Good morning, everybody, and thank you for joining us on this earnings call in relation to Maersk's 2016 annual result and report. My name is Søren Skou, I'm the Group CEO, and with me today is Claus Hemmingsen, Group Vice CEO, and Jakob Stausholm, our Group CFO. It's our intention with the presentation to hit the highlights on each of the slides, and allow as much time as possible for questions. Turning to slide two, I have to, as usual, remind you that the report includes forward-looking statements, and I invite you to read our disclaimer in that respect. Before we turn to the financials, just very briefly an update on the strategy.
I mean, it's not a long time since we had the Capital Markets Day, so it will be brief. We have with effect from the first of January, you know, the five businesses, Maersk Line, APMT, Damco, Svitzer, and MCI have financially been consolidated into our integrated transport and logistics division. We expect for this year to generate around $150 million in synergies in 2017, out of the up to $600 million or 2 percentage points of ROIC improvement that we have flagged. We have also implemented a very tight capital discipline as promised at our Capital Markets Day in December, and I highlight that. We are moving forward on the Hamburg Süd acquisition.
We are progressing well with the due diligence, as planned, and we continue to expect to be able to have final agreements signed early in Q2 2017, and close the deal towards the end of the year, subject to regulatory approvals. For the Energy Division, we are continuously working on finding sustainable structural solutions. As earlier stated, we will not give any progress update on the roadmap for finding structural solutions as we will return with news once and when we have identified actual solutions for each of the four businesses. Now to the financials. For 2016, we reported an underlying profit of just over $700 million. We believe that's within our latest guidance.
Including the impairments of total $2.6 billion after tax, primarily related to Maersk Drilling and Maersk Supply, we reported a net loss of $1.9 billion for the year 2016. Cash flow came in at breakeven as our capital expenditures was $5 billion and below our earlier guidance of $6 billion due to delay, mainly due to delay in delivery of a drilling rig and lower CapEx in APMT.
As a consequence of the weak financial performance, and as a tool to defend our investment grade rating, which we are committed to, the board of directors have proposed a reduction in the dividend for 2016 to DKK 150 per share. It was DKK 300 per share in 2015, to be approved at the AGM on 28th of March. Let me turn to the fourth quarter. We reported a loss of DKK 2.7 billion that was driven entirely by the impairments of DKK 1.1 billion in Maersk Supply and DKK 1.5 billion in Maersk Drilling.
The impairments reflect what in our view is a very poor outlook for the businesses, the significant overcapacity, and we also believe reduced long-term demand expectations in both in the deep water drilling segment for Maersk Drilling and for the anchor handling segments in Maersk Supply Service. The underlying profit was a loss of $63 million in the quarter, with Maersk Line posting an underlying loss of $155 million and Maersk Oil reporting an underlying profit of $250 million. That includes, however, also reversal of abandoned provisions of $93 million.
Despite the weak underlying earnings, our cash generation was strong in Q4, with a free cash flow of $522 million, leading to a minor decrease in the net interest-bearing debt from Q3 to Q4. I will now give the word to Jakob Stausholm. He will walk you through the Transport & Logistics numbers, and thereafter, Claus Hemmingsen will walk you through the Energy numbers, and then I'll be back with some closing comments. Jacob?
Thank you, Søren, and good morning to all of you. Our entire transport and logistics business had a tough year last year. We just broke even with an underlying earnings just below $100 million. The vast majority of our transport and logistics business are, of course, Maersk Line and APM Terminals. They are both hit by a low global demand and overcapacity. As you can see from the graph on the underlying profit, the variances we have are partly in terminals, but mainly in Maersk Line. I will put the emphasis on diving deep into the Maersk Line performance. Maersk Line is of course very exposed to the freight rates. We saw a recovery from the second quarter to the third quarter.
We have not seen a recovery from the third quarter to the fourth quarter, and I'll dive into that and explain a little bit around that and when we are hitting the inflection point. We actually saw a recovery over the quarter and the rates improving quite a lot from the beginning towards the end of the quarter. Let me turn to the next page and talking about the Maersk Line's performance. A couple of key points. First of all, when you look at the profit and loss statement with an underlying reported profit of $155 million, that is unsatisfactory. It's slightly less than we had expected.
It is at a moment very difficult to predict precisely profit months on months simply because we are, we believe, at an inflection point in the changes. The inflection point really starts from the graph you see on the slide with the supply and demand growth. What you can see if you go one year back, we hit a low point in the demand. We have slowly but surely seen a recovery in demand. Actually Q4 ends up pretty strong with a global demand of 4%. What you also can see is that the supply overhang has been very, very significant. People had expected higher demand, and therefore we have had imbalances. In a way, you could say the last six, eight quarters we have been working with the fundamentals against us.
