Good morning, everybody. It's now 9:30 A.M. Thank you for joining the A.P. Møller - Mærsk Conference on Q1. It's of course a very small quarter, so we appreciate that you take the time to listen into this. If we go straight to the forward-looking statement on page two, and then while you read that, I'll just give a little bit of flavor to the accounts as we see them. I mean, we appreciate of course that the markets are in a very bad situation. We've gone through Q1 where oil prices, I can't say that they bottom out, but at least they were lower than even today, down around $30 a barrel during most of the quarter. That was tough.
The shipping rates were record low in Q1. They, by the way, are still very low. We've gone through a difficult quarter from a market perspective. Nevertheless, we improved the results versus Q4 last year, coming out with a small profit. We're pleased with that. Most of our businesses are still making money. The two that are not are Maersk Supply Service, due to the very poor ordering situation in the sector, and Maersk Oil, due to the very low oil prices, but I'll come back to that later.
Opening up, also very important to underline that despite the fact that we bought back shares, that we also completed on two acquisitions in terminals and oil, and the poor operating result and some negative developments in working capital and payment of the result of an arbitration. We still have a very strong financial position with a debt of $10.7 billion and equity of $36 billion. Still very healthy and ready to use that force as we go through the year. Also maybe upfront, we also in this Q1 report normally publishes our reserve situation. And the development here has been very positive as well.
We feel that within the possible, we actually delivered a pretty good performance. Hopefully you'll be satisfied as well. Let's go to page three. The financial highlights. The profit for the quarter was $224 million. The underlying profit in the same level $214 million. Of course, down significantly from last year. Not surprising given the oil and container rate development. The free cash flow, as I alluded to before, has been impacted by the payment of acquisitions and some other investments. Normal movements in the NWC caused by the relatively poor result or the deterioration in the result.
It is the first, the Q1, where usually you, I think in most companies, you run a cash drive during Q4, and then you see some flow back in Q1, so nothing unusual in that. Going through the underlying profit by activity, it's the main impact on profit or the drop in profit comes from Maersk Line dropping from $700 to $0, basically, or breakeven. Maersk Oil going down from $200 to a slightly negative result. Actually better than we expected for Maersk Oil. APM Terminals down, and I'll come back to that, of course. Background is a continued deterioration in the oil exporting markets.
They own, most of them have no money for import, so you see massive trade impacts in those countries. APM Shipping Services in line with last year when you take into account that Maersk Supply Service is impacted by the ordering situation. Maersk Drilling up compared to last year. Is up on last year, partly due to good operations, of course. They're still delivering strong underlying result, but also because we had to take some profit from a cancellation of a rig contract from Chevron related to our Angolan rig. So it moved some profit from the last quarter to the first quarter.
Underlying a result, which is still very strong on the back of a good order book. As I said before, we maintain a strong financial position. In addition to the strong equity and still relatively low debt, we also maintain a very strong financial preparedness with a liquidity reserve of around $12 billion. We completed our share buyback program, buying back around $105 million worth of shares in Q1. Of course, we paid our dividend. We maintained our dividend same as last year. Moving into the individual business units. On page four, you have the Maersk Line result.
It's a break-even result, which is a small profit, despite a very, very tough market situation. The background for that is, I think, the number of effects, but first and foremost, that we increased our volume by approximately 7%. I received a question earlier today from the press whether that was not slightly more than defending our market share position, and it is, but don't forget that we actually lost a quarter last year, and we gradually regained that during the year last year. Probably the 7% growth is more of a, let's say, a short-term development. We're still keen to at least maintain our market share. Our capacity grew by
2.2% compared to last year and a little bit also compared to last quarter, but less than volume. Our capacity utilization has improved. That means that our cost has gone down. I'll come back to that on next page because we also managed a pretty good cost reduction program. Rates are down 26% compared to last year, and these are record low levels on the back of also pretty weak trade developments in most countries for our competitors. We still maintained in Q4, we now got the final figures, our 5% market margin gap on EBIT level to our competitors.
We delivered a free cash flow in Q1 of $73 million even though the working capital did not develop superbly. Maersk Line cost situation is on page five. Essentially, the combination of a 10% unit cost reduction, of which part is caused by lower bunker, but there's also other reductions, combined with a 7% growth in volume, gives us a 16% reduction in unit cost. This is, I think, also a little bit more than the trend we normally would have. But you may recall, those of you who listened in on the full year conference, that we were not quite satisfied with the unit cost development in Q4 last year.
