Welcome to the A.P. Møller - Mærsk full year report 2013 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. You may be briefly disconnected from the conference for confirmation. Please note that this conference is being recorded. The replay will be available on maersk.com. I now turn the call over to your host, Group CEO, Nils Smedegaard Andersen. Sir, you may begin.
Good morning, everybody. There are quite a lot of people on the line, so I hope you can all hear me well. Welcome to this annual conference on the result of A.P. Møller - Mærsk. It's of course not so long ago, we spoke after Q3, so there probably may not be too many surprises in what we've given you this morning. But we thank you all for listening in and look forward to a good discussion. If you start on page two, we have the disclaimer on the forward-looking statement. As usual, while you read that, let me give you a few headlines of the way we see it.
We are of course reporting a small decline in the reported profit compared to last year. That was because last year we had $1.1 billion in extraordinary income, mainly from the Algerian tax settlement. The underlying improvement in the business is up from $2.9 billion-$4 billion. And that's an improvement of $1.1 billion and 35%. We have a very good progress in the underlying business, which we're very pleased with.
The progress is broadly based, and we have, with the exception of Maersk Oil, which we'll come to later, and Damco, which is a relatively small business unit, we have progress across the board. We also delivered a very good cash flow with $4 billion, a combination of good underlying business performance, but also the effects of Project Fit, where we focused on making our balance sheet more effective, freeing up cash for investments and improving returns. The cash flow was $4 billion. We're lifting our dividends from DKK 1.2 thousand- DKK 1.4 thousand per share, in line with the dividend policy that has been laid out some years ago by our supervisory board.
All in all, we're very happy with the outcome 2013, where we also beat the estimate that we laid out after Q3. All in all, a good start or good ending for the year. If you go to page 3 in the presentation that has been uploaded, and where we just summarize the Group financial highlights. We, as I said before, a small decline in reported profit, but the profit excluding one-offs is up very significantly, and the free cash flow up from $1.2 billion to $4 billion. Very, very strong financial progress.
Looking at the chart or the part of the chart below, the underlying profit by activity, you'll see that Maersk Line delivers basically all of the progress, $1 billion up compared to last year, which brings the returns up to a little bit above 7% in that part of the business. Maersk Oil is down from $1.4 billion to $1 billion on the back of reduced oil production. The positive element in this business is, of course, that we managed to stabilize the production in Q3, and we actually came out of Q4 with an upward trend.
The starting position for 2014 is around 240-250 thousand barrels of oil per day. APM Terminals and Maersk Drilling both delivered their best results ever, record profits. In terms of APM Terminals, it's in line with previous year's trends. In terms of Maersk Drilling, it is a good, nice correction from a somewhat disappointing 2012 result. Services and other shipping, of course, has not worked as a business unit during the year. In all fairness, we announced it in August, but the new CEO, Morten Engelstoft, started on January first.
We can't judge them as one business unit, but in total, their underlying profit is up from $230 million to $242 million, which is putting them on the right track for getting to the $500 million that we promised in 2016 or stated as an objective for 2016. All in all businesses performing according to plan and on good track. If we take the group, the group figures, some key figures, the ROIC is a little bit down to 8.2%, compared to last year, where it was 8.9%.
Again, here it was the positive effect of primarily the Algerian tax settlement that gave a higher figure last year. The 8.2 is an improvement in terms of business performance, but it is of course still not the 10% that we have as our objective. Strong free cash flow generation. I've already touched on that. We're happy with that. Then a consequence of that, the $4 billion in free cash flow, $1.1 billion of dividends gives us a nice reduction in net debt from $14.5-$11.6 billion, means that we have strengthened an already strong financial profile. I have mentioned the dividends.
Let's go to page 4, where we dive a little bit into the Maersk Line result. Maersk Line delivered a profit of $1.5 billion. The ROIC was 7.4%, which we believe given the fact that the shipping or the container industry as a whole were just above breakeven on EBIT level. We actually believe this is a very good result. It's also significantly above what we expected at the beginning of the year. We're satisfied with that. It is and will continue to be for the next couple of years a difficult industry. Free cash flow of $2.1 billion in line with our strategy that Maersk Line should grow with the market and be self-funded.
We stick to that. I was asked by a journalist this morning whether the money we had made on Dansk Supermarked would now be invested in Maersk Line. I can clearly say that the strategy for Maersk Line has not changed. The sale of Dansk Supermarked was not to get cash, it was because we found a better owner. The cost base reduction is the main driver of the improved results. Rates have dropped by 7%, but the hard work on the cost reductions, some benefit from bunker price improvements, but mainly bunker savings and other cost savings is what makes this result.
