Ladies and gentlemen, welcome to the A.P. Møller - Mærsk Q3 interim report 2011. 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'll be a question-and-answer session. Speakers, please begin.
Good morning, and welcome to this call on the third quarter of A.P. Møller - Mærsk. I'm here, as the presenter just said, with Trond Westlie, our CFO, and we look forward to a good, lively discussion. If you go to slide number 2, the forward-looking statements, reservations. While you read, of course, we are fully aware that we are presenting a mixed bag here. We're coming out with a pretty negative result for Maersk Line. We've not been able to alleviate ourselves from the crisis in the shipping industry. Fortunately, I think this was expected, but also some positive elements in continued very good performance in our other core businesses. Terminals is developing well, and we are seeing good development in the drilling business and offshore business as well.
Of course, the oil business continues to benefit from very strong prices. Hopefully, we will see good results from the heavy investments we're making in exploration and acquisitions, or have been making over the last year. A mixed bag. With that, let's jump into it and to slide three, the highlights. As I just said, the majority of the group business unit performed well. We feel we've delivered good returns, basically in everything outside the shipping businesses. The liner shipping turned loss-making in the third quarter, as our market rates dropped dramatically. We were all in the industry gearing up for price increases and good use of capacity.
Unfortunately, that didn't materialize, and that meant that we had to withdraw some price increases and not present others. The final result was that rates actually went down during the quarter, which is, of course, highly unusual for peak season. We continue to execute on the group strategy. We signed an agreement to sell Maersk LNG. We're awaiting some approvals, but we expect this to happen in the near future. We continue to be very active in the exploration area, and Maersk Oil has expanded its resource base. I'll come back to that in a minute. Maersk Line, with its daily sailings from Asia to Europe, has expanded its service offering. We feel that this is a new step in the history of container shipping.
Far, although it is very early days, we've only received good feedback from customers and are quite optimistic on the future of this product. APM Terminals continue to expand its portfolio. We will come back to the financial figures in a minute, but they are really building up a very nice business with consistent good performance. Maersk Drilling continued to do well in the operations and on the back of ordering new rigs. It was, of course, very comforting to see that there's a continued good interest for those rigs. We've signed one of the very large jack-ups we ordered for Norway, signed that with Total, and one of the three very large semi-submersibles have been signed to BP in the last weeks.
That is very pleasing to see, and that makes us believe that we are really on the right track with our strategy. If you move to slide number four, financial highlights. Basically, we have improved profits in all core businesses, if you look at the nine-month period, except Maersk Line, where the declining rates have led to a loss in the third quarter, a loss that we expect to continue into the fourth quarter. We'll come back to that. Maersk Oil has not increased its profits in the third quarter. We'll come back to that as well. The reason for that being, that we have seen a quite big jump in exploration costs. This was foreseen. We have advised that, but maybe it's been more than was expected in the market.
The revenue continued to grow, and I think this is very important to have in mind that we are in tough industries in the shipping business, but it is still growth markets. The trouble we have in the industries are basically homemade with too much capacity being ordered. The revenue growth has been stable throughout the year, 9% year-on-year, both in year to date and in the third quarter. Our profits, on the other hand, declined dramatically with 78% to $371 million in the third quarter, and in the full year accumulated 26% to $3.1 billion.
That means that the ROIC in the fourth quarter was only 4.8%, against a three-quarter result of 10%. The cash flow from operations remained stable. Also in the third quarter, cash flow from operations of $2.1 billion, so we feel that underlines the solidity of our businesses. We did have quite a hefty investment program in the third quarter. One of the big payments we had was the $2.1 billion that we had to pay for SK Energy. That means that we had a negative cash flow for the quarter.
That means that for the year as well, that means that we now have an interest-bearing of $14.5 billion, compared to last year, $13.7 billion, and eleven point seven, $11.7 billion, at the beginning of the year. A growth in the net interest-bearing debt, but still, of course, at very reasonable levels and much lower than just a couple of years ago. If you go to slide 5, we'll go into the individual businesses, the first one being the container business. Here we're of course satisfied with the volume growth. We increased our volumes with 16%.
I think again, that underlines that we are in a growth industry and the problems of the industry are really homemade due to excess ordering of capacity. Probably also a not too good way of handling excess capacity. That meant that rates declined 12% and when that comes on top of an increase of 48% in bunker prices compared to the same period last year, that of course leads to a dramatic decline in earnings. We actually went into the red area with a loss or negative profit of $300 million.
We had an increase in unit cost by 2% in Q3 compared to the same period last year, and 5% year to date. This is excluding bunker cost. The main reason for this is that we're seeing increased cost for time charters. We had extremely low cost in time charters last year. We're signing up now also very low rates, but that will not benefit us this year so much. It'll be more into next year. The peak or the upturn in rates we had earlier in the year is coming back to haunt us a little bit here. On top of that, we see also increasing cost for terminals.
