Good morning. This is Nils S. Andersen, the Group CEO of A.P. Møller - Mærsk speaking. Welcome to this conference call. I'm here together with Trond, and we look forward to presenting our half year results to you and try to answer some of your questions. While you look at the forward-looking statement on page two, I will just give you just a few highlights. The first one is that in a quarter which has been strongly impacted by low oil prices and also pressure on rates, in particular from Asia to Europe, we're pleased to present a result of $1.1 billion.
It's in line with last year when you correct for the fact that we basically handed out Danske Bank, our Danske Bank shareholders, to the shareholders during the second quarter. We regard this as satisfactory and on the back of this good performance, we also maintain our guidance for the year of $4 billion. There are some changes in the strategic update or strategic situation of the company following the turbulence, and you can say now three quarters with low oil prices.
We have changed the outlook and expectations for Maersk Oil, Maersk Drilling, and the oil service businesses in general, by the way, as well as for APM Terminals that have a number of terminals that are affected by the economy in the oil producing market. We are stepping down from targets for these, or you can say numeric concrete targets for these businesses. We will replace that kind of communication with more flexible plans adapting to the volatile environment we're facing here. We are maintaining the overall targets for the group. The 10% ROIC, we're maintaining the expectation of a strong balance sheet, growing dividends, and all these things remain the same.
In order to ensure that we can also deliver that, we have to be more flexible in these oil-related businesses, making sure we get the maximum out of the situation going forward. That brings me onto page three, where just the very short strategy update is written down. We have a value creation in the first half year, or return of 12%, which we're very satisfied with. We believe that following the splitting up of the group, you can say, or splitting off of the Danske Bank holding, and giving the proceeds to the shareholders, as well as the sale of Esvagt, that we've now completed the divestment, or the optimization program, of the group.
That doesn't mean that there will be no changing going forward. The work we set out to do in terms of focusing the group, we believe we have achieved. As I just said, we shared the whole income from Danske Bank with the shareholders directly, offering shares or dividends according to the preference. That meant that we distributed the whole price we got for the shares with the shareholders immediately. On top of that, and on top of growing the ordinary dividend, we have also launched today a new share buyback program that will start working in September. We are trying to share the good results for the group with the shareholders.
We've also made some adjustment to the strategy. I've elaborated on most of them before related to the oil businesses. In terms of the Maersk Line, we also make a small adjustment, and it's basically a reflection on the issue we had. We're losing market share following intense price competition in Q1, where we've said now to clarify things, that we will defend our market leading position. We still aim to grow in line with the market, but we've now adjusted that to at least in line with the market sufficient to defend our market leading position. The ambition to have a return in terms of percentage points of turnover of at least 5% above the industry is maintained.
We also try to be a little bit more precise on the guidance for the annual returns. We believe that Maersk Line is now sufficiently strong to have an ambition to deliver 10% return. We deliver 10.1% in a difficult quarter. Now we're given a new return target for Maersk Line being between 8.5% and 12%, reflecting volatility, but also reflecting, you can say, an average over time of 10%+. That's basically what I wanted to say on slide three. I suggest we go to slide four, which is on the individual business units. I've taken some of the points already here.
Very briefly, Maersk Line delivering more than 10% return in a quarter where rates are actually on, basically on 2009 level when you correct for the oil price. I think that is very satisfactory, and it shows the steadiness and the resilience of this business that it's been through a real and solid turnaround, and we're very pleased with that. Maersk Oil, we still have our ambition to reduce OPEX by 20% towards the end of 2016. We have good progress on maturation of key projects. We have, in line with what we've said previously, decided to reduce our exploration cost at least gradually.
Instead being more open to M&A activity, and I'm talking fields here, mainly into substitute reserves that we produce. APM Terminals, no real change in the underlying strategy. We are impacted in APM Terminals, and I'll come back to that, of course, by the oil-dependent markets and also Maersk or APM Terminals is quite exposed to changes in the Asia-Europe trade in terms of volume. Maersk Drilling doing well. We've now introduced seven of the eight new rigs in our fleet. And that has led to a nice increase in earnings as they were under contract. We've decommissioned one rig, and we are in the process of it.
Also here, cost reductions are on the agenda and are giving effect already now. APM Shipping Services are basically executing on cost programs, in particular, of course, relevant for Maersk Supply and Damco. Then we are into a rejuvenation process for the fleet, in particular affecting tankers, and also, APM or Maersk Supply. Going to page five, we're talking about the financial highlights. Those figures, they're not that different from first quarter. Comparing the absolute figures to the same quarter last year, we have a profit this year of $1.1 billion total stated profit compared to $2.3 billion last year.