Now, fourth quarter is a change here because what we see now is that the net addition on a nominal capacity has gone down significantly. Much less new deliverables and record high scrappings has led to that suddenly demand exceeds supply. The encouraging sign is that it looks like this will continue in a few quarters to come at least. We believe we are at an inflection point. The next point I would make is we announced a year and a half ago at the Q2 2015 a growth strategy. We wanted not just to grow with the market, we want to grow more than the market. We have executed on that strategy.
Søren Skou further emphasized that in the announcement of the changes on the 22nd of September last year, where we said deliberately that we wanted to win market share. You see that full year our volumes are up 9%, and Q4 versus Q4 last year, our volumes are up 12%. This basically means, hopefully at a point of inflection, that we're getting into next year with, from a very strong position with a lot of volumes, and I should say, and I'll show you that in a moment, with record low unit costs as well. Because operationally we have done well, high utilization and low unit cost. The fourth quarter, though, are likely to disappoint, if you compare to competition.
It's gonna be difficult to hit the 5% gap to competition that we have as a longer term target. That has a lot to do with our trade mix compared to how the market has developed. I'll show you that in a moment. Overall, it's important to say that even if the trade mix might not fit perfect the rate development in the fourth quarter, we think that we are strategically well positioned and certainly entering 2017 from a strong point both on unit cost and volumes. Moving to the next page 8, and this is a new disclosure that we've start giving you here to show you the development in freight rates on East-West, North-South, and in our interregional businesses.
It is important to say that and you can see it in the freight indexes, that the big East-West trades that are characterized have been probably more commoditized than the North-South. That's where we have seen so far the main improvements. We haven't really seen it in North-South yet, and it's very much to do with a significant overhang, initially of capacity in East-West that has led to a lot of cascading into the North-South routes. That hits us pretty hard and we can see that there are certain particularly Asian carriers that has probably on average got more benefit in the fourth quarter from the improving situation also following the bankruptcy of Hanjin on the Pacific. Now moving on to page number nine, the unit cost.
There was some questions around how was that developing at the third quarter, because our mindset is of course continuous improvement. We have a deflationary mindset. The cost leadership remain our key priority, and I'm pleased to show you here that actually on the fourth quarter 2016, we record the lowest unit cost ever at fixed bunker price. Slightly higher in absolute terms than the second quarter, but that's because the bunker price have gone up, significantly. It shows that we continues to execute on our strategy with growth and growing more volume than growing our capacity, having a high utilization, round-trip utilization. In conclusion with Maersk Line, disappointing results, but at an inflection point. We see encouraging signs from 2017.
That's why we feel comfortable with the guidance of improving the results with at least $1 billion for Maersk Line in 2017 compared to 2016. Moving on to APM Terminals. APM Terminals had an underlying profit of $91 million in the fourth quarter. It was down compared to the same quarter last year. In general, APM Terminals is like Maersk Line, hit by lower demand. We have seen a cyclical reduction in the performance from APM Terminals, partly because of our exposure to oil-exposed economies, but also partly because of the industry. What is important here to see is actually the business model works. In that sense, opposite to Maersk Line that has seen significant reductions and even losses, we remain fairly profitable.
Overall, ROIC in the fourth quarter was 4.4%, and that is with the burden of a lot of ongoing investments in new terminals at the moment. If you look at the operating, the return on invested capital from our operating assets, then the return is actually 7.8% at a cyclical low point in the industry. We feel we have a robust business here, but it's still a disappointing result, a result that has potential to improve upon. There are no easy recovery here for APM Terminals. With the new strategy of focusing on the assets we have and with taking out cost, we can see a slow, gradual improvement over the years, also exploiting the synergies with Maersk Line.
Moving on to slide to page 11. Damco had a slightly better quarter than previous quarter, but it's still insignificant. The major part of Damco's role in the transport and logistics business is to find the way to develop value propositions together with Maersk Line and leverage the whole transport and logistics. Overall, as you can see, the return to black is consistent in Damco. Svitzer had a slightly lower results than the same quarter last year, and slightly lower result than the year before. There was a couple of special costs here, particularly some startup cost in Argentina that can explain the difference. With those words, I'll hand over to Claus to take you through the Energy numbers.
Thank you very much. Jakob and I will comment briefly on the business units in the Energy division, and we are on page 12. Starting off with the underlying profit, you will see here that the underlying profit in Maersk Oil and Maersk Drilling improved in 2016 to $497 million and $743 million respectively. While we saw at the same time, Maersk Supply Service reporting an underlying loss and also profit in Maersk Tankers deteriorating due to very weak markets. I will take you through the development in each of the business units in the Energy division in more detail in the following slides.