We did grow our volumes by 4%, which is probably in line with the market, maybe a little bit above the market. What we consider also in line with strategy and satisfactory. We only increased our fleet capacity by 0.2%. That means that we have, we've actually had a very good utilization rate during the year. That we will try to aim to do that again this year because this is of course the key to delivering a good result, not filling the ships by low prices, but adapting the capacity what is needed in the market.
We have done a number of things during the year to adjust the capacity, and it is an example here in the second last bullet point. We've terminated lease contracts for 14 vessels during Q4 2013 in line with the strategy of not growing capacity as a consequence of taking P3 or taking the Triple-E vessels into production or into operation. The P3 network is still intended to start operation mid-2014. It of course depends on whether we receive regulatory approvals. We don't expect any major effect or any significant effect anyway for 2014. The guidance we've been giving is not depending on when we receive these approvals.
Going a little bit more into details on Maersk Line's cost reductions on page five, you see, coming back to the network optimization and utilization, we have reduced our weekly carrying capacity significantly compared to 2008. On the bullet points below, in bullet one, you'll see a number of examples of this. I won't go into details, but this is all known stuff, but it's just sort of to summarize what has been going on. The cost improvement of $1.9 billion is mainly driven by bunker savings, $1.4 billion, of which half is price and half is consumption reductions.
We've taken, and you'll see that to the left, we've taken $400 million out of inland transportation costs. Of course, if you say bunker prices and reduced inland transportation costs, will of course be part of the reason why the rates have declined during the year in all fairness. A small increase in terminal expenses by 2%, but that still means that the unit cost for terminal expenses is going down because it's a little less than the increase in volumes. Going to Maersk Oil result on page six. A result of $1 billion, of course, down from $2.4 billion last year.
The $1 billion drop is due to extraordinaries, and here mainly the tax settlement in Algeria. We did make an impairment of $100 million in the Janice and Affleck fields in the US. This is mainly due to the fact that they're old assets, and it takes a lot of work to operate them and get the right kind of efficiency. We decided to take them down to zero book value. The entitlement production declined 9% in 2013. We started growing again from Q3 as we got Gryphon back in operation and El Merk started to ramp up their production. We have been quite active on progressing our big developments.
We've handed in a development plan for Chissonga in Angola, of course, in close cooperation and dialogue with Sonangol. We think there's good alignment on the technical specifications. We also handed in a development project for Foinaven Corridor in the UK and actually a little corner in Norway for approval. We assume that we will be seeing some movements on this during 2014. We again last year increased the exploration cost, so we're now at approximately $1 billion. Unfortunately, the outcomes of the exploration work, as we've discussed in the last quarters, have not been very good. We did get two successful deepwater wells in Angola with Quiba as the most significant. Quiba will now be integrated into the Chissonga development.
We had a number of successful appraisal wells at Johan Sverdrup. Of course, as you read, we've published the development concept last week or the week before actually for Johan Sverdrup. Good progress on this project. We also drilled 15 non-commercial, non-commercially viable, or that means basically uninteresting wells, and two where we still have under evaluation. The drilling program for 2013 definitely delivered below expectations. We hope we'll see better results this year of course.
We progressed the work on both the Al Shaheen field in Qatar, where we are preparing to launch the or hand in the next big development project for the Al Shaheen field, following the exploration or the expansion program or maintenance program we're undertaking now. We also are continuing as we speak work on Chissonga, Johan Sverdrup and Culzean in the UK, and good progress last year. That we are satisfied with. We will come out same procedure as last year with an update on the reserve and resource situation in connection with the Q1 financial result. Then we can hopefully give some updates on these projects as well.
The results on the left side is, I think I have commented enough on that, the figures speak for themselves. Qatar at the bottom, you can see where the declines have taken place. Qatar is declining a little bit. Not because of any specific reasons, probably just timing of maintenance and other movements. Denmark is declining quite a bit. Here we've taken in the Nordsøfonden during last year, so that has an effect. This was all in accordance to plan. A small increase in the UK, a small increase in Algeria, Brazil and Kazakhstan, stable, still very small productions here. Let's go directly on to APM Terminals results. Another year of progress in APM Terminals.
We had the profits up to $770 million. The underlying profit up from $635 million to $708 million. ROIC decreased to 13.5%. We have had quite a bit of investments going on in the business in the last years. Expect of course that to pay out in the longer term. Volume growth of 3%, in line with the global market, driven by additions to the portfolio. Actually, the fourth quarter, we saw very nice growth, and also growth ahead of the market, probably. Stable EBITA, EBITDA margin. Going forward, we'll have focus on improving productivity in the existing terminals.