The $2.3 billion last year were affected by the write-down in Brazil of our oil assets, as well as the gain from Danske Bank. It's not really comparable. What is comparable is the underlying profit, which was $1.2 billion last year and $1.1 billion this year. Correcting for Danske Bank, it is more or less exactly in line with last year, in spite of the increasing competition in liner business as well as the pressure on the oil prices. Going down to the breakdown in profit by activity, you'll see that Maersk Line has a small decline compared to last year. Again, given the rate development and the volume development Asia/Europe, I think this is a very good result. Maersk Oil, also a decline.
Again, with the oil price, probably not a bad result. We are pleased with it. APM Terminals has a decline as well. Probably a little bit more than could be expected. You can say the additional impact on this compared to the first quarter is the drop in business in volume on Asia/Europe. Maersk Drilling up on the back of increased number of rigs. APM Shipping Services up on the back of better rates in the tanker business and Damco returning to black figures. We expect or we maintain our guidance of an underlying result of $4 billion for 2015.
Going into the individual business units, I've covered some of it, but Maersk Line results, an underlying profit of $499 million, and a ROIC of 10.1%, which we under the present circumstances regard as satisfactory. Rates are declining or declined by 14%. Quite a bit of that is of course attributable to declines in bunker cost savings, but also there are some other effects playing in. Rates declined in particular on the Asia/Europe trade, and we see that as said, it's of course competition is always there, but we see that as a temporary thing. We had two new alliances started up, and all alliances basically injected more capacity into this trade at a time where volumes went down.
This is a situation that historically and I guess also logically have led to pressure on rates. I think looking at the volume and market development, I think it's fair to assume that some adjustment in capacity will also take place here, and the situation should normalize sometime going forward. Our volume increased by 3.7% compared to last year, to 2.5 million FFE. While we believe that the global demand or the global market grew only by 1%-2%. If we look at the Q1 this year, our volume increased by 13%, quarter-over-quarter. Of course, the network capacities, as I alluded to before, has had an effect on costs.
We have a volume increase or network capacity increase compared to last year of 11%, and as volumes grew only 3.7%, this means that we have less capacity utilization. The situation looks different quarter-over-quarter, where we actually improve our capacity utilization. Free cash flow is sufficient to cover or is positive. We have sufficient cash flow to cover our investment in Maersk Line, which is hard to say on a quarter-by-quarter, but it is in line with strategy. We are executing on the investment program that we announced at last Capital Markets Day of $15 billion. Now we've ordered an additional series of vessel at the beginning of Q3 for 13,000 TEU vessels.
that was basically what I had to add to Maersk Line. I think a solid performance in a challenging competitive environment. The background for that continues to be cost. Our total cost declined by 9% or 10% against the volume increase of 3.7%. The unit cost, it's a mathematical calculation, it decreased by 13% or $338 per FFE. The majority of this, more than half, actually 2/3, basically, were driven by lower bunker prices. The majority of the rest was explained by the US dollar appreciation. This is, you can say, not what we want to see.
We want to see real underlying cost reductions, and we still are ambitious to achieve that. We had slightly more of our capacity in the second quarter, slightly larger than we needed, and that of course cost money. The bunker efficiency was essentially the same as it was in Q2 last year. Again, a little less volume, a little lower capacity utilization, combined with hopefully better underlying performance here. Just to underline that we think that Maersk Line now has achieved a resilient business model, has gone through a true restructuring and is truly a very, very competitive market leader. Just comparing some figures to 2009, we lost around $900 million in the first half of 2009 in Maersk Line.
This year, we in the first half make 1.1%, essentially, with rates corrected for fuel price changes, on level, with that time. A really healthy performance in a market under pressure. Maersk Oil results, I think they're also pretty good. We had an underlying profit decrease by 31%, and this is, of course, only driven by the lower oil price. We have an increase in production of 30% helped by the, you can say, the distribution formula in Qatar, but also by very strong performance in production across the markets. In particular, U.K. did very well in the second quarter.
The outcome of the tender process for Al Shaheen is of course unknown. That's the nature of the game with tender processes. The information we have from Qatar is that it will be known in the second half of 2016. We are still targeting cost reductions. I said before 20% by the end of 2016, but the ambition for this year is to get to a 10% reduction in operating cost, and I'm confident that we will get there. Good progress on project maturation. A little bit of flavor to it. We've announced, of course, Johan Sverdrup is expected to be finally sanctioned in Q3. Everything is getting more and more clear around that project.
It is a major development and will be for us a $1.8 billion investment. The Al Shaheen project is also progressing according to plan. We are more than halfway through this project in Culzean. We have had project approval and sanction and agreement from the partners, and now we expect sanction in the second half of this year and ready to invest, and we think this will also be a good project. APM Terminals, being under pressure from the reasons I mentioned before, but still managed to deliver a ROIC above 10%, actually almost 11%, in a situation where volumes are under pressure from the oil-dependent markets as well as the decline in the Asia to Europe business.
