Good morning, welcome to Vopak's full year 2017 results. My name is Laurens de Graaf, Managing Investor Relations. With us here today is our CEO, Eelco Hoekstra, our CFO, Gerard Paulides, and our COO, Frits Eulderink. We will refer to the full year 2017 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. After the presentation, which will take roughly 30 minutes, we will have the opportunity to ask questions, first by the analysts presented with us, and thereafter by the analysts dialing in. Before we start, I would like to remind you of the forward-looking statement on slide two. This disclaimer is applicable to the entire presentation and Q&A. Now I would like to give the floor to Eelco Hoekstra.
Thank you, Laurens. A very good morning to everyone here, and also thank you for dialing in to this webcast today, and for all those who are following this presentation via our on-demand audio call. I'd like to turn to slide four. Despite challenging market conditions, and particularly in the oil markets, and as a result of our business efforts throughout the year, we had a satisfactory performance in 2017. The main contributors to the financial results are a diversified portfolio of terminals across different market segments and products, a strong focus on sales and customer service, and an ongoing cost program. The main detractor has been tough market conditions in the fuel oil market, and particularly in Rotterdam. Looking at 2017, I believe that we have realized important milestones to further strengthen our competitive position of our company and continue creating long-term value for all our stakeholders.
Related to our growth strategy, our 3.1 million cubic meters of storage capacity under development has a high commercial coverage and will contribute to our EBITDA in 2019. In 2017, we took investment decisions for five growth projects in countries such as South Africa, Brazil, Canada, and Malaysia. Today, we announced two additional growth projects, one in Jakarta and the other in Sebarok, our terminal in Singapore. I can also state that we are on track with our digital agenda. In line with our strategic announcement last year, we are investing more in innovation, new technology, and IT to substantially improve our productivity and competitiveness. As world's leading independent tank storage company, we have chosen to develop our terminal management software for core processes in-house. This will make our company more agile and competitive and provide better value for money to our customers by, for example, generating real-time data.
Our terminal in Savannah in the U.S. is now successfully operated with this software. The positive outcome of this pilot enables us to take the next step in our global rollout of this new digital system, starting in the U.S. West Coast. Last, we are well on track to realize our cost efficiency program and will reduce our future cost base with at least EUR 25 million by 2019. Let me move to the key figures for 2017 on slide five. As of today, we are operating a well-balanced global portfolio, close to 36 million cubic meters, spread over 66 terminals in 25 countries. We have a strong presence in Asia and the Middle East, where we operate 13 million cubic meters, and we have more than 2 million cubic meters under development in these regions.
We managed to operate this portfolio at an average occupancy rate of 90%, whereby the difference with the high 2016 occupancy rate of 93% is primarily caused by, at present, a less favorable oil market structure. The revenues are slightly lower in comparison to last year, mainly as a result of the decline in occupancy rate, the missing contributions from the divested U.K. terminals early 2016, and currency exchange movements. EBITDA, excluding exceptional items realized in 2017, is EUR 763 million. Adjusted for currency translation effects and divestments in 2016, EBITDA decreased by 4% in 2017. Continuing with the main product market developments in 2017, as shown on slide six, we have to look at this from a product group perspective, and we see different trends influencing the global flows and storage appetite of our customers. Starting with oil products.
As mentioned, the main detractor has been tough market conditions in fuel oil, particularly in Rotterdam and Estonia. We have already in previous presentations extensively covered the short-term effects and current uncertainties regarding the implementation of IMO 2020 Global Sulphur Cap. In the long term, based on market consensus, we believe that more fuels will be handled and stored, requiring segregation and blending, supporting demand for our services. If we zoom in on the performance in the main oil hubs being Rotterdam, Amsterdam, Fujairah, and Singapore, we experienced a soft short-term market linked to the price of oil. Again, I want to make the point that our business is not dependent on the price of oil but can be influenced by it. In 2017, we saw a clear backwardation for most oil products.
