Good morning, everybody. Welcome to this Q1 teleconference from A.P. Møller - Mærsk. My name is Nils Andersen, and I'll take you through the first pages, and then I'll pass over to, as usual, Trond Westlie, our CFO, who will take you through some of the figures. I suggest we jump straight into it. While you read the forward-looking statements, just let me sum up what I think are the main takeaway for us from this first quarter. We of course very satisfied with the result.
We deliver headline profit of $1.6 billion, which is, I believe, the best first quarter we've ever seen, driven by very strong performance in Maersk Line, also delivering the best first quarter performance ever, in spite of falling rates. We also take the opportunity to upgrade, based on this performance, our result for the full year slightly, so that we now expect a result around $4 billion.
That is of course worth keeping in mind that it is after the elimination of Danske Bank, where we gave the money or the whole value back to the shareholders during April and also without the income from Dansk Supermarked. A pretty good result in historic terms if we achieve it. The main negative impact on the group in the first quarter have come from the low oil prices. I don't think this was unexpected anywhere, but it has impacted, of course, Maersk Oil directly.
We are taking measures both in Maersk Oil but also in Maersk Drilling and Maersk Supply Service, as well as APMT, to reduce costs to adapt to this new, realistic, oil environment. We feel that we've had a good start to the year and that's why we've decided to lift the guidance, marginally. Let's go to the presentation, and start with the page three, which is the financial highlights. You'll see that the headline profit is up, from $1.2 billion- $1.6 billion. Of course, there are some extraordinaries in here, partly Danske Bank and some other smaller items.
The underlying profit is up from $1.1 billion- $1.3 billion. It's a progress of around 18%. Of course, worth having in mind is that our stock actually quotes in Danish kroner, trades in Danish kroner. Translating the progress compared to last year from dollars to kroner, we get up to the 40%-45% range. I only mention that as a curiosity. The ROIC was good, and we also had a good increase in the free cash flow, although these are of course marginal figures. I wouldn't. I mean, it's a little bit early in the year to take any guidance from that.
Looking at the activity or the profit by activity, and this is here the underlying profit. Maersk Line almost doubling its results. Maersk Oil down a little less than most people had expected. The background for that is that there's a tax saving in the U.K. by coming from the U.S. or from the cut in the U.K. rates, giving us a one-off effect of $170 million. There'll also be positives going forward, but of course only on the run rate. This is helping Maersk Oil in the first quarter. APM Terminals down compared to last year for the first time in many quarters in many years.
The background for that is that Maersk or APM Terminals is quite exposed to a number of markets where oil plays an important role for local GDP. The lower oil price has affected the business volumes and the mix of nations or countries hit in a negative way. That has led us also to take where we've taken the guidance for the oil a bit up, we take the guidance for terminals a bit down, as we'll come back to later. Maersk Drilling is having a nice progress of around 80% compared to last year in the first quarter. That is reflecting the fact that we're now through the introduction program of new rigs.
We have many more rigs, and quite big rigs in operation this year, most of them covered by long-term contracts, which gives us a very nice performance in this area. APM Shipping Services, a small progress driven by Maersk Tankers and Maersk Supply Service, but I'll come back to that in more details. Diving into the individual business units have some more details, please go to page 4. We start with the Maersk Line result. We delivered, as I said before, an underlying profit of $710 million, almost double, and surely the strongest quarter ever. The ROIC was up at 14.3, on the back of pretty stable invested capital.
Volumes declined by 1.6%, and the background for that volume increase was mainly lower volumes in the East-West in Asia-Europe, where we have not followed the price war fully, and we've taken some loss in market share on that account. It's not something that worry us. We've told you before that we are not watching market share on a quarter-to-quarter basis, but it's of course something we'll attend to during the year. We think the global market grew around 1%, and we'll also come back to that later.
The fleet capacity increased by 10%, and that is partly due to rigidity related to the introduction of the 2M network, but also for us underestimating the slowdown in global growth. We also didn't expect to lose share. Didn't expect the price war. We sort of did too little business with too big a cost base, and that cost us on costs as well. We'll also come back to that on the next page. We did maintain a very nice EBIT margin gap to the competition, we believe, and that has now been maintained for 10 quarters, and I think that's good performance.
