d977006_ex-1.htm

TABLE OF CONTENTS

	6		Introduction
	8		Five years key figures
	9		2008 highlights
	10		Outlook for 2009
	16		Tanker Division
	20		Tanker Division – Supply and demand
	22		Bulk Division
	24		Bulk Division – Supply and demand
	26		Human Resources
	28		TORM’s Strategy 2008-2010
	30		CSR – Corporate Social Responsibility
	34		Managing risk and exposure
	42		Corporate governance
	48		Shareholder relations
	54		Financial review
	59		Consolidated income statement
	60		Consolidated balance sheet
	62		Consolidated statement of changes in equity
	63		Consolidated cash flow statement
	64		Notes
	96		Board of Directors and Management
	100		Management’s and auditors’ report
	102		Parent company
	109		Glossary
	110		Fleet overview
	111		Newbuildings

BASIC INFORMATION

Name and address: A/S Dampskibsselskabet TORM • Tuborg Havnevej 18 • DK-2900 Hellerup • Denmark• Tel.: +45 3917 9200 • www.torm.com

Founded:1889 • CVR: 22460218• Board of Directors: N. E. Nielsen (Chairman) • Christian Frigast (Deputy Chairman) • Peter Abildgaard (elected by the employees) • Lennart Arrias (elected by the employees) • Margrethe Bilgaard (elected by the employees) • Bo Jagd • Gabriel Panayotides • E. Michael Steimler • Stefanos-Niko Zouvelos • Management: Mikael Skov, CEO • Roland M. Andersen, CFO.

2008 was yet another good year for TORM; we achieved the best operating profit in the Company’s history. Naturally, the forecast for 2009 is affected by the global recession and the economic downturn, but the Company’s position and launched initiatives support our ability to navigate under the more challenging market conditions in 2009.

With a profit before tax of USD 360 million, 2008 was another highly satisfactory year for TORM. This performance is in line with the latest forecast of USD 355-370 million. The earnings of the Company’s product tankers were positively affected by better than expected market conditions, and our increased focus on optimizing our capacity utilization meant that vessels often had cargoes onboard on their return voyage. Freight rates for the Company’s bulk carriers were very volatile again in 2008. In May, freight rates reached a historical high, peaking at USD/day 90,000 for a Panamax vessel. Subsequently, in the fourth quarter freight rates collapsed, ending the year at USD/day 4,000 - the lowest level in ten years. Earnings for TORM’s bulk carriers for 2008 were in line with the expectations at the beginning of the year. At the beginning of 2008, TORM’s Board of Directors approved a new and very ambitious, yet realistic, strategy plan, “Greater Earning Power 2.0”, for the period 2008-2010. This strategy plan will naturally be maintained, but adjusted to fit the significantly changed market conditions, which we estimate will provide TORM with other very positive opportunities. TORM’s strategic focus on consolidation of the product tanker segment is thus unchanged, and we are happy to note that this strategy proved its strength and worth in 2008.
TORM is a financially strong company, and we are therefore well prepared for a period of more challenging market conditions. To exploit the synergies we obtained with the acquisition of OMI, we embarked on a major efficiency improvement programme towards the end of 2008. When fully implemented at the end of 2009, the programme is expected to cut costs by USD 40-60 million annually. During the financial crisis, minimizing counterparty risk has become an increasingly important element in the shipping industry, and TORM was able to verify that the Company’s counterparty risk policy is effective. In connection with the acquisition of OMI in 2007, TORM obtained a 1-year bridging loan facility. The loan facility of USD 700 million terminated in April 2008 and was repaid accordingly. To replace the repaid bridging loan, a 5-year loan facility of USD 900 million was established. Simultaneously, a loan facility of USD 150 million was secured for TORM Singapore’s activities in order to further enhance the Company’s cash resources. More than 60% of the Company’s total debt is due after 2012.		As a result of the Company's long-term funding policy, our 20 vessels on order are funded. In 2008, vessels from all over the world fell victim to an increasing number of pirate attacks in the Gulf of Aden. Consequently, TORM and our pool partners have introduced special security rules for passage through the Gulf of Aden. Together with the Danish Shipowners’ Association, Intertanko and the IMO, TORM has attempted to create awareness of the gravity of the situation. The Company is focusing on the security risks facing crews and vessels, and we will continue our efforts to obtain political support for a solution at sea and a more long-term campaign on shore.

The Board of Directors and the Management consider the 2008 result as highly satisfactory and recommend, subject to the approval at the Annual General Meeting, that a dividend of DKK 4.00 (USD 0.76) per share be paid, corresponding to a total dividend payment of DKK 291 million (USD 55 million). The dividend must be compared to the fact that in December 2008 the Company proposed an extraordinary interim dividend of DKK 4.50 per share, which was paid at the end of the year. TORM’s success is rooted in the Company’s fundamental values: • Entrepreneurship • Professionalism • Respect These values are the basis for responsibility being an integral part of TORM’s business. During the year, the Company therefore prepared a CSR strategy to focus on how to practically ensure that our commercial results are achieved in accordance with our values and the increasing the focus among community and customers on quality, security, environment and ethics.

After 32 years with the Company, former CEO Klaus Kjærulff resigned in the autumn of 2008 to devote himself to new business challenges. The Company has employed a new CEO. 2009 will be a very different year than the previous years. TORM’s focused strategy, our values and a great focus on CSR combined with a volatile market, new risks and significantly more efficient organisation and work processes will have to prove their strength and form the foundation for TORM to expand its position as one of the world’s leading product tanker companies. Already at 1 March 2009, approximately 50% of the earnings for the year were known. At the beginning of 2009, earnings were in line with expectations. For 2009, the forecast profit before tax is USD 100-140 million.		The Board of Directors and Management would like to thank all employees on land and ashore for yet another exciting and profitable year. Our performance is mainly a result of your efforts and support for our strategy and the adherence to the Company’s fundamental values. TORM would also like to thank our 15,500 shareholders for their great support and the interest they have taken in TORM through the year.

FIVE YEARS KEY FIGURES

USD million

INCOME STATEMENT	2008	2007	2006	2005	2004
Revenue	1,184	774	604	586	442
Time charter equivalent earnings (TCE)	906	604	454	464	350
Gross profit	538	334	270	315	240
EBITDA	572	288	301	351	215
Operating profit	446	199	242	303	179
Financial items	-86	605	-1	-4	26
Profit/(loss) before tax	360	804	241	299	205
Net profit for the year	361	792	235	299	187

BALANCE SHEET
Non-current assets	2,913	2,703	1,970	1,528	1,056
Total assets	3,317	2,959	2,089	1,810	1,240
Equity	1,279	1,081	1,281	905	715
Total liabilities	2,038	1,878	808	905	524
Invested capital	2,822	2,618	1,300	1,176	618
Net interest bearing debt	1,550	1,548	663	632	272
Cash and bonds	168	105	32	157	124
CASH FLOW
From operating activities	385	188	232	261	228
From investing activities,	-262	-357	-118	-473	-187
thereof investment in tangible fixed assets	-378	-252	-246	-636	-187
From financing activities	-59	242	-239	303	-3
Total Net cash flow	63	73	-125	91	38
KEY FINANCIAL FIGURES *)
Gross margins:
TCE	76.5%	78.0%	75.2%	79.2%	79.2%
Gross profit	45.4%	43.2%	44.7%	53.8%	54.3%
EBITDA	48.3%	37.2%	49.8%	59.9%	48.6%
Operating profit	37.7%	25.7%	40.1%	51.7%	40.5%
Return on Equity(RoE)	30.6%	67.1%	21.5%	36.9%	33.1%
Return on Invested capital (RolC) **)	16.4%	10.2%	19.5%	33.8%	31.0%
Equity ratio	38.6%	36.5%	61.3%	50.0%	57.7%
Exchange rate USD/DKK, end of period	5.28	5.08	5.66	6.32	5.47
Exchange rate USD/DKK, average	5.09	5.44	5.95	6.00	5.99
SHARE RELATED KEY FIGURES *)
Earnings per share, EPS (USD)	5.2	11.4	3.4	4.3	2.7
Diluted earnings per share, EPS (USD)	5.2	11.4	3.4	4.3	2.7
Cash flow per share, CFPS (USD)	5.6	2.7	3.3	3.7	3.3
Proposed dividend per share (USD) ***)	0.76	0.89	1.02	1.82	1.37
Proposed dividend per share (DKK)	4.00	4.50	5.75	11.50	7.50
Extraordinary dividend per share (DKK)	4.50	27.50	0.00	0.00	0.00
Share price in DKK, end of period (per share of DKK 5 each)	55.5	178.2	186.0	152.6	112.9
Number of shares, end of period (million)	72.8	72.8	72.8	72.8	72.8
Number of shares (excl. treasury shares), average (million)	69.2	69.2	69.4	69.7	69.6

*)	Key figures are calculated in accordance with recommendations from the Danish Society of Financial Analysts. the comparative figures are restated to reflect the change in the denomination of the Company’s shares from DKK 10 per share to DKK5 in May 2007.

**)	Return on Invested Capital. Defined as: Operating profit divided by average Invested capital, defined as average of beginning and ending balances of (Shareholders’ equity plus Net interest bearing debt less Non-operating assets).

***)	Proposed dividend per share has been translated to USD using the USD/DKK exchange rate at year end for the year in question.

2008 HIGHLIGHTS

2008 gave TORM the best operational profit in the Company’s history. A better product tanker market than expected and a better utilisation of the vessels contributed to a highly satisfactory result. In the last part of 2008, the Company has been preparing to steer through the difficult market conditions caused by the slowdown in the world economy.

● The profit before tax for the year was USD 360 million, which is in line with the latest guidance of 355-370 million. the Board of Directors considers the profit to be very satisfactory. ● The total cash flow was USD 63 million of which cash flow from operating activities was USD 385 million, cash flow from investing activities USD -262 million and cash flow from financing activities USD -59 million. ● As of 31 December 2008, equity amounted to USD 1,279 million (DKK 6,753 million), corresponding to USD 18.5 per share (DKK 97.5) excluding treasury shares.
● The market value of the Company’s fleet as of 31 December 2008 exceeded the book value by USD 367 million, corresponding to USD 5.3 per share (DKK 28.0) excluding treasury shares. At the end of 2008, the Company owned 65 vessels, 59 of which were product tankers and six bulk carriers. By the end of 2008, TORM had 20 vessels on order and had exercised one purchase option. ● Return on Invested capital (RoIC) was 16.4% and Return on Equity (RoE) was 30.6%. ● TORM’s strategy plan “Greater Earning Power 2,0”, which was approved in January 2008, is expected to be adapted to the global economic development maintaining TORM’s ambitions and strategic focus. ● In 2008, TORM initiated a CSR project where the main focus areas are climate, working environment and human and labour rights. In February 2009, TORM has committed itself to comply with UN Global Compact. ● In March 2008, TORM acquired 50% of the shipping company FR8 at a price of USD 125 million. FR8 contributed positively to TORM’s net profit with USD 27 million. ● Following the integration of OMI, at the end of 2008 the Company has launched a comprehensive efficiency programme focusing on standardization of processes, better utilization of the IT platform, an improved level of vessel operating expenses as well as optimization of the Company’s global land-based setup. Once it is fully implemented at the end of 2009, the programme is expected to contribute with annual cost savings of USD 40-60 million, corresponding to 15- 20%.		● As of 31 December 2008, TORM had unused credit facilities and cash of approximately USD 675 million. More than 60% of the Company’s debt is due after 2012. ● As of 1 March 2009, TORM had covered approximately 38% of the remaining earning days in 2009. ● The forecasted profit before tax for 2009 is USD 100-140 million. Given the global recession there is considerable uncertainty around the forecast. ● The Board of Directors recommends, subject to the approval at the Annual General meeting, that a dividend of DKK 4.00 (USD 0.76) per share be paid, corresponding to a total dividend payment of DKK 291 million (USD 55 million) and equivalent to a return of 7.2% in relation to the closing price of the company’s shares on the last business day of 2008. Including the extraordinary dividend of DKK 4.50 (USD 0.84) per share paid out in December 2008, the accumulated dividend for 2008 was 32% of the net profit equivalent to DKK 619 million (USD 117 million).

