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Edited Transcript of VPK.AS earnings conference call or presentation 31-Jul-19 8:00am GMT

Half Year 2019 Koninklijke Vopak NV Earnings Presentation

Rotterdam Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Koninklijke Vopak NV earnings conference call or presentation Wednesday, July 31, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Eelco M. Hoekstra

Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO

* Frits Eulderink

Koninklijke Vopak N.V. - COO & Member of the Executive Board

* Gerard B. Paulides

Koninklijke Vopak N.V. - CFO & Member of the Executive Board

* Laurens de Graaf

Koninklijke Vopak N.V. - Head of IR

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Conference Call Participants

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* Andre F. M. Mulder

Kepler Cheuvreux, Research Division - Analyst

* David Kerstens

Jefferies LLC, Research Division - Equity Analyst

* Juri Zanieri

Kempen & Co. N.V., Research Division - Analyst

* Quirijn Mulder

ING Groep N.V., Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello and welcome to the Vopak Analyst Presentation Half Year 2019 Call. (Operator Instructions) I'll now hand the word over to Laurens, please go ahead with your meeting.

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Laurens de Graaf, Koninklijke Vopak N.V. - Head of IR [2]

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Good morning, and welcome to Vopak's Q2 and Half Year 2019 Results. My name is Laurens de Graaf, Head of Investor Relations. Today, our CEO, Eelco Hoekstra; and CFO, Gerard Paulides, will guide you through our latest results. Our COO, Frits Eulderink, is here as well and will be available for questions during the Q&A session.

We will refer to the half year 2019 analyst presentation, which you can follow on screen and download from our website. A replay of the call will also be made available on our website.

Before we start, I would like to remind you of our safe harbor for any forward-looking statements. This disclaimer is also applicable during the Q&A and in the whole conference call.

With that, I would like to give the hand -- I would like to hand over the word to Eelco.

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [3]

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Thank you, Laurens. A very good morning, everyone, and thank you very much for joining us again on this call. It's my pleasure to present to you the first half year 2019 results. I will update you on the execution of our strategy, and then I'll hand it over to Gerard, who'll elaborate on the financial performance.

I'm pleased to share that we delivered solid financial results and significantly increased earnings per share in the first half of 2019. And secondly, our strategy execution is well on track as we made important progress with the delivery of our strategy and the alignment of our portfolio. Allow me to elaborate on that.

We've taken significant new capacity into operations to meet new customer demand. Together with our partners, we commissioned the industrial terminal PT2SB in Malaysia and celebrated the opening of the LPG export terminal RIPET in Canada. In addition, we expanded our share in the LNG import terminal in Pakistan. So at present, we have delivered 2.1 million cubic meter of our existing 3.2 million cubic meter expansion program. We've reduced our fuel oil capacity and have taken capacity out of surface during 2Q and Q3 for conversions for the IMO 2020 bunker regulations. The conversations -- the conversions are progressing to plan and will support new market requirements, backed by commercial agreements starting in Q4 2019.

The divestment of some of our European assets will, after completion, shift our portfolio further towards industrial, chemical and gas terminals. We aim to grow our portfolio in line with market developments, and we expect our growth investment momentum in 2019 to continue in 2020. Looking further ahead, we explore opportunities in new energies and have today announced our first equity investment in hydrogen technology.

Our digital transformation is progressing well with a global rollout of our cloud-based digital terminal management system. And lastly, we've made excellent progress with our new business development projects. So we look towards the future with confidence. And in the second half of the year, we continue with our focus on performance and long-term value creation for all shareholders and stakeholders. Our global network is well positioned to capture opportunities, ensuring our relevance to society in storing vital products with care.

Now let me move on to some of the key figures. EBITDA, excluding exceptional items, was EUR 423 million, an increase of EUR 52 million compared to previous year, and earnings per share significantly increased this first half year and grew by 23%. The occupancy rate for subsidiaries was 85%, which reflects planned temporary conversion activities related to IMO 2020 projects, particularly in Q2 and Q3, whereas other market segments remain solid. Our aggregate performance on occupancy is in the range of 85% to 95%, which we aim for.

