Ladies and gentlemen, welcome to the A.P. Moller - Maersk Annual Report 2011. Today I'm pleased to present Group CFO, Trond Westlie. For the first part of this call, all participants will be in listen only mode, and afterwards will be a question and answer session. Speaker, please begin.
Good morning, ladies and gentlemen. We're here to cover the full year result for 2011 for A.P. Moller - Maersk. I will touch also on some of the Q4 numbers when we go through the presentation. Going to page two, the safe harbor or the forward-looking statements. While you watch that, I can start with saying that 2011 was an acceptable year for A.P. Moller - Maersk. Driven by good results in the oil, the terminal side, as well as the drilling and supply side, considering the difficult shipping markets. Going to page three and a look at the highlights. As I mentioned, the first bullet I just covered. All in all, an acceptable result for 2011.
Maersk Line turned loss-making and are taking actions to restore profitability and improve supply/demand stability. We also have during 2011 made significant investments and commitments in long-term growth in growing industries. In 2011, we have been executing on the group's strategy. We are building and developing the portfolio of products and customers in the production from 2014 with 100,000 TEUs and fully parallel drilling supply operations. At the same time, globally scale up as well as improve market share within oil and gas, delivering growth in service. In container, we have adjusted and streamlined the portfolio together with the market. Maersk Drilling have delivered high uptime and order bookings from long-term growth. We have signed the XLV Maersk LNG.
The closing is scheduled for this week. All in all, we have delivered on progress on our strategy and making an acceptable result for 2011, considering that the shipping market is weak. Going to page four. The group financial highlights. We saw the improved profits in all major businesses. If you go to the bottom left on the slide, you see that all the columns from left to the right is actually increasing. They're increasing by actually a total of DKK 1.1 billion. We are having a very good development in oil, terminals, drilling supply, and others. The challenge is, of course, the volatility in the shipping sector, specifically on the Maersk Line. In total, the revenue increase was 7%. The profit decline was 33%.
As you can see, the difference is, of course, that Maersk Line is having a lower number in 2011 of more than $3.3 billion. And the decrease in total is only 1.6. That is sort of just underlying what I'm saying of Maersk Oil terminals and drilling supply. The free cash flow for the year is, or the operating cash flow is, $7.3 billion. And we have used for CapEx $9.8, so the negative free cash flow is $2.5 billion, leaving us at a net interest-bearing debt year-end at $15 billion. Going to page five, Maersk Line.
We have increased our volume year over year by 11%, and thereby regaining our market share to a sufficient level. Looking at the numbers of the full year of 2011, the profit is a loss of DKK 600 million. That is due to the decline in rates and also the increase in cost, specifically the bunker price increase 35% compared to 2010. The average rate for 2011 was $2,828 per FFE, but you can see that the rate was declining during the year and in fourth quarter, the average rate were $2,671. The EBIT per FEU during 2011 was a loss of $75.
The additional services and the reliability is very good in Maersk Line. The fourth quarter on average, we are at 87.5%. Daily Maersk service concept introduced in the fourth quarter had on-time delivery of 98%. We are delivering on the service palette and the increase of ease of doing business with our customers and feeling that we get a very good response from our customers on that. The technical thing in the fourth quarter, since the negative result of fourth quarter is almost $700 million, there is a one-off cost of the restructuring provisions as well as impairment of slightly more than $100 million. Going to the next page six on Maersk Line.
As mentioned, Maersk Line is having its long-term strategy on the reliability, ease of doing business, environment, environmental impact, and competitiveness. We're still focusing on that even though we are making changes to our pricing strategy as well as taking out capacity in the market. The CMA agreement that was announced last week is gonna effectively reduce our capacity on Asia, Europe. We're gonna maintain our deployed tonnage, but the average speed reduces as well as reducing some extra port calls. In total, we do think that will at least assist with stability in the market. We have announced our rate increases for first of March and first of April. It remains to be seen how effective they will be.