OUTLOOK FOR 2009

For 2009, TORM expects a profit before tax of USD 100- 140 million. TORM’s financial results primarily depend on the number of earning days and the developments in freight rates. As of 1 March 2009, 42% of the remaining earning days in the tanker Division for 2009 had been covered at an average rate of USD/day 21,989 vs. 47% at an average of USD/day 21,470 at the same time in 2008. As of 1 March 2009, 17% of the remaining earning days in the bulk Division for 2009 had been covered at an average rate of USD/day 15,170 vs. 74% at an average of USD/day 45,706 at the same time in 2008. The financial expenses in relation to the Company’s interest-bearing debt depend on the size of the debt and the rate of interest. As of 31 December 2008, the interest-bearing debt totaled USD 1,723 million, of which 60% carried interest at an average rate of 4.1% including the margin. In order to exploit the synergies from the acquisition of OMI, TORM embarked on a major efficiency improvement programme. the programme will focus on the fact that TORM is a global company where standardization of		processes and better exploitation of IT tools and human resources in the offices as well as in the operation of vessels is crucial and will result in savings and prepare TORM for the expected growth in the coming years. When fully implemented at the end of 2009, the programme is expected to cut costs by approximately USD 40-60 million annually, corresponding to 15-20%. Expectations for 2009 are greatly impacted by the global recession and the global economic downturn, and the forecast is therefore subject to significant uncertainty. For 2009, the external factors considered to have the greatest influence on TORM’s earnings are: ● Global economic trends. ● A potential financial collapse of major business partners. ● Global capital market. ● Oil trader activity and the development of ton/mile. ● Consumption of refined oil products. ● Transport of commodities, mainly to Asia, in particular iron ore, coal and grain. ● The US economy. ● Additions and scrapping of vessels. ● One-off events such as strikes, political instability in the oil-exporting countries, weather conditions, shut-down of refineries, etc.

● Potential national or international interventions against shipping companies’ energy consumption or CO2 emissions. As of 31 December 2008, TORM had hedged approximately 12.5% of the expected bunker consumption for 2009. The market value of this hedge was USD -44 million, which was included in the equity. The below chart shows the effect that variations in the expected freight rates for product tankers as well as bulk will have on the full year pre-tax profit for 2009. At a change in freight rates of USD/day 1,000, the impact equates to USD 20.4 million. The estimate is based on the fact that 20,372 earning days in 2009 have not already been chartered out at fixed rates.
SAFE HARBOUR STATEMENT – FORWARD LOOKING STATEMENTS Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect our current views with respect to future events and financial performance and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The forward-looking statements in this release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although TORM believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, TORM cannot assure you that it will achieve or accomplish these expectations, beliefs or projections. Important factors that, in our view, could cause actual results to differ materially from those discussed		in the forward-looking statements include the strength of world economies and currencies, changes in charter hire rates and vessel values, changes in demand for “tonne miles” of crude oil carried by oil tankers, the effect of changes in OPEC’s petroleum production levels and worldwide oil consumption and storage, changes in demand that may affect attitudes of time charterers to scheduled and unscheduled dry-docking, changes in TORM’s operating expenses, including bunker prices, dry-docking and insurance costs, changes in governmental rules and regulations including requirements for double hull tankers or actions taken by regulatory authorities, potential liability from pending or future litigation, domestic and international political conditions, potential disruption of shipping routes due to accidents and political events or acts by terrorists. Risks and uncertainties are further described in reports filed by TORM with the US Securities and Exchange commission, including the TORM Annual report on Form 20-F and its reports on Form 6-K. See page 34 in the Annual report.

OUTLOOOK

- TANKER DIVISION

TORM expects the rates for the Company’s SR, MR and LR1 product tankers to be approximately 10-15% lower in 2009 than in 2008. Earnings of LR2 product tankers, which were very high in 2008, are expected to drop approximately 20-25% in 2009. The lower earnings are mainly explained by declining demand as a result of the global recession and the record addition of product tankers in 2009. As in previous years, TORM has decided not to announce its forecast of specific freight rates and instead chooses to state the market expectations as of 1 March 2009. As of 1 March 2009, TORM had covered approximately 42% of the remaining earning days in 2009 at an average rate of USD/day 21,989, which ensures reasonable earnings for the Tanker Division. The following factors will affect the freight rate developments:
TONNAGE SUPPLY ● The global product tanker fleet will be expanded as a result of a record newbuilding order book for delivery in 2009. An addition of approximately 18%, or 321 product tankers, is expected in the business areas in which TORM operates (source: Inge Steensland AS Shipbrokers). ● The phase out of vessels in 2009 is expected to be limited. on the other hand, a significant number of vessels are expected to be re-cycled in 2010, when all single-hulled vessels must be phased out. ● The global recession has made it difficult to finance newbuildings and, as a result, shipyards as well as shipping companies have cancelled newbuilding orders. In TORM’s assessment, the cancellation of newbuildings will reduce the product tanker order book by some 10-15% for the period to 2011. this assessment is subject to considerable uncertainty, however.		TONNAGE DEMAND ● Energy Information Administration (EIA) expects a decrease in global oil consumption of approximately 1.4% in 2009, relative to an increase of 0.1% in 2008. ● Transport of refined oil products by sea is expected to drop by 1.7% in 2009 (source: MSI). By comparison, transport of such products rose by 1.3% in 2008. Total transport of oil by sea (crude and refined oil products) rose by 4.4% in 2008, but is expected to drop by 2.7% in 2009. ● US gasoline consumption is expected to decline by approximately 1.0% in 2009, against a decline of approximately 3.4% in 2008 (source: EIA). ● The increase in refinery capacity in India and the Middle East up to 2012 will significantly exceed the immediate consumption in these areas, and as a result a sharp increase in exports of refined oil products is expected. This will have a positive impact on the product tanker market. ● Increased transport of different qualities of the same type of refined oil products, e.g. imports in Europe of refined oil products with a low sulphur content and exports of refined oil products with a high sulphur content from Europe.

HEDGING IN THE TANKER DIVISION AS OF MARCH 2009	2009	Total days 2010	2011	2009	Days covered 2010 2011
LR2	4,743	5,474	4,563	1,085	524 321
LR1	6,482	7,770	6,909	3,115	1,200 730
MR	12,922	17,464	17,885	5,285	3,175 641
SR	3,917	4,015	4,015	2,361	1,183 -
Total	28,064	34,723	33,372	11,846	6,081 1,693
		Covered in %			Covered in USD/day
	2009	2010	2011	2009	2010 2011
LR2	23%	10%	7%	30,947	31,905 32,817
LR1	48%	15%	11%	23,943	19,981 18,598
MR	41%	18%	4%	21,176	21,269 21,163
SR	60%	29%	-	17,275	18,076 -
Total	42%	18%	5%	21,989	21,269 22,511
EXPECTED TCE RATES IN THE FORWARD CONTRACT MARKET FOR THE PRODUCT TANKER MARKET AS OF MARCH 2009	2008			2009
USD/day	Realized		Q1	Q2	Q3 Q4
LR2	35,243		–	–	– –
LR1	24,204		19,500	21,000	22,000 24,000
MR	23,721		16,000	17,000	17,000 17,500
SR	21,135		–	–	– –
There is no efficient forward SWAP market for LR2 and SR vessels.					Source: IMAREX

OUTLOOK

-BULK DIVISIONS

Freight rates for bulk carriers were very volatile in 2008. In May, the market reached an all-time high with freight rates peaking at USD/day 90,000 for a Panamax vessel. As a consequence of the global economic downturn, freight rates subsequently collapsed in the fourth quarter, ending the year at USD/day 4,000 – the lowest level in ten years. At 1 March 2009, freight rates for Panamax bulk carriers were USD/day 12,329. As in previous years, TORM has decided not to announce its forecast of specific freight rates and instead chooses to state the market expectations as of 1 March 2009. As of 1 March, TORM had covered approximately 17% of the remaining earning days in 2009 for its Panamax vessels at an average rate of USD/day 15,170. As a result of the collapse of the freight market and in order to minimize the Company’s counterparty risk, TORM has negotiated to have four Panamax bulk carriers prematurely re-delivered to TORM from long-term contracts. In compensation for the re-deliveries, TORM has received USD 26 million, which are recognised as income in the first quarter of 2009.		The collapse in bulk carrier freight rates has caused TORM to intensify the risk assessment of potential customers’ ability to meet their contractual obligations. Subject to the individual assessments and the state of the freight market in general, TORM maintains its strategy of hedging a significant part of its exposure by chartering out vessels on long-term contracts of typically one to two years’ duration. The bulk market will remain dependent on global economic trends. However, freight rates will depend particularly on economic growth in China, and thus the Chinese consumption of steel and coal. As a result of the global economic downturn, bulk transportation is expected to a 4% decline from 2008 to 2009 (source MSI). Moreover, freight rates will be affected by the net increase in the global fleet in 2009, when newbuildings as well as re-cyclings are expected to rise sharply. A net 13% addition of bulk carriers in 2009 compared to 2008 is expected (source: Fearnleys).

HEDGING IN THE BULK DIVISION AS OF 1 MARCH 2009		Total days		Days covered
	2009	2010	2011	2009 2010	2011
Panamax	5.012	6.196	7.454	858 69	-

		Covered in %		Covered in USD/day
	2009	2010	2011	2009 2010	2011
Panamax	17	1	-	15,170 15,211	-
TCE RATES IN THE FORWARD CONTRACT MARKET FOR THE BULK MARKET AS OF 1 MARCH 2009	2008			2009

TCE rates (USD/day)	Realized		Q1	Q2 Q3	Q4
Panamax	44,012		13,678	14,165 13,065	13,350

Source: IMAREX

TANKER DIVISIONS

In 2008, the Tanker Division posted the highest earnings in the history of the Company. This despite a volatile market in 2008 characterized by ups as well as downs, affected by the global economic downturn.

Despite the downturn of the global economy, the Company’s product tanker earnings for 2008 proved considerably better than was expected at the beginning of the year, and the operating profit of USD 215 million is highly satisfactory. In the first quarter, earnings were below expectations. This was mainly due to increasing fuel costs and weaker demand, owing to a mild winter on the east coast of the USA with a resulting decline in fuel consumption for heating. In the second quarter, the demand for tonnage was higher, and freight rates therefore rose more than expected. The enhanced market conditions could mainly be ascribed to a strong crude oil transport market and increased demand for naphtha in the Far East for the benefit of the company’s LR2 vessels.		At the beginning of the third quarter, freight rates for the large LR1 and LR2 vessels rose further, mainly as a result of increased demand for gas oil and diesel fuel in Europe. This led to more cargoes from Japan and South Korea, which meant increasing transport distances for the large LR1 and LR2 vessels. Rates for the smaller MR and SR vessels remained at the high level seen in the second quarter. In the fourth quarter, the product tanker market felt the decline in the global economy as demand for refined oil products dropped. the demand for naphtha, a raw material used in plastics production, dropped considerably in the second half of 2008. This reduced the transport requirements, causing product tanker rates to decline.