This year, we have already delivered 1 million cubic meters of capacity additions in Pengerang, in Panama and the new LPG export terminal in Canada. So in 2018 and 2019, a total of 2.1 million cubic meter out of our growth portfolio was commissioned.

Let me recap our view on the business environment and the product markets in which we operate. Starting with chemicals. We are positive on chemicals. We see a global -- growing global demand, driven by increased industrial and consumer needs. Despite the risk of a slowdown in the global economic growth and uncertainties caused by trade tensions, the chemical sector continues to execute sizable new investments in chemical production. Used chemical manufacturers continue to take advantage of cheap shale ethane feedstock and a second wave of petrochemical projects is taking shape, providing industrial terminal opportunities for Vopak. In Asia, decelerating with robust economic growth, support petrochemical projects, close to growing end markets, and we target to expand our portfolio with 1 to 3 new industrial terminal investments in the coming years.

This current -- the current business storage environment results in solid occupancy rates and increased throughputs at our chemical terminals. Our operational performance is crucial to keep serving our chemical customers, and therefore, we remain focused on improving our chemicals infrastructure and daily service delivery.

The oil market continues to be heavily impacted by the geopolitical climate as well as supply disruptions. In the meantime, our hub locations are preparing for the new market conditions for a range of fuel oil grades. Capacity conversions for IMO 2020 are as per plan, and the vast majority of the fuel capacity is contracted for 2020 as bunker fuel market players have positioned themselves. As for imports and distribution of clean petroleum products, we continue to see opportunities in major deficit markets. So we really invest in the expansion of our terminal in Sydney and will add 105,000 cubic meters for clean petroleum products and aviation fuels.

The gas market fundamentals are good. What we particularly like is that we see an improved liquidity in these gas markets. This is demonstrated by the increased volume of LPG and LNG that our terminals had handled in 2019. LPG is increasingly used as chemical feedstock in PDH plants and for residential use in emerging markets. LNG use has further grown, and imports in China have increased substantially. The gas segment shows structural growth and more infrastructure is needed to facilitate supply and demand. So we target to expand our portfolio with 1 to 3 new investments in gas in the coming years.

Moving on to biofuels markets. This market is very dependent, as mentioned before, on regulation. So currently, we see strong imports in Europe by our terminal in the Netherlands, whereas the trade tariffs in China have pushed the U.S. ethanol export volumes towards India and other markets in Asia.

So to sum up our business environment, we are positive on chemicals and gas markets and continue to target investments for industrial and gas terminals, including LNG. And in the oil markets, we're preparing for the fuel oil market changes and investing in the distribution segment.

Moving on with our strategy execution for the period 2017 and '19, and you are familiar with this slide on our strategic objectives and have consistently conveyed the message that we are well on track. We're making significant progress in growth, and I'm confident that we can keep our sustaining and service improvement CapEx within the EUR 750 million budget. Vopak is becoming more digital-driven by digital transformation with the rollout of the program that is currently underway, and lastly, which we expect to drive down costs and deliver on the efficiency program as promised. So in short, we are confident to deliver on the '17, '19 strategic objectives.

Now let's focus shortly on the portfolio transformation. We've announced significant projects in the last years, fully in line with the focus on growing our portfolio towards industrial terminals, chemical and gas terminals. This year, we've commissioned 1 million cubic meter in Malaysia, Panama and Canada and expanded our share in the LNG import terminal in Pakistan. The divestment of some of our European assets will shift our portfolio further towards industrial, chemical and gas terminals. So looking further ahead, we continue to explore opportunities to new energies. So as a result of studying opportunities, we decided that this is the right moment to take initial steps in becoming active in hydrogen supply chains.

So let me summarize our key messages before I hand over to Gerard. This half year, we delivered solid financial results, and we are on track to demonstrate growth in 2019, supported by our portfolio of expansion projects and the ongoing cost initiative. And lastly, with our strong competitive position and global diversified portfolio, we are very well positioned for future opportunities to create long-term value for our stakeholders, not only now but in the future as well.

So moving on to the next part of the presentation, I would like to hand over to Gerard, who will explain more about our financial results.

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [4]

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Thank you, Eelco, and a very good morning to everyone. Thanks for joining us today. I will update you further on the financial performance and financial framework, and for more details, I refer you to the 2019 half year report, which we published this morning.