Irrespective of some expectations in the market being higher, we are very satisfied with Maersk Line's delivery in Q2. Taking you to slide five, I go a little bit deeper into the cost reductions because there's a new trend there, which comes essentially or essentially is that we've reduced cost by $163 per FEU to the lowest cost level we've ever had. But it has been driven exclusively by the decline in the oil price. We've had higher cost when you isolate the fuel price cost than we had previously, and that is impacted by the lower utilization. We have in past many quarters been very good at adapting the fleet size to our expected demand.
We hit that very well, and we did not hit it so well in Q1. We will, as I said before, attend to that both by increasing our market share again, and also by making sure we do the right tonnage adjustments. Not really much more to say for that. Just go down to the bottom, that the staying on slow steaming, that we have no intention of speeding up the network. We still believe, or we are absolutely certain that this level of vessel speed we have now is still the right thing to do, even if the bunker prices have dropped by approximately 30%.
Going to Maersk Oil on page six, we had a 40% decrease in reported profit, as I said before. This is actually helped by, of course, lower tax rates in general, has compensated for a part of the price drop in the oil, or the drop in the oil price. Apart from that, we had the $170 million one-off help from the UK trade or tax rate adjustment, reduction to speak it clearly. What also helped us was that we had an increase in entitlement production, a bit ahead of what or quite a bit ahead of what we had expected.
Of course, the average price drives our take in Qatar up, because this is partly a cost recovery game. On top of that, we also had very satisfactory production performance in the U.K., where we managed to increase the production quite a bit. You can see it down at the bottom of the chart, U.K. production up from 42- 61 thousand barrels a day. It's a good performance. We did drill three wells. One was a discovery. There's been some speculations around that in Denmark at least right now. There was also a discovery in the U.K. We abandoned a well in Norway for technical reasons.
We'll be going back there with a new rig. Then there was one dry well. We did commit to the development plan of phase one in Johan Sverdrup in February. We're seeing good progress in the Culzean project as well. We are re-tendering at the moment, and we hope and expect to be able to come out with a commitment to this project during the next couple of quarters. That's on good progress. We took the Tyra SE on stream late Q1 in Denmark. That's also positive. On the Culzean, on the Chissonga, there's no news. Also on the back of the drop in the oil price, we are re-tendering this project.
We're looking at technical changes and so on, and I don't expect any news on this project to come out this year. That's the situation in Maersk Oil, a good first quarter, but helped by the change in tax rate in the UK. We are adjusting our forecast for the year, slightly upwards as a consequence of slightly higher oil prices. Of course, if the oil price is above $60, there should be a basis for a profit for the full year. On the reserves and resource situation, we usually publish it here on, in the first quarter. It's clear that we've had a drop in both the 1P, the 2P, and the proved and the contingent resources.
The development here has not been good. It reflects the already known poor performance in exploration over the last years. On the reserves, 1P and 2P, we do expect to see a better development next year because we will have contributions from both Johan Sverdrup and Culzean as they are being sanctioned during 2015. That is the situation on the reserves and resources. Not very good with the reserve replenishment or replacement, to say the least. APM Terminals results is decreasing compared to last year's, as I alluded to before. That is due to lower earnings in the oil-exposed economies. We're still delivering good returns.
We're still confident that we will return to growth in profit. For this year, we do forecast the pressure in these oil-related economies to continue, and therefore, we're taking down our guidance for that business. The EBITDA margin declined of that, and we split it out 2.8 percentage point related to the underlying business, 1.3 percentage point due to us undertaking quite a bit of construction where we only have cost and no margin associated with that cost. Also, 0.7% related to Virginia that was not included in turnover, but did contribute to EBITDA due to the leasing arrangement we had with the port. That's the situation in APM Terminals.
Guidance down, no change in our commitment to invest in this business. We're delivering good returns and expect to continue to be able to do that going forward. Maersk Drilling, and I'm now on page nine, is delivering a very good progress in result. That is, as I said at the opening, due to the fact that we are now closing off our expansion program, so we don't have the startup cost. We also are not having this year as many yard stays as we did last year. We have more rigs in operations. Most of the rigs we're taking in possession of are backed by long-term contracts, so that's looking good.
