Ladies and gentlemen, thank you for holding, welcome to the Royal Vopak event call. At this moment, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. I would like to hand over the conference to Mr. Jack de Kreij, Vice Chairman of the Executive Board and CFO of Royal Vopak. Go ahead, please, sir.
Ladies and gentlemen, a very good morning, welcome to the 2017 Q3 interim update of Royal Vopak. In the next 20 to 30 minutes, I will provide an update about the year-to-date 2017 business and financial developments, with specific attention for the Q3 period. In line with previous webcasts, I will go page by page through the analyst presentation, as published on our website this morning. While doing so, I will make a reference to the page numbers in order to facilitate the explanation of the year-to-date financial developments. Since it entails an interim update webcast, I trust you will appreciate that we refrain from elaborating on certain details. In the February 2018 press release, analyst presentation, and webcast covering the financial year 2017, additional attention will be paid amongst others to proportion of consolidated reporting, cash flows, and CapEx developments.
After the explanation of the key developments, there will be sufficient time for the follow-up of any questions you may have after the presentation. After the interim update, you could also liaise with our investor relation managers for the follow-up of any specific questions you may have. On slide two, I refer to the content of the forward-looking statement you are familiar with. The clarification in this statement should be taken into account with respect to any looking ahead comment and of guidance provided. Accordingly, this disclaimer is applicable to the entire conference call, including the answers provided to your questions during the Q&A session. On slide three, I would like to briefly highlight some of the key figures for the year-to-date period.
As of today, we are operating a global portfolio of 66 terminals in different product market segments in 25 countries, with a total storage capacity close to 36 million cubic meters. Our objective is to operate and expand a well-diversified global network of hub, distribution, and industrial terminals, providing professional infrastructure services in different product market segments with a focus on oil, chemical, veg oil, biofuel, and gaseous products. Our business development focus is currently geared to projects in different regions of the world related to industrial terminals and terminals facilitating the global gas markets, while also pursuing interesting chemical and oil-related opportunities in hub locations and emerging countries with structural deficits.
The average occupancy rate for the period is 90%, supported by sound business drivers in all key product market segments throughout our network, whereby the difference with a high occupancy rate of 94% for the same period in 2016 is primarily due to a presently less favorable oil market structure. The revenues in comparison to last year are slightly lower with 3%, mainly as a result of the decline in the occupancy rate and missing contributions from divestments in 2016. EBITDA, excluding exceptional items, realized year to date amounts to EUR 571 million, a decrease of 9% compared to last year, caused by a lower occupancy rate. The 9% decrease is in line with our previous guidance of a 5%-10% lower EBITDA compared to 2016. Adjusted for the divestments early 2016, the pro forma EBITDA decreased by 7%.
Slide four provides an overview of the year-to-date Q3 developments of the key figures like storage capacity, occupancy, revenues, EBITDA, during the last five years. For the full year 2017 presentation, we will include revenues and EBITDA on a proportionate basis as well. The reported occupancy rate and revenues are directly linked to the capacity owned and operated by subsidiaries. The occupancy rate reflects the percentage of the total storage capacity covered by storage service contracts. The revenue development compared to 2016 is affected by the lower occupancy rate, whereas compared to 2013, it has been affected by the divestments and accordingly, a decline in the storage capacity of subsidiaries.
The growth of our global network available for our customers has been increased since 2013 from 13.6 million cubic meter to 35.9 million cubic meter, primarily through strategic partnerships, joint ventures, and operatorships, as reflected in the table on this sheet. The occupancy rate has been developing between a healthy bandwidth of 88%-94% since 2013, with revenues around one billion for the first three quarters of the year. Our EBITDA has been developing between EUR 568 million and EUR 625 million in the same period. In line with our outlook at the beginning of the year, it's crystal clear that our results in 2017 would not and will not exceed the 2016 results being the highest of the last five years period.
Translated to the net profit, the same fundamentals apply with one additional comment that the net profit impact of an EBITDA decrease or increase is by definition, relatively larger. This explains the 17% drop in net profit compared to a 9% EBITDA decrease. Our senior net debt-EBITDA ratio has decreased from 2.92 in 2013 to 2.08 at the end of the Q3 period, following continued robust operational cash flow generation, cash proceeds from the divestments, consistent yearly cash dividends, and capital spent on sustained CapEx and service upgrade, IT, and growth CapEx. Looking at slide five, our key business driver is structural demand for infrastructure services in different product market segments, reflected by the occupancy rate. This graph illustrates that we have been able to operate our global terminal portfolio during many years with an occupancy rate in the full potential range, between 90%-95%.
