Good morning, everybody, and welcome to this half year conference call on the A.P. Moller - Maersk accounts. Thank you for joining us. The program is as usual. I'm here with Trond Westlie, our CFO. My name is Nils Andersen, and I'm the CEO, and we will go through the presentation, and thereafter we'll take questions, and hopefully provide you with some good answers. If you have uploaded the presentation, the first thing you will see on the front page will be a drilling rig. It is our new one of our new jackups. It's a very large harsh environment rig that will go on contract or starting working here in August.
It's one of the six big drilling rigs that we will take delivery of this year. Hopefully everything will work well. We're quite convinced about that. If we then go to page two, it's the usual sort of responsibility limitation on our forward-looking statements, if any. That of course we are living in an uncertain world and we have still uncertainty on oil prices, on shipping rates and so on to take into account. We just ask you to bear that in mind. If I should just start on presaying a few things on page three, updating on the strategy.
We still feel that we are on good track to deliver more than 10% ROIC over the cycle. We feel that even stronger after a very good first half year. We continue, of course, to have the strategic aspiration to grow, you can say the four large pillars businesses into world-class businesses. But also in our fifth leg business services and other shipping, we have ambitions to grow these somewhat smaller businesses into world leaders. We have good plans for that. Back on the back of a strong first half, of course, all strategic intents intact. We've taken, in the first half, some further steps to optimize our portfolio. We divested the shares of Dansk Supermarked.
We have managed to refocus Maersk Tankers on the product tanker segment, significantly reducing the capital that we've tied up in the tanker business, on the back of some years of poor performance of the industries. We have taken a fresh look on our oil business. We have impaired our investment in Brazil, written it down from $1.7 billion to $600 million. Have in mind, though, and we'll come back to that later, but we still have two interesting projects there, and we're convinced that they will materialize into business. We continue also our strategy of increasing payouts to shareholders.
We increase the dividend in after 2013, in line with our statement that we will grow dividends when the underlying profit gives a basis for that. On top of that, the board decided that we will buy back shares worth $1 billion over the next 12 months, on the back of first of all a very strong balance sheet, and also a strong balance sheet when we keep in mind that we want to continue to be a growth business, we want to continue to invest in building the businesses going forward. Even so, when we look at our 5-year investment plans, we do have room for this buyback, having in mind that we have an equity which is now above $40 billion and debt below $10 billion.
We feel well equipped to do this, and this will in no way impair our ability to grow. Continuing the strategy update, just commenting on the large businesses that we have. Maersk Line has now for seven consecutive quarters had an advantage in terms of EBIT margin to the average of the industry of more than 5%. We of course haven't got all the details for the second quarter this year, but we have reason to believe that we are very close to the latest quarters, which have been somewhere between 8%-10% above the industry average. That is very good.
As all of you will recall, at least those of you who follow our stock and our company, we had rejection from the Chinese authorities on P3 during the second quarter. We've decided to substitute that or instead of that do a somewhat simpler partnership with MSC with one partner on vessel sharing on all East-West trades. It's a simpler cooperation as we only have one partner. Of course, the economic benefit is also a bit lower than it would otherwise have been. We think this is, all matters taken into consideration, not a bad move.
We look forward to putting this in operation in 2015. We have received a lot of questions, and there seem to be some confusion in the press on what we need of approvals for this. We essentially only need the American authorities approval in both China and Europe. This as a vessel sharing agreement will be surveyed, but it will not be. Or it's not subject to approval. Maersk Oil has had good progress on key projects. We still expect to have both Jackdaw and Golden Eagle starting production towards the end of the year or around the end of the year. That's on plan.
Also the other large projects are progressing both in Norway, Johan Sverdrup, Culzean in the UK, and Chissonga in Angola. This seems to be on a good track. We also reiterate our expectation to reach 240,000 barrels of oil production this year on a daily basis. That should be good. APM Terminals, we are on track towards our target. On OPEX nothing new here, and we continue portfolio optimization and working. The latest example of that is the divestment of Port of Virginia. Maersk Drilling also on track, and we have Maersk Supply Service and other shipping. We'll talk more about this at the Capital Markets Day, but on track to reach its $500 million.
To the Q2 financial highlights. We have a reported profit in the first quarter on the continuing business of $2.3 billion, up from last year. That's the reported profit of $2.3 billion, up from 0.9 last quarter or same quarter last year, and a ROIC of 18.6. The reported result is of course impacted by the gain from sale of Dansk Supermarked and negatively impacted by the impairment of Brazilian oil assets. If we take the profits excluding one-offs, then it's up 34% to $1.3 billion, which we consider good progress, and that takes our progress in the first half up to 42%.
The main driver has been, of course, Maersk Line. But both Maersk Oil and APM Terminals contribute very positively to the continued progress. Maersk Drilling, as we've talked about during the last 12 months, so there's nothing new in this, but is impacted by rig stays or yard stays and start of new rigs. And the good thing here is that we actually have taken delivery of 3 rigs, and they are all starting to produce now as we speak. Actually, we've taken delivery of 4, and 3 are starting production, as we speak, basically. In terms of cash flow, the free cash flow, it's down significantly on last year.
