Good morning. This is Nils Andersen, and it's a pleasure for me to welcome you all to this morning call on A.P. Møller-Mærsk's annual accounts. As usually, I'm here with, well, our CFO, Trond Westlie, and we'll share the presentation between us and also the answering of questions. I'll take you through the presentation as quickly as I reasonably can, and then we'll go over to questions. If I start by just while you read the forward-looking statements on page 2 in the uploaded document, then just give you sort of a few comments. First of all, of course, we realize that by taking an impairment of $2.6 billion on the oil assets, we make the result...
For the fourth quarter, look very complicated and very negative. The fact is that we've decided based on the low oil price we saw in January, combined with cautious expectations for the future to take a relatively firm view on the value of our assets. We've written down the $2.6, which is basically it's the deep water offshore finds that we have, where there's some pre-production investments that have been activated, as well as acquisition costs. Those we're writing down to zero. On top of that, we've also looked at our producing assets, those who are near the end of life, and made a cautious estimate to the oil price during the remaining part of their life.
that led us to the conclusion that they may be overvalued in our books, and then we've written them down as well. It's quite significant write down, but it leaves us with a very reasonable carrying value, we believe, of the oil business. On top of that, and that I think is the other negative news here in the accounts that we also, for the fourth quarter, come out at the lower end of our expectations. We'll show you on page four why that is. The background for that is simply that the oil price and the freight rates deteriorated much faster than we expected and to lower levels.
We were negatively surprised by that, and it left us then with a profit of $3.1 billion. All the negative things aside, and the surprises, let me also underline that all our businesses delivered a profit in 2015. We left the year with the same net interest-bearing debt of $7.7 billion that we entered, actually a little bit lower. The strength of the group is intact, and our ambitions to take advantage of this downturn is also intact. With those words, let's go to the presentation and start on page 3. I've just commented on the headline profits down from $5.2 billion to $925 million.
Main reason, of course, the write down, but also the other parts of the underlying business deteriorated, which you can see just next to it. There's the result from last year, 4.5 underlying, down to 3.1 underlying. We'll come back to that in a minute, how it's allocated. If you go to the cash flow, we delivered a very big progress in cash flow, but that was due to the sale of Danske Bank. We didn't really view it as a sale. We viewed it more as a handout of Danske Bank to our shareholders. As you'll recall, shareholders got the choice between cash and shares in Danske Bank. That was how this thing was settled.
If I go to the real cash flow from underlying and continuing business, it's down from $2.6 billion to $1.6 billion, of course reflecting the lower earnings level. Underlying profit by activity is just below. You'll see that the main culprit is Maersk Line. A deterioration from $2.2 billion to $1.3 billion, $900 million. We'll come back to that later, but actually I believe that. The result, given the circumstances, is quite strong on the back of a good first half. Maersk Oil also deteriorated in result with $600 million, exclusively based on the oil price. Also come back to that, they also delivered good operational performance.
APM Terminals down from 849 to 626, caused by weakness in some of its important markets, being Russia, Brazil, and certain countries in West Africa. APM Shipping Services improving results significantly, improved results in tankers and in Svitzer, deterioration in Maersk Supply Service due to the market, and the effect of the turnaround in Damco, they delivered a positive result. That's why, or that's the sort of the background for that. If you go to the text on the right side, I think I've covered most of it.
Again, I think it's important to keep in mind that we have a very strong cash flow and the debt level is very reasonable. We have a strong financial position and are ready to use that if the right things come up, but only as we've proven with our somewhat cautious approach to M&A last year, if the right things come up at the right price. The board of directors proposes an unchanged dividend of 300 DKK per share, which on the background of the results we think is good and fair. Our ambition with dividends remains unchanged, is to progress the nominal dividend when the results open up possibility for that.
Let's go one step deeper. The page four really explains basically everything this company has gone through last year. If I start with the obvious, that both the container freight rates and the oil prices are at a very, very low level. Of these graphs here, I think you'll understand why. If we then go to the quarter figures, the quarter result is down from a profit last year of $189 million, down to a loss of $2.5 billion. The underlying situation is, and that's of course due to the writedown or impairment in the oil business. The underlying figure is slightly better, but still, of course, not satisfactory.
