Welcome to the Maersk Annual Report 2012 conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. If you have a question, please press star and then one on your touch tone phone. I will now turn the call over to your host, CEO Nils Smedegaard Andersen. Sir, you may begin.
Two, in the presentation that has been uploaded on the internet, you'll find the forward-looking statement, usually with all the reservations to risks and so on. While you read that carefully, I'll just give you maybe my sort of opening to the conference. First of all, we are satisfied with the result in terms of the absolute number. We have 20% progress in the net result, which we consider very good. Realizing, of course, that part of it is coming from one-offs, in particular, the tax agreement we made in Algeria. After a lot of hard work, I have to say, even so, it is a one-off. Also progress in the underlying numbers of a couple of percent for the whole business, but in particular progress for the four core businesses that we're trying to build.
If I go to Maersk Line, after a very difficult year, we're also satisfied with delivering a profit for the year. It was a difficult year in the shipping industry in general, and also in containers. The year started with very, very low rates, and after some growth, both in the first half of approximately 4%, the market flattened completely, and we didn't see any growth in the second half of 2012, which is unusually low growth-wise, seen in a historic perspective, when I disregard 2009. The rates were slightly better than last year, which helped the result.
On average, we increased the rates with a little less than 2%, but we also managed to cut cost, and the total cost per FFE was reduced by $50, which of course, also helped us to achieve the modest positive result we delivered. We continue our efforts to build the four core businesses with above trend investment in exploration in the oil business. We continued progress in APM Terminals results on the back of the last year's investment in growth markets. We continue also going into 2013, our investment in our growth sectors, infrastructure in growth markets, as well as oil services and oil exploration in order to get progress on our strategy plan.
Taking you into execution on the strategy on page three, the profit was $4 billion, and the ROIC was 8.8%. It is not a ROIC level that we are happy with, but given the difficulties of the shipping industry in 2012, we think it's respectable. As I said before, Maersk Line reduced its unit cost. We also work very hard on improving our surcharge collection and worked also very hard, and we're pleased to say that the rest of the industry also did to hold some initiatives on a capacity adjustment to the much lower than expected global growth in container trade. We continue to work on the Maersk Oil development. It is our objective to get to 400,000 bbl of oil per day.
One of the important steps we took last year was the signing of the FDP production agreement, where we will invest $1.5 billion in the Al Shaheen field in Qatar. APM Terminals continued its recent years of successes, expanding both margins and the portfolio, making this another good year for APM Terminals. Maersk Drilling continued to work on securing new contracts. As you remember, we have seven rigs on order, and we got long-term contracts now for five of them, which is good, and we take that as a sign of customers' confidence in our ability to develop this business in the coming years. The rigs will be coming from the end of 2013 and into 2015.
It's not something that will give us an uplift in 2013, but this is all preparing for an interesting future for this business. Going to the financial highlights on page four, we had, as I said before, an increase of 20% in the group profit. When we exclude the gains and impairments, and this is in particular the tax gain we took as a result of the tax agreement we made in Algiers, the progress is less. It's 2%, but again, given the difficult shipping time, this is probably not too bad. We did see progress in particular in the four main businesses. They all reported improved profits, with the exception of Maersk Drilling, where we had some prolonged yard stays.
We have to remember that we are changing Maersk Drilling from being a shallow water or not deep water jack-up operator into an operator in ultra-deep waters. Of course, that means that occasionally we will have to spend some extra time on preparing the rigs, making sure that we really can guarantee safe and good operations to our customers. As I said before, the customers seem to be receiving our entry very well, and we're getting attractive long-term contracts. The ROIC improved a little bit above last year, mainly because of the tax settlement. The spot shipping markets make it, of course, difficult to reach a double-digit return level, which we're still heading for.
The cash flow improved slightly above last year to $7.6 billion, meaning that the combination of investments and divestments of $6.3 billion, the net sum was $6.3 billion, meant that we had a positive cash flow in the year. The net and interest-bearing debts increased in spite of that, mainly because we paid out dividends and reclassified a few items here. We are proposing to the general assembly to increase the dividend per share with 20% from DKK 1,000 to DKK 1,200 per share. Going to page five, Maersk Line, Maersk will go into a little bit more detail on how the figures developed here.
I think the headlines are exactly as I said before, it turned profit-making after a loss-making first quarter where we lost $600 million. We made $1.1 billion in the last three quarters, which was respectable. This is a combination of better rates, but also all work on the cost picture, and we did bring down our unit cost quite a bit. A good progress from a very difficult starting position. We also expect that we can continue on the back of this, improving the result in Maersk Line further this year. I think this more or less takes care of this slide.
I'll just mention the market share development that our market share for 2012 was above the market share we agreed or we achieved in 2011, seen for the total year. Also need to mention that we saw a declining trend for the market share in the second half, but still progress year on year compared to the year before. Going to the second slide on Maersk Line just to mention what has happened at the beginning of this year. As you are all aware, probably we introduced a general rate increase on reefers effective from January 1, 2013. We're getting a reasonably good acceptance of this in the market.
