Hello and welcome to the Vopak Q3 2018 interim update call. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present Gerard Paulides, member of the executive board and CFO. Please go ahead with your meeting.
Thank you, Sarah, and welcome everybody. Ladies and gentlemen, a very good morning and welcome to the third quarter interim update of Royal Vopak. In the next 20 to 30 minutes, I will update you on the developments of the third quarter. My prepared remarks will refer to the analyst presentation as published on our website this morning while making reference to the slide numbers. As an interim update, I will focus mainly on the results. Based on feedback during this year, we have decided to add various financial items in this interim update to accommodate shareholder and analyst views. After this presentation, there will be time for questions. Also, for the follow-up on any specific questions, you may, of course, contact our investor relations team. I am going to slide two. I refer to the disclaimer content of the forward-looking statement, which you are very familiar with.
The clarifications in this statement should be taken into account with respect to any looking forward ahead comments and/or guidance provided. This disclaimer is applicable to the entire call, including the answers provided to your questions during the Q&A session. With that said, I will now turn to slide three for the key messages. This quarter, we delivered a solid performance and commissioned the first phase of our new industrial terminal, PT2SB, in Pengerang, Malaysia. Our year-to-date EBITDA, excluding exceptional items, was EUR 550 million. Adjusted for EUR 20 million adverse currency translation effects, our EBITDA was EUR 3 million higher than prior year, even though we operated at an occupancy rate of 86%. This 86% is at the lower end of our 10-year range, but up by one percentage point from the second quarter.
We delivered a quarter with resilient cash flow from operations and momentum in investment levels, driven by our growth projects in South Africa, Panama, Brazil, and Deer Park. At end of September, the industrial terminal, PT2SB in Malaysia, commissioned 700,000 cubic meters of capacity. The remainder of the capacity, bringing it towards one and a half million cubic meters, is scheduled to be commissioned before the end of the third quarter 2019, in line with the commissioning schedules of Petronas and Saudi Aramco's RAPID project. We continue to deliver on our growth ambition with the expansion of our global LPG and chemical gases network in the Netherlands and in South Africa. Turning to slide four. You will see that the year-to-date third quarter EBITDA, again, excluding exceptional items, decreased by 3% compared to the same period in the previous year.
Adjusted for currency effects, the underlying EBITDA was EUR 3 million higher than prior year. The Asia and Middle East division and the Europe and Africa division reduced financial performance at the hub locations due to a less favorable oil market structure. Strong performance in the Americas and China and North Asia were supported by the good business environment in the chemical segment. Turning to slide five, where we will focus on the third quarter versus the second quarter. In our last call, I commented on a total of EUR 4 million positive one-off result in Q2 and across reporting divisions. This quarter, earnings do not show noteworthy net items influencing the numbers. Q3 EBITDA came in at EUR 180 million, an improvement compared to the previous quarter. Let's turn to slide six and look at the divisional performance.
Occupancy rate in the Europe and Africa division saw some support in the oil segment in the Netherlands, resulting in an improved financial performance. Asia Middle East division showed a comparable occupancy rate as the previous quarter. Australia is performing well and benefited in Q2 from various one-off settlements in aggregate of EUR 10 million, as mentioned before. The chemicals occupancy rates have been stable, which is noticeable in the strong performance of our Americas division. Switching to China occupancy is sensitive to small changes in our subsidiaries, Zhangjiagang and Lanshan, that reported lower occupancy levels in this quarter. Joint venture industrial terminals, which are operating at higher occupancy rates, are not included in this calculation. Financial performance for China and North Asia improved as our industrial terminal in Haiteng in China contributed the full quarter after it restarted operations in June.