We see a decline in the EBITDA in EBITDA margin. Some of this is due to foreign exchange and also divestment of the Virginia terminal that did not contribute actually to turnover. APM Terminals or the drop in EBITDA margin underlying is about 1.7% and reflects the more pressure we see on the operations. We still feel very confident that we have a good business model and a very strong business in APM Terminals, so we will continue to invest.
We announced during the second quarter that we will invest $0.8 billion in a new facility next adjacent to our existing facilities in Tema, in Ghana, and lifting the capacity of the Tema port up to 3 million-3.5 million TEUs annual capacity, catering for growth in for us and also growth in the economy. Maersk Drilling results very good development, and the background for that was new drilling rigs on contract and deliveries compared to last year. We have a reasonably good contract coverage still among the best in the industry.
We are pushing forward a cost reduction program, which is already impacting the business as well positively. In addition to the foreign exchange savings, or savings generated by foreign exchange rates, we also get a 5% contribution from the operating cost saving program. A very good uptime, and as I said before, still quite good coverage also for the coming years. We've signed a couple of contracts. I was asked earlier this morning about how I see the market, and the market is, there's still contracts to be had, but of course, it requires good standing with the customers and also an acceptance that rates will not be what they used to be.
I don't think I'm telling anybody in this audience any news in this respect. The last point before I hand over to Trond is APM Shipping Services results, and they are good. Underlying results are up from $27 million - $109 million. The main driver for this is Maersk Tankers, where improved rates in the market are helping us. Also here, I think the restructuring and all the initiatives that the team has taken is helping quite a bit. We are of course also pleased and are not announcing this as a huge success, but it is nice to see that Damco in the last quarter is delivering a positive result.
Apart from that, of course, Maersk Supply Service is—they're still producing good results, but we will have to be realistic and just as Maersk Drilling, rates going forward on contract renewals will be lower than they were in the past. Svitzer is giving a small but nice progress in results compared to last year. I will hand over to Trond, who will take you through some more details on returns and finance.
Thank you, Nils, and morning from me as well to all of you. Going to slide number 13, we're delivering a good return in a difficult environment, as Nils said, more than 10% in the quarter, 12% for the first half. The only major difference from last quarter is that we have a reduction in invested capital as a result of delivering Danske Bank shares. Invested capital has come down to $47 billion. If you look at the second column to the left, you see that the return on invested capital in the second quarter on all of our business unit basically is delivering the 10% or higher level. I do think that is showing the resilience, as Nils was alluding to earlier.
On the bottom, Other Businesses, invested capital has come down to $1.3 billion, and we're gonna see further reduction when we deliver Esvagt in the coming months. That number is then going below the $1 billion level. If you then see to the right, we have shown you the invested capital development the last five years. That this is just to show you that the strategy we are delivering on our strategy on focusing the company, and that means that our invested capital in the five or in the four major element has come up as a result of the strategic direction that we have had for the last years.
Going to the financial framework on page 14, we see a good cash conversion in the quarter, as we have seen earlier. Starting the year with net interest-bearing debt of $7.7 billion, and ending the quarter at $8.8 billion. In the meantime, we have distributed to shareholders approximately $6.2 billion. On the top left, you see that the CapEx level is a negative number of $1.4 billion, and the reason for that is, in that number it's included the sales from the Danske Bank shares, which is the $5.3 billion you see to the top right number. On the bottom left, you see the gross CapEx number, and that is on target basically on $3.9 billion. I'll come back to that when it comes to guidance.
That is sort of the combination of these numbers and the reason for you see a negative CapEx number in the quarter. Going down to the bottom right on the dividends, we paid 300 DKK a share during the quarter. In addition to that, as we say in the ingress, you see that the extraordinary dividend of DKK 1,671 were paid, and that is equivalent to a 12% yield on top of the ordinary dividend. Going to page 15 on the consolidated numbers. The revenue is down 12% to $1.4 billion, down to $10.5 billion. All of our business unit, except Maersk Drilling, is coming down this quarter.
The drivers, the main drivers of this is, of course, oil price and container rates. Those are basically making up for almost the total of the $1.4 billion. Going to the EBITDA, we're delivering $2.631 billion, down from $3.3 billion, $3.1 billion. It's really Maersk Oil that goes down with approximately $600 million of that number, and Maersk Drilling is increasing $150 million. That makes up the difference of that number. Going to depreciation, more on the ordinary level this year on $1.2 billion. Last year, we had the impairment in Brazil that were increasing that number. That leaves us an EBIT number of $1.539 billion.