We are looking positively towards them, but it remains to be seen how effective it will be over a period of time. Because we do see that we have an oversupply in the market, so we need to focus on the possibilities of additional opportunities to have capacity reduced. Going to page seven on Maersk Oil. Production declined as anticipated during the year with 12% year-over-year due to Qatar and lower production in Denmark. The UK went down as a result of the Gryphon incident that happened in February. All of this is slightly offset with the increase of production coming out of our acquisition in Brazil from the SK Energy, and that is the Polvo field.
The revenue is higher going up with DKK 1.4 billion from 2010 for the full year due to a higher oil price. We have increased the exploration activity, and we see effects of that. We have Chissonga was declared commercial. We are working on the development plan, and we expect that to be finished either late 2012 or beginning 2013. We're seeing good positive developments on Aldous, part of the Johan Sverdrup field in the Norwegian sector. We have development plans approved on the Golden Eagle, and we have hydrocarbon finds that are encouraging. All in all, it has been good development in our prospect portfolio as well as good progress in all the new development projects.
As a result of having the arbitration with the Algerian arbitration, that also has a possibility of coming up in the near future. Going to page eight, continued on Maersk Oil. On the top left, you see the Maersk Oil share of production coming down, estimated to come down approximately 20% from 2011- 2012. We see that is a high percentage. It's due to two effects. It is Qatar that is coming down to the lowest R factor. It is the DUC exchange that we will surrender 20% of DUC to the Danish government.
The net effect of that should be limited as a result of the compensation is done on the tax side. On the bottom line, we actually see the exploration full cost going forward, and we see high exploration activity. We have finished 14 exploration wells during 2011. We are involved in about approximately 30 drilling prospects that either are in process or planned in 2012. It's all our fields for development, Angola, Brazil, Kazakhstan, Qatar, U.S., Norway, and U.K. We expect the drilling exploration costs to be above DKK 1 billion in 2012. Going on to page nine, APM Terminals.
A good year for the terminal side, both on the growth aspect as well as the adjustment of portfolio, in addition to optimizing or enhancing the efficiency. We are increasing the underlying results with almost 24%. If you take out impairments and gains in 2010 and compare it to 2011, we are increasing the results from 2010 number of 492-611 in 2011. It's a very good progress. It is a turnaround of the inland service together with a lot of efficiencies. The portfolio expansion, here we see Callao, Cotonou, and Gothenburg being ongoing businesses that we have successfully bought.
and Lázaro Cárdenas is gonna be greenfield operation that is more on the long haul of expanding the business in terminals. It's looking at the exposure of terminals going forward in the emerging markets. It's a good profile. They have a return on invested capital in 2011 on 13.1%. You see that the margin development is improving even though that the volume growth is more volatile, also for the terminals. Going then to page ten on drilling. We're delivering a profit in 2011 of almost DKK 500 million, improved efficiency and uptime on most of the rigs, as well as introduction of a twelve-month slot year for all of the new semi-submersibles. That is really what is driving this.
We had a very high uptime, been very effective on the planned inspection and upgrades. A lot of rig days during the year. Very efficient year for Maersk Drilling. The return on invested capital is 12.7% up from 11%, and we see that in 2012, we have a good contract base for 2012, but we also have yard stays and upgrades in 2012 so that we foresee slightly lower rig days than 2011. On the Maersk Supply Service on page 11, delivering slightly increasing from DKK 772 million- DKK 884 million in revenue base. Developing well on the profit to DKK 207.1 million. The increase is good.
The contract coverage in 2011 had also suitable exposure to the spot market for 2012. We're in a reasonably good position. The second half of 2011 was better than expected due to the North Sea rates. North Sea rates went up, and it was also higher activity in Brazil and Angola. At that activity level, we're balanced on the pricing side with the addition of new vessels. Looking forward, we see that the market is reasonably good on the anchor handling side, but there's still ships coming in on the supply side in the market. Going to page 12, a summary slide on other core businesses. For the tanker side, it has been a challenging market in 2011.