On Haiteng, also various discussions on financial aspects from the downtime period that is now mostly behind us, continue to progress for settlement. The LNG division saw an increase in costs related to new business development, where we continue to invest and have good momentum. The German LNG project is progressing really well on the commercial and the technical aspects, and in China, the LNG project is also progressing. In Pakistan, we see further opportunity to expand our earlier announced position to take a 29% participation in the LNG terminal announced in July. Our joint venture terminals for LNG in Mexico and Gate in the Netherlands showed strong occupancy rates of 95%. Turning to slide seven and looking at the quarterly developments of our key figures. Financial results delivered this quarter are solid. Although occupancy was 86%. Financial results reflected cost and commercial performance.
Tank storage demand at our hub terminals remains impacted by the oil market structure in 2018 year to date, whereas chemicals, gases, and industrial terminals showed stable demand for tank storage services. In terms of capital efficiency, we delivered a Return on Capital Employed of 11.8% in the third quarter, and net profit attributable to holders of ordinary shares amounted to EUR 71 million, resulting in an earnings per share of EUR 0.55 in the third quarter and year to date, EUR 1.65 per share. Moving to cash flow. Slide number eight. Q3 showed another quarter with resilient cash flow from operations. Our year to date gross cash flow from operations was almost EUR 500 million, which resulted in close to EUR 280 million free cash flow before growth. We have investment momentum towards 2019 and invested just over EUR 200 million of capital to our growth projects.
Free cash flow available for financing debt service and shareholder distributions amounted to EUR 100 million this year. Our net debt position of EUR 1.7 billion resulted in a Net Debt to EBITDA ratio just above 2.2 at the end of the third quarter. This cash flow from operations, combined with the financial flexibility of our balance sheet, provides us with a position to keep investing in our project portfolio and create shareholder value. Turning to slide nine, we'll discuss the exceptional items for the third quarter. In fact, I also highlighted these same items in our last call during the second quarter. First, pensions. We accounted for partly as an exceptional item in the second quarter. The update is that in July, we formalized the agreement regarding a defined contribution plan as per IAS 19, the accounting guidelines in the Netherlands.
The total exceptional gain before tax from the release of the pension provision is EUR 19 million, including the cash contribution to be made by Vopak. Secondly, the deconsolidation of our Venezuela operations for financial reporting was also mentioned at Q2 as a Q3 event. We've now reassessed the accounting position for this terminal and concluded that from an accounting point of view, we no longer have the basis to consolidate this asset. In the third quarter, the income statement therefore includes the effect of recycling historical unrealized currency translation losses from equity to the income statement. This reduces the reported net income with EUR 51 million as an exceptional item. The deconsolidation is a non-cash event. It also has no significant impact on shareholder equity, as equity was already adjusted in previous reporting periods, each quarter over the years applicable.
Going forward, the participation in the terminal will be accounted for as an instrument measured at fair value. The contribution of the terminal to the results of Vopak is immaterial. We will remain 100% shareholder and will continue to operate the terminal as before. Slide number 10, talking about our growth projects. The associate industrial terminal, PT2SB in Malaysia, commissioned in September 2018, approximately 700,000 cubic meters of capacity. The remainder of capacity will be commissioned before the end of the third quarter, as I said before, 2019. In line with plan. With respect to our growth ambitions, we announce today to expand our LPG and chemical gases network. Firstly, we will further expand our activities in South Africa with our partners, Reatile, we will invest in a new LPG import and distribution terminal with a capacity of 15,000 cubic meters in Richards Bay.
This investment facilitates further imports of LPG as a cleaner energy into the South African market. In addition, closer to home, we will expand our gas terminal in Vlissingen in the Netherlands by 9,000 cubic meters of LPG and chemical gases capacity, which will serve the Northwest European gas market. Both growth projects are expected to be commissioned in 2020 in the second quarter. The next slide, where we see a total overview of portfolio developments. Construction is progressing well, commercial coverage is high. The developments reflect execution of our strategy in line with our financial framework towards 2019 momentum. Going to the next slide, we've discussed fuel oil and our bunkering network on many occasions, let me come back to it again today.