As I said, it's really the impairment, the oil price, and that drives most of the change on the EBIT number. Financial costs comes down approximately $100 million. Most of the effect in the finance cost is the positive effect of Danske Bank this year, as a result of selling the shares to our shareholders. We have reclassified Danske Bank as an investment, and as a result of that, we're treating it mark to market. That has left this quarter with a gain of $60 million going into the finance cost. That leaves the profit before tax at $1.459 billion. Reduced taxes coming as a result of lower oil income, and that leaves the result for the quarter at $1.086 billion.
If we just touch on first half, we are delivering reported first half number of $2,658 million. Earnings per share in the quarter is $49 a share, and that basically leaves us at the return on invested capital of 10.2%. Going to the guidance for 2015. We are expecting to deliver an underlying result of around $4 billion. That is unchanged from previously. We are reducing our guidance on capital expenditures from $9 billion - $8 billion.
When it comes to the business unit, we reiterate for Maersk Line our expectation of a higher underlying results, but we are revising the expectation for global growth down to 2%-4%. On Maersk Oil, we now expect a positive underlying results for 2015, significantly below, at an oil price below last year, sorry. At the price range of $55-$60 per barrel. Just taking into consideration that our average oil price first half were $58. The entitlement production we do expect now to be around 285,000 barrels a day for the year. We expect the exploration expenses to be at the same level we previously have stated, at approximately $700 million.
Terminals is revised downwards, and we expect now to have the underlying results significantly below 2014. For Maersk Drilling, it goes the other way. We now expect a significantly higher underlying results than in 2014. For shipping services, we also have revised upwards, and expect the underlying results in 2015 to be significantly above the 2014 numbers. Having said all this, I do think that when we look at the turbulence in the oil price as well as the container rates right now, I would advise you to look at the sensitivity in the schedule, because we do see uncertainty going forward on both the oil price development as well as the pressure on the container rates is has shown itself during third quarter.
Sorry, shown itself during second quarter, and there is of course concerns related to that for the remainder of the year. With that, I'll leave the closing remarks to Nils.
Well, thank you very much for listening in on this rather elaborate presentation. I hope we've answered most of your questions during the presentation. But we're looking forward to having a good dialogue with you now. Please ask questions.
Thank you. We will now begin the question and answer session. This session will end no later than 10:40 A.M. If you have a question, please press zero then one on your telephone keypad, and you'll enter the queue. After you're announced, please ask your question. The first question comes from Lars Heindorff from SEB. Please go ahead.
Yes. Good morning, gentlemen. Question or couple questions from my part. Regarding Maersk Line, quite impressive volume growth that you've had in the second quarter at least compared to most of your peers. You're previously stating that you wanna grow in line with the markets for the full year. Is that still the aim? If that's the aim, will you then still be hunting market shares you've been indicating during the second quarter also into the third quarter? That's my first question.
Well, thank you. Thank you very much. We did, as you remember, lose a bit of market share in the first quarter because we were very latecomers to the, you can say, I wouldn't call it a price war, but the pressure, the dynamic rate environment, let's put it that way. We wanted to take back the market share. We were actually not looking to take it back in one quarter, and we're not looking to optimize quarter by quarter on the market share. We feel quite confident that on a yearly level we'll be more or less stable with market share-wise, and that's what we're aiming at.
I'm sure any, I mean, the loss we had in Q1 has been regained, but it's not something we look on quarter by quarter.
Okay. On the cost side in Maersk Line, still very impressive performance. You mentioned yourself that it's mainly driven by bunker and currency impacts. Is there more to come in terms of SG&A, what you can take out on the cost side?
We have not taken out sufficient cost in this quarter, apart from what we've gained from the currency and the foreign exchange, even though that's of course welcome. The background for that is compared to last year, that we've grown our capacity ahead of demand, and that's one of the things we've done really, really well in the past couple of years, and we want to return to do that really, really well.
Okay. Regarding Maersk Oil, your OPEX per barrel, if I do this, try to do the math, seems to be down by at least, by my math, by roughly 26%, year-on-year in the second quarter. You stated yourself that you, I mean, part of that is probably driven by the lower oil price, but I don't know if you can sort of decompose that decline a little bit and sort of give us an indication of what to expect in terms of the run rates going into the second half on OPEX.
I think you have to, you should probably talk to investor relations for the details on this, but we do have increasing volumes. They're up 30%. With cost being more or less stable, it's not unnatural that the lifting cost goes down per barrel. But the actual exact breakdown, I can't give you. In terms of course, the allocation of volumes in Qatar, we get more out of the same production. It also depends on whether you look at the gross production or you look at the net production.
