  |  | 352.4 |  |  |  | 397.1 |

Adjusted gross profit (Net earnings from shipping activities). We define Adjusted gross profit (net earnings from shipping activities) as operating profit/(loss) before depreciation, impairment losses and reversal of impairment, other operating expenses, administrative expenses and profit from sale of vessels. We report Adjusted gross profit (net earnings from shipping activities), a non-IFRS measure, because we believe it provides additional meaningful information to investors to assess our operating performance from our shipping activities. Adjusted gross profit is also provided as an operating performance measure in the internal management reporting.
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Reconciliation from operating profit/(loss) |  | Year ended December 31, |
(USD million) |  | 2019 |  |  | 2018 |  |  | 2017 |
Operating profit/(loss) |  |  | 205.9 |  |  |  | 2.8 |  |  |  | 39.5 |
Depreciation |  |  | 110.1 |  |  |  | 114.5 |  |  |  | 114.5 |
Impairment losses and reversal of impairment |  |  | (114.0 | ) |  |  | 3.2 |  |  |  | 3.6 |
Other operating expenses |  |  | 2.9 |  |  |  | 2.0 |  |  |  | 0.4 |
Administrative expenses |  |  | 47.7 |  |  |  | 47.8 |  |  |  | 45.0 |
Profit from sale of vessels |  |  | (1.2 | ) |  |  | (0.8 | ) |  |  | (2.8 | )
Share of profit from joint ventures |  |  | 0.4 |  |  |  | (0.2 | ) |  |  | 0.0 |
Adjusted gross profit (net earnings from shipping activities) |  |  | 251.9 |  |  |  | 169.5 |  |  |  | 200.2 |

Adjusted EBITDA. We define Adjusted EBITDA as net profit/(loss) for the period before tax expense, financial income, financial expenses, depreciation and impairment losses and reversals of impairment on tangible assets. The computation of Adjusted EBITDA refers to financial income and expenses, which we deem to be equivalent to "interest" for purposes of presenting Adjusted EBITDA. Financial expenses consist of interest on bank loans, losses on foreign exchange transactions and bank charges. Financial income consists of interest income and gains on foreign exchange transactions.
Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements, such as our lenders, to assess our operating performance as well as our compliance with the financial covenants and restrictions contained in our financing agreements. We believe that Adjusted EBITDA assists our management and investors by increasing comparability of our performance from period to period. This increased comparability is achieved by excluding the potentially disparate effects between periods of interest, depreciation, amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis, which items may significantly affect results of operations between periods. We believe that including Adjusted EBITDA as a performance measure benefits investors in (a) selecting between investing in us or other investment alternatives and (b) monitoring our ongoing operational strength in assessing whether to continue to hold common units.
Adjusted EBITDA excludes some, but not all, items that affect profit/(loss), and these measures may vary among other companies. Therefore, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies. The following table reconciles Adjusted EBITDA to net profit/(loss), the most directly comparable IFRS financial measure, for the periods presented:

Reconciliation from net profit/(loss) |  | Year ended December 31, |
(USD million) |  | 2019 |  |  | 2018 |  |  | 2017 |
Net profit/(loss) for the year |  |  | 166.0 |  |  |  | (34.8 | ) |  |  | 2.4 |
Tax expense |  |  | 0.8 |  |  |  | 1.5 |  |  |  | 0.8 |
Financial expenses |  |  | 41.9 |  |  |  | 39.3 |  |  |  | 40.6 |
Financial income |  |  | (2.8 | ) |  |  | (3.3 | ) |  |  | (4.3 | )
Depreciation |  |  | 110.1 |  |  |  | 114.5 |  |  |  | 114.5 |
Impairment losses and reversal of impairment |  |  | (114.0 | ) |  |  | 3.2 |  |  |  | 3.6 |
Adjusted EBITDA |  |  | 202.0 |  |  |  | 120.5 |  |  |  | 157.6 |

Net interest-bearing debt. Net interest-bearing debt is defined as borrowings (current and non-current), less loan receivables and cash and cash equivalents, including restricted cash. Net interest-bearing debt depicts the net capital resources, which cause net interest expenditure and interest rate risk and which, together with equity, are used to finance our investments. As such, we believe that net interest-bearing debt is a relevant measure, which management uses to measure the overall development of our use of financing, other than equity. Such measure may not be comparable to similarly titled measures of other companies. Net interest-bearing debt is calculated as follows:
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Net interest-bearing debt |  | Year ended December 31, |
(USD million) |  | 2019 |  |  | 2018 |  |  | 2017 |
Borrowings (current and non-current) |  |  | 863.4 |  |  |  | 754.7 |  |  |  | 753.9 |
Loans receivables |  |  | (4.6 | ) |  |  | 0.0 |  |  |  | 0.0 |
Cash and cash equivalents, including restricted cash |  |  | (72.5 | ) |  |  | (127.4 | ) |  |  | (134.2 | )
Net interest-bearing debt |  |  | 786.3 |  |  |  | 627.3 |  |  |  | 619.7 |

Loan-to-value (LTV) ratio. Loan-to-value (LTV) ratio is defined as vessel values divided by net borrowings of the vessels. LTV describes the net debt ratio of our vessels and is used by us to describe the financial situation, the liquidity risk as well as to express the future possibilities to raise new capital by new loan facilities.

Loan-to-value (LTV) |  | Year ended December 31, |
(USD million) |  | 2019 |  |  | 2018 |  |  | 2017 |
Vessel values, including newbuildings (broker values) |  |  | 1,801.5 |  |  |  | 1,675.1 |  |  |  | 1,661.1 |
Total (value) |  |  | 1,801.5 |  |  |  | 1,675.1 |  |  |  | 1,661.1 |
Outstanding debt |  |  | 863.4 |  |  |  | 754.7 |  |  |  | 753.9 |
-Hereof debt regarding Land and buildings & Other plant and operating equipment |  |  | (8.7 | ) |  |  | 0.0 |  |  |  | 0.0 |
Committed CAPEX on newbuildings |  |  | 51.2 |  |  |  | 258.0 |  |  |  | 306.9 |
Loans receivables |  |  | (4.6 | ) |  |  | 0.0 |  |  |  | 0.0 |
Cash and cash equivalents, including restricted cash |  |  | (72.5 | ) |  |  | (127.4 | ) |  |  | (134.2 | )
Total (loan) |  |  | 828.8 |  |  |  | 885.3 |  |  |  | 926.6 |
Loan-to-value (LTV) ratio |  |  | 46.0 | % |  |  | 52.9 | % |  |  | 55.8 | %

A. Operating Results
Primary Factors Affecting Results of Operations
Reference is made to "Financial Review 2019⸻Primary Factors Affecting Results of Operations" on pages 45-46 of our Annual Report 2019.
Other Important Financial and Operational Terms and Concepts of TORM plc
The Company uses a variety of other financial and operational terms and concepts. These include the following:

| • | Voyage expenses. Voyage expenses are all expenses related to a particular voyage, including any bunker fuel expenses, port expenses, cargo loading and unloading expenses, canal tolls and agency fees. These expenses are subtracted from shipping revenues to calculate Time Charter Equivalent Rates.

| • | Vessel operating costs. Vessel operating costs include crewing, repairs and maintenance (excluding capitalized dry-docking), insurance, consumable stores, lube oils, communication expenses and technical management fees. The largest components of our vessel operating costs are generally crewing and repairs & maintenance. Expenses for repairs & maintenance tend to fluctuate from period to period because most repairs & maintenance typically occur during periodic dry-dockings. We expect these expenses to increase as our fleet matures and to the extent that it expands.

| • | Charter hire. Charter hire consists of (i) money paid to the vessel owner by a charterer for the use of a vessel under a time charter or bareboat charter and (ii) amortization of the fair value of time charter contracts acquired. Such payments to vessel owners are usually made during the course of the charter every 30 days in advance or in arrears by multiplying the daily charter rate by the number of days and, under a time charter only, subtracting any time the vessel was deemed to be off-hire. Under a bareboat charter such payments are usually made monthly and are calculated on a 360 or 365-day calendar year basis.

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| • | Dry-docking. We must periodically dry-dock each of our vessels for inspection and any modifications to comply with industry certification or regulatory requirements. Generally, each vessel is dry-docked every 30-60 months.

| • | Depreciation. Depreciation expenses typically consist of charges related to the depreciation of the historical cost of our fleet (less an estimated residual value and any impairment losses recognized) over the estimated useful lives of the vessels and charges related to the depreciation of upgrades to vessels which are depreciated over the shorter of the vessel's remaining useful life or the life of the renewal or upgrade. Dry-docking costs are capitalized and depreciated on a straight-line basis over the estimated period until the next dry-docking.

Factors You Should Consider When Evaluating the Results of TORM plc
The Company faces a number of risks associated with our industry and must overcome a variety of challenges to utilize our competitive strengths in order to profitably implement our business strategy. These risks include, among other things: the highly cyclical tanker industry, dependence on spot market voyage charters, fluctuating charter values, increase in fuel prices, changing economic, political and governmental conditions affecting our industry and business, international sanctions, embargoes, import and export restrictions, nationalizations and wars, material changes in applicable laws and regulations, full performance by counterparties, particularly charterers, maintaining customer relationships, delay in deliveries or non-deliveries from shipyards, piracy attacks, maintaining sufficient liquidity, financing availability and terms and management turnover. See "Item 3. Key Information—D. Risk Factors".
Results of Operations of TORM plc
We operate within one segment, the product tanker segment, and thus the analysis has not been broken out into segments.
The financial highlights for TORM plc for the years ended December 31, 2019, 2018 and 2017 in this section have been extracted or derived from TORM plc's audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017. As such, the information below should be read in conjunction with TORM plc's audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017 and section of this annual report entitled "Explanatory Note and Presentation of Our Financial and Operating Data". Some of the information contained in this section, including information about TORM plc's plans and strategies for our business and our expected sources of financing, contains forward-looking statements that involve risks and uncertainties. Current and potential investors should read "Item 3. Key Information—D. Risk Factors" for information on certain factors that may have a material adverse effect on TORM plc's future performance, results of operations, cash flows and financial position.
TORM plc operates in a global industry where, among other things, freight rates are denominated and settled in United States dollars, and a majority of the cost base of TORM plc is denominated and settled in United States dollars. Consequently, TORM plc's financial reporting is in United States dollars.
Financial highlights for TORM plc
Reference is made to "Key Figures" on page 9 and "The Year in Review" on pages 11-13 of our Annual Report 2019.
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Consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017
Income statement
The table below presents financial information derived from TORM plc's income statement for the years ended December 31, 2019, 2018 and 2017.
Income statement for TORM plc for the years ended December 31, 2019, 2018 and 2017

|  | Year ended December 31, |
(USD million) |  | 2019 |  |  | 2018 |  |  | 2017 |
Revenue |  |  | 692.6 |  |  |  | 635.4 |  |  |  | 657.0 |
Port expenses, bunkers and commissions |  |  | (267.7 | ) |  |  | (283.0 | ) |  |  | (259.9 | )
TCE earnings |  |  | 424.9 |  |  |  | 352.4 |  |  |  | 397.1 |
Adjusted gross profit (net earnings from shipping activities) |  |  | 251.9 |  |  |  | 169.5 |  |  |  | 200.2 |
Adjusted EBITDA |  |  | 202.0 |  |  |  | 120.5 |  |  |  | 157.6 |
Operating profit/(loss) |  |  | 205.9 |  |  |  | 2.8 |  |  |  | 39.5 |
Profit/(loss) before tax |  |  | 166.8 |  |  |  | (33.2 | ) |  |  | 3.2 |
Net profit/(loss) for the year |  |  | 166.0 |  |  |  | (34.8 | ) |  |  | 2.4 |

Total revenue for the year ended December 31, 2019 was $693 million, which represents an increase of $57 million compared to the year ended December 31, 2018. This increase in revenue is primarily due to an increase in the freight rates in the spot market.
Total port expenses, bunkers and commissions for the year ended December 31, 2019 were $268 million, which represents a decrease of $15 million compared to the year ended December 31, 2018. Bunkers amounted to 61%, port expenses to 31%, and commissions and other voyage expenses to 8% respectively of the total port expenses, bunkers and commissions for the year ended December 31, 2019. Bunkers amounted to 61%, port expenses to 32%, and commissions and other voyage expenses to 7% of the total port expenses, bunkers and commissions for the year ended December 31, 2018. The decrease in port expenses, bunkers and commissions was primarily due to a decrease in available earning days.
TCE earnings for the year ended December 31, 2019 were $425 million corresponding to an increase of $73 million compared to the year ended December 31, 2018. The increase in TCE earnings was primarily due to an increase in freight rates equating to an increase in earnings of $57 million. This was mainly due to higher freight rates for the year ended December 31, 2019, compared with the year ended December 31, 2018.
Adjusted gross profit (net earnings from shipping activities) and Adjusted EBITDA were $252 million and $202 million, respectively, for the year ended December 31, 2019 compared to an Adjusted gross profit (net earnings from shipping activities) and Adjusted EBITDA of $169 million and $121 million, respectively, for the year ended December 31, 2018. The increase was mainly driven by the higher freight rates for the year ended December 31, 2019 compared to the year ended December 31, 2018.
Operating profit was $206 million for the year ended December 31, 2019 compared to an operating profit of $3 million for the year ended December 31, 2018. The increase was mainly driven by the higher freight rates for the year ended December 31, 2019 compared to the year ended December 31, 2018, combined with an impairment reversal in 2019.
TORM plc reported a net profit for the year ended December 31, 2019 of $166 million, compared to a net loss of $35 million for the year ended December 31, 2018, an increase of $201 million.
Total revenue for the year ended December 31, 2018 was $635 million, which represents a decrease of $22 million compared to the year ended December 31, 2017. This decrease in revenue is primarily due to a decrease in the freight rates in the spot market.
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Total port expenses, bunkers and commissions for the year ended December 31, 2018 were $283 million, which represents an increase of $23 million compared to the year ended December 31, 2017. Bunkers amounted to 61%, port expenses to 32%, and commissions and other voyage expenses to 7% respectively of the total port expenses, bunkers and commissions for the year ended December 31, 2018. Bunkers amounted to 55%, port expenses to 37%, and commissions and other voyage expenses to 8% of the total port expenses, bunkers and commissions for the year ended December 31, 2017. The increase in port expenses, bunkers and commissions was primarily due to increased bunker prices during the year.
TCE earnings for the year ended December 31, 2018 were $352 million corresponding to a decrease of $45 million compared to the year ended December 31, 2017. The decrease in TCE earnings was primarily due to a decrease in freight rates equating to a decrease in earnings of $48 million. This was mainly due to lower freight rates for the year ended December 31, 2018, compared with the year ended December 31, 2017.
Adjusted gross profit (net earnings from shipping activities) and Adjusted EBITDA were $169 million and $121 million, respectively, for the year ended December 31, 2018 compared to an Adjusted gross profit (net earnings from shipping activities) and Adjusted EBITDA of $200 million and $158 million, respectively, for the year ended December 31, 2017. The decrease was mainly driven by the lower freight rates for the year ended December 31, 2018 compared to the year ended December 31, 2017.
Operating profit was $3 million for the year ended December 31, 2018 compared to an operating profit of $40 million for the year ended December 31, 2017. The decrease was mainly driven by the lower freight rates for the year ended December 31, 2018 compared to the year ended December 31, 2017.
TORM plc reported a net loss for the year ended December 31, 2018 of $35 million, compared to a net profit of $2 million for the year ended December 31, 2018, a decrease of $37 million.
Revenue and port expenses, bunkers and commission (TCE earnings)
TCE earnings for TORM plc for the years ended December 31, 2019 and 2018

|  | LR2 |  |  | LR1 |  |  | MR |  |  | Handy |  |  | Total |
Year-end 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available TCE earning days |  |  | 4,027 |  |  |  | 2,484 |  |  |  | 18,182 |  |  |  | 2,450 |  |  |  | 27,141 |
TCE earnings per earning day, USD |  |  | 15,425 |  |  |  | 12,982 |  |  |  | 12,847 |  |  |  | 9,970 |  |  |  | 12,982 |
TCE earnings, USD million |  |  | 62.2 |  |  |  | 32.2 |  |  |  | 233.6 |  |  |  | 24.3 |  |  |  | 352.3 |
Year-end 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available TCE earning days |  |  | 4,198 |  |  |  | 2,153 |  |  |  | 17,736 |  |  |  | 1,620 |  |  |  | 25,707 |
Change |  |  | 4 | % |  |  | (13 | %) |  |  | (2 | %) |  |  | (34 | %) |  |  | (5 | %)
TCE earnings per earning day, USD |  |  | 19,730 |  |  |  | 17,102 |  |  |  | 15,840 |  |  |  | 14,965 |  |  |  | 16,526 |
Change |  |  | 28 | % |  |  | 32 | % |  |  | 23 | % |  |  | 50 | % |  |  | 27 | %
Effect on TCE earnings from change in the available TCE earning days, USD million |  |  | 2.6 |  |  |  | (4.3 | ) |  |  | (5.7 | ) |  |  | (8.3 | ) |  |  | (15.7 | )
Effect on TCE earnings from change in TCE earnings per earning day, USD million |  |  | 18.1 |  |  |  | 8.9 |  |  |  | 53.1 |  |  |  | 8.1 |  |  |  | 88.2 |
Other |  |  | (0.1 | ) |  |  | (0.3 | ) |  |  | 0.4 |  |  |  | 0.1 |  |  |  | 0.1 |
TCE earnings, USD million |  |  | 82.8 |  |  |  | 36.5 |  |  |  | 281.4 |  |  |  | 24.2 |  |  |  | 424.9 |