This is partly because terminals are better at withstanding price pressure than the lines, but also because we're seeing more shipments into areas where the terminal costs are higher. If we look at the EBIT per FFE, we went into a loss, of course, of $124 per FFE against the profit of $616 per FFE last year, which was probably close to a record we've ever had. A dramatic drop and something we're not pleased with. The Daily Maersk service concept has been introduced. It's very early days, as I said before, we're in probably three weeks into the program. So far the reception has been good.
With the present nature of the industry, unfortunately, it doesn't mean that we can take really superior rates. We are of course also feeling the price pressure in spite of this. If you move to slide number six, we have the oil and gas activities. Here we have a 14% lower production share. This is an actual decline, plus of course the shutdown at Griffin. We had a 1.5-month closedown at Dumbarton for maintenance purposes, which impacted us negatively.
On top of that, the high oil prices will, due to the nature of the contract in Qatar, also mean that our share will go down for that reason alone. Of course, the businesses or the business benefited from a 48% higher oil price, and with $113 per barrel, this remained in very healthy levels, in spite of the much talked about economic slowdown around the world. We have increased the exploration cost quite dramatically in the third quarter. This was planned, and we have informed about it.
There's nothing really new, but we now can sort of firm up and say that we do expect our exploration cost to exceed $1 billion for the year. We have a very intense program, drilling program ongoing at the moment, and hopefully we will also see exciting results coming out of it. In specifics, new developments in this business, we have a significant increase in the Maersk Oil share in the Avaldsnes find, based on the operator's statements. We now expect there to be somewhere between 160 and 360 million barrels our share against 20 million- 80 million barrels earlier.
It's publicly quoted figures so no surprise, but I just want to mention it here. We're also moving forward with our own field development plans, and we expect to post for the small development for Flyndre Cawdor, which is a cross-border development between Norway and the U.K. We expect to post a development plan for during this quarter. We do also expect to post plans for Chissonga in mid-2012. We are in the middle of appraisal drillings in that area as you'll see on the next chart. Looking at the pipeline, we have the same chart as we introduced last year. The plans or the fields where we already have field development plans approved and in preparation.
This is Kazakhstan, Algeria, U.K., and the U.S. The only change here is that the Golden Eagle forecast has been upgraded slightly by Nexen compared to last time. If we look at the individual discoveries, things are ongoing in Chissonga. We are, as I said before, drilling an appraisal well as we speak. We expect one more to be done in 2012 before we have the final version of the field. We are also drilling at the moment or just finalized a well in Itaipu in Brazil, in which is one of the SK fields that we acquired and just paid for. There's a statement out by Anadarko today to this field. They're not the operator, but they made a statement anyway, so you can see that on their homepage.
Apart from that, as I said before, positive development in the resource estimates at Avaldsnes. Then we have drillings ongoing in the Corallina, in Jackdaw, and in Bokskogen as we speak. Of course, needless to say, we hope that there will be positive outcome of at least some of these. Going to slide 8, the terminal activities. We're quite pleased or very pleased with this business. It continues to develop well. You'll see at the bottom how the ROIC has developed over the last years. Given that the company is basically not more than seven years old, this is a very exciting development when considering that this is infrastructure business and investments are really very, very long-term in their nature. A growth of 11%, same like for like.
This is slightly better than the market. You probably recall that we did a little bit less well than the market last year. This is probably just normal deviations. The ROIC reached a very high level of 13.5%. This is an organic ROIC, so we're very pleased with that. We also continue to expand our portfolio. We just won the terminal concession in Göteborg in Sweden. We just signed the Moín Costa Rica agreement as well and have taken over successfully the operations in the Callao terminal in Lima in around the middle of the year. Good progress in this business. This investment focus we had over the last years in developing markets we feel are paying off in a good way.
Going to the tankers offshore and other shipping on slide number nine. A little bit of a mixed bag, but generally a very positive development with profits up from last year, $109 million, to this year, $276 million. And with different developments in the various businesses. Maersk Tankers was loss-making. When you look at the bottom, you can see the figures. These are excluding gains, impairments, and so on. So it's really the underlying profitability. Maersk Tankers is deteriorating a bit and this is of course the very poor crude rates we've seen, but also product rates that remain on very low levels. Maersk Drilling continues to do well.