Part of the reason for that is that the CapEx is up, but also investing more in better rates and higher turnover on Maersk Line impacts this result. The outlook for the year is lifted, so we now guide of towards an underlying result for 2014, around $4.5 billion, up from the previous guidance of around $4 billion. Going to page six, Maersk Line results. We have here good progress, 25% progress compared to last year, and a ROIC of 10.8. The result is better than we expected for a number of reasons, and this is also part of the big reason why we lift our guidance.
The Asia to Europe volume has grown quite significantly, and actually far ahead of the economic development in Europe. This has helped giving us a 6.6 volume increase. When you combine that with a 4.4% unit cost reduction, and relatively stable rates, then it looks, it actually looks very good. This is to the upside of our expectations, and we're of course very pleased with it. I talked about the lower free cash flow before. Fleet capacity at the moment is increasing in line with market growth. We're growing a little bit faster than the capacity growth.
Growing capacity in line with market is in line with our strategy and also in line with what we've told the markets before. Actually, the phasing in of the Triple-E is compensated by slower steaming and taking out other capacity. I talked about already the long-term VSA between Maersk Line and MSC, Mediterranean Shipping, so I'm not going to dive deeper into that. We are very pleased with the Maersk Line result. If you go to page seven, we elaborate a little bit about how this comes about on the cost side. We continue to reduce cost and this works very well. In this quarter in particular, we've been helped by the growth of volume ahead of capacity and then relatively stable rates.
Probably on the back of also the fact that the industry has been surprised to the upside of the growth on Asia and Europe, which has been helping us all. We have seen some costs increasing. The main increases come from terminals, but also the intermodal inland has been picking up somewhat on the back of probably more economic activity in some of the markets where we operate. We continue our effort to reduce bunker costs. This time actually the drop in price has been less important. It is the bunker consumption which has been reduced significantly with 7.2%. This is very good. Going to page eight, the highlights on the Maersk Oil result.
A loss of $1.4 reported. Actually when you reduce or clearly when you reduce or take out the Brazil impairment and a result increase in underlying profit from $140 million to $431 million. Better oil price actually than we had expected. Increase in production and then lower exploration cost. We talked about this before, but recent years exploration results have led us to reevaluating the exploration cost. It's still work in progress, but we will be more critical on this when we go forward. Nothing really to add. We've given you some highlights on the exploration results.
We have two exploration wells that assessed to be uneconomic in Iraq and Kurdistan. These are of course onshore wells at relatively low cost, so not so dramatic. We still have two wells ongoing. We drilled a well and spudded another one in the UK. The one that we've finished is currently under evaluation. The rest I have touched upon in my opening. Coming to APM Terminals results. Again, a good result to the upside of our expectations with a 25% growth compared to last year and a ROIC of 14.2%, return on invested capital. Very positive. We have also here seen a good growth. Part of this, again, good development Asia to Europe.
Also, taking some new terminals into use has been helping us, in particular the Santos deal. The Santos coming into normal operations. The EBITDA margin is up, driven of course also helped by the volumes, but also operational efficiency, which has been a big focus of the company over the last years. The biggest development here I've touched upon already, divestment of Virginia. It's not in the quarter, it's after the quarter, but the background for that was of course that Virginia was on a lease agreement from us to the Port of Virginia, and this is not really the way we want to operate. We changed that.
The other minor portfolio expansion is a new port or a concession to operate the port of Namibe in Angola. We already have a strong footprint in the country, and this is a good sign of confidence we believe, so we're happy with that. Maersk Drilling's result very quickly down compared to last year, fully as expected. Probably a little bit to the upside of our expectations also here, because we've seen very nice upsides on the rigs that have been in operations. The yard stays have been slightly longer than could have been hoped for.
All in all, under the given circumstances, the yard stays and the start of new rigs, a quarter that was surely at least in the upper end of our expectations. I think you have all the data on the rigs. We have taken delivery of 4 and 3 will, by the end of August, if we follow the plan, be on contract. We start to slowly see the advantages of the expansion program. Services and other shipping an area that has not been so easy in the second quarter. We also take our guidance down a bit and now only expect a result in line with last year.
Maersk Supply Service reporting a result $10 million down on last year. Mainly due to challenging spot rates and also utilization. We see some light here with new contracts secured for Brazil, and the contract rates at the moment also seem to be slightly better than in the first half. Maersk Tankers continue to trade in a different market. I guess a loss of around $2 million on underlying profit is more or less in line with market figures. We hope we're slightly better, but it is unexciting in any case. We did make an agreement in the beginning of July to buy 4 vessels we had on long-term charters and sell them on. We made a small profit on that.
We also had the advantage of getting out of some long-term charter commitments and reduce our exposure further to this very difficult business. Damco had a loss of $32 million compared to a modest loss in the second quarter last year. It is still the ongoing restructuring that's pulling results down. I also have to say that this result is to the lower end of our expectations. The restructuring is taking quite a bit of time, and we expect to see positive impact of it now in towards the very end of the year, early 2015. It is a big restructuring, and there's still a lot of work to be done.