We made a lot of investments and continue to invest quite intensively into developing markets. We also need to make sure the productivity in the developed markets grow. Of course, competition here is strong and pressure on prices is high because these markets in general are not very profitable for our customers. There's a lot of pressure here. If we take the portfolio initiative, Global Ports have completed the acquisition of National Container Company in Russia, the other big terminal operator, so it makes us the largest container terminal operator in Russia, actually in Eastern Europe in total. We've secured a couple of new terminal projects in Izmir in Turkey and Abidjan in the Ivory Coast.
Abidjan is an expansion project. Santos, Brazil, after some teething problems came into operation in the second half of 2013 and will be, of course, contribute to hopefully a good year in 2014. We will continue in APM Terminals to optimize the portfolio. Here, it's quite important to continuously weed out the projects where we don't see continued or growing value creation and making sure we have firepower and organizational strength to concentrating on finding new and exciting and better returning projects. This is very shortly on APM Terminals, but the business is in good development and on its way to deliver $1 billion in 2016.
Maersk Drilling had a very good result. We've been talking about this during the year. The fourth quarter was down compared to the previous three quarters. This was also in line with the foreseen as we started investing in putting the new rigs or step-out investments in putting new rigs into operations. The first one actually sailed a few days ago. It was a drill ship from Korea that is sailing to the American Gulf. This gave cost in Q4. Also, we had some yard stays that started costing money. The forward coverage for Maersk Drilling should continue to be very good.
I believe we are the company in the industry with the best or at least the longest contract coverage. We're pleased with that. We signed a few more contracts in 2013. One which was for a large Norwegian jack-up led to an additional order in the second half, and some other minor movements. We are preparing to take delivery of eight large rigs from 2014 to 2016, and of these, six will be delivered in 2014. Of the eight, six are covered by long-term contracts, and of the six that we take in this year, four will be covered by long-term contracts.
Of course, we're working to get the last two on contracts as well, and our drilling people are still quite optimistic on that. In terms of the program, it is of course a major undertaking to take these six large rigs into an organization the size of Maersk Drilling. It will lift the organization to a different level, but 2014 will be under pressure result-wise. We see this as an investment year in order to bring 2015 or bring us into 2015 on a different level. Then my last page, because before I hand over to Trond, is on Services and Other Shipping.
Good progress, as I said at the beginning, $100 million improvement in underlying profits coming from Maersk Supply Service and Svitzer improving already good results or at least being in profitable territory and delivering good returns this year. Maersk Tankers reducing their loss and making a small breakeven or a small positive result. Damco going down as a consequence of the One Damco integration effort that has definitely not only cost one-off investments but also has given us a lot of challenges in daily operations and in the daily cost picture.
Damco is in red figures for 2013, and we expect to see an improved situation here in the second half of 2014, where we will see the new IT systems up and running and the new organization should be in place around the middle of the year. This was what I had to say to you. It's just warming up before we come to Trond, who'll give you more details on the figures.
Well, good morning from me as well, ladies and gentlemen. I'll go on to page 10 and executing on the group strategy.
We see an overall development of the group, specifically on the return basis that five out of our eight businesses, core businesses is achieving a return above the 10% level in 2013. When we also benchmark their margins, we see that six out of the eight is coming into the or is in the top quartile performance in their industries. In that regard, we see that we are continuing delivering on the direction that we have set forward on the long term.
On the shorter term, the adjustments that we have made to the structure during 2013, we have been active in reducing some of the segments in the tankers, both the Handygas and the VLGCs, as well as selling off our 31% stake in the DFDS. As you also have registered during 2014, we are continuing that effort with the contracts and the sale on the contract on the VLCCs as well as the Dansk Supermarked. In addition to that, we also see that the reallocation or the refocusing of our invested capital towards the oil terminal and drilling is continuing even though oil has not progressed that much in 2013.
We see that both drilling and terminals have grown, and as you have heard Niels saying of the 6 rigs being delivered in 2014, we also see that drilling is gonna increase slightly more in 2014. Going to page 11, on the ROIC performance, we see that, as I said, the ROIC is doing well in 2013. At the end of 2013, we have an invested capital of $54.6 billion. The fourth quarter return of the group were 7.8%, and we see that some of the business units are sliding below the average of the year. All in all, a very good return for the full year, both for oil terminal, drilling, supply, Svitzer, as well as Dansk Supermarked.
That is really what is the good progression. Maersk Line having a year of 7.4%, it's still a progress from last few years, driven by the cost efficiency as well as the network optimization. We see that it is a good driver going forward. I will remind you on the capital markets day statement that we have medium-term, we do see that the ambition for Maersk Line is a return of around 8.5%. All in all, good progress, and most of our businesses are doing very well in many of them difficult markets. Going to page 12. Here we have our financial framework.