In 2019, TORM successfully navigated a volatile product tanker market that was impacted by the refining industry’s preparations for the IMO sulfur regulations that became effective January 1, 2020 (“IMO 2020”). TORM’s results in 2019 were enhanced by strong operational focus and focus on maintaining efficient operations and a low cost base.
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The product tanker market strengthened notably following a significant increase in crude tanker rates due to attacks on Saudi Arabian oil facilities. This increase accelerated dramatically after the US imposed sanctions on two subsidiaries of China’s COSCO Shipping. The last three months of 2019 provided a significant recovery for the broader tanker market supporting TORM’s earnings. For the full-year 2019, TORM’s product tanker fleet realized average Time Charter Equivalent (TCE) earnings of $16,526/day.
The first half of 2019 was impacted by the refining industry’s preparations for IMO 2020. Refinery maintenance was pronounced, and coupled with a series of unplanned outages, the volume of global refinery capacity that was offline was 23% higher in the second quarter of 2019 compared to the same period in 2018. In particular, a heavy refinery maintenance season in Asia caused long-haul diesel flows to drop significantly from the record levels seen in the first quarter of 2019. As the year progressed, geopolitical tensions were brought to the forefront with attacks on vessels near the Strait of Hormuz and the subsequent attack on Saudi Arabia’s crude oil facilities. Although the effect was temporary, and most of the effected capacity was restored promptly, Saudi Arabia cut runs at several refineries in order to meet its crude export contracts. This resulted in a decline in product exports, with naphtha flows to the Far East being affected.
Tanker rates surged at the start of the fourth quarter of 2019 when the US imposed sanctions on two subsidiaries of China’s COSCO Shipping. The reaction to the sanctions was first seen in the crude tanker sector, where rates increased to the highest levels seen since 2008. The positive sentiment carried over into the product tanker segment, where rates for all vessel classes increased sharply before retreating to levels that still remained elevated. The dramatic rise in crude tanker rates also caused around 5% of the LR2 fleet trading in clean petroleum products to switch to crude, which will help to sustain product tanker rates over the medium term.
In 2019, TORM achieved a gross profit of $252 million (2018: $170 million) with the increase from 2018 driven by higher freight rates. TORM's product tanker fleet realized TCE earnings of $16,526/day, up 27% compared to 2018, with the LR2 class at $19,730/day, the LR1 class at $17,102/day, the MR class at $15,840/day and the Handysize class at $14,965/day.
In 2019, TORM took delivery of five MR newbuildings and four second-hand MR vessels. In January 2020 TORM made an additional purchase of two fuel-efficient LR2 newbuildings with scrubbers and took delivery of three newbuildings, including two LR1 vessels and one MR vessel. During the third quarter of 2019, TORM executed sale and leaseback transactions for eight vessels, covering the four acquired second-hand MR vessels and four existing MR vessels. In 2019, TORM sold eight older vessels (five MR vessels and three Handysize vessels) for total consideration of $65 million. Seven of the vessels were delivered to their new owners in 2019 and one MR vessel was delivered in January 2020.
As of December 31, 2019, TORM’s fleet consisted of 65 owned vessels, 11 chartered-in vessels and four newbuilding vessels on order, three of which were delivered in January 2020. At the end of 2019, TORM operated a fleet of 77 vessels on the water of which 66 are fully owned and 11 are financial leasebacks.
For the LR2 fleet, the number of available earning days increased by 4% from the year ended December 31, 2018 and ended at 4,198 earning days for the year ended December 31, 2019. The average LR2 freight rate for the year ended December 31, 2019 was $19,730 per day resulting in earnings of $83 million.
For the LR1 fleet, the number of available earning days decreased by 13% from the year ended December 31, 2018 compared to the year ended December 31, 2019. The decrease was driven by dry-docking activities. The average LR1 freight rates for the year ended December 31, 2019 were $17,102 per day resulting in earnings of $37 million.
The number of available earning days for the MR fleet remained at the same level from the year ended December 31, 2018 to the year ended December 31, 2019, by a slight decrease of 2%, The sale of the five vessels was offset by the effect of the delivery of newbuildings and the acquisition of second hand vessels. The average MR freight rate for the year ended December 31, 2019 was $15,840 per day resulting in earnings of $281 million.
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TORM plc sold two Handysize vessels during 2019. Accordingly, the number of available earning days for the Handysize fleet decreased by 34% from the year ended December 31, 2018 to the year ended December 31, 2019 resulting in total earnings of $24 million.
TCE earnings for TORM plc for the years ended December 31, 2018 and 2017

|  | LR2 |  |  | LR1 |  |  | MR |  |  | Handy |  |  | Total |
Year-end 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available TCE earning days |  |  | 3,419 |  |  |  | 2,483 |  |  |  | 17,995 |  |  |  | 3,263 |  |  |  | 27,160 |
TCE earnings per earning day, USD |  |  | 16,304 |  |  |  | 13,771 |  |  |  | 14,850 |  |  |  | 12,239 |  |  |  | 14,621 |
TCE earnings, USD million |  |  | 55.8 |  |  |  | 34.2 |  |  |  | 267.2 |  |  |  | 39.9 |  |  |  | 397.1 |
Year-end 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available TCE earning days |  |  | 4,027 |  |  |  | 2,484 |  |  |  | 18,182 |  |  |  | 2,450 |  |  |  | 27,141 |
Change |  |  | 18 | % |  |  | 0 | % |  |  | 1 | % |  |  | (25 | %) |  |  | 0 | %
TCE earnings per earning day, USD |  |  | 15,425 |  |  |  | 12,982 |  |  |  | 12,847 |  |  |  | 9,970 |  |  |  | 12,982 |
Change |  |  | (5 | %) |  |  | (6 | %) |  |  | (13 | %) |  |  | (19 | %) |  |  | (11 | %)
Effect on TCE earnings from change in the available TCE earning days, USD million |  |  | 9.9 |  |  |  | 0.0 |  |  |  | 2.8 |  |  |  | (10.0 | ) |  |  | 2.7 |
Effect on TCE earnings from change in TCE earnings per earning day, USD million |  |  | (3.5 | ) |  |  | (2.0 | ) |  |  | (36.4 | ) |  |  | (5.6 | ) |  |  | (47.5 | )
TCE earnings, USD million |  |  | 62.2 |  |  |  | 32.2 |  |  |  | 233.6 |  |  |  | 24.3 |  |  |  | 352.3 |

The majority of 2018 was challenging for the product tanker segment, although the year ended with a significant recovery across the broader tanker market.
During the first half of the year, product tanker freight rates remained at a level similar to the rates seen in the same period in 2017. The year started out with healthy trading volumes. Exports from the US Gulf showed particularly strong growth, supported by increasing demand from Mexico and South America. Nevertheless, the positive impact of higher trading volumes was offset by shorter trading distances, partly as a result of the continued stock draw in some of the key importing regions.
In addition, an increasing number of newbuilt crude tankers opted for a clean cargo on their maiden voyage, reducing demand for product tankers in the East. Crude cannibalization intensified in the second quarter, driven by a depressed crude tanker market.
In the third quarter, product tanker freight rates declined further, and some of the benchmarks reached historically low levels, as higher oil prices and weaker currencies in several emerging market economies weighed negatively on oil demand and reduced trading volumes. Crude cannibalization continued at a high level in the third quarter. On top of the pressure from crude tankers, a backwardated oil price structure favored shorter hauls throughout the first three quarters of the year.
From the middle of the fourth quarter, product tanker freight rates started to pick up and reached levels not seen since late 2015/early 2016. Key interregional product arbitrage spreads, which had been closed for most of the year, widened and lifted demand for product tankers. Both the price spreads for gasoline and naphtha between West and East as well as spreads for diesel and jet fuel between East and West became supportive for product flows.
Product prices also turned from backwardation into contango, incentivizing floating storage of products. In addition, a stronger crude tanker market led to lower market cannibalization and encouraged a significant number of LR2s to shift from the clean market to the dirty market, effectively reducing tonnage supply.
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According to industry sources, asset prices on second-hand product tankers remained relatively flat during 2018 but saw an increase towards the end of the year. The end-of-year increase in asset prices was mainly driven by a combination of improved freight rates, a relatively low supply of vessels for sale and a shrinking order book. The value of TORM's fleet measured by broker values decreased by 4% during 2018 (when excluding vessels acquired and sold during 2018).
In 2018, TORM achieved a gross profit of $169 million (2017: $200 million) with the reduction from 2017 driven by lower freight rates. TORM's product tanker fleet realized TCE earnings of $12,982/day, down 11% year on year, with the LR2 class at $15,425/day, the LR1 class at $12,982/day, the MR class at $12,847/day and the Handysize class at $9,970/day.
During 2018, TORM took delivery of four LR2 vessels from GSI with the last of the four vessels being equipped with a scrubber. During 2018, TORM ordered an additional three MR vessels from GSI, thereby bringing the total newbuilding program to nine vessels covering seven MR and two LR1 vessels. The newbuildings are expected to be delivered through 2019 and the first quarter of 2020.
At the end of 2018, TORM operated a fleet of 75 vessels on the water of which 72 are fully owned and three are financial leasebacks.
For the LR2 fleet, the number of available earning days increased by 18% from the year ended December 31, 2017 and ended at 4,027 earning days for the year ended December 31, 2018. The increase was driven by the four newbuildings being delivered during 2018. The average LR2 freight rate for the year ended December 31, 2018 was $15,425 per day resulting in earnings of $62 million.
For the LR1 fleet, the number of available earning days were unchanged from the year ended December 31, 2017 compared to the year ended December 31, 2018, both years at 2,483 earning days. The average LR1 freight rates for the year ended December 31, 2018 were $12,982 per day resulting in earnings of $32 million.
TORM plc sold two MR vessels during 2018. The number of available earning days for the MR fleet remained at the same level from the year ended December 31, 2017 to the year ended December 31, 2018, by increasing 1%, because TORM plc took delivery of 2 MR vessels in the summer 2017 thereby offsetting the effect of the two sales. The average MR freight rate for the year ended December 31, 2018 was $12,847 per day resulting in earnings of $234 million.
TORM plc sold two Handysize vessels during 2018. Accordingly, the number of available earning days for the Handysize fleet decreased by 25% from the year ended December 31, 2017 to the year ended December 31, 2018 resulting in an increase in earnings to a total of $24 million.
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Adjusted gross profit (net earnings from shipping activities)

|  | Year ended December 31, 2019 |  |  | Year ended December 31, 2018 |  |  | Year ended December 31, 2017 |
(USD million) |  |  |  |  |  |  |  |  |
TCE earnings |  |  | 424.9 |  |  |  | 352.3 |  |  |  | 397.1 |
Charter hire |  |  | 0.0 |  |  |  | (2.5 | ) |  |  | (8.5 | )
Operating expenses |  |  | (173.0 | ) |  |  | (180.4 | ) |  |  | (188.4 | )
Adjusted gross profit (net earnings from shipping activities) |  |  | 251.9 |  |  |  | 169.5 |  |  |  | 200.2 |

TORM plc's Adjusted gross profit (net earnings from shipping activities) for the year ended December 31, 2019 was $252 million compared to $169 million for the year ended December 31, 2018 corresponding to an increase of $83 million. The increase was mainly due to the increase in freight rates in the spot market.
Total costs related to charter hire decreased by $3 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 mainly due to redelivery of chartered in vessels during 2018.
In 2019, operating expenses for vessels decreased by $7 million to $173 million. Average operating expenses per day ended at $6,371 for the year ended December 31, 2019 compared to $6,389 for the year ended December 31, 2018 reflecting a decrease of 0.3%.
TORM plc's Adjusted gross profit (net earnings from shipping activities) for the year ended December 31, 2018 was $169 million compared to $200 million for the year ended December 31, 2017 corresponding to a decrease of $31 million.
Total costs related to charter hire decreased by $6 million for the year ended December 31, 2018 compared to the year ended December 31, 2017 mainly due to the redelivery of two remaining vessels in 2018.
In 2018, operating expenses for vessels decreased by $8 million to $180. Average operating expenses per day ended at $6,389 for the year ended December 31, 2018 compared to $6,673 for the year ended December 31, 2017 reflecting a decrease of 4%.
Adjusted EBITDA

(USD million) |  | Year ended December 31, 2019 |  |  | Year ended December 31, 2018 |  |  | Year ended December 31, 2017 |
Adjusted gross profit (net earnings from shipping activities) |  |  | 251.9 |  |  |  | 169.5 |  |  |  | 200.2 |
Administrative expenses |  |  | (47.7 | ) |  |  | (47.8 | ) |  |  | (45.0 | )
Other operating expenses |  |  | (2.9 | ) |  |  | (2.0 | ) |  |  | (0.4 | )
Profit from sale of vessels |  |  | 1.2 |  |  |  | 0.8 |  |  |  | 2.8 |
Share of profit from joint ventures |  |  | (0.4 | ) |  |  | 0.2 |  |  |  | 0.0 |
Adjusted EBITDA |  |  | 202.0 |  |  |  | 120.5 |  |  |  | 157.6 |

TORM plc's Adjusted EBITDA for the year ended December 31, 2019 was $202 million compared to $121 million for the year ended December 31, 2018 corresponding to an increase of $81 million.
Total administrative expenses and other operating expenses increased from $50 million for the year ended December 31, 2018 to $51 million for the year ended December 31, 2019 due to a one-off provision covering an exposure related to the operations.
TORM plc's Adjusted EBITDA for the year ended December 31, 2018 was $121 million compared to $158 million for the year ended December 31, 2017 corresponding to a decrease of $37 million.
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Total administrative expenses and other operating expenses increased from $45 million for the year ended December 31, 2017 to $50 million for the year ended December 31, 2018 because of a higher number of FTEs.
Operating profit/(loss)

(USD million) |  | Year ended December 31, 2019 |  |  | Year ended December 31, 2018 |  |  | Year ended December 31, 2017 |
Adjusted EBITDA |  |  | 202.0 |  |  |  | 120.5 |  |  |  | 157.6 |
Impairment charges |  |  | 114.0 |  |  |  | (3.3 | ) |  |  | (3.6 | )
Depreciation |  |  | (110.1 | ) |  |  | (114.5 | ) |  |  | (114.5 | )
Operating profit/(loss) |  |  | 205.9 |  |  |  | 2.8 |  |  |  | 39.5 |

TORM plc's operating profit for the year ended December 31, 2019 was $206 million compared to an operating profit of $3 million for the year ended December 31, 2018 corresponding to an increase of $203 million.
The impairment charge amounted to positive $114 million for the year ended December 31, 2019 compared to negative $3 million for the year ended December 31, 2018 and was related to impairments regarding vessels sold during the year, as well as a reversal of impairments made in 2016. An impairment test of the recoverable amount of TORM’s cash generating units is performed yearly, comparing the carrying amount with the highest of broker values and value in use. Both exceeded the carrying amount as of December 31, 2019, indicating a need for a full reversal.
Depreciation amounted to $110 million for the year ended December 31, 2019, compared to $115 million for the year ended December 31, 2018.
TORM plc's operating profit for the year ended December 31, 2018 was $3 million compared to an operating profit of $40 million for the year ended December 31, 2017 corresponding to a decrease of $37 million.
The impairment charge amounted to $3 million for the year ended December 31, 2018 compared to $4 million for the year ended December 31, 2017 and was related to impairments regarding vessels sold during the year.
Depreciation amounted to $115 million for both the year ended December 31, 2018 and the year ended December 31, 2017.
Profit/(loss) before tax

(USD million) |  | Year ended December 31, 2019 |  |  | Year ended December 31, 2018 |  |  | Year ended December 31, 2017 |
Operating profit/(loss) |  |  | 205.9 |  |  |  | 2.8 |  |  |  | 39.5 |
Financial income |  |  | 2.8 |  |  |  | 3.3 |  |  |  | 4.3 |
Financial expenses |  |  | (41.9 | ) |  |  | (39.3 | ) |  |  | (40.6 | )
Profit/(loss) before tax |  |  | 166.8 |  |  |  | (33.2 | ) |  |  | 3.2 |

TORM plc's profit before tax for the year ended December 31, 2019 was $167 million compared to a loss of $33 million for the year ended December 31, 2018 corresponding to an increase of $200 million.
Financial expenses for the year ended December 31, 2019 increased to $42 million from $39 million for the year ended December 31, 2018. This was mainly due to increased debt. Financial income for the year ended December 31, 2019 decreased to $3 million from $3 million for the year ended December 31, 2018.
TORM plc's loss before tax for the year ended December 31, 2018 was $33 million compared to a profit of $3 million for the year ended December 31, 2017 corresponding to a decrease of $36 million.
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Financial expenses for the year ended December 31, 2018 decreased to $39 million from $41 million for the year ended December 31, 2017. Financial income for the year ended December 31, 2018 decreased to $3 million from $4 million for the year ended December 31, 2017.
Balance sheet
Total assets as of December 31, 2019 were $2,004 million corresponding to an increase of $290 million compared to December 31, 2018.
The increase in total assets from December 31, 2018 to December 31, 2019 was primarily driven by an increase in vessels and capitalized dry-docking of $278 million as well as an increase in prepayments on vessels of $50 million, offset by a decrease in Cash and cash equivalents, including restricted cash of $55 million.
The carrying value of vessels, newbuildings, capitalized dry-docking and prepayments on vessels as of December 31, 2019 amounted to $1,770 million compared to $1,442 million as of December 31, 2018. In total, the investments for 2019 amounted to $384 million compared to $202 million for 2018. Depreciation on the fleet amounted to $110 million for 2019 compared to $114 million for 2018. An impairment reversal of $120 million was recognized in 2019 related to impairments formerly recognized in 2016.
Total equity as of December 31, 2019 was $1,008 million corresponding to an increase of $160 million compared to December 31, 2018. The increase in equity was mainly due to the net profit for the year, partly offset by the fair value adjustments of hedging instruments.
TORM plc's liabilities increased by $129 million from $867 million as of December 31, 2018 to $996 million as of December 31, 2019. The increase in liabilities was mainly attributable to an increase in Lease liabilities of $145 million, offset by a decrease in Mortgage debt and bank loans of $53 million.
Total assets as of December 31, 2018 were $1,714 million corresponding to an increase of $67 million compared to December 31, 2017.
The increase in total assets from December 31, 2017 to December 31, 2018 was primarily driven by an increase in vessels and capitalized dry-docking of $102 million offset by a decrease in prepayments on vessels of $43 million related to the delivery of the vessels.
The carrying value of vessels, newbuildings, capitalized dry-docking and prepayments on vessels as of December 31, 2018 amounted to $1,442 million compared to $1,382 million as of December 31, 2017. In total, the investments for 2018 amounted to $202 million compared to $148 million for 2017. Depreciation on the fleet amounted to $114 million for 2018 compared to $114 million for 2017. No impairment charges were recognized in 2018.
Total equity as of December 31, 2018 was $847 million corresponding to an increase of $56 million compared to December 31, 2017. The increase in equity was mainly due to the Private Placement completed in January 2018 and the offsetting effect of the net loss for the year 2018.
TORM plc's liabilities increased by $11 million from $856 million as of December 31, 2017 to $867 million as of December 31, 2018. The increase in liabilities was mainly attributable to minor fluctuations in the current liabilities.
Critical Accounting Estimates and Judgments of TORM plc
The preparation of financial statements in conformity with IFRS requires estimates and assumptions that influence the value of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the value of revenue and expenses during the reporting period. These estimates and assumptions are affected by the accounting policies applied. An accounting estimate is considered critical if the estimate requires the executive management's position on matters that are subject to significant uncertainty, if different estimates could reasonably have been applied, or if changes in the estimate that would have a material impact on the financial position or results of operations are reasonably likely to occur from financial period to financial period. Our management believes that the accounting estimates employed for the historical financial statements for TORM plc are appropriate and the resulting balance sheet items are reasonable. However, future results of TORM plc could differ from original estimates requiring adjustments to balance sheet items in future periods.
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Reference is made to "Financial Review 2019—Assessment of Impairment of Assets" on page 45, Note 1—"Accounting Policies, Critical Accounting Estimates and Judgements" on page 107-117 and Note 8—"Impairment Testing" on page 124, each in the Annual Report 2019.
Implications of Being an Emerging Growth Company
We had less than $1 billion in revenue during our last fiscal year, which means that we are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act, or JOBS Act. An emerging growth company may take advantage of specified reduced public company reporting requirements that are otherwise applicable generally to public companies. These provisions include:

| • | exemption from the auditor attestation requirement of management's assessment of the effectiveness of the emerging growth company's internal controls over financial reporting pursuant to Section 404(b) of Sarbanes-Oxley; and

| • | exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and financial statements.