Okay, last question regarding the CapEx, maybe sort of a housekeeping, but what's driving the lower CapEx guidance? It's down $5 billion.
I think it's a matter of many, many things. It's you know the usual project delays, and you go into the year with probably a little bit more ambitions on things. But there are some things that are surely delayed or will come next year. I think it's a pretty normal pattern for CapEx expectations. I think in most large companies, it's the same.
Okay, thank you.
Our next question comes from Douglas Hays from Morgan Stanley. Please go ahead.
Good morning. A couple of questions from me. First, just on the costs in Maersk Line, you mentioned the positive currency benefit. Can you just give us a little bit more insight into exactly how that arose?
Well, the Euro is down. Just to give you an example, the Euro is down. We have quite a bit of cost in Euros compared to the dollar. Of course, you can never say what is the indirect effect on rates and all these things, but if you just take the simple currency calculation, that is one of the main drivers.
That's just based on, as you said, ex-rates, ex-bunker and that sort of stuff?
Pardon?
Yeah. It's excluding rates, the rate impact, excluding the bunker impact.
Yeah, because the bunkers we pay in dollars, and the rates are almost always in dollars.
Yeah. Okay. Understood. Secondly, just on, again, on Maersk Line, you mentioned the fact that your network was growing ahead of the volume growth. I mean, what gives you confidence that you can improve the network utilization as you head into the second half of the year?
We-
Are there any other capacity adjustments you think you can make?
We will look at capacity adjustments, of course, where we have too much capacity. If you look at the development quarter-over-quarter, we've actually improved the situation. We did not, a year ago when we planned the capacity increases, expect that we'd actually have a decline on Asia-Europe. That is what is hitting us. We've, you say, overestimated the market growth, and that is affecting us now. I think that's what, as I said before, what we've done really well in the past is predicting approximately where the market growth would be and been good at adapting our capacity, and we'll try to do the same going forward.
I guess finally, just shifting gears to the oil division, you guys have your oil guidance range of $55-$60 a barrel. What gives you confidence that we can be at that level given where the current spot prices are?
Well, we have absolutely no confidence in that. We don't know. We just at a point in time, we have to lock the rates and do our forecasting. This, by the way, has been the same from the beginning of the year. That's, you know, just what we've used, and we could have used, of course, if we did it today, we could have taken another value. That's why Trond pointed you in the direction of currency effects or oil price effects.
Okay, great. Thank you very much.
Our next question comes from Casper Blom from ABG. Please go ahead.
Thanks a lot. A couple of questions from my side also. If we start off by the oil production, you're now guiding for a full year entitlement production of around 285,000 barrels per day. That suggests quite a decline from the + 300,000 seen in the first half of the year. Can you explain why you would expect a decline in the entitlement production in the second half of the year?
Correct. The summer season is usually the season where we do the shutdown, the planned shutdowns for maintenance. There's nothing unusual in that. The unusual thing is that we actually produced very well in the first half, in particular in the U.K., but also of course, the reallocation mechanism that we have in Qatar, in the Qatar contract.
With the oil price now being at a spot level, at least lower than what we saw in the first half, isn't it fair to assume that the Qatar deal in itself would suggest a higher share of production?
Just as we just had the question before, we base the guidance that we give you on a $55-$60 oil price.
Understood. Moving on to Maersk Line, we are having a lot of talk about the development on the Asia-Europe trade. You mentioned that you hope to see some of the capacity there being moved away. Do you see that as a threat to maybe the North-South trades, where it's my impression that you've been doing well so far?
Well, I mean, the constant reallocation of capacity is part of our job and I think if you look at the situation in Asia-Europe, it is where the largest increase in capacity is taking place and combined with a drop in rates or a drop in volume has produced a pretty dynamic rate environment. We think this is normal, a normal reaction, but we think it's not very typical that such a situation continue for a long time. Of course, people will look at how much capacity they actually need to serve the market. Then you can speculate on secondary effects. We will, we'll see what comes out of that.
Oh, okay. Just one final question, with regard to-
By the way, the vessels used in Europe are maybe not the most typically one you use in trades here or Africa trades.
Understood. Just one final question on the container business and your revised market growth outlook of 2%-4%. Should we read this as you're expecting an improvement in the market situation in the second half of the year? Are we really looking more towards the bottom end of that new range?
Well, we've given you the range, and I can't be more precise than that. It's, you know, very difficult to predict. Personally, I don't believe that it really changes much whether the growth is 2% or 4%. It is a slow growing market. We need to take the proper capacity decisions to adjust to that.
Thank you very much.
Our next question comes from Christopher Combe from JPMorgan. Please go ahead.
