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Edited Transcript of VPK.AS earnings conference call or presentation 21-Apr-20 6:45am GMT

Q1 2020 Koninklijke Vopak NV Earnings Presentation

Rotterdam Jun 9, 2020 (Thomson StreetEvents) -- Edited Transcript of Koninklijke Vopak NV earnings conference call or presentation Tuesday, April 21, 2020 at 6:45:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gerard B. Paulides

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

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Conference Call Participants

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* David Kerstens

Jefferies LLC, Research Division - Equity Analyst

* Juri Zanieri

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

* Luuk Van Beek

Banque Degroof Petercam S.A., Research Division - Analyst

* Quirijn Mulder

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

* Thijs Berkelder

ABN AMRO Bank N.V., Research Division - Equity Research Analyst

* Thomas Yoichi Adolff

Crédit Suisse AG, Research Division - Head of European Oil & Gas Equity Research and Director

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Presentation

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Operator [1]

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Hello. And welcome to the Q1 2020 interim update. (Operator Instructions)

Today, I'm pleased to present Gerard Paulides, CFO of Royal Vopak. Please go ahead with your meeting.

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [2]

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Good morning. Welcome, ladies and gentlemen, to the first quarter 2020 interim update of Royal Vopak. I would like to cover a few topics in today's call. First, I want to share Vopak's response to the COVID-19 crisis. We're working hard to manage the company and benefit from our discipline in governance and IT infrastructure and a dedicated workforce stepping up to the task. We're often part of what is classified by governments and authorities as critical infrastructure, and we continue our business of storing vital products with care. Secondly, I will update you on our good first quarter results, growing our EBITDA post-divestments in these first 3 months.

My prepared remarks will refer to the analyst presentation as published on our website. And after this presentation, there will be time for questions. For the follow-up, you can always contact the IR team.

Before we start, mandatory moment to look at the disclaimer, the forward-looking statement. The clarifications in the statement should be taken into account with respect to any looking ahead comments and/or guidance provided. Accordingly, this disclaimer is applicable to the entire call.

Let's move on. COVID-19. I first want to thank all the people working for Vopak for their extraordinary efforts and commitment to keep our company performing well. These are very unusual times, and the changes came to us all suddenly and abruptly. Everybody within Vopak has responded very well. I also want to thank our employees and their partners, customers, contractors, neighbors, authorities, financial debt and equity holders for working constructively and in good cooperative spirit together in these times. More generally, all the people who are stepping up in society with many individual or collective heroes who contribute to good in society like teachers, police, people in healthcare, but also many in governments who do their level best.

The COVID-19 outbreak is having a growing impact on the global economy. And as such, also impacts the Vopak organization and its business operations. Effective measures have been taken to manage the crisis situation. Vopak has been making use of a global crisis management structure that is functioning well. The Vopak crisis management structure is based on 3 guiding principles, and we prepare for all scenarios. Our first priority is to protect the health and well-being of our people, their families, the communities in which we operate and strictly follow the local government instructions.

Volpak plays an important role within society by storing vital products with care. We are doing our utmost during the COVID-19 pandemic to continue to fulfill this role in all our 66-plus office locations around the world. Second guiding principle, we have implemented business continuity plans in all our terminals, aimed at preventing the virus from spreading and to ensure the safety and continuation of our company and are visiting supply chain and customers as much as possible.

All 66 terminals are currently operational to serve our customers. If and where possible on the attitude of business as usual, in unusual times, is kept in order not to procrastinate decision-making. We want to continue our business by taking decisions in a timely manner.

Thirdly, our attention is on the short-term delivery in today's conditions and protection of long-term value. We have observed a limited impact on our day-to-day operations as a result of these measures. All is relative, of course, when I make this statement. It is too early to assess the extent and nature of the full impact and future developments, including the delays of projects under construction, general operating and market conditions and currency movements. Our growth projects are progressing, but we're also experiencing naturally some delays. And we'll see that in China, Indonesia and Belgium, for instance, due to the lack of availability of contractors.

We also experienced delays in South Africa as a result of the stringent lockdown restrictions in that country. But we have good developments, we've good developments by commissioning capacity, and we've recently started the expansion capacity, for instance, in PITSB in Malaysia.

The COVID-19 virus is having its impact on the market in which we operate. Global oil demand is in a downward spiral with significant demand restriction for many oil products such as jet fuel and gasoline. This leads to increased interest in oil storage globally. We see this in the hubs and other locations such as Canada and Panama. The effect of this is expected to gradually materialize as from the second quarter of 2020.