Markets change, and although difficult to predict when, several market parties forecast a slight recovery in the second half of 2018 due to a more balanced market. We will need to follow these developments closely. We facilitate structural product flows and the global imbalances thereof. The world's oil consumption is expected to grow, and our focus is on facilitating this growth in the major global hubs. For that reason, we are improving our infrastructure to better position our hubs in today's markets condition. Three examples supporting this are that in Amsterdam, we are constructing additional jetty capacity for gasoline and gasoil. This will enable us to decrease the idle times and improve the throughput levels. Secondly, in Singapore, we're expanding our marine gasoil tankage to serve multiple fuels in the growing bunker market.
Thirdly, we're expanding in Pengerang, which is located in the heart of the refining center in Southeast Asia to cater for future demand of these vital oil products. Last and not least, we saw a solid growth in the demand for oil product storage in import distribution terminals, especially in major markets which have structural deficits of oil products like Brazil, South Africa, and Indonesia. Our view on chemicals is positive. The underlying demand for chemicals is strong, which is linked to the growing demand for plastics. The business environment for petrochemicals is good at the moment, specifically in the U.S. Gulf Coast and Middle East due to an abundance of cheap feedstock. We've seen improved results in the chemicals in 2017, and we will further invest in this business. Growth in GDP and demand for chemicals will require substantial investments globally to support their business with infrastructure.
Our most recent example of our investment is the addition of capacity in Houston to meet immediate needs of some of our customers. In short, we are well-positioned in the chemical sector, both in distribution and industrial terminals. Although we have limited exposure to the vegetable and biofuels business, we observed a more volatile biofuels market as U.S. and EU policy changes created some uncertainties. After a slow start in the beginning of the year, ethanol import volumes picked up in the second half of the year in the Netherlands. The lowering of EU anti-dumping duties on soy-based biofuels supported our business at our Vlissingen terminal towards the end of 2017. If we look at the LNG markets, we still see an increasing supply and demand growing mainly in Asia.
Vopak's presence in LNG is in Mexico and in the Netherlands, where we are experiencing increased levels of activity. For LPG, we see an overall growing demand and increasing volumes, especially for residential consumption. We have the ambition to capture growth in the LPG market. A recent example has been our investment for the LPG export terminal in the western coast of Canada. Look at slide seven in a bit of detail. Last year, we announced our strategic priorities with emphasis on disciplined growth and productivity improvement. We have a clear focus towards what we want to achieve by 2019, and we've specified our deliverables in 2017. We took investment decisions to capture growth through quality long-term projects that fit our portfolio.
We are smart and disciplined on how we spend CapEx on maintaining as well as improving the integrity of our assets, supporting our service capabilities toward our customers. We continue to innovate and introduce new technologies to our industry, thereby increasing efficiency and productivity and enable to work safer. Our efficiency program is well underway. All these steps will improve our financial performance. The overview on slide eight illustrates the projects we currently have under development. This includes all projects announced in 2017, as well as the two projects we've announced to you today. Our current projects under development will add 3.1 million cubic meters of storage to our global network by 2019. We are actively developing further investment opportunities, and I'm confident that we can announce additional growth projects in line with our growth strategy.
This growth momentum is clearly visible in our investment levels that are going up in 2018, which is supported by a robust financial position. In today's business environment, my focus is on the day-to-day performance of our operations and assets to improve our business and subsequently our financial performance At the same time to deliver Vopak's potential in 2019 by capturing our growth opportunities. With our clear focus and agenda, we will be able to improve our financial performance. Moving on to the next part of this presentation, I'd like to give the word to Gerard to reflect on the 2017 results and on our outlook.
Well, thank you, Eelco, and good morning to everyone. Following Eelco's update and summary of market developments, I will now cover the financial performance and outlook towards 2019. For more details, I refer to our 2017 annual report as published this morning. On slide 11, let me summarize our financial performance. We had a satisfactory financial performance in 2017, with an EBITDA excluding exceptional items of EUR 763 million, resulting in more than EUR 700 million gross cash from operations. Free cash flow available for financing items, debt service and distributions amounted to some EUR 350 million, and return on capital employed was 12%. Our balance sheet is strong with sufficient financial flexibility to invest in our projects under development and consider further opportunities. We have maintained our cash dividend to EUR 1.05 per share. Now turning to the fourth quarter, briefly.