Our priorities in this segment is to be ready for the IMO 2020 bunker fuel regulations that will come into force in the 1st of January 2020. Last call, we announced our investment plans for Rotterdam, where we convert roughly half a million cubic meters of capacity to handle very low sulfur fuel oil with Maersk as an anchor customer, which anchor customer was actually announced in July. Further to Maersk, we have very recently signed a second significant deal with a large oil and gas company for the largest part of the remaining low sulfur fuel oil capacity in Rotterdam. Conversion will be completed in the second half of 2019. Moving to the non-IFRS proportionate information. Slide number 13. In response, as I said, to requests by investors, we provided the non-IFRS proportionate consolidated segment information in this interim update, and will be doing so going forward.
The proportionate information provides transparency in underlying performance and provides a good comparable basis for subsidiaries, joint ventures and associates. EBITDA excluding exceptional items on a proportionate level amounts to EUR 615 million year to date, third quarter 2018. Excluding Estonia and Hainan, the proportionate consolidated occupancy rate was 86%. So comparable to the IFRS-based occupancy. Moving to Slide number 14, where I'll repeat some of our key messages. This quarter we delivered a solid performance. We started our operations of our new industrial terminal in Pengerang in Malaysia towards 2019. We expand our LPG and chemical gases in South Africa and the Netherlands towards 2020. We focus on performance of delivery from our assets and businesses in 2018 through cost and commercial management, and will be doing the same for the quarters to come.
Therefore, we manage long-term value through our strategic direction set towards 2019 and beyond. Slide number 15. Looking ahead. Our outlook statement for 2018 and 2019 is fundamentally unchanged. The financial performance in 2018 is expected to be influenced by currency exchange movements of the US dollar and the Singapore dollar mainly, and changes in the oil market structures. This impacts occupancy rates and price levels, mainly in the hub locations. Given the 3.2 million cubic meters expansion to be delivered in mainly 2019, with high commercial coverage and in conjunction with our efficiency program for cost management, Vopak has the potential to significantly improve the 2019 EBITDA performance, and again, subject to market conditions and currency exchange movements.
Our cost program continues to develop well, and we've increased our cost targets from the earlier announced EUR 25 and delivered mid-year 2018 to a number of EUR 40 million to be delivered in end of 2019. Lastly, end of November, we will have a Capital Markets Day in Houston, including a visit to our Deer Park facility at the Houston ship channel. Deer Park is commissioning its expansion of 138,000 cubic meters of capacity this quarter, and you will be treated to a visit to the site. End November, we will talk about our views on the markets and portfolio developments, as well as our financial framework. During the day, we will also give you some more insights in our digital agenda and application thereof at our network of terminals. Moving on, I finished my prepared remarks so we can switch to Q&A.
I think we have till the hour to do so. We'll see how many questions there are and how much time we need. I will, meanwhile, hand back to the operator to open the lines so that we can have some dialogue. Thank you. Operator, back to you.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad now. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Once again, it's zero one on your telephone keypad if you would like to ask a question, there will be a brief pause whilst any questions are being registered. Our first question comes from the line of Thomas Adolff from Credit Suisse. Please go ahead. Your line is now open to ask your question.
Morning, Gerard. Hope you're well. Just one quick question. You've obviously reiterated your outlook for 2019 for EBITDA to significantly improve, but I had a more specific question on Pengerang. Obviously, it's ramping up. As I understand it, there's a bit of a take or pay structure in there that even if there was some delay to the ramp up, that you actually get paid nevertheless. If that's the case, there should be a decent amount of visibility on the potential EBITDA uplift in 2019. I wondered whether you can quantify it a little bit more. Thank you.