We have a very good coverage for 2015, 86%, and 61% for 2016. The business is performing well in the first quarter, and we also still expect an improved result compared to last year for the full year. There's some details on the deliveries, and we've taken delivery of one ultra-deep water drillship, which is going on a 3.5-year contract in Ghana with Eni. We've also taken a delivery of a ultra and harsh environment jackup, which is going on a long-term contract with Statoil in Norway. That looks good and solid.
APM Shipping Services result is also up a bit compared to last year, and it's on the back of improved result in Maersk Supply Service. However, contrary to the rigs, the contract coverage in Supply Service is tailing off pretty rapidly, so we do expect pressure on this business during the remainder of the year. Maersk Tankers have improved rates and operational efficiency, so Maersk Tankers is performing ahead of last year. When you compare the tanker business to last year, please bear in mind that we last year had VLCC earnings in there. The performances in the product segment is actually very good. Damco is in terms of profitability on the same level as last year.
We do expect during the year to see progress compared to last year. That is backed by cost savings, and we still have to see progress in volumes from all the activities that are undergoing. On Svitzer, also small decline in result that is less salvage activity and a stronger U.S. dollar suits. It does cover some of its contracts in non-dollar denominated, so there's a negative impact on that. Harbor Towage is actually doing pretty okay. A pretty stable business here, and we expect for the full year an improved result. By that, I would like to pass you over to Trond, who will take you through the figures on the coming pages.
Good morning from me as well, ladies and gentlemen. I'll continue on slide 11 on the performance sheet, where we look at the return on invested capital. As you can see, in the invested capital level, the invested capital has come down, from previous quarters to $44.58 billion. The reason for that is slightly technical, because as you can see on the bottom of the page, other business is still at a high level. That means that Danske Bank is still in the other business, while the invested capital in the group have been reduced as a result of the transaction of delivering out Danske Bank went over the quarter. That is the technical. Going forward, we will come down to the level around the $45 billion in invested capital going forward.
Looking at the returns for the quarter, very good returns on 13.8%, and that is of course driven by the four main areas. You see Maersk Line, Maersk Oil, APM Terminals and Maersk Drilling delivering good returns. Three of them above the 10% level. Maersk Line up at the level of 14.3%, Oil at 14.8%, Terminals at 12.9%, and Drilling at 8.5%. APM Shipping Services also delivering on 8.1%, and that of course drives the good return for the quarter. All in all, a satisfactory result, as Nils have mentioned in the startup. Going then to page 12 on the financial framework. Starting on the upper left on the cash flow development.
Started the year with net debt of $7.7, ending first quarter at $7.6. You can see the elements, the working capital slightly increased, increasing with $300 million, source of normalized seasonality. We have the taxes and the CapEx. Going to the CapEx of net cash of $1.7. On the bottom left, you see the gross CapEx, and that has been level of $2 billion. Going on to the top right on the portfolio management. We're slightly short of $300 million this quarter, and the most of that is comprised out of Danske Bank gain, coming out of the transaction. On the bottom right, you can see the increased ordinary dividends.
You see the trend line from 2006 going upwards. We're still keeping to our statement that we want to grow our nominal dividend as long as it is supported by the underlying earnings growth. All in all, positive trends all over. Going then to consolidated financial information, to the group numbers, delivering a revenue of $10,547 million, down from last year. Literally all of that is relating to Maersk Oil and the combination of oil price and entitlement production. The EBITDA, the first quarter is $2,570 million, down from $3 billion last year, and that is also due to the mix of earnings also relating to tax costs, as I will allude to later. Depreciation is slightly up.
Two reasons for that. One is the slightly more assets on the balance sheet. The other is that we had the reversal of some impairments in the first quarter of 2014, and therefore we have sort of a double effect on that one in the first quarter of 2015. The gain on the sale of non-current assets, as I said, most of that number is the Danske Bank transaction. That means that we ending up at earnings before interest and tax of $1.823 billion. Finance cost is slightly lower than last year.
Some currency effect in that number, not too much, but of course a slightly lower number than we would call a normalized financial cost in the quarter. Coming to the tax line, you see that the tax line is $180 million compared to $953 million in first quarter 2014. Literally all of that as well is the E&P element of Maersk Oil as a result of lower earnings in the E&P sector, which have a high tax rate. That line, the tax charge of $180 million. The $180 million is also including the $170 million in reversal in Maersk Oil. All in all for the period, we're ending up with a result of $1.572 billion.