We have done some investments, both planned and sort of opportunistic in 2011 as a result of our strategy going forward. We still see a challenged market going forward in most of our segments, even though there are differences within the segment in the tanker industry. On Damco, we are continuing margin improvements and portfolio optimization, as you can see in the numbers. We have acquired a China-based air freight forwarder that will pick up an increased volume of air freight, which is needed for Damco going forward. Svitzer have good development, 11% in revenue growth and a 20% increase in EBITDA development. All in all, a good development.
Focus on the tonnage in the harbors and the efficiency on that together with including new terminal projects for longer term contracts. Dansk Supermarked Group saw a relatively flat market in 2011. Some growth as a result of expansion of new stores, but it was a margin pressure specifically on the non-food. We also saw a slide towards the discount chain specifically in the Danish market. Successfully sold off Netto UK with a good gain. Going to page 13 on the consolidated numbers. Good 7% growth in revenue from $56 billion-$60 billion, driven by volume increase in Maersk Line, countered by the rate decrease.
The second driver in this development is of course Maersk Oil. We have slight decline in the EBITDA to DKK 14,661 million. That leaves the EBIT number for DKK 10,274 million. The tax increase is in 2011 come as a result of the composition of our earnings. We have high earnings in oil and gas, which has a high tax percentage. We're up to 73% tax in our business, in our oil and gas division. As a result of the tonnage tax in the shipping side, as a result of changing results, we don't see an effect of that.
That means that we are increasing our tax rate, and that means that we are delivering a profit for the period or for the year in 2011 of $3.377 billion. The cash flow from operating activities is $7.3 billion. Cash flow used for capital expenditure is $4 billion short of $10 billion, in comprising also of the acquisition of SK Energy of $2.4 billion during the year. Net interest-bearing debt is then $15.3 billion. The return on invested capital for the group is 8.3%. I also would like then to underline that this is a year where we're not delivering from the shipping side.
We are delivering on specifically improving on the terminals, the offshore service with drilling and supply ships, as well as Maersk Oil. That is the reason why we actually are delivering the rates on invested capital of 8.3%. The board have proposed to maintain the dividend level of DKK 1,000 per B shares or per share of a nominal value of 1,000. That is the same as in 2010. Going on to page 14 and look at the waterfall on the development of net interest-bearing debt. The EBITDA is DKK 14.6 billion. Slight change, minimum change in working capital. We paid taxes of DKK 6 billion. We spent money on the CapEx side of DKK 9.8 billion.
Paid financial items for $0.9 billion, and dividends and others paid, short of just $1 billion, leaving the net interest-bearing debt at $14.3 billion. Going to page 15 on the outlook statement for 2012. The A.P. Moller - Maersk Group expect a positive result lower than 2011. Cash flow used for capital expenditures is expected to be around the same level and as in 2011, while cash flow from operating activity is expected to follow in line with the result.
Going to the outlook for the core growth business unit, Maersk Oil expects a result significantly below the result for 2011 based on expected 20% decline in the share of oil and gas production to a level of around 365,000 barrels of oil equivalent per day at an average price of $105. The production decline is predominantly caused by the sharehold production in Qatar and the natural maturation in the North Sea fields. The transfer of 20% ownership of DUC to Nordsøfonden by mid-2012 will reduce the group's production share in Denmark, but will have no impact on the net earnings. Exploration costs are expected to be above $1 billion. Maersk Line expects a negative result in 2012 as a consequence of excessive capacity.
Global demand for seaborne container is expected to increase by 4%-6% in 2012. We expect a lower growth than that or lower on the Asia Europe trade, but supported by high growth in the North South trade. APM Terminals expect the results above 2011 and to grow more than the market supported by volumes from new terminals. Maersk Drilling has almost full contract coverage at attractive rates in 2012 and expect a result in line with 2011. Maersk Supply Service expect the result at the same level as in 2011, with one-third of the available vessel days in 2012 not yet contracted.
