Ladies and gentlemen, thank you for holding, and welcome to the Royal Vopak Q1 Results twenty seventeen Conference 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 Jack DeCray, Vice Chairman of the Executive Board and CFO of Royal Go ahead please.
Good morning, ladies and gentlemen. Welcome to the Q1 trading update call with respect to Royal Vopak. In the next ten, fifteen minutes, I will elaborate slightly on the Q1 developments by giving an explanation and referring to the presentation, which is on the website. In order to facilitate a corresponding explanation with the presentation sheets, I will refer to the specific page numbers, which I will elaborate on. And secondly, because we have today's Annual General Meeting of Shareholders, there will be a hard stop at 09:35.
But if I limit my explanations to around ten, fifteen minutes, there will be sufficient time for the follow-up of any questions you may have. Starting with Page two, the common forward looking statement, you are familiar with it. The presentation always contains assumptions, estimates, forecasts, expectations, which of course could be subject to changes going forward. Looking at Page three, a quick summary of the key developments from a financial perspective in Q1. We have made two comparisons.
One is with Q1 twenty sixteen, the same period in the previous year, but also with Q4, the most recent quarterly period in the year 2016, because there are many developments which you are familiar with in the year 2016, which might complicate the comparison with respect to the financial performance between the different quarters. The three main takeaways in analyzing the developments are as follows. One, of course, the divestments, which is more a technical explanation. Secondly, we completed the year 2016 at quite high occupancy rates and in our outlook and guidance we provided when presenting the 2016 results in February 2017, we clearly indicated that we expected lower occupancy rates going forward in the year 2017. However, with a kind of floor in it that we are well positioned to operate above 90%.
The issue is that indeed you are talking in fact about two different areas of demand. One is the fundamental area of demand on which our business model is focusing, structural imbalances, structural import needs, long term contracts in industrial terminals, long term contracts in gas, and on the other hand, a certain volatility in the occupancy of our terminals resulting from spot business contango backwardation. Long story short, for 2017, we repeat that we are well positioned based on the fundamental demand drivers to continue operating in excess of 90%. At the same time, we realized that because of the volatility, the uncertainty around spot business that we might not be able to equal the same occupancy rates as in the year 2016. And then if we are comparing those two things is the main explanation of the financial differences when comparing the different quarters with each other.
Having said this, looking at the Page three, you see that if you look at Q1 twenty seventeen and Q1 twenty sixteen with respect to revenues, we are reporting a slightly lower revenue level, whereas compared to Q4 twenty sixteen, a slight increase of the revenue level. Main reasons, revenues, occupancy levels and of course, at the same time FX differences might be an explanation of those minor differences. At EBITDA level, there we are reporting quite a significant difference between Q1 twenty sixteen and Q1 twenty seventeen, specifically because of the fact that in Q1 twenty sixteen, The UK terminals were still contributing to the 2016 results and not in the remainder of 2016 and also not included in 2017. When adjusted for slightly lower occupancy rates, you will see that the 02/2003 we report is slightly higher than the Q4 results in 2016. In fact, completely in line with the assessment we made in February when we were reporting our outlook and guidance for the year 2017 and of course the longer term outlook twenty seventeen-twenty nineteen where we anticipate further growth of our network.
Translated to the net profit, in fact the same story with one additional explanation that the high results in Q1 net results in Q1 twenty sixteen were also fueled by a one off item in our tax line as a result of which the difference is looking maybe more larger than you would have expected. And that's the reason why the Q4 and the Q1 comparison gives a better indication of the net result development. If we summarize this, Q1 in line with expectations 2017 lower on all performance metrics than Q1 twenty sixteen, but compared with Q4, the latest quarter, all performance metrics are higher than the latest quarter reported in the year 2016. When I turn to Page four, we look at the capacity development and we see that at Q1 twenty seventeen, we are operating a total storage capacity on a 100% basis of 35,700,000, which comprises 3,800,000 cubic meter of capacity where we are acting as an operator, meaning that we are not the owner or we don't have an economic interest in the particular capacity, but we act as an operator and of course get compensated for that particular service. Dollars 12,300,000.0 is operated in joint venture structures on a 100% basis.