As explained before, we see a healthy demand for storage throughout the total network, supported by sound business drivers in all the product market segments, translating into an average occupancy rate of 90% year-to-date. The difference with the high 2016 occupancy rate of 94% is primarily due to a presently less favorable oil market structure. Specifically, the fuel oil market structure remains challenging for our customers, mainly due to uncertainty around long-term demand for high sulfur fuel oil caused by the uncertain fuel oil demand implications of IMO 2020. In addition, the fuel oil markets is in backwardation, not stimulating any additional trading activities. The uncertainties around the exact IMO 2020 consequences is a global phenomenon affecting the whole industry, from suppliers to traders, bunkering agencies, ship owners, and also tank storage companies.
During the upcoming Analyst Day, we will provide some general considerations, but also potential opportunities resulting from future increased fuel oil blending and storage needs. Changes in product specifications or shifts in product flows due to geopolitics or new rules and legislations are not new to Vopak and have always been an inherent part of the changing business environment. When we look at other subsegments of the oil market, many of you might recall the detailed discussions about the significant decline of crude oil storage demand in the Netherlands in 2013. Currently, the occupancy rate for crude oil in the Netherlands is healthy, as these storage positions are mostly utilized by customers with a structural underlying business model, supplying refineries either directly or indirectly. Hence, we remain undiminished focused on long-term trends, corresponding sustainable cash flow generation, growth opportunities, and efficiency improvements.
On slide six, you might recall that we operate a diversified and well-balanced portfolio, where the EBITDA contributions from oil products is roughly 40%-45%. The rest is chemicals, 20%-25%, industrial is another 20%-25%, and the remainder is related to biofuels, veg oils, and gases such as LPG and LNG. If we turn to slide seven of the presentation, you will see that the EBITDA, excluding exceptional items, decreased by 9%, whereas adjusted for the divestments early 2016, the pro forma EBITDA decreased by 7%. The FX effect compared to 2016 remains limited to roughly EUR 3 million. The presently less favorable oil market structure had mainly an impact on the oil hub terminals and accordingly on the financial performance of the Netherlands, Asia, and EMEA division. Besides these developments, you can see the negative impact of almost EUR 7 million. Apologies.
A small cough, unfortunately at the wrong moment. Besides these developments, you can see the negative impact of almost EUR 7 million labeled as Other, which is related to higher other expenses, amongst others, due to a jetty damage in Singapore. On slide eight, I will elaborate in more detail on the EBITDA developments per geographic segment. The Netherlands has not been able to continue the high occupancy rates and results of 2016. The decline in EBITDA is mainly because of the earlier mentioned less favorable market structure for fuel oil, but also partly due to capacity that was taken out of service at our Rotterdam chemical terminals for maintenance and service upgrades. Additionally, as explained during the Q2 call, we also incurred higher costs related to innovation and cleaning of the earlier mentioned chemical capacity.
The developments in the EMEA division are predominantly driven by the divestments that have been realized in 2014-2016 period, including terminals in Sweden, Finland, and the U.K. EBITDA in Asia remained quite stable, whereas the less favorable fuel oil market has affected the occupancy rate, as well as the average revenue per cubic meter in predominantly Singapore. In addition, the missing contributions from the Haiteng industrial terminal in China curtailed the result for the Asia division for this reporting period. The business performance of the Americas has shown a consistent growth driven by sound performance in our chemical product market segment, with additional growth mainly in Brazil. The result of the LNG terminals has shown a year-on-year increase as a result of stable business on the one hand, and a combination of lower financial expenses on the other hands.
Slide 9 shows that EBITDA in Q3 decreased 8% to EUR 176 million compared to the previous quarter. It's the Q2 quarter. The explanation of the general year-to-date developments is also applicable for the Q3 versus Q2 comparison, with the following additional clarification. Revenues in the Netherlands remained stable, with lower costs associated with maintenance and repairs and cleaning. Looking at the EMEA division, the lower EBITDA in Q3 was mainly the result of costs incurred for disposals in Durban, that is South Africa, where small tanks have been removed to cater for new fuel tanks. As mentioned earlier, other costs relate to a jetty damage in Singapore. Continuing on slide 10, we announced on September 28th a change in ownership of Vopak Terminal Eemshaven, a joint venture terminal in the north of the Netherlands. Whitehelm Capital acquired 90% of the shares in the company from Vopak and our partner.
Vopak will retain 10% of the shares and will continue to manage and operate the terminal. The cash proceeds for Vopak were around EUR 29 million, and the total exceptional gain on this transaction amounted to EUR 24.6 million. In the period 2015 up to 2017, a number of divestments have been completed, as shown on the presented timeline. The total cash proceeds for Vopak in this period exceed EUR 800 million, and the total exceptional gains on these transactions amounted to roughly EUR 390 million. Following the net impact of free cash flow generation, cash proceeds from those divestments, cash dividend distributions, and sustaining CapEx, service upgrade, IT, and growth investments, or in summary, all cash flow denominators, our net debt to EBITDA ratio stands at 2.08, providing the required financial flexibility to support our cash disciplined long-term growth journey. Slide 11 describes the subsequent Q3 events.