The plan, we remain committed to the plan and the actions taken, and Damco will come out of this as a more competitive company when it's all done successfully. Svitzer, also a slightly lower profit compared to last year due to a decrease in harbor towage. Mainly, you can say this is increased cost pressures in Australia and also entrance of competitors with non-unionized crews that are creating a bit of a headache. But this is, of course, a minor thing seen in the total perspective. With that rundown on the main businesses, I'll hand over to Trond, who'll take you through the financial figures.
Thank you, Nils, and good morning from me as well, ladies and gentlemen. I'll start then on page 12 in the presentation on our continued focus on performance. End of second quarter invested capital is just short of $52 billion, and the reported return on invested capital this quarter is 18.6%. That is, of course, influenced by the gain and the impairments. Underlying is still just short of 10%, but we're moving towards the 10% level as we have been the last sort of eight quarters. Looking at the different business units, Maersk Line doing very well this quarter at 10.8%, up from 8.5% last year, trending upwards on average over the last seven or eight quarters.
We see that Maersk Line coming into a situation where we actually is delivering the return requirements over the cycle. Maersk Oil very negative as a result of the impairment. Underlying basically the same level as last year. Terminals is doing well by 14.2% return, up from 12.8, and Drilling is down as a result of the yard stays and the ramp up. All in all, except for the gain and the impairment, very much in line with the development from previous years. Service and other shipping, 2.1% return, and you see that Supply and Svitzer delivering acceptable returns, even though slightly lower from last year.
The challenges within the tanker industry, as well as the internal restructuring in Damco. On the right side on the page, you see that the Maersk Tankers on the bottom, you see that we have reduced the capital employed or invested capital in Maersk Tankers quite a good bit since second quarter 2012. Of course, Dansk Supermarked is sold, and therefore it's totally out of the invested capital. All in all, everything is progressing well according to the long lines of our ambitions. Going on to page 13. This is an overview of our financial framework, starting on the top left on the cash flow for the six months, starting on net debt of $11.6.
You have the waterfall on EBITDA coming in, the change of working capital, paid taxes, CapEx being on $3.2 billion. We paid dividend in the second quarter, and we have also, there are some subsidiaries having paid dividend to minorities, so the total of $1.3 billion. We have some bucket of others, of $100 million the other way, as well as the Dansk Supermarked, the cash impact leaving us at $9.5 billion net debt at second quarter. Coming to the margin portfolio management, you see that the cash flow effects from divestments this year has also been good. In total, very good progress on the portfolio management this year with the sales.
The big contributors is, of course, Dansk Supermarked, as well as the VLCCs. To the bottom left, just the investment in growth. We have kept the level of investments fairly high for some years. We still expect to be on the high end this year as well, but so far we have invested $4.1 billion the first six months. Then dividends development just showing the 2013 dividend of DKK 280 a share, which is then for the old numbers, DKK 1,400 for the previous shares, but that shows that the directional settings of the dividends. I'll come back to the buyback in a second.
On page 14, the board has decided to initiate the share buyback program for up to $1 billion within the coming 12 months. The buyback will be done under the so-called safe harbor rules within the rules set out by the EU Commission. We have sent out specific announcements on the buyback itself, where we can find additional information. We also have some additional information in the appendices in this.
The basis for this is, of course, the group financial situation as basically Nils mentioned all of us in his intro, the investment opportunities out there, and also the intention to maintain on our what we call our high investment grade level for rating purposes, to make sure that we have the necessary financial flexibility, both for the growth as well as be able to do the dividends and then deciding on buybacks on a recurring basis. In addition to this, additional information is that our holding company, A.P. Møller Holding A/S, will participate in the buyback with their pro rata share. Going on to page 15 on the numbers. These numbers in second quarter are, of course, very influenced by the big ticket numbers of Dansk Supermarked and the impairment in Brazil.
I will comment on that during the course of the way. The revenue base is just short of $12 billion, slightly up from last year. We see that the revenue increase is coming specifically in Maersk Line and Maersk Oil. Maersk Oil, as a result of higher entitlement production, as well as the higher oil prices driving that. EBITDA of $3.1 billion or short of, which is also just flows through as a result of the cost efficiency, both when it comes to lower exploration cost in in oil, as well as the efficiency in Maersk Line, even though nominal cost goes up, we see that the revenue increase is higher. Depreciation of $2.8 billion, that is included $1.732 billion in impairments.
There are a few small items in addition to Brazil. That leaves the EBIT of $533. If we exclude the impairment, the underlying number on the EBIT is $2.19 billion. Finance cost is $185, basically in line with previously, leaving profit before tax of $348. If we then do the same thing here and exclude the impairment effects, the underlying result is $2 billion. Tax on $823, as a result of the mostly oil tax in this. That leaves us with the profit for the period for continuing operation of a loss of $475.
The result of discontinuing operations, basically Dansk Supermarked is $2.8 billion, and that leaves the profit for the second quarter of $2.3 billion. The profit for the period of continuing operations on the underlying results is $1.285 billion. Then you have sort of the underlying results for the quarter as well. All in all, a good progress and good development of the underlying results in the second quarter. Earnings per share is of course higher due to the fact of the high second quarter results. Earnings per share is $103 a share. Going then to the outlook for 2014. We still expect the result for 2014 to significantly above the third.
