Ladies and gentlemen, thank you for holding and welcome to the Royal Vopak Half Year 2017 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. Anil Acardag. Go ahead please, sir.
Thank you. Good morning and welcome to Vopak's Q2 and Half Year 2017 conference call. My name is Anil Acardag, Manager Investor Relations. Today, our CEO, Eelco Hoekstra, and CFO, Jack de Kreij, will guide you through our latest results. Also, our COO, Frits Eulderink, is with us here today and will be available for questions during the Q&A session. We will refer to the Half Year 2017 analyst presentation, which you can follow on screen and download from our website, vopak.com. A replay of this call will also be made available through our website. There will be an opportunity to ask questions following the presentation by Eelco and Jack. For additional information, please contact investor relations. Before we start, I would like to remind you of the forward-looking statements on slide two.
This disclaimer is applicable to the entire conference call, including the answers provided to your questions during the Q&A session. With that said, I will hand it over to Eelco Hoekstra, who will start on slide three of the presentation.
Thank you, Anil. Good morning, everyone, and thank you for joining us on this call. I will now turn to slide four. I would first like to briefly highlight some of the key figures for the first half of the year. As of today, we're operating a global portfolio close to 36 million cubic meters, spread over 67 terminals in 25 countries. I'm encouraged with our network when looking at it from a broader perspective. We clearly communicated in the past that we wanted to optimize our network, focusing more on projects related to chemical and industrial terminals, and terminals facilitating the global gas markets, while still pursuing interesting oil-related opportunities in emerging markets. The average occupancy rate for the period is 91%, compared to 94% in the same period last year. This is in line with our outlook as provided at the start of the year.
The revenues are slightly lower with 2% in comparison to last year, but mainly as a result of the decline in occupancy rate and also owing to the missing contributions from the divested terminals early 2016. EBITDA, excluding exceptional items, realized in the first half year was EUR 394.1 million, a decrease of 6%. I would also like to point out that when adjusted for the divestment in 2016, the pro forma EBITDA in the first half of 2017 would show a decrease of 4%. Continuing with the main product market developments influencing our business in H1 as shown on slide five. The results highlighted on the previous slide reflect a positive market sentiment in the Americas, a stable business environment for our terminals in Asia and EMEA, while the market environment in the Netherlands has weakened compared to 2016.
Looking at this from a product group perspective, still we see different trends influencing the global flows and storage appetite of our customers today. Starting with crude oil, we observed steady flows of crude oil being stored at our terminals in the first half of the year, in line with the reported high inventory levels. Our crude storage positions in the Netherlands, Middle East, and Asia are mostly utilized by customers with a structural underlying business model supplying refineries, either directly or indirectly. For petroleum products, we saw healthy demand for storage of gasoline and middle distillates. However, for fuel oil, the market structure has been increasingly challenging for our customers due to a backwardated market, lowering blending margins and declining volumes, ex Baltics bypassing Rotterdam. Our longer view on chemicals is positive.
The underlying demand for chemicals is still strong, which is linked to the growing demand for plastics. The business environment for petrochemicals is good at the moment, and specifically in the U.S. Gulf Coast, due to abundance of cheap feedstock. This has a positive effect on our Deer Park terminal in Houston. However, certain chemical markets in the ARA region were not all good as anticipated, such as the ethanol market, which is linked to pricing and trading. For LPG, we're seeing overall growing demand and increasing volumes. The veg oil markets also have been good for the first half of 2017, supporting our terminals in the Netherlands and in the Americas. Lastly, with regards to the biofuels, legislation and trade policies continue influencing trade and feedstock flows, which at present is considered to be moving into a positive direction for the trade flows in Europe.
In contrast, the biofuel market in the U.S. is marked by uncertainty around the new administration's request of a tax to be imposed on imports of biodiesel, although there was no impact on this on our first half results. If we look at the LNG markets, we still see an increasing supply and demand growing mainly in Asian markets, whereas Vopak presence in LNG is in Mexico and the Netherlands. Vopak continues to look for strategic opportunities to strengthen its presence as a service provider in the LNG infrastructure market. We're continuing with the main events and topics in the first half of the year, as shown in this slide number six. With regards to our long-term growth ambitions in the first half of the year, we announced several new expansion projects with a total capacity of 387,000 cubic meters.
In addition to this, we announced today through a separate press release that we intend to expand the independent Pengerang Terminal in Malaysia with 430,000 cubic meters to a total of 1.7 million cubic meters. I am very happy with this announcement, as it is fully aligned with our strategy to invest in hub locations serving emerging markets. The expansion relates to the storage of clean petroleum products, supported by Asia's growing structural need for gasoline and jet fuel, as well as the growing need for low sulfur diesel and gasoil. For those analysts that were with us during last year's Capital Markets Day, you might recall that this market is also pipe connected to the industrial Pengerang Terminal, also referred to as PT2SB, which will be serving the new world-scale refinery and petrochemical complex currently under construction, better known as RAPID.
Vopak also holds a 25% share in this industrial terminal, which will become operational in 2019. We also disclose today the further expansion of our terminal in Alemoa, in Brazil, with another 44,900 cubic meters, primarily for ethanol exports and the imports of fuels like diesel and gasoline. These projects, most of which are backed by storage contracts, are all good examples of our business development efforts yielding positive results. Once operational, they will contribute to the aimed for EBITDA growth and positive EPS development in the period 2017 to 2019. As outlined in our strategic direction, our ambition is to substantially strengthen our competitive position, which also means improving our cost competitiveness. In the first half of the year, we defined several actions throughout the various levels of our organization, from further streamlining the divisional structure of the company to simplifying our core processes.
We will work on improving the quality of our capital investments, optimizing our operating costs, and enhancing the service offering to our customers. We are stepping up the quality of our operations by looking into ways to improve productivity and efficiency, supported by new investments in IT and technology. This will help reduce Vopak's cost base with at least EUR 25 million by the end of 2019. The progress of this efficiency program is well underway, and in the meantime, we have to continue focusing on our safety and sustainability performance as well. If we turn to our safety performance, in the first half year, the performance clearly underlined our need to further improve. In terms of personal safety, the total injury rate increased to 0.4. The combined total injuries increased to 31 injuries compared to 16 injuries events recorded in the first half of 2016.
As management, we consider these trends concerning in relation to our continuous improvement aim, and we are further intensifying our efforts to turn our performance around. With that, I would like to summarize the key messages on slide number eight. Vopak is well positioned for the long term, but we also face short-term challenges, primarily related to certain product market developments.
Ladies and gentlemen, thank you for holding. Welcome to the Royal Vopak Half Year 2017 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. Anil Acardag. Go ahead, please, sir.
Thank you. Good morning. Welcome to Vopak's Q2 and Half Year 2017 conference call. My name is Anil Acardag, Manager Investor Relations. Today, our CEO, Eelco Hoekstra, and CFO, Jack de Kreij, will guide you through our latest results. Also, our COO, Frits Eulderink, is with us here today and will be available for questions during the Q&A session. We will refer to the Half Year 2017 analyst presentation, which you can follow on screen and download from our website, vopak.com. A replay of this call will also be made available through our website. There will be an opportunity to ask questions following the presentation by Eelco and Jack. For additional information, please contact Investor Relations. Before we start, I would like to remind you of the forward-looking statements on slide two.
This disclaimer is applicable to the entire conference call, including the answers provided to your questions during the Q&A session. With that said, I will hand it over to Eelco Hoekstra, who will start on slide three of the presentation.
Thank you, Anil. Good morning, everyone. Thank you for joining us on this call. I will now turn to slide four. I would first like to briefly highlight some of the key figures for the first half of the year. As of today, we're operating a global portfolio close to 36 million cubic meters, spread over 67 terminals in 25 countries. I'm encouraged with our network when looking at it from a broader perspective. We clearly communicated in the past that we wanted to optimize our network, focusing more on projects related to chemical and industrial terminals, and terminals facilitating the global gas markets, while still pursuing interesting oil-related opportunities in emerging markets. The average occupancy rate for the period is 91%, compared to 94% in the same period last year. This is in line with our outlook as provided at the start of the year.
The revenues are slightly lower with 2% in comparison to last year, but mainly as a result of the decline in occupancy rate and also owing to the missing contributions from the divested terminals early 2016. EBITDA, excluding exceptional items, realized in the first half year was EUR 394.1 million, a decrease of 6%. I would also like to point out that when adjusted for the divestment in 2016, the pro forma EBITDA in the first half of 2017 would show a decrease of 4%. Continuing with the main product market developments influencing our business in H1, as shown on slide five. The results highlighted on the previous slide were influencing our customer's business and as a result, impacting our occupancy rates. That's why it's important to stay focused and dedicated to the execution of our strategy and continue building on our global network.
Moving on to the next part of this presentation, I would like to hand over to Jack, who will explain more about the financial results starting on slide nine.
Thank you, Eelco, and a good morning to everyone participating on the call. Following the summary on the market developments, I will elaborate in more detail on the business developments and the financial performance of our global portfolio, as well as the different geographical segments. For more details, we refer to our first half year 2017 report published this morning. The key figures, as shown on slide 10, provide a good overview of the first half year developments during the last five years. Our EBITDA on a yearly basis has been developing between EUR 750 million and EUR 820 million, with the expectation that 2017 EBITDA would not exceed the 2016 EBITDA as a result of additional costs related to investments in growth and technology, the lower occupancy rates, and the missed contributions from the divested terminals.
EBITDA on a first half-year basis has been developing since 2013 between EUR 380 million and EUR 421 million, with an actual H1 2017 EBITDA of EUR 394 million. Where do we stand today? It's clear that we would not exceed the results of 2016, being the highest in the last five years period. Besides the geopolitical developments and volatility in energy markets, which have been taken into account in our outlook, the rapid depreciation of the US dollar from around 106 in February this year, when we published our 2016 results, to around 1.17, 1.20 recently, is expected to put some downward pressure on our to-be-reported second half 2017 results, on which I will come back when addressing the outlook for 2017. The average occupancy rate for the first half year 2017 is 91%, 3% point lower than the 94% in 2016.
The revenues are 2% lower and amount to EUR 669 million due to the missing contributions from divestments and the earlier explained lower occupancy rates. Accordingly, the EBITDA decreased by 6% to EUR 394 million and adjusted for divestments with 4%. Overall, we have been able to continue identifying attractive growth projects while maintaining an occupancy rate above 90%, albeit lower than the 94% in 2016, whereby the reported results of the Netherlands are below our expectation. EMEA, Asia, and LNG in line with our outlook, and the Americas above our expectations. In the following slides, I will elaborate in more detail on the EBITDA comparison with 2016, the developments per geographic segments, and the net profit development.