I think there was some, probably some pent-up effects from the savings there. A good result on the cost level. Of course, bunkers have had an impact. If you compare the total reduction of $389, the bunker impact on that is almost half. That's the way it works. It goes in the right direction. We'll of course continue to work on reducing the cost. Moving over to Maersk Oil, we're actually quite satisfied with the development in Maersk Oil. We have beaten our expectations on cost reductions and production.
That means that our break-even cost has moved down from the $45-$55 we set at the beginning of the year, down to $40-$45. That's a clear improvement. Of course, we don't give sort of a specific guidance for the annual result, but it means that, given that oil prices are where we are today, we're quite optimistic that we'll get a result around zero. That's improvement compared to last year. Not much more to say here. We had a dispute settlement that means that the operating cash flow turned negative in the quarter.
We've also had some discussions in the press on the future of production in Tyra West and Tyra East. The background for that is that the platforms are sinking. We've been taking gas out of the ground for so many years that there's a space to fill. That means the platforms have been sinking and therefore, given wave heights and the need to maintain safety levels for our employees at all times, it means that we will discontinue operations in 2018, unless we reinvest in the field. In order to make that financially viable, we've taken up discussions with the government, and we'll see what comes out of it.
Of course, we hope that we can continue, but if not, then that will be closed down. We also completed, as I said before, our acquisition of the licenses in Kenya and Ethiopia from Africa Oil, and we completed the divestment of the small producing Polvo field in Brazil. Also, repeating a little bit from the opening remarks, the situation on reserves and resources is presented on page seven. Starting from the top, we have the 1P reserves have gone up from 327 million boe last year to 404 million boe this year, and in addition to that, before coming to the 2P reserves, also the probable reserves have gone up from 183 million boe to 241 million boe.
Total 2P reserve from 510 million boe to 649 million boe . It's important to underline that these reserves are excluding reserves in Qatar beyond mid-2017. Of course, an extra hard work to replace reserves that we produce because we do produce quite a bit in Qatar. When we can't include the reserves after 2017, we need to do more in the rest. We've done that during last year by starting up the projects in Culzean and Johan Sverdrup. The Reserve Replacement Ratio is actually 170%, which is, of course, an excellent result. The 2C reserves have declined compared to last year. The contingent resources, as they're called.
The background for that is partly that we've taken some reserves from there or resources and developed them into reserves at Culzean and Johan Sverdrup. Also because the lower oil price means that some of our oil resources are no longer feasible and therefore they've been excluded. That was that on the reserves and resources, but a good healthy development. Of course we now acquired the resources in Africa Oil Corp. which will come in next year. We think that we are in a good development there. If we go to APM Terminals, this is of course still a very profitable business. But we do have a significant decline from last year.
Our ROIC is going down to 6.2% against 12.9% last year. Really, the background for that is exclusively the troubles that our important operations in West Africa in Angola and Nigeria, to be very specific, Russia and Brazil are going through. There's a volume drop, but that is mainly caused by selling activities plus these markets. I would say we're a little bit disappointed with the results here. It is macro effects that are taking place. We're doing what we can, of course, to cut costs, and also moving our important projects further on. We have terminals under construction both in Costa Rica, and in Lázaro Cárdenas in Mexico, and so on.
Of course, we want to move these projects forward as much as we can, provided that there's a market for the services. All in all, I would say a disappointing result in Q4, Q1, in APM Terminals, but caused by external factors. Maersk Drilling continues its very good operational performance. We do expect for the year, Trond will come back to in a minute. We do expect the result significantly below last year. Q1 was very good on the back of good performance, but also on the back of this cancellation of the Mærsk Deliverer rig in Angola. Not much really to add to what was said or what is already in the text.
Of course, the markets continue to be very tough. There's not a lot of market for rigs that are going off contracts. We do believe that we have a very strong proposition to our customers, so we are optimistic on the utilization rates long term. We do have a relatively good order book. What facts remain that when our rigs go off contract, they either go into being idled or they go back working, but then at lower contract rates. It's a tough market to compete in. On page 10, my last slide before I hand over to Trond. APM Shipping Services, as I said at the opening, a good performance given the market situations. We deliver a result of $71 million.