And what we normally do, as you might recall, that on the yearly numbers and the half year numbers, we also provide proportionate EBITDA figures in order to allow you to have a good view between the difference of the IFRS equity accounting, which we have to apply for our total portfolio and the proportionate consolidation providing you an indication of the cash flow generation. 12,300,000 operated in joint ventures and 19,600,000 cubic meter of capacity operated in group companies. Looking at the expansions, currently in progress, Brownfield and Greenfield, we end up at 38,500,000 with the current, let's say, projects under construction in 2019, and the $38,500,000 comprises still the 3,800,000.0 of capacity in operator ships, 14,800,000.0 in joint ventures and $19,900,000 in group companies. Comparing 2017 with 2019, we see an increase of the capacity operated and managed in joint ventures increasing from 12.3 in 2017 to 14.8 in the year 2019, which of course is easily explained by the large projects we are currently constructing in Malaysia, industrial terminal contract, large, let's say duration of the contract and operated in a joint venture structure. So as we have indicated at the beginning of the year, we aim for further growth on both a profitability point of view and a capacity point of view.
It will take time in the period 2017 and 2019 to accomplish that. One driver, of course, is the current projects under construction, which most of them will be completed and commissioned at the 2018 or in the course of 2019 as a result of which they start contributing primarily in the year 2019. Secondly, we are well positioned at this stage to evaluate new projects and make investment decisions in the coming three years with respect to the hub locations, markets with structural deficits, industrial terminals and the gas markets. Today, announced a step by step expansion in Brazil. Couple of weeks ago, we announced a step by step expansion in South Africa.
And the general expectation is that looking at the nature of the projects we are currently reviewing that we should be well positioned to announce further expansions in the course of the coming years contributing to the aim for profitable growth of our total network. In the meanwhile, however, coming back to Page one, it's absolutely clear that the result in 2017 will be lower than in the year 2016 in line with the explanations just provided. Looking at Page five, the important driver of course is the occupancy rate. As you can see, it has gone down from the high 94% in Q1 and has gone down to 91% in Q1 in 2017, in line with our assessment made for the year 2017, but still above the 90%. And we reiterate that assessment, we reiterate that outlook that for the whole year 2017, we expect to operate at a level above 90%.
Going to Page six, the first analysis, Q1 to Q4, to give you a bit of a quick feeling that which divisions are, let's say, affected mostly by the lower occupancy rates, which divisions have been able to increase slightly the occupancy rate in their operation or their profitability. Immediately attracts attention, of course, that The Netherlands has gone down in line with our expectations, because the high occupancy rates we have been experiencing in The Netherlands in 2016 was partly fueled, of course, by the fundamental demand for storage and handling resulting from either supply and demand imbalances between regions in the world, distribution needs in Western Europe, but also slightly affected by the volatility in the markets as referred to in the oil business as the contango of backwardation and the spot business in chemicals. In line with our expectation that volatility on which we have been able to leverage in the year 2016, we expected that that would not continue in the year 2017 and that has materialized already in the Q1 period as a result of which we are reporting a slightly lower occupancy rate in The Netherlands compared to Q1 period or the Q4 period.
EMEA is more the oil business, so some of the operations in the portfolio of EMEA has been also affected by slightly lower occupancy rates or margin development, whereas the other aspects in the portfolio have contributed positively to the further development in this international portfolio of assets ranging from Middle East, Western Europe up to South Africa. Long story short, when adjusted for FX, we have demonstrated somewhat growth on an EBITDA level when we compare Q1 twenty seventeen with the Q4 numbers reported in February. Page seven summarizes the Q1 to Q1 analysis, which of course demonstrates higher differences resulting from, on the one hand, the divestments and secondly, the overall decline of the occupancy rate in The Netherlands as explained recently with respect to the spot business in the oil, spot business in the chemicals and that is included already in our assessments we made for the whole year 2017. So that is not as such a big surprise, but it means that the challenge of course is what can we do to compensate for that if the volatility remains, it will be difficult. If there would be other opportunities on which we are working, we might find maybe structural solutions, but that might take more time than just the next three quarters.