If we turn to slide 11 of the presentation, you will see that adjusted for the downward effect of the divestments finalized in 2016 and the positive foreign currency effect early 2017, that the Netherlands has not been able to continue the high occupancy rates and results as reported in 2016. The Americas reported EUR 7.3 million higher EBITDA compared to the last year, and the Netherlands in total at EUR 25.3 million lower EBITDA, compared to the highest reported EBITDA level of the last 10 years in the year 2016. The lower contribution of the Netherlands division compared to previous year is a result of a 5% drop in occupancy from 96% last year to 91% this year. Some higher operating expenses.
As Eelco already explained, the decline of occupancy rates in the Netherlands, and accordingly, the revenues, is partly because of a challenging market structure for specific product groups such as fuel oil, ethanol, and chemicals, but also partly due to capacity that was taken out of service at our Rotterdam chemical terminals for maintenance and upgrades. On slide 12, we provide the segmented EBITDA information. Since the developments in the Netherlands have been covered in the explanation on previous slides, I will take the opportunity to provide some more background information on the business developments in the Americas. As you can see from the graph, the Americas demonstrates a positive trend with higher results for the first half year 2017. This increase was mainly due to the improved occupancy rate in Brazil and Mexico and margin improvements, supported by also expansions in these regions.
We will continue to remain positive with regards to the developments in these regions, albeit that the volatility in the foreign currency markets might have an impact on our reported results in EUR. On slide 13, we show a reconciliation of EBITDA to net profit. It's clear that depreciation and amortization charges in the first half year 2017 were somewhat higher in comparison to last year, primarily related to capacity increases at existing terminals, mainly in the EMEA region and the Americas division. The earnings per share end up at EUR 1.18 in the first half of 2017, compared to EUR 1.36 in the previous year for the same period. On slide 14, we provide an overview of the development of our senior net debt to EBITDA ratio, providing an indication of the available headroom and accordingly, the financial flexibility.
The senior net debt to EBITDA ratio at the end of first half year 2017 stands at 2.2 and provides the required flexibility aligned with our growth ambitions and project pipeline. Turning to slide 15, we have provided an overview showing our storage capacity developments include like the positive market sentiment in the Americas, a stable business environment for our terminals in Asia and EMEA, while the market environment in the Netherlands has weakened compared to 2016. Looking at this from a product group perspective, still we see different trends influencing the global flows and storage appetite of our customers today. Starting with crude oil, we observed steady flows of crude oil being stored at our terminals in the first half of the year in line with the reported high inventory levels.
Our crude storage positions in the Netherlands, Middle East and Asia are mostly utilized by customers with a structural underlying business model supplying refineries either directly or indirectly. For petroleum products, we saw healthy demand for storage of gasoline and middle distillates. However, for fuel oil, the market structure has been increasingly challenging for our customers due to a backwardated market, lowering blending margins and declining volumes, ex Baltics bypassing Rotterdam. Our longer view on chemicals is positive. The underlying demand for chemicals is still strong, which is linked to the growing demand for plastics. The business environment for petrochemicals is good at the moment, and specifically in the U.S. Gulf Coast due to abundance of cheap feedstock. This has a positive effect on our Deer Park terminal in Houston.
However, certain chemical markets in the ARA region were not all good as anticipated, such as the ethanol market, which is linked to pricing and trading. For LPG, we see an overall growing demand and increasing volumes. The veg oil markets also have been good for the first half of 2017, supporting our terminals in the Netherlands and in the Americas. Lastly, with regards to the biofuels, legislation and trade policies continue influencing trade and feedstock flows, which at present is considered to be moving into a positive direction for the trade flows in Europe. In contrast, the biofuel market in the U.S. is marked by uncertainty around the new administration's request of a tax to be imposed on imports of biodiesel, although there was no impact on this on our first half results.
If we look at the LNG markets, we still see an increasing supply and demand growing mainly in Asian markets, whereas Vopak presence in LNG is in Mexico and the Netherlands. Vopak continues to look for strategic opportunities to strengthen its presence as a service provider in the LNG infrastructure market. We're continuing with the main events and topics in the first half of the year as shown in this slide number six. With regards to our long-term growth ambitions in the first half of the year, we announced several new expansion projects with a total capacity of 387,000 cubic meters. In addition to this, we announced today through a separate press release that we intend to expand the independent Pengerang terminal in Malaysia with 430 all announced projects up to and including 2019.
Included in this overview are our latest announcements in Brazil and Malaysia, which in total complements the total capacity under construction to 3.2 million cubic meters. All these projects are fully aligned with our strategic focus on hub terminals, industrial terminals, gas terminals, and oil terminals in countries with structural deficits, and from a geographical point of view, fit with the locations where we envisage long-term growth and sustainable business. The ongoing transition of our global portfolio is well on track. The majority of this capacity under construction is fully rented out from the date of commissioning and is expected to contribute positive cash flows from the start of operations. On slide 16, we have summarized the capital commitments until 2019 and fully aligned with the storage capacity under developments.
The total capital commitment of Vopak to be spent until 2019 through growth CapEx and subsidiaries or equity injections in joint venture and associates amounts to approximately EUR 700 million. These amounts also include the announced expenditures today in Pengerang and Brazil. Part of the column reflecting so-called other CapEx for maintenance and IT amounts to the earlier communicated guidance of EUR 850 million for the period 2017-2019. We repeat that guidance today. If you have any doubt, please note that any new growth projects currently in the business development pipeline, which might be approved and announced in the future, might have to be added to the total forecasted CapEx insofar, of course, they affect the spending levels in the 2017-2019 period.
On the next slide 17, we show the developments of the EBITDA and EBIT margin, which have been able to maintain around 50% and 30%, respectively. We are well positioned to maintain healthy margins, although considering the lower occupancy rate and additional costs related to growth and new IT and technology initiatives, the efficiency program focused on stepping up the quality of our operations, increasing productivity, and reducing future cost base of Vopak with at least EUR 25 million is deemed extremely critical in the way forward in executing our strategy. Turning to slide 18, in response to your requests by multiple investors, we provide in the enclosures of our first half year report 2017, additional operational performance insights on a comparable basis for subsidiaries, joint ventures, and associates by means of proportionate consolidation based on the economic interest of Vopak in those entities.
Occupancy rate on a proportional level is similar, being 91%, and the EBITDA, excluding exceptional items on a proportionate level, amounts to EUR 440 million. I also would like to note that in our half year report, we provide some additional business-related non-IFRS proportionate financial information, including the service, maintenance, and IT CapEx spent in that period in order to allow many of our investors to do free cash flow analysis. On slide 19, we provide a more detailed insight in the most important components of the free cash flow, excluding expansion CapEx, also on a proportionate basis.
Taking into account EBITDA while deducting service maintenance, compliance, and IT CapEx, finance costs and income tax, we generated in the first half year of 2017 a calculated proportionate free cash flow of around EUR 220 million, which is more or less in line with the same calculated pro forma free cash flow of last year. Looking ahead on slide 20. Vopak believes that supported by its solid operational cash flow, its strong balance sheet, and its financial flexibility, it is well positioned to continue its capital disciplined long-term growth journey while maintaining, on average, a cash flow return on gross assets after tax for the total portfolio between 9%-11% in the period 2017 to 2019. Turning to slide 21, we provide our specific outlook for 2017, whereby we expect to achieve an average occupancy rate of around 90%.
In February of this year, we provided guidance that 2017 EBITDA would not exceed 2016 results. Taking into account the lower occupancy rates, additional costs related to investments in growth and technology, the missing contribution from the divested terminals early 2016, and also the recent foreign exchange developments in 2017, we expect that 2017 EBITDA will be 5%-10% lower than the 2016 EBITDA of EUR 820 million. With this, I'm at the end of my part of the presentation, and I would like to hand over to the moderator to continue with the Q&A session.
Thank you, sir. 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 on your telephone. The first question is from Mr. Thomas Adolff, Credit Suisse. Go ahead, please, sir.
Good morning. Thanks for taking my questions. I do apologize, I have three questions. The first one is on the performance in the Netherlands. I wondered whether you can deconstruct the year-on-year trend. How much of the EUR 25 million EBITDA reduction is driven by higher costs, partly linked to maintenance? How much of it is linked to a loss in occupancy rates for maintenance, and how much is it linked to the weaker fuel oil fundamentals, et cetera? The second question, more broadly on the fuel oil market environment, and correct me if I'm wrong. I believe your total exposure to fuel oil is five million cubic meters out of the 36 million cubic meter for the group as a whole, of which about one million sits in the ARA hub. And obviously, you've highlighted the market in Europe is a bit more challenging.
Perhaps you can also comment on your expectations across your overall fuel oil storage business in the second half of the year. Perhaps also longer term in light of the IMO regulations. Linked to that, perhaps, you can comment whether the facilities you have currently dedicated for fuel oil can be simply used for diesel instead, which should see a boost in demand from these regulations. My final question, if I may. Your occupancy rate now is going to be below 90% in the second half of the year. I wondered, in an external environment such as today's, including the shape of crude and product curves, how should we think about occupancy rates for next year? Is it fair to say it might be below 90%? Thank you.
Okay. Shall I take the first one?
Yeah.
The breakdown. In fact, if you apply the 80/20 rule and you try to break down the EBITDA development, 80% is absolutely linked and correlated with the occupancy rate developments. If you look at the Netherlands in the last five years period, we have been operating between 84% and 96%. The only critical factor in the EBITDA implications is always which product group is affected by this particular change in the occupancy rate. You might recall that in the 84%-87% timeframe, we had a lower occupancy in crude oil, whereas now it is the fuel oil. Long story short, you should assume 80% of the EBITDA is absolutely linked to occupancy and 20% is linked to the other factors.
Thomas, in relation to your second question on the fuel oil environment, I would like to elaborate on that a bit. If you take the total capacity of Vopak and fuel oil, you need to make a distinction between, 2 type of terminals is, first of all, those terminals that have both a trading function as a function for the bunker market. Those are most of the time, let's say, our terminals in the hub location. That's Rotterdam, Fujairah, and Singapore. Also we have, for instance, a terminal on Algeciras, which is specifically functioning as an end market for bunkers, similar to the development that takes place in Panama. Then we have Vopak AOS, who is related to the export of fuel oil as well. The environment for fuel oil is, let's start off with the IMO regulations, is an interesting product to take note.
We do know that the alternatives, let's say, for high sulfur fuel oil are being developed today. There are several possibilities there. It's either to produce fuel oil with a sulfur content of less than 0.5%. You can either use traditional fuel oil with higher sulfur content and use scrubbers. That is something where we've seen momentum in the dialogue and multiple suppliers of scrubber technologies momentarily taking place. Lastly, obviously, you can look for alternatives in bunkering. Depends on price, which is either low sulfur diesel or LNG. We expect that the amount of totally produced fuel oil will not substantially increase over time. If you see that the current refineries, their conversion is relatively deep, so there's hardly any fuel oil that is coming additional to the market. That pool of fuel oil will predominantly be used in the bunker industry.