Let's turn to the key messages of today. Our financial performance in the first half of '19 was solid, and we have momentum with our portfolio transformation. Occupancy of our assets is within range, taking into account our intervention in fuel oil. And this is particularly visible now in Singapore and Rotterdam due to the out-of-service capacity for planned IMO 2020 conversion.

Earnings measured as EBITDA came in at EUR 423 million, an increase of EUR 52 million, reflecting good performance from new assets and joint ventures, but also included revised accounting for land lease commitments under IFRS 16.

The net profit for the first half year was EUR 173 million, resulting in an earnings per share of EUR 1.35, a significant increase compared to last year. Our cost-efficiency program to support margin development and reduce the 2019 and future cost base is well on track.

Now turning to cash. We delivered EUR 352 million cash flow from operations, demonstrating the resilience of the portfolio in the period where we have high out-of-service capacity over several quarters in 2019 due to the conversion of IMO. Across all segments, we will invest approximately EUR 1 billion in new capacity growth in the period '17 to '19, and we will continue to invest in growth of our global terminal portfolio and expect our growth investment momentum in 2019 to continue in 2020.

Turning to the half year results relative to 2018. Let me take you through the results on this -- as shown on this slide. As of January 1, we started to apply IFRS 16 for lease accounting, and reflecting the long-term land lease commitments on our balance sheet and P&L. So to make the results transparent for this year, we will provide pro forma numbers that exclude IFRS 16 effects to allow comparison to the results with previous years. You will see EBITDA, excluding exceptional items of EUR 423 million and adjusted for IFRS 16, the EBITDA was EUR 27 million higher than prior year. Strong performance in Asia and Middle East and also in China and North Asia, reflect the contribution from joint ventures, including the new industrial terminal PT2SB in Malaysia and also our oil hub terminal in Fujairah that increased occupancy rate in the quarter and our industrial terminal Haiteng in China that we started operations mid-last year.

In Europe and Africa, the division shows a reduced financial performance. This is mainly driven by the high amount of capacity that was out of service due to the planned temporary conversion projects taking place in Rotterdam. Meanwhile, our assets in Algeciras, Amsterdam and Hamburg, that are held for sale, contributed approximately EUR 35 million in EBITDA this year, and that performance is in line with expectations.

Turning to the Americas. Performance in the Americas was supported by the good business environment in the chemical segment and the new LPG export facility in Canada. On account of our first 5 portfolio across different product segments, we delivered a return on average capital employed of 12.6% in the first half year of 2019.

Let's take a closer look at the divisions now. Occupancy rate in Europe and Africa and Asia, Middle East, reflect, as already mentioned several times, the IMO conversion projects in Singapore and Rotterdam. The chemicals and gas occupancy rates have been very stable, which is mainly noticeable in our numbers for the Americas and the LNG division.

Turning to the second quarter relative to the first quarter of this year. EBITDA for the second quarter came in at EUR 208 million, and the reduction in Asia and Middle East was explained, again, by the IMO conversion project that started in the second quarter and for Singapore will last into the third quarter. At the same time, the first quarter was very strong with support from some short-term contracts in the fuel oil space. In Fujairah, occupancy rate in the second quarter increased, and we saw increased activity levels for Fujairah. The main contributor for this quarter was a strong cost performance in Europe and Africa and a good chemicals business environment in the Americas. In addition, support in the Americas came from new capacity from the Ridley Island Propane Export Terminal in Canada that was commissioned mid-April.

Turning to cash flow. The first half 2019 delivered a resilient cash flow from operations. We delivered EUR 352 million cash flow from operations, which resulted in almost EUR 200 million free cash flow before growth. We have investment momentum and invested already EUR 212 million this year in growth projects. Our senior debt position, excluding IFRS 16 liabilities, grew to EUR 2.1 billion as a result of our investment in growth. The EUR 140 million shareholder dividend in the second quarter and the repayment of a subordinated debt position resulted in an increase of the existing revolving credit facility, all according to plan. The senior debt-to-EBITDA ratio stood at 2.99 at the end of June and, again, in line with our plans. Our cash flow from operations, combined with our strong balance sheet, provides us the position to keep investing in our project portfolio to create shareholder value.