In our fourth quarter performance, we saw a slightly better performance than we expected at Q3, with EBITDA excluding exceptional items of EUR 193 million. Going to slide 12. This slide provides an overview of the developments of our key metrics. Vopak storage capacity increased by 1.2 million cubic meters, mainly in operatorships where Vopak does not have full ownership of the storage capacity. The occupancy rate developments during the year impacted our revenues and consequently our EBITDA. However, as said, the full year result was better than what we expected earlier. Our net profit attributable to holders of ordinary shares amount to EUR 287 million, resulting in earnings per share of EUR 2.25. Gross cash flow from operations amounted to EUR 714 million. Going to slide 13, let me talk you through a bit more to our results of 2017.
You will see that the EBITDA, excluding exceptional items adjusted for divestments in 2016, mainly the U.K. and foreign exchange effects, the pro forma EBITDA decreased by 4%. The good business environment for petrochemicals in the U.S. Gulf Coast had a positive effect on our terminal in Houston. We saw good results in Mexico and Brazil, which also supported the results in the Americas. The LNG results were good. The Netherlands performed below expectations and has not been able to continue the high occupancy rates and results of 2016. The main reason for this was the absence of a positive market sentiment for storage and handling of oil products, of which fuel oil was the largest contributor. The temporarily higher out of service capacity at our chemical terminals also impacted the revenues in the Netherlands, as well as our cost levels in the first half of the year.
Turning to Asia, the results of our hub terminals in Singapore were lower due to the oil market structure. At the same time, we now can give an update on Haiteng. Haiteng, our industrial terminal in China, this is expected to restart operations for its main customers mid-2018. Progress is being made for Haiteng. The 2017 results for EMEA are in line with expectation. The effects of the less favorable oil market structure in Fujairah was offset by the performance of our distribution facilities in Germany and South Africa. As I said before, total EBITDA amounted to EUR 763 million. Turning to the next slide, where we show a reconciliation of EBITDA to net profit.
Debt repayments in 2016 and 2017 had a positive effect on interest expenses, and the repayment of the USPP loans resulted in a make whole payment that was reflected as an exceptional item in Q4. The corporate income tax rates changes in the U.S. and Belgium resulted in an exceptional gain of around EUR 35 million in the fourth quarter. This was because we were carrying a deferred tax liability, or are carrying a deferred tax liabilities in those jurisdictions. Going forward, this will positively impact our effective tax rate. For 2017, the total net profit to ordinary shareholders, excluding exceptional items, amounted to EUR 287 million. As I said, this represents EUR 2.25 per share. The cash dividend, turning to the next slide.
We have a dividend policy which has the intention to pay an annual cash dividend of between 25%-50% of net profit, barring exceptional circumstances. Reflecting on the numbers, our proposal has been that we will declare a dividend of EUR 1.05 per ordinary share for the year 2017. Turning to the next slide. Quarterly segmented EBITDA. The fourth quarter, as I said, was better than expected at Q3, excluding exceptional items, EUR 193 million. Our divisions roughly showed a comparable result relative to Q3, and the non-division related operating expenses were lower in the fourth quarter, and we had some help from currency movements, in particular the U.S. dollar and the Singapore dollar. Also, Q3 carried some insurance charges, which makes a difference going into Q4. Slide 17, cash flow. Moving on to cash flow. Growth cash flow from operations amounted to EUR 714 million.