Vopak has decided to voluntarily prepay the remaining $200 million on the US private placement 2007 loans, including, of course, accrued interest and make-whole amount. The early repayment will further optimize Vopak's long-term financial flexibility and positively impact future financing expenses. The maturity dates of the remaining loans are 2019 and 2022, as shown in the debt repayment schedule. The make-whole payment will be accounted and reported as an exceptional item. On slide 12, we have summarized our looking ahead considerations. Vopak is well positioned for the long term, but experiences some challenges in a less favorable oil market structure to further improve the financial performance in the short term.
Taking into account the current market dynamics, missing contributions from the divested terminals early 2016, and additional costs related to investments in growth and technology, we expect the 2017 EBITDA, excluding exceptionals, to be around 10% less than the 2016 EBITDA of EUR 822 million. The majority of the current projects under construction, which is around 3.2 million cubic meters, are backed by commercial storage contracts and will accordingly contribute positively in the course of 2019. The successful realization of the efficiency program in the 2017-2019 period will help reduce Vopak's future cost base with at least EUR 25 million. Lastly, Vopak will continue its disciplined long-term growth journey while maintaining, on average, a cash flow return on cost assets after tax between 9%-11% for the total portfolio, supported by a strong balance sheet, financial flexibility, and solid operational cash flow generation. I now refer to slide 13.
Before we go over to the Q&A session, I would like to ask your attention for two other events. As you might already have read in a separate press release dated October 17th, I am pleased to inform you that following my decision in November 2016 to step down as per February 1st, 2018, after having been on the Executive Board for 15 years as Vice Chairman and CFO, that the Supervisory Board of Vopak will nominate Gerard Paulides to be appointed as per the same date as Chief Financial Officer and member of the Executive Board for a period of four years. Coming from Royal Dutch Shell, Gerrit has gained a broad and international comprehensive experience in the energy industry in various CFO roles with involvement in, amongst others, mergers and acquisitions, MLPs, and investor relations.
The nomination is subject to the approval of the general shareholders meeting. An extraordinary shareholders meeting is called to take place on Friday, December 15th, 2017. Secondly, I would like to refer to the press release, where we mentioned that Vopak will host an analyst day on December 12th for our sell side analysts to provide an update on the oil market and to highlight the key developments per product market group, including chemicals, gases, and LNG. Besides the upcoming analyst day in December, we will organize a capital markets day in the second half of 2018, for which you will receive further information in due time. That ends our presentation on slide 14. I apologize for the cough. Probably emotions after having been on the board for 15 years.
Probably an emotion that this is my 60th quarterly update. I hope that we will have a smooth question and answer session. I refer to the moderator to start that session.
Ladies and gentlemen, we will start the question and answer session now. To be registered for the question and answer queue, please press star one. Star one for your questions or remarks. Ladies and gentlemen, please limit the amount of questions to two. Two questions per person. Thank you. The first question is coming up from Martijn den Drijver, NIBC. Go ahead, sir.
Yes. Good morning, Jack. Can you talk a little bit about the pricing environment? Declination has an impact on trading, sure. It may also have an impact on contract renewal rates. Can you elaborate a little bit per region on the latest developments there? That's question number 1. The second question relates to the Netherlands. You have substantially lower operating expenses that is pushing the EBITDA margins of the Netherlands division higher than expected. Is that incidental or structural? Can you elaborate a little bit on that? Thank you.
Thank you, Martijn. Let's start with the other one. If you look at the business model of Vopak, it's very difficult to drive conclusions on cost from a quarter-by-quarter basis. You should assume a mix of timing differences, some of the, of course, structural effects of the cost program we are initiating, et cetera. It's too early to say that they are on a journey with improvements going forward. I would say stable situation, no significant changes in the occupancy rate we have seen in Q3. The uncertainties around the fuel oil market remains that we have to be extremely cautious. On the cost side, as I said, it's a mix of timing differences, be careful not to extrapolate that to the future yet. Pricing. Of course, we are operating in many different markets.
If you look at the average price per cubic meter development, you will see that it's more or less close to what we have seen in the past. There are exceptions, that's the reason why we made a remark that specifically on the fuel oil storage market, in these uncertain situations, taking into account that there is hardly any business case for other activities, you could and should assume that this has an impact on pricing, not only in the Netherlands but also in Singapore. That is reflected also by the year-to-date and Q3 developments.
Okay. Thank you.