Turning to our investment facing. We break down our investment in growth investments and other investments. In the period 7 to -- '17 to '19, we invest approximately EUR 1 billion in growth, either through CapEx in subsidiaries or through equity injections in joint ventures and associates. And in line with the timing of growth projects, we expect roughly EUR 0.5 billion of growth investment for this year. We're well positioned to continue to invest in growth of our global terminal portfolio in the year 2020 and beyond.

Let's take a closer look at the fuel oil network. I've mentioned before that we're converting and reducing our 5 million cubic meters of fuel oil capacity, which was predominantly focused at high sulphur fuel oil and reducing that -- sorry, to roughly 1 million cubic meters of high sulfur fuel oil and 2.5 million cubic meters of low sulphur fuel oil and flexible lineups. So 3.5 million in total, coming from 5. In April, 1 million cubic meters was divested when we sold our Estonia position. Conversions in Fujairah are done and conversions in Rotterdam and Singapore are at its peak these months and will be ready to support new market requirements as from the fourth quarter. Commercial progress has been good. And in previous calls, I mentioned that we had good commercial traction in Rotterdam and Singapore, but that Fujairah was trailing a bit. Currently, that has changed, and Fujairah has actually picked up, and we've seen good commercial contracts and position in place in all 3 locations for practically all fuel oil capacity that will be converted.

Turning to our proportional information, we provide additional performance insights on a comparable basis for subsidiaries, joint ventures and associates by means of proportional data, showing the interest on a economic basis in our entities. The non-IFRS proportionate information provides transparency in the underlying performance and cash flow generating capacity. The pro forma proportional EBITDA, excluding exceptional items for the first half year, amounted to EUR 453 million.

Let me recap the key messages. Our financial performance in the first half year was solid, and we delivered an increase in EBITDA and a significant increase in net income versus 2018. We have momentum with our portfolio transformation through investment in new capacity, and we look at the future with confidence. We will maintain our focus on performance delivery and long-term value creation. Let me close out by looking ahead. Vopak continues to invest for growth, and we have cumulatively in '18 and '19, delivered 2.1 million cubic meters of the 3.2 million cubic meters of expansion towards the end of the year 2019. Total growth investments amount EUR 1 billion over the period '17 to '19, and we have good momentum in the spending of that investment. Fuel oil capacity conversions for the IMO 2020 bunker fuel regulations are progressing well, with peak out-of-service capacity at this moment and to continue in Q3. All planned conversions are rented out, and we will be ready for new market requirements as from Q4 2019. We're well positioned to further grow our global terminal portfolio in 2020 and beyond.

This concludes our prepared remarks, and I will now turn the microphone back to Alexandra, our host of today to -- our moderator of today, to facilitate the Q&A. Over to you, Alexandra.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from Juri Zanieri from Kempen.

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Juri Zanieri, Kempen & Co. N.V., Research Division - Analyst [2]

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This is Juri Zanieri from Kempen speaking. Congratulations on the results. A couple of questions on my side. I was wondering if you can provide a bit of light on the Malaysia legal case that is currently going on? Second question, if you can provide a bit of expectation on occupancy for the next quarter in Asia and Middle East, considering the ongoing political concern? And the last question would be helpful if you could guide. I mean, focus is still going to remain on growth, we do understand that. But wondering whether you can indicate what the use of the cash proceeds from the latest divestment is going to be?

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [3]

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Juri, thank you. I will shed some light on the Malaysia legal case. First of all, I think there's not much to mention there, Juri, apart from what we have informed you on. We received, what we consider to be, a frivolous and baseless case made against the joint venture in Malaysia, a party that has contested already a land dispute with the central government in Malaysia and failed in the last 6 years and has tried to open up a dialogue with the joint venture partners. We have basically received it and what we'll do is we'll work through the different elements in the court system accordingly. So there's nothing more to mention at this stage apart from the fact that we consider this case to be baseless, and we'll just have to work through it.

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [4]

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Should I take the other questions on growth and cash proceeds first? And by the way, just a clarification on the Malaysia case, Eelco said, has engaged, of course, what we mean it has engaged through the court, we're not engaging otherwise.