Before doing so, let me also just highlight what has already been mentioned, that we have taken the consequence of a significant oversupply and long-term reduced demand expectations for both Maersk Drilling and Maersk Supply Service, and therefore recognized in quarter four here an impairment of a total of $2.6 billion pre-tax, $1.5 billion in Maersk Drilling and $1.1 billion in Maersk Supply Service. That is the effect of the markets and the effect of the situation we see coming out of 2016.
As a final comment before going into the business units, I'll just also reiterate what Søren already mentioned, that we do not today give an update on the progress, but we do continue to work on the objective of the Energy division to identify individual structural solutions to separate out each of the four Energy businesses from A.P. Møller - Mærsk A/S, and come with those solutions before the end of 2018. That can include mergers, joint ventures, listings or of the businesses, either individually or combined.
Turning to page 13 and having a look at Maersk Oil, Maersk Oil continued the positive earnings development in quarter four with an underlying profit of $250 million due to a higher oil price that reached $49 per barrel in quarter four, and further initiatives to reduce costs and also reduction of abandonment provisions of a total of $93 million. Our production in Maersk Oil in the fourth quarter of 276,000 barrels per day were lower than expected, and the full-year production was also below our guidance as we realized 330,000 barrels versus the guidance of 320,000-330,000 barrels.
The lower production was mainly driven by Qatar, which are impacted by the higher oil price, and with higher oil price, we get lower entitlement production, but it was also impacted by lower production in the U.K. from the maturing fields. We do expect in 2017, a production level of 2,015-2,025 thousand barrels per day, and after the exit of Qatar, which happens in July 2017, we will be at 150,000-160,000 barrels per day for the second half of the year. Operating expenses in Maersk Oil, excluding the exploration costs, were reduced again by 19% in the fourth quarter.
Compared to the 2014 baseline, now the total cost in Maersk Oil, operating cost in Maersk Oil, has been reduced by 36%, significantly above our own target of 20%-25% reductions. Also in line with the strategy, our exploration costs were kept low, and in the fourth quarter, they reached $62 million. As a result of the higher production efficiencies that were achieved in Maersk Oil and the lower operating expenses, the breakeven price remained below $40 per barrel in 2016. For 2017, we target a breakeven price, excluding Qatar, between $40-$45 per barrel. It is important to highlight that, given the sensitivity to earnings, even minor changes to cost, of course, will impact the breakeven price level. Also, as part of the strategic focus, Maersk Oil has signed agreement to divest interest in non-operated assets in the U.K. and Norway.
The divestments are still pending approval from authorities, and they will have a very limited impact on our financials going forward. The last thing I would like to mention under Maersk Oil is that, in respect to the Tyra field in Denmark, we are in constructive dialogue with the Danish government, and we do expect to reach an agreement soon that will safeguard the rebuilding of the Tyra field. Turning to Maersk Drilling on page 14. Maersk Drilling reported an underlying profit of $16 million, very close to breakeven, which we had also guided for after Q3. The lower revenue is due to early termination of contracts and also more rigs being idled, which, of course, negatively impact our earnings in the quarter.
We continue the effort to reduce cost, and Maersk Drilling has now achieved a total cost saving of more than 20%, compared to the 2014 baseline. Maersk Drilling continued with a very strong operational uptime of 99% for the jack-ups and 98% for the floating rigs, contributed to efficiency drives and in spite of the cost efficiencies also being achieved. Despite the weak outlook, which also resulted in the announced impairments, Maersk Drilling, they still have a strong backlog compared to the average of the industry with a revenue backlog of $3.7 billion and for 2017 alone, a coverage of 56% of the rigs.
If we turn to page 15, where we have Maersk Supply Service and Maersk Tankers, then Maersk Supply Service in fourth quarter recognized an underlying loss of - $23 million due to the weak market conditions and a very low utilization of our vessels. Lower operating costs from fewer vessels in operation and reduced running costs did result in a decrease in cost of overall $64 million. We have already mentioned the impairments. Maersk Supply Service, by the end of 2016, had 11 vessels in layoff. They divested 10 vessels during the year, and a further reduction of the fleet of additional 11 vessels are planned over the course of the next 15 months. We thereby also think that Maersk Supply Service is taking the lead in trying to adjust the demand and supply of the industry with the recycling of older tonnage.
Turning to Maersk Tankers, Maersk Tankers posted an underlying loss of - $13 million in the fourth quarter. That was also due to continued weak market conditions and very low rates. Focus on our commercial performance and cost efficiency mitigated some of the negative effects from the lower rates. For the full year average time charter equivalent earnings decreased by 17%, which was far less than the general market rate decline. For comparison, the spot market declined by more than 40% year-on-year in 2016. That concludes a fast and brief review of the four business units in the Energy division, and I will hand back the word to Jakob to go through some of the financial slides.