If you go to the circle in the middle, the four bullets in the middle that we want to stay a strong investment grade company, and we have seen that with the rating that we have received, and we are comfortable with that level. We will continue to have a conservative capital structure. We are looking for the profitable growth, being a growth company, and we are, or we will have a consistent dividend policy going forward. If we then go up to the upper left, you see the cash flow bridge of 2013, starting out with $14.5 billion of net interest-bearing debt. The earnings or the EBITDA of $11.4 billion, paid taxes of $2.8 billion.
The net effect on the CapEx, that is CapEx less the gross CapEx, less the sales proceeds of $5 billion, then the dividend of $1.1 billion, and some others of $0.6 billion. That is also including the reclassification of putting Dansk Supermarked as a non-continuing business. That leaves us at $11.6 billion in net interest bearing debt at the end of 2013. Going to the bottom left on the investment of growth, I'm just gonna say that here you see the gross investments in 2013 of $6.3 billion. That was slightly lower than expected. The two elements driving that is it was lower in oil and gas. We have seen that postponement going into 2014 and probably also have a sliding scale going forward.
It is postponement in drilling that is driving or taking that number as low as it is this year. On the top right, you see the proceeds or the sales proceeds from investments as well as the gains, $1.4 billion in gains or sales proceeds this year in tankers and DFDS. To the bottom right, you see the dividend policy of the nominal dividend and also the yield going for the last 10 years. This year, the board is proposing to the general assembly a dividend per share of DKK 1,400, and that's up from DKK 1,200 last year. Going to page 13 on the big number slide. Just taking you quickly through the fourth quarter numbers.
We have almost $12 billion in revenue. That is, of course, excluding Dansk Supermarked. All numbers here is excluding Dansk Supermarked. They have been put down as a one-line item at the bottom of discontinued operations. And that is also reflecting in all our other numbers that we present that Dansk Supermarked is now taken out. That leaves us with an EBITDA of $2.647 billion. Depreciation in line, slightly lower than last year and an EBIT of $1.731 billion.
Financial costs slightly lower, and tax on the same level, and profit pre-tax on the same level, but slightly lower on and higher on the tax, leaving the profit for the period of continuing operation for $783 million in the third quarter. We have the result from Dansk Supermarked of $153 million, leaving the group profit for the period of $936 million in the fourth quarter. Not gonna mention too much on the full year results. $47.4 billion in revenue, $2 billion down from last year, mostly driven by Maersk Line and Maersk Oil. Maersk Oil as a result of oil price, as well as entitlement production, Maersk Line as a result of rates going down more than the volumes coming up.
Other than that, an EBIT result of $7.336 billion and a profit for the period for the continuing operation of $3.4 billion. If we see the profit for the period for the continuing operations, the number is $3.6 billion. The $3 or the $4 billion of the underlying operations for the group as such is including the Dansk Supermarked numbers of almost $400 million, and that leaves the underlying for the continuing operations of $3.6 billion. On the bottom of full year estimate, full year for 2013, you see the cash flow from operating activities, very good cash conversions, almost $9 billion in operating cash flow, slightly lower than $5 billion in capital expenditure.
That, as I said earlier, net interest-bearing debt goes down to $11.6 billion. Earnings per share in 2013 is $790 per share. Dividend, as I mentioned, going to be proposed at 1,400 DKK. Going to the outlook of 2014 on page 14. We expect group results significantly above 2013 as a result of the gain from Dansk Supermarked. If we take the underlying result for the group, we are seeing a result in line with 2013, and in 2013 we have the underlying result of continuing operations of $3.6 billion.
Gross cash flow used for CapEx, we expect it to be around $10 billion, and cash flow from operating activity is expected to develop in line with the result. Maersk Line expects a result in line with 2013. We aim to improve the competitiveness, although unit cost reduction will be less than in 2013. We expect global demand for seaborne container transportation to be around 4%-5%. The Maersk Line aim is still to grow in line with the market. We also see that excess capacity is likely to depress freight rates further. Going to Maersk Oil, we expect a result below 2013 based on an oil price of $104.
We also expect the entitlement production to be above 240,000 barrels of oil equivalent per day. The seasonality in the production will be there. We see that the planned shutdowns will result in a lower production in second and third quarter as a result of the maintenance periods where we are producing. The entitlement production increase from 235,000 barrels in 2013 is mainly based on an increase in Algeria and UK. Exploration cost is expected to be around $1 billion. On the terminal, we expect a result above 2013, and to grow more than the market supported by the increased contribution from the joint ventures and the associates, as well as improved predictability, productivity on the existing facilities.
Drilling, as we did mention on the capital markets day, we expect the result below 2013, and that is due to the high extent of planned yard stays and classifications in 2014, and also higher costs associated with the training and start-up of the six new rigs commencing in 2014. Services and other shipping expect the result above 2013. As always, outlook is of course subject to considerable uncertainty, and we have given you some sensitivity on the biggest uncertainties on the top left of this page. With that, I'll leave the word back to Nils.