On the growth, the -- what we said is we maintain momentum in our investment going into 2020. So what the context is in 2017, '19, we had a program of EUR 1 billion. It's not equally spread over the years, as you know, but it gives a good indication of what we can do. We will carry that forward in 2020 with 1 to 3 investment decisions being progressed in LNG and industrial terminals, so it gives the same expectation, I think, going forward. That expectation of investment is backed up by projects in our new business development cycle, an existing approvals already in place.

With respect to the divestment progress. We are working our way through the closing conditions, of course, this is in 3 jurisdictions. So it's quite some work involved to work our way through. What we will do next when we complete -- if and when we complete, we will then update you further on the use of the cash proceeds, as we indicated before. Meanwhile, the contribution from the 3 assets, Amsterdam, Algeciras and Hamburg is as per plan in the first half of the year, EUR 35 million EBITDA contribution. And there's nothing more at the moment to say about that process.

In terms of your second question, on expectations in Asia. I think there's two points to be made. One is specifically on IMO, the bit that we control, if you wish, at the moment, across Rotterdam, Singapore, the total conversion capacity being shut in is about 1 million cubic meters. So that is about 2% to 3% on the reported occupancy rate that will last into the third quarter. In terms of general conditions, trade sanctions, business activity, GDP momentum, et cetera, we do see some changing patterns in flow, for instance, the exports of ethane from the U.S. into India versus perhaps China. We also see high activity levels on chemicals in Singapore, and the same activity levels from chemicals in the U.S. Also, what we report in our Asia numbers is the Fujairah position, although that is in the joint ventures and not in the subsidiary occupancy, but the activity levels in Fujairah are, as I indicated, satisfactory and much improved relative to what we saw before. What we do have to do is take specific care in Fujairah, of course, with the compliance sanctions and that means that we need to exercise our processes and checks and balances with professional care, which we are doing, of course, and manage our operations accordingly. I think that gives a flavor of the business activity levels in Asia, as per your question, and I think we can probably move to the next question if there is one.

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Operator [5]

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And our next question is from David Kerstens from Jefferies International.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [6]

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First question on the Asia, Middle East occupancy rate, it fell from 92% in Q1 to 80% in the second quarter. Is that all related to IMO 2020 conversions? Or do also other factors play a role, such as, for example, increased competition with new competitive capacity opening up? Second question related to this is, how quickly do you expect that occupancy rate of 80% will come back in the fourth quarter? In Rotterdam, you have this contract with Maersk, what was about the coverage -- the contract coverage in Singapore? Second question related to Fujairah, you highlighted the increased activity levels. What is the impact or what will be the impact of the increased political tension in the region, and I think some container liners, they have said that they will bypass Fujairah for bunkering out of safety concerns. Will that have any impacts on the IMO recovery that you anticipate for Fujairah going forward?

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [7]

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David, this is Eelco. I can answer your first question on Asia, Middle East. Since this is a number about the subsidiaries, it has a -- the effects of Singapore is the largest on that number. And I can, indeed, confirm that most of it is related to IMO 2020 conversion. Actually, it's really driving this with significant effect is the IMO 2020. If you look at the conversion for Singapore, it will be heavily executed during the -- let's say, the latter part of Q2, but particularly throughout Q3 and similar to Rotterdam, we have been able to secure contracts in Q4. So what we expect is that we'll see low occupancy in Q3 and a limited contribution from fuel capacity in Q3, but we expect a full recovery and a rebound from the levels that we have seen historically in Singapore. So I hope that addresses your question.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [8]

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And the contract in Rotterdam, is that as of the fourth quarter? So does that kick in from October 1, or later?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [9]

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Also there, we've said, the fourth quarter will be -- also there, it's a similar timing, full work, it already started in Q2. Full work in Q3 to get it organized and then the rebound in Q4 back to historic levels. So I think it's the reality we have to work through. And again, there the contracts have been secured for Q4, which makes us comfortable to make that statement.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [10]

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Yes, also a question on Fujairah on the geopolitical role.