The chemical sector is also showing supply chain difficulties with shifting patterns of demand and supply. This started in China and is now more visible around the globe. The chemicals industry was already facing the start of a down cycle in the second half of '19, which accelerated with the impact of the pandemic. Chemical performance may be challenging as we progress through the effects of this great lockdown, societal and economic period.

Our performance in China and South Korea in the first quarter was good given the circumstances and actually more or less comparable to a year ago. This is interesting given that the pandemic, of course, was first started in China and visible in China and South Korea.

Natural gas prices have dropped to historic lows. The momentum for re-gasification is positive due to the increased competitiveness in price.

Our 4 liquefied natural gas terminals operate commercially as per plan. Some customers have been calling on Vopak to request flexibility to overcome this difficult period for them. These requests range from shifting throughput allowances to easing of payment terms. These requests are carefully and constructively reviewed on a global level, taking into account the long-lasting relationships with customers and the interest of Vopak as a quality company.

We are continuously monitoring developments and are alert for the constantly changing business environment. We have emphasized and rely on our governance structures, and I'm very happy to report that they are functioning well. We are well connected, and we are in control. We even went live with some of our new IT systems, our cloud-based financial system in Northwest Europe and also our cloud-based My Service system where we implemented an upgrade in Deer Park in Houston only in March.

Let me shift to some of the key messages for the first quarter now. We've responded well to the COVID-19 outbreak. Within Vopak, we've seen China and Asia take the lead, and we have learned from their efforts and measures taken. And as a result, once the COVID-19 virus became a pandemic and affected all regions, we could respond quickly and set up an effective governance and communication structure to manage the crisis globally with continued decision-making to support business execution and well-being of people.

Commercially, of course, we've seen the activities pick up significantly in March and that will show in the results going forward.

Financially, we've delivered a good performance in the first quarter. Earnings measured as EBITDA came in at EUR 200 million, and adjusted or taking into account the divestments, this is an increase of EUR 3 million. This reflects resilient business performance, including IMO 2020 converted capacity, which is now functioning and good business performance from joint ventures.

Net profit was EUR 83 million, resulting in earnings per share of EUR 0.65, and that is the same as a year ago, not even correcting for the divestments.

The recent contango developments in the oil markets are expected to be supportive for our oil storage occupancy rate in the following quarters. Our proportional occupancy was 86%, an increase of 2 percentage points and reflects good performance of joint venture oil terminals and continued strong performance of our joint venture gas and industrial terminals.

Occupancy rate for subsidiaries was 84%. This reflected high levels of planned inspection and maintenance out-of-service capacity, mainly in Rotterdam, including chemicals, and in Singapore. Oil demand for storage is strong, but this is not yet visible in Q1. And in Q1, we took 1% more chemicals assets out of service, which is also shown in the 84%.

Our balance sheet is robust. With a senior net debt-to-EBITDA ratio of 2.65 at the end of the first quarter 2020 versus 2.75 at the year-end, an excellent cash flow is driving this improvement.

Free cash flow provides a good basis for conducting business in today's world. The liquidity position is strong with EUR 175 million cash and cash equivalents and EUR 770 million remaining flexibility under the committed EUR 1 billion revolving credit facility which has a maturity date of 2023.

In terms of strategy delivery, we've completed the divestment of the terminal in Algeciras in Spain in January. This completed the divestment program of the terminals in Algeciras, Amsterdam and Hamburg with a total exceptional gain of EUR 200 million. On the high non-divestment, we reported an exceptional gain in Q4 and mentioned an additional amount, not yet recognized, of approximately EUR 30 million subject to resolution in 2020.

Discussions on Hainan continue and progress is being made. In quarter, we delivered new capacity as well, despite of the challenging conditions which we see all over the world. We delivered 235,000 cubic meters of new capacity for our growth projects in Malaysia and Vietnam, one as an oil asset, the other one as a chemicals asset.

Today, we announced our initial investment in Vopak Moda in the Houston terminal. We will construct 46,000 cubic meters of capacity for the storage and handling of chemical gases, including a new jetty in the Houston ship channel. The storage capacity has already been fully rented out under long-term contracts. Implementation of our digital program remains on track. Release 6 of the terminal management system software was delivered, and we went live, as I already mentioned, in Deer Park in Houston in Q1. We now benefit from the strong IT infrastructure.

We reiterate our outlook to grow EBITDA over time. The positive effect of contango oil markets and the effects of COVID-19 which may also impact the general economic GDP, of course, and operating conditions in general will influence performance. We focus on short-term delivery, as I mentioned in today's market and protecting of long-term value by executing our strategy.