Page eight, the analysis from EBIT to net profit. The only thing I would like to emphasize is when you look at the Q1 twenty seventeen net profit to the holders of ordinary shares, dollars 76,500,000.0 implying an increase with respect to the Q4 and as said, quite a significant decrease compared to Q1 twenty seventeen. And if you look at the income tax line, you will see that in Q1 twenty sixteen, we have at that particular point had a kind of non recurring one off tax release as a result of which the income tax in 2017 has come back to the normal levels and that is one of the major explanations. The reason of the relatively lower income tax has to do also with the divestments. If we look at Page nine, then we see a combination of both EBITDA developments, occupancy rates, which are of course quite corresponding And we see that as said, The Netherlands have shown a drop from Q4 to Q1.
EMEA has shown a drop from Q4 to Q1, as just explained. The Americas has shown an increase all over the line. Specifically, we see that after quite some volatility in the recent years in the business development in Latin America that every quarter we see step by step more fundamental stronger demand for our storage and handling services in that part of the geography of our total portfolio. And that is one also the underpinning reasons why we are very confident that we should expand our Brazilian operations because of the increased need of imports for chemicals in the Brazilian market. In Asia, benefiting of course also from some expansions, good market circumstances, so quite stability.
Overall, in line with expectations with some regional differences that is maybe the best way to describe the Q1 period. Page 10, as said, we announced today that we will have a small brownfield expansion. We realize it's a small expansion, but we feel that our capital disciplined approach, we will be expanding our network step by step by selecting the right projects in the right product market segments. And we strongly believe that if we continue doing that, that we make our total portfolio stronger, in line with our overall strategic ambitions. We create slightly more economies of scale in combination with our focus to improve efficiency in line with what we try to achieve with fundamental demand for storage and handling supported with healthy occupancy rates, then we can drive the profitability improvement aimed for in the twenty seventeen-twenty nineteen periods.
The Exmark transaction, as explained in this sheet, the conversations are still ongoing, but as explained in December requires quite the consent and cooperation of multiple stakeholders and means that we are still, let's say, in the discussion of all these elements and as a result of which we cannot provide any indication, any guidance with respect to the outcome of that particular process. Page 11, putting it all in the perspective. As we said, two reference points with respect to the ongoing strategy. One is the volatility in the world is a given. The volatility in the energy market is absolutely something which will not disappear.
The point is that we have been focusing our business model on fundamental demand drivers as a result of which we feel we are well positioned to maintain high occupancy rates in our business model. Whether we can continuously achieve, let's say, higher occupancy rates exceeding 90%, 92%, ninety three ninety four percent is absolutely unpredictable at the particular moment. More important is that we can run a healthy business when we have an occupancy rate around 90%. That's the reason why we are continuously seeking for attractive expansions in line with our overall strategy around hub locations, markets with structural deficits, industrial terminals and the gas terminals. We expect to be so well positioned that we could announce in the course of the next three years more projects in any of those segments contributing to our diversification of the portfolio, profitability improvement, while at the same time recognizing that because of that volatility and because of the impact on the margins when you have slightly lower occupancy rates, we have to work also on the efficiency of our processes.
So we continue working on the efficiency improvement of our cost base by aiming for €25,000,000 further cost management or cost competitive improvement in the year 2019. When you take that all into account, we reiterate, in fact, all the reference points and we reiterate the expectations for the year 2017. And with that, I would like to refer to the operator to start the sessions for any questions you might have.
First question is from Dirk Voorhisen, KBC Securities. Go ahead please.
Yes, good morning. First question I have is on the occupancy, Jack. As you reminded us on the guidance and to stay above 90% for the year, what you're basically guiding for is a stabilization from a deteriorating trend, yes, slightly deteriorating we've seen in the past few quarters. Is that a fair assumption that we'll see a stabilization? Or do you see some upside as well going further into 2017 with the contracts and renegotiations and new negotiations that you have with the clients?
That's my first question. Second question I have, maybe you can shed some more light on the incremental improvement we've seen in EBITDA. EBITDA is up quarter on quarter by €5,500,000 while sales are up by €3,000,000 Is that caused by significantly better mix partially or maybe the absence of some costs that occurred in Q4 twenty sixteen? Any more guidance or at least an explanation there would be helpful. Thank you.