The ROIC is relatively low, weighted down 6.2%, but weighted down by Maersk Supply Service. The other businesses are doing well. We had good results in tankers, up from last year. We have a stable result in Svitzer and Damco continues its turnaround. Delivers also in a quarter that in forwarding is very small normally, delivers a small positive profit. A good start to the year here, given the problems that Maersk Supply Service is facing. With that, I'll hand over to Trond. Please take us on from here.
Thank you, Nils, and good morning from me as well. Going to page 11 and looking at the invested capital and the returns.
No big changes in invested capital during the quarter. We see that we're delivering almost 3% return in a very difficult market. We see that Maersk Line and Maersk Oil having low returns. Maersk Line with 0.7% and Maersk Oil with a negative of 3% return during the quarter. We also see that both terminals, drilling and shipping services is delivering decent to good returns in difficult markets. All in all, as Nils mentioned, we're doing decent in a very difficult market. Going to page 12, seeing the financial frameworks.
Going then to the top left on the cash flow development, we see that the net debt increases with $2.9 billion very much driven from acquisitions, buyback and the low operating cash flow. All in all, we're in acquisition and buyback funding. We're paying approximately $2.1 billion out of the increase of $2.9 billion. As previously mentioned, we also have some provision adjustments of approximately $600 million. That drives also the development in the increase of debt of up to $10.7 billion. Not too much happening on the upper right, not too much happening on the portfolio management. Investment in growth on the bottom left, you see that the gross investment is $2.1 billion.
If we take out how the booking is done on the TCB and Africa Oil Corp., the underlying investment, gross investment during the quarter is $1 billion. Ordinary dividends. Payment of dividends happened in April, so no effects of the first quarter, but the dividend was DKK 300 a share. Going to page 13, an overview of the total consolidated income statement. On the revenue side, a decrease from $10.5 billion down to $8.5 billion, $2 billion down. That is really driven by Maersk Line and Maersk Oil, $1.3 billion from Maersk Line, due to the 26% decrease in rates. Of course, an increase of 7% in volume adjusts that number.
Maersk Oil of approximately $400 million, which is done by a change of oil prices of 20 dollars a barrel, but compensated by 15% in increased entitlement production. That is really the two main drivers that goes through the changes from the first quarter of 2015 throughout the numbers. On the EBITDA numbers, going down $970 million, it's basically Maersk Line and Maersk Oil that contributes to the decline to $1.6 billion dollars. Depreciation at the same level as previous years, and then the EBIT number of $490 million. Financial costs of $121 million, slightly up from last year. There are moving elements into this, but mostly we had income in first quarter of 2015 that made the finance co-finance costs slightly lower.
Otherwise, in 2016, we have some depreciation of currencies like Egypt and Angola and so forth. Also, Danske Bank has a negative effect during the quarter. That leaves us with a profit before tax of $370 million. Tax approximately the same level as last year of $145 million, and a profit for the period of $224 million. Most of the other numbers I've commented on earlier, except for the earnings per share, and that leaves us at $10 a share in this quarter. Going to the guidance on page 14. The overall guidance for the group is not changed, and we still expect underlying results significantly below last year. The same with capital expenditure, still to be around $7 billion.
The guidance on Maersk Line is also the same as previously, significantly below the results, underlying results significantly below last year. The global demand for seaborne container transportation, we still expect to increase with around 1%-3%. For Maersk Oil, following the cost reductions, we now expect the break-even result to be reached with an oil price in the range of $40-$45 per barrel. We previously had an estimate of $45-$55, but as you can see, that is taken down due to the significant effects of the cost elements.
The entitlement production, we have an increasing expectation up to we now expect between 320,000 and 330,000 barrels a day. For exploration cost, we have adjusted that expectation to be below last year. For APM Terminals, we have also changed our guidance, that, and we now expect the underlying result to be below 2015 due to the reduced demand expectations in oil-producing emerging economies as Nils mentioned. Maersk Drilling, we reiterate our expectation that the result is significantly below last year, and that is of course due to lower day rates and more idle days in 2016.
For shipping services, we maintain our expectation that the underlying result will be significantly below last year, and that is due to the difficult market in Maersk Supply Service. As always, I'll guide you to the sensitivity. There is considerable uncertainty and the market uncertainty adds on to that. I will guide you to the slight changes in the sensitivity guidance for oil price due to the fact that the low oil price and the tax effects of the different countries have an effect. It is not symmetric at these levels of oil price. That is a slight change to the previous sensitivity guidance. With that, I'll leave the closing words back to Nils.
Yeah. Sorry, not much to add, so I think we can go directly to Q&A.