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [11]

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Geopolitical situation, I think it's a good question, David. I think roughly a quarter of the oil that is produced globally moves through the straits and roughly 1/3 of the gas. So it's an important part of the geopolitical, let's say, agenda. Most of that product is moved, as you might know, to Asia, momentarily, about 60% of that. We have seen in Fujairah and that's the reason why we've always supported that location and started it in the '90s. Since the location of Fujairah is just outside the Strait of Hormuz, it has already been seen historically as a relatively safe position to store fuels, and it is the easy access to global seas. And we've actually seen increased and very quick take-up of tankage in Fujairah, I think, partially because of the tension in the Strait of Hormuz, where people want to secure oil outside the strait today. So the -- it is something that we need to look at closely. But so far, it has supported our position in Fujairah instead of diminished the importance as such.

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Operator [12]

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(Operator Instructions) Our next question is from Andre Mulder from Kepler Cheuvreux.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [13]

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Two questions. Firstly, you talked about changing patterns. Have we seen any change in quantities? Secondly, looking at the drawdown from the 5 million capacity to 3.5 million. That includes, of course, the 2 terminals for sale, but I'm still missing something like 0.5 million cubic meters, where has that gone?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [14]

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We are taking -- thank you, Andre, for the question. For the 5 million where we started, there is 1 billion being divested from AOS. There is some capacity, which is taken out of the equation because we're converting it to other purposes. So it's not only conversion within fuel oil from high sulphur fuel oil to low sulphur fuel oil and mixing and matching those positions, but we're also converting some capacity either into perhaps [deslits] or into crude. So that is probably what is not visible to you. There is limited in that 5 million fuel oil capacity. There's also a limited contribution in that from Algeciras in Spain, and there's a limited contribution from Hamburg in that position. But that is not what -- I would say that is not the bulk of the moving parts. The bulk of the moving parts is AOS and conversions. And then we are left with 3.5 million, which is mainly Rotterdam. It is Singapore, Fujairah and then we have Panama, which is being progressed, which is on the Atlantic side of Panama. As you know, traditional bunkering in Panama is on the Indian ocean side, not on the Atlantic side. Atlantic side is particularly attractive because the fundamental advantage of the Gulf of Mexico abundance of resources and exports, and of course, a short distance between that major supply point and the Panama -- the Eastern side of Panama. And then we have Los Angeles, which also has as a bunkering position. And then I think you've got a good picture of the moving parts in fuel oil.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [15]

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Okay. This first question, you talked about the changing pattern from the U.S. to India, instead of China, any change in quantities there?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [16]

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Maybe -- my quick response and maybe Eelco wants to add to that. I don't think we've seen a pickup in volumes that is noticeable to me, but we do see shifting patterns, either because of trade sanctions or because of abundance of supply from the U.S. We've seen our first cargo, for instance, on crude as well in the Rotterdam port. You see the ethane changing pattern from the U.S. into India. But I have not seen -- I'm not aware of significant uptick or downtick in commercial activity in aggregate, but perhaps Eelco can give some more new answers and total oversight.

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [17]

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I can say a few words on that. I'll concentrate on chemicals and petroleum products, so not particularly on crude and LNG because I think that's a smaller part of our portfolio, and that's not where we've seen the major changes. First on petroleum products. I think the most noticeable thing is the -- and this is nothing to do with sanctions, but more of the general environment is the importance of the United States refining basin for, what I would call, Latin America and the importance of the Middle Eastern buildup of refining, and you see that China has buildup refining. And so what you see is that we see, let's say, buildup of that product, for instance, moving into Mexico, moving towards Latin American countries out of the United States. That's very clear, where you see a change happening. We've seen also more Chinese refining excess capacity coming into Singapore and wanting to sell in global markets, adding to liquidity that was already there, mostly sold then into countries like Indonesia or Australia. So that's an effect of the petroleum sector. So we've seen distribution terminals where we are already active. For instance, in -- Mexico is a good example, South Africa, Australia, a stronger demand and also in the forward-looking stronger demand there because of that. If you look at the chemical products, again, I think it's a bit of similar pattern, and you see a buildup in the major either consuming countries, besides China or in -- or in the Middle East and the United States pushing products into global markets. And there we've seen, at least, and it was the comment Gerard made, temporarily Singapore being more active in creating opportunities for products that are not allowed to enter into China and seeking its way in other geographies. So that is -- that has supported us in that part of the world. And by in large, it's interesting to see that, and this is, again, not from a sanction perspective, or not, per se, but we see, for the first time, for instance, crude from United States and substantially more LNG possibly from the United States coming into Europe since they're not allowed to get rid of their products into China. So that's -- those are the predominant movements, which we've seen in the last quarter, Andre.