Let me take you through the results on the next slide. EBITDA, taking into account divestments was EUR 200 million, and that is a EUR 3 million increase compared to last year. This reflects resilient business performance in a unique quarter this year. Strong performance in the Americas division was supported by the good contribution of new assets in Canada and Panama and the recently commissioned growth project in Brazil due to performance of the LNG division benefits from the growth of the portfolio in Pakistan and Colombia last year. The Europe and Africa division post divestments performed in line with last year.

IMO 2020 capacity in Rotterdam is fully operational and contributing to the results. At the same time, we do have out-of-service capacity for maintenance and inspections. Also at the chemicals terminals in Botlek and in Europoort.

China and North Asia performed in line with last year, although operating cost levels were somewhat higher this quarter. This includes the early lockdowns in China and South Korea and shows how well this division actually performed under these conditions. Our exposure in China and Korea is mostly chemicals, by the way.

Performance in Asia and Middle East reflect a strong contribution from joint ventures, such as Fujairah, in the Middle East and Pengerang, in Malaysia, which was offset by performance in Singapore in this first quarter. The portfolio delivered a return on average capital employed of 11.5%.

We shift to divisional segmentation. The Americas division continued its upward performance trend, although occupancy rate was slightly lower. The Asia & Middle East division and the China & North Asia division demonstrate an upswing in occupancies. The IMO converted capacity in Singapore was operating the full quarter after the operational ramp-up in Q4. China & North Asia division benefited from increased spot opportunities driven by supply chain uncertainties.

Performance of Europe and Africa reflected divestments, whereas the occupancy rate reflects the high level of maintenance activity. In fact, if you look at this occupancy, then if you take our typical range of 85% to 95%, then the delta is about half, maintenance, about half commercially available.

Continuing to compare Q1 to Q4. EUR 200 million EBITDA for Q1 reflected good performance of the portfolio, including growth projects, compensating some one-off contributions in Q4 in China and Singapore and taking into account a relatively minor effect from Q4 to Q1 on divestments. All in all, a comparable result which is, again, as far as I'm concerned, a very good outcome.

Other divisions reflect the many moving parts of the performances for Q4 last year. These divisional items included commercial settlements last year in Haiteng and Singapore, as you recall from our last call.

Looking at -- a bit more at the out-of-service capacity. Occupancy rate for subsidiaries of 84% reflected high levels of planned inspection and maintenance out-of-service capacity. In the Q3 and Q4 calls, I commented already that we have out-of-service capacity for maintenance and inspection, particularly in Botlek, in Europoort and in Singapore. We are executing a service improvement program at our Botlek chemicals terminal cluster in Rotterdam, where infrastructure is being upgraded to strengthen our chemical storage positions.

Total storage of the Botlek cluster is 1.4 million cubic meters. And out of service of that 1.4 million is 250,000 cubic meters. This in its own right is a 1 percentage point delta at the total Vopak level. This capacity will come back into the market gradually throughout the year. We've done similar programs successfully and are benefiting from that at this moment earlier in Europoort and in Vlaardingen.

We also -- sorry, we're also expanding the Botlek asset with new styrene capacity for the growing storage demand. Another example of out-of-service is that we are preparing our allowance half an asset in Rotterdam, which is connected to the Europoort facility to capture opportunities from contango. Four tanks of 60,000 cubic meter each, longtime idle are now being made operationally quickly to make available in the contango market that occurred abruptly early March.

The recent contango developments are supportive for occupancy rates in the oil segment. Our fuel oil capacity of 3.5 million cubic meters already occupated at -- operated at high occupancy after our interventions last year, and Panama is now filling up, too. Panama is the asset, we started up partly in Q4, partly in Q1. All of this is reflected in our present occupancy rate. Tank inspection and maintenance work are continuing despite COVID-19.

Our proportional occupancy was 86%. This number includes the performance of subsidiaries and of joint ventures, whereas the traditional occupancy that we report only concerned subsidiaries. So 86% is subsidiaries and joint ventures, representing our economic interest in our terminal network. The increase in last quarters was mainly the result of good performance of joint venture oil terminals in Asia and the Middle East and continued strong performance on our joint venture gas and industrial terminals.

Proportional occupancy is becoming more relevant as the share of joint ventures and associates in our portfolio, and therefore, our financial results is increasing. We will report both numbers, and we will comment on both numbers, but the shift is towards the proportional number.

Let's move to the cash flow. This quarter, we delivered a solid cash flow of EUR 143 million. Sustaining service and IT investments were EUR 57 million, and include investments for maintenance and inspection of out-of-service capacity. Our cash momentum is in Q1, driven by the EUR 135 million cash inflow from divestments of Algeciras, and EUR 85 million financing and repayment of our preference share capital in the industrial terminal in Malaysia. Investment in growth projects led to EUR 132 million investments in Q1.