Earnings in 2008 were significantly higher for the large LR1 and LR2 vessels than for the smaller MR and SR vessels. As the oil price rose to record highs of just under USD 150 per barrel in the second and third quarters, fuel prices followed. As a result, TORM and other shipping companies reduced the speed of their vessels, thereby reducing fuel consumption as well as the supply of tonnage available globally, which in turn helped push up rates. At the end of 2008, rates fell back as a result of lower demand, but as fuel prices also fell in line with the declining oil price, the overall impact of the lower rates on earnings was limited. ACQUISITIONS In January 2008, TORM acquired 50% of the shipping company FR8 Holdings Pte. Ltd. from the international oil trader Projector. In 2008, the FR8 Group, with offices in Singapore, London and Veracruz, Mexico earned a very satisfactory profit of USD 52 million. The purpose of the acquisition was to gain access to oil cargoes from Projector and FR8. Also, TORM could obtain greater knowledge of the parameters regulating the demand for refined oil products. Projector went into liquidation in the second half of 2008, and TORM is now working on finding a solution which ensures the Company the same strategic opportunities.		ORGANIZATION In 2008, TORM’s tanker Division focused on implementing a new organizational structure to ensure that customers will always be able to easily contact a TORM employee at one of the offices in Denmark, India, Singapore or the USA. The new structure, internally known as ’Rolling Authority’, means that it should always be possible to make a decision immediately in “real time”. this initiative has been well received by TORM’s customers and has strengthened the Company’s market position. The positive response from customers and the increased responsibility have also enhanced the employees’ job satisfaction.

TANKER DIVISION

ACQUISITION AND DISPOSAL OF VESSELS In 2008, TORM took delivery of five product tankers; three LR2 product tankers from Dalian Shipbuilding Industry and two MR product tankers from Guangshou Shipyard International (GSI). In addition, TORM placed an order for four MR product tankers with GSI. TORM sold two MR product tankers in 2008 at a total price of USD 99 million, making a profit of USD 31 million.		Prices of second-hand product tankers rose 3-5% during the first half of 2008. Towards the end of the year, turnover in second-hand product tankers came to a halt, and the overall level of activity dropped 25% year on year. In 2008, second-hand product tanker prices fell approximately 15% for modern tonnage and approximately 30% for older tonnage compared to 2007
In 2008, TORM signed an agreement to charter-in ten product tankers for a total minimum period of 43 years. At year end, TORM owned 59 product tankers and had contracted 16 newbuildings for delivery up to 2012. In addition, the Company has in 2009 chartered an average of 22.3 product tankers at an average of USD/day 19,876. Also, the Company has purchase options for four product tankers, which can be exercised from 2009. The newbuilding market was very active in the first half of 2008, and newbuilding prices consequently rose some 5% during this period. there was very little chance of securing deliveries before 2012. Towards the end of the year, the market turned, however, and newbuilding prices ended the year down 10-20% from the beginning of the year.

VESSELS CHARTERED IN	2009	2010	2011	2012	2013

Days
LR2	537	380	-	-	-
LR1	4,177	4,882	4,228	3,375	2,433
MR	2,719	3,285	3,254	2,672	2,657
SR	700	30	-	-	-

Rate USD/day
LR2	25,459	24,615	-	-	-
LR1	20,524	22,137	22,620	22,818	23,666
MR	17,105	17,272	17,177	16,426	16,424
SR	22,500	22,500	-	-	-

Options
LR2	-	-	-	-	-
LR1	0.5	-	0.5	-	-
MR	-	-	-	1	-
SR	-	-	-	-	-

Average option price (USD million)
LR2	-	-	-	-	-
LR1	34.6	-	31.6	-	-
MR	-	-	-	38.4	-
SR	-	-	-	-	-


For further information, please refer to notes 20 and 21 on page 84 and 85.

POOL PARTNERS AS OF 31 DECEMBER 2008

POOL MANAGER	LR2	LR1	MR
LR2: A.P. Møller-Mærsk/TORM	A.P. Møller-Mærsk	Gotland Shipping (Bahamas) Ltd.	Gotland Shipping (Bahamas) Ltd.
LR1: TORM	Gotland Shipping (Bahamas) Ltd.	Nordan Tankers 4 Inc.	Primorsk Shipping Corporation
MR: TORM	TORM	Reederei "NORD" Klaus E. Oldendorff	Sanmar Shipping Ltd.
		Skagerak Invest Ltd.	TORM
		TORM

USD million
TANKER DIVISION	2007	2008
	Total	Q1	Q2	Q3	Q4	Total
INCOME STATEMENT
Revenue	639.9	200.8	215.0	263.3	244.1	923.2
Port expenses, bunkers and commissions	-165.9	-51.8	-56.9	-74.0	-69.5	-252.2
Freight and bunkers derivatives	2.9	-0.4	8.7	-15.9	-6.0	-13.6
Time charter equivalent earnings	476.3	148.6	166.8	173.4	168.6	657.4
Charter hire	-95.9	-31.1	-30.6	-35.2	-36.9	-133.8
Operating expenses	-105.1	-39.6	-41.2	-38.2	-41.0	-160.0
Gross profit/(loss) (Net earnings from shipping activities)	275.3	77.9	95.0	100.0	90.7	363.6
Profit/(loss) from sale of vessels	0.0	0.0	0.0	10.8	19.8	30.6
Administrative expenses	-47.8	-18.1	-18.1	-20.7	-25.7	-82.6
Other operating income	15.2	3.6	3.1	4.3	3.4	14.4
Share of results of jointly controlled entities	3.4	1.2	1.6	3.0	2.2	8.0
EBITDA	246.1	64.6	81.6	97.4	90.4	334.0
Depreciation and impairment losses	-82.6	-28.9	-29.1	-29.6	-31.1	-118.7
Operating profit	163.5	35.7	52.5	67.8	59.3	215.3

TANKER DIVISION

-SUPPLY AND DEMAND

In 2009, the addition of newbuildings is expected to exceed the increase in the demand for vessels. In TORM’s assessment, supply and demand in the tanker market will be in balance by the end of 2011. However, this assessment is subject to significant uncertainty, principally relating to the global recessionary impact on the demand for refined oil products. Below follows an account of the individual factors expected to affect supply and demand. SUPPLY Shipyard activity levels have increased sharply in recent years as a result of the very positive development in the shipping market. The demand for newbuildings has led to major growth in the number of shipyards and an expansion of the capacity of existing yards in the major shipbuilding nations, particularly China and Korea. Nonetheless, it is believed that the product tanker fleet’s expansion will be smaller in scale than immediately indicated by the increased capacity. One explanation for this is that several of the new Asian shipyards are presently not able to build more advanced tonnage such as product tankers. In addition, the period of time from contracting to delivery of a vessel has since 2004 increased to three years from previously one and a half to two years. Moreover, the global economic downturn has made it difficult to finance newbuildings, resulting in shipyards as well as shipping companies canceling newbuilding orders. TORM believes that the cancellation of newbuildings will reduce the product tanker order book by some 10-15% for the period to 2011. This assessment is subject to considerable uncertainty, however.		The existing global product tanker fleet at the end of 2008 comprised a total of 1,217 vessels: 140 LR2 vessels, 257 LR1 vessels and 820 MR vessels (source: Inge Steensland and AS Shipbrokers). The order book of product tankers for delivery in 2009-2011 at the end of 2008 totaled 617 vessels: 101 LR2 vessels, 102 LR1 vessels and 414 MR vessel. The order book constitutes some 51% of the total fleet. For the sake of comparability of order book capacity, units are converted into MR units. Adjusted for size and voyage pattern, the order book thus corresponds to some 894 MR units. As the smaller SR vessels have a different sailing pattern than the bigger vessels, they are not included in the supply-demand analysis. Approximately a third of the large LR2 product tankers carry crude oil despite the fact that they were constructed as product tankers. The actual effect of the order book of LR2 vessels will be reduced by approximately a third if this pattern continues in the future. Additionally, some 37 LR1 product tankers are being constructed in replacement for old crude oil Panamax tankers, which primarily carry fuel oil. Despite cancellations of newbuilding orders and the global economic downturn, 2009 is expected to be the year when the highest number of product tanker newbuildings will be delivered. The lower freight rates and the IMO regulations on the phase out of single-hulled tankers in 2010 will, however, mean that the older part of the fleet will be phased out, to the benefit of the overall fleet development. Some 10% of the existing product tanker fleet is expected to be phased out in the period up to 2011, equaling 118 MR units. The rate at which the older tonnage is phased out could well increase further in the coming years. This is strengthened by national age limits and the fact that several major oil companies choose not to use tonnage that is more than 15 years old. Less favorable freight market developments could also affect the rate at which the vessels are phased out.

DEMAND EXPANSION OF REFINERY CAPACITY The capacity of the world’s oil refineries is expected to be increased by some 8.6 million barrels/day in the period 2009-2011, equaling a 10% increase relative to the present capacity of approximately 83 million barrels/day (source: TORM). The increased capacity is principally due to the growing demand for refined oil products and the refineries’ reduced operating costs. A smaller proportion of the new refineries will be located in the major consumption areas such as the USA and Europe as the majority is expected to be located in India and the middle East. This fact set off the expected weak trend in the demand for refined oil products in 2009, and even cause the overall transport requirements to increase up to 2011, as only a limited amount of India’s and the middle East’s production of refined oil products is designated for domestic consumption. The majority of the production is expected to be transported by product tankers, mainly to the USA and Europe but also to markets in the local region. INCREASE IN OIL DEMAND The development of the demand for refined oil products remains key to the product tanker market. According to 'Energy International Administration (EIA), the total oil demand in 2008 was 85.9 million barrels/day. EIA expects this figure to drop to 84.7 million barrels/day in 2009 and subsequently rise by approximately 2% per year up to 2011. In the USA, the world’s largest consumer of refined oil products and, consequently, key to the transport need, consumption dropped approximately 3% in 2008 and is expected to drop a further 1% in 2009 and then to stabilize until 2011.		NUMBER OF PORT DAYS Operating figures for TORM’s fleet indicate that the number of port days has risen by 9% per year in the last five years and now accounts for almost 41 % of the total duration of a voyage. The increase can be explained by the failure to expand oil terminals in ports sufficiently to match the increase in the global product tanker fleet. The increased number of waiting days in port reduce the number of vessels that can be operated in the spot market, which is beneficial to the rates in this market. The number of port days can vary significantly from port to port. In 2008, for example, the average number of port days was 20 in Benin, 15 in Nigeria and just three in the USA. TORM expects a 3% increase per year in the number of port days in the period 2009-2011. ARBITRAGE Arbitrage shipping, evening out price differences of refined oil products between loading and discharge port, has in recent years become increasingly important to the demand for product tankers. In 2008, arbitrage shipping accounted for some 50% of TORM’s product tanker shipments. TORM expects an increase of 2.5% in arbitrage shipping in the period 2009-2011.

BULK DIVISION

In 2008, the bulk market was characterized by highly volatile freight rates reaching both a historical high and the lowest level in ten years. In the first half, a strong demand for transportation of iron ore and coal pushed up freight rates, whereas in the second half the slowdown of the global economy contributed to a dramatic collapse of rates.