All the other key figures on the bottom of the page is mentioned except for the earnings per share, which is $72 this quarter. Going to the guidance for 2015. As also Nils alluded to in the beginning, we have slightly adjusted our group guidance from slightly below $4 billion to around $4 billion for the year. That is, of course, compared to an underlying result last year if we exclude the Danske Bank earnings last year of $4.1. For Maersk Line, we continue to expect a higher underlying result than for 2014. When it comes to global demand for seaborne container transportation, we expect it to increase by 3%-5%. We're still in that range.
Having said that, today, we actually do think that we are in the low end of that range. Maersk Oil expect a small positive underlying result for 2015 as a result of cost savings and of course, estimating a low oil price around $55-$60 a barrel. The entitlement production is now expected to be above 265,000, and the exploration expenses still expected to be around $700 million. For APM Terminals, we now expect the underlying result to be below 2014 due to weaker business in oil-dependent markets. Maersk Drilling's expectation of a higher underlying results than in 2014 still remains because of more rigs and high forward contract coverage.
For Shipping Services, continues to expect an underlying result for 2015 to be above 2014 results. As always, we always allude to the sensitivity guidance because there are important elements that are drivers for our business. We have mentioned four in our sensitivity tables that are the most sensitive drivers going forward. I'll refer that to you. By that, I'll leave the closing remarks to Nils.
Well, not much to add, really. We are, as I said before, we're happy with the start to the year. We're marginally upgrading our expectations for the full year. And we feel quite confident that we can continue to develop our business in the right direction during the rest of the year. With that, I would go to questions and please feel free.
Thank you. We will now begin the question and answer session. This session will end no later than 10:40. If you have a question, please press zero, then one on your telephone keypad, and you'll be inserted into 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. A couple of questions from my part. Firstly, regarding the liner business, you mentioned regarding your volume growth that you've seen weak volumes out of China, particularly into Europe. I don't know if you give us a bit of a feeling for how volume-wise this has been into Europe and maybe a bit more split on that. At least during the first quarter, we've been getting numbers from both freight forwarders and other peers. They've been looking actually quite a bit higher than that. I'm curious to find out actually what has been driving the low volume growth.
Well, our low volume growth was surely driven by us being a little bit hesitant to join the price competition that took place as a consequence of the drop in oil prices. We actually see an okay growth in general if you take the East-West trades with them being up around 3%. The weakness for what we see at the moment is mainly in the North-South trades with West Africa and Latin America being negative. There was a small, if I'm not mistaken, decline in the volume into Europe in the first quarter, according to our estimates. Nothing dramatic.
What about the focus that you have been having here with the more focus on some of those intra trades you've been talking about, Intra-Americas, where you've been sort of ramping up also capacity-wise. Does that have an impact on both volumes and rates?
I think in general I don't think it had an impact on volumes as such. We did lose volume in West Africa in line with the market development. Of course, as we also say, we've ramped up capacity too much for the market development and our market share development in Q-one, and we'll address that going forward.
Okay. Regarding Maersk Oil, if I'm not mistaken, I don't know, because you don't really write so that much about anymore about sort of gross production volumes in Qatar. If I'm assuming that gross production in Qatar remains around 300,000 barrels a day.
It's been stable.
Yeah. That assumes an entitlement share around 40%-46% up from 34%. Is that sort of the run rate where we should expect given the oil price we have at the moment?
If the oil price stays where it is, that should be more or less the run rate. You know, you have some factors, one-off events that happens once in a while that can adjust. In general, generally speaking, we expect the run rate around that.
Just to give a specification of that, the average rates that we had in the first quarter was $54. Today's rate is, at least when I saw Brent this morning, was about $64. Those prices will affect the entitlement production coming out of Qatar.
Down.
Down.
Okay. All right. Last question regarding the guidance. I mean, you're downgrading terminals guidance and leave other things unchanged, but yet you're still increasing your full year guidance. Is that caused by an expectation of maybe slightly higher earnings in Maersk Line, which have been sort of off to a good start or what's driving that difference?