We can't of course exclude that some of our competitors will not follow, and it may cost us a bit of share in particular in the beginning. We are getting acceptance for the rate increases, and they are necessary after seven years of zero increases in reefer rates that has resulted in a relatively low return on these big CapEx capacity investments that you have to make if you want to run a reefer business. Our reefer business is about 800,000 moves per year per FFEs per year. It's a big business, and it's very important that we return this to a reasonable level of profitabilities.
We will take delivery of the first 4 Triple-E's during the second half of this year. Of course, there's some worry about the effects of this in the Asia-Europe trade that is already quite long on capacity. We intend to do this in a careful way, and we will look at taking out old-fashioned and smaller tonnage of the markets of this trade as we introduce in order to keep a reasonable balanced market situation. Of course, we continue to work on our cost pictures, also optimizing networks and making sure that we operate ships in the most fuel-efficient way possible. Going to slide 7 on Maersk Oil.
Here we had a profit increase of 16% to $2.4 billion. Of course, this was mainly driven by the tax settlement in Algeria. When we exclude this, we had a small decline in our profitability, which was totally expected as we knew that our share of production would decline and we also stepped up our exploration efforts. There's nothing new in this. This was as expected. We will also see this trend continue in 2013 until we start seeing increased production again. The share of production declined 20%-30% year-on-year.
more or less the same in Q4 on Q4. This is mainly driven by less share of production in Qatar and the transfer of 20% ownership share in the Danish North Sea to the Danish North Sea Foundation . There was also a bit of natural production decline in Denmark, but the main effect came from the ownership transfer that has no impact on the bottom line, by the way. The oil price was stable, slightly better than what we expected at the beginning of the year, at $120 or $112 per barrel as an average.
We did bring up the exploration cost with 10%, and we expect to keep this level more or less going into 2013, as we continue our efforts to build towards the 400,000 bbl of oil production per day in 2020. We took the next steps in Dunga in Kazakhstan, started drilling some of the relatively large number of wells we're planning for this field. We're also seeing increased production here. As I mentioned before, we signed an agreement with Qatar Petroleum on a $1.5 billion investment in further development of the Al Shaheen field.
We take this as a good sign, and a good next step, in the field development project here. Of course, both in 2012, but also in 2013, focus will be on continued progress in the planning and of the new fields and partly execution of the new fields of Chissonga, Johan Sverdrup, Golden Eagle, and Culzean. These, some of these will not come into production until 2018, 2019, and 2020. But these are very important steps going forward, in our production expansion plan. Already at this phase, we need to keep a very close eye on developments here. We continued our work to increase transparency, and we made the Capital Market Day.
We released reserves for the first time last year, and we'll continue to work on that. We'll update the market on the developments of 2012 on the reserve and resource space in connection with our first quarter result publishing in May this year. Going to the next page on APM Terminals. APM Terminals continue its good development in terms of both margins and absolute profitability. This is on the back of continued investment in the growth markets. We continue that development. We took a co-controlling share in Global Ports in Russia that we expect to start impacting the results in 2013.
We also invested in a depot in Mombasa. We also took over some mature terminals in 2012, Göteborg, and opening in Wilhelmshaven. The main push continued to be in the developing markets with new agreements in Lázaro Cárdenas, Mexico, and also in the Ningbo terminal in China. We also announcing today an entrance into Turkey with a terminal in Izmir. We continue to push on the developing market strategy in the terminals area. We had some gains from divestments of the Maersk Equipment Service in the U.S., a minority part of a terminal in Xiamen in China, and we made a gain on this of $66 million after tax.
We did grow the terminals business slightly ahead of markets in spite of us still being quite active in mature markets and in spite of the slowdown in the European trade that we saw in the second half. We're pleased with that, but we also realize that in order to keep profit growth in the Western markets or the mature markets, we have to become more productive. We are executing on a global transformation project, which has already lifted our productivity and will also lift in the future in order to make sure that we get even more competitive in the mature markets. Of course, we had some negative impacts from global unrest in 2012.
Given the uncertain situation in certain markets where we operate today, such as Egypt, we cannot exclude that this will happen going forward. But we are relatively confident, or very confident, that the spread of the business will give us generally a good, safe, and smooth operation during the coming year. Taking the next slide, Slide 9 on Maersk Drilling. Here we had a profit decline, which was obviously not part of the plan as this is one of our growth areas, strategic growth business. This was caused by some minor or some one-offs, but primarily due to extended yard stays on a couple of rigs.
In particular, one of our large semi-submersibles that were between two contracts and needed a lot of extra maintenance that we had not planned for. This is unfortunate, but on the other hand, we are, as I said before, moving Maersk Drilling from being a shallow water jack-up rig operator to becoming a leader in quality in the deep water segments as well. Of course, we would need to make sure that every step on the way is taken with absolute care to safety and also reliable operations for our customers once we go on contract.