Right. Thank you, Thomas. Yes, I am well. On the Pengerang Malaysia developments, we've commissioned and are in the process of commissioning 700,000 cubic meters of capacity in Malaysia, as you pointed out. This is out of a total of 1.4 million cubic meters that will be commissioned over quite a complex set of industrial machinery that sits behind our terminal in terms of the facilities that the joint venture partners of the RAPID Project, Petronas and Saudi Aramco, will be commissioning. The commissioning pace of the facilities will substantially be in the first quarter of 2019, then there is a smaller part of commissioning still going on in the second and third quarter. You will see part of the commissioning happening now, as I said, approximately half.
There's another substantial part in the first quarter, there's the residual part in the second and third quarter. Together with the commissioning, there's a whole complex of commercial contracts that kick in. Some of them are based on actual performance, some of them are based on capital structures, et cetera, what have you. You will see that ramp up in the course of 2019. I think you will need to see the entire year come through before you actually get a good handle on the financial effects. I'm not going to give a number on it, but it needs to stabilize in 2019 across the commissioning of the projects. There are certain payment structures that indeed are kicking in when you actually commission, when you're commercially ready. You're correct in that.
The exact pacing of that is as per quite a complex set of different contracts across different facilities.
That's great. Thank you.
I hope the commissioning phase gives you a flavor of it. I would focus on the entire year.
Maybe just a quick follow-up on the Rotterdam conversion. Half a million cubic meters with Maersk, then you've got sign a major contract with a major. Why the preference for very low sulfur fuel oil, not for marine gas oil?
What is happening in the facilities in fuel oil, Thomas, as you know, is people are trying to figure out what is the ideal mix for their particular demand. At the same time, on the supply side, people are trying to figure out what can their lineup of refining capacity actually produce. When those two come together, people will make their choices on how to optimize volumes given pricing that is being set. Very low sulfur fuel is a component. Marine gas oil is a component. There's other fuel oils that will be mixed in the blends that people will ask for. We do have the capacity to mix and blend, but we also will have capacity to accommodate very low sulfur fuel oil.
Yes, you see the term very low sulfur fuel oil, but how people actually get to that composition, whether it's a straight supply of that particular product or whether there's a blended desire to accommodate, is to be seen. The Maersk contract is one which essentially goes into their own demand, their shipping demand, they may take a few positions around that or may market somewhat to third parties, I would assume. The second contract is more a, let's call it, a market contract where a major oil and gas company has committed essentially its supply and taken a few on how demand will be based for that. It's a mix, truly, we'll see how it plays out, though.
Thank you.
Excuse me.
It's all right. Thank you.
Thank you. Our next question comes from the line of Dominic Etheridge from UBS. Please go ahead. Your line is now open.
Hi there. Apologies. Probably another question on the IMO 2020 and fuel oil, on the same topic. Given the very limited scrubber installation and the time remaining, obviously, it appears as though very low sulfur fuel oil will be the predominant form. Can you just discuss what you've done with your own capacity? I know you've talked about the half a million cubes that you've converted in Rotterdam. Can you just talk about what you're doing elsewhere and how much capacity you're going to remain in the traditional fuel oil market? Just allied with that question, is it fair to assume, given your comments on the weakness you've seen because of the oil price structure, that the capacity that you've contracted with the likes of Maersk is maybe the area that's been the weakest?
In other words, could we assume that the fuel oil side has been where the occupancy's been lowest in the last few years? Then, on a completely different matter, on 2019, I know there were some comments here, Aro, on Reuters about you saying that most of your capacity, the new capacity, is covered. Can you just maybe give some numbers around how much of the capacity you've currently got covered by contracts? Thanks so much.
Okay. A whole range of questions there. The scrubber capacity. First of all, I think important to confirm that IMO itself has reconfirmed its commitment to implement the new regulations. Which also includes their views on how ships that do take high sulfur fuel oil, what conditions they need to meet, and whether a scrubber needs to be on board in order to demonstrate compliance, which is reconfirmed. This will happen, it seems, and the market is getting ready for that. You're right, we have mainly converted high sulfur fuel oil capacity into the range that also Thomas mentioned, different products ranging all the way to low sulfur fuel oil, with a majority shift into the lighter products than the high sulfur fuel oil. We've invested in different, and are investing in different lineups at our terminal to allow blending.