Thank you. We will now begin the question-and-answer session. The session will end no later than 10:40. If you have a question, please press zero then one on your telephone keypad, and you will enter a queue. After you are announced, please ask your question. There will be a small delay before the first question is announced. The first question comes from the line of Dan Togo from Handelsbanken. Go ahead, your line is open.
Yes, good morning, and thank you for taking my questions. On container side, the volume growth of 7% here in Q1, I understand that there is some technicality, as you mentioned, due to comparisons to last year. Could you elaborate a bit on which market you have been particularly strong compared to the underlying market development? That's the first question.
Dan, we don't wanna go into too much details on that. If you take the overall development in the markets, you still see weakness in Asia, Europe. You see weakness also in Latin America coming from oil and West Africa. This is the situation we're facing, and that's why the overall market doesn't grow more than 1%. We've had pretty good growth all around. Of course, also the regional trades have been okay.
Okay. On the overall reserve, acquisitions and discoveries come in and lift 2P. Some things go out as well due to the low oil price, as you mentioned. Could you at a gross level give an indication of how much acquisitions and discoveries together have lifted 2P reserves?
More or less, that is what comes in last year. It's basically the full effect. 171 is the gross effect. We're talking of them adding around $300 million.
Okay. On the Mærsk Deliverer and impact on drilling, can you give an indication of how much that affects the numbers?
Yes. For the year, it will have basically zero effect, but it's $60 million plus in Q1.
Okay. Thank you.
The next question comes from the line of Christopher Combé from JP Morgan. Please go ahead, your line is open.
Thank you. Just a couple follow-ups on Maersk Line. To what extent can you maintain such a wide gap between volume and capacity growth? In other words, can you give us some sense of where utilization stands versus P3, for example?
I can't give you any specific figures on, I mean, where the others' utilizations are. Our ships are basically full, and by that we mean then to say that you have to be around 90%.
Okay, that's helpful. Lastly, can you give us some color on North American and European inventory levels, and if you believe movement in stocks will be a factor in this year's peak season?
We don't have any, apart from what we gave you at year-end, we don't have any real updates on the quarter. Trade, if you look at the trade development, Asia to the U.S., we don't have the March figures, but we believe it's up sort of where we expect it to be, around 3%. In and out of Europe, it's still down a bit, mainly because of Russia.
Great. Lastly, can you give us some color on the timing of the Tangier investments, when we should expect to see initial revenues and the return profile?
I couldn't hear what you were saying. Sorry.
Sorry, I was asking. There's a bit of interference. I was asking if you'd give us some color on the Tangier investment in APM Terminals.
Okay. The Tangier investment. We're just starting. We've agreed with the government to take it over. The investment is almost $1 billion. It's coming in over the next five years.
Thank you.
The next question comes from the line of Lars Heindorff from SEB. Please go ahead. Your line is open.
Yes, good morning. A few questions from my part as well. Firstly, regarding the oil and gas business. You're now lowering your break-even levels. Can you give us a bit more details about sort of where are you taking costs out and the OPEX per barrel that you had in Q1, is that sort of what we should aim for, which is the level for the rest of the year?
Well, we're taking cost out, of course, everywhere where we can. We've closed down, we're closing down operations in Angola or reducing it significantly. And the U.S., but we're also taking down exploration costs and people in Copenhagen. It's a broad effort across the company. The reduction is around 21% when we come to the end of the year. I think there's still a little bit of effect to come in, but it was a good year, like, or a good first quarter cost-wise. Also driven by the lowering of exploration.
Is this Angola and the US, is that included in Q1? Did they have an impact in Q1 already?
No, it will not have a big impact this year because of indemnifications for people leaving and so on. It will, yeah, help us going forward.
Okay. Regarding Maersk Line, have you made any changes to your rate structure? I'm thinking the mix between contract and volumes, the sensitivity has changed a little bit when we look into the sensitivity table. Could you give us an explanation for that, maybe?
I think Trond may give you some flavor on the sensitivity table. That's a little bit more technical, but basically what we're seeing is, of course, that the contract rates for this year will be below last year. That means that we will be more or try to be more exposed towards the spot market.
Okay.
The sensitivity?
Well, the sensitivity is basically for containers, the same as previously. Nothing fundamental has changed. There are, of course, a few assumptions behind there, so some slight changes occur from quarter to quarter, but basically the same on the container side.
