Nils Andersen - CEO Trond Westlie - CFO

Lars Heindorff - SEB Douglas Hayes - Morgan Stanley Marcus Bellander - Carnegie Investment Bank Christopher Combe - JPMorgan Dan Togo - Handelsbanken Matthew O'Keeffe - Berenberg Stig Frederiksen - Nordea Markets Neil Glynn - Credit Suisse Finn Petersen - Danske Bank

Good morning everybody and welcome to today's Q1 teleconference from AP Moller Maersk. My name is Nils Andersen and I will take you through the first pages and then I will pass over to as usual Trond Westlie, our CFO who will take you through some of the figures and I suggest we jump straight into it and while you read the forward-looking statements just let me sum up what I think are the main takeaway for us from this first quarter. We of course very satisfied with the results. We delivered headline profit of $1.6 billion which is I believe the best first quarter we have ever seen driven by very strong performance in Maersk Line also delivering the best first quarter performance ever inspite of falling rates. We also take the opportunity to upgrade based on this performance our result for the full year slightly so that we now expect a result around $4 billion and that is of course worth keeping in mind that it is after the elimination of Danske Bank where we gave the money the whole value back to the shareholders during April and also without the income from Danske Supermarket. So a pretty good result in historic terms if we achieve it. And what the main negative impact on the group in the first quarter have come from the low oil prices, I don’t think this was unexpected anywhere but it has impacted of course Maersk Oil directly and we’re taking measures both in Maersk Oil and we're taking measures both in Maersk Oil but also in Maersk Drilling and Maersk supply service as well as APMT to reduce cost to adapt to this new realistic oil environment. So we feel that we have had a good start to the year and that’s why we have decided to lift the guidance marginally. So let's go to the presentation and start with page 3 which is the financial highlights and you will see that the headline profit is up from $1.2 billion to $1.6 billion of course there are some extra-ordinary in here partly Danske Bank and some other smaller items. The underlying profit is up from $1.1 billion to $1.3 billion it's a progress of around 18% and of course worth having in mind is that our stock actually quotes in Danish Krone, trades in Danish Krone and translating the progress compared to last year from dollars to krone, we get upto the 40% to 45% range. I only mentioned that as a curiosity. The ROIC was good and we also had a good increase in the free cash flow although this of course are marginal figures so I mean not -- it's a little bit early in the year to take any guidance from that. Looking at the activity or the profit by activity and this is the underlying profit, Maersk Line almost doubling it's results, Maersk Oil down a little less than most people had expected, the background for that is that there is a tax saving -- via coming from the U.S. or from the cut in the UK rates giving us a one-off effect of $170 million. There will also be positives going forward but of course only on the run-rate, so this is helping Maersk Oil in the first quarter. APM Terminal's down compared to last year for the first time in many, many quarters and many years and the background for that is that Maersk or APM Terminals is quite exposed to a number of markets where oil plays an important role for local GDP and the lower oil price has affected the business volumes and the mix of nations or let countries here in a negative way. That has led us also to take where we have taken the guidance for the oil a bit up. We have taken the guidance for terminals a bit down as we come back to it later. Maersk Drilling is having a nice progress of around 80% compared to last year in the first quarter and that is reflecting the fact that we’re now truly introduction program of new rigs so we have many more rigs and quite big rigs on in operation this year. Most of them covered by long term contracts which gives us a very nice performance in this area. And then APM shipping services, small progress driven by tankers and mass supply but I will come back to that in more details. Diving into the individual business units of some more details, please go to page 4, we start with the Maersk Line result. We delivered as I said before an underlying profit of 710 million almost double and surely the strongest quarter ever. The ROIC was up at 14.3 on the back of previous stable invested capital. Volumes declined by 1.6% and the background for that volume increase was mainly low volumes in the Asia or Europe where we have not followed the price war fully and we have taken some loss in market share on that account. It's not something that or else we have told you before that we’re not watching market share on a quarter to quarter basis but it's of course something we will attend to during the year. We think the global market grew 1% and we will also come back to that later. The fleet capacity increased by 10% and that is partly give due to rigidity related to the introduction to the two network but also for us underestimating the slowdown in global growth and we also didn’t expect to lose share and expect the price war. So we have sort of did too little business with too big a costume and that caused us and caused us as well and we will also come back to that on the next page. But we did maintain a very nice EBIT margin GAAP through the competition we believe and that has now been maintained for 10 quarters and I think that’s good performance and irrespective of some expectations in the market being higher then we’re very satisfied with Maersk Line's delivery in Q2. Taking you to slide 5, I will go a little bit deeper into the cost reductions because there is a new trend there which comes essentially is that we have reduced cost by $163 per FFE to the lowest cost level we have ever had but it has been driven exclusively by the decline in the oil price and we have had higher cost when you isolate the few price cost then we had previously and that is impacted by the lower utilization. We have being in past many quarters being very good at adapting the fleet size to our expected demand. We have hit that very well and we did not hit it so well in Q1 and we will as I said before and tend to that both by