Now, in the third quarter, a profit of $138 million, and that means that we continue heading for a very good result on a yearly basis. Maersk FPSO and LNG is also up, driven by a good performance of the Peregrino unit, and we expect this development to continue. Of course, when LNG is sold, we will not have a positive impact from this business. At the moment, it's sailing at very good rates. The supply services is also doing well. This is a business that is dependent on spot rates, mainly in the North Sea, and they have been pretty good. On top of that, of course, the rest of the world is doing well with good utilization and most of the vessels are on good contracts.
As regards Svitzer, it's a relatively small business, but also here we're seeing progress, and that goes in spite of many shipping or many ports having quite slow business, so we can be quite satisfied with that. Going to the other segments, we have starting with the retail businesses on slide number 10. The retail business has had a pretty tough third quarter. The reason for that is a negative demand situation. In particular in the full assortment hypermarkets and large supermarkets, where in particular non-food has been affected.
In addition to that, these businesses have been hit by consumers buying in discount stores instead of full assortment supermarkets because of the eagerness to save money given the economic situation in Denmark. Or maybe even more the expectation of tough economic times ahead. Fortunately, many of these customers have moved to Netto, that is having pretty good results. Overall, then supermarket is negatively affected by this development. We continue to open stores and will obviously continue to build out our network of discount stores outside Denmark as well. Looking at the other businesses, in general, quite positive. We have the positive result for Odense Steel Shipyard, Lindø.
We are, as we speak, delivering the last vessels and production will stop during Q4. This is very, of course, very positive. The new activities in the yard where we are renting out some of the facilities seem to be off to a good start. We have result for Maersk Container Industry continue to edge up compared to last year. There's particularly good demand for reefer boxes, where our technology seem to be very, very interesting for the container lines and in particular, in controlled atmosphere we are a world leader. The situation at Danske Bank is less positive. We have a loss in the quarter compared to gain last year.
With those words, I'll pass over to Trond, who'll take you through the figures.
Good morning, ladies and gentlemen. I'll go to slide 11 and go through the consolidated financial information. Going to the third quarter, we had a revenue of $15.3 billion, ending up at the earnings before interest, tax, depreciation, and amortization at just short of $3.4 billion. That is leading us to the EBIT number of $2.1 billion for the quarter. As earlier this year, we have an increasing tax rate due to the fact that the composition of the earnings is more related to oil and gas than the other businesses. Therefore, our tax rate is high this quarter, and we're ending up at a profit for the period of $371 million.
Cash flow from operation is on the same level as previous quarters on $2.1 billion. But the capital expenditures is higher, and one of the reasons, a major reason, is the one-off payment of the SK Energy of $2.1 billion in this quarter. Leaving us at the interest-bearing debt of $14.5 billion, and that makes the earnings per share this quarter $73. Going for year-to-date numbers, we see that the trend is continuing. We're increasing our revenue base from last year to $45.3 billion, and an earning before interest and tax of $8.6 billion, slightly higher than last year.
Profit for the period, year to date is $3.1 billion, which is a decrease of approximately $1.1 billion from last year. Year to date, earnings per share is 616, and return on invested capital so far this year is 10%. Going to slide 12 to see the bridge on the net interest-bearing debt for the full year. We started the year with a net interest-bearing debt of $12.4 billion and having an EBITDA of $11.6 billion. The use of the cash has been on an increase of $800 million in working capital, financing elements of $500 million.
We have paid taxes of $3.6 billion CapEx for the first nine months of $7.7 billion, and paid out dividends and other smaller issues of $1.1 billion, leaving us at the quarter end of the third quarter with $14.5 billion in net interest-bearing debt. Going to the outlook for 2011 on page 13. We now expect the profit for 2011 to be in the range of $3.1 billion-$3.5 billion, including divestment gains. In the container activities, we now expect a negative result for the full year as a consequence of lower rates on especially the Asia-Europe trade. The oil and gas activities expect a profit at the same level as for 2010.
The result for terminal activities, tankers, offshore, and other shipping activities, as well as other businesses, is expected to be above the 2010 level, excluding divestments gains. For retail, the result excluding divestments gains is now expected to be below 2010. Cash flow from operating activities is expected to develop in line with the results, while cash flow used for capital expenditure is expected to be significantly higher than in 2010. As previously, the outlook for 2011 is subject to uncertainty, specifically on the development of the global economy, oil price, and global trade conditions. With that, I'll leave the final remarks to Nils.
Yes, summing up, as I said at the opening, we appreciate this is a mixed bag. But we are very encouraged by the good results we've had in the other core businesses, apart from Maersk Line. We, of course, are prepared and really determined to execute on our aspirations in these areas. We believe for a group of our size and nature and strength, there will be plenty of opportunities also in the shipping area going forward, as this crisis, and I'm talking not about a growth crisis, but the capacity crisis unfolds further. We will continue to focus on service in the container business towards our customers.