We may choose to take advantage of some or all of these reduced reporting requirements. We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of the date we first sell our common equity securities pursuant to an effective registration statement under the Securities Act or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than $1 billion in "total annual gross revenues" during our most recently completed fiscal year, if we become a "large accelerated filer" with a public float of more than $700 million, or as of any date on which we have issued more than $1 billion in non-convertible debt over the three-year period prior to such date. For as long as we take advantage of the reduced reporting obligations, the information that we provide to shareholders may be different from information provided by other public companies.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare our consolidated financial statements in accordance with IFRS, as issued by the IASB, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to accounting principles generally accepted in the United States while we are still an emerging growth company, we may be able to take advantage of the benefits of this extended transition period and, as a result, during such time that we delay the adoption of any new or revised accounting standards, our consolidated financial statements may not be comparable to other companies that comply with all public company accounting standards. See "Item 3. Key Information—D. Risk Factors—We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common shares less attractive to investors."
B. Liquidity and Capital Resources
Overview
Our primary application of cash relates to operating expenses, financial expenses (interest payment, debt repayment and leasing payments) and capital expenditures, primarily investments in ships and other assets such as scrubbers. Payment of amounts outstanding under our Financing Agreements (more fully discussed below) along with payment of charter hire for chartered-in vessels and all other commitments that we have entered into are made from the cash available to us. Our primary sources of cash are cash flows from operations, our Financing Agreements (more fully discussed below), new debt or equity financings and sale of vessels.
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As of December 31, 2019, the Group had available liquidity in the form of cash and cash equivalents, including restricted cash of $72 million and the undrawn Working Capital Facility of $75 million (discussed below). All of our credit facilities carry variable interest rates. The Working Capital Facility is dedicated to support the operations of the business. All other credit facilities are dedicated to financing of new vessels. The Company uses interest rate swaps to hedge parts of the variable interest rate risk associated with the credit facilities and a limited part of the leasing agreements have fixed lease payments. As of December 31, 2019, we had hedged the interest rate on approximately 62% of our outstanding interest-bearing debt at an interest rate of 2.33% plus margin.
As of December 31, 2019, we had no short-term loans other than any short-term part of the facilities included in the table entitled below. See "Item 5. Operating and Financial Review and Prospects⸻B. Liquidity and Capital Resources—Our Financing Agreements" for a description of the repayment schedule. As part of our day-to-day operations, we have accounts payables.
We plan to fund our operations as well as aggregate capital expenditures of $51 million, as of December 31, 2019, from internally generated cash flow and our borrowing under our Financing Agreements. The capital expenditures are primarily related to our obligations under the newbuilding contracts for the construction of product tanker newbuildings as well as the purchase and installation of scrubbers and ballast water treatment systems.
We are of the opinion that our working capital is adequate to meet our present requirements for the next twelve months following the date of this annual report.
The table below gives an overview of our long-term bank loans and finance leases.
Financing Agreements, including long-term and short-term mortgage debt, bank loans and finance leases as of December 31, 2019 of TORM plc.

Facility | Lenders | Maturity |  | Total Outstanding Debt as of December 31, 2019 (USD millions) |  | Undrawn Amount as of December 31, 2019 (USD millions) |
Term Facility 1* | Danske Bank 36.5% HCOB 33.1% SEB 13.9% DBS 9.7% HSBC 6.8% | July 13, 2021 |  | 237.2 |  | N/A |
Working Capital Facility* | Danske Bank 46.2% HCOB 24.3% SEB 13.3% DBS 11.1% HSBC 5.1% | July 13, 2021 |  | 0.0 |  | 75.0 |
CEXIM Facility | CEXIM | November 26, 2030 |  | 104.0 |  | N/A |
Term Facility 2* | Danske Bank 25.0% ABN Amro 25.0% ING 25.0% DVB 25.0% | March 31, 2022 |  | 75.2 |  | N/A |
DSF Facility | DSF | June 15, 2026 |  | 206.5 |  | N/A |
ING Facility* | ING | September 8, 2024 |  | 35.5 |  | N/A |
ABN Facility* | ABN AMRO | December 31, 2024 |  | 21.1 |  | 52.6 |
KfW Facility | KfW | March 31, 2032 |  | 0.0 |  | 45.5 |
Total debt under the Debt Agreements |  |  |  | 679.5 |  | 173.1 |
Finance lease – BoComm | Various | August 15, 2025 |  | 63.9 |  | N/A |
Finance lease - Springliner | Various | August 31, 2026 |  | 60.3 |  | N/A |
Finance lease – Eifuku | Anchor Trans Inc. | September 9, 2026 |  | 25.7 |  | N/A |
Finance lease – Showa | SLSS Shipping S.A. | August 14, 2024 |  | 25.2 |  | N/A |
Total debt under the Debt Agreements and finance leases |  |  | 854.7 |  | 173.1 |

* This facility was refinanced on February 6, 2020 and replaced by the Syndicated Facilities Agreement and the HCOB Facility (as defined below under “⸻New Loan Agreements”).
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Our Financing Agreements
As of December 31, 2019, we were in compliance with the financial covenants contained in our debt facilities.
The DSF Facility
In April 2014, certain of TORM plc's vessel-owning subsidiaries, as borrowers, entered into a $150 million secured credit facility (the “DSF Facility”), with Danmarks Skibskredit A/S (“DSF”), to partially finance the purchase price of 13 of the 25 product tankers and six newbuilding contracts that we acquired from Njord in exchange for shares of TORM A/S during the 2015 Restructuring. We refer to all 25 vessels as the Njord Acquisition Vessels, the six vessels acquired pursuant to the newbuilding contracts as the OCM Newbuildings, and the 13 Njord Acquisition Vessels that serve as collateral under the DSF Facility as the DSF Vessels (Tranche 1). The DSF Facility was amended and restated in September 2015 to increase the aggregate loan amount available to the borrower to $196 million in order to finance three of the OCM Newbuildings (Tranche 2) and again in November 2016 to increase the aggregate loan amount to $207 million to partially finance two of our MR tankers, TORM Loke and TORM Troilus (Tranche 3). On September 20, 2017, we amended and restated the DSF Facility for additional borrowings of up to $81 million to partially finance the aggregate purchase price of four GSI MR resale vessels, or the GSI MR Resale Newbuildings, that were subsequently delivered to us in 2019 (Tranche 4) and which also serve as additional collateral vessels under the facility agreement, as amended and restated. On July 20, 2018, the DSF Facility was further amended and restated to include additional borrowings of up to $7 million to finance the purchase and installation of scrubbers on the GSI MR Resale Newbuildings.
On January 5, 2018, the maturity of Tranche 1 was extended from June 2019 to December 2021.
Interest under the DSF Facility is payable quarterly in arrears at the aggregate of the applicable margin (2.5% per annum in respect of the Tranche 1 and Tranche 2; 2.6% per annum in respect of the Tranche 3; 2.35% per annum in respect of Tranche 4) and LIBOR. The DSF Facility matures in June 2026, and the loan principal is expected, as of December 31, 2019, to have the following ordinary repayment profile: 2020: $19 million; 2021: $79 million; 2022: $22 million; 2023: $5 million; 2024: $5 million; 2025: $5 million; 2026: $56 million. We will non-ordinarily prepay $16 million on TORM Thyra, TORM Freya and TORM Gerd, which are expected to be part of the refinancing in Q1 2020.
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The DSF Facility is secured by:

| • | first priority mortgages over the (i) nine DSF Vessels (five of the initial 13 have since been sold as of December 31, 2019), (ii) three OCM Newbuildings, which were delivered to us between October and November 2015, (iii) TORM Loke and TORM Troilus, and (iv) the GSI MR Resale Newbuildings ((i)-(iv) together, the DSF Collateral Vessels);

| • | a joint and several guarantee from the vessel-owning subsidiaries of the DSF Collateral Vessels and certain related parties;

| • | assignment of the insurances, earnings, charters and requisition compensation of the DSF Collateral Vessels;

| • | an account security agreement in respect of all amounts standing to the credit of the deposit accounts and reserve account opened in the name of the borrower;

| • | charges of all the issued shares of the vessel-owning subsidiaries of the DSF Collateral Vessels; and

| • | assignment and subordination of any inter-company indebtedness between the relevant obligors under the DSF Facility.

The DSF Facility contains, among other things, the following financial and other covenants:

| • | Loan-to-value. If at any time the aggregate market value of the vessels and the value of any additional security is less than 133% of the loan amount less amounts on credit in the deposit accounts and reserve account and the value of any additional security, the borrower and guarantors shall, within 30 days of a written request, post additional security or prepay the loan to reduce the excess to zero.

| • | Free Liquidity. Minimum unencumbered cash and cash equivalents, including restricted cash and, for so long as the availability period under the Working Capital Facility ends at least six months after the calculation date, the undrawn commitments under the Working Capital Facility that are available for utilization, of the higher of $75 million and 5% of our total debt, of which $40 million is required to be unencumbered cash and cash equivalents, including restricted cash. In the first quarter of 2020 the free liquidity covenant was amended by replacing the free liquidity covenant from the principle mentioned above to a minimum cash covenant of the higher of (i) $45 million, (ii) 5% of our total debt and (iii) $600,000 per operated vessel.

| • | Equity Ratio. The ratio of market value adjusted shareholders' equity to total market value adjusted assets shall be at least 25%.

| • | Dividends. TORM is restricted from making any distributions, including payment of dividends and repayments of shareholders loans, except those distributions made after the first half of each of its financial years, of up to 75% of the borrower's net income (based on our June 30 or year-end financial statements, as the case may be) for that half year period, provided that, after giving effect to such distributions, the Company would not be in breach of its financial covenants contained in the DSF Facility agreement and would not cause an event of default otherwise under the facility agreement. The restrictions on dividends cease to apply at any time (i) the Group's loan-to-value ratio of the sum of the Group's borrowings less cash and cash equivalents, including restricted cash to the aggregate market value of the Company's fleet is 50% or below.

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The DSF Facility provides for voluntary prepayment, certain mandatory prepayment events and representations, general covenants and events of default provisions, including the following:

| • | Mandatory Prepayment. The DSF Facility provides for mandatory prepayment following certain events including a change of control, TORM plc being delisted from Nasdaq Copenhagen or a sale or total loss of vessels.

| • | Events of default. The DSF Facility contains certain events of default, including, among other things (i) non-payment of principal and interest (subject to a three-business-day grace period), (ii) breach of financial covenants, certain insurance and security undertakings and certain mandatory prepayment provisions, (iii) breach of other obligations (subject to a 10 business-day grace period if the breach is deemed capable of remedy), (iv) default of the borrower, any guarantor or any other security party on any financial indebtedness (subject to a $10 million aggregate default threshold), (v) any expropriation, attachment, sequestration, distress or execution affects the assets of the borrower, any guarantor or any other security party with an aggregate value of $10 million, (vi) change in ownership or control of a guarantor, (vii) reduction of capital in a guarantor and (viii) material adverse change. After the occurrence of an event of default which is continuing, the agent under the DSF Facility may, and shall if so directed by 66 2/3% of the lenders by notice cancel the loan commitments, declare all amounts outstanding immediately due and payable and/or exercise its rights under the security documents.

The Term Facility 1
On July 13, 2015, or the Restructuring Completion Date, we entered into a $561 million six-year term loan facility with the Participating Lenders, certain other lenders and Danske Bank as agent and security agent (“Term Facility 1”). This facility provided for quarterly fixed amortizations and had a final maturity date in July 2021 with a repayment profile as of December 31, 2019: 2020: $41 million; and 2021: $180 million.
This facility bore interest at LIBOR plus a margin of 2.5% per annum.
In January 2016, we received consent from our lenders to amend this facility in accordance with the terms of an amendment and waiver letter. See "—Amendments to the Term Facility 1 and the Working Capital Facility", below.
On February 6, 2020, the Term Facility 1 was refinanced by the Syndicated Facilities Agreement and the HCOB Facility.
The Working Capital Facility
On the Restructuring Completion Date, we entered into a Working Capital Facility with certain Participating Lenders to obtain financing for general corporate purposes (the “Working Capital Facility”). This $75 million facility had an initial term of six years. This facility bore interest at LIBOR plus a margin of 2.50% per annum. The Working Capital Facility was secured by the same assets as Term Facility 1 but ranked ahead of Term Facility 1 with respect to the collateral proceeds. For a description of the Term Facility 1 security, see "—Our Financing Agreements—Term Facility 1". A commitment fee equal to 40% of the margin was payable by TORM with respect to any unutilized amounts under the facility and any accrued commitment fee was payable quarterly in arrears.
Term Facility 1 and the Working Capital Facility, which we refer to collectively as the "Restructuring Financing Agreements", were secured by:

| • | mortgages over 33 vessels in our fleet (the “Working Capital Security Vessels”);

| • | guarantees from each of the entities that own the vessels securing this facility and their holding companies, which we refer to collectively as the "NTF Guarantors";

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| • | first priority charges of all the issued shares of the entities that own the vessels and certain Danish holding companies;

| • | first priority assignment of the insurances, earnings and requisition compensation relating to the Working Capital Security Vessels.

The Restructuring Financing Agreements had, among other things, financial covenants, which are tested on a semi-annual basis:

| • | Minimum liquidity requirement. Minimum liquidity of the higher of $75 million and, on and after six months following the Restructuring Completion Date, 5% of our total debt in available cash of which $20 million was required to be cash-on-hand;

| • | Minimum leverage ratio. The ratio of market value adjusted shareholders' equity to total market value adjusted assets shall have been at least 25%; and

| • | Minimum collateral maintenance requirements. The aggregate fair market value of the secured vessels shall have been at least 125% of all outstanding debt under the Restructuring Financing Agreements. The borrower and guarantors shall have, within 30 days of a written request, posted additional security or prepaid the loan to reduce the excess to zero. The fair market value of the secured vessels shall have been determined to be the average of two recent appraisals from Approved Brokers based on an arm's length charter-free transaction between a willing and able buyer and a seller not under duress.

The Restructuring Financing Agreements also contained the following covenants and default provisions including, among other things:

| • | Mandatory prepayment. The Restructuring Financing Agreements provided for mandatory prepayment following certain events including a change of control, sale or total loss of vessels;

| • | Events of default. The agreed events of default, which we consider to be standard for facilities of this type and nature, included (i) non-payment, (ii) breach of covenant, (iii) cross-default (subject to a $10 million threshold), (iv) insolvency or bankruptcy, (v) arrest and detention of a mortgaged vessel for a period of more than 30 days, (vi) misrepresentation, (vii) breach of a material contract, (viii) cessation of business and (ix) material adverse change. After the occurrence of an event of default which is continuing, the agents may, and shall if so directed by the 66.67% or more of the lenders cancel the loan commitments, declare all amounts outstanding immediately due and payable and/or exercise its rights under the security documents.

The Restructuring Financing Agreements also restricted our ability to:

| • | Charter-in vessels. Our aggregate exposure for chartering-in vessels (including exposure under FFAs entered into for speculative purposes) for a remaining term that exceeds six months shall not exceed an amount equal to a charter-in day rate of $25,000 payable on 50% of all vessels owned by us for a period of 24 months (for example, if we time chartered-in vessels at an average rate of $25,000 per day over a 24-month period, we would be able to charter-in 38 vessels, including TORM Loke, TORM Atlantic, TORM Astrid and the OCM Newbuildings).

In January 2016, we obtained the consent of the applicable lenders under the Term Facility 1 and the Working Capital Facility to amend certain provisions in the facilities to permit, among other things: (i) the non-mandatory transfer by Njord Luxco of its current stake in TORM A/S to TORM plc in advance of completion of the Exchange Offer, (ii) the completion of the Exchange Offer, (iii) the subsequent delisting of TORM A/S from Nasdaq Copenhagen, conditioned upon the listing of TORM plc on Nasdaq Copenhagen, (iv) the transfer by TORM A/S to TORM plc of the three unencumbered newbuilding contracts of TORM A/S and six unencumbered vessels either by way of a direct transfer or indirectly via a transfer of the relevant TORM A/S subsidiary owning such vessel, (v) the payment of dividends, subject to the satisfaction of certain conditions, including notice to the facility agent under such facilities and the repayment of pre-agreed amount under the Term Facility 1 and (vi) applicable amendments to the two facilities to reflect, among other things, (i) through (v), above. We refer to these amendments, collectively, as the "Facility Amendments".
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In connection with the Facility Amendments, the borrowings under the Term Facility 1 provided to us by certain lenders that did not consent to the Facility Amendments, or the Objecting Lenders, were transferred to Danske Bank under the Term Facility 1, and the Objecting Lenders were repaid in full in the amount of $21 million by Danske Bank. In connection with this transaction, we repaid $21 million of our outstanding borrowings under our $27 million facility with Danske Bank, or the Danske Bank Facility, on January 13, 2016. The purpose of this was to keep our outstanding borrowings under the Term Facility 1 unchanged and to reduce our outstanding borrowings under the Danske Bank Facility by $21 million, which we repaid in full on June 30, 2016.
In August 2016, we obtained the consent of the applicable lenders under the Restructuring Financing Agreements to amend certain provisions therein to reflect a permitted intercompany reorganization, which did not constitute a sale of any vessels mortgaged thereunder, pursuant to which Njord ceased to be a guarantor under the Restructuring Financing Agreements.
On February 6, 2020, the Term Facility 1 was refinanced by the Syndicated Facilities Agreement and the HCOB Facility.
The CEXIM Facility
On July 8, 2016, one of our vessel-owning subsidiaries, as borrower, entered into a $115 million secured term loan facility with the Export-Import Bank of China (“the CEXIM Facility”), which provides us with borrowings of up to $29 million per vessel to finance the purchase price of four LR2 product tanker newbuildings from GSI, or the LR2 Product Tanker Newbuildings, which were delivered to us in 2018. The CEXIM Facility is guaranteed by TORM A/S and TORM plc and bears interest at a rate of LIBOR plus a margin of 2.25% per annum. Borrowings under each of the four vessel tranches are repayable in 48 equal consecutive quarterly installments and a balloon payment on November 26, 2030. The CEXIM Facility is secured by a first priority fleet mortgage over each of the LR2 Product Tanker Newbuildings, first priority share security in the shares of our vessel-owning subsidiary, account security over the earnings accounts of the borrower, charter assignments and charterer's assignments and undertakings in favor of the security agent relating to the LR2 Product Tanker Newbuildings.
The CEXIM Facility has the following financial covenants tested on a semi-annual basis which require us to maintain, among other things:

| • | Equity Ratio. A ratio of equity to total assets of no less than 25%; and

| • | Minimum liquidity requirement. A minimum liquidity greater than or equal to the higher of $75 million and 5% of the Group's total debt, of which at least $20 million of such liquidity shall, at all times, consist of the Group's cash and cash equivalents, including restricted cash.

In the first quarter of 2020 the minimum liquidity requirement was amended by replacing the minimum liquidity requirement from the principle mentioned above to a minimum cash covenant of the higher of (i) $45 million (ii) 5% of our total debt and (iii) $600,000 per operated vessel.
The Term Facility 2
On January 6, 2017, we entered into a $130 million syndicated term loan facility, (“Term Facility 2”), with Danske Bank A/S as Agent and Security Agent and ABN AMRO NV, DVB Bank SE and ING Bank NV as arrangers and lenders. TORM plc was the borrower under this facility, which was guaranteed by TORM A/S and VesselCo 10 Pte. Ltd., our wholly-owned subsidiary and owner of the nine of our MR product tanker vessels which served as collateral under the facility. The Term Facility 2 was entered into to partially refinance nine MR product tanker collateral vessels and for general corporate purposes. The Term Facility 2 was secured by first priority mortgages over the nine MR collateral vessels as well as first priority assignments in respect of each of the vessel's insurances, earnings, requisition compensation, bareboat charters, share security in the shares of our vessel-owning subsidiary, hedging contract assignments and intra-group loan assignments. The facility bore interest at a rate of LIBOR plus a margin of 2.75% per annum and had a final maturity date of March 31, 2022. The Term Facility 2 was fully utilized on January 27, 2017, when we drew down $126 million. On May 10, 2019 we agreed with the lenders under the Term Facility 2 that a mandatory prepayment of up to $13.5 million related to the sale and leaseback of TORM Torino was waived with the purpose of financing seven retrofit scrubbers, to be installed on the vessels mortgaged under Term Facility 2. The loan tranche relating to TORM Torino was prepaid on July 17, 2019. On August 13, 2019, the loan tranche relating to TORM Titan was repaid in conjunction with the sale and leaseback of TORM Titan. Borrowings under each of the remaining seven vessel tranches were repayable in 20 equal consecutive quarterly installments of $2 million each with a balloon payment on the maturity date.
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The facility had the following financial covenants tested on a semi-annual basis which required us to maintain, among other things:

| • | Equity Ratio. A ratio of equity to total assets of no less than 25%; and

| • | Minimum liquidity requirement. A minimum liquidity greater than or equal to the higher of $75 million and 5% of our total debt, of which cash and cash equivalents, including restricted cash shall make up the greater of $40 million or 5% of our total debt.