We went down from a profit of $1 billion to $900 million last year. The only effects are freight rates and oil prices. If we look at cash flow, it did a little bit better, but still a significant decline from $844 million to $500 million in the quarter. A very tough market situation. Going to the different business units, more or less the same picture as we saw in the annual accounts, shortfalls in Maersk Line, in Maersk Oil and APM Terminals, and improved results in Maersk Drilling and APM Shipping Services.
That was the reason why we came out short of our expectations, or at least the lower end of what we would expect. If we go to Maersk Line on page 6, then the figures also here speak pretty much for themselves. But the underlying profit I mentioned that a few times it deteriorated in fourth quarter, and we made a loss of $165 million, which was a disappointment to us and explained by the freight rates. There is a small restructuring provision in there. As you'll recall, we published after Q2 a significant restructuring plan for Maersk Line. Actually, not a plan that was mainly aimed at cost, but it will also have cost impact.
It's mainly aimed at making work processes internally much easier and much faster and thereby also making the customer experience when they ship with us better. There's a restructuring of $68 million. We had a small increase in volume to 2.4 million FEUs. We think that is more or less in line with the market. We haven't seen any reliable figures for Q4 yet, but we believe this. This is a good figure. What continues to give us some challenges is the low growth or weak imports into Europe and of course the slowdown in emerging markets that you've read about in the papers, all of you.
I'll not go on, sort of, I'll not entertain you with all details on that. We do continue to have problems with overcapacity. There was the growth in the fleet by close to 8%. Actually, we have around 7%, if I'm not mistaken, of the fleet laid up or at least inactive at the moment. The fleet grew by 8% on the back of orders placed two or three years ago, when probably everybody's growth expectations were higher than what we've seen. Rates declined 25% in the quarter and I've already covered that. The way you can say the impact has been the strongest in Europe and Latin American trades are also been strongly affected on the back of commodities.
In particular, of course, imports into Brazil is suffering significantly. Brazil is in a situation close to a depression, most likely, and imports are down a lot. If we look at the key variable for us, is our EBIT margin compared to our competitors. It did stay above 5% during the year. It narrowed somewhat towards the end of the year, we believe, on the back of lower oil prices, thereby lower bunker prices, and of course, an important part of our increased competitiveness have been our more economic use of fuel, and which comes on the back of our CO2 emission reduction program.
That advantage is higher when the oil price is high. We're losing a bit on that. What we're doing is, of course, we're working on the cost and we're working on the capacity. The most important driver of cost is capacity, excess capacity. It's awful if you have too much capacity in the market, it becomes very difficult to be cost competitive and therefore also making money. We have put quite a bit of effort into managing our capacity during the year. In spite of the fact that the markets have grown less than we expected, well, I think we've done reasonably well. Our capacity increased by 0.5% year-on-year to 3 million TEU.
If we look back on the third quarter, it actually declined 2.1%, reflecting the weaker markets. We reduced, as we have said we would, charter capacity by approximately 7%. The growth in capacity, or that and substitution of the charter capacity returned was the growth in new modern vessels received during the year. We had a utilization more or less on par with Q3 2015, but it was lower compared to Q4 2014. This is a little bit the picture we've seen through the year. We have been chasing capacity because of the growth being lower than we expected entering the year. We're doing our best to get in line with demand.
We've done a lot of things in addition to to reducing capacity. We've also closed some services, which is part of the capacity management. We canceled a number of sailings, and we handed back, as I just said, charter capacity, and we have idled four vessels at the moment or at the end of 2015. Of course, it takes time to manage the network. You have rigidness in the system, both because you own ships, but also because you have to respect agreements with your time charter partners. Let's look a little bit on the cost side as well. As I said, the capacity situation is the most important driver. But I'll give you the figures also.
We had a reduction in total cost of $885 million in spite of a small volume increase. The unit costs were down by 15.1%, $385 per FEU. Even down compared to last quarter or Q3. The main driver, of course, was the drop in bunker price. That gave us $244 per FEU. There's also an effect from foreign exchange in there. When you take out these two effects, we still have savings, in particular in Q4, but also on the year, coming from reduced intermodal and in reduced positioning costs.