The interesting question with the IMO regulation, which is set for 2020 across the globe, is that a lot of preparation is to be done from an infrastructure perspective to facilitate flexibility of fuels depending on how the shipping companies have responded to that. What we expect is that we'll see probably more segregation taking place in that sector. We probably see more blending to occur in the fuel sector. In addition to obviously more low sulfur diesel as well as possibly emergence of LNG. With that, I think the infrastructure needs to be catered at the different ports. Actually, we see it, in certain locations, as an opportunity to use our existing base and to strengthen our competitive position to have the ability to cater for that.
Now, if I go to the Let's say the challenges in the fuel oil market specifically today, that's very much related to our current terminal in Rotterdam, as you've seen in our report. Rotterdam has traditionally been, let's say, an outlet for fuel oil in two particular ways. First is the bunker market. We have hardly seen any effects there in the bunker business. The volumes are still there compared with the history. We have seen a change and a diminishing volume in total of the amount of fuel oil that's actually used in Rotterdam to be shipped to Asia. Traditionally, the flow has been from Russia into Rotterdam to be blended and consolidated and then shipped into Asia.
There are a few reasons why the current market circumstances are weaker than 2016, is first of all, is there has been a, call it continued, let's say, diminishing of the amount of fuel that's produced. These are a few percent points which we've seen occurring in the first half of Russia that has come out of the Baltic ports. Second of all is because of the shipping economics, and that, in my opinion, has played the largest role. In the shipping economics, we've seen that the VOCC tariffs and the overall economics also for smaller vessels are so low is that there have been some benefits for the traders actually to provide their consolidation, not within port, but outside the port limits or direct shipments with smaller vessels.
If you take the overall fuel environment for the long term, my general mark is that we are very cautiously looking at how that market will play out and talking to the different actors in the industry, we see clear opportunities in certain locations, but also very mindful of where we might need to convert. Similarly, I think that the fuel situation today in Rotterdam is actually under strain because of the shipping economics. Generally, we still have a favorable view on the long-term possibilities for Vopak to add value in the fuel segment. That's a bit of a long answer, but I would expect out of this call that this was an area of more attention and required a bit of detail.
Great. Thank you. The last question on occupancy rate for 2018, how you think about it if the current environment stays intact?
We haven't provided any guidance with respect to occupancy rates in 2018 or 2019, let's put it in a more conceptual framework. If you look at the last 15 years, we have been able to operate this business model between, at the low end, maybe 85%-86%, and at the high end, 95%. The reasons for that bandwidth of volatility is not because of the structural fundamental role we play with our infrastructure in bridging continents and in ensuring that supply and demand imbalances and the resulting physical flows are properly handled, stored, and then shipped. The volatility, of course, is due to geopolitical developments, trading environments, energy situations, et cetera. The question is indeed, what will happen in 2018? We are confident that we are well-positioned. We continue operating in that bandwidth as we have been doing in the last 15 year.
What the exact outcome will be, we first would like to see the developments in the second half of the year. We strongly believe that with, for instance, the announcement of the Pengerang capacity expansions really focused on physical flows, distribution of energy products, not being dependent on volatile trading environments, that we continuously improve the position of our network to ensure we remain operating in such a bandwidth. No guidance specifically for 2018 and 2019, only the strategic direction, expansion of the network, continuously improvement of the network, very much linked to those structural flows. Good coverage of commercial contracts for all the expansions which we have been announcing. Indeed, the factors we are discussing today, we really have to see in the coming months, whether or not we can provide any indication how that will develop in 2018.
Perfect. Thank you very much.
The next question is from Thomas van der Meij from Kempen & Co. Go ahead, please, sir.
Good morning, gentlemen. Two questions. First, to follow up on the fuel oil comment. Could you maybe just give a bit more color-
1,000 cubic meters to a total of 1.7 million cubic meters. I am very happy with this announcement, as it is fully aligned with our strategy to invest in hub locations serving emerging markets. The expansion relates to the storage of clean petroleum products, supported by Asia's growing structural need for gasoline and jet fuel, as well as the growing need for low sulfur diesel and gas oil. For those analysts that were with us during last year's Capital Markets Day, you might recall that this market is also pipe connected to the industrial Pengerang terminal, also referred to as PT2SB, which will be serving the new world-scale refinery and petrochemical complex currently under construction, better known as RAPID. Vopak also holds a 25% share in this industrial terminal, which will become operational in 2019.
We also disclose today the further expansion of our terminal in Alemoa, in Brazil, with another 44,900 cubic meters, primarily for ethanol exports and the imports of fuels like diesel and gasoline. These projects, most of which are backed by storage contracts, are all good examples of our business development efforts yielding positive results. Once operational, they will contribute to the aimed for EBITDA growth and positive EPS development in the period 2017 to 2019. As outlined in our strategic direction, our ambition is to substantially strengthen our competitive position, which also means improving our cost competitiveness. In the first half of the year, we defined several actions throughout the various levels of our organization, from further streamlining the divisional structure of the company to simplifying our core processes.
We will work on improving the quality of our capital investments, optimizing our operating costs, and enhancing the service offering to our customers. We are stepping up the quality of our operations by looking into ways to improve productivity and efficiency, supported by new investments in IT and technology. This will help reduce Vopak's cost base with at least EUR 25 million by the end of 2019. The progress of this efficiency program is well underway. In the meantime, we have to continue focusing on our safety and sustainability performance as well. If we turn to our safety performance, in the first half year, the performance clearly underlined our need to further improve. In terms of personal safety, the total injury rate increased to 0.4. The combined total injuries increased to 31 injuries compared to 16 injuries events recorded in the first half of 2016.
As management, we consider these trends concerning in relation to our continuous improvement aim. We are further intensifying our efforts to turn our performance around. With that, I would like to summarize the key messages on slide number eight. Vopak is well positioned for the long term, but we also face short-term challenges, primarily related to certain product market developments-
On what you expect to happen in the second half of the year for occupancy in that market in Rotterdam. What you said, given that the bunker business is relatively stable, it is mainly due to the shipping side. That occupancy will be relatively stable in the second half of the year for this segment. Secondly, thanks for the additional free cash flow numbers. I am just struggling with one number, which is your cash flow from operating activities, the gross one, where the difference year-on-year is not around EUR 20 million, EUR 25 million, but around EUR 50 million. Could you maybe explain what the difference is there? Thanks.
Okay. Well, Thomas, thanks for your question. Just to come back to the second half of the year for fuel oil in Rotterdam. We have assumed that the situation that we have today in fuel oil will continue in the second half of the year. There are no pointers today that there's an improvement happening. Again, it depends a lot, obviously, on prices of shipping and relative prices of the commodity. We're not completely excluding it, but there's no reason to believe that it will improve, at least from our standpoint today.
There was a question about the proportionate information. In detail, I suggest to liaise with investor relations after the call. In general, you have to bear in mind that if there is a change in mix of group companies, subsidiaries, it also have an impact on the proportionate EBITDA calculation. We divested the U.K., 100% deduction. The impact of, let's say, Singapore, has an impact because it's on IFRS basis. It's consolidated for the 100% numbers, and in net profit, it is adjusted with a minority interest, whereas in proportionate information, of course, you adjust 30% of your EBITDA development in that particular operation, and then all the joint venture implications. This is the more generic answer, how differences could occur. I suggest to have a call with investor relations if there are any specifics on which you would like us to elaborate.
Thanks. No, actually, I was referring to the cash flow from operating activities as reflected in your cash flow statement, which comes down from EUR 374 last year to EUR 321 this year. 50 million lower where your EBITDA declined EUR 25 million. There's something, I guess, in working capital or-
Absolutely. Also in the associated, let's say, financial instruments. For instance, if you have Brazilian cash flows, but you also have a Brazilian loan with a forward contract, then you have to calculate also the developments in that forward contract, and that's included in that particular calculation.
Working capital and FX?
Yeah.
Thanks.
Apologies. I thought you were referring to the proportionate information, but I hope this clarifies.
No, clear. Thanks.
The next question is from David Kerstens, Jefferies International. Go ahead, please, sir.
Good morning, gentlemen. A couple of questions, please. First of all, regarding the fuel oil impact, could you elaborate on the mix effect? Is it fair to assume that given the handling and other related handling that you have to do for fuel oil transshipment, that this is the highest margin product that you store in the Port of Rotterdam? Secondly, with regards to the sequential development in the occupancy rate in Asia and in Americas, you see a further decrease in the second quarter. I was wondering, in Asia, you mentioned challenging conditions in China. Is that the explanation and mainly related to the terminal in Zhangjiagang? In Americas, occupancy is down despite you are highlighting Mexico and Brazil up. Is that also related to fuel oil weakness in Los Angeles, perhaps?
Finally, on the expansion CapEx, I think EUR 700 million is an increase of EUR 150 million compared to your previous guidance. Is it fair to assume that it's all related to your expansions in Pengerang and in Santos? I saw you commissioned the Banyan Caverns storage, how much of CapEx was included in that number back in February? Thank you very much.
David, that was a lot of question in one go. I don't think that we can write quick enough to have it all. Apologize if we have to ask you the question again. Let's start with the first one, which is the margins in the different product groups. Maybe Jack, what's your-
I will give more a generic response because what we try to avoid also for competitive reasons, of course, is providing very detailed information, either individual terminals or certain product market segments and indeed situation and profitability. In fact, the implied answer you could see is that there indeed, as you are aware, there is a huge difference between crude oil storage and all the other oil products we store in our facilities, whether it's kerosene, whether it's gasoline, whether it's fuel oil. The fact that the occupancy rate goes down and it's in fuel oil but not in crude, has indeed a disproportional impact on your EBITDA. That is implied also if you make an historic analysis.
If you look at the EBITDA development, 2013, 2014, when we had quite a drop in the crude oil, and now with respect to the fuel, I think that explains slightly that there is indeed a difference between different margins for different product groups. Looking at the occupancy rate question about what is happening in the different geographical segments with respect to the blended occupancy rate for a division and the root causes underlying a decline or an increase. If you start with your last question with respect to the Americas, it has absolutely nothing to do with Los Angeles. It has nothing to do with also Houston. It has more to do with Canada. Also, don't forget, Venezuela is a fully consolidated company, and we have seen quite a decline over there.
