Ladies and gentlemen, welcome to the A.P. Moller - Maersk Interim Report, first quarter 2012. Today, I'm pleased to present the Group CEO, Nils S. Andersen, and Group CFO, Trond Westlie. For the first part of this call, all participants will be in listen-only mode, and afterwards, there will be a question-and-answer session. Speakers, please begin.
Okay, thank you very much. Here's Nils S. Andersen speaking. It's great to be back, and thank you for listening in at this quarterly call. While you read the comment to our forward-looking statements on page two, I'd just say that the result we're presenting today is in line with last year, which in principle is good and fine. We're of course aware that this is because of extraordinary income and an underlying break-even result of operations is not something that we consider satisfactory. We are at the moment working hard to improve the results in the container line, which is together with tankers, because of the low shipping rates, the reason for the not good underlying result.
We're doing that in Maersk Line with rate increases. We're happy with the situation we established at the end of last year, market share-wise. Now we are focusing on improving the profitability of the industry, which seems to be going well. In addition to that, we're working on reducing the cost, the cost picture, where there's also some gains to be had. Assuming you read the forward-looking statements, welcome again, and let's dive into the presentation, starting on page three, where I talk a little bit about group strategy. First of all, as I said before, the profit was $1.2 billion, and the operational result we consider not satisfactory.
Having said that, we're of course pleased with this, with the gain we had in oil coming from the settlement in the Algerian tax case. It's been a lot of hard work, and it's good to have some of the money we paid too much in taxes over the last years back. Maersk Line was loss-making, and as you all know, the freight rates have been very, very weak over the last three quarters. This is the second rate war we've had since the beginning of the financial crisis, the first being in 2009, and the second one being here at the end of 2011 and start of 2012.
We are seeing our market share stabilizing on the higher level we achieved during the second half in 2011. It's not our ambition to lift this market share further, although we have a very good reception of Daily Maersk. Maersk Oil delivered an improved result. This was because, primarily because of the tax settlement in Algeria. We did see a drop in production. This was expected. We continue our investments in exploration, which have given good results over the last couple of years and feel that this business is very much on plan and on strategy.
APM Terminals improved its profit again. We continue to invest in this business, entering or coming out with new ports. On top of that, those of you who follow the business will see we're also not shy of divesting when we think we can spend the money better elsewhere. We've seen good results also in Maersk Drilling and Supply. We are expanding the business and that cost a bit on the investment side, of course, but the returns are good, and the sector is doing very well. We did complete the announced divestiture of Maersk LNG with a small book gain, and also a $1.2 billion cash flow into the business.
The LNG rates are good at the moment, so we feel that we divested this business at a good point in time in order to reallocate the money to some of our core businesses. Speaking of core or strategic growth businesses, we feel more convinced than ever that the four growth businesses that we have, which is APM Terminals, Maersk Drilling, Maersk Line, as well as Maersk Oil and Gas, will deliver on their long-term strategy. We feel we are moving in the right direction. With those words, on to page four, where we have the group financial highlights. The profit was slightly above last year due to the one-offs.
If, when we exclude the one-offs, we have an underlying operational result of zero, which is needless to say, not what we're aiming for and not what we expect for the rest of the year. Maersk Line's result declined by $1 billion year-on-year and stayed at the same level, same unsatisfactory level as the last quarter in 2011. Comparing to last year, please keep in mind that last year was probably the best first quarter the Maersk Line business had ever had. It's not unusual to have a rather thin operational result in the liner business in the first quarter, which is low season. Nevertheless, needless to say, not a good result.
Maersk Oil reported a $1.3 billion result. When you exclude the tax effect and the investment gains, we are down to $300 million, which partly is driven down by the very high level of exploration costs that we'll come back to in a minute. The ROIC was 10%, which was down from last year, but when you exclude the extraordinaries, it's of course lower. We had a cash flow from operations at $1.2 billion, reflecting the lower operational cash flow compared to last year. We did maintain a high level of investments, with an investment slightly down from $1.2 billion to $0.9 billion.