Okay. One last question regarding the rigs. How do you take care of sort of the risk of impairments when some of those rigs run out of contracts? You have a number of rigs running out this year.
We do make value in use and the market value calculation on the rigs, both when they're in or out of contracts. Of course, the value in use has supported us quite a bit because we delivered very strong results both last year and will also deliver good result this year. Then you're talking about assets that will be with us for many years. It's not that sensitive to short-term developments. The market rates are going down, and that means that of course, valuations, when we come beyond next year, it will be depending on what do we look at, how do we view the future value in use.
Okay. Thank you.
The next question comes from the line of Neil Glynn from Credit Suisse. Please go ahead. Your line is open.
Oh, good morning. If I could ask two questions, please. The first one with respect to Maersk Line. Obviously, first quarter was profitable and you avoided a loss. Just interested in terms of how you consider the path back to covering your cost of capital over time. Clearly a healthy mix of volume, price, and efficiency would be ideal, but how do you plan without over-reliance on macro help? The second question with respect to Maersk Oil. You touched on Qatar, and Qatar reserves aren't in your numbers from mid-2017. Just in terms of contingency planning with respect to Qatar, what is plan B if you do end up losing half of Maersk Oil's current production by losing out on the Qatar tender? Would this significantly change how you think about M&A?
Thank you. Well, I mean, the return on Maersk Line to cost of capital is not something we can no matter the rates. We have delivered well over the last years. We assume we'll get back up there, but it really depends on the rates improve. We cannot predict it, but of course, we can look at the industry and say that the competitors are doing worse than we are. After having lost money or at least not made any for the last 7 years, we assume that their resilience is lower than ours. That's sort of what we have to support our hopes of returning.
I cannot give you any more details than that. On Qatar, yes, we're in a tender process. That means that there is a risk that we will lose Qatar. We don't feel that that should induce us to go out and do something dramatic on the M&A activity to replace volume. We would like to grow Maersk Oil, if it can be done in a financially sound way. If it can't, then the loss of Qatar doesn't impact our decisions there. We're not looking for sort of major M&A activity irrespective of whether we get Qatar or not. We're looking more for additional adjacent investments.
Clear. Thank you, Nils.
The next question comes from the line of Jørgen Bruaset from Nordea Markets. Please go ahead. Your line is open.
Thank you very much, and congrats with the nice set of numbers. I have two questions. First, it's more general regarding to Maersk Line. We have seen the outlook for a changing market structure and both the reshuffling of alliances and consolidation. Could you give any flavor on your thoughts on how the change in market structure will impact on rates? Should we expect to see more disciplined behavior with the new market structure? Second question is, have you seen any change in the general business momentum in, for instance, West Africa and Latin America on the back of the increase in oil price here in Q2? Thank you.
Let me start with the structure. We basically feel that the consolidation in the market is good. We also feel that it's positive when viable stable alliances are formed, because that'll enables everybody to concentrate on the offering to the customer and not fight exclusively on rates. Of course, we cannot say anything on M&A activity apart from what you already know. We welcome that. On the alliance structure right now, we feel that the uncertainty surrounding the other alliances, I mean, we are in a stable situation with the 2M alliance, but the uncertainty facing the other alliances, we do feel that adds to the volatility in the market.
Of course, there is one seemingly important alliance being formed now, which is the OCEAN Alliance, where CMA and NOL and the Chinese and some others will be in. Then you have the rest of the market that is being led out of those of the two leading alliances, and they will have to find out for themselves what they want to do. Either they will have to consolidate in an alliance and give the best possible offer to the customers, or they will have to concentrate on very few long-haul routes or more on a local regional activity. That's all up to them. I think they, everybody will probably have some thoughts on consolidation, at least having the discussion right now.
Small and midsize companies will need to consider their strategy very radically, in my opinion, if they are not in an alliance that has a future. On the oil, what was the question, by the way?
It was more if you have seen any pickup in business momentum, given the sharp rebound in oil price. Do you see any short-term change in behavior, or should we expect to see a recovery first when we see oil price moving up to higher levels than we see now?
Well, we don't see any dramatic rebound. There probably, I mean, a bit, a few places where there's a sigh of relief because the Q1 oil price was really very, very low and also lower than there was any reason for it being, apart from short-term stock movements. That's positive, but we do not see any change in activity level. I suspect that most oil companies are still busy repairing the damage of going down from $110-$45. We don't expect any pickup. Of course, it gives people a little bit more breathing space to plan for the future.