increasing our market share again and also by making sure we do it right tonnage adjustments. Not really much more to say for that just go down to the bottom that the stating on slow steaming [ph] that we have no intention of speeding up the network. We still believe we absolutely are certain that this level of vessel speed we have now is still the right thing to do even if the bunker prices have dropped at by approximately 30%. Going to Maersk Oil on page 6, we had a 40% decrease in reported profit as I said before and this has actually helped by of course lower tax rates in general has compensated for a part of the price drop in the oil or the drop in the oil price but apart from that we had 270 million help one-off help from the UK tax rate adjustment reduction to speak it clearly. What also helped us was that we had an increase in entitlement production, a bit of ahead quite a bit ahead of what we had expected. Of course the average price drives the our take in Qatar up because this is partly cost recovery game but on top of that we also had very satisfactory production performance in the UK where we managed to increase the production quite a bit. We had and you can see it down at the bottom of the chart, UK production up from 42,000 to 61,000 barrels a day. So good performance. We did drill three wells one was a discovery, there has been some speculations around that in Denmark, these right now but there was also a discovery in the UK, we abandoned the well in Norway for technical reasons. We would be going back there with new rig and then there was one dry well. We did commit to the development plan of Phase I in Johan Sverdrup in February, we have seen good progress in the Culzean project as well. We have retain at the moment and we hope and expect to be able to come out with the commitment to this project during the next couple of quarters, so that’s on good progress and then we took the Tyra South East on stream late Q1 in Denmark, so that's also positive. On the Chissonga there is no news, also on the back of the drop in the oil price we're retendering this project, we’re looking at technical changes and so on. And I don’t expect any news on this project to come out this year. So, that’s a situation in Maersk Oil. Good first quarter but helped by the change in tax rate in the UK. We’re adjusting our forecast for the year slightly upwards as a consequence of slightly higher oil prices so of course if the oil prices above 60 that should be a basis for a profit for the full year. On the reserves and resource situation we usually publish it here in the first quarter and it's clear that we have had a drop in both the 1P and 2P and approved and the contingent resources so the development here is not being good, it reflects the already known poor performance in exploration over the last years. On the reserves 1P and 2P, we do expect to see a better development next year because we will have contributions from both here on Johan Sverdrup and Culzean as they are being sanctioned during 2015. And that is the situation on the reserves and resources, not very good with the reserve replenishment of replacement to say the least. APM Terminal results is decreasing compared to last year as I alluded to before and that is due to lower earnings in the oil exposed economies. We still are delivering good returns, we’re still confident that we will return to growth in profit but for this year we do forecast the pressure in these oil related economies to continue and therefore we’re taking down our guidance for that business. The EBITDA margin declined of that and we split it out 2.8 percentage point related to the underlying business, 1.3 percentage point due to us undertaking quite a bit of construction where we only have cost and no margin associated with that cost and also 0.7% related to Virginia that was not included in turnover but did contribute to EBITDA due to the leasing arrangement we had with the port. And so that’s the situation in APM Terminals, guidance down but no change in our commitment to invest in this business. We're delivering good returns and expect to continue to be able to do that going forward. Maersk Drilling and I'm now on page 9, is delivering a very good progress in result and that is as I said at the opening due to the fact that we’re now closing off our programs so we don’t have to startup cost. We also are not having this year's many yard stays as we did last year and we have more rigs on in operations. Most of the rigs we’re taking in possession of are backed by long term contracts so that’s looking good we have a very good coverage for 2015, 86% and 61% for 2016. So the business is performing well in the first quarter and we also still expect an improved result compared to last year for the full year. Then there is some details on the deliveries and we have taken delivery of one ultra-deep water drill ship which is going on a 3.5% year contract in Ghana with E&I and we have also taken delivery of ultra-harsh environment jack-up which is going on a long term contract with Statoil in Norway. So that looks good and solid. APM Shipping services result is up a bit compared to last year and it's not the back of improved result in mass supply service. However contractor to the rigs, the contract coverage and supply service is tailing off pretty rapidly so we do expect pressure on this business during the remainder of the year. Mass tankers have improved rates and operational efficiency, so mass tankers is performing ahead of last year and when you compare the tanker business to last year please bear in mind the last year we had VLCC earnings in there. So the performance in the product segment is actually very good. DAMCO is in terms of profitability on the same level as last year. We do expect during the year to see progress compared to last year but we’re seeing but that is backed with cost savings and we still have to see progress in volumes from all the activities that are under growing. So on Svitzer also a small decline in result that is less salvage activity and a stronger U.S. dollar so it does cover some of it's contracts, non-dollar denominated so there is a negative impact on that, harbor tow which is actually doing pretty okay. So pretty stable business year and we expect for the full year an improved result. And by that I would like to pass you over to Trond who will take you through the figures on the coming pages.