We do believe that this is the way forward, and we do believe that we with Daily Maersk have a winning concept that will help us not only to be competitive on cost, but also to build sustainable advantage towards the customer over time, leading to a better rate situation. In Maersk Oil, we are encouraged by the upgrades in Avaldsnes. We feel that we have a very exciting exploration program ongoing and are very determined to continue to build this business and return to the level of 400,000 barrels per day, which is our aspiration in the future. Both APM Terminals and Maersk Drilling continue to deliver good operational performance.
We feel convinced that the investments we've decided to place in these areas will further build the capacities and the capabilities of these organizations. So we're very optimistic of the future here as well. All in all, tough times in shipping, but tough times where we feel we have a good edge to improve our position, and very good opportunities and performance in the other core businesses of the group. With those words, would like to hand you back to the operator and look forward to some interesting questions and hopefully some good answers.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad, and you enter a queue. Our first question comes from Mr. Miles Saunders from Morgan Stanley. Please go ahead.
Yes. Good morning, gentlemen. Three questions, please. Let's take them one by one. The first one, Nils, is on container shipping. Clearly, your strategy makes a lot of sense. The problem is clearly the smaller players are not just going to fall by the wayside because the big bad boys in blue say so. What you think is there is that this will become a war, that this will become a war of attrition for a couple of years, and therefore these profit levels are something we need to get used to or loss levels.
Okay. The acoustics here were quite bad, so I hope I got you right. We do see a couple of tough years ahead. We have an order book in the industry of around 30%. Given the present pricing we've seen during the peak season, we have to assume that there's also already overcapacity in the industry now. That means that we need some years of no further orders, and even so, probably also some years of, let's say, very unstable earnings. We're not telling the competition what to do, but I do not feel that this is really an environment for smaller players and people with, let's say, not very strong balance sheets.
Obviously, if this goes on for the coming quarters and months as we expect, we also expect some changes in the industry.
Okay. Thanks. On oil E&P, clearly you've not been so lucky in the U.K. in the last five years with extensive maintenance, faulty equipment. What's your view on your business in the U.K.? There's a couple of fields that are being appraised at the moment. Do you think it's a business where you can make meaningful steps in production, or you're gonna refocus more on Norway and Angola and Brazil?
We are optimistic that we will develop a good business in the U.K. We acquired Kerr-McGee's U.K. assets some years ago, and the experience has been good in terms of us getting a good organization, some very good exploration ideas, and a good basis to build on. I do agree with you that we have not encountered equipment up to the usual A.P. Møller-Mærsk standard. We probably have to realize that we are best at operating equipment that we build ourselves and where we know how the quality is.
Okay. Thanks. Finally, on oil and gas, you kind of gave us the group's ambition of 400,000 barrels per day. If you look at slide 7, there's quite a few discoveries under evaluation there in the next, let's say, 14, 15 months. Do you think you'll be able to put a timeframe around the 400,000 by the end of next year once you've gone through these discoveries?
Yes. I hope we have a very, very big drilling for our size anyway, a very large drilling program ongoing, including quite a number of appraisal wells, at the moment. I think we will see during next year, we'll see increasing clarity, on the situation. But we're quite optimistic, and remain very committed to reaching the 400 million barrels level, which for our company and the mix of our businesses would be a very good size.
Perfect. Thanks.
Our next question comes from Mr. Lars Heindorff from ABG. Please go ahead.
Good morning, gentlemen. A question regarding the container business. I'm just curious about how the implementation of Daily Maersk, if that will have any impact on unit cost? I can see the unit cost excluding bunkers is slightly up in the quarter. What do you expect going forward, and will the implementation of Daily Maersk have any sort of material impact on the unit cost?
I think actually, as we have Daily Maersk introduced, it will mean a very high schedule integrity. My experience is actually that should lead to cost savings. The quarter has been unusual in the sense and the year in the sense that we've had these increases in time charter costs as well as terminal costs. We will revert to hopefully a declining cost situation in the future. Daily Maersk should be helpful in this.
Probably, you will see that when we have of course had a low capacity or relatively low capacity utilization as an industry during the year because demand growth, in particular in the third quarter, has been a little bit lower than we had hoped for. In general, when we get the right capacity and the business starts to grow and Daily Maersk is running, we do actually expect to be able to reduce our unit costs.
Okay. A related question to that, which is sort of hovers around your utilization. Hopefully the implementation of Daily Maersk should improve your utilization. I mean, you're still, at least what we hear appears to be fairly sort of aggressive, at least on Asia-Europe in terms of pricing. Can you give us any indication about how your utilization have developed and also what you expect now with the implementation of Daily Maersk?