Different pumping capacity to allow pumping speeds, et cetera, to accommodate that mix. There's a substantial shift from high sulfur fuel into accommodating the other grades. In the weakness that we've cited about oil market conditions, I think you can split it into, one is IMO 2020, and the other one is the, let's call it, the crude market, and to some extent, clean petroleum products in terms of backwardation or contango, which is impacting the occupancy. What you now see is a period of time in 2017 and towards, well, almost the entire year of 2018, a backwardated market, which is not favorable for storage. Very recently, we've seen some moments of contango come back in the market. The market then immediately responds into its trading behavior. You see some of that coming through in the numbers.
I'm not going to split out IMO 2020 and crude oil, they are both important factors into our occupancy. IMO 2020 will play out, as I said, also with the commitment we have just received as an illustration in Rotterdam towards the end of 2019. How the oil market will play out in terms of backwardation or contango, we will see as it plays out. There's not a lot more I can say about that. The other segments that influence our occupancy, which is chemicals, gases, LNG, they're performing well, either steady or healthy or improving. We've also seen some pickup in the oil occupancy in, for instance, Europoort.
Thanks.
Did I answer all your questions, Dominic?
That was the first bunch. Just very quickly, just on the 2019. I know there's some comments on Reuters saying that most of your capacity-
Oh, yeah
for next year is covered. Is it possible to quantify that at all?
I think what we've said is high confidence, which I would pitch somewhere between 50 and 100% in terms of coverage. It's not 50 and it's not 100, but it's that type of range.
Okay. Thanks so much.
Thank you. Our next question comes from the line of David Kerstens from Jefferies. Please go ahead. Your line is open for your question.
Hi. Good morning, gentlemen. A few related questions from my side, please. First of all, regarding the IMO 2020 and your conversion. Just to confirm, the second customer that you recently signed, that is part of the 0.5 million cubic meters in Rotterdam that you announced back in August, if I understood correctly. Following up to Dominic's question regarding the expectation that only 5% of the global fleet will be retrofitted with scrubbers. Do you not need to convert much more capacity than what you currently have announced? You gave a number for Rotterdam, but could you also give an indication how much you have already converted in Singapore and in Fujairah, please? My understanding was that it is still below 50%, whereas given the number of scrubbers, you would expect it should be a lot more. Finally, regarding the commissioning of Pengerang.
In the presentation you highlight 700,000 cubic meters already commissioned at the end of September, with another 1.5 million to follow. Does it mean that you have increased the total capacity for Pengerang? Because I think the last number I have in my model is 1.5 million cubic meters. Thank you very much.
Okay, David. Thank you. The second one is easy. The total is 1.5. The first 700 has been commissioned, so we're not increasing the number. The 700 is what we are commissioning this quarter. The 1.4 is what will be commissioned at the end of next year.
All right. Okay. Yeah.
In terms of scrubber penetration and commitments of fitting that into vessels, and what percentages are needed where and how and when. What we've said is across our portfolio, we have stress tested what will be needed in the market as we see play out. In order to get to the right mix of products, you will need certain base capacity, and you will need certain, and that's why I mentioned blending pipelines up, and pumping capacity for your vessels. We will make adjustments and are making and have made adjustments in the Netherlands, in Singapore, in Fujairah, and to a limited extent in some of the other locations that handle bunker fuels. The total that we need for that is EUR 40 million. We mentioned that before. That number hasn't changed. Our insights in the lineup that we require hasn't changed. We are now implementing it.