From February until June, freight rates rose significantly, principally as a result of China’s strong demand for iron ore and coal for the rebuilding of the Sichuan province, which was hit by a violent earthquake earlier in the year, and the completion of the Olympic infrastructure. Increased coal imports to Japan and India and an increasing number of waiting days, primarily in Australian coal ports, also contributed to the rising freight rates. During this period, the benchmark Panamax market rose from approximately USD/day 45,000 to approximately USD/day 90,000. At the beginning of the second half of 2008, the bulk market suffered from the reduction in Chinese steel production. During the autumn months, the bulk market collapsed completely as a consequence of the downturn of the global economy, a strengthened US dollar and plunging commodity prices. Chinese imports of iron ore dropped dramatically in a short period of time, and the unwillingness of many banks to grant credits and bank guarantees further pushed down freight rates. that a collapse was a reality was evident from Panamax freight rates, which fell from approximately USD/day 90,000 to approximately USD/day 4,000 in December.		As TORM, in accordance with the existing strategy, had obtained coverage for a major part of the bulk fleet at very attractive freight rates, the dramatic decline in the second half of 2008 had relatively limited impact on the overall profit for the year. The Bulk Division achieved a very satisfactory operating profit of USD 212 million for 2008. ACQUISITIONS AND DISPOSAL OF VESSELS TORM did not contract any newbuildings in 2008, but the company took delivery of five Panamax/Kamsarmax vessels on long-term charters with purchase options. These contracts were entered into at satisfactory rates at an earlier date. In addition, TORM took delivery of the Panamax vessel TORM Bornholm in March 2008 having exercised a purchase option in 2007. In May 2008, TORM exercised another purchase option for the Panamax vessel TORM Charlotte, which was delivered in January 2009. TORM sold one Panamax vessel in 2008 making a profit of USD 52 million. The great volatility of freight rates affected the price of used tonnage. In the first half of 2008, the price of a five-year Panamax vessel peaked at approximately USD 90 million, whereas at the end of the year the price of an identical vessel was less than USD 30 million.

BULK DIVISIONS	2007	2008
USD million	Total	Q1	Q2	Q3	Q4	Total
INCOME STATEMENT
Net revenue	134.3	54.2	71.6	73.3	61.3	260.4
Port expenses, bunkers and commissions	-6.3	-2.7	-2.5	-2.5	-4.2	-11.9
Freight and bunkers derivatives	0.0	0.0	0.0	0.0	0.0	0.0
Time charter equivalent earnings	128.0	51.5	69.1	70.8	57.1	248.5
Charter hire	-59.0	-14.9	-13.7	-15.2	-16.2	-60.0
Operating expenses	-10.4	-3.9	-4.0	-3.3	-3.1	-14.3
Gross profit/(loss) (Net earnings from shipping activities)	58.6	32.7	51.4	52.3	37.8	174.2
Profit/(loss) from sale of vessels	0.0	0.0	52.2	0.0	0.0	52.2
Administrative expenses	-7.2	-1.6	-1.7	-1.9	-2.2	-7.3
Other operating income	0.0	0.0	0.0	0.0	0.1	0.1
Share of resulta of jointly controlled entities	0.0	0.0	0.0	0.0	0.0	0.0
EBITDA	51.4	31.1	101.9	50.4	35.8	219.2
Depreciation and impairment losses	-6.5	-1.8	-2.0	-1.7	-1.8	-7.3
Operating profit	44.9	29.3	99.9	48.7	34.0	211.9

BULK DIVISION

-SUPPLY AND DEMAND

The scale of the global economic downturn along with the performance of the Chinese and, to an extent, the Indian economy are key to developments in the bulk markets. These two countries’ rapidly expanding trading with the rest of the world meant a sharp increase in the transportation of raw materials and, consequently, in the demand for bulk carriers.

Increasing demand for transportation of iron ore, coal and grain is an essential factor for the bulk market as these commodities account for 74% of the total volume of transported cargo (source MSI). In 2009, growth in the transportation of these bulk products is expected to be some -4%, relative to a growth rate of approximately 3% in 2008.

After record-high contracting activity in 2007, the level of activity in the bulk segment declined sharply in 2008, mainly as a result of the financial turmoil and the collapsing freight rates. At the end of 2008, the global Panamax fleet comprised 1,535 vessels (source: Fearnleys), and the total order book of new bulk carriers was 674 vessels, equaling 44% of the fleet. In 2008, 77 new Panamax vessels were delivered.

As a result of the high earnings in the bulk market in 2007, many old, single-hulled tankers were converted into bulk carriers. During 2008, a total of 59 converted tankers were added to the bulk carrier fleet, of which 16 were Panamax vessels and the rest Capesize vessels. The conversion of single-hulled oil tankers into bulk carriers has ceased following the decline in the bulk market.

A large proportion of the order book is expected to be cancelled as a consequence of the collapsing bulk rates and the global economic downturn. TORM estimates that some 35% of the order book will be cancelled either by shipowners or shipyards. This estimate is subject to significant uncertainty, however.

The falling rates in the second half of 2008 also meant that the number of re-cycled vessels rose. In 2008, 93 bulk carriers were sold for re-cycling. 17 of these were Panamax vessels (source: Clarksons). the number of older vessels being phased out is expected to continue to rise in 2009.

The many financial bailout packages in the USA, China, India and Europe intended to stimulate the economy may have a major impact on the bulk market. The packages are intended, among other things, to stimulate construction and infrastructure, which will require transportation of iron ore, coal, steel and cement. For now, however, it is too early to assess the effect of these measures.

HUMAN RESOURCES

In 2008, focus has been on values, global collaboration, management

and employee development as well as change management

HR STRATEGY The employees are pivotal to TORM’s business. The company’s success is based on the competences, motivation and commitment of these employees. TORM’s HR strategy therefore focuses on ensuring continuous development at all levels, providing an opportunity for the individual employee to develop, both in their existing job and by means of vertical or horizontal career moves. A natural part of this employee development is the systematic consideration of goals for and accomplishment of personal and professional development and career ambitions with TORM. In this respect, the formulation of concrete, motivating business objectives is an important factor for individual employees as well as for the Company. ASHORE TORM is a well-integrated and closely knit enterprise in which Management and employees work together to achieve satisfactory results in a considerably more challenging market than previously. In 2008, TORM found that the company’s increased focus on values, branding and on attracting new employees resulted in a highly satisfactory response to job vacancies.		Internally within the company, the strategic focus on Human Resources brought about changes and initiatives. Also, the process of integration following the acquisition of OMI was a major process. The organizational changes were made in dialogue with the employees and with an appreciation of our differences and understanding of processes and tasks. We believe this to be an important element in the relatively low staff turnover during a time of major changes. During 2008, all TORM’s shore-based managers underwent a management development programme “Greater Leadership Power”. The programme places emphasis on personal insight in the leadership role as well as on specific management tools. With the programme, the Company’s managers have been given a common frame of reference, enabling TORM’s complex organization to collaborate effectively to achieve the performance targets. TORM generally aims to offer the employees good development opportunities through competence-enhancing training programmes, courses, on-the-job training, secondments and promotions. With our recently launched Performance Management process, the Company is going a step further toward providing well-defined goals and frameworks for the individual employees.

		For the youngest segment of TORM’s workforce, the Company continues in collaboration with other leading shipping companies to offer a two-year traineeship combining practical training with a solid theoretical education. The latter is organized in collaboration with Esbjerg Handelsskole and Copenhagen Business School in the form of an HD graduate degree with the possibility of a subsequent MBA degree. TORM has in recent years offered jobs to all the trainees who completed the programme. Again in 2008, TORM conducted a number of culture and value seminars for new as well as existing employees, and the values are a reference point for the employees in a continuously growing and changing organization. At the end of 2008, the Company had 318 employees ashore, of which 163 were employed in Copenhagen, 84 in India, 18 in Singapore, 27 in the Philippines, 23 in the USA and one in Japan. A staff turnover of 8% in the Danish head office was highly satisfactory, and of the international offices only the India office experienced any notable voluntary attrition in connection with management changes.

		Participation in development activities such as simulator and engineering courses along with management development and mandatory renewal courses are a means of ensuring TORM an organization of competent, well-qualified officers. In 2008, TORM conducted international and local seminars for senior and junior officers. These are essential to the successful communication between Management and sea-going staff and moreover provide an opportunity to implement the Company’s values in practice. At these seminars, the participants deal with various professional themes and social competences, and the seafarers are updated on topical issues such as piracy in the Gulf of Aden. At the end of 2008, TORM became the first shipping company in Denmark to sign an agreement to install Internet access onboard vessels. Internet access will be established over the coming three years and will enable all TORM’s employees to keep in regular contact with their families, communicate via e-mail and receive news. In 2008, a branding campaign was conducted to increase knowledge of the Company among potential employees outside the established shipping industry. This, along with the fact that TORM’s apprentice officers are good ambassadors, meant that the Company received a large number of applications from young people seeking a career specifically with TORM. In 2008, the Company hired 50 apprentice officers and expects to hire a similar number in 2009. At the end of 2008, TORM had a total of 3,139 sea-going staff: 342 from Denmark, 1,513 from India, 1,183 from the Philippines and 101 from Croatia.
AT SEA As almost 90% of the company’s employees are seafarers, their job satisfaction is a key factor in TORM’s business development. Therefore, several activities aimed at strengthening recruitment, retention and training of competent seafarers were again conducted in 2008.

TORM's STRATEGY 2008-2010

At the beginning of 2008, before the financial crisis and the global recession, TORM’s Board of Directors approved an ambitious three-year strategy called “Greater Earning Power 2.0”. The goals and ambitions of the strategy are assessed on an ongoing basis, particularly in the wake of the global crisis, to ensure that TORM retains a leading and profitable position, primarily focusing on product tankers. The falling vessel prices combined with TORM’s criteria for return causes that the timing of investments is essential.

The most important elements of this strategy are: • To ensure a solid return on invested capital. • To ensure optimum positioning in the product tanker market in order to optimize earnings through all the cyclical phases of the industry. • To take advantage of the drop in freight rates for vessels on long-term charters by increasing the number of chartered vessels with purchase options. • To expand and develop pool arrangements in order to enhance flexibility in the size of the fleet. • To generate significant growth primarily in the product tanker segment, when the timing is right. • To reduce tied-up capital and increase flexibility by means of an optimal fleet composition of approximately 50-70% owned vessels. • To take advantage of TORM’s global presence, both in terms of scale advantages relating to size and proximity to the most important markets and customers and through a wider recruitment base. • To continue developing internal analysis and business development to further improve the company’s ability to react promptly to opportunities and threats. • To strengthen staff recruitment, development and retention through a consistent focus on management development, HR policies, etc.		The new strategy is called “Greater Earning Power 2.0” because it very much represents a continuation of the previous strategy “Greater Earning Power”. The new strategy maintains the long-term vision of ensuring TORM a leading and profitable position with a primary focus on product tankers and, on a smaller scale, dry bulk and with special focus on competence development and responsibility across the entire global organization. “Greater Earning Power 2.0” is a functional strategy that will provide competitive advantages by combining an increased volume with an optimization of the separate parts of the company. TORM still has big growth ambitions for product tankers. There are many attractive business opportunities in the business areas in which the company is active today. Moreover, with regular strategic adjustments, the current business model has proven effective at high as well as low rate levels. TORM will continually develop the strategy, including evaluating new business areas, but the Company does not expect to make changes to the strategy in the coming years. All investment opportunities are divided into four areas of which product tankers and Panamax bulk carriers are focus areas that are monitored closely. Chemical tankers and gas tankers are monitored for capital investments. Technical management and manning are monitored for market developments. Direct investments in shipyards are not considered to be relevant.