Yes. Our utilization in the third quarter went down slightly on Asia-Europe, but nothing really dramatic. We did expect to take a bit more business than we did, and that was a pure result, I mean. I think everybody suffered the same, that the market did not develop as we had expected. There was really not a very significant peak. We did have a 16% growth, which probably is above the market. We may have had pretty good utilization compared to the industry. Going forward, or on the pricing issue, we don't feel that we're leading a price war in any way. On the other hand, we are determined to stand for Asians.
We definitely don't feel that we're driving the industry with price reductions on Asia-Europe. By the way, we also know we don't have big vessels coming into the trade to the significance that some of our competitors have. We are probably not the drivers of the development in that particular trade.
Okay. In the oil and gas, I think we have had now a couple of postponement in terms of the likely announcements regarding Chissonga. You said now you have one more exploration well left to do in 2012. I think earlier this year, we expected an announcement here in the fourth quarter. I mean, can you give us an update? Is there something going on there which is the reason for this postponement?
I think basically what is going on is that, we're having drilled two wells, and with two ongoing, we would like to come out with something that is really well-founded, and the well-founded evaluation of Chissonga is a few quarters away. It's just basically a decision to wait for that.
Okay. Last, on the terminal side, now that you
By the way, there's no change. I mean, we have four; we will soon have four wells in the Chissonga, and there's no doubt that it will be in our minds that it will be a commercial development at some stage.
Lastly, on the terminals. The new terminal that you have, that you won in Gothenburg. When will that have impact on your numbers? Is that in already or?
Well, it's not a major terminal. It is an 880,000 TEU terminal. It's a midsize business. You probably shouldn't expect a significant impact on the numbers by this terminal in isolation.
All right.
That doesn't mean that it won't impact the numbers, but it's not going to be significant.
Okay. All right. Thank you very much.
Our next question comes from Mr. Christopher Combe from JP Morgan, please go ahead.
Good morning. Just a couple of questions. If I start with Chissonga. If an announcement comes sort of middle of next year, should we expect development CapEx outflow already in the second half of 2012? Then also related to oil and gas, exploration guidance is up. Should we interpret that as an increase of the run rate going forward? Or have you simply brought some of that spend forward a bit?
We have. I can't really tell you what the exploration budget is going to be for next year. We believe that a $1 billion run rate is not an unnatural level for Maersk Oil and Gas, given the ambitions we have. We have a hefty program at the moment. I think we'll be much wiser in just a few quarters on what comes out of that, and then we'll see. A $1 billion is not nothing unusual in our minds.
Okay. For Chissonga, could we see a substantial development plan kick off immediately in the second half of 2012?
It's too early to say. We are drilling now the third well, which is an appraisal well. Of course, that demonstrates that we have a lot of faith in this development. We'll have a fourth early next year. Once we have that, we will come out with the details. I can't tell you whether it's going to be in the second half that we actually start spending money to any significance. We are anyway in contact with equipment suppliers and so on, to see what cost rates we have to expect and what it takes. This is not a project where we're just doing the appraisal.
We're also evaluating various opportunities.
Okay. That's clear. Turning to liners. Can you give us some sense of what your estimates are for the average Maersk rate in the quarter, excluding bunkers? Has that mechanism effectively continued to remain somewhat ineffective given the developments from the competition?
If you go back to slide number 5, you have the exact average rates, month by month, so far, this year. What we'll see, what we expect to see going forward is basically maybe a small decline or stabilization in the first months, and thereafter it's open. If you look at the development in rate including bunker adjustment factor, you'll see that we're significantly below 2010. Even though we are above 2009, if you actually include the increase in the bunker rates, we are more or less at the same rates as in 2009, excluding bunker cost.
Right. Do you have a clear or rough number in mind of how much capacity would have to come out in your core lane to see some stability given current demand levels?
It's probably not very much. Some capacity will need to come out. We do expect that there will be some layups during the low season or some route adjustments during the low season. This is normal. We also expect that the demand may not be growing during that period. We do expect some lower capacity to prevail into 2012 with a relatively large certainty.
Okay. One very quick last one. If we turn to tankers. Can you give us a sense of what the coverage ratio is for 2012 and 2013? Just to understand what the exposure is to the rate environment.
I can't give you an exact figure. We don't have an extremely high coverage rate. We have quite a lot, quite a big open book in the tanker business.
Okay. That's helpful. Thank you.
The next question comes from Mr. Robert Gillard from HSBC, please go ahead.
Oh, yeah. Morning, guys. Just two questions from me, please. Firstly, in container shipping. In your statement, you talk about a target EBIT for Maersk Line 5% above the peers.
Yes.
I mean, that sounds fairly ambitious. Could you just say a bit more on the timeline and the steps you're taking to achieve that? Just on Maersk Drilling. On the 75% coverage, contract coverage for next year, could you just say whether you're signing contracts at higher or lower average rates, please? Thank you.
