RISKS ASSOCIATED WITH TORM'S ACTIVITIES

TORM’s overall risk tolerance and inherited exposure to risks is divided into five main categories:

•Industry and market risks

•Operational risks

•Compliance and IT risks

The risks described below under each of the five categories are considered to be among the most significant and quantifiable risks for

Industry-changing risks, such as the substitution of oil for other energy sources and radical changes in transportation patterns, are

considered to have a relatively high potential impact but are long-term risks. The Management continues to monitor long-term strategic

risks to ensure the earliest possible mitigation of potential risks and develop the necessary capabilities to exploit opportunities created by

Please refer to the Risk Management section in our Sustainability Statement under E1 Climate Change section on page 64 in the Annual

Report 2025 for a detailed description of emerging risks.

Industry and Market Risks

Industry and market-related risk factors relate to changes in the markets and in the political, economic, and physical environment which

the Management cannot control, such as freight rates and vessel and bunker prices.

Freight rate fluctuations

TORM’s income is primarily generated from voyages carried out using the Company’s fleet of vessels. As such, TORM is exposed to

the considerable volatility which characterizes freight rates for such voyages.

It is TORM’s strategy to seek a certain exposure to this risk, as volatility also represents an opportunity because earnings have

historically been higher in the day-to-day market compared to time charters. The fluctuations in freight rates for different routes may

vary substantially. However, TORM aims to reduce the sensitivity to the volatility of such specific freight rates by actively seeking the

optimal geographical positioning of the fleet and by optimizing the services offered to customers. Please refer to Note 12 for details on

Tanker freight income is to a certain extent covered against general fluctuations through the use of physical contracts such as cargo

contracts and time charter agreements with durations of 6-36 months . In addition, TORM uses derivative financial instruments such as

forward freight agreements (FFAs) with coverage of typically 0-24 months ahead, based on market expectations and in accordance with

TORM’s risk management policies.

During 2025, 6.7% (2024: 8.5%, 2023: 12.6%) of the 31,840 earning days deriving from operating the Company’s tankers were covered

in this way. Physical time charter contracts accounted for 80.4% (2024: 65.6%, 2023: 8.5%) of overall coverage. In 2025, the Company

sold FFAs with a notional contract value of $82.6m (2024: $82.6m, 2023: $213.9m) and bought FFAs with a notional contract value of

86.4 (2024: 11.7, 2023: 0). The total notional contract volume sold in 2025 was 2,820,000 metric tons (2024: 2,430,000 metric tons;

2023: 5,400,000 metric tons), and the total notional volume bought was 2,725,000 metric tons (2024: 250,000 metric tons, 2023: 0

metric tons). At the end of 2025, the coverage of available earning days for 2026 was 8.5% through time charters, current spot voyages

and cargo contracts (2024: 12.8%, 2023: 11.3%).

FFA trade and other freight-related derivatives are subject to specific policies and guidelines approved by the Risk Committee,

including trading limits, stop-loss policies, segregation of duties, and other internal control procedures.

NOTE 24 – continued

All things being equal and to the extent the Company’s vessels have not already been chartered out at fixed rates, a freight rate change

of USD/day 1,000 would lead to the following changes in profit before tax based on the expected number of earning days for the

coming financial year:

Sensitivity to changes in freight rates


USDm	2026	2025	2024
Decrease in freight rates of USD/day 1,000:
Changes in profit/loss before tax for the following year	(31.5)	(28.9)	(27.8)
Changes in equity for the following year	(31.5)	(28.9)	(27.8)

Sales and purchase price fluctuations

As an owner of vessels, TORM is exposed to risks associated with changes in the value of the vessels, which can vary considerably

during their useful lives. As of December 31, 2025, the carrying value of the fleet was $2,792.2m (2024: $2,826.7m, 2023: $2,070.2m).

Based on broker valuations, TORM’s fleet had a market value of $3,177.5m as of December 31, 2025 (2024: $3,582.9m, 2023:

$3,080.9m).

Bunker price fluctuations

The cost of fuel oil consumed by the vessels, known in the industry as bunkers, accounted for 63.0% (2024: 69.0% 66.6%) of the total

voyage costs in 2025 and is by far the biggest single cost related to a voyage.

TORM is exposed to fluctuations in bunker prices which are not reflected in the freight rates achieved by TORM. To reduce this

exposure, TORM hedges the bunker exposure with oil product instruments to the extent bunker element in the freight rates achieved is

considered fixed.