Our interest-bearing debts were in line with the year-end figure of 15.5%, but higher than the level we had this time last year. Moving to page four or five, talking about Maersk Line, you'll see that the global market share was maintained at the same level as we had in Q4 in 2011. It's we have very heavy volume increases compared to first quarter last year. That is again a result of our growing market share during the year, and we're not intending or working on increasing the market share from where we were in Q4 last year around 16%.
Freight rates went down 9%, compared to last year, and our earnings were down at -$ 263 EBIT per unit or earnings per unit, which is of course a huge drop, totally reflecting the bottom line we present. What is an additional challenge in the business at the moment is that we've seen a very, very big increase in the bunker cost. The bunker fuel price increased by 31% compared to first quarter last year.
That increase will decline during the year with the trends we're seeing now where the oil price is stagnating between $110-$120 per barrel, which is more or less in line with what we had in the second half last year. This is a very significant figure for the first quarter, but it of course makes the comparison to last year even more negative. When we exclude the increase in bunker prices, our unit cost went down. This is due to the reduction in bunker consumption, which is caused by the slower sailing speed we had in the first quarter. We received 6 new vessels with a capacity of 38,000 TEUs.
These will be used primarily in the Africa trade. Sorry, we have placed no new orders in the first quarter, and basically don't expect to place any orders during the year. We believe that the capacity we have in order will be sufficient to maintain our market share over the coming years. If you look at the chart at the bottom of the page to the left, you'll see the development in rates. I think that is quite interesting to look at. We're seeing that rates have edged up during the quarter, and we are getting closer to where we were in 2011 and 2012. Sorry, in 2011 and 2010.
We have seen in the first part of the second quarter, we've seen this trend continue. We are expecting a gradual improvement in the result over the year. If we move to page six, more on Maersk Line. Coming back to the rate increases, we have increased the rates effective from March, and we're seeing good acceptance of that.
As you may follow in the press and from the trade information that circulates, we and a number of other lines have announced rate increases over the coming or for the beginning of this quarter and over the coming months, which gives us good reason to expect that we will get a better result and improve the results gradually over the next quarters. We have ourselves been active on the capacity reduction front. We have not laid up vessels, but we're sailing slower, reallocating tonnage. We have taken a 9% reduction in capacity by lowering speed.
This is part of the reason why we are improving the bunker consumption per FFE transport. The Daily Maersk is now a good half year into its trial period or into its life, and the comments and remarks we're getting from customers are excellent. We're also seeing it's having an effect on this trade structure in Asia, in the Asia-Europe trade, where we now have 85% of the volume concentrated on ourselves or 12 liners that are combining into conferences or joint sailings in this trade. That is basically very good news.
We continue to pursue our profitability targets by not pushing for increased market share, hoping that we can maintain the good trend that we see in the rates at the moment, which the industry definitely need. We will also focus internally in the business on reducing costs where we still have some opportunities left. We'll continue to look very carefully at the capacity. It is, if the markets do not develop as we expect, we expect the industry to be willing to look at the capacity situation, and we'll do that as well. We're seeing a few more vessels coming back into the trade. Now layups are probably not going up anymore. This is normal for the season, preparation for the seasonal trade.
I think the whole industry is quite prepared to go into a review of capacity should the markets develop differently than we expect. As I said before, we don't see any need for new capacity commitments, short term or medium term. Maersk Oil, on page seven, is of course delivering a very good first quarter result due to the settlement of the tax issue in Algeria. We're also gaining a bit of money from a sale of an interest in one of the blocks we operate in Brazil, where we reduce our share from 50% to 30%. We are helped by higher oil prices, which in the first quarter were $119 per barrel.