I think the customers are showing their you know, if not enthusiasm, then their confidence in the business by entering into a number of long-term contracts on the new rigs we're launching. We're very confident that Maersk Drilling will return to better results again in 2013. We are of course we do have a lot of work connected to the expansion of the business, and the expansion itself is also affecting the results negatively because we have to hire crews in before we launch the platforms in order to make sure they're trained and up to top-notch standards. There we have some startup costs that will affect us negatively in 2013 and also going into 2014.
This is also part of building a successful business in this area. Going to the opportunistic core businesses, here we see a decline in the result of approximately $100 million. Cutting a long story short, this is basically because of the lower rates we've seen in the supply and anchor handler segments during last year. We expect this to become somewhat better during 2013. There was a lot of new capacity coming in last year. Maersk Tankers stable operations. We're not particularly optimistic on the immediate future on the tanker segment. Investments in this area is very low. In the next couple of years, we do expect some improvements, in particular in the product tankers area.
Damco increased its revenue by 19%, but also had to shoulder some integration costs and following the acquisitions in both Australia and China in the last couple of years. The profitability did not follow the expansion of the business. Svitzer has made an impairment of $102 million on the goodwill acquired in relation to the Adsteam acquisition back in 2005. Apart from that, the operational result improved compared to the year before. That seems to be on a good track.
As the last business updates here, and that also explains why the growth in the total business, the underlying performance was just up 2%. We did see a decline in Dansk Supermarked. We saw decline in Maersk FPSOs and LNG in the underlying number. The background for that was, of course, that we are exiting the business, so we have less business, had less business in 2013, in 2012 than we had in 2011. Danske Bank improved its result, very pleasing. Maersk Container Industry, which is producing both dry but primarily reefer containers, had a stable result. The unallocated cost also stayed more or less, or stayed stable.
With that, I'll leave the word to Trond, who will take you through the financial figures.
Thank you, Nils. Good morning from me as well, ladies and gentlemen. I'll go through slide number 12 on the consolidated financial information. I'll start with the column to the left on the fourth quarter results. We're delivering a revenue of $14 billion, 743 million. Basically even or slightly down from last year. The EBITDA we have at $3,000000114 Billion , approximately $50 million up from last year. Steady delivery from last year, but the composition is, of course, different because we have had revenue increase and also earnings increase in the liner side specifically, and then a decline on the oil production side coming in.
That leaves us as earnings before interest and tax of just short of $1.9 billion, up $200 million from last year. The financial cost in the fourth quarter is $172 million. That leaves us with a profit before tax on $1.7 billion. And a tax charge of $750 million or just short of that. That leaves us with then the profit for fourth quarter of $965 million, which is up almost $700 million from fourth quarter in 2011. Earnings per share in fourth quarter is $204 a share, and the return on invested capital is 8.1%.
Going to the full year numbers for 2012, we have a revenue of $59.036 billion. That is $1.2 billion down from 2011. The development of that revenue comes from a growth in Maersk Line, Damco, and also in APMT, and a negative decline as a result of the declining oil production from Maersk Oil. The earnings before interest, tax, and depreciation is then $12.581 billion, down $2 billion or $2.1 billion from last year, basically driven by the same effects, the growth in the earnings or the results of Maersk Line and the decline in the oil production that is coming into the EBITDA.
The earnings before interest and tax at $8.1 billion is the same amount or $2.2 billion down from last year with the same explanations going through the numbers. Finance cost of $755 million, that is down $100 million from 2011, and that leaves us at $7.3 billion on profit before tax. We have a tax charge in 2012 of $3.3 billion. That is $2.76 billion lower than in 2011. That is primarily and almost everything driven by oil as a result of two things, the Algerian settlement as well as lower production that you see.
That leaves us at a profit for the year of $4 billion, which is up $660 million from last year. On the cash flow, I'm coming back to that at the later slide, but the cash flow from operation is $7.6 billion and used for capital expenditure is $6.3 billion. That leaves us at a net interest-bearing debt of $15.7 billion for the year. The earnings per share is $857 a share for 2012. In our Danish kroner account, that is just short of 5,000 DKK a share. The return on invested capital is 8.8%. As Nils mentioned, the board proposes the dividend to increase to 1,200 DKK a share.
Just a slight detail in the depreciation level, which is the same level in 2012 and 2011. The impairment is included in this line with $404 million compared to the $312 million of 2011. Going to the next page of investments and funding. This is the usual waterfall on the development of net interest-bearing debt. We're starting the year on $15.3 billion, having an EBITDA of $12.6 billion, a change of working capital of $700 million. Paid taxes is relatively down as a result of the oil tax. We're down, and in Algeria, so we're down to $3.7 billion. CapEx is $6.5 billion.
Financial items on $700 million dividends, that is our own dividends, but also dividends in subsidiaries with joint ownership, going out of this group of $900 million. Then we have a bucket of others of $300 million, leaving us at $15.7 billion. As we mentioned at the top of this page, the gross investments during the year is $9.7 billion. We are showing cash flow used for capital expenditures of $6.3 billion. That is, the reason for the difference is of course, that we have sold assets and activities during the year for $3.4 billion. Going to the outlook of 2013 on the next page.