Looking at Asia, it's not only Zhangjiagang, because that was in the past, of course, one of the locations where we have experienced quite a drop in the occupancy rate. You should also take into account that in 2016, when we had an extremely high occupancy rate all over the world, that most of the oil terminals were able to, in fact, rent out every tank, every cubic meter of capacity. Also there in Asia, we see a slight decline, but still significantly above 90% in the oil terminals in Asia and also in the chemical terminals. The Netherlands, I think we covered already. With that, I think I covered Asia and the question about Americas. We had a question about CapEx, whether or not the increase of the total CapEx was associated with the expansions announced today.
It's not only with the expansions announced today, but with every expansion we announced after the Q1 report, and that includes, as you might recall, some other expansions in Brazil. We did an expansion in South Africa, et cetera. You should include all the announced expansions, which were not yet included during the Q1 report. I hope that with my small notes, we covered all your questions.
Maybe to cover one more, except actually the Banyan Caverns, because there we are only operator and we don't spend any CapEx.
Very good one, Frits. That was another question. No CapEx.
The EUR 150 million seems relatively low, right? If that covers all the expansions in Pengerang, in Brazil, as well in South Africa. I was wondering if anything dropped out. This is a net number, I suspect.
This is always a CapEx spend level, as we explained, on a net level, meaning a group company on 100% basis because that's the total spend level. With respect to joint ventures where we could apply non-recourse financing, where also our partner, of course, contributes equity. It's in fact only our equity contribution to that joint venture in order to make that expansion possible.
Great. Thank you very much, Jack.
The next question is from Mr. Thijs Berkelder, ABN AMRO. Go ahead, please, sir.
Good morning, gentlemen. First question primarily on the Netherlands. You primarily talked about costs or revenues and clients. I want to look at costs. Costs year-over-year are up EUR 10 million H1 versus H1. Can you explain how this comes? Whether it includes restructuring costs, IT expenses, which directly are being expensed via the P&L, or that it includes other one-off costs? Second question on chemicals in Netherlands. There has been some maintenance downtime. Can you explain what kind of occupancy that made in terms of difference? Third question on Singapore revenues, Q2 versus Q1. Can you explain whether that's also primarily fuel oil related or other products related? Fourth question is on finding a new CFO. Is there any progress?
Okay. Let's start with the chemicals question first, the downtime that we've seen. I think there have been sort of two effects which have hindered our maximum result in Rotterdam, and the fact has taken place in the Botlek. The first one is that we have been storing styrene for a longer period of time, and the issue with styrene is that if you store it has the ability to solidify and to polymerize. What we've seen is that we have decided to down a few of these tanks and to repair them to ensure that we can store that product again. Therefore, we've not made optimum use of that particular capacity. The second thing is that in Rotterdam, we are storing a product called pygas, which is a product which needs to be contained from all its volatile organic compounds.
For that, we have several systems in place, which are closed systems which are connected to the tank, that have the ability to either treat the gases or the ability to destruct those gases. We were faced in the Netherlands with the fact that we had difficulty in fully getting the process under control to levels that we found completely acceptable to operate under. We have decided, and I think that demonstrates that this Executive Board takes its sustainability responsibility also very seriously. We've decided to close down the facility and first have, let's say, all the work done to bring those units into an operating level, which we believe is acceptable. Therefore, what you've seen in the chemicals has also a hardware effect, which we have addressed. Yeah. That's predominantly the chemicals question.
If you look at the revenue question, or the first one on costs, Jack?
On the Netherlands.
On the Netherlands, yeah.
Yeah, on the Netherlands. Of course, as indicated in the past, because of the increased sustaining CapEx levels, we have been spending on continuously fine-tuning, sharpening, and upgrading our infrastructure. We are consequently absorbing more depreciation. That's one. The second one, which we are experiencing is that with the initiative indeed, which we are currently rolling out with respect to innovation technology, you get slightly higher costs being.
Influencing our customer's business, and as a result, impacting our occupancy rates. That's why it's important to stay focused and dedicated to the execution of our strategy and continue building on our global network. Moving on to the next part of this presentation, I would like to hand over to Jack, who will explain more about the financial results, starting on slide nine.
Thank you, Eelco, and a good morning to everyone participating on the call. Following the summary on the market developments, I will elaborate in more detail on the business developments and the financial performance of our global portfolio, as well as the different geographical segments. For more details, we refer to our first half year 2017 report published this morning. The key figures, as shown on slide 10, provide a good overview of the first half year developments during the last five years. Our EBITDA on a yearly basis has been developing between EUR 750 million and EUR 820 million, with the expectation that 2017 EBITDA would not exceed the 2016 EBITDA as a result of additional costs related to investments in growth and technology, the lower occupancy rates, and the missed contributions from the divested terminals.
EBITDA on a first half year basis has been developing since 2013 between EUR 380 million and EUR 421 million, with an actual H1 2017 EBITDA of EUR 394 million. Where do we stand today? It's clear that we would not exceed the results of 2016, being the highest in the last five years period. Besides the geopolitical developments and volatility in energy markets, which have been taken into account in our outlook, the rapid depreciation of the US dollar from around 106 in February this year, when we published our 2016 results, to around 1.17, 1.20 recently, is expected to put some downward pressure on our to-be-reported second half 2017 results, on which I will come back when addressing the outlook for 2017. The average occupancy rate for the first half year 2017 is 91%, 3% point lower than the 94% in 2016.
The revenues are 2% lower and amount to EUR 669 million due to the missing contributions from divestments and the earlier explained lower occupancy rates. Accordingly, the EBITDA decreased by 6% to EUR 394 million and adjusted for divestments with 4%. Overall, we have been able to continue identifying attractive growth projects while maintaining an occupancy rate above 90%, albeit lower than the 93% in 2016, whereby the reported results of the Netherlands are below our expectation. EMEA, Asia, and LNG in line with our outlook, and the Americas above our expectations. In the following to certain divisions, specifically the larger divisions and what the Netherlands, with many group companies with a lot of capacity, gets, of course, a fair share of the cost associated with those initiatives. We had some temporarily personnel costs with respect to projects which we didn't capitalize. That is more or less.
We have not significant differences, but it's exactly the reason why we initiated that efficiency improvement and productivity improvement program, because we note that we are able to maintain quite healthy margins. In order to ensure that we continue maintaining them or slightly improving them, there is one very critical factor in our business model, and that's, of course, the occupancy rate. That's the reason why we are focusing very much on the efficiency improvement program, and that also will be very much focused in the Netherlands to accomplish our objectives in that respect.
Sorry, Jack, may I interfere?
Of course.
OPEX in H1 in the Netherlands was up 9% year-on-year. Is that a one-off effect, implying that once you finalize your improvements, that we at least should see, let's say, OPEX coming down by 10% and then plus the savings maybe by 15% from today's levels? Is this a structural increase in OPEX because of salaries going up or more personnel needed, whatever?
It's a mix of many factors with one, an internal factor. That is the allocation mechanism with respect to all the central activities which we are currently rolling out and the benefits to be obtained by divisions, as a result of which some divisions are incurring now higher costs. Answering your question, that should be a timing difference because the benefits have to come in the coming years. Secondly, as I said, if you look at indeed the personnel cost, because of the program we initiated to ensure that everything we do is fully compliant, we had to incur some additional costs on a personnel level. The question how that will evaluate to the future, I'm not going to confirm nor adjust any of your percentages because there are so many components that we are not giving any, let's say, separate guidance on that OPEX level.
Be assured that as part of that efficiency improvement program, we are well on track in the coming two or three years to ensure that the cost levels in each of the divisions, including the Netherlands, will be at the normalized levels aimed for.
Okay. Singapore?
Singapore. You asked a question about the market environment in Singapore. I would say that if you compare it to 2016, when you look at the oil markets, the occupancy was exceptionally high at levels that even we do not have any tanks almost in maintenance, but we're fully utilizing every cubic meter that we have. What we've seen this year is that we are running at very healthy occupancy rates, well above the 90%. Also in the oil markets, I think that we have a good position. A general comment on Singapore is that we have always historically, throughout the decades, always favored slightly more the clean products in our expansion than dirty products. Our portfolio is naturally tilted more towards gasoline, jet, and diesel.
Going back to the remark that we made for Thomas. We are, obviously the cubic meters we have in fuel oil, we serve the blending market in Singapore. Obviously, we're also looking at the long-term view on that, whether we need to convert, but that is not in the cards today for the simple reason that we have, let's say, a good business model and a good business viewpoint for the year 2017. What we have seen is that, at least in the Singapore market generally, so that has not looked at Vopak, but at the fuel oil market, in Singapore, there are some providers that are offering tankage. It does also illustrate that the total volume which has been moved from Rotterdam into Singapore indeed has not been as active as previous years.
Okay. A new CFO?
I would suggest not to comment on that, and I think you would expect me to make that comment as well. Once we have something to announce, we will inform all shareholders at the same time.
You still aim to finalize it before year-end or so?
Well, yes. I aim it to finalize it obviously in a very healthy and prosperous manner to ensure that there is a smooth transition, that goes without saying. If I would not do that, I would be negligent, wouldn't I?
Yeah. Maybe one additional, you announced in the press release to redo your divisional structure.
Yes.
Can you explain what the ambition there is? Is that a cost saving operation or should I read that differently?
No. There are two effects of this, the first effect that we're pursuing is not costs. What you can recall is that we, I'm taking you a bit back, Thijs. We had two divisions in Europe, Middle East, and Africa, one for oil and for chemicals. We saw that particularly because of the contribution of the Netherlands and the importance that we have our full management attention on the Netherlands as a whole, we decided to rearrange those two divisions from a product focus to a focus per geography. That's when we tilted it 90 degrees to have a Netherlands division and an EMEA division. In those days, we saw that we could make great strides, let's say, in how we would pursue our strategic objectives in those markets.
Now we've reached sort of a new point in our strategy is that we've mentioned that we'd like to also move our portfolio of terminals towards the emerging markets, that we're able to capture the volumes that are there to be kept in the future. Also more into, let's say, industrial terminals, gas, and chemicals, and if there's emerging opportunities, distribution and hub expansions outside of Europe. With that focus, which we started from a BD perspective, where you see now that our efforts that we started several years back when we announced it in 2014, is taking effect, by selling 19 terminals and redeploying that cash into projects that we announced, like Pengerang and Brazil and Western Canada and South Africa. Also, the strategic focus is changing.
If you look at the European division, where we've sold the U.K., Finland, and Sweden, we thought it would make a lot of sense to put the business development effort and the growth effort and the, let's say, where the challenges both on customers and on business is very much similar in the Middle East. To put that into one more strategic group, more under Asia, more in that influence. Then have Europe, which has similar challenges here, like, let's say, connectivity, let's say, two refineries, optimization of costs. Optimizing the challenges which are there from a chemical perspective across, for instance, Belgium and Netherlands. We see a much structural fit in changing our organization. What you get is one organization in Europe, which is basically a combination or a merger of the EMEA and the Netherlands division.