These things together more than compensate the 25% decline in production, where we have in the first quarter been going down to 254,000 barrels of oil per day compared to 335,000 in the same quarter last year. Another negative in the result is increased exploration cost. We're taking the exploration cost up with approximately $160 million in this quarter. Of course, there's a lot of timing in this, so a quarterly figure doesn't make a lot of sense. It reflects the fact that we are continuing our effort to look for new reserves and we feel that we've been quite successful in the last couple of years due to this, so we'll continue.
Share production in Qatar has dropped. The Qatar production is stable at 300,000 barrels per day as envisaged. According to the agreement, our share is now down to approximately 100,000 barrels per day, and this is also the level we expect for the rest of the year. In line with the higher cost, we're also completing more wells. We completed five appraisal and exploration wells in Q1 2011, and we hope we'll come out with good news from at least some of these. As I said, we'll maintain a high level of activity building on recent years' good exploration results. Moving on to page eight, APM Terminals. The result of APM Terminals is very good.
We continue growing our EBITDA margin, and the bottom line result is going up nicely, in line with that. Included in the result in Q1 is one-off gains from divestment of Maersk Equipment Services, which is basically rental out of chassis in the U.S. and a reduced ownership in Xiamen in China. That gives us $73 million, but even excluding that, we have a nicely growing growth in underlying profit. If we take the volume development in light of global trade development of 1.4%, we're of course pleased to have a 10% growth in the throughput in the terminals.
This is driven by introduction of new terminals to the trade, but also that we have even though the trade to Europe or business in Europe is stagnating, we have very good growth in the developing markets where we've been investing quite heavily over the last years. We took control of the operations in Gothenburg, Sweden, effective January 2012, and it'll be exciting to see how this terminal will develop going forward. I think that is enough on that page. I think the important thing here is to underline that the EBITDA margin continues growing due to better terminals mix, good price discipline and cost efficiencies. They're running a very good business. On page nine, we cover the oil services businesses with Maersk Drilling of course being the most important part.
Just a moment. Maersk Drilling is in an investment phase. We placed a number of orders for rigs last year. These will soon start being produced. The result was going up from $122 million to $125 million in the first quarter. We have extremely good contract coverage for the year, 99%. We probably can't get much closer than that. Even next year we have a 79% contract coverage very high, close to 94% is a very good figure in this business. We had several new contracts signed during the quarter, which we believe will give this business a good and stable development going forward.
Maersk Supply Service is doing well as well. We had a result in line with last year. Good contracts coverage also for 2012. We also have signed some interesting contracts for large anchor handlers, both in West Africa and in Brazil that will help keep the contract coverage on a good level. We introduced the ESVAGT business into Maersk Supply at the beginning of the year. ESVAGT is a company that specializes in ships that are placed around the oil rigs meant to pick up persons falling off or being in assistance in case of security or safety issues on the rigs, transporting ill people fast ashore.
That is quite a nice little business, a very specialized business, and it contributed with a profit of $6 million in the first quarter. Going to the consolidated financial information, I will pass the word over to Trond.
Well, good morning, ladies and gentlemen. I'll take you through the consolidated numbers. As you can see, for the first quarter, we have a revenue of $ 14.3 billion. Somewhat small, $200 million down from last year. The major elements of the contribution is that we have an increase in revenue both in Maersk Line with slightly more than $400 million, and from APMT $150 million d ecline of revenue base we have in o il as a result of reduced entitlement production of $535 million, as well as a lower number in Dansk Supermarked due to the fact of the sale of U.K. that was closed late first quarter last year. Going to the EBITDA of $ 2.541 billion.
The change there is also from last year. The majority of that is the decline in Maersk Line of $942 million and almost $700 million down in the oil, or $695 million. Depreciation is on the same level as last year on $1.255 billion. We have the gain on sales, which comprises of the closing of the LNG, some terminal sales, and some farm out of one oil field in Brazil of $300 million— totaling $324 million, leaving us at an earnings before interest and tax of $1.6 billion. The financial items was a net $166 million, down from $242 million last year in the same period.