Free cash flow available for financing items, debt service, and distributions was EUR 350 million. Besides the shareholder dividend and interest payments, we've elected to use part of the free cash flow to repay the 2007 USPP loans. As I mentioned earlier, the related make whole payment is in the exceptional table. Turning to investment. We break our investments up in gross CapEx and other CapEx. In the period 2017-2019, we currently expect to invest EUR 725 million in growth projects, either through CapEx in subsidiaries or equity injections in joint ventures and associates. Of this EUR 725 million, we've invested roughly EUR 125 million in 2017, and therefore you will see an increase in the years 2018 and 2019 on account of CapEx. It's important to realize that this projection also reflects projects that already exist. They are in progress. Decisions have been taken to move them forward.
For other CapEx, this includes service maintenance, and compliance, and IT. We invest a maximum of EUR 850 million up to 2019. This is unchanged from before. In 2017, we spent EUR 240 million of this EUR 850. The investment levels for growth projects, for the period 2017-2019, we presented during the full year 2016, stood at EUR 550 million. As I said, we've now increased that to EUR 725 million, and that is attributable to growth projects in Canada, Malaysia, Indonesia, and Singapore. In the press release of today, you will find a table listing all the projects that add up to that investment. We will have access to further growth opportunities in the period up to 2019, and our growth investment level might increase once we identify opportunities in our funnel that we sanction. Financial flexibility, slide 19.
As you can see, our balance sheet is stronger than in the last years. Under the covenants of our senior debt to EBITDA ratio, we have sufficient financial flexibility. Combined with the solid operational cash flow generation, we're in excellent position to invest in projects under development and to continue identifying new opportunities. Going to slide 20, the non-IFRS proportionate information. We provide additional performance insights on a comparable basis for subsidiaries, JVs, and associates by means of a proportionate consolidation based on the economic interest of Vopak in our entities. The non-IFRS proportionate information provides transparency in Vopak's underlying performance. Our proportional EBITDA, excluding exceptional items, amounted to some EUR 850 million versus just over EUR 900 million in 2016. Moving to subsequent events, slide 21. Today, we announced to further expand two terminals in Asia.
First of all, we will grow our import distribution terminal in Jakarta with 100,000 cubic meters. This capacity is catered for clean petroleum products and biofuels, which will support customers to comply with Indonesia's biofuel blending mandate regulations. In addition, we will expand the Sebarok terminal in Singapore with 67,000 cubic meters for storage and handling of MGO. This will strengthen our position as the bunker hub of choice with flexibilities of handling multiple fuels in anticipation of IMO 2020. Early in 2018, we reached agreement regarding a new pension plan in the Netherlands. The new pension plan is aimed to qualify as a defined contribution plan under IAS 19, and is also planned to be formally implemented during the first half of 2018, subject to the final arrangements being put in place.
The settlement of this pension liability is expected to result in a material exceptional gain during 2018. Also, the accounting treatment in the financial statements will slightly differ going forward, and we can deal with that in Q&A if you want some more information on that. Looking ahead. Turning to slide 22. Our financial performance in 2018 is expected to be influenced by currency exchange movements of primarily the US dollar and the Singapore dollar, and the currently less favorable oil market structures impacting occupancy rates and price levels in the hub locations. Looking to 2019, given the current 3.1 million cubic meters expansion program with high commercial coverage, in conjunction with the ongoing cost efficiency program, Vopak has the potential to significantly improve the 2019 EBITDA. Again, subject to market conditions and currency exchange movements.
Going to the next slide, which actually opens us up for Q&A, and Eelco will join us, and Frits will join us here up front. I will hand back to Eelco to lead here.
Yes. Thank you very much, Gerard, for the presentation. I think this has concluded management presentation of the results of 2017 and the outlook. I would like to invite, first of all, the analysts here in the room, if there's any questions or considerations that you might have, to ask them, and then we'll take it from there onwards.
Yes. Luuk van Beek from Petercam. Well, first of all, on the fuel oil environment, in Q3, you highlighted, and also at the analyst day, that it was a very challenging Q4. Was better than expected, I think. Can you comment a bit on the short-term developments there? Has your view on that market changed for Q1 and Q2 of this year? Do you think that it's still highly unpredictable, basically?