So good morning from me as well ladies and gentlemen, I will continue on slide 11 on the performance sheets where we look at in the return on invested capital. As you can see in the invested capital level the invested capital has come down from previous quarter to 44.580 billion the reason for that is slightly technical because as you can see on the bottom of the page other business is still at a high level that means that Danske Bank is still in the other business, while the invested capital in the group have been reduced as a result of the transaction of delivering out Danske Bank went over the quarter. So that is the technical. So going forward we will come down to the level around the 45 billion in invested capital going forward. But looking at the returns for the quarter, very good recruited returns on 13.8 and that is of course driven by the four main areas, you see Maersk Line, Maersk Oil, APM Terminals and drilling delivering good results. Three of them have gone the 10% level, Maersk Line up at the level of 14.3, oil at 14.8, terminals at 12.9 and Maersk at 8.5 and shipping services also delivering on 8.1% and that of course drives the good return for the quarter. So all-in-all a satisfactory results as Nils has mentioned in the startup. Going then to page 12, on the financial framework, starting on the up left on the cash flow development started the year with net debts of 7.7 ending first quarter at 7.6 and you can see the elements, the working capital slightly increasing with 300 million sort of normalized seasonality and we have the taxes and the CapEx. Going to the CapEx over the next cash of 1.7 on the bottom left you see the gross CapEx and that has been level of $2 billion. Going then to the top right on the petroleum management, the slightly short of $300 million this quarter and the most of that is comprised out of Danske Bank gain coming out of the transaction. And on the bottom right you can see increased ordinary dividends you see the trend volume from 2006 going upwards, we’re still keeping to our statement that we want to grow our nominal dividend as long as it is supported by the underlying earnings growth. So all-in-all positive trends all over. Going then to consolidated financial information to the group numbers delivering a revenue of 10.547 billion down from last year, all of that is relating to Maersk Oil and the combination of oil price and entitlement production. The EBITDA in the first quarter is 2.570 billion down from 3 billion last year and that is also due to the mix of earnings also relating to tax cost as I will allude to later. Depreciation is slightly up two reasons for that one is the slightly more assets on the balance sheet and the other is that we had the reversal of some impairments in the first quarter of 2014 and therefore we have sort of double effect on that one in the first quarter in 2015. The gain on the sale of non-current assets as I said most of that number is the Danske Bank transaction and that means that ending up earnings before interest in tax of 1.823 billion. Finance cost is slightly lower than last year, some currency effect in that number not too much but of course slightly lower number that we would call a normalized financial cost in the quarter. Then coming to the tax line you see that the tax line is $180 million compared to 953, in the first quarter of 2014, literally all of that as well is the element of Maersk Oil as a result of lower earnings in the EMP sector which have a high tax rate. So that land the tax charge of 180 million, the 180 million is also including the 170 million in reversal in Maersk Oil. So all-in-all for the period we’re ending with the result of 1.572 billion. All the other key figures on the bottom of the page is mentioned accept for the earnings per share which is $72 this quarter. Going then to the guidance for 2015, as also Nils has alluded to in the beginning we have slightly adjusted our group guidance from slightly below 4 billion to around 4 billion for the year, that is of course compared to an underlying result last year if we exclude the Danske Bank earnings last year of 4.1 billion. For Maersk Line we continue to expect a higher underlying results than for 2014 and when it comes to global demand for a seaborne container transportation we expected to increase by 3% to 5%. We’re still in that range, having said that, today we actually do think that we’re in the low end of that range. Maersk Oil expect a small possible underlying result for 2015 as a consequence of cost savings and of course estimating a low oil price around $55 to $60 a barrel. The entitlement production is now expected above 265,000 and the exploration expenses still expected to be around 700 million. For APM Terminals we now expect that the underlying result to be below 2014 due to weaker business in oil dependent markets. Maersk Drilling's expectation of a higher underlying results than in 2014 still remains because of more rigs and high forward contract coverage. For shipping services continuously expects and underlying result for 2015 to be above 2014 results. As always, we always allude to the sensitivity guidance because there are important elements that are drivers for our business and we have mentioned for in our sensitivities tables that are the most sensitive drivers going forward. So I will refer that to you. And by that I will leave closing remarks to Nils.