The addition, the improvement Q4 on Q3 in the capacity situation meant that we in Q4 did better than on average of the year. That was what I had to say on Maersk Line. We'll come back to the forward-looking statement a bit later. Maersk Oil on page 9. Impairments of course completely impacts the result of the year as they did, by the way, also last year. The underlying result is actually not too bad if you take the year. It's actually quite good. Also in the quarter, I think it's a respectable loss of $21 million given the low oil price. I think that is a respectable figure.
We had the impairment that I just commented on and here is a little bit more description. Operationally, we continued the good trend during the year. We had our entitlement production increasing 21% to 333 barrels of oil equivalent per day. It's mainly coming from increased production in the U.K., where among others, Golden Eagle delivers good results. The price-driven effect in Qatar, where we get a higher share of entitlement or a higher entitlement share. We also managed to implement the planned operational cost reduction program.
This is nothing to do with exploration, but we had a reduction of 12% in our OpEx and cost for 2015. We have plans also to continue that reduction in 2016 so that we deliver the 20% we promised at the beginning of 2015. In addition to the OpEx program, we also reduced the exploration cost by 67% in Q4 and 45% during the year. Of course, a very relevant way of lowering our breakeven cost. CapEx also went down, but that doesn't mean that we're less enthusiastic about the two big fields that we are developing, Johan Sverdrup and Culzean.
They will both come into activity hopefully in 2019, and hopefully in a more benign oil price environment. We did one small acquisition during the year. We bought half of Africa Oil's assets in Kenya and Ethiopia, and paid an upfront price of $365 million for it. We bought resources or reserves found, and also a quite promising exploration program. So we're excited about that. Of course, this is also something that will give us oil in the future in the twenties, where we hope that the oil price will have improved compared to where it is today.
APM Terminals, I commented on the background for the profit deterioration. We, on a year, on a year's basis, we still deliver clear double-digit return, but the ROIC in the fourth quarter was down to 8.3 on the barrels. The throughput declined by 5.7%, and the background is that we've divested some loss-making or uninteresting terminals. We have less imports into West Africa, Russia, and Brazil, where we're strong. In addition to that, also the weakness in the Asia to Europe impacts our market share because we have quite a lot of our capacity in that trade. There's an explanation on the EBIT margin as well, and this is for the quarter.
It's divestments increases it by 1.2%. Foreign exchange movements down 0.9%. Underlying business 0.8%. Then a number of projects that are under construction cost us 0.4%. In APM Terminals, we continue to deliver very good results, and we're also determined to continue to invest in the future. The acquisition of the Grup TCB with its 11 terminals and a number of new projects that are either initiated or where we got new concessions gives us a good growth program for this business that does deliver significantly higher returns than you normally see in infrastructure businesses. The last of the large businesses, Maersk Drilling, really a positive story.
The background for that is that we entered the year with a good order book. Most of our new rigs had been ordered on the back of long-term agreements. That gives us a good starting point. Actually, maybe I should also highlight that it did in 2015 closed 23 rig years. A new contract. We actually exit the year with the same contract coverage in terms of drilling days as we entered. Unfortunately, of course, with contracts that corresponds to the market conditions, so profitability of the new contracts are less. We'll keep the rigs busy, and we'll keep our people employed for another year is the effect of that.
ROIC was okay with 9.1%, result of 39% compared to last year. Also the annual figure for Maersk Drilling was very satisfactory. We did start a program for cost reductions also in Maersk Drilling, and it's run its course during the year, and we're absolutely on track with that. Of course, we will continue to pursue more savings and more business. Maersk Drilling has positioned itself as a top-quality service provider. You see that on the up times that we deliver most of the time. It's actually down for the floaters in fourth quarter. We had troubles with a BOP, or blowout preventer, on one of the rigs that kept it down for a while.
That is a quality provider, and I think that is what helps us getting contracts during these tough times. That was the situation here. We have a good, reasonably good contract coverage going into 2016. We'll of course continue to work on that and pursue the opportunities in the market. APM Shipping Services here also a very nice progress in profitability. You'll recall that we got above $400 million on a full year basis. In a quarter, we went up from a loss last year of $68 million to a profit of $54 million. ROIC for the year is acceptable.