That leaves us at the profit before tax of just short of $ 1.5 billion. The changes in the profit before tax is also relating to the Maersk Oil and Maersk Line. As a result of the settlement in our tax case in Algeria, we, our tax cost is low this quarter with approximately just over $ 300 million. That gives us a profit for the period of $ 1.175 billion. Not too much to say on the key figures. On the bottom of the page, cash flow used for capital expenditures is of course net of sales.
That means that the gross CapEx this quarter is approximately $ 2.4 billion, or short of $2.4 billion, and the net or the sales proceeds coming in this quarter is $1.5 billion, leaving us at net CapEx or cash flow used for CapEx of $ 875 million. Earnings per share this quarter is $ 248, leaving us at a return on invested capital of 10%. Taking out the exceptions, the Algerian case plus the gains, the return on invested capital is 1.1%. Going to the development in net interest-bearing debt. Starting out on 15.3% at the year end.
EBIT plus the non-cash adjustments that you can find in the cash flow statements in the report gives us an addition or of $2 billion. Change in working capital, paid taxes is $ 900 million. You have then to consider that the Algerian tax case is a income recognition. The payments of that is gonna be done over the last nine months and the first three months of 2013. CapEx, as I've mentioned, $ 900 million or $875 million. Gross CapEx being $2.4 billion and sales proceeds are $1.5 billion. Financial items at $0.2 billion, leaving us at 15.5% in net debt. Going to page twelve on the outlook.
As Nils mentioned, we have revised our outlook upwards and are now saying that we expect a result of 2012 slightly below the level of reported in 2011. The cash flow statements are the same as previously, CapEx is expected to be around the same level in 2011, which, while cash flow from operating activities is expected to develop in line with the result. Maersk Line expect a negative up to neutral result in 2012. That is based on the assumption that the rate restoration that has taken place since March 2012 will continue. The outlook is very sensitive towards changes in the market balance. We still have the same expectations of the total global demand increase of 4%-6%.
The same allocation as earlier that the increase in Asia-Europe is probably gonna be lower than the rest of the world. On Maersk Oil, we now expect a result for 2012 at the same level as the result for 2011, impacted by the compensation from Algeria and also the expectations of higher oil price. We still expect entitlement production to be, to come up to 265,000 barrels a day in average, and the assumptions are based on future oil price throughout the year of $110. We also expect exploration cost to be above $1 billion.
Coming to terminals, drilling and supply, we expect them to be in line with previous years with 2011, and that also goes for the combination of all other activities. As always, we are uncertain about the economic development and the currency effects of these numbers. Bear that in mind when looking at the outlook. Then I'll leave it back to you, Nils.
For the final remarks on page thirteen, as I said at the opening, the profit for the group was $1.2 billion, driven by divestment gains and the one-off tax settlement in Algeria. And that means an underlying profit of approximately zero, which of course is not satisfactory. We're taking a number of initiatives to improve the situation in Maersk Line. First of all, the rate increases, and if you recall the graph on the Maersk Line slide, you'll see that rates went up nicely during the first quarter.
We have continued the pressure, and we have good hopes that the rate picture will stabilize or reach a level where we can make good money, both us and the rest of the industry, at a later stage. For this year, that's the reason why we're upgrading our guidance, hoping of course to get to a neutral result. It is early in the year, and it's an unstable world we live in. Maersk Oil continues to execute on its long-term plan.
We're confident that on the back of the good level of exploration activity we've carried out in the last four years, combined with the acquisition we've undertaken, that we've reestablished the resource picture where we can stabilize the production over the coming few years and return to a growth with the intention of reaching a production level within a foreseeable future of 400,000 barrels per day. On the back of the good exploration results in the last couple of years, we feel very confident in this strategy plan. APM Terminals continues to expand. They optimize their portfolio, going out of less attractive projects and finding new in a successful way.