Thank you, Claus. With all the changes we are going through in A.P. Møller - Mærsk, cash generation and cash usage is critical for us to focus at. We have significant cash generation from all our businesses, as you will be able to see from page 16. One of the challenges we have been faced with is that and too many of our business units has basically invested more than generated cash flow and has constrained our free cash flow. We talked about that at the Capital Markets Day, and quite a lot has actually happened since then.
We gave you some guidance, and since then we have through investment committees worked very, very hard on getting very detailed plan to give us absolutely full comfort that we can deliver what we have said on the investment levels. Today we can confirm that it's actually a better picture because we set $6 billion at the Capital Markets Day in December for 2016 and $5.5 billion-$6.5 billion for 2017. We ended much lower in 2016 in the fourth quarter. Part of it was CapEx being phased into 2017, including a drilling rig to the value of $420 million. You could say by repeating the guidance of $5.5 billion-$6.5 billion, we are actually reducing.
Overall, in the five quarters from fourth quarter 2016 to 2017, we are now to the tune of $1 billion lower than at Capital Markets Day. The capital discipline is very much on. If you move to the next page 17, we say a strong financial position. We are in a strong financial position, and that is important to us. You heard us at the Capital Markets Day talking about our commitment to remain investment grade. We really believe that that is in the interest of the company, and we will do what it takes to remain there. The first part is to be restrictive on the uses of capital. Another important part that the board has supported the company with is in the discussions of dividends.
We were already alluding to it, that we have a dividend policy, and our dividend policy that stands, but it also refers to the underlying profit. The underlying profit is, as you know, much lower for the company, $711 million last year, and therefore, the board has proposed a lower dividend than the year before, taking the dividend per share from DKK 300- DKK 150. It's still a decent payout, and we think given all the uncertainties and the changes with the separation of energy businesses and the acquisition of Hamburg Süd, that this is a very helpful move to remain financially strong. We are also well-financed, as you can see here, with a good maturity of our debt portfolio.
I think basically what we are saying is we are reconfirming or strengthening a little bit our position from what we laid forward to you at the Capital Markets Day in December. Let me just finalize here on page 18. I don't intend to go through it, but here you have the consolidated financial information for Q4 in 2016. It's probably better to take questions from that than trying to explain every single word. I would like to hand back to you, Søren.
Thank you, Jakob. In 2017, our priorities are gonna be exactly like we laid them out at the Capital Markets Day in terms of executing on the plan. We're gonna drive the synergies out of the transport and logistics businesses. We are gonna take costs down, in particular in APMT and Damco, but certainly also continue the cost journey in Maersk Line, and we aim to close the Hamburg Süd transactions. As far as the energy business is concerned, the main work, of course, will be around finding the sustainable structural solutions to each of the businesses.
Before I get to the guidance for the year, let me just say that in my view, we end 2017 in a much stronger position than we ended 2016, despite the very poor result in 2016. If I start with the Transport & Logistics and Maersk Line. We grew share organically in 2016 9%, more than 9%, in a market that grew 2%. That may or may not sound like a big number, but in absolute terms, it means that we grew our volumes by 900,000 FFE. It's almost half of a Hamburg Süd we're talking about. That was good growth.
On top of that, we are of course targeting now to close the transaction or the acquisition of Hamburg Süd, which would add further to our growth. We believe that's a sensible strategy in a market where prices are increasing. We will have, you know, more volumes are definitely gonna help future results. Adding to that, our cost, as Jacob explained, is low, at the lowest point ever, unit cost on record, and we maintained in the third quarter the margin gap to our competitors, where you know we have a target of 5% or better to the average of the industry. Finally, I would say that the industry is consolidating. APL, COSCO, APL has been merged into CMA. COSCO and China Shipping has merged.
UASC is in the process of closing with Hapag-Lloyd. Three Japanese carriers become one. Hamburg Süd has been announced by us to be acquired. Of course, Hanjin has disappeared altogether from the market. Seven carriers out of sixteen or seventeen so-called global carriers have or will disappear. That's also a positive development for the industry. Finally, on transport or logistics, I believe we have a strong plan that will help us drive synergies, both when it comes to commercial synergies and when it comes to cost synergies, as we outlined in some detail at the Capital Markets Day.
On the energy side, obviously, we are facing very, very tough situations in oil services, and we're gonna have to deal with that as best as we can. We are quite happy with the fact that our oil company is profitable quite a lot actually, and has a breakeven operating margin now below $40, which is also given today's oil price, a pretty good place to be. That is really what leads us to the guidance for 2017. First of all, we expect a better result underlying in 2017 than we had in 2016.