Thank you, Trond. Just summarizing on page 15, what will be our main challenges or main priorities for 2014. In, of course, the outcome of 2014 will greatly depend on the result in Maersk Line, as usual. Here we will do foresee a challenging rate environment for the next years. Been stated a number of times, so nothing new for you. Therefore, key to success for us is that we stick to our strategy and actually deliver on the strategy of having an EBIT margin, which is at least 5% above the industry average. We also will continue our focus on managing capacity effectively.
We will have enough capacity to make sure we can keep our market share, but we also want to make sure that we don't inject a lot of additional unneeded capacity as we introduce the Triple-E vessels on Asia-Europe trade. Really more of the same. Focus on cost, focus on customer service, and focus on good management of capacity. Maersk Oil, we will have a lot of focus on delivering progress on the key projects that are going to deliver our result of 400,000 barrels in 2020. These are the Al Shaheen, Chissonga, Johan Sverdrup, El Merk, and Culzean in the UK, among others. These are the ones demanding most project work from us at the moment.
Of course, we also hope and strive to see first oil from the Golden Eagle UK and Jack in the US by the end of 2014. These will not have a significant impact, so our forecast for at least 240,000 barrels of oil per day do not depend on when these fields come into production. There's no significant incremental production included in 2014. APM Terminals, we are putting into operation the most modern container terminal in the world, in Maasvlakte in Holland, in Rotterdam. We have the efficiency improvements, but we also of course have a lot of other big projects running.
To mention a few, Lázaro Cárdenas in Mexico, Moín, the Moín terminal in Costa Rica, ramping up of Santos in Brazil will continue, in a lot of investment going into the Callao terminal in Peru, and so on and so forth. There are a lot of things going on here. In Maersk Drilling, the overarching priority is to get a good and successful introduction of the six rigs. Of course, that includes securing contracts for drill ship three and four that will leave in the second half of the year this year. On services and other shipping is delivering continued progress towards the $500 billion target by 2016.
These are the priorities, and we'll of course keep you updated on not only on the financials, but also on the results and progress on these projects as we progress through the year. Thank you for listening. It was a little bit longer than usual, but we have, of course, time for questions now.
Thank you. We will now begin the question and answer session. The session will last 40 minutes. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press the hash key or the pound sign. There will be a delay before the first question is announced. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone. Lars Heindorff of Nordea is online with a question.
Yes, morning, gentlemen. A few questions for my part. First regarding the oil business. You're guiding actually for an increase in production in 2014, but you're guiding down in terms of earnings. I know you're starting up a few of those new fields, Golden Eagle and Jack. But could you give us maybe an indication of where the costs
I assume there's gonna be an increase in cost. Where that will stem from since you're guiding down on earnings and up on production?
Yes. Thank you. Thank you for that question. We're guiding up marginally on production, but we're also guiding down on the oil price. It's an oil price which is approximately $6 below what it was last year, so that gives us a small negative impact. That more or less weighs each other out. Then I can't say any specific area of increased production cost. For instance, the Danish North Sea, where production is not increasing, it's going down. We pump, of course, more and more water in, so that drives increased production costs. It's the mature fields that drive up cost, and then the oil price that takes the profit down a little bit.
Okay, the second question is regarding the liner path. We've seen a very, very significant decline in your bunker consumption in the previous quarters. It was roughly flat, at least as far as I can calculate in the fourth quarter. Can you give us maybe an indication about what we should expect for 2014? Will you be able to continue to drive down your consumption? And also, maybe a little bit about what will happen to what you call other costs.
Yeah. We are working. We continue to put a lot of efforts behind reducing bunker costs. Of course, the increased number of Triple-E will help, so will, by the way, P3, when that comes into operation. There's still room in the bunker consumption. We are also working on the usual things like SG&A and other cost elements to continue to reduce cost. We do have plans for reducing cost also in 2014, and we don't see a brick wall or anything like that coming up.
Okay. All right. Last question. You on page 21 in the annual report, you're addressing what you call excess capital. You have a net debt to EBITDA around one times by the end of 2013. As far as I can calculate, based on the guidance that you have and also the gain that you're gonna get from the sale of DSG, you're gonna end up by the end of 2014 well below one times net debt to EBITDA. I don't know if you could give us a bit more flavor on that and maybe some of the considerations that you are likely to undertake in order to sort of manage that excess capital that you have on the balance sheet.