Thank you for the questions, Derik. When looking at the occupancy rate, that is the result of course of the quality of fundamental demand for storage and handling associated with the strategic drivers of our business model and that are supply and demand imbalances, structural shortages or structural deficits. And we see that we are well positioned with our network to leverage on those value drivers. That could explain, let's say, a playing field at least of 85% to 90% occupancy rate of the business model. In the current market circumstances with also capacity expansions, if you would like to go at a higher level, you might be dependent on more volatile markets with spot business, contango, backwardation, so you have to make a second judgment.
So to translate your question, we are absolutely of the opinion that our network is well positioned to continue leveraging on the fundamental drivers for occupancy, meaning that we indeed feel that we could operate at around 90%. Whether we are able to benefit from the more volatile aspects, find extremely difficult to assess. And we know that with some capacity expansions, with the contango being so marginal that it doesn't support any traders to make any, let's say, further business. We believe that you should translate this as a kind of floor we feel is existing in our business model for the remainder of 2017. And we have no indications that we could easily copy again in the year 2017, the same high occupancy levels as we have been experiencing in the year 2016.
And that was in fact the nature of our guidance we provided early twenty seventeen in February and in fact we reiterate that. Secondly, with respect to the EBITDA, yes, you're talking about very small differences. We had the discussion also with the closing of 2016. We, for instance, explained that in the year 2016, we started to increase our business development activity once we notified that once we experienced the projects, the likelihood for making positive investment decisions in the future was increasing, justifying the transition from certain projects from identification stage to the selection stage and from selection stage to definition stage. And we were explaining that that entails of course additional costs.
The question always, are those one off or recurring costs and you get differences between quarter and two quarter. So you should see this more as a mix of many small things, but also in timing differences that maybe in Q4, we had some more pre operating expenses with projects than we had in Q1. So you cannot derive any, I would say structural conclusions from those minor differences at this stage. I hope this helps you in your total overview.
Yeah, thank you.
That was helpful.
Next question is from David Kerstens, Jefferies International. Go ahead please.
Hi, good morning, Jack. Two questions, please. I think also a follow-up to Dick's last question. Your occupancy rate compared to the fourth quarter was down one percentage point, but you're explaining probably around €3,000,000 Your revenues were up €3,000,000 Is that all explained by foreign exchange effects? Or was there also a positive impact from your new Banyan cavern storage and maybe some polymer effects still included positively adding to your revenue development in Q1?
And then secondly, regarding your operating expenses, they basically remain before depreciation, they remain relatively high at €139,000,000 pretty much the same level as in the fourth quarter. Is that the run rate can expect going forward? Or did you have still some one off cost in there related to the Exmar due diligence? Thank you.
Yes. David, thank you for your questions. We are indeed now the all valid questions and they are all, let's say, in trying to explain couple of millions. Indeed, as you rightly said, FX isn't, of course, an element when you compare Q4 with Q1. We have tried to cover that in our our waterfall analysis.
Then the second one is in line with what Dick was asking with respect to timing differences of some of the pre operating expenses is absolutely a factor. Then you have on the revenue line, we also have improved some of the occupancy rates in certain regions. What you see is a decline of occupancy rates in The Netherlands, slightly in EMEA, but you see a higher occupancy rate, for instance, in The Americas and a higher contribution, more demand in Mexico and Brazil. So the whole story is it's a mixed bag of minor amounts, which at the end of the day might explain a variation of 3,000,000 to $5,000,000 So that is, let's say what you see. With respect to operating expenses, indeed FX has an impact of course dependent on if you compare Q1 to Q1 or Q4 to Q1.
And at the same time, one of the aspects why we are aiming for a 25,000,000 efficiency improvement, let's say in 2019 is that indeed operating expenses in a business model, which is quite labor intensive, will has tendency to maintain at the same levels if you have slightly efficiency improvements on a yearly basis or have even a tendency slightly increase when it's adjusted for inflation. So operating expenses, as you clearly identified is a critical area of attention and that's the reason why we have two programs. One is the $100,000,000 in IT investments to ensure that going forward we can efficiently improve our processes while leveraging on more operational automation. And secondly, what can we do in organizing our processes, our business model to ensure that going forward, the operating expenses and the margin development are developing positively. To manage expectations, and that's the reason why we gave quite a clear guidance for 2017, the EBITDA development will remain below 2016.