That belief or that guidance is very much anchored in the guidance for Maersk Line, where we say we expect an improvement in excess of $1 billion in the underlying profit compared to 2016 for the reasons that I just outlined. We see global demand growing 2%-4%. That is in all likelihood gonna be more or at least not less than capacity will grow next year. There's a very good development in capacity, at least in the first three quarters next year. On top of that, we notice, of course, the order book is record low. No ships of significance have been ordered since the third quarter of 2015.
Idling levels are record high and remain record high despite freight rates having gone up. We are seeing maybe what could be a newfound capacity discipline in the industry. As far as the energy division is concerned as a whole, we expect an underlying profit around half a billion dollars with Maersk Oil being the main contributor. I think that's it for now, and we will be ready to take your questions. Thank you.
Thank you. We will now begin the question and answer session. If you have a question, please press zero, then one on your telephone keypad and you'll enter a queue. After you're announced, please ask your question and no more than three questions from each speaker. There will be a delay before the first question is announced. Our first question comes from the line of Christopher Combé from JP Morgan. Please, go ahead sir, your line is open.
Good morning. Just three questions from my side. First of all, looking at Maersk Line guidance, how much would you ascribe in relative terms to revenue versus unit costs versus the $150 million of synergies targeted for transport and logistics? Second question, ex-fuel unit cost was very impressive, but the fuel unit cost performance was flattish year on year in Q4.
Excuse me, Christian. We have a little bit hard time hearing you. Can you try again? Sorry. Last second question.
Sure. Sorry, there's a bit of an echo. Second question is whether or not we should expect ongoing fuel unit cost performance improvements over 2017, given the fact that Q4 was sort of a flattish performance. Lastly, can you please tell us which quarters you expect to take delivery of your new builds in 2017? Does that CapEx offset the drill rig which spilled into 2017? Thank you.
Thank you, Christopher. I mean, the guidance is very much driven on two things. First of all, that as Søren quite elaborately explained, we're coming into the year with a lot of volumes. Very little, and you can see the sensitivities in the guidance statement. Very little should happen to the freight rate to have a huge impact. That is the overshadowing driver of our guidance. The unit cost, I wouldn't call it flattish. I think if I were you, I would look towards the unit cost at fixed bunker price. Because yes, it's flattish because we have seen an increase in the bunker cost, but the real underlying performance is driven by our unit cost at fixed bunker, and we aim to continue to improve that.
We cannot promise that to happen quarter on quarter, but we should do better next year than we did last year. Then finally, I think I only partly captured what you said. But yes, we are reducing the CapEx. Part of it is doing less, and part of it is delaying things. There are vessels that we are delaying to taking later delivery of, both in the energy section in the Energy business and in the Transport and Logistics, where we delayed until 2018. Quite frankly, the way we look at it, both things are helpful for the company. We're doing it, for example, we have managed to delay taking delivery of some of our 14K vessels at no cost, and operationally it actually fits us quite okay.
We save the CapEx for a year, and it doesn't have operational impact. Thank you.
Thank you.
Our next question comes from the line of Casper Blom from ABG. Please go ahead sir, your line is open.
Yeah, thanks a lot. A couple of questions regarding Maersk Line. First of all, regarding the higher bunker cost, can you talk a little bit about how you will recover these from your clients? Any type of delay in catching up there? I mean, I recall that your prices went down very quickly when the bunker was declining. Is that also the case now when things move in the other direction? Secondly, if you could give some sort of flavor to the contract negotiations that you've been doing on Asia-Europe and maybe also sort of first light on Asia- U.S. How are customers reacting to this time of year where Westsport rates are higher?
Finally a question regarding the energy side. We saw the other day that Shell were out saying that they want to sell their stake in DUC. Do you have any comments to how that might impact your future or possible transaction in that area? Thank you.
Thank you. Yes. If we start on Maersk Line, we ourselves look at it this way. We have about half of our business being long-term contracts, so that's three months and longer, up to one year. For those contracts, we have bunker adjustment clauses and they adjust with a delay, but I think, as a rule of thumb, you can think about it as a three months delay, either up or down. For the other half of the business that which is spot, so that is real spot or monthly contracts, there it's supply and demand that sets the price and it's included, you know, whatever bunker impact is included.
In terms of contract negotiations, one of our reasons for why we are guiding a result improvement in Maersk Line of more than $1 billion is of course that we are closing contracts at substantially higher levels than we did last year. We have you know contracts expiring at various points of the year, but the real big ones is around the turn of the year. In December/January, we close most of the Asia-Europe contracts, and in the Pacific contracts are closed mainly around first of May. Of course, there's lots of exceptions to that as well, but those are the two big dates.