For the quarter, it is slightly below what we would have liked to see. Maersk Tankers is an important driver of that progress savings, but also improved rates, and good fleet management has helped Maersk Tankers. Maersk Supply Service is, of course, working in the same overall environment as Maersk Drilling. The difference here being that Maersk or Supply Service have less long-term contracts, so they have had to adapt faster to the current market environment with, in terms of rates. They're still doing very well within the industry, and still delivering a very acceptable profit for the year.
Svitzer also progress, better labor, improved labor situation in Australia and in general, a lot of good initiatives on both cost, pricing, and productivity. Maybe the most pleasing, even if the figure is negligible, is that Damco also in Q4 delivers a small profit, which is significantly better than it was last year. We had a loss of $145 million, underlying. It basically reflects the fact that or at least an early sign that the turnaround program in Damco has worked. We'll close the year with a profit of $15 million. Then with those words, I'll pass over to Trond, who will take you through the financials and overall picture.
Thank you, Nils, and good morning from me as well. We'll go to the page, thirteen of the presentation on the invested capital. You can see that we're going out of 2015 with invested capital of $43.5 billion, down from last year, almost $50 billion. The reason for that is basically other businesses and the disbursement of the Danske Bank position that we have retained 1.4% of Danske Bank, but the rest of the shares have been sold. That's the major difference from last year.
If we look at the returns, as Nils have alluded to and also explained, very well, the returns in the fourth quarter is of course very low as a result of the impairment, but also as a result of difficult market circumstances. Fourth quarter of 2015 comes out at a negative of 21%, but the full year numbers still resides as a positive of 2.9%, including considering also the impairments that we do. If we then look at Maersk Line, the challenging environment in fourth quarter leaves them at a negative of 3.6%, but for the year, still a respectable 6.5% for the year as such.
Oil, you see the investment capital coming down to as low as $3.5 billion, and also that the negative returns in Q4 is affected by the impairments. The year as such will affect the return for Maersk Oil as a result of the big impairments of $2.6 billion. When it comes to the development of terminals, drilling, and shipping services, all of them are delivering good numbers in fourth quarter and also for the year, looking at the yearly number for the three of them, at the 10% level, and that we consider as a good return as such.
Going to the financial framework for starting on the upper left side on the cash flow for the year, and that is that we're starting the year with $7.7 billion in net interest-bearing debt, and we exiting basically at the same level. The EBITDA contributing the $9.1 billion, and taxes paid is as low as $1.4 billion, coming down from $3.3 billion last year. Investments at $7.2 billion and divestment at $5.8 billion, including the Danske Bank shares. You have the big dividend that we submitted to the shareholders in April of $6.2 billion, leaving us at the $7.8 billion.
On the cash flow from divestments in 2015, on your upper right, you see that $5.8 billion is very much driven by the Danske Bank sale. The second sale we did during the year was Esvagt, which is contributing quite a bit less, but still a good development in the portfolio development. On the investment in growth on the bottom left, you see that cash conversion is still good on $8 billion for the year. We use for capital expenditures. On growth level, we spend $7.2 billion basically in line with the guidance. You can also see that for the last three years, the operational cash flow has been between $8 billion and $9 billion, fairly steady going on.
To the bottom right, you see the dividend development for the group since 2007. As Nils mentioned, the board is proposing a dividend of DKK 300 a share, similar to the one last year. Going then to page 15. Just a highlight summary of the consolidated financial information. Q4 first, delivering $9.1 billion, down $2.6 billion from last year. The big contributor in that reduction is the rates of Maersk Line. Maersk Line totally driving $1.7 billion of that reduction. Maersk Oil, when it comes to the oil price, totally countered by the entitlement production, basically reducing more than $500 million.