The operational result is expected to be in line with 2012, and the underlying result of 2012 were $2.9 billion. The elements taking out from the reported results to the underlying results is the impairments, it is the gains, and it is the tax settlement in Algeria. Cash flow used for capital expenditures is expected to be somewhat higher than the $6.3 billion in 2012, while the cash flow from operating activity is expected to be stable. On Maersk Line, we expect a result above 2012 based primarily on further unit cost reductions.
Global ton for seaborne container is expected to increase by 45% in 2013, lower on Asia-Europe trades, but supported by higher growth to foreign imports to emerging economies. For Maersk Oil, we expect the results significantly below the result of 2012, which included a one-off income of $899 million of the settlement of the Algerian tax dispute. The operational result is expected to be below the operational result for 2012, excluding the one-off tax impact, impairments, and gains. Maersk Oil expects its share of production to be in the range of 240,000-250,000 bbl of oil equivalents per day, lower in the first half than the second half in 2013, at an average oil price of $105 a barrel.
The lower production share is predominantly caused by a natural decline and reduced ownership share in Denmark, and it's countered by the start-up by Maersk in Algeria and the Gryphon field in the U.K., on the North Sea U.K. sector. Exploration costs are expected to be above $1 billion. APM Terminals expect a result above 2012 and to grow ahead of the market supported by the volumes from new terminals whilst improving productivity in existing facilities. Maersk Drilling has almost full contract coverage in 2013 and expect a result above the 2012 result. The total result for all other activities is expected to be above the 2012 results, excluding divestment gains and impairments.
As usual, our outlook for 2013 is subject to considerable uncertainty, not least due to developments in the global economy. To guide you in the main drivers of the sensitivity, we are giving you sort of the factors on the right bottom side on the slide. With that, I'll leave the word back to Nils.
Okay, thank you, Trond. Just on the page five, the final remarks, I think I've covered most of the elements already. We do expect to continue a significant investment program in 2013, more or less in line with the investment program we had gross last year. The $6.5 CapEx number is of course after divestment. We will have net investments above this level. We will continue our strategy of investing those money primarily in what we see as growth areas. That is for us the infrastructure investments in developing markets. It is the oil services in particular offshore.
Deep water will take up quite a bit of investments. Then the oil business itself in order to prepare for the you can say, significantly expanded production that we expect in 2020. This is all part of building on our strategy of creating a business group standing on four strong legs. We feel very confident that this will result in better returns and also lower volatility as we gradually move forward. We'll of course work very hard to deliver satisfactory profit figures as well. We have so far satisfied with the 2012 work. There remains a lot to be done, of course, in the coming years.
It's also important to keep in mind that success for us in 2013, in addition to delivering a reasonable financial result, is also making sure that we progress on the large projects we've listed, among others, on this page. Making sure that our reputation for implementing projects on budgets and on time remains intact, and making sure that we don't have negative surprises from delays or mishaps on the way. A lot of focus will be on the large projects in the business units that we have listed on this page. With that, with those final remarks, thank you for listening patiently to us. We're now open for questions.
We will now begin the question and answer session. If you have a question, please press star then one on your touch tone phone. Neil Glynn from Credit Suisse is online with a question.
Good morning. It's Neil Glynn from Credit Suisse. If I could ask, first of all, is it possible to give any guidance with respect to unit costs at Maersk Line for 2013?
If I could follow on with a second on the terminals business. It seemed in the fourth quarter that tariffs or unit revenues were down 6% year-on-year, as revenues obviously underperformed the throughput. Can you provide an explanation there and also what we should expect for 2013 across the network of terminals?
First of all, we do expect an improved result on Maersk Line during 2013, and we expect this to be driven by continued cost improvements. Primarily, we also expect some improvement in the reefer rates, as I mentioned before, but it's continuing improvement on the unit cost, is essential to achieving progress in Maersk Line. The rates for APMT in the fourth quarter. I'm not sure I've done that analysis. I'll make sure I have done it. We don't see any general negative trends in APM Terminals on rates. We expect a normal development in 2013.
Great. Maybe one follow on, if I may. You've obviously highlighted respect for market balance on Asia-Europe through 2013. At this point, how does that lead you to think about your own potential scrapping of smaller or older vessels?
Well, you know, we have two ways of reducing our capacity. One is giving back chartered tonnage to the tonnage providers, and that's of course our preferred route. We continue to follow the development in our fleet, and if we establish that some of our own vessels are no longer competitive or old-fashioned or inefficient in fuel consumption, then we will of course also look at scrapping.
Great. Thank you.
Stig Frederiksen from Carnegie is online with a question.
Good morning, gentlemen. Just a couple of questions. First of all, on the unit costs, to return to that one, it seems from back of envelope that you've been able to reduce your bunker consumption per TEU by nearly 7% year-over-year. I seem to have read that you have a target of reducing by nearly 20% of unit over 12 and 13 per day. Could you elaborate a bit on how you're doing this bunker consumption? How much is coming from technical stuff? How much is coming from fleet management and so on?