Well not much to add really. We’re as I said we’re happy with the start to the year, we're marginally upgrading our expectations for the full year and we feel quite confident that we can continue to develop our business in the right direction during the rest of the year. So with that I would go to questions and please feel free.

[Operator Instructions]. The first question comes from Lars Heindorff from SEB. Please go ahead.

Couple of questions for my part, firstly regarding the line-up business you mentioned your regarding your volume growth that you’ve seen weak volumes out of China particularly into Europe, I don’t if you can give us a bit of feeling for how volume has been into Europe and maybe a bit more split on that when at least two in the quarter we have been getting numbers from both freight forwarders and other peers that have been looking actually quite a big higher that so I'm curious find out actually has been driving the low volume growth.

Well our low volume growth was surely driven by us being a little bit hesitant to join the price competition that took place as a consequence on the drop in oil prices. We actually see an okay growth in general if you take the East West trades with them being of around 3%, the weakness for what we see at the moment is mainly in the North South Trade with West Africa and Latin America being negative, so there was a small if I'm mistaken, that’s more decline in the volume into Europe in the first quarter according to our estimates, but nothing dramatic.

And what about the focus that you’ve being having with more focus some of those intra-trades you have been talking about into Americas where you can sort of ramping up also capacity wise, that have an impact on low volumes and rates?

I think in general I don’t think it and an impact on volumes as such, we did lose volume in West Africa in-line with market development but of course as we also say we have ramped up capacity too much for the market development and our market share development in Q1 and we will address that going forward.

Okay. And regarding Maersk Oil, if I'm not mistaken, I don’t know of course you don’t really say that much of either any more balance sort of gross production volumes in Qatar but if I'm assuming that gross production in Qatar remains around 300,000 barrels a day.

It's stable.

Yes that assumes an entitlement share of around 56% up from 34% is that sort of the run-rate that we should expect given the oil price we have at the moment? If the oil price stays where it is, that should be more less then run-rate but you know you’ve some factors one-off events that happens once in a while that can adjust but in generally speaking we expect the run-rate around that.

