“TORM A/S is in a very difficult situation”

“TORM A/S is in a very difficult situation”

– TORM A/S is in a very difficult situation at the release of the 2011 Annual Report, as the deterioration in the global economy and excess tonnage capacity severely impact the product tanker freight market for the third year running. Therefore, TORM A/S is pursuing a long-term comprehensive financing solution that will enable the Company to operate efficiently through the global crisis and restore profitability. This is possible if a sequence of preconditions are met. We hope that TORM and its important stakeholders reach a clarification shortly. As a consequence of the situation we have highlighted the uncertainty in the statement by management, says Chairman of the Board, N.E. Nielsen.

Excerpts from the report:

In 2011, the Company incurred a loss before tax of USD 451 million. The result is unsatisfactory and impacted by an impairment loss of USD 200 million and a net loss from sale of vessels of USD 53 million.

Throughout 2011, the Tanker Division’s earnings were negatively impacted by low freight rates. The global product tanker market was marked by the continued tonnage influx in 2011.

The dry bulk freight rates were under pressure, and volatility prevailed during 2011.

As of 31 December 2011, cash and cash equivalents amounted to USD 86 million and undrawn credit facilities to USD 53 million.

As of 31 December 2011, outstanding CAPEX relating to the order book amounted to USD 82 million.

In accordance with IFRS, TORM has tested the carrying amount of its assets to determine if there is any impairment as of 31 December 2011. As a consequence, TORM has recognized an impairment loss of USD 200 million, which is related to tanker fleet values (USD 187 million) and the investment in FR8 (USD 13 million). Based on brokers’ valuations, TORM’s fleet including the order book had a market value of USD 1,797 million as of 31 December 2011. This is USD 612 million less than the impaired book value.

As of 31 December 2011, equity amounted to USD 644 giving TORM an equity ratio of 23%. Thereby, the Company was in breach on its financial covenant relating to an equity ratio of minimum 25% as of 31 December 2011. Accordingly, the Company’s mortgage debt and bank loans have been reclassified as current liabilities.

As of 31 December 2011, 14% of the total earning days in the Tanker Division for 2012 had been covered at USD/day 15,002 and 87% of the total earning days in the Bulk Division at a rate of USD/day 13,906.

The financial result for 2012 is subject to considerable uncertainty given TORM’s situation and the changes to the Company’s business model that may follow. Consequently, TORM has decided not to provide earnings guidance for 2012 before a long-term comprehensive financing solution is in place.