Yes. The easy answer is that historically most has actually come from slowing down the vessels. We do expect some more potential from this area. This is of course not an area you can pursue this forever because sooner or later the customers would like to have a decent service. As long as the bunker prices are where they are, this is clearly a good way to reduce costs. In terms of the other things that we're doing, when we bring in the Triple-E vessels, this will cut consumption from the vessels that were active in the Asia-Europe trade, let's say two, three years ago, with 50% compared to on a container per day transportation cost.
This is very significant. As the number is relatively small, this is not gonna be a huge impact in the coming years. This will have an effect. We're working with a lot of different ways of changing hull shapes. When, for instance, our tanker vessels go into yard, we give them an eco refit that usually will reduce the bunker consumption with approximately 8%-10%. There's still a lot of things to be done and quite a bit is technical, but historically the biggest part has been slow steaming.
Looking at your guidance for 2013, where you're guiding more or less unchanged, adjusted for one-off, when you take each of the divisions, and you do an earnings bridge, it looks a bit conservative. Then turning back to that view in Maersk Line, it looks like you're mostly looking at the cost side for your earnings improvement. What about the spot rates and renegotiation of contracts with the big clients?
We of course do as much as we can, but we can only do with as much as the market allows us. The answer to that is yes, the main driver of improvement in our plans and forecasts for next year is cost.
The final question regarding Maersk Oil. You're guiding for lower result adjusted. You're also using a lower oil price. If you used $110, would we then still see a lower result in Maersk Oil for 2013?
I don't wanna get into a $70 million questions.
I understand.
There's a sensitivity in the statement, and it says that we are slightly above $200 million per $10 deviation on the oil price. At this stage, we can't be more precise.
No. My question was just you give some of the production weight to the Danish government and that's of course, as you mentioned, with a tax compensation.
Yes. We don't, that will not impact the bottom line, so this is just volumes.
Thank you very much.
Christopher Combe from JP Morgan is on the line with a question.
Good morning. Just a couple of questions. First, on unit cost to follow up. Can you tell us how much of the current operating fleet is chartered in compared to the start of 2012? Where do you see that falling out, once all the Triple-E's are online?
I think it's in the appendix, the exact fleet composition of Maersk Line. Otherwise we'll just find the number for you, and I'll give it to you in a minute.
Okay. With respect to the liner market growth outlook, 4%-5% does sound quite optimistic. Could you give us some color on what you expect by trade lane, and particularly Asia, Europe, westbound?
Well, Asia, Europe westbound, we do not expect any significant. Of course, this is, I mean, whether it's 1% or 2% up or down, it's very hard to give you a scientific justification for. We don't expect any development really for practical purposes in Asia/Europe. We do expect opportunities in the U.S. trade. We do expect increasing imports into the growth markets.
Okay. Given your comments on reefer that you might see some share loss and your guidance that your upside comes from unit cost savings, is the assumption then that 4%-5% growth is offset entirely by rate downside?
Can I just come back to your first question?
Sure.
Because now we have the figure here. The number of chartered vessels, our own fleet increased by from 254 in 2011 to 270 in 2012. These were mainly the Sammax and the Wafmax that we got delivered for the developing markets. The total number of chartered in container vessels dropped from 391 to 326.
I imagine we're gonna see that fall substantially in relative terms.
I think it's realistic to assume that with low growth, that the first vessels we'll give up will be, of course, when we have a possible contractually the time charter. Sorry, could you come back to your last question?
Yeah. The last question, it was partially answered already, but just given the growth outlook of 4%-5% and that you only see upside from unit costs in liner, the implicit suggestion there is that you're gonna see a full offset from weaker pricing.
No, we're not forecasting any pricing in the container trades. We've learned through bitter experience that doesn't make any sense. What we are saying is that our forecast on improved result in Maersk Line is based on an improved rate picture in reefer, in the reefer area and cost improvements.
Okay. Very last one, quick one. For oil and gas, how much CapEx do you see in 2013 within the $3 billion-$5 billion guidance range that you laid out at the Capital Markets Day?
I don't think we're guiding towards that in the report, but I think it would be as safe to assume that this will be the lower end of the range.
Okay. Thank you.
Finn Bjarke Petersen from Nordea is online with a question.
Hello?
Lars Heindorff from ABG Sundal Collier is online with a question.
Yes. Good morning, gentlemen. A few questions as well from me. Firstly, regarding the oil and gas. Could you help us a little bit about the development in Qatar? You now have the new field development plan, and you have earlier stated that will lead to an increase or at least stable gross production. But how will that field development plan affect your entitlement share and your net production?
The system is that we get something for operating the field. We get that in form of oil. We do have some upside on the oil side, on the prices and so on, but it's sort of a mixed formulation. When we do invest, we also increase our share, that is, you can say cost and investment recovery share. The $1.5 billion will improve the picture going forward, compared to the natural decline that we otherwise would be facing. The idea here is, or the expectation is here that it'll stabilize for some time.