Well, when it comes to the metrics you're using, Lars, I do think that considering that we're having a big portion of that EBITDA in the oil sector with a tax rate of as I said growing upwards and averaging to this year of 75%, I think you comparing the EBITDA metrics to other industries might be some distortions. Having said that, we also acknowledge that we are coming into a situation after the sales that we have done beginning of this year that we are in a good financial position. That is also why we address that there might that we are aware of our position going forward.
Again, on the counter side, we are also expecting a fairly high investment level as we have seen both in oil and gas going forward the next four or five years. We're also expecting around $10 billion in CapEx. All in all, I actually do think that we are aware that we're coming into a better financial position, but we don't see any short-term needs or doing anything about our capital structure.
Okay. Can I ask in a different way? I mean, what will be an appropriate level of net debt to EBITDA? I know you said that the measure is maybe not the best one given the tax rate in oil and gas. I don't know if you use X ratio instead, or some other ratio.
No, that comes back to our financial metrics. I mean, we have set up where we want to be. We want to be a high investment level credit rating, and we believe that that triple B plus is a level that we wanna be at, and that should be our guiding.
Okay. All right. Thank you very much.
Ben Tøpholm is online with a question.
Yes, thank you. I would like to address the guidance for Maersk Line, where you continue to drive down unit costs also in Q4. Do you actually expect to increase your volumes? Could you elaborate a bit on what will sort of say keep profitability down as you are guiding for more or less flat net profit? Where are sort of say the risks here, and what will weigh down on the profitability development in 2014?
Thank you for that question. I think we will work hard to keep the profits up. The level of profitability we had with a return on invested capital of seven and a return on sales, which was well 7% above the average in the industry last year. We think that is a very good result. We will try to repeat that. Unfortunately, we don't foresee that the rate situation in the shipping or container industry will be very good. There are still ships coming in, there'll still be overcapacity. Although we see some consolidation, we're not sure that this will have an effect in 2014. We are concerned about the general rate situation in the industry.
We believe that if we can get in that rate environment and under a lot of pressure a result similar to this year, it's actually an acceptable performance. Having said that, of course we can be positively surprised, and our competitors can change the way they act. Then we will of course be super delighted to make more money. But we have delivered compared to the industry, a really strong 2013. Repeating that next year is not as easy as it may appear when you just look at the metrics saying growth and so on.
A question on the terminal side. You have ports and a quite expensive portfolio of global port interests. What's the scope for further optimization here and so as to capitalize on further optimization here in the course of 2014?
Well, we are working. We will continue to work on trimming the portfolio. We are selling out minorities and smaller things, and things where we don't think there's more value creating, in case we can find a better owner. But of course, the big value driver in this business for the next years will be the number of terminal expansions and new terminals we're taking on stream, in particular in developing countries. Optimizing operations in the, you can say, in the more mature markets, among others, of course, also the transit hubs that we have. We see quite a number of opportunities to do better with the portfolio. We have to optimize it.
Also importantly, we see a big need for ports infrastructure across the world in the coming years. We're not worried about, you can say, the financial market. We understand the financial market worry about developing markets, but when you're an infrastructure like ports, there's still a big need in these markets. We think we see a lot of exciting openings and opportunities still.
On Damco, it keeps underperforming. What is your patience here? Do you continue to think you're the right owner of Damco?
It doesn't keep underperforming. Actually, the results in the last years, I think were acceptable also in an industry context. It is not a leading forwarder. We are aware of that. They have some excellent skills in third party logistics. We think it's a very interesting company and with growth opportunities also in forwarding. We did take a decision a couple of years ago that we wanted to have one global platform for the business, something that a lot of our competitors don't have in that industry. To make it able to work on a truly global basis, and in connection with that, also restructure the business. These things have not gone very well in 2013.
Actually, the progress on the restructuring on the IT systems have been very good, but it has taken a lot of effort in the market. This is of course an industry where margins are really wafer thin. If you lose focus on daily cost and markets for just a short while, it costs you on the bottom line. Here the job will be for 2014 to get the change program to the next level, which will be by the middle of the year, and then refocusing on the market. But we believe we're the right owners, yes.
Just one final question on the balance sheet to Trond to follow up on what Lars asked. Try to ask also in maybe in another way. How low can you take net debt also considering the proceeds from retail and the VLCCs and still keep your investment grade?
Oh, but I think I ju-
On top of that.
Yeah, I understand the question, but I think I'm just gonna revert to the answer that I basically gave to Lars. We do have a conservative approach to our balance sheet. We still want to maintain to be an investment grade when it comes to the debt market. A triple B plus is a good level for us. I do think that when you look at our matrix for 2013, we're strong in a triple B plus matrix. The element is we are comfortable with the situation as we are today, and we have to also consider that we are a growth company and have growth CapEx in the area of $10 billion this year. It's not like we're sitting on the money.
We actually are recycling them quite rapidly.