Some of it is still being spent, we can still make adjustments if we feel it's needed. That's not our anticipation. We think we're well set. The market will need to price the different flows that come out. If your premise is correct, that the scrubber capacity is not going to accommodate, then that will be reflected in the pricing of the different flows. That will trigger a different behavior again, and that may trigger installation of more scrubbers if high sulfur fuel is priced in such a distressed manner that it cannot find a market otherwise. We have run the numbers. We're not going to give the proportions of how much we put in what bracket across the high sulfur to very low sulfur fuel oil spectrum, because that would show into our commercial competitive lineup, which we don't want to do.
I feel we're ready to accommodate the market, we'll see how many people will put scrubbers on.
The EUR 0.5 million in Rotterdam, that is for Maersk and this second customer, is that correct?
Yeah, that's by and large correct.
Maybe if I may, one quick follow-up on the proportionate data that you provided, please. I think in the second quarter, you highlighted a difference between the IFRS occupancy rate and the proportionate occupancy rate was largely related to Haiteng and Estonia, and now they are in line at 86%. What drives the improvement versus the difference you reported in the second quarter?
Let me try to figure that one out. What is your question exactly in terms of, is there a different momentum from the second quarter to the third quarter?
Do you see an improvement in occupancy?
If I include them, it's 84%. If I exclude them, it's 86%. The reason why we decided to exclude them is because they don't contribute to the results anymore because they have been impaired. In order to get a proper read-through, which is the intention of what drives the EBITDA, we felt it was appropriate to show it excluding those two assets. Does that answer the question?
Right. There's no change in the underlying numbers compared to the second quarter in terms of occupancy.
No. For transparency, as I said, if I were to include them, which in itself doesn't make a lot of sense, it would be two percentage points lower at 84%.
Right. Understood. Thank you very much.
Thank you. Our next question comes from the line of Giacomo Romeo from Kepler. Please go ahead. Your line is now open.
Good morning. Thanks for taking my question. First one is on China utilization. You mentioned that is very sensitive to single assets movements. Wondering if you can give a little bit more outlook for the utilization, if you expect it to recover in the fourth quarter. Second question is on IMO. You mentioned last quarter about the Maersk contract this quarter, another contract for your new storage or upgraded storage in Rotterdam. Sitting at this point in the process, what would you say are the key factors that allow attracting early demand for ultra-low sulfur storage from customers? You mentioned, obviously, blending and pumping. What are you making in order to make your offering better placed, so to speak? If you can provide a little bit more clarity, that would be helpful.
First, let's focus on China. The China performance, indeed, as you point out, as I mentioned, is sensitive to relative small capacity movements in a small set of terminals that is in the consolidated storage capacity number. As I said, even a relatively small change impacts the number. There is some seasonality in China, typically first half and second half. There is also some contracting positions that impacted the third quarter. There's nothing fundamental going on here. The trend for China, it is improving, as you see from the EBITDA line that is immediately shown below the occupancy line. You see an EBITDA performance of EUR 13.6 million. That includes, in all fairness, the startup of Haiteng.
Haiteng, which is the asset that has been out of production for, what was it, end of 2015 or thereabout, is now coming back online and making a contribution into the EBITDA. However, it's not in the reported occupancy rate for subsidiaries because it's an associate. You see better occupancy coming through from Haiteng in EBITDA and in occupancy, but occupancy for subsidiary companies is essentially dynamics in the third quarter with a very minor impact on EBITDA. The trend is going up. Chemical activity in China is doing very well. It's competitive, as it would be, but it is doing well. I don't see a negative trend or a turning point in China at Giacomo across the different quarters. In fact, it's good news because we're starting up Haiteng.
IMO 2020, what drives our decision to put a certain capacity, and what drives our customers, what you see at the moment is that the material players are starting to make their decisions. The rest of the market will, at a certain moment, sort of have to squeeze in into that supply-demand equation and take a decision on how they want to play in that market. The big players, as we've now seen it, Maersk and the oil and gas company, decide not to wait for that moment, and they are ready to commit material capacity for reasonable time periods into this market.