The total result from all of our activities is expected to be at the same level as in 2011, excluding divestment gains and impairments. Of course, the risk of this is substantial. It is very much dependent on price expectations in the container market as well as the world oil price, which is the big drivers, as well as currency effect on this. You have some sensitivities effect on the right side on page 15. For the final remarks on page 16, we do see an acceptable result for 2011, driven by the positive result in Maersk Oil, APM Terminals, as well as the offshore service in drilling and supply service. The strong results and continued focus in oil and terminal and drilling business.
We see the growth allocation for investments going in 2012. We will focus on oil terminal and drilling business. We continue to deliver on Maersk Line strategy. We have regained the market share to a satisfactory level, and going forward, we will maintain or defend that market share. We are focusing now on profitability, restoring freight rates with the rate increases and focusing on reducing our cost and efficiencies. We have started to adjust our capacity. As of today, we see no need for new capacity commitments short to medium term. On Maersk Oil and Gas, we will continue our development on prospects.
Together with that, we will focus on making sure that the decline in production will stop at 2014 and then go upwards towards the long term plan of getting to 400,000 barrels per day. Overall, we would say that 2012 will be a challenging year on different circumstances. For the shipping side, we are in a supply demand challenge as well as even though we are taking actions, it is uncertain whether that supply, that those effects will be sufficient to actually create that balance. On the oil and gas side, we're in the midst of we do, in the midst of the declining production towards 2014 where it changes. We're also in the midst of a high investment phase in both prospects and development plans.
We are in route towards our 400,000, but we will have challenging years when it comes to P&L effect as we are signaling for 2012. With that is our presentation. I open up for questions and answers.
Ladies and gentlemen, if you have a question for the speaker, please press star one on your telephone keypad, and you'll enter a queue. Our first question comes from Mr. Lars Heindorff from ABG. Please go ahead.
Yes, good morning, gentlemen. A question regarding the container business. You mentioned a bit that you have announced rate increases here from the first of March and again from first of April. Could you give us any sort of highlight or any sort of flavor on what has been the impact thus far from customers and also to what extent you believe you'll actually be able to implement those rate increases?
Well, what we have seen is that after some others of our competitors announced those rate increases, we also announced our rate increases and have seen that the rest of the market has followed that announcement. We are positive here that these rate increases will stick. But as always, there is a supply overhang in the market. It comes down to a price discipline that needs to be there. I guess that we have to wait and see how first quarter pans out to actually see how much it actually is. Our ambition is, of course, to maintain that, and we are focusing on that right now.
Okay. Early on, you have been stating now for the last couple of quarters that your main focus was to maintain your market share. Is this a change of strategy from Maersk Line that you're now focusing more on profitability rather than market share?
Well, during 2011, we have regained the lost market share that we actually lost in 2009. We have picked up market share during 2011. We are comfortable with the market share we have right now. The situation is that we haven't changed the strategy. The strategy levers of Maersk Line is still the core elements of environment, ease of doing business, the reliability as well as the competitiveness by having the ambition of beating the market by 5% margin. As of now, we are developing that strategy very well. We have come far the last 4 years. We still need to focus on it, but we have come far.
Looking at that, this is more a change on tactics relative to that we regained the market share, and now we see that we want to grow with the market.
Okay. Regarding your capacity growth, with the reductions that you're now doing and the slow steaming you're doing on Asia-Europe , you said you're going to reduce capacity by 9%. I'm curious to find out what sort of growth we're looking at capacity wise for the full year 2012. You will have at least some numbers of new deliveries coming in. What do you expect to be sort of total capacity growth, 2012, if you adjust for these, 9% decline on Asia-Europe ?
We don't have any new deliveries coming in on Asia-Europe during 2012. The competitors, some of our competitors have. I don't have that sort of, that number, top of my head right now. As we see it right now, we do think that as a result of new capacity coming in, on the Asia that we expect coming in on the Asia-Europe, there is a need for additional capacity reductions for it to have some sort of stability in the market. We are on our part looking at that toolbox to see how much we can actually do in the future. We're not excluding that we are gonna do more on the capacity reductions.