To, let's say, make a relation between the Q4 results and the fuel oil markets, I would say there's no correlation between the improved results and the changes in the fuel oil market sentiments. Maybe to elaborate on that, I think that what you've seen is that we've tried very hard in this year or last year, 2017, to really manage our short-term performance. I think the three things which have supported our results in the fourth quarter is, first of all, is that we have a very diversified network of terminals. We've mentioned it many times, and what you've seen is that the chemical business has improved over time. That's one. We've seen recovery of the chemical results throughout the year. Second of all, because it's diversified, we have the opportunity to play in different markets at different times. I think that's one.
The second thing is, I think there's a relentless effort by our people to manage the day-to-day operations, also the revenue lines. That means on how we approach customers to look for deals, actually to see whether we can get spot business in our hub terminals, has resulted in a few successes. Thirdly, I think we've announced the cost program already for 2017-2019. What you see in the fourth quarter, that also we've done better on cost than we initially expected. I think it's a combination of those three. What we said as well for the outlook 2018, our sentiment about where the fuel oil market lies today in relation to the relative cost curve of fuel oil, hasn't changed.
That's clear. You also announced that you will do a strategic review of the terminals in Hainan and Estonia. With the previous review, it was still part of your core network, more or less. Obviously since then, the market conditions have not become easier for those terminals. Has something, say, strategically changed in your view about those terminals?
Luuk, you were here a year ago as well, I think those terminals were discussed in more or less a similar fashion, we didn't have the impairment discussion yet. We already highlighted to you saying, listen, Hainan is a terminal which is situated in the East, whereby the speculative character it has, so more dependent on the contango and backwardation sort of curve of oil to fill that terminal, is something we don't like for the long term. Second of all, we've always highlighted that the dependency of the Estonia terminal on the Russian fuel oil and crude export was something which we didn't like from its dependency point of view. I don't think anything has changed in our viewpoint.
The only thing is that we've done now, I think that Gerard can elaborate on it a bit more, that we've taken the impairments against our balance sheet.
Yeah. What we're reflecting with the impairments is the value in use, if you want, the technical approach to assessing the book value versus an impairment. What you look at in China is a terminal where we are currently more dependent on short-term contracts. The base cover is low. If you then evaluate that according to the accounting criteria and you establish a value in use against that, then you have to conclude that you have to take the impairment. The same but a different dynamic probably applies to Estland, to E.O.S., which we've also decided to fully impair now. The strategic review, you're right, Luuk, it does keep some options open. What are you going to do about it? I think Eelco already gave some context on that.
Thank you.
Wim Gille, ABN AMRO. I think it's pretty clear that you're rather bullish on 2019. Taking into account that the fourth quarter was more or less flattish year-over-year in terms of EBITDA, and taking into account that the kind of difficulties that we're facing, including the FX and the tough oil market dynamics already existed in 2017, how should we look at the financial guidance for 2018? Are we going to see another leg down, or is this more or less, hopefully, a flattish environment for you guys?
What we intend to do is to give you a good sense and feel of direction towards 2019. We've identified the cubic meters that come into play. We also have a good line of sight on the commercial coverage of those cubic meters. Those cubic meters are also projects, because ultimately, cubic meters, of course, are only a proxy for what we will see. They are projects that we have in our development funnel. It's not projects we still have to search for. We may sanction further projects towards 2019, but that's not what you're looking at with the 3.1. Also in 2019, we've indicated subject to market conditions and currency movements, but also support from our ongoing cost focus and day-to-day terminal management and portfolio management, commercial management, as Eelco has explained, which was also taking place in 2017.
We will not give a further articulation of our words that we've used for 2018. That is not because we think it's all very uncertain and maybe next quarter we will know better, then we will give you guidance on 2018 in a more specific way. It's not from a position of uncertainty or lack of confidence. Even if we go throughout the year, we will not provide further guidance for 2018 other than to direct you to the business drivers and to direct you to the actual quarterly delivery of the results. We will keep that open. You may ask about the underlying business drivers of 2018 and 2019. We're more than happy to help you there a bit more. We will not give further guidance on EBITDA.