Yes. Let me start with drilling. The rates seem to be pretty solid in the drilling business at the moment. I mean, I would say generally a small trend upwards on the new contracts we're making. It depends, of course, a little bit on which segment you're talking about. If you're referring to the 5% margin advantage that we're heading for, that objective actually came out of our analysis that we did back in 2007, where we realized that our margin was actually probably 4% lower than the competition or than the average of the industry. We worked continuously on it since. I can't remember the exact figure for the first half.
We don't have it for the third quarter yet because we haven't seen the figures from the competition. Looking at the first half, we were approximately 3% better than the industry average. The way forward on that is of course working with Daily Maersk to hopefully achieve some premium over the competition. It's of course also introducing a very modern vessel like the Triple-E's where fuel consumption is dramatically lower and then a continued pressure to become more competitive. We feel we are on a good track. It's not something that's going to be just moving in one direction. For instance, if rates are low on Asia-Europe, it will impact us more than the competition.
There can be short-term setbacks, but we feel we are on a very good way to actually achieving that.
Okay. Thank you.
Our next question comes from Mr. Finn Petersen from Nordea. Please go ahead.
Hello, can you hear me?
Yes. Yes, we can hear you.
Okay. Thank you. I have a couple of questions regarding Maersk Line. First of all, how much capacity reduction do you see is needed to balance the market? That's one question. Number two, who should leave the market? We have seen that the number 15 in Yang Ming is now considering upgrading their size of the vessels and going to the 16,000 TEU size. Thirdly, your Daily Maersk, does that limit your ability to reduce capacity in the trade?
Well, let me start with the last one, because that's a great question. We have no intention of limiting our capacity in the trade by doing any changes to Daily Maersk. This is a great concept, and the concept will stay in place, even if we have temporary declines in the market. That's definitely a no-go. There are other opportunities to adjust capacity for low season and so on, but Daily Maersk will continue to sail. I have to disappoint you. I'm not going to point to specific carriers that I think should leave the industry. I think that is really up to the individual businesses.
I think already last time I said I would question small carriers going in for investment in very large vessels. I would prefer to leave it at that general statement. I think this is a very tough call for the shareholders in a small business to decide to go for 16,000 or 18,000 TEU vessels. That's really up to the individual companies to make that call.
The last thing, how much do you think that the capacity has to be reduced before you balance the market?
Yes. It's the same question that we had from the previous question. Really it's hard to say because you have a lot of flexibility factors in sailing. You can speed up, you can slow down, you can cut out ports and so on. It's very hard to give you an exact figure. It's probably less than we think. In our business, it takes very little overcapacity to see very significant rate reductions. I really think we're talking about relatively small volumes or small number of vessels that have to be laid up.
Of course, that doesn't go now for the low season, because in the low season, everybody will be probably adjusting their capacity somewhat.
Okay. Just a final question. Where do you see, with the current spot rates, the breakeven in terms of vessel size in the Asia-Europe trade?
With the present spot rates, nobody's breaking even in the Asia-Europe trade.
Where should we go in terms of rates before you're breaking even on your 15,000 TEU?
I think that is a very difficult question to answer, but I can give you easily the breakeven with present bunker prices and present trade mix. We're losing on an EBIT level in Maersk Line $124 per FFE. You see the rates have been slightly above $2,800, $2,900 on average during the quarter. That's a pretty simple calculation to make. Unfortunately, it changes every day with the transportation mix with the port mix. It's very hard to give you a figure.
You cannot live in this trade on a long-term basis with the present oil prices, unless the rates go significantly above $3,000.
Okay. Thank you very much.
Our next question comes from Mr. Roger Elliott from Citi. Please go ahead.
Good morning, gentlemen. I have three quick questions, if I may. I think your release mentions adoption of super slow steaming at 10 knots on some backhaul lanes. How material are the potential savings at current bunker prices? Secondly, you talked about a 30% forward order book. Do you think this can be funded, and can that order book ever be delivered in current conditions? A final question on Maersk Line fleet value. I think some industry analysis suggests the value of Maersk Line fleet has dropped sharply. Can you remind us of the process you go through at the year-end to adjust the fleet value in the balance sheet?
Yes. Starting with the fleet value, we evaluate the fleet at half and full year. If we see any shortfalls, we'll adjust. I must say that I don't see any dramatic changes in ship values over the last year or so. We'll see. It's up to the appraisal that we do at year-end. We did that also at half year. This is our obligation as a stock-listed company. In terms of the. Sorry, what was the second question?
Do you think the current industry order book can be funded?
Yeah, sure.
Can it ever, will it ever be delivered?