The Company’s business model is based on a combination of experience and data and constant focus on performance through the global organization. The strategy will further refine this business model, not only by developing its individual elements but also by continuously strengthening and optimizing the processes creating coherence between the different parts of the Company. One of the ways in which this is done is by strengthening the focus on the Company’s corporate values, social responsibility, management systems, education and training as well as communication. TANKER DIVISION It is TORM’s objective to further consolidate the product tanker market, mainly by increasing the number of earning days for the LR1 and MR vessels. This development will be done by means of growth in the individual pools, through organic growth and through acquisitions. By offering the customers increased flexibility and capacity, a strengthened market position will lead to improved earnings. Improving the utilization of the vessels will strengthen efficiency, leading to additional economies of scale in terms of procurement, manning and operations.		QUALITY
If it is deemed beneficial to the Company’s development, the tanker fleet will be expanded by continuing the extensive newbuilding programme and by acquiring existing vessels and fleets, possibly including acquisitions or cooperations with other companies. Specifically, TORM will also charter more vessels on long-term contracts. BULK DIVISION If it is deemed commercially viable, the Company will increase its presence in the bulk market. Growth will principally come about by chartering vessels, unless potentially interesting investment opportunities arise. The Company will maintain its policy of hedging a major proportion of its risk related to the volatility of freight rates by chartering out vessels on contracts of one to two years’ duration.		TORM is known for the high quality of its vessels as well as of technical and operational services. TORM aims to exceed market expectations in these areas so that our customers experience a high level of quality in all areas of trading with us - and for this to happen consistently and with a great deal of insight into the individual expectations of the customers. FINANCIAL STRATEGY The globalfinancial crisis makes it all the more important that the company’s strategy is based on a very solid financial foundation, ensuring that there is capacity available for further profitable expansion. To ensure future financial flexibility, it is important to note that the ambitious strategy is not to be realized solely though acquisitions. The timing of investment and assumption of liabilities is crucial in shipping. In light of the falling ship values combined with TORM’s criteria for return on investment, prudence and caution is the proper approach. It is against this background that TORM wishes to retain a significant financial capacity to undertake investments when the timing is right.

CSR - CORPORATE SOCIAL RESPONSIBILITY

TORM has a responsibility to contribute to global sustainable development - financially, socially and environmentally. This responsibility forms an integral part of TORM’s business and the Company has a long-standing tradition of ensuring sustainability in its business. TORM has signed the UN Global Compact.

In 2008, TORM defined a CSR strategy for the purpose of setting the course for its work on corporate responsibility through to 2012. The CSR strategy was prepared on the basis of a comprehensive stakeholder analysis mapping out the demands and wishes of the Company’s large customers, suppliers, collaboration partners, NGOs and investors. The analysis shows that requirements to TORM’s performance in CSR are becoming increasingly important to the company’s large stakeholders and hence also to its ability to deliver satisfactory business results: • TORM’s environmental and safety work is an increasingly important selection criterion to several large customers, including the oil companies. • Negotiable quotas are expected to be introduced for the emission of CO2 within the next few years, which could have large economic implications. • Potential and current employees are attaching increasing importance to TORM’s CSR work when considering how attractive the company is as a workplace. • An increasing number of investors acknowledge the relevance of CSR to ensure the long-term creation of value. On this basis, Management has adopted a new CSR strategy. This strategy covers all CSR issues identified by the stakeholders and which are important to TORM, including a safe and attractive workplace, the environment and climate, human and employee rights and business ethics.		CSR STRATEGY TORM’s new CSR strategy is based on four main notions: 1. Institutionalization of TORM’s existing CSR activities and establishment of a new practice in selected areas. 2. Increased focus on HR. TORM wishes to be recognized as a responsible and attractive workplace in the countries in which the Company operates. 3. Proactive addressing of new climate and environmental requirements among other things through selective investments in solutions enhancing the efficiency of the Company’s core services with subsequent improvement of climate and environmental impacts. 4. Establishment of a multinational, cross-divisional CSR organization reflecting the Company’s position as an international, quality-oriented shipping company focusing on sustainability for TORM and its stakeholders. Hence, the Company’s new CSR strategy is a measured, proactive response to future regulative and market-related challenges for TORM in this area, and the CSR strategy supports the Company’s business strategy as set out in ”Greater Earning Power 2.0”.

CSR PRINCIPLES AND TARGETS TORM’s level of ambition within CSR is based on seven guiding principles: • The safety of the individual comes first. • Avoid spillages of cargo as well as fuel from the vessels. • Seek to minimize resource consumption. • Listen to stakeholders and respond to their demands and expectations. • Apply high ethical standards. • Create results through partnerships. • Operate the business transparently and responsibly. During the course of 2009, these principles will be defined in more detail as the relevant policies, systems and tools are developed. The Company has already established policies in areas such as quality, environment and safety as well as related management systems and tools, but in some areas the Company’s intentions, approaches and targets need to be detailed further. Based on the CSR principles, TORM’s strategic objectives up to 2012 are to: • Proactively comply with legislation and assess the business potential in market trends, society’s requirements and industry changes within CSR. • Be among the top 25% of the customers’ preferred suppliers in terms of CSR. • Be an attractive workplace and among the 50 most preferred employers in Denmark. • Join forces with customers and suppliers to optimize CSR action throughout the value chain. • Involve and communicate with all major stakeholders. • Quantify goals for the CSR action, monitor the progress made on the targets and report the results.
IMPLEMENTATION OF THE CSR STRATEGY TORM will initiate the implementation of the new CSR strategy in 2009. To that end, the Company’s CSR work up to 2012 will be structured around five work streams involving a wide variety of TORM’s functions to ensure that the company’s future CSR activities are embedded in the day-to-day business processes.

CSR - CORPORATE SOCIAL RESPONSIBILITY

		The five work streams are: • Organization and Management The Company’s Management will set out policies and decide how the CSR work is to be organized. Also, large stakeholders’ demands and expectations will be monitored and consolidated, scorecards and KPIs will be developed and communication activities planned and prepared. • Risk management CSR risks are identified in relation to for example legislation, misconduct and violation of company policies, and CSR risk management will work as an early warning for the Company’s whistleblower function. Where relevant, the Company will seek solutions in collaboration with NGOs. • Environment and climate This work stream comprises the majority of the activities in the environmental and climate area. In addition to the operation and development of the existing environmental management system, increased attention will be given to the development of environmentally- and climate-friendly services. • Human resources This involves the Company’s activities to support TORM as an attractive workplace. The Company will continuously work to improve occupational health and safety, including conducting local community projects in the countries where TORM has major activities. • The extended value chain To optimize results, TORM will seek collaboration with customers, suppliers and other large stakeholders. The Company will enhance its efforts to ensure that shipyards and other suppliers comply with TORM’s policies. New business opportunities will be explored, and the Company will actively seek solutions to for example environmental or ethical problems in collaboration with industry associations, organizations and other shipping companies. For more detailed information on the company’s CSR performance in 2008, please refer to TORM’s environmental report for 2008, which will be available on the company’s website in 2009. In 2009, TORM became the first Danish shipping company to adopt the UN’s Global Compact. Participating in the UN Global Compact, the Company commits itself to observe and promote the ten principles of the Global Compact and to report annually on improvement efforts and the results of this work. TORM’s new CSR strategy will enable the company to observe the UN’s Global Compact and set the course for its future CSR work as an integral part of the Company’s operations.

	2008	2007	2006
Number of active vessels in the period included in the report (in months)
SR tankers	120	50	0
MR tankers	295	209	133
LR1 tankers	130	113	95
LR2tankers	145	114	101
Bulk carriers	69	63	0
Total number of vessel months	759	547	329
Emissions from fuel in ton
Fuel oil consumption (HFO)	486,222	405,621	299,437
Fuel oil consumption (low sulphur HFO)	91,440	59,334	4,345
Motor gas oil	16,376	12,973	7,838
Lubricating oil	4,970	2,983	2,410
CO2 emissions	1,876,567	1,504,298	969,283
SOx emissions	32,541	23,957	18,273
NOx emissions	43,088	44,027	28,324
Per vessels month
Fuel oil consumption (HFO)	641	804	912
Fuel oil consumption (Low Sulphur HFO)	121	54	13
Motor gas oil	22	25	24
Lubricating oil	7	7	7
Total oil	783	882	956
CO2 emissions	2,472	2,776	2,951
SOx emissions	43	46	56
NO x emissions	57	81	86
Emissions pr. tonkm (1 ton goods transported 1 km) CO2 emissions	8.03 g/tonkm	6.17 g/tonkm	5.88 g/tonkm
Sox emissions1)	0.14 g/tonkm	0.10 g/tonkm	0.11 g/tonkm
No x emissions	0.19 g/tonkm	0.18 g/tonkm	0.17 g/tonkm

Truck (carrying 7 tons of cargo) CO2 2)			109.6 g/tonkm
Train CO2 2)			28 g/tonkm
2000 T bulk carrier CO2 2)			16 g/tonkm
Cargo plane CO2 3) Operational aspects			537 g/tonkm
Waiting in %	1.79	2.40	2.20
In harbour in %	41.36	34.56	33.06
Ballast voyage in %	20.95	25.60	25.46
Laden voyage in %	35.90	37.45	39.28

1)	For 2008, tonkm are calculated based on reports from each vessel. Previously, tonkm were estimated based on reports from a number of vessels. As a consequence, tonkm figures are not necessarily comparable.

For 2008, Nox emmissions are calculated based on the engine specification of each vessel. Previously, Nox emmissions were estimated based on OMI. As a consequence, emmission figures are not necessarily comparable.

2)	Reference Key2Green.dk.
3)	Lufthansa

MANAGING RISK AND EXPOSURE

Shipping is an industry sensitive to macroeconomics and to changes in political and legal circumstances. The industry is also subject to risks in the global operation of vessels primarily in respect of spot market trading.

In accordance with the Company’s strategy and risk policies, the Board of Directors and Management identify and evaluate significant risks on an ongoing basis with the objective of managing the sensitivity of the Company’s results and financial position to those risks. Management continuously assesses the risks considered to be most significant to the success of the Company and plans any action deemed relevant to limit the Company’s sensitivity to those risks. Risks and actions are discussed with the Audit Committee and the Board of Directors at least on a yearly basis.

The risks can generally be divided into three main categories: Industry and market-related risks, operational risks and financial risks. Please see page 11 and note 24 for sensitivity analyses.

INDUSTRY AND MARKET-RELATED RISKS

Industry and market-related risk factors relate to changes in the markets and in the political, economic and physical environment that Management cannot control and can only influence to a very limited degree, but must take into consideration in the long-term strategy planning for the business and the short-term execution of the strategy.

POLITICAL AND MACROECONOMIC RISKS

Shipping is a cyclical industry. The cargoes that TORM’s vessels carry around the world include refined oil products, iron ore, coal, grain and other commodities, the demand for which is highly dependent on macroeconomic developments and political decisions. These decisions and developments also affect the price of bunkers and steel as well as the rules under which TORM operates. Changes in demand for the cargoes that TORM carries affect our revenues, changes in bunker prices affect the operating expenses and changes in steel prices affect the prices of vessels. Changes in the rules governing the shipping industry, e.g. IMO regulations, affect the market participants in the way they organize themselves and carry out their operations, and all of these factors ultimately affect the Company’s earnings and value.