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Operator [18]

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(Operator Instructions) Our next question is from David Kerstens from Jefferies International.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [19]

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Just a follow-up question on the bunker fuel mix that you showed in the presentation. I think it's unchanged compared to what you presented at the Capital Markets Day back in November. And I was just wondering if you do see any potential changes in the bunker mix going forward. I understand the scrubber manufacturers recently called out very disappointing order intake for scrubber installations, post-2020, suggesting that we had the use of high sulphur fuel might only be a temporary -- doing for a temporary period. Will that have any impact on any future conversions you might have to do post-2020? And how much CapEx would be related to that?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [20]

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Not at this stage, David. We don't see any -- we don't see need to change our strategy.

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [21]

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And the other point is the lineups that we're doing and the interaction with our customers also focus on flexibility. So people anticipate that you don't know the exact mix yet. Therefore, flexibility is a optionality, which is valuable to all suppliers, end customers. And therefore, our facilities need to accommodate that and we are preparing for that. So it's not boxed into single-use, you can mix and match.

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Operator [22]

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And our next question Juri Zanieri from Kempen.

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Juri Zanieri, Kempen & Co. N.V., Research Division - Analyst [23]

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Sorry, just a follow-up question. I had some issue with the line, I might have missed it. I was wondering, again, about the divestment of the terminals. Are you still comfortable that all the -- they will be executed by year-end? And maybe if you can give a bit of guidance, where you would expect by end of Q3 or Q4?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [24]

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Thank you, Juri. I think I did, indeed, already answer the question, but apologies if the line fell away or maybe the line at your end fell away, but we are working our way through the closing conditions. We are working through 3 assets in -- 3 different set of circumstances, we just need our time to do all of that work. We will update the market at the time when we complete or when we have news to share. Also, we will be consistent with our earlier message that we will only discuss any distribution or investment of that capital into our funnel at the time when the funds are actually available and not before that. Meanwhile, on the business itself, the 3 assets that are in play here, which is a Amsterdam, Algeciras and Hamburg, are performing as they should, combined, they make a contribution of EUR 35 million EBITDA in the first half of the year. So the assets remain quality assets. They remain to do what they're supposed to do and there's no distraction from that point of view in making a contribution to the bottom line. So Juri, that's the update. I apology -- apologies for repeating the same response as I gave earlier, but hopefully, this time, the line was open and clear.

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Operator [25]

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And our next question is from Quirijn Mulder from ING.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [26]

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My question is especially with regard to the Deer Park. Can you maybe elaborate or update us with regard to the situation there? And have you already started some negotiations or discussions with ITC about maybe their consideration about the situation there and the safety, et cetera, records?

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [27]

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Just an update on Deer Park. I think we've had a interruption of 1 month of operations at Deer Park, in which we were not capable of loading or discharging ships predominantly and very limited trucks and no trains. So it took us about a month out of operation. In the meantime, we have -- we started up our operations as per normal. So we've -- we are in full operation again in Deer Park. You've seen that we've taken a decision also to expand our terminal, again, Quirijn, which was announced today. In addition to the expansion we announced last year, we see another moderate opportunity in size, but an important opportunity, again, to serve several important customers in India parks. So everything is going in that sense according to plan.

And ITC, and I think that you need to ask ITC how they are going to inform the market on their continuation of business. So I cannot comment on that, nor have we engaged in any major dialogue on that subject. So also, they have to work through their issue on the course of this year, next year, no doubt. So there's not much there to inform you on at this stage.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [28]

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Okay. But given the authorities and the strictness, et cetera, in the U.S., especially in that area and the consequence of this fire. Is there any cost -- sort from your side about the position of ITC so clear -- ITC in that part of the U.S.? And then secondly, are you going to reclaim some cost to ITC or Mitsubishi?