I'm afraid to say that I do believe that the order book is going to be delivered. It's hard to place orders today without some sort of down payment or at least bank guarantees. Even if it doesn't make a lot of sense, my feeling is that it will be delivered. Some of the vessels may be delayed a little bit, but that it really only delays the problem. The slow steaming we're doing on the backhaul is something that it does actually save quite a lot of bunker oil. It's, of course, something you can do on the backhauls. You can probably best do it with modern vessels.
When you go down to 10 knots, the load on your machine is quite low. It's very low. That can present some warranty issues on older vessels.
Okay.
We don't expect this to be a major move in the industry to answer your question.
Right.
It's not the same significance as going from normal, old-fashioned speed to slow steaming, which is the new normal.
Okay. Thank you.
The next question comes from Mr. Matthew O'Keeffe from SG. Please go ahead.
Yes, three questions from me, please. First of all, you mentioned in the context of the container shipping business that terminal costs were rising, I think. I wonder if you could maybe quantify that. Second question on disposals. I wonder if you could give us some estimate of what the after-tax disposals this year might look like. I guess Netto is the biggest component there, but we have the pre-tax numbers. Maybe you have some kind of post-tax indication for divestment gains. Third question, just on tax. I mean, you paid an 80% rate in the third quarter, which kind of makes you wonder if you should, you know, consider redomiciling. I mean, that's not a serious question.
My. I mean, perhaps being in the oil and gas business means that you have to live with a pretty high tax rate. My question is: What can you do maybe to try and reduce the sort of penal tax rate that you're paying at the moment?
Okay. Let me start with the terminal costs, and then Trond will answer on disposals and the tax rate. The terminal costs are going up. It's partly a mix issue. As you will recall, we're introducing a number of vessels in the Africa and South and Latin America trades. In these, there you have higher terminal costs than you have in the transshipment terminals that we use in the Asia-Europe and intra-Asia businesses. There's a mix element in it. As I also said before, the terminals have been better able to withstand pressure to reduce prices than the lines have.
Which is probably good, because if they'd reduced prices as well, it would probably be passed through in the cutthroat competition we have in the liner business anyway. Trond, on disposals and-
On the disposals, it's very limited on the gains tax. We have some non-gains tax on the Netto U.K. sale, which is the biggest one of $700.
For the last various on the 150, there are a few withholding taxes somewhere, but they're all limited in the percentage size between 10% and 15%. Coming to the tax rates, this quarter tax rate is high. It's almost 80%, and that is due to the fact, as I said, that the tax rate in oil and gas is on a year-to-date on a level that it has been earlier on the 75% level. The reason why we get to this higher. Well, one thing is on the high tax rate in this quarter for oil and gas is that we increased the exploration and the development of some of the countries that are not positive, cash positive or profitable to offset some of those taxes yet.
You don't get the accounting effects for some of that. That's one of the reasons in the quarter. For the whole group, when we're coming into shipping segments, when the shipping segment is in a deficit, we're on tonnage tax, and therefore you don't get the deferred tax credit as a result of the negative losses. That also increase the effective tax rates in this quarter. That is the elements. When the shipping gets positive, you will then see a dramatic decrease again in the effective tax rates for the quarter.
Okay. Thank you.
Our next question comes from Mr. Mark McVicar from Nomura. Please go ahead.
Good morning. I have a couple of sort of general questions and then a couple of specifics. I'll first start with the general one first. As you go through your 2012 budget process, do you give your people, your divisions sort of high-level guidance on, macro assumptions and fuel prices and volumes? If so, could you share with us at least the sort of flavor of, the guidance that you give them?
We do give them high level guidance. We don't feel that this is the appropriate time to share those assumptions. No. We do, of course, give them high level of guidance.
Okay. You're not prepared to give us sort of flavor as to whether it's, you know, other companies are saying, "Well, we're assuming more of the same, and then see what happens in 2012.
Okay. We're assuming more of the same and we'll see what happens in 2012.
No, I think we are in dialogue with the businesses now. We haven't frozen our budgets yet. We're following macroeconomic developments very close, and it does change. When we come out with our first guidance for 2012, we will definitely go out with our assumptions as well. This is just too early for us.
Okay. That's fine. Second question, also slightly general. Within your sort of group ROIC target of 10% across the cycle, how much higher than that number does Maersk Line have to be given the associated risks?
Maersk Line has a WACC which is above the group average. They will have to be above 10% across the cycle. Exactly how much I think is up to evaluation. We also evaluate our WACCs every year per business unit. There's no doubt that if Maersk Line shall be a good value-generating business for the shareholders, then it has to be above 10%. Not much, but somewhat above 10%.