TORM monitors product tanker and bulk market developments as well as the global economic trends that are likely to affect the Company’s business areas. The analysis of supply and demand on pages 20-21 and 24 is an example of this. These ongoing efforts ensure that the Company’s strong commercial expertise is complemented with thorough analyses in order to improve the basis for the Company’s decisions, and thereby reduce risks and capitalize on potential market opportunities.

FREIGHT RATE VOLATILITY

The Company’s income is principally generated from transport solutions carried out by its fleet of vessels. As such, TORM is exposed to the considerable volatility that characterizes freight rates.

In the tanker segment, TORM’s primary risk objective is to reduce the sensitivity to the volatility of freight rates by achieving economies of scale and optimizing the service offered to customers.

Within tanker pools, freight income is to a certain extent covered against volatility through the use of physical contracts, such as cargo contracts and time charter agreements with durations of 6-24 months. In addition to these, TORM uses financial instruments such as forward freight agreements (FFAs) and paper-based time charter contracts, with coverage of typically 6-12 months forward, based on market expectations and in accordance with the Company’s risk management policies.

In 2008, 56% of freight earnings deriving from the Company’s tankers were secured in this way. Time charter parties accounted for 80% of overall hedging, as this hedging instrument resulted in higher rates than those offered by the forward market. In 2008, the Company entered into FFAs with a total contract value of USD 355 million.

FFA trade and other freight-related derivatives are subject to specific risk policies and guidelines approved by the Board of Directors including trading limits, stop-loss policies, segregation of duties and other internal control procedures. Transactions are registered in an industry-developed IT system, which provides mark-to-market reports to Management and input for financial reporting. On a limited scale and within the boundaries set out by the Board of Directors, the Company from time to time enters into FFAs as a supplement to the physical positions in vessels. In the bulk segment, TORM is a relatively small market participant, and the Company reduces sensitivity to the volatility of freight rates primarily by entering into time charter agreements, typically of 12 to 24 months’ duration. The Company does not make use of FFAs in the dry bulk market.		SALES AND PURCHASE PRICE FLUCTUATIONS It is a core element of TORM’s strategy to maintain and expand a large fleet of modern vessels, particularly in the product tanker segment, by contracting newbuildings and through transactions in the second-hand market. As a result, the Company is exposed to risk associated with changes in the value of the vessels, which can vary considerably during their useful lives. Based on an overall portfolio approach and by consistently maintaining a strong financial position, the Company’s policy is to be in a position to purchase and sell tonnage when the timing is optimal. Management continuously evaluates sale and purchase opportunities. With regard to TORM’s newbuilding programme, with 19 vessels at Chinese shipyards and one vessel at a Korean shipyard on order at year-end, the yards have issued guarantees for the Company’s prepayments made through the construction period. As far as tankers are concerned, all guarantees have been arranged via state-owned banks, whereas prepayments made for four bulk carriers are guaranteed via Tsuneishi Holdings. At the end of 2008, prepayments to the shipyards currently constructing vessels for the Company totaled USD 265 million.

MANAGING RISK AND EXPOSURE

BUNKER PRICE FLUCTUATIONS The Company’s operating profit is affected by movements in the price of fuel oil consumed by the vessels known in the industry as bunkers. To cover this risk, the Company hedges the price of part of its bunker requirements. Within the tanker pools, bunker requirements are hedged when a contract of affreightment covering several voyages has been concluded at a fixed freight rate. Coverage is usually provided for a period of up to 12 months forward. Bunker trade is subject to specific risk policies and guidelines approved by the Board of Directors including trading limits, segregation of duties and other internal control procedures. For the bulk carriers, the bunker requirements are similarly hedged to match cargo contract commitments, but the requirements are generally less, given that the majority of earnings derive from vessels chartered out on time charter, where the charterer is responsible for the payment of bunkers. OPERATIONAL RISKS Operational risks are those risks associated with the ongoing operations of the business. VESSEL UTILIZATION In the tanker segment, TORM is a shipowner with a large fleet of modern double-hulled vessels. The Company’s strategic focus is to provide a quality service to cargo holders. The Company primarily operates in the spot market. Consequently, vessel utilization is a significant risk factor. In the bulk segment, tonnage is chartered out on time charter contracts, and the risk pattern in terms of re-employment of these vessels is therefore slightly different, as the Company has more time to plan the subsequent employment period. By operating and participating in tanker pools and through the careful matching of front and back haul cargoes, the Company tries to achieve an optimal geographical coverage and market presence and minimize ballast time and waiting days. On this basis, TORM is able to maximize its vessel utilization.		SAFE OPERATION OF VESSELS Groundings, collisions, pollution or similar events can have serious consequences, and operation of vessels is consequently heavily regulated by statutory bodies. Such events could result in changes to the Company’s financial position, in the short-term through loss of hire, cost of vessel repairs, claims and penalties and in the longer term through loss of reputation caused by delays and customer dissatisfaction. In addition, many customers including the major oil companies have set up own standards relating to safety, protection of the environment, etc. that the vessel, the crew and the shore-based operation must meet in order to be allowed to transport oil products for them. Inspections, so-called vettings, are carried out by the oil companies to ensure that their standards are met. A high standard of operation is a cornerstone in the way TORM conducts its business. TORM has dedicated the necessary specific resources and built up good management systems to ensure that the Company is in compliance with and beyond both statutory requirements and additional requirements from customers concerning operational procedures, quality and experience of seafarers, etc. Officer seminars are conducted several times a year to ensure that our officers always have the most up-to-date knowledge of regulations, best practice and the Company’s requirements as to the operation of the vessels. In order to document and assist in maintaining a consistently high standard of operations, the Company observes voluntary International Standards such as ISO 14001, and the compliance with this standard is audited annually by Lloyd’s Register of Shipping. The Company’s Quality Management System (QMS) addresses the security, safety, environment and quality requirements of mandatory and voluntary standards. TORM recruits seafarers from four different geographical areas in order to be able to select the best qualified staff and to avoid undue reliance on a specific manning source. For further details on security and quality, working conditions and environment, please refer to page 30.

		INSURANCE COVERAGE In the course of the fleet’s operation, various casualties, accidents and other incidents may occur that may result in financial losses for TORM. For example, national and international rules, regulations and conventions mean that the Company may incur substantial liabilities in the event that a vessel is involved in an oil spill or emission of other environmentally hazardous agents. In order to reduce any financial loss and/or other liability that the Company might incur, the fleet is insured against such risks to the extent possible. The total insurance programme comprises a broad cover of risk in relation to the operation of vessels and transportation of cargoes, including personal injury, environmental damage and pollution, cargo damage, third-party casualty and liability, hull and engine damage, total loss and war. All of TORM’s owned vessels are insured for an amount corresponding to their market value plus a margin to cover any fluctuations. Liability risks are covered in line with international standards. Furthermore, all vessels are insured for loss of hire for a period of up to 90 days in the event of a casualty. It is TORM’s policy to cooperate with financially sound international insurance companies with a credit rating of BBB or better – presently some 14-16 companies along with two P&I Clubs to diversify risk. At the end of 2008, the aggregate insured value of hull and machinery and interests for our owned vessels and newbuildings amounted to USD 5.5 billion. The P&I clubs are members of the internationally recognized collaboration, International Group of P&I clubs, and the Company’s vessels are insured for approximately USD 1 billion, which is the maximum cover offered. P&I clubs differ from traditional insurance companies as the participants are jointly liable. In case a member withdraws from a club, the member remains liable for a certain number of years for claims arisen in the period prior to withdrawal, unless the participant pays a release call.

MANAGING RISK AND EXPOSURE

STABILITY OF IT SYSTEMS TORM’s ability to service the customers and operate the vessels is dependent on the continued operation of IT systems critical to the business, including a vessel operation system containing information about vessel positions, the Company’s agreements with customers and other agreements made in the market, the electronic mailing system, the system recording estimated and actual hire for individual voyages and the ERP system. All IT systems are monitored and administrated in accordance with the Company’s internal control system, INCA. The internal control system includes an IT system recovery plan detailing how the employees should react and continue to conduct the business in case of an emergency rendering a system inactive. This plan describes how to re-establish TORM’s IT systems and data access in case of a system breakdown. The IT -systems are maintained and administrated as a single application portfolio to ensure that the IT platform is at all times interconnected and functions as intended.		COUNTERPARTY RISK 2008 was the year when the concept of counterparty risk truly became an issue in the shipping industry. This led to considerably reduced access to capital which in the second half of 2008 in particular resulted in a decrease in the volume of transported goods and a resulting major impact on prices. The Company formed policies to handle such situations. The enhanced focus on this revealed that the established policies have been effective, and so far the Company has not suffered any direct losses on counterparts as a result of the financial crisis. The Company’s counterparty risks are associated partly with receivables, cash and cash equivalents and partly with derivative financial instruments and commodity instruments with positive fair value and with prepayment for vessels under construction. The maximum counterparty risk associated with financial assets is equal to the values recognized in the balance sheet. The majority of TORM’s customers are companies that operate in the oil industry. It is assessed that these companies are widely being affected by the same risk factors as those identified for TORM’s Tanker Division.

In the Tanker Division, a major portion of the Company’s freight revenues is concentrated on a small group of customers. The concentration of earnings on a few customers requires extra attention to credit risk, but for the Company’s major customers it is very likely that more than one transport is ongoing at any one time, and TORM will thus have security in the cargoes. TORM has a credit policy under which continued credit evaluations of new and existing customers take place. For long-standing customers, it is normal practice that the payment of freight takes place after a vessel has discharged her cargo. For newer and smaller customers, the Company’s financial risk is limited by the fact that most often it is a condition that freight is paid prior to the cargo’s discharge or, alternatively, that a suitable bank guarantee is placed in lieu thereof. Unlike the product tanker market, the bulk market is very fragmented and characterized by a large proportion of operating companies. Due to the relatively longer contracts in the Bulk Division for periods of 12 to 24 months, vessels are only chartered out to large, reputable customers that are well-known to TORM, regardless of whether a higher charter rate could potentially have been obtained from other, smaller and unknown customers. In 2009, the Company has already entered into agreements to limit counterpary risks, and at the same time the Company’s coverage in 2009 is limited. In terms of freight, financial instruments are only traded with major banks with a high credit rating and with highly reputed partners with a satisfactory credit rating. The largest counterparts with respect to FFA trades are Morgan Stanley and Goldman Sachs. Open positions with each of these accounted for 2-4% of the volumes traded in 2008. Credit risk has been reduced as new trades are mainly entered into through the clearing house Norsk Oppgjørs Sentral (NOS). The Company enters into FFAs in the Tanker Division, but not in the Bulk Division.		The Company’s receivables therefore primarily consist of receivables from voyages in progress at year end and, to a lesser extent, of outstanding demurrage. For the past five years, the Company has not experienced any significant losses in respect of charter payment or any other freight agreements. With regard to the collection of demurrage, the Company’s average stands at 95-97%, which is considered to be satisfactory given the differences in interpretation of events. At year end, demurrage represented approximately 11% of the total freight revenues. The Company had relatively large amounts of cash and cash equivalents throughout most of 2008, and as the banking sector weakened during the year, increased caution was needed in placing cash with the Company’s banking partners. Accordingly, the Company made the decision only to place cash with banks covered by a government guarantee as these were introduced during the autumn. FINANCIAL RISKS Financial risks relate to the Company’s financial position, financing and the nature of the cash flows generated by the business. FUNDING RISK Due to the cyclical nature of the shipping industry and volatile freight rates, incoming cash flows may vary significantly from year to year whereas the outgoing cash flows may not be variable to the same extent and at the same time. In order to secure TORM’s ability to conduct business, even under unfavorable market conditions, and to react quickly when business opportunities arise, the Company aims to maintain a strong financial position. The primary objective of the Company’s capital management is to maintain a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. To manage its capital structure and make adjustments to it, in light of changes in the economic conditions, the Company may adjust the dividend payment to shareholders, introduce buy-back programmes, issue new shares or raise or repay debt. No changes were made to the capital management objectives, policies or processes during the years ended 31 December 2007 and 31 December 2008.