The next question is from Thomas van der Meij, Kempen. Go ahead, sir.
Morning, Jack. Actually, I have three questions, but probably you answer relatively short one of them, because I know that you're working through all the budgets for next year. When I read your outlook 2017 statement in the presentation, it sounds like you do not expect a recovery next year and actually expect EBITDA not to be better than this year. Is that a correct interpretation?
That would be an implicit interpretation. We have not provided any guidance for that. I would prefer to refrain from answering that question. What we have tried to do is summarize explicitly as possible what is the situation for 2017. You might recall, when we started 2017, we were absolutely sure that we would not end up higher than 2016. The only question was, how fast will the uncertainties around the fuel oil affect the storage capacity? At Q2, we knew that would be at least between 5%-10%. With the Q3 results now, it's absolutely crystal clear that Q4 will never be able to realize, let's say, a 5%-6% total drop for the whole year. With that uncertainty, we start the new year. At the same time, uncertainty also sometimes provide opportunities.
We find it too early to provide any comment on 2018. The only thing we want to make absolutely clear, for the avoidance of any doubt, that the two other activities, I must say three activities we are currently intensifying. One is, of course, the projects under construction backed up with commercial contracts, will absolutely hardly contribute to 2018. You should expect more in the course of 2019. That is a factor which will absolutely not be a big plus in 2018. The second one, the efficiency program, taking account the nature of the activities, that will be fully completed in 2019, maybe only a partly impact on 2018.
The third one will certainly not contribute to 2018 and also not to 2019. It is our operational IT project, where we are implementing new applications supporting the efficiency of business processes, and that will be a journey beyond 2019. I hope this provides you a bit of the picture, and we, of course, come back on the 2018 considerations early 2018.
Clear. A question on the fuel market. It is now also affecting Singapore. It is interesting to see the difference between Amsterdam, where it is an impact on occupancy, while Asia is mainly pricing. Could you maybe elaborate on the reasoning behind the different impact? In addition, it seems to be mainly fuel oil markets seem to mainly affect your hubs. So far, Fujairah has been relatively immune or resilient. What do you expect there next year when contracts do expire?
All markets have been affected, but indeed with a different speed because of the different drivers having an implication on those markets. The fact that in the Q2 call, we had to elaborate quite in detail about the impact on the Netherlands was that besides the general uncertainty following the IMO 2020 situation, and the uncertainty should be translated as what are the volumes of fuel oil being in demand in the future, taking into account yes or no shipping companies making investments in scrubbers, converting it to LNG. That is the kind of scenarios everybody is looking at, and there is no, let's say, consensus yet in which direction it will develop. That is the reason that we also organized this Analyst Day on December the 12th. We feel that is a good moment to provide you with a broader view on the development in that market.
What could be opportunities resulting from this. In order to provide that information is that the opportunity could be that the oil majors would like to blend more specifications in order to ensure that these very expensive desulphurization processes can be limited. An uncertain playing field as a result of uncertainty, it's always difficult to provide good guidance in the short term because it means that the implications could be severe, as we have seen in the year 2016. It has affected the Netherlands. It has affected slightly Fujairah. It has affected Singapore.
The reason why the locations are different is that, as explained in the Q2 call, that Rotterdam is also affected by another phenomenon, and that is that besides the uncertainty of the demand for volumes in the future, that because of the shipping economics, meaning that the low shipping prices do not trigger our customers to store and transship in Rotterdam in order to save transportation costs per ton for transporting the products to Asia. You see different implications, but the uncertainty in the fuel oil market is applicable to all these markets, and you should assume also occupancy rate, but also slightly pricing. On the contrary, that's the reason why I wanted to emphasize that, we are talking about fuel oil, but of course, the market structure on crude and the market structure on clean products is developing as it was in the past.
Very robust supply and demand imbalances, high demand for services, high occupancy rates for our terminals serving those subsegments. It concentrates primarily on the fuel oil markets.
Clear. Thanks. Then final question. On the repayment of your $200 million US private placement, could you remind me what the cost of that was there? As a follow-up, could you then elaborate on your view on the mispricing in the capital structure, i.e., why are you preferring to buy back the bond instead of buying back shares at EUR 35?
Buying back shares is, let's say, a complete different capital allocation structure. Meaning that if you buy back shares, it also mean that you are diminishing your flexibility for growth going forward. Whereas if you repay debt, it doesn't decrease or change your flexibility going forward for growth. The comparison, I understand it from a financial market perspective. From a strategic perspective, it's a complete different capital allocation situation.
Clear. The cost of debt?
The cost of debt you should assume, let's say on average, our total USPP is around 4%. USPP 2007 was around 5.5%, 6%.
Thanks.
The next question is from David Kerstens, Jefferies. Go ahead, sir.