Bunker trade is subject to specific risk policies and guidelines approved by the Risk Committee including trading limits, stop-loss, stop-

gain and stop-at-zero policies, segregation of duties and other internal control procedures

TORM only hedges bunker exposure whenever the freight is fixed beyond one month. In 2025, 1.0% (2024: 6.0%, 2023: 17.7%) of

TORM’s total bunker purchase was hedged through bunker hedging contracts. At the end of 2025, TORM had covered 1% (2024: 7%,

2023: 5.0%) of its bunker requirements for 2026. The total bunker exposure is estimated to be approximately 480,916 metric tons.

All things being equal, a price change of 10% per ton of bunker oil (without subsequent changes in freight rates) would lead to the

following changes in expenditure based on the expected bunker consumption in the spot market:

Sensitivity to changes in the bunker price


USDm	2026	2025	2024
Increase in the bunker prices of 10% per ton:
Changes in profit/loss before tax for the following year	(23.0)	(22.5)	(25.9)
Changes in equity for the following year	(23.0)	(22.5)	(25.9)

Operational Risks

Operational risks are risks associated with the ongoing operations of the business and include risks such as the safe operation of vessels,

the availability of experienced seafarers and staff, terrorism, piracy as well as insurance and counterparty risk.

NOTE 24 – continued

Insurance Coverage

During the fleet’s operation, various casualties, accidents, and other incidents may occur which may result in financial losses for

TORM. For example national and international rules, regulations, and conventions could mean that TORM may incur substantial

liabilities if a vessel is involved in an oil spill or emission of other environmentally hazardous agents.

To reduce the exposure to these risks, the fleet is insured against such risks to the extent possible. The total insurance program

comprises a broad cover of risks in relation to the operation of vessels and transportation of cargo, including personal injury,

environmental damage and pollution, cargo damage, third-party casualty and liability, hull and machinery damage, total loss, and war.

All 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. 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 P&I clubs, to diversify risk. The

P&I clubs are members of the internationally recognized collaboration, International Group of P&I clubs, and TORM’s vessels are each

insured for the maximum amount available in the P&I system. At the end of 2025, the aggregate insured value of hull and machinery

and interest for TORM’s owned vessels amounted to $3,400.0m (2024: $4,318.5m 2023: $2,340.0m).

Counterparty Risk

Counterparty risk is an ever-present challenge demanding close monitoring to manage and decide on actions to minimize possible

losses. The maximum counterparty risk associated is equal to the values recognized in the balance sheet. A consequential effect of the

counterparty risk is loss of income in future periods, e.g. counterparties not being able to fulfill their responsibilities under a time

charter, a contract of affreightment, or an option. The main risk is the difference between the fixed rates under a time charter or a

contract of affreightment and the market rates prevailing upon default. This characterizes the method for identifying the market value of

a derivative instrument.

TORM has a close focus on its risk policies and procedures to ensure that risks managed in the day-to-day business are kept at agreed

levels, and that changes in the risk situation are brought to the Management’s attention.

TORM’s counterparty risks are primarily associated with:

•Receivables, cash and cash equivalents, including restricted cash

•Contracts of affreightment with a positive fair value

•Derivative financial instruments and commodity instruments with a positive fair value

Receivables, cash, and cash equivalents, including restricted cash

The majority of TORM’s customers are companies operating in the oil industry. It has been assessed that these companies are, to a great

extent, subject to the same risk factors as those identified for TORM.

A major part of TORM’s freight revenues stem from a small group of customers. In 2025, one customer accounted for 8% of TORM’s

freight revenues (2024: one accounted for 8%, 2023: one accounted for 8%). The concentration of earnings on a few customers requires

extra attention to credit risk. TORM has a Credit Policy under which continued credit evaluations of new and existing customers take

place. For long-standing customers, payment of freight normally takes place after a vessel’s cargo has been discharged. For new and

smaller customers, TORM’s credit risk is limited as freight is usually paid prior to the cargo’s discharge, or, alternatively, a suitable

bank guarantee is placed in lieu thereof.

Because of the payment patterns mentioned above, TORM’s receivables primarily consist of receivables from voyages in progress at

year-end and outstanding demurrage. For the past five years, TORM has not experienced any significant losses in respect of charter

payments or any other freight agreements. With regard to the collection of original demurrage claims, TORM’s average stands at 96.0%

(2024: 98.4%, 2023: 98.6%), which is considered to be satisfactory given the differences in interpretation of events. In 2025, demurrage

represented 12% (2024: 13.0%, 2023: 16.0%) of the total freight revenues. Please refer to Note 1 for more details on recognition of

demurrage claims into revenue.