Asia-Europe significantly higher contract rates, and we are also quite positive in terms of how Pacific will develop. We don't have any. I'm not gonna give any specific numbers, but it is closing at much higher levels.
In terms of the potential Shell deal in the North Sea, we have said that we are, of course, looking at all options and we are in the energy space, but I cannot comment or speculate on the impact of that deal or what we are looking at. I'm sorry about that.
Fair enough. It was worth a try.
Our next question comes from the line of Robert Joynson from Exane. Please go ahead, sir. Your line is open.
Hi. Good morning, everybody. Three quick questions from me. First of all, just following up on my colleague's question on the contract rates. I appreciate that contracts are less relevant for the North-South trade lines than the East-West routes, but could you maybe provide some flavor on repricing of contracts on the North-South trade routes as well? That's question one. Question two, just on the utilization rates. You mentioned at the Capital Markets Day for the Maersk Line, the utilization rate was 93% in Q3, and presumably it was similar for Q4. Could you maybe comment on how high that number could realistically go? Presumably you'll never get to 100%. And also could you maybe provide some color on the optimal utilization rate?
Again, I assume that wouldn't be 100% from a cost perspective. Just a final question on APM Terminals. In Africa and Russia, where the terminals have suffered from the lower oil price, you said that import volumes remain under pressure. Are you seeing any signs that volumes have now at least stabilized, even if they're still negative on a year-on-year basis, have they stabilized in absolute terms? Thank you.
Yes, Robert. First of all, North-South contracts. I think the guidance we can give is we have a very, very limited contract portfolio in the North-South trades. It's mainly related to reefer containers. Commenting on North-South contract rates is not really, you know, it doesn't have any significant financial implication for us because of the small volumes covered. In terms of head haul utilization, it's a good question, and one that we wonder a lot about ourselves. We have actually, you know, achieved record high utilization numbers and also probably numbers that are higher than we expected we would be able to reach. We continue to, of course, get a bigger and bigger network, and that does give us more and more opportunity for optimizing the network.
That is a part, partly the reason or maybe even the main reason for why we are continuing to be able to slightly increase the head haul utilization. 100% utilization over an extended period of time, we don't believe is possible. May not even be desirable from a cost point of view, because we probably have to do a lot of things in order to actually achieve that. I would say that the upwards potential from where we are today is in all likelihood not that enormous.
Of course, head haul utilization is one thing, and the other thing that we're working hard on is of course the round-trip utilization, where we are more in the 70% range. There, of course, we are challenged by the difference in trade flows, but we have improved by taking more backhaul cargo, and that is quite valuable for us, we believe. In terms of APMT's business in West Africa, in Russia, and for that matter also, I think, East Coast of Latin America, I think it's fair to say that we have stabilized with the possible exception of Angola.
The big, you know, Nigeria, Brazil, Russia and so on, volumes are not dropping anymore. They are, you know, we are starting to see small increases from a low base.
That's very helpful. Thank you, Søren.
Our next question comes from the line of Johan Eliason from Kepler Cheuvreux. Please go ahead, sir, your line is open.
Yes, thank you. My first question would be on the unit cost. You announced this slot purchase agreements with Hamburg Süd already starting as of April. Will that have any significant impact to your unit costs, you think? I understand you have pushed out some deliveries. With the softer rates that you currently have in the market, will that be an additional positive for your unit cost? On CapEx, you highlighted some delay in vessels, et cetera. Have you done anything to the CapEx profile of APM Terminals? Finally, just on the joint ventures for the other income, there was a big loss in the quarter. What was that? Thank you.
Sorry. Yes, Hamburg Süd, I don't think we can say that Hamburg Süd volumes on the East-West will add to or improve our unit cost, but it will of course give us a source of income because they will be a slot buyer on our East-West services. The charter rates are part of the reason for why unit costs are falling. The charter market continued to be extremely weak, driven by the fact that 7% of the global container fleet is currently idle or laid up.
Those are the ships that are mainly driven, owned by the what we call tonnage providers, but what many people think of as, of course, leasing companies. We continue to expect a you know low charter market for this year, and we will benefit from that. In terms of APMT, we have started to adjust the CapEx profile of APMT as we set out, said we would do at the Capital Markets Day. Quite clearly the focus on in APMT is to drive cost out, reduce unit cost, increase utilization and improve productivity.
We are not looking to go out to, let's say as we call it, plant new flags as in developing new container terminals over the next couple of years. The industry and APMT is impacted by excess capacity and low demand growth, and therefore our focus in the coming years will be on asset utilization and cost, and not starting new CapEx programs. With that being said, of course, we have important terminals that we still have under construction, and they will be adding to our CapEx in the coming years. You asked one last question to me that was question number four. Maybe that's the reason I couldn't hear it, but maybe you can repeat it.