Thank you.
The next question comes from the line of Mark McVicar from Barclays. Please go ahead. Your line is open.
Oh, thank you. Good morning, Nils and Trond. Could the moderator do anything about that reporting echo, 'cause we can barely hear each other's questions? Anyway. I have two or three questions. First of all, I wasn't quite clear from you, the answer to your earlier question. Do you expect the break even on the oil price to go lower than it is now? Or is the $40-$45 where it's gonna kind of settle at? Or incrementally, can it go under $40?
I think that's difficult to answer. Because it depends, of course, in our case, a lot on the future of Qatar because that impacts the volumes quite significantly. We feel that we've done a good job, and we're now down to this level of $40-$45, and we'll keep working at it. Of course, our lifting costs across the group are quite low. Divesting the Polvo field in Brazil and concentrating on larger fields, we do in general have quite low lifting costs. Cashflow-wise, we're well set, and we will have at a $40-$45 dollar oil price, we will also have good room for investing in the future.
It's tough to say whether we can reduce it much from there.
Okay. Thank you. The second question was you mentioned, Nils, a couple of times that, you know, you're bearing restructuring cost redundancies and other costs within the different divisions, which are not, you know, specified. If you added all those together at the group level, what's the sort of run rate? Is it $10s of millions a quarter, or is it bigger than that?
I think for now, it's not bigger than that. It is, of course, I mean, there are relevant costs when you cut the number of employees, with the speed that we're doing. Yes, you have compensation costs that are significant.
But, but if you-
You're not talking.
Is it tens of millions?
If it was hundreds.
Of course, it would remain.
If it was hundreds of millions, we would probably specify it a little bit better. It is, we're talking tens of millions.
Okay. Thank you. My last question was really for Trond. Trond, you mentioned, you know, working capital pressures in a number of areas. Could you be a little bit more specific about, you know, where you're seeing that and what you're gonna be able to do about it?
No. When it comes to the working capital, I do think that it's the normal pressure of the year coming out of the year-end, where everybody pushes their working capital for some reason. Basically recouping again in the first quarter and staying there for second and third. When it comes to working capital, not any significant changes except for the yearly trend. When it comes to the provision part, of course, that has been more significant this quarter due to the fact of well, different kinds of settlements both commercial as well as tax-wise during the quarter.
Okay, that's great. Thank you both very much.
The next question comes from the line of Johan Eliason from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Thank you. I was wondering about APM Terminals and the CapEx profile. You obviously guided for the full-year CapEx level on the group level, $7 billion. But recently, you have announced a lot of new projects. You bought a Spanish operator where you promised to spend some CapEx going forward. I think there was one new greenfield in West Africa, and then there's Tangier. How should we think about the CapEx profile of APM Terminals in the coming years? Will it increase steadily, or what's the plan there? Thank you.
The investment level of APM Terminals is quite high at the moment. As long as I think the world economy is under pressure and people are concerned about investment in developing markets, of course, opportunities are more abundant than in the upturn. We will try to keep a good level of investments in APM Terminals, which can differ a lot, but I think the relevant level to think of is somewhere around $1.5 billion a year in that company. We'll once in a while also sell a terminal, it's not, it doesn't go one way. That's sort of the level I would expect. It can go up to $2 billion in periods, and in last year, of course, with.
This year, of course, with TCB, it will go above two.
Yeah. This number is including acquisitions then. I like to understand it.
Yes, because basically, the expansion of a terminal business is a mixture of brownfield development, greenfield developments, and also buying of existing businesses. Yes.
You have been talking about consolidation in the terminals business, many ports with a number of different port operators. Are you seeing any things possibly happening there, on this front in the near term?
I don't recall that we've talked specifically about consolidation in the sector. I think it's, I mean, obviously. We have a plan to expand, but there's also ample room for more privatizations and other structural changes in the port landscape. I don't think we need to go out and do consolidation in the sense of working with other very large operators. TCB was what we think and still think, fortunately, a nice opportunity to get a stronger foothold in some interesting areas. But, you know, it's just sort of, I think, a normal. I wouldn't call it organic because it's of course a $2 million terminal operation we bought. But it is in line with our normal expansion strategy.
Tuck-in, sort of adjacent, acquisitions and individual terminals will be the way forward.