Okay. Third question, we'll enter into some more detail now. There's been a lot of talk this morning, obviously, about, you know, the Daily Maersk service. If you look at your total global capacity, what proportion of that is in that Daily Maersk Asia-Europe service?
I can't tell you off the top of my head, but you have approximately 40% of our capacity is in Asia-Europe, more or less. The proportion in Daily Maersk is quite significant. It is a high. We know it's about approximately, I believe, 80 vessels going in, but the exact tonnage figures I can't unfortunately give you.
Okay. But it'll be sort of approaching 40%. Take off the non-DM services to get you there. Okay. The final question is, you know, you I think you've both talked on a number of occasions about wanting to move towards producing a proper oil and gas reserves number. Is there any firming up of the timetable to producing that?
Nothing we can really comment on at the moment. We are working internally, but that's more for performance management and evaluating our own effort. We are working internally on getting good numbers and. I can't give you any time on when we will start talking about it publicly.
Okay. That's great. Thank you very much.
Our next question comes from Mr. Carl Christian Bakke from Danske Markets. Please go ahead.
Hello, it's Carl Christian Bakke from RS Platou Markets, actually. Just a quick follow-up on the tax issue there, if I may. In the oil and gas business, do I understand it correctly that it is very high in this quarter due to the fact that, for instance, the cost spent in a country like Norway, where you have
Little or no production to offset the costs from. It's the main reason for it.
Oh, no. Norway is not the main reason because the tax effects in Norway is that you actually get paid by Norwegian government for the payments you spend on some of the development and exploration. Norway is not a part of that. There's very few other countries that have that kind of rule. Most of them do not. As a result of basically exploration costs, that actually drives sort of the increase you see in this quarter on areas like Brazil, Angola, U.S., that actually drives this 5% increase this year, this quarter.
Okay, thanks. No reason for us to change our sort of assumptions on the tax rate going forward as well?
Well, as I said, it depends on the part of the exploration level that we have.
Thanks. Just one final question. You mentioned in the report that the drilling of the Oceanographer in the Gulf of Mexico has been postponed due to low rig availability. Is that also a read-through to other areas that you now are entering into this larger exploration program for 2012, that rig availability might actually be sort of a challenge for you?
In the Gulf of Mexico, it's a Chevron-operated well, the Oceanographer. We are under Chevron's decision on how to use the rigs that they are contracting. The situation is a different one in other parts. We, for instance, in Angola, have at various occasions suffered problems with the rig availability, not just because it's hard to get advanced rigs, but also because if you don't have a series of wells to drill, you are more dependent on finding slots in the middle of other people's drilling programs.
When you're drilling one, two, or maybe even three wells at a time, you are less flexible or less able to influence the rig availability than when you're simply contracting it for three or four years and drilling a long series of wells.
Thank you.
Our next question comes from Mr. Stig Frederiksen from Carnegie. Please go ahead.
Yes, thank you. Yes, a couple of questions. First of all, if you could put some, a bit flavor on, this, quite fantastic volume growth you had on Asia-Europe, when it comes to inbound and outbound, volume.
You mean what is backhaul and what is?
Exactly. What are the mix there?
Just a minute.
22%.
I think it is actually in the release on page 14. We have a growth on headhaul from Asia increased by 27% and backhaul from Europe increased by 18%.
Okay.
compared to Q3 2010.
Okay.
We have a volume increase between Asia and Europe by 24%.
Yeah, in total. Yes. On your guidance, the range we're looking at right now, would it be correct to assume that range mainly comes up from what to expect from rates? Or are there other, you could say, assumptions which could impact that range?
Well, the three main value drivers in the Maersk Group is of course the rates for containers, it is the volume for containers, and it's the oil price.
Yeah. If you look at those, your volumes have been quite steady, and quite predictable, and also the oil price has been quite steady. Also compared to your guidance, it's fair to say that we end up with at least the rates are gonna be the main, maybe the main trigger.
Well, that's the difference between you as an analyst and us as a company. That's up to you to analyze.
Thank you. My final question comes to the LNG transaction. Reading the prospectus from Teekay, it seems that they are talking about that the deal should be closed early next year. Is that what we're going to expect? Secondly, they talk about conditions when it comes to debt financing raising and so on, also a termination date in February when it comes to approvals. Are there any changes to the agreement you have announced when it comes to termination of this agreement?
No. The agreement has a launch date, and they're subject to customer approvals and some financing elements in there. It's normal course since it is the kind of business that the LNG is in.
Okay. Thank you very much.
There are no further questions. I'll hand over to you, speakers.
Well, thank you for many interesting questions, and I hope we were able to answer them to your satisfaction. We look forward to seeing you or talking to you again, if not before, then after the full result publication in February 2012. Have a good day, and thank you for listening in.