You see that certain activities in the Middle East will be more driven by the groups out of Singapore. It's our strategic intent that we'd like to get, and I think that the results that we expect is that on industrials and on gas and on growth in that part, we should accelerate our agenda there or have the capability to do that. Similarly accelerate our agenda in Europe when it comes to driving efficiency, productivity, and capturing the opportunities here. It's purely a strategic decision. There comes a but, obviously, it also contributes to our objectives of creating an organization which is more agile and also more effective and efficient. It will have an effect ultimately on our cost base here in Europe as well, which will not be, let's say, shown in this year, but will be considered for 2018.
Which is part, I would say, of the number that we've mentioned already previously to investors, is that we have the ambition and the objective to have a saving of minimum of EUR 25 million by 2019.
Okay, thanks.
Ladies and gentlemen, if there are any additional questions, please press star one. There's one more question from Mr. Quirijn Mulder from the ING. Go ahead, please. Mr. Mulder, your line is open.
Can you hear me?
Yeah. Now we can hear you.
We do now.
Yeah. Okay, perfect. Three questions from Quirijn. I keep it short. About the effect of the tanker rates on the skipping the Rotterdam Harbor and effect on the fuel storage there. We have seen more crisis in the tanker rates and even worse than they are today. For example, 2009, 2010 or 2013 and 2014. Can you explain me the difference there? That's my first question. The second question, you are more specific about your CapEx guidance. In fact, saying, okay, we are looking for LNG industrial terminals, and we are looking for oil terminals in areas where there's a structural imbalance of the product flows.
You're forgetting the chemicals. I would like to know what your vision is on that, especially in the light of what you're doing now in Houston with regard to the Houston area, and also, for example, the Houston Ship Channel, where you have a piece of land available for doing something there. Maybe you can elaborate on the progression there. On the first half year against the second half year. In the first half year, you made EUR 394 million. In the second half, you predict, let me say, in the mid-range, about EUR 366 million. That's, in fact, your prediction. If I take it, let me say, the disposal effect in the first half year is bigger than in the second half of 2017, given the fact that the first quarter 2016, London was taken out.
Let me say, if you look at the comparables of that, let me say EUR 10 million disposal first half 2016 and let me say the second half 2016 as comparison base, the US dollar effect plus the remaining disposal effect. Is the difference from a decline of EUR 27 million year-on-year to EUR 35 million in the second half of 2017, is it purely because of utilization rate or is that something different? Is there something more than that?
Okay, Quirijn. Let's start with the second question on chemicals. My apologies for not mentioning chemicals, first of all. There was no intent to omit that from my answer. Don't read anything into it. As a matter of fact, we are actually, as an Executive Board, positive about the long-term developments of chemicals. That has to do with the fact that if you look at the, let's say, the alternatives for chemicals, they're very limited. In other words, if you see where chemicals are used for, it's actually momentarily replacing a lot of more, let's say, natural materials. You see in the car manufacturing, chemicals are actually being used more often. You see the same happening in housing. Our long-term view on chemicals is positive. How we'd like to play there is, again, is twofold or actually threefold.
First of all, be very much connected in the hubs, which ties into being connected into the large industrial sites, because a lot has to do with the pipeline-connected opportunities, which we very much like, because of the stability of the business that you get yourself into and the relationship you establish with customers. It's obviously industrial opportunities which are not necessarily in hubs, but there are a few, obviously, manufacturing sites. You can think of, for instance, in India or in the Middle East or in China or in America, where we see new manufacturing emerging, which we like to get involved in. Lastly, there are obviously a few locations across the globe where chemicals are going to grow in demand, but where manufacturing is not capable domestically. Also there, we keep our sights on that development.
If you look at our, I think, one of the areas where we expected more chemicals to be traded, and we see the effects of that happening today, is in the United States. Because of the low shale gas, we see that the ethane crackers are at a competitive advantage compared to the naphtha-based crackers. Although that advantage is slightly smaller because of the low oil price. By and large, that is a paradigm that people believe will exist for the coming decades. We see that the export of chemicals coming out of the U.S. Gulf is actually increasing. We have a strong position for chemicals in Houston. We'd like to, let's say, maintain or ideally expand on that relative position, so we've decided to invest in Houston, which is particularly to capture that.
Also there, we made that comment before, and that holds true for Houston as well, that those investments and the investments we make is mostly supported by long-term, let's say, already by contracts which we've signed long-term before the tanks are actually available. Positive about that development. When we talk about fuel oil storage and particularly the fluctuation of tankers, I must say that this is an effect which we have seen already previously. It's not completely unknown to us, but it now happens sort of in a perfect storm, whereby indeed we see, let's say, the volume moving out of the Baltic, also in competition with the Black Sea. We see that also substitution of fuel oil and crude exported out of Russia is also not as advantageous in today's markets. The tanker tariffs give opportunities, therefore we see the sentiment currently in the market.
That's really the whole side of it. Maybe the third question, maybe Jack, can you elaborate on that? Or maybe you should repeat it because I think that we were not completely.
Okay.
Pitched on.
If you look at the first half year, the decline is EUR 27 million on EBITDA. We go from EUR 420 to EUR 394. Okay? In the second half, if you take the mid-range, you go from EUR 402 to EUR 366. That's a minus of EUR 35 million. The main effect of the divestments, it's in the first half year.
Because of London divestment was in April 2016.
Right.
Okay? That means then, of course, that the second half-year, the divestment, the disposal effect is certainly less than in the first half-year. We know the currency effect that is negative against the positive in the first half-year of 2016, in my view. My question is, if we balance that, the first half-year and the second half-effect of disposals effects at about EUR 10 million, is the difference then between EUR 27 and EUR 35 mid-range, is that mainly, or is that pure because of the utilization rate you expect, or is there more than that?
No, as indicated, Quirijn, in the beginning, 80% is related and corresponding with the occupancy rate development. That's the reason why we have included in the appendix to the presentation where you can see the development quarter-by-quarter for each individual division. That's the reason why we are not saying, we will be able for the whole year to end up at 91%, but around 90%. 80% of all the analysis you make is explained by the fact that we see a decreasing occupancy rate for all the reasons we have been discussing, also within the half-year, so from Q1 to Q2. If you then take into account certain developments which might occur in Q3, Q4, that's the reason why we came in combination with the FX developments, as you rightly pointed out.
We came to that range of 5%-10%, and that is the reason.
Okay, that's perfect. Thank you.
The next question is from Mr. Andre.
Slides, I will elaborate in more detail on the EBITDA comparison with 2016, the developments per geographic segments, and the net profit development. If we turn to slide 11 of the presentation, you will see that adjusted for the downward effect of the divestments finalized in 2016, and the positive foreign currency effect early 2017, that the Netherlands has not been able to continue the high occupancy rates and results as reported in 2016. The Americas reported EUR 7.3 million higher EBITDA compared to the last year, and the Netherlands in total at EUR 25.3 million lower EBITDA compared to the highest reported EBITDA level of the last 10 years in the year 2016. The lower contribution of the Netherlands division compared to previous year is a result of a 5% drop in occupancy from 96% last year to 91% this year, and some higher operating expenses.
As Eelco already explained, the decline of occupancy rates in the Netherlands, and accordingly, the revenues, is partly because of a challenging market structure for specific product groups such as fuel oil, ethanol, and chemicals, but also partly due to capacity that was taken out of service at our Rotterdam chemical terminals for maintenance and upgrades.
On slide 12, we provide the segmented EBITDA information. Since the developments in the Netherlands have been covered in the explanation on previous slides, I will take the opportunity to provide some more background information on the business developments in the Americas. As you can see from the graph, the America s demonstrates a positive trend with higher results for the first half year 2017. This increase was mainly due to the improved occupancy rate in Brazil and Mexico, and margin improvements supported by also expansions in these regions. We will continue to remain positive with regards to the developments in these regions, albeit that the volatility in the foreign currency markets might have an impact on our reported results in EUR. On slide 13, we show a reconciliation of EBITDA to net profit.
It's clear that depreciation and amortization charges in the first half year 2017 were somewhat higher in comparison to last year, primarily related to capacity increases at existing terminals, mainly in the EMEA region and the Americas division. The earnings per share end up at EUR 1.18 in the first half of 2017, compared to EUR 1.36 in the previous year for the same period. On slide 14, we provide an overview of the development of our senior net debt EBITDA ratio, providing an indication of the available headroom and accordingly, the financial flexibility. The senior net debt EBITDA ratio at the end of first half year 2017 stands at 2.2 and provides the required flexibility aligned with our growth ambitions and project pipeline. Turning to slide 15, we have provided an overview showing our storage capacity developments, including-
Hello there, Anil, sir.
Good afternoon. One main question there. In the Netherlands, you're hinting at repairs at the chemical terminals. Can you say what the timing effect is and what the effect on results is? Should we expect that to continue in Q3, or if it's only related to Q2? Also what the effect is on, let's say, utilization rates or results?
I think we're well on our way with the repairs and the corrections to the equipment that we needed to do. I expect that towards the end of this year, we'll be able to take those tanks back into operation. I do think the effect will still be there in Q3 and Q4 for the quarters. Thereafter, we should be, at least from that perspective, back to where we were.
Okay. Can you give us a feel of what the effect has been on, for example, results or utilization rates?
I think we don't provide that detail there for obvious competitive reasons. I think suffice it to say that it is an effect, but not the major effect in what we're seeing.
We had to disclose it because otherwise, if we would only have said, it is all a result of the fuel oil market, that would not have provided a balanced view on the developments. Your question is spot on. As Frits explained, at least in the outlook we provided, we did not include, let's say, a financial contribution from these tanks out of operation in Q3, Q4.
Okay. Can you mention what the amount of tankage is that was out of operation? We can make our own calculations then on revenues and results.
You will understand that for competitive reasons, we don't disclose that.
You can do your sensitivity analysis because what we do is we provide always the occupancy rate as a percentage of the total technical capacity. There are also many companies which provide commercial occupancy rate. I would like to put an emphasis on this. If we would have provided that, we would have reported much higher occupancy rates for the Netherlands. By doing your sensitivity analysis, I think, and with the guidance we provide with 5%-10%, you should be able to have your own impression about what 2017 could look like.
Okay, thanks.
This concludes the question. Please continue. Gentlemen?
Yes.
Yes, gentlemen. This concludes the question. There are no further questions.
Okay. Well, in that case, we would like to thank everybody for their participation in this call. Thank you, operator, for your time and conclude this conference call.
Thank you, ladies and gentlemen. This was the Royal Vopak event call. You may now disconnect your line. Thank you, and have a nice weekend.