MANAGING RISK AND EXPOSURE

The Company’s policy is to maintain an equity ratio above 30% both when executing short-term business activities and when considering strategic initiatives and planning long-term investments. For TORM, access to new loans has been relatively easy in recent years due to the Company’s strong capital structure as well as the general ample capital availability characteristic of the past few years. It has always been TORM’s policy to borrow at the longest possible maturities and with the fewest possible financial covenants. In 2008, the Company still managed to raise loans at such terms. It is still deemed possible to obtain borrowing, albeit at far stricter terms, for reduced periods of time and in considerably smaller amounts. It will be crucial for the Company to meet the financial covenants applicable to the existing financing combinations. These conditions are identical for all financing raised by TORM. TORM does not believe this to be a problem in the remaining time of the loans. In this respect, the most restrictive condition is deemed to be the one requiring an equity ratio of 25%.		FOREIGN EXCHANGE RISK TORM uses USD as functional currency because the majority of the Company’s transactions are denominated in USD. Foreign exchange risk is limited to those cash flows that are not denominated in USD. The primary risk relates to transactions denominated in DKK, EUR and SGD and relates to administrative and operating expenses. Administrative expenses relating to these currencies include salaries to the majority of the Company’s shore-based staff, rent and travel expenses. Some 83% of the Company’s administrative expenses are denominated in currencies other than USD, of which DKK and EUR account for approximately 72%. Operating expenses are those expenses relating to the operation of vessels. These include wages to Danish seafarers and expenses relating to purchases of spare parts, etc. Some 28% of the operating expenses are denominated in currencies other than USD, of which DKK and EUR account for approximately 23%. It is the Company’s policy to minimize the impact of exchange rate fluctuations on the financial statements and on the financial position of the Company. DKK cash flows are hedged for a period of up to 12 months forward, typically by entering into forward foreign exchange contracts. As of 31 December 2008, the total value of the contracts was USD -0.3 million. Other significant cash flows in non-USD related currencies occur occasionally, including certain of the Company’s purchase options denominated in JPY. These are normally hedged as soon as the position is recognized as a liability for the Company. Forward foreign exchange contracts and other foreign exchange contracts are traded subject to specific risk policies and guidelines approved by the Board of Directors including trading limits, segregation of duties and other internal control procedures.

		INTEREST RATE RISK TORM’s interest rate risk generally relates to its interest-bearing mortgage debt. All the Company’s loans for financing vessels are denominated in USD, and most are floating rate loans. In certain cases, the Company utilizes financial instruments to manage the effects of interest rate changes on earnings and cash resources. The Company typically uses interest rate swaps, which are entered into for periods of up to five years, although typically for two to three years, when acceptable interest rate levels can be obtained. For shorter interest rate hedging, the Company from time to time uses FRAs. The profile of the instruments always matches the profile of the particular loan in question. When assessing interest rate risk hedging for its loan portfolio, TORM takes into consideration expected interest rate developments and future changes to the composition of the fleet. In 2008, the Company entered into interest rate swaps with a contract value of USD 662 million. At the end of the year, the interest rates for 60% of the Company’s debt had been hedged through interest rate swaps or fixed-rate agreements. Interest rate swaps and other interest rate contracts are traded subject to specific risk policies and guidelines approved by the Board of Directors including trading limits, segregation of duties and other internal control procedures. To the extent possible, the Company seeks to ensure that its foreign exchange and interest rate hedges qualify for hedge accounting.


TORM’S DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are traded by specifically appointed employees only and in accordance with TORM’s Board-approved policies and procedures laid down. They are only entered into with major banks with high credit ratings and with other reputable partners with adequate credit ratings. To hedge against risks in relation to freight income and voyage costs, the Company primarily uses the following derivative financial instruments: Forward Freight Agrement (FFA). A forward agreement to buy or sell future freight rates for a given period and amount at a predetermined price. Synthetic time charter. A forward agreement to buy or sell voyage results, i.e. freight rates and the costs of port calls, bunker consumption and commissions, for a given period and amount at a predetermined price.		Bunker hedging contract. A forward agreement to buy or sell future bunker prices for a given amount at a predetermined price. To hedge against interest rate and exchange rate risks, the Company primarily uses the following derivative financial instruments: Interest rate swaps. An agreement to convert future floating interest rate payments into fixed rate payments for a given period and amount. Forward exchange contract. A forward agreement to buy or sell a currency against payment in a different currency for a given amount at a predetermined price. Forward Rate Agreement (FRA). An agreement to fix the rate of interest on a future loan.The Maiority of the derivative financial instruments are short-term with duration of up to 12 months. As detailed above, interest rate swaps are for longer durations, however.

CORPORATE GOVERNANCE

TORM’s Board of Directors and Management believe that good corporate governance is a key element in the creation of shareholder value and in gaining the trust of customers, business partners and the financial markets.

TORM is committed to maintaining a high standard of corporate governance and believes that this commitment is consistent with and also a driver for achieving the Company’s business objectives and creating shareholder value. It is TORM’s policy to ensure that the Company is at all times managed in an orderly and proper manner consistent with the regulation applicable in the countries in which the Company operates and with the codes imposed by the stock exchanges on which the Company is listed. The principal entities in the Company are located in Denmark, India, Singapore and the USA, and the Company is listed on OMX The Nordic Exchange in Denmark and on NASDAQ in the USA.
The Company has throughout the year complied with all the recommendations for good corporate governance from OMX The Nordic Exchange except that all Board members are elected for a four-year term. It is the opinion of the Board of Directors that the four-year term currently constitutes an appropriate balance between renewal and continuity. TORM has throughout the year complied with the US Sarbanes-Oxley Act as it applies to foreign private issuers. The Board of Directors and Management believe that strong corporate values are fundamental in securing that behavior and business practices throughout the Group are in alignment with TORM’s corporate governance policies. The Company believes that value for shareholders and customers must be created with respect for and demonstration of responsibility towards employees, business partners and the environment. Therefore, TORM has an integrated management system for safety, quality and the environment. For details of TORM’s approach to responsibility, please refer to page 30.		Entrepreneurship – how we develop, grow and improve. • We think of ourselves, and behave, as owners by bringing the best of our abilities, commitment and creativity to TORM. • We take initiatives with commercial opportunities in mind. • We value a culture that encourages an open and direct dialogue, delegation of authority and an 'open door' policy for staff members. Professionalism – how we create trust. • We stand by all our commitments and can be relied on to do so – 'our word is our bond'. • We preserve TORM’s industry reputation – being a first class company – by acting in a professional manner in everything we undertake. • We know our job and its related expectations. We know our market and keep up to date with the latest trends in order to continue being ‘the best in the business’. • We measure, improve and perform to obtain and preserve excellence in quality within the shipping business. Respect – how we build relations. • We respect all, customers, business partners and colleagues alike, and our aim is to establish sustainable win-win relationships whenever possible. • We always attempt to understand the other person’s point of view and demonstrate willingness to negotiate in good faith and in a respectful manner, being at the same time commercial in our approach. • We support and help our colleagues, always recognizing that we are a member of a team which forms the heart of the organization.

		BOARD OF DIRECTORS In accordance with Danish company legislation, TORM has a two-tier management structure. The Board of Directors is entirely composed of persons not involved in the day-to-day management. The Board of Directors lays out clear policies and directives which the Management in turn implements in its day-to-day management. Consequently, the Board of Directors acts as a sparring partner as well as a control body for Management. No member of Management is a member of the Board of Directors, but Management normally participates in Board meetings.

The primary responsibilities of the Board of Directors are to safeguard the interests of shareholders, to supervise the activities of the Company and ensure that the Company is properly managed in accordance with the articles of association, laws and regulations and to lay down the commercial objectives and the strategic development of the Company. At the end of 2008, the Board of Directors consisted of nine members of which three are elected by the employees. The remaining six are elected at the Annual General Meeting. Four of the members are independent while two are dependent as a result of their relation to the Company’s largest shareholders. The Board of Directors has laid down clear management guidelines and a Code of Ethics and Conduct in order to ensure that the Company is managed and its business activities carried out in accordance with principles based on integrity and ethics. These principles are fundamental for the Company and contribute towards the creation of value for the Company and thus its shareholders.		TORM’s Board of Directors and Management continually improve the management of the Company. The Board of Directors meets a minimum of five times a year in accordance with the rules of procedure for the Board of Directors and Management. In 2008, 14 Board meetings were held due to a high level of activity. THE MANAGEMENT The Management is responsible for the daily operation of TORM and for ongoing optimization and follow-up. At 31 December 2008, the Management consisted of two members where Mikael Skov was CEO and Roland M. Andersen was CFO. Mikael Skov has taken over the position as CEO until the new CEO, Jacob Meldgaard, will join no later than in the spring of 2010. Through changes in Management in 2008, the Company has secured a generational change and a qualified Management in the future. In autumn 2008, Klaus Kjærullf resigned as CEO from the Company after 32 years employment.

CORPORATE GOVERNANCE

MATTERS RESERVED FOR THE BOARD OF DIRECTORS:

1. Appointment of the Management.

2. Approval of the Company’s vision, values and governance framework.

3. Approval of the Company’s strategy, overall business objectives and annual budgets.

4. Approval of annual reports and interim reports.

5. Recommendation of dividend distributions.

6. Approval of the Company’s policy statements, including risk policy and financial policy as well as the reporting structure in respect of these.

7. Approval of material capital projects, investments, acquisition or disposal of vessels or business entities.

8. Approval of incentive schemes for employees.

9. Other matters which the Board of Directors considers relevant for the Company.

___________________________________________________________

Board members shall normally retire at the Annual General Meeting held in the year in which they attain the age of 65. The Board members elected by the employees have the same rights, duties and responsibilities as the Board members elected at the Annual General Meeting.

It is the opinion of the Board of Directors that policies and guidelines concerning the management of the Company and its interaction with stakeholders are in accordance with the recommendations for good corporate governance issued by OMX The Nordic Exchange and are formalized to a degree that is consistent with the size of the Company and the complexity of its activities. The Board of Directors regularly evaluates the work, results and composition of the Board of Directors and Management.

MEETINGS ATTENDED/HELD	Board	Audit Committee	Remuneration Committee
Niels Erik Nielsen (2)	14/14		3/3
Christian Frigast (1), (2)	14/14	4/4	3/3
Peter Abildgaard	14/14
Lennart Arrias	12/14
Margrethe Bligaard	14/14
Bo Jagd (elected 22 April 2008) (1)	9/10	3/3
E. Michael Steimler (elected 22 April 2008)	10/10
Gabriel Panayotides (3)	13/14	0/1
Stefanos-Niko Zouvelos (4)	14/14		1/1
1) Member of the Audit Committee.
2) Member of the Remuneration Committee.
3) Left the Audit Committee in 2008.
4) Joined the Remuneration Committee in 2008.