On February 6, 2020, the Term Facility 2 was refinanced by the Syndicated Facilities Agreement and the HCOB Facility.
ING Facility
On September 8, 2017, we entered into a secured term loan facility with ING Bank NV (the “ING Facility”), which provided us with borrowings of up to $47 million which we used to partially finance the purchase of two Hyundai Mipo MR newbuildings (the “Newbuilding Tranche”), and to partially refinance outstanding indebtedness of our 2002-built MR product tanker TORM Amazon (the “Refinancing Tranche”). TORM plc was the borrower under the ING Facility, and TORM A/S and our wholly-owned subsidiary which owns the security vessels served as guarantors. The ING Facility had a term of seven years, bore interest at a rate of LIBOR plus a margin of 2.05% per annum and was repayable in quarterly installments and a balloon payment on the maturity date of September 4, 2024. The ING Facility was secured by first priority mortgages over the security vessels as well as first priority assignments in respect of each of the vessel's insurances, earnings and accounts, share security in the shares of our vessel-owning subsidiary and irrevocable joint and several guarantees from the guarantors. The ING Facility contained substantially the same financial covenants, default provisions, undertakings and restrictions as contained in the Term Facility 2, described above.
On February 6, 2020, the ING Facility was refinanced by the Syndicated Facilities Agreement and the HCOB Facility.
ABN Facility
On May 7, 2018, we entered into a secured term loan facility with ABN AMRO Bank NV (the “ABN Facility”), which provided us with borrowings of up to $70 million to partially finance the purchase of the two LR1 Product Tankers Newbuildings and one MR Product Tanker Newbuilding under contract with GSI. The MR Product Tanker Newbuilding was delivered in the fourth quarter of 2019 and the two LR1 Product Tanker Newbuildings were delivered in the first quarter of 2020. TORM plc was the borrower under the ABN Facility, and TORM A/S and our wholly-owned subsidiary which owns the security vessels served as guarantors. The ABN Facility had a term of five years, bore interest at a rate of LIBOR plus a margin of 2.10% per annum and was repayable in quarterly installments and three balloon payments five years after the drawdown on each tranche. The ABN Facility was secured by first priority mortgages over the security vessels, as well as first priority assignments in respect of each of the vessel's insurances, earnings and accounts, share security in the shares of our vessel-owning subsidiary and irrevocable joint and several guarantees from the guarantors. The ABN Facility contained substantially the same financial covenants, default provisions, undertakings and restrictions as contained in the Term Facility 2, described above. On February 8, 2019, we entered into an agreement with ABN AMRO to increase the amount under the ABN Facility by $3.7 million to finance scrubber installations on the security vessels.
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On February 6, 2020, the ABN Facility was refinanced by the Syndicated Facilities Agreement and the HCOB Facility.
KfW Facility
On July 29, 2019, we entered into a secured term loan facility KFW IPEX-Bank GMBH (the “KFW Facility”), which provides us with borrowings of up to $45.5 million to partially finance the purchase of two MR newbuildings, one of which was delivered to us in the first quarter of 2020, and the other which is expected to be delivered to us in the second quarter of 2020. TORM A/S is the borrower and the owner of the vessels under the KFW Facility and TORM plc is the guarantor. China Export & Credit Insurance Corporation is the export credit insurance provider. The KFW Facility has a term of 12 years, bears interest at a rate of LIBOR plus a margin of 1.75% per annum and is repayable in bi-annual installments and 2 balloon payments 12 years after drawdown on each tranche. The KFW Facility is secured by first priority mortgages over the security vessels, as well as first priority assignments in respect of each of the vessel's insurances, earnings and account and irrevocable joint and several guarantees from the guarantors. The KFW Facility contains substantially the same financial covenants, default provisions, undertakings and restrictions as contained in the Term Facility 2, described above.
We are currently in the process of negotiating an amendment to the covenant in the KFW Facility to reflect the changes that were made to the free liquidity covenant in the DSF Agreement.
New Loan Agreements
On February 6, 2020, we completed a refinancing of five of our existing credit facilities by replacing these facilities with our new Syndicated Facilities Agreement and HCOB Facility, the terms of which are described below.
Syndicated Facilities Agreement
On January 31, 2020, we entered into a combined secured term loan facility agreement ($341 million) and secured working capital facility agreement ($45 million) for aggregate borrowings of $386 million (the “Syndicated Facilities Agreement”). The Syndicated Facilities Agreement (both the term loan and the working capital facility) was entered into with Danske Bank, ING, ABN AMRO, Nordea, Swedbank, Crédit Agricole CIB and Société Générale and finances 27 vessels, built from 2006 to 2020, that serve as collateral under the facility. Torm plc is the borrower and Torm A/S and vessel-owning-entities owned directly or indirectly by Torm plc are guarantors under the Syndicated Facilities Agreement. The Syndicated Facilities Agreement has a tenor of 6 years with a final maturity date of January 31, 2026, bears an interest rate of LIBOR plus a margin of 2.25% and is payable in quarterly installments with a balloon at maturity. The Syndicated Facilities Agreement is secured by first priority mortgages over the security vessels, as well as first priority assignments in respect of each of the vessel's insurances and earnings and irrevocable joint and several guarantees from the guarantors. The Syndicated Facilities Agreement contains the following financial covenants:

| • | Equity Ratio. A ratio of equity to total assets of no less than 25%; and

| • | Minimum cash requirement. Minimum cash and cash equivalents, including restricted cash greater than or equal to the higher of (i) $45 million, (ii) 5% of our total debt and (iii) $600,000 per operated vessel.

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The $45 million working capital facility subjects us to a commitment fee on the undrawn amount of 40% of the margin. The lenders have provided funding commitments pro rata between both facilities.
HCOB Facility Agreement
On January 31, 2020, we entered into a secured term loan facility agreement with Hamburg Commercial Bank AG (the “HCOB Facility”) for borrowings of up to $110 million. The HCOB Facility finances 19 vessels built from 2002 to 2006, which serve as collateral under the agreement. Torm plc is the borrower and Torm A/S and vessel-owning-entities owned directly or indirectly by Torm plc are guarantors under the HCOB Facility. The tenor of the facility is 5 years with a final maturity date of February 5, 2025, it bears an interest rate of LIBOR plus a margin of 3.15% and is payable in quarterly installments with no balloon payment at maturity. The HCOB Facility is secured by first priority mortgages over the security vessels, as well as first priority assignments in respect of each of the vessel's insurances and earnings and irrevocable joint and several guarantees from the guarantors. The HCOB Facility contains the following financial covenants:

| • | Equity Ratio. A ratio of equity to total assets of no less than 25%; and

| • | Minimum cash requirement. Minimum cash and cash equivalents, including restricted cash greater than or equal to the higher of (i) $45 million, (ii) 5% of our total debt and (iii) $600,000 per operated vessel.

Finance Leases
During the first and second quarters of 2017, we entered into sale and leaseback agreements and bareboat charters for the LR2 tanker, TORM Helene, and two MR tankers, TORM Mary and TORM Vita, pursuant to which we sold the vessels to Flora Co., Ltd., Grange Co Pte. Ltd, Singapore and Jellicoe Co., Ltd., respectively, and concurrently we chartered in the three vessels each for a period of 58 months from the delivery date plus 50 more days at our option. These three sale and leaseback transactions are treated as financial leases but have no purchase obligation attached. We have the option to purchase TORM Mary and TORM Helene at fixed option prices upon the expiration of the charter-in agreements on January 23, 2022 (assuming no exercise of our option to extend the charter-in period by 50 days), provided we give the respective owners prior written notice on or before November 15, 2021. We have an option to purchase TORM Vita at a fixed option price at the fourth anniversary of the delivery date, upon prior written notice on or before January 17, 2021, and again at the expiration of the charter-in period, upon prior written notice to the owner on or before January 12, 2022.
In the third quarter of 2019, we entered into sale and leaseback agreements and corresponding bareboat charters with four separate Japanese and Chinese counterparties for eight of our vessels: the four 2011 MR Vessels, as well as TORM Torino, TORM Titan, TORM Alice and TORM Alexandra. We have options to purchase TORM Alice and TORM Alexandra from the counterparty in both 2024 and 2026, and obligations to purchase the 2011 MR Vessels, TORM Torino and TORM Titan from the respective counterparties in 2025, 2024 and 2026, respectively.
Cash flow
Consolidated cash flow for the years ended December 31, 2019, 2018 and 2017
For a discussion of cash flows for the year ended December 31, 2019 compared to December 31, 2018, reference is made to "Financial Review 2019⸻Liquidity and Cash Flow" on page 41 and to our Consolidated Cash Flow Statement for the Year Ended December 31, 2019 and 2018 on page 105 of our Annual Report 2019.
For a discussion of cash flows for the year ended December 31, 2018 compared to December 31, 2017, reference is made to "Financial Review 2018 – "Liquidity and Cash Flow" on page 47 and to our Consolidated Cash Flow Statement for the Year Ended December 31, 2018 and 2017 on page 95 of our Annual Report 2018, furnished to the SEC on Form 6-K on March 12, 2019.
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There are no material restrictions on the ability of subsidiaries with material cash amounts to transfer funds to TORM plc.
Capital Expenditures of TORM plc
The table below presents our capital expenditures for the years ended December 31, 2019, 2018 and 2017.

| Year ended December 31, |
Capital Expenditures | 2019 |  | 2018 |  | 2017 |
(USD million) |  |  |  |  |  |
Acquisition of vessels and capitalized dry-docking |  |  | 81.3 |  |  |  | 162.7 |  |  |  | 103.1 |
Prepayments on newbuildings |  |  | 301.8 |  |  |  | 38.9 |  |  |  | 44.3 |
Total |  |  | 383.1 |  |  |  | 201.6 |  |  |  | 147.4 |

Capital expenditures for the years ended December 31, 2019, 2018 and 2017 consisted primarily of investments in vessels and capitalized dry-docking and newbuildings. For the year ended December 31, 2019, TORM's prepayments on newbuildings amounted to $302 million compared to $44 and $39 million for the years ended December 31, 2018 and 2017, respectively. For 2019, TORM plc's investments related to vessels and capitalized dry-docking amounted to $81 million compared to $163 and $103 million in 2018 and 2017, respectively. TORM invested a total of $383 million during 2019 compared to $202 and $147 million invested during 2018 and 2017, respectively.
C. Research and Development, Patents and Licenses, etc.
Not applicable.
D. Trend Information
Reference is made to "The Product Tanker Market" on pages 23-27 of the Annual Report 2019 and to "Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Our Industry".
E. Off-Balance Sheet Arrangements
As of December 31, 2019, other than the ones described in "Contractual Obligations" below, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital resources.
F. Tabular Disclosure of Contractual Obligations
Reference is made to Note 18 — "Contractual rights and obligations" in our Annual Report 2019.
G. Safe Harbor
See “Cautionary Statement Regarding Forward-Looking Statements” at the beginning of this annual report.

ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management
Set forth below are the names, ages and positions of the Directors, Board Observers and Senior Management Team of TORM plc. Except for the B Director, who is appointed by the holder of our Class B share and is not subject to annual re-election, and who may be replaced at any time by the trustee acting on the instructions of the holders of our Class A common shares (other than Njord Luxco and its affiliates), each Director holds office for a two-year term or until his successor has been duly elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office. At the end of the two-year term, a Director may seek re-election.
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The business address of each of our Directors and Senior Management is TORM plc, Birchin Court, 20 Birchin Lane, London, EC3V 9DU, United Kingdom.

Name |  | Age |  | Position |  | Date of expiry of current term (for Directors)
Christopher Helmut Boehringer |  | 49 |  | Chairman |  | 2020 Annual General Meeting
David Neil Weinstein |  | 60 |  | Deputy Chairman (appointed by the holder of the B Share) |  | Serves until removed by the B shareholder
Torben Janholt |  | 73 |  | Board Member |  | 2020 Annual General Meeting
Pär Göran Trapp |  | 58 |  | Board Member |  | 2020 Annual General Meeting
Rasmus Johannes Skaun Hoffman |  | 42 |  | Board Observer (Employee Representative) (1) |  |
Lars Bjørn Rasmussen |  | 54 |  | Board Observer (Employee Representative) (1) |  |
Annette Malm Justad |  | 61 |  | Board Observer (1) |  |
Jeffrey Scott Stein |  | 50 |  | Minority B Share Board Observer(1) |  | Serves until removed by the B shareholder
Jacob Balslev Meldgaard |  | 51 |  | Executive Director and Chief Executive Officer of TORM A/S |  |
Kim Balle |  | 51 |  | Chief Financial Officer of TORM A/S |  |
Lars Christensen |  | 53 |  | Senior Vice President and Head of Projects of TORM A/S |  |
Jesper Søndergaard Jensen |  | 50 |  | Senior Vice President and Head of Technical Division of TORM A/S |  |