Okay. The last question regarding the oil and gas. You have earlier mentioned that an announcement regarding Chissonga would be out mid-2012. Now you've, if I recall it correctly, stated that you expect an announcement late 2012, early 2013. We have seen now for the past couple of quarters that you have sort of postponed the expected announcement regarding Chissonga. Could you give us an idea sort of, or maybe an update about what's going on and what is the reason for this postponement?
To take the last one part first, the reason is purely technical. I mean, we have declared the field commercial to the Angolan authorities. In that regard, I mean, it has been defined as at least formally a commercial field. When it comes to the development plans, we have done appraisal wells during late 2011. We are doing another appraisal wells during the spring of 2012. Then all these elements actually leads into the technical development of the field. That is why the sort of the final element of development plan is basically postponed as a result of new findings.
Okay, thank you very much.
Our next question comes from Mr. Christopher Combe from JP Morgan. Please go ahead.
Yeah, good morning. I just have a follow-up question on market share. Looking at the last two quarters, clearly, you've restored your market position, and today you've announced that you find it to be satisfactory. How defensible do you think that is in light of the numerous operational tie-ups which have yet to really take full effect? Could that potentially shift the priority back to market share solely, which is what was suggested by your recent press release, that is the top priority?
Well, I do think that we have to look at this both in the terms of what has happened during the last year. We have seen at least in the fall some alliances coming together as well as new alliances being made on the sort of the infrastructure consolidation. What that leads to is, of course, difficult to say, but we do think that this is partly a response to our Daily Maersk offerings that we have introduced into the market. Having said that, we still of the opinion that we do think that consolidation, real consolidation in the industry is needed. It is fragmented. As a result of that, we are looking to see what effects the consolidation in the infrastructure is actually happening.
Where it is gonna deliver going forward, and that remains to be seen. How sensible it is is always a question, but the industry is in need of making the necessary turns going forward. We do think that our market share is satisfactory as we see it right now. We will defend that market share. We have been very clear that if we see new changes in that, we will make certain that we take actions to actually uphold our market shares.
Okay. If I hear you correctly then, is it the right conclusion that you're more confident in the absence of true consolidation and perhaps a bit more skeptical of what kind of action competitors might take with these looser operational agreements?
Well, the answer is basically yes to that. I do think that we have seen, as you say, the looser at least infrastructure consolidation. That will remains to be seen what effects that does on the longer term stability on the supply demand now.
Okay. That's one very last one on oil and gas. Can you give us a big picture sort of in terms of expectations with regards to reporting going forward? Should we expect any material sort of consistency or improvement in the detail of reporting on incremental development?
As we have said earlier, we are working on that incremental improvement, and hopefully we will get into that. I cannot give you a timeline on that because that is not decided. We have improved internally. We are working on making sure that we can consistently report with the aligned market practice. We are working on that, but I cannot give you a date.
Okay. Thank you.
Our next question comes from Mr. Robin Byde from HSBC. Please go ahead.
Oh, yeah, morning, guys. Just a couple from me, please. Firstly, on the container side and bunker surcharges, can you just update us on how much of the increased bunker costs at the moment you can recover, or what's the sort of recovery rate? Should we be thinking 50% or 80%?
Then secondly, just on the terminals business, can you just talk a bit about the pricing environment? You know, things are tough out there. Can you lift prices? If so, in which regions? Just as a follow-up to that one, if you like, can you just remind us of the mix of business between Maersk Line and other carriers at your terminals? Thank you.
To take the terminal side first, I do think that we increased slightly on the third party business in the terminal side. I believe the number is 46 or 47, up to 46 or 47% right now.
Thank you.
In that sense, we are still working on third-party volume, and it is increasing, even though the increase this year in 2011 was not as high as it was in 2010. Coming to the recovery rate on the BAF during 2011, it was a challenge during 2011 as a result of the prices. Due to the fact that the prices is coming down that much, the long-term contracts is not that many. The recovery rate as of 2011 is around the 60% level.
All right.