All announced projects up to and including 2019. Included in this overview are our latest announcements in Brazil and Malaysia, which in total complements the total capacity under construction to 3.2 million cubic meters. All these projects are fully aligned with our strategic focus on hub terminals, industrial terminals, gas terminals, and oil terminals in countries with structural deficits, and from a geographical point of view, fit with the locations where we envisage long-term growth and sustainable business. The ongoing transition of our global portfolio is well on track. The majority of this capacity under construction is fully rented out from the date of commissioning and is expected to contribute positive cash flows from the start of operations. On slide 16, we have summarized the capital commitments until 2019 and fully aligned with the storage capacity under developments.
The total capital commitment of Vopak to be spent until 2019 through growth CapEx and subsidiaries or equity injections in joint venture and associates amounts to approximately EUR 700 million. These amounts also include the announced expenditures today in Pengerang and Brazil. Part of the column reflecting so-called other CapEx for maintenance and IT amounts to the earlier communicated guidance of EUR 850 million for the period 2017-2019, and we repeat that guidance today. Of this total projected CapEx level, we have already spent roughly EUR 100 million in the first half of 2017. If you have any doubt, please note that any new growth projects currently in the business development pipeline, which might be approved and announced in the future, might have to be added to the total forecasted CapEx insofar, of course, they affect the spending levels in the 2017-2019 period.
On the next slide 17, we show the developments of the EBITDA and EBIT margin, which has been able to maintain around 50% and 30%, respectively. We are well positioned to maintain healthy margins. Although considering the lower occupancy rates and additional costs related to growth and new IT and technology initiatives, the efficiency program focused on stepping up the quality of our operations, increasing productivity, and reducing future cost base of Vopak with at least EUR 25 million is deemed extremely critical in the way forward in executing our strategy. Turning to slide 18. In response to your requests by multiple investors, we provide in the enclosures of our first half year report 2017, additional operational performance insights on a comparable basis for subsidiaries, joint ventures, and associates by means of proportionate consolidation based on the economic interest of Vopak in those entities.
Occupancy rate on a proportional level is similar, being 91%, and the EBITDA excluding exceptional items on a proportionate level amounts to EUR 440 million. I also would like to note that in our half year report, we provide some additional business-related non-IFRS proportionate financial information, including the service, maintenance, and IT CapEx spent in that period in order to allow many of our investors to do free cash flow analysis. Slide 19. Next on slide 19, we provide a more detailed insight in the most important components of the free cash flow, excluding expansion CapEx, also on a proportionate basis.
Taking into account EBITDA while deducting service, maintenance, compliance, and IT CapEx, finance costs, and income tax, we generated in the first half year of 2017 a calculated proportionate free cash flow of around EUR 220 million, which is more or less in line with the same calculated pro forma free cash flow of last year. Looking ahead on slide 20. Vopak believes that supported by its solid operational cash flow, its strong balance sheet, and its financial flexibility, it is well positioned to continue its capital disciplined long-term growth journey while maintaining, on average, a cash flow return on gross assets after tax for the total portfolio between 9%-11% in the period 2017-2019. Turning to slide 21. We provide our specific outlook for 2017, whereby we expect to achieve an average occupancy rate of around 90%.
In February of this year, we provided guidance that 2017 EBITDA would not exceed 2016 results. Taking into account the lower occupancy rates, additional costs related to investments in growth and technology, the missing contribution from the divested terminals early 2016, and also the recent foreign exchange developments in 2017, we expect that 2017 EBITDA will be 5%-10% lower than the 2016 EBITDA of EUR 820 million. With this, I am at the end of my part of the presentation, and I would like to hand over to the moderator to continue with the Q&A session.
Thank you, sir. 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 on your telephone. The first question is from Mr. Thomas Adolph, Credit Suisse. Go ahead, please, sir.
Good morning. Thanks for taking my questions. I do apologize, I have three questions. The first one is on the performance in the Netherlands. I wondered whether you can deconstruct the year-on-year trend. How much of the EUR 25 million EBITDA reduction is driven by higher costs, partly linked to maintenance? How much of it is linked to a loss in occupancy rates for maintenance, and how much is it linked to the weaker fuel oil fundamentals, et cetera? The second question, more broadly on the fuel oil market environment, and correct me if I am wrong. I believe your total exposure to fuel oil is 5 million cubic meters out of the 36 million cubic meter for the group as a whole, of which about 1 million sits in the Ara hub.
Obviously you have highlighted the market in Europe is a bit more challenging, perhaps you can also comment on your expectations across your overall fuel oil storage business in the second half of the year. Perhaps also longer term in light of the IMO regulations. Linked to that, perhaps, you can comment whether the facilities you have currently dedicated for fuel oil can be simply used for diesel instead, which should see a boost in demand from these regulations. My final question, if I may. Your occupancy rate now is going to be below 90% in the second half of the year. I wondered, in an external environment such as today's, including the shape of crude and product curves, how should we think about occupancy rates for next year? Is it fair to say it might be below 90%? Thank you.
Okay. Shall I take the first one?
Yeah.
The breakdown. In fact, if you apply the 80/20 rule and you try to break down the EBITDA development, 80% is absolutely linked and correlated with the occupancy rate developments. If you look at the Netherlands in the last five years period, we have been operating between 84% and 96%. The only critical factor in the EBITDA implications is always which product group is affected by this particular change in the occupancy rate. You might recall that in the 84%, 87% timeframe, we had a lower occupancy in crude oil, whereas now it is the fuel oil. Long story short, you should assume 80% of the EBITDA is absolutely linked to occupancy and 20% is linked to the other factors.
Thomas, in relation to your second question on the fuel oil environment, I would like to elaborate on that a bit. If you take the total capacity of Vopak and fuel oil, you need to make a distinction between 2 type of terminals. First of all, those terminals that have both a trading function as a function for the bunker market. Those are most of the time, let's say, our terminals in the hub locations. That's Rotterdam, Fujairah and Singapore. Also we have, for instance, a terminal on Algeciras which is specifically functioning as an end market for bunkers. Similar to the development that takes place in Panama. Then we have Vopak AOS who is related to the export of fuel oil as well. The environment for fuel oil is, let's start off with the IMO regulations, is an interesting product to take note.
We do know that the alternatives, let's say, for high sulfur fuel oil are being developed today. There are several possibilities there. It's either to produce fuel oil with a sulfur content of less than 0.5%. You can either use traditional fuel oil with higher sulfur content and use scrubbers. That is something where we've seen momentum in the dialogue and multiple suppliers of scrubber technologies momentarily taking place. Lastly, obviously you can look for alternatives in bunkering. Depends on price, which is either low sulfur diesel or LNG. We expect that the amount of totally produced fuel oil will not substantially increase over time. If you see that the current refineries, their conversion is relatively deep. There's hardly any fuel oil that is coming additionally onto the market. That pool of fuel oil will predominantly be used in the bunker industry.
The interesting question with the IMO regulations, which is set for 2020 across the globe, is that a lot of preparation needs to be done from an infrastructure perspective to facilitate flexibility of fuels depending on how the shipping companies have responded to that. What we expect is that we'll see probably more segregation taking place in that sector. We probably see more blending to occur in the fuel sector and in addition to obviously more low sulfur diesel as well as possibly emergence of LNG. With that, I think the infrastructure needs to be catered at the different ports and actually we see it as in certain locations, as an opportunity to use our existing base and to strengthen our competitive position to have the ability to cater for that.
If I go to the, let's say, the challenges in the fuel oil market specifically today, that's very much related to our current terminal in Rotterdam as you've seen in our report. Rotterdam has traditionally been, let's say, an outlet for fuel oil in two particular ways. First is the bunker market. We have hardly seen any effects there in the bunker business. I mean, the volumes are still there compared with the history. We have seen a change and a diminishing volume in total of the amount of fuel oil that's actually used in Rotterdam to be shipped to Asia. Traditionally, the flow has been from Russia into Rotterdam to be blended and consolidated and then shipped into Asia.
There are a few reasons why the current market circumstances are weaker than 2016, first of all, there has been a, call it, continued, let's say, diminishing of the amount of fuel that's produced. These are a few percent points which we've seen occurring in the first half of Russia that has come out of the Baltic ports. Second of all, is because of the shipping economics. That, in my opinion, has played the largest role. In the shipping economics, we've seen that the VLCC tariffs and the overall economics also for smaller vessels are so low is that there have been some benefits for the traders actually to provide their consolidation, not within port, but outside the port limits or direct shipments with smaller vessels.
If you take the overall fuel environment for the long term, my general mark is that we are very cautiously looking at how that market will play out and talking to the different actors in the industry. We see clear opportunities in certain locations, but also very mindful of where we might need to convert. Similarly, I think that the fuel situation today in Rotterdam is actually under strain because of the shipping economics. Generally, we still have a favorable view on the long-term possibilities for Vopak to add value in the fuel segment. That's a bit of a long answer, I would expect out of this call that this was an area of more attention and required a bit of detail.
Great. Thank you. The last question on occupancy rate for 2018. How you think about it if the current environment stays intact?
We haven't provided any guidance with respect to occupancy rates in 2018 or 2019, let's put it in a more conceptual framework. If you look at the last 15 years, we have been able to operate this business model between, at the low end, maybe 85%-86%, and at the high end, 95%. The reasons for that bandwidth of volatility is not because of the structural fundamental role we play with our infrastructure in bridging continents and in ensuring that supply and demand imbalances and the resulting physical flows are properly handled, stored, and transshipped. The volatility, of course, is due to geopolitical developments, trading environments, energy situations, et cetera. The question is indeed what will happen in 2018? We are confident that we are well-positioned. We continue operating in that bandwidth as we have been doing in the last 15 year.
What the exact outcome will be, we first would like to see the developments in the second half of the year. We strongly believe that with, for instance, the announcement of the Pengerang capacity expansions really focused on physical flows, distribution of energy products, not being dependent on volatile trading environments, that we continuously improve the position of our network to ensure we remain operating in such a bandwidth. No guidance specifically for 2018 and 2019, only a strategic direction. Expansion of the network, continuously improvement of the network, very much linked to those structural flows. Good coverage of commercial contracts for all the expansions which we have been announcing. Indeed, the factors we are discussing today, we really have to see in the coming months, whether or not we can provide any indication how that will develop in 2018.
Perfect. Thank you very much.
The next question is from Thomas van der Meij from Kempen & Co. Go ahead, please, sir.
Good morning, gentlemen. Two questions. First, to follow up on the fuel oil comment. Could you maybe just give a bit more color on what you expect to happen in the second half of the year for occupancy in that market in Rotterdam? What you said, given that the bunker business is relatively stable, but it is mainly due to the shipping side. That occupancy will be relatively stable in the second half of the year for this segment. Secondly, thanks for the additional free cash flow numbers. I am just struggling with one number, which is your cash flow from operating activities to gross one, where the difference year-on-year is not around EUR 20 million-EUR 25 million, but around EUR 50 million. Could you maybe explain what the difference is there? Thanks.