The 2013 results of $3.8 billion. That is, of course, due to the gain effects. The underlying results is now expected to be around $4.5 billion. This is an upgrade from previously where we said around $4 billion. The underlying is excluding discontinued operations, impairment losses, and divestment gains. Gross cash flow used for capital expenditure is still expected to be around $10 billion. Cash flow from operating activity is still expected to follow or develop in line with results. For Maersk Line, we revise our expected results from being above 2013 to be significantly above the 2013 results. That is, of course, following the strong financial performance the first half. We still expect the global demand to grow by 4%-5%.
Maersk Oil now expects a loss at the level of $700 million for the full year, including the $1.7 billion asset impairment in Brazil. That means that our expectation is revised upwards for the underlying results to be in line with 2013 of about $1 billion. This is based on an average oil price of $108 per barrel, and we have upped that from $104. We still expect an entitlement production to be above 240,000. Exploration costs are expected to be below $1 billion for the year. For terminals, we now expect an underlying result above 2013. For Maersk Drilling, we still expect a result below 2013 due to the yard stay and the start-up of operations.
Services other shipping now expect an underlying results around last year, and the previous expectation was a result above 2013. For the outlook of 2013, there are considerable uncertainty, not least due to the development of global economy, the container rates, and the oil price. We have set up the biggest sensitivities, as we see it for 2014 in the oil price, bunker price, container rates, and the freight volume as such at the bottom on the right side. With that, I'll leave the closing remarks to Nils.
Well, what remains here is essentially just to reiterate our priorities for the second half. They are not very different from the first half, except those that we have completed on. We continue to be very focused on managing our capacity effectively. In Maersk Line, we've seen that being conservative on capping capacity addition has helped us a lot in the past, and we've also understood very well the importance of introducing the Triple E in a way that does not add a lot of additional capacity. Of course, progressing the VSA with MSC, so we can start up early in 2015 as expected. Maersk Oil will continue to deliver progress on key projects.
We hope by the end of the year to be able to report first oil from Golden Eagle and Jackdaw, and actually have no reasons to believe that that should not be the case. They're both progressing well. APM Terminals is at the moment very close to opening the Maasvlakte 2 project. That's of course important that we get a good start there. Apart from that, we'll continue to optimize the portfolio as we just said with Virginia, which will be closed within the coming days. Maersk Drilling have taken delivery already now of four rigs.
One is on the way to Norway, and having started up 3 by the end of August, the importance of getting the other ones up operating as quickly as possible is, of course, a priority. Among others, also, we have a very strong focus on getting the third and the fourth drillship under contract. Services and other shipping, we will update more on during the Capital Markets Day. They are, of course, still in the strategy definition phase, having been established at the beginning of the year, but operational focus will be key of the second half year activities. That concludes our presentation, and we would like now to open for questions. Hopefully, as I said before, we'll give you some good fulfilling answers. We are ready for questions now.
Thank you. We'll begin the question and answer session. The session lasts 40 minutes. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press the hash key or the pound sign. There will be a delay before the first question is announced. Once again, if you have a question, please press star then one on your touch tone phone. The first question comes from Lars Heindorff. Please go ahead.
Yes, morning, gentlemen, and congratulations with the numbers. Regarding your Maersk Line, my first question is about the cooperation with Mediterranean Shipping Company. We were seeing that unit costs are still declining quite impressively in line apart. I always wonder if you could shed some light on what kind of savings you expect further going forward not only from, I mean, both from the continuing operations, but also from the cooperation with the Mediterranean Shipping Company.
Well, on the continuing operations, of course, my answer remains what it's been over the last years. We'll continue to push, this is part of life in Maersk Line, and they're good at it. We do see continued opportunities. In terms of cost savings due to the VSA with MSC, it is of course a bunker cost primarily driven by larger vessels and shorter sailing distances on average, because we can make, on average, more direct routes. And that is really what there is to it. This time, of course, there are no operational synergies back office-wise because we'll continue to operate our own individual ships. It is mainly a bunker fuel game.
Okay. On the oil part, I mean, in the strategy updates, you write a little bit about your exploration across going forwards. I mean, and you state here that the exploration level is under evaluation. I don't know if you can get a little bit closer on that and maybe give us an update on that.
I can't get closer now. This is something we will do as we progress during the year. Hopefully when we give guidance for next year, we can be a little bit more precise on that.
Okay. Lastly, regarding the oil production, Qatar is down quite significantly versus the first quarter. I mean, you've previously been guiding that overall production will be down because of scheduled,
Yeah
Maintenance here in the second and the third quarter.
That is the case. We have a number of shutdowns in the oil business in Q2 and 3. That's why we guided for the drop in production during those quarters. Qatar is one. Dansk Undergrunds Consortium is another. We've had a total shutdown of 12 days during June. This is the background for that.
Okay. All right. Thank you very much.
Next question comes from Robert Joynson. Your line is open. Please go ahead.
Good morning, Nils. Good morning, Trond. I have three questions, if I may. It's probably easiest if we take them one at a time. The first one is actually on the 2M as well. If you look at the capacity provided by the 2M, it accounts for around 80% of the capacity proposed for the P3, but closer to 70% of the number of vessels that would've been used for P3. That basically implies that the average vessel capacity under 2M will actually be larger than would've been the case with P3.