In addition to that, the quarter effect has also that from last year, we have a reduction of costs included in $1.6 billion, and that leaves an EBITDA of $1.628 billion, $1 billion down from last year. Depreciation and impairment is $4.4 billion, and of that, $3.1 billion or just short of $3.1 billion is impairment in the quarter. That leaves the EBIT at -$2.7 billion in the quarter as a result of the impairments. Underlying number. There's a mark-to-market valuation of Danske Bank with approximately $60. So underlying finance cost is around last year's level.
Coming then to the taxes, we have a positive effect on the tax side, and the reason for that is the tax effects of the impairments in some countries. That comprises approximately around a bit more than $500 million. As a result of that, we get a positive number of $330 million in the fourth quarter, and that leaves us at $2.5 billion negative for the quarter. If we then look at the full year numbers, not much more to say of the effects. We're leaving the year with $40 billion in revenue, a decline of 7.3% from last year, driven by a reduction from Maersk Line of $3.6 billion and Maersk Oil of $3.1 billion that drives that development.
It's basically the rates and the oil price that is driving the changes in the results. In the depreciation of almost $8 billion, it is $3.2 billion in impairment in that number. As a result, the underlying depreciation is around the same level as last year. The earnings before interest and tax at $1.9 billion, and the financial cost of then $423 million for the year is actually down from $600 million previous year, and that is mostly due to currency effects from a few currencies in 2014 with a negative effect. The underlying finance cost is basically on the same level as last year. Taxes is only $522 million, and that leaves the year result at $925 million.
The earnings per share in 2015 is, from the reported numbers, $37. Just to mention it again, the dividend per share is proposed to be 300 DKK. Going to the guidance for 2016. A general remark is that we are generally cautious in the expectations for our industry in 2016 and also for the growth in general. For the group, we expect an underlying result significantly below 2015. Sorry. The gross cash flow used for capital expenditure is expected to be around $7 billion. That is including the acquisition of TCB and Africa Oil, which is comprising of approximately more or a bit more than $1.5 billion.
For Maersk Line, we expect a significantly lower result, underlying result than for 2015 as global demand for seaborne container transportation is expected to increase by 1%-3%. For Maersk Oil, we expect a negative underlying result. As a guidance, we say that breakeven is reached with an oil price in the range of $45-$55 per barrel. Maersk Oil and tight oil production is expected to be around 315,000 barrels per day. Exploration costs are expected to be in line with 2015. For APM Terminals, we expect an underlying result around 2015 level. For Maersk Drilling, 2015 be significantly below 2015, predominantly due to lower rates in Maersk Supply Service.
As always, the volatility and certainty of our expectations. It's not least due to the development in the global economy, the container freight rates, and the oil price. Having said that, I would guide you to the sensitivities for 2016, but also maybe give you a special attention to the oil price effect for underlying profit as it has increased due to the low oil prices and the tax effects coming out of that. As a result of that, $10 a barrel will have. These are in line with the guidance that we have given previously. With that, I'll hand the word back to Nils.
Well, thank you for listening patiently. What I have to do now is hand the work back to you, and ask if there are any questions, and we'll do our best to answer them.
Thank you. We will now begin the question and answer session. This session will end no later than 10:40. If you have a question, please press 0 then 1 on your telephones.
You'll enter the queue. After you're announced, please ask your question. The first question comes from Stig Frederiksen from Nordea Markets. Please go ahead.
Good morning, gentlemen. A couple questions.
Stig , we cannot hear you.
Hello. You can hear me now?
Yes.
Thank you. Just a short question to Maersk Line.
Sorry. We still can't hear clearly what you're saying. Could you sort of move? I don't know whether you're on a fixed line or.
When you look at your 1%-3% growth expectation for container volumes this year, how does that break down by trade? Presumably, you're not expecting that to be the average across all of the trades. Could you give us a bit of a flavor for what's gonna grow and what's gonna shrink in your view?
Well, that's a very difficult question. If you look at the global economic development as we stand right now today, we believe that there's room for growth in the US, in Europe, and India. The ones that will drag down could vary or we expect to be the developing markets, depending, of course, on price developments in raw materials and oil. Right now, the biggest declines we're seeing in areas like Brazil. We are in an excellent position to continue to invest during the downturn. Don't forget, that's the way companies operating in cyclical businesses do make money.