Yeah, I just noticed that in your associated or joint venture income, there was a big loss for other businesses or so on. I was just wondering what that was.
In what company are you talking about in?
It was under other businesses, unallocated share of profit or loss in associated companies. You have a loss of $134 million.
It depends a little bit whether you look at the total result or the underlying result. If you look at the total result in the other column, there we have an impairment charge related to our Höegh Autoliners ownership. If you look at the underlying result, we had primarily a loss related to the devaluation of the Egypt currency in the fourth quarter.
Okay. Thank you.
Our next question comes from the line of Jørgen Bruaset from Nordea Markets. Please go ahead, sir. Your line is open.
Thank you very much for taking my questions. First of all, on the synergies in transport and logistics, you've said that you expect to see $150 million in 2017. Could you just put that into context for me? Is that included in the guidance where you say underlying profit above $1 billion for the division?
Yes, it is. It is included in the guidance.
Okay. If you look at the guidance for the energy division, could you also provide some more granularity? You say around $0.5 billion. First of all, what should we read into the wording around? Is that ±10% or ±25%? Also, how should we read the earnings contribution from everything ex Maersk Oil in that regard.
I don't think we're gonna be expanding on our guidance today. We say quite clearly that we expect around $500 million and the main contribution being from Maersk Oil, which, as you can see from the numbers, made about half a billion dollars in 2016.
Okay. Finally, just on the volume outlook in Maersk Line. I can read that you still target to capture organic market share. Should we expect the volume growth to be in front of the high single digit level we've seen in 2016? Or should we expect this to fall back more into the low single digit but still above market growth?
We first of all have a plan to grow market share, as we said very clearly at the Capital Markets Day, grow organic market share every year. On top of that, we are growing through acquisition as well. Sustaining the current level of growth of 9%-10%, we were 12% in the fourth quarter, over an extended period of time is unlikely for the whole year, but we are entering the year with a lot of momentum.
Okay. Thank you very much.
Our next question comes from the line of Mark McVicar from Barclays. Please go ahead, sir. Your line is open.
Good morning. Thank you very much. I have three questions. I'll do them just one at a time. In the annual report, you show a recent table from Alphaliner that says that the planned deliveries as a percentage of the fleet in both 2017 and 2018 will be just a little bit under 7%. Are we right in assuming that to achieve balance in the market will require further scrapping and further layout?
You're certainly right in assuming that when we talk about the development in supply and demand, that we are considering a continued high level of scrapping. Yes.
In fact, we recorded the highest scrapping rate ever in January this year. That's how things are developing right now.
Second one, just, these are quicker questions. Can you just talk us through how you get to the impairment numbers for the rigs and supply boats? Is this straight forward DCF or do you use some other techniques?
You know the accounting rules. We have a decent split of cash-generating units. We look at the market value, whatever that market value is, because there's really not a lot of trade. We look at the value in use. Claus and I and our organizations, we have just very carefully looked at our contract portfolio, our five-year financial plans, and the longer-term perspectives. Taking it all into consideration, looking at how many new contracts we have had the last year, how is the utilization in the industry, then we have made certain assumptions and built an NPV. There we have it. It is mainly the deepwater segment. We come to the conclusion that we needed to make an impairment.
Okay, that's great. My final question is that you said that exploration costs will still be or will be around about the same in 2017 as they were in 2016. Could you give us some idea of where the main projects will be?
Well, the main projects where we have exploration costs is in Culzean in the U.K., but there are also smaller costs around in various other projects. There are various activities, but it's very low. Of course, we are also developing our portfolio in East Africa, where there are also some exploration costs.
That's great. Thank you very much.
Our next question comes from the line of Marcus Bellander from Carnegie. Please go ahead, sir. Your line is open.
Thank you. Two questions from me, if I may. First, I'd like to dig a little bit deeper into the average freight rate development in the quarter, and I appreciate the increased transparency that Jakob gave, but I still struggle to understand why your average freight rate is declining quarter-on-quarter. I think when I look at North-South rates, they seem to be roughly flat. We have Asia-Europe up quite considerably and Asia Pacific up strongly. Maybe if you could help us understand that dynamic a little bit better.
Yes. I think, I mean, basically the main explanation here is how you recognize revenue. You sell certain things and you put a box on a ship at a given freight rate, but then you only recognize it over the time it sails. That's the IFRS rule. It takes a little while from when you make a transaction with a rate till you get it into your revenue. There's no doubt that some of the rate increases we have seen towards the second half of fourth quarter, we will only get that in the first quarter.
I mean, rates started rising in September or even before that.
On the East-West, yeah.
How long the delay is?