NOTE 24 – continued

Excess liquidity is placed on deposit accounts with major banks with strong and acceptable credit ratings or invested in secure papers

such as American or Danish government bonds, or triple AAA-rated money market funds. Cash is invested with the aim of getting the

highest possible yield, while maintaining a low counterparty risk, and having adequate liquidity reserves for possible investment

opportunities or to withstand a sudden drop in freight rates.

Derivative Financial Instruments and Commodity Instruments

In 2025, 100% (2024: 100%, 2023: 100%) of TORM’s forward freight agreements (FFAs) were traded via clearing houses or over-the-

counter (OTC). Trade via clearing houses effectively reduces counterparty credit risk by daily clearing of balance and OTC trades are

only done with investment grade counterparties. Over-the-counter fuel swaps have restrictively been entered into with major oil

companies, banks, or highly reputed partners with a satisfactory credit rating. TORM also trades FX and interest derivatives. All such

derivatives were entered into with investment grade counterparties.

Financial risks

Financial risks relate to TORM’s financial position, financing, and cash flows generated by the business, including foreign exchange

risk and interest rate risk. TORM’s liquidity and capital resources are described in Note 2.

Foreign Exchange Risk

TORM uses USD as its functional currency because most of the Company’s transactions are denominated in USD. The foreign

exchange risk is thereby limited to cash flows not denominated in USD. The primary risk relates to transactions denominated in DKK,

EUR, and SGD and relates to administrative and operating expenses.

The part of TORM’s expenses denominated in currencies other than USD accounts for approximately 61.2% (2024: 57.8%, 2023:

60.2%) for administrative expenses and approximately 20.1% (2024: 19.9%, 2023: 21.6%) for operating expenses. TORM’s expected

administrative and operating expenses in DKK and EUR for 2026 are approximately DKK 502.6m, whereof 67.9% (2024: 69.1%, 2023:

68.3%) are hedged through FX forward contracts. All FX forward contracts have maturity within 2026, and TORM’s average hedge

USD/DKK currency rate is 6.41. FX exposure is hedged in its entirety for all risks.

TORM assumes identical currency risks arising from exposures in DKK and EUR.

Sensitivity to Changes in the USD/DKK and USD/EUR Exchange Rate

All things being equal, a change in the USD/DKK and the USD/EUR exchange rates of 10% would result in a change in profit/loss

before tax and equity as follows:


USDm	2026	2025	2024
Effect of a 10% increase of DKK and EUR:
Changes in profit/loss before tax for the following year	(2.5)	(2.1)	(2.2)
Changes in equity for the following year	(2.5)	(2.1)	(2.2)

Interest rate risk

TORM’s interest rate risk generally relates to interest-bearing borrowings. All TORM’s loans for financing vessels are denominated in

USD. Please refer to Note 19 for additional information on borrowings. At the end of 2025, TORM had fixed 74.1% (2024: 82.7%,

2023: 86.9%) of the debt then outstanding with interest rate swaps, fixed rate leasing debt and senior unsecured bond corresponding to

an amount of $742.8m. $414.2m of this amount is hedged at an interest rate of 2.76% plus margin with interest rate swaps with maturity

in the period 2026-2030.

NOTE 24 – continued

Sensitivity to Changes in Interest Rates

All things being equal, a change in the interest rate level of 1%-point would result in a change in the interest rate expenses as follows:


USDm	2026	2025	2024
Effect of a 1%-point increase in interest rates:
Changes in profit/loss before tax for the following year	(2.8)	(3.0)	(2.7)
Changes in equity for the following year	4.9	8.7	10.4

TORM’s strategy is to ensure continuous access to funding sources by maintaining a robust capital structure and a close relationship

with several financial partners. As of December 31, 2025, TORM’s loan portfolio was spread across 14 different banks.

As of December 31, 2025, TORM maintains a liquidity reserve of $163.5m in cash and cash equivalents, including restricted cash,

combined with $398.8m in undrawn and committed credit facilities. Cash is only placed in banks or Money Market Funds with an

investment grade rating. For further information on contractual obligations, including a maturity analysis, please refer to Note 22.