Having said that, what we will reduce is investment in new capacity, and we will look more for acquired growth or secondhand equipment. Trond just alluded to the M&A part of the $7 billion for next year is $1.5 billion. Then there will be some investments in the oil projects, and we have some commitments. We get a one harsh environment jackup delivered, as well as we, of course, have orders outstanding for 27 new container vessels. There will be some movements on that, and it's not something you, even if you could, can close down from one year to the other. Having said that, we definitely don't need to.
Okay. That's very kind. Thank you very much.
Our next question comes from Marcus Wallander from Carnegie. Please go ahead.
Hi. Thank you. Three questions, if I may, starting off with a housekeeping question. The guidance for APM Terminals, does that include the acquisition of Grup TCB, or should the earnings from that come on top of what you're guiding for?
The guidance here includes the effect of TCB in the coming year, but TCB has it and at least that's what we based our acquisition on, a relatively low contribution to profits in the first years. They have a number of expansion projects ongoing. That means that we expect to ramp up the profitability after a few years. There will be a contribution that we expect in 2016, and it's included in our guidance.
Okay, thank you. Second question, if you could perhaps elaborate a little bit on your freight rate. It seems to me like it's very low in the quarter. It drops 25%, which is almost on par with the CCFI and historically, your freight rate doesn't move as much as the CCFI. Is there anything particular in this quarter that we should know, basically?
No, I think, of course, we generally have slightly more stable rates than the various indexes that are being looked at. This quarter, I think the general trend is that I think we're still slightly better, but not as much as usual. There's no sort of general trends that impacts that. It's just been a very bad quarter. The trade mix or our trade mix has meant that we've been hit quite hard.
Okay, thank you. Last question then. You talked about capacity reductions in 2015. What do you see here in for 2016? Are you gonna keep taking out capacity, or are you done now?
No, we will continue to manage capacity. Of course, having not operating with excess capacity is key to profitability in our business. We will continue to look at that and there are plans for both scrapping and redelivering of vessels. We have—I think we have a very good tonnage plan actually for 2016.
Okay, thank you.
Our next question comes from Christopher Coombs from J.P. Morgan. Please go ahead.
Good morning, everyone. I just had a follow-up on the capacity question. Can you give us some sense of how much capacity is up for redelivery this year, potentially, in TEU terms? How much opportunity do you see not only for yourselves, but also for some of your chief competitors to follow suit?
First of all, our TC share is below average in the market. Don't forget, the market is not shrinking. It's not growing as fast as capacity. We will have plenty of TC opportunities for reduction of capacity if that is what we want to do. That's not the issue. You're not looking at a shrinking market. There's no panic in that sense. In comparison to our competitors, of course, we have more flexibility in our fleet in general. First of all, because we mainly operate short-term TCs and the ships that we have in our core fleet we own, so you can sell an owned ship, you can't redeliver a long-term contracted TC charter normally.
We feel quite flexible and well prepared.
My second question had to do with spot versus contract rates. In light of the very low levels that we see today, how much of a shift should we see? At the very low rates.
Well, we have of course a long list to close contracts at reasonable rates. Being partners also mean of course that when contract rate or spot rates are very low, then the contract rates also come under some pressure. We're aiming at a reasonable level of contract coverage, but of course the customers that have been less stable, we will probably prefer to move to spot. The answer is just maybe a slight increase in spot share.
Okay, thank you.
Our next question comes from Lars Heindorff from SEB. Please go ahead.
Morning, gentlemen. Staying at the capacity department, you can call that, also question. Now, I mean, I've sensed that when we look at some of the numbers that you've been reducing capacity, at least in the last part of 2016, more than most of your competitors, and also that you're likely to continue to do that. I mean, will that also mean that you're ready to lose some market share? Because when you look at some of the plans for many of your competitors, it doesn't look like they're going to reduce capacity, on the contrary.
Well, we're not going to lose market share, at least that's not part of the plan. We make the best possible market forecast we can, and then we adjust our capacity. We are fully aware that some of our competitors have much more aggressive growth plans. At the end of the day, the winner in this industry will be the ones that make money, and it's hard to make money with excess capacity.