(1) Board Observers are appointed by the Company's Directors and may be removed by the Directors at any time for any reason. Board Observers can attend and speak at meetings of the Board of Directors but cannot vote.
Biographical information concerning the Directors and our Senior Management Team is set forth below.
Christopher Helmut Boehringer serves and has served as Chairman of our Board of Directors since August 2015. In addition, Mr. Boehringer is Chairman of TORM's Nomination Committee and the Remuneration Committee and a member of the Risk Committee. Mr. Boehringer is also Managing Director of Oaktree Capital Management (Intl) Limited and has held various executive positions within Oaktree since 2006. Mr. Boehringer also serves as a member of the Board of Directors of, Life Company Consolidation Group Limited and Eolia Renovables de Inversiones. Mr. Boehringer holds a Bachelor of Arts in Economics from Harvard University and a Masters of Business Administration from INSEAD.
David Neil Weinstein serves and has served as a member and Deputy Chairman of our Board of Directors since August 2015. Mr. Weinstein is in addition a member of TORM's Audit Committee, Nomination Committee and Remuneration Committee. Mr. Weinstein is a capital markets, governance and reorganization specialist. Mr. Weinstein has had a number of Board leadership positions in inter alia Seadrill, Ltd., Stone Energy Corporation, Tru Taj LLC, Deep Ocean Group, Axiall Corporation, The Oneida Group, Horizon Lines, Inc., Interstate Bakeries Corporation, Pioneer Companies, Inc. and York Research Corporation and has served as Managing Director of Calyon Securities Inc., BNP Paribas, Bank of Boston and Chase Securities Inc.. Other Board directorships: Pacific Drilling S.A. and Alex Brands, Inc. Mr. Weinstein holds a Bachelor of Arts in Economics from Brandeis University and a Juris Doctor from Columbia University School of Law.
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Torben Janholt serves and has served as a member of our Board of Directors since August 2015. In addition, Mr. Janholt is a member of TORM's Audit Committee, Risk Committee and Remuneration Committee. Mr. Janholt also serves as chief executive officer of Pioneer Marine Inc., chief executive officer of Pioneer Marine Hellas S.A., chief executive officer of Just Water ApS, chairman of the board of directors of Otto Suenson & Co. A/S, and member of the board of directors of Pioneer Marine Inc. Singapore, Pioneer Marine Hellas S.A., A/S United Shipping & Trading Company, Bunker Holding A/S, Uni-Chartering A/S and Uni-Tankers A/S. Mr. Janholt has served as chairman of the board of directors of Lauritzen Tankers A/S, Lauritzen Ship Owner A/S, LB Ship Owner A/S, LK Ship Owner A/S, Shipinvest A/S, Lauritzen Offshore Services A/S and LT Ship Owner A/S and member of the board of directors of KRK 4 ApS, Shipping Holding A/S, A/S Dan-bunkering Ltd., Shipping.dk Chartering A/S, Ship-ping.dk A/S, Shipping.dk Køge A/S, Grenå Stevedore- og Pakhusforretning ApS, Fin-Trans A/S, A/S Global Risk Management Ltd., Sønderjyllands-Terminalen A/S, Bunker Holding Estate A/S, Jyllands-Terminalen A/S, Shipping.dk Aabenraa A/S, CVR: 87137511, Brilliant Maritime Services S.A. ApS, Lauritzen Tankers Ship Owner A/S, Axis Offshore A/S, Shipping.dk Road Division A/S, Lauritzen Reefers A/S, CVR nr.: 15251549, Shipping.dk Middelfart A/S, Outforce A/S, Shipping.dk Kalundborg A/S, LB Ship Owner II A/S, KPI Bridge Oil A/S and Lloyd Copenhagen ApS. In addition, Mr. Janholt has served as a member of the executive management of KRK 4 ApS, Axis Offshore A/S, Lauritzen Reefers A/S, CVR: 15251549, LB Ship Owner II A/S, Lauritzen Offshore Services A/S and J. Lauritzen A/S. Mr. Janholt holds a Certificate in Business Administration from Niels Brock Business College, Denmark and has attended Executive Management Programs at IESE in Spain, Harvard Board education course in Copenhagen, IMD in Switzerland and CEDEP/INSEAD Management School in France.
Pär Göran Trapp serves and has served as a member of our Board of Directors since August 2015. In addition Mr. Trapp is Chairman of TORM's Audit Committee and Risk Committee. Mr. Trapp was with Morgan Stanley from 1992 to 2013 where he started as crude oil trader, then became Head of Oil Products Trading Europe & Asia, Global Head of Oil Trading and Head of Commodities EMEA. Prior to joining Morgan Stanley, Mr. Trapp was crude oil trader at Statoil. Other Board directorships: Chairman of Madrague Capital Partners AB, Board member of Energex Partners Ltd. Mr. Trapp holds a Master of Science degree in Economics and Business Administration from the Stockholm School of Economics.
Rasmus Johannes Skaun Hoffmann is and has been a Board Observer since April 2016 and before that time served as a member of our Board of Directors since April 2011. Mr. Hoffman has been employed with us since 2003 and serves as chief engineer. Mr. Hoffman also serves on the Board of Directors of TORM A/S.
Lars Bjørn Rasmussen is and has been a Board Observer since July 2017. Mr. Rasmussen has been employed with us since 1999 and serves as chief engineer. Mr. Rasmussen also serves on the Board of Directors of TORM A/S.
Annette Malm Justad is and has been a Board Observer since August 2019. Ms. Justad also serves as chair of the board of directors of Store Norske Spitsbergen Kulkompani AS and American Shipping Company ASA. She is a member of the board of directors of Awilco LNG ASA, Pleat AS, Port of London Authority, Småkraft AS/Småkraft Utbygging AS, Norske tog AS and Prosafe SE. From 2006-2010 she served as the CEO of Eitzen Maritime Services ASA. Ms. Justad holds a Master degree in Technology Management from the Norwegian University of Science and Technology/Massachusetts Institute of Technology/Norwegian School of Economics and a Master degree in Chemical Engineering from the Norwegian University of Science and Technology.
Jeffrey Scott Stein is and has been a Board Observer since November 2015. Mr. Stein is the founder of Stein Advisors LLC where he has served as Managing Partner since 2010. Prior to 2010, Mr. Stein co-founded and served as a Principal at Durham Asset Management LLC, as a Managing Director and Co-Director of Research at The Delaware Bay Company, Inc. and as an Associate/Assistant Vice President at Shearson Lehman Brothers. Mr. Stein also serves as the Chairman of Ambac Financial Group, Inc and as a board member of Dynegy Inc. and Westmoreland Coal Company. Mr. Stein holds a Bachelor of Arts in Economics from Brandeis University and a Masters of Business Administration from New York University, Stern School of Business in the United States.
Jacob Balslev Meldgaard serves and has served as the Chief Executive Officer of TORM A/S since April 2010. Prior to joining the Company, Meldgaard served as executive vice president and as a member of the executive management of Dampskibsselskabet NORDEN A/S. Mr. Meldgaard is also a member of the Board of Directors of the Danish Shipping, Danish Ship Finance A/S, Syfoglomad Limited and the TORM Foundation. Mr. Meldgaard holds a Bachelor of Commerce degree in international trade from Copenhagen Business School, Denmark and attended the Advanced Management Program at Wharton Business School and Harvard Business School in the United States.
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Kim Balle serves and has served as the Chief Financial Officer of TORM A/S since December 2019. Prior to joining TORM, Mr. Balle served as Group Chief Financial Officer of CASA A/S since 2017, Group Chief Financial Officer of DLG a.m.b.a. from 2015-2017, Group Chief Operating Officer of DLG a.m.b.a. from 2016-2017, Group Vice President of DLG a.m.b.a. from 2014-2015, Head of Corporate Banking for Danske Bank from 2012-2014 and Head of Domestic Clients for Danske Bank from 2009-2012. Mr. Balle currently serves and has served as a member of the board of directors since 2017 for Nordea Invest, Lind Capital and Lind Capital Fondsmæglerselskab. He holds a Bachelor of Science in Financing and Credit from Copenhagen Business School and a Master of Business from Copenhagen Business School.
Lars Christensen serves and has served as the Senior Vice President and Head of Projects of TORM A/S since May 2011. Prior to joining the Company, Mr. Christensen served as Managing Director of Navitaship, Vice President of Maersk Broker, Manager at Maersk K.K and Shipbroker at EA Gibson Shipbrokers. Mr. Christensen holds a Certificate in international trade from Copenhagen Business School in Denmark, a Masters of Business Administration from IMD in Switzerland and attended the Executive Management Program at Columbia Business School in the United States.
Jesper Søndergaard Jensen serves and has served as the Senior Vice President and Head of Technical Division of TORM A/S since September 2014. Prior to joining the Company, Mr. Jensen served as Senior Vice President and Technical Manager at Clipper Group and Fleet Group Manager, Manager and Chief Engineer at Maersk Group. Mr. Jensen holds a Bachelor of Technology Management degree in Marine Engineering from the Maritime and Polytechnic College in Denmark and an Executive Masters of Business Administration from Henley Business School in the United Kingdom.
B. Compensation
At the general meeting held on April 11, 2019, our shareholders approved an updated remuneration policy, with effect from the date of the meeting, which includes overall guidelines for incentive pay for the Board of Directors and our Senior Management Team (defined below). The Company is required, under the UK Companies Act 2006, to prepare a Remuneration Report for each financial year.
For information about compensation to our non-executive directors, reference is made to page 87 of the "Remuneration Committee Report" in the Annual Report 2019.
Executive Management Compensation
Our Senior Management Team, which is comprised of Jacob Meldgaard, our Executive Director and principal executive officer of TORM plc, the Chief Executive Officer of TORM A/S, Kim Balle, our principal financial officer and the Chief Financial Officer of TORM A/S, Jesper Jensen, the Head of the Technical Division of TORM A/S and Lars Christensen, the Head of Projects of TORM A/S, receive compensation consisting of a fixed base salary, cash-based bonus incentives paid out in 2019 under our performance bonus program, discussed below, and customary executive fringe benefits. We have not granted loans, issued guarantees or undertaken similar obligations to or on behalf of members of our Senior Management Team.
In 2019, the aggregate compensation paid by the Group to Jacob Meldgaard for his role as Executive Director and principal executive officer of TORM plc and as the Chief Executive Officer of TORM A/S amounted to $2,208,000, which includes the fee payable to Mr. Meldgaard for his service on the Board of Directors. We have not allocated funds to provide pension, retirement or similar benefits to Mr. Meldgaard.
In 2019, the aggregate compensation paid by the Group to the other members of our Senior Management Team (excluding Mr. Meldgaard) was $1,984,114, which includes an aggregate of $115,880 allocated for pensions for these individuals.
Incentive Schemes
Compensation of our Senior Management Team includes the eligibility to participate in a variable incentive-based pay with a combination of share options, restricted share units and other share-based awards. We have in place a Long-Term Incentive Plan, or the LTIP, pursuant to which our Board of Directors may grant certain employees and executive officers share options, restricted share units, or RSUs, in the form of restricted stock options, or other share-based awards. See "Item 10. Additional Information".
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For information on RSUs granted to Mr. Meldgaard pursuant to the LTIP, reference is made to the "Remuneration Committee Report —Long-Term Incentive Program—Restricted Share Units Granted" on pages 85-86 of the Annual Report 2019.
During 2019, the members of our Senior Management Team other than Mr. Meldgaard were granted an aggregate of 382,800 RSUs as part of each executive's annual grant. Each RSU entitles the other members of our Senior Management Team to acquire one Class A common share, subject to a three-year vesting period, with one third of the grant amount vesting at each anniversary date. Vested RSUs may be exercised at a price of DKK 53.7 per Class A common share for a period of twelve months after the vesting date. Assuming 100% vesting and based on the Black-Scholes model, the aggregate RSU grant in 2019 to the other members of our Senior Management Team would be approximately $647,949.
Performance Bonus Program 2019
For information on the cash performance bonus received by Mr. Meldgaard for the financial year 2019, reference is made to "Remuneration Committee Report —Performance Bonus 2019" on page 85 of the Annual Report 2019.
During the financial year 2019, the members of our Senior Management Team other than Mr. Meldgaard received cash performance bonuses in an aggregate amount of $530,764 which is directly linked to the fulfillment of specific performance metrics, which include developments in the price of our shares and our cost base (up to 50% of the base salary of each executive).
C. Board Practices
Our Board of Directors maintains overall responsibility for the Company and its strategy and is entrusted with various tasks including appointment and supervision of our Executive Director, Mr. Jacob Meldgaard, and establishment of strategic, accounting, organizational and financial policies.
Our Board of Directors has delegated the day-to-day management of our business to our Executive Director. This includes our operational development and responsibility for implementing the strategies and overall decisions approved by the Board of Directors. The Executive Director also serves the position as Chief Executive Officer of TORM A/S, our largest subsidiary. Transactions of an unusual nature or of major importance may only be effected by our Executive Director on the basis of a special authorization granted by our Board of Directors. In the event that certain transactions cannot await approval by our Board of Directors, taking into consideration the best interests of the Company, our Executive Director, to the extent possible, shall obtain the approval of the Chairman of our Board of Directors and ensure that the Board of Directors is subsequently given notice of such transactions passed. Transactions of an unusual nature or of major importance are defined in our board guidelines for our Board of Directors and include, among other things, the acquisition and disposal of vessels.
For a description and terms of reference of the committees of our Board of Directors, reference is made to "Corporate Governance—Board Committees" on page 67 and the individual reports of our Audit Committee, Risk Committee, Nomination Committee and Remuneration Committee on pages 71-90 of our Annual Report 2019.
Employment Agreements
Mr. Jacob Meldgaard
We may dismiss Mr. Meldgaard with twelve months' notice to the end of a month, and Mr. Meldgaard may terminate his contract with six months' notice to the end of a month. Mr. Meldgaard is not entitled to other kinds of remuneration resulting from a retirement from the Company other than performance bonuses earned, if any.
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Mr. Meldgaard is subject to global non-competition and non-solicitation clauses for a period of twelve months. For the effective period of these clauses, Mr. Meldgaard is entitled to a monthly compensation corresponding to 100% of his base salary. The non-competition clause may be terminated with one month's notice. However, whether one or both of the non-competition and non-solicitation clauses are effective, the compensation only becomes payable once.
In case of a change of control, as further defined in Mr. Meldgaard's service agreement, Mr. Meldgaard may, within three months from the date of the change, terminate his employment with six months' notice, in which case certain non-competition and non-solicitation clauses will be shortened.
Under mandatory Danish law, non-competition clauses cannot be enforced after expiry of the notice period if the termination is effected by the Company without Mr. Meldgaard having given reasonable cause for the dismissal.
Other Members of the Senior Management Team
We may dismiss the other members of the Senior Management Team (excluding Mr. Meldgaard) with nine to twelve months' notice (varying length depending on position and seniority) to the end of a month. Each of these executives may all terminate his contract with four to six months' notice (varying length depending on position) to the end of a month.
Based on the current seniority, these current members of our Senior Management Team are not entitled to other kinds of remuneration upon retirement from the Company, other than performance bonuses earned, if any.
These other members of the Senior Management Team are subject to global non-competition clauses for a period of up to twelve months (depending on position). For the effective period of the clauses, these other members of the Senior Management Team are entitled to a monthly compensation corresponding to 100% of their respective base salary.
The non-competition clauses may be terminated. Under mandatory Danish law, non-competition clauses cannot be enforced after expiry of the notice period if the termination is effected by the Company without the members of the Senior Management Team having given reasonable cause for their dismissal.
D. Employees
As of December 31, 2019, we employed approximately 341 people in our offices in Denmark, India, the Philippines, Singapore and the United States, excluding seafarers, who work on our vessels. For a breakdown of the geographic locations of our employees, please see “Item 4. Information on the Company⸻D. Property, Plants and Equipment.”
E. Share Ownership
The table below shows, in relation to each of our directors and members of our Senior Management Team, the total number of shares owned and the total number of Restricted Share Units, or RSUs, held as of March 11, 2020. The RSUs granted to our Executive Director, Jacob Meldgaard, were received for his role as Chief Executive Officer of TORM A/S.

Directors and Executive officers |  | Class A Common shares held |  |  | Unvested RSUs |  | Vested RSUs |
Christopher H. Boehringer |  |  | 21,204 |  |  |  |  |  |  |
David Weinstein |  |  | 5,000 |  |  |  |  |  |  |
Göran Trapp |  |  | 12,820 |  |  |  |  |  |  |
Torben Janholt |  |  | 6,526 |  |  |  |  |  |  |
Jacob Meldgaard |  |  | 255,411 |  |  |  | 255,345 |  |  |  | 255,345 |
All other executive officers in the aggregate |  |  | * |  |  |  | 326,089 |  |  |  | 262,289 |

*Our remaining executive officers individually each own less than 1% of our outstanding shares.
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ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders
The following table sets forth the beneficial ownership of our Class A common shares, par value $0.01 per share, as of the date of this annual report, by beneficial owners of 5% or more of the common shares. All of our shareholders, including the shareholders listed in the table below, are entitled to one vote for each share held (excluding the B share and the C share).

| Class A Common Shares Beneficially Owned |
Name | Number |  | Percentage(1) |
Njord Luxco(3)(4) |  |  | 48,252,053 | (2) |  |  | 64.8 | %

_________________________

(1) | Calculated based on 74,435,377 Class A common shares (excluding treasury shares) outstanding as of December 31, 2019. The percentage ownership contained in this table differs from the percentage ownership previously reported by the shareholder in its “Notification of Major Holdings” that was furnished to the SEC on Form 6-K on September 6, 2019 due to subsequent changes in the Company’s share capital.

(2) | Based upon the "Notification of Major Holdings" that the Company received and furnished to the SEC on Form 6-K on September 6, 2019.

(3) | According to the Schedule 13D filed with the SEC on February 5, 2018 and information provided by Njord Luxco, the business address of Njord Luxco is OCM Njord Holdings S.à.r.l, 26A, Boulevard Royal L-2449, Luxembourg, Luxembourg. The majority shareholder of Njord Holdings is OCM Luxembourg OPPS IX S.à.r.l. The majority shareholder of OCM Luxembourg OPPS IX S.à.r.l is Oaktree Opportunities Fund IX, L.P. The general partner of Oaktree Opportunities Fund IX, L.P. is Oaktree Opportunities Fund IX GP, L.P. The general partner of Oaktree Opportunities Fund IX GP, L.P. is Oaktree Opportunities Fund IX GP, Ltd. The sole director of Oaktree Opportunities Fund IX GP, Ltd. is Oaktree Capital Management, L.P. Oaktree Capital Group, LLC indirectly controls Oaktree Capital Management, L.P. Oaktree Capital Group, LLC is controlled by its ten-member board of directors, none of whom individually have control and each of which are appointed by Oaktree Capital Group Holdings GP, LLC and Brookfield Asset Management, L.P. The address for all of the entities identified above is c/o Oaktree Capital Management, L.P., 333 S. Grand Avenue, 28th Floor, Los Angeles, California 90071.

(4) | Njord Luxco is the holder of the sole outstanding Class C share. The Class C share has 350,000,000 votes at the general meeting in respect of specified matters, including election of members to our Board of Directors (other than the Deputy Chairman) and certain amendments to the Articles of Association. See "Item 10. Additional Information—A. Share Capital —Our Shares—Class C Share".

As of December 31, 2019, we had 4,701,864 warrants outstanding with each warrant being convertible into one Class A common share, par value $0.01 per share, and which can be exercised until July 13, 2020. As of December 31, 2019, we had a total of 2,228,230 RSUs outstanding. Subject to vesting, each RSU entitles the holder to acquire one Class A common share. Assuming the exercise of all of our outstanding warrants and full vesting and exercise of our outstanding RSUs, this would result in the issuance of 6,930,094 additional Class A common shares representing approximately 9% of our issued and outstanding Class A common shares.
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The sole outstanding B share is held by a trustee on behalf of non-Oaktree shareholders to provide certain minority protections. The B Share has one vote at the general meeting and the right to elect the Deputy Chairman of our Board of Directors and one Board Observer, both of which have been elected. See "Item 10. Additional Information—A. Share Capital —Our Shares—Class B Share".
As of March 10, 2020, our sole shareholder of record located in the United States was Cede & Co., a nominee of The Depository Trust Company, which held 26,556,754 Class A common shares, representing 35.7% of our issued and outstanding Class A common shares on that date.
B. Related Party Transactions
Remuneration of our directors and executive management is disclosed in "Item 6. Directors, Senior Management and Employees—B. Compensation".
Mr. Boehringer is a partner and a managing director of Oaktree Capital Management (U.K.) LLP. Oaktree affiliates manage (indirectly) the Company's controlling shareholder, Njord Luxco. Oaktree has interests in numerous businesses, including businesses which may compete directly or indirectly with the group. Mr. Boehringer may from time to time be involved in influencing the business or strategy of such businesses.
During 2019, TORM’s transactions with its joint venture producing scrubbers for the TORM fleet covered CAPEX of $26.1 million in total. The joint venture will continue to assist TORM in installing scrubbers in 2020.
To our knowledge, there have been no other transactions with related parties during the periods required to be presented.
C. Interest of Experts and Counsel
Not applicable.

ITEM 8. | FINANCIAL INFORMATION

A. Consolidated Statements and other Financial Information
Please see the section of this annual report on Form 20-F entitled "Item 18. Financial Statements".
Legal Proceedings
We are from time to time and currently a party to various legal proceedings arising in the ordinary course of business. We seek to maintain commercial liability insurance for such cases, and to the extent that we find that a specific claim is covered by insurance, our policy is to make no reservations in our accounts except for other related costs such as deductibles payable by us under the insurance policies.
The Group is involved in some legal proceedings and disputes. It is management's opinion that the outcome of these proceedings and disputes should not have any material impact on the Group's financial position, results of operations and cash flows.
Distribution Policy
Reference is made to "Investor Information—Distribution Policy" on page 92 of our Annual Report 2019.
Our Board of Directors may, in its sole discretion, from time to time, declare and distribute dividends in accordance with our Articles of Association and applicable law. Any decision to distribute dividends will be at the sole discretion of the Board of Directors. Dividends which are declared as interim dividends do not need to be approved by the shareholders at our annual general meeting.
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We can give no assurance that dividends will be declared and paid in the future or the amount of such dividends if declared and paid. For a discussion of certain risk factors that may affect our ability to pay dividends, see "Item 3. Key Information—A. Risk Factors". For a description of the restrictions on the payment of dividends contained in our financing agreements, see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Financing Agreements". For a discussion of the material tax consequences regarding the receipt of dividends we may declare, see "Item 10. Additional Information— E. Taxation".
B. Significant Changes
Not applicable.

ITEM 9. | THE OFFER AND LISTING

A. Offer and Listing Details
Principal Markets
Our Class A common shares currently trade on Nasdaq Copenhagen A/S under the symbol "TRMD A" and on Nasdaq New York under the symbol "TRMD". The B share, C share and warrants are not listed for trading on any exchange. See "Item 10. Additional Information".
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A common shares currently trade on Nasdaq Copenhagen A/S under the symbol "TRMD A" and on Nasdaq New York under the symbol "TRMD".
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.