It really will remain to be seen how the different grades of fuel oil will price. These big players don't want to be caught out by that, and they want to be ready to move their physical streams because they also need to move the product from the refinery into the market or from the storage into their vessels, and they feel ready to commit there. What do clients appreciate at Vopak? I think what they always appreciate at Vopak, which is our offering at the terminal, our commitment to customer flexibility and services in a safe and responsible manner. In order to be able to offer that, we've made the commitments, as I said, to invest EUR 40 million to anticipate what might be their wishes. Those two discussions are now coming together quite nicely. The scrubber penetration, I also gave the same answer to David.
We don't know how it plays out. It seems to be low at the moment. I agree with David and yourself on that. I think ultimately the consequence of that is that high sulfur fuel oil will have to be seeing a price impact of that because the volume will, to a large extent, still come to market. Then the market will respond.
Very clear. Thank you.
Thank you. Our next question comes from the line of Thijs Berkelder from ABN AMRO. Please go ahead. Your line is now open for your question.
Good morning. Congratulations with the results. First question on LNG. I see quite a lot of, let's say, corporate costs relating to LNG. EUR 4 million, I believe. Can you maybe give some indication or guidance on what to expect in the coming quarters there in terms of, let's say, pre-operational expenditures? Second question on Haiteng. I think Haiteng was one month in business previous quarter, three months this quarter. How would you describe the performance? Is it already back to normal or will that take another year or so? A third question is, in the press release, you're stating that the strategic review and testing of the market values of the terminals in Algeciras, Amsterdam, Hamburg, and Tallinn is progressing on schedule. What do you exactly mean with on schedule?
Thijs, that is three questions I will deal with. Thank you, and thanks for the diligence in following the Haiteng startup sequence. Indeed, you are absolutely right. It produced one month in the second quarter. It now contributed three months. It's fair to say that the startup of a complex like this, including the startup of the related facilities of our customer, is a complex process. That will play out over the next quarters. In addition, we will also be discussing the settlement of, let's say, the period which is behind us, where parties agreed that because we all had different priorities, focusing on technical investments to bring the facilities back online, operational requirements, the safety, health, and environment focus we need to have on those discussions to park those commercial discussions for the interim period.
We're now getting to a point where parties are ready or starting to get ready to concentrate on that again and engage. That's another factor of commercial, financial settlements that still need to play out over the forthcoming period. I would give it a few quarters, Thijs, for this to play out. LNG cost. In fact, these are what I would call good costs. We've decided not too long ago to have a LNG division in Vopak to concentrate on capturing our part of this high growth segment in the market. It is becoming more successful. The market is now coming to us in terms of identifying opportunities and seeing whether we can create a new business development opportunity and deliver it into an investment decision.
We're working on Hamburg LNG, we're working on Pakistan LNG, where we see also opportunity to expand further than the 29% we've already spoken about earlier. We're talking about China LNG in the Yangtze River, which we've mentioned before. There's some other discussions in China going on and other places in the world. That triggers an amount of new business development cost that we're happy to spend. Sometimes these things are successful, sometimes not. You've seen some of this cost come through in, amongst other, the third quarter. I would not be too worried about that. I think it's a little bit higher than normal this quarter, maybe EUR 2 million or EUR 3 million higher than normal. We'll see how that plays out. In itself, it's good cost that we are happy to spend in its own right. The strategic review. Progressing to schedule, what does it mean, or to plan?
At second quarter in July, we said we would take 6 to 12 months to execute the strategic review, which includes testing the value in the market. We're now more than 3 months, 4 months into that process. We are starting to engage with the market. We've taken a view on how to engage and what is the profile of those terminals which you need to have ready for your engagements with the market. We will then take our soundings back into the company, discuss it at the executive board and see what we think of that process. Timeline hasn't changed. We said 6 to 12 months and that's happening right now. It's going well in its own right. The preparations are going well. The material is getting ready. That's why I say we are on plan, on schedule.
Okay. Thank you very much.