Okay, also staying at the oil and gas division.
Sorry.
You're guiding for a slight decline in total production. Now you have the El Merk field, which will come on stream. You have Gryphon coming in. You mentioned that Qatar will be flattish, and you have a number of other sort of minor expansion going on both in Brazil and in Kazakhstan. I mean, your total guidance suggests that the production in Denmark should decline very substantial. Is that gonna be the case?
Just coming back to the Qatar issue, the investments that we do in 2013 will not have a positive impact in 2013 of any significance. So that means that we will continue to see a decline in share in Qatar. Yes, we will have less production in Denmark. But that will be partly because of natural decline, where we don't expect any dramatic changes in that development. But it will also be the transfer of production to a North Sea front that I mentioned before, because we transferred the ownership share in, more or less in the middle of the year, if I'm not miss-
Regarding the container business, you mentioned that the perception has been sort of recent acceptance among customers of the reefer GRI that you announced earlier around the new year. Now, most of your competitors, including yourself, have been out with a very significant GRI to be implemented in mid-March. Can you give us any indication about how that has been perceived by the customers thus far?
I'm not going to give you any sort of real feel for what we expect from the rate developments in the next three weeks. I can't help you. We hope, of course, that the general rate increases that are given out in the market are accepted because the profitability level of the industry remains very low. When you see the figures that are coming out from our competitors for 2012, you'll see that most of the lines actually did not make any money. Our return was below our cost of capital. We need to get better rates before this is a good business.
All right. Thank you very much.
Pushing on the next three weeks rate developments, I don't think I can really do much more to add to the general level of knowledge.
Okay. Thank you.
Joe Sponging from Merrill Lynch is online with a question.
Yeah. Good morning. Just got a couple actually, most of them have been answered. I was just wondering if you could say a little bit more with regards to APM Terminals. PM said that there have been issues with regards to civil unrest and things like that affecting the business. Is it possible to quantify what the effect of that might have been in 2012? My second question was really just in terms of helping me to understand the reefer increase that you've talked about. In sort of percentage terms, what does it amount to?
It's for APM Terminals, there has been a negative impact from civil unrest in and the rising of protest activities and so on, in particular in the Middle East during 2011 and 2012. I can't give you any sort of exact figure for it. It's not a huge sum, but it's definitely it has been felt. In terms of the reefer percentages, we have announced a GRI of $1,500. I think this is more or less in line with those who have announced have done. We're now negotiating with the customers on what their contract should look like, how much quantity they want to take.
I think it's absolutely too early to give you any further feel for that.
Okay, thanks.
Eirik from Danske Bank is online with a question.
Sorry, all my questions have been answered. Thanks.
Robin Byde from Cantor Fitzgerald is online with a question.
Morning, guys. Just two from me, please. Firstly, on APM Terminals, your EBITDA margins are starting to improve. They're at about 23%. Where can those margins get to as the portfolio matures and productivity gains kick in? Secondly, just on tankers. I just noticed revenue's flat, but EBITDA has doubled year-on-year. Can you just talk us through the moving parts there? Is that to do with the retirement of 25 of your chartered vessels? Thanks.
In terms of APM Terminals, it's hard to predict where the margins can go. We're working very systematically to lift productivity, but we have more, of course, transshipment terminals than some of our competitors. I wouldn't fall into the trap to assume that we could get to EBITDA levels that are similar to our competitors. We believe that through hard work and good productivity, we can definitely move forward. I didn't really understand your questions on tankers. You said that the EBITDA had improved.
That's right. Yeah. I just noticed the revenue was flat year-on-year, but the, I think the EBITDA has doubled. I just wonder what the moving parts were there.
Probably, that we have entered into a VLCC pool.
Uh-huh
where the top line doesn't enter, but the administration fees and profit from that part goes in. I'm not sure that is a full explanation on that.
I'll have a dig around. Okay. Thanks very much.
Okay. Thank you.
Frans Høyer from Handelsbanken is online with a question.
Yes, good morning, and thank you. A couple of questions as well. On drilling, the rigs that have been delayed here, how many days are we talking about affecting 12? What kind of amount are we talking about in negative direction here? Are the rigs now on stream?
The rigs are now on stream. I mean, we always have downtimes, but we don't have any significant rigs that are out of business now. The effect was approximately $125 million last year.
On the line, you seem to be looking.
You've lost market share in Q4, somewhat deliberate, as I understand it. How do you see that unfold going into 2013, and can you elaborate a bit on the explanations why you are sort of lagging the market with an 8% decline in volumes year-over-year?
First of all, of course, we have a higher share in Asia-Europe, which has been developing the least positive development in the total market. That is part of the explanation. We have also been leading rate increases, which has caused some volume. We see it as having achieved a rate that was above last year's market share in 2012 that was above the share in 2011. We have given back some share in the second half, trying to lead the market up in prices, and we'll of course try to rectify that. Our strategy is to maintain share and lift it and not lift it. So far, this seems to be working reasonably well.