Good morning. First question, I just wanted to follow on to the market growth outlook. I believe over the first quarter you said roughly 1% market growth, second quarter, 1%-2%. The range of 2%-4% suggests something between 3%-5% perhaps in the second half. I was just wondering, thus far in Q3, are you seeing any signs which suggest a mild acceleration? With respect to your new guidance on Maersk Line strategy growing at least in line with market, should we anticipate that you'll continue to exploit, you know, cost advantage to take share over the near term?
Well, what we intended by the new guidance on Maersk Line strategy was basically to make it clear that we don't intend to give up our market leading position. That was a reaction to what we felt was very aggressive price strategies from the competition in first half, in the first quarter, and we reacted to that, and I think we corrected the situation. Of course, like everybody else, we're interested in making money. I think we have corrected the market share situation.
Okay, thanks. With respect to 2M, I believe this would've been the first quarter with the full savings. Can you elaborate on what the contribution was in the quarter? How should we think about the bunker component of 2M and how that will be affected by a higher or lower oil price?
Well, you know, bunker consumption is an important part also at lower oil prices. The fundamental idea in combining, I think, is totally intact. Having said that, I think it's very hard at the moment to separate the cold and the warm water in a situation where we've seen declines in volumes, and we've seen phasing in of a new network and so on in the first half. I think it's too early to give you sort of any confirming evidence in this respect. I'm sure as time goes, we'll be able to come back to that.
Last one, you mentioned ongoing interest in accretive acquisitions. Does this extend beyond Maersk Oil? Is the new buyback indicative of disappointing prospects thus far? Should we expect accelerating buybacks if those prospects don't emerge?
We will buy or do acquisitions only if prices are attractive or at least acceptable, and we can get a decent return on it. Otherwise, we will leave it. For now, we just have to say we've not found anything, or at least we haven't done any transactions. We're generating a cash flow from operations of $2 billion a quarter. We feel that paying out $1 billion now on the back of the very strong balance sheet we have is an absolutely sensible thing to do. It does not reflect reduced appetite for anything. Maybe it reflects that we want to be prudent, and we want to do things that generate value and not things just to grow.
That's clear. Thank you.
Our next question comes from Dan Tøgel from Handelsbanken. Please go ahead.
Yes, thank you, and good morning. On Maersk Line, you've been somewhat aggressive in regaining market share in Q2 compared to Q1. Can you elaborate a bit on how much of your volumes is now spots and how much is on contract and for the group and also specifically for Asia Europe?
No, we can't guide you on that. We wouldn't. I'll just comment on your word aggressive. We're delivering in this quarter 10.1% return. I don't think that means that we're, well, I think that indicates that we, yes, we've been participating, and we've taken some market share, but we've been nowhere as aggressive as what you're indicating.
Can you elaborate a bit. Are you more exposed now than you were, for instance, a year ago or at the end of 2014?
As I said, I'm not going to give you any details on that.
Okay. Fine. Further on Maersk Line, you have a new so-called guidance range for return on invested capital. With a low and high end, what will guide your investments in Maersk Line? What kind of returns are you looking for? Will that be the group 10%, or is it the low end 8.5% that will guide the future investments in Maersk Line?
Well, we change the outlook because as just said, we deliver in a quite different difficult quarter. We deliver 10.1%. We think that underlines that Maersk Line has gone through a really fundamental restructuring and turnaround. Therefore, we feel that time has come now to increase the sort of the mid-range from 8.5%-10%. That's what we're communicating with this. However, also being very specific that this will continue to be a volatile business, and if in some years we have to go down to 8.5%, we'll be perfectly willing to do that. If in some years we can make 12%, we'll also reluctantly accept that.
Okay, fine. A couple of questions on oil. Your exploration costs in order to reach $700 million you are guiding for full year, we need to see a pickup here in the second half. Can you elaborate a bit on where that is directed?
No. That we will come back to as we go along. I don't have any details on that.
Okay. On the long term, if you on your oil price, you've previously stated on previous calls that the long term view should be somewhere between $70 and $90. Is that still what you're aiming for, looking for when you invest, so to say in oil for the longer term?
I think for us, I mean, basically for forecast on the oil price, there are lots of people who know more than we do. But it's clear in a situation where you, where you're looking at a $50 oil market, you also have to rethink your long-term forecasting. I think it would not be prudent to do acquisitions based on an oil price from $70 to $90 unless you had very, very good ideas for what you wanted to do.
Right. Thank you. Just one final question, maybe, to Trond, because what is guiding your share buyback? I mean, you have sold Svitzer, you have taken down your CapEx expectations. Shouldn't your own share be, so to say, one of the best investments you can make at the moment? Why not a larger share buyback compared to last year?