As a result, our free cash flow generation has been very strong at EUR 171 million and reduced our net debt position to EUR 1.7 billion.

Let's now look at the balance sheet and the liquidity position. Our balance sheet, as I said, is robust. Our senior net debt-to-EBITDA ratio was 2.65 at the end of Q1. In the target range of 2.5 to 3, which we've discussed before and compared to a higher leverage of 2.75 at the end of 2019.

We aim to have a robust balance sheet, and we now benefit from it with sufficient flexibility to execute our strategy and manage these extraordinary market conditions. The funding of the company is one of the priorities to execute our strategy and to continue to invest in growth. Our liquidity position is strong with EUR 175 million cash and access to EUR 770 million under our EUR 1 billion revolving credit facility.

Of course, additionally, we have access to the private placement debt market. Our financial framework and priorities for cash are unchanged. The amount of available cash is higher than in normal circumstances for the purpose of operational cash management. This means that the growth investment, shareholder dividend over 2019 and the gradual share buyback program and debt maturity schedule are well covered.

Let's look at some investment phasing further. We break down our investment in growth investments and other investments. For 2020, growth investment could amount in the range of EUR 300 million to EUR 500 million, as previously communicated. Some projects may be delayed a bit as a result of COVID-19 working conditions, and the same applies for some of the commissioning activities. However, my current expectation is that we will be able to operate at the higher end of this range of investment of EUR 300 million to EUR 500 million for 2020, which is a good thing.

Our growth program currently stands at sanctioned capacity of 1.5 million cubic meters of growth for the period of 2020 and 2021. Maybe this straddles a bit into 2022, given operating condition also for construction and commissioning.

Vopak may invest EUR 750 million to EUR 850 million in sustaining and service improvement CapEx in the period '20 to '22, and this is unchanged from our previous guidance. And this includes some investment in service improvements for the chemical terminals like Botlek, as I mentioned.

We spend about EUR 30 million to EUR 50 million

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at Europoort.

Turning to proportional results. Performance of joint ventures and associates is becoming increasingly more important, as I mentioned. With our joint venture assets in Canada, Colombia, Pakistan and Pengerang, fully operational. Today, capacity under joint venture management has reached 12.5 million cubic meters. Capacity in subsidiary stands at 18 million cubic meters, post the divestments of Algeciras, Amsterdam and Hamburg. Another 4 million cubic meters is mentioned by Vopak as operator. Proportional consolidated information reflects the economic interest of Vopak in our assets.

To stress the relevance thereof, we've added the proportional EBITDA and the proportional occupancy in the headline tables of our interim report, as I already mentioned earlier in my prepared notes.

Proportional EBITDA is EUR 241 million, of which proportional from joint ventures is more than EUR 100 million. Our proportional occupancy rate was 86%. As of this quarter, we also will comment on this more extensively, as I already mentioned.

Europe and Africa is below this average range, reflecting the out-of-service capacity including some oil capacity available at [Tecumseh] that was not yet filled in Q1, but since has been rented out.

Again, the impact of the oil dynamics, you will see in the second quarter. Division with strong joint venture performance are Asia & Middle East, China & North Asia and the LNG division. The joint venture component in the other asset or division groups is less relevant.

Let me recap. First, we have responded well to the COVID-19 outbreak. All 66 terminals are operational. We set up an effective governance structure to manage the crisis globally with continued decision-making locally, making the support business execution and well-being of our people secure. We remain alert and are continuously monitoring the changing operating conditions and developments.

Financial performance in Q1 was good with strong free cash flow generation. A good basis to continue our investment program.

Our balance sheet is robust, and our liquidity position is sufficient and strong.

In Q1, we delivered also on strategy execution. We continue to be focused on the long-term value creation. The divestment program was completed, new capacity delivered in Malaysia and Vietnam and new projects started and sanctioned, for instance, in Houston.

We focused on short-term delivery and protecting the long-term value. We reiterate our outlook to grow EBITDA over time. Performance will be influenced by the effects of contango, the effect of COVID-19 on the global economy and by currency movements. Growth investments for 2020 are expected in the range of EUR 300 million to EUR 500 million. As I said, I expect, at the moment, to be at the high end of that range. Some projects in execution may be delayed given the conditions under which we operate.

We put further efforts on our cost culture and continue our momentum on managing costs and will respond to market conditions as they become clear. Strict cost control measures remain in place, and we are preparing contingency plans in case further cost interventions are needed. That ends my prepared remarks. Sorry to take a little bit longer, but the COVID comments, of course, do take time and are very relevant.