Good morning, Jack. Also a question on fuel oil storage, please. Your occupancy rate in the Netherlands remained relatively resilient at 89%. I saw the throughput figures in the port of Rotterdam. I understand throughput is not the same as occupancy rate, why is there such a big disconnect between the deteriorating throughput figures and your relatively resilient occupancy in the Netherlands in Q3? Secondly, on your fuel oil capacity, are you happy with the current amount of capacity that you operate in the various locations, or have you already made any decisions to adjust capacity and potentially refurbish to storage for other type of products? What would be the financial implications of such a? Maybe finally, if I may, on the joint ventures in particularly EMEA and Asia, you see sequentially a lower result.
I understand EMEA is related to Fujairah and weakness in fuel, what's the impact in Asia? Do you also see that effect in Pengerang, or is it more related to your Chinese joint ventures? Thank you very much.
Starting with the last question, it's more related to, let's say, the operations in China. As we noted, you know that because of the situation we explained last year, we have hardly any contributions now of our Haiteng terminal. That is the reason why if you compare 2016 to 2017, that is one of the main differences. Your observation with respect to Fujairah was correct. I also mentioned that because that is one of those oil hub locations. The questions about storage capacity and throughput is, of course, you should not underestimate if you have, just for illustration purposes, let's say 500,000 cubic meter of capacity available for storage capacity. Multiplied with a throughput, that is quite a huge volume, which is not used.
There is always a multiplier effect between throughput and the storage capacity, where there is always a possibility to more efficiently use current capacity versus the empty capacity available. The strategic questions you are raising are, of course, valid topics, but as I would like to repeat at Q2, it's too early to come to final conclusions, whatever. Uncertainty doesn't mean that there is not a continued need for fuel oil in the future. To which extent, in which type of mix, what are the solutions? That is something which is currently unknown, and I would find it at this moment too early to immediately reconsider certain, let's say, allocations of tanks to other product market segments.
Of course, in the course of the coming years, that is something which we will always take into account. It starts with one thing that is the global portfolio. As we have been explaining our global portfolio, we have reallocated focus in the last 15 years slightly to more chemicals, industrial terminals. We have included LNG, and we are confident that this strategy is absolutely the right strategy. That means that we are currently looking at projects specifically in industrial terminals. We are specifically looking in LNG solutions. Also there are opportunities specifically in countries with structural deficits like we have seen in Brazil, like we have seen in Indonesia, like we have seen in Mexico, like we have seen in South Africa, where it is justified to add capacity to serve the oil markets.
What we are doing is we are sharpening, we are continuously fine-tuning in that journey going forward, that global diversification. By means of adding capacity, we can influence that total portfolio mix. By means of small investments, we further fine-tune the total portfolio, and we continue doing that. To answer that question about what is the implication of this short-term turmoil in the fuel oil market. For a strategic point of view, I find it much too early to come immediately to conclusions. I would first like to await what is the industry going to do. Will they start blending more specifications? Because if they would start doing that, there would be an increased need for storage facilities which we can offer, and then it would be a destruction of capital if we would have reallocated our activities too early.
I appreciate uncertainty is sometimes not nice because it affects the predictability of certain parts of your cash flow. At the same time, it's inherent to a fast-changing world, we are extremely confident in the long-term strategic locations of our portfolio and will align with the, let's say, the fine-tuning and the sharpening. We will continue that journey, and this matter will be absolutely addressed in the coming years. That's the reason why we organized this analyst day. We think, because of the complexities, because of the uncertainties, we think we can spend some more quality time in elaborating on this type of questions during that analyst day.
Okay. Thank you very much. Can I ask one quick follow-up, please? With regards to the existing fuel oil capacity, to what extent can that be used to store cleaner marine gas oil? Because I understand that some major shipping companies have said not to be interested in installing scrubbers at all. I think less than 10% of shipping companies are looking at installing scrubbers, meaning that probably there will be less demand for heavy fuel oil in the future.
Yes and no. If, for instance, they would not be interested indeed, and it means that they are going to make a comparison, what is the price of marine gas oil on the one hand? What is the cost price of producing the marine gas oil? What is the price of desulfurization? You could meet the market demand without any investments in scrubbers on the one hand, and at the same time, you could still use the current fuel oil storage capacity, so then you don't have to convert it to anything else. The answer, whether you can convert it is on a case-by-case basis. I cannot give you an immediate answer on what would be general situation be.
You have to look at it at a case-by-case basis.
All right. Thank you very much, Jack.
You're welcome.
The next question is from Thijs Berkelder, ABN AMRO. Go ahead, sir.