Your second question on the pricing environment. It is of course a challenge to see the pricing environment, specifically in the regions where you have clear oversupply in the market. As I said earlier, on the questions, it is hard to say how much of that is gonna stick. We are working hard that these price increases will stick as announced. We have to look at how the reactions in the markets will be and have to apply with the markets. Because as I also mentioned, we are satisfied with our market share as of today, but we will defend that market share.
Just in terms of terminal handling rates, do you think you'll be able to lift those this year at all across your whole network?
I mean, that is one of course the bunker adjustment factor, but there are other surcharges there. I do think that the effect on other surcharges is not gonna be that dramatic. It's still good. When it comes to the bunker adjustment factor, it is difficult to say how much long-term contracts and how much short-term or shorter term contracts and how the market is gonna develop. It's difficult to give you another guidance on that.
Okay. Thank you.
Thank you.
Our next question comes from Mr. Dan Togo from Handelsbanken. Please go ahead.
Yes, good morning, gentlemen. Sorry to go back to this rate outlook, et cetera. You hadn't really commented on how much of the freight rate increases in Asia, Europe that you sort of imply for your guidance. You're guiding for loss in the container business in 2012. How much of this and what is the impact you expect from the freight rate increases, both here from first of March and from first of April?
No, we are not being specific on that. That is, of course, due to sensitive issues relative to the market. We cannot be specific on how much rate increases we put in the numbers. We have to leave it to you guys to actually do sort of the analysis on the work. You know, the rate increases that we have announced, and the element is that we believe that Maersk Line is gonna be negative this year. We're coming in, if you look at the rates of fourth quarter, so we're coming into the first quarter 2012 in a very difficult situation. The rate increases is going forward from first of March and first of April, and I cannot give you further guidance on that.
Okay, fair enough. One question on your contract coverage. It is of course varying a lot between markets. If we look at Asia, Europe, how is your contract coverage going into 2012?
We usually, we're not commenting on that. Since we are commenting on the BAF recovery factor as a result of being shorter on contracts, it is, of course, if you take the weighted balance of previous years, we are shorter today.
Yeah.
than we have been earlier.
Okay. Just a housekeeping question on oil and gas. The tax rate in oil and gas, 73%, this year or in 2011 you mentioned. Should we expect the same in 2012?
It's actually we expect it to actually rise a bit, and that is due to how we actually are developing. The reason for that is we are having the average rate in the countries where we produce oil is basically a stable sort of 70%. They're short of that.
Mm.
Since we are developing in new countries where we don't have a slightly conservative element of not recognizing the deferred tax assets or using the tax loss carry-forwards. We're seeing that there's still development going on in the US, in Brazil, in Angola, that we're not gonna be able to recognize for a period and therefore we see that the tax rate is gonna increase.
Okay. Just one final question in containers. How close are you to, you know, considering actually laying up vessels in order to mitigate the overcapacity we are seeing in the market right now?
As I said on my wrap-up sheet, we basically have all the alternatives in the toolbox, and we are evaluating all of them, even though no concrete decisions yet have been made.
I guess it's a decision that needs to be made within the next month or so?
I think we are very aware of the situation, yes.
Yep. Thank you.
Our next question comes from Mr. Carl Bachke from RS Platou Markets. Please go ahead.
Good morning, gentlemen. If I may, could I go back to Maersk Oil and have a question regarding the Qatar PSA that you implicitly are now guiding a significantly lower entitlement volume for 2012, even though that your price assumption is actually lower than realized in 2011. Can you give us any flavor on this sort of surprisingly large drop and any particular sort of contract elements there that we should be aware of?
Yeah. The element is that we have had a surprise decline in one of the factors that is in the PSA agreement. Now we have at the end of 2011, we have come to that point that we have come to a step-down on that element, what we call the R factor. As a result of that, we're now having a step-down, and that is down to the lowest levels of that PSA in that PSA agreement. We're at the lowest level, and that is why there is such a significant change from 2010 to 2011. Going forward, we will not see those changes because then it's more an element of the oil price.
Okay, thank you. I take it that you are at this lowest level, and hence, if all things being equal, you will stay at this level but not go further down. Is that correct?
That's correct.