Before we go to Q&A, I would like to update you on our Capital Markets Day in June. We aim to talk about our portfolio, our financial framework and cover some ESG topics as well. Furthermore, we will give you some insights in our digital transformation and our new energy strategy. With COVID-19 and social distancing measures in place, we are still considering our options on how to best organize the Capital Markets Day. But we are dedicated to go ahead as we are with managing our day-to-day business and taking decision-making to the benefit of the company on a continued basis.

Perhaps, we will end up with a virtual Capital Markets Day, but that will prove to be as effective, hopefully, as being together physically.

Now finally, let me turn over to questions. And moderator, if I could hand back the call to you to open the call for Q&A, and we will continue. We will stop this call promptly at 10:45 because we have an AGM scheduled immediately after this call. So let's be efficient in Q&A and hopefully give everybody the chance to interact. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Thomas Adolff from Crédit Suisse.

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Thomas Yoichi Adolff, Crédit Suisse AG, Research Division - Head of European Oil & Gas Equity Research and Director [2]

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Two questions, please. Just firstly, on industrials and chemicals. Obviously, these terminals are on multiyear contracts and largely take-or-pay. Does that fully derisk your earnings stream? Or can COVID-19 still potentially be a force majeure event on these contracts? And then secondly, just going back to your comments on maintenance, and thank you very much for the chart, we can understand the level of maintenance we're seeing this year but also in comparison to prior years. But when I compare that to 2014 to 2018, it's still a higher level of maintenance. So if you can provide a little bit more color on that? And also, the comment you made on Rotterdam, 4x 60,000 cubic meters of idle capacity returning. Is that incremental on the 34.3 million or is that already captured? And is that the only uplift you can see from the contango trade or can we see a lot more than that?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [3]

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Okay. Thank you, Thomas, and good to have you on the call. First, the industrial exposure. You're right. These are long-term contracts, often with customers we are very familiar with, and there's a clear connectivity in -- and longevity in the relationship. This applies to industrial chemicals, but also to our LNG portfolio, of course. The LNG portfolio is totally robust to COVID-19 effects. The industrial portfolio is robust. The one thing that, of course, happens in today's world, if you have many interactions with your customers where you try to facilitate their specific needs, and this may range from operational accommodation, deferment of throughput levels for other matters. What we try to avoid is to have a legal discussion on force majeure and interpretations of that, that is not where you want to be in your commercial engagement with your customers.

What you want is accommodation where mutually you agree to amend and adjust your operational needs and come to a good understanding, and that is functioning quite well. So I would say it's robust. What you see as downside on the incremental income that you could normally generate is throughput levels, which is in the services arena. And as I said, you try to accommodate that the best you can in a constructive discussion.

We've gone through our entire customer base from that point of view and feel at the moment we are managing that well. The 4 tanks in Rotterdam, they were just an example, Thomas. It was an example of the type of activity you have to do. It was mentioned to make it specific. It concerns 4 tanks that have been idle for a longer period given the prolonged backwardation that we have experienced in the market. Those assets are being brought back. It's in itself an existing capacity, it's not an expansion, but it had been a long -- for a long period, been part of the out-of-service capacity. They're now being brought back at accelerated levels.

It concerns the Laurenshaven, which is connected to Europoort. There's more upside in contango, of course. Across our entire portfolio, our oil exposure is 18 million cubic meters. 12.5 million of that is in the hubs, and of that 12.5 million, you see that about 25% is crude, 25% is fuel oil and about 50% is clean petroleum products.

If you then take the occupancy, the 84% then across all our assets, about half is out-of-service and 1/2 is commercially available. So the out of service, you need to work your way through the commercially available is what is spread of our oil and chemicals. And of course, the oil commercially available is very active in March and April, with our commercial teams being filled up very rapidly. So there's more than that one example that I decided to single out.

The higher maintenance, yes, that's correct. We are at a high maintenance level, if you take my example of 84%, half out-of-service, half commercially available. Of course, you always have 2 or 3 percentage points or maybe even 4 for operational flexibility. So the upside essentially sits in the 85% to 95%, with a little bit to get to 100%, which is operational flexibility, half-half operational and maintenance at the moment.

The maintenance is high because of some specific activities going on. As I said, one of them is Botlek in chemicals, but we also have out-of-service capacity in other places in chemicals. But the bulk is in Botlek and there is about -- what is it? At the moment about close to 1 million or so in the oil domain, which includes those -- for instance, those 4x 60,000, 240,000 in Laurenshaven that I mentioned. And we're bringing part of that back over the coming quarters.

So with that, I'd like to move to the next question, operator?