We expect the benefits from these programs more in the course of 2018 slightly, but in fact accumulating in 2019. In 2019, we have an accumulation of growth projects currently under construction, which contribute to the result development. We hope to benefit from step by step improvements on the efficiency and also we try to benefit supporting the efficiency improvements on the investments in IT. Thank you.
Next question is from Moeller, ING. Go ahead please.
Yeah, good morning. Kirai Moeller from ING. I have two questions, I think.
The first one is about China.
For the first time, you gave some details on China.
Can you
maybe elaborate on that, let me say,
the decline in EBITDA year on year, but the improvement quarter on quarter?
And the second question is, if I look at the numbers of last year, you were also giving some information with regard to cash flow. Are you willing to give some, let me say, the cash from operations again or is that from the past now?
No, with respect to what we noted is that EBITDA and cash flow are quite corresponding in our business model and then you get all kind of more financial cash flow items, which might have an impact on that number. So what we will do and we continue to do that is that on a half year basis and on a year basis, we provide comprehensive information about proportionate consolidation, proportionate cash flow return on gross assets, so as a result of which all the cash flow components are included in that. In the trading update, we try to focus on the most key numbers related to EBITDA, related to the net result, related to EPS. So it will be more focused on the half year report. Looking at China, indeed, we decided to include more segmental information on China, because we noted that in many discussion we had with many stakeholders being a part of Total Asia, that not everyone had maybe the right balance view on the magnitude of China in our total operation.
As you know, we have a landmark terminal in Caojing, an industrial terminal where we have long term contracts. We have a wholly owned terminal in Zhangjiagang, which is absolutely confronted with a decline in demand resulting from the implications of the slowdown of the economic growth in China, but maybe more importantly, also the expansions in those markets with tank capacity. And we felt from a transparency point of view, instead of continuously explaining how the China numbers have affected Asia to also present them separately. You are asking for the EBITDA developments over the years, what the implications are of the differences between those years. There are, let's say three factors, which are critical to take into account.
One is, of course the divestments, we had some divestments with small contributions, but still they had an impact either on the cost side or maybe a small contribution on the EBITDA side. The most important however is the decline in EBITDA contribution from the Zhangjia Gang terminal, which is a wholly owned terminal and has quite an impact of course on the EBITDA numbers reported by China, because the joint venture in Chongqing only the net result after interest and tax is reported. And the third one, of course, is the high tank terminal, the 30% acquisition for which we don't recognize any income at this stage because of the developments where the PX plant and the PA plant are still to be started up and that is not earlier than 2018. So those three elements have an impact on the EBITDA development when you compare quarter to quarter or year to year.
And Hainan was contributing positively to the joint venture income.
Yes, in the beginning when we started the operation, as you might recall, we didn't have any commercial contract. And so the uncertainty was, would there be quite a negative contribution of Hainan to the numbers of Asia because of the fact that we would have a very low occupancy rate, but we would have high depreciation charges, high operating charges. And what happened is because of the accelerated successful closure of many contracts that had limited impact negatively on the result development as of the start. And as you rightly said, I believe in 2016, but I don't know from the end, it had some positive impact on the reported numbers. Okay, thank you.
Next question is from Thijs Berkelder, ABN AMRO. Go ahead please.
Good morning, Jack. Question on Netherlands. Netherlands occupancies going down and flows looking at Port Of Rotterdam also quite sharply in decline. Can we expect, let's say, from second quarter and further? Is it logical to expect further declines?
And can you maybe indicate whether you, in addition maybe see a more competitive pressure from Antwerp?
If you compare markets, of course you always have to look at the product market segments. So Antwerp, a lot of chemicals, some oil, Rotterdam of course well positioned as a global hub location for the transshipment of fuel oil, crude storage, Rotterdam also a location, although you didn't refer to that of course for the LNG terminal and Amsterdam more for the gasoline and the diesel. So indeed, you look at the Ara location, in general, you should assume that if a customer has a certain need, which is not connected to transportation to the inter land, so distribution to Germany or distribute to other, then there is an opportunity to select one of these three locations. But these three locations have all specialized themselves in certain product market segments. So Amsterdam is much more gasoline and diesel than for instance Antwerp and Rotterdam.