I will give a specification of that, the average rates that we had in the first quarter was 54%, today's rate is at least when I saw brent this morning was about 64%, those prices will affect entitlement production coming out of Qatar down.

And then last question regarding the guidance, I mean you're downgrading terminals guidance and these other things unchanged but yet you’re still increasing your full year guidance, is that caused by an expectation of maybe slightly higher earnings in Maersk Line which have been sort of up to a good start or what's driving that difference?

Maersk Line is off surely off to a good start but the starting point of rates in Q1 or after Q1 is pretty low, so we have not adjusted Maersk Line, the adjustment come mainly from the improvement in the oil price and the one-off tax effect we had in the UK.

Our next question comes from Douglas Hayes from Morgan Stanley. Please go ahead.

Couple of questions for me, first you’ve given the data of the completion of the integration of the two alliance, can you just give us a quick update on the cost savings that you’re hoping to realize and the phasing of that and it looks like two of them are a little bit later than expected so does that change your cost savings target there?

Not any change to underlying you can say the normalized cost savings in 3M compared to what we have said previously but of course there has been some startup cost in the beginning of the year including a network that has been slightly big for what is needed. I have to say however that competing alliance is a growing their network far more than the 2M alliance have and we of course also in the market compete so we will adjust that but we will be conscious of the need to maintain our market share where there it is.

And just to clarify did you see those startup cost predominantly in the first quarter or will we see some in Q2 as well?

I think we have had when we ran in the network we have of course being busy doing that and which means that you adapt a little bit slower probably to the market and that changes facing our customers that can confuse as well. So I think it was primarily in Q1 as we're entering into April, we have taken the last ships, have entered the services so I think the situation should improve a little bit going forward.

Secondly, on your volume guidance and linear business, Trond, you mentioned that you guys are probably going to be maybe towards the low end of that 3% to 5% market growth. Can you give us a little bit more insight given--

I think that’s a misunderstanding. We have not said that we would be at the low end of the market growth, we just said that the market growth probably at the low end of our 3% to 5% indicated in several. We have no intentions of losing market share this year.

But I guess still to the point, I mean give your trade lane exposure what leverage do you think you can pull to catch up with the rest of the market following the Q1 results? The Q1 is a very small quarter in a market that grew by a 1% to 2%, we declined by 1.6% that is really very, very marginal. If we want to catch up we can catch up with no problems. I wouldn’t worry about that.

And then finally, on the oil business you’ve admitted, you’ve seen the reserve numbers and admitted that there is still some catching up to do, does this change your CapEx plans at all, your thought process for the growth in the oil business forward do you need to accelerate that investment?

Well we will do investments at the pace we find is right and we also need to take time for making sure that we renegotiate all CapEx plans reflecting the new oil reality, we have been already this year we have committed to the Johan Sverdrup development and we expect to commit to the Culzean development later this year and then of course there can also be activity on the M&A side and we also have Chissonga and Qatar investments that may be potentially be announced but we don’t see any real reason to speed it up. We see that the replacement rate has been very low and we’re not happy with that but it's not a surprise to us because we have seen the and we have published by the way also the exploration results for the last year's and we already knew we had an issue here. By the way the last quarter exploration results are at least not just negative news so we have found hydrocarbons and a couple of wells out of the three that we have results from so far.

Our next question comes from Marcus Bellander from Carnegie Investment Bank. Please go ahead.

Two questions if I may, firstly coming back to the increase of market share, is there any anything else than joining the price war that you can do to regain market share?

Again we don’t manage market share quarter-by-quarter basis we don’t see that we have a competitive issue at all. We delivered an EBIT margin which is 10% ahead of the competition for the last many quarters, close to 10% so we don’t see that we have an issue at all to compete in the market. We will take the market share we need by giving good service and giving the right prices to the customers. We're not been outside of the price war, our rates have suffered as well but we just maintained a very high level of profitability and I think so far we only see three of our competitors publishing and they were around breakeven for the first quarter. So it remains to be seen where the others are coming out, but we feel compared to the industry we have done very well in Q1.