I don't think we can hope to manage it on a monthly basis, but on a yearly basis it looks okay.
On the reefer side, the lift of $1,500 per FEU, how much of how many of your 800,000 FFEs are subject to this increase? I understand that also the reefer market is somewhat of a contract market. So not all these volumes are so to say subject to a lift, at least not in 2013. Is that correct?
All reefer orders are subject to rate increases. Of course, there can be some contractual terms that or contract expiry dates that impacts the timing of the effect. It will all have impact in 2013. We're negotiating right now, as I said before, with all our customers, trying to find the optimal solutions. People do accept that reefers need to have a higher rate.
Okay. Then on the oil side, your resources, you do not give any disclosure now, and you promise to come back later in the year. If we are to look at the dynamics here, you're delivering 20% to the Danish state. You have produced a little short of 100 million bbl. That's of course taking resources in a negative direction. Is there anything pushing it in a positive direction? Are there any, you know, developments in the portfolio that should push resources upwards, when you-
No, the job of the oil organization is of course to compensate production. By the way, the return or the giving away of the 20% share to Nordsøfonden in the North Sea has been known, so that also was affecting already the reserves last year. Their job is simply to make sure that we compensate as much as possible of the oil you produce. In some years, there will be less than that, and hopefully, there will be years where it will be above. I can't give you more details now. We'll be out there on the seventeenth of May.
Okay. Finally on Damco, you mentioned in your presentation that it's been affected negatively by integration costs. Can you quantify that, please?
It's a small double-digit number.
Okay. Thanks a lot.
Douglas Hayes from Morgan Stanley. We have a question. Yes.
Good morning, gentlemen. Three questions, please. First, on the drilling segment, it looks like Q4 results were quite a bit weaker than expected. You guys had already mentioned the delays in Q2. Have there been any additional delays in Q4, or were there any additional costs that we might not be aware of?
I think, you know, the downtime on rigs was costing us approximately $125 million, distributed over Q2, very little Q3, and a bit in Q4 as well.
Okay. Very clear. Thank you. Secondly, can you give us some more insight into your progress on cost savings other than bunker consumption? Is there much else left that you guys can do to improve your unit costs there?
Yes, of course, there's renegotiation with suppliers. There's headcount cost, other administration costs, and so on. Yes, there are more things you can do.
Okay. Is there still a lot to go on those areas in 13 and 14?
I don't think you'll have effects that are any larger than what you've seen in 2012, but we'll continue to work very hard to push SG&A down.
Okay. Thank you. Finally, just looking through the notes, I saw you guys had acquired the minority stake in the supermarket in Netto in Germany. Can you give a little more detail into that, the rationale and why you decided to do that?
It wasn't a big strategic decision because it wasn't a lot of money. We had a partner there that owned 25% of Netto Germany, and they wanted to sell out for strategic reasons. Of course, if a partner, minority partner wants to sell out, you sit down and you discuss the terms. I think we made a fair deal for both parties, but it's not, we're not talking major sums.
Very clear. Thank you very much.
Robert Joynson from Macquarie Securities is on the line with a question.
Good morning, everybody. A few questions on Maersk Oil, please. First of all, regarding the $407 million insurance payment received for Gryphon, could you give us a quarterly timing profile of those payments, please, in particular in terms of which quarters of 2012 those payments were received and included in the P&L? The second question just on that train of thought is, I appreciate that the negotiations are still ongoing regarding the final insurance payment for Gryphon, but could you possibly provide some color on how much those payments could be worth for 2013?
Most of the payments on the insurance came in the third and fourth quarter and is sort of recognized in those two quarters. It's fairly evenly spread among those two quarters.
Okay. Just maybe some comment on the potential for the insurance payments in 2013.
Well, the element, no, we don't have any comments on that. That is still in discussion and negotiations with the insurance company. The final settlement is of course outstanding, but the amount we're talking about is nowhere near sort of the elements that we have recorded in 2012.
Okay, thank you. If I strip out the $407 million insurance payment as an exceptional, together with the $899 million from the Algerian tax settlement, I calculate an underlying NOPAT for Maersk Oil just over $1.1 billion for 2012. Now, on a like-to-like basis, if you excluded both the tax settlement and the Gryphon payments, should we expect that the underlying Maersk Oil profitability in 2013 should be down on 2012 on that basis?
I think we've said before, we've given the guidance, that we could, as precisely as we could, and we're not going to narrow it at this meeting. Hopefully, we'll be a lot wiser when we get to the second quarter or the first quarter publishing, but at this point in time, we can't narrow the forecast down further.
Okay, that's helpful. Thank you.
William Falcon from Berenberg Bank is online with a question.