Rotterdam is absolutely a big player in the fuel oil and Antwerp has become quite a significant player in chemicals. So dependent on the product market segments, you get different developments and you could say that taking into account the historic development of storage capacity since 2008 and that's what we have shared with you in several years is that we have seen continuous step by step expansions, although the economic growth in the region was not as spectacular that would justify continuously those expansions. Despite that, the capacity offered in the market is still substantially meeting all the demand drivers, but that means in line with your question that more likely than not, it will be difficult in short term to operate at, let's say 93%, 94% or 95% occupancy levels, it's more at lower levels and we report now around 91. And going forward, you should not expect that we can easily increase that specifically not in the reporting year. Does this mean for the guidance for the future?
That has to be seen because as we explained in previous year, there are also other product market segments where you have maybe pipeline connections where you can specialize yourself more, but it will not be easy to recover that percentage up to 93%, 94%. Is that critical? No, because from a strategic point of view, as we said, we try to run a portfolio where we generate healthy return on our capital employed while maintaining a positive and fundamental demand. And of course, it's wonderful if we can operate it at 94%, but more important for me is, is there a fundamental demand as a result of which we can continue to operate at healthy occupancy levels, which we have defined at around 90% and if it's lower between 8590%, are we then still making a return. So long story short, there will be absolutely some uncertainty in The Netherlands, because the spot business on which we have been able to leverage supporting us in the high occupancy rate in 2016, I have no drivers to believe that that will reoccur quickly, So that that uncertainty is known, that has been included in our overall outlook for the year 2017 already in February.
We have no indication that there will be major changes going forward.
Okay. Then thank you for that. On the pre operational expenditures, corporate costs, isn't it so that that is logical looking at technology investments that these costs will screen clearly higher in the coming quarters? Or is this €8,000,000 of corporate costs per quarter, let's say the run rate for this year?
No, it's a good observation and that's the reason why we gave two guidance when we presented our plans. If we look at, let's say, profits, the growth of the profit metrics, whether it's net result, whether it's EBITDA, we need more time to accomplish that. And that's the reason why we gave the 2017, 2019 guidance, where we have a combination of profit contributions coming from projects under construction, many of those covered by already contracts, so they will absolutely start contributing positively. Secondly, while looking at the efficiency improvements aiming for 25%. And if you look at the shorter term, indeed, you might have some higher pre operating expenses with respect to the intensified focus on new growth projects where the likelihood has increased that we might take positive investment decisions.
So that could be some pressure on the results in 2017. And at the same time indeed, if you look at the IT and OT, Operations Technology program, there might be some, let's say, cost associated with that as a result of which if you combine it all, we are very clear that the result of 2017 will be lower than 2016. So that factor has been taken into account when providing the guidance on 2017.
Okay. Then thank you for that. And then maybe final question, maybe I missed it in the conference call. The impact of Panama on The Americas in Q1, is the almost a full amount Panama effect or?
No, no, no, no. The Americas is a combination. What we have seen is one, stronger demand in Brazil quarter on quarter, more stable demand for instance in Mexico. We have seen that the disappointing developments in Canada have slowed down, so no additional negative effects. We have seen that our operations in Houston and Los Angeles are doing extremely well.
So the accumulation of those factors, including a small contribution of Panama, because Panama at this stage is nothing more than an operatorship for that part of the terminal. We have of course, we are still constructing our own terminal, but all those factors together have contributed to the positive developments in the Americas division. So it's not one factor.
So it's a real Trump effect, Okay.
That is your conclusion, because we have we don't see a connection between that effect and for instance the Brazilian operations.
Now clear. Thank you.
Okay. We have five minutes to go. So I have time for another five minutes of questions.
Next question is from Jaroslav Rumiantes, Credit Suisse. Go ahead, sir.
Hi, guys. It's actually Thomas Adolf. I've got a few slightly longer term questions. The first one on the new projects you're looking at right now. Perhaps you can comment on the split between chemicals, oil products and gas and perhaps also between brownfield and greenfields.