Second question then, just 5% drop in freight rate year-over-year that you report is there -- can you compose that? Is there any mix effect there for--

It's mainly being a result of price competition in Asia-Europe but in general the competition has been quite fast in passing on bunker savings to the customers. And we have then also done that. So I think you can see there's a direct reflection of the drop in oil prices, possibly a bit overdone.

Our next question comes from Christopher Combe from JPMorgan. Please go ahead.

Just a couple of follow-ups on the same topics, starting with Maersk Line, can you tell us how things have been shaping up in recent weeks? If you were to hit 3% growth for the year, that would see just 4% to 5% average through year-end. Is the experience thus far in the second quarter supportive of that kind of growth expectation?

We've given the guidance based on what we know about the second quarter, but we're not going to give additional details on it. But we feel quite confident that we will end the year growing with the market.

Okay. And looking at the first quarter, is it correct to assume that the VSA income is in other? And if so, can you tell us roughly what kind of contribution there was versus the extraordinary detention demurrage revenues?

The element of other is increasing this quarter as a result of a lot more -- it's more demurrage detention than usual. It's not the VSA that drives this. It has been some complex or complications several places in the world, both in Asia as well as in the U.S., that has driven that demurrage detention slightly up this quarter.

Okay. And lastly you mentioned your commitment to slow steaming. How convinced are you that your peers are equally committed in light of historically low-end bunker prices?

We don't talk to our peers about these things, of course. And to any degree where we can speak on their behalf, actually bunker prices are not historically low, they're just low compared to the last few years.

Okay. Actually there is another way to ask. Have you seen any evidence of faster steaming from a sizeable competitor?

No, not to my knowledge.

Our next question comes from Dan Togo from Handelsbanken. Please go ahead.

A few questions for my part as well. On Terminals can you elaborate a bit on what affects the full-year profits positive here? You have Maasvlakte to come on-stream, you have Santos, so what are the dynamics pulling up and what is dragging it down?

At the moment Maasvlakte is still on the start-up which is pulling the results down because we have not been able to move the volumes from Maasvlakte I to Maasvlakte II. So we're at the moment running two terminals without any additional volumes. So that's a pretty -- irritation of course, but that's normal when you start up a highly automotive facility. Santos is ramping up as expected, getting increasing volumes. But of course the general situation in that market is impacted by the poor economic situation of Brazil in general.

Is there any other places that affects profits positively in Terminals?

Not any particular areas, but you can say the more mature markets are doing better than they've done in the last years because of a bit more volume. But nothing that really impacts profitability as such.

And then one question on oil, UK production was also particularly strong and I understand that Qatar will be more or less sustained, of course, considering where the oil price is now compared to Q1. But the UK, are we seeing a production being sustained here as well or was it an excellent quarter that is difficult to obtain again in quarters going forward when we talk UK volumes?

We're of course positively surprised and pleased with the development in the UK. Part of it is Golden Eagle coming in, but also the GP3 Global Producer has done very well. So we will do our best to keep it up and I'm confident that we'll also end the year on a higher note. If not for other reasons, then because Golden Eagle is ramping up production.

Right. And then one final question on oil, the Qatar Al Shaheen is now up for tender; can you elaborate a bit on how you view this process? And if there is a timeline, can we expect some sort of conclusion during second half?

We can't give you a timeline because that's all up to Qatar Petroleum. We of course, we're only getting positive feedback from Qatar for what it's worth and do assume that we have a very high likelihood of continuing there. If that should not be the case, then of course we hope that we'll get the message as quickly as possible so we can reallocate production or investments, to other areas.