THE AUDIT COMMITTEE The Audit Committee meets at least twice a year, and both Management and the auditors usually participate in the meetings. In 2008, four meetings were held. The Audit Committee has two members, both of whom are elected by the Board of Directors among its members. The Audit Committee performs its duties under a charter approved by the Board of Directors and assists the Board of Directors with the oversight of financial reporting, internal controls and auditing matters as well as the organization of work and complaints handling in relation to such matters. In 2008, the Audit Committee evaluated its charter and implemented minor changes to ensure its compliance with the provisions on audit committees in the 8th EU Directive on audits of company accounts. During 2008, the work of the Audit Committee included: 1. Monitoring of progress and results of internal control activities. 2. Review of risk assessments. 3. Discussion of the audit strategy for 2008 with the auditors and approval of the audit engagement letter. 4. Review and approval of engagements with and fees to the auditors elected at the Annual General Meeting concerning both audit and non-audit services. 5. Review of Audit Committee reports from the auditors. 6. Assessment of the auditors’ independence. 7. Review of related party transactions. 8. Review of processes in relation to derivatives trading and the subsequent accounting treatment thereof. 9. Review of reports from external whistleblower service provider. 10. Self-evaluation of the Audit Committee’s effectiveness. The Audit Committee provides a report on the Committee’s activities to the Board of Directors no later than at the first Board meeting following an Audit Committee meeting.		THE REMUNERATION COMMITTEE AND REMUNERATION POLICIES The Remuneration Committee meets at least twice a year. In 2008, three meetings were held. The Remuneration Committee has three members, who are all elected by the Board of Directors among its members. The Remuneration Committee assists the Board of Directors with reviewing the performance of Management, the remuneration to Management and the Company’s general remuneration policies. In order to attract, retain and motivate qualified executive managers, remuneration is based on the nature and quality of work, value creation to the Company and remuneration at comparable businesses. The amounts and components of remuneration to the individual members of the Board and Management are disclosed in note 4 to the financial statements. Among its primary activities in 2008, the Remuneration Committee carried out the following: 1. Approval of employment terms and compensation package for the Company’s CEO and CFO. 2. Grant of 1,087,362 share options under the existing incentive scheme. Details about the incentive scheme and outstanding share options are disclosed in note 4 to the financial statements. 3. Approval of general principles for the distribution of estimated bonus to leading employees.

CORPORATE GOVERNANCE

INTERNAL CONTROL AND RISK MANAGEMENT While the Board of Directors has the overall responsibility for the Company’s internal control and the assessment and management of risk, Management carries out the identification of risks, the operation of an effective internal control system and the implementation of risk management. Management is also responsible for the periodical reporting on major risks and changes herein to the Audit Committee and the Board of Directors. The Board of Directors reviews the major risks and discusses risk developments with Management as deemed appropriate and at least once a year. Major risks include geopolitical, financial, insurance and environmental issues. In consequence of its NASDAQ listing, TORM is obliged to comply with a number of standards, rules and regulations aimed at good corporate governance under the Sarbanes-Oxley Act, applicable to American as well as foreign private issuers, of which the most important are the requirements listed in Section 404.		TORM’s Sarbanes-Oxley compliance programme is executed and monitored in the Internal Control and Administration System (INCA). INCA is consistent with the recognized framework established by the Committee of Sponsoring Organizations (COSO), and it provides a clear audit trail of changes in risk assessments and in the design of controls as well as of the results of tests of internal controls. TORM must ensure at least annually, by testing, that there are no material weaknesses in the internal controls which could potentially lead to a material misstatement in the financial reporting. In the Form 20-F filing for 2007 filed with the US Securities and Exchange Commission on 25 June 2008, Management as well as the auditors concluded that there were no material weaknesses during 2007 and no areas of concern. Management’s conclusion and the auditors’ evaluation of the internal controls and the testing performed by Management regarding 2008 will be included in the Form 20-F filing regarding 2008 which is expected to be filed in June 2009. In addition to ensuring compliance with the relevant laws, TORM believes that the increased focus on internal controls and risk management contributes positively to improving the efficiency of the Company’s business procedures and processes and thereby earnings both in the short and the long term.

WHISTLEBLOWER FACILITY As part of the internal control system, the Board of Directors has set up a whistleblower facility allowing employees, business partners and others to file com-plaints to an independent lawyer’s office, solicited by the Board of Directors, concerning breaches of laws, regulations and good business conduct by TORM representatives. TORM encourages employees and other stakeholders to report any instances of the following: 1) Fraud, including the provision or the endorsement of false or misleading statements about the Company’s affairs. 2) Other criminal offences. 3) Violations of laws and regulations. 4) Intentional provision of incorrect information to public bodies. 5) Unlawful behavior in connection with accounting, internal accounting controls or audit issues, including, but not limited to: a. Fraud or intentional errors in the preparation or maintenance of any of the Company’s financial statements or accounting records. b. Non-compliance with internal accounting controls. c. Misrepresentation or false information to or by an employee or auditor regarding a matter contained in the Company’s accounting records, financial statements or auditors’ reports. d. Deviation from full and fair reporting on the Company’s financial position. 6) Violations of TORM’s Code of Ethics and Conduct. 7) Intentional suppression, destruction or manipulation of information regarding the matters detailed in 1)-6) above. Details of how to submit complaints are publicly available in English on TORM’s website and intranet, and complaints may be filed anonymously. No complaints were filed through this facility during 2008.

SHAREHOLDER RELATIONS

Clarity is our overall objective where our communication with investors is concerned. Openness and transparency are key prerequisites for effective and fair pricing, and the Company therefore keeps existing and potential investors fully informed of important events and any milestones reached.

TORM’keeps in regular contact with the financial markets through presentations, investor meetings and tele-conferences, discussing performance and strategy. The aim is to keep investors fully updated on important events in the Company so as to create a good foundation for their assessment of TORM as an investment object, company and borrower. All investors gain access to price-sensitive information simultaneously through the stock exchange.

The Board of Directors and Management discuss the markets’ expectations of TORM’s results and at Board meetings receive regular feedback from investors and analysts on their views of the Company.

For a three-week period prior to the publication of quarterly and annual financial statements, communication with investors, analysts and the press is limited to issues of a general nature and no individual investor meetings are held.

TORM’s share capital consists of 72.8 million shares of DKK 5 each. The shares are issued to bearer and listed on OMX The Nordic Exchange and on NASDAQ in the form of American Depositary Receipts (ADRs).

TORM’s company’s registrar is VP Securities (Værdi-papircentralen A/S), Helgeshøj Allé 61, P.O. Box 20, DK-2630 Taastrup, Denmark.

SHAREHOLDERS

As of 31 December 2008, TORM had some 15,500 registered shareholders representing 86.5% of the share -capital. At the end of the year, approximately 11% of the share capital had been converted into ADRs.

The following shareholders have reported to the Company pursuant to Section 29 of the Danish Securities Trading Act that they own more than 5% of the shares:

MANAGEMENT’S HOLDINGS OF TORM SHARES

At the end of 2008, the members of the Board of Directors held a total of 66,177 shares, equivalent to a total market capitalization of DKK 3.7 million (USD 0.7 million).

The members of Management held a total of 4,800 shares, equivalent to a market capitalization of DKK 0,3 million (USD 0.1 million).

All TORM employees are covered by the rules on inside information, and they have a duty to report any share transactions. All employees and their spouses and children under the age of 18 are limited to trading shares for a four-week period after the publication of financial reports.

DIVIDENDS

The Company’s dividend policy is that up to 50% of the net profit for the year may be distributed as dividend, but the dividend must always be considered in light of the Company’s capital structure, strategic developments, future obligations, market trends and shareholder interests.

For 2008, the Board of Directors recommends to the Annual General Meeting that a dividend of DKK 4.00 (USD 0.76) per share be paid (2007: DKK 32 (USD 6)). The dividend payment totals DKK 291 million (USD 55 million), corresponding to a return of 7.2% based on the share price at the end of 2008. The dividend corresponds to 15% of the profit for the year. With the extraordinary dividend of DKK 4.50 (USD 0.84) per share distributed in December 2008, the accumulated dividend is 32% of the profit for the year, equaling DKK 619 million (USD 117 million).


Beltest Shipping Company Ltd, Cyprus	32.2%
Menfield Navigation Company Limited, Cyprus	20.0%
A/S Dampskibsselskabet TORMs Understøttelsesfond	6.3%

In addition, TORM holds 4.9% treasury shares

THE TORM SHARE In 2008, TORM’s share price fell by 69%, ending the year at 55.5, against 178.2 at the end of 2007. Net of the dividend of DKK 9.00 per share, the total return on the shareholders’ investment was negative at 64%. The market capitalization of the Company’s shares dropped to DKK 4 billion at the end of 2008, against DKK 13 billion at the end of 2007. The total daily turnover in the TORM share was an average of DKK 34 million (USD 7 million) in 2008 as compared with approximately DKK 63 million in 2007.		FINANCIAL CALENDAR 2009 11 March Annual Report 2008 22 April Annual General Meeting 19 May Interim Report First Quarter 20 August Interim Report First Half 18 November Interim Report Nine Months

ANNOUNCEMENTS TO OMX THE NORDIC EXCHANGE IN 2008


01	24 January	Acquisition of 50% of FR8
02	31 January	New CFO to join TORM Executive Management
03	18 February	New date for publication of TORM’s Annual Report 2007
04	10 March	Completion of acquisition of 50% of FR8
05	14 March	Annual Report 2007
06	31 March	Notice of Annual General Meeting
07	09 April	Complete agenda for the Annual General Meeting 2008
08	22 April	Annual General Meeting of A/S Dampskibsselskabet TORM on 22 April 2008
09	25 April	Sale of one bulk vessel and increased expectations of USD 250-270 million
10	09 May	Interim Report First Quarter 2008
11	20 May	Report of transactions in A/S Dampskibsselskabet TORM securities by managerial staff and connected persons
12	09 June	New Financial Calendar for A/S Dampskibsselskabet TORM
13	17 June	TORM increases the forecast for profit before tax to USD 275-295 million
14	27 June	Report of transactions in A/S Dampskibsselskabet TORM securities by managerial staff and connected persons
15	18 July	Sale of one product tanker and increased expectations of USD 295-315 million
16	11 August	TORM increases outlook for 2008 earnings to all-time high
17	20 August	TORM Half Year Report 2008
18	12 September	Executive Vice President Jacob Meldgaard replaces Klaus Kjærulff as CEO of A/S Dampskibsselskabet TORM
19	22 September	Interim CEO of TORM
20	12 November	TORM Financial Calendar 2009
21	21 November	Resolution to convene Extraordinary General Meeting to request authorization to distribute interim dividend
22	21 November	Interim Report Third Quarter 2008
23	26 November	Notice of Extraordinary General Meeting
24	08 December	Complete agenda for the Extraordinary General Meeting
25	16 December	Extraordinary General Meeting - dividend and timing
26	16 December	Extraordinary General Meeting
27	17 December	Resolution to distribute interim dividend

THE FOLLOWING ANALYSTS COVER THE TORM SHARE AS AT 31 DECEMBER 2008

ABG Sundal Collier

Carnegie

Danske Equities

DNB

FIH

Handelsbanken

Jefferies & Company, Inc.

Jyske Bank

Nordea Markets

Pareto

SEB Enskilda

Standard & Poor’s

Sydbank