If you kind of hold all else equal, with respect to unit cost savings and bunker costs in particular, is it reasonable to assume that 2M will provide at least 80% of the savings that P3 would have provided, or are there any other considerations to consider in that respect?
Well, I think, you know, we don't like percentage gains so much. The 2M or two M, as we call it, I think will be very close in terms of fuel efficiency. Because of the on average larger vessels. It is, of course, always better for fuel to have a bigger network in total, so it is not quite as good. On top of that, of course, there are some things that we will lose out on since this is just a vessel sharing agreement, where P3 was a closer cooperation with joint planning and so on. The effect is somewhat smaller. Not a lot smaller, but it's somewhat smaller.
You can say to run it and implement it is probably less problematic or less challenging than the P3. All in all, I think it's a fair change.
Okay, thank you. Just a question on the Triple-E's. I saw that you recently took delivery of the 10th Triple-E vessel, meaning that you potentially have enough to fit out a complete string with those vessels. I mean, given that it's difficult to derive the full benefits of the Triple-E's until you actually do have enough vessels for a complete string, does that suggest that the cost savings related to Triple-E's could actually take a step upwards from Q3 onwards?
Well, I think it's we are already seeing benefit from the Triple-E's. The fuel efficiency is very good. Actually, capacity utilization is above our expectation. That looks good already. Whether 10 or 8 or 12 is the magic number, I don't know. A full string is probably requiring, by the way, between 11 and 12 vessels. It's. I think it. We see the effect already, and we're getting 10 more, so we look forward to continued effects from this. You're not gonna see sort of a quantum leap just because we reach a magic number of 10.
Understood. Thank you. Then just the final question on Maersk, or maybe this is one for Trond. You reported a loss of $1.4 billion in the quarter, which of course included the $1.7 billion impairment charge to Brazil. Now, that suggests an underlying profit of around $300 million, but I notice that you reported an underlying result of $431 million on page four of the release today. I mean, does that mean that there was an additional one-off expense in the results of around about $100 million on top of the $1.7 billion impairment charge?
That's correct, and that's in the tax line.
Got it. Okay. Thank you.
The next question comes from Neil Glynn. Your line is open. Please go ahead.
Well, good morning, everybody. If I could first ask a question with respect to Maersk Line. Some of your competitors have been talking about discounting to keep market share based on concerns on P3, which obviously has been abandoned. Just interested as to whether you're seeing any easing in pressure on the news of that abandonment. The second question, Nils, I think you mentioned at the first quarter that drilling should see about a $200 million hit year-on-year because of the yard stays and start-up costs. I know there's some moving parts which you touched on within the presentation, but is it fair to still think about a $200 million hit from those exceptionals?
And then a final question, just on the buyback, obviously should be very welcome for investors. In terms of your thinking on coming to $1 billion, you've obviously got your framework, but was there any temptation to distribute the full level of proceeds from the Dansk Supermarked sale?
Thank you. I'll start backwards on these questions. We did not sell the supermarket because we needed the cash. In that sense, you could say it was excess cash in our balance sheet. We also want to make it clear that we are a growth company, and we want to continue having a strong investment pipeline. If we can use the money well with good returns, I think we do the shareholders and everybody a favor by keeping it inside, and that's why we prefer, you can say, a more smooth distribution of funds.
It is more on the back of a general strength of the balance sheet and the underlying strength of the business that we do it, not so much based on a concrete $3 billion income from Dansk Supermarked. I would rather separate the two. On Maersk Drilling, the hit of the $200 million is probably still right. We have had some one-off incomes that have compensated partly, and we are also seeing an improved situation around the uptime. The operations is actually doing a little bit better. We're not saying that it should be $200 million below last year. I think actually it will be better than that.
On top of that, we will see improved income from the drilling rigs when they start up in the second half. That was the drilling. Your first question was on easing of rates. Here we haven't really seen any particular easing or changes of rates because of P3. I think there's a lot of speculations on why rates go up and down. But basically, we saw during second quarter a relatively stable rate environment. Of course, rates below last year, but not a drop compared to the first quarter.
I continue to believe that with the whole industry on average being very close to a zero EBIT margin, that rates are low for the industry as such, and at some point, the customers will have to accept rate increases. I think this, the poor results of most of the industry reflects this situation. There is just not room for cutting rates any further.
Understood. Many thanks.
The next question comes from Christopher Combe . Please go ahead. Your line is open.
Thanks. Just a couple of questions on the liner business. With regard to 2M, just wondering if we should expect any sort of quantified guidance by the time of the Capital Markets Day. Also you mentioned that the expected gains are primarily in the back of bunkers. Should we not also expect greater opportunities to return chartered-in tonnage? That's the question on 2M. Second, can you elaborate a bit on the non-box rate-related revenues with demurrage and slot revenues in the second quarter, and how do you expect those to develop over the medium and long term? Thank you.
Yeah. I mean, we will maybe be able to say more at the Capital Markets Day, but I can't tell you now what the exact content will be of that of the presentation there. We continue, of course, to try to charge to our customers in the most fair way. If people keep the containers for a long time, this gives us a capital cost, which we try to charge. I think you may see more differentiation going forward between the base rate and the additional charges. This is very technical, and I think this could be something that could be elaborated on at the Capital Markets Day.