No, I think that the consideration is that since year end, we have given or distributed approximately $6.2 billion back to the shareholders. I do think that when it comes to returning money to shareholders, I think we have shown our appreciation for doing that and definitely have done it so far this year. The level of the buyback this time is not necessarily a single focus on the gearing level short term, but it's more back to our financial strategic direction and saying that, yes, we wanna be a solid conglomerate. We wanna focus on growth, and that was Nils alluded to, but we also want to maintain a program so that we can show continuation on the buyback.
I do think that's the elements going into that consideration.
Okay, great. Thanks a lot.
Our next question comes from Robert Joynson from Nomura. Please go ahead.
Okay. Good morning, Nils. Good morning, Trond. I have a few questions, if I may. I'll give them to you one at a time. First of all, on Maersk Line, we've seen that obviously freight rates on many trade lines declined significantly since Q1. But obviously in Q2, Maersk Line has the protection of its contract exposure. Could you just provide some color on the timing of when those contracts will roll off, please?
Well, I'm not sure that we have a lot more contract coverage than some of our competitors. The contracts are rolling off. You have short-term contracts that are renewed every three months, and you have the annual ones, which generally are renewed either around the calendar year or, in the case of U.S., around May.
Okay, thank you. The second question on Maersk Oil, just on the exploration spend, obviously the guidance for 2015 has remained unchanged. I noticed that in the strategy update, it was mentioned that the level of exploration spend has been reduced. Could you just clarify, when you talk about the exploration spend being reduced, what is the base point there? Are you comparing that with a couple of years ago when the exploration spend was above $1 billion? Or are you referring kind of to the nearer term, for example, the exploration spend came down quite significantly between Q1 of this year and Q2?
We don't guide on quarterly developments in exploration because there's, you know, one well or two wells can make a significant difference. I wouldn't go into quarterly analysis of these spends. When we said that we will reduce the exploration spend, you can say this year we're down compared to, as you said, a couple of years ago. The trend is that instead of focusing on spending $1 billion on that, we will be more flexible on the allocation of our growth investments between buying fields and resources and exploration. It's an indication of a tendency, and please don't run out and try to do a lot of detailed quarter-by-quarter calculations on this.
Okay. Fair enough. Just a final question on the strategy update. You said in the statement that the previously announced targets for oil drilling terminals and shipping services will be replaced by new plans. Could you just provide some color on when we can expect further detail on those plans?
Yeah. It's actually not that we will publish new plans. The idea is to be flexible in adapting to the volatile environment. Also the flavor, you can say, on the elimination of these targets is probably what I can provide. Because in terms of Maersk Oil, you know, we basically still believe that a good size for an oil company within our group is 400+ 1000 barrels. It's not that we've given up on achieving that target, but with the whole change in the environment, of course, it's very hard to say when, and in particular how we are going to get there because we need to adapt that to the situation. In terms of Maersk Drilling, the situation is another one.
We actually from publishing the target of $1 billion in 2018 back in 2011, we haven't placed a single order on speculation for new rigs. We've invested much less than we expected. Also the rates have gone down significantly. Here we just have, you know, it's just not realistic to get to that figure in 2018. The flavor can vary a little bit, but it's basically we're maintaining the overall guidance for the group.
We just feel in the oil environment, we need to have more flexibility within the business units and on strategies and on targets in order to make sure that we can deliver on the overall group objectives, which is the 10% return on invested capital, growth of the core businesses, maintaining a strong financial profile, growing dividends, all these things that we keep unchanged.
That's very helpful. Thank you very much.
Our next question comes from Stig Frederiksen from Nordea. Please go ahead.
Hello, gentlemen, and congratulations with a very solid result. A couple of questions for Maersk Line first. The 2M Alliance has now been up and running for about a quarter. Could you elaborate a bit how you see what are your experiences from this alliance? And when you look at the earnings result in Maersk Line in Q2, how much incremental cost reduction improvements compared to Q1 do you see from the 2M Alliance? That was the first question.
Yeah. I just answered that question.
Oh, sorry. Secondly, the flexibility in capacity you're talking about that you are looking for to reduce the fleet going forward or at least to improve further utilization. What are the times and what are the instruments that you could use, and what are the timelines for you with your fleet today, and of course, particularly the charter part to further adjust the fleet going forward?
Well, if you look at the short term, of course, the opportunities are limited. We can hand back time charters, but here it's you know it's basically we are putting in 13,000 or 18,000 TEU vessels. Of course, most of the time charters we have are Panamaxes or smaller vessels, so it's not really a substitute. In general, our short-term alternative to reduce the fleet are limited. We can move it around, and we can lay it up, and we can blank sailings and so on. There are a number of tools we can take, and we'll have a look at all of that.