ITEM 10. | ADDITIONAL INFORMATION

A. Share Capital
Issued and Authorized Capitalization
As of December 31, 2019, our share capital consisted of 74,748,248 Class A common shares, par value $0.01 per share, one Class B share, par value $0.01 per share, and one Class C share, par value $0.01 per share. As of December 31, 2019 and the date of this annual report, we have 312,871 treasury shares.
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At the Company's 2016 Annual General Meeting of Shareholders, the Board of Directors was granted certain authorizations to increase our issued share capital, both with and without pre-emption rights to the existing shareholders. These share authorities expire on March 14, 2021. The Board of Directors did not seek new authorities at any of the Company's Annual General Meetings since then, including the 2019 Annual General Meeting, which took place on April 11, 2019. For a description of the share authorities granted to our Board of Directors, reference is made to "Director's Report—Share Capital" on pages 94-96 of our Annual Report 2019.
Our Shares
Class A common shares. Each outstanding Class A common share, par value $0.01 per share, has (i) on a poll, one (1) vote on all matters at the general meeting (other than the election or removal of the Deputy Chairman), (ii) pre-emption rights upon any new issue of equity securities (including Class A common shares) for cash (unless otherwise provided by the UK Companies Act or our Articles of Association or as disapplied by the relevant shareholders' resolution) and (iii) the right to receive dividends, as well as liquidation proceeds and other distributions, that we may declare from time to time. The Class A common shares are not redeemable, either in full or in part.
Class B share. The one outstanding Class B share, par value $0.01, is held by a trustee on behalf of our minority shareholders (the Class A common shareholders other than Njord Luxco or its affiliates) pursuant to the terms of a minority trust deed, which is filed as Exhibit 2.2 to this annual report. The Class B share has (i) one vote at our general meetings, (ii) no pre-emptive subscription rights in relation to any issue of new shares of other classes and (iii) effectively carries no right to receive dividends, liquidation proceeds or other distributions from us. The holder of the Class B share has the right to elect one member to our Board of Directors (the Deputy Chairman) as well as appoint one Board Observer. Currently, David Weinstein serves as the Class B share elected director, and Jeffrey Stein is the appointed Board Observer. The Class B share may not be transferred or pledged, except for a transfer to a replacement trustee or a redemption by us. The Class B share is required to be redeemed when the Class C share is redeemed. The trustee is required to exercise its rights as holder of the Class B share at the direction of such minority shareholders. Such minority shareholders are able to direct the trustee as the holder of the Class B share by responding to a directions request distributed to such minority shareholders in accordance with the terms of the minority trust deed.
Class C share. The one outstanding Class C share, par value $0.01, is held by Njord Luxco. The holder of the Class C share has 350,000,000 votes at our general meetings on specified matters, described below. Based on Njord Luxco's share ownership as of the date of this annual report of 48,252,053 Class A common shares and the C share, Njord Luxco has 398,252,053 votes.
The Class C share votes may only be cast on resolutions in respect of the appointment or removal of directors (excluding the Deputy Chairman) and certain amendments to the Articles of Association, proposed by the Board of Directors. The Class C share votes may not be cast on resolutions in respect of any amendments to certain reserved matters, as specified in our Articles of Association, (unless those reserved matters also constitute changes to our Articles of Association on which the Class C share is entitled to vote), pre-emptive rights of shareholders, rights attached to the Class B share and other minority protection rights provisions contained in our Articles of Association.
The Class C share has no pre-emption rights in relation to any issue of new shares of other classes and effectively carries no right to receive dividends, liquidation proceeds or other distributions from us. The Class C share may not be transferred or pledged, except to an affiliate of Njord Luxco or pursuant to redemption by us. The Class C will be automatically redeemed when Njord Luxco and its affiliates cease to beneficially own at least one third of our issued Class A common shares. The voting rights attached to the Class C share have the practical effect of allowing Njord Luxco to control the Board of Directors of TORM plc and to make amendments to the Articles of Association proposed by the Board of Directors, other than amendments to the minority protections. Even when Njord Luxco holds only a third of the issued Class A common shares, the votes cast by Njord Luxco would represent approximately 93.8% of the votes that may be cast on resolutions on which the Class C share may vote.
The reserved matters set forth in our Articles of Association require either the approval of a majority of our Board including our Chairman and Deputy Chairman or the approval of a resolution approved by at least 70% or 86% of the votes capable of being cast. Please see "Item. 10. Additional Information— B. Memorandum and Articles of Association".
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Our Share History
Reference is made to "Investor Information—Changes to the Share Capital" on page 91 of the Annual Report 2019.
Treasury Shares
As of December 31, 2019, we had 312,871 treasury shares.
Warrants
As part of the 2015 Restructuring, TORM A/S issued 7,181,578,089 Consideration Warrants each entitling the holder thereof to subscribe for one new Danish A share, par value DKK 0.01, without pre-emption rights for TORM A/S' existing shareholders. Those Consideration Warrants were consolidated on a 1,500 for one basis with effect as of September 24, 2015. On closing of the Exchange Offer, each Consideration Warrant that was assented to the Exchange Offer was exchanged for an equivalent warrant in TORM plc. Exchanged Consideration Warrants in TORM A/S were cancelled. As part of the Exchange Offer, the Consideration Warrants could be exchanged on a one-for-one basis for an equivalent TORM plc warrant or, if unexercised during the four weeks following the closing of the Exchange Offer, the Consideration Warrants lapsed automatically without compensation.
Following the Private Placement in January 2018 and pursuant to the terms of the instrument governing our warrants, the number and subscription price of the warrants were adjusted. As of the date of this annual report, there are 4,701,864 warrants outstanding with each warrant being convertible into one Class A common share, par value $0.01 per share, against payment of a subscription price of DKK 95.24. The warrants can be exercised until July 13, 2020.
Restricted Share Units
In accordance with TORM's Remuneration Policy, the Board of Directors has, as part of the Long-Term Incentive Program (LTIP), granted certain employees Restricted Share Units (RSUs) in the form of restricted stock options. The RSUs aim at retaining and incentivizing the employees to seek to improve the performance of TORM and thereby the TORM share price for the mutual benefit of themselves and the shareholders of TORM. Each RSU granted under the LTIP entitles its holder to acquire one Class A common share, subject to vesting.
In 2016, the Board agreed to grant a total of 723,069 RSUs to other members of management and an additional 1,276,725 RSUs to the Executive Director (the "2016 RSUs"). The 2016 RSUs to other members of management were subject to a three-year vesting period, with one-third of the grant amount vesting at each anniversary date beginning on January 1, 2017. The exercise price of each vested 2016 RSU, following certain adjustments for dividends, was DKK 93.6 and they had an exercise period of six months. For the Executive Director, the grant was subject to a five-year vesting period and the exercise period was one year with the remaining terms being similar to the 2016 RSUs granted to the other members of management. None of the 2016 RSUs were exercised and all 2016 RSUs to other members of management have expired. The Executive Director agreed not to exercise his allocation of 2016 RSUs.
In 2017, the Board agreed to grant a total of 866,617 RSUs to other members of management on similar terms as the 2016 RSUs with a three-year vesting period, an exercise price of DKK 93.6 and an exercise period of six months (the "2017 RSUs"). As of December 31, 2019, 634,458 2017 RSUs have expired unexercised.
In 2018 the Board agreed to grant a total of 944,468 RSUs to other members of management and an additional 766,035 RSUs to the Executive Director (the "2018 RSUs"). The 2018 RSUs to both other management and the Executive Director were subject to a three-year vesting period, with one-third of the grant amount vesting at each anniversary date beginning on January 1, 2019. The exercise price of each vested 2018 RSU is DKK 53.7, which corresponds to the daily average closing price on Nasdaq Copenhagen across the 90-calendar day period before the date of the General Meeting on April 12, 2018 plus a premium of 15%. Vested 2018 RSUs may be exercised for a period of 360 days after each vesting date. The grant to the Executive Director represented the unvested portion, or approximately 60%, of the RSUs that he was granted in 2016, which were subject to a five-year vesting period, and which he has agreed not to exercise.
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In 2019, the Board agreed to grant a total of 1,001,050 RSUs to other members of management (the "2019 RSUs"). The 2019 RSUs were issued on the same vesting terms as the 2018 RSUs and have an exercise price of DKK 49.7, corresponding to the daily average closing price on Nasdaq Copenhagen across the 90-calendar day period before March 12, 2019, the date of publication of the Annual Report 2018, plus a premium of 15%. In December 2019, the CEO was informed that he would receive two additional tranches of 255,200 RSUs in 2021 and 2022, respectively. The first will vest in equal installments over three years beginning January 1, 2022. The second will vest in equal installments over three years beginning January 1, 2023. The strike price for each tranche will be determined as the average of 90 days before publication of the TORM plc Annual Report plus a 15% premium. The first tranche will be based on the average share price over 90 days preceding publication of the Annual Report 2020 and the second tranche on the average share price over 90 days preceding publication of the Annual Report 2021. The exercise period for vested RSUs will be 360 days.
As of December 31, 2019, 2,228,230 RSUs were outstanding. None of the 2016, 2017 and 2019 RSUs have been exercised and 529,402 of the 2018 RSUs have been exercised. Based on the Black-Scholes model, the theoretical market value of the RSU allocations in 2016, 2017, 2018 and 2019, around the time of issuance, was calculated at $5.0 million, $1.0 million, $2.3 million, and $ 1.7 million, respectively. See "Item 6. Directors, Senior Management and Employees—B. Compensation" and "—E. Share Ownership".
B. Memorandum and Articles of Association
The description of TORM plc's Memorandum and Articles of Association is incorporated by reference to our 20-F Registration Statement. The Company's Articles of Association were filed as Exhibit 1.1 to the 20-F Registration Statement and are hereby incorporated by reference into this annual report.
C. Material Contracts
We refer you to "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Our Financing Agreements" with respect to our credit facilities, and "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions" with respect to our related party transactions for a discussion of the agreements that we consider to be both material and outside the ordinary course of business during the two-year period immediately preceding the date of this annual report. Certain of these material agreements that are to be performed in whole or in part at or after the date of this annual report are attached as exhibits to this annual report. Other than these contracts, we have no other material contracts, other than contracts entered into in the ordinary course of business, to which we are a party.
D. Exchange Controls
Under UK law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions, that affect the remittance of dividends, interest or other payments to non-resident holders of our common shares.
E. Taxation
U.S. Federal Income Tax Considerations
The following are the material U.S. federal income tax consequences to us and our U.S. Holders and Non-U.S. Holders, each as defined below, of our activities and the ownership and disposition of our common shares. This discussion does not purport to deal with the tax consequences of owning common shares relevant to all categories of investors, some of which, such as banks, insurance companies, real estate investment trusts, regulated investment companies, grantor trusts, tax-exempt organizations, dealers in securities or currencies, traders in securities that elect the mark-to-market method of accounting for their securities, investors whose functional currency is not the U.S. dollar, investors that are or own our common shares through partnerships or other pass-through entities, investors that own, actually or under applicable constructive ownership rules, 10% or more of our common shares, persons that will hold the common shares as part of a hedging transaction, "straddle" or "conversion transaction," persons who are deemed to sell the common shares under constructive sale rules, persons required to recognize income for U.S. federal income tax purposes no later than the taxable year in which such income is included on an "applicable financial statement," persons subject to the “base erosion and anti-avoidance” tax and persons who are liable for the alternative minimum tax, may be subject to special rules. The following discussion of United States federal income tax matters is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury, or the Treasury Regulations, all as in effect or in existence on the date of this annual report, and all of which are subject to change, possibly with retroactive effect. This discussion does not address any aspect of state, local or any U.S. federal tax considerations other than income taxation, such as estate or gift taxation or unearned income Medicare contribution taxation. This discussion deals only with holders who purchase common shares in connection with this offering and hold the common shares as a capital asset. The discussion below is based, in part, on the description of our business as described in this annual report and assumes that we conduct our business as described in this annual report. Unless otherwise noted, references in the following discussion to the "Company," "we," "our," and "us" are to TORM plc and its subsidiaries on a consolidated basis.
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United States Federal Income Taxation of the Company
Taxation of Operating Income: In General
We anticipate that substantially all of our gross income will be derived from the use and operation of vessels in international commerce, and that this income will principally consist of freights from the transportation of cargos, hire or lease income from voyage or time charters and the performance of services directly related thereto, which we refer to as "shipping income". Unless exempt from U.S. federal income taxation under Section 883 of the Code, under Article 8 of the U.S.-United Kingdom Income Tax Treaty or under Article 8 of the U.S.-Denmark Income Tax Treaty, we will be subject to U.S. federal income taxation, in the manner discussed below, to the extent our shipping income is considered for U.S. federal income tax purposes to be derived from sources within the United States.
Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end in the United States, will be considered for U.S. federal income tax purposes to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. We are not permitted by law to engage in transportation that gives rise to 100% U.S. source shipping income.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any U.S. federal income tax.
We do not believe that we or our subsidiaries will qualify for exemption from tax under Section 883 of the Code, although we and our subsidiaries may qualify in the future if there is a change in our capital structure. See below for a discussion of the requirements for qualification under Section 883.
We and/or one or more of our subsidiaries (collectively referred to as "we" for purposes of this paragraph) may qualify for exemption from tax under the terms of the U.S.-UK Income Tax Treaty or U.S.-Denmark Income Tax Treaty. Whether we so qualify depends, among other things, on whether we satisfy the Limitation on Benefits article of the applicable U.S. income tax treaty. In particular, we would generally satisfy the Limitation on Benefits article if we can establish that we are engaged in the active conduct of a trade or business in the UK or Denmark, whichever is applicable, our U.S. source shipping income is derived in connection with, or is incidental to, such trade or business, and such trade or business activity in the applicable treaty jurisdiction is substantial in relation to our trade or business activity in the United States. Additionally, we may also be able to satisfy the Limitation on Benefits article of the U.S.-Denmark Income Tax Treaty if we can establish that our principal class of shares is regularly traded on a recognized stock exchange, such as Nasdaq Copenhagen. For this purpose, our Class A Common Shares would generally be considered our primary class of shares if the Class A Common Shares represent more than 50% of the voting power and value of the Company. Additionally for this purpose, our Class A Common Shares would be treated as regularly traded if the Class A Common Shares are traded in more than de minimis quantities each quarter, and if the aggregate number of Class A Common Shares traded during the prior taxable year is at least 6% of the average number of Class A Common Shares during such prior taxable year. Given the legal and factual uncertainties in making the foregoing determination, there can be no assurance that we will qualify for exemption from tax under a U.S. income tax treaty, or that the IRS or a court of law will agree with our determination in this regard.
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Exemption Under Section 883 of the Code
Under Section 883 of the Code and the Treasury Regulations promulgated thereunder, or "Section 883," we and each of our subsidiaries that derives U.S. source shipping income will qualify for exemption from U.S. federal income tax under Section 883 in respect of such shipping income if, in relevant part:

| • | we and each such subsidiary is organized in a "qualified foreign country" which, as defined, is a foreign country that grants an equivalent exemption from tax to corporations organized in the United States in respect of the shipping income for which exemption is being claimed under Section 883, which we refer to as the "country of organization requirement"; and either

| • | more than 50% of the value of our stock is owned actually or constructively under specified attribution rules by "qualified shareholders" (which as defined includes, among other things, individuals who are "residents" of qualified foreign countries and corporations that are organized in qualified foreign countries and meet the Publicly-Traded Test discussed immediately below), which we refer to as the "50% Ownership Test," or

| • | our stock is "primarily" and "regularly" traded on an "established securities market" in our country of organization, in another country that grants an "equivalent exemption" to U.S. corporations or in the United States, which we refer to as the "Publicly-Traded Test".

As the IRS has recognized the United Kingdom, our country of incorporation, and each of the countries of incorporation of our subsidiaries, including Denmark, as a qualified foreign country in respect of the shipping income for which exemption is being claimed under Section 883, we and each of our subsidiaries satisfy the country of organization requirement. Therefore, each of our subsidiaries will be exempt from U.S. federal income tax with respect to our U.S. source shipping income if we satisfy either the "50% Ownership Test" or the "Publicly-Traded Test" and certain substantiation and reporting requirements are met, thereby allowing each of our subsidiaries to satisfy the 50% Ownership Test. We do not anticipate satisfying the 50% Ownership Test. Our ability to satisfy the Publicly-Traded Test is discussed below, and if we satisfy the Publicly-Traded Test, each of our subsidiaries can satisfy the 50% Ownership Test since each would be owned by a qualified shareholder for such purposes.
The Treasury Regulations provide, in pertinent part, that a class of stock of a foreign corporation will be considered to be "primarily traded" on an established securities market in a country (such as Nasdaq Copenhagen) if the exchange is designated under a Limitations on Benefits article in a United States income tax treaty, and if the number of shares of such class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares of such class that are traded during that taxable year on established securities markets in any other single country. Currently, our shares are primarily traded on Nasdaq Copenhagen for purposes of the "primarily traded" test, although this may change in future years.
The Treasury Regulations provide further that stock of a foreign corporation will be considered to be "regularly traded" on an established securities market only if: (i) one or more classes of stock of the corporation that, in the aggregate, represents more than 50% of the stock of the corporation, by voting power and value, is listed on such established securities market, (ii) each such class of stock is traded on such established securities market, other than in de minimis quantities, on at least 60 days during the taxable year, and (iii) the aggregate number of shares of such stock traded on such established securities market is at least 10% of the average number of shares of such stock outstanding during such taxable year. Even if this were not the case, the Treasury Regulations provide that the trading frequency and trading volume tests will be deemed satisfied with respect to a class of stock that is traded on an established securities market in the United States if such stock is regularly quoted by dealers making a market in such stock. Although we have a class of stock that is listed on the Nasdaq New York, an established securities market in the United States, we do not anticipate satisfying the requirement that our stock be "regularly traded" on an established securities market under the quantitative testing rules.
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Even if our common stock was considered to be “regularly traded” on an established securities market, the Treasury Regulations provide, in pertinent part, that a class of stock of a foreign corporation will not be considered to be "regularly traded" on an established securities market for any taxable year in which 50% or more of the vote and value of the outstanding shares of such class of stock are owned, within the meaning of the Treasury Regulations, on more than half the days during such taxable year by persons who each own 5% or more of the vote and value of the outstanding shares of such class of stock, which persons we refer to as "5% shareholders" and the rule as the "5% override rule".
For purposes of identifying our 5% shareholders, we are permitted to rely on Schedule 13G and Schedule 13D filings with the SEC. Even if our stock was considered “regularly traded” on an established securities market, we believe the 5% override rule would have been triggered and that we would not be able to rely on Section 883 for exemption from United States federal income taxation on our U.S. source shipping income.
Therefore, if we cannot qualify for benefits under an applicable U.S. income tax treaty, we would be subject to United States taxation on our U.S. source shipping income. We intend to take the position that we qualify for benefits of the U.S.-U.K. income tax treaty for purposes of Section 883. Therefore, we are a qualified shareholder with respect to each of our subsidiaries, and each of our subsidiaries qualifies under the 50% Ownership Test for the exemption from U.S. federal income taxation on U.S. source shipping income.
U.S. Federal Income Taxation in the Absence of Section 883 or Treaty Exemption
4% Gross Basis Tax Regime. To the extent the benefits of Section 883 or an applicable U.S. income tax treaty are unavailable, our U.S. source shipping income which is not considered to be "effectively connected" with the conduct of a U.S. trade or business, as discussed below, would be subject to a 4% U.S. federal income tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions, which we refer to as the "4% gross basis tax regime". As under the sourcing rules described above, no more than 50% of our shipping income would be treated as derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping income should never exceed 2% under the 4% gross basis tax regime.
Net Basis and Branch Tax Regimes. To the extent the benefits of Section 883 or an applicable U.S. income tax treaty are unavailable and the U.S. source shipping income of a subsidiary is considered to be "effectively connected" with the conduct of a U.S. trade or business, as discussed below, any such "effectively connected" U.S. source shipping income, net of applicable deductions, would be subject to the U.S. federal income tax currently imposed at the corporate rate of 21%. In addition, such subsidiary may be subject to the U.S. branch profits tax, at a rate of 30% or such lower rate as may be provided by an applicable U.S. income tax treaty, on earnings "effectively connected" with the conduct of such U.S. trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of a relevant subsidiary’s U.S. trade or business.
U.S. source shipping income will be considered "effectively connected" with the conduct of a U.S. trade or business only if:

| • | we have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and

| • | substantially all of our U.S. source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States.