Our next question comes from Matthew O'Keeffe from Berenberg. Please go ahead. Matthew O'Keeffe: I've got three questions. I think I'll ask them all at once. Just on Maersk Line first of all, I see that after eight quarters of successive improvements in your bunker efficiency, you had a deterioration in this quarter. So my first question is, do you think you've gone as far as you can improving efficiency of fuel consumption or could there be more to do? My second question if I could ask about Qatar in another way; given your long dealings with the Qataris, have you been through any process like this before with them or is it actually the first time that they've reviewed you as their partners? And then my final question, just on Terminals. And I see that in the first quarter volumes fell but revenues increased, so I wonder if you could tell us what's behind that successful pricing there and what that looks like? So those are my three, please.

You may have to repeat the third question, I didn't quite understand the point. But if I start with the other two. Yes, we have had eight quarters of improving the bunker efficiency and the sole reason why we did not succeed in doing that this year was that our fleet grew more than volumes. So we had a 10% growth in fleet and a small decline in volumes. So that gave a negative impact. And I think part of the success in the past have been our ability to predict and adjust our fleet, predict the market and adjust our fleet to what was happening in the market. Contrary to a lot of the competition who sailed with way too much capacity and trying to compete on price. Matthew O'Keeffe: So I would be wrong to think that it's the end of the line for further efficiencies?

No I don't think so, I think there's more to be done. And by the way the 2M savings will be predominantly bunker savings compared to history. So once things are running smoothly, that should be positive. And then you asked whether we have had any process like this with Qatar before. We got the Al Shaheen concession in 1992 after Shell had given up on the field. Since then things have been running very smoothly. We've been carrying out a number of projects, always, of course, discussing at length each project with Qatar Petroleum. But we've never been in a situation where we'll be evaluated as an operator because we had a 25-year contract. So this is the first time. It's also not that we have had negotiations that have broken down or anything like that. We assume this is just reflecting Qatar's wish to get the best possible terms going forward which we always knew that would be pursued one way or the other. And then your question on APMT, could you repeat that because I didn't really understand it? Matthew O'Keeffe: Sure. Just looking at the numbers, you have a 3% volume decline versus a 4% revenue gain. So my question really is have you managed a 7% price increase?

Okay. The EBITDA margin has gone down. That's correct. First of all, about a little less than 3% is underlying business. That's a mix issue. Then we have 1.3%, if I'm not mistaken, related to construction costs where we just take the cost in. There's no margin related to it. And then the sale of Virginia which we carried out last year which added no turnover but a rental income above the EBITDA figure. So those are, you can say, the main components. But a little more than half of it is underlying business and that's caused by mix developments in the volume.

Our next question comes from Stig Frederiksen from Nordea Markets. Please go ahead.

Regarding your guidance for Maersk Line, at full year you stated that the cost reductions were part of the equation how you would get through to earnings above $2.2 billion. That is not part of the text any more. Just to clarify that you still--

We will work with cost reductions of course. It goes without saying. And if it's gone out of the -- we've not changed the main guidance. But that is a constant part of our strategy. So there's no change there.

Secondly, when you look at your bunker fuel price, you're saying you have a delay of six to eight weeks. And then is it fair to assume that even though we have seen an increase in bunker fuel price recently, that you will still have a delayed effect and therefore might still see lower bunker prices going into Q2?

I think that since we're not hedging, that's a good assumption. Yes.

Our next question comes from Neil Glynn from Credit Suisse. Please go ahead.

If I could ask two questions on Maersk Line and one on Maersk Oil. First question with respect to Asia-Europe, the extent of the rate weakness, how much of your contracted coverage is actually leaking into the spot market? I think that's been an issue in the past when spot market rates have been low. The second question with respect to you mentioned competing alliances have grown the network far more aggressively than Maersk Line. And they're obviously emboldened by the promised cost savings of the alliances. I'm interested in your view to what extent do the alliances actually structurally harm the medium-term rate outlook, given it allows competitors the chance to take more risk. And then the third question on Maersk Oil, when do you expect or when should we expect the next update on Chissonga? Any flavor for the timeline for discussions with the Angolan Government or other milestones, would be helpful. Thank you.