Hi, good morning. I just wanted to ask a question on your contract rates generally within Maersk Line. I believe that the last two conference calls at Q2 and Q3, you noted how there were ongoing negotiations to try and raise your average contract rates. At Q3, I believe you said they were still below spot rates. Going into the beginning of 2013, I wonder if you could give us an update in general on where your contract rates have moved. Are you still in ongoing negotiations, or generally are they above the level at the beginning of 2013, where they were at Q3? Thank you.
I think this is probably the worst possible time to answer that because we are in negotiations still on some Asia, Europe and other trades, and we have negotiations ongoing to the US trade. We can't give you any details on where we are compared to spot rates at the moment.
Expectations for completion of those negotiations by Q1 perhaps?
Maybe. Of course, we hope to have major rate increases to report on in Q1 when we publish Q1, but that may not be the most realistic hope I have today.
Okay, thank you. Just a follow-up on Maersk Oil. Gryphon, I wonder if you could give us just a bit more detail on where we are with production levels. I seem to remember from Q3, we're expecting perhaps production to increase in Q4. Have there been further delays, or are you at expected production level now?
The Gryphon is still not operational fully. We've done a lot of the subsea work, so progress has been made. It has been extremely rough weather in the past couple of months. We can't yet report Gryphon up and running. I hope we'll get to that relatively soon.
Great. Okay. Thank you very much.
Gianmarco Bonacina from Equita is online with a question.
Yes. Good morning. A follow-up question about the bridge on your oil production. Basically, I think that the new production you will have between Gryphon and El Merk and Dunga could be around 40,000 bbl, and you are guiding for a 10,000 barrel decrease. In all, there is a 50,000 bbl which could be assumed as the natural decline in the field, which is about almost basically 20% of your production. I assume that in basically the North Sea that is fair because you reduced your stake in DUC, so that's fair to have 20%-25% decline.
Why, I mean, is it fair to assume that also, for example, Qatar and the other fields have around 15% decline in production in 2013? In particular for Qatar, I see that basically the oil price you are assuming is lower. When the oil price decline, you should have a positive contribution in the production. If you can explain that. Thank you.
There's a lot of moving parts in there, and I think it's better that we leave this the detailed explanation of this until we publish the first quarter statements. We'll also have much more clarity both on Gryphon and on El Merk, and when we come to that. I think it's premature for me to give deep dive into this now. We do expect declines in the Danish North Sea. We do expect the decline in the Qatar production as well, for 2013, that we will see declines.
Okay. Just another small question about 2013. Is it fair to assume that you will still have some positive capital gains from sale of asset, or you don't expect any major capital gains, 2013?
If you talk to the whole group, I have to say that it's normal. Of course, we don't know how it will move at the beginning of the year, but we normally always have some kind of profits from sale of assets and extraordinaries. This is a very big group with a lot of moving parts. So it's too early to say anything here. But last year was a big number in extraordinaries.
Okay.
Finn Petersen from Nordea is online with a question.
Yes, good morning. Question on Maersk Line. Your guidance, if I wouldn't ask you about the reefer rates again. The general rate level, are you assuming a flat rate? The next question, your cost. You're talking about network cost. Could you elaborate a little bit about what you are thinking of here?
Network cost, I think I will not comment on the rates at all. Thank you for accepting that. The network costs are costs where it's depreciation on vessels, it's time charter rates, it's cost for bunkers, it's cost for the technical operation, maintenance and so on. These are the costs that I'm related to manage this big fleet that we have on the water. This is also where there's a lot of scope for further reduction. When I say a lot of scope, I'm not talking billions of dollars. This is where we can work to become more efficient. This is what also happened last year, where we cut the cost of the network with approximately $50 per container.
That leads me to the question, if you look at the competitor CMA, they're doing better on the margins than you are. They're only half the size, the same quality company. Do you have any clue of whether you can improve your margin to a level close to the CMA, for example?
In 2012, we gradually during the year improved the difference to the average of the container lines that are publishing numbers from around 0.5% better at the beginning of the year, up to what we believe in the last couple of quarters, somewhere between 2.5% and 3%. We'll of course continue that work. Our aim is to get to a 5% difference to the average of the market. That is the stated strategy, and I'm optimistic that we can get further. In that process, of course, we'll also try to close the gap with CMA.
Okay. Just one final question on the oil business. Should we assume that the oil production and the profit we will see from the oil business would reach the bottom in first half of 2013, and then be on the rise from there going on, of course, given the oil price and things?
It's early to give you, as I said before, any further details. If you compare to the production we had in the last two quarters, it's actually been in the same range as we're guiding for the year. Of course we hope that we'll see stabilization in 2013 and then hopefully start growing in one of the coming years. It's too early to be concrete, and we'll give you more details when we come out with the next quarter's result.
Okay. Thank you.
Thomas Adolff from Credit Suisse is online with a question.
Good morning, guys. Thanks for taking my questions. Got a few on Maersk Oil, one on exploration and one on development. First, just on the drilling plans in the Kwanza Basin, Angola 2013. Hello, can you hear me? It looks like you still have to-
Thank you for listening in.
Can you hear me?
We look forward to talking to you again in the next quarter. Thank you.