We're very pleased with this development. The fourth strategic leg in the group, which is oil services, is also moving ahead according to plan, with good results both in Maersk Drilling and Maersk Supply. Good contract closures that reflects good confidence from the customer side, in our business. We find that that is a very good basis to build on and feel confident that all the four strategic businesses are on a good path. Thank you very much for listening. This was a relatively short presentation after the first quarter. I'm sure we left many opportunities for you to ask questions.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad and you'll enter a queue. After you're announced, please ask your question. The first question comes from Mr. Lars Heindorff from ABG. Please go ahead, sir.
Yes, morning, gentlemen. A question regarding the container division. You state in your guidance that you expect that you have a negative to neutral result, that is based on the rate restoration will continue. I mean, you have already now announced a peak season surcharge of $350 to be implemented on the 5th of June. I'm just curious to get a bit more flavor and color on the guidance here. I mean, if the peak season surcharge that you have announced is, if you expect that to be fully implemented, and if so, is that also included in the guidance that you have given there?
Well, the guidance we have given here, we've underlined that the forecast for Maersk Line is very sensitive to the balance in trade. I think that is a very broad statement, but it reflects, of course, fundamentally the rate situation. Because rates are much more important than volume in the profitability of this business. We feel that we are heading in a good direction at the moment with rate increases, and we do expect the markets to take another rate increase as in form of a peak season surcharge. It's simply necessary for us and other carriers in order to reestablish profitability, and we believe that the industry understands that very well. Industry conduct is, of course, very important in this case.
We also believe that the customers understand that a loss-making industry cannot invest in the future. We think the foundation for getting the rate increases through is good. The answer to the first part of your question, or the most important part of the question is yes, we do expect this rate increase to stick.
Okay. Sorry, regarding the volume growth. I mean, your volumes into Europe have been quite sluggish in the first quarter, and yet you have been able to grow your Asia-Europe volumes by 22%. I mean, obviously, that's the most important part of the segment for you. I'm just curious exactly what. I mean, can you give us an indication of the split between front and back haul? Also, because given the volume growth that you've had in the first quarter, I have to say I'm a bit surprised by the margin that you delivered. I know the rates are down, but with that kind of volume growth, you should have been able to come out with margins which are a bit higher. I'm curious to find out if there's something in the mix which sort of caused the margins to be worse than expected.
Well, the rates, first of all, the rates have been terrible in the first quarter, so I don't think there's any sort of volume, positive volume effect, really, from growing in the business. Partly, it's been. They've been below bunker cost. I think that is, we understand that there's a certain disappointment on your side. We're also not satisfied with it. The reason why we grow with 18% in total, and 22% on the Asia-Europe trade, compared to last year is, of course, that we've been able to maintain the market share we achieved in the last quarter of last year. We're not trying to build it. We are happy with that market share. That's the reason for the growth.
It's true that the trade has been sluggish, but it's mainly been the export from Asia to Europe that has been affected. We've seen a drop in that business, or in the market according to market statistics we have. But on the other hand, we see a growing export from Europe to Asia, which is positive. That also for our business has meant that we had an absolutely respectable growth given the higher market share in Asia-Europe. But the main part of the, or the biggest increases in percentage have come clearly from the backhaul business.
Okay. On a full year basis, do you expect to grow more than the markets now? You said you expect the market to grow more. It's roughly 4%-6%.
Well, we expect to grow more than the market in the first half year until we get to the point where we stabilized our market share. That's sort of the mathematical conclusion of us stabilizing the market share at a higher level than we had in the first half last year. We are not going to fight for increasing that market share. Once we come to the end of the year, we expect our business to grow exactly in line with the market or more or less in line with the market.
Okay. All right. Thank you. the last question regarding the oil and gas. I mean, you maintain your production volumes for the full year, which is down by roughly 20%. and yet, if you exclude the one-off payment from Algeria, you guide for an earnings decline of, yeah, roughly 45%. My question is basically, I mean, with that kind of volume decline and that kind of earnings decline, is there something going on cost side or you expect a lower entitlement share, higher OpEx or something in some of the areas that caused the earnings to decline so much more than volumes?