Okay. Just a final question. Could you give us any updates, if any, on the process for extension of that same contract beyond to 2017?
Well, no, I cannot give you any updates more than we're still working on Qatar Petroleum. We have very good relations. We're working diligently on potentials and possibilities. There is not a formal process on the extension yet. As we said earlier, we have done this field now from the mid-nineties. We have been successful in developing it. We have a very good relations with the Qataris. We hope and feel that we are in a good position, but it's still gonna be a competition in the end, but good relationships with Qatar Petroleum.
Thank you. If I may, just one final question. In your guidance of 265,000 barrels per day in 2012, does that imply a certain growth in both UK and Brazil production from 2011?
It involves this slight element of Gryphon coming into play or being restored in second half of 2012. I do think that Al Shaheen is gonna be in production late fourth quarter, but it's not gonna be any significant amount relative to the 265,000 barrels a day average.
Thank you.
Our next question comes from Mr. Robert Joynson from Macquarie. Please go ahead.
Oh, good morning, everybody. A few questions from me, first of all, on containers. Could you possibly give us some color on with the Asia contracts which have been agreed since the start of the year, is it possible to indicate what proportion of those contracts, if any, have been index-linked? Also just sticking on Asia for the time being, you've guided for 4%-6% growth in volumes for the group as a whole with lower growth on Asia-Europe. Could you indicate possibly just how much lower on Asia we should be thinking of there?
Well, when it comes to the sort of the details on our contracts and how long they are and whether they interest or not, we're not disclosing on that kind of level. I'm sorry to not be able to help you on that. When it comes to the growth aspect, we do think that as a result of our relative weights on where we are are bigger in contracts or bigger as players in the different regions, we think it's fair to say in our outlook that even though we see the market growth being 4%-6%, we have a higher exposure towards the Asia-Europe relative to many of the other geographies.
Therefore, we are focusing, and we are expecting that the growth in Europe, at least on the GDP side, is gonna be low, zero, maybe negative. We are uncertain to how much the volume growth is gonna be on Asia-Europe.
Okay, thank you. Just a question on the terminals business as well. If you look at the EBITDA margin of that business, it's consistently improved over the past several years. Could you maybe just provide some color on how much room for further margin improvement remains there over the next two to three years, maybe?
Well, I think that the low-hanging fruit is typically taken out. We have been efficient. We have operationalized, we have adjusted the portfolio. I don't think it's, but we are sort of working long term relative to get efficiency measures into place. We do also have, of course, some optimization to do on our portfolio because we still have underperforming terminals. There is still work to be done, but the low-hanging fruit has been taken.
Okay, fine. Thank you. Just a final question on oil and gas. In terms of the 20% expected decline in production in 2012, should we expect, you know, roughly a 20% decline in both the North Sea and Qatar? Or should we expect, you know, one of those businesses to be, you know, significantly better or worse than that number?
Well, we haven't allocated that, and we basically said 20% due to the fact that we are handing over the North Sea. Well, it's both North Sea is maturing as a and declining production as a natural course, as well as we're giving away the 20%, mid-year to the Danish government. That's the two elements, but we haven't guided on the segregation between those two.
Okay. That's great. Thank you.
Our next question comes from Mr. Frans Høyer from Jyske Bank. Please go ahead.
Yes, good morning. You mentioned the 9% reduction of capacity on your Asia-Europe loops. Could this tonnage be put to good use in other trades, or do you plan to idle them?
As we said in the presentation, and as we state very clearly, that we're not taking or idling any ships. They're gonna be maintained. We're gonna do slower steaming. We're gonna take the steaming further down on the round trip. In addition to that, we are doing more port calls as a result of the agreements we have done with CMA. Totally, we will maintain the ships en route, but we will take out capacity of 9%.
With regard to chartered vessels, you have increased that part of the fleet quite significantly over the past few years. I was wondering whether, given your statement also that you feel there's no need to make any further new build orders, do you have much scope and perhaps plans to reduce your fleet by handing back tonnage to owners?