No, Maersk Line is off to a good start. The starting point of rates in Q1 or after Q1 is pretty low. We've not adjusted on Maersk Line. The adjustment comes mainly from the improvement in the oil price and the one-off tax effect we had in the U.K..
All right. Thank you very much.
Our next question comes from Douglas Hayes from Morgan Stanley. Please go ahead.
Yes, good morning. A couple questions for me. First, now that you've given the date of the completion of the integration of the 2M alliance, can you just give us a quick update on the cost savings that you're hoping to realize and the pacing of that? It looks like 2M was a little bit later than expected, so does that change your cost savings targets there?
There's not any change to the underlying, you can say the normalized cost savings in 2M compared to what we've said previously. Of course, there's been some start-up costs in the beginning of the year, including a network that has been slightly bigger for what is needed. I have to say, however, that competing alliances have grown their network far more than the 2M alliance have. We are of course also in the market to compete. We'll adjust that, but we will be conscious of the need to maintain our market share where it is.
Okay, great. Just, to clarify, did you see those start-up costs predominantly in the first quarter, or will we see some in Q2 as well?
I think as we have had when we ran in the network, we've of course been busy doing that, and which means that you adapt a little bit slower probably to the market and the changes facing our customers that can confuse as well. I think it was primarily in Q1. As we're entering into April, the last ships have entered the services. I think the situation should improve a little bit going forward.
Okay, great. Thank you. Secondly, on your guidance, volume guidance in the liner business, Trond Westlie, you mentioned that you guys are probably gonna be maybe towards the low end of that 3%-5% market growth. Can you give us a little bit more insight given Maersk trade-
Well, I think that's a misunderstanding. We have not said that we would be at the low end of the market growth. We just said that market growth would be probably at the low end of our 3%-5% indicated interval.
Okay.
We have no intentions of losing market share this year.
Okay, understood. I guess still to that point, you know, given your trade lane exposure, what levers do you think you can pull to catch up with the rest of the market following the Q1 results?
I mean, the Q1 is a very small quarter. In a market that grew by 1%-2%, we declined by 1.6%. That is really very marginal. If we want to catch up, we can catch up with no problems. I wouldn't worry about that.
Okay, great. Thank you. Finally, on the oil business, you know, you've admitted you've seen the reserve numbers that indicate that there's still some catching up to do. Does this change your CapEx plans at all, your thought process for the growth in the oil business going forward? Do you need to accelerate that investment?
We will do the investments at the pace we find is right, and we also need to take time for making sure that we renegotiate all CapEx plans reflecting the new oil reality. We have already this year committed to the Johan Sverdrup development. We expect to commit to the Culzean development later this year. Then of course, there can also be activity on the M&A side. We also have Chissonga and Qatar investments that may potentially be announced. We don't see any real reason to speed it up. We see that the replacement rate has been very low, and we're not happy with that.
It's not a surprise to us because we've seen and we published, by the way, also, the exploration results for the last years, and we already knew we had an issue here. By the way, the last quarter exploration results are, at least, not just negative news. We have found hydrocarbons in a couple of wells, out of the three that we have results from so far.
Okay, great. Thank you very much.
Our next question comes from Markus Malvisto from Carnegie Investment Bank. Please go ahead.
Yes. Hi. Two questions, if I may. Firstly, coming back to the increase of market share, is there anything else than joining the price war that you can do to regain market share?
Well, again, we don't manage market share quarter-by-quarter basis. We don't see that we have a competitiveness issue at all. We have delivered an EBIT margin, which is 10% ahead of the competition for the last many quarters, or close to 10%. We don't see that we have an issue at all to compete in the market. We will take the market share we need by giving good service and giving the right prices to the customers. We have not been outside the price war. Our rates have suffered as well, but we just maintained a very high level of profitability. I think so far we only see three of our competitors publishing, and they were around break even for the first quarter. So we...
It remains to be seen where the others are coming out. We feel that compared to the industry, we've done very well in Q1.
Okay. Thank you. Second question. The 5% drop in freight rates year-over-year that you report, can you decompose that? Is there any mix effects in there, for example?
It's mainly been a result of price competition in Asia-Europe. In general, the competition has been quite fast in passing on bunker savings to the customers. We have then also done that. I think you can see it as a direct reflection of the drop in oil prices, possibly as a bit overdone.
Okay, thank you.