Starting with the last question, we don't expect to give any news on Chissonga this year. I don't think you should take that as bad news. We're retendering. That takes time. We're relooking at the concept. That takes time. And also with the present oil price environment we have actually, we're in no hurry to start up investments unless they're clearly profitable, also at present prices. So I think you should take that as an expression or sign, of constant care, so to speak, making sure that we have a good project before we possibly announce progress on that. In terms of rates, we will not try to predict the rates. The only thing we will try to predict is that we will be working hard on staying competitive, being more competitive than the rest of the market and making a good living out of that. And the first question was--

The first question was about contract leakage as I heard it.

Yes, just trying to understand. I think it's been mentioned in the past in terms of you obviously have your contracts with customers. But when rates are this low, there must be a temptation for your customers to go elsewhere and tap the spot market despite those contracts you have in place.

In general I would say the contracts are honored. Sometimes we see people during periods of low spot rates going down or reducing their commitments, during the months where spot rates are late or low. And then hoping, of course, to get full or over-commitment during the peak periods, when rates supposedly are high. And we're now adjusting, so if you under deliver in the periods of low spot price, then your commitments for the rest of the year are reduced as well. But most contracts are honored. We have a pretty good contract coverage. And we've closed all, to my knowledge, all contracts for 2015 now.

Our next question comes from [indiscernible] from Mainfirst Bank. Please go ahead.

My question is on Maersk Drilling. Is there any risk of long-term contracts being renegotiated now the situation has changed quite dramatically?

There is always risk of contracts being attended renegotiated, but we have good formal legal contracts. So normally we would open contracts if we can find a win-win situation on that. But our counterparts are big renowned oil companies. And we've seen no sign of people not being willing to honor their contracts or able to.

Our next question comes from Finn Petersen from Danske Bank. Please go ahead.

Two questions, one on Maersk Line and one on Oil. On Maersk Line, you have been talking about Asia-Europe rate more. Do you see any changes in behavior from composition in the market? And what are you doing to balance the supply/demand so rates can go up as we saw last week? That's the first question. Second is on Maersk Oil, in case that your production or your concession in Qatar is extended, how would that affect your oil reserves?

Let me start with the easy part first. Asia-Europe rate war, there's let's call it tough rate competition and fast falling prices. And I think everybody now are squeezed quite a bit in that trade. And we've seen some increases to the Med and to Northern Europe being announced. So we'll see what happens. But there has been a rapid deterioration of rates. To predict the rates, as you know, we never even attempt that. We will live with whatever rates are in the market. And we'll make sure that we're competitive and giving our customers a good service. And then Maersk Oil, consequences of reserves on Qatar; they will go up. How much is difficult to say because contrary to earlier, since the [indiscernible] that's in the process, we cannot be absolutely sure what concept will be used. And you can decide to drill a lot of wells at once or you can go very slowly. And that will have a different impact on the reserves. But an extension in Qatar would increase reserves there, of course, because we only include up until the end of our concession period.

Can I just have one final question on Maersk Line? I was not asking for your prediction of rate, I was just asking for the -- are you taking any steps to balance the market that means reducing capacity in the Asia-Europe trade? And then just one final one on Africa, how much has that impacted your negative rate development in the first quarter?

The way to take steps to end the rate war is probably to take capacity out. We have added far less capacity to Asia-Europe than some of the other alliances. And we don't have any intention of not being able to supply capacity enough to maintain our market share. So I think if there's anything to be done, we will have to look to the rest of the market as well. And then on West Africa, it's clear that we have -- the costs of doing business in West Africa are higher. So smaller volumes there will impact the average rate. But the far biggest impact is coming from the lower rates in general following the drop in the oil price.

We have no further questions on the phone. So back to you, Nils.

Well, thank you, everybody for joining us today. Thank you for your interest in our company. We look forward to being with you in August, hopefully reporting another good quarter and giving some more clarity on where we're on cost savings and 2M networks and so on for Maersk Line. So in the meantime, I wish you a good day. And look forward to being in touch with some of you before, but everybody in August again. Thank you.