This is a very broad question, but of course, we do have a high level of fixed cost in the oil industry. One of the fixed cost components are exploration, which we will actually maintain at a level around $1 billion for the year. That would be the most natural place to cut if you wanted to reduce your cost short term. We're not preparing to reduce our cost, but what we're doing is we're preparing for the business or preparing the business, hopefully for a growth phase. Once we've prepared the production projects for the finds we've made, and that takes investment. We have gone through an investment phase on the exploration side for the last four or five years.
We're pleased with the outcome, and we think that is what we need to position ourselves for the future in the business. We're very confident that we'll be able to bring the business back in a profitable way to being a 400,000-barrel-per-day producer.
All right. Thank you very much, Smedegaard.
The next question comes from Mr. Christopher Combe from J.P. Morgan. Please go ahead, sir.
Hi. Good morning, everybody, and welcome back, Nils.
Thank you.
I just had a follow-up question regarding your market share gains in Asia-Europe trade. Can you just remind us of if the key compelling selling factor remains the daily service or is there any price differential and to what extent do you see any premium even in this market as a result of the service offering?
Well, first of all, there's no doubt that Daily Maersk drives market share gains, but we have taken out significant capacity on the other trades. Not on the other trades, but on the other routes from Asia to Europe. In total, we're trying to balance that. We usually are pricing a bit above the competition. At the moment when we look at the rate picture, we continue to be pricing a bit above the competition. During the rate war, of course, we went down to the same rates, not to the same, but in parallel with the competition.
We probably feel that the improved service from Daily Maersk, plus the fact that we didn't increase the rate differential was probably one of the reasons why the rate war became so heavy, and also why we took market share. This year, we're still maintaining Maersk Line at more or less market rate levels. That means a bit above the competition, but we don't have a premium of any significance compared to the other trades that we operate. Maybe this will change in the future. I think for now, we're just happy that the customers are highly appreciating the trade, and we hope at a point in time, we'll be able to extract more value from a better service.
Okay. With respect to unit costs, you had a 1% indicated improvement ex bunkers. That's significantly less than what we saw in Q4, which I believe was a 6% improvement. Can you give us a bit more color on what's driving that pressure? Is that a direct correlation to overall utilization levels, or is there some other factor?
There's also the factor that we have taken in quite a bit of capacity in some on time charters. I'm just giving an example that we expected to use for growth beyond the market share that we had achieved at the end of last year. Having seen that our rates are now going up and taking the decision that we want to stabilize rates, we are operating with a certain level of overcapacity in the first quarter.
Okay. The very last one, your bunker sensitivity guidance has switched from barrels of oil equivalent to tons of bunker tons rather. If my math is correct, it implies a 40% increase in terms of sensitivity. Is that a direct reflection of the bunker surcharge mechanism progress versus a quarter or two ago?
Yes, it is. It's a matter of the surcharge is relative to the percentage level. Basically, there is no real change in the estimates. It's just the correlation factor more than anything else.
Okay. Given rate sustainability and an overall improvement, would you expect an improvement of the bunker surcharge over the next 3 months-6 months or relatively stable?
At the moment, what we're seeing is that the crude prices are going down and bunker prices are coming down as well. We don't expect the rapid increases we saw during the first quarter last year to continue. We have a 31% increase in the bunker price. That is something that of course makes the BAF and even timing of the bunker adjustment factor extremely important. Going forward, we expect a more stable price picture for crude and for bunkers. We think this will be a little bit less important for the year. Our basic philosophy is that when bunkers go up, rates have to go up as well.
Understood. Thank you.
The next question comes from Mr. Roger Elliott from Citi. Please go ahead, sir.