Hi, good morning. Question on one-off costs. You present a group EBITDA excluding exceptionals of EUR 176 million in the quarter. Counting all the one-off factors in there, I come to a sum of about EUR 15 million, I would say, EUR 5 million for the jetty in Singapore, EUR 2 million Durban, let's say EUR 1 million, EUR 1.5 million hurricanes U.S., EUR 1 million Qatar sanctions, EUR 3 million Haiteng, and Chemicals Netherlands also EUR 1 million to EUR 2 million. EUR 50 million is EUR 60 million on an annual basis on EBITDA. What can we expect on all those one-offs for 2018? Will they still be there? Can you maybe give an update on Haiteng? How developments are going and/or can we expect more of those one-offs in the fourth quarter?
The fact, I think we covered that before, indeed, the nature of a one-off is that you don't expect the same item to reoccur. It's a one-off, let's say, from the nature of the item. At the same time, we have to be realistic that operating in 25 countries, 66 terminals, continuous developments, by definition, inherently to doing business, result in certain events which might be qualified as one-off, but might also be repeated. That's the reason why we don't want to emphasize that too much. Because if I would say, take into account EUR 15 million of one-offs, that means that I would give the impression that from a quality of earnings point of view, that they could not occur in a different nature next year. I find that not appropriate reflection of doing business.
Your question whether that will be again EUR 15 million or whether that will be EUR 5 million, that is the point of a one-off that you cannot repeat. I take into account that always there will be, let's say, certain items affecting the business results. The reason why they are now so crystal clear in this business development is because you don't have positive top-line developments. You have, in fact, as expected, a decrease of your top line, as a result of which any additional change in your cost structure is immediately flagging the EBITDA development. Your Haiteng question indeed comes immediately in. That is a very, I would say, detailed process where it's difficult to give guidance. At least for the year 2017, we don't expect many changes.
Whether we can expect changes in 2018 is something I really would like to look at the beginning of 2018, because it's the outcome of a huge repair project with respect to the plants which were affected, the pipelines connected to our terminals. The whole objective is to start up operations and to continue the industrial terminal. The reason being is that also the Chinese government has absolutely confirmed that this plant is critical for the region, but also critical for China because of a shortage of the PTA and the PX products which are currently produced. Because of the level of details which have to be adjusted, which have to be reviewed, which have to result in new permits, we find it too complex and too uncertain to provide any short-term guidance.
The long-term guidance is that I'm absolutely confident that everything will be restarted in line with all the objectives, and we hope to provide, I think, more details in the course of 2018.
Let's say, listening your response and hearing the huge demand in China. I would say China wants to have the production back in 2019. Is that possible to realize?
Oh, yes. Absolutely. In fact, they would have preferred to have it back in 2017. The point is, because of the incident at the plant and also the philosophy and the strategy of the Chinese government to really upgrade the safety and the quality and the characteristics. They take this opportunity to be extremely strict to the owners and the new partners from the government to ensure that everything is meeting every requirement. It's a combination of, on the one hand, from a business point of view, you want to have speed. On the other hand, from a compliance and safety point of view, you want to have 100% certainty that the plant can start operation once everything has been completed. Those two perspectives are currently managed at a level of detail you cannot imagine.
You should assume that going forward, we are confident that it will be restarted. Whether it will be in the course of 2018, at the end of 2018, it's too early to say, because in the coming months. Every time we do detailed reviews, we have collaboration meetings. We will provide, hopefully, more information once we have a better understanding about the actual translation of the actions into the next step of the restart of the plant.
Okay, good to hear. Maybe one question on your corporate costs. Can you maybe give guidance for corporate cost in the fourth quarter? What, in your view, is the normal quarterly run rate as of now?
No, I'd prefer not to do that because 2017 is a special year. We had the integration of two divisions that results in additional costs. They are not all exceptional items. They might be classified a one-off. In 2017, we had this jetty damage in Singapore caused by a third party. As you might recall, in the current maritime law, the liability of ship owners is, let's say, limited to a certain maximum, and that's also the maximum they can insure. That means that if, for unfortunate reasons, this third party incurs higher damages to your operations than they are protected for by law and insurance, it means that the additional costs are for our account. That is also an item included in the 2017 numbers. I think it's more a topic for 2018 because we are working on a couple of things.
One is we made a few decisions to simplify the organization. Secondly, we are working on this cost structure of EUR 25 million for 2019. Thirdly, we are incurring higher costs for innovation, for technological developments with respect to the operational automation upgrade, from which we are going to benefit beyond 2019, but also results in higher costs. I would like to refrain to a detail like Q4 guidance of this global cost. I think it's a good topic in the course of 2018-2019, when all these programs normalize, so that you can have a better view about the levels which we have to incur to drive all these initiatives.
Okay. Thank you.
The next question is from Dominic Ekrich, UBS. Go ahead, sir.