Okay. One last one, if I may. In terms of the cost reduction slide for Maersk Line, can you tell us how much benefit came from reduced line charters that would be reflected in EBIT? Then perhaps how much would have been related to finance leases as you highlighted in Q1?
The leases is not really impacting a lot on the numbers in the second quarter. The effect of that is fairly marginal. Coming to your previous question on demurrage and detention, we're still in the range of around the 10% level as we've guided on. Basically, around the 10% level is the same, it's the same level as previously.
Okay. Thank you.
The next question comes from Dan Togo Jensen. Your line is open. Please go ahead.
Thank you, and good morning. Could you, on Maersk Line, elaborate a bit on the volumes that you're seeing as you highlighted that they are particularly strong at the moment. Which commodities and markets are driving this? And is there some element of restocking here? That's the first question.
Yes, I can, we can give you a little more flavor. Actually, surprisingly, the imports into Europe has been very strong. The Asia-Europe is up by around 9%, which is much above what you'd expect given the economic development. That we believe that there's a strong element of refilling of inventories. We expect that growth to be less going forward. We're also seeing another interesting trend, which is that the backhaul from Europe to Asia is actually down. The traditional exports of paper and scrap has declined during the period. That's another trend.
You can say that the imports to the U.S. probably has been a little bit weaker than you would have expected given all the positive news that you've gotten from the U.S., but probably on the back of a poor first quarter. We expect that those figures to be improving in the second half. For the rest of the world, probably a lower growth in growth markets than you would expect normally. What the causes for that, I think will remain to be seen. It's Asia to Africa and Asia to Latin America has grown less than we would expect it. For Latin America, it's of course partly because of poor economic developments in Brazil and Argentina.
Okay. Third question, another question on Maersk Line. ROIC is now above 10%, and I remember your CMD a few years back that CapExes in Maersk Line was not so to say on the board. Looking ahead, now with returns coming back, how do you view that, CapEx-wise? I know you of course need capacity in order to grow, but are we looking at more Triple-Es? Is it more to sort of strengthen the North-South trades? Where are you looking at for future CapExes within Maersk Line?
We are, of course, constantly looking at our capacity need. It's not that we have a very urgent need right now to order, but with the growth of the market, let's say of 4%-5%, we will need when the Triple-E deliveries stop in 2015, we will probably have some time to run after or we will have some time to run without orders after that. Sometimes during 2017, we will need some kind of capacity. What exactly it will be is, it's too early to say. We'll be looking at that when we see the impact of 2M on our deployment plans.
Isn't the time right for these sort of, say, long-term investments with yards being pressured right now and all other segments to their knees, basically?
Well, I think we all have to be very careful calling the cycles and what we've been doing in Maersk Line or what we want to do in Maersk Line is order when we need capacity and you know, there are always people who think now we're at the bottom of the cycle or now we're at the top of the cycle in terms of prices. It's very hard to call, and the only thing we know is that when you have vessels you don't need, you run too much cost and you also have the holding cost of the capacity. That's a given. We prefer not to be too speculative, but order the vessels when we need them.
Understood. On the oil production then, you're guiding lower for Q2 and for Q3 and then, a pickup in Q4. How should we look at Q3? More or less in line with the production level of Q2?
It's a little bit too early to say, but it will be probably to that level. We do have a number of shutdowns coming. Count on it being somewhere around 230, something like that, probably. It's going to be below the average, by definition.
A final question on share buyback. You have touched upon this already, but could you give us some kind of guideline for what is the financial metric you are looking at or financial key indicator you're looking at that guides you to your share buybacks? Is it a recurring event we should look at going forward?
Oi, can you just specify what do you mean by financial metrics we'll look at?
I mean, others are using, let's say, net debt to EBITDA, whatever. Can you be more specific of what, how do you get to $1 billion exactly? What should be your guideline going forward for how much you can pay out or shall we say, buyback?
The element is that it depends on the financial situation, the investment opportunities and, basically, to maintain our rating level. That rating level is really what's driving our financial flexibility or how much we can actually gear the company. With those three parameters is really defining whether we can see that for a period that we have excess capital more than we need relative to our growth aspirations. That basically comes down to a judgment call on how much the board would like to see on the buyback in addition to the ordinary dividend.
It comes down to a sizable buffer, to in order not to compromise your, so to say, your rating. I guess.
The answer to that is, of course, yes. The underlying, it is the rating effect that really drives this.
Don't forget one thing, and that is that we have significant. I'm just jumping in here for Trond. He's coughing a bit. We have significant investment plans, and we want to make sure we can deliver on those and still stay within the financial ratios of a strong investment grade rating. We do see that with strong operational performance and the strong cash position that we have on the balance sheet, that we have room to pay out and still maintain a very ambitious investment level. I think it is to be seen as a signal also that this is an additional tool we take into the toolbox. Payouts.
If we don't find enough investments that meet our return requirements, then this is a much better way to use our cash than plowing it into underperforming things.
Okay. Thanks a lot. That's all for me.
The next question comes from Johan Eliason. Your line is open. Please go ahead.