Good morning, gentlemen. I have a couple of brief questions. I mean, can you just give some indication of where you stand today in terms of Asia-Europe rates? Whether this level of rate is sufficient for Maersk Line to get near to breakeven in the second quarter. The second question would be, can you talk about the rate outlook for the rest of 2012 for the non-Asia-Europe trades? A final one on Maersk Oil is, when do you expect to publish the Chissonga field development plan now?
Well, first of all, of course, rates can fluctuate quite rapidly in our industry. We've seen that. Of course, when we on Asia-Europe, as expected, get our seasonal adjustment factor through, then we do think then we will be in at least a neutral level. We are confident that the year going forward will be a much better picture than we've seen in the first quarter. We are also very convinced that the industry will be extremely pushing, extremely interested in these rate increases because we are all coming from a very bad place.
In terms of the Chissonga find and the development plan, we hope to be able to present something at the end of the year. We still have some appraisal drilling to do before we determine the exact size of the find, and that may impact the final plan so it may take a bit longer.
Okay. The rate development for non-Asia trade, non-Asia-Europe trade?
In general, we've seen rates. First of all, the rates on the non-European trades were not as badly affected last year as the Asia-Europe was. We do see a tendency to rate increases across the board, with varying percentage factors. Also in the Pacific, rates are going up and I mean, we need it all over. The most trades have been very unsatisfactory last year.
Thank you.
I remind you that if you wanna ask a question, you need to press the zero one on your telephone keypad. That is zero one. The next question comes from Mr. Douglas Hayes from Morgan Stanley. Please go ahead, sir.
Yes. Good afternoon, gentlemen. Quick, a couple questions. First, can you go into a little bit more detail on what you're seeing for the non-Asia-Europe trade lanes? Are you guys gaining market share on those trade lanes or keeping market share?
I think with the global growth of the container business of 1.4%, maintain the level of 16% that we achieved in the second half last year.
Okay, excellent. Thank you. My next question is, I was just looking through the sensitivity tables, and it looks like your sensitivity to container freight rates has changed slightly from the end of 2011. Is there any reason for that? Is it a mix shift or is it something else?
It's more a question of being one quarter out in a year.
That's for the rest of the full year then.
Higher volumes.
Okay. Excellent. Finally on the overall Maersk portfolio, I mean, is there anything? You guys have said in the past maybe that FPSO was non-core. Are there any other sort of non-core divisions that you're thinking or that you might be interested in disposing of or realigning?
Well, we have, I mean, clearly said last at the middle of or after the half year results last year that we had four core businesses that we would invest in growing through the business cycle, which is oil, which is terminals, which is drilling and Maersk Line. The three opportunistic growth businesses that we will grow when timing is right, which is Damco, Maersk Tankers and Svitzer. We have a number of smaller activities that are not core businesses. One of them was LNG, which we've disposed of. Another is FPSO, where we have disposed of one FPSO.
These are more businesses where we look at whether it makes sense to be there, and what is the best. The best decisions so we can decide to invest, but we can also decide to divest. That's a long way of saying that we don't have any comments right now.
Understood. Thank you very much.
I remind you that if you wanna ask a question, you need to press zero one on your telephone keypad. That is zero one.
Well, it doesn't seem to.
We have a question from Mr. Ross Seymore from Deutsche Bank. Please go ahead, sir.
Hi, good morning. One question again regarding freight rates. Sorry for insisting on this point. When you are talking about rate restoration, you mentioned March 2012, but we all know that there has been a strong increase in freight rates in April and early May. In order to make your guidance, you are thinking of freight rates higher than the level of March?
Yes.
Higher than the level that we have in the market right now in May, which is significantly higher than the one that you wish to have in March.
Well, first of all, I mean, we have deliberately been quite vague on the guidance on what we expect on rates, because it's very hard to just give you one picture or one figure, and then everything is described by that. Because the reality is that it's a very mixed picture, and we have cost developments, and so on as well. The situation as at end March was not profitable for the lines. If you go back to slide—just a moment, i t was slide five.