The 2017 results did, in the second half of the year, come out a little bit worse than in the first half of the year. Q4 picked up a little bit for the reasons that Eelco explained. The business performance was more or less flat in Q4 relative to Q3. We did have some support from Germany and South Africa in Q4. We did have some lighter level of cost allocations in Q4 than Q3. Those were the dynamics that were playing out. Otherwise, it is what it is. Yeah.
Related to those cost elements that you are referring to on the fourth quarter, can you give us a bit of a feeling on how large these kind of?
I think from the top of my head, there was about just over EUR 10 million or so in the fourth quarter that changed from the third quarter to fourth quarter. That's a difference between partly insurance costs that was being charged in Q3. You didn't have that in Q4. That was part of the improvement. Part of the improvement was less spent, better cost management coming through in the numbers. Half-half. Yeah.
Final question. You refer to the commercial coverage. That is very good for the projects that you have in the development. Can you give us a bit of a feeling where that roughly is, Eelco?
Yes, if you look at the commercial coverage, we use the words high commercial coverage to elaborate on the confidence that we have in renting out those tanks. We've given you a list in the press release as well of the projects which are under construction today. We've also given you a good sense of which terminals are more industrial related. There you can assume that we have secured, let's say, the full coverage for those tanks and the other tanks which are more on a, call it, market-based investments. We say high because we have confidence in the portfolio that we see today. I think that should give you a very good guidance in where our confidence comes from for the 2019 statement.
Hi. Just one small question with regards to the cost reductions you mentioned in Q4. Given that they come from, among others, better cost management, can we see this continuing in FY 2018, the cost level?
What we have is an ongoing cost focus and competitive positioning of our terminals. That cuts across between operational uptime, cost management mindset behind it, et cetera. I would not read too much in the delta between Q3 and Q4. We do want to see a good contribution from cost management over the years, carrying that again into support for the 2019 numbers. We're also spending some extra money, of course, in the IT domain, which will incur some cost. We're optimizing some of our operations on the terminals by investing in the assets themselves. They will more than happily spend money there. I would continue to focus on market conditions and currency and exchange conditions for 2018, rather than expecting a step change from cost in 2018.
Richard.
Richard Koning, ING. Just to get one thing clear, if you speak about your 2019 guidance, I'm assuming that 2017 is the basis there. Can you confirm that? Maybe another go at 2018, what do you take into account there for additional capacity coming on stream? Maybe the split, you speak about cost control as well as capacity expansion. Can you give a feel of the split between the two for 2019 in terms of growth?
The first two questions, I was a bit distracted with the third question, so I have to come back to you on that, Richard. The first two questions are fairly easy to give an answer on. Is that if you look at the basis from which we look at the improvement of our financial results, that basis is from the, let's say, the earnings that we can achieve with our existing network. We are giving you insight in how the new cubic meters will expand our earning capabilities and the level of comfort we have on that particular expansion program and the contracts. The moment that 2019 comes in, it's on top of 2018. This is how you should calculate ultimately the amount going forward. That's an answer to your question number one and two in a combination.
You asked about the split between what is cost and what is new revenue effectively in 2019.
Is it 50/50, 60/40?
The most significant component, if you look at the improvements in financial results in 2019, as stated in the outlook, will come from growth. That has a very clear effect on the numbers as we go along, whereby our cost program, which is running just like Geert was saying, over a period of three years. That means that if we have cost management and cost control over a period of three years, one can assume that we gradually achieve those targets as we move along. It will not be, let's say, a huge delta, I would say, between 2018 and 2019 from a cost perspective.
Okay. We will now switch over to the questions from our analysts dialing in.
There are no questions from the conference call, sir.
Okay. Well, that brings us then to the end of this presentation. Our next presentation is the Q1 interim update, which is planned on April 18th, 2018. Thank you very much