All right, a question regarding your what you call it, SG&A costs. You've earlier indicated that you believe that you can reduce that by roughly, I think it was $500 million. Now the restructuring plans that you have announced today here, is that on top of the 500, or how should we think about that?
I'm not fully aware of what the $500 referred to. I think the latest publication, I'm speaking off the top of my mind, we said $150 for this program, something like that. I think you have to be careful adding up these things because, of course, they sometimes refer to the same actions.
Okay. Lastly, in your annual reports, in your strategy updates, you have a small pages where you mentioned that you are now willing to commit yourself to CapEx going forward that will yield a ROIC below 10%. Can you give us a bit more light on what you're thinking? Is there any particular areas you're thinking about or how should we see that?
I can give you without being specific, but if you look at the terminal business, for instance, we are in some cases competing with players from the infrastructure funds as well as pension organizations. Of course, they will operate at times with yields below 10%, most of the time actually. Businesses like terminals, you have the opportunity to leverage a little bit more aggressively than we've done in the past. We're not saying that we will reduce our requirements for return on equity, but in some cases, we just need to take the financial market into account.
There's no I mean, we shouldn't draw any parallel lines from this statement and then to the possible renewal of the contract in Qatar?
No. This is, I mean, this is a general statement. We're not reducing our target of 10% return in our business in general. It's just with an interest rate situation like we have today. There will be attractive investments with low risk and good yields being below 10%. When you do a leveraged analysis of that can be very attractive investments.
All right. Thank you very much.
Our next question comes from Dan Togo from Handelsbanken. Please go ahead.
Yes, good morning. A few questions from my end as well. First question is regarding the oil impairment. Could you maybe elaborate a bit on that, especially what oil price you have used for the impairment? If you can give some flavor on that, and maybe also if this, shall I say, is the final step, maybe you could expect more if the oil price, let's say, stay below $30 for a longer time, or have you really done the house cleaning now? Thanks. That's the first question.
Yeah. I think, Dan, that it's fair to say that we've taken a very cautious look at the forward oil prices. We also did take that cautious look at a time when oil prices to either 0 or very low value. I cannot rule out future impairments, but I was asked today by Bloomberg whether it was aggressive on a scale from 0 to 10, and I think we're definitely in the upper levels here without sort of subscribing to the term aggressive. I do believe that we've taken this quite far.
Okay, great. Another one on oil then. You mentioned you have a breakeven now in the range of $45-$55 per barrel. Can you elaborate a bit on what takes it to the high end, and what takes it to the low end?
Yeah. Of course, if to get to the low end, we need to be successful with the further cost reductions we planned in Maersk Oil. Hopefully, we'll end the year on a lower break-even level than we started. The other variable that we have, and this is apart from mix where the oil come from, but is of course, the exploration cost. Going to the higher end of exploration costs take us up, and if we go to the lower end, you can say or below, then it'll take it down. There are a lot of variables there, and I think it's a prudent guidance at the beginning of the year. Let's put it that way.
Okay. Another question also, a bit on the oil side, at least, because drilling is also impacted, and rates have been hit by low oil price, and their rates have come down significantly. Have you looked at an impairment here, and could you give some flavor on where your book values are compared to market values for the assets you have on your balance sheet?
We do actually do impairment analysis on most of our assets, unless there's clearly no reason to do it, and we've also done it on the drilling rigs. Our book values of drilling rigs are above the markets, to a certain extent, but don't forget that we have also contracts backing that up. So in an overall view of things, we've concluded that there is no foundation for an impairment of rigs. Otherwise, we would definitely have done it.
Okay, just a final question here on Maersk Line. I think what you discussed before were the SG&A cuts you have announced previously in Maersk Line, where you were to take down costs by some in the SGA by some $40 per FEU that you have announced earlier. I would like to know how that program is progressing, that's one thing, and then another thing on 2M. What does that add to the situation that you're in now, and how should we look at 2016? How much can the 2M network benefit you? Or is it a drag with all that capacity right now?
Let me start with the 2M. We've introduced the 2M network during the past year. It's run I think better than anybody could have expected. It's been a very smooth introduction and very few problems vis-à-vis the customers or reliability. We're very pleased with that. It also delivered the $250 million of savings that we've talked about. From that front, I think there's only good news. I can't comment on specific cost programs progress because, I mean, again, as I said before, if you add things up and so on, it gets very confusing.