Just a second, if you take the Maersk Line slide on page five and you look at the graph at the development in rates at the bottom, you'll see that at the end of March, we were still below the rates that we've seen in 2010 and 2011. Those are the levels that we need to reach if we want to make a profit. We have made rate increases since then, and we're getting there. To give you an exact answer to your question is quite difficult. My feeling is that with rates where they are now, we have most of the liners are probably operating in a more or less break-even position.
Thank you very much.
It's a very vague answer, and it's on purpose because it's early in the year. A lot of things can happen during the year. We believe that the rate increases that we have announced for the summer will definitely stick because the industries definitely need them in order to be in just a reasonable position.
Okay, thank you very much.
We have one question from Mr. Peter Olofsen of Kepler Cheuvreux . Please go ahead, sir.
Good morning, gentlemen. Just a quick one. Can you give us an update on your oil and gas projects funnel, especially in terms of your sanction years and so on? Thanks very much.
If you, there's an appendix on what page, sorry. On slide 19, there's a summary of the various projects that we're working on at the moment. The ones where we have field development plans agreed and published are the ones above the line. I think it's probably fair to assume that on top of that, the next field development plan that we'll have ready will probably be in Chissonga in Angola. As I said before, we hope for end of this year, but we still have some appraisal drilling to do and that may affect the scope of the project.
Then we have a number of other finds like Johan Sverdrup, which is Avaldsnes that has been renamed, which is a significant find as well. No doubt that there will be production, but exactly when the partners come out with a plan is too early to say. In all the fields here we are operating, we are working on either appraisals, evaluations, or field development plans. My guess is that the first significant one that will come out will be Chissonga, and hopefully towards the end of the year.
Okay. Thank you very much.
We have another question from Mr. Lars Heindorff from ABG Sundal Collier. Please go ahead, sir.
Yeah. Sorry, guys, just a follow-up question regarding the oil and gas and the long-term outlook for Qatar. The entitlement share in the first quarter is down to almost 1/3 . I understand that you expect that to be around the level here during the course of 2012. Beyond that, is that sort of the level that we should expect, sort of long-term?
It depends on the investment, the investment levels that we agree with the Qataris. If we continue with what I would call a maintenance plan, which is frequent and stable investment levels to keep the 300,000 barrels a day production, we probably will stabilize around, could very well stabilize around this level. If we don't invest anything, then we'll drop a little bit.
Okay. Thank you.
Just a clarification on that. That is based on today's oil price.
Exactly. Yeah. Of course.
We have another question from Mr. Christopher Combe from J.P. Morgan. Please go ahead, sir.
Yes, just one real quick one. Can you give us some guidance longer term, in terms of your expectations or targets for ROIC, for the liner division? Do you still benchmark versus the competition or do you have an absolute figure in mind?
We have definitely an absolute figure in mind because the investments that we undertake should generate a figure of a ROIC that is at least the WACC. You can discuss what the WACC is for a business like the liner depending on your expectations on volatility of course. Basically a business like Maersk Line needs to generate 9% return. That's what we're hoping for in absolute terms. On top of that, we have our margin target, which is to deliver a margin that is about 5% better than the competition. We're not there yet, but we're working both on the cost side, on customer service, as well as pricing. We hope we'll get there.
Okay, thank you.
There are no further questions at this time. Please go ahead, speakers.
Okay. Thank you very much for listening in. We appreciate your good questions and I think there was an excuse for asking for the rates. At a point in time we realized that the rates are really crucial for evaluating the business. We will of course try to be as specific as we can on that going forward. It's early in the year. The guidance is of course not extremely precise, but we feel that in the rates area, there's good hopes that things will improve during the year, and that's at least the direction we want to work in. We look forward to speaking to you again after the half year result.
Hopefully, I'm convinced of that with better operational figures to present and maybe also-