If I may add to this, the reason why the statement is put in the annual report is of course also to signal that we want to invest our money. We want to make sure as sure as you can reasonably be that the investments we do are value-generating for the investors. We are not going to up investment programs or do things just because we sit on a very strong financial position. We do have in mind, of course, we do think about our capital structure, but as Trond say, we have quite ambitious investment plans for the coming periods and a strong balance sheet is needed for that period.
Okay, thanks.
Robert Johnson is online with a question.
Oh, good morning, gentlemen. Most of my questions on the capital structure have probably been answered, but just a couple of short questions to follow up. First of all, just on the Maersk Line guidance for 2014. Can you just talk specifically about what your assumptions are regarding the P3 network and how that relates to the guidance? And then secondly, just very quickly on Damco. There was obviously quite a large restructuring charge taken in Q4. Could you just provide some detail on exactly how much that was? Thank you.
I think the restructuring charge in Damco is, if I'm not mistaken, around $50-$60 million to that tune, and we have no effect of P3 into the 2013 accounts. If it comes, there will of course be benefit from the moment we start the network up, but there'll also be some cost in the startup phase. Our basic assumption is that it will not be contributing for 2013, and this may change if we get it very late, we may run into some startup problems, or startup costs and get less of the benefit, but the basic assumption is that the result is independent on P3.
Thank you. Just out of interest, how long do you estimate that it will take following approval of the P3 network for you to work through the startup costs and then see the full benefits of P3 approval? Should we be assuming a period of maybe several months or so for that to happen?
Yeah. I think it will take several months for that to happen, but assuming we, as we say, we expect to start up around the middle of the year, that of course will move because we need the approvals first. We are well progressed in the planning, and everything is fine. If we get that, then we'll have a positive effect from P3 in 2014, probably very early in the year.
That's very helpful. Thank you.
Marco Limite from Equita is online with a question.
Yes. Good morning. Just one question about the oil guidance. If you can help us, maybe give some more indication on the production bridge, just in terms of what do you expect, basically, the contribution in 2014 from El Merk in Algeria and Gryphon in the UK. I mean, in terms of marginal increase in 2014 versus 2013. Thank you.
We do not guide at this point in time. We may do the guidance a little bit more specifically when we come into Q1 reporting. We have not guided on individual fields this time. Of course, by saying that the main contributors to a small growth are these two fields, this is indicating that we do expect both of them to go in the right direction and actually be going up. No, there's nothing more into it than that. In terms of cost, we don't expect any dramatic escalations anywhere.
As I said before, the main reason why we guide a little bit down on the profit level is that we see a slightly lower oil price.
Okay. Just to follow up, because I'm trying to understand, because the production is a little bit lower than I think the expectation. Also in terms of the shutdowns, you mentioned planned shutdowns, but are that let's say a little bit larger than normal, or is, let's say, shutdowns like you had in-
Yes, it will be larger than normal. We have a number of projects in the North Sea that we need to, or we want to, initiate this year. It will be of course, partly because we need some specific larger repairs than usual that takes some weeks more, but also because we want to introduce various new features in the system. The Danish shutdown will be bigger than normal.
Okay. Very clear. Thank you.
Yes.
Joshua Spungen from Merrill Lynch is online with a question.
Good morning. I think actually most of my question's been answered, but I just wanted to check one thing with regards to CapEx. You talked about obviously $10 billion of CapEx this year. I think this time last year, you were talking about a similar number. Obviously you didn't get anywhere near that. I guess what I'm trying to get a handle on is to what extent is the $10 billion a conservative number that may come down over the course of the year? Or are you sort of absolutely sure that this year CapEx will be definitely higher than 2013?
Well, last year, we did have to see some postponement of the drilling program or the rig delivery program. Some was moved into this year. We also had some divestments coming. This year, of course, when we talk about a figure above $10 billion, this is a gross figure. We have not deducted the profit from the sale or the income that we will have from the sale of Dansk Supermarked, just to be clear about that.
Okay, thank you.
Anders Bergland is online with a question.
Yes. Good morning, gentlemen, and thank you for taking my call. I have a questions concerning the drilling segment. You have two deepwater drill ships under construction, being delivered this year without the contract and delivery is approaching fast. It seems to us that we're in a situation where either starting a downturn of the cycle or at least a pause. Can you give some indication in terms of contracts, day rates, duration, et cetera, on those two units?
Yes. We will get these drill ships around the middle of the year, if everything goes according to plan. We have a relatively good feeling that we will get some contracts in place. We don't think this will dramatically influence this year, even if we shouldn't get any contracts. Don't forget that our situation is, compared to other drillers, relatively conservative in the sense that we have much better contract coverage than the average of the industry. One of the advantages of growing the fleet is actually that we can afford to go short on part of our fleet.