Thomas, thanks for your question. Just to come back to the second half of the year for fuel oil in Rotterdam, we have assumed that the situation that we have today in fuel oil will continue in the second half of the year. There are no pointers today that there is an improvement happening. Again, it depends a lot, obviously, on prices of shipping and relative prices of the commodity. We are not completely excluding it, but there is no reason to believe that it will improve, at least from our standpoint today.
There was a question about the proportionate information. In detail, I suggest to liaise with investor relations after the call, but in general, you have to bear in mind that if there is a change in mix of group companies, subsidiaries, it also have an impact on the proportionate EBITDA calculation. We divested the U.K., 100% deduction. The impact of, let's say, Singapore has an impact because it is on IFRS basis. It is consolidated for the 100% numbers and in net profit, it is adjusted with a minority interest, whereas in proportionate information, of course, you adjust 30% of your EBITDA development in that particular operation, and then all the joint venture implications. This is the more generic answer, how differences could occur, and I suggest to have a call with investor relations if there are any specifics on which you would like us to elaborate.
Thanks, Jack. I was referring to the cash flow from operating activities as reflected in your cash flow statement, which comes down from EUR 374 last year to EUR 321 this year. EUR 50 million lower where your EBITDA declined EUR 25 million. There's something, I guess, in working capital or provision.
Absolutely. Also in the associated, let's say, financial instruments. For instance, if you have Brazilian cash flows, but you also have a Brazilian loan with a forward contract, then you have to calculate also the developments in that forward contract, and that's included in that particular calculation. Working capital and FX. Yeah. Thanks. Apologies. I thought you were referring to the proportionate information, but I hope this clarifies. No, clear. Thanks.
The next question is from David Kerstens, Jefferies International. Go ahead, please, sir.
Good morning, gentlemen. A couple of questions, please. First of all, regarding the fuel oil impact, could you elaborate on the mix effect? Is it fair to assume that given the handling and other related handling that you have to do for fuel oil transshipment, that this is the highest margin product that you store in the Port of Rotterdam? Secondly, with regards to the sequential development in the occupancy rate in Asia and in Americas, you see a further decrease in the second quarter. I was wondering, in Asia, you mentioned challenging conditions in China. Is that the explanation and mainly related to the terminal in Zhangjiagang? In Americas, occupancy down despite you are highlighting Mexico and Brazil up. Is that also related to fuel oil weakness in Los Angeles, perhaps?
Finally, on the expansion CapEx, I think EUR 700 million is an increase of EUR 150 million compared to your previous guidance. Is it fair to assume that it's all related to your expansions in Pengerang and in Santos? I saw you commissioned the Banyan Caverns storage, but how much of CapEx was included in that number back in February? Thank you very much.
David, that was a lot of question in one go. I don't think that we can write quick enough to have it all. Apologize, if we have to ask you the question again. Let's start with the first one, which is the margins in the different product groups. Maybe Jack. I will give more a generic response because, what we try to avoid also for competitive reasons, of course, is providing very detailed information, either on individual terminals or certain product market segments and in this situation, the profitability. In fact, the implied answer you could see is that there indeed, as you are aware, there is a huge difference between crude oil storage and all the other oil products we store in our facilities, whether it's kerosene, whether it's gasoline, whether it's fuel oil.
The fact that the occupancy rate goes down and it's in fuel oil but not in crude, has indeed a disproportional impact on your EBITDA, and that is implied also if you make an historic analysis. If you look at the EBITDA development, 2013, 2014, when we had quite a drop in the crude oil, and now with respect to the fuel, I think that explains slightly that there is indeed a difference between different margins for different product groups. Looking at the occupancy rate question about what is happening in the division, in the different geographical segments with respect to the blended occupancy rate for a division and the root causes underlying a decline or an increase. If you start with your last question with respect to the Americas, it has absolutely nothing to do with Los Angeles. It has nothing to do with also Houston.
It has more to do with Canada, but also don't forget, Venezuela is a fully consolidated company, and we have seen quite a decline over there. Look at Asia, it's not only Zhangjiagang, because that was in the past, of course, one of the locations where we have experienced quite a drop in the occupancy rate. You should also take into account that in 2016, when we had a extremely high occupancy rate all over the world, that most of the oil terminals were able to in fact rent out every tank, every cubic meter of capacity. Also there in Asia, we see a slight decline, but still significantly above 90% in the oil terminals in Asia and also in the chemical terminals. The Netherlands, I think we covered already. With that, I think I covered Asia and the question about Americas.
We had a question about CapEx, whether or not the increase of, let's say, the total CapEx was associated with the expansions announced today. It's not only with the expansions announced today, but with every expansion we announced after the Q1 report, and that includes, as you might recall, some other expansions in Brazil. We did an expansion in South Africa, et cetera. You should include all the announced expansions, which were not yet included during the Q1 report. I hope that with my small notes, we covered all your questions.
maybe to cover one more, except actually the Banyan Caverns, because there we are only operator and we don't spend any CapEx.
Very good one, Frits. That was another question. Yeah. No CapEx.
Right. The EUR 150 million seems relatively low, right? If that covers all the expansions in Pengerang, in Brazil, as well in South Africa. I was wondering if anything dropped out. This is a net number, I suspect.
This is always a CapEx spend level, as we explained, on a net level, meaning a group company on 100% basis because that's the total spend level. With respect to joint ventures where we could apply non-recourse financing, where also our partner of course contributes equity. It's in fact only our equity contribution to that joint venture in order to make that expansion possible.
Yeah, sure. Great. Thank you very much, Jack.
The next question is for Mr. Thijs Berkelder, ABN AMRO. Go ahead please, sir.
Good morning, gentlemen. First question, primarily on the Netherlands. You primarily talked about costs or revenues and clients. I want to look at costs. Costs year-over-year are up EUR 10 million H1 versus H1. Can you explain how this comes, whether it includes restructuring costs, IT expenses which directly are being expensed via the P&L, or that it includes other one-off costs? Second question on chemicals in the Netherlands. There has been some maintenance downtime. Can you explain what kind of occupancy that made in terms of difference? Third question on Singapore revenues, Q2 versus Q1. Can you explain whether that's also primarily fuel oil related or other products related? Fourth question is on finding a new CFO. Is there any progress?
Okay. Let's start with the chemicals question first and the downtime that we've seen. I think there have been sort of two effects which have hindered our maximum result in Rotterdam, the effect has taken place in the Botlek. The first one is that we have been storing styrene for a longer period of time. The issue with styrene is that if you store it has the ability to solidify and to polymerize. What we've seen is that we have decided to down a few of these tanks and to repair them to ensure that we can store that product again. Therefore we've not made optimum use of that particular capacity. The second thing is that in Rotterdam, we are storing a product called pygas, which is a product which needs to be contained for all its volatile organic compounds.
For that, we have several systems in place, which are closed systems, which are connected to the tank, that have the ability to either treat the gases or the ability to destruct those gases. We were faced in the Netherlands with the fact that we had difficulty in fully getting the process under control to levels that we found completely acceptable to operate under. We have decided, and I think that demonstrates that this Executive Board takes its sustainability responsibility also very seriously. We've decided to close down the facility and first have, let's say, all the work done to bring those units into an operating level, which we believe is acceptable. Therefore, what you've seen in the chemicals it has also a hardware effect, which we have addressed. Yeah. That's predominantly the chemicals question.
If you look at the revenue question or the first one on costs, Jack, have you
On the Netherlands.
On the Netherlands, yeah.
Yeah, on the Netherlands. Of course, as indicated in the past, because of the increased sustaining CapEx levels.
We have been spending on continuously fine-tuning, sharpening, and upgrading our infrastructure. We are consequently absorbing more depreciation. That's one. The second one which we are experiencing is that with the initiative indeed, which we are currently rolling out with respect to innovation technology, you get slightly higher costs being allocated to certain divisions, specifically the larger divisions. The Netherlands, with many group companies with a lot of capacity, gets, of course, a fair share of the cost associated with those initiatives. We had some temporarily personnel costs with respect to projects which we didn't capitalize. That is more or less. We have not significant differences, but it's exactly the reason why we initiated that efficiency improvement and productivity improvement program.
We note that we are able to maintain quite healthy margins, but in order to ensure that we continue maintaining them or slightly improving them, there is one very critical factor in our business model, and that's, of course, the occupancy rate. That's the reason why we are focusing very much on the efficiency improvement program, and that also will be very much focused in the Netherlands to accomplish our objectives in that respect.
Sorry, Jack, may I interfere?
Of course.
OPEX in H1 in the Netherlands was up 9% year-on-year. Is that a one-off effect, implying that once you finalize your improvements, that we at least should see, let's say, OPEX coming down by 10% and then plus the savings maybe by 15% from today's levels? Or is this a structural increase in OPEX because of salaries going up or more personnel needed, whatever?
It's a mix of many factors with one, an internal factor, and that is the allocation mechanism with respect to all the central activities which we are currently rolling out and the benefits to be obtained by divisions, as a result of which some divisions are incurring now higher costs. Answering your question, that should be a timing difference because the benefits have to come in the coming years. Secondly, as I said, if you look at indeed the personnel cost, because of the program we initiated to ensure that everything we do is fully compliant, we had to incur some additional costs on a personnel level. The question how that will evaluate to the future, I'm not going to confirm nor adjust any of your percentages because there are so many components that we are not giving any, let's say, separate guidance on that OPEX level.
Be assured that as part of that efficiency improvement program, we are well on track in the coming two or three years to ensure that the cost levels in each of the divisions, including the Netherlands, will be at the normalized levels aimed for.
Okay. Singapore?
Singapore. You asked a question about the market environment in Singapore. I would say that if you compare it to 2016, when you look at the oil markets, the occupancy was exceptionally high at levels that even we do not have any tanks almost in maintenance, but we're fully utilizing every cubic meter that we have. What we've seen this year is that we are running at very healthy occupancy rates, well above the 90%. Also in the oil markets, I think that we have a good position. A general comment on Singapore is that we have always historically, throughout the decades, always favored slightly more the clean products in our expansion than dirty products. Our portfolio is naturally tilted more towards gasoline, jet, and diesel.
Going back to the remark that we made for Thomas is that we are obviously the cubic meters we have in fuel oil, we serve the blending market in Singapore. Obviously, we're also looking at the long-term view on that, whether we need to convert. That is not in the cards today for the simple reason that we have a, let's say, a good business model and a good business viewpoint for the year 2017. What we have seen is that at least in the Singapore market generally, that has not looked at Vopak, but at the fuel oil market in Singapore, there are some providers that are offering tankage. It does also illustrate that the total volume which has been moved from Rotterdam into Singapore indeed has not been as active as previous years.