Well, as we said in the presentation, we do have as sort of a toolbox, includes all elements of the possibilities of reducing capacity. Handing back chartered tonnage is of course one of them.
I come back to the rate assumptions for which is underlying your guidance. I understand the point you make about not wishing to discuss the sensitive Asia-Europe trade. Without getting too close, could you talk to us about the level of $2,828 per 40-foot container in 2011? Do you foresee that? Do you assume in your guidance that that number will be going up in 2012? Could you give us a rough ballpark figure for, or a range for, how much percentage increase you foresee?
That is basically just a different way of asking a question on the rates. The element is, as I said, I do think that it is important to understand that even though the rates were more than 2,800 on average during 2011, the rates were declining. A starting point of going into 2012 is the average of fourth quarter going, and that is 2,600 and change.
Okay.
I do think that has been sort of the starting point. We do acknowledge that that rate is too low to have a sustainable return in the industry, and therefore we are taking actions on our part to focus more on the profitability side. We'll see what the consequences of our actions will be in the market.
Finally, just a question on that $105 million charge you mentioned in Q4. Was that included above the EBITDA level or below the EBITDA level?
Included in the EBITDA level.
Thank you.
Our next question comes from Mr. Frederiksen from Carnegie. Please go ahead.
Thank you. If I may, return just to the question regarding market share. You say you are satisfied regarding the current market share. Looking into 2013, when you start to get the first 18,000 TEU ship delivered, are you still satisfied with the current market share taking into account what will be delivered of very large ships next year?
As we see the development and the growth in the market, and we do expect that to be within sort of the scenario that we're saying, that the Triple-E ships will come into play, and it will be an effective contribution to our fleet on the Asia-Europe. We do foresee that that will be embedded in our statement of growing with the market, with the existing market share.
With your current market share, you will be able to utilize those 18,000 TEU ships satisfactorily?
The answer to that is yes.
The last thing, regarding charter cost, I can see you haven't done a split, regarding shipping cost, vessel cost. Could you give us some kind of indication about how much we should expect that the vessel cost in total will decline in 2012, taking into account the lower charter rates we've seen, and the duration of your portfolio of charter ships?
Well, as we said, on the cost increase during 2011 compared to 2012, I mean, we have seen terminal charges, intermodal charges, and sort of other charges of being more on monopolistic nature, having increased some and driving our cost side. How the TC and what level of TC rate is going to decline as a result of today's market and sort of it's we haven't quantified that, but that's one element of our focus points of making sure that the cost per FEU is coming down.
Thank you very much.
There are no further questions at this time. Oh, we have a question from Mr. Christopher Combe from J.P. Morgan. Please go ahead.
Yes, hello. I just had one follow-up regarding the Triple-E's. I believe probably one or two years ago, there was some disclosure that charter capacity Asia to Europe was about 10% of total for A.P. Moller-Maersk. How do you foresee that in the future, post the 20 deliveries of the Triple-E's? Would we expect to see that number move towards zero?
Well, the element of what kind of, how many ships we have, I actually, I don't remember how many ships we have on time charters relative to Asia-Europe compared to the others. I do think that we have disclosed quite an extensive list of how many time charters in total we have, but I don't have that percentage. What we have as a view is that we want to maintain ownership of our strategic vessels, and those types of vessels that have a market or a commercial market out there that is tradable with outside our strategic focus points, we can have the vessels time chartered. Other than that, I don't think I can be more specific on your question.
Okay, thank you.
That wraps up. Thank you for all the questions. This is the result for 2011 on the fourth quarter. I do think I just want to reiterate, acceptable results for 2011, driven by APM Terminals as well as supply and drilling. Good progress on both. Difficult shipping market. Specifically, you will see that, Maersk Line is coming into a negative in the fourth quarter. That is why we have taken actions to, improve our own position relative to the supply demand balance as well as pricing environments. We do think that the, 2012 is gonna be a complicated year. We do also see that we have good starting points from, the businesses that went well in 2011.
With that, thank you very much for listening, and we'll see you when we announce the first quarter results.