Hello. Thanks for taking the question. Just a quick one. Just referring to slides six and seven. If you could, is there any way you can actually say what's been going on in the different verticals in Slide six? Should we assume that basically most of the delta for this year has actually been in the oil products segment? And can you give any sort of quantifications on that? Thank you very much.
Indeed, it's very simple. We have explained in our previous calls, the main uncertainty is in the oil market structure. Within the oil market structure, it is within the fuel oil market, crude oil going strong, CPP going strong, clean petroleum products. We had a few in chemicals, but they were minor items explaining the deterioration in certain, let's say, locations like the Rotterdam location. We had a few Chinese locations. You should assume that if you look at the majority of chemicals is extremely strong, if you look at it from a global perspective, strong in the Americas, sound in most locations in the Netherlands, Asia, Middle East, with some exceptions in certain locations. Industrial terminals, of course, extremely strong because it's an infrastructure service, pipeline linked, backed up with long-term contracts. Gas products backed up with long-term contracts.
Improved performance in our joint ventures, primarily due to lower financing costs. Petrochemicals and biofuels has always been slightly volatile, but within a bandwidth, just a sound contributor. Within all those segments, you see that the volatility which we have experienced in operating at 94%, 88%, is primarily caused in the oil product segments because of the reasons I think we have discussed.
Thanks for that. Just second one, just in regard to the change in the segment reporting I think you've talked about, is that just a function of the restructuring or going on in the simplification you've talked about, or are there any other sort of strategic thoughts that you've put in place there?
You mean by the integration of the former Netherlands division and the EMEA division, or are you referring to something different?
No, I mean I know there's been a bit of a shift of a few of the locations around between the different areas.
Oh.
Is that changing anything or is that just the case of that's the best way of functioning it, or is there something else going on as well? Is it just a case of simplifying the management structure?
No, it's a combination of a better strategic fit with the structural drivers in those markets and the management teams responsible for that. A long story short, we reallocated Middle East to the Asian division because we feel that if we look at the developments in the Middle East, in India, in Pakistan, and in Asia, they are much more aligned than with the European developments. That's the reason why we reallocated the Middle East activities to the Asian divisions. At the same time, we feel that the strategic challenges and attention points in Belgium In Germany and the Netherlands are absolutely aligned, and that means that we feel that one management team being responsible for that particular West European area also improved the alignment with the strategic and market drivers.
A long story short, when we integrated the Netherlands and the former EMEA division, we left out the Middle East to Asia, and we integrated Western Europe and of course, the Spanish activities and South Africa. It's more than just putting together. There is a strategic thought behind it.
Okay. Thank you very much.
The next question is from Quirijn Mulder, ING. Go ahead, sir.
Yeah. Quirijn Mulder from ING in Amsterdam. Good morning, everyone. A couple of questions. First question is about the jetty damage in Singapore. Is that now over? Is that still, let me say, having an impact on your business? The second question is about the chemicals. Is the chemicals business in the second quarter was quite weak in Rotterdam. You have already flagged it somewhat, but maybe you can give me somewhat more feeling on what are the developments there with regard to all the different segments there, and what is the outlook for the fourth quarter?
Okay.
Thank you.
The jetty damage, let's say, the repair has been completed. What you see, it has no impact further on revenue developments or throughput levels or whatever. It's more that the cost we had to incur is something which we have to absorb, as explained before, because of the reasons that shipping companies are protected with liability levels. Indeed, at the Q2 call, we specifically explained some of the trading markets in styrene and methanol, but also some issues we had with our infrastructure. We are still working on the infrastructure, so it's not that we have solved that. You should assume that for also the remainder of the year, that capacity cannot be immediately contributed. That's the reason why we have included that in our outlook for the whole year. The implicit assumption we make is as follows.
When we started 2017, it was absolutely clear that we would not be able to match the 94% occupancy rate. We felt that we were well-positioned to be able to maybe end up around 90%. The speed in which the decline would occur was the uncertain factor. That's the reason why we sharpened and fine-tuned our outlook at Q2. We estimated 5%-10%. We now see that the total impact at year to date Q3 is 9%. That would technically mean if we would like to achieve an 8% or 7% level, that you would need to have a significant improvement in Q4 in any of the markets we just discussed. We have no indication at all that that is a realistic scenario.
It's more like continuing the same level as in Q3, where, of course, as well spelled out by Thijs, you will always have small differences, and that makes it very difficult because the bandwidth in which we have to make this assessment is that you also have to assess small differences, one to two million happening over there. That's the reason why we felt that in fine-tuning the guidance, I think the 10%, around 10% gives the best reflection of a realistic assessment of what Q4 could be, which seems to be more or less around what we have been doing in Q3, with, of course, an uncertainty around small deviations. That's the reason why we sharpened and fine-tuned that outlook for the year 2017.