Okay. A new CFO?
I would suggest not to comment on that, I think you would expect me to make that comment as well. Once we have something to announce, we will inform all shareholders at the same time.
You still aim to finalize it before year-end or so?
Well, yes. I aim it to finalize it, obviously, in a very healthy and prosperous manner to ensure that there's a smooth transition. That goes without saying. If I will not do that, I would be negligent, wouldn't I? Yes.
Yeah. Maybe one additional. You announced in the press release to redo your divisional structure.
Yes.
Can you explain what the ambition there is? Is that a cost saving operation or should I read that differently?
No. The first effect that we're pursuing is not costs. What you can recall is that, Thijs, we had two divisions in Europe, Middle East, and Africa, one for oil and for chemicals. We saw that, particularly because of the contribution of the Netherlands and the importance that we have our full management attention on the Netherlands as a whole, we decided to rearrange those two divisions from a product focus to a focus per geography. That's when we tilted it 90 degrees to have a Netherlands division and an EMEA division. In those days, we saw that we could make great strides, let's say, in how we would pursue our strategic objectives in those markets.
Now we've reached sort of a new point in our strategy is that we've mentioned that we'd like to also move our portfolio of terminals, towards the emerging markets, that we're able to capture the volumes that are there to be kept in the future, and also, more into industrial terminals, gas, and chemicals, and if there's emerging opportunities, distribution and hub expansions outside of Europe. With that focus, which we started from a BD perspective, and where you see now that our efforts that we started several years back when we announced it in 2014, is taking effect, by selling 19 terminals, and redeploying that cash into projects that we announced, like Pengerang and in Brazil and Western Canada and South Africa. Also, the strategic focus is changing.
If you look at the European division, where we've sold the U.K., Finland, and Sweden, we thought it would make a lot of sense to put the business development effort and the growth effort and the challenges both on customers and on business is very much similar in the Middle East, to put that into one more strategic group, more under Asia, so more in that influence, and then have Europe, which has similar challenges here, like connectivity, two refineries, optimization of costs, and optimizing the challenges which are there from a chemical perspective across, for instance, Belgium and the Netherlands. We see a much structural fit, in changing our organization. What you get is one organization in Europe, which is basically a combination or a merger of the EMEA and the Netherlands division.
You see that certain activities in the Middle East will be more driven by the group side of Singapore. It's our strategic intent that we'd like to get, and I think that the results that we expect is that on industrials and on gas and on growth in that part, we should accelerate our agenda there or have the capability to do that. Similarly, accelerate our agenda in Europe when it comes to driving efficiency, productivity and capturing the opportunities here. It's purely a strategic decision, but there comes a but. Obviously, it also contributes to our objectives of creating an organization which is more agile and also more effective and efficient.
It will have an effect ultimately on our cost base here in Europe as well, which will not be shown in this year, but will be considered for 2018, and which is part, I would say, of the number that we've mentioned already previously to investors, is that we have the ambition and the objective to have a saving of minimum of EUR 25 million by 2019.
Okay, thanks.
Ladies and gentlemen, if there are any additional questions, please press star one. There's one more question from Mr. Quirijn Mulder from the ING. Go ahead, please. Mr. Mulder, your line is open.
Can you hear me?
Yeah. Now we can hear.
We do now.
Yeah. Okay, perfect. Three questions from Quirijn, and I keep it short. About the effect of the tanker rates on the skipping the Rotterdam Harbor, and the effect on the fuel storage there. We have seen more crisis in the tanker rates and even worse than they are today. For example, 2009, 2010 or 2013 and 2014. Can you explain me the difference there? That's my first question. The second question, you are more specific about your CapEx guidance. In fact, saying, okay, we are looking for LNG industrial terminals, and we are looking for oil terminals in areas where there's a structural imbalance of the product flows.
You're forgetting the chemicals. I would like to know what your vision is on that, especially within the light of what you're doing now in Houston with regard to the Houston area. Also, for example, the Houston Ship Channel, where you have a piece of land available for doing something there. Maybe you can elaborate on the progression there. Then on the first half year against the second half year. In the first half year, you made EUR 394 million. In the second half, you predict, let me say, in the mid-range, about EUR 366 million. That's, in fact, your prediction. If I take it, let me say, the disposal effect in the first half year is bigger than in the second half 2017, given the fact that the first quarter 2016, London was taken out.
Let me say, if you look at the comparables of that, let me say EUR 10 million disposal first half 2016 and let me say the second half 2016 as comparison base, the U.S. dollar effect plus the remaining disposal effect. Is the difference from a decline of EUR 27 million year-on-year to EUR 35 million in the second half of 2017, is it purely because of utilization rate or is that something different? Is there something more than that?
Okay, Quirijn, let's start with the second question on chemicals. My apologies for not mentioning chemicals first of all. There was no intent to omit that from my answer. Don't read anything into it. As a matter of fact, we are actually, as an Executive Board, positive about the long-term developments of chemicals. That has to do with the fact that if you look at the, let's say, the alternatives for chemicals, they're very limited. In other words, if you see where chemicals are used for, it's actually momentarily replacing a lot of more, let's say, natural materials. You see in the car manufacturing, chemicals are actually being used more often. You see the same happening in housing. Our long-term view on chemicals is positive. How we'd like to play there is, again, is twofold or actually threefold.
Is first of all, be very much connected in the hubs, which ties into being connected into the large industrial sites, because a lot has to do with the pipeline-connected opportunities, which we very much like because of the stability of the business that you get yourself into and the relationship you establish with customers. Then it's obviously industrial opportunities which are not necessarily in hubs, but there are a few obviously manufacturing sites. You can think of, for instance, in India or in the Middle East or in China or in America, where we see new manufacturing emerging, which we like to get involved in. Lastly, there are obviously a few locations across the globe where chemicals are going to grow in demand, but where manufacturing is not capable domestically. Also there, we keep our sights on that development.
If you look at our, one of the areas where we expected more chemicals to be traded, and we see the effects of that happening today, is in the U.S. Because of the low shale gas, we see that the ethane crackers are at a competitive advantage compared to the naphtha-based crackers. Although that advantage is slightly smaller because of the low oil price. By and large, that is a paradigm that people believe will exist for the coming decades. We see that the export of chemicals coming out of the U.S. Gulf is actually increasing. We have a strong position for chemicals in Houston. We'd like to, let's say, maintain or ideally expand on that relative position. We've decided to invest in Houston, which is particularly to capture that.
Also there, we made that comment before, and that holds true for Houston as well, that those investments and the investments we make is mostly supported by long-term, already by contracts which we've signed long-term before the tanks are actually available. Positive about that development. When we talk about fuel oil storage, and particularly the fluctuation of tankers, I must say that this is an effect which we have seen already previously. It's not completely unknown to us.
It now happens sort of in a perfect storm, whereby indeed we see the volume moving out of the Baltic, also in competition with the Black Sea. We see that also substitution of fuel oil and crude exported out of Russia is also not as advantageous in today's markets. Plus, the tanker tariffs give opportunities, and therefore we see the sentiment currently in the market. That's really the whole side of it. Maybe the third question, maybe Jack, can you elaborate on that? Or maybe you should repeat it because I think that we were not completely. If you look at the first half-year, the decline is EUR 27 million on EBITDA. We go from EUR 420 million to EUR 394 million. In the second half-year, if you take the mid-range, you go from EUR 402 million to EUR 366 million. That's a minus of EUR 35 million.
The main effect of the divestments, it's in the first half-year. Because of London divestment was in April 2016. Right. Okay. That means, of course, that the second half-year, the divestment, the disposal effect is certainly less than in the first half-year. Now we know the currency effect that is negative against the positive in the first half-year of 2016, in my view. My question is, if we balance that, the first half-year and the second half-year effect of disposals effects at about EUR 10 million, is the difference then between EUR 27 million and EUR 35 million mid-range, is that mainly, or is that pure because of the utilization rate you expect, or is there more than that? No, as indicated, Quirijn, in the beginning, 80% is related and corresponding with the occupancy rate development.
That's the reason why we have included in the appendix to the presentation, where you can see the development quarter by quarter for each individual division. That's the reason why we are not saying, we will be able for the whole year to end up at 91%, but around 90%. 80% of all the analysis you make is explained by the fact that we see a decreasing occupancy rate for all the reasons we have been discussing, also within the half year, so from Q1 to Q2. If you then take into account certain developments which might occur in Q3, Q4, that's the reason why we came in combination with the AVIX developments, as you rightly pointed out. We came to that range of 5%-10%, and that is the reason. That's perfect. Thank you.
The next question is from Mr. Andre Mulder, go ahead please, sir.
Good afternoon. One main question there. In the Netherlands, you're hinting at repairs at the chemical terminals. Can you say what the timing effect is and what the effect on results is? Should we expect that to continue in Q3, or if it's only related to Q2? Also what the effect is on, let's say, utilization rates or results?
I think we're well on our way with the repairs and the corrections to the equipment that we needed to do. I expect that towards the end of this year, we'll be able to take those tanks back into operation. I do think the effect will still be there in Q3 and Q4 for the quarters, but thereafter, we should be, at least from that perspective, back to where we were.
Can you give us a feel of what the effect has been on, for example, results or utilization rates?
I think we don't provide that detail there for obvious competitive reasons. I think suffice it to say that it is an effect but not the major effect in what we're seeing. We had to disclose it because otherwise, if we would only have said, it is all a result of the fuel oil market, that would not have provided a balanced view on the developments. Your question is spot on. As Frits explained, at least in the outlook we provided, we did not include, let's say, a financial contribution from these tanks out of operation in Q3, Q4.
Can you mention what the amount of tankage is that was out of operation? We can make our own calculations then on revenues and results.
Again, you will understand that for competitive reasons, we don't disclose that. You can do your sensitivity analysis by, because what we do is we provide always the occupancy rate as a percentage of the total technical capacity. There are also many companies which provide commercial occupancy rate. I would like to put an emphasis on this. If we would have provided that, we would have reported much higher occupancy rates for the Netherlands. By doing your sensitivity analysis, I think, and with the guidance we provide with 5%-10%, you should be able to have your own impression about what 2017 could look like.
Okay, thanks.
This concludes the question. Please continue. Gentlemen?
Yes, gentlemen. This concludes the question. There are no further questions.
Okay. Well, in that case, we would like to thank everybody for the participation in this call. Thank you operator for your time and conclude this conference call.
Thank you, ladies and gentlemen. This was the Royal Vopak event call. You may now disconnect your line. Thank you and have a nice weekend.