Excellent. Just on the costs in Maersk Line, you said there were probably some catch-up effects in the cost development from Q4. How should we look at the unit cost in the coming quarters? Yeah, I think you talked about sort of 3% down on an annual basis or so. Is that the rate we should have for the coming quarters or?
I can't answer that question simply because we don't, I mean, we wouldn't give it if we had it. We will continue to focus on reducing cost. When I said sort of a pent-up effect from last year, it wasn't in the sense that we had some costs that were overaccounted for last quarter. Simply that we actually felt that we should do better on the cost side, and certainly the effect came in the first quarter. There are many moving parts in that.
Okay. Thank you very much.
The next question comes from the line of Marcus Wallander from Carnegie. Please go ahead. Your line is open.
Thank you. Just a housekeeping question from me. In Maersk Line, you usually pay taxes of between, say, $20 million and $50 million per quarter. In Q1 2016, there was a tax gain of $21 million. What caused that tax gain?
To the provision adjustments. As I said, we do settle some tax issues, and do revaluation on our provision sometimes, and that comes into that bucket, basically.
Okay. Thank you.
The next question comes from the line of Angus Tweedie from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Sorry, two questions from me. Firstly, you mentioned that you had low time charter in Q1. Can you just remind us what proportion of your fleet's on time charter at the moment, and how that's moved over the last 12 months? Then just on the alliances to touch base on this, in terms of your 5% EBIT margin gap, how comfortable and how realistic do you think that will be with a sort of similar size peer out there competing with you? Thanks.
I can't remember the exact percentage of time charter tonnage, but it's about 300 vessels, so it's about half the vessels. If I'm not mistaken, the time charter proportion in tonnage is somewhere in the high 30s%. That would be my best guess. There's not been a lot of movement over the last 12 months. We, of course, when we go into new large vessels that we think are strategic and long-term owned, then we buy them more than some of our competitors do. In terms of consolidation, I think it's a constant game to battle to stay ahead of the competition. We're still helped by being larger than the competitors.
We also have a number of other factors, such as our ships being more fuel efficient, not because they're larger, because they're not, but because we invest more into the fuel saving technologies that are available than the average shipping company. There, I think there are many factors in staying cost competitive. Most importantly, of course, being also willingness to not grow your fleet ahead of what you realistically forecast to be the market development and your opportunity to maintain your share.
Perfect. Thank you.
The last question comes from the line of Thijs Berkelder from ABN AMRO. Please go ahead. Your line is open.
Good morning. What I still do not fully understand is, let's say, the cash flow statement in Q1. You talk about a provision adjustment in, I think especially Maersk Line. Is that around $600 million? Did I understand that correctly? Then, secondly, can you maybe give us a bit of flavor on A.P. Møller - Maersk's strategy going forward? Last year, more or less, it was a kind of black swan in the sense that from a holding perspective, your operations were not balancing each other out.
Is there a discussion ongoing to maybe add a new division in, let's say, a totally different industry or so? Can you maybe explain there?
Let me start on the cash flow statement. If you then go back to the slide of number 12 and basically look at the last portion of that bridge, of the $1.9 billion. It's basically as a result of the bridging of that slide, since we're starting on EBITDA number and not on an operating cash flow number, changes in the balance sheet when it comes to provisions goes into that number. Total of that number of all provision changes is around $600 million during the quarter, which we did expect and were planning for.
To the strategy, I wouldn't say it's black swans, because we are in very volatile businesses. I think we hope probably for the oil business to be a little bit more stable and resilient than it proved to be. With shipping, we're used to a high level of volatility. Of course, we do all the time look at our portfolio of businesses, and I wouldn't say we try to reduce volatility, but we try to make sure that if we're in volatile businesses, that the average return is acceptable and we can make over the cycle a good return. That means that if we don't like a business, yes, we will have a look at how we can structure it differently.
We are also looking for entering other areas of activity. I think for now, we probably feel that we have a lot of good investments opportunities in our own businesses or in our present businesses. We are looking, of course, how we can build additional activity in adjacent areas or on, in areas where we feel we have special expertise to operate. We do all of it, but we don't really think it's a black swan as such. It's a down market in the container business, and that will recover at a point in time. Then our job is to make sure we are optimally prepared and for instance, in the oil and terminal business, also taking advantage of the downturn.
I think that was the last question said by the operator. Thank you for listening in, and thank you for making clear where we need to be clearer next time with your questions. I wish you a good day and look forward to talking to you in August, hopefully on the back of a booming global economy and better figures here. Thank you. Bye.