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [29]

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Again, I think if you want to know the position of ITC and what their thought is on how to progress, I think you should ask them. I think it's a bit unfair to comment from our perspective since simply, we do not know the content of their dialogue or the situation that they're in. So that would be just speculating. And secondly, I think we also do not make any reference to claims or any litigation that we start against other parties. So I decline to comment on that.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [30]

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Okay. And then with regard to LNG terminal in China and in Germany. Can you maybe elaborate on that, maybe to update on that development there?

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Frits Eulderink, Koninklijke Vopak N.V. - COO & Member of the Executive Board [31]

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Yes, I think we can -- this is Frits Eulderink speaking. I think we are progressing to plan, I would say, with both of them. In China, we are awaiting basically the federal decision on the priorities for the various LNG terminals. And expect that we will hear before the end of the year, what the priority of our location is in that regard. And in Germany, we have noticed strong customer interest, and we are just progressing with the project as per plan.

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Operator [32]

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And our next question is from Andre Mulder from Kepler Cheuvreux.

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Andre F. M. Mulder, Kepler Cheuvreux, Research Division - Analyst [33]

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I have two remaining questions. Firstly, on the size of the high sulphur fuel oil, 30%, and then also a piece in the flexible part. To what extent have you taken noncompliance into account? Because that seems to be quite an item in this respect? Secondly, normally you would deconsolidate terminals, so if you have the idea that you're going to round off an acquisition, the deconsolidation of sale within 12 months. What's the reason that the terminals are still in there?

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [34]

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Let's take the second one first. The held for sale status is as per the accounting guidelines. So what the consequence of that is, is that we stopped the depreciation, as you know, on those assets. So you see that in your EBIT number. Otherwise, it is normal process. When we complete a sale, then you true-up the numbers in the sales proceeds accounting, and you show the numbers accordingly. So I don't think there's anything not transparent in that part. In terms of the -- I've given you the EBITDA numbers of the 3 terminals, extra information so that you have a feel for what's going on there. In terms of the compliance expectations of the new fuel oil market conditions and regulations, I think the regulator, authorities and whom effort is involved in this continuously signal and send and confirm the same message that compliance will be enforced or monitored and enforced. So from that point of view, I think it will be a feature of the market. There's also been noise earlier. I have not heard that recently of could it be delayed? Could it be pushed back? Or again, I don't think there's any signal on that in terms of scrubber activity that was mentioned earlier in the call as well. I think the level of scrubbers in its own right doesn't change. I think any of the dynamics of the lineup of our capacity. It does make a difference into what type of system a ship might install, whether it's a closed-loop or a different scrubber system in terms of how they are allowed and complete their entry into port and their exits and under what conditions they can operate the vessel. I think all of that is being played out, Andre. I don't think there's an expectation on compliance that impacts our thinking, particularly, but perhaps Frits can supplement even more.

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Frits Eulderink, Koninklijke Vopak N.V. - COO & Member of the Executive Board [35]

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Yes, I think maybe one key factor, Andre, to keep in mind is that there's also alternative use of fuel oil beside bunkering. So industrial use in some areas is still allowed even with high sulfur. So I think we anticipate there will be strong enforcement. Like everybody else, we will have to see how that is practically done in the mid-Ocean, but together with our customer, we are prepared for, I would say, the variance that, that may entail and, yes, depending on how that pans out more or less of the high sulphur fuel oil will end up into industrial users.

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Operator [36]

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And as there are no further questions. I will now hand over back to Eelco for finishing comments.

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Eelco M. Hoekstra, Koninklijke Vopak N.V. - Chairman of the Executive Board & CEO [37]

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Thank you very much, Alexandra. Yes, first of all, I would like to thank you all again for listening in to our call. I'm very much aware that these are busy times. I have several colleagues on holiday and multiple companies that are releasing their results today. So thank you for spending time, listening to our call and show interest in the results that we've shown. You can expect the Executive Board to put in full effort in the second half year, again, in the execution of our strategy. And again, it will all come down to delivering the results in the next quarters and changing and shifting our portfolio for future use.

So once again, thank you very much, and I wish you a very good summer.

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Operator [38]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.