We have very specific plans to do the simplification of the Maersk Line organization that we announced in November, and I have no indications that that is not progressing according to plan.
Okay, thank you.
Robert Joynson from Nomura, please go ahead.
Good morning, gentlemen. A few questions from me. First of all, on Maersk Line. With the idling ratio having increased quite rapidly in recent months from about 2% at the beginning of Q4 to 7% at the moment, are you seeing some signs that the overall supply-demand balance in the industry is starting to tighten up, especially considering what you were saying previously regarding the more positive outlook for Asia-Europe volumes?
At the moment, we feel that the capacity situation is improving in the market, as it should with 7% idling of fleet and what I said is small pickup in trade. The answer is yes. But it's too early to give you any sort of clear guidance because it's always up to the run-up of Chinese New Year. You can have a very different picture than you have two weeks after. If you bear with us, we'd rather give you an update when we come to the end of Q1.
Okay. Thank you. Just on Maersk Oil, the exploration spend guidance at around $420 million compares with just $150 million in the second half of 2015. It's really a re-acceleration versus the recent trend. Could you just provide some color on how much of that $420 million or so is committed or contracted?
Yeah, that's quite a small share. Of course, whenever you do an acquisition, it comes with additional cost. There will be activity in Kenya, for instance. Then we will have opportunities popping up during the year that we would like to have the freedom to pursue. Give you more flavor than that, but there's definitely some discretion in that number, which is also what will impact our break-even rate at the end of the year.
Great. Thank you. Just a final question on the unallocated underlying profit, i.e., the difference between the group underlying profits and the sum of the underlying profit figures for the divisions. That was very high to about -$165 million. Could you just provide some color maybe on why that number was so high, particularly in Q4?
The difference is usually the finance cost and the mark-to-market valuation of the Danske Bank shares. As a result of that, basically that number is $145 million.
Okay, thank you very much.
Our next question comes from Dennis Bak-Bredelder from ABN. Please go ahead.
Yes, thank you. I want to come back on your statement on cash flow for 2016. You said something like, "We don't see pressure on cash flows in 2016." Can you be clear there on what you expect? Can you maybe enhance there how do you as a group look at balance sheets, gearing levels? What is maximum, what is your room to maneuver? Thirdly, share buyback programs going forward.
Well, when it comes to the cash flow number, that is of course very dependent on how much on the basically profit we're gonna make during the year and the context and the composition, whether it's come from the oil side or the other businesses. On average, our cash conversion relative to our underlying profit has been very good the last few years. We expect that to continue at the same level and the same rate as it has done before, even though we see a result. The operational cash flow is of course gonna come some down relative to seeing a result significantly below last year. Other than that, we see the cash conversion and the structures being in place going forward. Coming to the gearing level.
We're coming out with short of $8 billion net debt in this situation. We have a long-term goal of being an investment grade-rated company and on how the market develops. We do definitely think that we are in a strong position to have more debt capacity on our balance sheet going forward. Then on the share buyback, we are continuing the existing program. No other decision has been made, and we expect that to be revisited with the board. The board has that decision when we revisit that question, when we have finalized. As usual, we have that as a normal discussion point with our board in our strategy review during the midyear.
Okay. Thank you very much.
This was the last question we have time for today. Back to you, Nils.
Well, thank you very much to all of you for good questions and for listening in. Of course, we would have liked to present better figures today. I believe that given the circumstances, the operational performance of the group is very good. We have no clear vision at the moment on how 2016 is going to unfold on freight rates or oil prices, but we remain convinced that we will deliver the best possible result given any circumstances we meet. We're also quite optimistic and enthusiastic about the opportunities that this tough market gives us to demonstrate what we are able to do as a strong company. We look forward to talking to you again after Q1.
Hopefully, we'll not disappoint you negatively, this time, but as we've been sufficiently unclear in what we said for the year, I think it's unlikely. We'll do our best to deliver a good result. Have a good day, and thank you for listening in.