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Operator [4]

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Our next question comes from the line of David Kerstens from Jefferies.

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David Kerstens, Jefferies LLC, Research Division - Equity Analyst [5]

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Gerard, 2 questions, please. First, in the past, you used to disclose the contract duration of your portfolio. Can you comment on what it looks like today in oil storage? I think historically, you said it was around 1 to 3 years. Is it fair to assume this time around, it's much shorter that you will be well positioned to benefit from higher storage rates? I think there was a report talking about 38% higher storage rates in the Singapore area.

The second question is about the fuel oil business. Is that now all fully covered with multiyear contracts? Or is there still a possibility to benefit from further tightness in the market after some oil tankers in Singapore are faced with bankruptcy?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [6]

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Okay. Let me try to dissect that. The fuel oil capacity became operational in Q4. It's, by and large, covered by longer-term contracts in the range that you indicate. Some of these contracts are fully priced. Some of them have opened switches in them on renewal options.

So depending on the renewal option within that period, the entitlement may be there, but you still have to set your price. Now other contracts you may have already agreed to price. That's a mix of that.

The one that is not yet fully occupied is Panama. Panama is a new asset I've spoken about before, opening up a new fuel oil market on the Atlantic side of the Panama channel. We've got, at the end of Q4, relatively low utilization, let's call it, between 50% and 75%, and we are now filling the rest. And that is, therefore, from that point of view in today's market, so it's a good mix. Some will benefit, some may not. The average time in oil is indeed 1 to 3 years or, let's call it, 0 to 3 years. You also have contracts for a number of months. The current commercial activity that we are conducting strikes to find a good balance between locking in prices and supply and demand.

The discussions currently are typically a little bit longer period, so 6, 9, 12 months or maybe even longer, where people want to secure storage. So that's playing out as we speak. So I would say not all is exposed to immediate contango effects, but there's definitely a proportion, which is healthy in the oil portfolio that will benefit from either occupancy or pricing resets.

In Singapore, I'm not sure whether you're referring to this high-profile bankruptcy risk of one of the -- well, it's actually a conglomerate, I believe, who also has oil positions in itself, our exposure to that company is, best I know, not existent. And Singapore market is, as you would expect, also very active at the moment in filling its capacity. It's fair to say that by the end of April, I think, available capacity in our network is virtually sold out. What is not sold out is the out-of-service capacity that I mentioned, and we need to pace that in if and when it becomes available. Now it sounds very easy to say make it available overnight. It's not that simple. We're working hard to make that capacity available. Obviously, we are a critical industry, so we do have access to supply chain, but supply chain also has to work under specific conditions. So we have to take all of that into account in managing the out-of-service capacity.

Hopefully, that gives you the answer to your 3 questions, and then I can move to the next question, please.

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Operator [7]

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The next question comes from the line of Juri Zanieri from Kempen.

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Juri Zanieri, Kempen & Co. N.V., Research Division - Analyst [8]

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Three on my side. I was wondering if you can provide a little bit of color on the delay that you're experiencing at certain terminals. If you can quantify the amount of delay or just additional color. I was particularly interested in the Caojing terminal in Shanghai and Qinzhou in China.

Second question, I was wondering, following the press release of yesterday with a Memorandum of Understanding with Keppel Data, if you can provide some insights, some colors in order to help us out to understand a little bit more the business proposition of these.

Third question on IMO 2020. I'm not sure if you mentioned it already during the presentation, I had some issue with the line. I was wondering if everything has been completed or we can still expect a little bit of delays due to still ongoing conversion.

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

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Okay. Thank you, Juri. On projects and delays. The delays you experience or we experience are typically 1 to 2 months or so. So it's not -- from that point of view, it's manageable. Specifically your questions on Caojing and Qinzhou, it's in the same ballpark. Specifically on those 2, you see the Chinese being able to remobilize very quickly and even during COVID-19 initial when China was sort of leading from that point of view in the world, they've been very diligent. They've been very disciplined. They've been able to mobilize their workforces for critical work.

So there's not a -- no specific concern on China. On the contrary, I would say, the China performance in Q1 for our portfolio also financially is the same as a year ago. Occupancy has been good, and we've taken some new investment decisions. So from that point of view, remarkable, given the full impact of this pandemic conditions, probably was most visible for everybody in China and Korea. And our China and Korea division performed well in Q1.

So Qinzhou, Caojing, yes, we will see some delay, but not different from what I indicated earlier. The one that is probably the most vulnerable in my mind is South Africa. South Africa is on a complete lockdown. And therefore, we are working really hard to figure that one out. And that may be the sort of one that is impacted more than the rest of the world at this moment is my best current today's assessment, Juri.