Okay.
Does this answer your question, sir?
Yes, it did.
Okay. Next question, Mr. Luuk van Beek, Degroof Petercam. Go ahead, sir.
Yeah, just two short questions remain for me. One is, could you remind me what your fuel oil capacity is for the company as a whole? The second is for the make-whole payments of the USPP. Can you give an indication of the size of those payments?
The second one is maybe too early, Luuk, because it's a contractual calculation which is still going to take place, I might find it inappropriate at this moment to share that. Let's put it this way. The exceptional loss resulting from this make-whole payment will not exceed the exceptional gain we have reported so far. The actual amount, of course, I find it inappropriate now to share because it's a contractual follow-up, which we still have to execute in the coming weeks.
Okay. Thank you.
The first one, if you look at the fuel oil capacity worldwide, rough numbers, worldwide, we have around 20, 21 million of storage capacity covering oil products. You have to be careful with using that number, of course, because that is divided with subsidiaries where we have the majority of the ownership, joint ventures, where we either have 50% or less, like Fujairah, where we have in the 30s. Like Pengerang, where we have a lower percentage. We have operatorships where we operate the caverns without having any other economic interest. We need to be careful in looking at that 20 million cubic meter of capacity. Roughly looking at how that is spread, if I look at all the tank pits worldwide, if I look at the focus, you could say four, five million is currently linked to crude oil storage.
Around 5 million fuel oil, the remainder is linked to clean petroleum products like gas oil and gasoline. Around 5 million is linked to the fuel oil business, again, you have to be careful. Some of it is in joint ventures, some of it is in group companies. I hope this gives you a bit of a feeling how that sub-segment is positioned in the total oil storage capacity we currently provide in our global network.
Okay, that's helpful. Thank you.
For any additional questions or remarks, star one. For any additional questions or remarks, star one. Go ahead, please. There is one additional question coming from Michele Vrona, Goldman Sachs. Go ahead, please.
Hi. Good morning, Jack. One small question. I know it's relatively small for the group. I was just wondering when you can give any color on the decommissioning of the terminal in China, in Tianjin, I'm pronouncing that correctly.
Oh, the decommissioning. Yeah. What we did is, that was a decision made in 2016. What we said, we make an analysis at that time of what are the consequences of this decommissioning, we took all the financial impact into account. That means that, we haven't seen any deviations from that, these are not affecting materially the 2017 accounts anymore.
Okay. In general, what's your competitive environment now in China? It's been relatively difficult for you in some areas. Has anything changed there?
What you see is in fact, the following. If you look at our portfolio, you look at the different nature of the terminals we operate. The industrial terminals like Tianjin is, of course, undiminished strong. Well-positioned, long-term contracts, industry is going well. We have several small expansions successfully completed, we will continue doing that. The Tianjin terminal is really spot on, a champion in our total strategy. The terminal you are referring to are indeed what we call the chemical distribution terminals. You could say with the wisdom of hindsight, is that some of these chemical distribution terminals where we started projects based on the belief that China would continue growing its total GDP, as a result of that, more demand for storage would materialize, has not fully materialized, we immediately took corrective actions.
That's the reason why we divested Dongguan, we divested Dongying, we stopped some of the chemical projects. There is one left, in fact, and that is Zhangjiagang. Zhangjiagang is really a very well strategically located terminal. We have seen very low occupancy rates in the direction of 60%. Since then, when China started to step by step growing again and becoming more stable, we also have seen the occupancy rates increasing in that terminal. I'm not saying they are above 90%, but we have seen them step by step increasing. Long story short, China, extremely interesting from industrial terminal point of view. That is one of our main focus areas. Chemical distribution, you have to be careful, because if things go well, it's also a region and a country where quickly new capacity is built.
On the other hand, with the more stringent focus on safety, there might also be a barrier for those expansions. For the long term, I'm very pleased with our positions in China. We are looking, of course, step by step in looking in specifically industrial terminals, maybe in gaseous products, to see how we can further build on that footprint, while at the same time we have already sharpened the portfolio and at the same time being, I would say, almost very patient with respect to Zhangjiagang.
Got it. Thank you so much.
You're welcome.
There are no further questions at this moment, sir.
Thank you very much for hosting this conference call. We are exactly completing the call at 11 o'clock. Thank you so much for your contribution. I also would like to take the opportunity to refer again to the December 12th Analyst Day. I sincerely hope you will be able to free up some of your quality time in your agenda, and that might also be an occasion where I can meet you in, let's say, in the last position I have been now on the Executive Board. I take this opportunity to thank you all for your quality time, for your questions, for the dialogue, and I'll leave it now to the moderator to close off this conference call.