Our next question comes from Christopher Combe from JP Morgan. Please go ahead.
Hi. Just a couple of follow-ups on the same topics. I'm starting with Maersk Line. Can you tell us how things have been shaping up in recent weeks? If you were to hit sort of 3% growth for the year, that would suggest sort of 4%-5% average through year-end. Is your experience thus far in the second quarter supportive of that kind of growth expectation?
Well, we've given the guidance based on what we know about the second quarter, but we're not going to give additional details on it. We feel quite confident that we will end the year growing with the market.
Okay. Looking at the first quarter, is it correct to assume that the VSA income is in other? If so, can you tell us roughly, you know, what kind of contribution there was versus the extraordinary detention, demurrage revenues?
Well, the element of other is increasing this quarter as a result of a lot more. It's more demurrage detention than usual. It's not the VSA that drives this. It has been some complications in several places in the world, both in Asia as well as in the U.S., that has driven that demurrage detention slightly up this quarter.
Okay. Lastly, you mentioned your commitment to slow steaming. How convinced are you that your peers are equally committed in light of historically low bunker prices?
Well, we don't talk to our peers about these things, of course, and to any degree where we can speak on their behalf. Actually, bunker prices are not historically low. They're just low compared to the last few years.
Okay. I suppose another way to ask, have you seen any evidence of faster steaming from a sizable competitor?
No, not to my knowledge.
Okay, thank you.
Our next question comes from Dan Togo from Handelsbanken. Please go ahead.
Yes, good morning. A few questions from my part as well. On terminals, can you elaborate a bit on what affects the full year profits positive here? You have Maasvlakte coming on stream, you have centers. What are the dynamics pulling up, and what is dragging it down?
Well, at the moment, Maasvlakte is still under startup, which is pulling the results down because we have not been able to meet or move the volumes from Maasvlakte One to Maasvlakte Two. We're at the moment running two terminals without any additional volume. That's a pretty I mean irritation of course, but that's normal when you start up a highly automated facility. Santos is ramping up as expected, getting increasing volumes. But of course, the general situation in that market is impacted by the poor economic situation of Brazil in general.
Any other places that, you know, affect positive?
Pardon?
Is there any other places, sites that affects profits positively in terminals?
Not any particular areas, but you can say the more mature markets are doing better than they've done in the last years because of a bit more volume. But nothing that really impacts profitability as such.
One question on oil. U.K. production was also particularly strong, and I understand that Qatar will be more or less sustained, of course, considering where the oil price is now compared to Q1. U.K., are we seeing production being sustained here as well, or was it, so to say, an excellent quarter that is difficult to obtain again in quarters going forward when we talk U.K. volumes?
We're of course positively surprised and pleased with the development in the U.K.. Part of it is Golden Eagle coming in. Also the GP3, Global Producer, has done very well. We will do our best to keep it up. I'm confident that we'll also end the year on a higher note, if not for other reasons than because Golden Eagle is ramping up production.
Right. Then one final question on oil. The Qatar Al Shaheen is now up for tender, and can you elaborate a bit on how you view this process, and if there is a timeline, can we expect some sort of conclusion during second half?
We can't give you a timeline because that's all up to Qatar Petroleum. We of course, I mean, we're only getting positive feedback from Qatar for what it's worth, and do assume that we have a very high likelihood of continuing there. If that should not be the case, then of course we hope that we'll get the message as quickly as possible so we can reallocate production or investments to other areas.
Thank you.
Our next question comes from Matthew Kerley from Berenberg. Please go ahead.
Yes, thank you. I've got three questions. I think I'll ask them all at once. Just on Maersk Line, first of all, I see that after 8 quarters of successive improvements in your bunker efficiency, you had a deterioration in this quarter. So my first question is, do you know, do you think you've gone as far as you can improving efficiency of fuel consumption or could there be more to do? My second question, if I could ask about Qatar in another way. I mean, given your long dealings with the Qataris, have you been through any process like this before with them, or is it actually the first time that they've reviewed you as their partners? Then my final question, just on terminals. I see that in the first quarter volumes fell, but revenues increased.
I wonder if you could tell us, what's behind that successful pricing there and, you know, what that looks like. Those are my three, please.