Keppel then, in Singapore. Keppel is an established company. They have data centers worldwide. They are now, with the support of Singapore, developing the potential and assessing the feasibility of a floating data storage facility integrated with an LNG to power to data center asset and facility. We have combined with them to develop that integrated facility.

Our natural role, of course, is on the LNG side to feed data needs -- the power needs and the power integration into the data center. The data center will be floating, which is a novelty in its own right and driven, of course, by the very structured and strategic way that Singapore manages available space.

It also has benefits from an environmental point of view in terms of the cooling of the facility, where you utilize the water and the fact that you're floating on the water. In the future, there is also desire to then shift from the LNG supply into the power into a hydrogen value chain. So all very innovative right there in the energy mix and data-driven society of, well, hopefully, the near future. But it's early days. It's feasibility, it's study.

So from that point of view, FID is still to be determined. But it's fantastic, of course, to be invited to join that and progress that.

Now you had one more question. IMO 2020. I'll be short because I did already comment on it, Juri. Panama is still filling up its capacity. It was between 50% and 70% so far. So it's working hard to cover the rest, which in today's world is completely different, of course, discussion than what we've seen before.

Singapore, Rotterdam are functioning operational, good client customer coverage, mixed term of those contracts and mixed options on pricing. So I have to move to the next question. I'll try to speed up a bit and be less long on my responses. Apologies.

Operator?

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Operator [10]

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The next question comes from the line of Thijs Berkelder from ABN AMRO.

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Thijs Berkelder, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [11]

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Yes. Question on, can you give rough back-of-the-envelope indication of what the maximum upside is of oil contango market for this bottom situation you had, let's say, in 2018, '19, I guess it's about EUR 100 million of EBITDA. And related to that, looking at the deterioration in the chemical occupancy and maybe repricing contracts there as well, but there may be repricing done. What is your guesstimate on chemical downside?

Second question related to the associates, your -- Vopak nowadays is very dependent on associate terminals. Do you already counter or foresee restrictions in the dividend payments from these associates to the Vopak holding level?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [12]

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Yes. Let me start with the second one, the increase in the income and business activity relevance for Vopak from joint ventures. I think that is strong and going well. The treasury policies, distribution policies, are very clear. Our governance for distributions is well established. So I don't see any interruption for dividend streaming and funding of those ventures.

Also, there is a funding structure also locally in terms of project financing, where you have to meet the different covenants. It's important to keep these dividend streams going for total good of the world, of course. These distributors are -- these dividends are redistributed, reapplied, reinvested. So I think there's a benefit for business continuity to deliver. I don't see a current issue.

In terms of contango, I think we'll have to see, Thijs. I'm not going to put a number on it. You know more or less the dimension so far. Oil exposure, 12.5 million cubic meters in the hubs, 25% crude, 25% fuel oil, 25% clean petroleum products. We need to see the effects of contango. Then if you want to do a number of the entire portfolio, and -- then you need to also assume how long it stays, and how long you are talking contango before it fully hits the portfolio. I think it's a positive development for us. We will benefit from contango, no doubt, but I'm not going to put a number on it.

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Thijs Berkelder, ABN AMRO Bank N.V., Research Division - Equity Research Analyst [13]

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Chemicals?

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

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Chemicals. Downside was your comment. At the moment, I think, limited the impact is particularly, as I said, throughputs, contracts are contracts. As I said, if we have discussions with customers, we try to be constructive, be a responsible counterparty, try to find solutions in operational terms, maybe deferring some items, may be coming to a different settlement agreement but not touch the fundamentals of contracts. The contracts are long term.

Thank you, Thijs. Let's move to the next, operator.

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Operator [15]

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(Operator Instructions) The next question comes from the line of Quirijn Mulder from ING.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [16]

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This is Quirijn from ING in Amsterdam. My question is referred to chemicals. You speak about flexibility in terms of payments and also in terms of use. Can you maybe elaborate on that remark? Because it looks to me that, yes, okay, what you say is a contract is a contract, but it seems to me that there's more going on. So maybe there's some panic at your customers. So maybe you can elaborate on that. That's my first question. And my second question is about Houston chip -- ship channel. After 6 years or 7, you have now made a decision. Can you indicate what total amount CapEx is being planned for that work?