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We do not intend to have, or permit circumstances that would result in having, substantially all of our U.S. source shipping income be attributable to regularly scheduled transportation. Based on the foregoing and on the expected mode of our shipping operations, we believe that none of our U.S. source shipping income will be "effectively connected" with the conduct of a U.S. trade or business.
U.S. Taxation of Gain on Sale of Vessels.
Regardless of whether we qualify for exemption under Section 883 of the Code or the applicable U.S. income tax treaty, we do not expect to be subject to U.S. federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a beneficial owner of our common shares that is a U.S. citizen or resident, a U.S. corporation or other U.S. entity taxable as a corporation, an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or a trust if (i) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a U.S. person.
If a partnership holds our common shares, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding our common shares, you are encouraged to consult your own tax advisor.
Distributions
Subject to the discussion of passive foreign investment companies below, any distributions made by us with respect to our common shares to a U.S. Holder will generally constitute dividends to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
Dividends paid with respect to our common shares to a U.S. Holder that is an individual, trust or estate, which we refer to as a "U.S. Individual Holder", may be eligible for preferential U.S. federal income tax rates provided that (1) we are a "qualified foreign corporation", (2) the U.S. Individual Holder has owned our common shares for more than 60 days during the 121-day period beginning 60 days before the date on which our common shares become ex-dividend, (3) we are not a passive foreign investment company for the taxable year of the dividend or the immediately preceding taxable year (which we do not believe we are, have been or will be) and (4) the U.S. Individual Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property.
We will be treated as a "qualified foreign corporation" if we qualify for benefits of a comprehensive income tax treaty to which the United States is a party, such as the U.S.-U.K. Income Tax Treaty or the U.S.-Denmark Income Tax Treaty, or if our common shares are readily tradable on an established securities market in the United States. We believe we qualify for the benefits of the U.S.-U.K. Income Tax Treaty or the U.S.-Denmark Income Tax Treaty, both of which are comprehensive income tax treaties, and our common shares are readily tradable on an established securities market in the United States because they are listed on Nasdaq New York. Therefore, we believe that any dividends paid by us to a U.S. Individual Holder on our common shares are eligible for these preferential rates. Any dividends paid by us which are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Holder.
Distributions in excess of our current and accumulated earnings and profits will be treated first as a non-taxable return of capital to the extent of the U.S. Holder's tax basis in its common shares on a dollar-for-dollar basis and thereafter as capital gain. U.S. Holders that are corporations will generally not be entitled to claim a dividend received deduction with respect to any distributions they receive from us. Dividends paid on our common shares will generally be treated as "passive category income" or, in the case of certain types of U.S. Holders, "general category income", for purposes of computing allowable foreign tax credits for U.S. foreign tax credit purposes.
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Special rules may apply to any "extraordinary dividend" — generally, a dividend in an amount which is equal to or in excess of 10% of a shareholder's adjusted basis (or fair market value in certain circumstances) or dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a shareholder’s adjusted tax basis (or fair market value upon the shareholder’s election) in a share of our common stock — paid by us. If we pay an "extraordinary dividend" on our common shares that is treated as "qualified dividend income", then any loss derived by a non-corporate U.S. holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.
Dividends will be generally included in the income of U.S. Holders at the U.S. dollar amount of the dividend (including any non-U.S. taxes withheld therefrom), based upon the exchange rate in effect on the date of the distribution. In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized foreign exchange gain does not exceed U.S. $200 will not recognize that gain, to the extent that there are not expenses associated with the transaction that meet the requirement for deductibility as a trade or business expense (other than travel expenses in connection with a business trip or as an expense for the production of income).
Sale, Exchange or other Disposition of Our Common Shares
Subject to the discussion of passive foreign investment company status below, a U.S. Holder will generally recognize taxable gain or loss upon a sale, exchange or other disposition of our common shares in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder's adjusted tax basis in the common shares. A U.S. Holder's adjusted tax basis in its common shares generally will be the U.S. Holder's purchase price for the common shares, reduced (but not below zero) by the amount of any distribution on such common shares that was treated as a nontaxable return of capital to such U.S. Holder. Such gain or loss will be capital gain or loss and will be treated as long-term capital gain or loss if the U.S. Holder's holding period in the common shares is greater than one year at the time of the sale, exchange or other disposition. Such capital gain or loss will generally be treated as U.S.-source income or loss, as applicable, for U.S. foreign tax credit purposes. A U.S. Holder's ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Status and Significant U.S. Federal Income Tax Consequences
Special U.S. federal income tax rules apply to a U.S. Holder that holds stock in a foreign corporation classified as a passive foreign investment company, or "PFIC", for U.S. federal income tax purposes. In general, a foreign corporation will be treated as a PFIC with respect to a U.S. shareholder in such foreign corporation if, for any taxable year in which such shareholder holds stock in such foreign corporation, either:

| • | at least 75% of the corporation's gross income for such taxable year consists of passive income (for example dividends, interest, capital gains and rents derived from other than in the active conduct of a rental business), or

| • | at least 50% of the average value of the assets held by the corporation during such taxable year produces, or is held for the production of, passive income, which we refer to as "passive assets".

For purposes of determining whether we are a PFIC, cash will be treated as an asset held for the production of passive income. Income earned or deemed earned by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute passive income unless we are treated under specific rules as deriving the rental income in the active conduct of a rental business. Also, for purposes of determining whether we are a PFIC, we will be treated as owning our proportionate share of the assets and as receiving directly our proportionate share of the income of any corporation in which we own at least 25% by value of the stock of such corporation.
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Based on our current operations and future projections, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. Although there is no legal authority directly on point, our belief is based principally on the position that, for purposes of determining whether we are a PFIC, the gross income we derive or are deemed to derive from the time chartering and voyage chartering activities of us and our subsidiaries should constitute active income from the performance of services rather than passive, rental income. Correspondingly, such income should not constitute passive income, and the assets that we or our subsidiaries own and operate in connection with the production of such income, in particular the vessels, should not constitute passive assets for purposes of determining whether we are a PFIC. We anticipate that substantially all of our gross income will be derived from time and voyage charters and the performance of services directly related thereto, and that substantially all of the vessels in our fleet will be engaged in such activities.
We believe there is substantial legal authority supporting our position consisting of the Code, legislative history, case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, there is no direct legal authority under the PFIC rules addressing our specific method of operation, and there is authority which characterizes time charter income as rental income rather than services income for other tax purposes. In the absence of any legal authority specifically relating to the statutory provisions governing PFICs, the IRS or a court could disagree with our position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature or extent of our operations, or the composition of our income or assets, will not change and that we will not become a PFIC in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different U.S. federal income taxation rules depending on whether the U.S. Holder makes an election to treat us as a "Qualified Electing Fund", which election we refer to as a "QEF election". As an alternative to making a QEF election, a U.S. Holder should be able to make a "mark-to-market" election with respect to our common shares, as discussed below.
If we were to be treated as a PFIC for any taxable year, a U.S. Holder would also be subject to special U.S. federal income tax rules in respect of such U.S. Holder's indirect interest in any of our subsidiaries that are also treated as PFICs. Such a U.S. Holder would be permitted to make a QEF election in respect of any such subsidiary, as long as we timely provide the information necessary for such election, which we currently intend to do in such circumstances, but such a U.S. Holder would not be permitted to make a mark-to-market election in respect of such U.S. Holder's indirect interest in any such subsidiary. In addition, if we were to be treated as a PFIC for any taxable year, and a U.S. Holder actually or constructively own common shares that exceed certain thresholds, a U.S. Holder would be required to file a Form 8621 with its U.S. federal income tax return for that year with respect to such Holder's common shares. Substantial penalties apply to any failure to timely file a Form 8621, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Also, in the event that a U.S. Holder is required to file a Form 8621 and does not do so, the statute of limitations on the assessment and collection of U.S. federal income taxes for such person for the related tax year may not close until three years after the date that the Form 8621 is filed. The application of the PFIC rules is complicated, and U.S. Holders are encouraged to consult with their tax advisors regarding the application of such rules in their circumstances.
U.S. Federal Income Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election, which U.S. Holder we refer to as an "Electing Holder", the Electing Holder must report each year for U.S. federal income tax purposes his pro rata share of our ordinary earnings and net capital gain, if any, for our taxable year that ends with or within the taxable year of the Electing Holder, regardless of whether or not distributions were received by the Electing Holder with respect to its commons shares. No portion of such inclusions of ordinary earnings will be entitled to the preferential U.S. federal income tax rates applicable to certain dividends discussed above. Net capital gain inclusions of certain non-corporate U.S. holders may be eligible for preferential capital gains rates. The Electing Holder's adjusted tax basis in the common shares will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common shares and will not be taxed again once distributed. An Electing Holder would not, however, be entitled to a deduction for its pro rata share of any losses that we incur with respect to any taxable year. An Electing Holder would generally recognize capital gain or loss on the sale, exchange or other disposition of our common shares. A U.S. Holder would make a QEF election with respect to any taxable year that our company is a PFIC by filing an IRS Form 8621 with his U.S. federal income tax return. If we became aware that we were to be treated as a PFIC for any taxable year, we would provide each U.S. Holder with all necessary information in order to make the QEF election described above. A U.S. Holder who is treated as constructively owning shares in any of our subsidiaries which are treated as PFICs would be required to make a separate QEF election with respect to each such subsidiary.
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U.S. Federal Income Taxation of U.S. Holders Making a "Mark-to-Market" Election
Alternatively, if we were to be treated as a PFIC for any taxable year and our common shares are treated as "marketable stock", as we believe will be the case, a U.S. Holder would be allowed to make a "mark-to-market" election with respect to our common shares, provided the U.S. Holder completes and files an IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder would generally include as ordinary income in each taxable year the excess, if any, of the fair market value of the common shares at the end of the taxable year over such Holder's adjusted tax basis in the common shares. The U.S. Holder would also be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder's adjusted tax basis in the common shares over its fair value at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder's tax basis in its common shares would be adjusted to reflect any such income or loss amount. Gain realized on the sale, exchange or other disposition of our common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of the common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder. A mark-to-market election would likely not be available for any of our subsidiaries that are treated as PFICs.
U.S. Federal Income Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
Finally, if we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a "mark-to-market" election for that year, whom we refer to as a "Non-Electing Holder," would be subject to special rules with respect to (1) any excess distribution (i.e. the portion of any distributions received by the Non-Electing Holder on our common shares in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder's holding period for the common shares) and (2) any gain realized on the sale, exchange or other disposition of our common shares. Under these special rules:

| • | the excess distribution or gain would be allocated ratably over the Non-Electing Holder's aggregate holding period for the common shares;

| • | the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxed as ordinary income and would not be entitled to the preferential U.S. federal income tax rates applicable to certain dividends discussed above; and

| • | the amount allocated to each of the other taxable years would be subject to tax at the highest rate in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed tax deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.

These adverse U.S. federal income tax consequences would not apply to a pension or profit sharing trust or other tax-exempt organization that did not borrow funds or otherwise utilize leverage in connection with its acquisition of our common shares. If a Non-Electing Holder who is an individual dies while owning our common shares, such Holder's successor would generally not receive a step-up in tax basis with respect to such common shares.
U.S. Federal Income Taxation of "Non-U.S. Holders"
A beneficial owner of our common shares that is not a U.S. Holder (and not an entity treated as a partnership) is referred to herein as a "Non-U.S. Holder".
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Distributions
Non-U.S. Holders will generally not be subject to U.S. federal income tax or withholding tax on dividends received with respect to our common shares, unless the dividends are "effectively connected" with the Non-U.S. Holder's conduct of a trade or business in the United States or, if the Non-U.S. Holder is entitled to the benefits of an applicable U.S. income tax treaty with respect to those dividends, those dividends are attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States.
Sale, Exchange or Other Disposition of Common Shares
Non-U.S. Holders will generally not be subject to U.S. federal income tax or withholding tax on any gain realized upon the sale, exchange or other disposition of our common shares unless: (i) the gain is "effectively connected" with the Non-U.S. Holder's conduct of a trade or business in the United States or, if the Non-U.S. Holder is entitled to the benefits of an applicable U.S. income tax treaty with respect to that gain, that gain is attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States or (ii) the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year of disposition and other conditions are met.
If the Non-U.S. Holder is engaged in a U.S. trade or business for U.S. federal income tax purposes, the income from the common shares, including dividends on the underlying common shares and the gain from the sale, exchange or other disposition of the common shares that is "effectively connected" with the conduct of that U.S. trade or business, will generally be subject to U.S. federal income tax in the same manner as discussed in the previous section relating to the U.S. federal income taxation of U.S. Holders. In addition, in the case of a corporate Non-U.S. Holder, such Non-U.S. Holder's earnings and profits that are attributable to the "effectively connected" income, subject to certain adjustments, may be subject to an additional U.S. federal branch profits tax at a rate of 30% or at a lower rate as may be specified by an applicable U.S. income tax treaty.
Backup Withholding and Information Reporting
In general, dividend payments, or other taxable distributions, and payment of the gross proceeds on a sale or other disposition of our common shares, made within the United States to you will be subject to information reporting requirements. In addition, such payments will be subject to "backup withholding" if you are a non-corporate U.S. Holder and you:

| • | fail to provide an accurate taxpayer identification number;

| • | are notified by the IRS that you have failed to report all interest or dividends required to be shown on your U.S. federal income tax returns; or

| • | in certain circumstances, fail to comply with applicable certification requirements.

Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on an appropriate IRS Form W-8.
If you sell your common shares to or through a U.S. office of a broker, the payment of the proceeds is subject to both U.S. backup withholding and information reporting unless you certify that you are a non-U.S. person, under penalties of perjury, or you otherwise establish an exemption. If you sell your common shares through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States, then information reporting and backup withholding will generally not apply to that payment. However, U.S. information reporting requirements, but not backup withholding, will apply to a payment of sales proceeds, including a payment made to you outside the United States, if you sell your common shares through a non-U.S. office of a broker that is a U.S. person or has some other contacts with the United States.
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Backup withholding is not an additional tax. Rather, you may generally obtain a refund of any amounts withheld under backup withholding rules that exceed your U.S. federal income tax liability by filing a refund claim with the IRS.
Individuals who are U.S. Holders (and to the extent specified in the applicable Treasury Regulations, certain individuals who are Non-U.S. Holders and certain U.S. entities) who hold "specified foreign financial assets" (as defined in Section 6038D of the Code and the applicable Treasury Regulations) are required to file an IRS Form 8938 (Statement of Specified Foreign Financial Assets) with information relating to each such asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year. Substantial penalties apply to any failure to timely file an IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, the statute of limitations on the assessment and collection of U.S. federal income tax with respect to a taxable year for which the filing of an IRS Form 8938 is required may not close until three years after the date on which the IRS Form 8938 is filed. Specified foreign financial assets would generally include our common shares, unless the common shares are held in an account maintained by a U.S. "financial institution" (as defined in Section 6038D of the Code). U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged to consult their own tax advisors regarding their reporting obligations under Section 6038D of the Code.
Danish Tax Considerations
The following is a summary of certain Danish tax considerations relating to an investment in TORM plc. The summary describes the Danish tax implications pertaining to dividends paid from TORM A/S to TORM plc, and a sale of Class A common shares by TORM plc.
The summary does not purport to constitute exhaustive tax or legal advice. It is specifically to be noted that the summary does not address all possible tax consequences relating to an investment in the shares of TORM plc. The summary is based solely upon the tax laws of Denmark in effect on the date of this annual report. Danish tax laws may be subject to changes, possibly with retroactive effect.
Thus, in the case an entity transfers shares in a group-related entity to another group-related entity and the proceeds consist wholly or partly of anything other than shares in the purchasing entity or group-related entities, the non-share based part of the proceeds (i.e. cash) is considered a dividend payment. However, if TORM plc receives tax-exempt dividends from TORM A/S as described in the section below, the Danish anti-avoidance rules should not apply.
Sale of Class A common shares by TORM plc
Shareholders not resident in Denmark will normally not be subject to Danish tax on gains realized on the sale of shares, irrespective of the ownership period and equity interest. However, Danish anti-avoidance rules should be observed as these rules may, if certain conditions are met, result in a requalification of tax-exempt capital gains into dividends, which could trigger Danish withholding taxes. These rules could apply in a number of situations, such as in connection with a related party sale of shares against cash and in unrelated third party transactions in connection with the transfer of shares to a new holding company (controlled by a third party) against shares and cash. For example, this could be the case, if dividends from TORM A/S cannot be received tax exempt by TORM plc. The rules should only apply to intra-group transactions as well as situations where TORM plc receives an ownership share in the group acquiring the shares in TORM A/S.
Dividends distributed to the holders of Class A common shares of TORM A/S to TORM plc
Under Danish tax law, dividends paid on shares in a Danish company to a foreign company are normally subject to dividend withholding tax of 27%. However, the foreign company receiving the dividends will as a main rule be subject to a final Danish withholding tax of 22% provided the recipient reclaims the excess tax from the Danish tax authorities.
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Dividends paid on shares in a Danish company are as a starting point exempt from Danish withholding tax when the foreign receiving company owns at least 10% of the Danish distributing company, the foreign receiving company is tax resident within the EU or a state which has a tax treaty with Denmark, and the Danish taxation should be reduced or eliminated in accordance with the EU Parent/Subsidiary Directive (2011/96/EU) or in accordance with a tax treaty between Denmark and the state in which the receiving company is domiciled.
When considering whether the EU Parent/Subsidiary Directive (2011/96/EU) or a tax treaty can be applied (thereby enabling exemption from Danish withholding taxes on dividend distributions), the Danish tax authorities do consider a number of other criteria, including whether the foreign receiving company is the beneficial owner, and whether the structure can be challenged based on general anti-avoidance rules introduced in 2015.
If these conditions for exemption are not fulfilled, Danish withholding tax of 27% (potentially reduced to 22%) will be triggered on such dividend distributions.
Share transfer tax and stamp duties
No Danish share transfer tax or stamp duties are payable on direct or indirect transfer of the shares of TORM A/S.
United Kingdom Tax Considerations
The following statements do not constitute tax advice and are intended only as a general guide to current United Kingdom law and HM Revenue and Customs ("HMRC") published practice, which may not be binding on HMRC, as at the date of this document (which are both subject to change at any time, possibly with retrospective effect). They relate only to certain limited aspects of the United Kingdom tax treatment of the beneficial owners of the Class A common shares. They are intended to apply only to shareholders who are resident only in the United Kingdom for United Kingdom tax purposes (unless the context requires otherwise) and, if individuals, who are domiciled in the United Kingdom and to whom split-year treatment does not apply. The statements below only relate to persons who are and will be the absolute beneficial owners of the Class A common shares and who hold, and will hold, the Class A common shares through the Depository Trust Company as investments (and not as securities to be realized in the course of a trade). The statements below are not exhaustive and may not apply to certain shareholders, such as dealers in securities, broker dealers, insurance companies and collective investment schemes, shareholders who are exempt from taxation, shareholders who hold their shares through an Individual Savings Account or a Self-Invested Personal Pension and shareholders who have (or are deemed to have) acquired the Class A common shares by virtue of an office or employment. Such persons may be subject to special rules. This summary does not address any inheritance tax considerations.
Prospective purchasers of the Class A common shares who are in any doubt as to their tax position should consult an appropriate professional adviser.
Taxation of Dividends
General
TORM plc is not required to make any withholding or deduction for or on account of United Kingdom tax in respect of dividends on the Class A common shares, irrespective of whether the shareholder receiving the dividend is resident in or outside the United Kingdom.
Individual Shareholders
United Kingdom resident individual Shareholders may be subject to income tax on dividends they receive from the Company. The first £2,000 of dividend income that the United Kingdom resident individuals receive in each tax year is taxed at a rate of 0% (the "Nil Rate Amount").
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Dividend income that is within the Nil Rate Amount counts towards an individual's basic or higher rate limits – and will therefore affect the taxation of other income received and any capital gains realized by the individual in the tax year. It may also affect the level of savings allowance to which they are entitled (as this is different for basic and higher rate taxpayers). In calculating into which tax band any dividend income over the Nil Rate Amount falls, dividend income is treated as the "top slice" of an individual's income.
Any dividend income received by a UK resident individual Shareholder in excess of the Nil Rate Amount will be subject to income tax at a rate of 7.5%, to the extent that it is within the basic rate band, 32.5%, to the extent that it is within the higher rate band and 38.1%, to the extent that it is within the additional rate band.
Corporate Shareholders
Shareholders within the charge to United Kingdom corporation tax which are "small companies" (for the purposes of United Kingdom taxation of dividends) will generally not expect to be subject to tax on dividends from the Company.
Other shareholders within the charge to United Kingdom corporation tax will not be subject to tax on dividends from the Company as long as the dividends fall within an exempt class and certain conditions are met. For example: dividends paid to companies holding less than 10% of the issued share capital of the payer (or any class of that share capital) are generally dividends that fall within an exemption in respect of "portfolio holdings" (subject to the application of relevant anti-avoidance rules). Other exemptions may also apply.
Shareholders Resident outside the United Kingdom
Where a shareholder resident for tax purposes outside the United Kingdom carries on a trade, profession or vocation in the United Kingdom and the dividends are a receipt of that trade or, in the case of corporation tax, the Class A common shares are held by or for a United Kingdom permanent establishment through which a trade is carried on, the shareholder may be liable to United Kingdom tax on dividends paid by the Company.
Taxation of Chargeable Gains
Individual Shareholders
A disposal of the Class A common shares may give rise to a chargeable gain (or allowable loss) for the purposes of United Kingdom capital gains tax, depending on the circumstances and subject to any available exemption or relief. The rate of capital gains tax in respect of shareholdings is 10% for individuals who are subject to income tax at the basic rate and 20% to the extent that an individual's chargeable gains, when aggregated with his or her income chargeable to income tax, exceed the basic rate band for income tax purposes. An individual shareholder is entitled to realize an exempt amount of gains (£12,000 in the 2019/20 tax year) in each tax year without being liable to tax.
A shareholder who is an individual and who has ceased to be resident in the United Kingdom for taxation purposes (or has become treated as resident outside the United Kingdom for the purposes of a double tax treaty (''Treaty non-resident'')) for a period of five years or less, and who disposes of the Class A common shares during that period may in some circumstances also be liable, on his or her return to the United Kingdom, to United Kingdom capital gains tax on that gain, subject to any available exemptions or reliefs.
Corporate Shareholders
Where a shareholder is within the charge to United Kingdom corporation tax, including cases where it is not resident (for tax purposes) in the United Kingdom, a disposal of the Class A common shares may give rise to a chargeable gain (or allowable loss) for the purposes of United Kingdom corporation tax (though only in respect of charges shown by the retail prices index to December 2017), depending on the circumstances and subject to any available exemption or relief. Indexation allowance may reduce the amount of chargeable gain that is subject to corporation tax, but may not create or increase any allowable loss.
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Shareholders Resident outside the United Kingdom
A shareholder that is not resident in the United Kingdom (and, in the case of an individual, is not temporarily non-resident) for United Kingdom tax purposes, and whose Class A common shares are not held in connection with carrying on a trade, profession or vocation in the United Kingdom will generally not be subject to United Kingdom tax on chargeable gains on the disposal of the Class A common shares.
Stamp Duty and Stamp Duty Reserve Tax ("SDRT")
The comments in this section relating to stamp duty and SDRT apply whether or not a shareholder is resident or domiciled in the United Kingdom. Special rules may apply to shareholders such as market makers, brokers, dealers and intermediaries.
Following the European Court of Justice decision in HSBC Holdings Plc and Vidacos Nominees Ltd v The Commissioners for Her Majesty's Revenue & Customs (C-569/07) and the First-tier Tax Tribunal decision in HSBC Holdings Plc and The Bank of New York Mellon Corporation v The Commissioners for Her Majesty's Revenue & Customs (TC/2009/16584), HMRC has confirmed that 1.5% SDRT is no longer payable to a clearance service or depositary receipt system, when new shares are issued. However, it is currently unclear whether this will remain the case following 11pm GMT on December 31, 2020 (when the effect of the European Union law in the United Kingdom may cease pursuant to the European Union (Withdrawal Agreement) Act 2020 and the European Union (Withdrawal) Act 2018.
No stamp duty should be payable on the acquisition or transfer of the beneficial ownership of the Class A common shares held by a nominee for a person whose business is or includes the provision of clearance services where that acquisition or transfer is settled within the clearance service and there is no physical instrument of transfer. An agreement for the transfer of such Class A common shares should also not give rise to a SDRT liability, provided that no election has been made under section 97A of the United Kingdom Finance Act 1986 which is applicable to such Class A common shares. We understand that no such election has been made by the Depository Trust Company as with respect to the Class A common shares.
Any instrument of transfer of the Class A common shares that are not held by a nominee for a person whose business is or includes the provision of clearance services will generally attract stamp duty at a rate of 0.5% of the amount or value of the consideration for the transfer (rounded up, if necessary, to the next multiple of £5). No stamp duty is chargeable on an instrument transferring shares where the amount or value of the consideration is £1,000 or less, and it is certified on the instrument that the transaction effected by the instrument does not form part of a larger transaction or series of transactions for which the aggregate consideration exceeds £1,000. An unconditional agreement for such transfer, or a conditional agreement which subsequently becomes unconditional, will also generally be liable to SDRT at the rate of 0.5% of the amount or value of the consideration for the transfer, but such liability will be cancelled if the agreement is completed by a duly stamped instrument of transfer within six years of the date of the agreement, or if the agreement was conditional, the date the agreement became unconditional. Where stamp duty is paid, any SDRT previously paid should be repaid on the making of an appropriate claim generally with interest.
Therefore, a transfer of title in the Class A common shares or an agreement to transfer such shares from within the Depository Trust Company system out of the Depository Trust Company system, and any subsequent transfers or agreements to transfer outside the Depository Trust Company system, will generally attract a charge to United Kingdom stamp duty and/or United Kingdom SDRT at a rate of 0.5% of any consideration. Shareholders should note in particular that a redeposit of the Class A common shares into the Depository Trust Company system, including by means of a transfer into a depositary receipt system, will generally attract United Kingdom stamp duty and/or United Kingdom SDRT at the higher rate of 1.5%.
F. Dividends and Paying Agents
Not applicable.
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G. Statement by Experts
Not applicable.
H. Documents on Display
We file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits are available from http://www.sec.gov. In addition, shareholders may visit the Investors section of our website at www.torm.com or request a copy of our filings at no cost by writing or telephoning us at the following address:
TORM plc
Tuborg Havnevej 18
DK-2900 Hellerup, Denmark
Tel: 45 39 17 92 00
I. Subsidiary Information
Not applicable.

ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to Note 20—"Risks Associated with TORM's Activities" on pages 134-137 of our Annual Report 2019.

ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.
PART II

ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. | CONTROLS AND PROCEDURES

A. Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our controls and procedures are designed to provide reasonable assurance of achieving their objectives.
We carried out an evaluation under the supervision, and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15e under the Securities Act of 1934) as of December 31, 2019. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2019 to provide reasonable assurance that (1) information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
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There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
B. Management's Annual Report on Internal Control Over Financial Reporting
In accordance with Rule 13a-15(f) of the Exchange Act, the management of the Company is responsible for the establishment and maintenance of adequate internal controls over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposal of the Company's assets that could have a material effect on the financial statements. Management has performed an assessment of the effectiveness of the Company's internal controls over financial reporting as of December 31, 2019 based on the provisions of Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in 2013. Based on our assessment, management determined that the Company's internal controls over financial reporting were effective as of December 31, 2019 based on the criteria in Internal Control—Integrated Framework issued by COSO (2013).
C. Attestation Report of the Registered Public Accounting Firm
This annual report does not include an attestation report of the Company's registered public accounting firm because as an emerging growth company, we are exempt from this requirement.
D. Changes in Internal Control Over Financial Reporting
There were no material changes in the Company's internal control over financial reporting that occurred during the year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 16. | [RESERVED]

ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Mr. Göran Trapp, who serves as the Chairman of our Audit Committee, qualifies as an "audit committee financial expert" and that he is "independent" in accordance with SEC rules.

ITEM 16B. | CODE OF ETHICS

We have adopted a code of ethics, which we refer to as our Business Principles, which applies to all entities in the TORM Group and its employees (both shore-based and at sea), directors and officers. A copy of the Business Principles is filed herewith as Exhibit 11.1. We have also posted a copy of our Business Principles on our website at www.torm.com. We will provide any person, free of charge with a copy of our Business Principles upon written request to our offices at: Tuborg Havnevej 18, DK-2900 Hellerup, Denmark.
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ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

Reference is made to Note 4 —"Remuneration to Auditors Appointed at the Parent Company's Annual General Meeting" on page 120 of our Annual Report 2019 and to the "Audit Committee Report" on pages 71-75 of our Annual Report 2019.

ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the year ended December 31, 2019, no issuer or affiliate purchases of our equity securities were made.

ITEM 16F. | CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. | CORPORATE GOVERNANCE

Pursuant to an exception under Nasdaq New York listing standards available to foreign private issuers, we are not required to comply with many of the corporate governance practices followed by U.S. companies under the Nasdaq New York listing standards. Accordingly, we are exempt from many of Nasdaq New York's corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification of material non-compliance with Nasdaq New York corporate governance practices and the establishment and composition of an audit committee and a formal written audit committee charter. In connection with the listing of our Class A common shares on Nasdaq New York, we have certified to Nasdaq New York that our corporate governance practices are in compliance with, and are not prohibited by, English Law. Set forth below is a list of the significant differences between our current or potential corporate governance practices and Nasdaq New York standards applicable to listed U.S. companies.
Independence of Directors. Nasdaq New York requires that a U.S.-listed company maintain a majority of independent directors. Our Board of Directors consists of five directors, three of which are considered "independent" under Rule 10A-3 promulgated under the Exchange Act and under the rules of Nasdaq New York. Under English law and our Articles of Association, our Board of Directors is not required to consist of a majority of independent directors. Under the UK Corporate Governance Code, to which we are subject, a majority of our Board is required to be independent. However, the determination of independence is different from Nasdaq New York standards, and we may choose to deviate from this requirement in the future as long as we explain why we have done so in our annual report.
Remuneration Committee. Nasdaq New York requires that a listed U.S. company have a remuneration committee consisting only of independent directors. Under English law and our Articles of Association, our Remuneration Committee is not required to consist entirely of independent directors. The UK Corporate Governance Code requires this committee to be comprised of independent directors and that the chairman of the Board of Directors not chair the Remuneration Committee, but we may choose to deviate from these requirements in the future as long as we explain why in our annual report. Currently, our Chairman of the Board, Christopher H. Boehringer, is also chair of our Remuneration Committee. For more information, see "Corporate Governance – Statement of Compliance with the UK Corporate Governance Code" on page 68 of our Annual Report 2019.
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Audit Committee. Nasdaq New York requires, among other things, that a listed U.S. company have an audit committee comprised of three entirely independent directors. The UK Corporate Governance Code requires an audit committee to be comprised of three, or in the case of smaller companies, two, independent directors, but we may choose to deviate from this requirement in the future as long as we explain why in our annual report. Currently, our Audit Committee is comprised of our three independent directors.
Executive Sessions. Nasdaq New York requires that the independent directors of a U.S. listed company have regularly scheduled meetings at which only independent directors are present, or executive sessions. The UK Corporate Governance Code requires that our Chairman hold meetings with non-executive directors without the executives present and that, led by the senior independent director, the non-executive directors meet without the Chairman present at least annually to appraise the Chairman's performance and on such other occasions as are deemed appropriate.
Shareholder Approval of Securities Issuances. Nasdaq New York requires that a listed U.S. company obtain the approval of its shareholders prior to issuances of securities under certain circumstances. In lieu of this requirement, we have elected to follow applicable practices of England and Wales for authorizing issuances of securities, which generally require (i) shareholder approval (a) by ordinary resolution to grant the directors authority to allot shares and (b) by special resolution to grant the directors authority to allot shares free of pre-emption rights (which approvals have already been granted by shareholders pursuant to the Company's shareholders resolutions dated 15 March 2016); (ii) board approval and, in addition, (iii) particular board approval in certain circumstances specific to the Company including pursuant to articles 8 and 131 of the Company's articles of association, but these practices do not follow additional corporate governance guidelines that would apply to companies listed on the Main Board of the London Stock Exchange.
Shareholder Approval of Equity Compensation Plans. Nasdaq New York requires that shareholders be given the opportunity to vote on all equity-compensation plans and material amendments thereto, with limited exceptions for inducement awards, certain grants, plans and amendments in the context of mergers and acquisitions, and specific types of plans. In lieu of this requirement, we have elected to follow the applicable practices of England and Wales for authorizing such plans, which do not generally require shareholder approval (except (i) in certain circumstances not applicable to the Company or (ii) where the issue of shares, or right to subscribe for or agreement to issue shares, requires further shareholder approval pursuant to applicable law beyond the shareholder approvals currently existing pursuant to the Company's shareholder resolutions dated March 15, 2016). Certain plans also require certain special director approval requirements to be met pursuant to articles 131.3 and 131.4.4 of the Company's articles of association.
Corporate Governance Guidelines. Nasdaq New York requires U.S. companies to adopt and disclose corporate governance guidelines. The guidelines must address, among other things: director qualification standards, director responsibilities, director access to management and independent advisers, director compensation, director orientation and continuing education, management succession and an annual performance evaluation. The UK Corporate Governance Code requires the Company to report on its compliance with the UK Corporate Governance Code in accordance with the "comply or explain" principle. The Company's position with respect to compliance (or non-compliance) with the individual recommendations of the UK Corporate Governance Code is required to be disclosed in the Company's Annual Report and Accounts. In addition, the Company includes on its website a detailed analysis of its compliance (or non-compliance) with the UK Corporate Governance Code in its corporate governance statement.
Directors' Remuneration Reports. Under Section 420(1) of the UK Companies Act, we are required to produce a directors' remuneration report for each fiscal year. The Directors' remuneration reports must include (i) a directors' remuneration policy, which is subject to a binding shareholder vote at least once every three years and (ii) an annual report on remuneration in the financial year being reported on, and on how the current policy will be implemented in the next financial year, which is subject to an annual advisory shareholder vote. The UK Companies Act requires that remuneration payments to directors of the Company and payments to them for loss of office must be consistent with the approved directors' remuneration policy or, if not, must be specifically approved by the shareholders at a general meeting.
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Disclosure of Third Party Director and Nominee Compensation. Nasdaq New York requires U.S. companies to disclose the material terms of all agreements and arrangements between any director or nominee for director, and any person or entity other than the Company (a “Third Party”), relating to compensation or other payment in connection with such person’s candidacy or service as a director of the Company, except for such agreements and arrangements that (i) relate only to reimbursement of expenses in connection with candidacy as a director; (ii) existed prior to the nominee’s candidacy and the nominee’s relationship with the Third Party has been publicly disclosed in certain filings under the Exchange Act; or (iii) have been disclosed in certain other filings applicable to domestic issuers. Under the UK Companies Act, directors have a statutory duty not to accept benefits from third parties conferred by reason of (a) his or her being a director or (b) his or her doing (or not doing) anything as a director. However, as this is a general statutory duty of the directors, the Company may give authority for the receipt of benefits from third parties which would otherwise be a breach of duty. Such benefits would have to be consistent with the approved directors’ remuneration policy or, if not, would need to be specifically approved by the shareholders at a general meeting. Directors additionally have a statutory duty to avoid conflicts of interest under the UK Companies Act and should declare any interests in agreements or arrangements which could give rise to such conflict so that non-conflicted directors can make judgment as to whether a conflict has arisen and/or authorize such conflict.
Director Nominations. Nasdaq New York requires that director nominees to U.S. companies’ boards of directors be selected or recommended either by the vote of the board’s independent directors or by a nomination committee comprised solely of independent directors. In accordance with UK law and our Articles of Association, our Nomination Committee, which is required to be composed of a majority of independent non-executive directors, identifies individuals qualified to become members of the Board of Directors and recommends nominees for election as members of the Board of Directors at the Company’s Annual General Meeting of Shareholders or to fill vacancies, as needed.
Proxy Solicitation. Nasdaq New York requires U.S. companies to solicit proxies from and provide proxy statements to shareholders for all shareholder meetings and to provide copies of proxy solicitation materials to Nasdaq New York. As a foreign private issuer, we are not required to follow Nasdaq New York’s proxy solicitation rules, and consistent with UK law and our Articles of Association, we will notify our shareholders of meetings between 14 and 28 days prior to the meeting date. The notification will contain, among other things, information regarding business to be transacted at the meeting.

ITEM 16H. | MINE SAFETY DISCLOSURE

Not applicable.
PART III

ITEM 17. | FINANCIAL STATEMENTS

See “Item 18. Financial Statements.”

ITEM 18. | FINANCIAL STATEMENTS

The financial statements required by this item accompany this annual report in the form of our Annual Report 2019 (see Item 19).

ITEM 19. | EXHIBITS

Annual Report
The following pages from our Annual Report 2019, furnished to the SEC on Form 6-K, dated March 11, 2020, are incorporated by reference into this annual report on Form 20-F. The content of quotations, websites and other sources referenced on these pages of the Annual Report 2019 are not incorporated by reference into this Form 20-F.
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Section |  | Page(s) in the Annual Report 2019
Key Figures |  | 9
The Year in Review |  | 11-13
Outlook 2020 |  | 14-16
Strategic Ambition and Business Model |  | 19-21
TORM Fleet Overview |  | 157-159
Value Chain in Oil Transportation |  | 22
The Product Tanker Market |  | 23-27
Financial Review 2019—Liquidity and Cash Flow; Assessment of Impairment of Assets; Primary Factors Affecting Results of Operations |  | 41, 45
Corporate Governance—Board Committees |  | 67
Board of Director Committee Reports |  | 71-90
Investor Information—Changes to the Share Capital; Distribution Policy |  | 91, 92
Directors' Report—Share Capital |  | 94-96
Glossary |  | 160-165
Alternative Performance Measures |  | 162-165

Index to Audited Consolidated Financial Statements

Section |  | Page(s) in the Annual Report 2019
Consolidated Income Statement for the years ended December 31, 2019, 2018 and 2017 |  | 101
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017 |  | 101
Consolidated Balance Sheet as of December 31, 2019 and 2018 |  | 102
Consolidated Statements of Changes in Equity as of December 31, 2019, 2018 and 2017 |  | 103-104
Consolidated Cash Flow Statement for the years ended December 31, 2019, 2018 and 2017 |  | 105
Notes to the Consolidated Financial Statements |  | 106-142

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List of Exhibits

1.1 | Memorandum and Articles of Association(1)
2.1 | Form of Class A Common Share Certificate(1)
2.2 | B Share Minority Trust Deed, dated May 30, 2016(1)
2.3 | Equity Warrant Instrument, dated March 15, 2016(1)
2.4 | Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
4.1 | TORM plc 2017 Management Long-Term Incentive Plan(1)
4.2 | TORM plc 2018 Management Long-Term Incentive Plan(3)
4.3 | TORM plc 2019 Management Long-Term Incentive Plan
8.1 | List of Subsidiaries
11.1 | TORM's Business Principles(2)
12.1 | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
12.2 | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
13.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1 | Consent of Independent Registered Public Accounting Firm
101.INS | XBRL Instance Document
101.SCH | XBRL Taxonomy Extension Schema
101.CAL | XBRL Taxonomy Extension Schema Calculation Linkbase
101.DEF | XBRL Taxonomy Extension Schema Definition Linkbase
101.LAB | XBRL Taxonomy Extension Schema Label Linkbase
101.PRE | XBRL Taxonomy Extension Schema Presentation Linkbase

(1) Filed as an exhibit to the Company's Registration Statement on Form 20-F (Registration No. 001-38294) on November 24, 2017, as amended, and incorporated by reference herein.
(2) Filed as an exhibit to the Company's Annual Report filed on Form 20-F on March 8, 2018, and incorporated by reference herein.
(3) Filed as an exhibit to the Company's Annual Report filed on Form 20-F on March 12, 2019, and incorporated by reference herein.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of TORM plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of TORM plc and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated income statements, statements of comprehensive income, statements of changes in equity and cash flow for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Deloitte
Statsautoriseret Revisionspartnerselskab
CVR no: 33963556
/s/ Kim Takata Mücke
State Authorised
Public Accountant
Copenhagen, Denmark
March 11, 2020
We have served as the Company's auditor since 1994.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.

| TORM PLC |
| By: | /s/ Jacob Meldgaard |
|  | Name: Jacob Meldgaard |
|  | Title: Executive Director and Principal Executive Officer |

Date: March 11, 2020
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