Thank you, Thijs.
Thank you. Once again, if you would like to ask any questions, hit zero one on your telephone keypad to register. Our next question comes from the line of Quirijn Mulder from ING. Please go ahead. Your line is now open.
Good morning, everyone. A question on IMO 2020. You have earmarked a half million cubic meter for this IMO 2020, in fact, by two contracts. Can you tell me what more capacity do you have available if there's demand from a third and a fourth quarter, a fourth client arriving in Europe or somewhere else?
Across our network, we have spoken earlier, about 4 million cubic meters of capacity, which, for convenience, I've excluded the Estonian capacity, which is a part of that strategic review which is going on, which is 1 million. The 4 million we've got available in our network, the bulk of that is concentrated in Fujairah and Singapore and in Europoort. I think we are well advanced in our commitments in Europoort. We are still seeing commercial opportunity in Singapore and in Fujairah. In Singapore, we are also adding some, as Thomas actually raised earlier, some MGO capacity into the mix. That was the 67,000 cubic meters that we announced, I think at Q1 as an expansion at Sembcorp in Singapore. There's another stream being added to the mix.
To phrase that positively, we still have commercial opportunity in Fujairah and Singapore to commit into that market in 2019 towards the implementation. To phrase it negatively, we still have opportunity to place fuel oil into that market in 2019 in Singapore and Fujairah. Why am I saying it like that? There's a lot of commercial discussion that you need to have on fuel oil, with a market that is still unsettled, on the supply and the demand side, as I just explained. In Europoort, those contours of the market are by and large for us settled. In the other places, we think it will settle. We think we know what's coming. We stress tested the assets. We know exactly what to do. There's still some commercial distance to be covered to utilize that, which is a good opportunity, and it will play out.
As I said before, a functional specification change in any of the product lines, whether it's petroleum product or any other product, or in other words, a dislocation of the market in itself is good business for Vopak. We live off matching supply and demand. If that supply and demand needs to be matched, and we take a view on that, if we make the right call with the lineup of our capacity, we can accommodate the customers. It has been uncomfortable in 2018 because that was almost a perfect negative storm. Also with the backwardation of the crude oil market. We'll see how that plays out in 2019. I'm not going to talk about the shape of the market on backwardation or contango in 2019, but we have recently seen some moments of contango go into the market and it immediately responds.
We have predominantly a backwardated market year to date. I hope that gives you some context, Quirijn.
Yeah. Thank you.
Thank you. Once again, ladies and gentlemen, if you would like to ask any questions, it is zero one on your telephone keypad. Once again, that's zero one on your telephone keypad if you would like to register for a question, and there will be a brief pause whilst any remaining questions are being registered. As there are no more questions registered, and I'll hand back to Gerard for any closing comments.
Okay. Thank you, Sarah. Thank you, everybody on the call. We do appreciate your coverage and your analysis, and your interest in the company. Thank you for attending today. I would want to summarize as follows. We're satisfied with the performance year to date. We've delivered a solid performance on the financial quarterly performance, and we are de-risking 2019 in terms of capacity delivery. We're also seeing the contours of the fuel oil market come through, and today I've been able to talk a bit about Europoort in particular. There's still a little bit of distance to go on that, but we feel well-positioned to accommodate that as the market unfolds. The Q3 momentum is encouraging. The 86% utilization is a change with one percentage point from the second quarter, which is good.
Our EBITDA performance and cash flow performance is solid or satisfactory or resilient, whatever term you want to put on it, to deliver shareholder value in actual performance and in value creation through growth. I look forward to hopefully seeing most, if not all of you at our Capital Markets Day in Houston. We look forward to it. Hopefully we talk a little bit more than IMO 2020 only, no doubt we will also talk about that. Not to worry, we're more than happy to do so every time it comes up. Thanks again for your questions. Thanks for your support. Thanks for being with us and speak to you next time. Operator, you can now close the call. Thank you.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.