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [17]

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Okay. Let's first deal with the chemicals. We're not experiencing customers that panic. What we have is the constructive discussions on, for instance, if someone says, look, can you -- we have a payment coming up for next month. I'm getting myself organized. I need to find some relief. Can you extend your payment terms? Depending on the question and the party and the behavior, we will consider that and say, fine, we'll give you x percent or x extra days. In itself, that's a cash settlement mechanism agreement that you might have. It doesn't influence your profitability. Someone may say, I've got 3 throughput entitlements per month. I can't make them work this month. Can I defer them and carry them into next months? So next months or next quarter, or can I carry them forward 6 or months or whatever it is they ask? And we might say, okay, we can see where you're coming from. We understand the logistics. We'll shift the entitlement for throughputs to a different period. That is the type of discussion organizing the supply chain. I have distressed truck or rail or my pipeline needs to turn over quickly.

Can you give me some extra service or delayed service? Or can my rail wagon stay on your facility a little bit longer? That type of discussion. The discussion is not, I want to get out of my contract, can you please let me go? Now that type of question, we will enter differently and say, look, we're more than happy to discuss with you operational relief and accommodation. But that is where we say, at a certain moment, a contract is a contract. You've taken a position, and therefore, we're happy to help you out. We have a long-term relationship. If you behave well, we will behave well, and it's a constructive discussion. That's the context, Quirijn.

On Houston shipping channel, this is relatively small amount. The first move of this Moda assets. It's adjacent to Deer Park. It's -- I've forgotten the number, 49,000 cubic meters?

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [18]

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Yes, 46,000.

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [19]

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46,000. It is with 2 customers covered by long-term contracts. This is not a big amount of money. And I would say it's -- Vopak wise, it's definitely -- on the Vopak exposure, it's less than 100 million.

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Quirijn Mulder, ING Groep N.V., Research Division - Research Analyst [20]

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May I ask one last question? On the Botlek, you're, let me say, ramping up the facility during the year. So maybe you can indicate how long it takes. And is that not a risk that your clients are -- that it is, let me say, the capacity will not be used? Or is that certain that it will be used by your clients when it is returning.

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Gerard B. Paulides, Koninklijke Vopak N.V. - CFO & Member of the Executive Board [21]

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No, I don't think it's a matter of usage. There is 2 things going on in the Botlek. One is the expansion of the styrene capacity, which we announced in 2019. That is being built. And the other one is to improve our existing facilities. So that is tank pits, pumping rooms, infrastructure pipelines and maybe also some work on tankage. So per tank pits -- the different tank pits on the terminal, per tank pits you upgrade. We've done that before in Europoort, as you remember, perhaps and in Vlaardingen a couple of years ago, and we now have tremendous benefit of the reliability and operability of Vlaardingen and Europoort as a result of that investment.

This is what is happening in Botlek. It's making prime location into more service-oriented and more reliable less operations asset, and that's what is happening. So I wouldn't be worried about customer coverage. It's impacting the outages, but it's absolutely value-accretive. I need to go to the next question, and the last one. And the -- yes. Thank you, Quirijn.

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Operator [22]

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The last question comes from the line of Luuk Van Beek from Degroof Petercam.

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Luuk Van Beek, Banque Degroof Petercam S.A., Research Division - Analyst [23]

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Yes, I'll make a bit quick question then. You have quite some financial flexibility. And obviously, not everybody is in such a good shape. Do you already see opportunities to buy some distressed assets in the current market?

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

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Thank you. It's -- we are in good financial shape. I absolutely subscribe that. We are, therefore, in control of our own destiny. We continue to invest EUR 300 million to EUR 500 million. We have our dividend payment being sanctioned in the next few hours, after this call, and the buyback continues. We do have opportunity to do M&A transactions.

M&A transactions in today's market are very difficult, of course, because it's difficult to get to a valuation also with the seller. The sellers often look in the rearview mirror. And therefore, the assets that may come to market are truly distressed assets. And they are probably distressed for a reason. That may be that because they have no operational flexibility or they have disadvantaged second, third or fourth tier real estate location. And there maybe 1 or 2 that are just good assets that are in financial distress. Now we will be alert to that. At this moment, the way I see the market is that almost all deals have been taken off the table because sponsors are not willing to sell or are unable to come to convincing valuation before they even enter the market. So it has to be a distressed asset. And at the moment, first of those might occur, I guess, in the U.S. But I don't think they will be storage asset. I think they will be production assets probably. So that space, as far as I can see at this moment, limited activity.

Okay. Then everybody, apologies. It's hugely interesting time. It's a hugely stressful time for many businesses, many people. I'm very glad that Vopak is operating all 66 terminals with strong free cash flow and ability to invest good access to financial markets. We have a strange move now from Q1 into Q2 with COVID-19 and contango at the same time. I look forward to the year with confidence, but not complacent to very difficult market conditions.

So thank you for joining in. And I will now close the call, and then we will proceed with our AGM in 0.5 hours time. Thank you.

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Operator [25]

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