Okay. You may have to repeat the third question. I didn't quite understand the point. If I start with the other two, yes, we have had eight quarters of improving the bunker efficiency, and the sole reason why we did not succeed in doing that this year was that our fleet grew more than volume. We had a 10% growth in fleet and a small decline in volume. That gave a negative impact. I think part of the success in the past had been our ability to predict and adjust our fleet, predict the market and adjust our fleet, to what was happening in the market.
Contrary to a lot of the competition who sailed with way too many, much capacity and trying to compete on price.
I'd be wrong to think that it's the end of the line for further improvement.
No, I don't think so.
All right.
I think there's more to be done.
Okay.
By the way, the 2M savings will be predominantly bunker savings compared to history. Once things are running smoothly, that should be positive. You asked whether we have had any process like this with Qatar before, and we got the Al Shaheen concession in 1992, after Shell had given up on the field. Since then, things have been running very smoothly. We've been carrying out a number of projects, always, of course, discussing at length each project with Qatar Petroleum. We've never been in a situation where we'll be evaluated as an operator because we had a 25-year contract. This is the first time. It's also not that we have had negotiations that have broken down or anything like that.
This is, we assume this is just reflecting Qatar's wish to get the best possible terms going forward, which we always knew that would be pursued one way or the other. Then your question on APMT, could you repeat that? Because-
Yeah.
I didn't really understand it.
No, sure. Just that, you know, just looking at the numbers, you have a three percent volume decline versus a four percent revenue gain. My question really is, you know, have you managed a seven percent price increase?
The EBIT, EBITDA margin has gone down, that's correct. First of all, about a little less than 3% is underlying business, that's a mix issue. And then we have 1.3%, if I'm not mistaken, related to construction costs, the way we just take the cost in, there's no margin related to it. And then the sale of Virginia, which we carried out last year, which added no turnover, but a rental income above the EBITDA figure. Those are the main components. A little more than half of it is underlying business, and that's caused by mixed developments in the volume.
All right, thank you.
Our next question comes from Stig Frederiksen from Nordea Markets. Please go ahead.
Hello, gentlemen. Just a couple questions on my side. First of all, just to clarify, in your guidance you made for full year for Maersk Line, you stated that we were looking for improvement in earnings from still lowering the cost. That's not part of the guidance today. I assume that we still look for all lower costs, including bunker. The second question goes to the lower bunker price. You seem to have a delay of 6-8 weeks when it comes to the bunker price. Would it be fair to assume that you will still be able to maintain a low oil price going into Q2, even we've seen a rising in oil price recently? Thank you.
I'm sorry I didn't understand your questions. We had very poor acoustics here. Could you please repeat it a little bit slower, one at a time, and then we'll try to answer.
Yes, of course. I'll take the first one. Regarding your guidance for Maersk Line at full year, you stated that the cost reductions were part of the equation, how you would get to an earnings above $2.2. That is not part of the text anymore. Just to clarify that you still-
We will work with cost reductions, of course. Goes without saying. If it's not gone, we've not changed the main guidance, so, but that is a constant part of our strategy. There's no change there.
Fantastic. Secondly, when you look at your bunker fuel price, you're saying you have a delay of six to eight weeks, and then is it fair to assume that even we have seen an increase in bunker fuel price recently, that you will still have a delayed effect and therefore might still see lower bunker price going into Q2?
I think that's, since we're not hedging, that's a good assumption, yes.
Many thanks.
Our next question comes from Neil Glynn from Credit Suisse. Please go ahead.
Good morning. If I could ask two questions on Maersk Line and one on Maersk Oil. First question with respect to Asia/Europe, the extent of the rate weakness. How much of your contracted coverage is actually leaking into the spot market? I think that's been an issue in the past when spot market rates have been low. The second question with respect to, you mentioned competing alliances have grown the network far more aggressively than Maersk Line, and they're obviously emboldened by the promised cost savings of the alliances. I'm interested in your view to what extent do the alliances actually structurally harm the medium term rate outlook, given it allows competitors the chance to take more risk? The third question on Maersk Oil. When do you expect, or when should we expect the next update on Chissonga?
Any flavor for the timeline for discussions with the Angolan government or other milestones would be helpful. Thank you.