Yeah, good morning, gentlemen. I've got three questions, if we can take them sort of one at a time. My first question is with regards to your CapEx plans, and the $10 billion guidance. Just sticking by, obviously, you've spent $4 billion, I think, in the first half growth. In the last few years, you've always tended to be very conservative on your expectations for CapEx and come in quite a long way below what you said you were gonna spend. I just wonder if you can elaborate why you're sticking with the $10 billion at this stage, and also if you could give us a bit of color on how that's gonna split between the five major areas of the business.
It really is, coming back to the main drivers, it's gonna be the delivery of the drilling rigs, the Triple-Es and the development in oil and gas. That's gonna take the most part of that. Of course, it's the continuous development in the terminal project. That's gonna do slightly less than the others. The drivers is gonna be the delivery. Because the payment schedules is of course that you pay most when both the drilling rigs and the ships are delivered. That will of course drive the element together with the developments in oil and gas.
Okay. Thank you. My second question was just with regards to your comment earlier with regards to approval for the 2M vessel sharing agreement. You mentioned that China does not need to approve it, but it would be scrutinized. I was just wondering, given there's already been some negative commentary from China even about this planned agreement, is there any way that the Chinese authorities could block this arrangement?
Well, within their prehistoric behavior, within the legislation that we can see today, the answer is our interpretation is no. To say never and under no circumstances, that I think is a guarantee that nobody can give.
Okay. Understood. Thank you. Just finally, just on the drilling business, obviously you highlighted you've got 2 vessels coming on in the next few months, which are currently uncontracted. The current outlook in the industry is pretty poor. One assumes that they're unlikely to find a home in the short term. Can you sort of help us with understanding the economics of how you deal with having uncontracted vessels?
Well, we don't share your view that it's unlikely that we get contracts. We have excellent assets coming out. We have very, very strong performance tradition in that business. We think the assets will be among the first that the customers will look for. Of course, you are right that in the short term, the industry is challenged somewhat because a number of the offshore operators are reviewing their investment plans, partly in view of the oil price and the oil price expectations, but also because we've seen that investment projects have become far more expensive than everybody assumed. Actually a number of companies like ourselves have had some disappointments in the exploration phase.
There's a lot of thinking going on. We still believe that this is a growth market. The deep and ultra-deep water oil needs to be found and produced. At the moment, there's a thinking pause. We believe that the assets and the crews we're bringing on stream will have a good chance of being deployed. Of course, you can cold stack or you can warm stack. We don't believe that we will cold stack anything. That means that we will keep them prepared for working, and that means that there will be depreciation, there will be interest and there will be operational costs associated with it. This will be a hit to our result next year for sure.
Is it likely that being the case that therefore, you will likely to see 2015 profits remain depressed then?
No, I think we will. We said that we regard 2014 as a one-off in the sense that our profitability has reduced because of the startup cost, which we will of course not have. We will have cost of idleness and a lot of yard stays, but we will have more rigs working. Out of the 6 we put into operation, 4 are working on long-term contract. That is not too bad. Our order situation going forward, we still have much higher capacity coverage than the average of the industry. We feel very comfortable in this situation.
That's very clear. Thank you so much.
Next question comes from Kees Berkelder. Please go ahead.
Yeah. Congratulations, gentlemen. Kees Berkelder, ABN AMRO. I've three questions. First one on APM Terminals. Can you maybe give an indication on whether the startup of Rotterdam Maasvlakte will bring extra costs or has brought extra costs and what's roughly the size? When opening, will that also bring additional costs, or should we then see a real pickup in profitability? Second question, at Chissonga in Maersk Oil, can you maybe give an update on time schedule and what next steps are going to be? Third question, you're partnering, I think, with BP on 20K technology in the drilling rigs. Can you give an update when we possibly can expect announcements, further announcements there?
Okay. Starting with the Maasvlakte. The Maasvlakte is a terminal which is the Maasvlakte II, which is meant to work with being a special terminal for Maersk Line. We'll actually use the capacity from day one. Yes, there will be costs, but there will also be income. You can say the effect on APM Terminals' accounts will be more what happens to Maasvlakte one. That we're of course they're working on getting more customers in and so on and how the cooperation should be there going forward. That's too early to say, but you don't expect anything dramatic from this implementation.
In terms of the 20K, we have ordered, as we said previously, some of the long lead items, in particular, the very big blowout preventers that will be specially made, and we think that's a commitment from both BP and ourselves, so we expect probably orders to be placed sometime next year without wanting to commit to anything. If you talk about Chissonga, then we have gotten offers in, we're evaluating offers, so this is in the tender phase at the moment. We will, once we have all the offers in, decide whether we have a good project or not.
Looking at Chissonga, does that mean that, let's say, the economic profit is at risk and that really depends on the offers coming in?
Yes, of course. I mean, I think this is an ultra-deep water or deep water at least, development. These developments are all, I think you will have the same, you've seen the same situation with Total and others. These are projects where you have to make good technical solutions, and you have to have competitive offers from the suppliers in order to make viable and interesting projects.
Okay. Can you maybe explain whether the situation with SBM Offshore and Brazil has anything to do with the delay?