Even if we shouldn't get any contract good in advance of getting out in the market, we're quite confident that we will be able to use them well. Anyway, in 2013, we don't see any major impact.
Okay. On the new build program or more new builds, what's your appetite for more new builds, given the outlook that you see today? Is that still on the agenda, or you believe that you're gonna take a pause, in ordering more new builds?
No. We believe that the oil market will continue to need high-end rigs both for the ultra-deep water, for special applications, more advanced rigs there. Of course the North Sea is a relatively low-cost area of production. We also see a need here. I wouldn't exclude that we will order new builds, but we've also said that we want to. When we order, we will prefer to order against contracts.
Okay. Thank you very much. That's all for me.
Once again, if you have a question, please press star then one on your touchtone phone. Thijs from ABN is online with a question.
Yeah. Good morning. Coming back on drilling for 2014, can you maybe give some guidance or indication on the, let's say, the startup costs, the amount of startup costs and, let's say, the amount we should pencil in for the, let's say, the yard stays?
Well, I can't give you an exact figure, of course, but as a rule of thumb, we believe that starting up a new rig will cost approximately $30 million. That's sort of a very rough estimate, and it can vary. Starting up six is quite a significant undertaking. Of course, then some of them will give income in the second half. That should help the situation a little bit. We happen to have a large number of rig stacks this year, which is always quite expensive because you don't get income from them during the period. It is also often quite unpredictable how long they.
We try to manage it as well as we can, but there will be some negative impact on that. You are talking a negative impact from new builds and yard stays in excess of $200 million, would be my guess.
Okay. Thank you very much.
Frans Høyer from Jyske Bank is online with a question.
Good morning, gentlemen. Just two questions, one regarding the P3 network and the ramping up of that system subject to the regulatory approval. Can you just talk about the challenges, the complexities involved? How easy is that process? IT problems, anything like that might pop up?
Well, this is a difficult undertaking for sure. There's a lot of integration work to be done. We're putting a good team in at the head of it. Of course, running the network is something that I believe we at Maersk Line have been quite successful with in the last years. We believe it's doable, and we don't expect any major negative surprises from it. It is a big undertaking, surely.
Okay, thank you. On the contract negotiations for Maersk Line for 2014, could you talk about the level of rates that are agreed for the long-term contracts for the year?
Uh-
I believe the negotiations are behind us already.
No, they're not behind us, and we don't wanna comment on that.
Okay.
We have, of course, closed a number of contracts for the Europe-Asia-Europe trade. They are probably more or less behind us, although we continue to make three-month and six-month agreements. In the US, it's coming up for renewal on the first of May, if I'm not mistaken. There's a lot of negotiation going on there, but we would not want to comment on that. We'll have a look at the rate picture when we come with the Q1 result.
Thank you.
Neil Glynn is online with today's last question.
Good morning. Apologies if one of these has been touched on before I got disconnected, but I had two questions, please. The first one was on the Maersk Oil guidance for 2014. It's obviously based on $104 per barrel Brent. Just interested, if I used 109, which is the current spot price, is flat earnings at all feasible, or would cost inflation rule this out despite exploration costs being down? The second question was on other revenue for Maersk Line. Obviously, that line tends to prove volatile. We've had a couple of good quarters in a row, but then a significantly down quarter as I calculated year-on-year.
Is there anything worth highlighting there, or should we continue to model that as a proportion, 10% or so of total Maersk Line revenue? Thank you.
On the oil, I don't think we will be more precise than we've been in the report. If we start saying maybe commenting on $109, we are taking the $104 as the basis. In the report, you can see very clearly where we are on or what an additional increase would give. It's on page. Just a minute. What page is it?
Fourteen.
Fourteen.
Page 14. There you can see the impact. I'm not gonna comment on whether that would bring us into positive or flat territory. I mean, we are not expecting major effects other than the decline in oil prices I just mentioned.
Okay. Thank you.
The second one, could you repeat that, please?
Maersk Line revenue. If I back out volume multiplied by price to touch on detention demurrage revenue, it seemed to be down quite significantly year-on-year. I was just wondering, is there anything significant worth remarking on there, or should we just continue to expect that to be a broadly 10% of total revenue?
Yeah. We have not seen any sort of major changes. There may be some prior period variations or something like that, but nothing that we see changing in nature.
Perfect. Thank you.
All right. That was the last question. On behalf of Trond and myself, we would like to thank you for listening in. Thank you for a lot of good questions. I hope we were able to answer them reasonably well. I hope the report has given a reasonably clear picture of the situation of the company as well. We have an exciting year ahead of us, and we look forward to updating you in the coming quarters. Thank you for listening in and have a good day.