On the East-West, yes. We have actually seen a quite negative development on the North-South, pretty deep into the second half of the year.
Okay, I understand. Thank you. Second question regarding Maersk Oil or the energy division. You say that you aim to complete the sort of separation by end 2018. I think in September last year, you said you gave yourself 24 months. Have you given yourselves a few more months, and if so, why?
No, that's very sharp. We said in the 22nd of September that we gave ourselves 24 months, and that is what we are standing by. It's very close to end 2018. Anyway, what we are saying is that we will be announcing the solutions by that time, 24 months later, but not necessarily that we will have executed, if you like, on all four business units. That entirely depends on market conditions and the opportunities that presents itself. We are working diligently on finding the solutions and being able to communicate them within the 24 months, as of the September announcement.
Okay. Maybe follow up on that. Søren Skou was saying in an interview, I think it was Bloomberg News, that a separate listing of the whole energy unit now is the most likely outcome. What has changed, or why is that the most likely outcome now?
I've certainly also seen the headlines that was from that interview. Actually, if you see the whole interview, then you'll agree with me that it's a very sharp angling of the interview. I mean, as you all know, there are really three ways to separate the businesses. We can sell them, we can list them separately, or we can merge them into some other company. All of those three, you know, ways of separation is in our playbook. We don't believe that there's one solution that is gonna fit all four companies.
For now, we're keeping all options open.
Excellent. Thank you.
Our last question for today comes from the line of Neil Glynn from Credit Suisse. Please go ahead, sir. Your line is open.
Good morning, everybody. If I could ask two questions then. The first one, volumes are obviously strong, and you've mentioned that Hamburg Süd volumes are coming. Given utilization on head haul, certainly, can you become more selective in terms of what volume you carry in 2017, given the supply-demand dynamics, or are you still very much focused on gaining as much share as possible? Then the second question with respect to management incentivization. Disclosure is somewhat limited relative to the rest of the transport sector, certainly.
Just interested in terms of whether it's possible to confirm the structure has been reviewed in light of the portfolio review, and if you can help give us some understanding as to the key trigger points in terms of profitability or returns and timing, or at least when can we expect a little bit more color on that to help us understand the picture.
If I start with the question around market share in Maersk, right, and gaining share. I mean, clearly in 2016, we were of the view that we wanted, we needed to grow organically. We wanted to come out of this price war that we saw starting in the second quarter of 2015 and ending probably around the third quarter of 2016. We wanted to come out of that in a position of strength. It makes sense inasmuch as we have the lowest cost in the industry to actually use that in such a situation.
In particular, when it became clear that market probably had turned, then we aim to get our, let's say, fair share or more than fair share of the Hanjin volumes, as well. We can-
This is a weekly.
Yeah, we just have our weekly test of the alarm system. Just a minute. Thank you. So we continue to want to grow market share. I don't think we want to grow quite as fast as 9%, 10%, 11%, or 12%. But as I said to an earlier question, we are entering 2017 with relatively good momentum. You're probably gonna see good year-on-year volume growth numbers when we get to the first quarter, but that is not a pace that we want to keep up, and I don't think it's realistic to keep up for the rest of the year. The other question you raised, I just wanna be sure of it. It's incentives, short-term incentives, long-term incentives, how we construct that? That was the question.
Yeah, I mean, clearly there's been a big change, obviously, at the company. I'm just interested in terms of how the board actually reviews your own incentivization packages in that context. Has there been a significant change? It would also, I think, over time, certainly be helpful to understand where the real trigger points in terms of incentivization are, i.e., whether they are the group getting back to covering its cost of capital, whether there's cash flow dynamics to incentivization packages, given the range of color we have elsewhere in the transport sector.
It's a good question, and I can, in broad terms, explain to you how we are thinking, but obviously, incentive schemes are to be decided by the AGM. What we have done the last year is we have done quite a lot of analysis of what went right and what went less well over the last couple of years. We do look at the scorecards, where we are trying to get in the right metrics that will achieve all the things we have just been sitting and talking about. It is about earnings, it is about profitability, it is about growth, and it is about achieving the synergies. We are really homing in on achieving the synergies. We need to get these five businesses to work seamlessly together as one business.
We're building that in. Finally, the last thing, and you heard me talking quite a lot about that, also incentivizing capital discipline. We need to be able to run our business with less CapEx in the future. We are still working on further things, on longer term incentive schemes, where we just basically want to align management as much as possible with the shareholders. I can't say more at this point in time.
Understood. Well, thanks for the color.
All right. In that case, I think we can conclude this presentation and question and answer session. Again, thank you for joining us and we look forward to talking to many of you over the coming days and months and hear you back here again in a quarter's time. Thank you.