Obviously, the more brownfields you do, the slower the growth, but growth at lower costs. The second question I have is slightly longer term. But I always wondered, as far as Vopak is concerned, is your aim to be a growth stock, a value stock or yield stock? And on the call, you also talked very confidently about new projects that you're looking at to drive longer term growth. Now the question I have is, in your view of global GDP longer term, take into account the exposure to oil products, chemicals, vegetable oil and gas, how should I think about a target annual capacity growth rate longer term if there's such a thing at Vopak?
And if there's also an internal constraint once you reach a certain size, if there's such a thing in storage business? Thank you.
Okay. Quite some interesting questions for a trading update. So I will try to cover it quickly. New projects, if I understand your question well, you were asking about potential new projects and not the new projects currently under construction, because the projects under construction we have summarized in our overall presentation and there you see a mix of chemicals, you see a mix of oil products, which have been the focus areas. If you talk about the potential projects we are absolutely looking at, they are in line with the focus segments on which we are strategically focusing, hub locations, markets with structural deficits, industrial terminals and of course the gas markets.
If you look at the nature of the projects, they are in all four categories, but the timing might differ significantly. And in certain parts like industrial terminals, if we are looking at that, the likelihood that they will result in new investment decisions in the short term is extremely remote, because the time it needs to establish those projects, the time it needs to complete those, let's say, dialogues takes an enormous amount of time. So in the shorter term, one to three years, it's more likely than not that the nature of the projects is markets with structural deficits, like the announcement in South Africa, like the announcement in Brazil and that entails both oil and chemicals. Secondly, because of the LNG push in the world and the LPG distribution, the gas markets could be extremely interesting and dependent on locations, there might still be some oil expansion opportunities dependent on whether the markets are indeed in the structural deficits or whether there is a closure of refineries. So you should look at those and it's a combination of greenfield and brownfield.
So it's a mix of both projects not in one category or the other. The question whether this strategy, which is called capital disciplined value creation is let's say reconciled to the financial markets as a value stock, a growth stock or a yield stock, that is it's a very good question because at this stage, I don't think you can easily label this disciplined value creation to any of those components. That will take some more time to see what will be the best possible label for this story, because the capital disciplined execution means that we are not aiming for a certain level of growth. We try to identify the best possible projects with an excellent return, a risk return profile. And we have not, let's say, a dogmatic or predefined growth perspective.
So from that point of view, it's more a value story than maybe a growth story, but it includes growth to achieve that value. The yield, it's not that we are having a principal objective to maximize the yield, but we try to combine the value creation, maximize the cash flow generation and continuously increase the yield. So it's a combination of both. And at a sooner point in time, and that's the third question, what would be the point that dependent on global GDP developments, global imbalances that the world has sufficient infrastructure? I don't think you will easily achieve that point, because there is a continuous development of new specifications of products, of new combination of markets, whether it's gas products, whether it's biochemicals, whether it's a combination of chemicals, whether it's, let's say, new export flows out of The United States.
So there will not be easily in the short term, a point, a natural point where we have sufficient aligned infrastructure to accommodate the physical flows in the world on the most economic way. But indeed, the GDP reference point of view is maybe quite a good point, but you also have to take into account any additional flows resulting from what I would call imperfections. Imperfections resulting from the fact that maybe The U. S. Is producing much too much diesel, not needed in that region.
And the only efficient way to balance that out is by physical transportation to those regions where it is actively needed. So besides GDP, also the economic efficient transportation of products on a worldwide scale is a very important factor for future improvement of infrastructure. So a long story short, new projects, both oil and chemicals, but a lot of attention also to gas, both brownfields, both green fields, not a specific, let's say, objective to have a certain percentage of greenfields or a certain percentage of brownfields, because the main driver of our strategy is from a value creation point of view, identify excellent risk return projects in any of the segments. And that explains why it's so difficult to put one label at this moment on our value creation story from an equity market point of view.
Perfect. Thank you very much.
With that, I would like to ask the moderator because I'm on a tight schedule with respect to the start of our AGM meeting. I apologize for those people who have not been able to ask a question, but you are always able to contact our Investor Relations managers, Gil Rietveld and Daniel Akerberg to ensure that proper questions can be followed up. And with this, I would like to close the meeting. I appreciate your attention and ask the moderator to finalize the call.
Ladies and gentlemen, this concludes the Royal Volpek conference call. You may now disconnect your lines. Thank you. Have a nice
day.