Then finally, I know it's early days, when it comes to the weakness of the Chinese currency, but it seems that one of the main arguments for the weak volumes going into Europe, despite strong macro, have been the currency situation in China. I know it's early days, but what is your take on kind of what is going on right now on the currency side in China? Could that support a bit better volume going into the second half?
I think it could. I mean, if you look at the... For me, the most important thing is the long-term statement that lies behind this, which is that the government in China views export as a fundamental pillar in the Chinese economy going forward, which fundamentally is good for us. And then, of course, these changes, you know, looking at them short term, it's very hard to predict. If we can get some help on the Asia-Europe volume development, it should be more than welcome.
Many thanks for your help.
Our next question comes from Patrick Creuset from Goldman Sachs. Please go ahead.
Hi, Nils, Trond. Congrats on the impressive results. I just have one remaining question on oil. In your report, you say that you may reconsider growth targets across divisions in view of the structural challenges in the oil market. You're also saying you're focused on developing world-class businesses and exiting the ones that are not. Given Maersk Oil remains subscale, has a small pipeline of quality projects, high finding costs, et cetera, would you be tempted to reevaluate your medium-term presence in the oil business? If not, why would you stay?
Well, Maersk Oil has actually over the last decades been one of the best returning oil companies in the world. We feel that we have some very good technical expertise. It's true that we've had some issues on finding costs, but I think the present environment and the strength of our balance sheet gives us a chance to correct that. I think that is positive. We have no intentions of pulling out and feel that we have a very good future in this business.
Okay, thank you. Our next question comes from Finn Bjarke Petersen from Danske Bank. Please go ahead.
Yes, good morning and also a congratulations from me for the very strong results. Continuing on the Maersk Oil, I was just you mentioned earlier that you have to reconsider with the low oil price here. I just wonder, you're mentioning that Chissonga is still a challenge. How do you see that expression, still a challenge, to be changed in the future if we look at the current oil prices?
Well, I think if you, of course, a project like Chissonga will deliver oil in twenties. What you have to do is you have to have more of an expectation of improved oil prices compared to today for sure, because very few deepwater projects hold water at $50 oil price. That's basically the situation. At the moment, we feel that there's still some work to be done on Chissonga before we take a decision. Again, we will not pursue volume, we will pursue value. I'm optimistic that we'll find a solution for Chissonga, but it has to generate value to the group based on our oil price expectations.
You also said that you have, of course, abandoned all the targets in these three oil divisions. Among those, 400,000 target, but you said it's still there. I understand it's still in your mind. Are there any limitations to the size of Maersk Oil that you can't go below before you should reconsider your position?
Well, I think as long as what you're doing, I mean, we have there are very small companies in the world that are doing well. But we feel that 400,000 barrels a day is a good sustainable production level for a mid-size oil company inside a very strong conglomerate. We think that's a good size and I don't think we need to speculate on any sort of minimum level because, of course, it's in our powers to bring it to a reasonable level.
That means that you want to make acquisitions otherwise, or Chissonga has to come on stream if you look five years ahead.
Well, if you look, I'm not commenting on that because we don't. We're not giving a minimum size. We don't need to make acquisitions unless we believe they can give a good return. We think the market. There are possibilities in the market that looks interesting. We're bringing on actually some projects on stream, which we're announcing, which is Johan Sverdrup and Culzean. Last year we did Jack and we did Golden Eagle. We're making really good progress.
Okay, thank you. Just one final question on Maersk Line. How much do you see that the new order, Triple E vessels and other orders will reduce your unit cost going forward? How much could you push further the unit cost down?
It depends of course on the development in the bunker price and CO2 pricing and so on. There's no question that we continue to be very focused on making fuel efficient vessels. But we are talking about 30 additional large vessels. It's not much more than that. It's not something that will change the world. But it's a step in the right direction. I mean, they will be delivered 2017 - 2018, 2019, so it's quite a bit into the future.
It's fair to assume that's taking away currency effect and so forth, that you can reduce your unit cost excluding bunker consumption by a couple of percentage annually. Is that a fair assumption?
I wouldn't give you any sort of blue stamping on that one. In order to stay competitive, we need to take out costs also apart from the bunker price every year. I mean 2% could be a guess, but I can't confirm or deny it.
Okay. Thank you very much.
Okay. This was the last question for today. Back to you speakers.
Well, thank you very much for listening in. We tried to cover the businesses as well as we could, and of course, if you have any additional questions or things that you did not get answered in the proper way or detailed enough, investor relations is here and we'll also be seeing some of you probably over the next week. Thank you for listening in and looking forward to discussing further with you when we come to the third quarter and the capital markets day for those of you who are there. Thank you very much.