We're not delayed in that, in this process. I think we're on track, and I'm not aware of any specific issues with SBM and Brazil.
Okay. Very good. Thanks.
The next question comes from Sven Bjerre-Pedersen . Please go ahead.
Yes, good morning, gentlemen. One question on CapEx. You're saying in your slide package on page 23 that you would grow the business by 10% roughly annually. Could you say something about what is needed in maintenance CapEx and what is needed in CapEx? To grow the business for the horizons to 2017 as you're stipulating on page 26.
Well, the element is that our depreciation, our ordinary depreciation is around $4.5 billion. I think it's just a guidance. I think you should take that as a sort of a maintenance level. You could see the rest as growth. There might be variations, of course, in that underlying number on depreciation. Around sort of $4.5 billion-$5 billion-ish on the maintenance as a rough estimate. It can be lower and it can be slightly higher depending on the year-on-year basis. That's really what is underlying and the remaining part is growth.
The remaining part, is that then $10 billion we're looking at? Or so, it's an additional $5 billion, or is it less to grow the total group with a 10% annually?
Well, as I said, that depends on the type of assets we're investing in. Because if we are investing in replacing assets in the shipping side, of course that is the maintenance part. If, for example, in drilling and oil and gas and Terminals, we're building new one and additional capacity, that is of course growth. It's hard to say more than on a general basis what is actually maintenance and what is growth, because that is year-on-year, asset-by-asset definition.
Okay. Thank you.
Next question comes from Gianmarco Bonacina from Equita. Please go ahead.
Yes, Gianmarco Bona cina from Equita. On drilling, basically you had an EBITDA, which grew sequentially. If you can explain a little bit, how that was possible, considering that, in your recent presentation, on drilling, you say guided on four yard stays, in particular one, the Gallant, which was $100 million. If you can give us an indication of how much were the costs for the yard stay in the second quarter, and also if you had maybe, because you mentioned before you had also some positive one-offs, if you can say something about that. About Angola, if you may think about reducing your stake in the project, considering maybe the CapEx needs are probably quite high. If so, what kind of stake would you consider to be reasonable? Thank you.
Trond Westlie will come back on the details on Maersk Drilling or give you a little more light on that. In terms of Angola in general, we don't publish plans to do things like that. We do have a high operating share in Angola, and it could be natural to reduce that at a point in time. I think the right time could be when we have a complete project and it's viable, and profitability looks good. I think at the moment there are too many moving parts to consider those things.
Going back to the drilling side, yes, there are elements that is influencing this because, of course, there is yard stays that were in place in the first quarter and coming into operation in the second quarter. It's of assets going in then to yard stays in the second quarter. The net effect of the different yard stay is of course an element in this. We have less yard stays, you might say, in the second quarter than the first quarter. Coming to precision on that. In addition to that, there is one-off effects in there. There are some provisions made earlier that has been revised. It is helping the EBITDA slightly on the positive side.
The third element on this is of course, that as a result of some postponements on the drill ships, we have seen that the ramp-up cost has not come as quickly as we expected. The ramp-up cost has been slightly lower in the second quarter than what we anticipated. That's basically the three elements explaining the development on the EBITDA.
Okay. Sorry, just a quick follow-up. Because in your presentation, which you published after the site visit, on drilling, you showed that in the second quarter, you were expecting 4 yard stays. Actually in the Q1, there was only 1. I'm just wondering why you are saying that in the Q1 you had higher cost for yard stays if it was only one yard stay, and then in the second quarter you had 4? Or maybe, yeah, that information is not updated. Thank you.
Well, I have to get back. I don't have the schedules on the actual yard stays. The experience or my recollections on the EBITDA effects, not the revenue effects, because it's a cost side and a sort of a capitalization plan as well on this. I'll get back to you on that details.
Okay. Okay, thank you.
Okay. If there's a last question, we'll take that.
The next question comes from Douglas Hayes. Please go ahead.
Yes. Good morning. Just two questions left from my side. First, on the Maersk Line business, when looking at the waterfall chart that you guys provided in the presentation, you said bunker is one of the big decreases in unit costs, but then there's $104 million of other cost declines. Can you give us a little bit more insight as to what that was? 'Cause it seems like a bigger driver of the cost improvements.
Just a moment. We have, as I said before, the inland transportation and the terminal costs are up. Container equipment improved capacity is working well. Then we have the bunker and the others that will be among others. It will be cost for time charters, and it will be cost for staff. It will be SG&A expenses in general.
Okay. That then is pretty sustainable then throughout the rest of the year?
We hope so.
Secondly, going back to the Maasvlakte 2 rollout, you've had some slow startups too, you know, neighboring port in Wilhelmshaven. What gives you a bit more confidence that the Maasvlakte 2 experience a similar slow startup that you've seen at that neighboring port?
I think it's two completely different situations. Rotterdam, in Rotterdam, we have a given need. It's a very strong port scene from a Maersk Line perspective. There, the capacity utilization is basically given from the beginning.
Okay. Very clear. Thank you very much.
I'd like to take the opportunity to thank everybody for listening in. Thanks for all the good questions. I hope we answered them reasonably well, and wish you a good day and looking forward to seeing you in or talking to you in three months time. Thank you very much.