Yeah, starting with the last question, we don't expect to give any news on Chissonga this year. I don't think you should take that as bad news. We're re-tendering, that takes time. We're relooking at the concept, that takes time. Also with the present oil price environment, we have actually, we're in no hurry, to start up investments unless they're clearly profitable also at present prices. I think you should take that as an expression of or sign of constant care, so to speak, making sure that we have a good project before we possibly announce progress on that. In terms of rates, we will not try to predict the rates.
The only thing that we will try to predict is, that we will be working hard on staying competitive, being more competitive than our, than the rest of the market, and making a good living out of that. The first question was about contract leakage, as I heard it, and
Yeah, just trying to understand. I think it's been mentioned in the past in terms of you obviously have your contracts with customers, but when rates are this low, I mean, there must be a temptation for your customers to go elsewhere into the spot market despite those contracts you have in place.
Yeah. In general, I would say the contracts are honored. Sometimes we see people during periods of low spot rates going down or reducing their commitments during the months where spot rates are low, and then hoping, of course, to get full or over-commitment during the peak periods when rates supposedly are high. We are now adjusting, so if you under-deliver in the periods of low spot price, then your commitments for the rest of the year are just reduced as well. Most contracts are honored. We have a pretty good contract coverage. We've closed all, to my knowledge, all contracts for 2015 now.
Great. Many thanks.
Yes, the question comes from Christopher Combe from JP Morgan. Please go ahead. Christopher Combe, your line is open. Christopher Combe, your line is open.
Can you hear me now?
We can hear you now, yeah.
Okay, perfect. Good morning, gentlemen. My question is on Maersk Drilling, and if there's any risk of long-term contracts being renegotiated now, since the situation changed quite drastically.
There's always risk of contracts being attempted, renegotiated, but we have good formal legal contracts. Normally, we would open contracts if we can find a win-win situation on that. I mean, our counterparts are big renowned oil companies and we've seen no sign of people not being willing to honor their contracts or able to.
Okay, thank you.
Our next question comes from Finn Pedersen from Danske Bank. Please go ahead.
Yes, good morning. Two questions. One on Maersk Line and one on Oil. On Maersk Line, you have been talking about Asia-Europe rate war. Do you see any changes in behavior from competition in the market? What are you doing to balance the supply and demand so rates can go up as we saw last week? That's the first question. Second is on Maersk Oil. In case that your production or your concession in Qatar is extended, how would that affect your oil reserves?
Let me start with the easy part first. Asia-Europe rate war, you know, there's, let's call it tough rate competition and fast falling prices. I think everybody now are squeezed quite a bit in that trade. We've seen some increases to the Med and to Northern Europe being announced. We'll see what happens. There has been a rapid deterioration of rates. To predict the rates, as you know, we never even attempt that. We will live with whatever rates are in the market and we'll make sure that we are competitive and giving our customers a good service. Maersk Oil consequences of reserves on Qatar, they will go up.
How much is difficult to say because contrary to earlier, since we're now in a tender process, we cannot be absolutely sure what concept will be used. You can decide to drill a lot of wells at once, or you can go very slowly, and that will have a different impact on the rates or on the reserves. An extension in Qatar will increase reserves there, of course, because we only include up till the end of our concession period.
Could I just have one final question on Maersk Line? I was not asking for your prediction of rates. I was just asking, are they taking any steps to balance the market? That means reducing capacity in the Asia-Europe trade. Then just one final one on Africa. How much has that impacted your negative rate development in the first quarter?
The way to end the rate wars or to take steps to end the rate wars, probably to take capacity out. We have added far less capacity to Asia-Europe than some of the other alliances. We don't have any intention of not being able to supply enough capacity to maintain our market share. I think if there's anything to be done, we'll have to look to the rest of the market as well. On West Africa, it's clear that we have the cost of doing business in West Africa are higher, so smaller volumes there will impact the average rate.
By far the biggest impact is coming from the lower rates in general, following the drop in the oil price.
Thank you.
We have no further questions on the phone, so back to you, Nils.
Well, thank you, everybody, for joining us today. Thank you for your interest in our company. We look forward to being with you in August, hopefully, reporting another good quarter, and giving some more clarity on where we are on cost savings and 2M networks and so on for Maersk Line. In the meantime, I wish you a good day, and look forward to being in touch with some of you before, but everybody in August again. Thank you.